HL Deb 13 November 1985 vol 468 cc289-379

4.12 p.m.

Debate resumed.

Lord Diamond

My Lords, I, too, hoped to be able to start my speech on the amendment which we, on these Benches, shall be supporting in a way which will be acceptable to most of your Lordships. I have already had the opportunity of congratulating the mover and the seconder of the loyal Address, and for a particularly good reason I should like to follow the noble Lord, Lord McCarthy, in saying how much we all look forward to the maiden speeches that we are about to hear. Perhaps I may remind your Lordships that I was recently making a speech in your Lordships' House which, as I am a very modest man, I thought was merely an average speech, and to my great pleasure, surprise and delight I found that the Benches were filling up. In due course it was standing room only and by the time I had reached the end of my speech, believe it or not, even standing room was fully taken. It was just a happy coincidence that my speech was followed by a major speech of the noble Earl, Lord Stockton. In view of the very important maiden speech which will follow mine on this occasion, too, I am hoping that I shall be able to retain quite a reasonable House.

I, too, want to concentrate on unemployment, not only because it is the content of the amendment, but because it is the one matter on which the Queen's Speech was completely silent. I want to be as constructive as possible, but I am bound to say that I am as unhappy as most people on this side of your Lordships' House must be about the situation.

First, I should like to make a few remarks on the number of unemployed. I do not entirely follow what the noble Lord, Lord McCarthy, said, though I recognise his great expertise in this matter. We know now that there are approximately 3.3 million unemployed claiming benefit. There are a further 870,000 unemployed not claiming benefit. Simply adding those two figures together makes the total unemployed figure come to over 4 million. Within that figure are contained over 1.25 million long-term unemployed—that is, people who have not had a job for 2, 3 or even more years, many of whom, not surprisingly, have given up hope of ever getting a job again and who, accordingly, to use the official definition, are not actively seeking work. They have to claim benefit, of course, in order to survive. In fact we know now that there were 940,000 such persons who claimed benefit but who did not actively seek work during the limited period of the latest labour force survey. They have satisfied the test as to availability for work but they are not working. Clearly, by any definition, they are not employed, and equally clearly they are correctly included in the regularly published figures of the unemployed.

We know that there is an element in the increase of the labour force, in those available to work, called the "activity rate". We know about the activity rate that, as employment gets easier and jobs become more readily available, the activity rate increases. Therefore we know that, were we not going through such a period of high unemployment, the activity rate would be much higher. If one wished, that would be a figure which could be taken into account to make the position even worse, as a parallel to the figure which the Govenment seek to deduct from the number by the subtle argument that some of those who are unemployed ought not to be taken into account because they are not actively seeking work.

There is a certain parallel between those two figures—and I say this with deference to the noble Lord, Lord McCarthy. I could understand that argument. What I cannot understand is the argument that any section of the 940,000 persons who have successfully claimed benefit and satisfied the test for it but who are not actively seeking work, mainly for the reason that I have described, should be taken off the total. I am a simple fellow. I just add together the two figures of those unemployed who are claiming benefit and those unemployed who are not claiming benefit, and the total is clearly over 4 million.

That is 2 disgraceful figure, but I am bound to add that it wouid be as disgraceful a figure if it were 3 or 4 million. The point is merely that we should get the right figure. I do not think that the Government add to their stature either by having taken so long before we were given the real figures—and I am grateful to the noble Lord that we have been given them at long last—or by the attempt to understate the true position, which is how I regard this activity.

Lord Young of Graffham

My Lords, if the noble Lord will permit me, there was no delay in giving the figures. I do not agree with the way in which the noble Lord has analysed them, but that is a matter for him rather than for me. However, there was certainly no delay on our part in the production of any figures.

Lord Diamond

My Lords, the noble Lord may think that there has been no delay since he took on this responsible office (something of which we are very glad), but every time previously we asked for these figures we were not able to get them. If the noble Lord will consult Hansard, he will see questions raised by me in these specific terms: what is the number of unemployed to be added to the figure of those claiming? We do not want only to know the claiming unemployed; we want to know the total, and we have never been able to get hold of the figure. I think that the noble Lord will find that that is correct.

Lord Young of Graffham

My Lords, I hope the noble Lord will forgive me but the figure was published in the Employment Gazette in June/July last year, as it was published in the Employment Gazette this year. It is always available from that time onwards. The labour force survey takes place in the early part of the year and it is published in the Employment Gazette. This year it has had rather more publicity than in the past but the figures have always been available.

Lord Diamond

My Lords, this year, for the first time, we have had what every responsible producer of statistics or series of figures does when the basis is broken for some reason or other. We understand full well that if you are publishing statistics covering a period and there is a break in the basis, then you cannot carry on producing the same figures in the future. But if you are a responsible producer of statistics and want to give the public the correct information, you do not leave it at that. You produce a series that goes backwards to show that the previous figures would be one of two sets, according to whichever formula you use; and therefore you have some reasonable method of altering the new figures on the new formula to what they should be if they were on the old formula. It is normally continued for a period of years. That has been published for the first time in the Gazette of July this year. If the noble Lord wishes to correct me, I shall of course withdraw immediately.

Lord Young of Graflham

Forgive me, my Lords. I do not want to take up much time on this matter. But a similar series was published last year. The conclusions last year were very similar to this year's figures but were not commented upon outside. But they were published in the Employment Gazette.

Lord Diamond

My Lords, I do not recollect the essential feature, namely, the comparative graph, prepared backwards so as to give everyone an opportunity of making a reasonable comparison in their own mind, having been made available before this July.

Lord Young of Graflham

Forgive me, my Lords. This will be my last interruption. We are comparing two different sets of figures. The labour force survey was published last year. This year, that is the one that deals with those looking for work, those available for work and the series, commented upon by the noble Lord, Lord McCarthy, which compares a long line of unemployment statistics looking at adjustments made by Government in the past that both increased and reduced the figure, and published this year, I believe, for the first time. There are two different sets of statistics.

Lord Diamond

My Lords, no doubt therefore we are both in the happy situation of being correct, and we can leave it at that. The noble Lord was referring to one set of figures. I was referring to the recent publication that enabled me for the first time to come to the firm conclusion—one that I have always been anxious not to come to on the basis of hearsay and without having something reliable to go on—that the figure of unemployed is over 4 million; though I repeat, the situation is just as bad whether the figure is 3 million or 4 million. The figure is intolerable in either event.

What has been happening latterly? In order to divert attention from the figure of unemployed, which after six-and-a-half years of the Government's exercise of unrestricted power is still increasing at the rate of 5,000 a month, we are continually invited now to look instead at the figure of new jobs created. Let me say straightaway that this is a very important figure, though it would be a good deal more important if we were talking about full-time jobs for men instead of part-time jobs for married women. The trouble, as the Government point out, is that the labour force itself is on the increase at present and that the number of new jobs cannot therefore keep pace with both the loss of existing jobs and the increase in the labour force. All that is true so far as it goes. But what is not true is that the present increase in the labour force is, as the Government imply but do not state, a unique and wholly unmitigated evil. Obviously the increase in the number of people available for work itself creates some more demand and therefore some more jobs.

Very much to the point, there have been several previous occasions when the labour market force has risen and yet the jobless have fallen. The last occasion was in the 1960s. Wild horses would not drag out of me the names of Treasury Ministers at that time, when in spite of an increase in the working population the number of unemployed was reduced to a figure averaging something like one-tenth of the present true figure.

So much for a comparison with the past in our own country. Now let me invite your Lordships to listen to a comparison with the present in other countries. Although the population of working age in Britain has been rising, the rise elsewhere in OECD countries has been faster. Indeed, since 1975—I cannot give figures other than those that are supplied, and those that are supplied go back to 1975—the rise has been slower here than in almost all of the 24 OECD countries. It is clear therefore that the growth in the British labour force does not account for our relatively high unemployment rate. I very much hope that the Government will stop blaming this newly found scapegoat for the continuing rise in the figures. Nor is it due to those with jobs in Britain working relatively longer hours to the detriment of numbers employed. As one would expect from the growing proportion of part-time jobs here, we experienced between 1975 and 1982 the biggest fall in hours worked of all OECD countries.

In short, it is clear that since this Government took office unemployment has risen to the unprecedented level of over 4 million. It is also clear that though we must have regard to the increase in the labour force, in past episodes and in other countries this has not been a major cause of high levels of unemployment. As all the evidence indicates, and in particular the two authoritative reports that I have previously quoted in detail, it is clear that about one-half of the rise in unemployment has been due to the policies followed by Her Majesty's Government.

So what should the gracious Speech have contained to show that the Government were determined to remedy the havoc it had caused? Since the gracious Speech, the Secretary of State, the noble Lord, Lord Young, has made a statement—he made it yesterday—indicating that the Government were trying to think in an imaginative way about how the number of long-term jobless could be reduced. It is fair therefore to take into account both the Queen's Speech and the statement. I wish, however, to ask the noble Lord a question about what he said, because I have anxieties about it.

The noble Lord was referring to the job start scheme, the pilot scheme, which,as I say, is welcome in one sense but which—I am bound to express the fear—may contravene EC practice and legislation just as much as the regional employment premium scheme. That was found, to say the least, inappropriate or perhaps illegal. Can the noble Lord, say whether the Government have considered this aspect and whether they are sure that the pilot scheme, if carried on into a permanent scheme, would not offend against our responsibilities to our fellow-Common Marketeers?

So what, then, should the Queen's Speech have included? I come back to the suggestion that has been made many times. There should have been a firm decision to stimulate economic growth and reduce unemployment substantially by funding the restoration of our dilapidated local authority housing stock and our crumbling infrastructure. A recent Government report—it came out only yesterday or today—puts the housing cost alone at £19 billion. That is their estimate of the cost of accumulated overdue maintenance. The AMA estimates that figure at nearly £25 billion, but we can accept the Government's £19 billion as being more than adequate for the argument. Whatever figure one adds for infrastructure, it is clear that the amount of essential and beneficial work crying out to be done is sufficient to cover whatever could be safely financed for many years ahead.

Against all those tens of billions, the £¼ billion added by the Chancellor to the amount that the local authorities will be allowed to spend—itself only a third of what the relevant Minister pressed for—is neither here nor there. It is merely an incidental by-product of the public expenditure haggle—I hope that the Leader of the House will not mind my referring to his activities in that way—and is not a serious contribution either to the country's needs or to help ease the unemployment problem.

I repeat that I know that there is nothing novel about the suggestion that we are making. Indeed, from these Benches we have been putting it forward year after year, and so too now is virtually every other organisation in the country. But no one can be as obstinate as a 100 per cent. committed, blinkered, monetarist. We know the Government's answer. It has been given so many times. Far better to continue existing policies (which even today are adding 5,000 a month to the scrap mountain of despairing unemployed humanity) than risk a resurgence of inflationary pressures such as might arise if the necessary funds had to be borrowed.

I have listened to the wild exaggeration so many times that I must deal with it in some detail. First, how much is involved? So far as these Benches are concerned the Government know that we have published a fully detailed and highly responsible interim set of proposals of a kind which build on existing policies, which are not out of line with Conservative philosophy and which could really be adopted by the present Government overnight. They are calculated to create over 1 million new jobs in the course of the next two years at a cost of under £3 billion. That is the figure we are talking about—£3 billion.

How is that to be funded? We all know that in a substantial measure it would be self-funding as a result of the additional revenue from increased economic activity and the saving of unemployment relief of all kinds. But let us assume the impossible worst—that the whole amount has to be borrowed and that the public sector borrowing requirement figure has to be increased by £l½ billion a year. Alas, we are told, one cannot do that without fuelling inflation. We reject that completely.

The first point that I want to draw to your Lordships' attention is that every year that figure is ceremoniously calculated by the Chancellor of the Exchequer at Budget time and every year it comes unstuck. Throughout their period of office the Government have seen it unceremoniously exceeded—indeed, overwhelmed—by a figure of between 25 and 30 per cent.; in concrete terms by a figure in excess of £2,000 million a year on average.

What happened every time the financial world learnt of that horrendous fact? Did the heavens fall apart? No, my Lords, nothing whatever happened. There was not even a ripple on the surface. The financial world took it in its stride year after year without so much as glancing over its shoulder to remind itself about how much the Chancellor had exceeded his target yet again.

Why was that so? It was certainly not because it does not matter how much one borrows; indeed, it does. Every pound borrowed adds to the burden of public sector debt. In essence it is because the lender, whose function and desire are to make good loans, knew every time that the United Kingdom was just as good a borrower at the larger actual figure as at the intended lower figure.

If I may put it in terms of everyday experience. we all know what happens when a would-be mortgagor goes to a building society and asks for a loan. He goes along with suitable security, and the first thing that the building society manager wants to know is how much he wants to borrow. He knows that there is a relationship between the borrower's income and the size of the mortgage which cannot be exceeded with safety. The same is the case in regard to a country, where the mortgage is the public sector debt and the income is called the gross domestic product. The ratio of public sector debt to GDP, far from being excessive here, has fallen to about one half of what it was 20 years ago and is still falling.

Indeed, the lender knows that there is a considerable safety margin. Even if this year the ratio were kept constant at its present extremely low level—that is to say, low in relation to the historical norm and in relation to the ratio adopted by most similar countries—there would be room to borrow an extra £4 billion this very year as compared with the original target of £7 billion. We do not contemplate the borrowing of such a large sum. We propose expenditure of a figure which at worst could result in the need to borrow an additional sum in each of the two years of less than the amount by which the Government habitually exceed their own target without the slightest ill effect in terms of inflationary pressure.

In short, our borrowing has become twice as cautious as it was 20 years ago. If we were to increase our level of borrowing from £7 billion to £11 billion it would still be within today's very high degree of caution. If we borrowed as little as £l½ billion extra each year for two years, which we propose, we should still be well within today's safety margin and, as we know from experience, the lenders would be more than happy. There would be no question of having to increase interest rates to counterbalance a feeling of insecurity and consequently no inflationary pressure. And yet such a modest increase could both benefit the economy and reduce the number of unemployed substantially. It is to that practical and human task and not to an academic and unworkable economic theory that we on these Benches are wholly committed.

4.38 p.m.

Lord Wolfson

My Lords, this is my maiden speech, and I am comforted in the knowledge that your Lordships have a tradition of tolerance on these occasions, for which I am grateful.

I have spent my working life in business, and am therefore very much concerned with the soundly based expansion of the economy. As trustee of a foundation which has been associated with a wide range of activities in education, medicine, science and the arts, I am equally concerned that we have adequate resources to enhance the scope of our intellectual and cultural life.

I should like first to refer to additional investment in the latter area. I believe that our future prosperity will require a more ambitious and financially co-ordinated programme of investment than exists at present in scientific, technological and medical research. The talent available to us in our universities and technical colleges needs to be backed by more funding in both pure and applied research, for, as your Lordships are aware, pure research often produces the ideas and techniques that are the basis for applied research and innovation. The economic and social benefits that can be derived from successful discoveries are beyond calculation.

May I offer as a practical example in the area of applied research the technological projects scheme initiated by the noble Lord, Lord Zuckerman, in 1968 and adopted by the trustees of the Wolfson Foundation. Through this scheme—a pioneer one of its kind—some 200 individual grants have so far been made to university departments throughout the United Kingdom to support research of potential benefit to British industry and commerce. As the published record shows, there has been a remarkably good rate of success and in many cases a significant return on investment to the units concerned.

I hope that this project has helped in a modest way to bring the business and university worlds closer together and, like others that have been launched or are in the process of formation, is increasing the awareness of academics to practical challenges that industry itself faces. For their mutual advantage, the universities and higher education establishments must maintain and strengthen their links with industry and commerce. British inventions should surely be manufactured and marketed by firms in Britain; all too frequently this has not been the case in the past.

Investment in the arts is also of primary importance. Recent private initiatives to extend gallery space—in which the noble Lord, Lord Sainsbury, and his family have been so prominent—set a splended example for others to emulate. Our magnificent cultural heritage owes a great deal to the foresight and good taste of private collectors over many centures. Before the Summer Recess the Government brought in a very welcome measure to facilitate the gift of art treasures to the nation. I hope that they will continue to seek further measures of this kind so as to enable important works of art to be retained in this country for the pleasure of the viewing public and for the many overseas visitors who visit our museums and galleries.

The resources required for securing the higher standard of living and the social improvements we all desire, have to come in large measure from a thriving manufacturing and business sector. This calls for well-balanced overall policies and for businessmen to be even more active in their efforts to expand the profitable demand for British goods and services, and in this way create new employment opportunities. In a highly competitive world, forceful selling, marketing and reliability are essential.

In recent years I have seen many notable improvements in productivity and performance, as well as a considerable degree of modernisation throughout industry. These augur well for the future. The consumer trades in which I have a particular interest have made remarkable progress in merchandising, quality control, marketing and design techniques, which compare favourably with many of the overseas countries of which I have experience. British goods are becoming more attractive and competitive. While we must face up to the difficulties, which are by no means confined to our own country, we should not underestimate the success that British business is achieving.

We know that prosperity is indivisible, and that current world economic and financial problems require continued determined and concerted co-operation if they are to be resolved. As a nation we can play a constructive role, for happily we are not burdened with the cost of expensive overseas debt. In fact, as your Lordships know, we have accumulated a record total of overseas investment. This is producing a substantial income which makes a significant contribution to our balance of payments, and should become increasingly valuable to us in the years ahead.

We are therefore in a good position to expand our economy in a financially responsible and sustainable manner, without reviving the dead sea fruits of inflation which left us with such a bitter legacy, not least in its effect on human relations. We must also avoid a return to stop-go policies which for over a quarter of century undermined confidence and future investment. Indeed, it was these policies that contributed to the contraction of important manufacturing industries and the import penetration which we are now seeking to reverse.

I experienced the way in which the consumer durable industries were undermined by frequent changes in consumer taxes and credit restrictions. Adam Smith's dictum that, consumption is the sole purpose of production was disregarded. All too often macroeconomic policy changes have resulted in microeconomic upheavals for the businessman, who above all requires reasonable continuity of policy. A social market economy has shown itself on the whole to be the most able to provide the goods and services that people want to buy at competitive prices.

While timing is all important in these matters, in order to strengthen market demand there is still a need to continue the policy of gradually reducing interest rates to bring them more into line with the majority of our European partners and competitors inside the EMS. The maintained stability of sterling, which has helped to contain the cost of imported materials, and the declining level of inflation, are clearly the governing factors to make this possible in due course. Lower interest rates of course would help to stimulate new housing and home improvements, giving a multiplier effect to employment in associated industries where there is now spare capacity available.

I hope that over a period the imaginative programme of urban development grants will be expanded and that further business participation will be sought for a variety of much needed improvements to our inner cities, which in so many cases urgently need better designed and better quality homes and amenities. I am delighted that there is going to be an increase in the current extensive programme of hospital building and modernisation.

Raising the level of employment is clearly a major economic priority. It demands the wholehearted and active co-operation of every section of society, for it cannot be achieved by Government alone.

I wish my noble friend Lord Young of Graffham every success in his very difficult assignment, for it is a crucial one. He has made the point that there are no easy answers, and of course there are not; but as yesterday's Statement indicated, he will be introducing and devising further imaginative and responsible proposals to enhance employment prospects, keeping in mind the serious regional imbalances that exist. The emphasis which the Secretary of State has placed on vocational training is of particular value in the future. It is a theme that requires to be developed vigorously in both the general education system and in the area of business apprenticeship schemes.

We have to maintain firm safeguards to protect the essential interests of the community and the environment, and at the same time ensure that administrative delays do not impede enterprise or hinder employment. The White Paper presented in July recognised the need to simplify the regulations governing the expansion of small businesses.

Equally welcome is the review now under way of the present inequitable business rating system and the high level of personal taxation on lower and middle incomes. To sustain expansion we need and are in the process of moving toward a fiscal infrastructure that is competitive in world terms and that stimulates both enterprise and employment. The proposed 35 per cent. basic rate of corporation tax has been set at an attractive level, provided inflation remains under control.

In the last two decades product innovations have been increasingly responsible for a growing measure of market expansion. Business plans must be flexible enough to match the rapid pace of technological change and customer preferences if we are to secure the full benefit of our overall resources whether human, material or financial.

The demand patterns of tomorrow will vary significantly from those of today. The consumer will increasingly shape and determine the choice. The genius of the inventive mind and the flair of the entrepreneur will create new opportunities in the future which at present cannot be fully foreseen. Britain is a highly talented and forward looking country in which to invest with confidence.

4.49 p.m.

Lord Simon of Glaisdale

My Lords, your Lordships are favoured today with a list of speakers of notable distinction: great economists; powerful and experienced employers and organisers of labour; and recent holders of Exchequer and Treasury posts of high and successful distinction. But above all your Lordships have just now been favoured with what your Lordships will agree was a most notable speech by one of those most experienced as a man of affairs in industry and philanthropy.

Your Lordships have been favoured with a maiden speech which was balanced, sagacious and based on wide experience ranging over the whole field that forms the subject of today's debate, delivered, I hope I may say, with notable clarity and felicity of expression. It is a great privilege to be able to express, on behalf of your Lordships, congratulations to the noble Lord on his notable maiden speech. It is certainly not a formula when I express the hope, which I know all your Lordships will share, that the noble Lord will soon and often again favour us with the fruits of his experience in these fields.

Upon such a galaxy I feel considerable trepidation in intruding. It is now over a quarter of a century since I was a Treasury Minister and things have obviously changed greatly, and not least the form of the national accounts. My only excuse is that, rather than make assertions or much less bandy statistics—which is inevitable in a debate of this sort, raising acute party issues—I intend to pose questions on a rather broader basis which I hope the noble Viscount will be able to answer even in the broadest terms.

Before getting on to the important (or perhaps all-important, today) subject of unemployment, I should like to deal with the rather tattered cliché expressed not for the first time, yesterday and which has had echoes today—namely, that what the Government are doing is selling the family silver in order to buy the groceries. When an economic cliché comes in at the door, statesmanship is apt to fly out of the window.

The concept really emodies two separate ideas; the first is the criticism that the Government are spending what an accountant would regard as capital on what an accountant would regard as revenue expenditure; the second is that we are overdrawing on capital. In other words, we are said to be drawing on capital faster, and to a greater extent, than we are creating new capital.

So far as the first proposition is concerned, using capital for revenue purposes is by no means new. In fact, it goes back to the institution—that great landmark in public finance—of the Consolidated Fund. But one need not go back so far. One can go back merely to the 1890s, when death duties were introduced. That is a tax on capital, as obviously, from its name, capital transfer tax is today.

Ever since Sir William Harcourt, every Chancellor of the Exchequer has used those capital receipts for revenue purposes, and quite rightly, because it is impossible—although in a debate earlier this year the noble Lord, Lord Diamond, showed some such inclination—that we should put the national accounts in a form that would be more congenial to a chartered accountant. We, on the contrary, put everything into the Consolidated Fund, and then in another place a Committee of Supply decides on the priorities to which that should be applied, and that is everyday finance.

Not only has every Chancellor of the Exchequer since Sir William Harcourt done that but every Treasury Minister has aided and abetted it. So, if there is anything in the charge at all about selling the family silver, it must be that we are drawing on capital and using it for revenue purposes faster than we are creating new capital. Now that simply does not stand up to examination.

That appears from this document (rather curiously called a White Paper, since it has a blue cover) the Government's Expenditure Plans 1984/85 to 1986/87. It comes out early in the year, and the latest figures that it gives—and I take the figures in cost terms, as I venture to agree with the noble Lord, Lord Diamond, that that is the proper way to take them—show that public sector capital expenditure for 1983–84 was nearly £20,000 million at the outturn. That is Table 1.13. If. one turns to Table 1.14, one sees the figure for sale of assets. That must, in the year in question, have been mainly council houses. That was just over £1,000 million—in other words, just about one-twentieth of the new capital created in the public sector. Therefore, one can perhaps leave what I have presumed to call a tired, tattered, economic cliché at that.

I now turn to a matter that was so notably introduced in the speeches of the noble Lord the Secretary of State and the noble Lord, Lord McCarthy. As I said, one tends to have statistics bandied across the House as if they were tennis balls. I am afraid that that is inevitable in our adversarial system of politics, which has served us so well for so long. But I want to ask the noble Viscount if he can give us a rather broader picture. First, obviously in the unemployment figures there is a notable demographic influence. Can the noble Viscount tell us how far the present figures are due to an increased birth rate at the relevant time; how the curve is working; how soon it will flatten out and how soon is will descend? The importance of that is that until we know that we do not know whether short-term or long-term solutions are called for.

I think I am right in saying that the right honourable gentleman the Leader of the Opposition in another place, was in favour, as we have heard today, of a vast injection of public money into the economy—something which I view with grave misgivings if we are not to run the danger of inflation again and take the primrose path to the International Monetary Fund.

In addition, the right honourable gentleman thought that the problem could not be cured without taking a massive sector out of employment altogether: in other words, his suggestion was to take out the over sixties. If that were necessary, it would be debatable, and I think probably sustainable, that it is better to have the elderly unemployed than the young. But all that does is to create a new class of unemployed. If the demographic curve is to make that unnecessary, then the vast mass of the population, who are puzzled by these statistics, would be able more easily to make a decision.

The second matter is even more difficult: how far is the present figure for unemployment due to permanent social and economic trends? I do not want to stray into the debate tomorrow, but obviously there has been a second industrial revolution in our own time. There is a social trend as well. Earlier I mentioned death duties. They have destroyed a whole mass of employers. For example, in 1901 nearly 2 million people were in domestic employment. In 1981, the latest figures, there were fewer than 100,000. I doubt whether that sort of social trend is reversible, although obviously the less one indulges in spoliation of those who could employ domestic servants the better it will be for unemployment in that area.

The third question is: how far are we pricing ourselves out of our markets? This takes up a theme that was ventilated at Question Time before your Lordships. Obviously we know that it is to some extent true in the domestic market, "who runs may read", and we all see the do-it-yourself shops and self-service stores where previously there was employment. That is almost certainly due to labour being priced out of a particular market. I do not know how far the noble Viscount will be able to help us with that, but even more important is the danger of pricing ourselves out of export markets. With respect I would ask him whether he can help about that. There was obviously some great overmanning during the 1960s and 1970s. Much of that has been shed. How far has it been shed into the present figures for unemployment?

Lastly, I ask the noble Viscount to deal with the so-called black economy. I know, because it is a black economy, that it is extraordinarily difficult to identify and measure its extent. But recently we have had an extraordinary diversity of figures. Sir Michael Edwardes measured the black economy as so extensive that the real figure of unemployment was 1½ million. In his important letter to The Times, the right reverend Prelate the Bishop of Liverpool (who for more than one reason I do not want to get at odds with) was inclined to discount virtually the whole of that. He did a dangerous thing, if I may say so, in labelling the black economy as the "informal" economy, because that diminishes its importance in the public view. A black market is a black market, not an informal market. A black economy is a black economy, all the blacker because it means that it is not meeting its fiscal dues and is throwing the burden upon those who work in the normal economy.

Those are the questions that I want to ask the noble Viscount, but I hope I may end, in view of the notable speech which I am following, by tendering once again your Lordships' congratulations.

5.8 p.m.

Lord Elliott of Morpeth

My Lords, I address your Lordships' House for the first time, very duly conscious of the honour of doing so. In taking part in the debate on the gracious Speech I feel an additional sense of privilege. I am reminded in doing so of one of my proudest memories in another place when, at the opening of a previous Session of Parliament, I had the great privilege of thanking Her Majesty through a motion of thanks. On that occasion also I knew for only the second time in another place the privilege of making a speech without interruption. I understand that I shall have a clear run again today. I hope sincerely that I shall adhere to the tradition of being non-controversial.

I welcome wholeheartedly the suggestions in the gracious Speech and the suggestions in the statements which followed that speech, that every effort will be made by Her Majesty's Government to lower the number of people in our country who are unemployed at this time.

I was born in the North-East of England. I have lived there all my life, and for a quarter of a century I had the privilege of being a parliamentary representative for the city of Newcastle-upon-Tyne. It is always surprising to people when I tell them that the major post-war problem of unemployment in my region began as I began my membership of Parliament. This of course is wholly coincidental, but it was not until the late 1950s that, in the area which possibly knew the longest inter-war dole queues of all, the storm clouds gathered again. The reason—and to some degree that reason remains—was the dependence for employment on heavy industry: coal, steel and shipbuilding. There was falling demand, over-full productive capacity, over-manning (which has already been mentioned many times today) and automation.

This brought the essential requirement of bringing new forms of production to an old industrial area and, with those new forms of production, all essential new skills. The magnitude of that problem at that time led to a governmental inquiry. We had the Hailsham Report, which still today is the blueprint for regional development in all areas of the country. That report set out the immediate requirements for a region such as mine which boasts, with absolute justification, of a proud industrial past. Some of those requirements have been met this time, and met to such a degree that I really believe that the region of my birth is on the verge of playing a major part in our industrial future. No one should underestimate (and I am sure no on does), the enormous task that this conversion has represented. It has been a great business, an enormous business, turning an old industrial region into a new one.

I should like to name two areas in which I believe we in the North-East now compare favourably with any other area in the United Kingdom. Communications from and within the region are excellent. Education in its broadest sense has known an enormous expansion. Here I can be truly politically non-controversial in paying tribute to Governments in the past 25 years, Conservative and Labour, for the part they played in effecting these enormous and beneficial changes. All Governments in the past 25 years have done their utmost to bring an old industrial region into a state of modern competitiveness. Their methods may have differed—indeed, they have and they still do—but their aim has been the same.

Thus in a region where particularly one was always told of the enormous disadvantage of the long haul for our manufactured goods to any other part of the country or to the Continent, in a region where travel within that region from east to west was so very difficult, today we have excellent communications to other parts of the country and, within the region, I believe the finest network of roads in the country. At least, if there is a better network of roads anywhere, I do not know where it is. In our region we are also extremely proud of our rapid transport system, the Tyneside Metro, which has now an international reputation and which was approved by my noble friend Lord Peyton during a period of his ministerial responsibility. Our airport in Newcastle is a modern and expanding one. Our ports have known essential development in recent years.

It is in the area of education that I believe we shall now begin to receive enormous dividends. We have fine universities—two of them. We have polytechnics in Newcastle, Sunderland and Teesside. There is a strong spirit of co-operation between those places. Newcastle Polytechnic alone has at this time 14,500 students, full-time and part-time, undergoing some form of training. When I began my political career, when those unemployment storm clouds gathered 25 years ago, Newcastle Polytechnic was not there are all. In recent years also, the college of art and technology was opened by the noble Lord, Lord Glenamara. That college also has 14,500 people undergoing at this very moment some form of training.

I do so agree with my noble friend when he said, in opening this debate today, that we had possibly missed out in the past by an overemphasis on the academic as against vocational training in our educational system. I think that at this time in the northern region we have largely overcome that. Just two weeks ago a new technology centre in Newcastle University was opened. That has the highly commendable aim of bringing technological aid to small business in the North-East of England. Newcastle was built on the technology of its time; it will only survive if it develops the technology of the present day.

Thus I pay tribute to what has been done in training for skill, which is one of the basic requirements for combating unemployment. We need new skills because we have much new business coming to us. Of course we welcome the enormous boost to the North-East of England which the arrival of the Nissan plant represents. We welcome equally those many new firms which have come to us, so many of them successful. Sadly, we often hear about the failures, but many of them have been successful and have brought new forms of production and employment to us. We are grateful to them.

There is English Estates, with its national headquarters in Team Valley, the oldest trading estate in the country. It is very appropriate that its headquarters should be there. It has played a very valuable role in the development areas in general, assisting in this complex task of industrial development. There is the town of Consett in the North-East of England. It is typical of a town which was a single industry town and which knew a crushing blow when its steel works were closed. The success of the new trading estate there, Consett No. 1, not only reflects the value of English Estates but to some degree expresses also the spirit and determination of the people of that northern town.

At this point I should like, if I may, to commend the Government most heartily for their suggestion that extra finance will be made available to those unemployed people who wish to set up their own businesses. There is also much evidence, in regions such as mine, of the success of enterprise zones. They were very controversial and also very much suspected, but there is substantial evidence to suggest that they are achieving more than their original aim of bringing new business into them. There is evidence at this moment suggesting that existing business in the zones is expanding, which may well not have been the case but for this original courageous concept.

There is no easy answer. I agree with my noble friend. There is no magic wand to wave in the face of unemployment. However, much has been achieved by legislation, much more by the control of inflation and much more can still be accomplished by an end to self-denigration in areas such as mine. Far too often bad news has been emphasised to the detriment of good, giving such a false impression in a region which so longs to contribute to our national well-being.

There is much good news. A few days ago, that most welcome of all visitors to Tyneside, Her Majesty the Queen Mother, opened a new coal processing plant right there on the Tyne. How welcome it will be! We still occasionally have news of industrial disputes on the Tyne and round about it. However, we have also our successes. Her Majesty's ship "Illustrious" was prepared on the Tyne at high speed to take part in the Falklands war. In June of this year, the Navy's latest, most modern fighting ship, "Ark Royal", sailed from the Tyne, where she was built four months ahead of schedule. We have many success stories.

I am sometimes asked: where are the industrial giants of the present day in the North of England, where are the latter-day Stephensons, Parsons and Armstrongs? Perhaps because new business is smaller than the great giant concerns of the past, names do not emerge so quickly, but we have entrepreneurs aplenty. I should seek, above all else, to dispel for ever the myth that there are two nations in this country, North and South. After all, in the past it was the North of England which created our national wealth and the North of England is now poised to play its fullest part in our industrial future.

If I may, I want to end on a personal note. In the Spring of 1983 in the other place I ended what I thought would most certainly be my last parliamentary speech with these words: It has been a great privilege to represent the city of Newcastle-upon-Tyne and the people of the North-East for the past 25 years". The enormous honour of becoming a Member of your Lordships' House gives me the opportunity of doing my very best to be of some further service.

5.20 p.m.

Lord Jacques

My Lords, first, I should like to congratulate the noble Lord, Lord Wolfson, and the noble Lord, Lord Elliott of Morpeth, on their maiden speeches. I congratulate them both on the content and the delivery. As one who spent a lifetime in retailing, I particularly welcome Lord Wolfson and, as one who was born near Morpeth, I particularly welcome Lord Elliott of Morpeth. I would also anticipate the maiden speech of Lord Kimball, wish him the best of luck and assure him that this House is extremely tolerant, especially its Leader.

I am one of those who believes that the greatest need of our nation is full employment. Ever since my period as a young man in the 'Thirties when I had neighbours, friends and relatives out of work, I have been of the opinion that the demoralisation which accompanies unemployment is completely unacceptable in the kind of society which we desire. It is not civilised. Furthermore, I believe that observation shows that over the post-war period there is really no excuse for the waste which comes with unemployment. In the first 25 years after the war we experienced the greatest increase in our standard of living that we have had in the whole of our history. We also had the development of the welfare state. We were able to afford it because we were using all our resources. We would not have had that increase in the standard of living nor would we have had the welfare state if we had not had the full employment which we had for those first 25 years after the last war.

If we are going to maintain our welfare state we have to bear in mind that it has existed only under two conditions: under full employment and under great subsidy from North Sea oil. If we have not got back to full employment before the North Sea oil runs out, then we are going to have great difficulty in maintaining the welfare state; because in full employment people pay taxes, they do not draw benefits. That is the difference.

I accept that in the long view if we are going to have full employment we have to be competitive. If we are not competitive, we shall not get full employment. There are two countries which have been particularly successful in the post-war period and which have performed better than we have on the open market. They are West Germany and Japan. I want therefore to make comparisons between Great Britain and those two countries—and I warn the Front Bench opposite, which appears almost to have disappeared, that that comparison will not show that what we need is lower wages; it will show that what we need is better management, more technical training, more flexibility in the use of labour and, above all, co-operation rather than confrontation in our industrial relations. Those four things form a key.

Let me start with West Germany. Here I base what I have to say on a report in the National Institute's Economic Review in February 1985, when a team of researchers reported on what they had found in making a comparison between Great Britain and West Germany. Their comparison was in the metal industry. They chose firms of approximately the same size, small and medium, and firms which were making roughly the same things; so that their comparison was fair and reasonable. First of all, they found that the productivity in West Germany was 63 per cent. higher than it was in Great Britain. They also found that this was mainly—not wholly, but mainly—due to the lack of technical training in Great Britain as compared with Germany.

For example, they visited 16 firms in West Germany and 16 firms in Great Britain. In West Germany, they found that every one of the works foremen in the 16 firms had an academic qualification; that 13 of the 16 had the master craftsman's certificate and that the remaining three had the craftsman's certificate and were working for the master's certificate. That was the position in West Germany. In Great Britain, they found that two of the 16 had served an apprenticeship and that the other 14 had no qualifications whatever except for their workshop experience. That example gives us a measure of the great difference between the technical training in West Germany and the technical training in Great Britain.

In West Germany, the differential of trained workers, or skilled workers, is greater than it is here. In our country, especially quite recently, we have had a great deal of advocacy of the idea that the differential between the skilled and unskilled worker should be reduced. I believe that that is mistaken. I believe that we need to have a trained workforce; I believe that we have to have an incentive to encourage them to train and I believe that if we have a trained workforce we shall have a higher standard of living and that that will be enjoyed by the unskilled as well as by the skilled. I believe that that is what Germany has found and what we should find if we improved and did not depreciate the differential of skilled workers.

Furthermore, the research team found that the machines which were used in West Germany were of very much the same age as ours and that they were very much the same machines. But they found that the West Germans were much more ingenious in their use of machines. For example, they usually had an automatic feed to the machine; whereas in Britain the machine was fed by hand. That, I think, was largely because the technical skill was available in the factories of West Germany and was not available in the British factories.

The researchers also found—and this was distressing and very important—that there were far more breakdowns in the machines, and breakdowns for longer periods, in Britain as compared with West Germany. In investigating this, they found that the frequency of breakdowns was due to training. In the case of West Germany the machine operator was trained not merely to operate the machine but to clean it, to lubricate and to look for parts that were wearing and repair them. Consequently, the machines broke down far less frequently than in this country. Furthermore, they found that our factories had a maintenance staff readily available which was less competent than the maintenance staff readily available in the West German factories. Consequently, because ours were less available there was delay while the maintenance people were brought in from elsewhere, particularly from the machine manufacturers. They also found that there was much better quality control of the raw materials, which of course is exceptionally important.

In addition to their findings, I would add two other points. First, I would say that the German manufacturers have not been handicapped as much as our manufacturers have been due to an unnecessarily high rate of exchange. We have been handicapped for years by a rate of exchange which does not reflect the prices in this country, compared with the prices in other countries with which we were competing. West Germany has not had that handicap. Furthermore, West Germany has looked after its infrastructure far better than we have done during the past few years. During those years the expenditure on construction in West Germany, as a percentage of national income, has been twice that of this country. We have neglected our infrastructure, and consequently we are making things even more difficult for ourselves in the future.

Having made a comparison with West Germany, may I now make a comparison with Japan? For that, I do not need to go to Japan, because the Japanese are established in South Wales and in Plymouth, and shortly they will be established in the North-East. They are giving us a demonstration of what is wrong with our industrial relations. First of all. the management in the Japanese factories regard their workforce not as servants but as partners. They deliberately avoid making threats or laying blame, because they want not confrontation but co-operation; and they seek the co-operation of the trade unions in electing committees in the works, which can be used for consultation purposes and for informing them. That is something we have in some of our factories, but it is not at all popular.

The Japanese do not ask for lower pay and poor conditions. The wages they are paying in the factories they have established here are above the average in British industry. Furthermore, they have more than achieved the level of employment which they promised. In the case of Plymouth, I understand they promised to employ 300. They now employ more than 1,000, so that even though their wages are a little higher, they still need a larger workforce. But what they do demand is punctuality, regular attendance, flexibility of labour and arbitration rather than strikes. In particular, they prefer "pendulum arbitration''; that is to say, the arbitrator does not compromise but makes an award to one side or the other. That brings great discipline to the negotiations on both sides, because if either side comes with an outlandish attitude it is certain that the arbitrator will be against it; so there is great discipline in the negotiations which precede an arbitration.

There are many things in the Japanese industrial relations that we must copy. We may not need to copy the lot, but we must copy a great deal because there, I believe, lies the most important factor in getting back to full employment. Indeed I would say that the greatest sin of our present Government is that, by example, they have encouraged confrontation and division of our people at a time when we needed not confrontation but co-operation.

5.35 p.m.

Lord Kimball

My Lords, I hope I am not overtaxing your indulgence by asking for it for a third time this afternoon, but I do find myself in a somewhat curious situation, as indeed did my distinguished predecessor from another place—the late Lord Crook-shank—when he addressed this House for the first time in this debate some 30 years ago today. He said then that he found himself doing something novel and yet something familiar: something novel to be addressing your Lordships' House and something familiar to be making a speech in reply to the loyal Address. I find myself in a similar situation but, for once, without the spur of having to get the winter constituency speech done before the distractions of the rest of the winter in the English countryside take over.

My only excuse for trespassing on your Lordships' time today is the mention in the gracious Speech of the new regulatory framework for the financial services section. My noble friend Lord Young of Graffham, in introducing this debate, made great play of the removal of restrictions. I hope that when the Bill comes before your Lordships' house we are not going to see any further restrictions places on the expanding side of our economy.

I am a firm believer in self-regulation. I was privileged as the Privy Council representative of the Royal College of Veterinary Surgeons, and a member of their disciplinary committee, to see self-regulation at work in the best regulated, the most successful and one of the most profitable of the professions in this country. I stress the word "profitable" because, for self-regulation to work, it has to be worth one's while to be on the inside of the regulations.

For the last two years I have found myself drafted on to the Lloyd's Council, working hard to establish a modern system of regulation under the 1982 statute which Parliament gave to the Society of Lloyd's, to give a measure of protection which members of Lloyd's have a right to seek in the very high-risk business in which they are engaged. The essence of the régime which Parliament gave to Lloyd's was self-regulation, and self-regulation is a particularly British institution. Parliament delegated to the Council of Lloyd's the power to make the rules and regulations under which to run the society, and I hope that during the course of the year this House will resist any attempt to dilute or change the powers which Parliament has given.

Dealing with the broader field of self-regulation and its application right across the board to all the financial institutions in this country, I would just delay your Lordships for a few more minutes to stress the six points which I believe make self-regulation the right way to govern financial institutions in this country. The only way self-regulation will work is if it is applied to a close circle of members—a well-defined group of people, and a group of people for whom it is a financial advantage to be on the inside of those regulations and a disadvantage to be on the outside.

A statutory framework is necessary, with a last resort to the courts if people kick over the traces, and an acceptance within the community which is being regulated of those rules—a recognition of the benefit which those rules bring. Self-regulation must always be founded on a dual process: consultations between the regulators and the regulated. But that does not mean that consensus is necessary, because it is not. Voluntary participation in the rule-making is essential but, most important of all, the public interest must be recognised. If self-regulation has all the advantages which Parliament gives it-the advantage of regulation at law—then public interest is the most important thing for Parliament to protect. Therefore, during the course of the coming year, as foreshadowed in the gracious Speech, the decision that I feel this House will have to make is a political one. It will have to make a very clear decision on the advantages of self-regulation as against the statutory form of regulation.

Self-regulation, I believe, is more efficient. The rules are made by those to whom they apply. It is quicker and flexible. I certainly have a horror, and I hope that most Members on this side of your Lordships' House have the same horror, of bureaucracy and Government regulation. They do not have a great record of running anything and I should hate to see the City of London shackled with a sort of "Yes, Minister" bureaucracy in the one area of our economy which is really expanding.

The great snag of a statutory form of regulation, as all parliamentarians know, is that you can change the rules only by coming back to Parliament and there is never time to come back to Parliament to get the rules changed. Self-regulation by a self-regulatory body is swift, which parliamentary regulation is not. I hope, in this great desire which I see for self-regulation within the financial institutions in the City, that our enthusiasm for the moment will not overrun, so that we make regulations which make it impossible to carry on business profitably and correctly in the future. I hope that we will see these regulations coming forward and I trust that this House will resist any attempt to stiffen them at the expense of employment in the one expanding area of our economy.

5.41 p.m.

Lord Taylor of Gryfe

My Lords, we have been fortunate today to hear three distinguished maiden speeches. I must confess, in my congratulations to the noble Lord, Lord Kimball, that I suspected he would dwell on matters of the countryside rather than on matters of the City. I hope he will be tempted to leave the cloisters of Lloyd's or the wide open spaces of Leicestershire to come down occasionally and give us the benefit of his wisdom in both fields. In the case of the noble Lord, Lord Elliott—again, an old hand in a parliamentary sense—how much we welcomed his references to the danger of two nations in our society!

Finally, I turn to the noble Lord, Lord Wolfson. He is a very old personal friend of mine and I am glad that he has found time from his many business commitments, as well as from the vast amount of work that he does in dispensing to worthy causes the largesse of the Wolfson Foundation, to attend your Lordships' House. I hope that, with his experience of business and his experience in the Wolfson Foundation, he will be able to come and speak from time to time. His maiden speech today was the product of a keen analytical business mind and revealed the concern of the head of a very large and important foundation. I say to the noble Lord, Lord Wolfson, simply: "Your father would be proud of you today."

I want to say a word or two about one of the key items in the gracious Speech. I refer to the programme of privatisation which is now, in the words of the Chancellor, getting into top gear. I want to talk about privatisation in general and say a word or two about British Gas in particular. I regret to say that within 24 hours of the announcement in the gracious Speech that British Gas was to be nationalised, there was an announcement—an inevitable response—from Roy Hattersley that one of the first priorities of a Labour Government, if it were elected in two and a half years' time, would be to nationalise British Gas.

I ask noble Lords: is this any way to run a country? Here we have a very important basic industry which the politicians have decided is to be a political shuttlecock. This cannot provide any stability or investment in that industry. Neither can it provide any security to the management of the industry, or to workers in that industry, who are the people who make it profitable and successful.

Unfortunately, there is an obsession with dogma in British politics. Indeed, the reason we sit on these Benches is that we want to get away from dogma on the question of nationalisation and privatisation. There is an assumption on the other side—it is more pronounced in the other place than here—that state ownership in its very nature is bad and inefficient, and, on the other hand, that private ownership is good and efficient.

Some noble Lords in this House—and I see the noble Viscount, Lord Caldecote, sitting opposite me—have had experience on the boards of nationalised industries. We tried in those industries to operate against performance targets, and, in many cases, nationalised industries are efficient. There are good nationalised industries and good private enterprise businesses. On the other hand, Rolls-Royce and Dunlop are examples of industries that have suffered and failed as private enterprise companies. So there should be no acceptance of this foolish and facile generalisation about state industries and private industries.

Unfortunately, we have had experience in the recent bid for the United States military electronics communications system—which has caused a good deal of embarrassment to the Government Benches—of a French state enterprise producing a more acceptable bid than a British privately-owned business. This gives me no joy. I quote it simply to illustrate that nationalised idustries are not inevitably less efficient than private industries. We in the Alliance are totally undogmatic about these matters and feel that each case should be examined on its merits.

I want to say, too, that this idea that we should sell capital assets to distribute the proceeds in tax concessions is a practice which no businessman in this House would ever apply in business. I am delighted that the noble Lord, Lord Wolfson, is here. I wonder what the many shareholders of GUS might say if they started selling off capital assets to distribute in dividends. I am quite sure that the institutional shareholders, the key analysts of these matters, would have something to say if that were so. Why should we apply these correct standards in the management and financing of private industry and then do something completely opposite when we are dealing with state assets and state industry?

I want to say a word about British Gas, because that is not an inefficient industry. Last year, it made an operational profit of £930 million. It finances its own enormous capital investment programme out of its own profits; it pays corporation tax; it contributes handsomely to the Treasury; and in the last five years the Government have creamed off from British Gas a further £2 billion through a profits surtax known as the gas levy. Once you take that out of the state sector, the steady flow to the Treasury will cease, except in so far as British Gas will be taxed as a plc in the normal way of a company. This is a sizeable and important asset, and the profits will cease to flow from that asset to the Treasury when it becomes privately owned. Theirs is not a bad record; and I do not think that the Government have the right to proceed with these massive exercises in privatisation when we arc still digesting the full implications of the privatisation of British Telecom.

We have not created the statutory regulatory framework for governing a private monopoly, and that is evidenced in the recent conflicts between Oftel and British Telecom. We had questions in the House today about the fact that domestic users of telephones are being charged 20 per cent. more in order to help finance a discount of 2½ per cent. to the long-distance users of telephones—an obvious abuse of monopoly power.

There are many other evidences of this abuse in the new private monopolies that we are creating. On a future occasion we shall have the opportunity to debate the disastrous purchasing policy of British Telecom in relation to British industry. Science-based industry in this country is being by-passed by British Telecom. Orders are being placed elsewhere, and research and development in this important electronics industry will be conducted in Sweden when we have a tremendous resource in our own country. No one from the great electronics industry will be able to sell his product abroad if he cannot sell it to the British Telecom consumer in this country. This is a very serious matter. The creation of private monopolies devoted to the earning of profits for their own investors can have serious consequences for domestic manufacturers.

I compare this relationship, this rather soured relationship, between British Telecom and companies such as GEC and Plessey, which are important to us, with the behaviour now of the CEGB, a state concern. The CEGB sit down with British suppliers. They sit down with Babcock, GEC and NEI, and they tell them and discuss with them their future investment programme so that these suppliers can anticipate and invest in anticipation of orders. That relationship no longer exists with British Telecom, and it can be very serious for the manufacturing industry of the United Kingdom. So let us think twice before we create another private monopoly in the case of gas, which might be subject to the same abuse of power.

One point in relation to the justification for this programme is that it distributes wider share ownership. It is very interesting to study the movement of shares in these companies since privatisation. It is too early to assess the movement of British Telecom shares because there is an in-built incentive to hold on to the shares for a limited period, but let us take the case of Cable and Wireless. At the flotation the number of people owning 500 shares—the small chap who was going to hold shares in this great share-owning democracy—was 129,421. Today there are 22,178. The stags have sold their shares and have gone off, or the people have realised.

So the dream of the wider share ownership is not working. What is happening is that privatisation has resulted in the substantial institutional shareholding. I think that ought to be faced.

I should like to make one point in respect of the cost of the programme. In the case of British Telecom the fee to float the company was £90 million. Advertising and other costs added another £100 million. British Telecom was a substantial flotation of £1.2 billion. In the case of British Gas, the flotation will certainly be three tranches of £2,000 million each. One can appreciate the expense of selling the shares, of advertising in the Japanese market, of winning the American investors, of all the underwriting and of the other fees that are involved. This will not be an inexpensive exercise, and at the end of the day it will add nothing to the total prosperity of the United Kingdom, or create more jobs.

I wish to say a final word about general economic strategy. I was delighted yesterday to listen to the very interesting speech of the noble Lord, Lord Mellish. I am sorry that it was not delivered in this debate, because it had some relevance to this debate. The noble Lord told us a little about the London Docklands Development Corporation. I could speak at some length, and may do so on a future occasion, about a similar experience with the Scottish Development Agency in terms of creating new jobs, not by state ownership but by sensible state intervention here and there as a creative and catalytic force in stimulating economic development.

There is no reason why that non-doctrinaire sensible approach cannot be applied in solving some of our national problems. I commend it to your Lordships to tackle these problems on a consensus basis. As the noble Lord, Lord Jacques, said, let us get away from the confrontation; let us be concerned about the national welfare, and let us try to plan sensibly and pragmatically to achieve economic progress.

5.56 p.m.

Lord Harris of High Cross

My Lords, I should like to add my congratulations to the three maiden speakers. I shall hope to match their brevity though I would find it impossible to match their charm and practised eloquence.

I wish time allowed to comment extensively on the speech of the noble Lord, Lord Jacques, who I thought excelled himself today in making a thoughtful and highly constructive speech on which we could all devote a great deal of attention and further discussion. But I must get on with the gracious Speech, which I must admit I found something of a cliff-hanger when it was being read by Her Majesty. It was only at the last gasp that we were informed that the Government were, after all, pursuing their policy on the repeal of restrictions on shop opening. I want from the Cross-Benches to congratulate the Government on their resolution in this matter.

We already have the unholy clamour audible from a strange alliance of "ye old Church of England", a minority trade union, and other dwindling forces of reaction. I am delighted there is a prospect that this Bill will be introduced in this House so that noble Lords can demonstrate that they are more responsive both to public opinion and to changing economic requirements than the spokesmen for sectional interests.

The Earl of Longford

My Lords, perhaps I may interrupt the noble Lord. Would the noble Lord say that all the forces of Christianity are just one big sectional interest? Does the noble Lord speak as an atheist, or in what capacity?

Lord Harris of High Cross

My Lords, we will no doubt come to this matter when we debate the issue. I was shocked in my local church to have to wait for the sermon while two dear ladies, briefed by USDAW I should imagine, delivered themselves of miscellaneous thoughts on the evils of Sunday opening. I found that deeply disturbing, and I did not enjoy the sermon when it came.

I want to devote my remarks mainly to a welcome for the Government's renewed commitment to what they call, a framework of firm monetary and fiscal policies designed to secure a continuing reduction in inflation". Uncomprehending critics have had a great deal of innocent fun mocking the monetary policy which they sometimes describe as "mumbo-jumbo". I have noticed that as the criticisms multiply they become ever more contradictory: Some blame unemployment on monetary contraction. Others say the trouble is that money supply has got out of hand and has increased too fast. Some say that money supply cannot be measured and that it does not matter anyway, yet they go on to blame the Chancellor for quietly dropping it. Others again even combine all three criticisms as though the Chancellor is guilty of doing too much, of doing too little and of doing nothing, all at the same time.

As Samuel Brittan never tires of instructing us, the simple truth on which the Government's policy rests is nothing more arcane that the argument that, and I quote Mr. Brittan. prolonged and sustained increases in the quantity of money will boost demand and spending in an inflationary way". Even Mr. Hattersley has applied his mind to these matters. After much huffing and puffing against particular Government measures he went on to say: No one doubts the need for targets". The admitted practical difficulty we face is how to match the German performance by finding some definition of money supply that provides a stable measure of total spending.

It is no new discovery of—shall I say?—"Professor" Peter Walker that the velocity of the circulation of money may vary with changes in business confidence and inflationary expectations, although such changes have generally been such that some allowance for them can be made. However, recent experience suggest that the chosen measure of sterling M3 has consistently exaggerated future spending. It appears that this false reading is partly because of changes in competitive banking and partly because sterling M3 includes a large amount of deposits, which are held longer before being spent when interest rates are high. That explains the Chancellor's recent announcement

that sterling M3 will cease to be the annointed aggregate and that he will also monitor other indicators of monetary tightness, including the exchange rate.

I must admit to some reservations about that abrupt change, but I concede that responsible observers have given the Chancellor the benefit of the doubt that a shift in tactics does not mean a departure from the continuing strategy against inflation. One reason for that lenient verdict, I suspect, is that Her Majesty's Government, and the Chancellor in particular, have amply demonstrated their commitment to ending the damaging excesses of previous Labour and Tory governments.

Another ground for hope was recently provided by a respected political commentator by the name of Hugo Young, who may be known to some of your Lordships. For those carefree souls who do not feel obliged to read the Guardian every day I will reveal that on 16th July Mr. Young wrote a remarkable article entitled, "We are all Thatcherites now". I only wish that more of your Lordships would own up. As a modest example of hat well-hidden truth, I will direct the attention of the noble Lord, Lord McCarthy, to the Charter for Jobs, whose council includes three former prime ministers and 100 other assorted malcontents, including the noble Lord himself. It is true that in the council's first manifesto, entitled We can cut unemployment, they called for an unspecified increase in spending on the dear old infrastructure, and all that. But read on.

In the small print, the manifesto's authors were at pains to emphasise that, A budget deficit need never imply a growth in the money supply". They went on, in the accent of Milton Friedman, to emphasise that money can be borrowed outside the banking sector or attracted from abroad, if—and I quote their words, if interest rates are kept high enough". They then turned their minds to the question of whether a higher deficit must necessarily weaken the sterling exchange rate. Their answer was as follows: A purely British fiscal reflation can work without a major fall in the exchange rate if it is accompanied by a properly cautious monetary policy". That charter, when one reads it, has more than a whiff of mumbo-jumbo monetarism. It is surprising that the council includes many ornaments of the Labour Benches here present and the manifesto from which I have been quoting carries the health warning that: This document has the broad agreement of all members of the council". After the primary proposal of the budget deficit, Charter for Jobs offers a second remedy for reducing unemployment: A cut in employers' national insurance contributions to reduce the cost of labour". Here is another cat let out of the bag. Here we have another sly nod at the Thatcherite thesis, which is that a major cause of unemployment is excessive labour costs per unit of output.

One answer to the Opposition amendment is that so long as incomes continue to rise faster than output, there is little hope under any party of a significant and sustained fall in that part of the unemployment total which is truly involuntary. Indeed, that is the logic behind Labour's secret hankering after an incomes policy, as it is the logic behind the Government's proposed reform of wages councils.

Such analysis reinforces, in my view, the case for reducing taxes on low incomes, which would not only increase the incentive for unemployed people to take paid work rather than social benefits. Lower income tax would also make it easier for employers to resist giving away unearned increases in gross pay, for the simple reason that employees would be left with higher net take-home pay from their existing earnings if taxes were less high.

In conculsion, we hear from the trade unions never-ending lectures about the need for someone else to do something about reducing unemployment. But supposing that the trade unions wanted above all else to demonstrate their practical concern for more jobs. They could give a lead in negotiating differential wage agreements whereby employers could take on new workers at wages lower than those paid to established employees but still well above value of social benefits. I have no doubt that such a development would help keep costs down and so keep employment moving upwards—well within the Government's monetary strategy.

6.8 p.m.

Lord Williams of Elvel

My Lords, I must first echo the previous comments of noble Lords about the distinction of the maiden speeches which the House has heard this afternoon. I am sure that all three noble Lords concerned will in the future make a very great contribution to the debates in your Lordships' House.

I should like to echo also the sentiments of my noble friend Lord McCarthy when he said that he missed very much the presence of the noble Earl, Lord Gowrie. I too miss his presence. That is not because I have any disrespect for either the noble Lord, Lord Young, or the noble Viscount, but because when we last debated economic affairs, on the Second Reading of the Finance Bill in your Lordships' House, I had a slight passage of arms with the noble Earl, Lord Gowrie, over what exactly was the Government's financial policy. I was glad that I was supported by the noble Lord, Lord Bruce-Gardyne, from the Benches opposite in my contention that there had been a subtle shift in Government financial policy from purely setting a sound monetary framework in the direction of exchange rate targeting.

At that time the noble Earl, Lord Gowrie, told me that I was wrong and that the Government's policy remained as it had been in the Budget red book for 1980, that: Control of the money supply will over a period of years reduce the rate of inflation". He said that there had been no change in Government policy except—and he let the cat slightly out of the bag at this point—that the response was flexible. I think your Lordships would have benefited on that occasion from the presence of the noble Lord, Lord Harris of High Cross, who could perhaps have more nearly informed us exactly what the Government were getting at in referring to a flexible response.

I believe that in his Mansion House speech the Chancellor has substantially confirmed the views that the noble Lord, Lord Bruce-Gardyne, and I were offering at that time. I believe that the Government have made a substantial shift in their financial policy over the past few months. In particular, the admission that sterling M3 is no longer to be a monetary variable at the centre of Government financial policy, and that over-funding has now ceased, seem to me to indicate that the Government have moved away from this idea that the money supply is all-important in predicting and, therefore, controlling the rate of inflation in the future. I welcome this development because I believe that it will contribute to greater rationality in economic thinking in the future.

The exchange rate to which the Chancellor pointed us in his Mansion House speech, together with MO, has its dangers when it is used purely as a counter-inflationary measure. M3 was never a very satisfactory predictor of inflation. The exchange rate is an equally unsatisfactory predictor of inflation. M3 was unsatisfactory, as I think the noble Lord, Lord Harris of High Cross, pointed out, because it was difficult to calculate. It changed its composition over time and, in the event, in three out of the five years since 1980 there was a substantial over-shoot of the target in M3.

The exchange rate suffers the same problem. It can be extremely volatile. It is subject to external forces. It is subject to oil prices and to international interest rates, and it is subject to a number of exogenous factors which the Government have great difficulty in controlling. The one central point about keeping an exchange rate where one wants it to be is that one has to keep the differential interest rates between competitor currencies wide enough to ensure that your currency is going to be the most attractive one under the circumstances. It is that, above all, which I believe has led to sustained high interest rates in this country. It is sustained high interest rates in this country that I believe have brought about the reduction in demand and the reduction in capacity which have given rise to the unemployment which your Lordships are discussing this afternoon.

In passing, I should note that the Government's record on inflation—about which they are quite proud—is perhaps not as good as it might be. I hope the noble Lord, Lord Young, will forgive me if I quote some figures. Since 1980, prices in the United Kingdom have risen by 43 per cent. In the United States, prices have risen by 31 per cent.; in West Germany, by 21 per cent.; and in Japan, by 15 per cent. In August 1985 the United Kingdom published an inflation rate of 6.2 per cent. The average OECD inflation rate was 4.5 per cent.and the average rate in the European Community was 5.4 per cent. In that respect, while we all welcome inflation coming down—and I do not think any noble Lord would quarrel with that—our record on inflation still leaves something to be desired.

But whereas we can argue and discuss the domestic effects of Government policy in controlling and reducing inflation, I hear very little about the effects on the third world of our so doing. The reduction in demand for commodities and the reduction in industrial capacity have meant that there has been a decline in the demand for commodities, raw materials and intermediates from the outside world, and particularly from the third world.

For a moment or two, if your Lordships will permit, I shall digress slightly and refer to the tin crisis. This is a perfect case of how the third world is helping to pay for our reduction in inflation. It is a perfect example of how, unless one achieves a soft landing when the demand for products declines, the financial markets can be thrown into chaos. The major producers of tin in the world are Malaysia, which at present has 23 per cent.of world production; Indonesia, which has 14 per cent.of world production; Brazil, with 13 per cent.; Thailand, with 12 per cent.; and Bolivia, with 11 per cent. The major consumers are the industrialised countries.

Nearly 30 years ago the International Tin Agreement was set up as a mechanism to stabilise commodity prices between producers and consumers. This is an extremely difficult exercise. I do not think that at the time anyone thought that it would be easy. There have been major shifts in the sources of production and there have been major shifts in the use of tin as an end product. I am not going to ask the obvious question why the United Kingdom is still in the tin agreement and did not retire when the United States retired from it in 1982. The United Kingdom is there as a consumer, rather than as a producer. I am not going to draw attention to the Cornish tin industry which would be in a state of chaos if there was a sharp fall in the price of tin.

The point I want to make, and which I make very seriously to the Government—and I refer to the noble Lord, Lord Kimball, who spoke about self-regulation—is that the markets that operate and which are at present self-regulated (the London Metal Exchange being the fundamental market in which tin is traded) are going through a major crisis. The major crisis exists not only because trading in tin has been suspended, and not only in the fact that the International Tin Council, which has been responsible for running the buffer stock and operating the tin agreement, looks as though it may well default on its debts, but also, and even more fundamentally, because with the inter-relationship between the dealers in the market if one dealer goes under there is a chance that another will, and then another and yet another, and that the whole exchange will collapse.

The London Metal Exchange has announced that dealing in tin will recommence on Monday. The Government have issued a number of exortations to member Governments of the International Tin Council that the council should not default on its debts. Two things could happen. If the ITC meets its debts the crisis can start to be averted. I say "start" because there is still a long smoothing-out process during which we have to get the price of tin back to a realistic level. There is, I am afraid, very little chance in the time allowed that the International Tin Council will agree to meet its debts in full. In fact, there is every sign from recent discussions that there is disagreement between members of the International Tin Council. Not least, the European Community is opposing any settlement of this sort.

If the ITC defaults and nothing else happens, when dealing in tin restarts on Monday—if dealing restarts—the London Metal Exchange will be in a state of chaos. The price of tin on the metal exchange will go into free fall. There will be substantial defaults. There will be substantial provisions to be made by banks which are lending, not only to the ITC but also to dealers on the exchange. Your Lordships can make your own estimates on what the price may be, but against the suspension price of just over £8,000 per tonne the price could easily open round about £6,000 per tonne, or even lower. That is a substantial fall, and one which would put the market into chaos. I believe that a number of dealers on the London Metal Exchange would go into bankruptcy. It is quite uncertain at the moment how many parent companies of those dealers would support them in such an event. There would be a domino effect on other dealers in the market, and the London Metal Exchange would lose its predominance as a metal market in the world.

I think it is time that the Government told us what they propose to do if this situation occurs on Monday. Yesterday I took the opportunity to warn one noble Lord on the other side that I intended to raise this matter, and I hope that the noble Viscount, when he comes to sum up, will tell us what the Government's proposals are in respect of this very grave situation. In my view, exhortation is not enough. Either the Government, in the form of the Bank of England, effectively, must make enough funds available to the market for the re-entry into dealing to be sensibly organised and sensibly achieved, or they must be prepared to stand up and see disappear the London Metal Exchange, which is one of our prime commodity exchanges and one of the prime institutions in the City of London.

I have spent a little time on the tin question because I believe it is a point which has not received as much discussion in your Lordships' House as it should have done, and I hope that when the noble Viscount sums up he will be able to respond. Nevertheless, the amendment of my noble friend Lord McCarthy refers to unemployment, and I come back to the central issue of unemployment. We have looked in vain for any indications in the gracious Speech, in the Chancellor's Mansion House speech or in the Autumn Statement, of any comfort on this subject. If we are performing relatively badly on inflation, we are doing relatively much worse on employment. The OECD average is 8.2 per cent. and the EEC average is 10.8 per cent. On whatever interpretation of the figures you like to adopt, it looks as if ours is around 13 or 13.2 per cent.

The Autumn Statement speaks about growth, but we must remember that a large part of that growth will come from consumer expenditure and that exports will decline. The noble Lord, Lord Young, has talked at some length about the position of wages relative to unemployment. Consumer spending comes from high wages, and I imagine that if the CBI and industry were to listen to the exhortations of Ministers, noble and right honourable, and if pay increases were in fact restrained in the way that Ministers required, then next year this source of growth would probably decline.

The Autumn Statement speaks about capital expenditure, with priority given to roads and the renovation of local authority housing. We on this side of the House generally welcome all these things, but we note that, of the extra £2.5 billion that the Autumn Statement claims will be raised from asset sales, just over one-tenth will go towards capital expenditure and the rest will be held up the Chancellor's sleeve. We ask: what will the Chancellor do with the money that he is holding up his sleeve? Here, we come to the crux of the matter, I think. If the Government are really serious about their concern over the level of unemployment—and many Ministers, including the noble Lord, Lord Young, have expressed their concern—they must make use in the optimal manner of whatever funds are available to reduce unemployment and to create employment, and this does not—and I repeat "not", my Lords—mean lowering the standard rate of income tax.

This is the litmus test of the Government's sincerity. If the Government lower the standard rate of income tax in the next Budget, then I, for my part, will be less than convinced about the sincerity of the Government's concern for the unemployed and I shall wish them at that point to explain. I believe that the Government are looking at the opinion polls and at the attitude surveys to see the importance of unemployment in the minds of the electorate, and are looking forward to the next general election, and that that is really what this is all about.

I have taken up too much of your Lordships' time. I wanted to talk about tin; I have talked a little about unemployment. Finally, I wish to say that I propose to support my noble friend Lord McCarthy in the Division Lobby this evening.

6.25 p.m.

Viscount Eccles

My Lords, like other noble Lords I have listened with interest and admiration to three excellent maiden speeches, which were all the better from my point of view because they all came from this side of the House. The only thing I missed was that I thought that my noble friend Lord Kimball would have told us that fox hunting was good for employment; but he preferred to talk about the City.

My noble friend Lord Wolfson mentioned interest rates and I am very glad to follow the noble Lord, Lord Williams, who has mentioned interest rates and the exchange rate, because it is about those two factors that I wish to speak. I hope to show your Lordships that the extent to which the United States dominates these monetary factors is not easily understood here. Having said that, I want to make a few suggestions as to how we should deal with it.

First, do not believe the predictions of professional economists about the course of either the exchange rate or interest rates. They always get it wrong. Earlier this year not one of them foresaw that the dollar would rise to almost one dollar to one pound. Only the other day the United States Treasury took them completely by surprise by agreeing with other central banks to intervene in the exchange market. The American Treasury took that concerted action for political reasons. They wanted to cool the campaign for protectionist legislation. They were aiming not really at Europe but almost exclusively at Japan. It is also for political reasons that interest rates remain so high. Whether or not rates come down here and elsewhere depends on the political decisions taken, or fudged, or not taken at all on the other side of the Atlantic.

The arguments now going on in Washington are therefore of vital interest to us because if American rates come down, ours can safely follow. That is one reason why we by ourselves can do only a limited amount to reduce unemployment. I very much admire what my noble friend Lord Young of Graffham is doing. He is improving the prospects for today's unemployed and he is helping industry to prepare for the time when the oil revenues decline. We should not accept the gloomy views of your Lordships' Select Committee. To me their report read as though it had been written by very distinguished gentlemen—the chairman is sitting next to me—and I thought it was because they were so distinguished that they underrated the skills and enterprise of the younger generation. Britain is going to be much stronger in the future when the present better educated and better trained recruits have entered industry.

Having said that, it is also true that a really big and lasting reduction in unemployment cannot be achieved without international action on a very large scale. The leaders of business and politics in America are begining to think about international action to deal with the problems of unemployment and stagnant trade outside the United States. The number of men and women out of work is either stationary or increasing in almost every important economy. Of course, the growth of population is partly responsible. In Brazil half the people, it is said, are under the age of 15; in more developed countries more women are competing for work; and in Europe industrial relations and the structure of industry reduce the number of jobs on offer. In all countries new skills and new systems of production are replacing old machines and human hands. We have to realise that present-day unemployment is so rooted in the astonishingly rapid changes in industry and agriculture that it cannot be drastically reduced without immense and continuous new investment—worldwide investment.

One asks why interest rates (which, after all, are the key to servicing debts and financing new investment) are so high, when inflation in the United States and here is under control and the world is awash with uninvested money. The chief cause is political and lies in the United States. Its rates would tumble and ours could follow if the 200 billion dollar deficit on the federal budget were cut in half. That is not happening because the President is unwilling to raise taxes and Congress is unwilling to reduce expenditure. The result is obvious—a humilitiating political deadlock which can continue unresolved only by the United States maintaining rates of interest high enough to attract billions of capital from the rest of the world.

Must we in Britain wait upon American politics? Maybe some noble Lords cherish the dream that we could have a unilateral substantial cut in British interest rates. They ought not to. We are in no position to contract out of the international network of capital movements. Suppose that tomorrow, with the idea of forcing British rates well below New York rates, the old socialist controls or Mr. Hattersley's rum new version of those controls were resurrected here; the failure would be even quicker and more disastrous than last time. Those responsible would soon find out that the world is too small for Britain to play at living an island unto herself.

If your Lordships want any proof of that you have but to turn to the business pages of The Times or of the Financial Times and there day after day you will see how swiftly all the markets of the world are becoming one single market—financially, commercially, structurally and managerially—one interdependent market. It is quite impossible to isolate our economy from that gale-force movement.

President Mitterrand, as has been said already in this debate, has had to reverse the programme upon which he was elected. China is doing the same; Soviet Russia may soon follow suit. All governments, if they are to deal effectively with their own unemployment, should be eager to share in the making and executing of a world financial system. Together we should be able to produce much more wealth, and then we can leave the domestic argument—and it is a very great argument—to the ways and means of how the wealth is distributed among our fellow citizens.

Therefore, the immediate question is how we can influence the political decisions in Washington. I have recently talked to leaders on the East and the West Coasts of America. No one expects the 20 per cent. decline in the dollar to have much effect on the volume of imports into the United States. The huge deficit on its trading account, which has done us so much good, is partly due to the loss of export markets in Latin America and elsewhere, but it is much more due to the explosion of purchasing power in its own economy. The United States has been sucking in, and will go on sucking in, imports in quantities for which it cannot pay in exports so long as prosperity in the rest of the world lags far behind its own.

That is why Washington keeps pressing Europe and Japan to expand their economies. Unless we have more money to spend the modest fall in the dollar, which is all that can be contrived by intervention, will not be enough to enable the United States substantially to increase its exports. But then how can the rest of the world expand their economies while interest rates remain so high?

American prosperity is the good news. The bad news is the deficit on the federal budget. But I would expect—and I have talked to a great many people in influential positions—that when the negotiation with Mr. Gorbachev is over the United States will deal with the deficit. I need not tell your Lordships that there are many good and wise men in the Senate and in the House who are ashamed of the way in which they are telling other countries through the IMF to balance their budgets while doing absolutely nothing about their own.

If I am right about that future course of American politics, what should Her Majesty's Government be doing now? My right honourable friends need not be so reticent about telling the public that our interest rates will come down as soon as the United States reduces hers. Inflation is under control—all praise to the Prime Minister and the Chancellor of the Exchequer. We can afford to cut the real return on Government borrowing, but not until the United States has given the lead.

What are the prospects? Finance ministers and central bankers recently met behind gilded doors in an hotel on Fifth Avenue. Those eminent gentlemen by tradition do not like telling the public what they are up to. But we can take comfort from the fact that the United States was willing to concert with others to intervene in the exchange market. That is a very great step forward for the nation which has had the best possible reason to believe that it can do without the rest of the world. Is it not equally desirable to take joint action to reduce interest rates? Whether debtor or creditor economy, either would benefit; world purchasing power would begin to increase and world unemployment—it is no good thinking about only our own—would begin to disappear.

The essential action has to be taken by the United States. But it invited us to join it in lowering the value of the dollar. Is it not right that we should now invite the United States to join with us in lowering world interest rates?

In conclusion, I ask my noble friend when he comes to reply to tell us how Her Majesty's Government see the prospects for a stable sterling exchange and for lower British interest rates. Does he agree that those objects, so much wanted by British industry, can be achieved only by international actions? Will his right honourable friends now work for such action? I pray that the answer is yes.

6.40 p.m.

Lord Hankey

My Lords, it is a particular pleasure to follow the perspicacious speech of the noble Viscount, Lord Eccles. I recall that we used to sit together at the feet of my noble friend Lord Robbins whose death we still so much regret. I should like to begin by saying, strictly from these Cross-Benches, how much I have admired the Government's painful work of controlling and reducing inflation. That work clearly has to be continued and completed. Even Mr. Lawson's optimistic forecast of 3¾ per cent. by the end of next year, while very welcome, is really none too low. Inflation is a most dangerous and insidious disease. However, let us all face the fact that this has been a very painful process for all our countrymen.

Unemployment has risen from a bit over a million to three and a quarter million, made greatly worse, of course, by the world recession. But it must not be forgotten that if industrial and commercial countries as large as the United Kingdom and the United States, which is alone about 23 per cent. of the world economy, damp down their economic and commercial activity with high interest rates and fiscal measures, that has a very restrictive effect on the rest of the world, especially the third world. This is reflected back into our own economy. We find it harder to export. Our businesses cannot employ so many people. It does us indirect as well as direct damage.

I said in 1979 that, while I approved the Government's economic policy, if they did not keep industry going they would not really be successful. I believe that the time has come when the Government should look at this problem a good deal moré from the industrial standpoint. After every past recession in my lifetime our industry has been very slow to recover, much slower than most of our competitors. If industry functions properly and prosperously, we shall have no difficulty at all in meeting our needs for building and repairing council estates, building new hospitals, improving the schools, even buying school books, modernising this and that, looking after the pensioners, keeping up the armed forces, et cetera, and, above all, reducing unemployment. The key to all this is industry.

North Sea oil and gas are a prodigious bonus. But, by comparison with the income from the whole of industry, it is rather a small addition to our economy. The Government rightly say that industry must organise its own progress. They are continuing to privatise public sector industry. On the whole, I applaud that and believe that it will continue to be a great success. We are not good at conducting nationalised industries. The politicians interfere, and the Government have done so. The Treasury interferes a great deal and will not allow investment expenditure. It is an absolute dead hand.

The leap forward of British Telecom seems to me extremely encouraging. But we need much quicker industrial progress and the Government cannot order this directly now. I believe, however, that the Government have a really vital duty to study the needs of each and every industry in detail and to knock away the obstacles that impede its progress. I believe that there are a great many local obstacles. In this, the Government have a common interest—I repeat, a common interest—with management, with labour, with the City, and with all the citizens of our great but still sadly diminished country.

I am fully aware of what a lot I am asking. I maintain that it is not enough to study figures of the GDP or money supply, important as those are. What is needed, and it is far more trouble, is to get down to the nitty-gritty of every industry and to alter or remove the factors that impede or prevent its progress. Many of these factors are common to all industry. I shall deal with these later. There are many particular difficulties in particular areas—local difficulties of planning, construction permits or rates, housing for staff, especially new staff, shortage of school or training facilities, local transport, rented accommodation, or room for new factories to be built. All of us—I repeat, all—have a common interest in seeing these difficulties removed so that industry can make better progress.

I am impressed with the fact that the machinery for doing this detailed study is already in existence and is not being used. The National Economic Development Organisation, affectionately known as Neddy, has 45 industrial committees bringing together both management and labour from most of the important industries in the United Kingdom. Not the motor-car industry, for some reason. Certainly, there ought to be one. These committees combine expert knowledge, local and industrial, from both sides of industry. Let the Government turn the starter key and this now neglected engine will leap into life. I do not say that our truck will at once purr along the road of progress, but we shall be shown where we must fill up potholes, remove an out-dated obstacle or two and improve the road of progress generally. With Mrs. Thatcher prodding the driver and organising what you might call the road mending in which labour and all of us, especially the unemployed, have a major common interest, I am sure that the great vehicle of our industry will be truly on the move again. It is high time, very high time, that we did something like this.

I know, of course, that some people do not like Neddy. But there is now a very new feeling of realism in the labour and trade union world. I congratulate everyone for this. It has a very important connotation. It is time for all of us to grow up out of these vulgar Scargillistic party confrontations. The confrontations spill over into industry and make everything more difficult. They really do not correspond to, or serve, our common interest any more. We are all in this together. We want no more Wars of the Roses.

Our once splendid country is in a dreadful mess, even though our economy is at last making some progress. It is time for the Government to lead us all by the hand to make the better times that we all need. On the industrial front, Neddy is the vehicle that brings us all together, to handle our common interest with common effort and to help advise the Government and Parliament on what must and can be done with common agreement. This requires a greatness of spirit and a new outlook by all parties. I do just hope that they are capable of it.

I come back to knocking away obstacles to progress. There are a few factors that are common to the whole of industry. I feel that I must mention them. They are holding us back enormously. A great deal has been said about them today. Rates of interest are much too high. I know that it is very hard to reduce them in the face of United States rates of interest. The noble Viscount, Lord Eccles, made the point with great distinction and clarity. However, if we are to get new investment, new businesses and new factories started, a reduction is really vital Anyhow, we need stability. Businessmen often postpone decisions when conditions are unstable or uncertain. In this, rates of interest are a major factor.

In my view, we also need much better stability of the exchange rate. I am, of course, aware that you cannot separate the exchange rate altogether from interest rates. The noble Viscount, Lord Eccles, made that point extremely clearly. I press the Government to join the exchange rate part of the European Monetary System to which we otherwise already belong. The new Europe, as a whole, ought to be a sufficiently heavy mass to form an anchor for our currency. We do an immense amount of trade now with Europe. Instability in exchange rates with Europe is a great embarrassment to our business community. For instance, why can we not have an organised float for the whole of Europe?

Another factor which I have mentioned is housing. In my humble opinion it has been rank bad housekeeping not to let the local authorities spend the funds which they have set aside for buildings and repairs and maintenance. I am glad that the Government will now assist in this connection. I do not believe that if the authorities are allowed to go ahead it will cause inflation. We pay huge sums for those men now unemployed who will be drawn into work. In real terms, it will be the cheapest building and repair and maintenance that we have done for years. The rise in morale for the unemployed men and women who will get jobs will be immense. Economics is about men and not just about goods and money.

However, from sad experience I can tell your Lordships exactly what would happen if we wait until times are better, to unleash the building industry. The Treasury would say once more that the extra expenditure and demand for labour would put too much strain on the economy and would cause inflation—and the Treasury might then be right. Therefore, I warmly support this small beginning by the Government and I hope that it will be rapidly extended.

We must have houses now—houses where industry needs them. More existing housing really must be brought into the rented sector by the necessary changes to the law. As a former director of a building society, I am extremely conscious of the terrible difficulties which are encountered when there are chains of sales which hold up people so that they cannot move near to the jobs which they hope to obtain. It is a very bad situation for the mobility of labour. The present immobility of labour is extremely harmful to both sides of industry. There must also be spare school places, and teachers must be where they are needed. The matter goes much further than housing. I am sure that Neddy's industrial committees will pinpoint the needs.

I should like to thank the noble Lord, Lord Young, for what the Government are doing to promote training. It is exceedingly important and I should like to think that our educational system can be made much more responsive to the needs of industry. I can certify that at present there if often much difficulty in getting people with the right outlook to take the training which industry has to offer, because their schooling has been of the wrong type, or very inefficient.

To sum up, I do not want the Government to weaken their attack on inflation. I know quite well that, "the lady is not for turning". But with solid successes to build on, I want the Government to go forward now with a full-scale drive to help industry both at home and abroad. Let them deal rapidly and effectively with the general and also the local changes which industry requires. Let them use the National Economic Development Organisation to identify and meet the local and individual requirements of each industry up and down the country. Let them do so soon; let them do so now, for we all have a common interest in their success.

Mrs. Thatcher's Government have already achieved notable victories both on the home front and abroad. However, we now need something much more—real magnanimity in drawing all sections of our people into an effective joint attack upon slump, degeneration, unemployment and hopelessness. We are all in this together regardless of party, class, sex or colour. Let us remember Sir Winston Churchill's famous slogan: In war, resolution. In defeat, defiance. In victory, magnanimity. In peace, goodwill".

6.45 p.m.

Lord Mottistone

My Lords, I too should like to add my congratulations to my three noble friends who have made their maiden speeches.

I propose to speak to your Lordships mainly about competitiveness, but I must mention inflation in the first instance. The Government are greatly to be congratulated on the way in which they have brought inflation down and kept it down. I welcomed their Statement yesterday which said that inflation would come down to 3¾ per cent. by the end of next year.

Those of your Lordships who, like myself, were involved in wage negotiations during the time of high inflation and prices and incomes policies, will remember how absolutely disastrous it was for industrial relations and how extremely difficult it was fairly to allocate any type of wage increases. I am talking of 10 years ago and, sadly, as that period was 10 years ago it tends to be forgotten. It is extremely important that people remember the happily all too brief period when we had high inflation and prices and incomes policies which were so disastrous in their operation. I hope that we shall take opportunities to remind people of that period when necessary.

On a personal basis, I should like to tell your Lordships that my main source of income, my main pension, is so constructed that I receive either a 3 per cent. increase or the rate of inflation per year, whichever is the lower. Therefore, I am particularly keen not only that the Government should do better than their 3¾ per cent. at the end of next year, but that they should keep it there. As I suspect that noble Lords opposite, of whatever parties, would not keep it there, I trust and believe that they will never sit on these Benches on this side of the House.

I now turn to competitiveness. It seems to me that the solution to our immediate problems depends upon being competitive with all our products both in world markets and at home in competition with imports. All is not bad. I should like to refer to an interesting recent report by the CBI which tells us, for example, that as regards manufacturing exports only West Germany, among the larger OECD countries, exports significantly more than we do per capita. For example, the United Kingdom exports one-third more per capita than Japan. The United Kingdom exports are also highly diversified both by product and by market. In some areas we are particularly good: we hold more than 20 per cent. of the world market in light aircraft, aircraft parts and engines; alcoholic beverages—and I hasten to add that that is very much a manufacture—and piston engine generators, all of which are manufactures of the type which people are perhaps beginning to think that we are not good at. We are good at them.

What the CBI calls for is that our share of the world market across the board should grow from 6 per cent. to 9 per cent. in manufactures and from 8½ per cent. to 12 per cent. in services. It also calls for a growth in the economy of 4 per cent. per year. The Chancellor told us yesterday that growth this year would be 3½ per cent. and that in the succeeding two or three years it would be 3 per cent. That is not quite good enough. I trust that my noble friends will give thought to explaining why they cannot do a bit better in that area. Perhaps it partly depends upon the manufacturers getting their extra share of the world market. I do not propose to touch on this matter, but it comes back to that part of the argument which concerns interest rates, upon which my noble friend Lord Eccles so wisely expounded.

Fundamentally we have a problem in this country. I was reminded of it by the CBI's booklet, though I am also reminded of it for other reasons which I shall describe. I am referring to the fact that for the past 100 years or so the question of manufacture and trading has been treated as a rather dirty activity by all of us, whoever we may be.

I am reminded of it particularly because it just so happens that at this moment—and I have been prevented from attending it—a good friend of mine, Mr. Kenneth Adams, whom some of your Lordships may know, is giving a lecture. He was the Director of Studies at St. George's House for many years, and at that time he initiated a series of consultations, as they were called, in order to persuade people (and that is people of all sorts and types) that trading and manufacture are absolutely at the root of this country's survival.

We can only survive as members of a democratic nation if we have an understanding of our utter dependence on successful and efficient manufacture. Kenneth Adams and various other people—for that matter, some of your Lordships—have worked for some time to try to rectify the lack of this understanding and to explain particularly to parents and schoolteachers, as well as both sides of industry, that it is a vital factor. As your Lordships will know, this led to Industry Year 1986.1 am hopeful that that will turn out to be a successful venture, and I mentioned Kenneth Adams because he is at this moment delivering a lecture to the Royal Society of Arts entitled, "The Encouragement of Manufacturers and Commerce in Britain Today" in the context of Industry Year 1986.

In addition to all businesses working positively towards working together, which other noble Lords have mentioned, and breaking down the antipathy to trading, which I have mentioned, they must overcome the "them and us" divide. This is one of the factors which the CBI identified as one of the major British weaknesses, especially in big companies. I noted with interest that my noble friend Lord Young told us yesterday that one of our problems was that we had the lowest rates of self-employment and business creation in western Europe. But now we have a better position than for 60 years, and I welcome that.

The CBI tells me that the numbers of self-employed people are increasing at the rate of 5 per cent. per annum. This is hopeful not only for the self-employed but for the growth of small companies, because they will find it easier to get on together. I hate to say it. but the major industries with the old-fashioned trade unions have great difficulty in conquering the "them and us" divide because it is not in the interests of trade union officials that they should conquer it.

From this we really have to tackle the problem of unit labour costs, which were mentioned in one of the Questions today and which in the United Kingdom are higher than in our major competitor countries, with an annual increase of 5.8 per cent. to June 1985. In the same period the Netherlands had a decrease of 1.9 per cent; the Japanese a decrease of 0.2 per cent; West Germany an increase of 0.9 per cent; the United States of America an increase of 2.4 per cent; Italy an increase of 4.1 per cent; and France an increase of 4.8 per cent. In 1983, which is only two years earlier, the United Kingdom corresponding increase was 0.8 per cent. I suggest to your Lordships that this is an extremely bad sign of the tendency of our wage negotiations. One of the main reasons for this return to the bottom of the unit labour costs league is that our wage demands are ridiculously excessive. I have recent—within the last fortnight—information that trade union officials still concentrate on comparability with other industries and comparability with a minimum wage target (which was debated at this year's Labour Party Conference) instead of giving priority to what a company can afford if it is to compete.

To give your Lordships an idea of why this matter is so important, I can quote figures recently provided by the chairman of a major British company to show how the wealth created by his company has been distributed. The proportions were averaged over the last 10 years, and he believes that the national picture is similar. The proportions of added value were as follows: employees, 70 per cent; reinvestment, 20 per cent; lenders, 5 per cent; and tax, 5 per cent. Furthermore, only 1 per cent. of the added value going to employee benefits went to persons earning more than £20,000 a year.

An excessive wage demand, therefore, takes far more than it should, usually at the expense of reinvestment. Your Lordships may remember that the noble Lord, Lord Bruce of Donington, in a supplementary question earlier today, was drumming into my noble friend on the Front Bench that reinvestment was an important part of competitiveness and of unit costs. The fact is that the reinvestment itself can be badly affected by ridiculous wage demands if they are satisfied.

In any case, it is ridiculous to pay people a wage increase of, say, 2 per cent. above inflation when they have not earned it, just because they think that somebody else is getting such an increase. I suspect, from what I have heard, that employers have weakened in the last year or so in a way that they did not in the earlier part of this decade. That is bad news, and it needs to be put right.

Perhaps I may mention a couple of small points. I welcome the introduction of commercial management to the naval dockyards reported in the gracious Speech. As your Lordships will know, I spent many years in the Navy, and it was abundantly clear that because there was no competition in the naval dockyards their efficiency was ridiculously limited. I can tell your Lordships that the only decent refit that I had in the whole of my something like 35 years' service was in Singapore, where they were properly managed and gave us a refit of which we could be proud. If you went to a commercial yard in this country, or more especially a yard in the United States, the comparison was so odious—and I am talking of 30 and 40 years ago—that nothing could be better than to have commercial management and a measure of competition introduced to the naval dockyards.

Another small point arising from the Statement of my noble friend Lord Young yesterday is that I welcome the additional £2.5 million that he is giving next year towards local enterprise agencies. I hope that he will be able to read what I am saying and tell me in due course whether the Isle of Wight will be included in that £2.5 million. We can do with it, and our enterprise agency is doing a jolly good job.

Turning quickly to unemployment, of course it must be brought down. The various measures of the Government, including those announced yesterday, will help a lot more than the Opposition will credit. It is in the interests of the Opposition not to do so, but sometimes one gets to feel that they are a bit more mean than they need be.

I especially welcome the pilot schemes for counselling long-term unemployed persons announced yesterday by my noble friend Lord Young. Some 10 years ago I suggested to your Lordships that unemployed people must be treated as individuals and not as statistics. I recommended at that time that their re-employment be seen as a responsibility of the local authority rather than central Government. I still think that that would be a good plan, because then people could be known by their names, known by their families, and all sorts of help could be given to them which central Government are not so able to give. However, there have been great improvements over the past 10 years in the work of local offices, particularly since they were taken over by the MSC. It is likely that this new plan for a counselling scheme will help even more.

However serious the employment situation is, we must remember that the proportion of people of working age actually in jobs is higher in the United Kingdom than in France or Germany. There is a higher proportion of women in the labour force than in most other countries. In the EC the United Kingdom had a lower percentage in June 1985 than Italy, the Netherlands, Belgium and Southern Ireland. In addition, the CBI reports that shortage of skilled labour is far from widespread in manufacturing industry and shortages of unskilled labour are almost non-existent. However, it has to be admitted that 15 per cent. of the firms reporting to the CBI expect skill shortages to continue to restrict output still further.

All sorts of evidence from sources other than those of the Government, to which I have referred from time to time in this speech, proves that things are changing and improving, and are doing so faster than the statisticians can cope with. I welcomed the cheerful and hopeful Statements yesterday from my right honourable friend the Chancellor and my noble friend Lord Young of Graffham. I am full of confidence that the number of persons unemployed will start to drop during the coming years. Therefore I strongly recommend your Lordships not to support the amendment of the noble Lord, Lord McCarthy, if he is unwise enough to move it.

7.12 p.m.

Lord Houghton of Sowerby

My Lords, like other noble Lords, I thoroughly enjoyed the three maiden speeches that we listened to earlier in the day. It was fascinating to see how, when Members of another place come to this House, they are converted from politicians into statesmen. That is a good thing.

My reaction to the Queen's Speech was directed towards a reference to reductions in income tax. It is unusual for the gracious Speech to refer specifically to the need to reduce taxation, or at any rate to reduce a particular tax, as this year's gracious Speech does. The Prime Minister, in her speech on the Address in another place, gave prominence to this by referring to the low thresholds of tax liability and giving examples of the actual tax burden which is borne by typical workers of different kinds who generally receive public sympathy, such as nurses, for example.

I take it that anything mentioned in the Queen's Speech is in order here, though when I rise to talk about taxation on the Finance Bill that always seems to strike a sensitive nerve on the Front Bench opposite. Noble Lords wonder what exotic procedures I am about to embark upon, such as calling a Division on Third Reading, or something of that kind, which might excite the moribund hatred of another place to your Lordships' House. I think we can cease to have fear of what another place might attempt to do to us. We ought to be bolder in future in giving more adequate consideration to the Finance Bill, particularly those parts of it which relate to the liberty of the subject but which are embargoed by Mr. Speaker's certificate that it is a Money Bill.

When we consider next year's Finance Bill, if it contains some of the recommendations of the Keith Committee on tax enforcement, questions about the liberty of the subject will arise: for example, the recommendation about a taxpayer who has been discovered fiddling his tax affairs but who they do not feel was so wicked that he should be prosecuted. The suggestion is that unless he has made a full voluntary disclosure the Inland Revenue should have power to pillory this man or this woman by publishing his or her name in the newspapers and indicating what the delinquency was. If we get that recommendation we really ought to have something to say about it. On an earlier occasion when we had a debate on the Keith Committee's report, I said that I thought we ought to move an amendment to put these people into the earlier form of punishment, the stocks, and throw rotten tomatoes at them. It seems that anything goes on enforcement if it is certified as being in order in a Money Bill. However, I shall leave that. The time for further activity on it has not yet arrived.

I want to refer to the need for lifting the threshold of tax liability in the income tax scales. That is very necessary and quite urgent. But for the speech of the noble and learned Lord, Lord Simon of Glaisdale, on what I would call the Stockton legend, I should have gone into that as well, but any who wish to see the Stockton silver sale adequately dealt with should read the speech of the noble and learned Lord. However, I fear that it may go into financial gossip. I read in the Financial Times today of the Stockton silver. We also remember that the noble Earl once said, "You never had it so good"; and that stuck for a very long time.

I need not dwell on that either, because it has been adequately dealt with; so I now come to what I think is wrong with personal taxation. Any noble Lord who has studied the matter fairly closely will realise that our tax system is an awful conglomeration of political and fiscal policy. It has lost its discernible principles and contains much social injustice. There is no doubt about that. Another thing is that the income tax system was never devised to be a burden on the poor. I do not think it was ever contemplated, when we abolished purchase tax and went in for a comprehensive VAT, that the tax system would run parallel with VAT at the level that the combined taxation system now imposes on the public.

I doubt whether we ever dreamt that the wartime expedient of taking tax out of pay packets would distort for a generation attitudes towards rewards for work and service. What we have done is create a phantom figure representing a sum of money which one never sees, never handles and never spends. That is called gross pay. This phantom amount is to be continued indefinitely, so it seems, under our present system. It will have no real meaning whatsoever in the economics of family life or personal spending, because people live on take-home pay. It is the take-home pay that is the stimulus behind wage demands, not gross pay. What people have to live on is the stimulus behind demands for pay increases.

Thus the tax system has created a scale of national values which now permeates the whole of our pay system. When one looks at tax at the present time, for the current year, it begins to bite for a single person at £42 a week. Next year, when the allowances have been indexed and increased, it will be £45 a week. That is the starting point of tax for a single person. For a married man, whose wife is not working, the starting point is £66 a week this year and will be £70 next year. Those thresholds of tax liability are far too low. I think that we shall want to know whether the new job start allowance of £20 a week will come within the taxable income of the recipients. Will it be added to the tax on their pay packets? If so, there is further confusion. We reduce national insurance contributions to make lower paid workers cheaper. We will pay them an allowance to help them live on pay which would be rather low without it, and, at the same time, we may be levying tax on the combination of their pay and the £20 a week allowance. That is a nice dog's dinner in taxation if you like.

If we are to aim at restoring real money and giving positive encouragment, especially to young people, to embark on careers on rates of pay which are not necessarily as high as they have been or as high as they would like, then one way of alleviating that situation is to get tax out of the lower ranges of pay. I think we must widen the gap between social security for those not in work and the pay for those who are. One way of doing that is to take tax out of the remuneration at that particular point.

I think young people are finding difficulty about work because there are many jobs being advertised at the present time for those with skills or experience. The difficulty is to get a job if one is just going to be a kind of apprentice, a learner, having to be taught and trained. The employer is taking the view that one is then not really worth the adult rate of a skilled worker. Such people are finding jobs hard to obtain and often jobs are at rates of pay which do not particularly attract them because the gap between what they are receiving for no work and what they would receive for a full week's work is not very favourable.

I think that the Chancellor of the Exchequer intends to do something with income tax in the next Budget. If the gossip columns are anything to go by, there is a discussion taking place in the Cabinet at the present time as to whether the reduction should be by lifting the threshold or by a reduction in the standard rate of 30 per cent., or a combination of the two. There is no news in Cabinet harmony. There is always plenty of fun in a Cabinet split if there is one. If the noble Lord, Lord Young of Graffham, is on the side of lifting the threshold, all I do is declare that I am on his side.

It would cost over a billion pounds to reduce the lowest rate of tax by lp, and that would do very little for the lower end of the scale. My noble friend Lord McCarthy was very scathing about the economic advantage of a tax reduction in the standard rate. I do not think it is absolutely necessary to look outside the tax system itself for some of the resources needful to give tax concessions. I think it is becoming quite indefensible that tax should reach down so low while at the same time we give such generous benefits to those who are buying their houses on mortgages and those who are in occupational pension schemes. They are over-generous tax reliefs and they are purely political. I think the politics of taxation ought to take into account the claims of other people as well.

Thus I believe that the need for reduction in the tax on particularly the young people and the lower paid people, both single and married, is a matter of some urgency and of great importance. It would cost quite a lot of money to lift the threshold allowances by 20 per cent. However, if that could be done it would take something like 1¾ million people out of the tax net altogether and they would pretty well all be, or could be, in the lower ranges. It is not necessary to carry threshold concessions all the way up to the top. They can be used as a means of limiting the benefit in the higher ranges of incomes and taxation.

That is what I offer to the Chancellor of the Exchequer for what it is worth. I have no doubt that every little bit of support that comes his way one way or another will be welcome. However, I emphasise that I am not in favour of raiding capital resources, or anything else for that matter, to make tax concessions in order to preserve some of the preferential treatment given to taxpayers within the system. We should bear in mind that whatever concessions are given in direct taxation will certainly have a spin-off so far as VAT receipts are concerned. With that, I beg leave to put my offer of support to the Chancellor of the Exchequer and to the noble Lord, Lord Young of Graffham, on the table.

7.29 p.m.

The Earl of Onslow

My Lords, it is extraordinarily pleasant to offer congratulations on three such excellent maiden speeches. It is extremely lucky that the noble Lord, Lord Kimball, did not talk about fox-hunting because the noble Lord, Lord Houghton of Sowerby, would then not have been able to congratulate him. What is even more odd is that I am going to follow, and I hope develop, exactly the same theme as that on which the noble Lord, Lord Houghton, has been talking.

I do not know whether your Lordships are aware that if you were a Lesbian living with another Lesbian, with one child each, in April 1984, if you earned £45 a week each, you would have a total income support of £145.62. If you were a respectable married man earning £85 a week, with two children, you would have a total income support of £107.14. If, by peradventure, one of these mythical Lesbians left her friend and a mythical homosexual male walked in, she would lose out because the cohabitation rule would apply. I am taking my mockery of the present tax and social security system almost to the edges of decent taste because I think that it has the most terrible effect on the mobility of labour and the fairness of the present system of taxation.

In the Queen's Speech of 1979 tax reform was promised. It was acknowledged that the tax on high earners was a disincentive, and that has been very fairly rectified. Corporation tax has been equally fairly rectified and made a much more sensible tax. The noble Lord, Lord Wolfson, also commented on the lower limits of the tax brackets as being where the unfairness lies.

It seems to me imperative that the tax system is reformed at the same time as the social security system. It is idiotic to have one little Noddy in a pinstriped suit taking money out of your right-hand pocket and handing it to the Treasury who then hand it to the Department of Social Security and to another little Noddy in a pin-striped suit who puts it back in your left-hand pocket. That is exactly what is happening at the moment. Unfortunately, the Green Paper on social security has not met this point.

There is a book published by the Department of Health and Social Security called The Department of Health and Social Security Tax Benefit Tables which has some absolutely fascinating figures. I am literally opening this book at random. If you take a married couple with one child aged 3 and the man is earning £44 a week, his total income support (which includes tax, national insurance, family income supplement, child benefit, rent, rent rebate, rate rebate, fares to work, free school meals and free welfare milk, averaged out) comes to £62.72. If he pushes his wage up to £122—and 25 per cent. of manual male workers earn less than that according to the Department of Employment's lastest figures—his total income support is £72. This is absolutely crazy. By pushing his wages up by £80 he is about £6 a week better off. What is the result of that? The result is that he puts in an inflationary wage claim which ruins the business he is in or knocks the hospital's budget sideways, and it does not in any way make his life or standard of living better.

We have acknowledged the importance of the work for the top end of the scale and we have acknowledged it for corporation tax, but we still seem to be incapable of acknowledging it at the middle and at the bottom end of the income tax scheme. Just for fun, I will open the book at another page. I come to a married couple with two children aged four and six. If the man's wage goes from £130 to £ 131, the marginal tax rate on that extra £1 is 254 per cent. What crazy goon is running a system like that? I am sure that it is not my right honourable friend Nigel Lawson. We must do something about this. If we could do something about it we would then get mobility of labour, we would bring incentives back into work and we would make sure that it was worthwhile for people to work.

There is a system which has been proposed which can help pay for this. I go back again to the point made by the noble Lord, Lord Houghton, about the mortgage tax relief and the pension funds. Together, they collect a combined £10,000 million a year in tax relief. I think I am correct in saying that mortgage tax relief came in because under schedule something-or-other you paid tax on the notional rent that you paid yourself for owning your house. That was all considered unfair, so it went out of the window. But they did not go on to say, "Because you have a mortgage, the notional rent that you pay yourself has a cost, so you allow your mortgage interest against it". It came in because it was very nice not to pay tax on the notional rent under the schedule, but it was politically unpopular to throw away the relief on the mortgage interest that you paid.

Of course I am not suggesting that it has got to go now. What I am suggesting is that it has to be phased out gradually. All that we do by doing these things—and the £4,000 million that is on pension fund releases—is to distort the investment market. We make sure that if you buy your own stocks and shares and possibly leave them to your children, you get taxed to the hilt: if you do it through an institution, you do not get taxed. Our mediaeval forebears were very wise on this subject. They passed things called statutes of mortmain, which meant that you could not leave your money, goods and chattels to the dead hand of the Church. I suggest that we are now encouraging our citizens, not so much to look after themselves and take their own decisions, but to do their saving and investment through the dead hand of the Pru. I have nothing against the Pru. If one wants to do it, one should do it by all means: but one should do it on equal parity with any other form of saving.

If we could go to what is called a basic income guarantee scheme, we would have a system whereby everybody got something equivalent to child allowance and there would be age, incapacity and housing allowances. I will not go into it in too much detail; it is fairly well known. Then you tax all income above that. In that way you would have a fairer and more incentive scheme which would do something for the rigidities of the labour market. And, above all, it would do something for the fairness of the tax system. I feel very strongly that we have got some parts of our tax system fairer and better but we have not got the rest fairer and better. Until we do so, we will not really get ourselves out of the muddle of unemployment. It is essential for unemployment and mobility of labour that we encourage people to work and that we do not have silly things like 254 per cent. tax margins.

7.36 p.m.

The Viscount of Falkland

My Lords, it may not surprise your Lordships to hear that that part of the gracious Speech which caught my attention was the mention of wider share ownership. I think it is well known in your Lordships' House that we on these Benches attach a great deal of importance to wider share ownership as a means of broadening the owning of assets in this country. It was a fleeting mention; nothing much was said about it in the papers the next day; but I was encouraged this morning when the Chancellor was being interviewed about his speech yesterday to hear that again he mentioned wider share ownership. I will not criticise the fairly superficial way in which this complicated subject has been tackled so far. It is encouraging at least that this is seen as an avenue which we can go down to broaden the asset ownership in this country which is at present so narrowly held.

Apart from that mention this morning, I was dismayed—and some noble Lords may share my dismay—to hear the catalogue of good things which are going on in our economy as they came from the Chancellor's mouth yesterday. He must be living in a different world, as the noble Lord, Lord Young of Graffham, said he was living in a different world; I think I am living in a different world from that of the Chancellor when he tells us that all seems to be well in our Kingdom, when we know full well the social situation in this country.

Social and economic balance, surely, is one of the essentials of a democracy working correctly. The social and economic balance of this country must be out of kilter. We have inexplicable violence in places intended for recreation and pleasure; we have racial tension growing again to an extent which is alarming to all sections of society; we have the desolation of our inner cities. We know the kind of society we have and most of us have a clear idea of the society that we want. It was here that I was disappointed with the economic content of the gracious Speech. It seemed to me that Government strategy, as expressed in the gracious Speech, lacked a relevance where achieving the social and economic balance is concerned.

It seems to me that in a capitalistic, free enterprise system—which is largely what we have, though some of us are loath to recognise it—the creation of wealth is of paramount importance. The creation of wealth is that upon which depends ultimately the standard of living of our people. The assets on which you concentrate your wealth creation can lead to a different emphasis. I think that your Lordships will have the opportunity next month to debate the report of the Select Committee on Overseas Trade. Views will then be expressed on what emphasis we ought to be placing on the assets that we have and what wealth we should be expecting to produce from them.

However, generally speaking, there are three different ways of controlling your wealth. First, it can be done by state ownership. We know all about state ownership; we have seen it operate. It was a socialist principle which was put forward here. State ownership is less fashionable than it was and it has been seen not to work successfully in many third world countries and in countries nearer home. In state ownership there is of course one capitalist: that is the state. The benefits that accrue to that capitalist are passed out in benefits to the people to meet need. That is one road we can pursue.

Then we can have concentrated ownership, which is basically what we have now. It is the narrow ownership of assets, becoming narrower and narrower. Here again, in order to spread the benefit of these assets the Government are forced to think of ways of distributing them by means of transfer payments in order to create in society the equalities they would wish to see.

However, we on these Benches would wish to see a development along the lines of expanded ownership: that is to say, a positive, planned broadening of the ownership of the country's assets. Wider share ownership is the obvious initial path down which to go to achieve this. But exercises such as the recent one concerning British Telecom—my noble friend Lord Taylor of Gryfe mentioned that in his excellent speech—have only scratched the surface. Many of those who became new share owners have reverted to their former state and no longer have shares. As my noble friend put it, "The stags have already left".

There is a big cultural gap to be bridged in our society and so far, unfortunately, it has not been done. I am anxious not to criticise this point too much because I think the Government have already gone some way towards considering this particular way of broadening the assets. It is a question of basic approach. Perhaps when it becomes a more obvious way to redistribute assets and new wealth, the Government will pay heed to some of the excellent work which has been done by the Alliance, and particularly by the Liberal Party—I must give credit to them—over a long period of time.

A further commitment to employee share ownership by way of tax concessions would be an even more hopeful sign. Employee share ownership is something that we do not hear too much about. It is a complicated area, but it seems to me to be an obvious field for creating a new sense of involvement and purpose on all sides of industry and commerce. A nation which is committed to a private enterprise system, as I believe it should be, must surely conduct its policy as regards tax so as to give every assistance to the electorate to have a personal stake in that system. It is surely a foolish and short-sighted strategy for any Government to preside over a situation where the principal wealth expectation of the citizens comes from Government transfer payments by way of unemployment benefit or welfare entitlement. The best way to reduce Government spending is surely to reduce the need for it.

Our aim must be wealth creation and to encourage companies to finance newly created capital. I am not advocating here the taking away of wealth already created, but I am advocating a way of spreading new wealth in order to create, among other things, purchasing potential. In our society purchasing potential is often created in an inflationary manner. The only way to create purchasing power among people in a non-inflationary manner is to spread the assets, and the rewards from the profitability of the assets, among a greater number of people.

I do not believe that a democratic system such as ours, with all the institutions which maintain it, can survive indefinitely. Many of your Lordships may not agree with me but I think that the system cannot survive indefinitely—unless the majority of our citizens enjoy an increasing degree of economic independence. In a capital intensive economy the right to a decent standard of living surely involves more than just the right to work. We hear a lot about the right to work. To receive a fair day's pay for a fair day's work is an excellent principle, but surely it must also involve the right to participate according to the current state of your technology.

The increasingly dominant role of capital in the productive process—and let nobody make any mistake about it: it is not confined just to us but is happening all over the developed world—as opposed to labour, is a reality in a competitive world. Surely urgent steps should be taken now to expand the ownership of capital and the rewards of its productivity. It is a reality—an unpalatable reality, I think—that capitalism is based on production for profit and not for employment. Companies value their earnings above everything, rather than the jobs they create. That is something I think people need to bear very carefully in mind. The present terrible plight of the increasing number of unemployed is surely the result of a failure to grasp the inevitable shift of economic emphasis from labour to capital. Job creation alone is just not adequate. The full employment approach, which some people still advocate, really does not make sense, because it does not recognise the extent to which productive capital is now the most important factor in production and in producing the goods and services of a modern economy.

There is of course the "Alice in Wonderland" approach, and I will touch briefly on that in conclusion. We have heard it said that in this country we have become a nation of hoteliers and amusement park operators (beefeaters were mentioned publicly by a Member of your Lordships' House) because they are the only things left, along with the speculators of course—that is for those who are lucky enough to have anything left to speculate with in this horrifying situation. Of course, it is nonsense. The terrible social consequences of abandoning our traditional manufacturing and becoming entirely devoted to being a tourist paradise are just too terrible to imagine.

My final remark, my Lords, would be this. To raise the quality of economic opportunity in this country is absolutely essential. If you raise the equality of economic opportunity on a broad base, then perhaps many other pressing social problems will suddenly become easier to solve.

7.48 p.m.

Lord Elibank

My Lords, I should like to return briefly to the main subject of this debate, the subject of unemployment. One of the surprising features of unemployment and the sudden rise that has occurred over the last decade or so is how it has taken us by surprise. When I think back to my youth—and I am sure this goes a great deal further back than that—we were being warned by writers, economists and forecasters that we were advancing to what was often called "a post-industrial society": a society where machines would do the drudgery and where men would be free to do what they wished, to follow their hobbies and to lead a fuller life. It has been held up to us as a most attractive advance for the human race. But what is the reality? This has not come to pass at all. In fact we have heard a number described variously as 3 million, 3½ million or 4 million of unemployed. It is a grave national problem and a source of constant misery to a large minority of our population.

So what has gone wrong? I think the principal thing that has gone wrong is the rate of change. I believe that, if these developments had all happened over 30 or 40 years, we, as a society, could probably have coped with them, but because they have all happened and there has been this rate of increase in unemployment in a mere decade or less, there has really been something of a breakdown in our society. When we look at our rivals who have managed these things rather better and whose rates of unemployment are noticeably lower than ours, we realise that they have bought for themselves rather more time in which to solve this problem. They will be able to take perhaps 20 or 30 years, whereas we have been precipitated into it in half a decade.

If we ask ourselves why they are more favoured than us, I am afraid that it comes back to the old explanations of our poor economic performance since the war, variously attributed to bad management, blind and inflexible trade unions and inappropriate policies of the Government of the day. I think that one places the blame according to one's political persuasion.

There are two aspects of unemployment that particularly concern me, because I can see no obvious remedy for them either in the short term or in the medium term. The first of these is what is to happen to the lower 25 per cent., say, of our population—lower in the sense of intelligence and education. These two groups do not necessarily overlap, but they do substantially. They have been protected up to now by the number and level of jobs available, mostly in manufacturing. As the manufacturing base decreases in size, they can to some extent move over to the service industries. But that is a temporary palliative and even if I conceive the most benign Government, with large reserves of cash to spend, I cannot really see how they can profitably benefit this sector of our population.

The other preoccupation relating to unemployment which worries me particularly is the divide of the country into North and South—them and us. In the South, apart from a few inner London boroughs, we enjoy a high measure of prosperity. In the North, they do not. It is becoming increasingly an industrial and a business wasteland. If this persists for a short period of time no doubt we shall be able to adjust as a nation, but if it continues decade after decade I have grave fears for the unity of the nation and for the common outlook of the British. When you think how much more attractive it would have been if, by a freak of nature, it had been possible to bring the Channel tunnel out in the North-East, you realise that is the sort of opportunity we must seek. But of course we cannot distort geography.

When one contemplates the problems of unemployment, one also tries to think constructively of ways of alleviating it, and one of the popular ways which we have heard discussed in this House tonight is the investment of vast sums of Government money. I am no economist, but I feel instinctively, I suppose, that there is a relationship between the investment of money, the rate of inflation and the number of jobs created. To me, it seems self-evident that any Government can invest only so much in the creation of jobs before the level of inflation becomes intolerable. I do not believe that these three factors have an arithmetical relationship and so one can only offer a subjective viewpoint, but, in my view, a Government would do extremely well to create a quarter of a million relatively short-term jobs before the level of inflation became intolerable.

It is often said that money should be spent on infrastructure—large construction projects. Times have changed. The times when you could employ hundreds, or maybe thousands, of men on building roads and on repairing sewers have passed. By and large, these jobs are done by huge and expensive machines operated by a small band of highly trained technicians. If your Lordships are motoring down a motorway at any time and pass a contraflow system indicating that a repair of the highway is imminent and then motor down several further miles without any perceivable human activity, you will come upon a small group of men and a very expensive collection of machines. That is how the highways are constructed and repaired and that is how most major engineering projects are operated in this modern world.

It would be theoretically possible, I suppose, to forgo the possibility of expenditure on machines and elect to return to a more primitive system where gangs of men did the work. Then, again, I think we should have a problem. How many of the unemployed who are at present modestly cushioned by the state would forgo that benefit to take up picks, shovels and other rather primitive instruments in order to work in gangs on construction projects? This does not seem to me at all a realistic alternative.

So where is the money to be spent? The only way that I can see that must be wholly good, wholly productive and wholly certain of producing a beneficial effect is in education and training. So far as education is concerned, this is primarily academic but there, again, one has to sound a cautionary note.

Much has been said about the value of vocational training. One has to be very careful when working up to the university stage, because the risk is that the undergraduate will embark on some form of vocational training which, at the end of his period at university or polytechnic, will no longer be required by the market, and, even if it is then required, 10 years later it may not be.

So my feeling is that academic education should be as broadly based as possible—a reversion, if you like, to the old-fashioned thinking that the classics were the best form of training for the mind for a previous era. And, of course, once the graduate or polytechnic student has qualified and embarked on his career, he will need substantial injections of specialist training in the course of it. But these forms of specialist training will have to be flexible and adaptable to the changing needs of the industrial society. Much has been said in the past about the fact that it will be extremely difficult for future generations to follow a single career right from graduation to retirement, and I think that that cannot be emphasised too strongly.

The other form of preparation, apart from the academic, is psychological. We have been brought up to think of the nine-to-five type of job, whether on the factory floor or in business, as the ideal. A man having such a job is considered a success, while a man not having such a job is broadly considered a failure. Employment in the future will change. It will change to part-time employment, to employment for part of the working life, to employment from the home, to employment in a consulting capacity, to work in a small business at irregular hours.

It is very important that this message about the employment of the future is put across to our young people right through their academic careers, beginning as early as possible. To the extent that they look forward to a nine-to-five occupation, they are, in my view, doomed to disappointment. This is a form of work pattern which is already obsolescent, and which, at some point in the next century, will become totally obsolete. In this connection, the monthly employment statistics that are produced by the Government, and that are really a major political football in our life, are singularly unhelpful. They direct workpeople's eyes to the past, to a golden age of full employment which is extremely unlikely ever to return. They should be looking to the diversity of employment opportunities that the future will offer them. In my view these statistics are an obsolete standard which we could well do without and which we should be well advised to remove from the prominence in our lives which they presently enjoy.

8 p.m.

Lord Granville of Eye

My Lords, I was very interested in the speech of the noble Lord who has just spoken and in his reference to the North (to which I hope to refer later), which is going to be our great problem, and also in what he had to say with regard to trained engineers. In any newspaper today one can find six or seven pages advertising vacancies for skilled engineers, and probably one of the mistakes we made some years ago was not to concentrate more on their training.

We have had three very remarkable maiden speeches in this debate and I wish to add my own tribute to those of other noble Lords who have spoken. We also heard another speech from the Secretary of State for Employment, who has had quite a marathon in the past two days. The noble Lord has made a very interesting progress report, but if we cannot revive these great manufacturing industries in the North and in the West Midlands, if we cannot revive those factories and give them new ideas, new designs and new plant, they will be left to taking in each other's washing.

I went to the Cologne industrial fair where I met many buyers from all European centres and nationalities. I asked them why, when we are all in the Common Market and with this enormous adverse balance of trade in manufactured goods, they do not buy British. I was a little startled at some of the answers which the buyers there gave me. The answers were: "You cannot deliver on time"; the usual one, the English disease, which was on television day and night—the miners' 12-months strike; and, "Your prices are too high". I asked them why they said this and they replied, "We understand why it is, but don't ask us to buy your goods. You have serious industrial problems, employment problems, political problems and television problems".

I asked them what they meant by that. They said, "Well, your Government make a statement in the House of Commons. It is repeated on television in the six o'clock news. Within seconds it is immediately contradicted by other important speakers who say that it is all wrong and that you don't have to accept it". One said, "You are really going through a period in your country of government by see-saw on television. Remember that television is the biggest sales agent in the world". We went for a meal and I asked one man to develop what he was telling me. He said, "Why do I say you are suffering from government by see-saw? Your Government announce a policy of privatisation. The Opposition announce that they will renationalise. How can we depend on this in two or three years' time? This really is government by democratic seesaw". How can we get a national effort in our country if what this friend of our country says is true?

We never had that in 1931. We ought to look back occasionally to 1931. In 1931 there were 3 million unemployed; we had an international crisis and problems about the gold standard, but we had confidence. The word "confidence" was vital then. Whatever may be said about Ramsey MacDonald's National Government, the pound, which was collapsing, revived the day after they were formed, because there was confidence abroad. In a country such as this, with its great manufacturing industry, it is absolutely vital to restore that confidence.

I have listened to the Government's statements on the policy they are carrying out. The noble Lord, Lord Elibank, referred to it in his speech. Looking at those great industries to which he referred, and despite the wonderful maiden speech of the noble Lord, Lord Elliott of Morpeth, can we hope to revive those areas of the North and the West Midlands by taking in each other's washing? I always remember what the noble Earl, Lord Halsbury, said in a remarkable speech. He said that when you are reviving these new companies today—companies which cannot compete abroad or are falling down on their export trade—management is an art, not a science. Perhaps we need that. Perhaps we need more skilled managers in industry and fewer accountants, and, as the noble Lord, Lord Elibank, said, more trained engineers. Above all, we need the co-operation of the shop floor if we are to achieve the maximum productive effort to get that balance of trade with the EC put right.

However well intentioned one may be towards the policy of the Chancellor of the Exchequer and the Secretary of State for Employment, the vital problem remains how to achieve co-operation on the shop floor, as the noble Viscount, Lord Falkland, said in his speech. Why not take a leaf out of the Liberals' policy on this? With a hung Parliament in the future it may be the price of co-operation—it may be inevitable—so why not now? I very much hope that the policy the Government are pursuing will give some hope of revival to the industries in the West Midlands and the North of England, but I doubt it. The industries in that part of the country must be revived by modernising them and by implementing the kind of co-operative social policies which the Japanese have in their factories. However much we may hope that the Government will succeed, something definite must be done.

Some years ago, I paid a visit to the Gulf and to Qatar. The Emir of Qatar is now making a very important state visit to this country. Qatar is a wonderful country and we have a marvellous opportunity to develop our exports there, but will we follow it up? It is vital that we should do so. I ask the Government to give serious consideration to what was said by the noble Lord, Lord Elibank. What are the Government going to do about the North of England and the West Midlands? Nothing will be achieved by just taking in each other's washing. Instead, with co-operation on the shop floor, the Government must help and revive the great industries there, so that they may again employ the great numbers they employed before the war.

8.11 p.m.

Viscount Caldecote

My Lords, I listened very carefully to what was said by my noble friend Lord Young when he opened today's debate. I wish that he was here now, because I would have wished him well and every success with the great responsibilities he has recently taken on. I was encouraged by much of what he said and by the actions which the Government have taken and about which the Chancellor spoke yesterday. However, because I believe that not enough is yet being done I shall be making some rather critical remarks. Before doing so, I want to make clear that no one has greater admiration than I for what this Government have achieved under the leadership of the Prime Minister in controlling inflation and the trade unions and in encouraging enterprise. They have done a marvellous job and nothing can detract from that.

When I first became a Member of your Lordships' House nearly 40 years ago, I was working in a shipyard on the north-east coast. I have a vivid recollection of asking one of my friends who was a foreman there what he did before being employed by that yard in 1937. He told me that he had been unemployed for eight years and something about his experiences. Perhaps that is why I feel rather strongly about unemployment. His description of it made a great impression on me.

The depression of the 1930s and all the unemployment that came with it was increased and prolonged by severe deflationary policies. The depression was ended very largely by the re-armament programme. The then Chancellor of the Exchequer eventually agreed, but very reluctantly, to a defence loan of £400 million, which is equivalent to some £6 billion today. That loan did not bring financial ruin as was predicted by many "experts". It brought work and hope to many employed in shipyards and factories. The fact was that in those days, needs must when the devil drives. Then, Hitler was the devil. Other kinds of devils threaten us today through unemployment. The need for action now is just as urgent as it was 50 years ago, for reasons which I shall give in a moment.

At this late hour, I will not waste your Lordships' time in mentioning unemployment statistics, for we are all agreed that unemployment is too high, particularly among the young. In a similar debate on the gracious Speech last year, my noble friend Lord Young made two statements that I should like to quote. He said first: I believe that on every major count—public expenditure, inflation, growth and investment—the economy is sound and the economy is on course".—[Official Report, 3/11/84; col. 301.] At the conclusion of his speech, my noble friend said: This Government are as concerned as any to return to full employment. We shall follow the path that we have to follow until in the end we will let loose the spirit of enterprise in the land and return, I hope, to fuller employment".—[col. 305.] I am sure that my noble friend meant a return to less unemployment. Sadly, and although my noble friend has made similar remarks today, we have not seen lower unemployment since the time of his earlier remarks, but instead we have higher unemployment.

I do not believe that economic growth, higher investment, lower inflation—desirable and necessary as they are—are enough in themselves. They are not sufficient national achievements. Our target must surely be national prosperity spread throughout the whole country. To me, prosperity means satisfying activity for all who want it, with a sense of belonging to a caring community. That target will not be achieved with 3½ million unemployed, however good may be the other economic indicators.

Why do I place such emphasis on unemployment? It is for three important reasons: first, because of the moral and spiritual decay which results from long-term unemployment. Hope deferred becomes hope abandoned. We need say no more about that. Those who have worked with people who have been unemployed for a long period—and perhaps even Members of your Lordships' House who have lost their jobs and been unemployed for a few months through no fault of their own—will understand a little of what I mean.

Secondly, when hope is abandoned a sense of grievance follows. Unemployment makes a seed bed for anarchy and strife. It is not fully appreciated what opportunities and leverage the feelings stemming from unemployment give to the troublemakers. Sadly, we must admit to the fact that there exists in this country a small minority whose objective is to destroy our democracy and way of life. They have diverse motives: a lust for power, grievances to settle, or perhaps loyalty to some other power. Such people will use every opportunity to pursue their evil objectives. They will use the grievances and unhappiness which prolonged unemployment causes for their own purposes.

Thirdly, unemployment involves a shameful and terrible waste of human effort and resources. It is not as though there are not great tasks to perform. We cannot afford such waste. Each day brings competing claims on limited resources of wealth creation, and each claim is well justified. There are claims for more resources or more pay, to improve law and order, for inner city reconstruction, housing improvements, scientific research, better schools and teachers, more support for the arts, more conservation and pollution control, more care for the old, more support for the handicapped, for overseas aid, and for improved health care. The list is endless.

Ministers compete in the star chamber for funds. Councils and authorities of every kind seek grants from ministers, and charities appeal to individuals and industry for donations. Almost all such demands are worthy but they cannot all be met because the pool of wealth we create is too small.

Long ago, Sir Stafford Cripps used to say that inflation resulted from too much money chasing too few goods. He was right. The Government also were right to concentrate first on controlling the money supply and achieving cost reductions, as they have done with outstanding success—just as a company in trouble must first reduce its borrowings and costs. However, if one goes too far along that road for too long growth is retarded, opportunities are lost and employment suffers because wealth creation takes second place to saving money or building cash mountains. I believe that the time has come for the Government to make wealth creation their primary objective, their top priority.

Because of the odd things which are said by responsible people from time to time in this country, I may remind your Lordships that real wealth is created in the agricultural, extractive, energy and manufacturing industries. Financial, distribution, communication and other service industries make a vital contribution to wealth creation, and they earn money overseas which gives us access to wealth created by others—but those services create no wealth in themselves. The Prime Minister rightly maintains that the Government can create no real wealth themselves. But Government fiscal and monetary policies have a major influence on the climate for wealth creation and, therefore, on the amount of wealth created in our economy and so the opportunities for greater employment.

I was delighted to see from yesterday's Statement that the Chancellor of the Exchequer has moved from M3 and taken the first steps along the road to Damascus and conversion to new ways. Your Lordships will remember that a light shined round St. Paul and a voice from on high convinced him of the need to change his ways. When he asked what he should do he was told: Arise, go into the city and it shall be told thee what thou must do. I am sure that the Chancellor, if he does that, will find that the one thing which many people will ask him in the City is to please stop treating asset sales as negative expenditure. If Great Britain was a public limited company he would not get away with that in the statement of source and application of funds in the annual accounts.

But it is not just accounting—that would not matter; it distorts judgment. Therefore, my plea to the Government is to press ahead with privatisation, because business is better taken out of the hands of politicians and civil servants, as the noble Lord, Lord Taylor of Gryfe, said. I support tax reductions for the lower paid but, for heaven's sake, do not let us use all the proceeds of those sales to finance major tax reductions. I have seen it mentioned that we might have tax reductions of 5p in the £ in the standard rate. That will not make an optimum contribution to wealth creation and to jobs. It would be mainly frittered away in attracting more imports. We should use those proceeds of the asset sales for much more attractive purposes. We must finance research, to which the noble Lord, Lord Wolfson, referred in his excellent maiden speech. We must build more new houses and renew our decaying infrastructure. I make no apologies, in spite of what the noble Lord, Lord Elibank, said, for suggesting that.

There is much to do in making better roads which will improve communications and thus make our industry more efficient. We have to renew the sewers and repair houses and schools at some time. We need to provide better equipment for hospitals. I emphasise that that sort of work has to be carried out at some time. Is anyone suggesting that it can be deferred indefinitely? Can you defer indefinitely mending a leak in the roof of your house however poor you are? Now is the time to act and to remedy those deficiencies when there is plenty of spare capacity in industry. If we wait until the economy is humming and we put more demands upon it, that really will be inflationary. What I have suggested will create more jobs as quickly as anything can over the next five years; and as the noble Lord, Lord Taylor, said, it will have a catalytic effect.

The Government have made a start but much more needs to be done if unemployment is to fall and not rise in the next three to five years. I say that advisedly for this reason. There is a real danger. Industry—both manufacturing industries and the service industries—must become more competitive if we are to recover a greater share of world trade, and so by selling more create more jobs. We need to reduce costs. The only way of doing that—or at least a great contribution to it—is to instal new equipment, advanced manufacturing technology, new office equipment and new communication equipment. In almost every case in the first place the result will be to reduce employment but then, in a year or two, new jobs will come from the growing competitiveness, the greater sales and share of the market that we would obtain. Again, in a few years' time the effects of the Government's policy on encouraging enterprise and competitiveness will come to fruition.

Small companies are being formed. I wish to heaven they had started forming 25 years ago, as they did in America. They too will create the jobs in a few years' time, but not yet. If we do not do something really effective, and do it quickly, in some of the ways I have suggested there will be not a fall in unemployment in the next three to five years but an increase, for the reasons I have stated. Therefore, I most earnestly hope that my noble friend the Leader of the House, who is to wind up this debate, will show that the Government do appreciate this problem of timing and that they will act to prevent a rise in the present level of unemployment, with all the misery and the catastrophic results which would follow from it.

As to the amendment, I have some sympathy, as your Lordships will have understood, with the wording of it, but I cannot support it. The party of the noble Lords opposite has no understanding, no appreciation whatever, of what is required to encourage enterprise and of the incentives necessary to create wealth on the scale needed. Therefore, I shall vote against the amendment.

8.26 p.m.

Lord Blease

My Lords, I certainly welcome the strong pronouncement of the noble Viscount opposite as regards his concern about the consequences and implications of high unemployment, and I go a fair way down the road with him when he calls for further public expenditure on housing and on training to meet the present needs in connection with the remedies for unemployment. Indeed, I think he follows closely along the lines of a former Tory Party Cabinet Minister, Sir Ian Gilmour, who is reported on the tapes today to have said at a rally for a charter for jobs, held in Cardiff, that the Government requires to change its budgetary and monetary policies in order to cope with rising unemployment.

However, subject to some reservations, I welcome the paragraph in the gracious Speech which states: In Northern Ireland my Government will continue to support the security forces in enforcing the law and in working for the eradication of terrorism. They will seek widely acceptable arrangements for the devolution of power. They will seek to improve further their co-operation with the Government of the Irish Republic. Renewed efforts will be made to create and sustain employment, particularly by the encouragement of the private sector". I am aware that today's debate takes place in accordance with the customary arrangements for the series of topics arising from the humble Address. The main part of my remarks will be concentrated on the reference in this paragraph of the Queen's Speech which declares: Renewed efforts will be made to create and sustain employment, particularly by the encouragement of the private sector. At the same time I am sure it will not be considered out of context if I refer to other issues which arise from this paragraph.

The Government's search for further co-operation with the Government of the Irish Republic has been under the media searchlight for some time. It is obvious that the Anglo-Irish negotiations are nearing the public pronouncement stage. We may well ask: will the outcome of these negotiations be an internationally binding registered agreement? Or will it mean the forging of a new protocol between the United Kingdom Government and the Government of the Irish Republic? Or, will it mean a statement of intent to widen and improve the existing structures of the Anglo-Irish Inter-Government Council?

Whatever the form and content of the pronouncement, may I invite—indeed, may I appeal to—all noble Lords to use their influence to ensure that the outcome of these Anglo/Irish talks is the subject of urgent, parliamentary debate and decision? It is important that the initiative should be under the control of Parliament and not allowed to become the rallying point for the promoters of mob rule or for para-military pressure and terrorist groups. I suggest that the establishment of peacemaking principles and political stability, the improving of understanding and relations between the two Northern Ireland communities, the formation of improved political and trading relations between Ireland and the United Kingdom and the eradication of terrorism are the essential elements for employment, industrial development and the genuine prosperity of the peoples of these islands—Britain, the Republic and Northern Ireland.

Concerning the reference in the gracious Speech to "acceptable arrangements for the devolution of power" in Northern Ireland, perhaps I may draw to the attention of the House the agreed report of 29th October from the Northern Ireland Assembly. The report deals with the issues of how the Assembly might be strengthened and progress made towards legislative and executive devolution. I suggest that this report provides a firm basis for negotiation on a fair and democratic devolution of powers in Northern Ireland. It proposes a framework whereby the principles of justice and parliamentary democracy may be upheld and it could enable the Unionists and Nationalists to find an accommodation and the two communities to work together for the well-being of all the people of Northern Ireland. I suggest that this report of the Assembly is worthy of urgent consideration by the Secretary of State for Northern Ireland and the Government and that it is a vital part of any Anglo-Irish pronouncement.

I should like to say a brief word on the renewed efforts to create and sustain employment, particularly in the context of Northern Ireland. I have no objection to the proposal for the encouragement of the private sector, nor do I believe that there are any impediments in that respect from this side of the House. However, I have no hesitation in saying that, if it is intended to give particular encouragement to the private sector to the disadvantage or the neglect of the public sector, then there is little hope of sustaining the present levels of employment in Northern Ireland and no hope of creating new jobs.

Northern Ireland has many of the attributes which are necessary for successful economic development. It has an infrastructure which has seen a vast improvement over the past decade, enterprising and hardworking people, high standards of education and training and excellent industrial relations which are at least as good as any in any other part of the United Kingdom. Among all parts of the community there is a remarkable degree of consensus on economic and social goals and a wide range of agencies, public and private, which are available to give every possible assistance to companies prepared to invest in the Province.

The view is that fortunately we in Northern Ireland have been spared the worst excesses of this Government in their misdirection of public expenditure. There can be no doubt that the public expenditure in the Province has been put to good effect in improving housing, roads, recreation facilities and the environment in general, despite the fact, of course, that unemployment still runs at over 20 per cent. there. I would hold that this is mainly owing to the failure of private capital and private enterprise and the closure of many branch factories.

Visitors to Northern Ireland are increasingly impressed by the vitality and the life of the Belfast city centre. I believe that these results have been achieved mainly through the public expenditure policies pursued by Roy Mason and Jim Prior during their periods as Secretary of State for Northern Ireland and by their parliamentary colleagues in the work that they have pursued in the Province—policies which have been denied to the rest of the United Kingdom during the past six years.

Today I wish to make a plea that those policies should continue to be pursued with vigour within the Province. There is still a great deal to be done. With unemployment running at such high levels, we not only have the opportunity but we have the duty to pursue policies of public expenditure in order to continue to improve education, training, housing and environmental conditions over the next decade. In no way can I envisage the private sector meeting the needs of the public services in these matters in Northern Ireland. The current economic situation presents an opportunity to get the best possible value for money out of public expenditure.

I also suggest that the improvements which are taking place present in turn opportunities to improve the economy itself; but for that we require in Northern Ireland, and indeed throughout the United Kingdom, a political will—characterised by simple values with which all citizens may be able to identify—we need a sense of common purpose rather than marketplace values with some of the worst forms of selfish interest, the active political promotion of personal private gain without any regard for efficient productive employment and the polarisation of our society into the "haves" and "have nots", those with jobs and those who have no hope or stake in our society. These are matters which have already been referred to by the noble Viscount and by others in their speeches and in recent statements about unemployment.

Unemployment erodes the morale of the community. It certainly erodes the way in which the community can participate and give of its best to society, and it is something which will eat into the moral fibre of our society unless we take the proper actions to promote that society's well being. I believe that can be done by supporting a public expenditure policy.

Government investment can encourage private investment and within Northern Ireland conditions are much better than the public image would lead us to suppose. I believe that what I have stated is clearly borne out by the report of the Northern Ireland Assembly in the 1985 Public Expenditure Survey, which was recently published and consists of four volumes of very detailed argument and analysis, arguments which I believe sustain the point I am making—that the Northern Ireland economy would have sunk into oblivion if it had been solely dependent on private enterprise.

I therefore commend for your Lordships' consideration the experience of Northern Ireland under a different public expenditure regime than has been in force in the rest of the United Kingdom and for these reasons I indicate my support for the amendment proposed by the noble Lord, Lord McCarthy.

8.38 p.m.

Baroness Carnegy of Lour

My Lords, we have just been reminded by the noble Lord that noble Lords on the Benches opposite are this evening attempting to vote down the humble Address on the grounds that the Government are not doing enough about unemployment. No one could take issue with the treatment of unemployment as a major problem. This day of debate deals with the economy, and, as the gracious Speech indicates, the economy and employment are inextricably linked. From listening to the speeches from the Front Bench at the opening of the debate, however, the reasons for this particular amendment on this particular occasion do not seem to me to be so clear.

Both the Front Benches opposite complain in different ways about the manner in which the statistics of unemployment are presented by the Government. The noble Lord, Lord McCarthy, said that the Government had no policy because they did not see fit to say precisely what they anticipated the figures for unemployment would be in future years. The noble Lord also said that the many hundreds of thousands of jobs now appearing on the scene were being taken up by ladies with shopping accounts at Harrods. He lives in a different world from the world I live in.

The suggestions of the noble Lord, Lord Diamond, seemed to me to be extremely close to what the Government are now doing. No one from the Front Bench opposite, and few, I think, from any other Benches, contradicted what my noble friend Lord Young said at the beginning: unemployment is a problem for every democratic, developed nation at the present time; to try to find entirely new strategies for an entirely new situation is what we have to do. The old solutions do not work any more and we are learning from the experience of other countries as well as our own.

I can suppose only that the amendment is being moved for reasons of political expediency. There may be nothing wrong with that. We are politicians in a political Chamber. But that brings me to a point that I want to make about the interaction of politics at the present time with the problems of the unemployed. I want to suggest to your Lordships extremely briefly that, whether or not we agree precisely with the way that the Government are tackling the problems of the unemployed, it is the duty of each and every one of us to do our best to ensure that the opportunities that now exist, and will exist whatever Government are in power, are known to those unemployed people for whom they have been designed. Too often in my experience, and I am sure in the experience of other noble Lords, political people, probably not intentionally but in an attempt to do their political thing, run down, denigrate and misinterpret various schemes now available to help the unemployed, thus putting those very people off finding out about and taking advantage of the schemes.

The youth training scheme, as it now is, should mean that not a single 16-year-old in this country need be unemployed. By April next year no 17-year-old need be unemployed either. However, if we look at the statistics, quite a large number are still unemployed. People are told that it is not worth involving themselves in the youth training scheme because it has been invented by the Government just to massage the figures; they may be exploited if they go on it; it is a way to low wages and of no use. Therefore, those young people miss the chance of getting the broad based foundational qualifications that they need, of possibly being kept on by the employer with whom they go on to the scheme, or of getting a reference if they cannot stay with that employer. It seems to me that everyone who is in a position to explain to young people what the scheme is has a duty to do just that. It may not be perfect but it is developing well and is an important part of our training structure.

The community programme, which has been mentioned several times in the debate, provides a chance for long-term unemployed people to take a job for a year, to get back their work abilities and to brush up their motivations and skills. The Government have doubled that programme. It is a success in many ways. It is working, and it is working not least because those who involve themselves in the environment in which they Uve, having helped to improve it, do not want to vandalise and spoil it.

But too frequently people make it very difficult indeed to get schemes going. One of the noble Lords on the Front Bench opposite expressed the view that the scheme could be expanded and pointed out that that could be done at a net cost of nil. It would be of enormous service to long-term unemployed people if noble Lords on the Front Bench opposite threw their weight behind the community programme, influenced the trade unions, which are so nervous about it and are trying to frustrate schemes being started on the ground, and persuaded people to go on the schemes.

It would also help if they backed the new measures announced yesterday in the Statement of my noble friend Lord Young. The opportunities for long-term unemployed people to attend counselling interviews at jobcentres to help them learn to perform well at interviews and how to search for work should be encouraged. They should also be encouraged to go on short courses to brush up their skills. Those are important measures and they need the backing of everybody on all sides of this House, of Parliament and of local government.

Likewise, many new measures are in operation now to help people into self-employment. It seems to me that the responsibility of everybody on the political scene—those who have not traditionally encouraged self-employment in the past and those who have—is to help people take advantage of the loans, the business advice and the other help that they can get after they have started their self-employed business.

I could go on, but your Lordships will be relieved to hear that I will not. I hope that the point is made. I hope that noble Lords on the Front Benches opposite will desist from dividing the House at a time when the country is looking for a united effort in the search to help the people who are unemployed. If they feel that they cannot, I hope that at the very least they will encourage their colleagues to back the schemes that there are and to help them forward.

8.46 p.m.

The Earl of Halsbury

My Lords, I should like to concentrate on one sentence in the gracious Speech: Within the framework of firm monetary and fiscal policies designed to secure a continuing reduction in inflation, my Government will do all in their power to encourage the growth of new jobs". What is it that the Government have it in their power to do? It is anything that bears on their target provided that it has not been tried before, weighed in the balance and found wanting. There is no good going back to where we came in.

I say "tried and weighed in the balance". What is a balance? The function of a balance is to balance. For example, one makes a weighing machine balance by adding weights to the appropriate pan. On a balance sheet one puts the assets on one side and the liabilities on the other, subtracts one from the other and shows the result on the liabilities side as the capital employed in the business. A year later it is out of balance again, so one adds the balance on the profit and loss account and, bingo!, it balances once more. It is the same with the foreign exchange. One subtracts imports from exports, and that is one's foreign earnings. It is a kind of capital import.

It is much in the air that we ought to consider repatriating some of our foreign earnings in order to finance the growth of industry at home. There is no difficulty in that. The Government can confiscate the lot—they did that in wartime, and proceeded to manipulate our foreign assets themselves—or they can apply disincentives (that is the popular scheme that was under discussion in the conference period) to retaining as opposed to repatriating foreign assets; or they can leave the matter alone on a basis of laissez-faire, laissez-aller.

But the mechanism is irrelevant. What actually happens if one repatriates something is that one buys sterling and sells foreign currency. That must induce a rise in sterling—an overvalued pound—and that is where we came in in 1925. The overvalued pound proceeds to promote imports and inhibit exports, and so one gets a double dose of unemployment. How anybody in their senses thinks that one can cure unemployment by incurring a double dose of it I cannot imagine. I see the noble Lord, Lord Barnett, shaking his head. If he disagrees with me I hope that he will comment on what I have said in winding up for the Opposition.

I was entirely with my noble and learned friend Lord Simon of Glaisdale on the difference between selling the family silver and chucking it over the cliff into the sea. One does not diminish the family assets if one transfers the family silver from one member of the family to another. In the same way one cannot diminish or add to national assets if one privatises something by transferring the ownership of it from the nation (called the Government) to the nation (called the collective of individuals).

I listened with great interest, as all your Lordships did, to the maiden speech of the noble Earl. Lord Stockton, on American borrowing accompanied by raising the interest rates to a level with which we cannot compete. The noble Viscount, Lord Eccles, made very much the same point this evening. Without in any way disagreeing with the noble Viscount, I shall draw attention to the reason why the Americans are able to do this. It is because they have such fantastic productivity in their industries that they can afford to pay interest rates that we cannot. We can only rectify that, in a sense, by raising productivity in our industries. But that is a time-consuming process. It cannot be done overnight.

There is, however, something that we could do. It is to agree not to devalue the dollar but to have an overall worldwide reduction of interest rates. I do not see why they could not come down by 1 per cent. a quarter until we reach the situation in which money borrowings can match up to the needs of the investor. I should like to ask the noble Viscount the Leader of the House whether that cannot be negotiated.

The great enemy is, of course, inflation. That is where the sentence from the gracious Speech that I quoted comes in. Both inflation and deflation are dishonest, because they alter the equity in freely negotiated established bargains. Inflation benefits the debtor at the expense of the creditor; deflation benefits the creditors at the expense of the debtor. Both induce unemployment. This is one of the great misunderstandings of our age—that unemployment is induced only by deflation. It is not. The mechanism is different, but it can be induced either by inflation or by deflation.

If what you are suffering from is inflation, you cannot cure unemployment by more inflation. Spending more inflationary money than you are spending already cannot possibly be the cure. Even now, wages are leading the inflation. It seems quite impossible to induce people to moderate their wage demands. We are talking of getting inflation down to 3½ or 4 per cent. But anyone opening the newspapers will see wage demands of 10 per cent., 6 per cent. and 7 per cent.

It is interesting to look at the percentage of the gross national product taken up by wages and salaries. It is a very flat figure taken over a quarter of a century. In 1960, wages and salaries accounted for 58.3 per cent. of the expenditure generating the national product. In 1983—that is, 23 years later—it was 56.1 per cent. So it has not changed by more than 2 per cent. over nearly a quarter of a century. If you take a flat rate of 57 per cent., then, if you imagine an economy in balance and you feed in a 10 per cent. transient on the wages front, you will get a 5.7 per cent. rise in prices. If you compensated for that, you would get 3.2 per cent. in the next year. And so it goes on—1.8 per cent., 1 per cent. and so on; and you end up with a 13 per cent. overall inflationary increase in prices. If the economy, instead of being in balance,was growing at 3 per cent., that 5.7 per cent. in the first year would come down to 2.7 per cent. and would be extinguished in the second year. We lack just that element of patience to allow these changes to be absorbed.

When I was a schoolboy, my father gave me a book by one Adam Smith to read. It was called The Wealth of Nations. It had a long and, I thought, very dull chapter at the beginning on how to make pins. I got terribly bored with making pins. I did not think that economics was a subject for me until somewhat later, post-public school, I came across a much more fascinating book. It was written by a gentleman called George Bernard Shaw and entitled The Intelligent Woman's Guide to Socialism and Capitalism. I learnt for the first time, in perusing this, that capital always starts as someone's spare income. Unless people have spare income, they cannot invest. Therefore, since I see no evidence that the amendment has been drafted by someone who is aware of this, I cannot support the amendment.

8.54 p.m.

Lord Gisborough

My Lords, I come from a place not far from a town where there is 25 per cent. unemployment throughout the town. There is one particularly harrowing area of 18,000 population with a housing estate where unemployment approaches 90 per cent. I do not believe that this sort of area is unique in the country when it comes to inner cities. The social consequences of this sort of unemployment must be highlighted. It obviously produces great boredom, depression and inactivity among the people who live there. It brings on despair and so little motivation that even the playing fields there are not used. There is no chemist, because the chemist's shop gets vandalised.

There are only one or two shops. There is no doctor, there are no professionals. The only people working there effectively seem to be two clergymen.

The youngsters are bored and, needless to say, prone to get into trouble. They have time on their hands. They are a nuisance. They run across the roofs; they vandalise; and they are callous. I have a headline here which says, "Yobs laughed as pensioner lay dying". They chased the pensioner until he started dying, then surrounded him and laughed at him. That sort of headline is not unique to the town. It can be found, now and again, in any of the bad inner city areas.

While there is this deprived area, one must not suggest for a moment that good people do not come out of it. However, they are not the ones I want to talk about. Obviously, a great deal of dissatisfaction exists there. This leads to violence. The violence that one sees on television is, I believe, particularly unfortunate. I am sure that it provides the seed that itself grows into violence in the breeding ground of such areas. There is a tendency among children from this area and similar areas not to be responsive to education. They are therefore inevitably ill-educated. It does not help that most of the sanctions have been taken away from the schools so that the last sanction they have against a badly behaved boy is simply to remove him from the school when that is all that he wanted in the first place.

There are inevitably a number of low achievers in this area. They are not only not responsive to training schemes, but many of them are not acceptable to training schemes. Either the training schemes will not have them or, if they do go on them, they get sacked. Some are therefore not only unemployed but unemployable. They look for something to do that they can enjoy. They form, very often, early sexual liaisons which, again, one reads about. The girls deliberately go and get themselves pregnant so that they can obtain from the state—I refer to one particular case—a three-bedroomed house. But, very often, it is their own flat. They get a social security income. They get independence. They get a form of status that they want. They also have a child which is a toy and which gives them something to do. This involves children between 14 and 16. In one school, 61 out of 63 children are illegitimate. The town has a 25 per cent. illegitimacy rate, while in Manchester the rate reaches 35 per cent.

Of the children born to teenagers, the number of the illegitimate is more than double the number of the legitimate. As most of us know, the next stage in the lives of these youngsters is that they remarry, if they marry at all, and are then in a situation where the new husband often becomes involved in cases of child abuse such as we know about. These children suffer enormously, and are deprived. I want to stress again that many of the one-parent family children do survive, and survive well. They cope. Many of the one-parent family mothers cope very well. There are good examples ofthat. They cope against all the odds and their children grow up to be normal against all the odds.

These illegitimate youngsters tend to leave home early and to repeat the whole process; there is, as it were, a multiplying factor. They perpetuate the increase in under-privileged and one-parent families. I shall read a quotation which appeared in the press last month: The number of teenage mums is on the increase and big families are getting bigger … Trends towards the younger mum also continued during the last 12 months. Teenage births were up eight per cent. and the number of births to women in their late 20s also rose significantly". The increase in that population will inevitably be dependent upon social security in the future and, therefore, dependent upon the decreasing number of people who are able to work and support them. To my mind the situation is bad now, but I believe that it will become worse and that the spiralling problem will be a great danger to the social structure not only in the areas about which I am talking, but elsewhere. In the long term there must be a proper study of the problems and the long-term damage to the country as a result of illegitimate children and teenage families.

What is to be done about the situation? The whole subject is one which is taboo. People do not like to talk about it or have difficulty in talking about it. It is considered to be an extremely sensitive subject. I hope that I have not been insensitive myself when talking about it. However, the problem must be discussed and appreciated and the danger to the future structure must also be fully appreciated.

My noble friend Lord Young and the Government have made enormous strides in connection with training schemes and other schemes for youngsters. I should like to congratulate my noble friend on the efforts which have been made. I hope that the counselling service for Durham, Middlesbrough and the other places will go some way towards meeting what I have already said and what I wish to say in a moment.

I wonder whether enough has been done for these under-achievers, many of whom will resist the efforts made to help them and to give them training. I believe that there should be special training courses for people living in these very deprived areas even if the work on those training courses is more suitable to low achievers than perhaps to others. It is necessary to make these training courses attractive and irresistible to these youngsters.

I am reminded of a lady who used to teach ski-ing in Aviemore for just two or three weeks. As she was only a temporary teacher she always used to have the worst of the Glasgow children put into her class. When they arrived in her class the first thing they did was to try to get away from the teacher, and so about eight out of 10 left and she was left with about two. She immediately made a small ski jump and made those who remained in her class jump over it. Five minutes later the rest of the class returned and said, "Can we join you, Miss?" She then had them for the rest of the day.

It is an extremely difficult problem, but however difficult it may be we must not let these under-achievers rot into unemployables. However difficult the problem may be at present, it will become much worse in the future. There would be a disastrous effect if we were to allow a large number of people to become unemployable for ever in the future and it would be a sad waste of human resources.

9.4 p.m.

Viscount Hanworth

My Lords, in my speech today I shall deal with several matters which I believe are important to the future of the country. However there is a central theme running through my remarks: men of integrity must put their shoulder to the wheel in the national interest and not simply reflect or give priority to party prejudices and shibboleths. As a nation, we are still divided in a way which other European countries have, to a great extent, overcome. Unfortunately the "them and us" syndrome is still with us and, for different reasons, the Government and the Labour parties have, if anything, fostered those differences. I shall expand on that later.

Rather surprisingly and quite suddenly, there has been a welcome change of direction both by the Government and by the Labour parties. At last they seem to have heeded what the majority of our electorate want: a sensible, moderate policy. I believe that my party offers, and has offered, just that. Indeed, that is why I joined it, in the hope that the nationalised, denationalise, renationalise syndrome of steel could be overcome.

On the Government side, they at last seem to realise that, whereas the public relations of all governments have been poor, theirs to date has been abysmal. To take only two examples, they have increased the funds available to the National Health Service, but if you asked the man in the street he would say that the service has been cut. Not so; in real terms there has been a considerable increase injected on good socialist lines into helping where it is most needed—for example, in the North. We must face a constant increase in high-tech equipment. Whether the ethic of prolonging life in a very uncertain world by massive expenditure on high-tech equipment is more important than the quality of life is a matter which certainly could be considered, because people are now waiting very long periods for operations for painful conditions—for example, varicose veins and hip ailments.

Secondly, there has been an ever-increasing cost of bus services, and something had to be done. This fact should have been made quite clear. Whether privatisation is the right answer is of course debatable. The failure to get public support for what appear to be many unreasonable and doctrinal measures by the Government is what worries me. Of course it prejudices their chances at the next election. One should not needlessly make enemies, because enemies do not forget too easily.

In the Government's view their policies have paid off and the nation is well on the road to complete recovery. I only hope that they are right. If not, they will stand condemned for selling off national assets simply to avoid making more drastic and unpopular cuts which they hoped could be avoided if recovery continues and North Sea oil does not run out too soon. Some of those assets are being used for tax reductions, which many people think is a most inefficient way of stimulating the economy. Too much will go overseas for luxury goods.

The policy of privatisation may be convenient (I now class it as dogma), but increased efficiency and competition are something I do not expect to see from privatising gas. If the consumer is to be adequately protected it is no longer free enterprise, and there can be no competition. Sensibly, the Government should leave time to see how privatisation of Telecom works out before embarking on other major projects, particularly having regard to the American experience in this field. I fear that they will not do that.

Returning to the theme of promoting one nation, I still wonder how it was that responsible people in the Opposition managed to support the miners' strike, with the weakest of reservations. They could logically have maintained that there was something wrong with the West's capitalist system, but for the taxpayer to have to pay approaching £1 billion to support uneconomic pits is something, whatever the social consequences, that no government could afford to do. We regretfully had to accept similar sacrifices from the steelworkers and the shipbuilders, to mention only two.

Why should the Opposition blame the Government for what any government should have done? What about the pickets in relation to the problem of law and order? The Opposition should now search their consciences as to what, even in political terms, is justifiable when it is the national interest that should matter most. While I am mentioning the miners' strike, perhaps I may say that there are continued rumours that the Government may force up electricity and gas prices simply to pay the cost of the strike. That is not the way to finance this deficit. It negatives the efforts of all concerned to improve efficiency in the industry in the consumers' interest.

One of the things we desperately need in this country is more responsible and thinking unions controlled by moderate people. Such unions exist and are vital to our future. In fact, I am connected with one of them. Surely the Labour Party, in its own long-term interests, should help this aim and support reasonable Government legislation.

I now want to raise briefly the vital issue of unemployment. There are many causes and there are also many possible remedies, but each remedy has its side effects. At the outset, we should remember that only a few years ago many people said that if unemployment rose beyond 1½ million it would start to destroy our society. It is doing just that. The devil soon finds work for idle hands to do is a good maxim.

I do not think the Government are doing as much as the gravity of the situation demands. There are many things that could be done. I shall mention a few, without elaboration: more opportunities and encouragement for part-time, as opposed to full-time, working; early retirement and reduction of overtime; job sharing, with the Government chipping in on wages; avoiding immediate redundancies in service industries; a short-term injection of money into industry, much more important in my view than tax cuts. There are of course other possibilities with which I have not time to deal tonight.

In all this we should keep in mind that it costs in social benefits, loss of tax, and so on, about 70 per cent. of what it costs to keep a man employed. In addition, you lose what he would produce to the benefit of society if he were working. This implies that the Government have at least £10 billion to spend if by so doing they could substantially reduce unemployment; and in the end they might not be out of pocket.

What worries me about the future is that not just one or two matters need to be put right to ensure our future competitiveness. Some of them require a decade to effect any important improvement. I shall mention only two. Compared, for example, with Germany, not enough of our really able people go into industry. "Industry" is still to some extent a dirty word. We are good inventors, but we always seem to fail in developing a product or in marketing it. In the 19th century it was our engineers who produced our wealth. Today, in spite of efforts, they are still second-class citizens, eclipsed by the marketing man or the accountant. There are still too few really able recruits. Never mind the screams about the cuts in pure science; it is the engineers we need most. If we cannot afford enough of both, the engineers should receive first priority in our national interest.

9.15 p.m.

Lord Monkswell

My Lords, I crave your Lordships' indulgence for arriving so very late at this debate. I must also tender my apology to Hansard because in the last 24 hours I have written and torn up about three speeches, so I shall not be able to provide them with written notes. I hope to remedy my transgressions a little by making a very short contribution.

I was interested in what was said by one of the earlier speakers, who made the point that asset transfer from the people represented by government to the people not represented by government was of no significance. But that is not the reality. The reality is that we the people, over 50 million of us in this country, have in the last year or so seen ourselves, our wives and our children—all with a stake in a particular national asset—deprived of that national asset in the sense that we are no longer the owners of it. It is now owned by a much smaller number than 50 million-odd of us—by those who were already rich before—to ensure that people who were already rich pay less tax in proportion than the rest of us.

Having said that, I welcome the Government's, particularly the Chancellor's, abandonment of monetarism, although that may not yet be accepted by the Chancellor. We can all accept it even though he does not.

Your Lordships will recognise that I am a citizen of Manchester and you may realise that I have an interest in a topic raised by an earlier speaker. When I am talking with my fellow Mancunians I do not ask, "Are you a bastard?" I know they are all bastards, for we are all bastards in Manchester from the point of view of people who come from south of Watford. I must apologise if I have used unparliamentary language: I sincerely do. But where I come from up North we call a spade a spade.

One of the points I would make strongly as a citizen of Manchester is that we do not want to see our women and children shot with plastic bullets any more than the citizens of London want to be shot by ordinary bullets. I shall leave my comments there because I do not think it is altogether fair for people in our position to criticise public servants. That sort of discussion should be kept within the forum of the appropriate organisation. There has been some public controversy about the situation in Manchester vis-à-vis the police committee and the chief constable and I felt it necessary to make my point of view plain.

With regard to law and order, we on this side of the House, and me in particular, are disturbed by the Government's emphasis on dealing with the symptoms of the problem rather than the causes. Perhaps I may just refer to one of the fundamental causes, which is mass unemployment in this country. We all know that there is an enormous amount of work to be done in this country, from rebuilding, renovating, and replacing substandard housing to re-equipping, rebuilding and modernising the whole of our industry. To be honest, I am grateful for the little scraps that the Chancellor has pushed in this direction. However, they are really too little and too late.

9.20 p.m.

Baroness Faithfull

My Lords, I am the 27th speaker in this debate and I seek to make a speech in a different category from any other speech made by any of your Lordships. I hope you will forgive me and bear with me while I take up some of the points made by the noble Lord, Lord Gisborough.

Unemployment is about people and people were once children. I maintain that we must see to it that our children are cared for in a way that produces maturity, security, education, ability and, above all, as the noble Lord, Lord Gisborough, said, motivation. All the plans in the world will not help unless we have children who are growing up into well-motivated people. I think that many of our unemployed find it very difficult to fit into the present systems which we have.

I have two pleas to make on behalf of children, and here I say they are ouside anything that has been said in your Lordships' House today. My pleas are that we should look at child benefits, and, as the noble Lord, Lord Gisborough has said, at illegitimate children. In yesterday's debate on home and environmental affairs, my noble friend the Minister, Lord Glenarthur, said that we should be debating the future of the National Health Service and social security in a debate to be initiated by the noble Lord, Lord Ennals, on 20th November. Why, then, do I seek today to speak briefly on the subject of child benefit and the economic implications, one of the aspects of today's debate? Perhaps it is because, like John the Baptist, I seek to be a forerunner of the pleas which will be made from all parts of the country for the real value of child benefit to be maintained and pray that I shall not be a voice crying in the wilderness.

The financial position of families with children has deteriorated relative to that of the childless in recent years. Growing numbers of children are being raised in poverty. The Prime Minister and the Conservative Women's National Committee have emphasised the importance of child benefit for the family. A recent survey of 2,000 mothers carried out underlined the importance attached to child benefit by mothers in families on modest incomes who would not qualify for means-tested support. Furthermore, in 1980 the Government committed themselves to maintaining the real value of child benefit, "subject to economic and other circumstances". I shall say no more. However, these are the families which, if we do not help, will not be well motivated and will not form a stable workforce.

I turn to the second plea on behalf of children, which was mentioned by the noble Lord, Lord Gisborough—that is, the question of illegitimacy. In 1976, the Law Commission set up a working party to consider the law on illegitimacy. This resulted in Working Paper No. 74, published in 1979. As a result of this working paper, a Bill was drafted. The Law Commission's recommendations were accepted by the Government, yet no parliamentary time has so far been set aside for the necessary piece of legislation.

Sadly, a letter written by the department of the noble and learned Lord the Lord Chancellor, in October 1985, states: The Government have accepted the Law Commission's recommendations on illegitimacy. However, the draft Bill annexed to the Law Commission's Report would confer jurisdiction on county courts to hear affiliation applications and would thus result in a shift of work from magistrates' courts to county courts". The letter goes on to say that this would place constraints upon legal aid expenditure and that this reform could not be looked at until the necessary resources became available.

I would suggest that this is an area where we could save money rather than feeling that it was an expensive social policy. For instance, we could set up family courts and we could encourage family life. If the Illegitimacy Bill, which would change the status of illegitimate children, were to come before your Lordships' House, this would change the attitude of the many children who have a chip on their shoulder, who feel resentful and who, in some cases, though certainly not all, are the low achievers, and who often cause great difficulty in the communities in which they live.

Your Lordships will remember that Ogden Nash defined the family as a unit composed not only of children but of men, women, an occasional animal and the common cold. Many people have said to me that passing the Illegitimacy Bill (or considering it and finally passing it) would undermine the concept of the family. I would say that I strongly support the concept of the family from personal experience not only in my work but also in research. I would also say that such children suffer and although they are not necessarily the most difficult, they do tend to have difficulty in finding and sustaining jobs.

I do not believe in planned, unmarried parenthood. I think that it is very important that as a nation we support the concept of the family. I would say that this is perhaps a most unusual speech to make in this debate; but it is about people that we are talking, it is about children that we are talking; and unless we get our social policies in alignment with our economic policies then this world will suffer.

9.28 p.m.

Baroness Seear

My Lords, I must first apologise to the House and in particular to the noble Lord, Lord Young, that for reasons that I explained to the Leader of the House it was not possible for me to be here at the beginning of the debate. The amendment of the noble Lord, Lord McCarthy, speaks of the importance of sustained reduction in unemployment. It is the words "sustained reduction" on which I wish to put particular emphasis. It is because it is worded as it is that we on these Benches will be supporting the amendment put forward by the noble Lord—not because, as a speaker on the opposite side of the House implied, we endorse in the least his party's other policies. But as I understand it, we are not tonight debating the whole of the Labour Party policy, for which your Lordships will be very thankful. We are, in fact, debating this particular amendment, which is an amendment that could have been put down by anybody on our Benches and, I strongly suspect, by a considerable number of people on the Benches opposite.

The amendment refers to a sustained reduction in unemployment. It is because in the gracious Speech there seems to me to be so little real understanding of the urgency of sustained reduction in unemployment that we on these Benches remain critical of much that is in the gracious Speech. I was very interested indeed in the speech of the noble Viscount, Lord Caldecote, who is no longer in his place. He said many things that we on these Benches have said and echo again tonight. In particular, he stressed the urgency of dealing with the problem of unemployment. It is not something which, if left, will get better by itself. Tonight I do not want to anticipate the debate I think we are going to have on 3rd December on that outstanding report of your Lordships' House on overseas trade. Yet there is much in that report that is highly relevant to the discussion tonight and it would be quite unrealistic to leave out of account all reference to what has been included in that extremely good report.

There is a need for great urgency about the problem of unemployment. We know from that report that between 1964 and 1983 the percentage of world trade gained by our manufacturing industry and by our exporting industry fell from 14.2 per cent. to 7.9 per cent. We know that the decline in manufacturing industry in this country has gone on for a considerable time. Indeed, it started before the end of the last century; but it is accelerating, and if it gets beyond a certain point recovery is going to be extremely difficult.

It is not true, as the Government reaction to the report on overseas trade suggested, that in some miraculous way when oil runs out the recovery will come, by a kind of magic of its own. However, I will not develop that argument tonight because, as I say, we shall be debating it on 3rd December. But I want to underline the extreme urgency of this situation.

I know that the noble Lord, Lord Young, will agree that unemployment is a matter of the greatest importance and that a sustained reduction is vital. I did not have the opportunity to hear his speech today, and I hope he will not think it impertinent for me to say that I suspect he spoke, at all events to some extent, about small businesses; because it would be unusual if the noble Lord, Lord Young, did not speak about small businesses. I have nothing against small businesses—one cannot have anything against them—and we know that in this country the small business sector has for decades been far too small. The noble Lord, Lord Young, always insists that small is beautiful. That is not a doctrine to which I subscribe. It can be beautiful, but it can be very ugly. But whether or not it is beautiful, there is also another slogan, which says that beauty is skin deep; and the trouble with relying on small businesses as a cure for unemployment is that it does not get to the heart of the matter. It is a skin-deep cure for unemployment.

The fact of the matter is that we need a full recovery of manufacturing industry as a whole—large, middle-sized and small—and the trouble with the gracious Speech is that there is nothing in it to suggest that there is going to be a really determined attack on the decline in manufacturing industry as a whole. A response to that in the creation of small businesses is a tiny contribution; it is not a cure. The noble Lord shakes his head. Time will show, but I shall be extremely surprised if he finds there will be success without action to do something about large-scale industry. After all, a great deal of the success of small industry depends on its being able to service and to subcontract for large-scale industry, and if large-scale industry goes down the drain where is the small-scale industry going to get its orders from? It has to be an attack on the problems of the total manufacturing industry. That is the first point I should like to make in criticism of what we have had in the Queen's Speech this year.

It is late, and I will take up only a few points. I should like to make a few practical suggestions of ways in which some attack might be made on the urgent problem of improving the position of manufacturing industry as a whole and not just the small business sector. The Queen's Speech talks about a reduction in income tax. Other speakers today have said—and I am repeating and amplifying somewhat what they have said—that they would prefer, and they believe a great many people in this country would prefer, that if there is any money that can be spent or given back from Government expenditure it should not go on income tax reductions, with one exception. It should be used to help industry to be more effective, to reduce industry's costs.

It is surely disappointing that there is no suggestion that there will be a reduction of national insurance costs to employers, except to a very small degree in relation to the lowest paid. Those costs remain very high indeed. This has been compounded, surely, in what to me was the astonishing statement yesterday that the contribution from the redundancy payments fund to employers is not to be continued, putting a further charge on employers.

Incidentally, is it not true—it surely is—that the employers have over the years contributed to this fund? Does that not give them a legal entitlement to contributions from the fund, when they are having to make redundancies and to make payments to people who are declared redundant? In any case, if there is money to spare surely it should go into reducing the costs of industry, thereby making possible the employment of more people, rather than into reducing income tax as such.

However, I agree that there is room for improvement at the lowest level. There is an opportunity to take more people out of paying tax; or, if that is not possible, can we not consider once again having a lower band of tax at the lower level, so that people do not pay 30 per cent. straight away, plus the national insurance contribution, which makes it an extremely high marginal rate? We have on previous occasions had two levels of tax at the lower level—the standard rate and a rate below the standard rate—and that would at least improve the position in regard to the poverty trap and make it more encouraging for people to come back into employment.

But it is not only on the question of tax that I wish to speak. We are already aware of skill shortages in this country. In the area with which I am concerned, in relation to the Manpower Services Commission, we have had continuing skill shortages in a number of places for a considerable time. There are two problems associated with this. It is absurd that with knocking on 4 million unemployed—because that is what it is—we should have continuing unfilled vacancies.

One problem in the area with which I am concerned is still acute; that is, the differential cost of housing. If people want to come from the North-East and the North-West—and enterprising schemes are bringing them into the Buckinghamshire area, which is the area of which I am talking—then, if you are selling a house there and attempting to buy accommodation in Buckinghamshire, you can whistle for it, unless somebody comes forward with a way of making it easier to get accommodation. The Government have done something in this direction, but the differential cost of housing is an increasing problem, with considerable pockets of unemployment in one area and unfilled jobs in another.

If we get the recovery that is promised, this problem will get more intense. This is the time to look at what we can do, so that we do not have this absurd problem of unemployed in one area and unfilled vacancies in another. In my own area, one employer is bussing people in from Birmingham, putting them up in a hotel for a week and then sending them back by bus at the end of the week. That is because of the housing shortage, and it is an absurd state of affairs.

It is ridiculous that we have been unable to fill jobs that require training, while we have large numbers of people who either need refresher courses or have never been trained, because of our past policy on training, and therefore do not have the skills. For the people who have had no training—and I know that the noble Lord, Lord Young, agrees entirely on this—the future is bleak indeed, whatever happens to the state of the economy. In fact, in some ways the more and the faster the economy recovers the worse will be the problem of the unskilled. We now know a lot about how to train people, but on this occasion it needs even more money than we are getting at the present time; and I am not denying that the Government are spending a great deal on training, because they are.

Perhaps I may give your Lordships one example of the kind of thing I mean. One of our real difficulties arises when there are vacancies and unemployed people. You try to find a course to put them on so that the unemployed person can be turned into a skilled worker. What do you find? You find that it will take months to get the course going and that, like as not, both the man and the job will have disappeared by the time the course is operational.

Only a week or two ago I went to a place in Watford where money had been put up for new machinery and where work is being done on what is known as an access course of training where individuals come in saying that they want to learn such and such. They are given a very careful personal assessment and very quickly—the next week in many cases—they are put on to appropriate training. This is expensive. I do not deny it. That college has had £250,000 for the equipment, but if by doing this one is converting tens or perhaps scores of unskilled or semi-skilled people into skilled people for whom jobs are waiting it is a very good investment and a far better use of the money than a cut in income tax.

Then there is the whole question of wage inflation. Noble Lords are aware of the danger of our wage rates going up faster than those of our competitors while our productivity is not going up as fast as theirs. Other noble Lords have referred to it. There can be only one answer—the gap between us and them will be greater. The Government have never said how they think they are going to deal with the problem of pay when unemployment ceases to hold pay down. Although we on these Benches still support some kind of incomes policy, we are all aware of the problems involved in it. But there is a simple way in which we can do a great deal to take the sting out of increased payment. That is a much greater extension of profit sharing by which relatively small increases in pay can be supplemented by a substantial share in the profits once the company has made the profits.

There is all the difference in the world between paying out higher wages in anticipation of being successful and paying out a large share of the profits after you have been successful. When you do that you do not run into the inflationary difficulties. I see nothing in the gracious Speech to suggest that there will be a determined attack on encouraging employers to give a much greater share of their wage increases through sharing in profits, which gives them the opportunity to resist high pay claims because there is some other way of remunerating their people and, what is more important, perhaps, also educating them in what is really involved in achieving a decent standard of living without having inflationary consequences.

Time is getting on and I see that it is very late, but I wish to mention two other matters. The economies in the universities are very short-sighted. I am the first to admit that there have been some abuses in the universities. There was plenty of room for reform. I worked in one for 30 years and I did not work there with my eyes shut. But to starve universities at the present moment not only in regard to technological training but in pure research is very short-sighted. You can live on your capital of pure research for months, perhaps for years and perhaps even for a decade, but if you let it go for very long your ability to compete in a high technology, fast changing world will become less. I beg the Government to think again about what they have been doing in relation to university expenditure.

While I am talking about universities—this may be beside the point, but I believe it is not—will the Government also think again about the way they have treated overseas students, not this time in the interests of overseas students but because these people are our best ambassadors? These young men and women will go back into companies in, say, the Far East—we had many of them in the London School of Economics and we know how this worked out—and when they are in a position to make big purchases they go to the countries in which they were trained. It is extremely short-sighted for a country which has to export, and which aims to be a great manufacturing country again, to deprive itself of that enormously important market. Will the Government please think again?

I want to congratulate the Government, and they have our support from these Benches, on their resistance to protectionism. It is a very easy temptation to fall into and it is probably one of the biggest perils facing the world at the present time. Country after country—alas, led by the United States—is turning to protectionism as a short-term way of looking after its own interests. It is no answer. Of course, action has to be taken when other countries are wilfully abusing their position, but, in general, protectionism is not and cannot be the answer.

One of the greatest protectionist devices is having an undervalued currency. My last plea to the Government is to do all they possibly can to stabilise currency rates. The first step is to get into the EMS and the regulatory mechanism. We have often urged this but the time has now come for it to be done. Still, that is only a beginning. One of the major tasks confronting the Government must surely be to work on a worldwide basis towards a new Bretton Woods, or some variation of it, so that industry will not be faced with rapid changes in currency relationships, and in unreal currency relationships, which are a concealed and very powerful form of protectionism. If the Government will follow just a few of these developments, I believe that we may move in the direction of a sustained reduction in the level of unemployment.

9.46 p.m.

Lord Barnett

My Lords, this has been a lengthy debate, and we have heard in the course of it three excellent maiden speeches. The noble Lord, Lord Wolfson, spoke with great clarity in a most distinguished maiden speech. He brought to our debate the huge experience he has of running a highly successful company. I know that all noble Lords who were present to hear his contribution were delighted to do so and will look forward to hearing him speak again often.

We also heard maiden speeches from former colleagues in another place. My noble friend Lord Houghton remarked how strange it is that when colleagues come here from another place they seem to convert from politicians to statesmen. That certainly applies in his case, although I am not sure about anybody else. However, as far as the other two maiden speeches are concerned, they were equally distinguished. The noble Lord, Lord Elliott of Morpeth, I know well, having served with him in another place. He was a much respected Member who was highly regarded on all sides. Coming, as he did, from the North-East as a Conservative Member, he spoke then as he spoke today: with great emotion about the worries and problems of that area of the country. I know that his contribution today was much appreciated by all who heard it, and we look forward to hearing him speak frequently in this House.

The noble Lord, Lord Kimball, was also someone with whom I served in another place, although we invariably served in different Lobbies. Tonight, I might even persuade him to serve in the same Lobby, but I have my doubts about that. I shall try my best. The noble Lord spoke about self-regulation. We in this House are all experts on that subject because we regulate ourselves. I do not think that is quite what the noble Lord had in mind. Nevertheless, his was a very interesting speech and we look forward to hearing his contributions often in your Lordships' House.

The hour is late and I hope that your Lordships will forgive me if I do not speak at too great a length about all the many excellent speeches we have heard during the course of this debate. An excellent speech was made by the noble Viscount, Lord Caldecote, who was primarily agreeing with much of what many of us on this side of the House would say. My own view is that the thinnest part of the noble Viscount's speech was his explanation as to why he did not intend to vote with us. However, I urge noble Lords to read his speech because it will be found that most of it agrees with much of what I propose to say.

Your Lordships will appreciate that although I have welcomed the three maiden speakers I cannot welcome the speech of the noble Lord, Lord Young, the Secretary of State for Employment, quite so cordially. I cannot be quite so complimentary about what he said although, as we have grown to expect, he said it very pleasantly. My noble friend Lord McCarthy answered him completely and comprehensively. Indeed, many of my other noble friends—my noble friends Lord Williams and Lord Jacques—in thoughtful speeches, equally showed so clearly why it is that the noble Lord has got it wrong. Indeed, I hope he does not mind my saying so but I thought his speech was so extraordinarily complacent that it could almost have come from the Chancellor himself.

We have had from the Prime Minister and from the Chancellor, and again from the noble Lord today, the constant repetition of the fact that the Government have done all they can, and are doing all they can, about the problem of unemployment; that the main task they have is to create the right climate. That is what they tell us, and I see the noble Lord is nodding. After six-and-a-half years they have created a climate where, no matter how the noble Lord juggles with the unemployment statistics, we have a record level of unemployment in this country, whether it be 3 million, 3.5 million or 4 million, and the climate clearly is not helping.

If evidence is needed, like the noble Baroness, Lady Seear, I, too, turn to a very interesting report. It is the report recently published by our own Select Committee on Overseas Trade. The chairman of that distinguished Select Committee is not noted for his socialist tendencies—if I may put it that way, given that tendencies are the "in" things these days. In paragraph 231 of that report the noble Lord said (with his committee, I hasten to assure your Lordships, because it was unanimous): Unless the climate is changed … as oil revenues diminish the country will experience", among other adverse effects, higher unemployment, with little prospect of reducing it. Those are not my words but the words of a very distinguished Select Committee of this House headed by the noble Lord, Lord Aldington.

Your Lordships will be aware that we are to debate this report, but what it says is so relevant to this debate on the economy and unemployment that I hope your Lordships will not mind if I quote a few other extracts. 1 believe it is vital that we learn the lessons from the essential facts in the report—and I am not talking about conclusions—even if, like myself, your Lordships may believe that the report's conclusions and recommendations do not quite match the seriousness of the situation it sets out; although I personally understand that in an all-party Select Committee it is more difficult to be specific about recommendations and conclusions.

I am bound to say that the Chancellor and the Secretary of State for Trade and Industry—not, I noted with interest, the Secretary of State for Employment, who was rather more sensible—were foolish enough to rush into instant criticism of this report. However, the fact is that the report is not just a criticism of this Government. The committee rightly says that manufacturing industry has been declining for the last decade. It could have gone even further and mentioned some other former Prime Ministers who presided over declining industry, but it did not; it referred to the last decade. The facts are indisputable. The committee agrees with the Chancellor that all advanced countries have seen a decline in manufacturing industry. The trouble is that others have declined in relative importance but, as the committee pointed out, the United Kingdom has seen an absolute fall.

I concede at once that industry was declining under a Labour Government, too, as the committee indicated. However, it is much worse now as we are further down the road; and not only is the climate wrong but we have been using North Sea oil resources as if they were to go on forever—or, as the Government argue (again, not the noble Lord, who is rather too experienced) and as the Chancellor certainly argued, as manufacturing industry declines and North Sea oil revenues decline we shall see a resurgence of manufacturing industry and a growth of the service industries.

The great service which the committee and its witnesses have done for your Lordships' House, and indeed for the country, is to show clearly why that will not happen. In their conclusions they again point out in paragraph 231: new industries and new products usually grow out of long established activities and require a long time scale for development; … lost markets will be difficult to regain; and … lost manufacturing capacity will take a long time to restore". Anybody who, like the committee, knows anything about industry will of course agree with that statement. Those are in fact modest statements of the obvious, and certainly they should not have brought down on the heads of this committee the abuse that they received from the Chancellor and the Secretary of State for Trade and Industry.

As to alternative employment from the service industries, we had a graphic answer from a colleague of ours, the noble Lord, Lord Weinstock, which I think is worth quoting. In paragraph 73 he said: … what will the service industries be servicing when there is no hardware, when no wealth is actually being produced. We will be servicing, presumably, the production of wealth by others. We will supply the Changing of the Guard, we will supply the Beefeaters around the Tower of London. We will become a curiosity. I do not think that is what Britain is about; I think that is rubbish. The noble Lord, Lord Weinstock, said that. Your Lordships may find those words a trifle strong.

The committee used more restrained language. In paragraph 79, when talking about the likelihood of automatic recovery, they said of that view that: it is unrealistic and dangerously short-sighted". That is a more restrained way of putting what the noble Lord, Lord Weinstock, said, but nevertheless it says the same thing. Taken together, the committee's views in paragraph 231 are that it all constitutes a grave threat to the standard of living and to the economic and political stability of the nation. Having read that report, no one can doubt it. That is rather different from the self-congratulatory Statement made yesterday by the Chancellor and the somewhat complacent speech made today by the noble Lord, Lord Young. 1 see the noble Lord nodding in agreement; I am obliged.

The committee's views are very worrying, based, as they are, on the harsh reality that they have found My own disagreement with the committee is not on the facts but on the remedies. As the committee points out, we are well on the way to a grave situation. If the worst is to be avoided, much stronger action is needed now.

Of course living standards will fall when North Sea oil runs out, but the necessary action must be taken now, as many in this debate have rightly argued. If room is to be made for capital expenditure and help for industry, there cannot also be an increase in living standards. Indeed, there may have to be some fall in living standards among those who can most afford it, though I am bound to say that with a public sector borrowing requirement as low as the percentage of the gross domestic product that the Chancellor boasted about yesterday there is certainly some room for an improvement in public expenditure without any serious danger of increasing the rate of inflation. Indeed, to claim with pride that you have reduced the borrowing requirement to that level at a time of such a level of unemployment as we have now is something of which to be ashamed rather than proud.

Against the background that I have described the Chancellor talks, as he did yesterday, of a "boom situation". Not surprisingly, our own Select Committee, to which I have referred, has set out a very different picture of the economy, and it has done so in very restrained and moderate language. Yet the only conclusion that can really be drawn from that report is that the Government's present policies are both economically unsound and, frankly, socially immoral.

I want to explain to your Lordships why I say that. The policies are economically unsound not only for allowing a catastrophic decline in manufacturing industry. Some of that was probably inevitable and some of the decline was outside the control of this or of any Government. Their policies are unsound because they fail to measure up to what the Select Committee rightly describes as the grave threat that faces the nation, particularly the threat to our economic and political stability. The very best that we shall see is continuing high levels of unemployment in the climate created by the Government.

I say that the Government's policies are socially immoral, for how else can one describe policies that are so clearly and deliberately designed to provide perhaps £3 billion income tax relief at a time when there is a clear need for additional capital expenditure which virtually everyone except the Government accepts? Nobody doubts—and it has not been denied by any Minister, certainly not in your Lordships' House or in another place—that increased capital expenditure would create more jobs than any cuts in taxes. Nobody has disputed that; certainly the noble Lord, Lord Young, did not. It is surely immoral—that is not too strong a word—when millions at home and abroad are crying desperately for help for a Chancellor of the Exchequer by deliberate plan and design to make available £3 billion for tax cuts.

I happen to agree with my noble friend Lord Houghton, and indeed with the noble Earl, Lord Onslow, and the noble Viscount, Lord Caldecote. I should like to see some raising of the tax threshold. I do not know whether it is true that the noble Lord, Lord Young, is having a battle with the Chancellor on how to allocate the tax relief. If it is, I wish him all the best. I hope that he wins that battle. However, if there is any tax relief going it should go on the threshold to help the lower paid, but the Chancellor wants to go down in history as the man who reduced the basic rate of tax to 25 per cent. If he does that he will go down in history but not for the reasons he thinks.

The plain fact is that, rather than give any tax relief, it would be much better and socially a better thing to concentrate the resources that have been created where the need is greatest and help to deal with the problems of unemployment and our inner cities, especially as at the same time that would go some way to meet the grave threat so graphically described by the Select Committee. I hasten to assure your Lordships that I refer only to going some way. I have never pretended that there is a simple and easy way, at a stroke, to bring down the catastrophic levels of unemployment that we now face.

In any event, the money that the Chancellor is planning to give away in his tax bonanza next March or April represents a gigantic accounting fraud. It is more than selling the family silver, and now the Canalettos which we hear that the noble Earl, Lord Stockton, is suggesting. In fact, that is grossly unfair to the noble Lord, Lord Diamond, who was the first person to mention it, but no doubt it will go down in history as the phrase of the noble Earl.

But the proposal is worse than that. If, as many demand, the nation's accounts were presented in balance sheet form and the Government proposed to use the proceeds from the sale of capital assets which belong to us all to pay dividends—that is, tax relief—to those who already have the highest incomes, that would rightly be widely condemned. Indeed, as one noble Lord said in the debate, if a publicly quoted company did that with its assets, that would.be treated as a major scandal in financial circles. For the Government to do that with the nation's assets is a national scandal.

Incidentally, I hope that it will not be argued that the Government will use the proceeds of the sale of assets put forward in the White Paper published yesterday to increase capital expenditure. The facts should be known to your Lordships. In 1986–87 there will be additional capital expenditure on housing of some £220 million. If I may say so, I am grateful to the Star Chamber and to the noble Viscount, Lord Whitelaw, for ensuring that we at least have that, although I am not too sure that the noble Viscount was quite aware of what the Treasury was up to all the time and it may yet have the better of him.

But £220 million extra is to be spent on housing and £54 million extra on roads. That is against capital receipts from asset sales of some £5,000 million. That I hope puts in perspective what is proposed to be done with the £5,000 million available. It is all irrelevant to the central problem that the nation faces. I must return again to those critical words of the Select Committee in paragraph 231, which states that unless the climate is changed the country will experience among other adverse facts higher unemployment with little prospect of reducing it. Yet the Chancellor makes clear that he has no intention of changing that climate.

Against that background, the amendment that was moved so cogently by my noble friend Lord McCarthy regretting the failure of the Government to propose measures intended to achieve a sustained reduction in the present level of unemployment is modest indeed. The Autumn Statement complacently sticks to the climate that has created the problems which the nation faces. It has certainly failed to propose measures to bring about a sustained reduction in unemployment. I urge your Lordships to support the amendment.

10.5 p.m.

The Lord President of the Council (Viscount Whitelaw)

My Lords, my first task—this is a particular pleasure for me—is to congratulate three of my noble friends who have made their maiden speeches in this debate. My noble friend Lord Wolfson brings to the House great knowledge in business. He has done much in the sphere he spoke about today to forge links between our universities and business as a whole—a crucially important part of our national life that he knows very well. He is, of course, as a result, a specially significant addition to the wealth of knowledge and experience in your Lordships' House. I am sure that we all hope that in his very busy business life he will still have the time to give us the benefit of his considerable advice frequently in the future.

I first met my noble friend Lord Elliott of Morpeth when I spoke for him in a by-election at Morpeth over 30 years ago. I do not recollect that, being very inexperienced at the time, we were notably successful. Nevertheless, later he got into the other place as a Newcastle Member. He worked with me in the Opposition Whips' office there. Throughout his parliamentary career as a City of Newcastle Member he has been a staunch supporter of the North-East with its many difficult employment problems. As a fellow northern Member myself, although on the other side of the Pennines, I also worked closely with him and know something of all that he has done. Today, in his speech, he has again shown that knowledge of, and interest in, his home area for which he has worked so hard over the years. I know that he will never allow your Lordships to forget the North-East; I am sure that all his contributions whether about that area or on wider issues will be very much welcomed.

My noble friend Lord Kimball has also been a longstanding colleague of mine in another place. There he earned a deserved reputation as a parliamentary tactician, particularly on Private Members' Bills. Those in this House who are considering getting away with anything in the field of Private Members' Bills, or want to get away with something and outwit the authorities of the House, which is very much easier here than in another place, had better ask my noble friend Lord Kimball how to do it! He spoke today about the problems of the City, where he has been working recently to uphold the standards of conducting business in institutions which make a major contribution to our tradition in the City of London as a financial centre and, indeed, to our invisible exports. When the Bill concerned with financial services comes to the House, I am sure he will play an important part in it. Your Lordships will also find that he has a great knowledge of the countryside, about which I am sure he will speak in the future. We shall be keen to hear him when he does so.

At the end of my speech, I shall respond particularly to the points made by the noble Lord, Lord McCarthy, in support of his amendment, which, I must make abundantly clear at the start, the Government reject for reasons that I consider to be perfectly excellent. As I shall be giving them myself at the end, it would be surprising if they were not.

First, I shall seek to reply to some of the points made by noble Lords during the debate. If I miss some, my excuse will be that as an advocate of shorter speeches I must practise what I preach. In any event, I certainly do not intend to incur the displeasure of my noble friend the Chief Whip who always accurately reflects the mood of the House at the end of a long debate and shows it.

I wish to start with an assertion which I hope will be widely accepted in your Lordships' House, even by the sternest critics of Her Majesty's Government. All of us are united in our determination to encourage the creation of jobs, so that we can offer job opportunities to our people and so reduce the seriously high levels of unemployment. Against that background, of course, there are many arguments about the best way of achieving this objective. However, so far as 1 am concerned I want to make it clear to your Lordships' House—and I hope that I take your Lordships with me—that there can be no doubt about the objective itself.

I do not intend to become involved in all the statistical arguments. There are two very good reasons why I do not wish to do so. First, I do not understand them and cannot clearly go through them. Indeed, I would have been for a much longer time in mathematical education if anyone had thought it would have been worth it and if I had been able to understand it. So I do not do so. I never believe in dealing with things which I do not understand, unless I am absolutely forced to do so.

My noble friend Lord Young has made the position very clear and the arguments will no doubt continue. However, suffice it for me to agree with my noble friend Lord Caldecote that quite simply the unemployment figures in this country today are too high. Forget the statistics; in my judgment I simply say that they are too high. On behalf of the Government I make it very clear that that is the Government's position and I hope that, coming from me, it will be accepted. I occasionally hear strains suggesting that the Government do not really feel that to be so. I want to make it clear that Her Majesty's Government do.

The noble Lord, Lord Diamond, said something during his speech which absolutely fascinated me. I was not quite sure whether I had heard him aright and so I had to go and ask whether my hearing was a little short. He said that £200 million of expenditure on housing—which I am very grateful to the noble Lord, Lord Barnett, for welcoming—was neither here nor there. I do not know what has happened to the Treasury and I do not know what has happened to an ex-Chief Secretary when he can say that £200 million is neither here nor there. But, of course, all things change. Perhaps the noble Lord, Lord Barnett, would like to take his fellow ex-Chief Secretary out of the door—in time, not now—and give him a little instruction on the question of what the Treasury consider to be £200 million, because I must say that in the last few weeks, to which the noble Lord, Lord Barnett, has referred, I have found that arguments about figures very much less than £200 million have occupied me for more than a day. So if I have found that to be so, what can I say about "neither here nor there"?

The noble and learned Lord, Lord Simon, first demolished the old cliché about the family silver. I am sorry to be unkind to the noble Lord, Lord Barnett, again so soon but I really believe it to be a cliché. I cannot understand the argument that when you are transferring something to wider ownership, and indeed to make it more efficient, then to receive income back from the taxation on it, it can ever be regarded as selling the family silver. I should have thought that the Government's privatisation programme is perfectly clear and stands on its own in that connection.

The noble and learned Lord, Lord Simon of Glaisdale, also questioned the demographic trends and I think that I should reply to him about that. The labour force rose by 510,000 in 1984. It was the largest rise in a single year since figures began to be collected. I love the little note I have that follows, saying, Not possible to quantify accurately". However, as there are no better statistics than that, I shall tell you what they say. More married women are taking jobs and the 1960s baby boom generation is entering the labour force. That explains why, in spite of a large rise in new jobs, the number of jobless has not come down overall. The labour force is likely to grow in future, but at a lower rate. Over the next three years the labour force is expected to grow at just over 100,000 a year. I hope that answers the important point that the noble and learned Lord, Lord Simon of Glaisdale, raised.

The noble Lord, Lord Jacques, made, if I may humbly say so to him, a most excellent speech. He gave us a comparison of technical training with West Germany. He also discussed their training programmes, the way the Germans work their machines, and the way they mend their machines when they go wrong. His conclusion was that those were many of the reasons we were not competing as successfully with West Germany as we should, quite apart from any other reasons. He also said that the comparison we had with the Japanese now setting up in this country was in fact to our detriment so far as industrial relations were concerned.

The noble Lord, Lord Taylor of Gryfe, raised the question of the privatisation of gas and the argument that Mr. Hattersley in another place said that he would renationalise it. I cannot speak for what Mr. Hattersley says, but I personally think that the privatisation of gas is a sound measure on its own and certainly is not a dogma of nationalisation. I come back to my point: it is a change to wider ownership and greater efficiency. I believe that to be so.

Noble Lords


Viscount Whitelaw

My Lords, the noble Lord shakes his head, but that is what I believe and I am entitled to believe it; and, what is more, an awful lot of other people believe it too.

The noble Lord, Lord Harris of High Cross, welcomed the shop opening Bill. He asked whether it was going to be introduced in this House. I had better be a little careful, because I have told noble Lords on a previous occasion that I was fighting my battles to ensure that your Lordships had, early in the Session, some important Bills before you. I am still fighting my battles, but I do not think I shall disappoint my noble friend in the end; though I have had a little bit of what has been described as not local difficulties, because they appear to have happened far away from this House and far away from me. I have read the ripples elsewhere. I hope that we shall be able to have that Bill, and I very much welcome the robust support that the noble Lord, Lord Harris of High Cross, will give on that occasion. I am also grateful to him for the welcome he gave to our firm efforts to reduce inflation, and I can assure him that they will continue.

The noble Lord, Lord Williams of Elvel, said that inflation, though he welcomed it up to a point, was not as good as it might be. If the noble Lord, Lord Williams, considers that inflation today is not as good as it might be, I am bound to ask him how on earth he managed to remain a member of the Labour party throughout all the period of the last Labour Government. But he did, and it must have been difficult for him, because after all one thinks of what their inflation rate was at that time.

He made some important comments about the problems of the Metal Exchange and the tin market, on which he is an acknowledged expert. I cannot give him tonight, in advance of the meeting, the assurances he expected, and I think he realises how difficult it would be for me to do so; but I certanly shall see that his important remarks are passed on to my right honourable friend the Secretary of State for Trade and Industry.

The noble Lord, Lord Hankey, supported the control of inflation, and he said that we must continue in that way. He stressed the value of NEDO and the little Neddies. I think he knows that the Government support that position.

My noble friend Lord Eccles made a most important speech about the whole problem of interest rates and the international position. He made it clear to us, from his great knowledge, that it is impossible in the modern world to believe that you can act as a small island in isolation. He made clear how much we are bound to be dependent on the Americans' efforts, and indeed American interest rates. He asked whether I could ensure that my right honourable friend in another place, the Chancellor of the Exchequer, would work hard for this international co-operation which he believes to be so vital in the interests of the world. I certainly can give him that assurance.

My noble friend Lord Mottistone also welcomed the control of inflation. Indeed, he believed very much in the idea that we should introduce commercial management into the dockyards. With his great knowledge of the Navy I was delighted to hear this. When I hear my noble friends expressing themselves strongly in favour of a Bill which will come before your Lordship's House during the Session it gladdens my heart and I hope that of my noble friend the Chief Whip as well.

The noble Lord, Lord Houghton, said that income tax thresholds were too low and hit the poor and he wished to see the thresholds raised. I think that is something on which many speakers in the debate, including my noble friend Lord Onslow, agreed with Lord Houghton. I believe that is something that many people in this House wish to see. I have heard the views that have been expressed about thresholds and other taxation, but it is welcome to know that there are many supporters of that view, particularly the noble Lord, Lord Houghton, who has great knowledge of these matters.

I should say to my noble friend Lord Onslow that, for those who have been out of work for some time and have not had high benefit entitlement, the pilot scheme announced by my noble friend the Secretary of State for Employment, Lord Young of Graffham, today will, we expect, be a real help in improving their financial incentives to take up a job.

The noble Viscount, Lord Falkland, raised the question of wider share ownership—I come back to my point, somewhat disputed, evidently. It appeared from that that he was giving some support to the question of privatisation, and I was glad to hear that.

My noble friend Lord Elibank stressed the importance of avoiding the North-South divide. I agree very strongly with him about that and I also agree with what my noble friend Lord Elliott of Morpeth said in trying to refute that. As one who lives in the North I feel it very strongly. My noble friend Lord Elibank felt that the Channel Tunnel could be in the North and wished it could be. But even if it has to be in the South-East it surely will create jobs throughout the country during its construction and. indeed, would bring orders to the North-East which would be extremely important.

The noble Lord, Lord Granville of Eye, raised the question of vacancies for skilled engineers. I must say to him that the Government training schemes should go a long way to meet the points that he made.

My noble friend Lord Caldecote welcomed many of the measures taken by the Government. The noble Lord, Lord Barnett, seemed to seek to drive a wedge between my noble friend Lord Caldecote and myself. 1 do not think that he wholly succeeded in that task because I was grateful for the support given by my noble friend on controlling inflation, encouraging enterprise and on the trade unions. He certainly had his reservations about unemployment, but he was prepared to press ahead with privatisation. He wanted to see more money spent on the infrastructure and he felt that the amount of wealth being created was too small. On the whole I think the balance of assets when added up comes down on my side rather than that of the noble Lord, Lord Barnett, but that is for my noble friend Lord Caldecote to decide.

The noble Lord, Lord Blease, spoke about Northern Ireland. He has every reason so to do. From my own personal knowledge he made a very great contribution to that very difficult area over the period of time when I was there. I was immensely grateful to him and so I believe everyone should be.

Noble Lords

Hear, hear!

Viscount Whitelaw

My Lords, the noble Lord, Lord Blease, asked about the discussions with the Government of Southern Ireland. I can say nothing further about that today, nor do I think he would expect me to do so. I can assure him that if there is an initiative it will, of course, be under the control of Parliament and this House would have an early opportunity to debate anything which might come forward on that front. I give him that complete assurance.

My noble friend Lady Carnegy of Lour spoke about the need for people to explain to young people the many features of youth training schemes, the community programmes and the new measures announced today by my noble friend Lord Young. They should be explained to people and that should be done by those who may have doubts about some of the schemes, and by noble Lords opposite as well, she felt. I too feel that it is very important. There is a widespread acceptance of many of these Schemes. There is a widespread acceptance of what the Government are doing for training and the more we can ensure that these young people have it properly explained to them the better it will be.

The noble Earl, Lord Halsbury, again disposed of the "family silver" cliché. Noble Lords will be pleased to hear that I have in my notes "Wider ownership" from the noble Earl, Lord Halsbury, so I am reinforced in my view and I shall not retreat from it for one moment. The noble Earl also spoke about the importance of negotiating a reduction in interest rates and the need for international co-operation, in which he agreed very much with what my noble friend Lord Eccles had said.

My noble friend Lord Gisborough raised the problems in an area of very high unemployment where he lives and where I know he works and does so much. He spoke about the social problems and the problems of the under-achievers. One has a great sympathy with what he said. I hope he will feel that some of the training schemes that are coming forward, if properly pursued, will be of value in that respect.

The noble Viscount, Lord Hanworth, spoke of having a sensible, moderate policy. I am not quite sure of those expressions but there they are. I was grateful to him for also saying that he believed that the health service had not been cut. I am glad that he recognised that and I hope that perhaps he will tell some of his noble friends who have not always been quite so clear about it as he is.

My noble friend Lady Faithfull seemed to apologise for raising in this debate the question of children and child benefit, illegitimacy, and the family. She needs to make no apology because she has a very considerable knowledge of these matters and wished to put them before the House. She will have another opportunity to do so, but I am glad she did it tonight because it is central to the problems we face.

The noble Baroness, Lady Seear, made, if I may humbly say to her, as good a speech as I would expect from her. There was only one disappointment I had with it. I felt that many of the points she made led to the conclusion that she might have supported the Government and not have been aligned with her friends on the amendment of the noble Lords opposite. However, that was her decision. Nevertheless, she made some extremely important points about training, on which she is an acknowledged expert and is always much to be listened to on the subject. Also regarding the community programme, she made the point about wage inflation and our costs. I could not agree with her more. If we are to reduce unemploymnt in this country we have to be competitive—and that means in our wage costs as well. The sooner we all realise that, the better. Thus I was extremely grateful to her for what she said.

The noble Lord, Lord Barnett, had clearly decided that on the whole he was going to avoid many of the problems which arise from his past. I have great sympathy with the noble Lord because so do I from time to time. On the whole, we all have pasts in various jobs and sometimes it is as well to avoid them. The noble Lord felt that on the whole he was a strong advocate of controlling public expenditure in his days as Chief Secretary and therefore he decided to move off into what perhaps I may call more profitable pastures so far as he was concerned: the report of the Select Committee on Overseas Trade.

I shall not be led down that route for two very good reasons. First, there is to be a debate on it in this House and that is the proper way to proceed. I look forward to hearing that debate, though, I must assure your Lordships, not taking part in it. Equally, I do not wish to become involved because of the personality of the chairman. I have to confess to your Lordships' House that when I was a very small boy at school the chairman of that Select Committee was a very senior boy. I have always been very frightened of him ever since. Therefore, I am not likely to disagree with him too easily.

I turn now, very briefly at the end, to the amendment in the name of the noble Lord, Lord McCarthy. The essence of this is, your Lordships may know, that the Government have failed to produce measures to achieve a sustained reduction in unemployment. I want to rest my answer on the positive measures which the Government have taken. We have been totally consistent in our conviction that unemployment can only be successfully tackled through a stong and growing economy.

As I will show—and as my noble friend Lord Young of Graffham has sought to explain—we have made considerable progress towards that aim. Many would envy our record of sustained growth over the last four years—growth which has averaged 3 per cent. a year over that time. Manufacturing output, in fact, rose by 4 per cent. in 1984—the biggest percentage increase in any year since 1973. It cannot be stressed too often that this growth, which has been secured in the face of difficult circumstances worldwide, has only been possible because of the success of the measures we have taken against inflation.

Since this Government came into office inflation has averaged under 10 per cent., was around 5 per cent. in 1983 and 1984, and is forecast to fall to 3¾ per cent. by the end of 1986. Compare this with the record of the previous Administration, under which inflation averaged more than 15. per cent. and at one point nearly touched 27 per cent. I mention these figures because I think it is too easily forgotten how far we have come in the last few years, and how unattainable low inflation looked when we came into office in 1979. The measures we have taken against inflation to permit growth and the creation of new jobs are therefore the first reason I put to your Lordships for rejecting this amendment.

Some of those who have spoken have suggested that our policies to reduce inflation in some way are to be blamed for unemployment. That, if I may say so, is turning common sense on its head. As my noble friend Lord Young of Graffham pointed out earlier today, in the last two years 677,000 jobs have been created; that is over two-thirds of a million—I do not know why I said that. However, it is more than all our partners in the European Community put together. I do entirely accept the attitude that at the same time as these jobs have been created more people have been coming onto the labour market and so the new jobs have not yet therefore led to the fall in unemployment which we all desire so much, for it is only by even more jobs being created that the unemployment totals can ultimately be brought down.

There are those of the Government's critics who do not seem to care about the risks of inflation. But, surely, public spending without control would surely lead to all the inflationary excesses which undermined recovery in the past. No one knows that better than the noble Lord, Lord Barnett. They would be bound to lead to a deterioration in our competitiveness. If we cannot sell our goods, more jobs will be lost. Surely, that must be accepted.

The noble Lord, Lord McCarthy, seemed I thought to get some sly pleasure in the fact that possibly wage increases might be 10 per cent. next year. If wage increases are 10 per cent. it will be a very serious matter for the unemployed in this country; and the sooner we understand that, the better for all concerned. It is not just our experience that one has to keep costs down but that of other countries, including, very recently, socialist France, which tried a certain course but then had very quickly to draw back from the consequences.

That is why we continue to believe that public expenditure must be kept under control. Any Government which take their responsibilities seriously must try to do that, for there are always more calls on the public purse than money to answer them. I hope those who attack the Government for getting public expenditure under control will realise that. But, within the overall total, we have looked carefully at the balance between programmes and at what should be the priorities. We are entitled, in my view, to claim credit for the results of that work, which has been going on for the whole of our administration.

The crucial points are these. Public spending is set to fall by 1988–89 to its lowest level as a proportion of GDP since 1972–73. Within this total, however, there will, for example, be more money for the National Health Service and more for social security.

Many of the other measures which have been set out very well in the White Paper I will not refer to because of the lateness of the hour. But they are there for all to see, and much improvement can result from them, I believe. Then there are the measures described in detail by my noble friend Lord Young of Graffham in what I regarded as an excellent speech in his own area of responsibility. These, I believe, are very important measures which, added to the training schemes and the community programmes already set in place, will be of the very greatest importance to our employment prospects in the future.

That is our case, my Lords. I believe it is a very strong case. It is the case on which I rest in rejecting this amendment. Indeed, I now feel more strongly, because I thought the noble Lord, Lord McCarthy, would arrive with an alternative strategy. I thought it would be vague; I thought it would be fraught with inflationary dangers. But he did not arrive with a strategy at all, and so all the more do I ask your Lordships decisively to reject the Opposition's amendment.

10.36 p.m.

Lord McCarthy

My Lords, I shall not keep the House very long. We have listened with care and close attention to the case against our amendment which has been advanced on the other side. No measures were proposed by the Secretary of State, and least of all by the noble Viscount, which would achieve a sustained reduction in the … level of unemployment Misrepresentations of our position on inflation (suggestions that we welcome, or might welcome, inflation) or exaggerations of the Government's own record on inflation are not of help and do not butter any parsnips.

I asked the noble Viscount to answer two specific questions about the effects of the inflation that is in the system on the present level of employment and on the generation of employment from the present expenditure measures. The total absence of any answer to these two questions reinforces what we are saying. There are no arguments against the proposals that we have advanced. There are no arguments in relation to the use of the proceeds of sale of the silver. The noble Viscount says it is a cliché. "There is no alternative" is a cliché; "He must be one of us" is a cliché; but we have to live by these clichés. There is no reason why we should not press this to a Division and ask for a vote on our amendment.

10.38 p.m.

On Question, Whether the amendment (moved by the Lord McCarthy) shall be agreed to?

Their Lordships divided: Contents, 91; Not-Contents, 147.

Airedale, L. Jenkins of Putney, L.
Ardwick, L. John-Mackie, L.
Barnett. L. Kagan, L.
Bernstein, L. Kennet, L.
Beswick. L. Kilbracken, L.
Blease, L. Kilmarnock, L.
Boston of Faversham. L. Kirkhill, L.
Bottomley, L. Kissin, L.
Brooks of Tremorfa, L. Llewelyn-Davies of Hastoe, B.
Caradon, L. Lloyd of Kilgerran, L.
Carmichael of Kelvingrove, L. Longford, E.
Cledwyn of Penrhos, L. Lovell-Davis, L.
Collison. L. McCarthy, L.
Crawshaw of Aintree, L. Mcintosh of Haringey, L.
David, B. [Teller] Mackie of Benshie, L.
Dean of Beswick. L. McNair, L.
Denington, B. Milner of Leeds, L.
Donoughue, L. Mishcon, L.
Elwyn-Jones, L. Molloy, L.
Ennals, L. Monkswell, L.
Falkender, B. Morton of Shuna, L.
Falkland, V. Mulley, L.
Foot, L. Nicol, B.
Gallacher, L. Ogmore, L.
Galpern, L. Oram, L.
Graham of Edmonton, L. Pitt of Hampstead, L.
Grey, E. Ponsonby of Shulbrede, L.[Teller.]
Hampton, L.
Hanworth, V. Prys-Davies, L.
Hatch of Lusby, L. Raglan, L.
Hooson, L. Rea, L.
Houghton of Sowerby, L. Ritchie of Dundee, L.
Howie of Troon, L. Roberthall, L.
Hutchinson of Lullington, L. Robson of Kiddington, B.
Irving of Dartford, L. Rochester, L.
Jacques, L. Ross of Marnock, L.
Jeger, B. I Seear, B.
Sefton of Garston, L. Turner of Camden, B.
Serota, B. Underhill, L.
Silkin of Dulwich. L. Wedderburn of Charlton. 1.
Simon, V. Wells-Pestell, L.
Stallard, L. Whaddon, L.
Stewart of Fulham, L. White, B.
Stoddart of Swindon, L. Williams of Elvel, L.
Taylor of Gryfe, L. Winchilsea and Nottingham. E.
Tordoff, L. Winstanley, L.
Abinger, L. Jessel, L.
Airey of Abingdon, B. Kaberry of Adel, L.
Aldington, L. Killearn, L.
Ampthill, L. Kimball, L.
Arran, E. Kinnaird, L.
Barber, L. Kinnoull, E.
Bauer, L. Lane-Fox, B.
Belhaven and Stenton, L. Lauderdale. E.
Beloff, L. Layton, L.
Belstead, L. Lindsey and Abingdon, E
Bessborough, E. Long, V.
Boyd-Carpenter, L. Lyell, L.
Brabazon of Tara, L. McFadzean, L.
Brentford, V. Macleod of Borve. B.
Bridgeman, V. Mancroft, L.
Brougham and Vaux, L. Mansfield, E.
Bruce-Gardyne, L. Margadale. L.
Butterworth. L. Marley, L.
Caldecote, V. Marshall of Leeds, L.
Cameron of Lochbroom, L. Massereene and Ferrard, V.
Campbell of Alloway, L. Maude of Stratford-upon- Avon. L.
Campbell of Croy. L.
Carnegy of Lour, B. Merrivale, L.
Cathcart, E. Mersey, V.
Chelmer, L. Middleton, L.
Chelwood, L. Molson, L.
Chesham, L. Monk Bretton, L.
Clitheroe, L. Montgomery of Alamein, V
Coleraine, L. Morris, L.
Colville of Culross. V. Mottistone, L.
Colwyn, L. Mountevans. L.
Cork and Orrery. E. Mountgarret, V.
Craigavon, V. Moyne, L.
Cranbrook, E. Murton of Lindisfarne. L.
Croft, L. Nugent of Guildford, L.
Davidson. V. Onslow. E.
De La Warr, E. Orkney, E.
Denham, L. [Teller] Orr-Ewing, L.
Donegall, M. Peel, E.
Eccles, V. Pender, L.
Eden of Winton, L. Penrhyn, L.
Elibank. L. Peyton of Yeovil, L.
Ellenborough, L. Polwarth, L.
Elliot of Harwood, B. Portland, D.
Elliott of Morpeth, L. Reay, L.
Elton, L. Redesdale, L.
Erroll of Hale, L. Renwick, L.
Fairfax of Cameron, L. Rodney, L.
Faithfull, B. Romney, E.
Forester, L. Salisbury, M.
Fraser of Kilmorack, L. Saltoun of Abernethy, Ly.
Gibson-Watt, L. Sanderson of Bowden, L.
Gisborough, L. Sandford, L.
Glanusk, L. Savile, L.
Gray of Contin, L. Simon of Glaisdale, L.
Greenway, L. Skelmersdale, L.
Hailsham of Saint Southborough, L.
Marylebone, L. Stodart of Leaston, L.
Halsbury, E. Sudeley, L.
Hankey, L. Swinton, E. [Teller.]
Harmar-Nicholls, L. Taylor of Hadfield, L.
Harris of High Cross, L. Thorneycroft, L.
Henley, L. Trefgarne, L.
Hives, L. Trumpington, B.
Holderness, L. Ullswater, V.
Hood, V. Vaux of Harrowden. L.
Hooper, B. Vickers, B.
Hylton-Foster, B. Vinson, L.
Inglewood, L. Vivian, L.
Ingrow, L. Waldegrave, E.
Ward of Witley, V. Wolfson, L.
Watkinson, V. Wynford, L.
Westbury, L. Young of Graffham, L.
Whitelaw, V. Zouche of Haryngworth, L.
Windlesham, L.

Resolved in the negative, and amendment disagreed to accordngly.

On Question, Motion agreed to: the said Address to be presented to Her Majesty by the Lords with White Staves.