Lords Sitting of 19 February 1986

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Lincoln.

Royal Assent
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act:
Atomic Energy Authority Act.

Unemployment Figures: Trends
2.37 p.m.
Lord Dean of Beswick: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what conclusions can be drawn from the latest set of unemployment figures released.
The Secretary of State for Employment (Lord Young of Graffham): My Lords, the latest unemployment figures are disappointing. Rises in the seasonally adjusted figures for the past two months have followed falls in the previous three months. However, it is too soon to conclude that the recent broadly flat trend has ended.
Lord Dean of Beswick: My Lords, I am grateful to the noble Lord the Minister for that reply. However, will he not agree that since the noble Lord's own stewardship commenced at the Department of Employment, one conclusion that can be drawn from the latest set of figures issued by his department is that the number of people unemployed has increased by over 130,000, and that perhaps the most dangerous and relentless trend is the increased number of people who can be classed as long-termed unemployed? Is not this one of the key figures within those latest statistics, and can the Minister tell us when he expects that particular figure to start falling?
Lord Young of Graffham: No, my Lords, I am afraid that I cannot agree with the noble Lord's conclusion. I am of course the Secretary of State for Employment and, as is well known, the number of those employed in jobs since March 1983 has risen by 711,000 up to September 1985. We have been living through a period in which the workforce has been increasing; last year it increased by over 540,000. I very much hope that we are now entering a period in which the number of those wishing to take up jobs will not exceed the increase in the labour market.
Lord Alport: My Lords, of the 700,000 who have come into employment during the last period, can my noble friend the Minister say how many are in full-time employment and how many are in part-time employment?
Lord Young of Graffham: My Lords, I do not think that we break down the figures in that way, but I should remind your Lordships' House that the surveys which we have carried out have shown that those in part-time work prefer to be in part-time work. There is nothing wrong or disgraceful about part-time jobs; to the contrary, we are moving into a period in which part-time jobs will become more and more evident, and you can increase earnings from part-time jobs. I shall not agree with any criticism of those who are happy working part-time and gainfully employed in so doing.
Lord Molloy: My Lords, is the noble Lord aware that the period about which he is talking is not the past few months? There has been a massive increase in unemployment for four years, year in and year out. Is he not aware that all sections of this House as well as in another place are becoming a little tired of these rancid answers and excuses? The president of the CBI has condemned them, as has the TUC, and I think that most people in the House would also condemn them. I appeal to the Government: let us have no more excuses; let us have action.
Lord Young of Graffham: My Lords, the last thing that I shall ever offer this House is excuses. Responsibility must lie where it needs to lie, and that is with people. It is people who create jobs. As regards the CBI, perhaps I may remind your Lordships' House that the CBI themselves have forecast that 460,000 new jobs will come into existence over the next two years. Again, I would remind your Lordships' House that not only are we creating more jobs than any other country in the European Community, but that for two years running we have created more jobs than the rest of the Community put together. Furthermore, last month unemployment in Germany increased by 250,000, I feel that we must look at a world in which unemployment is a European problem and not be insular. We must recognise the great advances which are being made by the British public in dealing with that problem.
Baroness Nicol: My Lords, can the noble Lord the Minister say whether the Government have any plans to increase the level of benefit for the long-term unemployed to the supplementary benefit level? Is the noble Lord aware that at the moment the difference is something like £12 a week, and that this can mean life or death to a man with a family? Have the Government any plans in this direction?
Lord Young of Graffham: My Lords, I am very well aware of the difference between in-work pay and out-of-work pay. It is a matter which greatly concerns me because I am concerned to see growth in employment in this country. We are sponsoring some very interesting pilot schemes into the long-term unemployed and ways in which we can help the long-term unemployed. I hope to be able to give informa-

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tion on the schemes in due course. I shall do anything to help the long-term unemployed obtain work, and I hope that in the not too distant future we shall be able to report on those pilot schemes.
Lord Nugent of Guildford: My Lords, is my noble friend aware that on this side of the House we all recognise that he has done a massive job in increasing employment in this country but that he has been struggling against the tide? Is my noble friend also aware that his reference to the position in other European countries reminds us that this is not only an English problem, it is an international problem? What help is the European Commission giving in this respect by way of advice or grants which may help solve not only our problem here but the problem in Europe as a whole?
Lord Young of Graffham: My Lords, I thank my noble friend for his remarks. However, perhaps I may say that the credit for the increase in jobs lies not with the Government but with those who create jobs: the people themselves. As regards the European Community, we have made advances in this respect, and last year, starting with a March meeting at which my right honourable friend the Prime Minister took the lead, we persuaded the Commission to look very carefully at the compliance cost, in employment and business terms, of new regulations that they are bringing out. We believe they have actually harmed the growth in employment, if not reduced it. I should remind your Lordships that the United States of America is a labour market of over 200 million people and so is Europe, and in 10 years the United States created 22 million jobs and Europe lost 2 million jobs. Those are the problems which those of us who live in Europe are facing.
Baroness Seear: My Lords, although the noble Lord has told us that we have created more jobs than the other nations in the European Community, will he tell the House how our percentage of unemployed persons compares with the percentage in those other countries in order to complement the figure?
Lord Young of Graffham: My Lords, I am quite happy to put in the Library of the House a schedule of figures. They are calculated on different bases. Our figures are higher than most countries in the European Community, though not as high as some. Our rate of employment is increasing at a slower rate than others. It is difficult to make comparisons, but in the 1970s we had under-employment; we do not have that today. We are creating new jobs and this time we all believe the jobs will last.
Lord Alport: My Lords, may I ask my noble friend whether he is aware that nobody is denigrating a part-time employment, which is very important to those who are able to undertake it? Would he tell me how many of those 700,000 are men, who are normally the breadwinners of a family, and how many are women, who go out to work to add to the family income if there is a possibility that they should be able to do so?
Lord Young of Graffham: My Lords, I regret that it is slightly off the particular Question to look at the
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difference between full-time and part-time jobs, but I am not in the slightest bit ashamed of the answer, which really is that of course many of the part-time jobs go to women. We should be very pleased at that. Of all adults of employable age in the United Kingdom, no less than 65 per cent. are in paid employment. The figure for France and Germany is 61 per cent.; in Italy it is 54 per cent. The reason is simple: many more women in our society work, and all of us welcome that.
Lord Glenamara: My Lords, the noble Lord told us last week that he had recently visited the North-East of England. Is he aware that in many parts of the North-East unemployment is now higher than it was in the 1930s? In South Tyneside, for example, it is 24 per cent.; and male unemployment in some parts of the North-East is 40 per cent. The noble Earl, Lord Stockton, called attention to it recently. The noble Lord's noble friend sitting on his right told the House yesterday that we are advancing on every front. It is a bit difficult to appreciate that in the North-East of England. We have had no riots in the North-East, but what must we do to call attention to the plight of the North-East of England? When are the Government going to take notice and do something to help that part of the country?
Lord Young of Graffham: My Lords, so far as I am concerned, when one man or one woman is unemployed the rate of unemployment is 100 per cent. for that individual, and it concerns me for each individual whether they live in the North-East or the North-West, or in the South. But we have to notice that the world has moved on: that no longer are we the world's largest supplier of bulk steel: no longer are we the world's largest provider of shipping; no longer do we have the same proportion of industrial output as we had in the early years of the century. We have to replace that with the new industries, and we have to encourage jobs to grow where they will naturally grow. The Government have long been seized of the difficulties of the North-East, and will continue to be so. We announced only last week an inner-city initiative to help part of the North-East. We have city action teams. I must tell your Lordships' House that each time I go to the Newcastle-Gateshead area—and I go three, four or five times a year—I come back encouraged by the progress I see being made there.
Lord Stoddart of Swindon: My Lords, the noble Lord said that he found the unemployment figures disappointing. Is he aware that we on this side of the House, and the country generally, believe that the unemployment figures are appalling, not disappointing? Does he realise that since January 1985 the long-term trend has been very much upwards, and that there are 86.000 more people unemployed this January than there were last January? There are 1,800.000 more people unemployed now than there were in 1979, and 41 per cent. of them have been unemployed for over one year. That is indeed an appalling situation. Will the noble Lord tell the House what he is going to do in Cabinet between now and the Budget to persuade the Government that they should put the matter of getting unemployment down before individual tax cuts?
Lord Young of Graffham: My Lords, I think unemployment is too serious a matter to play games with words. I said "disappointing" because we have had two months of increasing figures following a period of six months in which unemployment was flat, and indeed in the last three months was going down. Of course those of us on this side of your Lordships' House are well aware of unemployment. Long-term unemployment is going up, of course: it has been going up every year since 1979, as it has been going up in every country in Europe, because long-term unemployment is part of the increase of unemployment generally.
No government have taken the steps that this Government have taken. Next year we shall be spending over £1 billion in the community programme, bringing help to over 300,000 people who have been out of work for one year. As I have already referred to in your Lordships' House this afternoon, we are having pilot schemes in nine areas, with most encouraging results as to work that will help with the long-term unemployed. But let me remind your Lordships' House that you will never, never cure long-term unemployment by building roads or by building infrastructures, because those projects use machines and trained and skilled people. There are other ways, and we are finding them.
Lord Gisborough: My Lords, in view of the fact that for every £1 extra spent by everybody in the country per week on British goods rather than foreign goods, 100,000 people are put into work, will my noble friend take steps to encourage the further purchase of British rather than foreign goods?
Lord Young of Graffham: My Lords, I suspect that the answer to further employment in the manufacturing industry lies in the hands of those who are responsible for producing our own goods. It is not the Government's responsibility for goods to be produced of good design, and it is not the Government's responsibility for goods to be produced of good quality, or to time, or at the right price. That lies in the hands of manufacturing industry itself; and when we can produce the goods at the right time and at the right price then I suspect that we shall find more British goods sold at home.
Lord Rochester: My Lords, are the Government prepared to give consideration to the CBI's proposed building improvement programme designed on a costed basis to enable private contractors to give temporary employment to long-term unemployed in the areas worst affected by high unemployment?
Lord Young of Graffham: My Lords, my right honourable friend the Chancellor of the Exchequer receives many representations from all sides of industry, including, of course, the CBI, and I have no doubt at all that he is giving serious thought to all of them.
Lord Hatch of Lusby: My Lords, has the noble Lord read—
Noble Lords: Lord Stallard!
Lord Stallard: My Lords, will the noble Lord accept that nothing in his replies today will be of any consequence, or certainly will be of very little consequence, to the many thousands of unemployed youngsters and adults in the inner London area—the area about which he said just before Christmas that there was no problem? Since he has made that remark, unemployment has increased, particularly in Hackney, where it now stands at nearly 30 per cent. The noble Lord's complacency today, and his attempts to gloss presentation over these figures, will have made the situation much worse so far as those people faced with a really tragic situation are concerned. As he said, it is not a matter for playing about with words, but we want to know what action the Government are taking to do something about the situation in inner London.
Lord Young of Graffham: My Lords, the leader of Hackney Council said that the riots were caused by unemployed 14 to 18 year-olds. I replied that they should be at school until 16, and from next year would have a place in the YTS until they were 18. I stand by that remark and continue to stand by it. There is all the difference between the opportunities for young people in the North-East and the North-West and the opportunities for young people in the southern half of England, and that is entirely another matter.
Lord Diamond: My Lords, would the noble Lord be good enough to reconsider the answer he gave when I thought he was telling your Lordships that the employed numbers had increased every year since the Government took office?
A noble Lord: Rubbish!
Lord Diamond: That, indeed, would be rubbish, my Lords, if it were what the noble Lord said. I am giving him this opportunity to clarify the situation. Is it not the case that the numbers of employed fell by about l¾ million in the first two years, have recovered slightly but are still more than one million less than when the Government took office?
Lord Young of Graffham: My Lords, the figures I gave were for the period 1983 onwards, not for the period before then.
Lord Hatch of Lusby: My Lords, has the noble Lord read the Bank of England quarterly bulletin for last December, which states that, despite the figures given by the Government, the number of real jobs created since the last election is 24,000 and not 240,000, as has been claimed?
Lord Young of Graffham: My Lords, that Bank of England quarterly endeavoured to equate part-time jobs with whole-time jobs, and therefore reduced the figures. I do not think that those who have a part-time job would like to see it taken away and given to another to equate them with whole-time jobs. I am concerned with those in employment and whether it he full-time or part-time it should be what the individual wants.

Postal Addresses
2.53 p.m.
Lord Orr-Ewing: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how they view the refusal of the Post Office to reinstate pre-1973 county names into postal addresses after the abolition of the metropolitan counties.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, the question of postal addresses is very much an operational matter for the Post Office Board.
Lord Orr-Ewing: My Lords, will my noble friend draw the attention of the Post Office to the fact that now that three-quarters or more of the post is automatically sorted, it cannot be impossible to reprogramme the computers and the sorting arrangements so that traditional county names can be used by those who wish to use them rather than names which do not mean much? There would seem to be no disadvantage in retaining the old county names, of which everyone is very proud and which have existed for many hundreds of years. Can this matter be drawn to the attention of the Post Office, because the consumers are not now as well represented by POUNC as they were in days of yore?
Lord Lucas of Chilworth: My Lords, of course my noble friend's point will be made to the chairman and the board of the Post Office, but the Post Office consulted widely across the metropolitan counties and with POUNC and there was no concrete and firm expresssion of a change being necessary.
Baroness Burton of Coventry: My Lords, the Minister will probably rule my question as not arising out of the Question on the Order Paper, but am I correct in thinking that the present range of new stamps issued to celebrate Energy Year commenced at 17p? If that is so, does he not think that it should start at 12p—at the bottom? Is it not mean to isolate a large sector of the community and will he take up the matter with the Post Office?
Lord Lucas of Chilworth: My Lords, the noble Baroness has indeed anticipated my response. I fear that stamps are a little too wide of the original Question.
Lord Bruce of Donington: My Lords, is the noble Lord aware that we think it is very wise of him to decline to intervene in this matter with the Post Office, since the Post Office is a rather more permanent institution than Her Majesty's present Government? Is he aware that following the next election the position of the metropolitan counties, to which the noble Lord, Lord Orr-Ewing, referred, may suffer some considerable alteration as a result of undoing the mess the Government have created?

YTS: Two-Year Courses
2.57 p.m.
Lord Gridley: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what is proposed in the two-year YTS to ensure the highest standards in training.
Lord Young of Graffham: My Lords, in addition to the regular monitoring of YTS programmes by the Manpower Services Commission, the standards of training on two-year YTS will be ensured by a number of specific measures including courses leading to qualifications, a new training standards advisory service and training by approved training organisations.
Lord Gridley: My Lords, while thanking my noble friend the Minister for that Answer, may I ask him in connection with this scheme, which is based upon employee status and a competence certificate at the end of training, whether it is not reasonable in regard to employee status to extend the provisions of this scheme to the Ministry of Defence when a £5,000 million contract has been signed between this country and Saudi Arabia? Does he agree that this will increase employment? Would it not increase employment in relation to everything that was said during the points raised on the first Question today?
Lord Young of Graffham: My Lords, the important part of the two-year YTS is to ensure that all young people who enter not only benefit from their time on the scheme but leave with a valid qualification, or a credit towards a qualification, which will help them build up their future lives. It matters little, I suspect, whether they take this training—provided that it is good—with an employer in the private sector, some employers in the public sector or even in the armed forces. There is an armed forces scheme which has not been over-subscribed in the past but the young people going through it will benefit from it.
Lord Mellish: My Lords, will the Minister arrange for Members of this House and of another place to be invited to the various centres now in operation so that they may inspect and see what is going on? Speaking as one who has been to a number of centres I believe that the standard of training is very high indeed, the equipment is absolutely first class, and it is about time that Members of this House and the other House were given a chance to see it. Why does not the noble Lord arrange something intelligent like that?
Lord Young of Graffham: My Lords, I am grateful to the noble Lord, Lord Mellish. I gladly invite each and every Member of your Lordships' House to see youth training schemes anywhere in the land. Rather than choose for you, you choose for us, and we shall arrange for a visit.
Lord Molloy: My Lords, in addition to the YTS, which seems to be improving, can the noble Lord say what is the attitude of the Government to the joint

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recommendation of the TUC and the CBI that there should be a package with relevance to the inner cities which would enhance the YTS but entail more spending? Is he aware that, according to the TUC and the CBI, that is preferable to cuts in taxation? Is that proposal under consideration?
Lord Young of Graffham: My Lords, I think we have demonstrated our concern for the inner cities in the inner city initiative that was announced last week. The other matters to which the noble Lord referred are matters more for my right honourable friend the Chancellor of the Exchequer.
Lord Stallard: My Lords, will the noble Lord accept that there are many reports in the inner cities, particularly in inner London, of abuse of the YTS schemes? Youngsters are being taken in and given no structured training at all but in many instances are being used as cheap labour. Has the noble Lord visited any of those establishments mentioned in the reports of many of the voluntary organisations who have also been monitoring the youth training scheme and receiving different results from those the noble Lord mentioned?
Lord Young of Graffham: My Lords, no. I totally refuse to accept that, for this very good reason. Each and every youth training scheme or the new YTS goes through an area manpower board, which is not under the control of my department but is a board on which sit five members from the CBI, TUC, local authority representatives and the world of education. Each and every scheme is monitored and can be closed down if any case of the kind referred to is proved, and indeed would be if such a thing happened. What I do know is that there are many young people in the inner cities who do not take advantage of the YTS, having gone through school systems which unfortunately bring them out into the world of work not prepared for it.
Baroness Masham of Ilton: My Lords, may I ask the noble Lord the Minister if there are domestic science schemes in the YTS, so that there can be a higher standard of people coming forward to work in hospital kitchens?
Lord Young of Graffham: My Lords, I have visited many schemes of industrial catering and variants on that. I suspect there may not be any in catering for hospitals because until recently the National Health Service was not prominent in YTS. However, I hope very much that this situation will be remedied in the future.
Lord Rochester: My Lords, will the noble Lord recall that many large companies with good training records run YTS schemes for social reasons and do not afterwards employ many of the young people involved? Is the noble Lord aware of the difficulties that some of these companies are reported to be experiencing in submitting for audit their schemes to the Manpower Services Commission?
Lord Young of Graffham: My Lords, the new YTS scheme starts in April and will receive the main influx of young people leaving school from June through to October. However, I am told that already today
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nationally over 87 per cent. of schemes are agreed and in place, and in parts of the North-East and North-West the figure is 93 per cent. My memory tells me that this is a far better position than that of three years ago when we were introducing the original youth training scheme. I therefore have every confidence that there will be more than a sufficient variety of places to cover all kinds of young people.
Lord Stoddart of Swindon: My Lords, is the noble Lord aware that we believe it is vital for this scheme to succeed? Therefore, I hope he will continue to put emphasis on the need for the scheme to be properly structured, and on training in modern skills leading to qualifications and permanent employment. Now, will he—
Noble Lords: Order, order!
Lord Stoddart of Swindon: I am sorry, my Lords, but this is a question which is important and which I feel sure the noble Lord, Lord Young—
A noble Lord: Question!
Lord Stoddart of Swindon: —will wish to answer. Therefore, I hope I shall be allowed to ask it without interruption. Will the noble Lord consider whether there is some difficulty about the attitude of young black people to the scheme? This is important. Will he also ensure that they, too, feel that they are part of the scheme and can take advantage of it?
Lord Young of Graffham: My Lords, I am very concerned if any young person does not avail himself or herself of YTS, because I believe it gives the best start to life. I am conscious that in many inner city areas there are young people of whatever colour who do not come into YTS, and we are determined to take all the steps we can to enable them to come in and to benefit from it.

Business
3.5 p.m.
Lord Denham: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Lucas of Chilworth will, with the leave of the House, repeat in the form of a Statement an Answer which is to be given in another place to a Private Notice Question on the disposal of BL subsidiaries.
With the leave of the House, I should like to say a brief word about the length of speeches in this afternoon's debate standing in the name of the noble Lord, Lord Barnett, to which your Lordships have agreed to apply a five-hour time limit. On the principle that the mover is allowed approximately 20 minutes and that the Minister should rise to reply not less than 25 minutes before the scheduled end of the debate, the number of speakers is not such as to require me to announce any formal time limit. It would, however, be in accordance with the spirit of these time-limited debates for noble Lords in the body of the debate to limit their speeches to a maximum of 15 minutes.

Education Bill [H.L.]
The Earl of Swinton: My Lords, I beg leave to introduce a Bill to amend the law relating to education. I beg to move that this Bill he now read a first time.
Moved, That the Bill be now read a first time.—(The Earl of Swinton.)
On Question, Bill read a first time, and to be printed.

Mersey Docks and Harbour Bill [H.L.]
Read a second time, and referred to the Examiners.
Plymouth City Council Bill [H.L.]
Read a second time, and committed to an Unopposed Bill Committee.

Economic Situation
3.8 p.m.
Lord Barnett Lord Barnett rose to call attention to the economic situation in the United Kingdom and in particular to the impact of the fall in oil prices on government revenues, the exchange rate and interest rates; and to move for Papers.
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. I shall start in what I hope will be a non-controversial way—and even with the agreement of the Minister. I hope the House will agree that it is helpful to economic management to have a stable and lower interest rate, and that to have a stable exchange rate at a level which I shall discuss would be helpful to the economy. I hope it will also be agreed that stability would be helpful to those trying to run trading and manufacturing companies in Britain.
I hope it will be equally non-controversial to concede at once that it is not always in the command of government to ensure that we have such an ideal climate; but that is quite a different matter from saying that nothing at all can be done. In asking what can be done we need to look first, of course, at what is the present position, recognising that it could be very different this evening, tomorrow, in an hour's time, or even while I am speaking.
The first point to recognise is that oil prices are very low and are likely to remain so unless the Saudi Arabians, in particular, cut their oil production. It is a strange policy, because it results in the oil-producing countries receiving the same money for selling more oil as they would receive for selling less at a higher price. However, it is a strange world in which we live. It is an even stranger policy that the Government pursue, that in this vital area they leave it to the oil companies in this country to decide what should happen to oil prices.
The second point on which I hope there will be agreement is that the result of the oil price has been that the sterling exchange rate has fallen against the basket of currencies, according to the index, although
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not against the dollar, largely because of the weakness of that particular currency. The third point is that the real interest rate in this country is exceptionally high by any standards.
I should like to consider whether these facts are good or bad for our economy. These days we constantly hear that it is bad because the Chancellor will not be able to cut income tax (or, as I should prefer, increase capital expenditure) in his Budget next month. I hope it will be agreed that that is a shortsighted and narrow view to take. It is also a misinterpretation of the real economic consequences of the oil price fall and its effect on the exchange rate. Perhaps I may say this en passant, as it were, in relation to the question of what the Chancellor may or may not do in the Budget. I do not wish to interfere between the noble Lord the Minister and his right honourable friend, but I am sure it would be reasonable to ask him to give us an assurance that he, at least, being the Secretary of State for Employment, will be pressing the Chancellor that anything he has available will go in capital expenditure rather than tax cuts. That is given that there is virtually no disagreement that that would have a greater impact on employment than a tax cut. I look forward to the Minister telling us that he agrees with that.
We have seen, as I am sure have all noble Lords, a great deal of analysis of the likely economic and financial consequences of the oil price reduction. Of course, it is first important to understand that the Chancellor's decision next month in his Budget will not be based on the current price of oil or the current sterling exchange rate, but a much more hazardous assumption of what those rates will be throughout the whole of 1986–87.
One of the serious and carefully calculated analyses that I have seen was done recently by the London Business School, which is a highly respected body. It concluded that five dollars a barrel off the price of oil boosts output in the United Kingdom by 0.4 per cent. in 1986, and by 0.7 per cent. in 1987. It also cuts the rate of inflation in 1986 by 1.3 per cent. and a further 0.5 per cent. in each of the following two years. The London Business School reckons that, at 15 dollars a barrel, inflation falls to an average of 2·5 per cent. in 1986, and at 12.50 dollars it falls to 1 per cent. That assumes an index average for sterling of 72 and the last time I looked it was at about 74 against the average of 80 on the index in the last quarter of 1985. At 15 dollars a barrel, manufacturing exports grow between 5.5 per cent. and 6.5 per cent. annually over the next three years.
One is bound to conclude that low oil prices therefore, far from being a disaster for the British economy, give us a bonus, a chance to go for higher growth and lower unemployment without the risk of inflation taking off again; although even now the greatest risk to inflation and the whole strategy of this Government is not coming from oil prices or the exchange rate but rather from what is happening to the growth in earnings. The latest figure for the year to 31st December 1985 shows a growth of 8.9 per cent.—far and away in excess of the growth in the cost of living. That is of much more serious consequence than almost anything else happening in the economy at the present time.
Of course, there are some disadvantages from an oil price fall especially in the volatility of the oil price and the exchange rate and interest rate. I hope to return to that in a few moments. But may I reiterate that the cut in the Government's oil revenues is nothing like the disaster that we have been led to believe. It is true that at 20 dollars a barrel the oil revenue will be almost halved to £6.3 billion and, at 15 dollars a barrel, the total falls another £3.5 billion. On the other hand, personal disposable income benefits just as much from a fall in energy prices as it does from a cut in income tax; although of course the Chancellor of the Exchequer will not be able to get as much political capital out of that. But I imagine that we could live with that situation.
If we care about more than just ourselves in relation to the oil price, then of course we must also note the serious consequences for the poorer oil-producing countries, not to mention the shaky banking structure in the West. On the other hand, the poorer non-oil producers stand to gain from the fall and the wealthier nations of the world will be given the opportunity to help, which one must hope that they will take this time round.
I refer to the fact that a fall to 15 dollars a barrel, on the London Business School reckoning, would push up the growth of world output from 3.7 per cent. to almost 6 per cent. in 1987. I hope that the Government will accept that some of that growth, surely, must be used more productively than was done in the past to help the third world. These conclusions should not really be so surprising for if the huge oil price increases in 1973 and 1979 were economically disastrous, especially given the reaction at that time of most of the developed world to deflate their own economies, a reduction in oil prices surely should enable us in the West to do the very opposite now.
The various analyses, assumptions and conclusions could all turn out very different in the real world, not least for us if our Chancellor takes the wrong decisions. I particularly have in mind action on interest rates and on the exchange rate. Real interest rates, as I have said, are very high; but I congratulate the Chancellor, and maybe even the noble Lord the Minister for having supported him, in at least resisting pressure to increase the interest rates even higher. In other words, the Government now have an exchange rate policy: that of allowing the exchange rate to take the strain rather than interest rates. However, one cannot help but note that one of the consequences of that fall in oil prices is to show even more graphically than did our Select Committee in the House of Lords what will happen when North Sea oil production starts to run down; because the cut in the oil price of this magnitude is effectively very similar to what will happen when North Sea oil starts to run out. Indeed, astonishingly, as Mr. Bill Martin of Phillips and Drew said recently, the present level of oil prices could push Britain into a balance-of-payments crisis now. That is astonishing given the amount of revenue that the Government have received in recent years from North Sea oil.
It says a great deal about what the Select Committee said in relation to the Government's economic and industrial policy. Speaking for myself, I believe that the gentleman concerned was being somewhat alarmist. I do not think that the Government are going
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to hit a balance-of-payments crisis; although one is bound to note, as did the Select Committee, who rightly pointed it out, if action is not taken now it could become a serious problem. Certainly, it exposes to instant examination the point made by the Committee and then replied to by the Chancellor when he said that the drop in oil resources would be balanced almost inevitably by an increase in manufacturing industry. We shall see whether that turns out to be the case; but it is not easy to see, as the Committee themselves pointed out, how companies that have gone out of business are going to come back into business at a stroke, as it were, because oil prices have fallen.
I return to my opening question; namely, what can be done by Government with regard to oil prices, interest rates and the exchange rate? As I have indicated, I believe that the fall in the oil price and the exchange rate against the index is helpful to manufacturing industry and economic growth. But it is very much dependent upon the assumption that it will remain at those levels consistently throughout the period. There lies the problem. Huge fluctuations, huge volatility in these areas, are, as I have said, most unhelpful. Certainly, that sort of volatility makes it not only very difficult for the Chancellor to plan his Budget but also difficult for manufacturing industry to plan its production and sales. So that while a lower oil price and sterling is helpful, a more stable base, even at a slightly higher level, would be better than extreme volatility of the sort that we have seen in recent weeks.
I am only too well aware that achieving international co-operation on almost anything is, to say the least, somewhat difficult; and it applies particularly in the case of trying to achieve agreement with the OPEC countries where unfortunately they are unable to agree among themselves. But if international agreement is difficult, one must not throw up one's hands in despair especially when an agreement could provide the kind of vital stability that is essential certainly to this country and, I believe, to the world in this important area.
I cannot pretend to be optimistic but even a little international co-operation is surely better than none. I hope that the Government will at least talk to the OPEC countries and I should like to hear from the Minister that he has certainly not ruled out the possibility of holding some discussions in this important area; for even if Britain and Norway agree to only a modest cut in North Sea oil production, it could have an important psychological impact on OPEC and help to achieve the greater stability that we should all like to see. But, apart from anything else, if selling more oil for less money is an odd policy for OPEC, it is very much odder for the United Kingdom with finite resources in the North Sea.
I hope that the Minister will be able to tell us that he is not ruling out the possibility of some discussions. But if more stability is helpful to oil prices, it is even more important for the exchange rate. Again, international co-operation is better than no cooperation, and again I am only too well aware of the difficulties in this field.
I have in the past expressed a personal view that to this end our membership of the exchange rate mechanism of the EMS would be helpful. Not all my

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noble and right honourable friends, and not all noble Lords opposite, have agreed with me; but, on the other hand, many of my noble friends and others who have sincerely opposed our membership on grounds that it interfered with the Government's ability to pursue an independent economic policy without the constraints that bind members of the ERM must surely recognise now that it always was a fallacy, for a country like Britain can never really live in economic isolation from the rest of the world.
The present Government, and, indeed, the previous Labour Government, in which I was privileged to serve, never opposed membership in principle: they opposed it on the grounds of the time not being right, and those hallowed words have been adopted by the present Chancellor of the Exchequer as well. But it is not, and never was, an ideological issue. It has nothing to do with membership or non-membership of the Common Market. It is a decision to be taken on hard, practical grounds.
I have spoken to many who previously disagreed but who are now very much recognising that the time is right, or as right as it is ever likely to be. I have little doubt myself that at the current sterling rate it will provide for more stability in than out. That must surely be in the best interests of Britain. Again, while understanding the difficulties of the noble Lord the Minister, I hope he will at least be able to give me a sympathetic response as to how he is bending the Chancellor's ear.
I have tried to show that, far from the oil price drop being disastrous, it offers great opportunities, not least to manufacturing industry. I have tried not to be too controversial or to be too critical of the Government's management of the economy. I myself feel it is really unnecessary because in the context of this debate it is surely self-evident, even to this Government, that the huge increase in the exchange rate between 1979 and 1981 did enormous damage to manufacturing industry. At that time the Chancellor was positively encouraging the exchange rate to go higher; and it will be recalled that the Prime Minister boasted that it showed the world's confidence in sterling and in her wonderful management of the British economy. I do not know what she is saying today, or whether she has any time to think about it, but, for my part, making a fairly non-controversial speech, I will restrain myself in any desire to ask what the world thinks now about the Government's economic management.
I believe it is generally recognised that the decline in manufacturing industry in the last seven years owes much to that increase in the exchange rate of some 40 per cent.—the real exchange rate between 1979 and 1981—which did so much to cripple the industrial competitiveness of this country and brought a flood of imports which has never been halted. It decimated whole areas of manufacturing industry, although I concede at once that it was not the only reason, and certainly there was a decline in manufacturing industry which started before 1979. I willingly concede that; but it certainly accelerated at great speed, due in no small measure to the mistaken exchange rate policies of those years.
I have tried very hard this afternoon not to embarrass the noble Lord, Lord Young, the Secretary
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of State for Employment, because I know how easily embarrassed he gets. On the other hand, I am bound to say to him that I would congratulate him if he had any impact on the Chancellor in arranging for him to abandon the policy of leaving the sterling exchange rate entirely to the whim of the markets. In other words, the Chancellor now has an interventionist policy and, as I have said, he is allowing the exchange rate to take the strain rather than to increase interest rates even more. Indeed, we know that, together with the Group of Five, he has (rightly, in my view) been intervening and co-operating in this difficult area to try to ensure that there is a more stable system of exchange rates and a more sensible level of exchange rates throughout the western world.
But I trust it also indicates to the Government the follies of 1979 to 1981. I hope that they will put those behind them; and also that the noble Lord, Lord Young, will be able to assure us today that they will not lose this heaven-sent—or OPEC-sent—opportunity to expand the economy and start the vital task of rebuilding the manufacturing base of this country, especially as it will help the noble Lord and the country in the task of dealing with the most serious and urgent social and economic problems this country has ever faced—that is to say, the disastrously high level of unemployment that we face in this country. Given the kind of policy I have described, the Secretary of State for Employment, if he is able to persuade the Chancellor along those lines, could see a start at least to the reduction of the disastrously high level of unemployment. My Lords, I beg to move for Papers.
3.25 p.m.
Lord Young of Graffham: My Lords, I must first apologise for the fact that because of a long-standing engagement with a Select Committee in another place I cannot be with your Lordships for the full course of this debate. The Motion calls attention to the economic situation. The noble Lord, Lord Barnett, spoke with characteristic wit and moderation, but I have to say that I found little that I recognised in his account of the past, the present or even the future. The noble Lord painted a picture, from my point of view, of uniform pessimism. It simply just does not square with the facts.
Let us look at the facts. What has been happening since the trough of the recession over the five years since 1981? Our economy has grown at a healthy rate: the real GDP growth has averaged 3 per cent. a year. Investment has increased substantially, increasing by 4 per cent. a year. Profitability has improved—up from 6½ per cent. to 11½ per cent., to reach the highest level for 20 years; and better profits will lead to higher investment in the future. We are also more successful in the world economy. United Kingdom exporters have at long last halted the slide in their share of the volume of world trade.
All this sounds rather different from the threats of economic decline which the Opposition uttered at the last general election. Indeed, the general election victory has been followed by low inflation, substantial employment growth and sound economic growth—a combination not seen by this country for many years. Inflation has averaged 5·1 per cent. and the numbers

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in work have increased by about 600,000. We topped the European growth league in 1983 and we are expected to top it again in 1985, with a growth rate which is faster than even that of the United States of America.
These are real successes. And in case some of your Lordships are reluctant to accept my assurances—though I cannot think why you should be—let us look at what independent commentators are saying. The chief economic adviser to the National Westminster Bank said recently that only four other nations in the world can now match Britain for economic growth, price stability and a strong balance of payments. As he put it, we are now in the world economic super-league.
The OECD, too, in their 1985–86 survey of the United Kingdom economy, drew attention to the strength, duration and nature of our recovery, to the sharp fall in inflation, to the recovery in profitability, to the growth of employment and to the successive surpluses on current account. All these add up to an impressive performance in many areas of the economy.
The noble Lord's Motion refers specifically to oil and its place in the United Kingdom's economy. The recent sharp falls in the price of oil are bound to unsettle the financial markets to some extent, but it is too easy to exaggerate the importance of oil to this country. Oil accounts for only between 5 and 6 per cent. of our national income and for only 5 per cent. of our capital investment. Net oil exports make up 8 per cent. of our total exports and oil represents under one-half of one per cent. of total United Kingdom employment.
Of course, it is true that a sharp fall in the price of oil will have a substantial impact on tax revenues: that much is self-evident. But noble Lords will understand that I am not here to "second-guess" my right honourable friend the Chancellor of the Exchequer's Budget strategy: nor, for that matter, to satisfy your curiosity and disclose any discussions that I might have had or might still have with him. And, in any case, we must look at the wider economic impact of the fall in oil prices. Lower oil prices would benefit consumers and industry and would stimulate higher world trade and output. The overall effect on output and inflation should be broadly neutral or, if anything, slightly beneficial.
The noble Lord referred only at the very end of his speech to the question of unemployment. I will concede straight away that this is one area of the economy that has been disappointing. When last month's figures were published I said they did not make happy reading, and they did not. However unemployment is calculated—and there is plenty of room for argument about that—it is just too high. But bringing it down depends on producing goods and services which people want to buy.
What Governments can do, and what Governments must do, is to create the economic climate in which enterprise and employment can flourish and grow. Our economic success provides that climate. Our policies to encourage enterprise help firms to grow. Over 600,000 more jobs created since the last general election are evidence of the progress made by our industries.
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But economic success does not of itself guarantee that unemployment will fall immediately. First, the huge problem of overmanning in the 1970s is now being overcome. Manufacturing productivity has been growing at three times the rate experienced during the Opposition's years. Higher productivity and new technology costs jobs in the short term, but in the longer term our economy will be stronger and able to provide more real jobs. Secondly, pay increases well above the rate of productivity growth make our industries uncompetitive. They also make our industries determined to reduce their use of expensive labour. Thirdly, the rising number of people seeking work makes the task of lowering unemployment even harder.
But we are conscious of the need to help those most hit by unemployment. This year we are spending almost £2 billion on employment and training measures. This money is being spent in ways that will ensure that economic growth can be sustained by a properly trained and flexible workforce. More than 1 million young people have joined the YTS since it began in 1983. Up to 1,250 unemployed people are now being given a start in business each week through the enterprise allowance scheme, and this will increase until 80,000 new businesses a year are benefiting from the allowance in 1986–87.
The community programme currently has 174,000 filled places. By June the figure will be 230,000 and some 300,000 places will be available every year at a future cost of over £1 billion. In the current financial year 200,000 adults will have begun their training under our adult training programmes. Overall we are currently helping some 670,000 people through employment and training measures. This is compassion in action—action not words. And in the last few weeks we have started on two new initiatives designed to help those hardest hit by unemployment.
We are experimenting with a new three-part programme to help the long-term unemployed: first, an in-depth counselling interview to identify the needs and potential of each person who has been out of work for 12 months or more; secondly, a new short course designed specifically to help the long-term unemployed brush up their basic working skills; and, thirdly, a job start allowance of £20 a week for those who take jobs with gross earnings of less than £80 a week—a direct financial incentive for those with high benefit entitlement to re-enter the job market.
If these experiments are a success, we shall be looking to extend them as soon as possible. The greatest problem for the long-term unemployed is simply getting out of touch—out of touch with the job market and with the help which is already available to them. Our aim is to get them back in touch and to give them the help they need. In addition, only two weeks ago I announced a new initiative to bring together the efforts of government departments, local government, the private sector and the local community in eight inner city areas.
These are all positive steps that we have taken to stimulate employment and to help the unemployed back into work. They are worth more to the unemployed than wild promises to reduce unemployment by 1 million through a massive extension of the public sector. Let me remind the

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noble Lord, Lord Barnett, of some wise words spoken nearly 10 years ago:
"We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists and that, in so far as it ever did exist, it worked by injecting inflation into the economy. And each time that happened the average level of unemployment has risen. Higher inflation, followed by higher unemployment. That is the history of the last 20 years".
Those were, of course, the words of the last Labour Prime Minister, in whose Cabinet the noble Lord served, addressing his own party conference nearly 10 years ago in 1976. How does the noble Lord reconcile those words with the promises of massive increases in public expenditure which flow daily from the leaders of his party in another place?
Only the day before yesterday the right honourable Roy Hattersley, shadow Treasury spokesman in another place, was urging local authorities and the public utilities to prepare spending plans for an incoming Labour Government. He apparently said that money would be awarded on a "First come, first served" basis. How does that sound to a former Chief Secretary to the Treasury? We have costed the Labour Party's continuing commitments at £24 billion and this does not include all the costs. It does not include the cost of any re-nationalisation, nor of the recent invitation to local authorities and other public sector bodies to, "Cash in on Labour".
How is this massive increase in public expenditure to be financed?—not through income tax. Mr. Hattersley has given an unequivocal commitment not to increase the basic rate of income tax. The noble Lord, Lord Barnett, does not need me to tell him that taxing earnings above £30,000—as the Leader of the Opposition has promised—would not begin to yield the sums required, even if the tax was at 100 per cent. How then is the money to be found?—by increasing VAT by 26 percentage points to a rate of 41 per cent., or by inflating the public sector borrowing requirement from £7½ billion to £20 billion or more? What a disastrous effect that would have on interest rates, on Inflation and on the value of the pound. Forget, my Lords, about the price of oil.
For example, just look at what an increase in VAT up to 41 per cent. would do. It would increase inflation by around 13 per cent., so that the country would have to endure inflation of nearly 20 per cent. That would have an effect on wages which would cost jobs on a massive scale. What a way to cure unemployment! We saw the effect of the Opposition's policies in the 1970s. The noble Lord, Lord Barnett, has a wealth of experience. I almost felt like promising that I would not mention his book; but that book, Inside the Treasury gave us a vivid description of the crisis of 1976, of the resort to the IMF and of the swingeing expenditure cuts which accompanied it. He hears the promises of his party's leaders in another place.
I have a vision of Mr. Hattersley walking into the Treasury and thinking that he can walk down into the basement, open a vault and there in front of him would be gleaming £5 billion of the money which he said was locked up from the sale of council houses and waiting to be spent. I think that he should learn the difference between cash flow and what exists in the
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books. But, either way, it was said of the Kings of France—and we must all have this feeling of history repeating itself—that they had learnt nothing and forgotten nothing. I sometimes think that the Labour Party have gone one better: they have learnt nothing but they have forgotten everything.
Lord Hatch of Lusby: My Lords, will the noble Lord allow me to intervene? In his remarks about Labour Party policy, has he taken note of the words of his right honourable friend the Secretary of State for Energy yesterday in calling for greater public expenditure? Has he read the report of the all-party committee of another place also calling for greater public expenditure?

British Leyland Subsidiary Companies
3.39 p.m.
Lord Lucas of Chilworth: My Lords, with your Lordships' permission, I should like to repeat in the form of a Statement the reply to a Private Notice Question on British Leyland being made in another place by my right honourable friend the Secretary of State for Trade and Industry. The Statement is as follows:
"As I told the House on Monday other proposals for the future of the Land-Rover, Freight Rover and Leyland Trucks businesses, which are the subject of current discussions between British Leyland and General Motors, would be considered on their commercial merits. I named those who were willing to have their interests made public. Since then there has been no material change in the position.
"As I said on Monday, it is in the interests of all concerned in the industry that these negotiations should come to a successful end as soon as they conceivably can, so that damaging uncertainty can be removed. Accordingly, those companies indicating an interest in one or more of these businesses have been asked by the British Leyland board to indicate by 4th March whether they have a firm intention to make an offer".
My Lords, that concludes the Statement.
Lord Bruce of Donington: My Lords, the House will be grateful to the noble Lord for that reply to a Private Notice Question which was asked in another place. Is it not a fact that this deadline of 4th March to which the noble Lord referred was known as far back as 14th February last? Why could not the Government come to the House then and say what the deadline was? Will the noble Lord also confirm that these discussions with GM have been going along for nine months? Will the noble Lord say whether these matters have been brought before the full Cabinet during that period of time? My information is to the contrary. Will the noble Lord also confirm the statement made in another place only last evening by the Minister responsible? I quote:
"I have always understood that the House was sovereign; the House has total and complete control over what happens. If the House decides to go in a particular direction, that is the decision of the House".—[Official Report, Commons, 18/2/86; col. 291.]
Will the noble Lord therefore confirm, as was said in another place last evening, that before any decision is

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arrived at, and before anything is finalised, Parliament will be consulted and parliamentary consent will be obtained? While the noble Lord is pondering that, will he please bear in mind and convey to his colleagues in the Government that it is open to the next government by Act of Parliament to alter the 30-year rule in order that these murky matters over the past few months can be thoroughly exhumed?
Lord Ezra: My Lords, in thanking the noble Lord for his Statement, I should like to ask him whether the Government have fully realised the growing concern at these developments in relation to Britain's motor industry and to our manufacturing industry. This is in no way to suggest that when circumstances are right parts of enterprises should not be disposed of and, indeed, foreign interests could well be involved. But what is happening here seems to indicate that a serious weakness could result in the whole of the British manufacturing scene.
Can there not be more of a partnership in these arrangements to ensure that we safeguard British manufacturing interests as well as benefit from whatever foreign interests might bring to bear on the scene? The concern is that if these essential parts of British Leyland, and in particular the potentially very successful Land-Rover part of British Leyland, fall into the hands of a multi-national company, which for prefectly good reasons might vary the emphasis of its operations from year to year, from one country to another in which it operates, this could lead to serious difficulties for the British motor industry and its employees.
Without in any way restricting the commercial freedom of British Leyland I hope that the Minister can give us some assurance that these national interests are being considered, and that in any arrangement made for the disposal of these assets we shall be seeking to ensure that employees, management and the public in general will be safeguarded against the possibility of the dilution of a major segment of our manufacturing sector.
Lord Lucas of Chilworth: My Lords, I am most grateful to the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Ezra, for their receipt of this Statement. In response to the noble Lord, Lord Bruce, I can confirm that the General Motors negotiations have been going on for some time—something like nine months. Indeed I think there has been public knowledge of these matters, certainly reported in the press, for a considerably longer period. With regard to the deadline of 4th March, this is a matter which the board of British Leyland has decided upon as being in the best interests of its company, its dealers and its workforce—in fact, all those involved—so that any uncertainty may be limited.
I cannot answer the noble Lord, Lord Bruce, about what goes on in Cabinet because I am not privy to those matters. What I can say is that my Secretary of State in the Department of Trade and Industry has no proposals with regard to British Leyland at this time to put before his Cabinet colleagues. With regard to any decision in relation to General Motors or any other bidder for any part of British Leyland businesses, certainly those matters will be reported to Parliament.
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I am grateful to the noble Lord, Lord Ezra, who describes his view of a partnership in the motor industry. Perhaps I could remind the noble Lord that the United Kingdom motor vehicle industry has had a partnership since the 1920s with General Motors, and as I have reported on both 3rd February and 17th February both British Leyland and the Government will be ensuring that the very interests that the noble Lord mentions are taken care of in any negotiations with any company with regard to the acquisition of parts of British Leyland.
Lord Harmar-Nicholls: My Lords, is my noble friend aware that in circumstances like this the one thing that is a killer is uncertainty? For that reason the suggestion to put a deadline on people who say they might be interested to make their decisions early in March is absolutely right. From the point of view of the workforce, the ownership of the shares comes second—a very poor second—to having an efficient, competitive industry with which to work, and in removing the uncertainty you are moving in that direction. People who are interested in delaying it for what are often pure party political reasons should be completely ignored.
Lord Lucas of Chilworth: My Lords, I am grateful to my noble friend Lord Harmar-Nicholls for underlining what I have sought to say, now for the third time since 3rd February. I am most grateful to him.
Lord Lloyd of Kilgerran: My Lords, having regard to the noble Lord's statement that what he indicates from the Government is in the interest of all industry, what measures do the Government propose to introduce to safeguard the interests—the very important interests, the international interests—in intellectual property rights not only belonging to the company but also in regard to the rights of employees? I apologise to the noble Lord the Minister for not giving him notice of my question, but if he cannot answer it today perhaps he can answer it at some other time.
Lord Lucas of Chilworth: My Lords, I understand the point made by the noble Lord, Lord Lloyd of Kilgerran. He will know very much better than I the safeguards for intellectual property rights. We seek in all negotiations assurances from General Motors in this case, and from others who are negotiating with British Leyland, with regard to British content, trade marks, names and the like. The noble Lord will himself know that in law there is a time limitation in respect of all such assurances.
Baroness Turner of Camden: My Lords, what arrangements are being made to consult the workforce, in view of the fact that the opinions of the workforce were held to be of significance in the Westland affair?
Lord Lucas of Chilworth: My Lords, as soon as British Leyland has reached some conclusion in this matter it will have something to discuss with the workforce. At the moment, albeit that negotiations are at an advanced stage with one company, there is nothing to discuss in detail with the workforce.
Lord Taylor of Gryfe: My Lords, accepting the point made by the noble Lord, Lord Harmar-Nicholls, concerning an early decision in this matter, does the Minister not accept that General Motors has been involved in negotiations for nine months? A deadline has been set for British and other interests to indicate their interests by 4th March. Will the Minister assure the House that there will be adequate time thereafter to assess and evaluate the bids that may be forthcoming from other interests?
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord. As my honourable friend the Minister of State said in another place, the negotiations with General Motors are a long way down the track. That has not precluded other people, over many months, putting proposals to British Leyland, since it was a declared objective of the Government to return British Leyland to the private sector as soon as possible. The board has not set any time limit by which completion of its considerations shall be made, so there is adequate time for the board to give consideration to any offer that is made by 4th March.
Lord Molloy: My Lords, does the noble Lord not agree that there is consternation generally throughout the country, on both sides of industry, and in the City, about the large portions of British industry that are now passing into the control of the United States of America? That situation could be very serious for our future. If there should be any grievous slump, I cannot imagine for one moment that any responsible American would see to it that Americans will suffer first, before the British or anyone else.
Will the Minister explain the attitude of the Prime Minister, who, during the Westland issue, seemed to indicate that everything should be left to market forces, whereas she is now on record as saying that British Leyland should go to the Americans? Is the Minister aware that it is causing grave consternation that the head of the Government should be favouring another Government taking over control of a part of British industry?
Lord Lucas of Chilworth: My Lords, I have made it clear to the noble Lord, Lord Molloy, and to others in the exchanges that we have had that the long-term interests of the truck and bus industry in this country and of those who work in it are of major concern to us. So far as General Motors is concerned, it has demonstrated since 1920 its interest in being part of the British manufacturing scene. We seek long-term benefits for those employed in the truck industry, and we seek to do that by considering every offer made that will advance those interests.
Lord Hatch of Lusby: My Lords, will the Minister answer the question put by my noble friend Lord Bruce of Donington? If he cannot do so—and one sympathises with the Minister for having to speak without the knowledge required—then perhaps he will have a word with his neighbour, the noble Viscount the Leader of the House. Is he aware that this morning his right honourable friend the former Minister of Defence, Mr. Michael Heseltine, stated publicly that during his period in the Cabinet this issue was never once raised and that he knew nothing of it? How does
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it come about that negotiations concerning the disposal of a British company owned by the Government on behalf of the British people are conducted for nine months without the matter ever coming before the Cabinet?
The Lord President of the Council (Viscount Whitelaw): My Lords, since the noble Lord decided to put his question to me—and so did the noble Lord, Lord Bruce of Donington—then I am entitled to say this. Perhaps I am becoming increasingly old-fashioned, but I have always understood that what went on in Cabinet was a matter of confidentiality. That is a principle that I shall maintain as long as I live, and I intend to do it now.
Lord Hatch of Lusby: My Lords, it is not I who is breaking confidentiality. If anyone has broken it, surely it is the noble Viscount's ex-colleague as a member of the Cabinet. I was simply quoting a former member of the Cabinet who stated this morning that the question had never come before the Cabinet during the period of nearly seven years that he was a member of it.
Viscount Whitelaw: Very well, my Lords—that simply reinforces my point. I am not interested in what other people say. I am interested in what I myself believe to be correct and was brought up to believe, which is what Members in all parts of this House have been brought up to believe: that if one is a member of the Cabinet one treats its proceedings with confidentiality. That I shall do as long as I remain in public life, and long afterwards.
Lord Bruce of Donington: My Lords, as the noble Viscount has been so forthcoming, will he be kind enough to answer a question of mine that his noble friend did not answer? Is it still the position of the Government as a whole that, as stated by the Minister in another place last night, Parliament is sovereign in these matters and that Parliament will be consulted before a decision is taken? Is that still the position of Her Majesty's Government?
Viscount Whitelaw: My Lords, my noble friend answered that question. He said that naturally any such decision will be reported to Parliament. It is perfectly obvious that if a decision is reported to Parliament then it will be open to Parliament thereafter to take any such action as it may wish to take. That has been the position for a long time, and it must remain so.
Lord Diamond: My Lords, is the Leader of the House aware that as far as all of us on these Benches are concerned we wish to support him to the end, utterly and completely, in the attitude that he has just expressed with regard to the disclosure of Cabinet discussions in the interests of good government? Having regard to that, and on a much less serious note. I invite the noble Lord the Minister to reconsider his answer when he said that he could not disclose what went on in Cabinet because he was not privy to it. I hope that it was only in the interests of not detaining the House at length that the Minister did not go on to say, "Nor would I if I were!".
Lord Lucas of Chilworth: My Lords, I am most grateful to the noble Lord, Lord Diamond.

Economic Situation
3.58 p.m.
Debate resumed.
Lord Ezra: My Lords, I wish to express my particular appreciation to the noble Lord, Lord Barnett, for introducing the Motion that is before the House today. I do so on two grounds. First, because of the extreme timeliness of the question that he has put forward for debate; secondly, because he has exposed the issues with his customary moderation and constructiveness.
Having heard the noble Lord, Lord Barnett, introduce the Motion I was waiting with great interest to hear what the noble Lord, Lord Young of Graffham, would say on the subject. I must say that I was disappointed. I thought that he would address himself to the issues that had been raised, but instead of that we had, with his customary oratorical eloquence, a defence of current government policy. But that is not what we are debating. What we are debating today is that there has been a massive change in the world oil scene which has led to serious potential perturbations or advantages in different countries.
What we want to explore is the potential impact upon this country of that change; but we did not get that from the noble Lord the Minister. I hope that his noble colleague, when he replies to the debate, will give us the views of the Government on that subject because I presume the Government have addressed themselves to it. Such a massive reduction in our revenues, on the one hand, and the potential advantages to manufacturing industry, on the other, must presumably—without in any way wanting to infringe on what may go on in Cabinet—have occurred to the Government as a subject for consideration; and that is what we wish to debate today.
Therefore, if I may be permitted to do so, I should like to put this subject in its context following on the introduction that we have had from the noble Lord who tabled the Motion. Oil has played a dominant part in the affairs of the world, and particularly this country, since 1974. There were, first, the two oil shocks of 1974 and 1979, the latter of which introduced the most serious recession since the end of the war. In addition, so far as this country in particular is concerned, we found and then with great skill exploited the resources in the North Sea and we have now become one of the major oil producers in the world. This has gained us an enormous amount of financial benefit. We now have a situation where what is called the third oil shock has occurred with a massive reduction in the price of oil.
It was only a few weeks ago that oil was being quoted at about 25 or 26 dollars a barrel and it is now round about 16 dollars a barrel. We are entering the doldrums of the summer period—we shall presumably sooner or later get there in spite of this harsh weather—when oil prices are likely to decline still further for seasonal reasons. Therefore, 15 dollars a barrel is not unlikely and it could be even lower. So I
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think that it is very proper that in this House, which is used to objective, intellectual deliberation, we should consider the possible impact of those developments and the various options which are open to us as a country.
I should like to group my remarks under two heads. First, I believe there is an energy impact from these developments and, secondly, a wider economic impact. As regards energy, we now have the problem to which the noble Lord, Lord Barnett, referred, that there is currently a world surplus of oil. We are a major oil producer but we know that our reserves in the North Sea are finite. Therefore, the question arises: what should we do about that situation? Should we go on producing at top rate with a prospect of adding to the lowering of price and, therefore, of our revenues? Or should we seek to limit, to some degree, that production? I have no doubt that we should be looking at ways in which we could, on the one hand, moderate the pace of production but, on the other hand, continue to stimulate the pace of exploration.
What we need to do is to have the maximum amount of future oil from the North Sea that we possibly can, and that depends on the exploration effort. However, it does not seem to be particularly to our commercial advantage to be maximising production at the present time. I realise all the difficulties there might be in this and I realise the position of both the oil companies and the Government. Nevertheless, I would be most obliged to the noble Lord, Lord Brabazon, when he replies, if he could give us the Government's thinking on this issue.
Not only is the energy impact related to oil: it is, of course, related to other energy sources. We as a country are blessed with the fact that we have a plenitude of energy sources at our disposal. The issue that we face in relation to these other energy sources is what view we take about the long-term position on oil prices and availability. If we were to believe that the present reduction in the price of oil is something that is to subsist for a very long period and that we could depend on adequate resources of oil whether from our own sources or elsewhere for that sort of period, then, of course, we would have to adopt a policy of cutting back on our other energy sources because there would be no point in wasting those assets.
On the other hand, if, as I think it would be prudent to believe, this could be a relatively short-term issue, and that when we move into the 1990s the situation could change, then I think we ought to make sure by our energy policies that we maintain our capability in the other energy sources. I have always believed that in the matter of energy over-insurance is better than no insurance. Therefore, I think we have to consider very carefully what we do in relation to the coal industry which is another major source of fossil fuel available to us.
As we heard recently in answer to a Question, the coal industry is now doing very much better. Productivity has improved and performance is moving ahead, but it is caught up in the slipstream of the massive reduction in oil prices. There is the risk that, if oil prices go much lower, on a purely short-term commercial basis it could pay the electricity industry in this country to switch significantly to oil generation rather than coal generation.

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Having had some experience of these matters I would counsel caution before that was done. I would say that we ought to maintain a substantial quantity of coal going into the power stations, bearing in mind, on the one hand, the progress made in the coal industry at present and, on the other hand, the uncertainty about future supplies. Equally, we are now, due to the enterprise in particular of the Secretary of State for Energy, moving into a massive campaign for energy saving. I hope that that will in no way be diminished by the changes in the price of oil because, again, this is something of long-term significance and bound to pay us, almost whatever the price of energy. Therefore, I hope we can have an assurance in that connection.
Equally, we need to be assured that for other energy sources, particularly renewables, the effort will not be diminished. It has been my experience, stretching over many years, that in energy as in other walks of life there are short-term reactions and that if it appears that there is a surplus and prices weaken then longer-term efforts are diminished. I hope that will not be the case in the energy strategy of this country.
I now move to the wider economic implications and options resulting from the changes in oil prices. For this country there are minuses and pluses. What we obviously must do is minimise the minus impact and maximise the plus impact. The minus, of course, is that our revenues will be affected. According to the latest views of the Treasury, as reported in the newspapers, the estimate made last March of the net benefit from oil in the forthcoming financial year was of the order of £11·5 billion. It now estimates that it could be around £6 billion. So this is a massive drop. And it is not only that: of course, this also affects our overseas earnings on oil.
Your Lordships will undoubtedly recall that over the past three years we have only been able to show a surplus on balance of payments on current account through what we have earned on oil account. A substantial diminution in the oil earnings on overseas account is bound to call in question whether we can maintain that overall surplus. I think it would be useful to the House if the Minister could indicate to us the current Government thinking on this point. This indeed is a matter to which they surely must have addressed themselves. It is said that there will be a reduction of something in the order of £2 billion—it may be more—in our overseas earnings on oil in the coming year if present prices continue. What impact will that have on our overseas balance? I think that this is a fair question for us to ask.
I come now to the positive aspect of the matter, which is that the costs of oil as an energy source will be diminished and therefore it must be our endeavour to make sure that that effect works its way through the economy. One way it will not work its way through the economy is if the Government were minded to tax away the advantage. There have been rumours of what they might do in relation to petrol. I shall not be so bold as to ask the noble Lord, Lord Brabazon, to indicate to us what his colleague might do in relation to the Budget, but I should like to express the opinion that I think it would be quite wrong if the benefit that the economy is likely to derive from the oil price reduction were to be taken away by act of government
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through increased taxation, because that would minimise this positive benefit.
However, in order to obtain the full benefit from the situation, in my opinion wider policy decisions need to be taken. I was present last night at the annual dinner of the Engineering Employers' Federation at which the Secretary of State for Energy was speaking. Obviously it is his opinion, but he expressed grave concern about the way in which our economy could develop if different policies were not undertaken. In particular he said that he could see Britain possibly becoming—I took these words down as he was speaking—"a low wage subcontracting service economy".
There is a risk of this happening, and your Lordships' Select Committee on Overseas Trade, over which the noble Lord, Lord Aldington, presided and to which I had the honour of belonging, drew attention to this risk, not with the intention of being gloomy but with the intention of indicating the difficulties ahead, in order to ensure that we pursue policies which avoid that dire situation. So it is necessary for actions to be taken at the present time, when we have the positive impact on general costs of the reduction in oil prices, to make sure that the benefits are carried through the economy.
When those of us who were pressing for rather more capital expenditure in the public sector were making our case, when oil prices were high, we were told that the impact would be inflationary. Now we have a much lower oil price with a deflationary impact. I would have thought that the time has come when we ought to give a filip to the economy by a combination of measures to add to capital investment in essential public sector areas, such as putting right the quality of housing—which we have many times debated—on the one hand, and suitable tax reductions on the other. Let us hope therefore that we can get a combination of those policies together with the benefit of oil price reductions which flow unimpeded through the economy.
The other important issue raised in the Motion that is put to us by the noble Lord, Lord Barnett, concerns the related questions of the exchange and interest rates. The exchange rate is something which has bedevilled our economy for some time. The evidence which we received in the Select Committee on Overseas Trade showed that there was a virtually unanimous view on the part of the industrialists who spoke to us that the fluctuations in the exchange rate were particularly debilitating. We are now in a situation where we could bring greater stability.
I shall repeat the arguments which we often hear from these Benches in favour of our going fully into the EMS, on which subject the noble Lord, Lord Barnett, has also expressed his opinion. I should like just to quote, if your Lordships would bear with me, the remarks recently made by Dr. Wilfried Guth, who is chairman of the Deutsche Bank, and a good friend of this country who was over here on the 11th February. He said:
"Britain would benefit by entering the full EMS at the present stage because the pound would fluctuate less and the burden of defending it when necessary would be shouldered by all the central banks within the system."
If we could get a degree of stability in the pound at the present rate in relation to the other European

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currencies, this surely would be a big advantage to the country. We now have an exchange rate with the deutschemark which is way below 3.50 (which was at one time quoted as being excessive). It is now in the 3.30s and this is bound to be a very great advantage.
In conclusion, I believe that we are presented with a very great opportunity through this change in the oil prices but it will only be converted into an actual benefit if we buttress what has happened with positive and determined policies.
4.18 p.m.
Lord Soames: My Lords, I want very much to follow the line taken by the noble Lord, Lord Barnett, when he introduced this interesting Motion. I do so because I think it is important that in this House the international ramifications of our economic policies should be well considered. That is the topic on which the noble Lord concentrated—wisely and well, if I may say so. It is to that matter and to two of the points which he made much of that I should like to address myself this afternoon.
My first point concerns the volatility of exchange rate movements. In the last six years we have seen the exchange rate of the pound with the dollar vary from a high of 2.70 to almost parity and then again rising to the middle 1.40s. As your Lordships will know well, money is meant to facilitate the movement of goods and services. That is what money is about. But if we have totally uncontrolled swings in exchange rates, far from facilitating that, money becomes a malign influence. We have all seen that to our cost. We have seen it; the Americans have seen it. The question is, what sort of balance can we strike between, on the one hand, totally fixed parities as set out in Bretton Woods and, on the other hand, the totally floating currencies that we have seen since the demise of Bretton Woods?
If I may, I will be so bold as to quote to your Lordships a few words that I said three years ago, on 23rd March 1983, at col. 1114 of Hansard:
"There can be no doubt that the volatility in exchange rates … has been a malign factor militating against international trade. Violent changes in parities have been far greater, far more frequent, and far more uncoupled and disconnected from real economic factors than was ever anticipated a decade ago, when the disciplines of the Bretton Woods monetary system were jettisoned in favour of a floating rates system.
"Surely, whatever may have been the case in the past, it would now be in the interest of the United States, as it certainly would be for the rest of the world, for the United States Government to be prepared to take some measure of joint responsibility, along with others, for the level and structure of exchange rates. I am not suggesting that there should be any question of defending any particular rates; or of commitment to any substantial intervention. But simply the decision that the pattern of world exchange rates was to become a matter of shared concern and the implied acceptance by the major countries jointly that they no longer regarded it as desirable or inevitable that their authorities should be passive in the face of any exchange rate movements—that alone could not fail to make an important contribution to stability".
Those remarks did not find favour with the United States Administration at the time. Indeed, I remember seeing President Reagan on television saying what the noble Lord, Lord Barnett, said that he had heard the Prime Minister say about the pound in 1981–82: the fact that the dollar was riding so high showed clearly how good were the economic and fiscal policies of the United States and his Administration. In fact, it had little to do with that, as noble Lords know full well. I
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would just say that where the Prime Minister is concerned the reason why we had to keep interest rates up in the early 1980s was the level of inflation. It was the need to get inflation down which, alas, made it necessary for us to have such high exchange rates.
As I say, the American Administration, for a long time when the dollar was riding so high, made the world believe that they thought that it was "good news" (in inverted commas) that the dollar should be so strong. We are now seeing what it did to the dollar. We have seen how American industry could not cope with such a high exchange rate. We have seen built up a current account deficit such as had never been thought of before in the United States, and that in turn has built up a desire among industrial interests in the United States to see protectionist policies pursued. I noticed that most forcibly when I was in the States in the summer. There were something like 300 Motions on the Order Paper of Congress urging protectionism in various industrial areas. That was purely because the dollar was so high and so strong, encouraging a flood of imports.
We have now seen a change. The idea of having a meeting of the Group of Five in New York—the Plaza Meeting—originated with the United States Administration. It was they who suggested it. That must be going in the right direction. It has been effective. It has shown that it is possible for governments if they get together to act upon exchange rates. It is not something that one government can do alone. I doubt whether there has been all that much intervention. Speculators in particular have realised that it was no good trying to force the dollar up. That was not going to happen because the whole of the Group of Five and others were agreed that it should not.
But now what? The dollar has come down about 15 to 20 per cent. in relation to sterling since then. But I wonder very much whether it will have gone far enough and in time to put away all evil thoughts of protectionism in the United States Congress from now on. It would have been infinitely better had they acted three years ago. What will happen now? I suppose that the temptation is to say that it has been good, it has had an effect, the dollar will not soar again and we can all sit back and enjoy it. But this is the time, when things are comparatively stable, that details should be agreed among the Group of Five, or preferably the Group of Seven, as to how together they can act to ensure that it does not happen again.
That is what I would plead. What was originated in the Plaza Meeting and underscored again in the meeting comparatively recently in London should be made much of, as it were, and not be left to rest there. Surely we have all learnt of the damage that can be done to the world economy and particularly to developing countries by such dilatoriness in taking action.
That leads me to my second point, which is the indebtedness of developing countries. What has been proposed by Mr. Baker may be followed through and a lot of extra money may be found for the developing countries, but in no way will that resolve the problem. My thinking is this. There are enough factors as it is affecting the interest rates of the governments of the countries of the developed world without adding this problem. In other words, we should be seeking low

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interest rates perhaps, but for different reasons. If interest rates ought to be high, we should not be trying to put them down merely because of the indebtedness of the developing world.
I wondered whether the developed world could not work out a scheme rather like the one that we have had in this country with developing countries on the line of a double taxation relief clause. If a bank lends money to Malaysia for a development project, Malaysia has to pay only 80 per cent. of the interest, because 20 per cent. is deemed to have been taken there in taxation. The bank that receives the 80 per cent. does not suffer because its corporation tax is consequentially reduced. Could that not be adapted in some way for the whole of the developed world to operate in regard to the indebtedness of the developing world? It would, of course, mean the taxpayer in the developed world suffering somewhat, but that will not be necessary if everything turns out for the best and the problem is resolved.
I fear personally that, far from being resolved, the difficulty is likely to get worse. I do not see how Mexico can conceivably pay 10 billion dollars in interest on its debt this year. It will have to borrow just to pay the interest. I do not think that this problem will go away on its own. If we leave it too late and it erupts, then that could be disastrous for the banking system of the whole Western world.
Lord Diamond: My Lords, will the noble Lord give way?
Lord Soames: My Lords, yes, but the noble Lord must take it off my time.
Lord Diamond: My Lords, I agree. As we are on the point about Mexico, will the noble Lord say what is his view of oil prices, as Mexico depends on high oil prices to pay the interest?
Lord Soames: My Lords, one does not fix the world price of oil according to the advantages or disadvantages to any one particular country. I do not wish to be drawn into that matter. I was not going to talk about it and, if I do, I shall go well over the top time-wise.
I wish to follow up what has been said by the noble Lords, Lord Barnett and Lord Ezra, about our becoming full members of the EMS by joining the ERM. There has been reference to a quotation of the chairman of the Deutsche Bank that I have not had the advantage of seeing. It is, however, obvious that what he said is right. The situation has never been so attractive as it is today. I must confess that I have been wrong in the past, in that I have always wanted us to join the EMS. We are in a better position to do so today than we would have been had we joined when I last suggested it. I honestly do not envisage a better situation than exists today with the exchange rate of the deutschemark in the area of 3.33, and sterling inevitably low, with low oil prices, but still holding its own with the dollar because the dollar is moderately weak.
I should have thought that in this situation, in which, despite the weakened oil price, we are holding our own with the dollar, we should really go in. I know
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many people in important places who used to oppose this step but who now agree that they would like to see it taken. The only conceivable reason that I see against it is that we might be forced, in a new realignment of the currencies of the EMS, into a position in which sterling appeared to be being devalued. But then what was happening when it was coming down from 2·70 to parity at one dollar?
We should not now be frightened of this. It was a considerable political event when devaluation occurred under Bretton Woods in 1947 and again in 1967. But, to be quite honest, I do not believe that it should have been a political point—unless it could be proved that the reason for sterling coming down was incompetent economic policies. Perhaps that was the case then. It certainly could not be so now. I hope, therefore, that we seize this most valuable opportunity, with everything going in our favour, to join ERM. If not, we shall miss a very important opportunity.
My time is up. We are living in a world that is growing increasingly interdependent in trade, in commerce and in economics. The economic policies of one country can have an enormous effect upon the world as a whole. It is important that this should be taken into account to a proper degree by any British Government formulating their economic policies.
4.35 p.m.
Lord Kaldor: My Lords, somewhat to my surprise I find myself far more in agreement than I had anticipated with almost all previous speakers on both sides of the House. In some ways, this is a very happy circumstance. In other ways, it means that many of the remarks that I have prepared for the debate could sound rather repetitious. I must try to avoid that happening.
Most people, it seems to me, are agreed that oil, for all the financial benefit that it gave to the balance of payments, has been a rather mixed blessing. It was not a pure benefit. Why do I say that? The reason is that there were all kinds of secondary consequences. It put the exchange rate very much higher than it otherwise would have been; and it made our manufacturing industries much less competitive than they otherwise would have been. It contributed very greatly to the decline—the relative decline and, to some extent, the absolute decline—of our manufacturing industries. Instead of having an export surplus in manufactures which traditionally was always a counterpart of our net imports of food and raw materials, our manufacturing trade went increasingly into deficit. This was possible because of the extraordinary revenue from the sale of oil.
Oil provides no employment whatever. It is a source of foreign earnings, but nothing else. It does not enable a Government to pursue full employment policies in any sense, and so avoid unemployment. Manufacturing industry does. I would much rather see Britain revived as a great manufacturing nation and a manufacturing exporter than become a great primary producer, however valuable a commodity oil is. If we had always been a primary producer, Britain would be a different sort of place from what it is now. It would not have large cities; it would not have large industries. It would not have the population that it now has. The

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whole scene would have been different. It is therefore important that conditions should be created by which we can regenerate our manufacturing industries and put the country back on to the path of full, growing prosperity again.
From that point of view, various questions arise in connection with particular issues, already raised in the debate, such as our full membership of the EMS by joining the so-called ERM. I believe that the exchange rate that we now have is conditioned by our present structure of foreign trade in which oil, until recently, played an important role. Owing to the 50 per cent. fall in oil prices compared to a year ago, and the 33 per cent. fall in the last six weeks, oil will have a very diminished share. That has to be made up by other items. The overall surplus is very small. It can only be made up by reviving our manufacturing industries and making them more competitive, which, in turn, means price competitiveness as well as competitiveness in other ways. This, in its turn, means that our exchange rate, which looks very favourable by historical standards in respect of joining the EMS, is still considerably over-valued.
In order to obtain the kind of export surplus in manufactures that we need, the domestic use of imported manufactures has to be considerably reduced in relation to domestic products. At the same time, our export of manufactures has to increase, meaning that the foreign use of British manufactures must go relatively to others. In order to achieve that we need a very considerable change in relative prices. I know of estimates which say that from that point of view our exchange rate is still 20 per cent. over-valued; in other words, at present relative prices we need a 20 per cent. devaluation in order to get the kind of export surplus in manufactured goods that we would need if we did not have the benefit of oil.
The benefit of oil is now diminishing on account of the fall in the oil price, which was referred to earlier by a noble Lord.
Lord Soames: My Lords, leaving aside oil, does this mean that the noble Lord foresees the proper exchange rate of the dollar to the pound being about parity?
Lord Kaldor: My Lords, I have not worked it out, but I think it is possible that that is the numerical implication of what I said. I must have some notice of that question. On existing estimates of economies concerning the elasticity of exports and imports with respect to relative prices, that would be the kind of price reduction we would need in order to have a surplus in manufactured exports with a reasonably full employment level of output. Of course, it is always possible to obtain a surplus at a sufficiently low level of output. By creating sufficient unemployment and by diminishing domestic consumption we would reduce our propensity to import, and in that way we could obtain an export surplus. However, that is not what I had in mind.
It was clear to many of us during the post-war era that sooner or later our poor performance in manufacturing production would lead to a crisis which would compel a radical change in industrial and general economic policies. But just then North Sea oil came to the rescue. Everyone was prophesying that
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something terrible would happen, and then North Sea oil turned up and nothing terrible happened. We carried on much as before, with comparative ease.
A lot has been written—some by your Lordships' Select Committee on Overseas Trade—of what will happen and how we shall adjust when North Sea oil runs out. The recent fall in the oil price means that this issue must be faced that much sooner. As a result of Mrs. Thatcher becoming Prime Minister, our economic progress was rudely interrupted. Between the second quarter of 1979 and the second quarter of 1981 we faced two disastrous years of economic decline. From then on the economy started growing again, but it is only fairly recently that our gross domestic product surpassed its 1979 level. In terms of manufacturing output we are still 6 per cent. below the 1979 level.
Mrs. Thatcher's policies have been dominated by two preconceptions which in my view are both false. The first is that inflation is the source of all evil. We all agree that inflation is a great evil: we do not agree that to cure inflation will work miracles. If we cure inflation, instead of improving the economy becomes more stagnant than it was before. The second misconception is that inflation is merely a matter of the money supply, and provided we can control the money supply we can control inflation. To control the money supply means that we do not have to print notes to cover our budgetary deficit, which again is a rather naive view.
Therefore, we followed policies of economies in expenditure and higher taxation irrespective of the economic situation, while the bank discouraged borrowing through high interest rates as well as securing highly overvalued exchange rates. According to the calculation of the International Monetary Fund, our exchange rate during that two-year period, measured by labour costs per unit of output in terms of common currency, was at least 60 per cent. overvalued.
As a result of these policies, in the first two-year period of office of the present Government manufacturing output fell by 17 per cent, and industrial production as a whole fell by 13.5 per cent. That was between the second quarter of 1979 and the second quarter of 1981. The GDP was 20 per cent. below its trend level. This took place before the depression spread throughout Europe and other countries, and I believe that our own balance of payments may have played an important causal role in what happened in the rest of Europe. In fact, with the sole exception of America in the two years following the Wall Street crash in 1929, I do not know of any instance in history when production, manufacturing output or a nation's income decreased so rapidly.
However, in 1981 the Government quietly abandoned these deflationary policies without any public announcement, and economic growth was resumed at the old trend rate. This means that after five years our gross domestic product is only modestly above its level of seven years ago; in other words, since Mrs. Thatcher came to office, over seven years there has been an average annual growth rate of 0.8 per cent. I do not think that there is any comparable seven-year period in British history which averaged an annual growth in domestic product of 0.8 per cent.

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In terms of economic criteria, therefore, this has been the least successful Government.
Lord Wolfson: My Lords, I am sorry to interrupt the noble Lord, but can he indicate to what extent he thinks the second oil price explosion was responsible for the very large drop in manufacturing output, which did not occur only in this country?
Lord Kaldor: My Lords, it did not occur only in this country, but in this country it went very much further. I am afraid that I do not have the figures in my head, but nowhere was there a fall of 17 per cent., or anything like it, in manufacturing output in a matter of two years.
Lord Diamond: My Lords, I only interrupt the noble Lord because I do not want a single word of the noble Lord's wisdom to be missed, and it is not very easy to hear everything he says because of the arrangements here. Will he kindly say precisely over how many years the 0.8 per cent. increase in GDP occurred?
Lord Kaldor: My Lords, it occurred in the seven lean years between 1979 and the end of 1985.
As regards oil, I have just a few words. I am sorry I have spoken for 15 minutes, but I think I have a right to deduct the interruptions.
Lord Skelmersdale: My Lords, may I make a point to the House? I think it will be in the interests of all if I say that if everybody deducted the interruptions we would get into a fine mess by 8 o'clock. I hope that perhaps this habit will not be continued too long.
Lord Kaldor: In that case, my Lords, I think I shall finish my speech.
4.50 p.m.
The Earl of Lauderdale: My Lords, in seeking to congratulate, and join with others in congratulating the noble Lord, Lord Barnett, on his choice of subject—and it is indeed timely—I must couple that congratulation with regret. He happens to have chosen the night of the annual dinner of the Institute of Petroleum. It means that a number of people interested in the subject are, or shortly will be, absent from this House, including myself. I hope that the noble Lord and others will accept my sincere apology for the fact that I was committed to hosting guests at that dinner several months ago. On the other hand, I was pressed very strongly to take part in this debate.
The contribution of the noble Lord, Lord Barnett, was as always bewitching and beguiling. In a sense one cannot but listen to him to one's own advantage. But on the subject of oil prices I had thought we would have rather more—and rather more constructive—suggestions to make than we actually got. So far as I could make out, what we were told was that for the sake of stability Britain and Norway should agree to cut back production and discuss it with OPEC.
I take it that the noble Lord, Lord Barnett, whose reading is always so extensive when it comes from the London Business School, does not always read the
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information available in the oil industry's publications. In fact he might like to know that eight days ago Mr. Arild Rodland, deputy oil minister of Norway, announced that that was the very one thing that Norway was not—repeat not—going to do.
It may be worthwhile if I give a short snapshot of the state of the industry. In some 15 years the free world's energy demand as a whole doubled, and during the last five years the free world's proven oil reserves rose only about 7 per cent. You might therefore expect that to be a factor leading to higher rather than lower prices.
However, over the last 10 years productive capacity has increased to the extent of about 7½ million barrels a day, which is equivalent to about one-fifth of the total OPEC output. Energy intensity—that is the amount of energy used per unit of GDP—has risen something like 13 or 14 per cent. over the same period, and of course world-wide there has been extensive substitution.
It is therefore scarcely surprising that 1984 saw a free world output fall of some 20 per cent., and the reversal of OPEC's fortunes surely demonstrates that the power of market forces is there and real, and it is futile to deny them or oppose them. We had a quotation a little earlier by the noble Lord, Lord Barnett, from the economic adviser to, I think, the National Westminster Bank. Perhaps I have the identification wrong. Anyhow, I noticed that Dr. David Lomax, the economic adviser to the NatWest Bank, did, in the February issue of The International Review, say:
"The events of the past 12 years have indicated that for oil producers to take advantage of their short-term market power to hold the rest of the world to ransom sets up market forces which are ultimately against their own interests".
I find the Opposition policy on all this baffling. There are calls for cutbacks in British and even Norwegian production. But let us just consider British production. We are invited to cut back when this production already provides some 6 per cent. of the gross domestic product; we are invited to cut it back when it is 8 per cent. of our total exports; we are invited to cut it back when at any rate hitherto it has produced 8 per cent. of our total revenue; we are invited to cut it back when the industry provides something like 10 per cent. of the non-housing private capital investment of this country; we are invited to cut it back when it contributes about £20 billion a year to the balance of payments, or did so in 1984.
Then I come to the classic remark of the noble Lord, Lord Kaldor, which I heard with interest—perhaps it is unfair to single it out out of context, and I apologise to him if I am doing that—that oil has produced no jobs. Of course, he was talking in the context of the danger of Britain being a primary producing country, and this would not be to our advantage. But let me say finally that it is proposed that we cut back oil production when in fact there are 100,000 jobs that have been created out of this industry since the continental shelf began to be developed.
We are really being invited to cave in and behave as full members of a wholly-restrictive international cartel which has already plunged the world into a depression, and to do so when that is a producers' cartel and we are consumers as well as producers.

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We are also asked to cut back production at a time when the first victims of a falling oil price are exploration and development budgets. These are the first sufferers in operational cash flow margins. I was interested to notice that the noble Lord, Lord Ezra—whose views one always listens to with great respect—mentioned that if we were to cut back production we must do it in such a way that there was no disincentive to further exploration investment. This of course is part of the dilemma.
Indeed, we are invited to make this cutback when Petroleum Information told us only the other day that United Kingdom sector drilling activity already shows a slight falter. It is doing so when Danish and Netherlands appraisal and development drilling is up, and when in Norway, Germany, France and Ireland it is stable.
Finally we are invited to cut hack when the present fall in price is likely to affect the development of any field under 100,000 barrels. The brokers, Capel, the other day estimated that an 18 dollar a barrel price would imperil developments on the United Kingdom continental shelf amounting to production of 20 million tonnes a year, or 400,000 barrels a day, and if the price came down to 10 dollars it would imperil about 600,000 barrels, or 30 million tonnes a year.
That is the context in which we are invited to cut back. It is worth mentioning that on these calculations—and the oil industry has been busy doing its sums, and all the analysts in the City and elsewhere have been doing likewise—there are three fields which are now picked out as likely victims for deferment of development; namely, the Eider, the Ettrick, and the T-Block. Cutting hack means cutting Britain's 6 per cent. share of the world market. If we cut that out, anyone who thinks it would not be taken up by somebody else must be living in Mad Hatter land.
We are not told how this cut is to be accomplished, let alone accomplished fairly. A 10 per cent. cut across the board would be monstrous because no two fields are alike. In no two fields are conditions even similar for the recovery of capital invested. The impact could only be uneven, and of course the effect must be—and the noble Lord, Lord Ezra, was implying a reference to this—an appalling blow to investment confidence. No amount of new state investment banking, in which the noble Lord, Lord Williams, who will speak later, is likely to be interested, will alter that.
The price fall and the risk to exploration budgets raise a question (to which the noble Lord, Lord Ezra, alluded in a sidelong fashion) whether the Government are prudent in trying to milk the oil industry by taxing it upstream and downstream alike: upstream discourages production and downstream hits the motorist and, through the motorist, the motor industry at large.
The Treasury demand for exact quantification of benefits from easements of tax that have been sought is a permanent rod on the oil industry's back. With your Lordships' permission, it is worth quoting an extract from a letter sent by the United Kingdom Offshore Operators' Association recently to the Treasury which illustrates the difference of approach between industry and Whitehall. In that letter the association wrote:
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"UKOOA sees this as a challenge to get the long term fiscal climate right, so as to encourage the search for these incremental opportunities (many of them subtle, requiring intensive technical effort). It is, to a degree, an article of faith [within the industry] that the benefits will flow—there is not a large inventory of identified opportunity waiting to come forward in response to an adjustment of fiscal terms".
The letter continues:
"The Government side appear to have a much shorter term focus, searching for a stock of already identified projects and attempting firm cost/benefit quantification which we regard as unrealistic and inappropriate".
There is a difference between Whitehall's grasp of the situation which is a mathematical grasp and the industry's grasp of the situation which is imaginative and entrepreneurial.
We were told about the benefit to the economy arising from this price fall and it would be superfluous now to quote again the London Business School which I should have quoted had there been more time and had it not had adequate attention from speakers already. It is generally common ground in this debate that the net effect of the oil price plunge may be neutral or marginally beneficial. One thing is quite clear: that there is a considerable balance of opinion in the City which believes that there is nothing to be alarmed about. I quote the opening words of the latest business forecast by the Charterhouse group which states:
"The fall in oil prices will reduce cost and price inflation and contribute to a general lowering of interest rates".
We have been told not once but many times over by the Opposition that our whole policy has been an absence of policy. We are told that we have squandered the produce of the benefits of the continental shelf. The fact is that the public sector borrowing requirement as a share of GDP has been reduced and this year's figures are encouraging (as witness today's Financial Times, the right hand column of the front page). We have repaid much overseas debt inherited from our predecessors—no names, no pack drill, for everybody knows who they are. We have acquired overseas assets now standing at a postwar record of more than £73 billion bringing in a yearly income of £3 billion, something that will stand us in very good stead when, or rather if—for it is not yet certain—the oil runs out. Oil has been described as a finite resource. It is finite only in the sense that as one goes further it gets more costly. The same is just as true of coal, but there is plenty of it and there is even more gas to be had, so to describe our hydrocarbons as a finite resource in absolute terms may be a mistake.
I find that the Opposition do not have much of a policy to propose when, ignoring the fact that we are consumers as well as producers, they argue that we should somehow get in among OPEC and do so with Norway, who will not play anyway. The muddle and the confusion in the name of preserving our resources that has emerged from those Benches and even once or twice from the bishops too—we sometimes expect them to intervene on the wrong side—reminds me of an old lady I once met canvassing near John O' Groats. She was 95 and when I went to see her she said, "A terrible thing happened the other day". I asked, "What was that?" She said, "A socialist came to my door". I asked, "Whatever did you do?" She said, "I listened and there was a long spiel. When he had

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finished I said, 'Young man, all these long years, and I am 95, I have heard the wind blow but I have never seen it yet'".
5.6 p.m.
Lord Parry: My Lords, in the late 1940s in another place, when a Labour Chancellor of the Exchequer had spoken at some length on the problems that he was facing in re-phasing the British economy from war time effort to peace, he gathered his notes together at the end of his speech and left the Chamber. The late great Sir Winston Churchill was heard to mutter, "There, but for the grace of God, goes God". Had he been in the Chamber this afternoon he could only have said, "There, but for the grace of God, goes the Kingdom of God or the Tory Party at Prayers", because everybody who has spoken so far from the Government Benches in this debate has left the Chamber and the noble Earl, Lord Lauderdale, has apologised because he is to leave shortly, having made a robust defence of his Government and having made a straightforward lobbying speech on behalf of the oil industry.
The debate initiated here this afternoon by the splendid speech of my noble friend was intended to raise the economic situation of this country, the price of oil and its effect upon that economic situation, the exchange rate and the way in which we might somehow achieve an improving economy for Great Britain at a time of great difficulty for it. In fairness, some Members of the House on both sides had addressed themselves totally to that issue.
When the noble Lord the Secretary of State for Employment sat down at the end of his little speech I thought that he was giving way to my noble friend Lord Hatch of Lusby. There could only have been one other explanation: that he had fainted. But he walked from the Chamber immediately afterwards and I was relieved at that because he is a nice man. I will give way at any time when he comes back, as I am sure he will, for he has apologised, when he wants to finish his speech; when he wants to come to the positive matters of this issue that we face.
When I rose in this Chamber to make my maiden speech some 10 years ago I spoke about the oil industry. I spoke about it in the context of the development of the great port of Milford Haven. I was able to quote from the words of the then Sir Harold Macmillan who had said that Milford Haven was about to become a major European oil port. It was an optimism that we all shared regardless of politics and we saw in it an opportunity to benefit from the sobering experiences of Suez, from the fact that France had been brought to within 24 hours of its economy grinding to a standstill for lack of oil, and because we knew that it could be possible to organise oil around the Ten so that we had a constant supply of it here to fund our industry. We knew that our industry had to contract because we could not continue after imperial preference had ended to pose as an economy that had the benefits of a worldwide supply of markets and an internal supply of fuel.
I do so agree with the noble Lord who formerly headed the coal board. If at the time of that
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redevelopment of the disposition of our oil industry in Britain—indeed in Wales, in the harbour of which I have spoken—as much attention had been given to, and as much capital had been invested in, the rephasing of the coal base in this country, then we might have had a policy that could have gone forward with the search for oil in the North Sea and in the Celtic Sea, which has not been mentioned so far, and with a redevelopment of our coal base which was more adequate than ever, despite the great efforts of the noble Lord who has spoken.
This country then found itself in a position where it had almost wantonly and willingly become dependent upon oil. Finding its own supply in the North Sea, it then proceeded to buy itself (what was the phrase?) a breathing space. However, having provided the breathing space, it did not go on with rephasing the other aspects of its economy in order totally to benefit from it.
We now have a situation which some of us predicted. During the three elections in which some of us fought, it was part of the exchange that there could come a time when the oil producers elsewhere in the world, fearing the emergence of Great Britain as a primary, front line, oil producing country, could then adjust their prices and their productivity in order to undercut our own. That is precisely what has happened.
I checked for a moment while we were debating here, and it is indeed what has happened. We now have a situation where we are caught in our basic economic policy and at the mercy of those exchange rates. The Celtic Sea will now probably find its investigations postponed. It will mean that another hope for the redevelopment of the productive base of the economy will be lost or at least postponed.
I want to say this. Although many times in this House I have argued that part of the recovery of Great Britain must be based on a service development of our economy, even tourism led, I have never seen it as a panacea. I have always believed it to be a nonsense to claim that tourism and the service sector could support this country on its own. It has always been essential that we should be investing money in those areas of Britain that for very long have been neglected.
I want to say a word about the imbalance within the British economy, about the fact that for a very long time indeed the real export of the peripheral areas of this country has been the best of its young people. It has always been a terrible problem in the part of the world in which I live, in which I have spent my life, that we have exported our young people because we have been unable to create employment there.
Indeed, when the oil industry came to the Milford Haven Estuary it enjoyed an investment of public and private capital. It was then respectable for the oil industry, developing as in the North Sea, to take £800 in every £1,000 of its development from the public purse. We did not hear much criticism then of the mixed economy and the mixed investment. When that oil industry took that money and developed that major port, we all thought that we were securing for 50 years a new opportunity, a new employment, and a recharging of the economy of Wales—and of course of elsewhere, in Scotland and indeed throughout Great Britain itself.

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I agree with the noble Earl, Lord Lauderdale. I think he misunderstood what my noble friend was saying. I think, if I did not misunderstand him, he was implying that a modern oil refinery employs very few people, but obviously the product of the oil refinery and the product of the oil industry sustains a great many. No one could argue with that. But where are those people today? Those people are working today in Holland, Malaysia and elsewhere because the oil refineries that were built, at great public cost and with great private expertise, are today discharging their skilled labour who are being re-employed by competitors of this country, sometimes within the very companies that had their oil refineries in Great Britain.
I merely wanted to inject into this debate my concern that when we talk about the benefit of the oil industry to the economy of Great Britain we also lay quite firmly the fact that the contribution that it has made has been sustained by a very large public contribution. Indeed, the licences granted in the North Sea were originally of so much benefit (and that was under a Labour Government) to the developing companies whose expertise we needed—and, there is an expert on the Cross-Benches—that the first act of an incoming Conservative Government following an election was to renegotiate those licences and to change the terms by which they were developed.
All this goes to say in this debate this afternoon that we have become so dependent on the basic price of oil and the index—which is what was talked about in relation to the exchange rate; the real index value—that we cannot make this a party political issue. We cannot look on this debate as being about something that can be changed simply by a change of Government. That is because the whole business has defeated continuing Governments of this country for the last 25 years. During those 25 years the oil complex on Milford Haven has been built and has all but died. Through Milford docks today we are exporting the remains of the oil tanks of the Esso refinery, which was the first refinery to be built in Milford Haven in the post-Suez period.
We are dependent on oil. But it is absolutely essential that notwithstanding our dependence upon it we realise that there are other things happening in the economy. It would be quite wrong of me to imply, certainly for party political purposes, that there are not optimistic things happening within the economy of Wales. We have seen a great many service developments. I have to say that there has also been a tendency for us to believe that high technology can get us out of our difficulties on its own. It cannot do that, either. There have been clouds and sunshine in "Silicon Valley". There have been great difficulties. I think many of us are disappointed in the ultimate achievements of the high technology industry, but of course the product of that technology, reapplied and properly concentrated, can still give us hope.
It is absolutely impossible for anyone, whatever his or her political commitment, to stand up in this House and to convey the impression that, because there is a percentage improvement here or there, or because the figures can be presented in such a way, one can say that our employment situation stands better now than it did. It is impossible for anybody to do that. The lesson of the post-war years has been that no government
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have been able to solve the creeping paralysis of unemployment, and that attempts to do it have very often accelerated the rate of fall-out.
For the best possible reasons the Government now in office won the mandate of the people, probably for the first time since 1945, to change the direction of the British economy. From 1945 to 1951 the Attlee Governments, on a similar mandate, moved this economy towards public enterprise, public responsibility, social services and social security. This Government interpreted their mandate and proceeded to implement a policy that for the first time swung the economy of Great Britain away from that path and in a direction that they considered they were right to do, that they were mandated to do, and which some of their members would defend their Government for doing.
It is the duty of Opposition to criticise and it is the duty of Members on the opposite side to defend. However, do not let your Lordships' noble House, which is at its best when it rises above specious politics, try to convey the impression that there is not a great and real crisis in the economy of this country.
We accept the Secretary of State for Employment's own feelings of frustration because the unemployment figures are not better, are not improving more rapidly. However, crucial to what we are saying this afternoon is this. There must be a degree of recognition that the oil base itself has not been able to secure for us a big enough breathing space; that some of the policies which are fashionable, but are happily currently now going out of fashion, have contributed towards the present situation. What I urge is that this House gives the message that it understands that in the future there has to be a change from the sterile policy of absolute monetarism to one in which public and private money together, properly invested, seek to give a new phase of development which can be acceptable philosophically to us all.
5.20 p.m.
Lord Wolfson: My Lords, as I am speaking at relatively short notice in this debate, which has been so eloquently and wittily introduced by the noble Lord, Lord Barnett, I shall be reasonably brief—a fact which I know your Lordships will welcome. I wish to apologise to the House that for family and personal reasons I may be unable to attend the late stages of this very stimulating discussion. I hope that your Lordships will forgive me.
Any major transition brings numerous problems in its train. We cannot underestimate their impact, but events are moving too rapidly to make a definitive judgment at so early a stage in a new economic cycle; for that is what we appear to be entering. I believe, however, that a sustained reduction in oil prices will have a positive and beneficial effect on trading activities in the western world, and, as a result, in the affairs of the third world, where renewed economic progress is a vital necessity. I am encouraged that there are so many expert views which have been quoted by noble Lords today to support that.
As several noble Lords have already, let us cast our minds back to 1974 and 1979, when we were faced with the two phases of the oil price explosion and the debilitating inflationary aftermath that so devastated

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industries whose expansion had been predicated on stable energy prices. The rapid escalation of these costs was at the root of the structural upheaval that damaged so many manufacturing companies and the prospects for those employed. The serious instability of exchange rates dates from that period, and the noble Lord, Lord Soames, has made a notable contribution on this subject.
In contrast, we see now a most encouraging reversal of the oil situation, and we should welcome the return to more equitable levels of commodity and energy prices. Indeed, as oil is priced at 17 dollars a barrel in mid-winter one can anticipate a further decline in spring and summer, as the forward market is indicating. Of course, this will place further emphasis on existing short-term problems. Exchange rates will in time adjust to appropriate levels, but, as your Lordships know, many financial loans have been made on the unhealthy assumption that oil prices would never cease rising, with all the enfeebling effects that this would have had on the world economy. The debts in question are in reality no worse today than they were six months or even a year ago. It still requires international co-operation at the highest level to restructure and convert them into longer-term instruments of repayment.
It is, of course, a most difficult and delicate task; but with the goodwill that exists it should not be completely beyond the ingenuity of governments and others to bring this about, and happily there is a genuine desire to do so. We know from bitter experience that the world prosperity is indivisible. Once a number of unsound positions have been built up on inflated expectation, I believe that they are outweighed by the long-term advantages arising from the lower energy prices, which must benefit the same economies that suffered most from their rapid escalation.
It is significant that stock markets throughout the world are anticipating just such an improvement. Investors look ahead, and we must all hope that they are right. As a businessman, I believe that the United Kingdom economy has more to gain from lower energy costs than it has to lose from lower oil prices provided that the budget allows most of the process to come to fruition. This process will bring with it a lower level of inflation, and in turn, reduced rates of interest world-wide, including our own too-high levels. These positive factors can readily be appreciated. While it is true that taxation receipts from artificially high petroleum revenues will decline, as in the long term they would inevitably have done, receipts arising from improved trading activities will perhaps compensate in large measure. The new pattern that emerges should provide more durable and better balanced arrangements for the future, while the national budget would not have to cater for such a large inflationary factor.
The sterling exchange rate has adjusted in large measure to the new circumstances, possibly too much so, for the benefit of new oil prices has yet to flow through the system. The balance of payments will continue to derive considerable income from our substantial overseas holdings, which have been financed to a significant degree by investing the surpluses arising from highly-priced oil. I agree with
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the noble Lords, Lord Barnett and Lord Ezra, that we should now consider joining the EMS.
I feel confident that businessmen will want to seize the exciting opportunities ahead. Lower fuel costs would make British goods more competitive both at home and overseas. With dynamic marketing, design and customer service we can add to our already substantial direct export performance, which is running at over £6 billion a month, one of the highest per capita rates in the world. I feel that we do underplay ourselves in many cases, and this is one of them.
Employment prospects should be enhanced, and this in itself is a most desirable potential benefit. As the noble Lord, Lord Ezra, has pointed out, the Government, in partnership with industry, might be able to consider an additional selective range of capital investment partly financed by equity capital, including that arising from privatisation issues and, as interest rates fall, partly from the bond market. I hope that future Budgets will differentiate clearly between capital investment and receipts and revenue items, which, of course, is normal business practice. Naturally, it is sounder to borrow for viable investment projects than for current expenditure.
The economy needs a shot in the arm, and I feel that lower energy prices will help to provide that stimulus. It could be a milestone in the search for better growth rates in world trade and investment. A good deal has been done to make company taxation competitive in world terms, and the overall package would be fortified by a personal tax infrastructure, particularly for lower and middle incomes, that would sustain expansion and encourage enterprise, as many of our leading competitors have done.
We could well be at the start of a challenging new phase in economic affairs. Whatever the short-term problems, the positive factors outweigh the negative ones, and we should be basically optimistic about the future. We must release human energies to create the wealth we require for the overall social needs of the nation. Britain is a highly talented and inventive country. We have the ability to succeed: we must have the confidence to do so. The more individuals are afforded the opportunity to have a direct stake in financial ownership, the more we shall prosper.
5.30 p.m.
Lord Donoughue: My Lords, I should like to begin by thanking my noble friend Lord Barnett for his excellent opening speech, with virtually all of which I must say I agreed and where the analysis I think and hope has spared us some repetition this afternoon. I should particularly like to support what he said about co-operation: co-operation on oil production to secure stability in oil prices and co-operation on the exchange rates—and there I must say that I now feel we really should very seriously consider joining the EMS. But I have to confess—which, since it may breach the Official Secrets Act, I can do with more courage now that the noble Viscount has left the Chamber—that in 1978 Downing Street I then advised the Prime Minister not to join. But I now feel that in changed circumstances the balance of advantages certainly points that way.

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As for the noble Lord, Lord Young, I feel that he produced one of his more trusty, tried and familiar speeches. We have tried, however unsuccessfully, to respond to that before. At the heart of the issues we are discussing is of course oil; and, frankly, nobody knows where the oil price will settle so there is absolutely no point in making firm forecasts based upon that. We expect that by the 1990s supply and demand will be more in balance and that the oil price will probably be stronger. But, looking over the next 18 months, that price could be anywhere between five dollrs and 25 dollars. My own guess is that it is likely to be nearer 15 than above 20.
The main question for the United Kingdom, of course, is whether that generally lower level of oil prices than hitherto is beneficial or, on balance, harmful. The whole thrust, I think, of much of today's debate, is that it must be helpful. After all, when prices rose that was bad and therefore when they fall it must be good. But economics, like life, is not always that simple. Marriage, indeed, may not be good for many people but it does not necessarily follow that divorce is automatically good for them if marriage is not. It depends what you were used to.
Obviously, in the long term, lower energy costs are helpful: they will stimulate growth and cut inflation. But, in the short term, I do not think we should ignore the complexity of the impact and I suspect that the optimistic consensus we have is perhaps a little too complacent. If we look at the impact on growth and inflation, the argument is that lower prices are wholly beneficial—which is almost certainly true in the Western world as a whole—but, if we look at the United Kindom, they depend very precisely upon the translation of these lower crude oil prices into refined petroleum product prices.
If we look at the reality of our world in Britain today, there has not been a great deal of that beneficial translation. Petrol prices are about 5 per cent. down, whereas the fall in crude oil prices would have justified a decline in petroleum prices of double that amount. If those prices do not fall further, then the benefits will not come fully through to the United Kingdom economy but will come through to the profit margins of the oil companies.
To that extent, the Chancellor is somewhat in the hands of the chairmen of the oil majors. In fact, so far, in terms of inflation, the damage from a lower sterling looks like being greater than the benefits from the lower energy prices we have had up to now, and I think a reasonable calculation would show that inflation would rise over the next 18 months by about one to one-and-a-half per cent. Perhaps one might also point out that, were the Chancellor to tax petroleum as has been discussed, those inflation benefits would be eroded accordingly. So, looking at inflation and growth, it seems to me that the prospects are promising but it would be wrong for your Lordships to assume that they are certain.
Turning to the current account, the balance of payments, I think the impact of lower oil prices is clearly damaging there. With oil forming 8 per cent. of our net exports, the reduction in oil prices so far at current exchange rates eliminates about half our recent oil surplus, bringing it down from just over £8
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billion to around £5 billion. Were it to settle at 15 dollars, at current rates we should lose about a further billion and move into current account deficit. So that is certainly not a plus.
However, Government revenue is the area of the most interesting impact: that is the area which causes flutters in the breasts of the Treasury. I think it is generally agreed that in the year ahead the direct revenue loss will be around £4 billion. That is for the coming year. Those figures could improve but they could also deteriorate, and I think that the Chancellor next month really would be imprudent to give away in advance in his Budget revenues that he does not have. I am sure he will not try to do that because he will know that these days in the City there are commentators who can see through creative accounting.
There is an issue here, of course, of the compensations. Those losses are direct losses, and the argument is whether the indirect compensations are sufficient to cancel them out and perhaps to produce net benefits and whether the higher economic activity it is assumed we shall get will more than make up for the lost oil revenues. It is, of course, tempting to believe so because we all wish to take the more optimistic and positive viewpoint. And it may be right: nobody actually knows. However, I think it would be fair to suggest that the compensations might well be smaller, certainly in the first year, than the £4 billion it is assumed is going to be lost. Also they will be later. They will be later because of the time-lag effect on the economy. They will be smaller and later.
There is then the question of whether the Chancellor may be able to supplement those lost incomes through other revenues. We hear rumours of the increased petrol excise duty which I mentioned, and also rumours that have caused some trepidation in the area where I work (somewhat east of here) that there will be a windfall impost on the new City millionaires.
As regards petrol, I would say there is no way that that can raise enough. About 10p on a gallon will raise about half a billion, and we have to remember that if that goes on and prices go up and are passed on by the oil majors to the customers, then the anticipated benefits with regard to inflation will not come through.
As regards the tax on the City, if I may just pause to declare two interests—as an employer and head of a department paying the new salaries, I naturally have an interest in them coming down, but I am also personally a beneficiary, so it gives me pause—what I would say there is that many of us—and I am thinking not only of those on this side of the House but also of people in the City—do regret and dislike the enormous disparities of pay that are now arising. It is relevant to this debate, because I think it must be as discouraging to the management working at the sharp end of industry as it is to the unemployed to see such enormous rewards. That is, of course, why some of us support an incomes policy, which is one way in which one might approach the problem. I am myself puzzled by the Prime Minister's attitude to that and by her indignation. I am sure that colleagues on the Front Bench will point out to her that if you introduce international free market conditions, as in the City of London, you will end up with international free market pay.

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In conclusion, I should like just to look a little to the longer term and ask the Front Bench opposite to do so, because in fact what we have experienced in recent weeks, as another noble Lord pointed out, is a foretaste of the future, of the time when oil revenues inevitably decline, with production—a time that will coincide with the end of asset sales. That is a major problem which faces this nation not many years ahead. What we have seen in recent weeks, and will see then, are three characteristics. I should like just to mention them and raise questions, because we shall then suffer, almost certainly, a lower exchange rate. Sterling is down against the basket about 6 per cent. since the New Year, and it will go down unless we have sky-high interest rates to hold it up, and I am sure none of us will want that. How do the Government suggest they will cope with the inflationary impact of that?
It is highly likely that we shall also suffer a higher public sector borrowing requirement. Without oil revenues of £7 billion to £10 billion now, without asset sales of around £4 billion, the current PSBR, in crude terms, would be approaching £20 billion. How would the Government avoid raising taxes in that situation, rather than making promises to cut them? We shall also, for reasons I have given, suffer a large current account deficit unless manufacturing expands to fill that gap.
I wonder whether noble Lords on the Government Front Bench would tell us if the Government agree with the recent statement that,
"There is no credible plan for the future of the British economy that does not accord a central role to a dynamic and innovative manufacturing sector."
That statement made yesterday by the present Secretary of State for Energy is one with which I agree. It picks up a theme that we discussed recently in the excellent debate on overseas trade. Again, I wonder what noble Lords on the Government Front Bench have to suggest to bring that about, and whether they believe that the disposal of the British motor industry to one of our main competitors is a serious beginning to that process.
Sadly, in recent years we have seen our North Sea oil revenues, mainly though not wholly—there are overseas investments which, in my view, will have many benefits in the future—spent on paying for the unemployed. I wonder whether we can have from noble Lords opposite tonight, or from the Chancellor in the coming Budget, some reassurance that the Government are planning for a post-oil Britain.
5.42 p.m.
Lord Vinson: My Lords, I hardly like to say it, but I too must apologise in advance because an inescapable appointment means that I may have to leave before the end of the debate. But at the rate we are going, all may be well. The Government are indeed to be congratulated on their clever use of interest rates to bring about exchange rate stability during this unprecedented period of falling oil prices and they have kept interest rates up for good reason. For the past two years, we have been told by the foreign currency dealers that sterling would remain extremely volatile until oil prices had fallen or stabilised. To a
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large degree, this must have happened and oil prices cannot now be far off their bottom level, so with any luck we can begin to look forward to a continuing period of currency stability and, with it, lower interest rates—all perhaps cushioned by joining the EMS. One just hopes that currency dealers will not scratch around to find yet another reason for sterling still not being out of trouble.
So all credit to the Government for maintaining sterling at approximately 1·40 to the dollar, while allowing it to drop slowly against other currencies with which it was hitherto over-valued—a point so well made by the noble Lord, Lord Ezra. This has enhanced our export prospects, particularly those of our manufacturing industry, and because most raw material prices are quoted in dollars it has stabilised import prices and through that, we hope, inflation.
However, the continuous use of high interest rates as the primary mechanism of controlling inflation is a mixed blessing. In economics, it is a mistake to be too categorical. But there is one absolute truth in economics, which is that there are very few economic hypotheses that look wholly watertight 10 years after they are fashionable. We all learn from our experiences.
I happen to be one of those people who believe that high interest rates are, in themselves, a motor of inflation. High interest rate levels, and the international policies that are fashionable and that dictate them, have insufficient critics because, sadly, we live in a lenders' world. Most of the organs of influence—the institutions, the City and the banks; I happen to be a proud director of one—actually benefit from high interest rates. It makes the margin between borrowing money and lending money more substantial. It is altogether more profitable. So it is not surprising that the contrary view is seldom put.
And can you altogether blame those institutions which have funds to lend if, at a time of very high real interest rates, they invest them in risk-free government bonds at 11 per cent. on the street, rather than in risk-prone wealth-creating industry at 5 per cent.? Indeed, this reverse yield gap must lie at the base of our poor Western world investment performance. I believe it to be true that the voice of the borrower is little heard, and it is certainly ill-represented in the corridors of financial power.
For all that, I am sure that it is indeed the Government's intent progressively to lower interest rates and get us back on to the virtuous money cycle of lower interest rates, lower mortgages and lower RPI, all helped by a lower oil price. We have indeed a golden opportunity.
Of course, one wholly accepts that interest rates in this country are, to a significant degree, inescapably conditioned by those in the United States. We are suffering from an international interest rates war and it would be sensible of the Government to join wholeheartedly with Germany and Japan in examining mechanisms that could, quite properly, be used to begin to stroke down international interest rate competition. Meanwhile, apart from those few and unrepresentative United Kingdom firms that are sitting on a mountain of cash, our smaller companies operate—however much the Government would wish

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them well—under an extremely harsh financial climate of very high real interest rates.
I am chairman of the Development Commission, England's rural development agency, and we deal currently at first hand with some 20,000 small firms. It is firms like these—the little men—that really suffer, and suffer in silence, when interest rates are excessively high. They quietly bleed to death, while their cash life blood is drained out of them to meet the interest charges on their inevitably high borrowings.
However, I am not being quite fair to the institutions, because the other day I heard a senior manager of the Halifax Building Society say that in his view the cost of mortgages was at an unsustainable and unsupportable level for the first-time borrower, who out of desperation had to take out a mortgage but simply could not afford it. I shall never forget the day when, as managing director of a company, one of my best men, a really good citizen, came into my office and burst into tears. He said to me that he simply could not afford to meet the rise in his mortgage and he must have a wage increase. It is not surprising that this country's most intractable problem—that of inflationary wage push—remains with us when mortgage rates are so high and, for whatever fiscal good reason, they are unprecedently high in real terms today.
High interest rates support and continue inflation in many other ways. To the builder who, not unreasonably, takes a year to build and sell a house, the present cost of money adds 15 per cent. to the cost of that house on top of the normal costs of bricks, mortar and land. It is not surprising, then, that the interest rate sensitive areas of the economy, particularly building and construction, have useful spare capacity.
Lower interest rates would mean higher activity in this sector, and it is a sector that can rapidly and effectively employ the United Kingdom's unemployed—another good reason why the quicker the interest rates fall, the better. Meanwhile, to the shopkeeper turning over his goods every four months, the cost of money at present levels adds 5 per cent. to his prices, before even beginning to cover his own expenses and to make a profit.
Last, but not least, for our industrial companies, when attempting to compete in overseas markets, to give six months' credit on the sale of goods will cost them 6 per cent., while it will cost similar Japanese companies only 2 per cent., giving the Japanese an immediate price advantage of 4 per cent. on the financial arrangements. Some argue that interest rates are insignificant in relation to labour costs and are thus not important. I can only say that I believe this shows a profound misunderstanding of the opportunity cost of borrowed money.
In conclusion, there is another overriding reason to hope that we shall see a rapid decline in interest rates now that oil prices have fallen; namely, that one of the real success and growth area of employment in the economy is in self-employment and small businesses. These are not of course by themselves likely to be the exclusive economic salvation of this country. We need as many medium and large sized companies as we can get. But there is little doubt that the vitality of both the Japanese and the German economies is due to the
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prosperity of a buoyant and efficient small manufacturing sector.
In Japan, they have low interest rates and a tax regime giving rapid cost recovery; or to put it in the jargon, accelerated amortisation. In this country, we have very high real interest rates and have just moved to a tax regime of retarded amortisation. Hardly a way to emulate Japanese success. Let us hope that in the forthcoming Budget the Chancellor will recognise the predicament of this sector in particular.
It is not unreasonable to anticipate—thanks to the fact that oil prices have now fallen—that we shall enter a period of greater currency stability and with it the opportunity for the Government to lower interest rates. I am sure that they would wish to do this sooner rather than later. High interest rates are grit in the wheels of economic recovery. By lowering interest rates as quickly as possible. the Government could begin to put us on to a virtuous cycle of lower costs and lower wage demands. They could crown in this way the success of their anti-inflationary policies to date.
5.52 p.m.
Lord Hatch of Lusby: My Lords, on 3rd December last, at the end of our debate on the report of the Select Committee on Overseas Trade, the noble Lord, Lord Young, had this to say in answer to the noble Lord, Lord Weinstock, and myself. Speaking first to the noble Lord, Lord Weinstock, he said:
"The noble Lord gave us a lecture on economics which I must confess that I did not follow, but I shall read Hansard. The point that disturbed me was immediately approved by the noble Lord, Lord Hatch, and so I shall read both speeches with considerable worry!"—[Official Report, 3/12/85; col. 1291.]
The noble Lord did not answer the questions I put to him this afternoon at the end of his speech; nor has he answered the speech that I made during that debate. Nor has any noble Lord representing the Government ever answered the consistent queries that I have been putting forward and the policy that I have been proposing as an alternative to the policy of Her Majesty's Government. It is a pity that the noble Lord, Lord Young, is no longer present, but I am glad to see that the noble Viscount the Leader of the House is with us. No doubt if the noble Viscount feels it necessary he will speak on behalf of his noble friend. But that is the responsibility of the noble Lord, Lord Young. He made the opening speech, and I did not see any necessity to warn him that I would be picking up what he had said at the end of the debate on the Select Committee report because I assumed that he would be with us for the rest of the afternoon.
The principal issue that is raised by this debate is not whether the reduction in the price of oil is going to stimulate the economy of this country and the economy of the world but whether the opportunity which the reduction in the price of oil gives can be taken. This was precisely the issue which I put forward in the debate on the Select Committee report and which the noble Lord, Lord Young, did not find himself able to answer at the end of the debate. So I shall put it to him again—or, rather, I shall put it to Members of the Government—perhaps in simpler terms.
My fear—and the whole thrust of what I have to say is based on this fear—is that though the Government

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have been telling us (telling us in front of the Select Committee, telling us in this House and telling us in the other place) that the time would come when the economy would turn and that the Government could only provide the conditions for the turning of the economy, and though that opportunity has now come, the policy of this Government has been such, I suggest, that they have deprived the industry of this country of that opportunity to any great extent. I shall say why.
The Government's policy as I understand it and as I have laid it out before—and it has never been questioned by the other side—rests on a number of theses. The first is that if we control the money supply inflation will drop and there will be an opportunity for economic growth. The money supply has now been wildly exceeded, and the Government, without saying so, have dropped that test. They have discarded the test of the money supply, and no longer is it a plank in their policy. But at the end of that, before they dropped the test of the money supply, unemployment in this country had risen to between 3 million and 4 million, probably more than 4 million in real terms.
The second of the Government's planks was that they would free the private sector to invest and to produce, and so create wealth, and that they would reduce the burdens of the Government on the private sector. But taxation has increased under this Government by something like 5 per cent. since 1979, except for the very rich, and that burden of taxation has been borne by industry. What has been the result? We have had to squeeze out of the Government an admission, which we had this afternoon, that investment in manufacturing industry in this country is now 18 per cent. less than it was in 1979. They like to say that investment has increased, but when you pin them down to manufacturing industry you find that investment is 18 per cent. less than it was when they came into office.
As was revealed, I think accidentally, by one of the noble Lords on the Back Benches yesterday, who obviously did not know the answer when he put down the Question, output in manufacturing industry is 5 per cent. less today than it was in 1979. That is seven years ago. This is what happens when, as the Government would say, you free the private sector to invest and produce. Perhaps even more worrying, productivity is today declining in relation to our competitors. Unit costs in this country have gone up by 5 per cent., whereas those of our competitors have fallen over the past year by 1 per cent. to 2 per cent. That is not very hopeful for the future of British manufacturing industry.
The third plank in their platform was, "We must cut public expenditure". One has only to read through the evidence given by Ministers and officials to our Select Committee—"We cannot do that because our policy is to cut public expenditure as a proportion of GNP". Public expenditure as a proportion of GNP has gone up under this Government. It is higher now than it was in 1979. That policy has failed despite the fact that, in order to hide as much as they can of the reality, the Government have included in the reduction in public expenditure what they have received from selling national assets. This is not put down as revenue; it is put down as a reduction in public expenditure. Despite
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all that, public expenditure is still higher as a proportion of GNP than it was in 1979. This, again, had to be squeezed out of the Government. It had to be squeezed out of the noble Lord, Lord Young, by my noble friends Lord Bruce and Lord Molloy. First, the noble Lord was going to try to conceal it. Then it was squeezed out and he had to admit that fact.
What has been the result of what they have done with public expenditure? One has only to talk to the people in our hospitals and to the people in the schools; to look at the roads and to drive on the roads; to look at the amount of public housing that has been started during those seven years; and to look at the transport system. The deterioration in all those aspects of our public life is the result of cuts in public expenditure.
The next plank in the Government's platform was, "We will roll back the state". That was their great rallying cry: "We will roll back the state and set the people free. We shall have a free market and market forces will determine everything". Free market forces may determine matters, except where it is in the interests or prejudices of the government for the government to intervene. I have not seen many market forces determine matters in the case of agriculture. I did not see market forces determine the future of Westland's. I did not see market forces enabling Ford to threaten to take over Austin-Rover. I have not seen that it is market forces that are giving General Motors the opportunity of taking over Land-Rover.
Those deals have been done behind the scenes without the market place being open to all contenders. As we have heard this afternoon, it has been claimed by a former Minister who was a member of the Government until 9th January that the General Motors deal was never even put before the Cabinet during the whole nine months of the negotiations. That matter was handled in a secret, hole-in-the-corner way while the assets of this country were being sold overseas.
The Earl of Lauderdale: My Lords, I am grateful to the noble Lord for his courtesy in giving way. Seven or eight minutes ago, the noble Lord said that he would repeat a question that he had put to the Government in a previous debate, and which he had tried to put again this afternoon, but which the Government had evaded. I am still waiting to hear what that question is.
Lord Hatch of Lusby: My Lords, I did not say that I was going to put a question. In the previous debate on the Select Committee report I put a theme and asked the Government to answer that theme. They have not done so. They did not do so when I challenged them on part of that theme this afternoon.
The Earl of Lauderdale: My Lords, I am trying to follow the noble Lord but I am not clear what is the question he is trying to ask.
Lord Hatch of Lusby: My Lords, I am not trying to ask any question. I am trying to get the Government to argue their case against the contrary case that I have been arguing for the past seven years. I have never got the Government to meet that case. Nor did I get them to meet it when their Ministers appeared as witnesses

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before the Select Committee of which I was a member. I tried again in question and answer to get the Government to meet, not the case that I was putting, but that which a whole range of industrialists had put to the Select Committee. If your Lordships will read the report of that Select Committee and the evidence you will see what I am talking about.
There is one field of economic activity where the state has been rolled back and where the market forces do apply. As has already been mentioned by my noble friend Lord Donoughue, that place is the City. We are told that in the City there are six-figure salaries for people in their early 20s. That is where they will make their money. Although, to be fair, there are members of the Government who have deplored that situation, it still continues. That is what happens when one opens the field to market forces. It is no use moaning about it afterwards. If one is going to leave matters open to market forces, people will go into the City rather than into industry. As one industrialist after another told us, in this country young people will go into the City because there they will get two or three times as much as they will in industry.
What are the results of the Government's seven-year economic policy? Manufacturing industry has been demolished. Above all, its capacity for recovery has been removed. That capacity has been reduced by at least 20 per cent., so that when the opportunities come—if they come—many industries will not be able to take advantage of them. Unemployment is at a record figure. It is above that of all our competitors. Inflation is much higher than that suffered by any of our competitors. Interest rates are at a higher level than ever before, and our competitiveness is decreasing. All that is in spite of the fact that this Government have had the benefit of massive oil revenues over that seven-year period.
We are now seeing what has been rightly described this afternoon as the situation we foresaw on the Select Committee. As the price of oil declines, we are seeing a projection of what we anticipated was bound to happen as the quantity of oil declined. Now we are seeing the price decline. We wait to see whether the Chancellor's theory as he put it to us holds good; whether, as oil revenues decline, manufacturing will automatically increase. We wait to see, but I doubt very much whether that can or will happen.
Where the Government are now challenged, as the price of oil declines, is in respect of their economic or industrial strategy. Again, we on the Select Committee tried desperately to find out what it was. In that respect we found that the Government were virtually completely bankrupt.
It would appear that the reaction of the Government to that new challenge is simply an hysterical sale of national assets; the destruction of our industrial future; the mortgaging of that industrial future in giving ownership and control to foreigners; and, as we saw the Prime Minister admit on Monday night, the priority of commercial profit before the interests of this country. Apparently the success of capitalism takes priority over British interests.
I could summarise all that in these words. We have blown North Sea oil. We have sold the assets. We are a society too anxious to consume and an economy too
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reluctant to invest. I could make that summary but if I did so, it would be plagiarism because that is the summary made by the right honourable gentleman who was Minister of Defence, and a colleague of the noble Viscount the Leader of the House, until 9th January. He made that summary last week in New Society:
"We've blown North Sea oil. We've sold the assets. We're a society too anxious to consume and an economy too reluctant to invest".
I do not need to claim authorship of that summary because it has been given to us. Neither can I be accused of being prejudiced. That summary was made by a former member of the Government who have conducted the policies in question.
At the same time, it is no longer any use the Government saying that there is no alternative. The CBI have put an alternative, the TUC have put an alternative, and the All-Party Committee of another place has put an alternative. The Labour Party also has put an alternative. There is a common thread that runs through them all, and it is that more Government initiative is needed to support industry.
I have one last point to make. I do not like the kind of roulette economy that we are now seeing in the City, in the mergers and take-overs. I was interested to see that the secretary-general of the Institute of Directors agrees with me in his comments last week. With regard to that merger process, one comment has been made this week that I should like to quote to the House. It will again show that I am not alone in one of the themes that I have consistently put to this House as an economic policy for this country. Sir Hector Laing of United Biscuits had this to say this week, in relation to the future of his company and what he is trying to do in the merger with Imperial:
"The future for all of us is in the third world where standards of living will rise quite rapidly especially with lower oil prices. I think there should be a British company capable of competing on the world stage".
I agree. I have previously quoted, in support of that contention, one after another of the major industrialists and manufacturing leaders of our country as they appeared before our Select Committee.
I suggest to this House that although, as my noble friend Lord Barnett said, there are difficulties for some of the third world countries such as Venezuela, Mexico and Nigeria who are major oil producers, in other parts of the third world the lower oil price is an opportunity for expansion and we should be there. But this Government do not have the vision to see the opportunities which are lying in that half of the world where the market is closed.
Therefore, what are the elements of the policy of this Government so far as increasing our trade with the third world is concerned? They have cut overseas aid by 6 per cent. per year. They have reduced the budget of their own institution, the British Overseas Trade Board, and they have reduced the number of commercial attachés in our foreign and commonwealth offices abroad. We are way behind our competitors in government support for the expansion of industry in the world. The Japanese support their industry 40 times as much as we do and the French 20 times as much.

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That is the theme which I have put time without number to the Government Benches. I have consistently put it forward in the Select Committee. Your Lordships have seen in the evidence of the Select Committee the number of industrialists and manufacturers in this country who support this view. We have not had an answer at any time from this Government. The Government have told us over and over again that there is light at the end of the tunnel. I suggest that there is no light at the end of the tunnel that the Government are holding out to us. It is a long dark tunnel which is leading to a black hole for the future of the British people.
6.12 p.m.
Baroness Turner of Camden: My Lords, I welcome the opportunity this afternoon to participate in the debate on the economic situation. Other noble Lords have dealt in detail with the technical questions relating to the fall in oil prices and the matter of exchange and interest rates. I wish to address myself to what I see as some of the consequences of current government policies and I am emboldened to do so by the statement made earlier this afternoon by the noble Lord, Lord Young of Graffham. I do so because we are frequently being told—and we were told this afternoon by the noble Lord, Lord Young—that things are improving, that we are on the upturn, that it is simply a matter of staying with it as we are on the right road, that new, real jobs will be created and that popular capitalism, I think it is called, will see us through.
It is because I do not believe this that I should like to make a few observations this afternoon. Unemployment currently stands at a record 3.4 million people, of whom 1.35 million have been out of work for more than a year. All the indications are that these people would work if there were jobs for them to do. There is exceptionally high unemployment in two groups—those over 50 and school-leavers. One of the Sunday papers last weekend carried the story of a skilled professional man—unfortunately, a fairly typical case—who had been made redundant in his 50s. He and his wife pooled their resources, including his redundancy money, and set up a small business. That was absolutely in accordance with Government ethos. However, the small business had failed. I regret to say that there is a very high rate of failure among small businesses and no doubt high interest rates, as my noble friend Lord Hatch said, play a part in such failures. Clearly this is a major social problem, and almost everyone who has spoken in the debate would agree with that.
Last year the British Medical Journal published a series of articles entitled Occupationless Health. The articles commenced with the statement that Britain's young fear unemployment more than they fear the bomb. Among 18 to 19 year-olds the unemployment level last year was 26 per cent. More than half the unemployed under 25 have been without jobs for more than six months, a third for more than a year and 14 per cent. for more than two years. The article commenced with this quotation:
"It is only when you lodge in streets where nobody has a job, where getting a job seems about as probable as owning an aeroplane and much less probable than winning in the Football Pools, that you begin to grasp the changes that are being worked in our civilisation".
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That is a quotation form George Orwell's The Road to Wigan Pier written in the 1930s. Unfortunately, there are areas of our country where this is now once more true; and we had thought that those days had gone for good. In those circumstances, it is hardly to be wondered that when it is said that things are improving many people find this difficult to grasp. Indeed, the claim is greeted among many with incredulity. Even the economic forecasts are now that growth will slow down in 1986 to 2½ per cent.
The Government's answer to these problems is to claim that the answer lies in deregulation, increased competition and lower wage costs; and if only people would work for less we should be able to compete abroad and that would assist our problems. However, it seems to me that it is only one sector of the population that the Government are thinking about when they talk of lower wage costs. One sector the Government are plainly not thinking about are those employed on providing investment advice in the City of London: the prospect of the so-called Big-Bang in the City has led to incredibly high earnings for this class of person. Salaries of £150,000 a year and even as much as £300,000 have been referred to. Instead of golden handshakes we have the "golden hello" and "golden handcuffs". How this appears to the long-term unemployed, to the many millions on low wages, to workers at present covered by wages councils—but where the Government are considering emasculating wages council protection—can be readily imagined. It is bound to deepen the divisions in our society between those who have in abundance and those who have not.
In case it should be claimed by the Government—as it probably will be—that the Big Bang and all that follows from it is outside Government control and that they can do nothing about the explosion in earnings that has taken place, and is continuing to take place, I would point out that so far as concerns trade unions, the Government appear to be quite proud of their record of instituting controlling legislation. There are now substantial brakes put upon what unions may do and on what, in many countries, is legitimate trade union activity. The full panoply of the law has been introduced in regard to unions, together with powers to the certification officer to oversee what they do.
However, when it comes to financial services the Government apparently believe that the City can control and supervise itself. The Financial Services Bill envisages not control from outside as with the unions but a series of self-regulating organisations. Plainly this is totally inadequate and we shall perhaps have the opportunity of saying so when the Bill comes before your Lordships' House.
Moreover, the rash of mergers that has taken place, or is in process of taking place, has thrown up one practice which in other countries is simply not possible. I refer to the practice where a much smaller company can take over a much larger company on the basis of borrowed money and then can simply strip the larger organisation of its assets; including, of course, making the workforce redundant. The views of the workforce are not held to be of any worth at all, it seems, unless they assist a particular bidder. Indeed, it is not felt necessary for the workforce to be consulted. Yet, as I said earlier, the Government are apparently proud of giving unions back to their members and to

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union members the right to decide on union executives and union policies. How much more important it is that the workforce should have some say on what happened in the event of mergers and takeovers that may affect their future employment prospects.
Finally, I should like to draw your Lordships' attention to an interesting article which appeared in the Daily Telegraph on 7th January. It is headed:
"City firms set for the Big Bang and challenge from the East."
It says that Japanese banks are poised to seize chances and it sets out in some detail a number of very interesting facts about banking operations in the City. It says that Japanese banks in Britain now have £169 billion in assets compared with British banks which have £274 billion, and the assets of Japanese banks are growing. As I have indicated, the article says that the Japanese banks are poised to seize the opportunities that will exist when the London Stock Exchange is derestricted this year.
I cannot believe that all these machinations are in any way connected with the health of our economy. I believe very strongly that we need to have intervention in order to protect the interests of our economy and the workers in our economy. I am a supporter of an interventionist policy and I regret very much that so far as concerns the Government, they seem prepared to sit back and let things take their course. If they continue to do that, it is my belief that, irrespective of whatever benefit we may derive from reductions in energy costs, we shall find ourselves in a much worse situation next year and with unemployment problems of quite appalling proportions.
6.20 p.m.
Lord Diamond: My Lords, it falls to me to try to pick out from the various comments that have been made some of the major themes on which we have centred and to which we should like the Government to reply. I must start at the beginning and say that, though we are grateful to the noble Lord, Lord Young, for coming when he could to deal with this debate—and we fully understand that he could not stay—I find it difficult to believe that his speech was a courtesy to the noble Lord, Lord Barnett, who introduced this debate, gave notice of it and made it clear in the wording of the Motion that is down on the Order Paper that what your Lordships would be invited to discuss and what the Government would be invited to answer were questions relating to policy on oil production, interest rates and exchange rates.
What did we get? We had the usual knockabout defence of the Government's economic policy, which was not particularly under challenge. The noble Lord, Lord Young, totally misinterpreted the mood of the House. When a Motion goes down on the Order Paper asking for Papers, we all know what will happen. The House does not divide, and the Motion is withdrawn. It is the wording which is used when it is desired to discuss sensibly and in a fairly non-partisan way problems which are thought to be vital to the country's welfare and which the Government do not seem fully able to grasp. I regret having to start in that way, and I hope that the noble Lord the Minister who is to reply will fill in the gap. It is a pity that it should be filled in at the end of the day (and we all understand that it is
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much safer that way, of course) and that we did not have the opportunity of thinking over the views of the Government at an earlier stage.
I am bound to take issue with the Government on the constant repetition by the noble Lord, Lord Young of Graffham, of his highly selective statistics about increases in the number of jobs, and a variety of other things. I shall not say we have now got to the stage when we are bored, but I shall say that his words are totally non-persuasive. He forgets the figures that he has previously given to us. Today he told us how productivity was increasing. A very short time ago he gave us the figures showing how productivity in this country had slipped back in relation to our main competitors, who are, as we all know, Japan, Germany, the United States and France. Of course we know that.
When the Government were acclaiming their advance in productivity, they were making the bland assumption that every one of our competitors was going to sit on its haunches and do nothing whatsoever to increase its own productivity. Of course productivity goes up naturally year by year in every country as industry replaces and improves plant, manufacturing methods and management. The unfortunate thing is that, in the race in which we are all involved in order to make a living for our country, the United Kingdom finds itself slipping ever further backwards.
So I ask the noble Lord, Lord Young, to look at his figures in a more objective light, and to remember that he represents the Government. As the noble Lord, Lord Kaldor, pointed out, the increase in the gross domestic product for the whole period of office of this Government up to this last year has been at a fantastically low rate. If it did not increase in one year from such a low base, there would be something very peculiar about it; but overall we still lack the wealth that would have been produced if this country had merely gone on the basis of a normal and historical 2½ per cent. per annum increase in productivity. At this present day we are miles behind it.
I do not think that there is anything in what the noble Lord has said which gives us any comfort at all. He continually referred to these figures of new jobs created since 1981, and of course we are glad that new jobs have been created since 1981; but it would have been a little more objective and would have put the matter in context if he had told us that the new jobs created since 1981 are but a fraction of the jobs lost prior to 1981. They are only a fraction of them. There were 1¾ million jobs lost, and there were about ½ million or so jobs created. So we are still over 1 million jobs worse off. I am not talking about unemployment: we all know about the 4 million plus unemployed. In terms of jobs created we are still worse off than when the Government came into office.
I hope, of course, that the Government will do something about this, and that there will be some improvement; but I think it is pointless for the Government continually to come forward and repeat these figures. It gives us the anxiety that if the Government can be so complacent when the situation is obviously so bad, then what expectation do we have that they are really putting their minds to these difficult issues with a view to improving them?

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The figure for the unemployed is over 4 million—because we now know that the claimants number 3½ million, and with the non-claimants added it makes over 4 million people who want work if it is available but which is not. If the Government are prepared to live with such a figure, then I am bound to say to the Government not that they are heartless but that they have their priorities wrong. They are still living in a time when their total and exclusive consideration lies in trying to keep down the level of inflation, and they are giving unemployment second place at most.
All I can say is that, after an enormous dip in the first two years and some recovery, we have now reached the stage when in a number of ways we are back to where we were at the start, which means five or six totally wasted years. I was referring to the actual achievement of the Government in comparison with what the noble Lord, Lord Young, from time to time tries, not very successfully, to stuff down our throats.
Perhaps I may turn now to the debate. The noble Lord, Lord Young, did not do that, but the rest of your Lordships have done so and it has been a very interesting and valuable debate. The noble Lord, Lord Barnett, is to be congratulated on choosing a subject which is timely, full of topical interest and so important for our people.
We all agree about one thing, which is that in terms of interest rates and exchange rates what we are seeking is stability. About two years ago, I think it was, I had the privilege from these Benches of raising a debate on that very topic. It was on one of our allotted days. We are all trying to achieve that, and the Government will not say what their policy is and whether they are with us or not. Previously they said that the matter should be left to market forces. They have not exactly said that they do not recognise their responsibility, as a government in that area, but I find it difficult to discover their policy when they are continually saying that matters should be left to market forces, as against my view that they feel that it is too difficult and so they just ignore it.
Of course some of these issues are difficult, but that is what governments are there for. We are all agreed about that; and nearly everybody agrees that one way to secure a measure of stability is to complete the ERM. The noble Lord, Lord Donoughue, made a most interesting speech and divulged his change of view. That must account for the fact that as I came into the Chamber I heard tinkling noises well above the roof. They were sounds of rejoicing!
I apologise for repeating this, but one cannot rub it in too often. The high rates from which we are suffering are historically record high real interest rates. The corollary of seeking to keep inflation down is that one can then keep interest rates down. With high inflation, interest rates are bound to go up; the real rate earned is negligible or a minus quantity, as it has been over recent years. But if the whole policy is directed to reduce the rate of inflation, the amount to be deducted from the nominal rate of interest is small. With a nominal rate of interest of 12½ per cent., or whatever it may be, and an inflation rate of 5 per cent., or whatever, the real rate of interest is enormous.
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As has been pointed out from all over the Chamber, that is highly damaging. The noble Lord, Lord Vinson, made a number of important points about that. High rates of interest damage small businesses and new enterprise. How can a person start a new enterprise when he knows that, however good the idea, it has to show something like a 25 per cent. return before he can approach it? There are not many projects like that around. If a man has to borrow the money and pay that rate of interest, before he can rely on an attractive return he needs to have an extraordinarily valuable profit-making idea which, curiously enough, nobody else has ever thought of. That is not very likely. The high rate of interest is highly damaging to what the Government are doing in trying to encourage new enterprise and small businesses.
I come now to oil. It has been made absolutely clear that anybody who would plump solidly for an increase or a decrease in the rate of extraction in an endeavour to affect its price would be foolish. There are powerful arguments both ways which have been rehearsed by a number of speakers in the debate, including the noble Lord, Lord Soames. It is almost impossible for anybody outside the Government to have all the necessary information and advice to formulate a policy on oil extraction and what should be done to encourage or discourage it. I have no need to repeat all the arguments. My noble friend Lord Ezra made the points clearly.
I add only one point which does not seem to have been underlined by many noble Lords. To a simple person like myself, living for another day also has its attraction. There is no need to get all the oil out today; tomorrow is another day. The Government do not think about that. They try in every way to sell assets wherever they can find them and use the money to keep themselves afloat. The policy suggested by my noble friend is the only one that could successfully be followed, but it has to be approached tentatively. We cannot go to all the producers and say, "Please do this". The impact on different producers will be different. The approach must be through discussion and by a certain amount of leaning on various people. But that is all possible. It is all part of government, and that is what governments normally do. But there has been no sign, and a total absence of any sign in the speech of the noble Lord, Lord Young, that the Government have thought through the problem of oil production and decided what their posture should be. I do not know whether they have one.
I see that 15 minutes are shown on the clock. If the Government cannot satisfy me that they have a policy other than selling, I can only come to the conclusion that, inasmuch as they are doing everything that they can to get their hands on cash from wherever they can get it, that is also their policy for oil, and that does not spell a bright future for the country.
6.36 p.m.
Lord Williams of Elvel: My Lords, I should like to join the noble Lord, Lord Ezra, in saying that this debate has come at a particularly opportune moment. Since November we have had a preview of what I would call—and I mean no disrespect to the noble Lord, Lord Aldington—the Aldington nightmare, in which declining North Sea oil production produces a

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gaping hole in our balance of payments and government revenues. It is only a preview, of course, because in this case it is not declining North Sea oil production but it is rather a fall in the world oil price. But the effect, as a number of noble Lords have pointed out, is largely the same. And, as a number of noble Lords have also pointed out, the real damage will come not in 1986 but in 1987, when production will start to decline quite sharply. If the Treasury forecast reproduced in the report of your Lordships' Select Committee turns out to be correct, that damage will be compounded if, as the noble Lord, Lord Donoughue, expects, the oil price does not significantly climb back to where it was when Lord Aldington's committee reported.
In addition to those problems, the noble Lord, Lord Soames, raised what I think may well become a really major problem for all of us in 1987, which is the problem of international debt. I have been involved in international banking for quite some time and I still am in part of my activity. I agree with the noble Lord that we have to find some mechanism, particularly—as I think the noble Lord, Lord Diamond, pointed out in an intervention—with countries like Mexico, Venezuela and Nigeria, which are severely hit by the reduction in the oil price and whose debt will be insupportable compared with their gross domestic product if the oil price really does stay at its present level.
In face of all those problems, it is quite clear that the Government have to decide what they are going to do. It is useful to have this preview because it allows us to prepare action in time for the run of the main film, which I think will probably start some time in the course of next year. The Government, of course, may decide to do nothing on the grounds that the fall in oil prices on balance is good for Britain and that there will be, in the words of the Treasury evidence to the Select Committee, an automatic and inevitable adjustment process that will compensate for the loss of the oil surplus. Or they may decide that such an adjustment is not automatic and inevitable and that a new set of policies is necessary to deal with a new situation.
I confess that I was rather disappointed with the speech of the noble Lord, Lord Young of Graffham, partly because I had heard more or less the same speech made by the Chief Secretary to the Treasury in another place last Wednesday when replying to my right honourable friend Mr. Roy Hattersley. There is nothing particularly wrong in that. I should, however, like to ask the noble Lord, Lord Young, whether he will in future, if possible, give some statistics that start not at 1981 or 1982 but perhaps at 1979. I also ask the noble Lord if he will very kindly read the speech made on 12th July to the Financial Times Conference on the City Revolution by my right honourable friend in another place, Mr. Roy Hattersley, dealing with the Labour Party's attitude to Government borrowing. Finally I ask, perhaps somewhat frivolously, that, in quoting my right honourable friend the former Prime Minister in another place, he should get the quotation correct.
However, the burden of what the noble Lord, Lord Young, said shows that he puts himself fairly and squarely in the market forces school. He believes that there will be adjustment and that, once the conditions
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are met, there will be an automatic process by which various things will happen which will make up for the loss of oil revenues.
The Opposition have three major difficulties with this view. In the first place, we believe that the noble Lord has an altogether rosier view of the underlying strength of the economy than we have. After all, industrial production, which includes North Sea oil production, has only just reached the level of the fourth quarter of 1979. Total investment is indeed at a record level but in real terms it is only 4.3 per cent. up on the 1979 figure. As a percentage of gross domestic product, it is running at a lower level than in each of the years between 1970 and 1979. The current rise in total economy productivity is still below the trend for the post-war period from 1946 to 1980. By comparison with our international competitors, we are doing much worse. In the league table of five countries—the United States, Japan, West Germany, France and ourselves—during the period from 1979 to 1984, we came bottom on growth of output, bottom on unemployment, bottom on growth in public investment and consumption, and next to bottom on inflation. And now France has pushed us to the bottom of that table as well.
Not only is our economy weaker than the Government claim but it is clear that the real beneficiaries of the fall in the oil prices are those countries that produce no oil. And those are, of course, precisely our main competitors, other than the United States, although the United States will have a substantial advantage because it is a major oil importer. West Germany, for instance, will see its already strong balance of payments made stronger and its inflation rate down to below 2 per cent., and some people think that it might be down to zero, with real output growth running at well over 3 per cent. or perhaps at up to 4 per cent. As for the Japanese, they are almost embarrassed by how well they will do, if, indeed, the word "embarrassment" is appropriate in the circumstances of that country.
Our third difficulty with these co-called market forces is that they have failed signally in the past to deliver the benefits that were claimed for them. My noble friend Lady Turner was very eloquent on this point. I shall not bore your Lordships with another recital of the failure of monetarism to live up to the advertisement that, by strict monetary control, inflation would be brought down without significant loss of output. I do not believe that that happened. I do not believe that 3·5 million unemployed—or whatever the true figure is—does not result in a significant loss of output. The latest failure, for which, of course, market forces are again responsible, is the restraint of real earnings of those at work. If the Government claim that that is a problem then it is a problem where their economic policy and their monetary policy have failed entirely to act. Again, my noble friend Lady Turner drew our attention, as did my noble friend Lord Donoughue to the imbalances that have arisen precisely as a result of the operation of market forces in this area.
The last reason why we do not believe in this whole market force approach is that it was clear from the report of the Aldington Select Committee that no one with serious industrial experience believed in the

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automatic and inevitable adjustment process. The evidence to your Lordships' Select Committee was very strong on this point, the president of the CBI saying, for instance, that he did not accept the premise in any way. Nevertheless, we have to accept that market forces do operate internationally. The noble Lord, Lord Vinson, was interesting in his analysis of interest rates. The noble Lord joined the noble Lord, Lord Soames, in saying that international rates go across frontiers and that we live in the international community. We have to accept that the oil price has fallen. We have to accept that the trade weighted exchange rate has fallen.
The noble Earl, Lord Lauderdale, asked what Opposition policy was on oil prices and put the question, "How do you achieve any sort of stability?" My answer is simple. For some time now, the Chancellor of the Exchequer has—rightly, in my view—been sitting with the Group of Five to try to get some stability in the dollar exchange rate. This does not seem to be something that the noble Earl, Lord Lauderdale, objected to. I see no reason why some similar arrangement should not be made in the case of oil prices. If it is right to do it for money, why is it not right to do it for oil? The fact that the Government, at the moment, may not be able to do it is probably the result of their policy of handing over the rate of production of North Sea oil entirely to private companies and depriving themselves of the possibility of setting a proper depletion policy.
If the exchange rate conditions for an automatic and inevitable adjustment are there, are conditions for such an adjustment in domestic energy prices also there? My noble friend Lord Donoughue made an interesting point. He said that it was all very well to say that crude oil prices were coming down but that it was not necessarily true to say that this would be translated into domestic energy prices. Indeed, he quoted some figures of gasoline prices at the petrol stations that would lead one to believe that this is not happening. However, it is not only oil prices—fuel oil prices, gas oil prices, naphtha prices and gasoline prices—that have to come down to reflect the drop in crude oil prices but it is also the knock-on prices that follow through from those, such as electricity prices, gas prices and coal prices. I do not see any sign of the Government taking powers to reduce those prices in line with the oil price. Indeed, I thought that they were trying to push them up. That was the last I heard.
The exchange rate is one thing. I am sorry that my noble friend Lord Kaldor is not satisfied with the extent of the exchange rate devaluation. He would like a further 20 per cent. That may come, or it may not come. I am not myself convinced that the exchange rate will achieve the level that my noble friend would like. I believe that it might if the interest rate policy of the Government was changed. Here, we get a dilemma that the Government have to face—that the managing of the sterling-dollar rate is done through the differential between sterling interest rates and dollar interest rates. If they bring sterling interest rates down, as the noble Lords, Lord Vinson and Lord Diamond, argued they should, then they will have to accept that the consequence will be that the sterling-dollar rate will come down. That will, I think, have the sort of
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inflationary impact to which my noble friend Lord Donoughue was referring.
Your Lordships will by now be clear as to where the views of the Opposition lie in this matter. We do not believe in automaticity or inevitability. We accept the analysis of your Lordships' Select Committee. Our economy is too fragile. Our institutions are too ossified. Our attitudes are too diffident. Above all, non-price competitive factors in terms of quality, marketing, service and product development are very much against us.
In short, we believe that a stronger set of policies needs to be applied. This is not the time to go into these policies in detail, but I believe that they are well summed up in a quotation from a NEDO paper which the noble Lord, Lord Benson, gave in his evidence to your Lordships' Select Committee on Overseas Trade. The noble Lord said that we need, first:
"continuity and stability of policy. Second, concentration of effort—that is to say, a package of different measures which are mutually reinforcing. Third, careful planning of long-term industrial priorities. Fourth, selectivity in industrial policy as opposed to blanket measures. Fifth, investment in human resources, in short a higher quality of technical and vocational education and training. Lastly, consensus and commitment at national and company level by all those engaged in the industrial process".
I also find myself in agreement with the right honourable gentleman, in this case the Secretary of State for Energy, when he said to the Conference of Young Conservatives:
"Not everything can be left to market forces. If other governments stand shoulder to shoulder with their industries then we have no alternative but to do the same."
I particularly liked his expression: "We have no alternative".
For, in truth, as the noble Lord, Lord Kaldor, pointed out, the Thatcher experiment, as it has been called, adds up to a very extraordinary catalogue. The Conservative Government came to power in 1979. They have been given tens of billions of oil revenues (leaving aside the proceeds of privatisation), and have left industry either no better off or, in the case of manufacturing industry, worse off than when they started. They entered office knowing, as we all knew, that those billions were about to roll in, and promising to reduce the burden of taxation, and yet, after six and a half years and all those billions, only a small and privileged minority are paying less tax. They undertook to reform and improve the welfare state, and yet, in spite of those same billions, they have reduced the average public capital spend in real terms by over 15 per cent. and brought our social services to near collapse both in physical stock and in personnel morale. It is an astonishing record.
Bonanzas like the North Sea only happen once. Such a piece of good fortune will not come our way again, and we must now start the melancholy task of picking up the pieces and clearing up the mess after the party. This is why this debate has been so opportune, since the time to start is really now. I cannot resist saying that I very much suspect that it will be for our side of this House to take on that task. Heaven help us with it, because the legacy will be horrific.
6.53 p.m.
Lord Brabazon of Tara: My Lords, we are all grateful to the noble Lord, Lord Barnett, for having

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moved his Motion this afternoon, and a very intersting debate it has been. Having looked at the Motion on the Order Paper and seen that it was to do with the fall in oil prices, my mind went back to 1974 when they dramatically quadrupled in one year. I was reminded that at that time we also had a coal strike and a general election looming. Things are better now.
The noble Lord, Lord Barnett, suggested that we should perhaps open talks with OPEC and restrict output, as did the noble Lord, Lord Ezra. Yet it is precisely the fact that the North Sea has developed in a free market that has led to its success. Government imposed cuts in production would damage the confidence on which the development was based and the propsects for oil production in the 1990s. The noble Lord, Lord Ezra, suggested that somehow we could moderate production and stimulate the pace of exploration. I find it difficult to see how the oil companies could find a government-imposed ceiling an encouragement to expand their exploration activities, and my noble friend Lord Lauderdale gave a very powerful speech arguing against any such cut-back. My noble friend also reminded us of some of the benefits which the revenue from North Sea oil has brought us, such as a reduction in the PSBR and an enormous increase in our overseas investments.
The noble Lord, Lord Barnett, followed by nearly every other noble Lord who spoke, advocated that we should join the exchange rate mechanism of the European monetary system, and several of those who spoke admitted that they had been recent converts to this theory.
Lord Diamond: My Lords, is that all that the noble Lord is going to say about oil? Will he not give us any idea of what is the Government's policy with regard to oil production? Is the noble Lord saying that the Government will just stand by and let it rip, or what?
Lord Brabazon of Tara: My Lords, I have said what we intend to do, which is to leave production as it is at the moment. I was referring to those who spoke about the possibility of us joining the European monetary system. The noble Lord, Lord Barnett, said that to join was not a matter of political ideology; it was a decision to be taken on hard practical grounds. I could not agree more. Indeed, if noble Lords look at the speech of my right honourable friend the Economic Secretary on 29th January in another place, they will see that he used virtually the same words: The Government's position is unchanged; it is a matter we keep under continual review.
The noble Lord, Lord Ezra, said that my noble friend Lord Young of Graffham had not discussed the wider economic implications of falling oil prices in his opening speech. I submit that in fact he discussed them in some detail. To summarise, he said that the overall impact on output and inflation, as the noble Lord said, should be broadly neutral or, if anything, slightly beneficial. The noble Lord, Lord Ezra, also asked me about other energy sources. On Monday we had a Question on the encouraging coal production figures, and the noble Lord urged caution about whether the Central Electricity Generating Board should burn more oil. I agree that the Central Electricity Generating Board should be cautious in this matter.
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Of course, if it did decide to burn a great deal more oil, that would only put up the oil price again.
The noble Lord also asked whether the Government's campaign on energy saving would in any way be diminished by the fall in the oil price. The answer to that is certainly not. I think I said at Question Time the other day that the savings which could be achieved were some £7 billion a year. That figure might indeed be reduced a bit, but a very significant saving could still be made.
My noble friend Lord Soames spoke powerfully of the growing protectionist forces in the United States. I am sure the House would agree with my noble friend on the dangers of such forces. A new GATT round is due to start towards the end of 1986. It is one of the Government's aims in those negotiations to offset the pressures for protectionism in the United States. My noble friend also spoke of the indebtedness of the third world, and particularly of the problems facing Mexico and the other oil producers, as did my noble friend Lord Wolfson and the noble Lord, Lord Hatch. The indebtedness of the oil producers is indeed a problem, but I should point out to noble Lords that overall the debt of the oil importers is around twice that of oil exporters.
The noble Lord, Lord Kaldor, claimed that the Government's economic policies were underpinned by the fallacy that inflation is the root of all evil. It is not the root of all evil, but it is the root of a great deal of evil. The noble Lord dismissed the Government's achievements, but I think that many noble Lords would not be so dismissive of a policy that has brought inflation down to an average increase of 5.1 per cent. since June 1983.
Lord Kaldor: My Lords, did the noble Lord compare this figure with what happened in other countries? It is true that our inflation has come down a lot, but it has come down everywhere. We were not, so to speak, all alone in this.
Lord Brabazon of Tara: My Lords, it has indeed come down and it must come down more in this country. The noble Lord, Lord Kaldor, and many other noble Lords including the noble Lord, Lord Parry, also spoke about our manufacturing base. The House of Lords Committee on Overseas Trade said that our manufacturing base was so weak that it could not fill the gap when the oil ran out, and various noble Lords this afternoon have echoed that sentiment, including particularly the noble Lord, Lord Hatch. However, that is to ignore the facts.
Over the last five years manufacturing industry has been transformed. Following seven years of stagnation manufacturing output has increased by 13 per cent., and has now enjoyed the longest period of uninterrupted growth since 1971. Export of manufactures grew by 11½ per cent. in 1984 to reach an all-time record; a record that was beaten by a further massive 8½per cent. growth last year; and since 1981 our manufacturers have increased their share in the volume of world trade. My noble friend Lord Wolfson said that we too often underplay our performance on exports. I quite agree with him.
Profitability of manufacturing industry, bogged down for so long, has recovered and is now at its

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highest level since 1973. And investment has recovered. It was stagnant under the previous Government. It has increased so far by 26 per cent. since its trough.
Lord Hatch of Lusby: My Lords, will the noble Lord give way? He has been giving these figures. We have heard them all before from the noble Lord, Lord Young. He always starts from 1981. Why not go back to 1979 when this Government took over? Is it not the case, as I stated in my speech—and as has been proved reluctantly by noble Lords on the Front Bench opposite during just this week—that manufacturing output is 5 to 6 per cent. below what it was in 1979, and that manufacturing investment is 18 per cent. below?
Lord Brabazon of Tara: My Lords, it is perfectly true to say that between 1979 and 1981 there was a dramatic fall. The noble Lord has probably forgotten that we had an oil crisis at that time, when the price of oil doubled—or was it trebled? I cannot remember. That recession took place all over the rest of the world as well. It certainly was not only in this country. Output also declined under Labour. As I remarked earlier, it has revived rapidly since 1981. I would rather look to the future, and see what is happening now, than continually go back to 1979.
Lord Kaldor: We are importing—
Lord Brabazon of Tara: My Lords, I am not going to give way again. I have given way often enough as it is.
The revival of manufacturing is seen perhaps most dramatically in the increase in productivity. Manufacturing industry suffered from inefficiency and overmanning for decades, but since 1981 productivity has increased by an incredible 33 per cent.; an average growth of 6 per cent. a year. I have to tell the noble Lord, Lord Diamond, that productivity in the whole United Kingdom economy in the years 1980 to 1985 has grown at an average of 2¾ per cent.; better than the l½ per cent. of France, the 1½ per cent. of the United States, and the 1¾ per cent. of Germany. These are not indicators of a depressed manufacturing sector.
There is no room for complacency, however. Manufacturing output is expected to continue its steady growth this year, but its wage costs are rising three times, or more, faster than those of our major competitors. The noble Lord, Lord Barnett, pointed out today's earnings figures, which have just been released, of an increase of 8·9 per cent. I believe the increase in fact to be an underlying increase of 7½ per cent. However, that is still more than it need be. I would remind noble Lords that a 1 per cent. reduction in real wage increases could create over 100,000 jobs. With wage restraint and flexible working practices, the future of manufacturing industry would look very good indeed.
The noble Lord, Lord Donoughue, asked what would happen when the oil ran out, and what planning the Government were doing. It is first worth noting that most recent estimates suggest that the United Kingdom will continue to be self-sufficient in oil until
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at least the mid-1990s, if not to the turn of the century. we are peering into a fairly distant future.
As oil production declines we expect to see a gradual return to a more traditional pattern of trade. As the noble Lord said, manufacturing will play a key role here. I have already spoken of its achievements since 1981, and the dynamism he spoke of has already shown itself. But I must take issue with him on the need for a plan. The Government's approach is to encourage the economy to operate more efficiently: to remove obstacles to growth. This is worlds removed from the planning put forward by the party opposite.
The noble Lord also talked about City salaries, as was mentioned by the noble Lord, Lord Hatch, and the noble Baroness, Lady Turner of Camden. Indeed, there are some cases of very high salaries at the moment. I cannot resist quoting just a small item from today's Times, which the noble Lord may have seen, regarding yesterday's PSBR figures, and indeed the figures which were out earlier this month, and how they caught the analysts in the City on the hop:
"By making the analysts look foolish twice so far this month with their forecasts, the mandarins are making a point about high City salaries far more subtly than the rumblings from No. 10".
I suggest that in fact market forces there will prevail, and that in due course City salaries will become more normal.
The noble Lord, Lord Hatch, accused us of, I think he said, reducing expenditure on roads since 1979—these are 1979 figures; let us get this clear now—and reducing figures on spending in the National Health Service. He is quite wrong. Since 1979 capital spending on motorways and trunk roads has increased by a quarter in real terms, and on the health service capital spending is up by 21 per cent. in real terms. I have more figures here which I could show the noble Lord afterwards, perhaps.
The noble Baroness, Lady Turner, spoke about small businesses, or a particular small business which had failed. Of course, one has great sympathy with that sort of incident, as I am sure the whole House has. But it has to be remembered in the story of small businesses between 1980 and 1984—the latest years for which figures are available on the basis of VAT registrations—that there were about 140,000 more business starts than stops; an average of 550 a week. Nineteen eighty-four was a record year with 700 net starts a week. The noble Baroness said that she would like to go back to an interventionist policy. I submit that those policies were a disaster, and I personally hope that we do not do so.
The noble Lord, Lord Williams of Elvel, decried market forces. But he also quoted the case of the economies of the USA and Germany. Does he share their distaste for market forces? Even France has become more market orientated than in the earlier days of the present administration over there.
I should like to end by reminding the House of a few key facts about what the Motion calls our "economic situation". Over the period 1983 to 1985 the United Kingdom topped the growth league of major European Community countries despite the coal strike. Over the previous decade we were bottom of that league. In 1985 the United Kingdom is expected to have grown faster than any other country in the

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Community and the United States, an achievement unimaginable in the time of the previous Administration.
Lord Diamond: My Lords, I am grateful to the noble Lord for giving way. He has challenged me on figures, and it is a courtesy I much appreciate that he should allow me to respond. He is talking about 1985. May I ask him quite specifically: is he prepared to contradict what the noble Lord, Lord Young of Graffham, told me on 29th October 1985, that in 1985 there had been a rise in unit costs—which is what matters in productivity—in this country of 5 per cent. compared with a fall in Germany of 3 per cent. and in Japan of 6 per cent.? So the margin was widened by something like 8 to 11 per cent. in one year.
Lord Brabazon of Tara: The noble Lord, Lord Diamond, is talking about unit costs. They have gone up compared with our competitors and those were the figures that I was talking about when I urged restraint on wage settlements. That is not the same as productivity. Productivity has risen by the figures that I mentioned.
We all regret the present level of unemployment. I do not think that there is anyone who regrets it more than my noble friend the Secretary of State. In his speech he gave a long and full explanation of the measures that the Government are taking to counter it. But that does not mean that we should denigrate other more positive aspects of the British economic performance since 1979. The Government have kept downward pressure on inflation, have freed up markets and the economy has responded. The economy will continue to respond.
Lord Barnett: My Lords, it only remains for me to say a personal thank you to all noble Lords who have spoken in this debate. They have already been referred to by the noble Lord the Minister in his winding up and by my noble friend Lord Williams of Elvel in what I thought was an excellent speech, as did many of my noble friends in the debate today.
The only thing with which I disagree in the Minister's winding up was his reference to his noble friend the Secretary of State for Employment when he said he gave a "long reply" to the debate on one aspect of it. I hope on reflection that the Minister will think about his brief reply. I understand and appreciate that he could not tell us what the Chancellor will say next month. But I hope that he will appreciate that much of today's debate was an excellent one as everybody will agree, especially all those who took part in it, and that speeches from Ministers from the Front Bench in this kind of debate, which is not overtly party political, would be better for being a more serious contribution to our discussions. I know that the noble Lord has not been here, but he will read some of the contributions that have been made, especially by the noble Lord, Lord Diamond, and some of my noble friends commenting on the way he dealt with the serious subject. I hope on reflection that he will realise that he did not fully reflect what needed to be said in what is a serious matter. It remains for me to thank noble Lords for references to my contribution and I now beg leave to withdraw the Motion for Papers.
Motion for Papers, by leave, withdrawn.

Peterhead Harbours (South Bay Development) Order Confirmation Bill
Brought from the Commons; read a first time, and to be printed.

Farmers in Green Belt Areas
7.15 p.m.
Lord John-Mackie Lord John-Mackie rose to ask Her Majesty's Government whether they are aware of the difficulties of farmers in green belt areas, who in response to exhortations wish to diversify their operations.
The noble Lord said: My Lords, it is a pleasant light in this Chamber from what it has been this past hour or two and I welcome it very much indeed.
In putting this Question to Her Majesty's Government I must first declare an interest. I farm and live in the metropolitan green belt and I had an application before Epping Forest District Council to allow four young men to occupy some buildings for industrial purposes. These buildings were no longer required for my farming, but represented only 8 per cent. of our total buildings. Since the application has been turned down it has received some publicity. I have been approached by neighbours and others about the position in which they find themselves when applying for a planning permission in the green belt, not only around London but in other areas as well. I believe the noble Lord, Lord Stanley, will confirm this when he speaks.
I believe wholeheartedly in a green belt policy. We simply cannot allow our huge conurbations—London, Birmingham and Glasgow, to mention the largest—to sprawl over the surrounding countryside. I should like to point out that this is not the case of a few farms here and there. The impression I have from those to whom I have talked is that half a dozen farms here and there are affected. There are four and a half million acres of green belt land in the country. My own Epping Forest District Council alone has 75,000 acres.
It is difficult to find the figures of how many farms this represents. About 80 per cent. of green belt land is farmed; the rest is forests, downs and so on, but on my own observation these farms are larger than the average in the country (the average is only 150 acres) but there are few really large scale units. One can perhaps quarrel with my calculations, but I calculate that this probably represents between 15,000 and 18,000 farmers, plus their wives and families and their employees and their wives and families.
I make no bones about it. I want to emphasise that the management of the landscape, wildlife and recreational resources of the green belt depend on the prosperity of these people. I cannot emphasise that too much. I have said before that unless the actual business of farming, with perhaps some diversification, is profitable, no amount of grant will persuade farmers to plant trees or hedges or to take any other major conservation measures. That must be emphasised.
We have seen much written about farming incomes lately. They fell by 43 per cent. last year. This was not spread evenly, I readily admit, and I venture to suggest

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that the mixed farming, which is common in green belt areas, fared badly. This may be arguable but suffice it to say that I have access to figures of cereal farming in the Eastern counties and those farmers have survived better than a 43 per cent. drop in spite of wheat prices being over £20 a tonne lower than two years ago.
The point I must make is that, apart from the devasting 43 per cent. drop in incomes, this year one can hardly lift a farming paper or some of the responsible national papers without being given warning of the future situation. I have cuttings before me. One from Big Farm Weekly says:
"EEC plan will slash incomes … beef … 10–15 per cent., wheat by 10 per cent. and barley by 15 per cent."
The Farmers Weekly a couple of weeks ago said:
"Cereal producers could face price cuts of double figures".
This week's Farming News says:
"A time-bomb ticks".
That is a quote from Mr. Andriessen at the Farmer's Club last week. I could go on but at the same time as our prices are being slashed—my returns for wheat this year showed a drop of nearly £24 per tonne from the figure of two years ago—our costs are continually going up. I cite them—fertilisers, electricity, telephone, gas, wages, machinery, rents, interest rates. I emphasise them because they are a very heavy burden on agriculture. The only thing that has come down a little because of oil prices is the petrol for our cars, which are generally believed to be Rolls-Royces by the farming bashers.
What do we do about it? I quote David Richardson in another farming paper:
"How do we deal with a situation which is heading inexorably towards lower or non-existent profit on arable farms?"
There is no lack of advice and exhortation: do not rely on farming alone. Be like your European counterparts, diversify: tourism; bed and breakfasts; turn your old farm buildings into small industrial units; open up your farms to the public; farm shops; pure food produced without fertilisers and sprays, etc.; provide fishing, riding, shooting, all country sports. The list is legion. There is no lack of advice. The centre page of the Farmers Weekly last week shows just what is being done as regards turning old farm buildings into something different, and it heads it, "Old house, a new start".
A land agent's brochure heads an article on the same subject, "Improving future prospects", and shows what can be done. Only this week I received notice of a seminar organised by CoSIRA, which I presume everyone knows is the Council for Small Industries in Rural Areas. It is an offshoot of the Development Commission. The seminar is on old buildings and new opportunities. It is to be held at Brentwood, practically on the edge of the metropolitan green belt.
These warnings and exhortations are not new; they have been going on for a long time. People farming in the green belt areas wonder just where they stand. There is no question that they are really disadvantaged. Practically any application for change of use of anything in the way of buildings, or almost any of the diversifications for which farmers ask, is almost immediately automatically turned down. It is all very
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well to say, "Well, you can appeal", but it is amazing how many farmers feel that it is not worth the trouble, expense and so on going to an appeal which may fail.
I should like to give just three examples of which I personally know. A farmer not far from me had a small old barn which was a listed building. It was really no use for farming in this day and age. He had a plan made to convert it into a dwelling house, making sure that the old oak beams would not be covered, so as to preserve the character of the old barn. That application was turned down. A small fruit farmer near me had a not very large building which he did not require. He let it to a man who started a business making specialised footwear. He was not allowed to continue. Another smallholder waited for about four years for permission to carry on a bed-and-breakfast business.
I happen to know of these cases. In my opinion, not one of them would in any way have done any harm to the green belt. In fact, if one presses the planners on the subject they will admit this, but they maintain that their hands are tied. I have had discussions with them. They are reasonable people, but they point out that they have to obey their instructions and the various orders and instruments that they receive under town and country planning Acts, and so on.
However, at the Oxford Farming Conference a month ago the honourable William Waldegrave, a Minister of State from the department of the noble Lord the Minister, the Department of the Environment, made this statement in the body of the speech that he gave:
"As planners—and this is not always popular—we must not let Green Belt or wider rural planning policy block the small-scale additional housing, the conversion of redundant farm buildings, and the light industrial developments which will be needed to sustain this improvement"—
that is, the improvement of life in the countryside.
Also, in answer to two questions which were asked because of that statement, he replied:"
"We do want to stand firm against the wholesale destruction of the Green Belt, for example, by mammoth new housing developments. There may be particular cases that are special but in general we want the structure to remain what it is. But please District Councils"—
and I think it was a county councillor who asked him the question—
"do not intrepret that as meaning that in every case where somebody comes to you for a building conversion or a particular small-scale housing development, as part and parcel of a village, you are being asked by us to give way every time to the lobby that says, 'No developments of any kind whatsoever'".
Then, in answer to another question, he said:
"That is one of the messages I wanted to use this platform here today for to say to these District Councils, you are being asked to preserve the Green Belt, right, and we will stand by you with that. You are being asked not to allow urban and industrial sprawl in general but you are also being asked to do that and have the sensitivity at the same time to allow the necessary development to keep the villages and small towns alive, a much more difficult task because it is not saying no to everything".
I do not know whether that is the policy of the Department of the Environment, but the Minister himself, the Secretary of State, also had a long article in the Sunday Times of two weeks ago headed, "Green Belt [is] not a green museum". I think that that should be very true.
I think the statement made by Mr. Waldegrave was an eminently sensible statement by an eminently

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sensible man. In fact, it was so much so that somebody at the conference suggested that he should be moved to the Ministry of Agriculture. Frankly, somebody else got up and said, "That would be a mistake. If we have a friend at the Department of the Environment, let's keep him there", and I think that is very wise. I can only hope that the planners will take note of what was said there.
Perhaps I may sum up the situation. Farmers' incomes are being drastically cut. They are being exhorted to diversify to maintain their incomes. In an area of 4½ million acres farmers are inhibited in their doing this because of the rigid application of planning laws. They are being asked to maintain the environment. They cannot do this without sufficient income.
I have been accused of wanting sympathy: just another farmer moaning, wanting charity. Sir Richard Bodey, if you please, suggests that each farmer should be given £10,000 to conserve the countryside. I have the cutting here, and I hope he is correctly reported. I am not asking for sympathy and I am not asking for charity. I never have and never will. What I am asking the Government to do is to understand the situation of probably 15,000 of my fellow farmers. I look forward to hearing what the Minister has to say.
7.28 p.m.
Lord Winstanley: My Lords, it is an immense pleasure to follow the noble Lord, Lord John-Mackie, and his very important Unstarred Question, and perhaps add one or two questions of my own. It might perhaps have been a greater pleasure to have followed the noble Lord, Lord Stanley of Alderley, rather than have him follow me: I could perhaps then have done to his speech what he may hope to do to mine after I have sat down. We can but wait and see so far as that is concerned.
As for the noble Lord, Lord John-Mackie, I had the honour to be chairman of the Countryside Commission at the time that the noble Lord was chairman of the Forestry Commission. At that time, although we were doing very different jobs, I think we were in part engaged in a similar job. We both had responsibility for national assets in the countryside—in my case the countryside per se and in his case forestry. We both had the responsibility of resolving a very important conflict in relation to those national assets. It is a very clear conflict—namely, the dispute which arises between those who seek to use those resources for recreational purposes and those who are responsible for those resources in so far as productivity is concerned.
It is an important conflict and I think it is right to say that the Forestry Commission, under the guidance of the noble Lord, did a great deal to resolve it. They were able to go on with productive forestry and at the same time to accommodate and adapt to the increasing demand for recreational use of the land controlled by the Forestry Commission. I think it is also true that over the years the Countryside Commission has done a great deal to resolve those conflicts. It is those conflicts about which we are concerned in this Question. We are concerned with the green belt.
Let me say at the outset that I and my noble friends on these Benches are wholly committed to the
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preservation of the green belt. However, I must also say that we believe, and believe very strongly, that the green belt can be preserved in an acceptable and desirable form only by the preservation of profitable farming in green belt areas. On that, I think we are wholly agreed, that if land and urban fringe land which is largely agricultural land is under-farmed, it decays rapidly, falls into disuse and I think ceases to be of real value. We have seen in recent years in the urban fringes—and it is urban fringes that we are talking about; for urban fringe decay is not uniquely an English problem; it is a problem that has to be faced all over the Western world—agricultural holdings fragmented into smaller and smaller pieces; we see little pieces left idle and unfarmed, perhaps in the hope of planning consent for different kinds of development later. Hope springs eternal in the landlord's breast. I am afraid that some of that land lies doing very little for a very long time. I want to emphasise that at the outset. My commitment and that of my noble friends on these Benches to the green belt is also a commitment to preserve the green belt by preserving profitable farming in urban fringes. I think that is the way to do it.
The noble Lord's Unstarred Question draws our attention to the problems of farming profitably in some of those areas. I recognise some of those problems. I have responsibility, as chairman of the Groundwork Trust set up by the Department of the Environment, to try to restore urban fringe land in the Merseyside area. One of our major problems there has been to restore farming. The particular situation there is that much of the land which is under-farmed there is, in fact, Grade 1 agricultural land, of which there is not a great deal in the North West of England. It is a tragedy to see that lying under-farmed; and much of it has been under-farmed because of the pressures of trespass, of vandalism, of litter and problems of that kind.
One of our principal jobs—and we have managed to do it very largely as a result of the secondment to the trust of a senior civil servant from the Ministry of Agriculture, Fisheries and Food, who has been working very closely in the trust and who has managed to work very closely with the farmers in order to reconcile the conflicting interests involved—is to get the farmers to understand that they somehow have to allow some kind of access to townspeople who wish to use that land for recreational purposes and, at the same time, to encourage townspeople to understand the needs of those who occupy that land and depend on it for their living. I think that experiment has been outstandingly successful.
I accept that upland farming, of which I have more experience, but not very directly, is very difficult and that it is difficult indeed for farmers in upland areas to make an adequate living without some kind of subsidy. Many of them have other jobs. My land in Cumbria, such as it is, is farmed by the landlord of my local pub, which has certain advantages. It illustrates the point that, so far as upland farming is concerned, it cannot exist on its own. It is perhaps rather news to me that these kinds of difficulties are arising to the same extent in the green belt areas. That has been my impression, and I know very little about the economy of farming save that it seems more and more to have

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become a matter of accountancy and making sure that one is able to attract the right grants from the EEC and so on.
I know one farmer (and I will mention no names) who on one day got a substantial grant for going out of dairy farming while on the same day his wife got a substantial grant for going into dairy farming on immediately adjacent land. So I merely say that it is sometimes a matter of accountancy. But I am now led to understand by what the noble Lord has said and by what other people have said that there are these very real difficulties.
For a long time we have been actively encouraging farmers in upland areas to diversify and to enter into activities which we hope on the whole have been agriculturally related and which will enable them to continue to farm their land. Should they not continue to farm that land, it would decay and go into disuse. I have seen many examples of that acting in practice even in national parks. I accept that we are not talking about national parks; we are talking about green belt. When you go into a farm on Exmoor, I think that farmers there farm under some difficulties because they farm under contraints in relation to conservation requirements. This particular farmer has started a boat-building enterprise which has been very successful. Although his farm is well inland, he has had no planning difficulties.
I recall having very few planning difficulties with the national park authority in the Yorkshire Dales, where an arrangement was made whereby dilapidated farm barns, which were potentially attractive buildings in that rural area, were converted with the help of grants into sleeping accommodation for walkers, who could book them in advance, as it were, and go on the trail from farm barn to farm barn, thereby bringing in an income to the farmers of the dales and assisting them and supporting them to continue farming in that area.
I now understand that in certain green belt areas farmers require some kind of diversification in order to continue to farm profitably and that impediments so far as planning permission is concerned are being placed in their way. That may be so or it may not. The noble Lord, Lord John-Mackie, said that the planning officers and planning departments were very reasonable people. They may be; but it is my experience that they act very differently in different areas and they act very much in response to the mood at the particular time or what they take to be the mood of those in Whitehall who are not perhaps actually their masters but whom they sometimes feel they have to consider very carefully.
I think there is no doubt, as the noble Lord has said, that there are occasions when farmers in green belt areas have wished to diversify in some ways and where planning consent could perhaps have been given without any damage to the green belt. That planning consent might have assisted the particular farmer to farm more profitably and perhaps thus have guaranteed the perpetuation of that area of green belt land.
This is a different matter from the question of planning consent in relation to agricultural buildings, and perhaps I could return to that for a moment. Had
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the noble Lord, Lord Melchett, been speaking, he might have talked about the need for planning mechanisms to be applied to agricultural buildings. I am not making that appeal for a moment, but I say this to the noble Lord, Lord John-Mackie, who farms quite close to an area with which I had some connections—a designated area of outstanding natural beauty, the AONB at Dedham Vale. The NFU and the farmers there entered into a splendid voluntary arrangement with the planning authorities whereby proposals for agricultural buildings are submitted quite voluntarily to the planning authority for approval and advice. As a result, agricultural buildings erected in that part of the country are erected in a way which is compatible with the countryside. That has been to the very great adavantage of the area and I do not think it has been onerous to the farmers, but it has been wholly voluntary.
Planning consent for diversification into some kind of activity which I would hope would have some relation to agriculture is one matter, but I think one has to say at the same time that some of the agricultural buildings that farmers are occassionally able to erect without planning consent really do very grave damage to the green belt, just as they have done grave damage to designated areas of the countryside. I think I am right in saying—and I hope he will forgive me for mentioning this—that the noble Lord, Lord Stanley of Alderley, who is to speak shortly, built without planning consent, because planning consent was not required, a silo of a kind to which he later took exception himself and took it down. I am merely making a point that had the agricultural community been a little more sympathetic to the needs of others in the community in relation to buildings for which they do not require planning consent, some people would perhaps display a more sympathetic attitude to their present requests.
Lord John-Mackie: My Lords, perhaps I can tell the noble Lord a story which Mr. William Waldegrave told us of a Nissen hut that had been erected during the war and has been listed. It shows that people get accustomed to buildings. If the noble Lord, Lord Stanley, had just kept his silo a bit longer, the neighbours would not have wanted it knocked down because it had been there too long.
Lord Winstanley: My Lords, I note the point the noble Lord is making but he notes, too, that there are conflicts. We are dealing with conflicts. I should like to feel that everybody in your Lordships' House feels that such green belt as we have must be preserved if possible. Countryside land at the moment is in very short supply in Great Britain and under ever-increasing demand. Once lost, the cost of restoring it would be absolutely prohibitive. Therefore we must do what we can to protect it. I do not believe that we are protecting green belt land by applying planning restraints to farmers in such a way as to imperil the profitability of their activities on their land. We must understand that if we genuinely wish green belt land to be preserved in a form which is desirable, in a form which is valuable to other citizens living near it and around it, then we must do everything we possibly can to see that profitable farming is maintained and sustained in those areas.

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In this matter, as in some others nowadays, I think we have a lot to learn from what has been happening in recent years in West Germany, where the diversification of farming in certain areas has been going on apace. I believe that that is a matter upon which the noble Lord, Lord Sandford, could speak: certainly he has drawn attention to it on other occasions.
7.40 p.m.
Lord Stanley of Alderley: My Lords, I should like to thank the noble Lord, Lord John-Mackie, for raising this Question tonight, for it poses the unpleasant question of whether the Government's left hand, in the form of the Department of the Environment, understands the implications for them of the problems of the right hand—the combined hands of the Ministry of Agriculture and the Secretary of State for Employment. Sadly, I cannot find much fault with the speech made by the noble Lord, Lord Winstanley, and I would support the remarks made by the noble Lord, Lord John-Mackie. We have a certain problem, not just in the green belt but throughout the agricultural industry, in making farming profitable: thereby hangs the problem.
So far as this particular Question is concerned, the problem is simple. Since the formation of the green belt and the structure plans the rural economic situation has turned a somersault; indeed it has done that during these last two years. Farmers are told by Government and by the European Community to stop producing food and to diversify, as the noble Lord, Lord John-Mackie, has said. They say that our efforts should be put into small-scale tourism or into larger ventures such as co-operative grain stores or indeed into straw-processing plants.
This message, as the noble Lord, Lord John-Mackie, told us, was given very clearly by my honourable friend William Waldegrave at the Oxford farming conference. I am delighted that the noble Lord, Lord John-Mackie, quoted his speech, because now I shall not have to do that myself. But it was a very valid point, and a very valuable speech.
Similar support came from the Secretary of State for Employment when he addressed the Institute of Directors on 10th December last. But despite these remarks, I have to tell my noble friend Lord Elton that this message has not yet got down to the green belt planning authorities or indeed to some others—only some, I agree—outside those areas.
The noble Lord, Lord John-Mackie, has given some examples in his area and, for this evening, I will give just one concerning my own village, where my family and I have farmed for over 32 years now. The village is in the Oxford green belt and it is a village which my noble friend Lord Elton knows well and has perhaps known for longer than I have. Here a recent request to convert a derelict set of farm buildings into self-catering flats was turned down by the planning authority and also by the Minister's inspector, despite the support of the tourist board and the Society for the Protection of Ancient Buildings.
Is it all a confidence trick? The Government know as well as I do that there is a farming crisis ahead—indeed it is with us now—and it appears to me and obviously
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also to the noble Lord, Lord John-Mackie, that these pleas for diversification and conservation are merely worthless sops. I hope that my noble friend Lord Elton will assure me that they are not.
Of course, my noble friend has a problem—who has not? He has much difficulty in overruling a planning authority, whose members are elected by those who live in a green belt. Because of the tremendous expense of housing in such areas, the great majority of those who live there are retired or they commute. And if there is one thing which they dislike near their homes—and this applies to myself and to other noble Lords as well—it is any form of activity, employment or industry. That often includes farming. Certainly I had to give up livestock many years ago and my son's self-pick operation has come under criticism for filling the village with outsiders—outsiders, my Lords, coming into the village! The criticism has been made, even though the operation has provided a great source of local work.
The green belt policy is now many years old. It has served a useful purpose: I agree entirely with the noble Lord, Lord Winstanley, on that. Most certainly I do not want to see the greenness go. That greenness is our livelihood. Indeed, I like to see my noble friend Lord Elton running around my fields chasing hares. I am sure it refreshes him, and others. Certainly it does not harm the hare, who I must say always seems to get away—he seems to be faster on foot than my noble friend. But the policy of green belt and structure plans originated before the farming slump and the unemployment problem arrived, and I hope that my noble friend will say he will do all in his power to support diversification in farming and employment, and that such an objective will not be achieved by the rigid planning policy that is being exercised in the green belt.
I want to see our country villages, inside or outside the green belt, live again and not become just places for commuters and retired people. If need be, I should like to see muck on the road again and indeed corrugated tin sheds, as advocated in a recent hilariously funny article by Miles Kington in The Times, which I will give to my noble friend for his bedtime reading. It will at least make him laugh.
However, if such a revitalisation is to take place my noble friend will have to take a radical look at the structure plans and not least at the infrastructure needed to service our villages. If we really want our farmers to diversify and our villages to live and not be just dormitories, if we really want to reduce the unemployment queue, we here and elsewhere, who are fortunate to have jobs and to live in quiet little villages, must be more charitable and accept the dust, dirt and noise of work. My Lords, you cannot make an omelette without breaking the odd egg and I ask my noble friend Lord Elton to produce the saucepan.
7.47 p.m.
Baroness Nicol: My Lords, I, too, am grateful to my noble friend Lord John-Mackie for giving us the opportunity to discuss this subject, if only to learn that it is possible to make the noble Lord, Lord Elton, chase hares. I have been trying to do it for months, without any success at all.
The Minister of State, Department of the Environment (Lord Elton): My Lords, on a biological point, I think they are usually red herrings.
Lord Stoddart of Swindon: Or March hares.
Baroness Nicol: Before I go on to my main remarks on a more serious note, my Lords, I wonder whether I might make it clear that when I refer to planning considerations I agree with my noble friend Lord John-Mackie that unreasonable planning controls are not acceptable and that an unreasonable time taken for planning controls is not acceptable. It is something which I think we have all been working to eliminate, and indeed some progress has been made in the last few years. We must see that that progress continues because, as I hope to show later on, I think we have a need for planning controls. But they should not interfere with the livelihood of people, particularly with that of the farmer, and he should not be unduly held up by them.
The noble Lord, Lord Winstanley, mentioned the need to extend some of the planning controls. I go along with him. I have not seen Lord Stanley's silo, and I probably would not like it if I did—
Lord Stanley of Alderley: My Lords, I must interrupt the noble Baroness. I did not like it either and I knocked it down—which is more than the planning authority might do.
Baroness Nicol: My Lords, if only to protect other farmers from the expense of having to knock down buildings they do not like, I think we shall have to reach the stage where there is some planning control over farm buildings. But that does not interfere with tonight's debate—
Lord Winstanley: My Lords, may I interrupt the noble Baroness? I did not myself ask for planning controls to be extended. What I did say was that I knew of an area in which planning control had been applied voluntarily by the farmers and the planning authority: that seemed to me to be advantageous. However, I was not recommending—and I should not like to be reported as doing so—the application of planning controls to agricultural buildings as a whole.
Baroness Nicol: My Lords, I am grateful to the noble Lord. I will make my own position clear as I go along. May I first say that, because I felt that I needed to know more about the up-to-date situation, I consulted with the National Farmers' Union, with the Countryside Commission, with Serplan, with the Town and Country Planning Association and, to a lesser extent, with the Conservancy Council. It seemed to me that it was necessary to get a few outside views on what we were discussing tonight.
The National Farmers' Union makes very clear the difficulties that farmers are suffering at the moment. They point out that agricultural problems do not stop at the edge of the green belt and that green belt farmers are more likely to suffer disruption and damage from the proximity of urban populations. I am sure we accept that and sympathise with the situation of farmers in the green belt on that account. But it is probably fair to say that up to now, at least, individual
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problems have been best left to the local authorities who know the area. I say "up to now" because we may have to move on from that point.
But what we must first consider is whether the difficulties which are now being experienced by farmers are greater than those of farmers outside the green belt. After listening to the noble Lord, Lord Stanley, in particular, it seems that the problems are widespread and are very much the same whether you are in the green belt or out of it. They are problems of over-production, of changed grant systems and of many other things, about which I am sure I do not need to tell your Lordships, which affect the whole of the farming industry and not just farms in green belts.
The Countryside Commission are not convinced that conditions on green belt activities are more onerous for farmers than for anyone else. They point out that everyone who lives in a green belt, whatever his occupation, is subject to more restrictions than if he lived outside, and I think that is fair comment.
The Town and Country Planning Association point out that farming is the only land use that has enjoyed preferential treatment through all the decades of the existence of the green belt. Farmers do not need planning permission for most purposes, though it is true that if they want to change to factory farming they need planning permission. But I understand that they are entitled to build up to two houses for essential workers, which is a very useful provision, and for which I understand permission is not needed. On the whole, farming throughout the country is less subject to planning restrictions than other industries, so it is not surprising that farmers do not take kindly to refusals when they get them.
But I am advised that many of the applications that are refused would be unacceptable in other situations, as well as in the green belt, on the grounds of public health, noise, poor road access and other potential public nuisance. For example, I was quoted an application by a farmer who wished to build a knacker's yard in the centre of a village. Not unnaturally, the residents of that village resisted it very strongly and that application was lost. So there are some applications that are legitimately turned down under other law and not simply because they are in the green belt.
I offer no comments on the examples given by my noble friend, because I do not know his area in particular. I know, however, that he is a very considerate farmer who has tried to follow the needs of conservation on his own farm, and I suspect has often been financially disadvantaged because of it. I give him full credit for that.
The green belt prohibitions are much the same as those for national parks, and very much of what we are saying tonight could apply to applications made by farmers in national parks. The call to diversify has emphasised the fact that farmers generally are less used to planning controls than the rest of the community. We have learned to live with them; the farmers, of course, have not.
At this point, I must say that it would be too easy to stray into a general discussion on rural conditions, which I do not want to do, in spite of the excellent report which the noble Lord, Lord Sandford, sent me

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earlier today, because I think we should stick as far as we can to the problems of the green belt, as that is what we are here for.
The public attitude to green belts was illustrated in 1983, when the Government attempted to change the conditions of green belts. Your Lordships may remember that there was a circular which proposed relaxations and that it had to be withdrawn because there was widespread opposition to any change in the laws. What is worrying me now is the backdoor approach which seems to be being adopted on green belts.
My noble friend quoted the Minister, William Waldegrave, when he spoke to the Oxford Conference, and the National Farmers' Union also quotes him. I cannot remember whether this was the same sentence, and perhaps your Lordships will allow me to quote it again. He said:
"We must not let Green Belt or wider rural planning policy block the small-scale additional housing, the conversion of redundant farm buildings and the light industrial developments which will be needed."
Looked at from the point of view of a conservationist, or one who protects the green belts, whether or not one calls him or her a conservationist, that is a very dangerous statement in the light of what happened to that earlier circular.
My noble friend also quoted the Secretary of State, who made a rather similar statement, and, if your Lordships will look at Chapter 3 of Lifting the Burden, which has widespread implications for the planning system, I think it will be realised that we need to be very careful that what we are not seeing is a quiet changing of the green belt planning control by a number of small methods, not as direct as the circular which went round and which was challenged. I am sure the Minister will have something to say about that when the time comes.
I am sympathetic to farming problems, but I am determined equally that green belt protection shall not go by default. We need evidence of the extent of the problem. We have had a number of accusations thrown around tonight about planning refusals and difficulties encountered, but we have no evidence other than individual cases. We have no general evidence. I should like to suggest to the Minister that it is well within the capability of, for example, SERPLAN, within their region, to produce a limited study—I am not suggesting a public inquiry or anything enormous that will take a long time—which would give us some facts on which to base our attitudes to what is happening to farmers in the green belt. The SERPLAN area is the one which is most under pressure, and it would be a useful exercise if they would do it. From my consultations with them, I believe that they would. I understand that nothing like it has been done, but there seems no reason why it should not be. Will the Minister consider this suggestion, which is a serious one?
We owe it to the farmers who are responsible for so much of these, admittedly, very important lands—important to very large numbers of the population and much more so than the farms that are out in the truly rural areas. We ought to listen to their complaints and to do what we can to help them. Because of the large amount of land which is involved, the potential for the
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good or ill of farming in the green belt is simply enormous, and we must have a positive policy for it. I do not think it is enough simply to react to discussions such as this and to individual cases. I think that the Government owe it to us to produce some coherent policy for farming in the green belt.
7.59 p.m.
Lord Sandford: My Lords, I must start by humbly apologising to the noble Lord who initiated this debate, and to those who have taken part in it, for not being here when he began. It was pure inadvertence and very rude and I am most apologetic. It leaves me guessing a little at what he said, though this is an issue which I have, of course, encountered quite a few times already, and I have had the benefit of hearing what my noble friend Lord Stanley said which was more or less on par.
I should like to be able to express a note of sympathy for the farmers, but I really cannot bring myself to see that it is merited. I should particularly like to express a very sharp note of criticism to the Ministry of Agriculture, but it is hardly worth doing that when the Front Bench is occupied by my noble friend the Minister of State at the Department of the Environment. So the temper of what I have to say will be more even than it otherwise would have been.
Lord Elton: My Lords, may I ask my noble friend if he will be kind enough to be entirely frank and free in what he says as I enjoy the most excellent relationship with my noble friend the Minister in the Department of Agriculture, who I think ought to be able to consider these matters with me?
Lord Sandford: My Lords, indeed I very much hope he will.
I should like to start, speaking to some extent as the chairman of SERPLAN, about the sanctity of the metropolitan green belt. Of all the planning tools there are, this is the one that has been in place longest, is most clearly understood, and its firmness and solidity is most appreciated. If any of your Lordships, and particularly the farmers, are now nourishing any illusions about that, just have a look at what happened when in one of their deregulatory fits some time ago, and before my noble friend was at the Department of the Environment, a consultation paper was issued suggesting that the metropolitan green belt should be somewhat relaxed. An absolute furore broke out from all over the place, and instantly.
I took the occasion to write in my capacity as chairman of SERPLAN to all the 200 Members of Parliament with constituencies in the metropolitan green belt area. I had not a single dissentient voice to the effect that SERPLAN was being too harsh and unreasonable, was restraining growth and so on and so forth. They got to work on Ministers, and Ministers produced a circular which was more or less the same as the original. I hope that I shall not hear anything from my noble friend which will lead to any doubt about that.
The fact that there is, and has been for years and years, for decades, a really firm green belt around the whole of the London metropolitan area does not mean that things cannot develop. One has only to think of

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the number of roads and railway lines that go through it. It is an area in which sand and gravel are extracted in large quantities from all sorts of sites. While that is going there is a massive impact on the environment. It is a place where several cement works operate because the cement is found in the green belt. That has a massive impact on the environment. It is a place where the raw materials——the sand and gravel—for building thousands of houses a year are found. The extraction of those in the metropolitan area has to be balanced, and is balanced year by year, against the transport of crushed rock from the Mendips or the dredging of sand and gravel from the sea.
The most recent activity in which I have personally been engaged is ensuring that the oil industry, of all things, can explore for and extract oil and gas from the metropolitan green belt, an area stretching from Wytch Farm in the Wareham area of outstanding natural beauty right across all the southern counties of London. When the M.25 is completed there will be a very strong case for using that to revive and develop the economic life of the area east of London, but of course restraining such development to the west.
A great deal of activity far more intrusive than farming is going on in a controlled, regulated and agreed way throughout the area. Of course, there are conflicts from time to time with the builders and with the sand and gravel operators; but these are resolved, studies are done, figures are agreed, land is brought forward at a faster or slower rate and the whole thing goes forward in a proper way.
About 10 years ago it was quite clear that we could not go on with the common agricultural policy as it was. I remember the House of Lords Select Committee which looked into the effect of the access of the Spaniards, the Portuguese and the Greeks. It was quite clear that we were heading for a situation which was quite untenable. One of the things that had to be done was that the farmers had to start to look around and see in what ways they could find an income from something other than producing a food which was already beginning to be in surplus. We have gone on for 10 years since then.
I have to give the Ministry credit for enabling us to have the Strutt Report. A very distinguished person, Sir Nigel Strutt, looked at a number of problems in which the environment and agriculture were related. He made clear recommendations that liaison had to be developed at the national level, at the regional level and at the local level to sort these matters out.
The Ministry of Agriculture did absolutely nothing about it. One of the obvious reactions to that was to increase the staff of ADAS devoted to diversification and particularly the staff expert in that field, known as the socio-economic advisers. The Ministry did nothing about it. If my noble friend can tell me that they have now increased the number of socio-economic advisers from the pathetic figure of six, which it was then and I believe still is now, that would be very good news because they would be able to give farmers some of the advice they need.
Three years later we came to the Wildlife and Countryside Bill. I took it upon myself to introduce in Clause 41 a statutory duty on the Ministry of Agriculture to provide advice for farmers who wished to do
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better in conservation and to diversify. I do not think the Ministry has done anything about it. I have not looked at the relevant Bill which is in the Commons at the moment because we have been busy with the Shops Bill and the Local Government Bill; perhaps now they are doing something but it is far too late. Farmers are now in a desperate situation, with one lot of quotas already in force and. I should have thought inevitably, another lot coming.
Of course, it is natural that farmers should want to diversify, but you cannot expect a farmer to sit down in his farmhouse and think out a pick-your-own scheme, a woodland planting scheme, a school visiting scheme, a cheese processing scheme, or about the use of some of his redundant buildings for workshops, and expect whatever he dreams up first time to be acceptable for planning authority. It is ludicrous to think it can be done like that. You have to start a negotiation and discussion—this was what the Strutt Report was all about—and learn how to work the system. The builders work the system; the sand and gravel operators work the system; the cement manufacturers work the system; the oil companies work the system. The farmers have not taken any significant step towards learning how to do so. They cannot blame the planners if, now that they really want to get into the business, there are some difficulties.
I cannot hold out any hope that there will not be considerable difficulties for some years to come. All this has now to be worked through, and in a hurry. It can be done. Just a few ADAS officers have managed to do it. Just a few NFU county secretaries have managed to do it. Just a few CLA members have done it. But it is not yet part of the general philosophy of farming. This has to be done as a preliminary move. When it has been done I can assure noble Lords who farm that the planners will be as ready to work with them as they are with everybody else.
8.8 p.m.
Lord Northfield: My Lords, I am delighted to speak after the eloquent speech of the noble Lord, Lord Sandford, with much of which I agree, and I shall return in a moment to some of the things he said. First of all, like my noble friend Lord John-Mackie, to whom we are greatly indebted for this debate, I want to declare an interest in that I am involved in a planning appeal for development in the metropolitan green belt. I shall not refer either to that appeal or to its subject, which is housing. I have rather wider principle and consideration to put before your Lordships this evening.
Of course, we are all in favour of the green belt, but have we realised what has actually been happening? The noble Lord, Lord Sandford, touched on this. First, we must remember as regards the metropolitan green belt that between 1955 and 1957 the really big circulars were issued, mainly by the noble Lord, Lord Duncan-Sandys, when he was Minister. These have been the foundation since then of our approach to the green belt. He was saying at that time that a green belt around London of seven miles to 10 miles ought to be sufficient. In fact, we now have a green belt of 12 miles to 15 miles which has crept up in the intervening years. We are all madly supporting it, and I am not against it. However, one has to recognise how all those problems

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have been growing. As the NFU remind us, it is now a matter of one acre in eight of farmland. So we must begin to think more carefully about it.
The consideration that I want to put before your Lordships this evening is this. The problems about the use of the green belt have been catching up on us unawares. They will get worse, as noble Lords who have spoken earlier have said. The time is now very urgent for the Government to give clear guidance on the positive use of green belt land to match the admirable circulars that we have been receiving over the years about actually defining green belt land. We have just gone along assuming that because we have defined it then everything is okay and we need not worry too much; that we now have as sacrosanct that 12 to 15 mile band around London. However, we have never made clear, or received Government guidance about, what should or should not be permitted in that green belt.
I can understand the Government's view in all this, in the sense that they have relied very happily on the increasing sensitivity that there is about the environment in our community, and I am glad to see it. As the noble Lord, Lord Elton, knows, I am beginning to suffer from it even in my new town. I started with thousands of acres of dereliction, have made it very beautiful, and now the townspeople do not want me to touch any of it, even for creating new jobs. I understand the growing sensitivity of people about the environment but other considerations are not important.
The Government can also rely on the fact that we wanted the maximum use of every acre for food output. So long as it was nice green farmland producing agricultural crops, then the Government could sit quietly by and say, "We do not need to define what happened in the green belt. Let it go on being used for farming. That is all we need to say".
We might first look at the difficulties of my noble friend Lord John-Mackie and his farming friends in the light of the traditional objectives of the green belt. Its objectives have been carefully defined in circular after circular under three headings. First, to check further growth of built-up areas—to stop sprawl; secondly, to prevent neighbouring towns from merging into each other; and finally, to preserve the special characteristics of a particular town. Those are hallowed objectives. What my noble friend wants falls happily within them. His farming enterprises would not cause urban sprawl. They would not cause neighbouring towns to merge with each other, and they would not harm the special character of a rural town. Therefore, judged by all the hallowed tablets that we have had over the years, we should be allowing that which my noble friend wants.
On top of that, we had all the circulars, starting with that issued by Michael Heseltine in 1979–80, saying that the Government wanted farm buildings and redundant buildings of all kinds to be brought into use; that such would have their support and that they wanted local planning authorities to take that into account. But have we reckoned up what has been happening since? Noble Lords have touched upon that aspect.
First, there has been a great change in farming prosperity. I was told yesterday that eminent
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agricultural consultants reckon that 14 per cent. of our land will have to go out of production. The noble Lord, Lord Stanley, says more. If we are in that situation then we must look at what happens to some of the Grade III land and other land in the green belt if it is going out of agricultural production—when, as I have said, that has been the reason for saying nothing about that land for all those years by letting it happily continue as farming land and not give alternative uses a fair definition.
Looking at this matter a little further, I wonder whether your Lordships have read the evidence that Dr. Richard Munton gave to the House of Commons Environment Committee. Dr. Munton is probably our best-known academic expert on land use of the kind in question. In his evidence to the committee, he pointed out—and I shall quote it because it bears reading out—that:
"It can be seen from Table 2 that nearly 30 per cent. of all the farmland … on a sample of 185 farms covering over 14,000 ha (and this is land that is returned in the June Agricultural Census as being in agricultural production) is not being maintained in such a way as to ensure its continued full, productive potential. And a further five and a half per cent. … lies derelict or semi-derelict with little or no agricultural value in its present state".
I accept immediately that some of that land, even if it is in the agricultural census, is what is called hope land; bought, and left derelict in the hope of getting planning permission. However, that is not 30 to 35 per cent. of the land in the green belt.
If 30 to 35 per cent. of the land is verging on dereliction and underuse, and another 14 per cent. or more, according to the noble Lord, Lord Stanley, is going out of production as agricultural policy begins to bite even further and reduce the need for British production of food, then we will be faced with the absolute need to start defining positively for what we want that green belt land to be used as an alternative to farming.
I therefore press the Government most strongly to recognise that the time for being passive about the green belt's use has come for an end. The time has come to match the circulars about the objectives of the green belt with a new circular. That cannot be done in a hurry—and I shall return to that point in a moment—but we should begin positively to define what alternatives to farming we must now accept.
The position generally is not quite so bad as my noble friend perhaps made out. Some counties are very progressive about this matter. It is worth looking at the evidence given to the Environment Committee by Cheshire County Council. Cheshire has nearly half its land in green belt, but it said, "This is the policy we are going to follow". It would have accommodated my noble friend. The council say that it is time we all reached more agreement on pursuing such policies on the future of the green belt. The council quotes all the pious statements that have been made by Ministers over the years in trying to back it up. We know of course that they have not had much effect on many other counties.
When I plead for a more positive approach by Government in defining uses for the green belt, I am not alone. Dr. Richard Munton himself, in his evidence, clearly states that:
"It follows that central government must be actively encouraged to promote a new set of clearly-defined priorities for Green Belts that

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goes beyond what is contained in the revised version of the draft circular".
Most of the other evidence to the committee hints at the fact that we have wandered on hoping that it could be left as green farming land and that everything would be all right—but suddenly we are beginning to realise that we must start to define alternative uses.
The noble Lord, Lord Sandford, might argue that all this can be settled through planning appeals. I see the noble Lord nodding his head, but that is a monstrous suggestion. I shall quote to the noble Lord—and I apologise for using one particular expert, but he is a very eminint one—what was said by Dr. Munton about settling these matters by planning appeals. He stated:
"This will represent an ad hoc, responsive and even unaccountable approach to implementing policy based on reacting to developers' attempts to obtain planning permission".
We shall not know the rules, and we shall be continuously spending money. The appeal in which I am engaged—and I am not complaining about it—will cost hundreds of thousands of pounds. We cannot go on like that without some clearly-defined usage that we can all begin to agree upon.
Lord Sandford: My Lords, the very last thing that I would want the noble Lord to attribute to me is the suggestion that a new policy, which may well be needed in some parts of the green belt, should be established by a series of planning applications and appeals. That would be the worst possible way of setting about it. What is needed is a fresh look at a number of policies in discussion, as we already do it with the builders, with the sand and gravel extractors, and with the oil companies. From those discussions a new policy emerges that affects the structure plans and the local plans. But planning applications and ad hoc appeals is the last way of dealing with the matter.
Lord Northfield: My Lords, I am sorry if I attributed that to the noble Lord; I thought that he nodded his head. I understand what he is saying, but I am saying that in order to enforce it on recalcitrant councils—some of them are recalcitrant, and the conservation lobby has become hysterical and is simply in favour of preserving the status quo at all costs—then we need clear guidance from the Government, based on the consensus that the noble Lord says he can extract from consultation. That is what we now need above everything else.
I join with the noble Lord, Lord Sandford, in criticism of the Ministry of Agriculture. One of the tragedies, as we have said—and the noble Lord and I and the noble Lord, Lord Stanley, have debated this issue many times—is that the Ministry of Agriculture is the Ministry responsible for food production; and it has never moved beyond that. The Strutt Report had no effect. Even worse, if I may relate this almost anecdotally, when we had the inquiry into the ownership and occupancy of land, which I chaired on behalf of the Government, one of the facts I discovered was that there is no department within the Ministry of Agriculture which has this responsibility. That is the way that the Ministry of Agriculture has let this matter go on.
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Now, perhaps happily, may I say in conclusion that the responsibility for the environment has passed to the Department of the Environment. They have grabbed it. Good luck to the department! We changed the thinking of Ministers about taking environmental considerations into agricultural policy with the report we prepared in your Lordships' House. I hope that one day we shall also change them on this issue; that we can force the Government to stop sitting on the sidelines about the positive uses of the green belt and work out by consultation a policy which can then become a new circular.
8.21 p.m.
Lord Wise: My Lords, I must apologise for not putting down my name to speak, but I thought that I would not be in the House this evening. However, I want to make only one small plea. It is for farm dwellings within green belt areas.
We know that there are anomalies regarding building in so far as it is permissible to erect certain types of farm buildings without planning permission but there are very strict regulations regarding dwellings—and probably rightly so to a degree. However, I think there is a case for the relaxation of these regulations in some instances. I have in mind one particular case involving a 140-acre grassland farm situated within a green belt area upon which there is no farmhouse. This was sold off independently at the time of the sale of the land and the farm. One cannot blame the vendor because I understand that it made about £250,000—in fact, appreciably more than the land.
The present owner of the farm badly needs to be living on the farm so that he is on the spot to diversify his enterprises in order to retain and, he hopes, improve its viability. He went to see the planning officer of the district concerned for what he hoped would be a helpful preliminary discussion before he submitted his planning application. Alas, in this instance he was told very curtly that he could have his refusal then or after he had applied.
As we know, planning committees take great heed of the advice of their officers and some, as the noble Lord, Lord John-Mackie, said, may be more favourably disposed towards the needs of agriculturists than are others. But I feel there is a need for more direction from the Government on this score. I am sure it would be welcomed by all who have to make the final decisions. It could eliminate many appeals to the Secretary of State, with all the acrimony and expense that these incur.
The amenities of this particular farm to which I refer are greatly enjoyed by the general public. The land is criss-crossed by bridle paths and public footpaths which are used constantly and extensively. That is good, but it is not the means and the livelihood of the farmer. It seems to me iniquitous that he is trying to earn his living from the land but is prevented from living upon it so that he can increase its viability, keep it in good order and enhance its beauty for all who use it, simply because it happens to be situated within a green belt area. I consider that the regulations concerning agricultural dwellings could be made a little easier, and that I should very much like to see.
8.25 p.m.
Lord Elton: My Lords, I am most grateful to the noble Lord, Lord John-Mackie. The green belts are, of course, of very great importance not only to those who farm them but to a great many others besides. I am, therefore, grateful to the noble Lord for an opportunity of looking at a matter of considerable importance both to farmers and to their neighbours in green belt country. It is a matter of interest, I may say, to myself and to my noble colleague on the Front Bench on many occasions, my noble friend Lord Belstead.
The initial purpose of the green belts was, as has been repeatedly said this evening, to check expansion of large built-up areas and to prevent neighbouring towns from merging one with another. That is as valid today as it was when the first Act was passed in 1938 to cover land in and around London. The general policy guidelines we now observe were set out in 1955 by the Minister of Housing and Local Government of the day, who was, as the noble Lord, Lord Northfield, reminded us, the then Duncan Sandys.
However, when we returned to office 24 years later in 1979, less than half the green belt had been fully approved. We made it a priority to get the rest formally approved. We achieved that in just six years. As a result there is, I agree with the noble Lord, a lot of green belt land for farmers to farm. We now have a green belt round Nottingham and Derby of over 200,000 acres. There is an extension around Sheffield and the other South Yorkshire towns of 800,000 acres. The West Midlands green belt covers 650,000 acres and is 40 per cent. larger than it was 10 years ago. The Tyne and Wear green belt has been doubled to 200,000 acres and the green belt around London now extends to 1·2 million acres, which is an area greater than the whole of Hampshire.
The effect of designation as a green belt is to create a general presumption against inappropriate development, and that means taking great care to ensure that, except in very special circumstances, permission is not given for development for anything other than a limited range of purposes appropriate to rural areas—and I shall return to those in a moment. It means defining long-term boundaries to ensure the area's future agricultural, recreational and amenity value. I do not need to tell your Lordships, I am sure, of the very great importance attached by the public at large to this means of preserving rural England from all the ills of urban spread.
The circular on green belts issued by the Department of the Environment in July 1984 reaffirmed our commitment to this long-term protection and gave advice to local authorities on defining their boundaries. The noble Lord, Lord John-Mackie, directs our attention to the problems faced by farmers in these green belt areas who wish to diversify their operations. The Government recognise their difficulties. We do not wish to turn green belts into green museums—to use my honourable friend's metaphor—and there are, of course, many small-scale industrial activities that can be fitted into rural areas, providing much needed employment opportunities. There are also redundant buildings in the green belts which farmers quite understandably feel should not be left to deteriorate or become a financial encumbrance.
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This is particularly true of listed buildings. This issue is important to farmers who may sometimes feel that the planning system gets in their way if their land and buildings lie within a green belt area.
I think I should say that our planning system is a good deal more flexible and accommodating than it is sometimes given credit for. Within green belts, as elsewhere, each planning application has to be decided on its merits. It cannot simply be dealt with on autopilot. Of course, planning authorities must take green belt and other national planning policies as well as all other material considerations fully into account. Those policies, which have been expressed ever since 1955 and most recently in Circular 14/84, have always made room for changes of use of existing buildings to uses appropriate to a rural area. The definition which the noble Lord, Lord Northfield is seeking has existed in a form—which he may regard as satisfactory or not—in Paragraph 5 of Circular 42/55. The noble Lord is nodding his head in a way which suggests that he is familiar with it. That sets the parameters of what is acceptable without there being special reasons for allowing a development of any other sort.
I must also tell the noble Baroness, Lady Nicol, that she is wrong in one of her assumptions. Farmers need consent to put up any dwelling. I think I heard her say that they could erect without permission up to two dwellings, provided that they were for essential workers. It may indeed be easier for them to obtain the permission if they can show that the dwelling is required to house an essential worker for a full-time agricultural unit. But I should also point out that only the smaller farm buildings of 465 square metres or less are exempt from planning controls. The larger buildings require consent as do buildings of any size over 12 metres in height. This of course allows a good many farm buildings to be put up in the green belt without specific application which I am sure that my noble friend Lord Sandford has not failed to note.
My Lords, I have created a jigsaw in my papers which I cannot entirely follow. However, let me continue by saying that planning authorities are perfectly free to grant planning permission for any development in a green belt if they think it is appropriate and compatible with green belt objectives. If this is not reflected in Britain in the same way as it is in Germany, no doubt this is in great part due to the fact that in Germany there is a rather different agricultural tradition. The structure of farming is different there in that the farm unit is smaller on average and there is a much stronger tradition of part-time farming there than in this country—though I recognise that there is such a tradition in this country. Therefore, your Lordships may think that a part-time farmer on a smallholding is in a better position to diversify, and indeed is less dependent upon diversification, than is his English equivalent.
The detailed development control policies applying in the green belts are of course contained in structure and local plans, and even here I have to say that the system is flexible and subject to appeal and modification. I think it is becoming clear that we are looking at an extremely complex system, the complexity of which is not entirely dependent upon Government structures but on the forces which those structures are intended to contain and balance; and the

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force with which the noble Lord, Lord Northfield, and my noble friend Lord Sandford and other noble Lords expressed themselves makes that very clear. There is very nearly a head-on conflict of interest between the need of development on the one hand and the need for conservation on the other.
The resource is finite, the need for development is acute and there is consequently a cash nexus which leads to land becoming exceedingly valuable. The decisions taken on planning are of very great consequence to the people concerned who own the property or who wish to develop it, and there must not simply be a slick administrative bureaucratic machine but a careful quasi-judicial system which places me, for one, in all the difficulties of having things, as it were, sub-judice, because so often cases—and some have been mentioned today—may come before me on behalf of the Secretary of State as the appellate authority.
I do not think that we can do without such a system. Your Lordships are discussing whether it cannot be made more expeditious. The fact is that both shoes pinch; both the farmer's foot and the developer's foot are pinched by the need to balance their interests, but can we do something to stretch the leather so that the feet are more comfortable? Is it the analogy, my Lord—?
Lord Stanley of Alderley: My Lords, would the noble Lord give way for a minute? I see entirely what he means but I wonder whether he would change one word. To my mind—and I think that the noble Lord, Lord Northfield, would agree with me—the conflict is between the developer (if you call me a developer) and not the conservationists but the preservationists. I do not know whether my noble friend will take that suggestion. I think that the noble Lord, Lord Northfield, will take it.
Lord Northfield: My Lords, moreover, the problem is that what we really need in order to keep everyone in a game that they understand are clearer guidelines. We are all asking for that. Then we shall stop making so many appeals.
Lord Elton: When I am allowed, my Lords, to rejoin the game, I shall say that I am entirely content with the sentiments of my noble friend Lord Stanley of Alderley because he is merely using another phrase to describe what my honourable friend William Waldegrave at the Oxford Farming Conference called a green museum.
I accept—and shall say again when I reach it in the prepared text of my speech no doubt—that the survival of a healthy and therefore a beautiful and a preserved—no not a preserved, a conserved—green belt, is dependent on it being economically healthy. I do not know why I am getting into these metaphors. It is difficult to be healthy in a straitjacket, I was going to say. I suppose that is true and I think it is a good simile, but perhaps I had better get back to what I had intended to say all along before I get too florid.
I think I have already made it clear that there is a genuine concern, ably expounded by my noble friend Lord Sandford and felt also throughout the country, to
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preserve our environment and to protect our rural heritage, which we fully share and to which we are fully committed. We recognise the needs of the farmers to diversify in order to counteract the pressures on income from their traditional products, and we also recognise that the natural beauty of the countryside and the green belt depend to a very large extent on the continuing success of farming and farmers. That was the passage I was anticipating.
The noble Lord, Lord John-Mackie, made the point very effectively early in his speech, and I agree with him and the noble Lord, Lord Winstanley, on this matter. I also have to agree that the drop in average farm incomes of 43 per cent. last year was a very severe one. I think that for the record I ought to point out that it came immediately after a year in which there had been an average rise in farm incomes of 35 per cent., so we are actually looking at a fluctuation around a mean which is not disclosed by any of those statistics. It goes to show that the weather still has as much to do with farming as it did in the days when I was farming in Leicestershire.
Lord John-Mackie: My Lords, perhaps the noble Lord will be gracious and give way. If he takes that 35 per cent. and compares it back to 1978 I think that he will find that it was not a very spectacular rise at all. Earlier this evening we had a lot of argument about what date one takes for these things and the noble Lord has taken a date which is germane to his argument; but I could go back a little and spoil it very successfully.
Lord Elton: My Lords, the noble Lord chose 1985 alone. I chose 1984 alone. I cannot see that we have used different rules for this contest at all.
I think I ought to say that farmers do not only get the sympathy which the noble Lord says they should have from the Government, but they also get a great deal of help. Perhaps I may briefly list some of the things which the Government are doing to help them, particularly the smaller farmer whose need for extra income is greatest. I start by saying that we have encouraged local planning authorities to give sympathetic consideration to planning applications for small businesses in rural areas and for conversion or adaptation of redundant farm buildings.
Two circulars issued by my department, Nos. 22/80 and 16/84, set out our position on this subject very clearly and I would point that out to my noble friend Lord Wise, as the background to this discussion. They actively promote the idea of new uses for redundant buildings and a sensitive development, and provide guidelines for local planning authorities. I understand that the noble Lord, Lord Northfield, wanted us to elaborate on this.
Next, we are about to issue both a new circular aimed directly at the planning needs of small firms and a useful booklet giving practical advice on how to cope with planning procedures. Those planning policies are backed up by an appeals system which enables dissatisfied applicants to appeal to the Secretary of State if, for instance, it is felt that those policies have not been given due weight in the local authority's decision. The decisions at these appeals take full I account of those policies.

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As for the practice of some optimistic speculators of buying up and breaking up holdings in the hope that after many fallow years they may yield a bountiful crop of houses, the noble Lord, Lord John-Mackie, will recognise that the very difficulty of getting planning consent in a green belt area is a considerable deterrent to that process, which can, I agree, be as bad for the landscape as it is for agriculture.
Most of us now in the Chamber, I think, are very much aware of the special problems of farmers on the urban fringe, which of course quite a number of green belt farmers necessarily are. For a long time the incomprehension of the "townies" of anything to do with the land was regarded as an immutable handicap. I am grateful to the noble Lord, Lord Winstanley, who spoke of the vandalism and litter that has often been the hallmark of that ignorance, for his recognition of the useful begining that we have made in changing the attitudes of the urban public on the rural fringe by means of the groundwork initiatives.
Seven groundwork trusts have been established as charitable bodies, each serving a small area. Their function is to stimulate efforts both by private individuals and by organisations to improve the environment on the fringes of major conurbations. The Countryside Commission, to which I pay all due and grateful respect, has, it is true, been encouraging local authorities to improve land on the urban fringes for many years. The difference between that and the groundwork approach is that the groundwork approach is to the communities themselves, and they are being encouraged to take a direct interest, and indeed a pride, in their own local countryside. The Secretary of State has provided substantial funds to the commission to support that initiative. Most of the trusts are at present in the North-West of England, but the programme is now steadily expanding to other parts of England and Wales.
The Ministry of Agriculture also offers a full range of practical advice on alternative sources of income through ADAS. It uses both its regional socio-economic advisers and its special interest advisers in local offices. I should tell my noble friend Lord Sandford that the six regional socio-economic advisers—I believe that he said six and I think that he is right—are between them backed up by about 70 special interest advisers in local offices, and they provide a full range of practical advice on alternative sources of income and a valuable link with other organisations prepared to offer further help.
ADAS also collaborates with other organisations to encourage diversification—for example, through the establishment of farm holding bureaux in association with the English Tourist Board—and it is involved in the setting up of rural development programmes with the Development Commission. The agriculture improvement scheme provides capital for investment for a wide range of items including new buildings, fencing, drainage schemes, electricity supply and so on. There are qualifying requirements to receive aid from the scheme, but there is no reason why farmers in green belts should not be eligible just like anybody else.
I have already mentioned the groundwork schemes. The only other thing that I would say in rising to my
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noble friend's bait on this issue is that the reason that farmers have not come forward to work the system (I think that was the term that he used) in the way that people in some other industries have is that farming is very different and farmers are very different from industrialists. The majority of farmers are in a much smaller way of business and do not have smoke-filled boardrooms in which to take a close look at the machinery and how it can be exploited. That is why we think they need help.
Lord Sandford: My Lords, I do not think I want my noble friend to get away with that. I cannot think of any industry that is better served at the national level than farming by the CLA and the NFU. If there was the drive from the department to make a move in that direction, there are heaps of people who should be ready to respond.
Lord Elton: My Lords, I take the careful note of my noble friend's remarks which I always take, and which I take especially when they are friendly in their intentions. As I say, I shall pass to my noble friend in the other department the views that have been expressed; in fact, I shall pass him the whole of Hansard.
ADAS is, as your Lordships know, the farmer's own advice service and has a specific remit to promote farm diversification. But it can and does call on other agencies to help and advise on specialist developments through a number of organisations, including the English Tourist Board.
I ought also to mention the close co-operation which exists between ADAS and COSIRA. COSIRA is an agency of the Development Commission and sponsored by my department. It advises on all aspects of small business development in rural areas. Working with ADAS can be especially helpful to farmers who want to move away from the more traditional forms of agriculture, particularly as it also adminsters a grant scheme to encourage the conversion of redundant rural buildings to industrial and commercial use. I understand that farmers are taking good advantage of the grants that the scheme makes available. It appears that the publicity has not yet reached my noble friend, but I am beginning to detect the flavour of the letter that he will doubtless get from my other noble friend in due course.
The recently introduced agriculture improvement scheme is not aimed specifically at green belt areas, but it provides capital investment grants for a wide range of projects including buildings, field drainage and fencing. Farmers in the green belts are equally entitled to that. The eligibility conditions are easier to meet in the case of proposals most beneficial to the environment, such as hedges, stone walls and waste disposal equipment, and the grant rates on those items are the highest under the scheme. It incorporates now 25 per cent. grants for tourism and craft projects in designated less favoured areas.
I am nearing my end. Your Lordships will, I think, allow me a little injury time, so I shall not be too ruthless in my editing. The items eligible under this scheme include conversion of farm buildings for tourist accommodation, including holiday lets, and for craft production, laying on a range of necessary

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services to those buildings (I am reading this note very badly), provision or improvement of caravan and camping facilities on farms and provision of certain facilities for recreational projects. Through this programme the Government are providing money and resources where they are most needed. All of this is, I have to remind the noble Lord, Lord John-Mackie, against the background of an increase in public expenditure in the United Kingdom on agriculture this year of £500 million or a total of £2·2 billion. I hope that that will go some way to help the difficulties of all farmers.
But I must return to the noble Lord's specific concern which is for the difficulties that farmers in the green belt face in diversifying their activities. I am most grateful to the noble Lord, Lord Winstanley, as well as to my noble friend Lord Sandford for their wholehearted recognition that planning controls are vital to the preservation of the open and rural character of the green belts. I, like they, must accept that they have to be applied with good sense. I stress that the remarks of my honourable friend William Waldegrave at the Oxford Farming Conference reflect, of course, our approach to the use of redundant buildings and small-scale development within existing settlements in the green belt. I do not think that anything that my honourable friend said can be represented, as the noble Baroness, Lady Nicol, sought to represent it, as a threat. The provision is intended to enable farmers to do what my noble friend Lord Sandford said with great vigour and force they ought to have started doing long ago.
My noble friend Lord Belstead would have made a more satisfactory and expansive answer to the points made in particular by my noble friend Lord Sandford and by the noble Lord, Lord Northfield. I shall nonetheless draw their concern to his attention, as I apologise to him for perhaps doing insufficient to put the undoubted good work of his department in the best light to your Lordships.
I conclude by saying that our policy offers considerable scope for a flexible approach by local planning authorities. It is perfectly possible within the necessary constraints of green belt policy to accommodate small business in appropriate circumstances. We have indicated a proper sense of priorities to planning authorities. The appeal system exists precisely for putting things right where they seem to have gone wrong. Noble Lords and the friends of the noble Lord, Lord John-Mackie, ought not to need that recourse too often, but it is there when they do.
House adjourned at ten minutes before nine o'clock.