Equities: Average Annual Return (Hansard, 23 January 1986)

§ Lord Jacques
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Secretary of State for Employment (Lord Young of Graffham)
My Lords, after converting to a common currency, the average annual return on equities between 1980 and 1984 is lower in the United Kingdom than it is in the United States and Japan although it is higher than in the other countries mentioned by the noble Lord. The Government do not have a wages policy. Pay in individual firms is a matter for negotiation between employers and employees; but excessive pay rises increase our unit labour costs and damage employment prospects. In the United Kingdom unit labour costs are growing more rapidly than they are in our major overseas competitors.

§ Lord Jacques
My Lords, I thank the noble Lord the Minister for his reply. Is he aware that the figures which I have put in the Question are taken from a table produced by Phillips and Drew? If the Minister so wishes, I shall send him a copy of the table from which my calculations were made. Is the noble Lord further aware that, so long as we have this kind of return on equities and the kind of increases in top salaries that we had last year, the Government can expect applications for substantial increases in wages from all conscientious leaders of trade unions?

§ Lord Young of Graffham
My Lords, I would welcome applications on the wages front from conscientious leaders of trade unions who would take into account all conditions. The figures issued by Phillips and Drew (and I have a copy of them) are in local currency. They are adjusted to a common currency, and I see that we finish third in the list. I should also like to point out that in the period from 1975 to 1979—a period for which the present Government do not hold responsibility—the figure was 35.9 per cent., and in many cases this figure is a function of inflation rather than of real return.

§ Lord Nugent of Guildford
My Lords, is my noble friend aware that the fact that Japan and the United States have a higher return on equities is an indication of the profitability of their industry? That is in two countries where employment is high and growth is great. Is my noble friend also aware that, unless there is good profitability in industry, there will not be the attraction for investment which will create further growth and more employment? My noble friend would be making a great mistake if he restricted a good return on capital, because that capital would simply be attracted to other places in the world where it could obtain a better return.

§ Lord Young of Graffham
My Lords, I am very grateful to my noble friend for pointing out the elementary facts of life. I totally agree with him. The most important factor is that our unit labour costs should be lower than those of our competitors. Last year our unit labour costs rose above the rate of inflation; those of the United States increased but were below the rate of inflation; those of Japan and Germany actually fell. Those are the indicators for employment, and nothing else.

§ Lord Thorneycroft
My Lords, will my noble friend thank the noble Lord, Lord Jacques, for the uncovenanted tribute that he is trying to pay to the success of the policies of Her Majesty's Government and at the same time invite the noble Lord to share his investment advice with other Members of your Lordships' House, so that we can all enjoy a 28 per cent. return on our investments?

§ Lord Jenkins of Putney
My Lords, will the noble Lord agree that, in spite of what he has just said, the Government do have a wages policy, which is a policy of keeping down wages while all other forms of income are allowed to increase? Has not this policy been very effectively introduced, with the result that British industry has gravely declined and unemployment has increased? Is this not an integral part of the Government's policy?

§ Lord Young of Graffham
My Lords, an integral part of the Government's policy is to bring about conditions in which employment can increase, and by any standards that has been a success. Last week I announced that since the first quarter of 1983 employment has increased by 709,000 jobs. Ultimately unemployment can only be reduced by the rate of increase of new jobs overtaking the increase in the labour supply. That and that alone is the measure by which matters of this sort can best be judged.

§ Lord Jacques
My Lords, is the noble Lord aware that the Government have set their sights on the wrong target? If we want lower wages costs, we must have both lower profits and lower increases in high salaries. There must be leadership. What happens at the top is copied lower down, and anyone who has been concerned with leadership knows that.

§ Lord Young of Graffham
My Lords, I do not wish to take issue with the noble Lord, Lord Jacques, on the question of leadership, but if we look at the leadership which has been exhibited in, say, the nationalised industry sector, or that part of it which has gone into the private sector over the past year or two, we will find many cases of inspired leadership, irrespective of the salary level of those at the top. Leadership and example are not merely the result of measuring money; they are the result of measuring all those other factors which come into account: quality of goods, delivery on time, and many other matters. I suspect that on this issue we are missing the main point. The main thrust of Government policy is to restore that sense of enterprise into our economy which once made our nation great and which will do so again.

§ Lord Gisborough
My Lords, in this Industry Year is it not most important to encourage heads of industry not only to be well-rewarded but also to show that they are well-rewarded in order to attract the best people to industry, rather than into banks and financial services?

§ Lord Young of Graffham
My Lords, the main thrust of Industry Year as it develops will be to restore into our educational system a respect for industry and wealth-creation so that the flower of our youth will be interested in going into those activities. In that lies our hope for the future.

The Earl of Halsbury
My Lords, can the Minister explain what we are talking about? When we talk of "return on capital", what is capital? Does it mean capital revalued from various historical points in time as paid-up capital, rights issues and so on, and reserves formed at different times? Is the whole thing updated to modern money values?

§ Lord Young of Graffham
My Lords, I must confess that at times I find it difficult to understand what I am talking about, and I cannot answer for your entire Lordships' House. However, I must direct the noble Earl to Phillips and Drew, who prepared these figures. From looking at the figures, I suspect that they are in terms of historic costs and are not therefore updated. Inflation is a very real factor. There have been periods when inflation has been greatest in this country and we have had the greatest apparent return on assets. Those are the periods when we were sowing the seeds of our doom.

§ Lord Williams of Elvel
My Lords, if, as the noble Lord claims, the Government have no wages policy and hence no policy of restraint on wages, can he tell us by what logic wage settlements can be regarded as excessive and why Ministers keep on trying to talk down wage settlements?

§ Lord Young of Graffham
My Lords, when noble Lords opposite talk in terms of a wages policy they talk in terms of a prices and incomes policy and they talk in terms of wage restraint. We consistently draw to the attention of industry the supreme importance of getting unit labour costs down, and every time that I have answered a Question in your Lordships' House it has been on the basis of unit labour costs. It is that factor, and that factor alone, which is important. Indeed, wages can go up if unit labour costs come down.

§ Lord Maude of Stratford-upon-Avon
My Lords, is it not a fact that, under governments of the party opposite, for a very long time the return on capital investment in this country in real terms was actually negative? Is it not also a fact that, unless profits provide an adequate return on investment, real wages cannot increase?

§ Lord Young of Graffham
My Lords, it is significant that only in the past four or five years when we have had the highest growth rate in the whole of Europe—and in one or two years it has been even higher than that of the United States—we have been able to afford to see conditions in which real wages rise 335 above the rate of inflation. Throughout the entire period from 1970 to 1982, when we were constantly bottom of the growth rate in Europe, noble Lords will find that the rate of growth averaged three-quarters of 1 per cent. compared with the 3 per cent. per annum which we have fortunately enjoyed over the past four or five years and will, as long as this Government exist, I hope continue to enjoy.

§ Lord Williams of Elvel
My Lords, can the noble Lord tell us what the non-oil growth rate was during that period?

§ Lord Young of Graffham
My Lords, there are many factors to be taken into account. We have oil; we have non-oil. It is a long way from the Question. I shall write to the noble Lord opposite with the detailed figures. What is important is that during this period of oil income we have seen our overseas investments, which stood at £2½ billion in 1974, stand a few months ago at £73½ billion; and that is the restoration of our fortunes for the future.