HL Deb 25 July 1986 vol 479 cc500-32

11.50 a.m.

Lord Young of Graffham

My Lords, I beg to move that this Bill be now read a second time.

Moved, That the Bill be now read a second time.—(Lord Young of Graffham.)

On Question, Bill read a second time: Committee negatived.

The Lord Chancellor (Lord Hailsham of Saint Marylebone)

My Lords, I put the Question that the Bill be read a second time, and it was agreed to. I did not think that it was customary to debate a Finance Bill, and I apologise to the House. I do not know what the House would like me to do now. Perhaps we could go to Third Reading.

Then Standing Order No. 44 having been suspended (pursuant to Resolution of 8th July):

Lord Young of Graffham

My Lords, I beg to move that this Bill be now read a third time. The Bill will implement the tax changes announced by my right honourable friend the Chancellor of the Exchequer in his Budget speech some four months ago. That Budget was set against the background of a substantial drop in oil prices, and hence in North Sea tax revenues. Expectations of what the Budget would contain were inevitably depressed.

However, as the Chancellor emphasised in his speech, such expectations underestimated the underlying strength of the British economy, and over-emphasised the extent to which we were dependent on the North Sea. This strength is in no small part due to the success of our policies of sound money and free markets, which remain the cornerstones of the Government's economic strategy.

The results are clear. The economy is now in its sixth year of growth—a broadly-based growth which owes more to rising investment—up, on average, by 5 per cent. a year over the current upswing—and exports, than to higher consumption. Meanwhile, we have brought inflation down to just 2½ percent.—the lowest for almost 20 years—and the public sector borrowing requirement down to just 1¾ percent. of GDP—the lowest proportion since 1971–72. So although the oil price has now fallen to one-third of its level last autumn, our foreign exchange reserves have risen by well over 1 billion dollars since the turn of the year.

Unemployment of course remains a most serious blot on this otherwise impressive record. Since March 1983, the economy has created over a million new jobs, but unemployment has, alas, continued to rise, as the growth of jobs has been outstripped by the even more rapid rise of the labour force. Over the next few years, the growth in the labour force should ease off, but the economy still needs to generate new jobs at a faster rate if we are to make a major dent in the unemployment total. The key to this lies in the hands of management. We simply cannot afford to let our wage costs per unit of output increase at around 6 per cent. when our American competitors' costs are rising only 2 per cent., the Japanese only 1 per cent., and the Germans' by nothing at all. The fall in the inflation rate to 2½ per cent. means we now have a golden opportunity to reduce the level of pay settlements in this country without imposing a corresponding cut in living standards. Indeed, the tax and price index shows that as a result of the Budget reduction in the basic rate of income tax, it now takes a pay increase of just over ½ per cent. to allow workers to maintain their real living standards over the past year.

The responsibility for the current level of pay settlements lies fairly and squarely with employers. The Government believe that there needs to be greater flexibility in our antiquated structure of pay bargaining. Noble Lords will recall that the Chancellor announced in his Budget the Government's support for the concept of profit-related pay as a means of improving pay flexibility. A possible scheme of tax relief for profit-related pay was described in a Green Paper presented to Parliament last week jointly by the Chancellor, the Secretary of State for Trade and Industry and myself, which emphasised the advantages of profit-related pay.

Greater adoption of profit-related pay arrangements would help to break down the "them and us" barrier which has bedevilled British industry for years. And making the pay of employees more responsive to the profits of the business in which they work should encourage employers to take on more labour, knowing that they will be under less pressure to lay off workers when business is slack. The Green Paper makes clear that while the Government are in no doubt as to the merits of profit-related pay, they have not yet decided whether tax relief should be given.

More immediately, the Chancellor also announced in his Budget the substantial extra sums we shall be spending on employment measures—almost £200 million this year, and nearly half as much again next. We are expanding the Community Programme to 255,000 places this year and developing a nationwide restart programme. Under this scheme we shall offer every one of the long-term unemployed help towards finding a job.

Self-employment is growing particularly rapidly—by nearly half a million since the last election—and this is a trend which we as a Government have deliberately encouraged. Those who go into business on their own account today include the large employers of tomorrow. So we have given particular emphasis to the expansion of the enterprise allowance scheme. Three out of five of those taking advantage of the full 12-month allowance are still trading three years after setting up in business, and on average each of these firms has in addition created another new job.

Unemployment among the young is an especial scourge. So we are not only spending over £900 million this year on the youth training scheme alone, but we have also introduced from April the new workers scheme, providing for a full year a £ 15 a week allowance to employers of low-paid young workers in their first job. There cannot be any other industrial nation which over the past two or three years could have evolved a nationwide two-year YTS together with a new workers scheme. It is a package which is unrivalled for young people and will I am sure make youth unemployment nothing but a bitter memory in the years to come.

However, a debate on the Finance Bill must, above all, focus on the tax measures in last March's Budget. Despite the problems of oil, the strength of the rest of the economy led us to forecast buoyant non-oil revenues, with a considerable increase in corporation tax receipts, following the 20 per cent. increase in company incomes between 1984 and 1985. So my right honourable friend the Chancellor was able, within a prudent Budget, to further the Government's objective of reducing the burden of taxation, and to propose a substantial range of reforms and improvements to the tax system. It is to these changes which I now turn.

The 1p reduction in the basic rate of tax accounts for by far the largest part of the £ 1 billion net tax reduction in the Budget. The taxpayer now keeps more of every additional pound he or she earns—a stimulus to motivation, initiative and enterprise. One penny off the basic rate looks modest. But coming on top of the 3p reduction in 1979, it represents a further significant step towards our objective of a rate no higher than 25 per cent.

In this year's Budget the 45 per cent. and higher thresholds were increased by £1,000—successively less and less than would have been required for indexation, so that the gains from the basic rate cut were reduced for those on high incomes. The 60 per cent. taxpayer, for instance, got broadly the same as under statutory indexation without a basic rate cut.

The reduction in the burden of income tax, whether by cutting tax rates or raising personal allowances, is a prime objective of government policy. The case for reducing the tax rate this year, rather than again increasing allowances beyond indexation—our allowances are now some 22 per cent. higher than they were in 1979—is strengthened by comparison with our overseas competitors. Our tax allowances arc now around the middle of the range for the major developed countries, but our starting rate of tax was, at 30 per cent. before the Budget, well out of line, especially compared with rates of 15 per cent. or less in the United States and Japan. The reduction to 29 per cent. is an earnest of our detemination to bring the United Kingdom taxation more into line.

Taxes on spending were as a whole increased only in line with inflation. However, I should point out that while duty on road fuel was increased by slightly more than inflation, the effects on the pump price were more than offset by the dramatic fall in crude oil costs. Despite the duty increase, the average pump price of petrol has come down by a sixth over the last seven months; and as there was no increase in vehicle excise duty on most vehicles, the overall burden of duty on the motorist remained unchanged in real terms.

For businesses, this year has seen the completion of the reforms announced by the Chancellor in 1984, with the main corporation tax rate now down to 35 per cent., lower than that of any of our major industrial competitors. Meanwhile non-North Sea company profitability reached a post-1973 high of 8 per cent. last year, and the Government forecast it will rise to over 9 per cent. this year as costs—of which oil is the most obvious example—fall.

However, while we do not envisage any further major changes in the business tax structure, the Bill does include two essentially tidying-up business tax measures. These bring mines and oil wells allowances more into line with the new system of capital allowances, and provide for a full measure of depreciation for short-lived agricultural buildings and works. And the Bill also includes a further cut in the small firms' rate of corporation tax, to 29 per cent. in line with the new income tax basic rate. This compares with the rate of 42 per cent. in force in 1979. Moreover, the benefits of the small firms' rate do not run out until profits reach £½ million a year, five times the upper limit which applied when the Government came to power.

But the Bill does contain a number of radical measures. I would highlight especially those which encourage enterprise and investment. The abolition of the tax on lifetime gifts between individuals, and the reform of the remaining elements of capital transfer tax as inheritance tax, will be a direct benefit to the very many family businesses which are such an important part of our economy. The introduction of the Personal Equity Plan from next January will provide new incentives, particularly for the smaller saver, to invest up to £200 a month in quoted United Kingdom companies, sustaining the expansion of personal share ownership, which has grown so rapidly since 1979. Recent surveys indicate that the proportion of individual shareholders has doubled over the period. So we are already off to a good start towards our aim of making Britain a nation of shareholders as well as house-owners.

The cut in the rate of stamp duty on share transactions to ½ per cent. from the date of the Stock Exchange's Big Bang this autumn will also help investors; and it will also help London to continue to compete successfully in the ever more competitive worldwide securities market.

There is, of course, a great deal more still than this in the Bill, but I would like to draw the attention of the House to just one more area—charities. The Bill gives effect to the highly generous range of new reliefs for charitable giving which the Chancellor announced in his Budget. These will allow non-close companies to obtain relief for single gifts up to 3 per cent. of their ordinary dividend payments. Individuals will no longer be limited in the higher rate relief they can obtain on covenanted donations. And we have introduced an entirely new relief to encourage payroll giving schemes. Where an employer decides to participate—and I hope many will do so—employees will be able to get tax relief on charitable donations, up to £ 100 a year, which are deducted from their pay. The scheme will start next April.

As my noble friend Lord Brabazon of Tara said on Monday, the Inland Revenue have just published two leaflets explaining the tax reliefs now available for charitable gifts by individuals and businesses. The leaflets are available from local tax offices, and I hope that they will help donors and charities to take full advantage of the new reliefs.

The cost of these new reliefs will naturally depend on how generously the public respond to them. We have estimated that the cost to the Exchequer could be £60 million in 1987–88. But that is not intended as an upper limit, and if the new reliefs stimulate more donations than we have anticipated, we will be only too pleased.

Side by side with the new reliefs, it was necessary to take action to deal with the abuse of charity tax relief by an unscrupulous minority of charities. Noble Lords will no doubt recollect, however, that a number of entirely reputable charities expressed their concern that our original proposals went too far, and could have resulted in problems for bona fide charities. So, in the light of discussions with representatives of the charity world, the provisions in the Bill were substantially revised during the course of its passage through the other place. These changes were widely welcomed as a response to the criticisms which had been made.

To sum up, the measures in the Bill continue the process of tax reduction and reform to which we are committed. Only in this way will we be able to create the right conditions for enterprise and initiative to thrive, to the benefit of us all. It is clear that our policies are succeeding. Last year the United Kingdom topped the European Community growth league, when we also grew faster than the United States. Total output and investment were at all-time highs. The current account was in surplus for the sixth successive year. The United Kingdom's net overseas assets reached almost £90 billion, competing alone with Japan for the highest in the world. Measures in this Bill demonstrate our continued commitment to promoting an enterprise culture, and I commend it to all in your Lordships' House.

Moved, That the Bill be now read a third time.—(Lord Young of Graffham.)

12.7 p.m.

Lord Barnett

My Lords, despite the introduction of the Bill by the noble Lord, Lord Young of Graffham, I propose, if he does not mind and the House do not mind, to deal with the economic background to the Finance Bill, because it is difficult to welcome the Bill itself, although of course there are a few of the tax changes which are to be welcomed.

I make this particular speech more in sorrow than in anger, as it is my last speech from this Dispatch Box, although I hope to contribute to your Lordships' debates on future occasions. But may I say on this occasion to the noble Lord the Minister that his speeches—and today's was no exception—are repetitive and selective of what good economic news he can find. I know all Ministers do it but he does it to excess, as he did again today.

The noble Lord did it to such excess that he sought to blame everybody under the sun except the Government for anything in the economy that is going wrong. I hope that he will forgive me if I tell him that I find it difficult, and the problem is that while recognising that all Ministers tend to make this kind of selective speech, in your Lordships' House it is a pity because it means that while we can have a serious economic debate among ourselves, we can never get a serious economic reply from the noble Lord the Minister.

For he knows—he must know as well as I do—that the bad economic news sadly far outweighs the good. It gives me no pleasure to quote it, but as I see him shaking his head I shall do so. I believe it is essential that we understand the extent of the problem that any government will face in current economic circumstances.

Despite what the Minister says, at the heart of the problem lies industrial production. The index of output of our production industries was at a standstill for four successive quarters, and the long-term picture is little better. The first three months of this year it was just 1.5 percent, higher than the average for 1979, and I certainly would not pretend that 1979 was an especially good year. The average growth rate has been one quarter of one per cent. per annum. Indeed the level of manufacturing output in 1985 was 5 per cent. lower than in the first quarter of 1974 when we had a three-day week.

But even if one includes services to try to find some good news for the Minister, in the period between 1979 and 1985 our gross national product grew in real terms by some 7½ per cent., and two-thirds of that was due to North Sea oil. But even with the oil there was an average annual growth of 1.25 per cent., hardly any better than the period 1973 to 1979, which I concede was anything but brilliant. If one looks back to the so-called bad old days between 1964 and 1973—which includes the years when my noble friend Lord Wilson of Rievaulx was Prime Minister and the noble Lord, Lord Barber, for a period was Chancellor of the Exchequer—real growth over that period of nine years was 30 per cent. From 1957 to 1964 it grew at 24 per cent. over that seven years. As I had always feared, growth has gradually declined and is continuing to do so under this Government.

But if the past economic performance has been bad, the prospects for the future on exisiting policies are even worse. For despite what the Minister said today manufacturing investment was 18 per cent. lower in 1985 than it was in 1979. Indeed, it was below the rate at which capital equipment is being scrapped.

The one piece of good news which we had today from the Minister was concerning inflation. But he knows as well as any of us that it is nothing whatsoever to do with the Government and nothing whatsoever to do with the control of the money supply. I noticed the Minister the other day at Question Time tried his best to confuse the figures even more than they already are by claiming, as he claimed again today, how it is all due to the tight control of money supply and sound money.

However, he knows very well that on any analysis of whichever rate of money supply he wants to take it is nothing whatsoever to do with that. It is due to the fact that there has been a 20 per cent. fall in fuel and basic raw material prices. But even that good news will not continue indefinitely, for, as he said himself, our unit labour costs are rising strongly and especially against our major competitors. We see that our earnings in the past 12 months grew by some 7½ per cent.; in the United States by 2.7 per cent.; in France 3.9 per cent.; in West Germany 4 per cent., and in Japan 3 per cent.

It is not surprising that wholesale prices in the past 12 months in the United Kingdom grew by 4.5 per cent., whereas in the United States they declined by 2 per cent.; in France by 0.3 per cent.; in West Germany by 2.7 per cent., and in Japan they declined by 9.8 per cent. Those basic facts put any little scraps of good news from the Minister into proper perspective, so in this, my swansong as it were, from the Dispatch Box, it gives me no pleasure to quote those figures. I do not suggest that I have a simple answer but we shall never find an answer if we keep on providing the kind of figures that we were given today by the Minister. If we always start like the noble Lord with assessments that are unrealistic, inaccurate, over-optimistic and complacent I am afraid that we really will be in continuing difficulties. I am sorry to have to say it but on any objective analysis of the speeches of the noble Lord, Lord Young (and today's speech was no exception) one must say that in reading those speeches, in re-reading them and listening to them that what I have said about them is no exaggeration. For myself I can only hope—I know the noble Lord is an intelligent man—that the noble Lord does not really believe a word of it himself. I see him smiling so I assume he does not!

Against the background I have described, the prospects for unemployment—again despite what the Minister says—cannot be anything other than gloomy. One does not have to take my word for that. The Institute of Manpower Studies in its latest employer-based study published as recently as 26th June under the title UK Occupations and Employment Trends to 1990 implied clearly that the present course of the economy will leave us with ever rising unemployment unless something changes quickly. One does not mean yet more changes in definitions. I accept that not all the changes that the noble Lord has introduced have been cosmetic, but we all know that the level of employment statistics today would be near 4 million without the changes in definition that the Government generally has introduced since 1979.

But even if the forecasts of unemployment are too pessimistic—for my part I certainly hope they are—at best, especially in the light of what is happening to our competitive position, real unemployment will not come down very much if at all. Making policy changes that will bring it down must therefore be the major concern of any government. Certainly the statistics I have quoted on investment, wages and wholesale prices show the seriousness of the situation.

As the noble Lord, Lord Young, conceded in his recent statement—I shall quote this so that I get it exactly right—the country has never had as good a time as it has today". He conceded in a further reply to me just after that that was not something he should be boasting about but rather to be regretted as we were not earning it.

I want to concentrate my remaining remarks on what can be done. We face as a nation, as is clear, an immense task, for the fall in competitiveness since 1979 follows a period of continuing relative decline under previous governments prior to that. So any temporary alleviation in unemployment by particular short term measures will nowhere near solve the underlying problem. That is not to say that we can do nothing. For example, everybody, other than the Minister and the Government, accepts that a given £1 of public expenditure on capital projects could have a greater impact on unemployment than a £1 on tax relief. That is why the Budget and the Finance Bill that we are debating today is such a sad one. In the face of the industrial and unemployment situation I have described, to take 1 p off the basic rate of tax at a full year loss of revenue on a non-indexed basis of £1,245 million would be indefensible, even if the nation's infrastructure was in excellent condition.

We know that the opposite is the case with so many of our national assets in a desperate state whether that be housing, schools, hospitals, roads or railways. On the other hand, those of us who want to see whatever resources are available to be spent on the infrastructure (both for its own sake and because it is so much more cost-effective in terms of employment) must recognise that it is simply not a matter of spending more money.

There was a recent study of the Labour Party's economic strategy by a firm of stockbrokers, Greenwell Montagu. They found that fiscal expansion such as the Labour Party was proposing would raise economic growth and would reduce unemployment. But their simulations showed that there would be serious adverse consequences. For example, inflation would rise; but—perhaps surprisingly—not to a degree that would endanger the strategy in the short term. Speaking for myself, I should prefer inflation at, say, 5 or 6 per cent. with unemployment falling, rather than inflation at 2 per cent. and unemployment rising; although of course I would prefer both low inflation and low unemployment.

However, if inflation is not the immediate problem, the study sees two serious dangers. Those of us who support the type of strategy that I have referred to must face up to them. First, they find that the impact on the exchange rate and the current account of the balance of payments would be serious. The authors argue that this may need sharply higher interest rates or import controls—or, more probably, both. The second danger is directly related to the first; namely, that by year three wage pressures would probably be severe. My only disagreement is that the study has very likely underestimated how long it would take for wage pressures to build up—especially as, rather than increase interest rates and reintroduce import controls, the exchange rate, in my view, should take the strain.

It is difficult, however, to be optimistic about what action can be taken on wages to meet the central problem that the study correctly identified. As I have said before to your Lordships, statutory income policies cannot succeed for other then a very short time during crisis. Any policy that we are talking about in this direction would have to be permanent. That means to say that it has to be voluntary and generally acceptable. As we have seen in the past, pressures are such that a statutory policy inevitably breaks down precisely because it is not acceptable. If it is acceptable, then one does not need statutory backing. Those arguments apply to the old-style statutory incomes policy or statutory backing through tax or national insurance, or both, under other types of income policies.

The Government are proposing another kind of incomes policy, although I know that the noble Lord the Minister would not call it that. I refer to the tax concessions under the profit-sharing schemes that we have heard about in more detail recently. They have been widely criticised, and not only by the TUC. Speaking for myself, while unwilling to dismiss anything out of hand if it might help, I am bound to say that it looks as though it will be inevitably complex especially after my old friends in the Inland Revenue have finished inserting anti-avoidance clauses and schedules. Even as a straight profit-sharing incentive scheme, it runs directly counter to the Chancellor's own espousal of fiscal neutrality. The Green Paper, on page 11, is only willing to claim that the, tax reliefs may"— and I think that that needs underlining— be justified if there are good prospects of bringing sufficient benefits". Among the benefits that the Chancellor expects—and again these are his words in the Green Paper—is "pay flexibility". But as will have been clear from what I have been saying, we need much more; so let us not be mealy-mouthed about it; we are going to need pay restraint if we are to deal effectively with and control the urgent problem of unemployment. It is obvious what little "pay flexibility" might arise from the Government's scheme. It will be totally inadequate and unfair between different groups of workers and therefore once again would be unacceptable.

The Labour Party have been moving towards a policy of helping the low paid—and, heaven knows, any of us with an above-average income must want to see that; although it very much depends on who we mean. But, given the economic and above all the unemployment background that I have described, I feel bound to offer a warning. As I have said in a brief debate recently with the noble Lord the Minister, our experience in the Labour Government when we introduced the £6 a week pay increase to help the low paid, was that it could not last and did not last—not because of the Government but because, understandably, I suppose, the unions wanted it to end as their members were unwilling to see differentials eroded. So while one obviously wants to help the low paid—if properly defined—we must not lose sight of the much greater problem of unemployment.

If we are to meet the serious wage pressures in going for economic growth and reduction in unemployment we must point fairly to the issue that was brought out by Greenwell and Montagu in their study. We have to face the challenge of the need for a permanent and voluntary policy for incomes and restraint for more than a few years from those who are not low paid. It is not that United Kingdom workers are generally high paid compared with the United States or Germany and so on; they are not. But the lack of industrial investment and lower levels of productivity that our competitors have made our unit labour costs even higher. Restraint will therefore be needed while we put that right.

I believe that there is now great understanding among new and very responsible trade union leaders of this central dilemma. Nevertheless, as I have already conceded, past experience does not lead one to be over optimistic about success in this crucial area. This is not because of a lack of goodwill. That is there in abundance from leaders who very much share our concern about the national tragedy of unemployment. My concern is whether they can carry their members other than on a very temporary basis. I am sure that trade union leaders genuinely mean to try. I hope that they truly comprehend the enormous challenge that they are accepting. I wish them every success for I see no other way of even remotely tackling this crisis; and it is a crisis which, if it goes unsolved, will create huge social problems—and, indeed, is already doing so.

Trade union leaders are at least trying. In the light of this Finance Bill and the Budget strategy behind it, I fear that the Government offer no help. It is tragic; for the Government are unwilling even to talk other than generalities in "Neddy". In this debate, for reasons I have explained, I understand why the noble Lord, Lord Young of Grafmam, will say that he disagrees with me. As I have said, I just hope that he does not believe what he is saying and that he is really planning to come down on the side of the angels and tell the Chancellor that he has got it wrong. Otherwise, I am afraid that, sadly, the nation is condemned to permanent, high and unacceptable levels of unemployment.

12.27 p.m.

Baroness Seear

My Lords, while wishing no disrespect to the noble Lord the Secretary of State, may I beg, if he must keep whistling in the dark to keep his spirits up, that he will find a new tune. The Budget, and therefore the Finance Bill which gives expression to the Budget, is a major instrument of economic and, directly and indirectly, of social policy. So one would expect to find some economic analysis of the present situation and of the future and to see in what way the Budget is being directed, and the Finance Bill has been drawn up in order to further the policies that such a programme requires.

Surely, as the noble Lord, Lord Barnett, has been saying, we all agree that the major social and economic problem at the present time is unemployment. The need to deal urgently and immediately and with short-term measures to give some relief to unemployment is patent to all of us. It is, I know, patent to the Secretary of State. He has backed a variety of short-term measures such as the community programme—and I am very much in favour of the community programme—but it cannot be regarded as anything more than a palliative, a temporary arrangement to try to give some reliefs to the appalling figures at the present time.

The time has surely come (as the noble Lord, Lord Barnett, has been saying) when the Government should recognise the need for immediate public expenditure on capital development—and we have pressed this so often from these Benches that I almost hesitate to press it again; but we are speaking to people who will not hear—to do something immediately to raise the levels of employment. We on these Benches have always recognised the importance of controlling inflation and we give credit to the Government for the degree to which inflation has now fallen although, as the noble Lord, Lord Barnett, has said, the fall in oil prices and the fall in commodity prices generally have contributed vastly more to the reduction in inflation than anything that the Government by their policies have been able to do. The fact that inflation is now as low as it is means that the argument against big investment has gone. There was a strong argument against any kind of Keynesian approach at a time when we were suffering from overwhelming inflation. But that is no longer the case. The case is now much as it was back in the 1930s when the economy did respond to more capital expenditure, both here and in the United States.

We can indulge in this now without the risk of an entirely unwanted return to high levels of inflation. I am not suggesting—and my party, the Alliance Party, has never suggested—that we spend our way out of inflation and out of unemployment. Of course, we cannot. But the time has now come when it is safe to indulge in a rational, carefully-calculated, carefully-focused expenditure on capital goods—which will need to be done sooner or later.

We cannot avoid capital expenditure. We cannot allow our roads, railways, sewers and the rest of the list we have so often given to the Government to fall into decay. It will only cost more to put them right when the time comes. We seem to have forgotten nowadays the overwhelmingly important distinction between spending for current consumption and spending for capital development. There are all sorts of proper ways of financing expenditure for capital development which would be improper if it were spending for current consumption. So surely the time has now come to do something urgently and immediately to bring some relief to the totally unacceptable level of unemployment.

However, that is only looking at the immediate picture. What the Government should be doing, and what the Budget should reflect, is giving recognition to what needs to be done to get the economy into a state in which we can hope to have continuing prosperity. Temporary alleviation of the present appalling position is necessary, but it is by no means sufficient. What the Government absolutely refuse to do is to take on board the message which came from your Lordships' House in the report on overseas trade, which stressed the tremendous importance of reviving our main manufacturing industries and giving support to the development of new industries. The noble Lord the Secretary of State pins his faith to the development of small businesses and service industries. They have their part; but, as the report from your Lordships' House made abundantly clear (and it surely must be plain for all to see) this country must have a sound base of successful manufacturing industry to trade in the global market, which is now the market that all countries must face. Small businesses do not, except exceptionally, trade in the global market and we are not facing up in any way to the implications of the development of that global market. I see nothing in the Finance Bill, in the Budget, in the Chancellor's speeches or in the speeches of the Secretary of State which recognises that it requires a major planned effort to get manufacturing industry back on course for recovery. The disasters which have befallen it are not all the fault of Her Majesty's Government: we recognise that. The decline goes back to the end of the last century, but we cannot just wash our hands of it. We need a long-term strategy, starting now, to get it right again.

What are the things which ought to be done if we are really going to pay serious attention to the recovery of manufacturing industry? Without that such things as the community programme and the local enterprise scheme are chicken feed and out of all proportion to what really needs to be done. I have heard no mention, for example, of the importance of the reduction of interest rates. Surely manufacturing industry is crying out for a further reduction in interest rates. It has come down somewhat but I think I am right in saying that it is still at an all-time high in real terms, given that inflation is now down to under 3 per cent. The present base rate is ridiculous, and it is ridiculous in comparison with the base rates of our competitors. This must be a very serious handicap to the development, recovery and expansion of industry. If the noble Lord says to me that there is then the risk of taking a fall in the exchange rate for the pound, then so be it, my Lords. That in itself would be a considerable help in developing export markets and getting back that share of world markets which we have so signally lost over the last 20 years.

Then there is the whole question of our collabo-ration inside Europe in the development of new industries, in the development of information technology, and not only the information technology industry itself. What is perhaps even more important is the development of ways in which the new technology can be applied to the old basic industries so as to lead to a recovery in them. That is equally important, and in the long run perhaps even more important than the development of the hi-tech industries, as industries per se.

We now have the presidency of the European Community. This is our chance, surely, to show that we really mean business. I know the Government are in favour of the proper development of the internal market in Europe. More power to their elbow! Maybe by the end of our presidency we shall be somewhere nearer to the reality of having an internal market inside the Community. But it also means collabo-ration in research and development that is essentially to be done on a European scale, because it is far too expensive and far too wasteful for it to be done on a national level. It needs international collaboration on the scale required to deal with the global markets, the development of which is the only hope for the future. It seems to me that we are losing out, hopelessly it seems, against the Americans and Japanese because of failure to get together and put money into developments of that kind.

Along with that, if industry is really going to achieve sustained, long-term recovery we must implore the Government to think again about what they are doing in the education and training field and also in the research field in this country. Only yesterday I was at a meeting at which Europeans were present. On the development of high technology there arose the question: if we did the research and development, have we the manpower to apply that research and development to the industries we have got? And the answer, quite plainly, is that we have not. In the face of the need to develop the people who can make these industries a success, the Government are in a hopeless mess in their handling of the position in schools. They have been cutting back inside the universities and, as one vice-chancellor after another has declared, we are not going to have the supply of highly-trained manpower that we need if we get the kind of research and development that we ought to be getting.

In addition, there is the whole question of industrial relations, as the noble Lord, Lord Barnett, has been saying. I welcome the Government's attempt to introduce profit sharing: of course I do. Profit sharing and wider share ownership have been part of the policy of my party for the last 50 years. I am sorry that the Government have retreated to a mere 5 per cent. of profit sharing. It is an element in the development of a possible sustained attempt to get pay into line with profitability. Perhaps even more important than the immediate effect would be the educative effect of getting people to understand what is involved in making profits or in not making profits inside industry, and also in the kind of collaboration and response to change that is necessary if industry is to be a success.

We do not take the despairing view that the noble Lord, Lord Barnett, has taken over the possibility of a flexible incomes policy but with the maximum voluntary approach to it, in so far as that is possible. However, one has to say at the end of the day—so important is this, as the noble Lord, Lord Barnett, has said—that if it is not possible to do it on a voluntary basis then other measures will have to be used. That is the key and industry has to be given help to do what is necessary. The development of profit sharing, if it can be successful, is one way in which levels of basic pay can be held down and in which people can begin to understand what is necessary to develop and maintain successful industry.

These are all matters on which the Government should be focusing, but of course they are not doing that because they do not accept that we need a recovery of manufacturing industry. But if we get that recovery the kind of industry and the kind of economic structure that we shall have in this country will be quite different from what it has been in the past. The really successful industry of the future will not employ the numbers it has employed in the past—in this I agree with the noble Lord the Secretary of State; but what we are facing in reality is that if we are going to be successful we shall have a relatively small number (that is, relative to what we have had in the past) of people who will be employed full-time inside highly successful manufacturing industry.

That is my hope. It is a possibility, but only a possibility, if you set about it properly and set about it now. But that will leave a large number of people who are not going to be employed in that kind of industry, and we have to look towards a state in which we shall have that relatively small number of people, plus a large number of people who have to be able to earn a decent livelihood and sustain a decent life with part-time jobs and with self-employment.

At this point, I begin to agree with the noble Lord about the importance of small industries and self-employment. But what he does not seem to realise is that the success of small industries and self-employment depends on the success of the bigger manufacturing industries. They are the creators of demand for the self-employed and the small industries, as with sub-contracting, with the delivery of services and in a whole variety of other ways. To talk, as the Secretary of State does again and again, as if small businesses and self-employment can exist in a desert of manufacturing industry is to deny the economic reality—

Lord Young of Graffham

My Lords, with respect to the noble Baroness, I have never once suggested that. I have always spoken of the importance of small firms in employment. I have always recognised the fact that we cannot have small firms without having large firms, and that we must always have an important manufacturing sector.

Baroness Seear

My Lords, if the noble Lord recognises that, I do not see it reflected either in the Finance Bill or in the speeches he has made to your Lordships' House, and yet it is crucial to his whole policy of developing small businesses and self-employment. The two things are tied up together. The one cannot possibly succeed without the other, and there will be a large number of people whose employment will be of a part-time kind. If that is to be the pattern, we have to face the fact that that is what life will be like in this country. That is why I said at the beginning that the Budget should be concerned not only with the economic realities but with the social realities that are linked to those economic realities.

That is why it is, to me, so unfortunate that there is no sign by this Government of grappling with the policy of the development of a tax credit scheme which will give a guaranteed basic income. It does not have to be at a high enough level to support everybody; we cannot possibly afford that. But some degree of guaranteed basic income, through a tax credit scheme, is an essential concomitant of the development of an economy in which a large number of people will be in part-time employment, or a series of temporary employments, plus self-employment of one kind or another.

All parties, at one time or another, have said that they believe this is a valuable idea to explore, but it has not been explored. The noble Lord, Lord Cockfield, did a great deal of work on this and that work is still somewhere. I know that he found great difficulties. But there are things that are on our side since he did that work. For one thing, the much greater development of computers would make it very much easier to work a scheme of this sort. I ask the noble Lord to consider whether the time has come to look at those plans that the noble Lord, Lord Cockfield, made years ago, to look at the work that he did and, on an all-party basis, to see whether it is possible to move in that direction. Sooner or later, we must do it.

There is another big socio-economic issue here. The noble Lord and his Government say that they believe in a property owning democracy. If they leave it at that, what we shall have is a property owning democracy for a fair proportion of the country, but at the same time an under-class of people who will not be part of that society at all. The basic income can help in this direction, as can profit sharing and wider share ownership.

But why do the Government not go the whole hog in wider share ownership and introduce the French Loi Monory scheme which would spread it much farther and would make possible some participation in wider share ownership for the very many people, particularly in the public sector, who are not in the position of being able to take advantage of wider share ownership schemes? After all, presumably, the Government are not going to privatise all government offices and there will be all those people who cannot benefit from wider share ownership schemes. The Loi Monory would make that possible.

If that is what the Government really want, why have they not taken steps in that direction? If the Government believe in spreading wealth, why do we have a capital transfer tax which will make it easy for the very wealthy to pass on their great wealth during their lifetime? That is a strange signal to give, if the Government are in earnest about spreading wealth.

12.45 p.m.

Lord Houghton of Sowerby

My Lords, first. I should like to congratulate my noble friend Lord Barnett on the wide and breezy sweep of his swan-song, as he described it. We shall miss my noble friend from these debates and we shall welcome opportunities that he may have of intervening in others. He will be exposed to different pressures in his new responsibilities, but I hope that he can keep his faith in mankind when he sees all our activities from a different angle. I congratulate him on having this appointment and hope he will enjoy it.

I am in a little difficulty this morning, because I feel that as a matter of policy I ought to use these opportunities to talk about the subject of taxation, which we so rarely touch upon in debates on the several stages of the Finance Bill. What I have to say is probably more in the terms of reference of the noble Lord, Lord Brabazon, than in those of the noble Lord, Lord Young of Graffham, but I am very anxious to stake a claim for this House on the Finance Bill to talk about subjects which it has so long neglected under the shadows of the Parliament Act 1911. I see no reason why the restriction of our powers to deal with matters of taxation and expenditure should deprive us of, or even discourage us from, talking about the incidence of taxation, the principles of taxation or the impact of taxation upon the citizen.

It is a strange anomaly in the procedures of your Lordships' House that we can pursue social benefits to the extreme; we can create new benefits; we can make a claim on the financial resources of the social insurance funds; we can go over the work of another place in detail and change it. In that field, in which we are free to operate, we have a very wide remit. But in the parallel field of direct and indirect taxation, we are under the handicap that we have had for so long and which, in my opinion, we wear with far too much tolerance. I am not seeking to amend the Parliament Act 1911 this morning, though there are aspects of it that one day someone will have to deal with. It will probably come in the reform of this Chamber, if it ever does come, and that may not be in my time. But it is strange that here in your Lordships' House, where there are so many who have been paying taxes for so long and who have paid so much, we debate it least in the parliamentary system.

I feel that I must make two observations about the speech of my noble friend Lord Barnett and about the speech of the noble Baroness, Lady Seear. My noble friend dwelt in the latter part of his speech on the real issue of wage control, and that is familiar ground. Indeed, so much of the economic situation is familiar ground, because the problems we have to deal with are so familiar. Many of the remedies that are proposed are also familiar. But I do not think that my noble friend fully appreciates the state of the trade union movement in Britain today. The talk of leadership sounds hollow to me. I thought I was a leader, but there are people with capacity and experience equal to mine who find leadership very difficult indeed today. Look at what is happening in some of our unions. Look at the struggle that is going on.

I was in favour of the change in the law to make ballots for elections in trade unions compulsory. They are taking place now. They are working both ways. But one effect of them surely has been to make a good many people in elected positions less secure than they were before. In some unions, militant Leftists have been swept out of office. In other unions, the battle between Right and Left has been followed by a battle royal over the successor to a general secretary who is leaving for another appointment. Those struggles, which are reminiscent of so much we have heard about the militant movement, are there,. How do you get leadership when responsible leadership is at odds with the rank and file?

The main problem of wage restraint and so forth is the fact that the great bulk of the trade unionists in Britain today feel that they are entitled to a pay rise every year. It must be substantial. If it is not, it is derisory; if it is smaller still, it is an insult. And so they say that it has to be big. They are unconcerned, naturally, with the refinements of the retail price index and its movements.

Trade unionism is what it is; and basically it is to get more. It is extremely difficult to get the trade union movement and particular sections of it to regard themselves as having responsibilities which they do not believe are going to be shared or honoured by other sections of the same movement. That is the relativity problem that one is up against. It is a very complex subject. I shall say this and leave the matter there. A future Labour Government must be very much firmer about their attitude to trade union demands which are irreconcilable with their economic policy. Let us be honest about it; it is one of the weaknesses of the Labour Party that it relies so heavily upon the financial support of the trade union movement.

I was chairman of a committee on this subject. I wanted to get away from the excessive dependence of both political parties—the major political parties—on convential sources of support. People will believe that those who pay the piper will call the tune. There is not the slightest doubt that those who contribute to political parties expect to get something for it. They really have not been doing it solely for what might be conceived as the abstract good of the nation. It is nearer their pockets than that—much nearer their pockets than that.

If I go on, my Lords, I shall not get to where I really intended to begin. As regards the noble Baroness, Lady Seear, who is not in her place at the moment, I was about to say, yes, of course the Budget is the nation's primary instrument of controlling economic and social policy. One can have all the grandeur that one likes about the Budget as an instrument, but there has to be some fairness in it. I do not think that the financial taxation system can be used unduly to implement policies of economic and social purpose without having some regard to whether it will be fair in the way in which it is being used. I take as my examples—they are comparatively small ones but they are an indication of the trend of things—the two items in the Finance Bill to which the noble Lord, Lord Young of Graffham, spoke. I refer to the concessions being given to charities and to the personal equity programme.

I fully share the noble Lord's approval of these two objectives. I was a member of the Wider Share Ownership Council and I have very much supported it for a long time. I have worked for charities and I have been involved with charities. I have a general approval of charitable work. But I ask this question: should the taxation system be used to influence freedom of choice of the citizen by inducements in this way? The tax system is in danger of being misused. We are being manipulated by the tax system, not by propaganda but by cash. I have never believed that there are any morals in taxation. Those who take the high moral line in the field of taxation are often humbugs. However, there should be principles. There were to begin with. When direct taxation started, some people had a pretty firm idea of what the principle underlying it was. It was quite simple, and it should continue to be simple in definition. I would say that it is an ability to pay a universal contribution towards the nation's financial needs, applying a sense of justice and fairness to the circumstances of the citizen. That will include the redistribution of wealth, but it does not include, in my view, the two things that we are doing in this Bill.

There is not a lot in our tax system that people understand properly. It is really one of the most complex things in public affairs with which one can possibly deal. But people understand fairness. No word is used more freely in discussion about personal and public affairs than the word "fair". In the shops and offices and in the streets, people talk about the weather first and fairness next. I think this approach is being bent and twisted to suit particular political and social aims. It would be a mistake to change the taxation system from being what it was intended to be and basically should be to being a vehicle in the hands of any Chancellor of the Exchequer to do anything that he can think of for political purposes in dealing with money. We talk of a Budget for jobs. We talk of a Budget for growth. We have complaints such as, "It does nothing for this and it does nothing for me; there is little in it for us." We hear of the Budget boost. All these comments are made about the Budget. All have to do with the manipulation of the tax system to achieve some purpose beyond the strict realm of playing fair by the citizen. Now as we come up to a general election we shall hear the word "bribery" in regard to the electoral elements in the Budget. Is it going to be an election Budget? If it is going to be an election Budget, it will probably be an unfair Budget because it will have its eye on where the votes are, and so on.

The most notorious distortions that have been introduced into our taxation systems, more by adapting historic remnants of earlier days, are mortgage interest relief and occupation pensions concessions. They really are terrible. When measures of that kind go completely out of control, then it is time to curb them and not to introduce new concessions of a similar kind.

The only concessions and reliefs that should be given in taxation are those that relate to the great mass of citizens in similar positions and which reflect the common standard and style of living. That is why personal reliefs were introduced to reflect the married state, children, dependent relatives, and the other circumstances of people's lives that affect their capacity to pay. We are all the time trying to study ability to pay. One can see what is happening, especially in the case of mortgage interest relief and in occupational pensions. Some £8½ billion of tax relief goes out every year. The revenue is saddled with that for the next 20 or 25 years, whatever the Chancellor may do. It is now built into the system.

We are probably justifying those concessions by the need for home ownership and for first-time buyers, and all the rest of it. However, we must now pay regard to the fact that a growing proportion of the mortgages that are being taken out are for second and third time buyers. People are climbing the social ladder at public expense. They are building up their assets with the aid of tax reliefs in a way that is not open to the generality of citizens. That is where we can go wrong.

I also find it incomprehensible that the Government should be contemplating putting a budget ceiling to expenditure from the social fund at a time when the two sources of growing tax relief are open-ended for all citizens who take advantage of them to enjoy. That is an indefensible position. We must bear in mind that mortgage income relief was not started for the purpose of home ownership. It started when lands were encumbered by mortgages and by other charges that had to be taken into account in assessing the annual value of the land in the occupation of the owner. It had nothing to do with house purchase. The tax relief given was against the notional tax value of the property. It was not available to be spread over other income or to be enjoyed as a form of relief that could be set off against anything and everything. So there is nothing comparable today with the conditions that accompanied the original concessions.

As to charities, I am sure that they want money; but there is a lot that is wrong with charities. The chief drawback about a concession of that kind is that it is enjoyed by many bodies who have little public accountability. The accountability of charities is a serious problem. All sorts of abuses of the tax system have occurred, based upon the original concept that where a taxpayer alienated part of his income on a long enough or permanent period to justify it being no longer regarded as part of his income, he was entitled to tax relief on that sum. That is how it all started, and it goes on and on. We must beware.

I shall conclude my remarks with a proposal. I am not expecting much of a reply to it. In the American Congress, they have a convention that I think is very interesting. One can go into the Chamber when there is absolutely no one there and speak to the record. Down it goes in the official report. Nobody interrupts you and you do not wait for any answers. So if one has something to say, one can get it down on the record and then go out. I think we ought to start that practice here. Some of us should be allowed to come into the Chamber and announce, "I have something to say and I shall not be happy until I get it off my chest. I do not want to weary your Lordships with it, but here goes!". Then one could spit it out and put it on the record.

In the rather sepulchral environment in which we meet on a Friday morning, I feel that we ought to get a little more fun out of life on Fridays. I thought that my noble friend was so bright and breezy in saying that the Government were no good, that the situation was terrible, and so on. It was a splendid effort.

My concluding proposal is this. Your Lordships have presumed on matters of wider policy, such as unemployment, to have a Select Committee. We dealt with married women's taxation in a Select Committee, not directly as a taxation matter but indirectly, in connection with the discriminatory aspect as it concerned the European Commission of Human Rights. We produced a report that represented a material contribution to discussion about that particu-lar problem. I believe it would be worth while for your Lordships to have a Select Committee on the principles and practices of taxation as a theoretical exercise in fiscal policy. It would be within our brief to do so. We could take evidence. Who else will do that? It is 30 years since the last Royal Commission. The Government may say "We shall do it on our own", but they will not do so. Governments have tried to do things on their own and they have not come off. Here we are with the time, the intellect and the experience to bring some opinions to bear on the subject but not having them fully utilised.

We are afraid of tackling that aspect for fear that it might give rise to misunderstanding and unrest in another place. I am not bothered about unrest in another place. The Labour Party will never dare now to talk about abolishing your Lordships' House. This House has done so much damage to a Tory Government that the idea that it would be abolished by a Labour Government is nonsense. I am sure that will not come off. I shall leave it there. I have made the longest speech of the morning, and for that I apologise.

Lord Monson

My Lords, before the noble Lord sits down after making his most stimulating speech, does he not agree that it is most curious that the Chancellor appears to be going in the opposite direction to President Reagan, who is trying to simplify the American system of taxation and eliminate all subsidies, and so on, to special pressure groups?

Lord Houghton of Sowerby

My Lords, I am glad that the noble Lord has reminded me of that point. As we are basing so much of our thinking on great matters of state, on what is happening in the United States, and on what the President of the United States has it in mind to do, then that is an idea. If the Chancellor of the Exchequer will only give the tip to the Prime Minister that in her relations with the President of the United States in future, she might try to obtain a little more information about his tax policies, and if she brought those back with her, then we would be all set for reform.

1.9 p.m.

Lord Donoughue

My Lords, your Lordships will be relieved to hear that I shall not attempt to do what originally I had intended, to cover the whole economic landscape. That is partly because I feel the impending urgencies of lunch and partly because the subject was so brilliantly summarised by my noble friend Lord Barnett in his well-pitched swan-song. If I may say so, we shall miss my noble friend from his present place up front but we look forward to many contributions from him when he sits among us lesser mortals behind.

I should like to focus on one important aspect, which is the underlying philosophy of the Government's Budget; that is, the assumption that it is right to subordinate everything to cutting direct taxes. We had a 1 p cut in this Budget and we look forward with great confidence, I think in the Labour Party with some electoral trepidation, to 4p cuts shortly to come.

We understand the personal attraction of cuts in income tax and I am bound to say that where I work arguing against cuts in income tax has proved a very thorny path for me. I think that we also understand the electoral considerations and would not wish to be sanctimonious on that point. No party has a monopoly of concern about cutting taxes ahead of elections. But I think that we should look beyond the election to the national and economic interests, and I should like to question whether total emphasis on tax cuts is the best way forward economically for Britain. I agree that we do not want a punitively high tax regime, which I think is bad for the economy, and I can see the disincentive in that. There is much less evidence for the incentive of continually pursuing low taxes. There is actually no real evidence of which I am aware that it is an incentive to a more efficient economy.

There is evidence that the consequent expenditure feeds through to imports and I think that the balance of payment prospects in the years ahead are not necessarily good. Certainly, I think there is evidence that concentrating on tax cuts is not the best way to help the unemployed. Certainly, it is not the best way to assist them directly because as non-taxpayers—involuntarily so—they do not directly benefit, and indirectly, as the noble Lord, Lord Barnett, has said, tax cuts are almost the least efficient way to create jobs in an economy. Various forms of public expenditure create more or fewer jobs and the economists have constructed a kind of table of the job efficiency of various types of public expenditure, and tax cuts come rather low on the list. Certainly, investing in the infrastructure is a better way of creating jobs. I agree with the noble Baroness, Lady Seear, that expenditure on the infrastructure is better for the unemployed; I think that it is better for Britain.

Talking at large and among supporters of the noble Minister's Party, one is struck by the fact that it is widely accepted that we need significantly greater capital expenditure. We need better schools, better medical services, better roads, transportation and so forth. I think that case has been fairly well established. I would argue that we need it definitely more than we need, say, a rate of 25p rather than 27p income tax. I think it is a much more questionable case if one is talking about the difference between 25p and 35p, but I certainly think that in terms of priority the tax-cut case is not well founded.

My second point is that the promised tax cuts are actually risky in the sense of probably being unsustainable in the longer term, because what they depend upon are risky, unsustainable and certainly uncertain factors and sources. The first source is obviously oil revenue. The Budget assumption on oil price was that it would be around 15 dollars. This morning I looked at my screen and the price is below 9 dollars. A fall of around 6 dollars a barrel (when it is conservatively assessed that each fall of one dollar costs more than £300 million) means that it is down about £2 billion; and the future holds the threat of the Saudi Arabians deciding to increase production further in order to push the price lower. So I think that is an uncertain foundation on which to base a tax level.

The second source is of course privatisation. I would argue that the proceeds have question marks against them. British Gas is far and away the biggest single source, and with the oil price going down the likely proceeds from privatisation come into question. The price that will be paid is certainly thought to be lower now than it was three months ago and it may be lower still in the autumn. That is quite apart from the broader question which is the questionable accounting of recycling public capital sales into personal tax cuts. I should like to ask: When that public sector cupboard is bare, how then will one continue to finance the tax levels that are now being established and promised?

The third source of the tax cuts is the buoyant non-oil revenue situation, and the strong economy to which the noble Lord, Lord Young of Graffham, referred. I think that when he speaks about buoyancy and buoyancy beyond previous forecasts he is definitely correct, but the question I should like to ask is whether it is sustainable. It seems to me that the prospects for economic growth are now very unclear. Growth in the United Kingdom is currently below earlier forecasts. The rate of growth of the United States, which is crucial to the rest of the world, was only 1.1 per cent. annualised on the June figures. Figures for growth in the whole of the western world are currently disappointing. That position may alter for the better. We may be in a kind of J curve situation where the oil price cuts have produced the bad news (the disadvantages) but not yet the good news. They have led oil producers to cut their expenditure and to cut their purchases from the rest of the industrial world. We have that disadvantage. We have not yet seen the advantages of the oil consumer nations increasing their own rate of economic activity.

I think that we all hope that those benefits of lower oil costs together with higher consumer expenditure will help the Government in their growth forecasts because they will help Britain to have a higher rate of economic growth. But if in fact economic growth does not recover, if oil revenues remain below the Government's budgetary forecast, and if the non-oil economy does not recover to the extent that the Government had hoped, that is bad news. It is bad news for Britain, for the Government's revenue forecasts and for the sources from which tax cuts would be sustained in the future.

It is also, of course, bad for the unemployed. If one looks at the unemployment figures, the average monthly increase in the previous half-year was actually above that of the half-year before that one, so that trend is a bad trend which will deteriorate, not improve, if growth disappoints. Indeed, on the current figures there is little prospect, and one might say virtually no prospect, of unemployment being reduced in the foreseeable future. Nothing that the noble Lord, Lord Young, has announced—even though the training plans and so forth are excellent and I would support all of them, but it is a question of scale, as the noble Baroness, Lady Seear, said—alters the bleak prospects of high and probably higher unemployment ahead.

I agree with the noble Lord, Lord Barnett, that that must remain the main problem. Unemployment and poverty are the main problems, and here we also talk to the Labour Party. Those are the problems—not low pay, because low pay does not always equal poverty. The people involved, the low paid, are often single persons without other responsibilities. They are often working part-time in a family where more than one person earns. The problems are unemployment and poverty. From what the Minister said, unfortunately, at the moment there does not seem to be any guarantee that those problems will be ameliorated, and they may get worse.

More generally, I raise the question of whether we—I mean the Government, the commentators, industry and we on this side of the House—fully understand the new low inflation economy. As the noble Lord said, employers and employees have not adjusted to it, because wage settlements are not down. We have real pay increases of 5 to 6 per cent. The Government have not fully understood and adjusted to it, because interest rates have not been brought down accordingly. That is a central point, as the noble Baroness, Lady Seear, said. We have real base rates at around 7½ per cent., and, since industry borrows well above those, we have real interest rates to industry of around 10 per cent., which will probably be the highest ever.

That combination of high real interest rates and wage rates is, above all, bad for industry. It leads to much lower investment and therefore to lower employment. Furthermore, high interest rates and the consequential high rate of sterling must also be bad for industry because of its impact on exports, and our export growth, if there is any growth at all, will be much lower. In that climate of very high real interest rates and pay the consequences must be low growth, low export growth, no expansion for manufacturing industry and high unemployment.

If that is the prospect, I come back to the beginning and ask how we pay for the promised tax cuts in the longer term when there are no more public assets to sell off. How do we get unemployment down in the short, medium or longer term other than by massive public capital expenditure? How do we replace the North Sea oil revenues with growth export industries? The dramatic expansion of services—hairdressing and so forth—will not do. More generally, I wonder how the next government after the general election will cope with those problems. I suggest that the problems will not be mitigated, and more likely they will be aggravated by an obsession with direct tax cuts in the short run.

I put those questions to the noble Lord. Their perspective is longer than that of immediate income tax cuts, but I believe that that is more important and that those cuts may not be sustainable much beyond the next election, whoever wins it.

1.24 p.m.

Lord Bruce of Donington

My Lords, we have listened to an interesting preliminary to the dissertation of the noble Lord, Lord Young, upon the Budget. Earlier he ventured to expatiate on his interpretation of the current state of the economy. Fortunately, my noble friend Lord Barnett was able to prove conclusively that, as usual, what he said had no contact with reality but was rather more in the left-hand file to which he refers every time that he answers parliamentary Questions in the House and from which we have the usual economic or pseudo-economic spiel.

The central problem of the British economy confronting any government, put in commonsense terms, understandable by the public at large, is simple. How are any government or any semi-governmental or private organisation to deal with the following paradox, which is obvious to us all?—indeed, it is so obvious that we tend to forget it. How is it that we have 4 million adults unemployed—or 3.25 million on the noble Lord's fiddled figures after the 16 adjustments since he was there—capable of working and for the most part willing to work, on the one hand, and a tremendous number of needs which remain unfulfilled in pratically every department of our national life, on the other?

Is it to be assumed that those who are unemployed do not need more clothes, more shoes and better housing and other facilities, for which they would be quite willing to pay if they were in work? Is it to be assumed that in the United Kingdom, where 50 per cent. of the adult population own only 4 per cent. of the national disposable wealth, there are no vast needs which a sanely organised economic system would be capable of satisfying by the provisions of the appropriate capital for machinery and the appropriate supervising management in order to produce the goods for which by that time there would be an effective financial demand? That is the cardinal problem.

Over the passage of time, through the sheer weight of the popular media, by general consensus we tend now to assume that it is inevitable in the foreseeable future that there will be a perpetually unemployed adult population in the region of 3 million. By this time, that is what everybody has come to assume as a matter of sheer inevitability. Any government who are a true government must challenge the basis of that assumption, and that is the first thing that my party's government must do.

I must protect Her Majesty's Government against attacks on their economic policy. We cannot assume that they have one; we cannot accuse them of that. The only policy that they have economically is to let free enterprise and free market forces solve the whole problem for them. Anything that prevents the operation of the free market is immediately denounced by them. In practice, their policy is to let the City have its way. Every day across the exchanges there flows about 20 times the amount of currency that is required for the financing of ordinary transactions. Millions are made week after week in the sheer manipulation of money.

The City's omnipotence and its ascendancy over the Government are such that the Government are little more than the City's creature in terms of economic policy. That has important consequences. Apart from the fortunes that are made out of handling money and which, incidentally, add to the money in circulation and increase the demand for commodities, imports and so on, the consequences affect the whole of manufacturing industry and the climate within which it operates and has operated for the past seven years.

First, high interest rates are established to attract investment and money here. That money has to be recycled through relending elsewhere. That establishes high interest rates so that the pound may be strong whatever happens to the uncompetitive nature of British exports as a result. Secondly, there is an attraction for massive mergers and takeovers. If the noble Lord had any experience in industry and in the boardrooms of manufacturing companies, he would know the consequences of that. No company can plan and make the financial commitments that are necessary for the successful stabilisation and expansion of its future activities—bearing in mind that the expansion of capital plant may take anything up to five years—or take a long-term perspective of its development because of the takeover and merger moves which cause every company to look over its shoulder and to make a short-term profit. That is what is happening at present. If the noble Lord wants any certification of that he should read the Financial Times; otherwise, in those immortal words, I say "No comment".

One of the greatest problems facing manufacturing industry is the shortage of investment. The noble Lord has referred to that many times. It was also mentioned by my noble friend Lord Barnett, who said that one of the factors affecting unit costs was the level of investment. Labour unit costs become lower and lower the more efficient the machinery on which the ordinary operative works.

The noble Lord opposite completely mis-understands and is, I fear, unlikely to understand the nature of the price structure about which he complains. He often talks in this House as though wage levels were the most important factor. He never mentions anything else. Having no alibi, he seeks to blame organised and non-organised labour and their wage claims for what he calls the uncompetitive rise in prices.

I do not want to weary the House with too many quotations, but if the noble Lord turns to the Financial Times of last Saturday he will see: The basic story is still clear. Profits have been leading the way since 1980, with other incomes lagging in their wake. At the same time, of course, the total figure for wage and salary incomes conceals its own split: management salaries have consistently been rising faster than wages". One of the matters that is clear from an examination of the accounts that have recently been published and that were summarised in the Financial Times of 14th June last is that profits have been steadily increasing the whole time. If the noble Lord wishes further to examine the figures which have been produced on that subject, he will find that since the end of 1979 company profits have risen at a much higher rate than wages and salaries, bearing in mind that wages and salaries include not only the wages to which the noble Lord refers but some of the exorbitant salaries which have been the subject of much comment recently.

The noble Lord may argue that it is necessary for companies to make large profits to enable them to make further investment. The unhappy part of the picture is that far from that being the case, companies' capital investment in plant and machinery has decreased just as fast as profits have increased. If the noble Lord wants to query that, then, in the words often used by the noble Lord, to save the time of the House I shall write to him and put a copy of the letter in the Library so that he may have the authentication of the figures.

As I have said, the Government have no policy. That does not mean that they do not have an attitude—an attitude which, with regard to social policy, has already been expressed by their actions in making the rich richer and the poor poorer in all their social legislation. We are concerned with economics. All parties will agree that one of the basic necessities of the British economy, if the paradox to which I referred earlier is to be solved, is to ensure a measure of co-operation among those who provide the capital, those who manage the enterprise and those who work. In other words, if we are to have a free society there must be a degree of co-operation among the parties. That is what the Government do not have.

However, if I may, I shall refer your Lordships to Question Time of 8th July, when the noble Lord, Lord Young of Graflham, was dealing, as he does eruditely every week and possibly twice a week, with the necessity to keep wage levels under control. The right reverend Prelate the Bishop of Manchester drew his attention to the fact that, very large sums of money are paid out regularly to certain individ-uals in this country, sometimes running to more than £200,000 a year, with large percentage increases". The noble Lord replied: My Lords, what is of the utmost importance is that we have a productive industry and a commercial base where wealth creation is rewarded to the common good".—[Official Report, 8/7/86; col. 168.] The noble Lord was taken up by my noble friend Lord Beswick, who said, at col. 169, When one has bright young things in their early thirties earning £50,000 to £60,000 a year just for wheeling and dealing in money and mergers, is there not something innately wrong in our social economy?". The noble Lord replied: My Lords, I must confess that I think there is something innately wrong in a view which looks to those who create the wealth of this country and says that they should not be rewarded". This, of course, was not in his brief. He was saying what is in his mind. This was his natural reaction. What did that really show? It showed clearly that he does not regard the ordinary citizen, the ordinary operative who works in the factory, as one who creates wealth. In his mind, the only people who create wealth are the people who provide the means, in other words the capital, for the plants, and possibly also the management and organisation of the plants. The rest of the people—the noble Lord's reply made this clear—are merely costs. They are not creative people. They are merely, in his book, costs. And that is what they are in the Government's mind. Otherwise, how could the noble Lord have answered in this way? I repeat the noble Lord's reply, in case he wants reminding. It was: My Lords, I must confess that I think there is something innately wrong in a view which looks to those who create the wealth of this country and says that they should not be rewarded". So we know that, as the Government make clear in their attitude, as the noble Lord makes clear in his incautious asides, and as the Prime Minister herself makes clear in practically every utterance she makes, the miners do not create anything, the power workers do not create anything, the workers on the rigs in the North Sea do not create anything, the textile workers do not create anything, the machinists do not create anything, the engineers do not create anything, the construction workers do not create anything and the nurses do not create anything. Nor do the teachers, either. They are merely costs which, at all costs, have to be kept under control, so that those who create the wealth, who do not make clothes, who do not make shoes and who do not perform any constructive physical or intellectual function on behalf of society, may be enriched and so that they, the creators of wealth, can, in his own words, be rewarded.

This is the basic economics lesson. The basic economics lesson is that any economic organisation in society, whatever the government in power—where freedom of the individual is to be maintained and full scope given to individuality in design, marketing and so on, through the formation of small firms—has to be based on an atmosphere where all people, however humble they may be, are appreciated as full citizens of our country, using the best creative abilities they have and to whom the existence of 3 million to 4 million people denied the opportunity of work is a reproach to their country and a reproach to themselves.

1.44 p.m.

Lord Young of Graffham

My Lords, I am grateful to all in your Lordships' House for the debate—a debate which, if I say, on occasion, it arouses more heat than light, I am sure many noble Lords will understand. I should like to say how much, I, too, will miss the noble Lord, Lord Barnett, when he departs, for some time, elsewhere. I can say without any doubt that the noble Lord will be well suited to his new occupation. The world of entertainment will obviously welcome him with open arms. He proved very entertaining today. If I may offer the noble Lord a word of advice, he should specialise in this new occupation in repeat broadcasts. He has repeated today many things we have all heard many times before. I should like to offer a second word of congratulation to his researchers who have dug deep to find the only statistics that attempt to bear out his case. On looking into it, we find that many of the statistics the noble Lord quotes are, like the unemployment statistics of 4 million or, indeed, the quotation that he atributes to me of the country never having had it so good as it has today, out of context. It is as easy to take statistics out of context as it is to take quotations out of context. Both have the same effect.

But the noble Lord said many things of considerable interest. He made a great plea, as many of your Lordships have done today, for more infrastructure spending, arguing that somehow it would cure the great ill that afflicts most of Europe, called unemployment. If that was the case, then surely the socialist government of France, the socialist government of Italy, the socialist government of Spain, and the socialist government of Ireland would have seen this as a way in which they could cure unemployment. The noble Lord knows full well that the socialist government of France tried many of the remedies advocated by noble Lords opposite. The noble Lord also knows full well, as do many of us, what happened to France.

I get worried when I look at, listen to and hear of alternative policies. Indeed, I am sure that all in your Lordships' House will join with me in welcoming the happy event that took place two days ago. It was indeed a great day on which 500 million people, it is alleged, were watching television to see the Duke of York take the Duchess of York into marriage. But, at the same time, somewhere else, the Labour Party and the TUC announced their new policies. Many of us wondered why they should take the wedding day to announce their policies. All was revealed when we actually read what those policies were. They are interesting. They stated that unions in future should not be above the law but should have a special law, at least special law courts. I am not sure who will staff these courts and who will be the judges—perhaps retired union officials or maybe even active union officials. It is curious that the unions once again should be suspended from the operation of the law.

But there is more to it than that. I am not at the moment concerned about trade union policy. I am concerned about what is said in respect of minimum wages. The minimum wage, it is argued, should be £80 a week. I have to say that there are, in our economy, about 1 million jobs each year that are taken at under £80 a week. To set a minimum wage at £80 a week means the elimination of those 1 million jobs. And what contribution will that make to the real problem facing us of unemployment? Should noble Lords consider that an absurd notion, I have to say that it was only a few days ago that USDAW said that £80 was not the proper minimum and that the proper minimum should be £120 a week. The mind begins to boggle as to how far we can go down that path.

I am grateful to the noble Baroness, Lady Seear, for her request that I sing a new song. Indeed, if I was looking for a new song, I suspect that today has indeed been a trip down memory lane. We have heard many old songs, some of which I am afraid I cannot repeat. No, my Lords. This Government will not depart from their prudent policies followed with such evident success over the last few years. The noble Baroness wishes to go back into public expenditure and then says that we, the Government, should begin to address the problem of education, should begin to address and examine the problem of technical and vocational subjects. In the last four years alone, this Government have successfully introduced the two-year YTS, a technical and vocational education initiative which for the first time in a quarter of a century will bring technical and vocational subjects back into the school world, a national vocational qualification and an open tech leading to the college of the air. Today, we have begun at long last to get into the twentieth century. The only cause for concern is that our competitors are on the point of leaving it. But this Government cannot be accused of not taking seriously their responsibilities in the education world.

Baroness Seear

My Lords, will the noble Lord agree that the vice-chancellors have so accused the Government?

Lord Young of Graffham

My Lords, the vice-chancellors may well accuse the Government, but I have paid visits to two universities recently which were subject to the greatest cuts of all in 1981 and which today are transformed institutions—Aston is one of them—which have become more relevant. What is important is not the inputs but the outputs. It is not the quantity of money that we spend but the quality we get for it.

I do not wish to take this debate this afternoon along an argument about vice-chancellors. I appreciate their complaint and queries. We must have a higher educational system that responds to the real world in which we live. We must have a higher educational system that is not responsible simply for the greatest number of Nobel prizewinners per population, as we are, but one for a society which will capitalise on those inventions and will market those products. As was said to the Prime Minister of China on a visit to Trinity College, Cambridge, "This one college has won 26 Nobel prizes", whereas the whole of Japan has won two. Everyone in this House knows that Japan has won all the prizes for marketing and development and we—alas!—have won all too few. That is indeed the real problem.

The noble Baroness says that we must reduce interest rates. Indeed, many noble Lords have said that today. I agree. Each 1 per cent. of interest rate represents a reduction of burden, if it could be reduced, of £250 million for industry. But each 1 per cent. of wages would represent a reduction of a burden of £1 billion. If we are looking at where interest rates can be reduced then surely that is one that will make the biggest difference.

I have heard much today about how the Government ignored the Select Committee of your Lordships' House, how it should be doing much more to revive industry and how important it is that governments somehow can revive industry. We have lost half of the car sales in this country to foreign imports because, quite frankly, we could not design a car as good as our competitors. We could not make a product that worked well. I do not have to repeat it again. We have seen what happens to manufacturers like Jaguar who finally get their product right. That is what the manufacturing sector should be doing. That is something that the Government cannot do. If one looks at the nationalised industry sector today and sees how strong, profitable and competitive it is, one realises the revolution that has come to this country over the last three years.

I am very grateful to the noble Lord, Lord Houghton of Sowerby, for his suggestion. I am not sure whether he formally suggested repealing the Parliament Act 1911, although I think that would be a little extreme. I hope that we have had a debate—we could have more—on many aspects on which your Lordships' House is normally forbidden to decide. The noble Lord demonstrates a very realistic attitude to the nature of trade union negotiation. He has vastly more experience in that field than I have. However, he acknowledges publicly what all too few of us acknowledge: that the Trades Union Congress own the Labour Party. After all, it was their creation. They have all the votes. The Labour Party must surely be the party of the trade union movement. It therefore becomes very difficult to see how one could expect the Labour Party to control the trade union movement. It always has been—and I suspect it always will be—the other way round.

I am very glad that the noble Lord paid tribute in principle to our encouragement to charities and to wider ownership of shares. He objects to the complexity of the tax system. I would accept that. The noble Lord, Lord Monson, drew attention to the fact that President Reagan has simplified the tax system. We have done far more than the Americans to simplify the tax system. We have been following a long course of taking out the distortions which the tax system presently creates. I heard everything that the noble Lord had to say about tax interest on housing. We still have a long way to go to simplify it, but we are making progress. We give temporary encouragement to charities—whether it is temporary or permanent time will tell—but I believe that the most important factor is to see the principle of private giving restored.

I was very grateful to the noble Lord, Lord Donoughue, for the quiet and reasoned way in which he put his case this afternoon. Although I must confess that at times I thought the reasoning was wrong, I appreciated the way in which he did it. The noble Lord said that cutting taxes is not the best way to proceed, and that he had difficulty in persuading his colleagues in the City of the virtues of increasing or maintaining taxes, and of persuading them that the Government know better how to spend money than themselves. I hope he takes the opportunity of having a word with his right honourable friend Roy Hattersley who, I read, has decided that by taking away in taxation all incomes over £27,000 a year he can redistribute the £3.6 billion which that will throw up in some rather weird and wonderful way. I hope that he will point out to his right honourable friend that if he insists on taking everybody's income over £27,000, firstly, people will not draw income over £27,000 and his tax will disappear; secondly, all those who wish to do so may well find sunnier climes in which they can use their endeavours. It is a policy which I hope that the noble Lord will never have an opportunity of trying out.

There are bleak prospects about unemployment ahead, but those bleak prospects will come about—alas!—only if the nation decides to vote the wrong way at the next election. I do not contemplate that. I can see that by the continued growth of enterprise in our nation, by the increase in the number of jobs, by the very hard, painful process which is the only way that we can do it, we can see a return towards fuller employment. It is a problem that is European-wide. It is a problem that has to be tackled European-wide. I agree here with the noble Baroness, Lady Seear. It is a problem that we have to tackle throughout Europe. It is a problem where all in Europe have to recognise that we have to work together.

We then come to the points raised by the noble Lord, Lord Bruce of Donington. I must tell your Lordships' House that I find the noble Lord, Lord Bruce, personally, very charming but on occasions he gets carried away, and, if I may say so, no more so than today. To begin with, he accused me of taking the unemployment figures of 4 million. No, he said, they are 3.2 million. That is because of the 16 adjustments since the noble Lord was here. I am responsible for two adjustments in the unemployment figures. The first was because my statistician said that we were over-recording unemployment by 50,000 because of the date on which the figures were closed. We therefore closed the figures two weeks later. That is one adjustment. The second was because we included in the percentage figures those 2,650,000 people who work for themselves. That does not affect one of the unemployment figures.

I am therefore quite happy to place once again in the Library of your Lordships' House the six adjustments which have taken place in the unemployment figures since 1979. I am also happy to put there the many adjustments that have taken place in the periods before that. What we call the unemployment figures is of course a benefit count.

The other test of unemployment is the labour force survey. That has a rather quaint test for unemployment. It defines those people as unemployed who are out of work and looking for a job. If one takes that rather quaint test of unemployment then the last time that the labour force survey came out the unemployment figure was 2.9 million and dropping, whereas the benefit count over that same period was 3.1 million and rising. There is a difference between the two which is alarming. However, I shall be happy to put in the Library—since the noble Lord is putting items in the Library for me—a record of the changes that we made.

Then the noble Lord said that somehow 4 per cent. of the nation owned 50 per cent. of assets. I do not have up-to-date figures, but I can go back as far as 1984.

Lord Bruce of Donington

My Lords, if the noble Lord will excuse me, I said that 50 per cent. of the population owned 4 per cent. of the disposable assets. The noble Lord transposed the figures.

Lord Young of Graffham

My Lords, I stand corrected and I accept totally the words of the noble Lord.

In 1984, 94 per cent. of households had a refrigerator. When we come to deep freezers, in 1979 the figure was 40 per cent., in 1984 it was 61 per cent.; 79 per cent. of households had washing machines; 29 per cent. had tumble driers. That figure has increased 50 per cent. in those few years. The figure for telephones had increased from 67 per cent. to 78 per cent. The figure for central heating had increased from 55 per cent. to 66 per cent. Two-thirds of the households in this country had central heating. That was in 1984, and I suspect that it is substantially higher now. In 1984 83 per cent. of households had colour television and I am sure that that percentage has increased even further, which will greatly comfort the noble Lord, Lord Barnett. Even 14 per cent. of households owned black and white televisions. In 1984, 24 per cent. of households in this country had video taperecorders. That hardly shows the disparities about which the noble Lord opposite was speaking.

Then we were given the figure of 3 million people being perpetually unemployed. I do not know how many times I have to bore your Lordships' House with the simple arithmetic. Of all people losing their jobs, one in four are back in work within a month; one in two—half—are back in work in three months; two-thirds are back in work in six months; and at the end of the year there are still two out of 10 looking for work. Those people we are endeavouring to help in a programme unequalled anywhere in the industrialised world called Restart. Help them we shall, and as I have said before I hope that by Christmas we shall see the results. When the figures for Christmas are published, we shall see the results of that programme.

Then the noble Lord opposite said that if I had had experience of industry I would know. I have had a misspent youth; but, until I came into this present world, I spent all my life in what passes for industry and commerce. I have spent many years of my life in companies agonising over investments. I well remember the period when the noble Lords opposite had control of the economy, and I can remember agonising then that we could never know the outcome of our investments, and knowing then that, living in a world where inflation would run on average at 15 per cent. up to 22 or 27 per cent., not only we could never know, but no one ever knew what the results of investments were. That the noble Lord opposite accuses us of that, I find hard to bear. Indeed, to all those noble Lords who have complained about investment in this country, I repeat once again that fixed capital investment in the United Kingdom is at a record level. It has been at a record level for each of the past three years and I very much hope that it will be at a record level in the future as well.

Then I come to the last but unkindest cut of all. The noble Lord opposite quoted answers that I gave in the House to the right reverend Prelate the Bishop of Manchester. He quoted statements made in this House that somehow salaries of £200,000 are not right; that noble Lords complain about bright young things earnings between £50,000 and £60,000 a year; and he said that I said those who create the wealth should be rewarded. The noble Lord seems to find this offensive and wrong, which demonstrates the great gulf that divides us by the Table in front of me. If we did not provide the services, if the City of London did not provide the great amount of wealth which it creates for the nation and the enormous employment that it gives to citizens, the noble Lord opposite knows full well that that activity would transfer to Frankfurt, Paris or elsewhere in Europe, and that it would be Germans, Frenchmen or Italians who would be earning that wealth.

It is no good pointing to those in our society who have particular jobs. We must look at the good it does for the whole of our society. I respect each and every member of our society who contributes and is rewarded. The noble Lord might think that some of these salaries are gross. So might they be, but the market will ensure that they will come down to sustainable levels because that is the only thing that really works. Time and time again throughout our debate on the Budget in a very odd way we have come back to the consequences of our wages.

I should like to conclude by making just one point. I have never spoken about the level of wages in this country; I have always tried to talk about the level of unit costs, and the level of unit costs only because the only way in which we can succeed as a nation is to have a strong industrial base, to have an economy which can produce goods and provide services at competitive prices to the quality that people will want. That depends not upon there being an unholy alliance between the employed getting together and ensuring that those who are well off can do better, but by ensuring that we have a sufficiently competitive position in terms of unit costs, design and all the other elements that go into manufacturing our goods so that the economy will continue to grow. That is the important part of this Budget. That is the important policy which this Government have followed over the past seven years. It is the policy which this Government will follow over the next twice-seven years.

Viscount Hanworth

My Lords, before the noble Lord sits down, does he fully appreciate the loss in productivity as a result of our unemployment, and does he fully take into account the cost in social benefits of those numbers? The noble Lord has argued that many of the unemployed are only unemployed for a short time, which is heartening so far as concerns the social aspect. However, does the noble Lord realise the appalling cost to the nation of unemployment as it is today?

Lord Young of Graffham

My Lords, I am grateful to the noble Lord for raising this. Of course I realise the appalling cost. I spend as much time as I can away from London looking for ways in which we can help. I was in Sunderland on Monday of this week, and I saw the very difficult conditions there, and I also saw the fortitude and imagination of the inhabitants of Sunderland in looking to find a way through a very difficult situation.

However, we must face the fact that the Industrial Revolution passes on round the world. In this country it is 250 years old, but it still has to reach possibly half the citizens of the world. We shall always have a great deal of competition from those nations which have the most up-to-date steel mills and shipyards, and who pay their citizens £2 or £3 a day. That will be very difficult competition. We have to go up market; we have to find new technology.

Of course, I regret the great loss of people out of work, but the secret is how to get them back into work. The secret is how to find something productive for them to do. All the examples that we have had of "make work", of planning to get people to do something productive, have their difficulties in destroying jobs at the same time. It is no simple answer to say that we will have more roads and sewers, because by and large the people who build roads and sewers tend to be employed because they have the skills or the machines which are required. The secret is to find ways in which we can put those who are out of work back into work.

We have made enormous advances. Noble Lords may not think it is enough; but we now have a community programme which will soon have more than a quarter of a million people in it. That is proving to be a very effective way of getting people back to work who have been out of work for a long time. No other industrialised nation which suffers from the same problem has programmes anywhere near as big as that. If they did, I would cheerfully copy any programme that I could see would work.

On Question, Bill read a third time, and passed.