Lords Sitting of 6 June 1986

Preamble
The House met at eleven of the clock: The CHAIRMAN OF COMMITTEES On the Woolsack.
Prayers—Read by the Lord Bishop of Chichester.

Mergers and Monopolies: Policy Review
Lord Bruce-Gardyne: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will announce the membership and terms of reference of the inquiry into mergers and monopolies, and set a date for the presentation of its report.
Lord Brabazon of Tara: My Lords, my right honourable friend, the Secretary of State for Trade and Industry announced the start of the review yesterday. The review will cover mergers and restrictive trade practices policy. It will investigate both the scope for changes in policy under existing law and the desirability of changes in the law.
Lord Bruce-Gardyne: My Lords, I am most grateful to my noble friend for that reply, even though, as the governor of North Carolina said to the governor of South Carolina, "It's been a long time between drinks"—nine months, I think. Can my noble friend give us any indication how long this review will now take? Can he also assure us that it will not be dominated by the note of slight complacency which was in the statement from the department yesterday about the perfectiveness of existing monopoly legislation which conflicts so strongly with what the Director General of Fair Trading was saying only a day before?
Lord Brabazon of Tara: My Lords, as to the timing of the review, there is much ground to be covered and it is important that time should be allowed for a thorough job. It is possible, however, that recommendations for change in policy under existing law may be identified at an early stage of the review. If so, the Government will not hesitate to make any desirable changes immediately.
Lord Grimond: My Lords, will the noble Lord the Minister give us an assurance that two matters will be within the terms of reference? The first is the growing habit of selling off parts of the business to be taken over, not for any commercial or economic reasons but apparently to attempt to comply with the existing law and avoid a reference; and, secondly, there is the effect, particularly the long-term effect, upon the communities affected by these takeovers, which are very often not for commercial reasons but for purely financial reasons.
Lord Brabazon of Tara: My Lords, I think I can give the assurance that the noble Lord seeks that the review
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will take those matters into account. Also, anybody who wishes can give evidence in this review. All such evidence will be taken account of.
Lord Bruce of Donington: My Lords, is not the noble Lord aware that the Government themselves have at their disposal all the information necessary for them to arrive at a conclusion? Is he aware that the matter has now become a public scandal and that many people will take this announcement of an inquiry covering an indefinite period of time to be a further device of delay, particularly until after the passing through Parliament of the Financial Services Bill?
Lord Brabazon of Tara: No, my Lords; I do not accept that from the noble Lord. I do not accept that the current situation is entirely unsatisfactory. The purpose of this review is to see where there are areas which cause concern and whether those areas can be identified. If it is found that there is something wrong, something will be done about it.
Lord Orr-Ewing: My Lords, will my noble friend the Minister consider whether, since this review may take some time and the resulting action further time, the MMC and the Office of Fair Trading are rather overloaded with the present spate? Will he examine whether they need a stronger staff or more power for them to carry out expeditiously the very important work they are doing?
Lord Brabazon of Tara: My Lords, I certainly take note of the views of my noble friend Lord Orr-Ewing and I shall indeed pass them on to my right honourable friend the Secretary of State.
Lord Bruce of Donington: My Lords, will the Government give an undertaking that the terms of reference of the inquiry will be sufficiently wide to encompass an inquiry into the circumstances of the takeover of Harrods by Mr. Al Fayed and that in those circumstances Ministers of the Crown will be available to give evidence?
Lord Brabazon of Tara: My Lords, the terms of reference of the review are as set out in the Written Answer given in another place by my right honourable friend the Secretary of State. As to the specific case that the noble Lord mentions, I cannot give an undertaking that that will be covered, but I am sure that it will. I am not too sure that I follow his accusations regarding Ministers of the Crown.
Lord Taylor of Gryfe: My Lords, may I encourage the Minister to accept the urgency of this matter as expressed by the noble Lord, Lord Bruce-Gardyne, because the less uncertainty there is the better? May I ask him whether under the terms of this inquiry, or as a separate inquiry within his department, he will examine the economic consequences in terms of employment, return on assets and so in, of the mergers that are taking place?
Lord Brabazon of Tara: My Lords, again, I can do no more than take note of the views of the noble Lord, Lord Taylor of Gryfe, and I shall pass them on to my right honourable friend the Secretary of State.
Lord Leatherland: My Lords, will the Minister take into account the fact that when mergers take place one of the results is that large numbers of employees are sacked? Will he see that that aspect of mergers is borne in mind when he considers this matter?
Lord Brabazon of Tara: Yes, my Lords. I do not necessarily accept that large-scale sackings take place as a result of mergers. In fact, in many cases mergers lead to a more effective industry in the industry concerned and improve employment prospects.
Lord Graham of Edmonton: My Lords, can the Minister give us an assurance that when the review takes place the question of conditional disposals in contested take-over bids, where a bidder attempts to sell off part of the target company without its consent, will be looked at very closely? This is a matter that was alluded to by the noble Lord, Lord Grimond. Will the Minister note, for instance, the current situation where Dixons, in an attempt to purchase Woolworth's, have already made arrangements to sell off Comet; and that this quite clearly is designed to keep themselves within the law and avoid a reference to the Monopolies and Mergers Commission?
Lord Brabazon of Tara: My Lords, yes, I am sure that this will be one of the things which the review will look at as it is one of the aspects which has attracted criticism recently. As I said at the beginning, the review should be wide open to public debate and views will be taken note of.
Lord Bruce-Gardyne: My Lords, can my noble friend assure us that the review will also look into the role of financial intermediaries in the current range of mergers? Can he further say who is going to advise this body of officials and provide the expertise in this sort of area?
Lord Brabazon of Tara: My Lords, as to the first part of my noble friend's supplementary question, at the moment I do not have the information with me; but we are planning to get the best possible advice and expert knowledge available whether from inside or outside Government.
Lord Bruce-Gardyne: My Lords, I apologise for disturbing my noble friend again but could he check on that point about the role of the financial intermediaries and let us know because that really is an important matter?
Lord Brabazon of Tara: Yes, my Lords. I shall endeavour to do so and I shall write to my noble friend.
Lord Annan: My Lords, the noble Lord made no reference to the point in the original Question on the membership of this commission. Can he give an assurance that not all its members will be dedicated monetarists and that there will be some spread of political opinion among its members?
Lord Brabazon of Tara: My Lords, as I think I said in answer to the last supplementary question, we hope to get expert advice from both inside and outside
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the Government, and of course we would invite representations from anybody, including the noble Lord himself if he so wishes.

Private Land: Trespass
11.15a.m.
Lord Renton: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government, in view of the recent invasion of private agricultural land, and the large costs to the individual farmer, what plans they have to protect landowners and farmers from similar abuse in future.
Viscount Davidson: My Lords, I must first apologise to your Lordships for the length of my Answer. We all witnessed with anger the suffering caused to Mr. Attwell when his land was occupied by the so-called peace convoy. It was a flagrant violation of the law of trespass. Mr. Attwell obtained a possession order and evicted the trespassers within a week. My noble and learned friend the Lord Chancellor is considering whether the civil law procedures might be further streamlined in order to grant even more speedy recovery of the possession of land.
We are also considering whether the criminal law might have a stronger part to play. The powers now available to the police, for example to deal with breaches of the peace, criminal damage, and obstruction of the highway are wider than is often supposed. The Public Order Bill which will be debated by your Lordships next Friday will help by extending the public order offences of threatening behaviour and disorderly conduct to offences committed on private land. We are also discussing with the police and other interested parties what further steps might be taken to deal more effectively with the problems caused by the peace convoy; and whether any changes in the law are required.
Lord Renton: My Lords, may I thank my noble friend for that full and helpful reply? May I ask him in relation to the kind of mischief referred to in the Question whether the Public Order Bill would not give us the soonest and best opportunity of introducing provisions relating to criminal trespass on land as well as dealing with other matters of public order which have arisen out of the extraordinary behaviour of this convoy?
Viscount Davidson: My Lords, the law of trespass is a particularly difficult, complicated and sensitive area. I cannot say here and now that it would be suitable or proper for any changes to be made to the Public Order Bill as it is at the moment. There are strong arguments against making simple trespass a criminal offence. No one wants to criminalise the activities of groups of ramblers who stray from the footpath. However, we are discussing all these matters with, among others, the police, the National Farmers' Union and the Country Landowners' Association to ascertain whether some further strengthening of the law is required. If it is required, then we shall do our best to provide it.
Lord Mellish: My Lords, is the Minister aware that it is a fact that most British people who have seen the scenes on television have been absolutely sickened? It really is an impossible situation for the police and everybody concerned with this crowd of scruffy people, who do not pay taxes, or send their children to school, or do anything that is proper and decent. By the way, they do not look for work, either, which may interest the noble Lord who is seated beside the Minister. The fact is that the only way that this matter can be resolved, in fairness to the police, is to find a site where these people can legitimately stay and to say to them, "Go there and stay there. If you do not, we can do something about it". If we have nowhere to put them, what can they do but go from site to site and make things worse?
Viscount Davidson: My Lords, I hear what the noble Lord has said and I am sure that the whole House will agree with at any rate the first part of his supplementary question. The problem of finding a permanent site is a very difficult one. It is the usual problem associated with this sort of situation. But I have heard what the noble Lord has said.
Lord Boyd-Carpenter: My Lords, can my noble friend say whether any urgent consideration is being given to dealing with this matter, at any rate in part, through amendment to the Public Order Bill in view of the immense saving of time which would result if it could be dealt with in this way?
Viscount Davidson: Yes, my Lords. Consideration is being given to that but I cannot tell my noble friend the outcome at the moment. He will have read in the papers, no doubt, that my right honourable friend the Prime Minister is considering how best to deal with all the problems arising from the so-called peace convoy—why the children are not attending school, the vehicle problem and all the others. I cannot go any further than that at the moment.
Lord Whaddon: My Lords, is the noble Lord satisfied that the police are adequately enforcing road safety and road worthiness requirements regarding the vehicles in this hippy convoy and that the drivers of ordinary vehicles are having their safety properly safeguarded?
Viscount Davidson: Yes, my Lords; we are satisfied that the police are doing as much as they possibly can in the circumstances. They can prosecute, and are prosecuting for construction and use offences in regard to vehicles; and in appropriate circumstances a power of arrest is available under Section 25 of the Police and Criminal Evidence Act.
Lord Orr-Ewing: My Lords, will my noble friend bear in mind that the general impression given, certainly on the television and in the press, is that very, very few of the vehicles would pass an MOT test, many of them probably are not road licensed, and others may not carry the compulsory third party insurance? Surely action can be taken on these issues straight away by the police? Will my noble friend also bear in mind that most of us in this House used to see notices scattered around the countryside saying, "trespassers
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will be prosecuted"? Does not the forthcoming Public Order Bill provide an ideal opportunity for making that a reality?
Viscount Davidson: My Lords, I think we have all seen television reporting of the peace convoy. It may be quite different from what is actually happening. Sometimes the worst vehicles are shown. But I can assure my noble friend that the police are doing everything in their power to cope with the problem.
Lord John-Mackie: My Lords, as a farmer I would certainly hate the very thought of these people coming on to my farm without permission and doing the damage that they do. But these people have adopted the attitude, "Stop the world: I want to get off", and when one sees the conditions of the world today perhaps one cannot blame them. I have great sympathy therefore with what the noble Lord, Lord Mellish, was saying; that we really should try to find a place for them to go. In view of the situation in agriculture today where we are told to take land out of production, surely land is available all over the country to give them permanent sites?
Viscount Davidson: My Lords, I do not think there is any difference of opinion about this in the House. It is a matter of trying to find the right solution to all these problems, and that is what the Government are trying to do at the moment.
Lord Kinnaird: My Lords, in view of what the noble Lord opposite has just said about getting off the world, until their lot is rather more settled could they not just be put into orbit?
Viscount Davidson: My Lords, I am not sure that we could find a reliable rocket at the moment.
Lord Elwyn-Jones: My Lords, the noble Viscount indicated that fresh legislation is contemplated but then dismissed the thought that it should appear in the Public Order Bill.
A noble Lord: No.
Lord Elwyn-Jones: My Lords, I thought he said that but I see the Leader of House shaking his head wisely, or unwisely, as the case may be. Can the noble Viscount clarify matters? The position has been left in a state of some uncertainty at the moment, if I may say so.
Viscount Davidson: My Lords, I am sure I did not say it would not be. I think it might be; but I cannot go any further than that at the moment. If inclusion in the Public Order Bill is proper and right we will certainly see that it is done.
Viscount Mersey: My Lords, surely the best place for these hippies to go is Gruinart Island in Scotland, which I believe has just been decontaminated of anthrax spores and in now habitable.
Viscount Davidson: My Lords, I note what my noble friend says.
Lord Morris: My Lords, will my noble friend consider the very real problems of trespass in urban areas such as shopping malls where many shoppers are harassed in the common areas and the police have absolutely no power whatsoever to handle these problems?
Viscount Davidson: My Lords, I note what my noble friend says.
Lord Leatherland: My Lords, may I ask the Minister whether it is a fact that many of these demonstrators are drawing unemployment pay and are obviously not available to accept any employment that might be offered to them—
A noble Lord: They are not looking for work.
Lord Leatherland: Ought not that aspect of the matter be reviewed?
Viscount Davidson: Yes, my Lords; it should be reviewed.

SALT II: United States Policy
11.24 a.m.
Lord Molloy: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will encourage the United States Government not to abandon the SALT II arms control treaty.
The Minister of State for Defence Procurement (Lord Trefgarne): My Lords, as my right honourable friend the Prime Minister said in another place on 3rd June, it is important that the SALT II agreement continues to be observed, and observed by both sides.
Lord Molloy: My Lords, I am grateful to the noble Minister for that reply. Of course, one can only agree with what the Prime Minister has said. But there now seems a danger in so far as both super powers are accusing each other of breach of SALT H and the IBM treaties, which have been a sensible advance in the control of nuclear weapons, so that this country ought to use its influence to persuade President Reagan and Mr. Gorbachev to cool down a little and look at what is happening. Would not the noble Minister agree that if we could present both sides with a system of examination and verification these charges and counter-charges could be thoroughly and properly examined?
Lord Trefgarne: My Lord, the United Kingdom, of course, is not a party to the SALT II treaty, but we can and do make our views known and will continue to do so. As for resolving the questions which have been raised by the United States about Soviet compliance, it is now for the Soviet Union to respond to those observations. There is a proper machinery for doing so—the Standing Consultative Commission in Geneva—and we look to the Soviet Union to do that.
Lord Underhill: My Lords, is the noble Lord aware that this matter was raised only on Monday morning with the President of the USSR, Mr. Gromyko, by the delegation from the Inter-Parliamentary Union and it was emphasised quite clearly that this could be one of the biggest blunders in connection with world security? They hope that the British Government will use their initiative with the United States President, but emphasised quite clearly that there is no desire whatever for Britain to worsen its relations with its own friends in America. Should not the Government move in this matter?
Lord Trefgarne: My Lords, we certainly very much hope that the United States will not depart from the SALT II limits, but the way for that to be achieved would be for the Soviet Union to respond to the anxieties which the United States has expressed and, as I said earlier, there is a proper machinery for that.
Viscount Mersey: My Lords, is it not the case that the SALT II treaty was never ratified owing to the Russian invasion of Afghanistan? Is it not rather more important that the United States might renege on the ABM treaty owing to the Russian infringement of that treaty by the erection of a large radar station at Krasnoyarsk?
Lord Trefgarne: My Lords, the question of the radar to which my noble friend refers is of course not strictly relevant to the SALT II agreement, but the siting and orientation of the large phased-array radar under construction there gives rise to serious questions in connection with obligations covering early warning radars in the AMB treaty. We have raised this matter with the Soviet Union on a number of occasions. and clearly it will be necessary to resolve these questions if the ABM treaty is to be protected from erosion and if the necessary confidence is to be created for concluding new agreements.
Lord Molloy: My Lords, I believe that our country does not want to be taking sides particularly on this issue. We want to stress the vital need to maintain SALT II, and we must realise that many of the allegations against the Soviet Union carry very big question marks as to their veracity and whether they are really adhering to the treaty. While we also acknowledge that the United States dismantles two Poseidon submarines one month and in the next increases the cruise missiles on the B52 aircraft, it is this sort of thing that makes the situation difficult. Perhaps the role of our country should be to intercede and ask that there should be frank and full discussions, not in any way to destroy the possibility of a successful summit in December. One way to do that, if I may reiterate it, is to concentrate on a foolproof system of verification to present to NATO, the Warsaw Pact countries and the United Nations.
Lord Trefgarne: Yes, my Lords, it is the case that the President has announced the dismantling of two Poseidon submarines when he could of course have authorised their continuance in service. He has not yet authorised an increase in the number of B52 ALCM launch aircraft, but has pointed the way in that direction if he does not get a proper response from the

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Soviet Union. The ball is now in the Soviet Union's court. They have the machinery, they know what they have to say and we look forward to hearing from them.
Lord Campbell of Alloway: My Lords, can my noble friend the Minister say whether there has been any move recently on the Russian stand on the issue of verification?
Lord Trefgarne: My Lords, there have been some Soviet proposals in a number of areas recently, but generally speaking—and I am speaking in general terms—Soviet proposals with regard to verification fall some way short of what is required.
Lord Molloy: My Lords, can the Minister please tell us what is the sticking point on the charges made to the Soviet Union and the charges that they make against the United States? Can we not examine what those charges are, so that we can make a contribution to finding a solution?
Lord Trefgarne: My Lords, the charges which have been made by the United States about Soviet noncompliance in this area have not been answered at all by the Soviet Union except by a bold denial. They will have to do better than that and we hope that they will do so.

Wages Bill
11.31 a.m.
The Secretary of State for Employment (Lord Young of Graffham): My Lords, I beg to move that this Bill be now read a second time.
The central purpose of the Bill is to create employment opportunities, in particular for young people. It does this by promoting the advance of the enterprise culture—the only sure way in which we as a nation can create lasting jobs. The Bill will make a direct contribution to our central economic objectives of continuing growth with low and reducing inflation. That is the way in which we can compete in international markets and so sustain the highest possible level of productive jobs.
To achieve those ends we need, among other things, an efficient and dynamic private sector; productivity growth comparable with that of our major competitors; and a much more flexible labour market. Flexibility means adapting to business needs and circumstances. And I should make it plain in this context that I do not believe in a low-wage economy. But as I have pointed out elsewhere, the underlying growth in average earnings last year was 7½ per cent. while the tax and price index increased by only 1.2 per cent. So there has been a considerable rise in working people's take-home pay which, if unmatched by greater efficiency, will inevitably cost jobs. One thing we believe the Government can and should do is to help the economy forward by removing handicaps. By that I mean excessive controls and restrictions, and the constraints on employers and workers to negotiate terms of employment that suit them both. That is what the Bill does.
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We all recognise that the world moves on, that social conditions change, and that legislation that was perfectly acceptable in one age may be quite inappropriate in another. This Bill deals with a legacy of enactments, spanning some 150 years, that have all, in different ways, served their purpose and now are in need of urgent change. The Truck Acts were designed to deal with Victorian abuses where workers were paid in kind or forced to spend their wages at the company shop. Yet today they are preventing desirable moves to non-cash methods of wage payment and the greater harmonisation of the conditions between manual and non-manual workers.
Wages councils were originally part of a strategy to deal with Edwardian abuses such as poverty wages, long hours, poor health and safety. Today we have shorter hours of work and some of the strictest health and safety legislation in the world. Yet wages councils are still able to regulate highly detailed aspects of the employment relationship. Redundancy rebates are a product of the 1960s' need for employers to shed labour. The Government at that time designed the rebate system to encourage this. Yet today our concern is quite the opposite. It is to help employers take on more staff in a productive way. It is sensible to remove what has been a perverse public subsidy to redundancy, while we are directing so much more public spending to assist in the process of helping jobs grow.
If your Lordships look at the Bill, you will see that it divides into three parts. Part I repeals a mass of ancient legislation imposing restrictions on the method of paying wages. In particular, the restriction that manual workers may insist on being paid in cash will be lifted, bringing them into the same position as non-manual workers, to whom the restriction has never applied. The time has surely come to repeal those controls and make the choice of wage payment methods for all workers a matter for contractual agreement—a way, if you like, of removing one further distinction between "them" and "us".
This reform will make it easier for employers to plan their businesses. It will prevent their having to make an invidious choice between maintaining two separate payment systems or not progressing to cashless methods at all, if some workers insist on being paid in cash. By aiding the faster growth of non-cash methods, the Bill will encourage an existing trend which is bringing significant advantages of efficiency and reducing opportunities for crime.
Payment in cash is relatively inefficient and expensive. It costs about 50p per payment compared with 4p by the cheapest non-cash method. We cannot therefore ignore a situation where 39 per cent. of workers in this country are paid in cash against only 5 per cent. in West Germany and 1 per cent. in the United States, with a corresponding impact on our competitiveness.
A personal concern of mine is that the Truck Acts, by giving manual workers alone a right to insist on payment in cash, have perpetuated differences in status, separating management from the shop floor. Those differences underline attitudes which can be pernicious and which should have no place in British industry today.

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It is not uncommon to find white-collar workers enjoying many benefits, such as subsidised meals and company cars, that are not offered to their blue-collar colleagues. The reason—perhaps one should say the excuse—sometimes given is that if those were offered to manual workers one of them might argue that it amounted to a payment in kind and insist on being paid an equivalent sum in cash. Theoretically this could even result, in certain circumstances, in the prosecution of the employer for a breach of the Truck Acts. This Bill ensures that the Truck Acts will no longer provide an excuse for keeping the harmonisation of terms and conditions for all staff off the agenda for change.
The Truck Acts also include statutory controls on deductions from wages. The Government have decided to bring those up to date. That is necessary for several reasons. The controls are uncertain in their effect; they apply only to manual workers and, in part, to shop assistants; they establish criminal offences to deal with what are essentially contractual disputes between workers and employers; and they are designed to deal with problems that existed in 1896 not 1986.
The new system set out in the Bill contains three basic elements: first, deductions are unlawful unless provided for in statute, in the employment contract or by the written agreement of the worker; secondly, there are special controls on deductions related to cash shortages and stock deficiencies; and, thirdly, the worker can appeal to an industrial tribunal if he thinks that an unlawful deduction has been made.
Our consultations on the proposals revealed no evidence that deductions from wages are a cause of general difficulty. And the Bill introduces a special provision to meet a particular problem identified—where deductions are related to cash shortages and stock deficiencies in certain parts of retail employment, such as petrol stations.
So the Government's approach is to leave the basic regime concerning controls on deductions to contractual agreement between the parties but give individual workers the ability to ensure that the contract is followed, by providing a right of appeal to an industrial tribunal; and, finally, to introduce special controls on deductions related to cash shortages and stock deficiencies. Those will be limited to instalments of 10 per cent, of each payment of wages until the total due to the employer is reached. And there will be an absolute ban on such deductions 12 months after the shortage in question should have been ascertained. In sum, these new controls are fair and workable. They offer a more sensible system of protection for manual workers and cover non-manuals for the first time.
Part II of the Bill radically reforms and simplifies the wages council system. First, we are greatly simplifying the requirements which wages councils impose on industry. We will enable the councils to set the two main elements of pay—a basic minimum hourly rate and an overtime rate—and also set a limit on deductions for accommodation. But they will no longer be able to involve themselves in all the other details of pay and holidays, as they can now.
Secondly, we are taking young people under 21 out of scope. The high minimum rates set by councils for
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young people have damaged their job prospects in the past and this reform will substantially improve their prospects of getting that vital first foothold on the ladder of employment. Thirdly, we are requiring wages councils to take into account the employment consequences of decisions they take. This is only commonsense. Fourthly, we are making it easier to review existing councils and if needs be vary their scope or abolish them altogether. So the system can adapt easily to future changes in the industries affected and is not set in stone.
The complexity of wages councils orders has become a byword, creating problems for both employers and workers alike. Many of the transgressions found by wages inspectors arise simply from a failure to understand what it all means. The detail is astonishing. For example, wages councils often prescribe not only the length of the holiday that a worker is entitled to but when he should be allowed to take it and whether it is to be taken all at once, in odd days or a combination of weeks and odd days. One current order (unlicensed place of refreshment wages council) runs to 34 pages and specifies 144 rates for 19 different occupations.
The hairdressing wages council order has three full pages of text covering the terms and conditions of apprentices; the clothing manufacturing wages council specifies three separate methods of calculating a worker's entitlement to holiday pay; the retail nonfood wages council order runs to one and half pages of text to explain its guaranteed pay provisions. Our economic future depends on employers having the time to get on with creating wealth and employment, not struggling with minefields of complex regulations such as these.
A special word needs to be said about young workers, the most vulnerable of all to the penalties of unemployment. In fact, the past three years have seen a fall in the number of young people aged under 20 who are unemployed, and young people now comprise a smaller proportion of total unemployment than they did three years ago. We must do all we can to further this trend, since employers cannot be expected to go on offering employment unrelated to the economic value that the young worker contributes to the business.
Young people are at a disadvantage as compared with older workers who can afford greater experience and skill. Our reforms will do much to help young workers to get started and to thus improve their longer-term prospects. Relatively few young people have the family responsibilities of older workers; but, for those that do, support such as family income supplement is available, and in due course the Government will be introducing the family credit scheme. And it is surely preferable to keep young workers with families in work so that they can gain experience and move on to better-paid openings.
In Part III of the Bill we are limiting payment of redundancy rebate to employers with fewer than 10 employees. As I have said, this is a sensible reform, removing a perverse and out-dated public subsidy to employers who declare redundancies. I should say of course that ending the rebate does not affect the statutory rights of employees to redundancy payments. There has been concern at the impact of

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this reform on passenger transport authorities. Noble Lords will have seen the announcement made last Wednesday by my right honourable friend the Secretary of State for Transport, which has made clear how the Government intend to deal with any special problems the PTEs and district councils may have.
I shall conclude by repeating that this is a Bill to promote employment. It will do so by easing regulation of the labour market and removing burdens on employers. This will make it easier for them to get on with the job of creating wealth and employment rather than dealing with complex wage regulations and statutory restrictions on how they should pay their workers.
It is a Bill to enable employers to employ workers under modern conditions without being hamstrung by legislation and controls that are a legacy of yesterday's problems and yesterday's social attitudes, whether the problem was the Victorian "tommy shop", the Edwardian sweatshop, or the over-manned shopfloor of the 1960s. The Bill will simplify and clarify the accumulation of more than 150 years of different sorts of controls dealing with quite different problems.
It is an important and, I believe, valuable act of de-regulation in the field of the payment of wages. It replaces 13 whole Acts, more than 20 orders and parts of other legal instruments with just one enactment. As such, it is a significant part of the Government's whole strategy to ease burdens on employers and create a climate for enterprise to flourish. My Lords, I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Young of Graffham.)
11.45 a.m.
Lord McCarthy: My Lords, the last time that the Secretary of State and I debated a Government measure to regulate the labour market it was the Sex Discrimination Act. I said at the time that it seemed to me to be something like the curate's egg except that all the good parts were at the top of the egg. I am afraid that we cannot say that much for this Bill. There is not much to our taste to any part of this Bill. There is nothing fresh in the Bill; there is nothing new in this Bill; and there is no part of the Bill which on balance we find in any way appetising. Indeed, from this side of the House the Bill resembles not so much an egg as a stale meat sandwich—the kind of stale meat sandwich one was lucky to find in a wartime station buffet.
What I want to say will focus on Part II of the Bill. That is the real meat of the Bill—the meat in the sandwich which we do not regard as fit for human consumption. I should like to begin by saying one or two words about the bread on either side. Part I of the Bill is headed:
"Protection of Workers in Relation to the Payment of Wages".
We regard that as wrongly named. Although it might be suggested that in certain ways the Bill extends a defective and less satisfactory form of protection to workers who were not previously protected, it takes away from workers who were protected a much more effective form of protection which existed under the old regulations. It is like removing oilskins from half of the working population in exchange for handing out leaky umbrellas to the rest. We shall be arguing later
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today in the contribution of my noble friend Lord Wedderburn of Charlton and we shall be arguing in Committee that in general terms Part I of the Bill is defective and is in no significant sense an advance on the existing levels of protection which apply to an admittedly narrow range of workers.
Part III of the Bill deals with the abolition of redundancy rebates. We regard this as an entirely retrogade step. In his advocacy of it, it does not seem to me that the noble Lord gave us any reasons beyond the fact that it goes back to the 1960s. In so far as it went back to a time when redundancy was a problem, no one can really argue that redundancy is no longer a problem. We believe that the Act will be entirely retrogade and is entirely unjustified. In the short run it will—and indeed there is evidence that it is already happening—cause a pre-emptive rush of redundancies as employers seek to cash in on the last of the statutory payments. But in the longer run, and much more importantly, it will undermine the willingness of employers to go beyond the statutory minimums and negotiate decent levels of redundancy payment over and above the statutory minimum.
The third thing I would say about it—and I am glad to see that the noble Lord did not seek to contradict this—is that it is in no way compatible with the much vaunted desire of the Government and of the noble Lord to remove the burdens on business. This will cost business £50 million or so a year. We now know the sense in which the Government wish to remove the burdens on business. They wish to remove those burdens where the cost can be passed on to the worker. Where it cannot be passed on to the worker, or where part of the burden cannot be passed on to the worker, then the employers must fend for themselves in the interests of a reduction in the PSBR.
I turn to the meat in the middle of the sandwich. First, I should like to say what I think this Bill does. In some respects we agree with the description of it given by the Secretary of State, although not with the consequences. First, the Bill will take out of all protection those half a million or so young workers who are among the lowest-paid young workers in Western Europe, and the great majority of whom are already below the European Charter's decency threshold. The Bill will remove all statutory protection so far as their wages and conditions are concerned.
Secondly, the Bill will reduce protection significantly for the remaining 2 million adults by giving them merely a single minimum rate and a single overtime payment guarantee. In other words, ours will be the only country in the OECD with no statutory holiday rights, one of the few countries with no shift premium minimum, with no skilled differential minimum, no regional variations, and indeed no qualifications above the single rate and the single overtime rate.
Let us be clear why the Government are doing that. They do not deny why they are doing it, although they do not talk about it a great deal. The Government are doing it in order to drive down the level of wages among the lowest-paid sections of the working population, because that is the only way that people will be priced into work—priced into work by the driving down of the general level of wages. That is the objective.

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In order to carry out that objective, one has to renege on an ILO convention, so that we shall be the only one of 94 countries who believe that prosperity and indeed survival depend on attacking the living standards of the lowest section of working people. It is not thought necessary to do that in the United States, and the Secretary of State is very fond of telling the House how well matters are arranged in the United States. It is not thought to be necessary in Japan, Germany or Austria, or in virtually every other European country. It is only in Thatcherite Britain today that we are told that we can only rise on the backs of the low-paid workers; not accidentally or fortuitously but as a deliberate, constant and persistent central thrust of government policy. That is what this Bill is about, and that is what we cannot accept.
We shall be arguing at greater length at the Committee stage that the result of the single rate will be the collapse of the wages councils and that the new single rate cannot come in at anything other than the present lowest rates—especially when the Government make sure of it by telling the wages councils' members that they must take into account the employment effects of what they do.
We shall be arguing that the single rate will inevitably lead to an erosion in differentials in industries such as catering and hairdressing, and in the retail trade, which are particularly bad for the level of supervision and management. We would argue that the single rate is also likely to lead to a return to the old pre-war practice of handing workers their cards when they reach the age of 21. Indeed, it cannot work unless that happens.
Unless we take on board the unworkability of what is being proposed by the Government, it is difficult to explain why they have proposed simply a single rate and the removal of young people rather than that which they were threatening to propose, which was the total abolition of the wages councils system. I suggest that the answer was given by the Paymaster General in the Second reading debate in another place, when he said:
"We have retained the councils because the consultation process that we carried out in the summer showed that many employers and trade unions still feel a need for them".—[Official Report, Commons, 11/2/86; col. 804.]
I would not insult the House by suggesting that the Government care about what the trade unionists thought, but presumably they cared about what the employers thought. I should like therefore to ask the Secretary of State a question. I am sorry that he will not be here to answer it, but no doubt the noble Lord, Lord Trefgarne, will answer it. Is it not the case that it was the view of most, not many but most employers' associations, including the CBI, that they had no wish to see the total abolition of the wages council system? Is it not the case also that because of the resistance of the employers we have had this bastardised form of deregulation?
Furthermore, is it not the case that the great majority of large employers feel that they need the wages councils to protect them from the effect of unfair competition in the labour market, which they believe would damage the long-term requirements of their businesses by driving down the rate of pay to a
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point where it would be impossible for them to carry out necessary investment and necessary improvements in productivity? Those are precisely the arguments that Winston Churchill used when moving the first minimum wage regulation procedures to which the Secretary of State referred.
Indeed, those were precisely the arguments that were used in a research paper by Christine Craig that was commissioned by the Department of Employment entitled, Labour Market Structures: Industrial Organisation and Low Pay, from which I quote:
"Unregulated low-wage competition destabilises product markets, increases uncertainty and risk, slows down the rate of scrapping of outdated equipment, and consequently reduces the level of new investment in the high wage firms".
Is it not the case that that is the view of many enlightened employers in the wages councils' area, and that it is because of their resistance that we have a bastardized form of deregulation that cannot and will not work and that will lead, if the Government are preserved, to the total abolition of wages councils?
That is our argument about the form of this legislation. The noble Lord the Minister will say—or he would have said it if he had remained; or the noble Lord, Lord Trefgarne, who is to reply. would have said it if I had not said that he would—every time the Government take action to lower standards or to reduce protection of workers in employment, that it is all justified because what it will do in the end is raise the overall level of employment; that workers must be allowed to price themselves into work even at the cost of reductions in living standards in the lowest-paid sections still in employment.
We turn to the positive arguments that are made for the Bill by the Secretary of State today and by his supporters in another place. I begin by looking at two of the more reasonable of those positive arguments, which were in fact advanced by the Secretary of State earlier this morning. First, there is the excess rigidity argument. That is the argument that some wages councils' orders are unduly complicated and rigid, and that some (we are never told which) are 30 pages long and contain 100 different rates. It is argued that that results in rigid pay structures, encourages underpayment, and of course crucifies the small businessmen who the Government assume cannot understand the simplest of forms.
There are three points we would want to make. First, it is true that many wages councils' orders are complex, but complexity has almost always arisen as a result of evasion in the past. Evasion has driven the wages councils to create more complex specifications of what they require. Secondly, one solution to complexity, and it is one that the Government have closed down in the Bill, is to break up large wages councils into smaller wages councils and gradually increase the number, instead of expecting some councils to cover hundreds and thousands of workers. But of course the Minister has taken away such powers. New wages councils cannot be created. All they can do is decline.
My third point is that another solution to undue complexity and rigidity is to move towards joint industrial council status; but that would be to encourage the spread of trade unionism and this

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Government would never be guilty of that. I conclude, therefore, that rigidity and complexity can be dealt with without abolition and is not an argument for even qualified abolition.
So we move to the second reasonable argument which was mentioned by the Secretary of State, that in Britain we have an unusually high youth rate which somehow must be reduced and which discourages the employment of young people. There are three points to make about that. First, it is true that in this country in general we pay young people a higher proportionate rate than many of our major competitors; that our school-leaving rate is some 60 per cent, of the adult rate and in many European countries it is more like 20 per cent, or 30 per cent. But as the Secretary of State well knows, this is very largely a function of the low level of training for school-leavers in Britain—something which I know the Secretary of State at another time wishes to remedy. Here school-leavers, especially in the wages council trades, are expected to do the work of full-time people virtually from two or three months of their entry. That is one of the reasons that we tend to pay a much higher proportionate youth rate than is done in other countries where it is really a training rate.
Secondly, we also pay lower absolute rates of pay than many other countries with which we are compared; for example, in Germany. Our rates in the wages council trades are often so low—for example, below £60 or so—that the youth rate in all conscience must remain at more than half of the adult rate in order to avoid being below the social security rate. Those are the reasons that our youth rates remain comparatively high.
In any case (and this is my third argument) the narrowing of the youth differential which the Government make so much of is now being reversed. In 1979, youth rates were 79 per cent, of gross earnings of males. By 1985, they were down to 75 per cent. In a recent Written Answer the Secretary of State in another place told the honourable Member for Newham, North-East, that since 1979 youth earnings had fallen in relation to adult earnings by 23 per cent, in the case of young men and 30 per cent, in the case of women.
Again, therefore, I do not think that argument justifies abolition and I turn to the third argument which is based on the Government's frequently expressed theme that abolition will some way promote a general rise in employment by enabling workers to price themselves into jobs. The Paymaster General said as much at col. 798 of Hansard on 11th February. If I heard him aright, the Secretary of State today said as much in his speech when talking about the lasting contribution to the creation of jobs which could come by advancing the enterprise culture. I have no doubt that the noble Lord. Lord Trefgarne, will say as much when he sums up, on the principle of the Bellman in the Hunting of the Snark,
"What I tell you three times is true."
But we have several points to make about that, too. Here are three to start with. It is never quite clear how far the Government are really saying that the abolition of wages councils, or their partial abolition, in the foreseeable future will in fact have a significant effect
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on employment. Secondly, it is also unclear how far the Government think that wages will have to fall to produce this significant improvement. The Government were repeatedly asked in another place how far they thought that wages would have to fall to have a positive employment effect, and so far as I know they have refused to say.
Thirdly, it is extremely unclear how far the Government believe that the positive employment effect will be a net employment effect or merely a gross employment effect: in other words, how far can we price young people into work only at the cost of pricing older people out of work? After all, that is what happened with the Government's young workers scheme. Eight out of 10 were priced into work by pricing other people out of work. There is therefore a total absence of clarity. Moreover, it is only recently that the Goverment have believed in this argument, vague though it is.
In 1982, the former Secretary of State for Employment, before he was banished to Belfast, said of the abolition of wages council rates for young workers that it would result in,
"a very marginal increase in jobs … largely at the expense of full-time adult jobs."
I think that is reasonable enough. Why have the Government departed from that view? Even as late as 6th March his successor, the honourable Member for Chingford, told a House of Commons Select Committee on Employment that he could not say what the effect would be in numerical terms but that he thought there would be an effect. Asked whether it would be possible to find out the effect in numerical terms, he said,
"No, I do not think so."
It now seems that the noble Lord the Minister does not accept that, and that he can say. I have here a report—and I apologise for the fact that I do not have a better source, in a sense, than this—which appears in the Low Pay Unit Wages Bill briefings, Returning to the Sweat Shops: Effects of the Wages Bill. This states that the Secretary of State for Employment estimates.
"that taking young people out of wages councils, together with the rest of the package of 'deregulation measures' could"—
"could", not "would" and not "will"—
"create 50,000 to 100,000 new jobs."
Unfortunately, I do not have a reference as to where exactly he said that. However, my question is: did he say it and is it true; and, if so, how many of those jobs will come about as a result of this Bill rather than the other deregulation measures? Presumably the Minister knows or he could not have made that statement. I also ask: are those figures gross or net? Are the Government pricing people into work on one side as a result of the dismissal or non-engagement of people on the other side? To summarise, how many are due to this Bill and are the figures gross or net?
Your Lordships should remember that this seems to be a ridiculously small figure, but your Lordships should remember too—and I am sure the Secretary of State knows this—that it was recently given some support in the Second Reading debate in the other place by Government spokesmen. It is true that in the other place when the debate on Second Reading took place the Paymaster General at the time began with a

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characteristically delphic utterance on the question of the positive employment effects. Asked what effect on employment the Bill would have, he said:
"Many academic studies have been carried out… all come to varying conclusions".—[Official Report, Commons, 11/21/86; col. 802.]
Beyond that he could not say.
However, at two minutes to ten o'clock the Parliamentary Under-Secretary of State appeared to support another Low Pay Unit publication, From the Dole to the Sweat Shop, which estimated that the total abolition, not the partial abolition, would create 8,000 jobs a year over five years. At this point the Undersecretary of State said:
"Earlier today the honourable Member for Kingston upon Hull, East… pressed my right honourable and learned friend… for a figure. We have now given that figure."—[Col. 877.]
I take it that that refers to the 8,000 jobs a year. I should like to know how that all relates to what the Secretary of State is stated to have said about 50,000 to 100,000 jobs a year.
Therefore I am afraid that I have five questions to ask. First, what is the Secretary of State's own estimate of the jobs that will be created by the Bill and how long will it take to get them? Secondly, are the figures gross or net? Thirdly, how far will the rates have to fall to produce this job creation effect? Fourthly, what would have to happen to achieve a larger and more significant job creation effect? For example, a certain Professor Minford in Liverpool has said that he believes that if we push wages down far enough we can create another 400,000 jobs. I should like to ask the Minister whether he thinks that is possible, and how far we should have to push wages down to do it.
Finally, why should we rely on these econometric studies which make assumptions and feed them into computers on the ancient principle of "rubbish in, rubbish out"? Why not believe the Department of Employment's own studies of the effects of the abolition of wages councils in the cutlery trade, the jute trade and the paper box trade, which in general came to the conclusion that there was little or no sign that in the real, contemporary world the abolition of wages councils had reversed the trend toward declining employment levels, though of course it was followed by significant reductions in wages.
So I turn to what I take to be the final defence for this Bill. Even if it does not have any effect on employment at all we must persevere with it because, as the Secretary of State said, we have too high unit labour costs in this country and we must reduce them. I should like to make three very brief points on this topic. Firstly, the comparative position of this country in terms of unit labour costs is largely a monetary phenomenon. If one allows for inflation rates, the position improves. Indeed, if one allows not only for inflation rates but also for currency values, the position is often reversed, which is one of the main reasons why the managing directors of large corporations do not seem to be very much bothered about the rise in unit labour costs.
Secondly, if the Secretary of State is looking for the roots of the present wage inflation he is searching at the wrong end of the problem. In the last three years the
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highest paid people had the largest increases. These last three years have been years in which skill differentials have widened, managerial differentials have widened, and sex differentials have widened. Income distribution now is more uneven than it was in 1886, which is the earliest date for which we have reliable figures. Thirdly, it is clear that the threat to pay stability, if it exists, comes from the mania in top management for payments linked to performance where performance cannot be measured. In other words, it is right at the other end of the wage scale that wage inflation is fastest, and if wages are being levered up they are being levered up from that end and not by the low paid workers in wage council industries.
To sum up my remarks and what will be the basis of our amendments at the Committee stage, in this Bill we see no net addition to the protections that are offered to the lowest paid workers; we see little or no evidence that it will help employment; and the Bill looks to us like a prelude or a trailer to the total abolition of minimum wage standards. We can sec no justification whatever for the Bill.
The lower paid workers, and especially the lower paid young workers, are not in a good position. They are not taking part in the "good society" of the Prime Minister. They were better off in the 'seventies, in the bad days of flat-rate income policies. Since then they have lost out both in real and in relative terms. They are not part of the Government's vision of "heaven on earth". Of course we are not saying that the Government should ignore the rate of pay advances: there is the case for an incomes policy. We are not saying that wage flexibility cannot affect employment and costs in a firm or industry. We are saying that there is no sign, and the Government have produced no evidence, that wage inflexibility or high wages in the wages council industries are a significant cause of unemployment or lack of demand in those industries and trades today.
Moreover, we are saying that further to depress low pay is not the key to the unemployment problem. It does not seem that any other country but ours sees that as the solution. We are saying that this Bill is a clear indication of how the Government care and what the Government care about.
12.15 p.m.
Lord Rochester: My Lords, from these Benches I should like to thank the Secretary of State for having introduced this Bill. As he says, it is in three parts, and I can best express our general attitude to the Bill by dealing with each of those parts in turn.
As regards the first part, just over three years ago I opposed a Bill which was introduced by the noble Lord, Lord Harris of High Cross, which had the repeal of the Truck Acts as its objective. I opposed the Bill not on grounds of principle but because the then Secretary of State for Employment had only just introduced a consultative document which was aimed at bringing up to date the law relating to the payment of wages. I felt that it was wrong that the House should reach a conclusion on this matter before the outcome of the consultation was known.
I am glad that that consultative exercise took place because in my view it established the case for the

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repeal of the Truck Acts themselves. The main reasons have been given by the Secretary of State, and I think that most of them need mentioning only briefly. The conditions which applied at the time of their introduction apply no longer, and the extension of cashless pay should bring about both greater security and savings in manufacturing costs.
Again, what appeals to me most is that the extension of facilities for credit transfer and for monthly pay will make a substantial contribution toward the elimination of differences between the employment conditions which apply to manual workers and those which affect white collar staff. These are differences which are based on social distinctions that became outdated long ago. In my view—and I think I may speak for my colleagues on these Benches—the sooner that more of these differences are swept away the better it will be for industrial relations generally in this country. One point in this part of the Bill which concerned my honourable friends in another place is that the Under-Secretary of State was unwilling to concede that employees should have the right to choose the particular financial institution through which their cashless pay should be made. I shall not elaborate on that point now because it is one of some detail, but I mention it as it is a point to which we may well wish to return at the Committee stage of the Bill.
Finally, in our view there is a strong case for a code of practice to deal with the introduction of cashless pay, and this code might be drawn up by the Advisory, Conciliation and Arbitration Service after consultation with other interested bodies. At Report stage of the Bill in another place the Minister appeared to give some support to this idea, and I should therefore be glad if the Secretary of State—or perhaps it will be the noble Lord, Lord Trefgarne—when he comes to reply to the debate, will give us his considered view on this point.
As to the clauses in Part I of the Bill which relate to deductions from wages, these seem to us to be more open to argument. I do not therefore propose to strike an inflexible attitude on them now; but it is right that at this stage I should refer to a number of questions that we shall wish to consider on their merits in Committee. Indeed a number of them have already been mentioned by the noble Lord, Lord McCarthy.
It appears from Clause 1 of the Bill that it would be possible for deductions to be made only when they are authorised by statute (for example, in the case of PAYE or national insurance contributions), when they are provided for in contracts of employment or when they are agreed to in writing by the employee. But there is a widely held view that any deductions for cash or stock deficiencies are outmoded and they should be replaced by better management and improved methods of control. Others hold that any legislation aimed at removing the right to make deductions for shortages will lead to an unacceptable increase in the extent to which the employers may use dismissal; or the threat of it to discipline their employees.
After consultation the Government consider that they have struck the right balance in limiting the amount to be deducted from gross wages to 10 per cent.; but the question arises as to whether that is the right approach in principle, and, if it is, whether 10 per
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cent. is the appropriate figure. If 10 per cent, is the appropriate figure, as the Bill provides, should it apply only to those workers who are concerned with selling directly to the public or should it be extended, for example, to cases of stock deficiency which do not occur strictly within the retail trade?
Clauses 5 and 6 of the Bill establish procedures for employees to bring complaints relating to pay deductions to industrial tribunals. I understand that those tribunals are already empowered to make awards when there is inadequate notification of deductions from wages, and I think that I can see why the Government therefore consider it logical to extend the powers of tribunals to deal with other complaints relating to deductions.
On the other hand, that could give rise to problems such as those that were exposed in our recent discussions on the Sex Discrimination Bill. Many of those most likely to be affected may not find it easy to take their cases to those tribunals. There is also the possibility that unscrupulous employers may be tempted to dismiss employees who complain about deductions, even when complaints prove to be well founded, since many of those involved are unlikely to have completed the qualifying period for unfair dismissal protection of two years' service in full-time employment or five years as part-timers working for fewer than 16 hours per week.
Then it appears from Clause 5(4) of the Bill that where tribunals conclude that complaints are well founded, they may order offending employers to pay only the amount of the deduction that has been made. The question arises whether compensation should be limited or should extend also to loss of pay taken for time away from work in preparing for the hearing at the tribunal, in attending the tribunal itself and in recovering or in relation to expenses for travel below the distance of six miles (I think it is) for which allowance may presently be made.
Those are some of the points relating to the clauses in the Bill concerning the deduction of wages that we shall need to examine more closely in Committee. It follows therefore that our support at this stage for Part I of the Bill must be strictly qualified.
I turn now to what the noble Lord, Lord McCarthy, called very properly the meat in the sandwich—those clauses in the Bill relating to wages councils. We are opposed to the removal under Clause 12 of the Bill of any protection at all for employees aged under 21. On a number of occasions in the past I have supported the case for effecting some reduction in the percentage of the adult rate payable to young people; but to leave them altogether without protection seems to us to be indefensible. We consider that there is a strong argument for graduated scales of payment to be made to people aged between 18 and 20.
Noble Lords will recall that it was the need for the continued protection for precisely that age group which so much concerned us in our recent discussion on the Shops Bill. What, moreover, is to happen—and reference to this point has already been made—under the Government's present proposals when someone reaches the age of 21? Is it not all too likely that he or she will then be thrown out of work and replaced by some other young person at a lower rate of pay?

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We are also opposed to the provisions in Clause 14 under which a wages council will in future be empowered to fix only a single minimum rate and a single overtime rate. We accept the need to eliminate unnecessary detail, duplication and differences between one set of wages orders and another. Indeed, I can recall from first-hand experience the frustration which this sort of thing gave rise to in having to administer those wages council orders at one time. But can it be regarded as satisfactory that in future no provision at all should be made for holidays or for premium payments, for example, for work on Sundays? Again, the House will recall—and I am quite sure that the noble and learned Lord, Lord Denning, will well recall—the considerable disquiet which was expressed on that very point when we examined its effect on retail workers recently.
There are other matters which concern us that there is time now only just to mention. One is the contemplated reduction in the number of wages inspectors and the effect that that will have on the enforcement of such orders as wages councils will still be able to make. Another, and reference has been made to this by the noble Lord, Lord McCarthy, is the impact on our international standing of the Government's decision to give notice a year ago of our withdrawal from ILO Convention No. 26 on minimun pay.
I have consistently allied myself with those who consider that a slower rise in real pay for all in employment could enable more jobs to be provided for the unemployed, but I do not believe that that will be achieved by making unilateral cuts in the pay of those most in need of protection. That will only happen when negotiators become, or in the last resort are made, sufficiently aware of their responsibilities. It will not, in our democratic society, come about by placing the power of determining wages solely in the employers' hands
Part III will restrict the payment of redundancy rebates to firms employing fewer that 10 people. The Government claim that 35 per cent, of the cost of redundancy payments to employers, which is now repaid from the redundancy fund, should in future be put to a different and, in their view better use. As recent events have shown, people continue to be made redundant in large numbers and the effect of this part of the Bill must be to make overall redundancy payments smaller or to add to employers' costs. Moreover, the redundancy fund is one to which both employers and employees have contributed in the expectation that they will receive certain benefits which are now being denied to them.
I understand that at the last audit of the fund there was found to be a surplus of about £9 million. If payments from that fund are to be eliminated, would it not be more equitable and also serve better to maintain our competitiveness, if the surplus were to be distributed to employers and employees by providing for a reduction in their contributions?
To sum up, subject to the qualifications to which I referred earlier, we support that part of the Bill which seeks to repeal the Truck Acts and we are prepared to consider, on their merits in Committee, the clauses
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establishing restrictions on the extent to which deductions may be made from wages. We cannot, however, agree with the Government's proposals for reforming wages councils or for dealing with redundancy payment rebates to employers. On those matters, our position will be reflected in our attitude to the Bill in Committee.
12.33 p.m.
Lord Denning: My Lords, I welcome all parts of the Bill. The first part relates to the Truck Acts, and it is high time that they were repealed. In all my time on the Bench and at the Bar we never had one case about them. When one counsel referred to them I said, "What are the Truck Acts? Are they anything to do with those trucks that we see on the railway or those lorries which the Americans call trucks?" They have nothing to do with that.
The truck system goes back to the early 1800s when it was the employers' practice not to pay their people in coin of the realm but in goods or something of that kind. There was great abuse. It was called the truck system. The people of England and Parliament would have no truck with it because in 1831 a Truck Act was passed which said that wages must be paid in coin of the realm. Wages did not come to much then. In our Hampshire countryside, labourers received only half a crown a week. They were ground down. That was one of the causes of the Tolpuddle martyrs. In the dark satanic mills, the workers received a mere pittance. It is no wonder that we had to have the Truck Act 1831 to say that all wages should be paid in coin of the realm.
That tradition has gone on, but now our monetary system has changed altogether. What good is it to pay men who are earning good wages in coin of the realm when some of them, I am afraid, go round to the public house and spend it and do not take it home to their wives for the housekeeping? When people are paid in cash we see robbers stop the wages vans and steal the money. Crime is sometimes a result of the cash system. It is high time that the old law was repealed and we went to a cashless system where wages are not paid in cash but are paid though the modern monetary system by cheques or the like. I am highly in favour of the repeal of the Truck Acts. They are out of date.
Clause 2 relates to deductions from wages. The point has never come before the courts so far as I know because the previous provisions were ineffective. The 1896 Act allowed for deductions to be made provided a proper notice was posted outside the factory, the workshops or wherever it was. The notice did not say that the deductions were limited to any amount but that they had to be fair and reasonable.
What was the worker's remedy if deductions were impropely made? There was no remedy in the ordinary courts. He had to go before the magistrates and charge his employer with a criminal offence. He had to prove that the deduction was not fair or reasonable. That was his only remedy through the courts.
The machinery was so bad and so ineffective it is no wonder that, as far as I know, there was no recourse to the courts. That Act did not work. It is high time that

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it was replaced and the matter was put on a proper footing. Let us take, for example, the case of the ordinary retail shop or garage when there is a deficiency in the cash at the end of the week. There is £5 missing which cannot be accounted for. It may be just an error or sometimes it may be put into the individual's pocket. There may be a stock deficiency. "There were all those tins at the beginning of the week, and one or two are missing." There is the problem of how to deal with cash shortages or stock deficiencies. The remedy has been by contract and to make deductions similar to the statutory ones such as PAYE. There is a nice question.
So far as I can see, the Bill deals with that matter in a practical and sensible way. Let the matter be contractual. Let employees know, "You have not returned all the cash," or "There is some stock missing". There can then be deductions from wages but they should be no more than 10 per cent. That limits them. If the employee is then dissatisfied and thinks that that is unfair, he can go to the industrial tribunal and complain, and I am sure he would obtain a fair hearing. There was no remedy before. That is the situation. The machinery may have to be investigated. I should like the contract to include the words "fair and reasonable". Subject to Committee points such as that, however, I suggest that the first part of the Bill is a good and well-intentioned effort to bring part of the law up to date to deal with the modern situation.
I am afraid that I know little or nothing about wages councils. They were discussed in our debate on the Shops Bill. I cannot say myself how well they work. I am, however, impressed by the argument that our young people should not be done out of jobs by pricing those jobs too high. I have had youngsters come to me, as to others, anxious for work. My plea to employers is to take them on if possible and to pay them a fair wage. I would, however, urge those youngsters not to seek an excessive wage or possibly an excessive wage when they are over 21. What is important is that they should get a job and that they should be fairly paid. But let us avoid having it all regulated. Let it be a matter of fair negotiation between the youngster and the employer.
That is my impression as to wages. but, as I say, I do not know enough about the subject. All that I shall say is that on my reading of the Bill I believe that the Government have made a very genuine effort to solve a most difficult problem. I support the Second Reading.
12.41 p.m.
Lord Scanlon: My Lords, having heard the noble and learned Lord, Lord Denning, I am tempted to enter into an argument on the Truck Acts. However, in the interests of time I shall confine my remarks to the wages councils and particularly to the restrictions that will now apply to young people. The forerunners of wages councils were set up by Winston Churchill in 1909. In saying why they were necessary, Winston Churchill remarked:
"It is a serious national evil that any of His Majesty's subjects should receive less than a living wage in return for their utmost exertions".
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Any of His Majesty's subjects must include young people who now, as the noble Lord, Lord Rochester said, will have no protection whatever in those industries covered by wages councils. Man's inhumanity to man is too well known to believe that, given the free market, employers who are successful in reducing the remuneration of those young people will not benefit from it themselves but pass it on in the form of further employment. That is a fallacy. It is my reason for saying that this is the fundamental objection to the Government's main purpose in the Bill.
The Government have stated on many occasions that it is not their policies that are wrong. It is the manner in which they attempt and maybe fail to get their message across. They say that they really do care. Well, if they do, then to attack, as this Bill attacks, and for the Government to promote a Bill that attacks the most vulnerable, the most needy and the poorest sections of the community is a Gilbertian way of trying to prove their claim. To show further how much the Government really care, particularly for young people, they have denounced ILO Convention No. 26. It is one thing not to ratify a convention: it is, in my submission, much more serious to denounce one already in existence and to which we have hitherto been party and to do so when 94 other countries, including some of the world's poorest countries, continue to support it; and, moreover, when eight out of 10 EC countries continue to support it. This again raises the question: is it the policy that is wrong or the message not being put?
Let us see what the ILO says:
"Almost all countries in the world now operate minimum wage systems and none to our knowledge exclude young workers. The latter are more vulnerable to possible exploitation due to their inexperience and perhaps"—
this is as telling as any point—
"because of their very desire to earn a living by finding a first job".
For the Government to seek to leave these people completely defenceless is a betrayal of all that they say about caring. In ratifying, as those countries have done, Convention 26 they have in effect undertaken to use their influence to see that employers in their own country not only do not compete with one another by driving down the wages of the weak but also that their countries do not seek to gain a competitive advantage against others by exploiting the poorest members of their societies.
If the Government really believe in their policy of caring, surely instead of restricting the wages councils they should be giving increased resources and staffing for a wages inspectorate; a vigorous enforcement policy and stiffer penalities against those who break the law; protection for those employees who register complaints with the wages inspectorate; a requirement that job centres do not advertise jobs below statutory minima and a simplification of wages council orders as well as an improvement in their presentation, including reproducing them in different languages to help ethnic minorities.
I said that I wanted to speak on the Truck Acts. I say again, however, that I shall not be doing so in the interests of time. I know that it is too much to hope that the Government will drop this futile and, in my submission, irresponsible Bill. If the Government were to concentrate more on some of their own worthwhile

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measures for training and education, I believe that they would be giving a much greater service to those for whom they claim to care than the ramifications of the Bill presently before your Lordships' House.
12.48 p.m.
Lord Teviot: My Lords, it is a pleasure and a privilege to follow the noble Lord, Lord Scanlon. I should have liked to hear his views on the Truck Acts. I shall probably have to listen to him on another occasion outside the Chamber. I am sure that I shall benefit from his experience.
This is a most interesting Bill. I welcome it and feel that it will be a useful piece of legislation. I am sure that my noble friend, when he replies, will be able to answer in detail some of the questions posed by the noble Lord, Lord Scanlon, and that he will be able to do justice to the Government's case.
Your Lordships will be somewhat surprised to find me speaking on this subject. It has little to do with the areas in which I tend to specialise. However, the Bill, and some of the problems that it seeks to address, affect the transport industry and in particular the bus industry. For this reason I have been taking an interest in it during its passage through another place.
I am pleased to be able to welcome this Bill and to give it my full support, although, as I shall shortly relate to your Lordships. I had misgivings at one stage on the effect of the Bill. Unlike many other pieces of legislation with which we have had to deal recently this one has three major effects. As has been so well expressed, it repeals the Truck Acts, introduces protection on unauthorised deductions from wages, restricts the scope of wages councils and ends redundancy rebate except for small employers.
The provisions of Part I of this Bill in my opinion bring about a much needed updating and overhaul of legislation relating to payment of wages. The Truck Acts, which the Bill will repeal, were a necessary safeguard for workers against unscrupulous employers. Although I do not regard myself as an historian, let us say that I am an amateur historian. One cannot account for people who were regarded as unscrupulous employers in the 19th century. Perhaps the noble Lord, Lord McCarthy, and I could address ourselves outside the Chamber to this subject. It is so easy to damn what has gone before.
The transport industry, and in particular railway building, were littered with examples of contractors exploiting their workers both on the job with excessive hours, and off the job by paying them in kind at exorbitant prices. There were good employers—one must pay tribute to the Brassey family. The workers concerned were often semi-literate and easy to exploit. The Government saw fit as long ago as 1831 to protect them by law. These days such protection is not necessary but a different kind of protection is. This protection is given in the Bill and concerns deduction from wages in particular for cash deficiencies. Having worked in a job where I was handling cash, I was also subject to having any cash deficiencies deducted from my wages.
We have all heard of cases where employers have been unscrupulous or overzealous in deducting alleged cash deficiencies without adequate supporting
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evidence. This is a modern problem which could not have been foreseen by the Truck Acts. The Bill therefore gives a welcome measure of protection to the many workers who deal directly with the public and handle cash. Often genuine mistakes are made and most employers are reasonable. The Bill provides a mechanism through which an unreasonable employer can be called to account for his actions.
I have little to say on wages councils. This subject has been well covered. In some industries they are regrettably necessary but if they are not careful they can set minimum wages which are out of line with market rates. If they do they will destroy jobs and not create them as we have all been seeking to do since the Government have come into power. I know that this problem is particularly acute for young workers trying to enter the labour market for the first time. Statutory minimum wages are inhibiting their chances of finding a job.
The Bill ends the redundancy rebate to employers with more than 10 employees. The Government have good reason for doing this, not least because it will save a lot of money—of the order of £200 million in 1987–1988. This cannot be ignored.
I appreciate that this Bill will have an adverse effect on employers making people redundant, although in marginal cases loss of rebate could make them think again about making people redundant. I was particulary concerned about the effect on the bus industry. As noble Lords will remember from our long debates last year the 1985 Transport Act will introduce deregulation of bus services on 26th October on this year.
A Noble Lord: Hear, hear!
Lord Teviot: No thank you, my Lords. In their efforts to improve efficiency bus operators will be making people redundant. In the old metropolitan areas at a minimum about 8,000 to 9,000 jobs will go. Because existing services have to run until deregulation these redundancies cannot occur until 26th October. When the Bill was first introduced the rebate was to be abolished after 31st October so the bus industry would have received its rebate. Plans and estimates were made on this basis, and in the metropolitan counties the Secretary of State for Transport even determined the statutory limit on total expenditure of the passenger transport authorities on the buses that redundancy rebate would be available.
This aspect of the Bill was amended in another place and we shall now—if the House agrees it—abolish the rebate after 31st July. The change of date caused serious problems—£8 million worth for the metropolitan authorities as their total expenditure is limited by law. The sum of £8 million more on redundancy costs meant £8 million less on socially necessary bus services reducing them by 10 per cent. and 25 per cent.
My noble friend Lord De La Warr and I drew the Minister's attention to this problem. I am delighted to be able to report that this has been resolved. My noble friend Lord Caithness wrote to me on Wednesday this very week giving me the text of a Written Answer in another place. This stated that the Department of Transport would compensate the passenger transport executives and district council companies for the loss

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of rebate. I understand that the problem for the National Bus Company is also being dealt with by the Department of Transport. The noble Lord, Lord De La Warr and I should like to thank Ministers for their considerable help in this matter.
The Bill has my full support. However, having been a member of a union and a wage-earning worker, my mind is absolutely open and I shall pay great attention to any interesting amendment that is put forward. I shall also say rather humbly that I shall not be able to support any of those amendments with the thrust of political doctrine. I am quite sure that this Bill can be improved by small amendments. With the Transport Bill even at Report and Third Reading stage one saw germs of ideas that could be successful in the operation of the Bill. This is a most interesting subject. Calling this the Wages Bill does not do it justice. I am not seeking to alter the short title. Referring back to the history of the Truck Acts, I do not know what else the Bill could be called. However, I look forward to the rest of the stages of this Bill.
12.58 p.m.
Lord Graham of Edmonton: My Lords, this is a mean and repugnant Bill. It is shoddy and shabby. It is worthy of this Government. It is an attack on the living standards of the poorest in this community and those who presently have to suffer from low wages.
The Minister—who is no longer in his place—said that this is a Bill to promote employment. There is no evidence to substantiate that; and when evidence has been sought from Ministers of the Crown, they have had to say that there is no evidence. However, that will not stop the Minister who replies relying upon the same lack of evidence to support it. The Minister said, when he opened his speech, that originally wages councils were brought in because there were then poverty wages, long hours and poor conditions. I have news for that Minister, and the Minister who is replying. There are millions of people in Britain today who suffer poverty wages, long hours and poor conditions.
When opening the debate the Minister said that the Bill was designed to provide employers with an easier way to plan their businesses. I want to deal with the manner in which this Bill will make it less easy for millions of people not to plan their businesses but to plan their lives. The Minister has sought to rest his case on providing more employment and particularly more young employment. The largest group of people to be affected by the weakening of the wages councils will be women, who make up four out of every five workers in wages council industries. Indeed 2 million people will be affected.
It has been argued that the removal of minimum wage protection will have little impact upon living standards as most of those who are affected are women. However, that pin-money approach is a myth. In 1980, the Department of Employment carried out a survey which revealed that only 11 per cent. of working women said that did not really need their earnings. Most women who are working need their earnings. Four out of five of those affected by the wages councils are women; most of them are part time. In one in four households the main breadwinner is a
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woman, either because she is on her own or because her partner is unemployed or on low pay. Almost half—45 per cent.—of low-paid women working full time are single parents or living alone. Very often women are unable to work full time because they have primary responsibility for adult or child dependants To argue that a woman's pay is not important to family living standards is a travesty. According to the Central Policy Review Staff, four times as many families would be in poverty were it not for the earnings of married women.
The group about which we are talking is, in the main unorganised and un-unionised. To their credit, many of the workers in this country are already members of trade unions. Indeed, I declare an interest. I am an employer. I am a director of the Enfield and St. Albans Co-operative Society. I also declare other associations with the co-operative movement and with the Union of Shop, Distributive and Allied Workers. The majority of workers in trade unions are party to collective agreements. Concerned as I am about them, we are primarily concerned abut the groups of workers who have turned out to be all too easy and very vulnerable to exploitation.
Part-timers are often employed on wage rates which are close to or below the wages council minima. Part-time women workers represent, in the words of the Commission on Industrial Relations, a vulnerable minority who are likely to suffer further deterioration in their living standards if their statutory protections are weakened.
As the Minister and others know, part-timers tend to be most vulnerable because they are deprived of basic employment rights. A part-time worker who has been employed by the same firm for less than five years is not entitled to claims for unfair dismissal. Part timers tend to be undervalued for the work that they do, and yet they are a vital part of the nation's workforce.
The idea that what we are doing is to enhance the prospects of young workers to get jobs is a sick joke when one looks at the reality of the situation. We know why the Minister will not listen to people speaking from these Benches. But I wonder why he ignores, for instance, the CBI. When the CBI view was sought on the abolition of wages council protection, particularly for young workers, the CBI said:
"there was little enthusiasm among our members for the suggestion that all young workers should be excluded from coverage by wages councils".
When the Institute of Personnel Management surveyed their members, they said:
"Many respondents argued against removing young workers from the purview of the machinery, stating that they doubted if they would be able to recruit at rates lower than those now in force"
We shall look at some of the rates which Ministers opposite are saying are too high, and we shall compare them with the conditions that those Ministers and others enjoy in their present posts. I shall give some illustrations of what we are talking about.
John is a 21 year-old trainee hotel manager who moved 100 miles from his parents' home in Wales to find work. Trainee managers are not covered by the wages council. He works from 5.30 in the morning to 11 or 12 o'clock at night on a split shift system—that is, with a break in the afternoon. He works seven days

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and averages 77 hours a week. His weekly wages are £42.30. Too high? Is there the opportunity for employers to force wages down?
I have another illustration which goes as follows:
"For a seven-day week I take home just £48. I can't join a union as I would be sacked if the boss found out. I have worked at the petrol station for three months and I am made to pay shorts. At the end of the shift the cash never balances out so we have to pay the difference even though it's not our fault. Some weeks it's over £10 from my weekly wage".
I remind your Lordships that the weekly wage is £48.
Julia is a 20 year-old shop assistant in a Suffolk jewellery shop. That type of shop falls outside the scope of wages councils. For a 42–hour week she is paid just £35—a standard rate which her employer also pays to the other assistants in the shop. The wages council rate for Julia's job is £86 (including overtime) and yet her employer gets away—I repeat, "gets away"—with such a miserly wage as that.
If employers are encouraged to use young people as a source of cheap labour, they will also be encouraged to dismiss them in favour of other youngsters once they become entitled to adult rates. What are those rates that the Minister and his colleagues seek to abolish quite clearly to provide the opportunity for lower wages to be offered or given to employees? Let us take as an example the wage rates in hairdressing. The first-year apprenticeship rate in hairdressing is just £31.75 per week. That is too high, according to the Minister; it is mitigating against employers taking on more people. In retailing, the rate for 16 year-olds is around £47 and for 17 year-olds it is between £52 and £55. The Minister says that that is too high in 1986; it is acting as a brake against employment. In my view, that is nauseating hypocrisy.
When we consider the vulnerable groups—I have already mentioned women and young workers—there is another major factor, namely, the very large number of ethnic minority workers and their extremely high rates of unemployment. In the latest analysis of the earnings of different racial groups it was found that male workers of West Indian origin earned on average £20 a week less than white workers. Among Asians there was a similar pay gap: Asian men earned £18 less. Moreover, black and ethnic minority workers are twice as likely as white workers to be working in hotel and catering, the second largest sector to be covered in this way.
I should like to put before the Minister rebuttal from the shop floor or from the coal face. I received today two letters, one of which was from Mr. Terry Sullivan, the national officer of the Union of Shop, Distributive and Allied Workers. The letter was addressed to the Secretary of State, and in it USDAW say:
"It is our opinion that not only will the Wages Bill do nothing whatsoever for the employment prospects of young people but, in addition, the proposals will actually lead to them suffering massive wage cuts".
Then he goes on to a matter about which the Minister ought to be thoroughly ashamed:
"the Government has now announced … a reduction of 85 in the number of Wages Councils Inspectors that enforce the law. We find"—
that is, USDAW—
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"this disgraceful. Last year Wages Council Inspectors found substantial underpayment of rates that have the force of law. In the Retail Non-Food sector underpayments were revealed at 858 of the 1,254 establishments visited".
I put that to your Lordships. Two out of every three establishments visited where the inspector was able to examine the books were underpaying even the minimum miserable poverty level wages. Does not the House share my anger and despair at the ability of employers, where they can get away with it in ignorance or not (but I believe by connivance) by paying rates as low as that?
Overall, almost £530,000 was withheld from retail non-food workers by illegal underpayment of wages. In Britain as a whole, £2½million pounds was assessed to be owed to workers. That is the position. Even the legal minimum, which is a miserable rate, is being underpaid by a great many of those who employ poorly-paid people.
I have here a letter which I received this morning from Neil Kearney of the National Union of Tailors and Garment Workers. This is what he says:
"In many areas of the country the clothing industry is traditionally a major—and sometimes the only—employer of female school leavers. The Government's proposals would deem young workers not fully productive for five years. Anyone with any knowledge of the clothing industry will tell you that this is nonsense".
The letter continues:
"That is the situation in the reputable end of the clothing industry. However many thousands of workers are employed in what are little more than sweatshops. These are mainly located in the East End of London and in the Midlands. Here, the mainly immigrant workforce are often subjected to appalling wages and conditions. The only brake on further exploitation is provided by the existence of the wages councils and the minimum rates they set".
What are these mimimum rates that the Minister and his Government seek to destroy? They are: workers under 16½, £43·54; workers under 17 years, £46·06; workers under 17½years, £54·53. These are the rates that this Bill will seek to destroy by taking young workers out of even that minimum protection. Are not the Minister and his two colleagues behind him as we debate this matter ashamed that they are seeking to deny even that level of protection to workers at that level of pay?
Nothing sticks in my craw more than when I hear Ministers, who enjoy far better levels of pay, far better conditions, far better wherewithal, telling young workers (this is a Minister standing at the level of largesse that he enjoys): "What you have to do at the lower end, when you are entitled to £43·06 a week, is to put yourself at risk with employers"—who, even in 1986 (enlightened as they may be in general) are prepared to make it lower. In my view this Bill is part of a mosaic which has been cobbled together by the Government and which in its parts are taken together amounts to a direct, sustained and vicious attack not just on wages councils and lower-paid workers but on trade unions and the trade union movement. It is a reduction of rights for workers. It is a naked and unashamed attack on the most vulnerable sections of the working population. Those who are in receipt of very low pay indeed are, in the eyes of this Government, a perfect target when they are attacked with relish, cloaked, so far as I am concerned, in humbug and hypocrisy when the Minister tells them,

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"However low your wages it will be good for you if we remove this basic protection".
That of itself, the Minister said, will help to create jobs. I do not believe it. This Bill is designed for nothing of the kind. Its purpose is the depression of wage levels and the substitution of adult workers by juveniles. It is a dreadful philosophy which picks upon the hapless poor and poorly paid so that the savings that can be made will enhance on the margins the profits of their employers. It is a thoroughly bad Bill and my colleagues and I look forward to trying to improve it by amendments at Committee stage.
1.16 p.m.
Lord Kagan: My Lords, we have heard and read about the academics being commissioned to study this matter, and about various other study groups. May I give evidence from what is actually happening? In Yorkshire, we have 14 per cent. unemployment. But we cannot get any skilled workers. Our local newspapers are absolutely full to the brim with advertisements from employers for skilled machinists, for skilled cutters and even for skilled weavers. The jobcentres are very well organised and communicate with each other by computer, but if you ring them to ask them for one solitary skilled worker they cannot help. In fact, a large part of the administrative time in my company is taken up by trying to obtain staff. The whole industry now depends on a dwindling force of skilled workers for whom the various factories compete. These are the facts.
We have heard much about the influence of pay, and if we pay less we will get more applicants and if we pay more we will get less. This is not the crucial issue, but the cost of training is. If one takes in young people through the YTS one is lucky if one in 10 works out. In that case the basic cost to the manufacturer in recruiting and training an operative is between £5,000 and £7,000, which is a very big investment. When you have successfully done that you cannot be sure that that employee will stay. During the screening of the first half-dozen and during the training of the final few you back because you assume they have the ability and they hold the promise that it will work out, you have to divert people from your scarce skilled labour force from production to teaching which is not their skill because a good operative is not necessarily a good teacher.
That is the dilemma. Surely it should be possible to hand over the problem of training skilled workers, for whom we know the jobs exist, to the education system. Perhaps the past two or three years in the schools should be spent training for a job. The schoolteachers are skilled in identifying aptitudes. Industry could then draw from them ready trained workers. This is not difficult because this is the pattern whereby it is done in Germany. If we do that we will find that the low-paid trainee of today becomes the highly-paid skilled worker of tomorrow. That is the pattern in Japan and in Germany. It is a fallacy that industrialists or employers have a vested interest in low wages. The overheads in a textile factory amount to roughly 200 per cent. of the wages. Therefore, a more productive worker, although he earns a lot more, is still cheaper than a low productive worker.
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We still persist in attitudes and assumptions which are very much out of date. I keep coming back to our competitors, Germany and Japan, who have solved their unemployment problems through high wages and not through low wages. Having lost the war, their plants having been bombed out of existence, their old attitudes had also been bombed out. They came out of that war with an open mind and approached their industrial problems in an attitude of "us and we" and not "I and you" or "them and us'. May I suggest that of one thing there is abundant proof? It is that you can no more regulate wages by law or by statute and eliminate them from the influence of supply and demand than you can regulate marital happiness by statute. It is a fallacy. It does not work. This should be recognised on all sides.
Dare I say that between 1974 and 1978 or 1979 a Labour Government abolished six or seven (I think it is) wages councils. Why did they do that? Would a future Labour Government, for which my noble friends hope, perhaps be grateful if some of the work was done for them, rather than impede it. We need protection; but the protection that we now need is not protection from exploiting, cruel employers—for they do not have the muscle, the intention or the interest to be so—but protection from misguided policies which hand over total markets to foreign competition because we have to refuse orders now even for the home market, not because of high wages but because we cannot get the skilled workers to do the jobs. Also, if I may say so, we need protection for the families who look at young people growing up without work. I think that we would all accept that, in addition to the monetary side of a pay packet, there is the dignity of earning one's own living. A lot of parents are very concerned and desperate about that. Perhaps if any of your Lordships came to Yorkshire and walked into one of our pubs or workmen's clubs, he would find out a bit more about it than by studying the reports of academics.
1.24 p.m.
Lord Houghton of Sowerby: My Lords, I changed places with the noble Lord, Lord Kagan, in the belief that, as an active businessman, probably the only active businessman to speak in this debate, he might have something more worth listening to than what I had to say, because I have had no experience of wages councils at all. Certainly I went into an area of very low pay when I began in the Inland Revenue many years ago, but we were not classified as a sweat shop and so did not get the protection of the wages councils. I spent all my life in wages and conditions of service—nothing else, in fact, except how to make the best of conditions and get the maximum reward for the highest quality work. If I may say so with great modesty, one thing that we have done in the Inland Revenue is to promote the skill and the professional standards in dealing with complex fiscal policies and techniques and to try to get higher standards of remuneration for it.
I do not know whether it is suitable at this hour, and with an important debate to follow, to say a word on the philosophy of what we are talking about. I suppose that wages councils were, and still are, a form of statutory wage control and if the trade union movement and the Labour Party come together in

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unity after many years to be in favour of a national minimum wage, it will become in my opinion a form of statutory wage control. What is it about this form of statutory control that we like and what is it about other forms of statutory control that we do not like? Is it that this is statutory control to keep wages up but that we are against statutory controls to hold wages down?
Continuing the philosophical comment on this, I suppose that wages councils were a form of retail price maintenance—you fix a price below which one may not lawfully buy labour—in the hope that it will save dangerous and damaging undercutting, unnecessary rivalry and all the other things that can arise in market competition. But that was abolished at one time it being thought that it would be better all round if that form of protection were removed.
I read the debate on the Second Reading of this Bill in another place. The debate here this morning bears out much that happened then. The Bill has had a very mixed reception, although feelings have not run as high in your Lordships' Chamber as was the case in another place. The epithets that are now flung around in another place sound very strange to me after many years there myself; but there seemed to be few holds barred and at the Second Reading of this Bill in another place hardly a speech was made without interruption. Nobody could bear to listen to anybody else. Well, one lives and learns even in parliamentary experience.
Of course, there may be another rather facetious reference to this Bill, I suppose. If wages councils are so good at one level of remuneration, why are they not better or just as good for higher levels or remuneration? Are we not led from wages councils to a national wages board? I suppose that we are not a logical people so we need not pursue these thoughts any further, but it is intriguing sometimes to find out on what principles we work. And, quite frankly, I think that in the trade union movement we work on the principle that anything that harms the workers is bad. I do not think that Samuel Gompers, the American trade union leader, was being entirely cynical when in reply to the question, "What do the workers really want?" he said, "More!" Well, it is not only workers who want more. A lot of people above them want much more. So we really come down to the basic conditions of an acquisitive society. I think there is so much genuine difference of opinion here, and the evidence varies, too, so that when we come to Committee we shall really want to find out to our better satisfaction what the truth of the matter is.
I listened with great care to my noble friend Lord Graham of Edmonton, who produced a lot of information about actual conditions that are observed by people on the trade union side of very sensitive industries under the wages council system. I think we need to go into that, but I would say to the noble Lord the Minister that I am sure he has more than mere doctrine behind him on this. There must be something that has convinced the Government that they must modify the wages councils system for the better opportunity of employment of young people. I am all in favour of setting aside conventions or traditions, however deeply entrenched, if by removing them we can improve the chances of the country and of the
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people in it to get jobs which will enable them to get the satisfactory experiences of life that they are being denied at the present time.
There cannot be many Acts of Parliament more than 25 years old that could claim complete exemption from being reviewed and possibly revised at the present time to meet changing conditions. I can think of only one—Magna Carta. I would not tamper with that. But many hundreds of Acts since have been suitable to their time but have outlived their justification as time went on. I shall certainly try to apply my mind to the reports of the various bodies which have studied this matter and I ask the Minister to be as generous as he possibly can in the production of evidence and persuasive arguments behind the proposals.
What I am really concerned about relates to this problem but is not directly in it: that is, the problem of the gap between pay offered to young people and the amount of social security which they can otherwise draw. I have said before in the House that a lot of young people at the present time regard as the real reward for work the difference between the social security that they are getting and the wage, less tax and less national insurance contribution, that they are offered. It is that difference, they say, that is the net reward for a week's work; and if what they are doing is more interesting on social security than it would be doing a job, they are not really encouraged to go to the job. I think we must not overlook the fact that a lot of young people are finding very interesting things to do while they are unemployed. They are not all sitting moping around; they are finding things to do. Some of them are probably undesirable things, but many young people are not inactive and they look at work in quite realistic terms.
I have said that I think the tax thresholds should be lifted in order to narrow the gap. I do not think we are going to solve this problem by lowering pay in order to narrow the gap between social security and pay; but it is worth noting in passing that a single person on £50 a week will now be paying in tax £2·49 and in national insurance contributions £2·67. That equals 9·6 per cent. If the pay is £60 a week then the combined deduction is over £10 a week, which is equivalent to15·9 per cent. They are quite substantial discounts on the week's wage, however justified they may be. I think the incidence of taxation on low incomes in this country at the present time still comes pretty close to what you might call a Dick Turpin situation. It is that side of the matter which I think requires very close attention in connection with the problem we are discussing today.
That is what I have to say. On the main issue relevant to the Bill, when we come to Committee stage we want to have this out in a way that I do not think it was had out in the other place. I end by saying that I am sure Winston Churchill would have been highly amused to find that in 1986 he had become the folk hero of the trade union movement. The author of the Trade Disputes and Trade Unions Act 1927 must hear a faint call, "Come back; all is forgiven"! I cannot think that can be so, but since every bit of propaganda I have received on this Bill quotes Mr. Churchill in 1909, may I finish on an amusing note?

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Of course, I was only 11 years of age when he said this and I do not remember my father quoting it to me, but I am jolly sure that if he had he would have read it out this way:
"It is a serious national evil that any one of His Majesty's subjects should receive less than a living wage in return for their utmost endeavours".
A proponent of the work ethic in my family would have said with emphasis, "your utmost endeavours". I do not think it would be a bad thing if we underlined those words now, because they are very relevant indeed to our capacity to earn a living wage. Anyway, I think it is rather fun to find Winston Churchill coming to life in the guise of the great philosopher on the subject of national evils—
Lord Soames: My Lords, there is nothing to be surprised at!
Lord Houghton of Sowerby: My Lords, no; I know. Of course there are many quotes from Winston Churchill on pretty well any given situation. However, there we are. I shall sit down, but I want to stress the need for close examintion of this problem. I think we want to know a little more about the practical side of the businessman, for whom my noble friend Lord Kagan has just spoken. There must be something here which needs the closest examination afresh to see whether it has the importance to justify interfering with the well-established conditions of the wages council system. That is really the main issue of this Bill.
1.39 p.m.
Lord Wedderburn of Charlton: My Lords, your Lordships have had an interesting debate on this Bill and of course it is right that it should be the subject of our utmost endeavours to provide a full debate, despite the unusual calendar, if only because whoever is right about the effects of this Bill we all agree that it is going to have an important effect upon the lives of millions and millions of working people. So there could hardly be a more direct piece of legislation bearing upon those lives than that which changes the minimum they are allowed to be paid.
The noble Lord the Secretary of State presented it to us, of course rightly, as a Bill which is, as Caesar described Gaul, divided into three parts. It was that factor which made me remember that Caesar also said he first found the Druidic doctrine in Britain. I was reminded that he also said:
"All the Druids are under one leader, whom they hold in the highest respect".
So there is a sense in which the doctrines of this Bill are based upon certain articles of faith. I see the faith as shining through the Government's legislation before this and now, based upon the notion that in order to reach national salvation power at the workplace must be returned to management and workers' wages must be reduced—on the whole, at least, in terms of the size of increase reduced. They do not usually put it quite so graphically. They tend to put forward the propositions that have been put forward and related to this Bill.
The noble Lord the Secretary of State will excuse me if I do not quote him, because I was not sure that I would get it down right. But I am sure he will agree
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with his right honourable friend the Minister for Employment, who said, on 11th February at col. 808 of the Official Report for the other place,
"This is a Bill to promote employment. It will do this by easing the regulation of the labour market and removing burdens on employers".
The Secretary of State put before us the same message. That is the first message.
The second message is one that is put in many of the speeches, but also in the document which I know is close to the noble Lord's heart, that which has appeared under the heading of Building Businesses not Barriers just recently as a White Paper. That stated:
"There is no intention to dismantle the whole framework of employment protection in current legislation".
I am not quite sure where I should have put the stress. It goes on,
"To the extent to which legislation gives statutory support to the current practice of good employers, it will command a broad degree of assent".
That proposition is the one that I suggest is most relevant to Part I of the Bill—the practices of good employers.
After all, what does repeal of the Truck Acts mean? It means two very different things. It means, of course, dealing with employment which is archaic in the sense that it only applies to certain workers such as manual workers, and in one case shop assistants, and not to others. Of course, it would command a very wide area of assent that that should be reformed, but that is not the central point of this legislation. The two different types of Truck Act are, of course, that which deals with cashless pay, or with payment other than in coin of the realm, and that which deals with deductions.
I have been somewhat astonished at the debate of your Lordships upon the 1896 Act which deals with deductions. After all, broadly speaking, Sections 1, 2 and 3 of that Act demand from an employer who makes deductions by way of fines for bad workmanship, or whatever it be, a double prong of defence, as it were. First, there must be the contractual requirement, a written contract, a written notice and so on. Secondly, throughout the sections is the thread that the fine or deduction must be reasonable. The noble Lord the Secretary of State told us that this was a problem for 1896, but not for today. If he can vouchsafe some evidence for that I should like to look at it, because all the evidence is the other way.
The evidence is that in the last 10 years clauses imposed upon workers who are in a hopelessly weak position in negotiations with their employers, in terms of the loss for which deductions are made, have increased enormously. Has the noble Lord not seen the communications from the Citizens' Advice Bureaux? Has he not seen the survey done by the Hounslow Law Centre? Would he like to see them and see just what those clauses are? Here I turn to the noble and learned Lord, Lord Denning, with respect, to say that it is not true that there have no cases. In the last 12 months there have been three very important cases. It is a pity that the noble and learned Lord was not in the Court of Appeal to hear them.
Nevertheless, there they are and, of course, they go to the courts; not, it is true, usually by the civil process, but normally by the criminal process of a prosecution

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because these are crimes. The Government are rescinding something which has been for a very long time criminal. To make an unreasonable deduction from a worker's pay has been a crime and the Government sit there and say "Yes, why not? Why not repeal it?" Is that the good practice of good employers? Is it a good practice of good employers to make unreasonable deductions from workers' pay? If it is not a good practice of good employers why can we not have it back in the Bill?
Why can we not have the protection for workers today, at least in a civil process, because there is no doubt a case for removing the criminal element? Why can we not have back the protection? I say to the noble and learned Lord, Lord Denning, that I hope he will reconsider when we come to Committee, because I think I remember his supporting statutes like the Unfair Contract Terms Act, which, after all, gives to the courts in a certain area the power to say, "No, this is an unreasonable term. We will not have it". The 1896 Act was only a tiny toes in the water of the same pond as the Unfair Contract Terms Act 1977. So the unreasonableness of the Government's proposal on deductions is measured by their refusal to allow reasonableness to measure the employer's deductions.
Then it is said: let it all be by consent. Let it all be by contract. But it is the most elementary proposition of employment law throughout the world that the exposed worker—the non-unionised worker, the minority group worker, whose bargaining position with his employer is weakened and is sometimes non-existent in a labour market of this kind, such as in the petrol stations, in the shops, in the bars, and in the swimming pools; these are all cases that the noble Lord the Secretary of State might like to know about—does not have a consent, which is worthy of the name, to give to these matters. The idea is too preposterous and I hope we shall hear nothing more about the justification by contract for sweeping away an elementary and basic right of workers not to have unreasonable deductions made by fines and the like.
After all, the noble Lord also has the problem that he confirmed to me by Written Answer many months ago that the provisions whereby employers can ask for exemption from the 1896 Act have not been operated for many years, because they have not asked for exemption. One order exists in 1897 for the cotton weaving industry, but, otherwise, good employers have not asked for exemption, because good employers do not want to make unreasonable deductions, and bad employers have not had the face to ask for it and will now simply take it when this Government give it to them by this Bill.
There are many things wrong with Part I in this respect, but where the 1896 Act is surely much the more important of the two major measures for repeal—and I entirely concur with the noble Lord, Lord Rochester—is in the fact that the remedy of the worker, from whom an improper deduction in terms of the Bill is made, is now quite unsatisfactory. There is the problem of the worker who is weak, and who cannot go to the tribunal even to get his 10 per cent., let alone a further penalty which should be levied on the employer in some way as compensation for any other loss or beyond, which employment legislation
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still does in many cases where an employer's breach has been a serious default. I hope that we will press the Government on this in Committee.
Of course, the Government recognise in the Bill that there is a more profound problem. Otherwise, why should they say, "Only 10 per cent. for retail workers". It is no good the Secretary of State telling us that there is no modern problem about deductions, and then giving us a Bill saying that we must protect the retail workers by 10 per cent. As a matter of fact, what is magic about 10 per cent.? Is 10 per cent. better than a Bill that states it must not be unreasonable or not more than a fair estimate of any loss? I am not at all certain where the 10 per cent. comes from. Is it from some study of the matter? How much is being deducted at the moment? We should like to know when we come to Committee. Or was it some Druidic doctrine that fell from the skies to put itself in the Bill?
Then we come to the other part of Part I on which I say very little—the cashless pay problem, or payment in kind, the problems of truck to which the noble and learned Lord, Lord Denning, referred, and the "tommy shops" many of which have now gone. It is worth remembering that since 1960 manual workers have been able, in law, to request payment by cheque, money order and the like. It is true that movement towards cashless pay has been slower in this country than in many others in western Europe. But I know of few studies which put the legal problem of the Truck Acts even very high on—and certainly not at the top of—the list of the problems. It is a problem, and it should be amended.
However, if you are looking at cashless pay as a social operation, surely the sensible way to introduce it is by negotiation with workers' trade unions; by consideration of bank opening hours; by asking just what are the facilities for cheques and the like in rural areas and what banking facilities are open to workers with unsocial working hours; and a whole list of other problems which are not simply a matter of the Truck Acts.
Indeed, the high street banks have put it on record that they do not want legal measures which give them simply what they call "reluctant customers". So even here the Bill points in a direction which we would not wish to resist; but in so far as it allows employers to force cashless pay on workers in a bargaining position, workers whose difficulty is increased in making use of their pay through its nature, we certainly wish to look at it again.
Before I leave Part I perhaps I may say this. It is surely only the Government's zeal for deregulation which made them rescind and repeal all the statutes that fall into this category. I refer to the Checkweighing in Various Industries Act 1919 and to the particulars clause in the Factories Act. Perhaps these ought to go, but why repeal the Payment of Wages in Public-houses Prohibition Act 1883? Are the Government suggesting that there is any pressure from anyone except publicans to pay wages in public-houses? There is a certain curiousity about the way in which, once the Government get their hands on an area of statute and want to deregulate, they sweep a lot of statutes away. That one, as far as I know, has not been mentioned in the debate in either House.
Lord Rochester: My Lords, it is perhaps odd that I rather than a representative of the Government should ask this question, but is it not the case in the matter of cashless pay that it is not possible for an employer unilaterally to require employees to accept cashless pay if they have previously been paid in cash? If they do so they will be in breach of the employee's contract of employment.
Lord Wedderburn of Charlton: My Lords, the contract of employment point is another one. Of course there is the problem of the contract, to which I shall come in just a moment. I was addressing myself to the legislation that is being repealed. The first objection for the employer who employs a manual worker is that unless the workers make the necessary request under the 1960 Act the Truck Acts will apply. It was the need to adjust that position with which I was agreeing. By forcing cashless pay on workers, I refer to the position where the employer is in practice in control of the contract of employment. The noble Lord, Lord Rochester, must surely know that the cases decided in the courts on redundancy and unfair dismissal give the employer the power without a dismissal for redundancy or unfair dismissal to adjust the contractual terms where he can do so by his power in negotiation without any fear of the employment protection laws. The people we are thinking about in Part I of the Bill are mainly those in respect of whom negotiation at the bargaining table is not really a very serious protection either. In other words, we are taking away the legal protection of statutes from those who have the least protection at the bargaining table. It was in that sense that I spoke of the employer forcing the matter, forcing it into the contract, if one puts it in a legal way.
Part II of the Bill, the truncation or emasculation of the wages councils, puts me in some difficulty, and indeed some of my noble friends as well. There have been occasions when government spokesmen and publications have appealed to evidence—albeit sometimes unspecified, as in the consultative document—claiming that the evidence is that the amendments to wages councils on a single rate of pay and the exclusion of workers under 21 will provide more jobs. I thought that we were going to have some exposé by the Secretary of State as to which of these he relied on and which he did not. He did not mention one. At least his spokesmen elsewhere have done better than that. The evidence is not all one way. There are those who argue—but I am not going to quote them, either, because that would only delay the House. I have notes on 13 major pieces of research—Treasury research; at least one should start with something that would be acceptable—and they are not all one way at all; though I do say that as the research gets closer to the ground and closer to wages councils the doubt increases, as the Select Committee in another place found, as to whether this case can be made out. The working paper for NEDO also has not accepted the claim that it is fairly clear, as the Government are claiming, that there will be more jobs. So we say that we do not accept that. It was not argued in this House that the evidence is there. It is again produced as a kind of Druidic doctrine, which is very appropriate to the Bill.
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When we said that workers are going to be pushed into "sweat shop" conditions—and I may say to my noble friend Lord Houghton that, in face of a powerful and instinctive negotiator like him, although conditions may have been low when he started work I am quite certain they were not allowed to remain anywhere near "sweat shop" conditions for very long—this caused some amusement on the Government Benches. I do not know whether "sweat shop" is a new phrase to them. My noble friend Lord Graham gave some illustrations which I will not try to repeat or add to, although he would be sure to agree that they can be added to again and again. These are real people on real amounts of money trying to live real lives. They are not just the product of some pamphlet put out by some organisation that has made it up.
What do the Government have to say in the face of the question: how far down do you want that £35 a week to go? They have an obligation to tell the girl in the hairdressers, or in catering or in hotel service how far down they want it to go in order to produce jobs for her fellows, certainly if they are to get any kind of assent. No wonder the CBI and the Institute of Personnel Management cannot wholly support the Government in this. They are embarrassed by the Government's attitude to the lowest paid among us.
When the Government denounce or renounce ("denounce" is the technical term, of course) the ILO Convention, as they have to do for Part I, they are aware that Convention 95 is signed by some 80 countries, and there is now Convention 96. I often wonder whether the Government think of getting out of the ILO, they renounce so many of the conventions. Perhaps they would like to publish the ones they think are helpful rather than the ones they want to denounce. Ninety countries say, "Whatever our problems, we will not have a 'sweat shop' economy". Whether they keep to that is another matter, but by denouncing this convention we are withdrawing that proposition on behalf of the United Kingdom. We are withdrawing the assertion that we will not have a "sweat shop" economy. That is the relevance to Churchill in 1909; that is the relevance to the attitude that he displayed then. Whether he displayed different attitudes later of which one or other of us would disapprove, is another matter.
Enough figures have been given today (and have not been denied) to show that the position of the young worker under 21 who is now being excluded from wages council minima has been getting worse in any way in which you like to measure it compared with adult rates. The rates of young workers have been falling away from the rates of adult workers over the past five years. There has also been in some groups a clear cut in real wages.
One point has not been made. It seems to me that, purely as a matter of construction, when these were young workers in difficult circumstances on very poor wages, a great deal rested on the age that the Government chose. Why did they choose 21? We have never really had it justified why they chose 21. It is a very strange business in their literature. If one looks at the consultative document one finds a quotation, which has been matched, afterwards, that in Holland the age is 23. In the Dutch minimum wage arrange-

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ments you have to reach 23. There it is left; and this has been used again. I thought I had seen this somewhere before. Sure enough, it is on page 57 of the ILO survey on minimum wage fixing. It says that the position in the Netherlands is wholly unique. The highest young worker age limit is found in the Netherlands and it is 23. All the other examples quoted are 17 or 18, with arrangements for abatements in other countries. Indeed, 18 is obviously the normal age.
So when the Government reach for evidence, they are so unused to using evidence that they cannot even use it without the selectivity that would cause it to be thrown into the wastpaper basket otherwise. It really will not do for the Government to think that that is an amusing example of their cleverness, because it is not an amusing example to workers who are to find that their wage rates are pushed down on the basis of some single quotation from a book of great value, which might have been of great value in our debates and which we hope will enthuse your Lordships rather than the consultative document at the Committee stage.
The questions that my noble friend Lord McCarthy asked therefore still stand. First, what is the estimate for the number of jobs that will be created in the light of what has been said previously? Secondly, what indication can be given about the fall in pay that will be required to effect it? What indication can be given? Lastly, will that figure be net or gross?
Before moving on to Part III of the Bill, there is one other point. The Government have never answered the question as to why they have allowed the enforcement of wages councils to be in such disrepair. The number of inspectors has fallen by nearly 50 over the past six years. The number of prosecutions in civil arrears cases and the number of visits has fallen. The noble Lord the Secretary of State stated—and if I misquote him I apologise but I hope that I have right the substance of his remarks in Hansard—that very many breaches were caused by managers not understanding complex wage boards.
Such evidence as I know of and as there is—and it is not very strong—has always suggested that a very high number of underpayments are not accidental, and that that is the finding of the inspectors. If the noble Lord has a document from the inspectors to show what he said, I would ask him to put it in the Library so that we may all see it. My understanding is that a very high proportion of underpayments—and there are a lot of underpayments in wages council industries, as my noble friend Lord Graham said—are not accidental.
So we have a situation where, if one lists the final points, one must ask these questions. What about the substitution factor? If there are new jobs, do they substitute for others? What about the single rate? What about the position of holidays, where we shall be the only country in the EC with no provision in that respect? How can that be right? What is the argument to take away the requirement on holidays? How can it be right that one single rate should go across an entire wages council and make nonsense of what has become a rather complex, and in places overloaded, but useful machinery?
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I wish to make one point only on Part III. I hope that the Secretary of State will explain in detail when we reach the Committee and Report stages just what is the justification for Part III and what are the reasons for it. What are the reasons for deciding upon a figure of 10 employees? Why was that figure chosen? Our employment law is littered with different definitions of small employer, for which more than one administration has been responsible. There has been a definition of not more than five employees or fewer, or for not more than four, or for not more than 20. Now we have a figure of 10 employees. Why is that? May we know?
Secondly, if this is an insurance fund still, is it really being run on insurance principles to have contributions going on but some people being taken away from benefit? Does the Secretary of State agree with what was said in another place by one of his colleagues from the Front Bench—that that is a sensible reform because it will free public spending on job creation instead of subsidising redundancy?
Lord Young of Graffham: Yes, my Lords.
Lord Wedderburn of Charlton: All right, my Lords. Then if so, how? Let us know how the funds are to be used. That would be very interesting. If the Secretary of State says, yes (and I take it that he said, yes) then let us in Committee and on Report know for what those funds are being used and whether that is a proper way of taxing for them. I can see that some employers might perhaps feel that it was slightly out of phase with our usual constitutional arrangements. Surely the one justification that we cannot make is that which the Secretary of State appeared to give: that the rebate on redundancy payments is now inappropriate because it was there to help shed labour in the 1960s. There are plenty of redundancies around and one should have thought that it was there not merely to help shed labour but to help with redundancy pay arrangements. I should have thought that some employers would find that a very strange statement.
The bulk of the Bill, in Parts I and II, therefore goes to a very fundamental aspect of government policy. Nobody looking at the facts of the past six years can deny that the rich are now, simply as a matter of social fact, better off than they were—that they are very much better off. We shall certainly have the figures, but not now. The noble Lord may say that that is not the case. I am sorry, because I should have expected him to agree that those people who are on more than five times average earnings are, in terms of tax, very much better off than they were in 1979. And that is not going up very far. If one goes way above that, then the position is much clearer.
As to those who are moderately well off—and this is a very important point in the Government's strategy and it is one of which my noble friend should take account—the Government's strategy is to keep a sufficient number of those who are in work (the core workers, as they are sometimes called these days) sufficiently well off to keep the thing going. That is clear, and it is quite a sensible strategy. But with it goes the third prong. While the rich are doing better and the moderately well off are, we hope, doing sufficiently well, the poorer must do worse; and from those weakly-protected workers there must be taken away,

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in terms of deductions for fines and in terms of minimum wages under wages councils, even the protection that they have.
2.6 p.m.
Lord Trefgarne: My Lords, in rising to bring the strings of this debate together and draw it to a close, I start by suggesting to your Lordships that we are proposing a sensible and moderate reform that will reduce rigidities and red tape in the labour market and thereby promote jobs; bring the law on the payment of wages into the twentieth century; and, above all, help young people get their vital first foothold on the employment ladder against competition from older, experienced workers.
At the same time, that reform will maintain a basic level of protection for workers in wages council industries where the work of the council has become an accepted part of the fabric of the industry, as well as provide new protections against deductions from pay in areas of known abuse, to ensure that what is rightly due to workers is paid and that a very large proportion of the pay packet does not disappear in deductions.
To create jobs at an acceptable rate we as a nation need to ensure that the innovators, the entrepreneurs, the people who create wealth and jobs, are not hampered by bureaucratic and out-of-date controls and restrictions. Central to this is a labour market that is flexible in operation allowing employers and workers to offer and accept work on agreed terms, with the minimum of statutory intervention.
That is what the Bill is about. It is wrong that small businesses should be distracted from their main task of providing goods and services by the need to struggle with the complexity of wages councils' orders. It is wrong that young people, struggling to get that important first foothold in the labour market, should be prevented by wages council minimum rates from taking work at wages they find acceptable and which employers are willing to pay; and it is wrong that employers who reach sensible agreements on matters relating to the payment of wages should have these agreements disrupted by out-of-date controls.
The Bill is designed to update, modernise and, where this is sensible, abolish statutory restrictions. But a sensible minimum level of protection is left: minimum statutory entitlement to wages in wages council industries, basic controls on deductions from wages and statutory entitlement to redundancy pay, which the Bill leaves unchanged.
Having said all that, a number of important and interesting points have been made during the course of the debate and I will endeavour to deal with as many as I can. I take first the speech of the noble Lord, Lord McCarthy. I was glad that the noble Lord acknowledged that the existing laws on deductions from wages cover only a limited group of workers, but the noble Lord will not be surprised to hear that we disagree with his view that the new general protections are not a significant improvement on the existing enactments. I suggest that there is no evidence to support the noble Lord's assertion that removal of redundancy rebate will lead to a spurt in redundancies. Redundancy rebate has been reduced before, falling from 70 per
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cent. to 35 per cent., with no evidence of such effects. On the level of the new single minimum rate to be set by wages councils, the Government rightly believe that the minimum rate should be the floor of a wages structure. If it is set at too high a rate it will clearly cost jobs.
The noble Lord asked about the views of employers on the possible abolition of the wages council system. It is true that most employers, in consultation, wanted the reform and not abolition of the wages council system in the industries concerned. The Government have responded to that. We are not abolishing the system but reforming it. On wages orders, I was glad that the noble Lord recognised the complexity of many wages orders. His solution envisaged creating more wages councils and statutory joint industrial councils. That would compound our current problem but would, I suppose, make some contribution to the present unemployment figures.
The noble Lord, Lord McCarthy, also asked about job gains from wages council reforms. It is impossible to predict in any precise way the number of jobs which may result from these reforms. Much will depend upon the reaction of employers and workers to the greater freedom and flexibility in fixing wage structures which the Bill affords them.
Lord McCarthy: My Lords, the noble Lord says that it is impossible to predict. How does he explain the figures given by the Secretary of State of between 50,000 and 100,000?
Lord Trefgarne: My Lords, my noble friend does not recall giving those figures, but if the noble Lord will draw my attention to them I will certainly give him chapter and verse. The fact is that some figures have been proffered as to the likely effect of the total abolition of all wages councils. That is not what is proposed under this Bill, and naturally it is not possible to read across from the figures that some people have suggested may apply to the total abolition scenario to the more restricted proposals now before us.
All the studies which have been undertaken on the possible effects of abolishing the system point firmly to job gains and clearly the Government's reforms must go some way down the same road. Of course, we recognise that there will be a some displacement of adult employees, mainly women working part time, by young people. However, the latest evidence from the young workers system is that this will not be as great as the noble Lord suggested.
I turn to the remarks of the noble Lord, Lord Rochester. I welcome the noble Lord's support for the repeal of the Truck Acts and I agree that they have had a pernicious effect on perceptions of status. I am happy to assure the noble Lord that guidance material on the Bill will be produced before Part I of the Bill commences. I am sure that will be helpful to employers and workers. ACAS are also aware of the suggestion that it should produce advice on aspects of the Bill. As regards the noble Lord's point about deductions, we do not think that employers should face any greater penalty for making an unlawful deduction than is proposed in the Bill. The penalties are that the employer has the disruption of going to the tribunal and loses any excessive deduction entirely.

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On wages councils, we are determined to reduce the complexity of wages council orders and we are rightly limiting councils to the basic elements in pay. Holiday entitlements should join the large number of items, such as starting and finishing times and the amount of overtime, to be determined contractually.
The noble and learned Lord, Lord Denning, gave us a useful history of the Truck system. I agree with him, and enjoyed his speech. I am happy that the noble and learned Lord supports Part I, on controls on deductions, as fair and practicable, and that he supports Part II as a fair system.
I hope that the noble Lord, Lord Scanlon, will understand and recognise that the simplification of wages council orders will make it easier to ensure compliance with the minimum wage rates that are set. I am grateful to my noble friend Lord Teviot for his perceptive observations on the Bill and his support for it. My right honourable friend the Secretary of State for Transport has indicated that he is well aware of the problems of the passenger transport authorities and has taken action, as my noble friend was good enough to acknowledge.
If I may say so, the noble Lord, Lord Graham of Edmonton, is wrong to say that the Bill is an attack on the poorest. The most vulnerable members of our society are the unemployed who are seeking work, and if the Bill helps them to find work then this surely is to be welcomed.
Lord Graham of Edmonton: My Lords, perhaps the Minister will be good enough to give way. Is the noble Lord prepared to produce any evidence? If in fact all that we have are premises, then surely we are dealing merely with dogma and doctrine. Where is the evidence that the Bill will produce the extra work that will absorb unemployed people?
Lord Trefgarne: My Lords, the doctrine that I ask your Lordships to accept is the doctrine of common sense, which is that if employers are obliged to pay young people wages that are higher than necessary then they will employ fewer of them. I should have thought that stood to reason.
As regards part-time workers, I can tell the noble Lord, Lord Graham, that the protections in the Bill will apply to all workers, whether they are part-timers or full-timers. The noble Lord mentioned the case of someone working at a petrol station who had £10 deducted from his wage of £48 in order to cover shortages. This Bill will prevent such an occurrence. The employer will be able to deduct no more than £4.80.
I was grateful to the noble Lord, Lord Kagan, for his interesting views on the training system. I fully agree that employers have a responsibility to keep their future training needs under review and to devote sufficient resources to meeting them. The noble Lord, Lord Houghton of Sowerby, mentioned the interesting saying of a distinguished American trade union leader: "Anything that harms the workers is bad, and what the workers want is more". Yet surely we must remember those unemployed people who are not workers but would like to be. If the wages of those in
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work rise beyond the increase in efficiency that we can achieve, then that will cost jobs. So in the end, taking more and more will harm the workers and not help them.
I turn now to the speech of the noble Lord, Lord Wedderburn. The noble Lord asked why we could not retain criminal sanctions against employers as the provisions do not really penalise employers who make unlawful deductions. We believe that the circumstances envisaged by this Bill do not warrant criminal sanctions. The important point is that workers should be able to recover amounts which are unlawfully deducted from their wages. The industrial tribunal system is much more accessible to workers than is the full panoply of the court system. It is more appropriate that statutory rights connected with employment matters should be dealt with by tribunals rather than the ordinary courts. Other complaints about statutory rights of workers, such as itemised pay statements and unfair dismissal, are indeed dealt with by such tribunals.
The noble Lord also felt that the "fair and reasonable" requirement should be retained. That is of course the requirement contained in the 1896 Truck Act. However, it is a matter of judgment as to what constitutes a reasonable deduction. The Government's approach is to leave this decision to the parties by saying that what they agree to as deductions is lawful. It puts deductions on a basis similar to that applying to other terms and conditions of employment. A legislative provision to the effect that deductions had to be reasonable would mean that the parties would not know where they stood.
The noble Lord made reference to the possible difficulties arising from the lack of banking facilities of people who would be paid by some non-cash method in the future, but non-cash methods of payment do not only mean payment into a bank account. Other methods include payment into building society accounts, cheques cashable by banks on arrangement, or in local shops, and giro cheques payable at post offices. Unemployed people have been paid benefit by giro cheque for some years and have been able to deal successfully with them. For those who have bank accounts, most banks now offer free banking for as long as the account stays in credit. I am sorry to say that I have not had the benefit of that facility for some years.
The noble Lord, Lord Wedderburn, asked where the 10 per cent. figure came from. He was of course referring to the maximum deduction from any payment. The important thing is to have a limit on the amount of deductions to cover shortages from any one pay packet to ensure that workers are not left with hardly any wages. We consulted on the 10 per cent. figure and it proved widely acceptable. I should make it clear that the 10 per cent. is an instalment: the whole deduction can in due course be a larger sum than that.
The noble Lord asked, too, about the ILO convention. We had to denounce that convention in order to be able to remove young people from the scope of the wages councils. That furthermore improves our freedom of action to help free the labour market more generally.

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He claimed that academic evidence on reform of wages councils does not all point one way. Studies of the abolition of wages councils all showed evidence of a net increase in jobs arising from abolition. As I think the noble Lord, Lord McCarthy, said earlier, although I may be quoting him out of context, the range of estimates was from 8,000 to several hundred thousand. As I said earlier, we believe that reform will similarly produce a better employment climate.
The noble Lord, Lord Wedderburn, referred too to the evidence from the wages inspectorate. Its evidence showed that about half of all underpayments arise from a misunderstanding of the orders and some indeed from the non-receipt by the employer of the order itself. It is not true, as I think he implied, that most underpayment is deliberate.
If I may say so, this has been a good debate during which your Lordships have had the opportunity to voice general views on the content of the Bill. I look forward, as I have been promised it, to the more detailed scrutiny that we shall have at Committee stage. The Government believe that the Bill's provisions will enable employers to employ workers under modern conditions, unhindered by legislation and controls which may have been relevant to the problems and social attitudes of a different era but which now serve only to create bureaucratic barriers and burdens in the present economic climate. On behalf of my noble friend, I commend the Bill to the House.
Lord McCarthy: My Lords, before the noble Lord sits down, I accept that he has attempted to answer many of the questions we have posed, but he has still not tried to answer the question of how far the Government believe that wages will be required to fall in order to produce a significant employment effect. The Government must have assumed some elasticity of demand for labour in order to produce the Bill. What is the assumed elasticity of demand for labour?
Lord Trefgarne: My Lords, I dare say the greater the fall the greater will be the effect on the employment figures, but that is not precisely the answer to the question that the noble Lord has posed. We are not anticipating a grand fall in the levels of remuneration, but there will nonetheless, we believe, be some important benefits to the employment figures.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

EMS: United Kingdom Participation
2.23 p.m.
Lord Soames Lord Soames rose to ask Her Majesty's Government in what circumstances they would consider it expedient for sterling to join the exchange rate mechanism of the European Monetary System.
The noble Lord said: My Lords, until fairly recently the Government chose to let it be known what were the reasons which inhibited them from joining the exchange rate mechanism of the EMS. The noble Lord, Lord Cockfield, when he was responsible for
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these matters in the House, told us so from time to time. They were in effect—were they not?—first of all, the argument that sterling, unlike other European currencies, was a petrocurrency and that in the event of a serious fall in the oil price that might have a deleterious effect on the British economy while having a beneficial effect on the Continental economies. The second was that sterling's exchange rate was too high. A third was that inflation was high enough to endanger our economic prospects for the future and that they were notably worse than those of some of our trading partners in the Community.
More recently, and in particular on 6th May this year, in reply to a Question from me, we received a somewhat different message from the Government. They were waiting until the time was right. The Minister made it abundantly clear that he had no intention of saying what we were waiting for, and that meanwhile they were not interested in the views of Parliament or anyone else. Why that change of reasoning? The presumption must be that primarily, at least, the old arguments no longer stand up. Oil prices have dropped but that did not seem to have any major effect on the parity of sterling in relation to our trading partners on the Continent or with the dollar.
The Government, as have others, have done marvellously regarding inflation. That is good. With the fall in oil prices and, low commodity prices, inflation is now 3 per cent.—not all that different from that of our trading partners. Of course, we have the added factor of the trend, among thinking people, notably the Secretary to the Treasury in the United States and the governor of the West German Central Bank that greater co-operation rather than less cooperation is necessary to keep a healthy relativity in exchange rate parities. I think that was the reason the Government felt it necessary to fall back on that somewhat arrogant and apparently meaningless formula of waiting until the time was right.
If that has a meaning, the Government apparently had no intention then of telling us or anyone else what that meaning was. There can be no doubt about the advantages that have been derived by our trading partners on the Continent during the years 1979–1986 from being within the exchange rate mechanism. They were years of horrific international turbulence in exchange rates; and the EMS exchange rates, apart from the lira (which has a connotation of its own), moved in all those years by single percentage points, while during the equivalent period, if we take the deutschemark, for instance, our rate has moved at least 30 per cent. up, at least another 30 per cent. down and then 15 per cent. up again. There is no doubt that sterling's exchange rate relationship would have been much less volatile with European countries, at least, and with our trading partners in Europe, to the enormous advantage of our industrialists who are seeking to export to the Continent. They would benefit by having a much more stable exchange rate.
We should then have been in single figures also, instead of having those violent movements. It would also be a fair assumption—let me put it no higher than that, but I think there is good evidence for it and I shall say a word or two to your Lordships about why I think there is good evidence—that our interest rates during

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those years would have been lower had we been within the EMS.
When he replies, the Minister may well say that I have been pressing this matter for some time and, "Look what would have happened if we had gone in sooner" because our exchange rate was much less favourable vis-á-vis, for instance, the deutschemark in 1982—and I have looked up a debate that we had then—than it is today. One cannot always aspire to get in at the bottom of the market in the first place.
In the second place, we would have had the advantage of far lower interest rates for a number of years, which would have had its effect on our industrialists. our levels of production and our levels of unemployment. I say this having taken an interest for some years in the French economy. France joined the EMS in 1979. It was able to bring its interest rates in that year down to 12·5 per cent. when our interest rates were in the high teens. It also achieved in 1980 a remarkably high level of exports and of investment in industry. Why did France achieve that investment in industry? The answer is that being in the exchange rate mechanism gave a credibility to the franc. It gave credibility to speculators outside that the French Government intended it to stay in the same sort of relationship vis-á-vis the other European currencies. That credibility gave strength.
In 1979 and 1980, when French interest rates were 12·5 per cent., ours, although I cannot recall this precisely, were of the order of 18 per cent. This was in spite of the fact that the exchange rate with the dollar at 2·40 dollars was much too high for comfort. It was at that level not because of exchange rate problems but because of money supply matters. The monetarist doctrine was that interest rates had to stay up because of money supply not because of exchange rates. The situation has changed since then. I am not trying to make a lot of this. But the hard fact today is that the perception in the country is that interest rates are no longer governed by money supply but by exchange rates. That is what guides them.
No one knows—because, understandably, the Chancellor does not want to say—what are the exchange rates that the Chancellor wishes to see. As no one really knows, there is not the credibility. If, however, we were to join the exchange rate mechanism, there would be that credibility and the strength that flows from it by virtue of the fact that the world would know—our industrialists would have that much more credibility—that this was where the Government stood. We do not know at the moment what exchange rates they are looking for. If, however, we were in the ERM we would at least know what sort of exchange rate was in the Government's mind. You do not join the EMS to have a realignment. You join it at the rates of your choice. This provides the credibility that such exchange rates are those the Government aspire to. That, in turn, would have an effect on interest rates. This would give, I believe, lower interest rates. There is good evidence to that effect. Lower interest rates equal greater investment. And greater investment is the main key, in my view, to the cure for our severely high unemployment—at least for some reduction in our unemployment. That would be a considerable advantage to our exporters.
I turn to the fact that the broad spectrum of informed opinion of those who live in the real world are in favour of our joining the exchange rate mechanism. Rumours that are not necessarily unfounded have it that the Chancellor of the Exchequer, the Foreign Secretary, the Secretary for Trade and Industry, and for all I know (although I certainly do not know), my noble friend the Minister, are in favour. Certainly, the Governor of the Bank of England, we are told, is in favour. Certainly, the chairmen of all the clearing banks are in favour. We shall hear shortly from my noble friend Lord O'Brien what he, as an ex-Governor of the Bank, thinks about these matters. Certainly, the captains of industry, whose industries depend on exports who will get more production if they can export more, all want to see the certainty that flows. from being a member of the ERM. After all, 45 per cent. of our trade is with our Continental partners now. It is not what it used to be—a small proportion. It is 45 per cent. Only about 14 or 15 per cent. of our trade is now with North America, Canada and the United States. This should not be cast aside as if it were nothing.
All these gentlemen are, or are reputed to be, in favour of our joining. Who do we put on the other side of the scale? Who is not in favour of our joining? I am told that Mr. Alan Walters is not too keen on it: and the still small voice of Brian Griffiths may well be added to that. However, if you put that in the balance against others in the Cabinet to whom I have referred, there is no doubt what tips the scale very considerably.
What is the remaining fear? As I say, it is no longer the petro-currency. It is not inflation. It is not our existing parities. We have missed the 3.30 mark with the deutschemark but not by all that much. One cannot always aspire to get in at the bottom of the market. I do not think that there is anything wildly out of phase with the present parities of sterling.
What, therefore, are the fears? I can see two. The first that many of us can see is the possibility that if the polls are running against the Government in the run up to an election, and the polls may show signs of the Labour Government getting in, those who deal with the matters at home and abroad are frightened that if the Labour Government were to get in they would revert to type—like a ponticum rhododendron—and all kinds of silly policies would be forthcoming. They might want to "short" the pound. There might well be an exodus of pounds in the same way that France, before the presidential elections, had to take very drastic action in order to inhibit a flight from the franc temporarily, for a day or two. That stopped it. When M. Mitterrand got in, in spite of some temptation to throw it over because it would permit him thus to throw out of the window all forms of discipline, he saw it to be in the French long-term interest to remain in. Remain in they have, and they have benefited much therefrom. If there is going to be a flight from the pound it will not be for only political reasons but others as well. This will happen anyway whether we are in or out of the EMS. It is no less a devaluation if it is a realignment than if it is a floating down. Perhaps we have become more accustomed to it now than we used to be. However, it is no less of a realignment if it comes down by 20 per cent. by floating down by 20 per cent. or by there having to be a realignment within

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the exchange rate mechanism, within the EMS. The Goverment cannot be waiting for that. That cannot be the factor for which the Government are waiting to decide whether or not it is "the right time" to join.
Perhaps it is the fact—and this is a real anxiety—that, with an inflation rate of 3 per cent. and a productivity increase of almost minus, but certainly of nothing worth having, we should still be having increase of earnings of between 7 and 8 per cent. and of real earnings of around 4 or 5 per cent. Is that the reason? It worries me. I believe that it must be the main worry for our country that it is still happening and apparently it does not seem to matter whether inflation is at 20 per cent. or 2 per cent., or whether unemployment is at 2 per cent. or 13 per cent., because we still seem to have to have these vast increases in earnings which are neither warranted by inflation nor matched by productivity. However, that is not because we are in or not in the system. We must solve it anyway. If we do not solve it, then God help us. We shall pale into uncompetitive insignificance if we do not cure it somehow. The ingrained difficulty which we have lived with for so long—namely; the habit of every year having to have an increase regardless of what happens in the market—is a habit of which we must cure ourselves. That cannot be the reason why we are waiting for the time to be right.
No, my Lords, the EMS—of which the exchange rate mechanism is the important feature—is a system which imposes a degree of discipline in the conduct both of monetary and of fiscal policies. It provides both an incentive and an imperative for the prudent conduct of economic policy. It provides an effective and a wise inhibition on the Government of the day not to allow themselves to follow along the lines of policies which could be those of dogma of any government. It is an inhibition against dogma in governmental economic policies. That must be right for us.
If it be right, my case is that we should not brook further delay before joining the ERM so that we may have between 18 months and two years of experience of it before the election. Plainly it would be neither good timing nor wise to join the ERM too close to the election. That is why I ask the noble Lord whether or not we have decided to join. We cannot wait much longer. They must decide either to do it or not to do it. It behoves the Cabinet itself—and I underline the word "Cabinet"—to come to a decision without delay. That and that alone is the crux of the issue. This above all: to our own selves be true. It has nothing to do with waiting for circumstances to change, because there are no circumstances that will change to make it more or less attractive for Her Majesty's Government to join. The bullet must either be bitten or it must be cast aside. I hope that my noble friend the Minister will agree and will say as much today.
2.45 p.m.
Lord Lever of Manchester: My Lords, it must now become clear to all that the relatively high level of co-operation the world's advanced countries achieved immediately after the war depended far too much on American dominance and not sufficiently on a shared
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and settled understanding of the nature of the modern world economy. Hence we had a regression in the 1970s from that co-operation which had been the key to the greatest advance in wealth creation in such a period that the world has ever seen.
The reason why world co-operation is vital in monetary and international economic and financial affairs is that world trade is increasingly financed and increasingly internationalised whereas political power is exercised within national boundaries. One has to build bridges. We did build bridges in GATT and the monetary system after the war. We let the main bridge, which was the monetary system, fall to pieces and consequently GATT, which preserved the onward liberalisation of trade, was weakened, because first where there is no pooling of effective sovereignty to create the bridges the alternative is anarchy. Anarchic, restless and blind forces take over the crucial areas of the world's finances and economics.
We have seen the result. The result has been distorted trade patterns, dangerous imbalances of trade causing immense friction between nations and economic disruptions. So much for the achievements of the apostles of the free market with an inadequate understanding of what Adam Smith wrote and thought. In fact, they have turned to the enemies of the free market because of the anarchy which prevails in international monetary affairs.
It is absurd to believe, as people continue to believe, that you can have on-going liberalisation of trade on the one hand and distorted and yoyo parities on the other, because the whole basis of liberalised trade advance is the law of comparative advantage. That basis is completely undermined if you have the kind of parity distortion, volatility and absurdity we have experienced. It is not surprising therefore that if you practise currency instability and preach increased liberalisation of trade you do not get increased liberalised trade; you get increasing demands of protectionism and other major disorders in the world scene.
In fact, all this arises from the regression in the 1970s, from the crucial need for international cooperation behind the monetary system. It is not only the rising protectionism. Protectionism, with its menacing threat of trade war, the debt crisis and the high levels of unemployment—all three are the ugly children of that backsliding from international cooperation which made us so uniquely prosperous in the immediate post-war period. Incidentally, it is nice to have a repentant sinner, and you are on the right road, but even if we get repentance now we have let the trade imbalances caused in large part by currency distortions go on so long that you will not be able, in my firm opinion, to reduce or control those trade imbalances in time to avoid their being overtaken by protection merely by parity changes.
We have the extraordinary anomaly at the present time that the strategy of the great nations on the one hand, is to press the most competitive nations to get rid of their surpluses and, on the other, the least-developed countries of the world are being pressed to achieve an export surplus. You have only to ponder that to see the muddle that international money is in at the present time.

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The key to this is not merely parity changes, I must say briefly; it is a recycle of surpluses in the most efficient and competitive nations to the right places where they create employment and economic advance—not as now, where they go to the wrong places, where they disrupt employment and retard economic advance. The reason these funds flowed into America was that the parity prospects in the unstable parity world made it inevitable that that would be evermore the gravitational centre. There is nothing wrong with that if there had been a proper monetary system in force to control it. The restoration of monetary stability is therefore an important precondition of handling all this range of problems of international finance and trade.
When the EMS was formed, it was beginning to dawn on everybody that this was the case. I happened to be in the Government at the time and we recognised the desirability of the objective of currency stabilisation and the need for co-operation to achieve it. We blessed the EMS, we put one toe in the water—not the relevant part of our anatomy—as a little entry to the fringe of the EMS. We said, "The whole thing is a splendid idea, but count us out". I think it would perhaps be kinder and more decorous if I do not outline the reasons that were given in cabinet discussion for staying out at that time.
The doctrine of unripe time, to which the noble Lord, Lord Soames, has referred is always there, available to the Treasury when they prepare these briefs, when they are not in sympathy with the purely negative position that they are asked to adopt. They have got the doctrine of unripe time to help them. I think it is a waste of time to recite the contradictory arguments that have been used to encourage us to stay out. But since we did not go in, the weakness of the EMS has been that it has not been able to play its full role in the world. The full role of the EMS is to be the European regional piece in world co-operation with America and Japan. That is its full role. How do you expect it not to be inward looking when Britain, Europe's greatest financial centre and biggest link with world finance and trade, ostentatiously abstains year after year from joining?
I do not know that it is widely realised that we have now reached the point in the world where it is a dangerous race between the achievement of an adequate level of monetary co-operation and a further rise of protectionism to a level where liberal achievements post-war and the economic advances built on them are in serious danger. Nobody here should delude themselves that President Reagan's firm position on this is not to be qualified. He has already been driven to compromise. He will be driven to compromise further. And if he is driven in that way (unless we act to ameliorate the difficulties) against his intentions and wishes, to accept further protectionist measures in the United States, we are at the point where this will inevitably produce retaliatory action from Europe and Japan. The consequences of that will be very disastrous indeed to all our prospects; and if economic and financial co-operation is gravely battered in this way what do your Lordships think will happen to political co-operation?
The Western world, as yet somewhat tentatively and half-heartedly, is groping towards a recognition that
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only by regaining a level of international co-operation in financial and economic matters can we again achieve the prosperous independence of the two decades that immediately followed the war. Two of the biggest stumbling blocks to that recognition have been the United States and Great Britain. Happily, there is a beacon of light. James Baker, Secretary of the Treasury in America, is now leading the world in this healthy direction. I wish I could say the same of Britain.
If Britain is not willing to co-operate with its neighbours in a community of which it is a member and in an institution of which it is a part-member, what confidence can the world have that Britain is going to co-operate in the vital and immediate task of international monetary co-operation and reform? The question for the Minister today is this: is Britain to continue in this path? Is Britain to continue, alone in Europe, to pursue the fantasy of autonomy in a global economy on these monetary matters? It is not splendid isolation: it is isolated ineffectiveness.
I should like to conclude by saying this. I know there are doctrinal differences in the Labour Party: I understand there are even some in the Government, according to the noble Lord, Lord Soames, on the question of Europe. But I can say that if I had not been (which, of course, I am) an enthusiastic member of the European Community, I would still have wanted to join the EMS because of its vital world role, when we get in, in relation to money as well as its European role.
I end by expressing my view that the Labour Party would accept an intelligent act of international cooperation that joining the EMS would mean, and all that might flow from it, to deal with the debt problem, the unemployment problem and similar matters. My final words are an expression of deep gratitude from myself, and indeed from all of us, to the noble Lord, Lord Soames, for having given us the opportunity of discussing this subject. Far from being untimely, if the House is at all persuaded on the themes that I have offered, it is exceedingly timely and right.
2.59 p.m.
Lord Ezra: My Lords, this is not the first time in recent years that we have debated this issue. To go back no further than three years ago, we had the very important report of the Select Committee of this House, which sat under the chairmanship of the noble Lord, Lord O'Brien, who is going to speak to us later, which analysed very clearly and impressively the whole question and which concluded at that time, in the debate which took place in this House on 14th November 1983, that the question was then: what were the reasons which had led the Government not to feel that the time was right? If I may quote from the speech of the noble Lord, Lord O'Brien, at that time he said:
"It seems not unreasonable therefore to ask Her Majesty's Government what they mean by 'when the time is right'? Are not present conditions acceptable?"
That was three years ago.
We then had the Federal Trust Report entitled The Time is Ripe, in November 1984, produced under the chairmanship of the right honourable David Howell, which asked the same question and came to the same conclusion. We had a debate initiated in this House by my noble friend Lord Diamond in March 1985 on the

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question of currency stability. We had the report of the Select Committee in another place, the Treasury and Civil Service Committee, produced in October last year. Then, quite recently, we had what I consider to be a most important and well-reasoned article by Mr. Sam Brittan in the Financial Times dated 29th May 1986, under the heading "Sterling, the Election and the EMS". We are much indebted to the noble Lord, Lord Soames, for enabling us at this very crucial moment to redebate this question, and I think we shall have to go on debating it until a solution is reached.
I am going to assume that both the previous Labour Government and the present Government, when they say that we will join the exchange rate mechanism when the time is right, mean what they say and that this is a truthful statement of intent. Therefore the debate is not about whether we should join the exchange rate mechanism, but when we should join it. I hope that when the noble Lord, Lord Young, replies to the debate he will confirm that this is a proper interpretation of government policy; that we are exclusively concerned with timing and not with principle.
So it is to timing that we clearly have to address ourselves today on that assumption and I should like to have a look at it on three bases—from the point of view of national interest, which is obviously paramount; from the point of view of European interest and from the point of view of world interest. In that latter connection, I shall be referring to some of the remarks which we have just heard from the noble Lord, Lord Lever, in his highly intellectual and impressive analysis of the world currency and economic situation.
Let us look at the national interest. As the noble Lord, Lord Soames, has made clear, over recent years we have heard repeatedly specific reasons why the Government felt the time was not right. I personally have asked a number of Questions in this House and, until recently, I was told that the main reason was that sterling was a petrocurrency. That answer is no longer given, because it is quite clear that sterling is no longer a petrocurrency; and a very good thing too. In the recent oil crisis, with the massive decline in oil prices it has been very satisfactory that this country's currency has managed to avoid the dragging down which there might otherwise have been. So the petrocurrency argument, which was used to say that we really do not fit in with any other Western European currencies, is clearly no longer valid.
There have been arguments that we ought not to get ourselves committed to a system of this sort until there was a greater convergence of economic policies. This argument of convergency has been used time and time again, but if the argument were taken to its logical conclusion—that there ought to be complete convergence before we were to join the European monetary system to its full extent—we would in fact never do so. What has in practice happened is that within the countries that have joined fully there has been a greater degree of convergence. It is becoming more and more noticeable.
For example, in quite recent times it has become apparent that both the French and the Italian
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governments are giving serious thought to reducing the exchange control systems which they have operated for so long. Had one accepted the argument for not going into a European currency system before the economies were convergent, one should have thought that they would have been much further off coming to that conclusion, but in fact they have come much nearer to it.
One of the other interesting developments is that, although Germany has been a crucial member of the system, the Central Bank in West Germany has been against the extended use of the ecu for the purpose of official currency transactions. Nevertheless we now gather that the attitude of the Central Bank in Germany is changing. It is very noticeable within the other members of the Community who belong to this system that their economies are beginning to converge more as a result of having being within the system since 1979 than converge less.
The fluctuations of sterling have been referred to by the noble Lord, Lord Soames, and were dealt with in detail in the article by Mr. Sam Brittan to which I referred. It is quite remarkable that if you leave out the Italian lira, which is a special case and allowed for, the fluctuations over the whole period of the existence of the European monetary system among those members who belong to it wholly have been in single figures, whereas in the case of the United Kingdom the fluctuation in sterling has been in double figures over the same period.
There is growing concern that as the oil revenues continue to diminish and as we could possibly become less competitive for a variety of reasons, including the diminution of investment in our industrial potential, we could be running into balance of payments difficulties in a year or two's time. Those balance of payments difficulties would inevitably bring with them an enormous strain on sterling. The question we must ask is: if that unfortunate situation were to arise, would the strain on sterling be greater if we were on our own or if we were part of the system?
Being part of the system has certainly helped the member countries. They have been buttressed by the support of the monetary facilities available to them from the system as a whole. It is beginning to look as though, viewed from the purely national aspect, this could be the right time for us to contemplate taking this step, which in principle governments both of the Labour Party and of the Conservative Party have said they are not against taking.
The important question of the relativity of sterling to other currencies has been resolved by the effluxion of time. In relation to other European currencies we are now in about as good a state as could be expected. It would seem to be not unreasonable that we should seek to lock ourselves into that rate of exchange having reached it, rather than allow the relationship to get out of kilter once again.
Let me now turn to the European dimension of this problem. Britain is about to assume the presidency of the European Community. If we want to demonstrate our positive intentions vis-à-vis the Community, this would be absolutely the right time to take that step. We have already taken one important European step in supporting the concept of the Channel tunnel, the

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legislative requirements of which we shall no doubt be debating later on. But now is surely the time when we could demonstrate our intention to create a European reality by joining the Community's monetary system in its full sense.
We have made clear that we are in the forefront of the campaign to create a real internal market and the noble Lord, Lord Cockfield, is now vigorously leading that campaign as the vice-president of the Commission. It does not seem to me to be logical to aim to create an effective internal market within the European Community if at the same time we, as one of the major trading partners within that market, do not fully adhere to what has proved to be a very successful monetary system.
There is a wider consideration. Quite clearly, having created an effective internal market we should be looking for more and more cohesion on a European basis. And so the ideas that were mooted in 1970 towards European monetary union could once more become something of a reality. It would be an extremely serious matter for this country if that movement were to emerge among those who fully adhere to the existing monetary system and we were to be left out. That would put us further out on a limb. So from the European point of view, I can hardly think of a time that would be more appropriate for us to move.
Let me finally turn to the world impact. As the noble Lord, Lord Lever, rightly said, what is now needed is for us in Europe to respond positively to the Baker plan. If we wish to try to stabilise trade in the world, to diminish the problem of international debt, and above all to prevent a return to protectionism, then we must seek to achieve some degree of world currency stability. Nobody is suggesting—not yet at any rate—that we should return to Bretton Woods. But there is not the slightest doubt that with the Americans having taken up their positive posture, and with the Japanese having shown themselves to be more reactive vis-à-vis the yen, the European part of that dialogue would be immensely strengthened by the UK becoming a full member of the European monetary system.
So it would seem to me, looking at the matter from the national point of view, from the European point of view and from the world point of view, that we have a combination of circumstances that overwhelmingly suggest that the time is now right for that important decision to be taken.
3.13 p.m.
Lord Bruce-Gardyne: My Lords, like other noble Lords who have spoken I should like to thank my noble friend Lord Soames for giving us the opportunity to have this important discussion this afternoon on a vital subject. I must confess that I always find myself in a slight quandary about it. The more that I listen to the arguments that are advanced for believing that the time (in the time-honoured phrase) is not right, the less convincing I find those arguments to be. But unfortunately I also find that the more I listen to the impassioned pleas of the dedicated enthusiasts for immediate entry, the more my doubts revive. I must confess also that I have felt a little of that this afternoon.
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I agree entirely with what has been said by my noble friend Lord Soames and the noble Lord, Lord Ezra, about the weakness of some of the objections that are raised to early British participation in the exchange rate mechanism. In particular, I agree very much with my noble friend that the argument that we might, in a pre-election situation, find ourselves confronted by an obligation to devalue the currency is not very impressive. It is hard to see that the difference between a devaluation within the exchange rate mechanism and a rapidly-slipping currency caused by the same factors of anxiety about the emergence of a Labour Government would really make a tremendous political difference.
However, I confess that I wonder a little about some of the consequences that have been held out to us this afternoon as likely to flow from our participation in the exchange rate mechanism. The noble Lord, Lord Lever, not for the first time suggested that in some sense it is a first step towards a more comprehensive and coherent global monetary system. The noble Lord has always been entirely consistent in his advocacy of the need for that. I confess that I have always felt, and still feel, that the obstacles can be more formidable than the noble Lord sometimes suggests. As I understand it, the present rate of capital movements across the financial markets are something like 30 billion dollars a day. That is a staggering sum for any system of co-ordinated intervention by central banks to be able to control.
I make one other comment in this context. The noble Lord, Lord Lever, referred to the grave danger of protectionism resulting from disorderly markets and parity imbalances. I am sure that we are all very well aware of that danger. Indeed, I entirely share every word that the noble Lord said about the consequences of a lurch into protectionism. However, I venture to suggest that the more immediate danger in that respect is the excesses of the common agricultural policy. It is the threat of a head-on conflict over agricultural policy between Western Europe and the United States which, in my submission, is a much more urgent and acute threat to the outbreak of protectionism around the globe.
I should also like to say a few words about the comments of my noble friend Lord Soames on the consequences of our entry into the exchange rate mechanism, in particular for domestic interest rates. He argued that, following French participation in the exchange rate mechanism, from the start France had substantially lower rates of interest in 1979–80 than we had in this country. But, as he rightly pointed out, the levels of interest rates prevailing in this country were directed at the requirements of domestic monetary policy. That may or may not have been right; I happen to think that it was right but others may think that it was wrong. However, those were the circumstances and the question of the exchange rate mechanism did not come into the position.
I find surprising, not for the first time. the assumption that if we enter the exchange rate mechanism we should be experiencing lower levels of interest rates than we have had outside. Frankly, I cannot help thinking that on numerous occasions the reverse must be true. The noble Lord, Lord Ezra, when dismissing the argument about our petrocurrency

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status, said that when there was the oil price drop at the beginning of this year the currency managed to avoid being dragged down. But the fact is that the exchange rate against the deutschemark fell by 20 per cent. in a very short time.
Of course, if we had been members of the exchange rate mechanism we could have sought, and obtained, an adjustment in the parity. But to go into the system with a view to responding to any development of the kind by changing your parity within the exchange rate mechanism is like going into marriage with the view to divorce. Divorce may happen, but you do not go into marriage with a view to consumating it through the divorce courts. One therefore assumes that if we go into the exchange rate mechanism we do so with the view to maintaining our station within the system.
Now the fact is that over the past six months, if we had been in that position, we should have had to maintain our station in the system by having very substantially higher interest rates than we have had. We chose the option of accepting an appreciable decline in the exchange rate of sterling against the deutschemark. Within the rules of the system that was not an option that would have been open to us. Therefore, I do not understand how it can be assumed that entering the exchange rate mechanism will be likely to lead to lower interest rates than we would experience outside it. In certain circumstances I accept that it might do so; but I submit that those interest rates would almost certainly be substantially more volatile. Of course, the fact is that the exchange rate mechanism is quite simply a deutschemark bloc and the obligation on the members, unless they change their parity within the system, is to keep in step with the deutschemark.
I submit to your Lordships that evidence over many years suggests that when the dollar has been going through a period of substantial appreciation, as it did for instance in the period 1981–1985, on the whole, with the pound outside the exchange rate mechanism, the pound has tended to depreciate against the dollar less than the deutschemark has tended to depreciate. Equally, when the dollar has been running weak, as in the period 1979–81, the pound has tended (as again today) to appreciate less against the dollar than has the deutschemark. So at a time when the deutschemark appears to be depreciating (and I submit to your Lordships that it may well continue to depreciate), the likelihood is that outside the system we would expect to see some depreciation, some perhaps small, further depreciation, of sterling vis-à-vis the deutschemark. That would not be an option which would be open to us within the system. Within the system we should have to use monetary policy, and in particular higher interest rates, in order to maintain our parity with the deutschemark.
I must confess that this leads me, perhaps rather paradoxically, to the conclusion that there is a short-term case to be made out for our participation in the exchange rate mechanism, but I must say that I do not think it is really the case that is usually made. I personally have some sympathy for the proposition that we should enter the exchange rate mechanism, because I believe that it would be likely to lead to
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interest rates in this country being higher than they would be if we stayed outside it. I happen to believe that monetary policy at the present time is (shall we say?) a little incontinent. I happen to believe that there is a great deal too much credit floating around the British economy and that some greater stringency in monetary conditions would be desirable.
Of course, in these circumstances it may be argued—and I should be inclined to argue—that there might indeed be a short-term benefit in joining the exchange rate mechanism and having the obligation of the discipline to which my noble friend Lord Soames has referred. But I must say to your Lordships—did the noble Lord wish to intervene?
Lord Ezra: My Lords, may I ask the noble Lord how he would explain the fact that those countries which are members of the exchange rate mechanism and have varying strengths of economy, as one must accept, have nevertheless all brought down their interest rates in recent times?
Lord Bruce-Gardyne: My Lords, I am bound to say to the noble Lord that part of the answer is that they have not. At one time, the French Government were induced to have overnight money market rates of 2,000 per cent. I believe on the basis of experience that it is just not true to argue that the existing members of the system have been able to avoid very considerable fluctuations of interest rates, and it seems to me to be even more unlikely that we should be able to do so.
However, as I said, my sympathy for the notion of participation in the exchange rate mechanism at the present time is heavily weighted by short-term considerations. We seem to discuss this issue—and the noble Lord, Lord Lever, did in particular—as if the exchange rate mechanism has proved an effective stepping stone to a greater co-ordination and stability of international exchange rates. I see no evidence for that at all. On balance, perhaps for the reasons that I mentioned just now, sterling has shown slightly greater stability over the period vis-à-vis the dollar than the deutschemark system. I do not think that that is at all surprising.
That leads me to my final reservation which is a point that has not been mentioned. What would the impact of our participation in the exchange rate mechanism be on the mechanism itself? I know that today the participating governments are on the whole overwhelmingly enthusiastic that we should join in. I sometimes wonder whether their enthusiasm would be long lasting. I have a nasty suspicion that, owing to its persistent remaining international role and also because of its vulnerability—which I believe still exists—to sharp changes in oil prices, sterling could turn out to be a destabilising partner.
Once again I emerge in a condition of agnosticism. If in replying to the debate my noble friend can assure us that the primary purpose of government policy in the months ahead will be to ensure that domestic monetary conditions are directed towards the fulfilment and achievement of a continued progress towards zero inflation, I should feel that, even if by the back door, this debate had performed an extremely valuable purpose.
3.26 p.m.
Lord O'Brien of Lothbury: My Lords, I too think that we should be grateful to the noble Lord, Lord Soames, for returning to the question of full United Kingdom participation in the European monetary system after the somewhat cursory response that he received from the Minister on this matter on 6th May. He has given us a most eloquent and impressive statement of the case for joining the exchange rate mechanism. Impressive contributions by other noble Lords since, not happily all in the same vein, have left little for me to add. But perhaps I may be allowed to cross a few "t"s and dot a few "i"s.
On 6th May (at col. 584 of the Official Report) the Minister said:
"we are a full member of the European monetary system".
With respect, I cannot accept that, and nor I believe would any of our Community colleagues. Only by participating in the exchange rate mechanism can we qualify as full members. At this stage, keeping 20 per cent. of our gold and dollar reserves with the European Monetary Co-operation Fund is no more than symbolic of future intentions, and it is those intentions which are at the heart of the argument.
I am among those who believe—and I have always believed—that it is in the best interests of the United Kingdom to make a wholehearted contribution to the greater unity of Western Europe and to do that through the agencies of the EC. Despite often repeated statements by the Prime Minister and other Ministers strongly endorsing that view, so far as I am concerned they do not carry complete conviction.
Doubts which I and many others have about the strength of this Government's commitment to Europe were, not unnaturally, much increased by the failure to join all the other members of the Community in the exchange rate mechanism when it was established in 1979. This mechanism was a real first step towards the greater unity to which those truly committed to Europe aspire.
The noble Lord, Lord Ezra, kindly referred to the subcommittee of the Select Committee on the European Communities which I chaired some three years ago and which studied the EMS at length and recommended that the UK should join the exchange rate mechanism. We concluded that over the years that mechanism had worked increasingly well and had served to minimise exchange fluctuations between currencies of the participating countries. We believed, and I still believe, that sterling would benefit from the co-operative support available to it within the EMS. Naturally, exchange rate adjustments are necessary from time to time as they are inevitably in any system or lack of it.
Those are made within the EMS in co-operation with fellow members and after full consultation, and the burden of adjustment, if such it be, is shared. I believe that support of our fellow members would minimise, not maximise, the need to increase interest rates. The United Kingdom has again just assumed the presidency of the EC for six months. We are told that it is most anxious to press ahead with the completion of the free internal market which President Delors and
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the noble Lord, Lord Cockfield, aim to achieve by 1992. Can anyone doubt that success on this front implies considerable advances towards a united Europe with closer harmonisation of fiscal and monetary policies and consequent greater stability of exchange rates within the Community?
The benefits of such stability would accrue mostly towards Europe but they would contribute also towards the greater stability of exchange rates worldwide for which Mr. Baker, the US Secretary to the Treasury, and Mr. Pohl, the President of the German Bundesbank, and others, have called in the past few days. Whether worldwide stability in exchange rates is achievable with a principal reserve currency—the US dollar—not convertible into a stable store of value such as gold used to be, and as the special drawing right in any wide sense has notably failed to become, I take leave to doubt, much though I desire that end. However, that does not mean that we should abandon that objective within Europe.
The Government would probably find little to quarrel with in what I have said so far. I believe that Sir Geoffrey Howe has recently said that we intend to join the exchange rate mechanism but in our own good time. The noble Lord, Lord Young, said much the same in this place on 6th May, adding that that would only happen when there was a clear balance of advantage in our doing so. I wonder what he is waiting for. He will not tell us. Well, it is not quite that. He did give us a hint in reply to the noble Lord, Lord Boothby, when he said:
"What we must do is, first, to have a sound monetary policy for the United Kingdom."—[Official Report, 6/5/86; col. 582.]
The implication was that a sound monetary policy was not compatible with a fixed exchange rate. Who am I to deny that a fixed rate for sterling implies an interest rate policy suitable for internal and external purposes and that sometimes those may be at variance? But if they are, something more fundamental is wrong in the economy and would, in any case, have to be corrected.
I have never accepted the argument about the special circumstances of sterling as an oil currency, and who can do so now in view of its continued strength despite the dramatic fall in oil prices? Not unnaturally, many noble Lords have referred to that. Nor do I believe that we need to take seriously the horror stories put out by that admirable man Sir Alan Walters, apparently the Prime Minister's most respected adviser. He has said that if we join the exchange rate mechanism it will lead to the reimposition of exchange control, particularly over capital movements, to the reintroduction of a travel allowance, hire purchase controls, directed credit, corsets and all that. I have been through all that over many years, and I do not believe that any of it need return, even if our exchange rate is fixed but readily adjustable.
If a new government should reintroduce such outmoded and irrelevant devices for their own purposes, that is another matter and a very serious one for our country's future prosperity.
I conclude by reminding your Lordships that this Government have not said that they will not join the exchange rate mechanism at any time or at any price.

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On the contrary, they firmly emphasise their intention to join, but only when it suits them. When, some day, they conclude that the time is ripe and join, how can they know that the then prevailing conditions will endure? Are they proposing to go in and come out as conditions fluctuate, as of course they will, over the years ahead? Surely not! Meanwhile, many years have passed since 1979. Many friends in Europe have been disappointed by our behaviour, and when, if ever, we do join, the credit and esteem, let alone the advantages, that we might have gained by joining earlier will have evaporated.
3.36 p.m.
The Earl of Bessborough: My Lords, I am very glad that my noble friend Lord Soames has raised this question again. I greatly admire his persistence, and fully support what he has said this afternoon. I hope that my noble friend Lord Young might be a little more informative than he was the other day. I feel that the time has come for us to join the ERM, recognising that we already belong to the European Monetary System and make a considerable contribution to the European Monetary Co-operation Fund. As your Lordships know, I have been advocating Britain's full membership of the EMS for a long time. Indeed, in June 1978, almost exactly eight years ago, I went further, supporting Mr. Roy Jenkins, then President of the European Commission, in relaunching plans for economic and monetary union which had already been announced at the Hague summit in 1969 and which were subsequently supported by President Giscard d'Estaing and Chancellor Helmut Schmidt. In 1978 I regretted that the EMU target date of 1980 for European monetary union agreed at the 1972 summit had been abandoned.
I shall not now restate all the reasons why Mr. Jenkins and others, including myself, thought that monetary union would favour a more efficient expansion of commerce in Europe and why I thought that the removal of exchange risks and inflation uncertainties between member states would have a major confidence effect. I still believe this and consider that from the export point of view—other member states, as my noble friend said, take the largest percentage, 45 per cent. of our exports—exchange rate stability would be a great advantage to exporting firms. I am glad to learn that the CBI now supports that view. It is, in my view, negative and defeatist to say that if joining ERM increases our exports, it will also increase our imports. Do not let us be so defeatist.
In November of the same year, 1978, I thought that my noble friend Lord Soames made a very good case then for our being full members of the EMS. I liked his references to the increased use of the European currency unit. In January 1982 we had another debate on the EMS on the Motion of my noble friend Lord O'Hagan. Again, there was widespread support for our full membership and a recognition that the EMS exchange rate mechanism had so far been surprisingly successful. Then, in November 1983, as we have heard, we debated the report on the EC by the noble Lord, Lord O'Brien, which I strongly supported, having attended some of the meetings of his sub-
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committee and having already been a member of the Budget Committee of the European Parliament. It was good indeed to hear again from the noble Lord this afternoon that he has not changed his views. I said then in 1983 that I stood by all that I had said in 1978.
At that time, 1983—under three years ago—I thought that the time had come for our entry into ERM. This, I said, could be followed by further study of the feasibility of full monetary union, without which I do not think we can have an effective internal market, which the noble Lord, Lord Ezra, mentioned, and which I know the Government want. Also in 1983 I advocated the creation of a common reserve fund and a European central bank. All this is in the future but it is, I believe, what should follow.
As my noble friend, Lord Soames, said, it is many years that we have been considering this matter, and doing so in depth. Each time we debate it I think that the moment is even more propitious, although I must admit that I think it would have been even more appropriate if we had joined as full members of the system at the outset in 1978, and thus have avoided giving the impression that we were not really wholehearted members of the Community.
I have been reading with great interest an admirable new book by Mr. Christopher Tugendhat, who was, like my noble friend Lord Soames, a commissioner in Brussels. He was a commissioner for eight years and a vice-president for four years. The book is entitled Making Sense of Europe. It is a very realistic, down-to-earth assessment of the state of Community affairs. References to the European monetary system run all through the book and I cannot summarise all that he says. There is, however, an excellent section on the European currency unit towards the end of the book. I like his references to the fact that procedures such as EMS have the potential in time of deepening the habit of co-operation to the point where it becomes accepted by public opinion and governments alike as the normal framework within which member states conduct their affairs; and that the EMS is among measures that can be appreciated by the general public as well as by the cognoscenti and thus strengthen the bonds between people of the member states themselves.
I think that Mr. Tugendhat agrees with others in your Lordships' Chamber that three things need to be done. First, Britain should join the exchange rate mechanism. Secondly, Germany should accept the ecu as a foreign currency. Thirdly, France and indeed—as the noble Lord, Lord Ezra, said—Italy should demolish their exchange controls. It looks as though the new French Government are beginning to do so. There are also signs of a change of mood in Germany. It would be nice to think that Britain would also play its part since it is in effect shadowing the EMS currencies. I agree, therefore, that there would seem to be both external and internal reasons for once again reconsidering the question of British membership.
I have read no less than three recently published volumes about the EC, all of which make a valuable contribution to thinking about the future of the Community. But I think that Mr. Tugendhat's book is

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by far the best and I hope it will win a prize. I strongly recommend it to your Lordships. I think that we should all congratulate him on becoming chairman of the Civil Aviation Authority—although this is not a purely European body.
It is very interesting to note how the use of the ecu in private markets has been expanding. Yet I would still ultimately like to see full monetary union. This would bring all the advantages to Europe of a major international currency. As I said in 1983, I know from personal talks with members of OPEC that they might welcome an alternative currency for quoting oil prices even if they continued using the dollar as well. In my view, joining the ERM would be a step in the right direction.
As my noble friend Lord Soames has said, the great majority of those closely concerned with these matters now seem to favour our joining, with the exception, as we have heard and as we have read in the press and as my noble friend has said, of Professor Alan Walters. I sincerely hope that the professor has not permanently closed the door of No. 10.
In the Daily Mail last Tuesday Andrew Alexander argued that if Britain joined the EMS and sought to peg the pound there would be a real loss of room for manoeuvre, and that our joining as full members of the EMS would signal a loss of nerve. Personally, I take exactly the opposite view and believe that it is our hesitation in joining the ERM that indicates a loss of nerve. In my view greater confidence would be created if we joined, so that the EMS would not continue to be described, as my noble friend Lord Bruce-Gardyne has described it, as "mainly a deutschemark system".
Therefore, I hope that we shall not have to wait until after the next elections before we join. I wholeheartedly support my noble friend in all he said. I believe that we should do everything to avoid volatility of exchange rates. Paul Templeton, in his recently published Guide to UK Monetary Policy, refers to the widespread calls for a return to the use of a fixed exchange rate as an intermediate objective in current circumstances and to the fact that full membership of the EMS is one of the more obvious ways in which that objective might be expressed. While I believe that, I also think, along with the noble Lord, Lord Lever, and others, that we must take into account political aspects of the problem as well as purely economic and monetary considerations.
I may add that I hate being repetitive in matters such as this, and I assure your Lordships that I am no Eurofanatic. However, as some people maintain, you have to repeat something many, many times before it is accepted by a sufficient number of people. Therefore, I do not apologise for being a little repetitive this afternoon, and I thank my noble friend Lord Soames for having given us this further opportunity to reiterate our beliefs.
3.48 p.m.
Lord Williams of Elvel: My Lords, as a relative newcomer to your Lordships' House, I find that this is
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the first time that I have been able to take part in a debate on the European monetary system. However, I understand from the contributions which have been made this afternoon that this has been a fairly long-running saga in this House, and no doubt we shall have more occasions on which to debate the matter. In the meantime, I must also express gratitude to the noble Lord, Lord Soames, for raising this important issue in this House even if it comes as last business on Friday, and that at the end of what has been rather a tiring week for some of us. I think that it merits the attention that your Lordships are giving it this afternoon.
I have also been very impressed by the distinguished contributions that noble Lords have made to this debate. I must say a special word to my noble friend Lord Lever of Manchester. I am most glad to see my noble friend in his place and hear him speaking as trenchantly as always on matters with which he is deeply concerned.
Although the noble Lord, Lord Soames, has addressed his Question to the Government, it is a matter which, as we see this afternoon, all sides of the House must address, since governments do not last for ever and sooner or later—and I hope sooner rather than later but I cannot expect support from the Front Bench opposite on that particular point—the Government may change and the then government will have to respond to the Question, assuming that it is still on the agenda.
The presidency of the European Council set out the aims of the European monetary system very clearly at its inception in 1979: The EMS will facilitate the convergence of economic development and give fresh impetus to the process of European union.
We come face to face with two major themes which underlie the EMS. The first is convergence of economic development and the second is impetus to the process of European union. If the United Kingdom became a full member of the EMS by joining the exchange rate mechanism we would have to do so either in the spirit of those aims or because we genuinely believed, in the light of the policies that were being followed at the time by the Government of the day, that doing so was in our own national advantage. It is no secret to your Lordships that we on these Benches do not approve of the present Government's economic policies and we should like to change them. We should like to adopt a remarkably different economic stance. Convergence on the policies that are presently being pursued make no sense to us at all. If entry into the exchange rate mechanism were to inhibit us changing those policies, we are bound on those grounds to be opposed to it.
There is then the second aim spelt out by the European Council and this was referred to by the noble Earl, Lord Bessborough, the noble Lord, Lord Ezra and, indeed, by the noble Lord, Lord O'Brien; that of giving fresh impetus to the process of European Union. This is, with due respect to noble Lords, what I would call a somewhat theological position. One either believes that this is possible, desirable and practical or one does not. I do not think it is an easy thing to argue about in factual terms. We on this side

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are rather sceptical about both propositions, whether either European monetary union in the full sense, or European union in a political sense is practical or desirable. We were sceptical even before the entry into the community of Spain and Portugal, welcome though that is and the widening of the Community has increased our scepticism on that point.
If I may add a personal note here, I have lived long enough in France, Belgium, Italy and Germany to know the problems of European union at the working level. When you spend four years working in Paris in a French bank you understand what the problems are; they become all too apparent. The theological argument, if I may say that without disrespect, has little appeal to us and I doubt it ever will. We have therefore to consider the matter from the point of view of our strict national advantage.
This for us is all the more difficult in that we have to look ahead perhaps two years and to try to estimate the effects of a new set of economic policies. We have to take a view on whether full membership of the EMS, in the sense of joining the exchange rate mechanism, would act as a serious constraint on any part of economic policy that we wish to put into effect. In calculating the balance of advantage and disadvantage, I must start by saying that I doubt whether the mere membership of the exchange rate mechanism would, by itself, necessarily stop a new Government from doing what it wanted to do. But the expression "by itself' begs the question of the entry sterling-ecu relationship and, second, because to date it begs the question of convergence. The noble Lord, Lord Ezra, pointed out that recently there has been some degree of convergence other than on the general reduction in the rate of inflation but up until that point I think he would agree that such convergence has been relatively modest during the period of the EMS.
Nevertheless, it has to be said that there is nothing Britain could do in the ERM which could not be and has not been done outside it. It cannot be denied that entry into the ERM would potentially reduce the UK Government's power—such as it is, in today's world of the variety of financial instruments, swaps, options, futures, and so on—to manage the exchange rate and domestic interest rates to their best advantage. Equally, it cannot be denied—here I take issue with the noble Earl, Lord Bessborough, I am afraid—that the deutschemark is the dominant currency within the EMS and is perhaps becoming progressively more dominant over the years. I have serious questions about whether it is possible—here I join the noble Lord, Lord Bruce-Gardyne—to accommodate within the ERM two international currencies which may vary according to different criteria at different times without some very close arrangement between the United Kingdom authorities and the German authorities on how to stabilise the relationship between the currencies. The Bank of England, in its evidence to the Select Committee of another place, did see major problems in that.
Finally, it is clear that the UK economy is going to have to adjust—indeed, may have started to adjust—to the decline of North Sea oil as a major contributor to gross domestic product and, above all,
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as a resource which has masked, and some would say has provoked as well, the alarming deficits that have appeared under other headings in our international accounts. In other words, the United Kingdom economy is in a process of transition from an oil-related economy to a non-oil-related economy. That transition will take time and will be complicated. I am doubtful whether the membership of the exchange rate mechanism will contribute to that process.
The advantages of being in the exchange rate mechanism have been put by a number of noble Lords, notably of course the noble Lord, Lord Soames: greater strength against currency fluctuations, particularly the problem of overshoot, to which the noble Lord, Lord Soames, referred. He cited the case of the period 1979–81, when there was a substantial overshoot in the adjustment of sterling to dollar as a time when we had relatively high interest rates and we were regarded as a petrocurrency.
He also referred, and other noble Lords also referred, to the disciplinary effects, if you like, of linking sterling to what I believe is very much a deutschemark parity; but let us for the moment call it a ecu parity, on the assumption that this discipline would not entail a series of either frequent realignments because we were out of line, or on the assumption that we could not control our own rise in real earnings in a sensible manner. Either of these two things I think would be very difficult for us to stomach.
I confess to being somewhat less concerned about the immediate problem of the exchange rate at entry, were we to enter, largely because I believe that the "appropriate rate"—and I deliberately use the words in inverted commas—is, in fact, a moving target. One cannot simply decide today that this is the rate, and that is there for all time. There have been of course elaborate statistical analyses of the competitive position of the United Kingdom, but I am not sure that they really add up to all that much. Because I believe that if it ever got out—if the noble Lord the Secretary of State said this afternoon—that the Government has changed their mind and had decided, after all, to join the exchange rate mechanism, the financial markets would take that on board, very, very quickly and we might find that the rate of entry was set pretty quickly by the markets in a very short period of time. That is the way the financial markets nowadays work.
My own preference—and it is a pure personal preference; I have no very strong feelings about it—is to adopt what I think some of the Community officials were saying to the Select Committee in another place: that if we are going to do it, we should, as it were, jump into the pool and, afterwards, when we had been there for some time, we would see where we were and be prepared to negotiate an appropriate realignment. I realise that is not something that the noble Lord, Lord O'Brien, as I understand from what he said, would be very happy with. We would like to see a rate at the start and stick to it, but I do not necessarily believe that is the right way to go about it.
Lord O'Brien of Lothbury: My Lords, I can see nothing against a subsequent realignment. It seems to

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me that the benefit of the system, as it has shown over its years, is that realignments can now be effected really quite easily.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord for his intervention. I perhaps misinterpreted what he said and, if so, of course I apologise. I personally believe that would probably be the best way to do it.
If we are going to go into the exchange rate mechanism, I think your Lordships and the Government will have to recognise that we on this side of the House are relatively lukewarm about the prospect.
Lord Lever of Manchester: My Lords, not me!
Lord Williams of Elvel: We will wish, if we form the next government, to pursue our own policies. If full membership of the EMS is compatible with our policies, and the price of entry looks not unreasonable, we are certainly not going to rule it out. We would be much encouraged, however, if entry into ERM and full membership of EMS would be accompanied by a programme either of co-ordinated European expansion, which has been much discussed, or, as my noble friend Lord Lever said, if it were accompanied by some serious initiative which could persuade us that entry into the ERM was a valid way of doing what G5 has been trying to do and get greater international monetary stability. That is an objective which I am sure my noble friend Lord Lever and I both share.
I must say that, like the noble Lord, Lord Bruce-Gardyne, I am rather sceptical about whether those desirable objectives can be given to us; but the recent remarks of the United States Secretary of the Treasury and of the chairman of the Federal Reserve Board in Boston seem to have fallen on rather stony ears, at least in West Germany. But in the course of time (who knows?) these attitudes may change and better arguments than the present ones may be brought forward for persuading us that joining the ERM would give a substantial boost to the possibility of achieving some form of international monetary stability and solutions to the national debt problems, to which my noble friend Lord Lever has referred. If that can be shown, clearly that is an argument we must pay attention to, but in sum we prefer to await developments and see what the situation looks like should we be in government in a year or two's time.
We do not believe this is a matter of political faith—the Sabbath was made for man, not man for the Sabbath—and we certainly do not subscribe to the view held in some quarters that our domestic problems will meet a magic solution if we join the exchange rate mechanism. We are in a period when it is fashionable to call for entry, but we should be wary of fashion. We prefer to stand aside; but, in the words of John Milton,
"They also serve who only stand and wait".
Lord Boothby: My Lords, before the noble Lord sits down, may I ask him whether he realises that looking at problems from a purely national point of view, which is what he advocated, has been directly responsible for two world wars in this century?
Lord Williams of Elvel: My Lords, I am not sure what the noble Lord, Lord Boothby, means by asking that question, but clearly there have been two world wars in this century and clearly there has been a problem of nationalism. What I was trying to say, if I may explain myself a little further, is that it may be in the national interest and to our national advantage to co-operate in the way that my noble friend Lord Lever has described; but I think we need to be persuaded of that.
4.2 p.m.
Lord Young of Graffham: My Lords, I am grateful to my noble friend Lord Soames for raising this matter this afternoon, though I must confess that at times during the debate on the snake, listening to his persuasive guile I wondered whether I was not listening to the snakecharmer himself! I listened very carefully to what he had to say. He said to start with that my noble friend Lord Cockfield had said one thing some years ago and I another last month. That may be, but the world moves on, times and conditions change and we have to look at the world as we find it today. However, the one statement or implication I did not make was that we did not listen to the views of your Lordships' House.
I think it is only fair to say that this afternoon I could hardly stand here and say that today we are about to joint the ERM. That is a matter for my right honourable friend the Chancellor of the Exchequer. Nor will I be standing here this afternoon and saying that we are not going to join. It is the Government's intention to join in due course. What I can say is that I shall draw all the arguments that have been advanced today to the attention of my right honourable friend and my colleagues. I am sure they will take them all into consideration.
If I may come back for a moment to the arguments advanced by my noble friend Lord Soames, he says that greater investment is the key. In each of the past three years we have had in each succeeding year record capital, fixed capital investment in this country. My noble friend pointed out that wages are going up. That is true; but, I must say, so is productivity. However, the really crucial figure is that for unit labour costs. What concerns me and, I hope, all your Lordships is that in this matter of expectation of annual pay rises the United Kingdom has turned in to some kind of super-tanker which is finding it increasingly difficult to change course. We must change course and put behind us this collective memory of annual pay rounds, and must adjust to the new conditions of inflation—
Lord Bruce-Gardyne: My Lords, I apologise for interrupting my noble friend. I listened very carefully to what he said just then, but if we want to break the tradition of an annual pay round then what are we doing having great pay advisory bodies to perform precisely that service for us?
Lord Young of Graffham: My Lords, I well hear and understand what my noble friend says. That is, of course, another matter, and one to which I would be happy to return at another time. But perhaps I may turn to the noble Lord, Lord Lever, who gave us, as he always does, a global view of the ebbs and flows of the international monetary system and looked, as we should all be looking, for international monetary stabilisation. Of course, joining the ERM and being an even fuller member of the EMS is only part of it. I suspect that it requires more than just that.
The noble Lord was absolutely right to draw attention to the rise in protectionism. It is a danger of which we should all be aware. I am not sure, though, whether joining would accelerate or slow down the danger of protectionism. That, I think, has other causes, and we must look for other remedies. But I am grateful to him for the doctrine of "unright time". It is a doctrine which I shall remember in my future discussions with the Treasury.
The noble Lord, Lord Ezra, recounted to us this afternoon the history of the number of times that this subject has been debated, and I realise that I have come along at the tail-end of a very long discussion. But may I confirm to all your Lordships that it is our intention to join the ERM when the time is right, and that that is the matter which we are debating. It may well be that assuming the presidency is another factor in our considerations. But I should like in a moment to come to the factors which will help us to decide whether or not the time is right.
I am grateful to my noble friend Lord Bruce-Gardyne for drawing attention to the factors outside the ERM with which Europe must deal; in particular, the agricultural policy. That, certainly, is a matter which is imposing contraints and with which we must deal. I suspect that it will have more to do with our future monetary stability than whether or not we join the ERM. My noble friend certainly gave his view that he did not believe in divorce, at least so far as the ERM is concerned; and I rather liked his reasons why he thought joining would raise interest rates, when most of your Lordships thought it would lower them, which at least shows there is some room for different opinions.
If I may say so to the noble Lord, Lord O'Brien, I regret that he considered my response to have been cursory when we discussed this topic on a Starred Question. But there is little opportunity to go into an exhaustive discussion of something which, according to the traditions of your Lordships' House, is really set down for a very short answer rather than for debate. The noble Lord wondered whether we are committed to Europe. We certainly are. The whole discussion is not about whether we join, but when we join. Indeed, to put up the argument that, even if we join when the time is right, circumstances will change and it will become difficult, is no reason to say that we should therefore join when the time is not right. We should at least ensure that, when we do join, we do it when we think we will be able to do it with the greatest efficiency.
I am grateful to my noble friend Lord Bessborough for giving to me a book with the slightly ambitious
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title, Making Sense Of Europe. If it does, I shall assuredly read it. He looked beyond the ERM to full monetary union, which is the right direction and the direction which we should certainly follow. If I may say so, I slightly regret not so much the surprise I had that the noble Lord, Lord Williams of Elvel, did not approve of the Government's monetary policy, but the fact that he would reserve his position in quite such definite ways. I had hoped very much that we would all see the objective of joining the ERM. The objective of working together with all countries in Europe, whatever their political persuasion, is one which all your Lordships would share.
The question is not whether we are for or against Europe, because our commitment to constructive membership of the European Community is surely beyond doubt. If we look in the financial area we see how often we have taken a lead in Europe. We have freer capital markets, with fewer restrictions on access or freedom of establishment than any of the other member states, and we are pressing hard within the Community for the removal of restrictions on trade in financial services.
Nor is the question whether we are for or against financial discipline. Maintaining a fixed exchange rate against countries who share our resolve to reduce inflation could certainly be a robust way of keeping financial policy on the rails. But there are other ways of achieving the same objective. Our record—with the rate of inflation now down to 3 per cent.—speaks for itself. Nor is it whether we are in favour of exchange rate stability. It clearly makes sense to limit wild swings in the exchange rate. This applies both to movements against those currencies represented within the system but even more to those such as the yen and the dollar, which are still very important to our trade, but are outside. Membership of the mechanism—which I need not remind your Lordships has itself gone through several realignments since 1979—even though it may help is clearly not by itself enough to achieve this.
Nor is the question even whether we are for or against international co-operation on exchange rates. We have played our full part in the Plaza agreement and subsequent discussions in the IMF Interim Committee and elsewhere alongside not only other major European countries but also the United States and Japan. Nor, finally, is the issue about what the right level of sterling against the deutschemark might be. Experience shows the futility of trying to make judgments of this kind, particularly since finding the right level is often seen as an easy alternative to maintaining domestic discipline on industrial costs.
The question before us is none of these things. It is whether membership of the exchange rate mechanism, with all that involves, would provide a more effective and safer means of achieving our economic objective, the pursuit of stable non-inflationary growth, than the strategy which the Government have successfully pursued for the past six years. It is a complex technical question, with practical arguments on both sides.
One aspect of this is that, unlike most of the other ERM currencies except the deutschemark, sterling is a

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widely held and internationally traded currency. It is, moreover, a currency to some extent subject to different and often opposite strains from those that affect the other currencies currently in the system. This is principally but not entirely because of its sensitivity to the price of oil. The reduction in the price of oil, and the more balanced view which the market now appears to take about the importance of oil to the United Kingdom, have probably reduced the importance of this petrocurrency effect. But it is still one to which we have to give due weight. Apart from anything else, the price of oil can go up again, and all things can happen.
Apart from oil, the other major factor in the exchange markets in recent months has been the movement of the dollar, which has given rise to very substantial adjustments by other currencies, not excluding those within the exchange rate mechanism. Since February last year the deutschemark has appreciated by 51 per cent. against the dollar, the French franc by 45 per cent. and the yen by 54 per cent. The movement of sterling over the same period has been 45 per cent. This is the background against which we must judge the question of membership of the exchange rate mechanism. In doing so, we must recognise that to join would bring about a significant change in the operation of the system itself. At present, the deutschemark plays a dominant and central role. The addition of sterling would undoubtedly introduce an element of bipolarity into the system with which it has not so far had to cope.
Lord Lever of Manchester: My Lords, if that is so, can the noble Lord tell us why we should ever go in?
Lord Young of Graffham: My Lords, because it is a factor that we have to take into account. Of course we have said we should go in, but what I am trying to show to all in your Lordships' House is that it is not a simple step of just moving in. It is a factor that we have to take into account.
This Government have so far followed a slightly different route to success in combating inflation and
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restoring growth from those followed by some other Community countries but one which has proved equally effective. But we have said that we will keep the question of membership of the exchange rate mechanism under review and will join it as soon as we are satisfied that there is a clear balance of advantage in so doing.
I have been asked to indicate the circumstances in which we would consider that that condition was met. To some extent I fear that I must disappoint your Lordships. If I were to say, for example, that we would join the mechanism when oil prices reached one level, or the exchange rate with the franc one rate, the deutschemark another, and the dollar a third, then the speculation that would result if those conditions looked like being satisfied can only be imagined. For the complexities of the situation that I have outlined simply mean that it does not make sense to provide a simple checklist of that kind. The judgment has to take account of a wide range of factors, both domestic and international. It is impossible to set out in advance the ways in which they would have to interact, to justify a decision to enter the mechanisms. Nor, I might add, would it make conditions in the exchange markets in the period leading up to any decision to join any easier if I were to be any the more specific today.
In all the circumstances I fear that it would be unreasonable for a responsible Government to take any other position. What I can say is that when we say that we shall keep the question under review, that is what we will actually do. Our essential objective is the defeat of inflation. We have succeeded in bringing inflation down to 3 per cent. and I am continually reading in the press that that figure is likely to fall even further. But I will ask my right honourable friend the Chancellor of the Exchequer to read all the arguments that have been advanced today and consider whether that time, within the doctrine of unripe time, has yet arrived. I have no doubt that he will make the decision at the very first moment that he feels it is prudent and wise so to do.
House adjourned at seventeen minutes past four o'clock.