Address in Reply to Her Majesty's Most Gracious Speech

HL Deb 19 November 1986 vol 482 cc234-334

Debate resumed on the Motion moved on Wednesday last by Lord Mowbray and Stourton—namely, That a humble Address be presented to Her Majesty as follows:

"Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament".

2.53 p.m.

The Secretary of State for Employment (Lord Young of Graffham)

My Lords, before I begin my speech on the main Motion it may be helpful to the House if I explain how it is intended to handle the debate this afternoon. At the conclusion of my speech the noble Lord, Lord Bruce of Donington, will move his amendment and a debate will follow which, although technically on the first amendment, will cover both. I understand that the noble Lord, Lord Diamond, will speak to his amendment during the debate. When the noble Lord, Lord Bruce, has replied to this debate his amendment will be disposed of, and the noble Lord, Lord Diamond, is expected to move his amendment formally as it will already have been debated.

I should like to support my noble friends Lord Mowbray and Stourton and Lord Arran on their Motion for a humble Address and to congratulate them on the speeches with which they opened these debates last week. I am looking forward to the maiden speech of my noble friend Lord Derwent during the debate.

This debate gives us a chance to review the broad sweep of change in our economy and the strategy of the Government, for consistency of purpose has been the hallmark of this Government's strategy and economic success has been the reward. But what a contrast to the past. In the debate on the Address 10 years ago the government of the day were unable to give this House a clear picture of their strategy. Why? It was simply because they had not yet agreed their policy with the International Monetary Fund.

How our world has changed in just 10 short years. Live for today, change tomorrow, was the hallmark of that previous Labour Government. They lost sight of the fact that social progress can only be built on economic success. The contrast with the strategy of this Government and the economic success we have achieved could not be more marked, for today we have an economy in its sixth successive year of sustained growth producing more than at any time in our long history.

We have an economy with low inflation, at levels not seen for nearly 20 years; we have an economy with high investment up by 4½per cent. a year since 1983 and once again at an all time high; and we have an economy with the basic ingredients for economic success—balanced growth, a healthy rate of profit, good productivity growth, lower company taxation and fewer strikes than at any time for the last 50 years.

Now let us compare our economic record with that of the last Labour Government. It is true that they were better at raising inflation and worse at investment. They were far better at creating strikes and far worse at productivity growth; and the pay-off in living standards was considerable. Between 1974 and 1979 the real take-home pay of a married man with two children on average earnings increased by only one half of 1 per cent, and since 1979 the real take-home pay for the same married man with two children has increased by over 17 per cent., nearly 35 times the growth.

Let us not just make comparisons with the past but let us consider other countries. Let us take inflation. Over the whole period since 1979 inflation has moved in line with the average for the European Community, but recently it has been lower. From 1974 to 1979 inflation in the United Kingdom was much higher than the European Community average—15½per cent. compared to 11 per cent. Let us take growth, since 1980 output has risen faster in the United Kingdom than in France and Germany. Between 1973 and 1979 once again it was growing far more slowly.

Finally, let us take productivity. The latest figures available show once again that between 1979 and 1985 productivity in manufacturing in the United Kingdom rose by 24 per cent., while it went up by 17 per cent. in both France and Germany. Yet if we look back again between 1973 and 1979, during those six glorious years productivity went up by 4 per cent. in the United Kingdom, by 20 per cent. in Germany and by 26 per cent. in France. Those figures alone are, I believe, a sufficient answer to the amendment put down by the noble Lord, Lord Diamond, this afternoon.

All these statistics show how the economy of this country has been immeasurably better under the economic strategy of this Government. But when we look at the whole picture, the brightness of this economic success has been obscured by the shadow of unemployment. It is a shadow which blights the lives of those who have been unemployed for a long period of time. When we look at the simple—and complex at the same time—problem of unemployment we must recognise that the underlying level of unemployment in our country has been rising for decades. It doubled in the 1970s and has doubled again in the 1980s.

But unemployment is not a peculiar scourge of the United Kingdom; it is a European disease rising substantially in all the major countries in recent years, and the United Kingdom economy started from a base which was far weaker than that of our European rivals and more vulnerable to the onset of the world recession which had occurred in the end of the 1970s.

Even so, unemployment is still far too high, and remains our most important challenge ahead. Yet there are signs of improvement. Unemployment has stopped rising. We have had the largest three-month fall in unemployment since 1973. At the same time vacancies have been rising for month after month for the last nine months in a row and are now at their highest level this decade. The upward trend in long-term unemployment will reverse. Unemployment among young people is falling and now unemployment among those under 25 is lower in the United Kingdom than the average in the European Community. As two-year YTS gets fully into its stride the situation will get better still.

But we have to look at all this in perspective. What recipe do noble Lords opposite and their party offer to tackle unemployment? What are the "adequate measures" that the noble Lord, Lord Bruce of Donington, refers to in his amendment? They offer higher demand, ignoring the fact that in the 1970s money GDP quadrupled but real GDP rose by no more than 25 per cent. The real task is to improve the efficiency of the engines of the economy, not simply to pour in more fuel to stoke the fires of inflation. They offer much higher public spending, ignoring the effect on either taxation or interest rates. The figures have been rehearsed sufficient times and all I can say is that if their promises of spending were brought into effect they would have to raise the basic rate of income tax to 53p in the pound; alternatively, and no better, a rate of VAT at 43 per cent. But finally, and with much more difficulty, they promise to cut unemployment by 1 million over two years.

Total employment has been rising for 13 consecutive quarters and has provided 1 million extra jobs and given us the longest period of continuous growth in jobs for almost 30 years. Yet during these 13 successive quarters there has been rising unemployment. During that period when we have seen 1 million new jobs come into being, unemployment has increased by 300,000. So in order to reduce the level of unemployment by 1 million, since the spring of 1983 we would have needed to create 2÷.3 million new jobs. I ask the noble Lord, Lord Bruce of Donington: is that what Labour is promising and, if it is, how do they intend to do it? They intend to create jobs through higher spending on infrastructure, social services, on encouraging employers to give jobs to the long-term unemployed; and indeed I believe they have already written to local councils so that they can set up their plans for spending more.

Within our overall spending strategy we are already prepared to increase spending on individual projects if the rate of return is good, but that is an entirely different matter from creating non jobs by indiscriminate recruitment to the public sector. Creating such non jobs will simply reduce the efficiency of the public sector and once again harm the economy.

Let us take construction. Labour plans to increase spending still further on construction to soak up the pool of unemployed skilled construction workers: I hear talk about 500,000 of those in the construction industry who are unemployed. But from where I sit I hear tell of a shortage of skilled workers. The Federation of Master Builders report difficulties in recruiting skilled craftsmen and so does the Institute of Maintenance and Building Management. We have no trouble at skillcentres in placing those trained in construction skills. Indeed, in the year to August 1986 100 per cent. of those trained at St. Helens went out of the skillcentre into employment. Any large Government-inspired increase in construction projects would simply worsen skill shortages, with little or no effects on jobs.

Let us take nationalised industries. At the end of the 1970s they were inefficient because they were following the same sorts of policies that the Labour party advocates today. Inefficiency was not contained within them. It infected the rest of the economy. All the nationalised industries that have been privatised are doing better today than ever before. Those still in the public sector have cut their losses considerably. At the beginning of the 1980s the nationalised industries cost £3½ billion of public spending. Today, they cost just over half a billion pounds. I look forward to the day when they will not cost us anything at all.

Just the same is true of local authorities. Labour's plans to increase employment quickly ignore the fact that many jobs require a significant period of training. Jobs are not just a tap to be switched on and off. More importantly, if people are employed by local authorities that cost goes on the rates. What we have seen time and time again is that higher rates produce fewer jobs I do not think I should go this afternoon into the plan that Southwark Council has produced to create 6,000 jobs within the local authority at a cost of some £9,000 each, but it is being relied on by those opposite. Following those guidelines, so they claim, 1 million jobs could be created at a massive cost of £20 billion over the next two years. Mr. Prescott, the Labour spokesman in another place, has said that under Labour local authorities will be the engines of growth in our economy. With those sort of plans they will be stuck on the commanding heights with a stalled engine, because such schemes simply resurrect the inefficiencies and overmanning which has bedevilled our economy over the past 20 years and created the problem we have today of unemployment. Some of their plans will just go to create unemployment directly.

Let us examine Labour's plans for a national minimum wage. I believe that this will risk more than half a million jobs. The national minimum wage was set at £80 a week. They say very clearly that that is only the start. If employees earning over £80 a week sought additional pay rises to compensate for only half the loss of differential—the resolution says that differentials will be maintained in the full, but let us assume it is only half—that would cost, according to my department's estimates, 600,000 jobs. The losses would be greater if the differentials were more fully maintained, if the £80 were raised as they planned or if the scope was widened to cover young people.

I am sure that this House would reject the notion that the Government could cure unemployment either by controlling the whole economy or by providing jobs directly. But that does not mean that the Government can do anything. We can, and we have, for we have set ourselves two priorities: the first is to get the climate of enterprise right. Lower inflation and lower taxation have always been the ultimate goals of our macro-economic policy. Secondly, we must encourage enterprise in employment.

We are talking about Action for Jobs. The action we are taking is detailed, specific and wide-ranging. We seek to raise the level of skill and qualifications of our people. Helping young people to prepare for work and helping to bring the worlds of industry and education closer together are vital and are the key aims of the technical and vocational education initiative and the new city technical colleges. The two-year YTS gives initial skill training which will provide a foundation for a working life. We have developed open learning, the Open College. We have extended the opportunities for training through the adult training programme. We are finally giving a structure to the previous jungle of qualifications through the work of the National Council for Vocational Qualifications. All these are substantial initiatives which we brought about in a very short period of time. They are aimed at tackling one of the most fundamental weaknesses which have harmed the British economy since the war. We are seeking to encourage people to start new businesses, to develop small firms, for they are the job generators of the future.

Between 1982 and 1984, the latest year for which information is available, an estimated quarter of a million extra jobs were created in the private sector. That is good. But when we look into those figures we find that self-employment and firms with fewer than 20 employees created 1 million new jobs during those two years and firms employing more than 20 lost three-quarters of a million jobs. That is why we have a small firms policy, because we are concerned about real jobs, and not just those in employment. We are helping the unemployed to start up in business as self-employed through the enterprise allowance scheme. A total of 175,000 people have started a business that way.

We are helping small businesses with the small firms service. We are encouraging the development of local enterprise agencies and well over 300 have been set up. We are helping finance for small businesses through the loan guarantee scheme. The business expansion scheme is the most generous fiscal scheme in the world for helping the expansion of new companies. We dramatically expanded our many schemes of enterprise training for would-be and existing entrepreneurs, not out of any political dogma but because we know it is for the jobs of tomorrow.

We are seeking to involve people more closely in the success of the company for which they work. Many more employees have a direct stake in their own companies. The encouragement we are giving to share ownership schemes is to bring greater involvement of employees, and we are exploring the possibilities of encouraging profit-related pay. In the year in which we celebrate the 80th anniversary of the Trades Disputes Act, we should recognise that for too many decades British industry has been bedevilled by conflict. We are working towards the end of "them" and "us". The very concept of two sides of industry is outmoded and outdated. There is only one side—people working together in an enterprise for the common good.

All these objectives, more skills, the new businesses and greater employee involvement, add up to a strategy which encourages individuals to take responsibility and to support their initiative and enterprise. We give particular help to those who have been out of work for a long time, the long-term unemployed, so that they can get back into work. The restart programme is alone in the industrialised world in offering positive help to each and every person who has been out of work for a year or more. It is a major initiative concentrating on those few in our community who are hardest hit by unemployment to encourage them back into work. I say again what I have said in your Lordships' House on many occasions. When the figures for December come out we shall see that we have reversed the continuing rise in long-term unemployment and that it is thankfully going down.

This amounts to a major strategy to encourage enterprise and employment and to help those worst affected by unemployment. The amendment proposed by the noble Lord, Lord Bruce of Donington, can be unhesitatingly rejected. The job of government is to encourage and support the individual, not to take over and direct people into government jobs irrespective of their effect on the efficiency of the economy or whether they meet the needs of the people.

Of course, it is more satisfying for politicians to announce an intention to create a large number of jobs, even if they are non-jobs created by bureaucracy and unrelated to the needs of people when they can exercise their own choice. Credit for the quiet, anonymous growth of new firms—small firms—which have been creating jobs over the past few years, cannot be claimed by any individual politician, but it is happening and it is creating jobs. As I go round the country I see many examples of firms which not only started up recently but which are now providing employment for our people—and not just in the South-East. P and P Micro Distributors of Rossendale were set up by a husband-and-wife team in 1980. I know because I was a customer in that year. Today, it employs just over 150 people in Rossendale. Take Nimbus Records in Monmouthshire, Wales, in 1983, it had 40 employees; today it employs over 400. It is the first manufacturer of compact discs in the United Kingdom, and it is doing that by inventing its own technology.

Let us take Lilliput Lane, which is producing toys in Cumbria. It started in 1982 with seven employees, now employs 350 and is planning on further expansion still. Let us take the Dobwalls Theme Park in Cornwall and Gwent. It started in 1982 with one employee; today, it employs 75 people. These are just a few examples of companies which started from nothing only a few years ago and are providing employment today for large numbers of people—successful companies, meeting the needs of consumers at home and abroad, creating wealth and creating jobs. If only the party opposite had created this sort of climate in the 1960s and 1970s to encourage new firms, small firms and enterprise, we should not have the problems we have today.

It is to the new businesses such as these that we must look to create growth and new employment. At a time when many larger firms are still expecting to reduce their labour forces to become more competitive, we must look towards the small firms to provide employment for the many. Even large manufacturing developments do not nowadays create large numbers of jobs. Nissan's new plant in the North-East, in Washington, is welcome. It has created about 400 new jobs but more than twice as many people as work for Nissan started to work for themselves under the enterprise allowance scheme in the borough of Sunderland. If their experience follows the experience of other people round the country, in three years' time we shall find for each 100 that started about 120 in employment.

We need large firms, of course we do. But we need the steady growth of new firms to provide the large firms and the employment of the future. The prosperity of this country depends upon the ability of its people to compete in tough, international markets. I returned yesterday from leading my third trade mission to China. There we lived in the real world. We compete against the best in the world: against Japan, the United States. Germany, France, Italy. But I can tell you this. Today for the first time I feel confident that we can compete; today we are winning business, today we are competitive, today we concentrate on quality, today we concentrate on delivery and that did not happen in the past. That is the way in which we create the manufacturing base to which the amendment of the noble Lord, Lord Diamond, refers. We do not do so by giving government subsidy or by looking at other ways. It is by individual small and large firms up and down the land looking at the needs of customers and consumers at home and overseas.

The Government's strategy shows how we have taken on the task of developing that skill and ability for a wide variety of actions, Action for Jobs. Our programmes to develop skills and enterprise are massive. With an employment strategy costing over £3,000 million each year, our commitment to tackling unemployment, to encouraging the skills and abilities of our people, is massive, too. We seek to help people to provide the real jobs which this country needs.

This is the third year I have been privileged to participate in our debate on economic and industrial affairs. Last year and the year before I spoke of growth and investment; that growth continues. Last year and the year before, I spoke of the growth in jobs; that growth continues. Last year and the year before, I spoke of sustained economic recovery; that recovery continues over its sixth year. Our policies have achieved economic success. Our employment strategy will develop the skills and abilities of our people, and I am confident that our people will make use of those skills in creating jobs—jobs that will last, jobs that will last into the future.

3.19 p.m.

Lord Bruce of Donington rose to move, as an amendment to the above Motion, at the end of the Address to insert "but regret the absence of adequate measures to deal with the present high level of unemployment and the problems created by it".

The noble Lord said: My Lords, I beg to move the amendment standing in my name on the Order Paper.

I noted with interest that towards the beginning of his penultimate peroration the noble Lord referred in moving terms to the reality of life that he had experienced in China. That, I must say, contrasts rather markedly with the unreal atmosphere in which he appears to be living here.

The noble Lord has claimed unqualified success. He must be getting exceptionally euphoric in his description—or should I say re-description, having had the privilege of listening to many of his speeches in the past?—of the new heaven and the new earth which the Government have apparently created. I am bound to say initially—and I do not propose to bandy figures with the noble Lord this afternoon, particularly in the presence of the noble Lord, Lord Boyd-Carpenter, who does not care very much for figures or their manipulation

Lord Boyd-Carpenter

Hear, hear!

Lord Bruce of Donington

My Lords, I observed growing disapproval as the noble Lord was speaking. I am bound to draw the attention of the House to the remarks made by my noble friend Lord Kaldor, whose absence from this debate we all deplore. He was one of the most brilliant economists in Europe over the last half century and we on this side miss him sorely. I am quite sure that his presence at this debate will be missed in all quarters of the House. Speaking here on 14th November 1985, after one of the noble Lord's orations, I think, my noble friend Lord Kaldor said this: ministers such as Mr. Lawson can point with pride, as previous speakers on the other side of the House have done today, to the steady growth of output under this Government for four or five consecutive years. But that means that we start as if the world and Mrs. Thatcher began in 1981. They did not. She came to power in 1979 and what has happened since 1981 has not yet made up the loss caused in the first two years of Mrs. Thatcher's Government. Those early years are now expunged from memory. They simply ignore the fact that, despite all those years of steady improvement, manufacturing output has still not regained by a long chalk the level at which it stood when Mrs. Thatcher came to power".—[Official Repori, 14/11/85; col. 427]

Lord Young of Graffham

My Lords, the noble Lord will forgive me: the figures I gave were from 1979. I have heard words from the late Lord Kaldor in the past. The figures I gave are from that date.

Lord Bruce of Donington

My Lords, I shall return to the figures where they are appropriate as compared with 1979 in due course. I think I am just as able to quote my sources as the noble Lord is and I do not think he will be able to dissent from them.

The noble Lord's speech comes on top of the Autumn Statement in which the Government announced certain increases in public expenditure. They were announced very delicately. In cash terms, they were announced for the benefit of the public so that it would form a useful backdrop to the election which the noble Lord, by his speech today, evidently anticipates. But when they were addressed to the City the increases were expressed in real terms, and so both were reassured. In any event, the increases were marginal.

It is when we come to the noble Lord's observations on decreased unemployment that we begin to fall on to rather more difficult ground. He claims a modest improvement in the latest figures for unemployment. It depends what one is dealing with. We on this side of the House consider unemployment at present to be one of the gravest of the key issues before the nation.

When we come to figures, we find they may differ from numbers. Numbers are not always quite the same as figures. We have a suspicion that the numbers differ somewhat from the figure configuration—the latest of a revised series—which the noble Lord was able to publish. Indeed, that did not escape the notice of the Financial Times, which observed as follows: The first difficulty … is to know how far the figures are due to various special relief schemes, and how far to a change in the economic environment. A simple calculation shows that the fall in unemployment over the last six months, unadjusted …almost exactly matches the rise in the number of adults involved in special employment schemes". It concludes: Ministers may regard this tentative verdict as ungenerous; hut, they must get used to the fact that while the groundsmen keep moving the goalposts, the crowd will never be quite sure when to cheer". I think what we can do about the existing figures for unemployment—and we want to be encouraged as much as possible—is to say that perhaps it would be better to leave the matter a little open until events over the next few months have deployed.

One characteristic of all governments prior to this Government—every other government since the war—was that their principal objective was the maintenance of full employment. That was in honourable implementation of pledges given to those who fought in the war, in order that their morale and purpose should be sustained. They were told, and told authoritatively, that the world they were coming back to would not be the world of mass unemployment, as it was in the 1930s, but that every endeavour would be made to maintain full employment. That was the whole objective, and it was central to the policy of every government, including Conservative Governments, that that should be sought.

What this Government have done is to eliminate full employment from their objective. Of course they did so with considerable adroitness. They were able to show, or tried to show, that it was the conduct of previous governments, including Conservative Governments, that was responsible for the quite large inflation that took place in the mid-1970s. What was ignored was the quadrupling of the price of oil in 1973 and 1974, which made inflation shoot up in this country. It was no fault of either the Conservative Government or indeed of the succeeding Labour Administration. Indeed, in spite of the massive inflation that arose, together with all the consequences of the massive rise in oil prices towards the end of the Labour Government in 1979, the inflation rate had been brought down to 10÷3 per cent. and unemployment was still declining. The figure was just over a million when the Government of the noble Lord took office in May 1979.

However, the noble Lord's party would sweep all that away and ignore that fact altogether, although I observed that in an unguarded moment the noble Lord referred to the depression of the late 1970s before his Government came to office. Where then is his allegation now, that all governments, whether they be Labour or whether they be Tory, up to the magic days of Mrs. Thatcher, were responsible in some way for all the ills that have fallen upon us?

The noble Lord inherited an inflation rate of 10÷3 per cent. The Government, by their own actions in their first Budget, in their directives over increases in fuel prices, put up the rate of inflation within seven months to 21 per cent. on an annualised basis, and it is from that figure of 21 per cent. that the noble Lord's Government have brought it down. Therefore what has happened is this. The noble Lord's Government—

Lord Young of Graffham

My Lords, I hope that the noble Lord will forgive me for intervening once again. The noble Lord may well have forgotten—in which case I should jog his memory—that oil prices went up again in 1979.

Lord Bruce of Donington

My Lords, it was nothing like quadrupling—perhaps the noble Lord's arithmetic has deserted him temporarily—and nothing like the increase that took place at that time, when this country had no North Sea oil resources, because it was this Government that inherited all the advantages of the exploitation of North Sea oil. Indeed, one of the indictments that we make is that, in spite of having billions of extra revenue from North Sea oil which no previous government ever had, they have made such a miserable mess of the economy today.

The difficulties of the Tory Government in the early '70s and of the succeeding Labour Government in regard to the quadrupling, and more, of oil prices were used by this Government as an excuse to sweep away the whole basis of the mixed economy on which previous Labour and Conservative Governments had operated. There were, of course, disputations between the parties as to the relative pace at which progress should be made. There was no agreement between the Conservative and Labour Parties in those days over quite a number of questions, particularly the pace at which development should take place and on the redistribution of wealth.

But aside from that, there was agreement that the state should retain one instrument of enormous use to it, in order to ensure the maintenance of full employment. That was to retain the strategic and tactical control of the nationalised industries, most of which were operating very profitably before they were taken over, in order that some central direction could be given to the economy in addition to the fiscal measures that were taken. All that the Government did as a deliberate act of policy, the results of which will now confront us, and will confront us increasingly as this year passes, was to cast away any influence over the direction of the economy, particularly in regard to the maintenance of full employment. That was all cast away.

Lord Harmar-Nicholls

My Lords, will the noble Lord give way?

Lord Bruce of Donington

My Lords, I have now given way twice. I do not want to be too long.

Lord Harmar-Nicholls

My Lords, I intervene only because I want to follow the noble Lord. Can he give a list of the great profits that came from nationalised industries? My recollection is that steel was losing £1 million a day and that there were great losses in coal. May we have a list of the supposed profitable periods which the noble Lord has just extolled?

Lord Bruce of Donington

My Lords, I shall give one example straight off. British Telecom was making profits three years before it was privatised and the profits were revised upwards by some creative accounting before the shares were offered to the public. There are plenty of other examples, but if the noble Lord will forgive me I shall not be deflected from the case that I desire to make.

What has been the result of this freeing of the entire economy to market forces? Unemployment has gone up by 2 million. That is a start. The noble Lord cannot dispute that. Manufacturing production is still 7÷5 per cent. below that in 1979 and manufacturing investment is still 17 per cent. below its 1979 level. Perhaps the noble Lord would care to refresh himself from the Box, in order that the figures can be verified.

If the noble Lord will refer to the report of the Select Committee on Overseas Trade of this House, under the chairmanship of his noble friend Lord Aldington, he will find that some of the most grievous damage that has been wrought over these years by an insanely high interest rate policy, and also by the setting of an artificially high rate of exchange, has been the decimation of a large section of British manufacturing industry, particularly the medium and small firms to which the noble Lord has referred. The idea of automaticity, that somehow the oil industry and its expansion will make up for the continued deficiency in quantity and in value of the manufacturing industry, is completely wrong, because only 2 per cent. of the value added in the oil industry comprises payments in wages and salaries, whereas in manufacturing industry the figure is nearly 70 per cent.

But the most extraordinary thing about the Government's policy is that they now believe that 3 million is the foreseeable level of unemployment in the United Kingdom. The noble Lord should refer to the document submitted by his own Government to the EC, or is it to be said that that has only an element of truth in it? I believe that another term is being used in Australia at the present time concerning truth. Exactly the same conclusion was arrived at by the Bide Report in June, as the noble Lord knows. The noble Lord knows perfectly well that the Government have legislated for, and indeed depend upon, unemployment being maintained at 3 million in this country. The noble Lord knows that, because he needs it for other purposes. Among other things, he needs it in an endeavour to hold down wage levels in this country, because of the fear of unemployment that is generated and that is still maintained by the utterances of the Government in this matter.

May I refer the noble Lord to a speech that was made by his right honourable friend the Prime Minister, not in the United Kingdom but in the heady climate of Kuala Lumpur, when she warned British trade unionists. She said that workers were being given the message that if they wanted to hang on to their jobs labour costs would have to come down. That was the message that she gave them from that part of the world where, in accordance with her doctrine of free competition, the wage levels were 30 per cent. of what they are in Europe. It is from that that we knew what she meant by competition.

The consequences of this policy, where unemployment has not shifted and will not shift substantially below 3 million, are very clear: there are certain fiscal and financial consequences. The first—this is within the constrictions of what the Government euphemistically refer to as their strict financial policy—is the extra £21 billion per annum that they now have to spend in terms of benefits combined with reduced taxation yields, the extra £21 billion that they have to pay out or are liable for exactly because of the high level of unemployment. That imposes certain constraints upon them.

What has happened in order that that figure, operating within their own constrictions, can be contained is that the social wage has had to be reduced; and the social wage for a large number of people in the United Kingdom is of considerable importance as an addition to the ordinary wages that they earn. Therefore, there has had to be a progressive reduction in the quality and, in some cases, the quantity, of the social services available which the ordinary individual takes into account in determining what wage claims are made in order to try to improve the standards of life.

What has happened as a result of that? There has been a downward pressure once again upon the real wage that the ordinary worker in the United Kingdom receives. Concurrently—I observe that the noble Lord did not mention it among his string of successes—because money has had to be pressed down, the infrastructure of the country is now in a state of decay. The Audit Commission—the noble Lord can check this if he likes—put a figure of £21 billion on the amount of house repairs now seriously getting into arrears. That has had an enormous significance in the country as a whole.

The final result of these policies of deliberate inflation of unemployment has been the raising of interest rates to quite astronomic heights compared with the rest of Europe and, indeed, compared with the rest of the world, bar one or two countries. This had made it difficult for the development of business and, indeed, accounts for the astonishing number of bankruptcies and liquidations that have taken place in the last seven years. The noble Lord did not mention that in his fit of euphoria. The same consequential effect has occurred because of the substitution of principally German manufactures subsidised into this country by the artificially high rates of exchange. They have thrown a strain on our own balance of payments.

The noble Lord may sit there in complete happiness assuming that his deficit this year will be only £1÷5 billion. Most City commentators think that there will be a deficit of £2 billion on our balance of payments this year, and worse is to come when the oil production of the United Kingdom begins to decline, as it is bound to do. It will certainly not be compensated for by the hoped for increase in invisible exports.

There has been also the structural effect of the Government's policies. It is quite clear—noble Lords on the Government Benches will not bother to argue, I should imagine—that it is the City that now rules, not the Government. The Government no longer follow policies in the interests of the nation as a whole; they do what the City tells them to do. In fact, the Bank of England subsidised Johnson Matthey to the tune of £100 million without even bothering to tell the Chancellor of the Exchequer, and the City rules.

The Government have parted with every effective means of making up the deficiency in manufacturing industry or the incentives available to it. The noble Lord has been busily enjoining ordinary working people that they should operate wage constraints and that they are receiving too high wages because, of course, to the Government they are a cost. But in the City salaries, remunerations, benefits in kind, have been allowed to go sky high, not only without any objection from the noble Lord but even with his support, because it is the people in the City, from his point of view, who are the creators of wealth whereas in fact all they do is to create the claims of wealth, which is what money is. I have no doubt that he will continue to support them. I have no doubt that he will back the new breed of what I call Young's yuppies, who at present are operating in the square mile at salaries of £ 100,000 a year or more. From his point of view, they are creators of wealth.

The social consequencies of this policy of maintaining unemployment at the present level of 3 million—which both the Government and, indeed, most other forecasters foresee will continue at the level of 3 million—is to make the top people more greedy, to make those immediately below in the higher reaches of management more envious, to make the ordinary workers of the country with the ever-present threat of unemployment kept dangling before them more fearful and to cause despair among the unemployed and the poverty-stricken in the country. Moreover, there has been a flaunting of the freedom of opulence and power and, I am bound to say, some of the permissiveness—yes, I use the term, not Mr. Tebbit—that goes with it, and that in front of the prisoners of poverty.

The Government have in fact been responsible for the virtual dissolution of national unity, and they are making progress inevitably towards the repressive state. I observe that the Prime Minister this morning delivered herself of the view, pace the Financial Times, of the one party state. She wants to eliminate the Socialist opposition from this country within two or three years.

Baroness Seear

My Lords, I think that the noble Lord will agree that the elimination of the Labour Party does not automatically bring about the one party state.

Lord Bruce of Donington

My Lords, I am in complete agreement. If the noble Baroness had been present at the recent debate on the EC, she would have seen that I was a fervent defender of her right to challenge the obviously positive decision arrived at by the electorate some time ago. I am a warm supporter of the noble Baroness in the matter of her identity.

In view of the progress—or lack of it—that has been made by this Government, we are bound to say that we are in profound disagreement with the divisiveness which they have actively encouraged and in which they persist. We alone, and the policies that we propose which are in broad continuation of those that have gone before, can give the nation a sense of purpose and a sense of unity once again. The time is not far off when the country will give us that opportunity. My Lords, I beg to move.

Moved as an amendment to the above Motion, at the end of the Address to insert "but regret the absence of adequate measures to deal with the present high level of unemployment and the problems created by it."—(Lord Bruce of Donington.)

3.45 p.m.

Lord Diamond

My Lords, we on these Benches also look forward to the maiden speech which is to follow mine and I hope that the noble Lord will not have to wait more than another half hour before he has an opportunity to address us! I also hope I am not too late to congratulate my friend and ally Lord Bonham-Carter on a maiden speech which was both stimulating and balanced.

Perhaps I may first thank the noble Viscount the Leader of the House for the statement he made in introducing the reply to the gracious Speech telling us that we are to have the trial of sending one of our Bills to a public committee as an experiment. I think that is a very wise response to the dilemma we all find ourselves in of having insufficient time to carry out our jobs to the standard we would wish. We on these Benches are especially grateful to him because we have pressed for this for a number of years.

I acknowledge that my enthusiasm for this experiment is not shared by every Member of your Lordships' House and I accept that there may be good reasons for that. However, perhaps I may add that it has come to my notice that on occasion some noble Lords do not appreciate their full rights in connection with such a Public Bill Committee. It is not always fully understood that all noble Lords, whether sitting on that committee or not, are free to attend the committee, to address the committee and indeed to move amendments in that committee. The only restriction is on their right to vote in that committee, but of course they are not restricted in that way in the three further stages which a Bill must undergo. It is certainly a modest self-denying ordinance that your Lordships would be expected to accept, and one of a kind which I believe adds to our major liberties.

I believe that the noble Viscount the Leader of the House was right in describing it as an important decision and I have no hesitation in describing it as yet a further example of improvement in our affairs due to the wise leadership which he has given us since he became Leader of the House.

Our amendment, which I hope to have the privilege of moving formally at a later stage, adds: but whilst recognising the contribution made by services to the economy, regret the lack of adequate provisions to revive the manufacturing base of British industry". That amendment has been so worded for two obvious purposes. The first is to draw attention to the benefit to the economy of all services, including financial services. The second purpose is to controvert in part the Government's suggestion that somehow or other failure in manufacturing output and exports are the corollary of growth in services, which we wholly reject.

As to the benefits of services generally, I must mention employment. There were over 14 million persons employed in 1985 in those services. Going against the normal trend, that is half a million more—not less—than were so employed in 1979. By comparison, approximately half that number were employed in production industries, where some 2 million jobs were lost over that same period. As to the balance of payments, this country increasingly relies on the export of services. In 1985 in the private sector we had a surplus of £7 billion on services, compared with a £2 billion deficit on visible trade. That shows how much we rely on services, both as to employment and as to balance of payments.

I now turn to financial services, the figures for which are of course included in what I have already said. There were nearly 2 million people employed in 1985 in financial services alone. That again represents an increase of a third of a million since 1979. There again we have a most welcome contribution to the economy made by what we call the City. That contribution is based on its financial skills and on its worldwide reputation for integrity. I can speak from personal experience in this area. I was privileged to lead two top-level delegations from the City—one of them to Indonesia and the other to South Korea—in the early 1970s. I well remember the high regard in both countries for British financial services and especially for Lloyd's. It is very important that that high reputation for integrity should be maintained and it is for that reason that I welcome the steps already taken and those envisaged in the gracious Speech which are designed to that end.

I also welcome the latest decision in connection with insider dealing, as it is called, although I very much regret that the question should have arisen which prompted that decision. Insider dealing has always been a very difficult issue and the recent creation of conglomerates on the Stock Exchange has made it even more difficult. To the extent that the recent incident can be regarded as arising under the new system, I am glad that the response has been both open and immediate. That promises well for the future. Much as I welcome these positive and constructive steps taken to maintain confidence in the City's financial services, I must add that I deprecate the tendency in some quarters continually to criticise, insinuate and disparage the efforts of the City's institutions. That is playing into the hands of its many competitors.

Nevertheless, however successful we are in promoting services generally (and we must remember that here too the United Kingdom's share of the world market has declined), it is quite unrealistic to suppose that services could make up the loss in industrial employment and exports if import penetration continues to grow and manufacturing continues to contract, especially with the fall in oil production which confronts us.

Nor is it sensible, as the Government in self-defence seem to suggest, to regard the contraction of manufacturing industry as a necessary corollary to the expansion of services. We have enough unemployed, and to spare, to cover any conceivable expansion in both, although it may involve a certain amount of retraining. I do not ask noble Lords to accept that conclusion purely on my suggestion. I want to quote from the latest annual report of the British Invisibles Export Council, which reached me only last night. Its chairman is none other than the former government Minister, the noble Earl, Lord Limerick, who is much concerned to promote our exports of services.

This is what the noble Earl had to say: Thus any debate which seeks to put manufacturing industry and services in opposition to one another and does not address the main issues identified in the Aldington Report is wide of the mark. No foreseeable growth in the services sector can compensate for the eventual loss of our oil supplies. Nor can any foreseeable rate of growth in employment in services, where extra jobs will be numbered in tens of thousands rather than in millions, compensate for the jobs which have been lost in manufacturing industry. We remain convinced that the way forward for the economy is to maximise our trade in both visibles and invisibles". I could not have put it better myself.

Unemployment as has been said, undoubtedly continues to be far and away our most important social problem and the contraction of our manufacturing base our most important industrial problem. The gracious Speech pays scant attention to either. The growing number of part-time jobs for women is welcome so far as it goes but it still leaves more than 1 million women looking for full-time jobs; and it does nothing to abate the misery of well over 2 million unemployed men. To help them in any permanent sense we need to revive the manufacturing base. We need to be able to sell British-made goods at home and abroad at competitive prices. The noble Lord, Lord Young, nods his head. We are on common ground on this issue. Competitiveness holds the key to the amelioration of both problems and is unfortunately the very area where we have to recognise failure.

The noble Lord quoted some figures to try to disprove this thesis. I do not know where he obtained them. I shall read, if I may, a document which ought to have some credibility on the other side of the House. It is called the Autumn Statement 1986 and was presented by the Chancellor of the Exchequer earlier this month. Assuming we still have acceptance of the view of joint Cabinet responsibility, presumably the Secretary of State accepts the contents of that document.

If noble Lords will be good enough to look at page 17 they will see that unit labour costs in manufacturing are set out with the greatest clarity. The chart compares the rise in unit labour costs in the United Kingdom with the rise in the average of other major industrial countries. Starting with 1979 and including the 1987 forecast, the chart shows that in two of those years we in the United Kingdom had to a very small extent smaller rises in the unit costs of manufacturing than the average of other countries, whereas in all the other years, and overall, the rise in our unit labour costs far exceeded the average of other major industrial countries.

I am glad that the Secretary of State accepts those figures. They show that we have failed unfortunately in the main task of improving competitiveness; and on that, improvement in employment, in our capacity to pay for social services and in growth, all depend. Nobody was more forthright in making that clear a few years ago than the Prime Minister herself. There is a greater silence from no one else on the matter today.

Both sides of industry, as well as the Government, should give much greater priority to reversing that trend. It is still true that one man's wage rise may mean a fellow worker's job loss where that rise is in excess of inflation, in excess of increased productivity and greatly in excess of the rise in wages of the foreign competitor. Potential sales, because they may no longer be competitive, are lost and redundancies follow. It is certainly not easy for a labour leader to explain to his members that they should lower their sights because, for example, their German counterparts, who earn higher wages and enjoy a higher standard of living, are prepared to accept a much smaller rise to enable their factory to remain competitive and so retain their export orders. But the truth is that it is partly because of past self-restraint that those workers now enjoy a higher standard of living.

But disproportionate stress is laid on this one aspect of wage restraint and nothing like enough importance is attached to the responsibilities of management and of government in increasing competitiveness. Whereas with wage restraint we are talking about variations in the price of the final product of well below 5 per cent., improvements in management, (which result in modern plant and better layout, in better working conditions, in smoother flow of supplies, in better labour relations and in more participation by an informed workforce), can result in improvements in output which reduce unit labour costs by easily five times that figure. Add to that a phased reduction in the employer's contribution to national insurance, a reduction in the highest ever real interest rates and a stable pound, and we could be back in business.

Joining the EMS now would greatly improve the chance of achieving that stability. but, alas, I have lost all hope of the Government listening to our pleas on that score any more than our pleas that they should invest far more in the decaying infrastructure of the country both as a major contribution to reducing unemployment and as a counterpart to their rake's progress in selling the family silver.

The truth is that apart from their determination to sell the nation's birthright the Government have no discernible economic policy. They claim to be firm monetarists, but they have no measuring rod. They seem to delight in a domestic spending spree which is financed by massive individual borrowing and which sucks in imports from abroad; and their proclaimed firm control of public expenditure is evidenced by the Chancellor saying last year, in November 1985, that certain figures would be "held to" for two future years and then this year, in November 1986, that far from being held to they will be increased in those self-same years by no less a total than 10÷25 billion.

Certainly the Government have no policy for dealing with unemployment in any fundamental way.

Nor should we be surprised, for they continue to refuse to recognise it as being of the first priority. The Government's first priority is the control of inflation. They think it more important that the 500,000 unemployed in the North-West region, for example, should be able to earn record real rates of interest on their massive savings than that they should have a job.

The Alliance has a policy for dealing with unemployment which we have spelt out year after year. The Labour Party has a policy for dealing with unemployment. Both policies have this in common: they state a time by which unemployment will have been reduced by a specified number. That is what having a policy entails. One takes certain actions so that certain results should follow after a certain time; and as one believes sincerely in the policy one declares those targets openly. When the Secretary of State for Employment is prepared to tell the House the date by which unemployment will have fallen by 1 million then, and only then, will I believe that he is really intent on reducing the figures rather than massaging them.

4.12 p.m.

Lord Derwent

My Lords, I am grateful to noble Lords who have welcomed me with such friendly words. I hesitated to address your Lordships on a day when so many more distinguished Members of the House have signified their intention of speaking.

My noble friend the Secretary of State referred to his recent visit to China. I understand that in the days of the Chinese Empire there were two ways in which the Emperor rid himself of hereditary peers who were supernumerary to his requirements. In the first place, each time a title passed to the next generation the family dropped one rank in the nobility until they eventually reverted to being commoners. Fortunately, that is a system which has not yet commended itself to your Lordships. Secondly—and here the Emperor had powers which I am sure are the envy of my noble friend the Chief Whip—immediate demotion was the penalty for any nobleman who, in the opinion of the Emperor, spoke too long in the Imperial Council. Mindful of that historical precedent, I shall not tempt fate by detaining your Lordships for more than a very few minutes.

My excuse for intervening at all in this debate is that, while many noble Lords who will be speaking today with far more expertise than I, speak with the authority of those who observe and, indeed, manage the United Kingdom economy from the inside, I have over the past year had the opportunity to view it through the more objective eye of the foreigner looking from the outside. After over 30 years in which I, too, was an observer from the inside—first from the Diplomatic Service and Whitehall and then from the City—I more recently have worked with a Far Eastern group for whom the United Kingdom is but one possible area for investment and trade, competing for attention with other countries.

It is amazing how one's perspective changes from a different vantage point. As any policeman will confirm, what a witness sees and the importance he attaches to it depend almost entirely on where he is standing. Indeed, I understand it is common for three totally honest witnesses to give wildly differing accounts of the same situation or the same events. In particular, features which appear large and even overwhelming to those near at hand fade into insignificance or invisibility when viewed from afar.

Today your Lordships are debating the economic policies and measures set out in the gracious Speech and will, above all, be looking at them from the point of view of the domestic scene. Social, industrial, fiscal and even (dare I say it?) electoral considerations may be paramount. What I hope your Lordships will also do is to consider how such policies or alternative policies will be viewed from overseas. Each time we change the policies or the laws here, to give employment, to divide the cake regionally, or in pursuit of what may be very worthy domestic aims, this country becomes either more or less attractive as a target for investment or as a potential trading partner. Yet it seems to me that such considerations are often ignored when important decisions are taken.

Foreign businessmen are not too interested in our woes, our problems, the historical reasons for our policies or even the current reasons for them. They must merely view the nation as it is and as they find it. Of course, they know that, as in their own countries, policies will change from time to time. They accept that. But they have to judge any country against certain basic criteria. Is there a stable political background, and is it likely to continue? Is there a sound legal system which is easily understood, free from red tape and honestly administered? Is the language one they can speak and understand? Is the labour force skilled, motivated and enthusiastic? Will there be sudden, unexpected and unexplained changes in the ground rules? Uncertaintly is the one thing with which business cannot cope. Is there a fiscal system which is, if I may use the jargon of today, "user friendly"? Is the private sector made to feel welcome? Is there the necessary infrastructure of services and skills for their particular business?

I shall not attempt to analyse where the United Kingdom stands in relation to each of those questions and as compared with our competitors. Each Member of your Lordships' House will have his or her own opinion. I would only make a plea that when advocating, or opposing, specific measures we should all, in all parts of the House, consider how the foreign perception of the United Kingdom, judged against those criteria, will be affected.

Finally, I hope that we will always be prepared to reconsider our most precious beliefs—I almost said our most treasured prejudices—in the light of what is happening elsewhere. There is one striking current development which provides a good example of what I mean. It is an event overseas which in my view must have a profound effect on the policies of future British and, indeed, other European governments, and which makes much received wisdom dangerously out of date. I refer to the new United States tax laws. As your Lordships know, the highest marginal rate of income tax in the United States, is—with one limited exception—to be reduced to 28 per cent. Most higher paid, even the most highly paid, manual workers will enjoy a marginal rate of 15 per cent. Six million people now paying tax will be taken out of the tax net altogether. Noble Lords may think this policy right or wrong for the United States, but our views, alas, are irrelevant. From 1st July 1987, that will be a fact of life in America.

Different Members of your Lordships' House may believe that the top rate of tax should be 50 per cent., 60 per cent., 83 per cent. or even more in a perfect world; but I think that we should ignore doctrinal views on whether or not policies based on high income taxes are in themselves desirable. Instead, we should consider whether a policy of high income taxes is even an option which is open to us now that we are faced with the opposite policy in the world's most economically powerful nation. Can we attract or keep the best brains, the best companies or the most desirable investment if our lowest rate of income tax is higher than the American highest rate?

I cite tax rates only by way of illustration. The point I seek to make is that the world is now so interdependent and changes so quickly that any one of us who automatically repeats arguments that we last used one year ago may be guilty of trying to solve the problems of the past rather than the problems of the present or the future. My Lords, I thank the House for its indulgence.

4.22 p.m.

Lord Harris of High Cross

My Lords, the privilege falls to me on behalf of noble Lords in all parts of the House to offer our congratulations to the noble Lord, Lord Derwent, and express our pleasure in his eloquent and thoughtful contribution to our debate. Older Members will confirm that his father will be sorely missed. However, we rejoice in a hereditary system that yields younger Members who can enliven our debates from their recent experience, and we look forward to further contributions as often as the noble Lord can neglect his affairs to be with us on other occasions.

The title for today's debate invites us to judge the gracious Speech by its contribution to long-term economic progress and employment. On the other hand, the two rather nostalgic amendments prompt me to begin by looking backwards over the chequered history of what the noble Lord, Lord Bruce of Donington held up to our admiration as the vanished "consensus" and which I call the consensus of collective Keynesian economic management and planning. That seemed to start quite well. It is within the memory of most of us perhaps how in 1945 a Chancellor came forth who was a trained economist from the London School of Economics, and who often said. as your Lordships will remember, that he had a song in his heart. It did not last long. He was soon succeeded by Sir Stafford Cripps and a real taste of austerity, which still did not fend off the first post-war devaluation of our currency.

From the Cross-Benches I must be impartial. I can all in the 1950s successive Tory Chancellors who from time to time ran foul of what came to be called "balance of payments crises", which were massaged by a succession of credit squeezes, but that did not prevent a repetition of them. In the 1960s under both parties we had Stop-Go, followed by Go-Go, egged on by a National Plan, which swiftly gave way to a second unplanned devaluation under a Labour Administration. Finally, in the 1970s Mr. Healey set a record for a series of mini-budgets which notably failed to prevent high inflation and mounting unemployment that not only made a mockery of central planning but disrupted employment and investment throughout the manufacturing sector.

I believe that the most conspicuous achievement of Mrs. Thatcher's leadership has been the success of her two Chancellors for seven years in managing with one Budget each year to maintain steady progress, at least since 1980, in bringing inflation down from above 20 per cent. to its present 3 per cent. Despite the dramatic eruption and collapse of oil prices, a world recession, a full-scale war in the South Atlantic, a year-long coal strike and many, almost unprecedented international shocks, the anchor of the medium term financial strategy has kept us steady. It is true that the monetary aggregate, namely £M3—which I believe was chosen originally by Mr. Healey with a certain amount of help from the IMF—has been rendered a somewhat fickle guide to the inflationary trend, for reasons that were explained to any who have the stomach to persevere in reading the lecture of the Governor of the Bank of England at Loughborough last month.

But for all the scoffing from the ranks of the unbelievers—and notably the noble Lord, Lord Bruce of Donington—the Treasury's success since 1979 in my view stands in the sharpest contrast to the oscillation, the instability and the accelerating trend of inflation under previous Labour and Conservative Administrations. Indeed, it is that record which today leads me, at least for the moment, to give the Chancellor the benefit of the doubt which is expressed by some monetarists that policy may now already be set on too expansionist a path. In place of the discipline of pre-announced monetary rules we have only Mr. Lawson's judgment based on monitoring all financial aggregates together with the underlying movements of the exchange rate. I admit that he has kept a firm grip on government borrowing, which was frequently a source of inflationary printing in the past, but the Chancellor knows that he is on trial. He has said that the course of prices must be his judge and jury and he knows that the time lags will not delay beyond next year at least a preliminary verdict.

As the noble Lord, Lord Young, argued, the Government can claim many other successes in productivity, investment and growth. But despite all his energetic efforts, which I admire enormously, I fear that a sustained or significant reduction in measured unemployment still seems likely to elude us. Even allowing that the headline figure above 3 million overstates the true number of people anxious to take a job, present policies are not sufficiently directed at reducing the smaller but still large number who are genuinely seeking work.

In Europe and across the world to Australia and New Zealand, governments of quite differing political philosophies have turned against monetary expansion as a discredited panacea for unemployment. Instead they are discovering that deep-seated structural changes in production and in foreign trade require increased flexibility through the liberalisation of labour and other markets, accompanied by lower taxes, as mentioned by the noble Lord, Lord Derwent.

The most surprising convert that I bring you today is perhaps the International Labour Organisation, which since 1919 has done so much to bolster trade unions and to hobble the efficient deployment of labour. In its recent report the director general acknowledges, for example, that the growth of social security is a burden on production and is "causing deep concern". Like a reborn Thatcherite, he talks of the "serious consequences" of deficit financing for high interest rates, reduced investment and the loss of productivity. He goes on to call for correcting the balance between the protection of workers and the flexibility vital for the economic viability of enterprises". Looking at the amendments, I ask what help did the Government get from the noble Lords, Lord Bruce of Donington and Lord Diamond, when they set themselves the difficult task of deregulating shops and buses, reducing trade union privileges, ending the nonsense of the Truck Acts and reducing the impediments of wages councils. The trouble is that the Government now need to go further in tackling what Keynes himself classified as "voluntary unemployment" caused by the effect of social security on work incentives. It was Keynes who back in 1930 acknowledged that even the pre-war dole prolonged and increased unemployment.

I go back to my favourite reading for the time being, the International Labour Organisation and its splendid reborn director general. He writes: If unemployment benefits are high in relation to take home pay, the pecuniary incentive to work is clearly marginal. There are undoubtedly some abuses of benefits such as technically unemployed people engaging in clandestine work". If we do not wish to see benefits reduced or stopped altogether after six months or a year, as in countries as different as the United States or Sweden, there seems to be no alternative to a massive reduction in taxes on low incomes. By increasing net take home pay, we would also reduce pressure for unearned wage increases, which are still pricing hundreds of thousands of people out of work.

My disappointment with the gracious Speech is that it holds no promise of a major reduction in central and local government spending, which still amounts to well over one half of our national income. I have no doubt that lower taxes on earnings hold the key to a more efficient, enterprising and expanding economy that would offer lasting employment to more of our people. However, since both amendments rest on policies that would increase rather than reduce government spending and taxation, I am left with no option but to support Her Majesty's Government against such reactionary tendencies.

4.35 p.m.

Lord Soper

My Lords, may I begin by offering my congratulations to the noble Lord, Lord Derwent, for a maiden speech which I found most cogent and enterprising. If the noble Lord will allow me to pay him a compliment, I begin with the claim that he made. It is important to look upon this affair in our Chamber today from the outside. As is my wont, I have been talking in the open air today. It was a bit damp but I found there a reaction in great contrast to the general temper and spirit of the debate hitherto in your Lordships' House. The main difference, it seems to me, from contact with the outsider, is that for him it is a moral issue. Only in the sense that "economics" is a derivation of the word "stewardship" does it become a matter of expertise.

To quote Mark Twain about the Bible, it will be remembered that he said that the bits in the Bible that he did not understand caused him some bother; but what caused him much more bother were the bits that he did understand. That is a not inappropriate comment upon the nature of the economic situation to which your Lordships have given your attention hitherto this afternoon. With 9 million below the poverty line in 1983 according to Government estimates—the figure must be about 10 million now—with more than 3 million unemployed persons, to say nothing of their entourage and family background, and with the obscene kind of opulence enjoyed by a favoured few, particularly those who seem to be experts in the manipulation of finance, the present situation, as seen by the outsider, so far as I come across him, is a moral collapse. Although he may have personal and selfish reasons for such an estimation of what is going on, I would nevertheless concur with him that, ultimately, what we are discussing this afternoon is the machinery of government in the economic field as that machinery is governed by predominant and background ideas and principles.

I shall devote what I have to say to an examination, however brief and however imperfect, of one or two of those preconceptions. One is the attitude that can generally be regarded as privatisation. The other day the noble Lord was engaged in debate in the Oxford Union. The motion was that the ultimate good of the community would best he secured by the pursuit of private gain. That, to me, is morally intolerable. It seems a direct contradiction of everything—quite apart from a Christian background—being incorporated in the idea that you can only produce good by good. You cannot produce good by evil, except on the basis of a total depravity concept that I would repudiate, as I am sure would your Lordships.

I do not believe that you can unite a community to face the problems that undoubtedly obsess a great many of the minds of those who seek to provide the answers, by claiming that an enlargement of the area of selfishness will contribute to the public good. You cannot baptise selfishness, even with that kind of hosepipe, without creating an intolerable moral dilemma. I would rather face the dangers and difficulties of believing that corporate action is preferable to private gain than go on maintaining the proposition that we shall somehow come out of the problem that we now face by the exercise of the very thing that in large measure has produced it.

I further find that the privatisation idea lends itself to another monstrous misrepresentation of even basic morality. I do not believe that possession, particularly of this world's goods, can ever be a freehold. In all circumstances, it must be something of a leasehold. For people to imagine that they can do exactly what they want with money that they have acquired by good or bad means seems to me a fissiparous attitude that divides any community that could be united, and produces the kind of separation that anyone who lives north of the Tweed can find, by the simple experience of looking at the faces, let alone the circumstances, of those who live in areas of vast and high unemployment.

I hope that your Lordships will not think I am either sentimental or sanctimonious in believing that we have a basic moral crisis here. That moral crisis arises as the result of the very action of privatisation, and the accompanying ways in which it is expressed, so that we have no adequate concept of a united people. We cannot therefore appeal to those who have the opportunity of service because they do not feel any urgency or sense of responsibility for their fellows. It is that elementary sense of responsibility which I would urge upon your Lordships today. I believe that such responsibility can be undertaken only when it is firmly established in a communal effort to face those problems which now afflict us all, either directly or indirectly.

Therefore, in conclusion, in order to be a little constructive, I believe that there is a vast opportunity for the infusion of public money into all kinds of institutions which are now impoverished because of a lack of it. The assumption that that money is not there seems to me to contradict this basic proposition. If we were prepared to put that money into the creative opportunities which could increase the services which could be used to reduce unemployment, we should find that money in the one area which—if you will allow me (I shall say it anyhow)—is a bugbear to many people. I am a pacifist. I believe that the unilateral reduction of the enormous amount of money that we are prostituting to the intentions of armed violence, or the so-called prevention of them, is a source which could be used, and would unite a great many more people than we are accustomed to think would respond to such a plea.

There is no doubt in my mind that what is, above all, required today is a new spark of public enthusiasm for a community which at the moment does not exist. It can begin to exist only when there is a parity of sacrifice to which we ask all to subscribe, and a prospect of a peaceful world in which creative leisure will in large measure take the place of what is now called unemployment. That is a belief. That is a vision. I believe that it forms at least a part of the contribution that should be made to this debate in your Lordships' House.

4.43 p.m.

Lord Boyd-Carpenter

My Lords, I too, from these Benches, should like to express with great sincerity my congratulations, and those of all noble Lords on this side of the House, to my noble friend Lord Derwent on a clear, forceful and extremely interesting maiden speech. It is obvious that he is a powerful reinforcement to these Benches. I express with wholehearted sincerity the hope that he will frequently bring his powerful aid to our help in these debates. As one who was an enormous admirer—and I am glad to say can claim to have been a friend—of his father I shall only add how proud and glad his father would be if by some means he could know what a splendid initial impact his son has made on your Lordships' House this afternoon.

The noble Lord, Lord Soper, has tempted me, I am afraid, from my prepared speech. In that respect I am like Oscar Wilde: I can resist anything except temptation. However, when the noble Lord, Lord Soper—whose sincerity I am sure all noble Lords wholly recognise—held forth to the effect that corporate action is better than individual action, and that it is corporate action which should be applied to our affairs rather than individual action, he did not deal with the question as to which was the more efficient, and more likely to provide the wealth which we need for the maintenance of all the immensely important services which we wish to maintain and to expand in our community.

The noble Lord for that reason denounced privatisation. However, it has been our experience of the nationalised industries that what belongs to everybody belongs to no one. It has also been our experience that those industries that have been denationalised—I prefer that work to privatised, which I think is a clumsy and rather crude expression —have, without exception, done conspicuously better than under nationalisation. In that way they have therefore contributed to the creation of more wealth to be used for the innumerable good purposes for which we in this country want to use it.

The noble Lord, Lord Soper, also sought to find funds for other purposes by running down—indeed, as I understand him, eliminating—the armed forces of the Crown. I can say only that I have lived through two wars, both of which we nearly lost, and our freedom with them because the governments before those two wars did not provide adequately for our defence. If those of my generation, and that of the noble Lord, Lord Soper, cannot learn from that lesson, then I can only say, in words which will appeal to him "Heaven help us".

I come now to the noble Lord, Lord Bruce of Donington. Those of us who have in us a touch of sadism must have derived very particular pleasure from listening to his speech, because the noble Lord is in a terribly difficult position. Will the noble Lord say that the Autumn Statement is a lavish, crude attempt to bribe the electorate by lavish and profuse expenditure; or will he say that it is an example of a hard-faced, brutal Tory oppression denying every good service adequate support? Even the noble Lord with his admitted affection for the manipulation of figures cannot ride both horses. At the end of his speech—which I would not criticise on the grounds of undue brevity—he did not clearly come down either way, which, although a tribute to his adroitness, does not help the conduct of this debate.

I shall say to the noble Lord, in words that I hope he will not think offensive, that if he is taking the electioneering option—as I rather think on balance he was tending to do—there is a good quotation: Belial, in much uneven scale, Thou weighest all others like unto thyself". Given what his right honourable friend Mr. Hattersley is recommending to the public—the vast expenditures in every vote-attracting direction, and the enormous increase in public expenditure—it would be a little odd if the noble Lord or his colleague beside him were to suggest that an Autumn Statement which still keeps public expenditure within the same proportion of the gross domestic product was anything of that kind.

The most startling of all the observations of the noble Lord, Lord Bruce, was when he solemnly—I could hardly believe it as I listened—charged the Government and my noble friend on the Front Bench with wishing to keep an unemployment figure of three million. One can accept, I suppose that he thinks the Government are wholly lacking in humanity, and that we are happy at the idea of three million, or anything like that, of our fellow countrymen going through the humiliation of unemployment. It is perhaps the humiliation of not being wanted which is worse than the economic privation. He is entitled to think that. But does the noble Lord also think that this Government are happy at the vast expenditure in billions of pounds on unemployment benefit which could, if unemployment were much lower, be used in other very useful directions? Finally, does the noble Lord feel that a Government—which must face a general election at some time in the next 18 months or so—would welcome figures of unemployment of this measure? The noble Lord is entitled to think us hardhearted: he is not entitled to think us insane.

The central issue of this debate is the question of public expenditure and the taxation needed to maintain it. That is the central issue, and it is the case that the machine is very much tilted in favour of expenditure. I think that the noble Lord, Lord Diamond, a former Chief Secretary to the Treasury, will agree with me that all the cards are stacked that way.

Doctors in hospitals genuinely feel that if they had more money they could cure more people by all the new, elaborate and expensive processes that they are developing. Ministers in social security departments—and I know this because I had 6½ years as Minister of Pensions and National Insurance—know the popularity they would receive if they could expand those payments, and how much good they could achieve in the process. The Department of Education and Science and the Department of Transport all know of expenditures which would be extremely helpful, and, in human terms, they also know that a Minister who spends a great deal is popular and well-liked by the public whereas a Minister who restrains expenditure finds it less easy to put his views across.

However, there is a point at which the taxation needed to finance these public expenditures becomes counter-productive, damaging to the economy and restrictive of the creation of wealth. I thought my noble friend Lord Derwent in his splendid maiden speech made that point superbly well. If we in this country are to be asked to keep our lowest rate of income tax at a level higher than the highest rate in the great United States, we must be putting ourselves at an economic disadvantage and at a disadvantage in the creation of wealth. I believe that, at the higher rate, our system now taxes at 59 per cent. those with large incomes—a percentage which some people might well regard as confiscatory. Therefore high taxation must discourage incentive and saving, and, worse still, must encourage emigration. A brilliant young man, whether in science, technology or finance, who knows that if he goes abroad he can earn a very high salary with less, perhaps no, taxation upon it, will be tempted to transfer himself and his abilities from a country that will take 59 per cent. of the top chunk of his earnings. That must be an economic loss to this country, not only because his abilities are lost, but because we also lose the opportunity of taxing him at all, and obtain no revenue at all from his income.

If we discourage initiative and enterprise in this way we shall handicap ourselves very severely in the highly competitive world in which we have to live. This is not our experience alone; we have seen what these kind of policies have done in other countries. We saw it in France under the previous French Government, and the French, being a quick thinking and quick moving people, hastily reversed it.

The best example of all is that of Australia. I suppose that Australia is basically the richest and most fortunate country in the world, having every natural resource that one's imagination can contemplate: oil, coal, gas, food, cattle, sheep, grain, every mineral that is wanted—every natural resource—and a population modest in relation to the great areas of that great country. Yet in two or three years the kind of policies that the noble Lord, Lord Bruce of Donington, and his colleagues are advocating have reduced that country to a state of crisis, have driven the Australian dollar down on the markets of the world and have even forced the Labour Government there to take restrictive and repressive measures. If these kind of policies can do that to as robust and powerful a community as Australia, it is a little alarming to contemplate what they would do if applied in this country, with our infinitely weaker resources and in our infinitely more precarious position.

If your Lordships want another comparison, let us compare these kind of policies with what happened in this country some years ago. It is a particular pleasure to all of us that my noble friend Lord Stockton is here this afternoon, looking well recovered from his recent illness, and I am particularly glad of that because I want to recall the Macmillan era. In that era taxation was steadily and progressively reduced.

However, the economic growth which that helped to produce increased the yield of that taxation at lower poundage rates, and, as a result, in my noble friend's own famous words, which have passed into history, "You've never had it so good". That is true. My noble friend was attacked for those words, but it is true. We had a period of growth, of very low unemployment, of hardly any inflation for year after year, because a policy of restraint in expenditure and of increasing benefits of one kind or another only as and when they could be paid for, enabled a process to be carried through of increasing them year after year without check and without setbacks.

If we cannot learn from the examples of other countries, let us at least learn from the example of our own. As the right reverend Prelate the Bishop of Manchester said the other day in this House in connection with surgery—and I have given the right reverend Prelate notice that I should be referring to this—"People should pay more taxes in order to improve the National Health Service". That sounds, of course, very appealing. However, if, for that good reason, you are going to push up the levels of taxation beyond the point at which they diminish the efficacy of the national economic effort, you will do no good either for the National Health Service or for any other services in this country. I say with great respect to the right reverend Prelate, that I wish that particularly those who hold high position in this country would not encourage the simpliste view that all you have to do is to put up taxes and pay for all these good things which you want to see done. The only way in which you will achieve these good things is, first, to build the wealth creation which can finance them and, then, to use that wealth as you generate it to expand these services again and again. That is the true way by which, as I said to your Lordships, experience has shown this country to have prospered and succeeded.

There is only one other point that I wish to make to your Lordships. I was distressed that the Autumn Statement contained the statement that in the current year local authority expenditure had increased by 9 per cent. That goes wholly contrary to all the policies of' the government of the day on the management of the economy, and must have a particularly damaging effect on the areas of the local authorities to which this applies, particularly in respect of unemployment.

There is gross extravagance in some local authorities. I will take only one example, that of the Borough of Ealing, which in the current year has increased its office staff at the borough headquarters by 780 people. There can he no justification for that. Of course it is all part of the expansive attitude—expansive and expensive—of so many local authorities under Labour control. Though they have nothing whatever to do with the police, they set up a police committee. They set up committees to support every sort of eccentricity, and may I say every sort of perversion. They support every crankish or fanatical organisation at the cost of the ratepayers.

I hope that another 9 per cent. increase in local government expenditure is not going to be permitted by my noble friend and his colleagues. I know how difficult it is to tackle elected local authorities, but rate-capping has had some success. If one reads the Autumn Statement the one really rather damaging hole ill the whole concept is this growth in local government expenditure, and I hope that when my noble friend replies he will say something reassuring about that.

We have at the moment a clear conflict on financial and economic matters with the Labour Party. Under the present Government our society and its economy have been changed beyond all recognition. We have lived in an era in which the boundaries of the state have been pushed back—although that will annoy the noble Lord, Lord Soper, I think that most other people appreciate that particularly—and in which enormous changes have been made with increasing freedom, increasing deregulation, and therefore increasing creation of wealth.

I think that when the people of this country come to realise the immensity of the change effected by a radical Conservative Government they will be deeply impressed, and indeed contrast it with the most static organisation in the world, which is by paradox called the Labour movement.

5.2 p.m.

Lord Hatch of Lusby

My Lords, I should like to begin by adding my own personal tribute to that already given by the noble Lord, Lord Bruce of Donington, to the late Lord Kaldor. We miss him particularly in a debate of this kind. Those of us who were privileged to work with him and to be inspired by him, and to play upon his patience particularly in our work in the third world, miss him deeply.

My second desire this afternoon is to add also my tribute to the maiden speech of the noble Lord, Lord Derwent. I am tempted to take up the essential point he made about the necessity for regarding our economic affairs from the outside, from the viewpoint of the rest of the world, and, as the House will know, I have often done so, but I am going to resist that temptation this afternoon and postpone it to the future. However, I am pleased that the noble Lord brought this to our attention.

I am also tempted to take up the speech of the previous speaker, the noble Lord, Lord Boyd-Carpenter. All I would say about that is that I believe that he totally failed to understand the basic argument of my noble friend Lord Soper in the contrast between the community interest and private greed, but that is a matter that can be taken up at another time. What I would suggest is that when the noble Lord, Lord Boyd-Carpenter, says that the most important issue in this debate on economic policy is the degree of public expenditure, I would disagree with him.

What I should like to do this afternoon is to make one point only: that beneath all the political arguments regarding our economy there is a deep malaise, a deep canker, in our national economy which affects people of all ideological beliefs, and essentially influences the present of this country and its future, and the future prospects of our children. I refer to the state of manufacturing industry and its prospects in the future.

Last year there was a deficit in manufactunng trade of £3½billion. This year it is forecast that that deficit will be £4½billion, and yet the exports of this country still rely upon manufacturing for more than half—51 per cent. to be exact—of their volume and price. Those who argue that services can take their place should note that only 23 per cent. of our exports come from services. This is quite natural, because if you look at the character of manufactures and services, whereas 80 per cent. of manufacturing output is tradeable—can be sold outside the country—only 18 per cent. of service activity is so tradeable.

As a result of this tragic decline in our manufacturing industry we see what has already been referred to several times this afternoon, the steep rise in unemployment. I would just remind the noble Lord, Lord Young, if he were here—perhaps someone will draw it to his attention—that when he is talking about unemployment being a European problem and an international problem, I challenged him on this not very long ago. He courteously sent me the figures, and those figures show that in the OECD countries only Eire and Spain have a higher percentage unemployment rate than this country. We are top of the league outside Eire and Spain.

Of course this particularly affects manufacturing employment. In a year like last year, which showed a certain new form of growth, the unemployment figures in manufacturing industry rose by only—and I emphasise "only"—5,000 a month. This year those figures for unemployment in manufacturing are rising by 15,000 a month.

As has already been pointed out by my noble friend Lord Bruce of Donington, manufacturing output is lower today than it was in 1979. But I would just refer to the fact that it is also lower than it was in 1973, so that it is not simply a party issue. Manufacturing output has been declining. It rose towards the end of the 1970s, but it is still lower today than it was 15 years ago.

Investment, on which manufacturing industry depends, is lower than at any time since 1963—at any time since shortly after the noble Earl, Lord Stockton, was Prime Minister of this country—with the one exception of the trough of 1981 to 1983, when this Government were also in office.

I should like to quote to the noble Lord, Lord Young, the findings of his own Manpower Services Commission along with the CBI, who have found that one in seven of manufacturing firms in this country find their work curtailed today by a shortage of skilled labour, a shortage of skilled workers, at a time when unemployment is, even by massaged figures, three and a quarter million and by real figures something in the nature of 4 million. Yet despite this clear collapse of manufacturing industry, the department of government which should be responsible for the promotion and the assistance of manufacturing industry, the Department of Trade and Industry, had a budget of £1.5 billion in 1980—a budget which today has fallen to just over £600 million.

What is the effect on the standard of living of people in this country and the prospects for the people of this country of what has happened to manufacturing industry? I am not talking here in a party sense, because I believe that this collapse of manufacturing industry is recognised on all sides: it is certainly recognised by management, by workers, by unions and I hope it is recognised by the Government. I should like to quote—the House knows I prefer to quote from my opponent's words rather than from the words of members of my own party. This is a quotation from the Association of British Chambers of Commerce in a booklet produced in conjuction with the Young Conservatives. It says 1.7 million industrial jobs have been lost in eight years; that British industry's decline has been 'more rapid and absolute' than any of our main competitors (output falling while it is rising sharply in Italy and the Netherlands, as well as Japan)…equally alarmingly that import penetration is soaring". It continues in a direct quote: Our shrinking manufacturing base and deteriorationg trade performance raise a fundamental question about the future of the British economy: how do we pay our way in the world when the oil trade supplus—at present a huge £11.5 million—begins to disappear in the late 1980s". I suggest that those remarks from the Association of British Chambers of Commerce and the Conservative Party amounted to a fair estimate of the most basic threat both to the economy and to the standard of living of the people of this country. So far as I can gather, that was never even approached in the opening speech of the noble Lord, Lord Young, a speech which appeared to be much more geared towards an election that a constructive contribution to the debate in this House.

I am not trying to make a party point, because this is an issue which has faced the country throughout this century, whatever government have been in office and all governments have some responsibility for it. We can go back to the end of last century. It was in the 1880s that the United States first surpassed the steel production of this country; it was in the 1890s that the Germans overtook us in the production of steel—an essential indicator of industrial health. At the beginning of the century this country exported 33÷.2 per cent. of total world exports; the figure today is something under 7 per cent.

Even when we were faced by that clear competition and threat to our position in the world at the end of the last century what did we do? One could mention one or two things. We still were much more concerned with the classics than with technology. While we were still basing our education system on the foundation of the public school classical education, the Germans and the Americans were building technological and engineering colleges. Has the position changed? Today the Germans have over 600,000 apprentices: in this country there are 40,000. In Japan 34 per cent. of 17 year-olds are in full-time education; here there are 30 per cent.

In the countries of our main competitors prestige and remuneration for industiral management are considered to be at the top of the scale. In this country what happens? Young men and women in their mid-20s are getting £50,000 a year and upwards for manipulating figures in the City. How does that compare with the rates that are paid for the same age group in industrial management? I suggest that the story—which I do not think will be challenged in any part of the House—of the imminent danger to the standard of living of the people of this country leads us to ask questions which we cannot answer. We do not know and nobody knows. Many suggestions are put forward, many analyses are offered to us, but we do not know. I do not believe that any single Member of this House can answer that question. What is causing the collapse of our manufacturing industry and the threat to our industrial and economic future?

We know that there is need for an industrial strategy, which we do not have. We know that in other countries there is co-operation among government, unions and management which does not exist here. We now that industry is valued in our competitor countries, irrespective of the character of their governments. We know that the governments of our major competitor countries give a great deal more active, practical support to the industrial firms that produce the wealth than there is in this country. I believe that whether we have a Labour or a Conservative Government, from now until the end of this century we must have a radical, constitutional and structural set of reforms. It is necessary just as much for Labour's industrial policies as it is for any continuation of Conservative policy.

I beg the noble Viscount who is to wind up this debate to take on board this issue of the threat—the collapse, indeed—of our manufacturing industry and tell us what is the view of the Government. I have one specific suggestion to make, and I ask him to respond to it. I know he cannot answer yes or no tonight, but I ask him to respond and to take it seriously, because I do not believe that this comes simply from one part of the House. I ask him to consider whether it is not the case that the essential data we need to face this issue can be extracted only by a Select Committee of this House; that this is the only institution in the country which has the expertise and experience and which can investigate every aspect of training, wages and management—the gamut of issues which affect our manufacturing industry. Will he seriously consider whether it would not be in the national interest for him to give a lead by setting up from this House a Select Committee to investigate the history of the decline of manufacturing industry and the effect of that decline today and to look for proposals for our revival in the future? The future of the standard of life of the people in this country depends upon that.

5.20 p.m.

Lord Alport

My Lords, the debate so far, I think, has been in pretty general terms and included the admirable maiden speech from Lord Derwent, whose father we remember here with great affection. However, I hope that your Lordships will bear with me if, by contrast, I give a case study of unemployment in one great English city. In the last Session, I initiated a debate on the problems of the North suggesting the appointment of a Secretary of State on a par with the Secretaries of State for Scotland and Wales. The idea did not commend itself to your Lordships. Indeed, my noble friend Lord Elliott of Morpeth indicated that I had a totally false impression of the seriousness of the problems in that part of England.

So, this summer, I went to try to see for myself. Although I paid a short visit to the North-East and saw the carefully landscaped graveyard of the great steelworks at Consett, my main aim was to see something of the situation in Liverpool. From the Tory point of view, Liverpool and Merseyside generally have become politically a sort of "no-go" area. This was well demonstrated by last week's by-election—yet it seemed to me that it represented a compelling example of inner city decline, of the social and moral consequences of high unemployment and the failure of central and local government to get to grips with problems of the "second industrial revolution".

My visit was purely private, organised for me by one of the clergy of the Anglican cathedral. I talked to various groups, senior probation officers, senior police, the manpower services organisation, leading business-men, the chief executive of the city, drug-addict counsellors, old-age pensioners and clergy engaged in pastoral work in some of the most deprived areas. Let me record at this point, if I may, the impression (which was apparently shared by at least one of the reporters at the Knowsley by-election) that, at a time when the Christian Churches in general and the Church of England in particular are the subject of so much criticism, it is the clergy who seem often to provide the most effective and even the only resources of leadership and social cohesion among communities, black and white, where the normal pattern of local responsibility has disintegrated under the pressures of the environment and deprivation. The aim that I set myself on my visit was to try to find the answers to three questions. First, why has a great city with a strong tradition of responsible local government become within the last three or four years a by-word for political extremism? Secondly, what, if any, is the connection between high levels of unemployment and crime? Thirdly, what can be done nationally or through local authorities to tackle the problems which face large communities which the changing tidal flow of modern industry and communications has tended to leave high and dry?

It seems to me that the real success of the policies of governments of any party will be measured by future historians by the manner in which they deal with special situations such as Liverpool and Merseyside represent at the present time. There is, of course, a general reference to unemployment in the gracious Speech. Like others of your Lordships, I am glad to hear that there has been some reduction in overall unemployment during recent weeks. This is certainly true of my own town of Colchester; but overall figures, the statistical bases of which have been the subject of frequent changes, do not necessarily represent what is happening in Liverpool or, for instance, in the North-East, in Sutherland. It may even be that they record the fact that the South is becoming more prosperous and that the disparity between North and South is becoming even greater.

I noted a recent speech by the Chancellor of the Duchy of Lancaster in which he seemed to indicate that the North had brought its troubles upon its own head by its record of bad industrial relations, trades union intransigence and failure to meet the demands of modern technology. If it is the policy of the Government to leave Liverpool, for instance, to stew in its own juice, let me recall something said by the right honourable Member for Henley, Mr. Heseltine, during his first visit to Liverpool. "If we have a revolution", he is reported to have said, "it is here in Liverpool that it will start".

I, myself, was warned five or six years ago, by a leading lawyer in the city, that there was going to be trouble in Liverpool and I was warned again during my summer visit that Toxteth was only a start. This brings me to the answer to my first question. Political extremism, whether to the Left or the Right, has always been the resort of communities and nations driven by a feeling of hopelessness and injustice. In Croxteth, 94 per cent. of those between 16 and 21, and 60 per cent, of those between 21 and 65, are unemployed. Unemployment in the city as a whole was, in 1978, 37,000 or 14.6 per cent. In 1984, it was 59,000 or 26 per cent. The manpower services are trying to help, but when the employment that they give ceases after one or two years there is little chance of finding work until, after another year, the individual becomes eligible for another of the services' dead-end jobs. The city corporation is the biggest employer. Under the prospective level of grant, it is likely to have to discharge a further 2,000 to 3,000 workers. In June of 1985, 32,000 men and women had been out of work for over a year. There are very responsible and informed people who believe that no elected authority of any party can face a situation of this sort.

I hope that the Government can assure the House that they fully understand the inevitable consequences if Liverpool is left to stew in its own juice. With unemployment at 26 per cent. and, in some cases in the city among young people, at over 90,000, the answer to my second question becomes pretty clear. In Croxteth, I noted that on the houses there were as many burglar alarms as television aerials. There was one practically on every home, council or owner-occupied alike—and a reporter at the by-election noted the same at Knowlsey. With unlimited time on their hands, with no chance of increasing their money by work, constantly seeing on television the image of the southern affluent society, as they conceive it, and particularly among the young at Croxteth the demands of the drug pushers, it is not perhaps really surprising that crimes against property are endemic. I am told that addicts no longer always pay in money; they load stolen videos and TV sets into the boots of cars and exchange them for their value in drugs from the drug peddlers in the locality.

I believe it is the Government's view that there is no direct relation between unemployment and crime. I should be the last person to equate unemployment with criminality, but I have not the slightest doubt that where there is a high level of unemployment, particularly among young people, crimes against property and drug-taking inevitably result. The answer is not to provide millions more for the police or to increase the penalties in the courts. It is not good enough to hector or lecture people, or to subject communities to administrative and financial penalties or political ostracism. What really matters is that they should feel that, with all the temptations and pressures of the present, the future offers hope and the promise of better times to come.

And what hope is there in Liverpool of better times ahead? Liverpool has always been a proud, turbulent, cosmopolitan city, regarding itself, with its splendid buildings, its port and its industrial strength, as superior to all other cities in the North—and particularly of course, to Manchester. There is still plenty of resilience and enterprise there but there is also a danger that, with so many skilled and educated young people leaving the city to find jobs in the South, its problems with a shrinking, ageing population will be compounded.

The development agency has refurbished the docks. The Garden Festival last year was a great success. Hopes have been centred in the tourist industry. Some efforts have been made to provide leisure facilities for the deprived suburbs and some towards remedying the ghastly planning mistakes of 30 years ago. The Manpower Services Commission do their best to mitigate the consequences of high unemployment and industrial decline; but none of this gets to the root of the matter. Around the splendid evidence of 19th century prosperity—the civic buildings, the art galleries, the two great cathedrals—fester areas of hopelessness, poverty and fear.

For a Conservative government, there are probably few electoral rewards for tackling the special problems of a city like Liverpool. It may be said that making Liverpool a special case by restoring some of the £250 million of grant-aid which it has lost since 1978 would be simply "throwing money at the problem". It may well be that during that period of devastating economic change and decline the normal apparatus of local government cannot cope with the social and administrative consequences. But that ways can be found of tackling the administrative problem and that additional financial support must be forthcoming, I have no doubt; because the urgent needs of a city like Liverpool cannot be met without it.

The real question, it seems to me, is this: how can the resources of central government and the great tradition of local responsibility and civic pride of a city like Liverpool be combined into an administrative pattern, not perhaps capable of solving all its problems, but at least of changing the whole atmosphere from one of neglect and depression into one of responsible optimism and confidence? There is evidence that when Mr. Heseltine was for a few weeks the Minister for Merseyside all this was possible. That evidence has been borne out as a result of his recent visit to the by-election of Knowsley.

I suggest to your Lordships that the test of a national party, which I have always believed the Conservative Party to be, is not whether it can successfully juggle with the statistics of national employment or please the City or the CBI, but can give to hard-pressed classes and communities, beyond the narrow limits of party advantage, the help and understanding which they so urgently need. In the whole of the United Kingdom, I believe there is nowhere that needs that help from Her Majesty's Government more urgently than the City of Liverpool.

5.34 p.m.

Earl Ferrers

My Lords, at the outset I crave your Lordships' indulgence because I have a long-standing engagement this evening which will, I fear, make me leave before the end of the debate. I apologise in advance for having to do so. I also take the opportunity to congratulate my noble friend Lord Derwent on what I thought was a quite outstanding maiden speech. He provided not only experience but intellectual originality in what he said; and I congratulate him on that.

My remarks today will relate entirely to exports. I was glad to see in the gracious Speech that the Government intend to work to promote enterprise and employment. It is encouraging that the unemployment figures have dropped for three successive months running. But in the long term employment can be created only by providing—I know this may seem a well worn phrase—the right goods, at the right price and of the right quality for those who are able and willing to purchase. A large proportion of this extra production and extra employment will come only if we can export effectively overseas—and we ought to be doing better.

Very often it is when companies find themselves in difficult conditions and the home market has been restricted that they turn to exporting; and often it can be exporting which saves them. I was told only last week of one company with a capital of £1,250,000 which was losing £300,000 a year, and drastic action had to be taken. Among other things, it turned to exporting and two years later it turned its loss of £300,000 into profits of over £500,000. It can be done.

My concern is that when the product is right and the delivery and the price are right it is so often on the financial package as a whole that the deal is lost. I should declare an interest in that I am chairman of the British Agricultural Export Council, which seeks to encourage the exports of all goods which are supplied into agriculture, such as equipment, chemicals, pharmaceuticals, livestock, irrigation consultancy, and so forth. As the home market is becoming more restrictive, so the export market becomes more vital. Around the world there is a substantial demand for these commodities, and also substantial competition.

My noble friend Lord Young referred to the tough international markets of the world. If I may say so, he is right. But developing countries, for example, seek to improve their agriculture and horticulture in order to make themselves more self-sufficient and export their products to help their balance of payments. As those agricultures improve, so the increased outputs which the agricultures will produce have to be dealt with. The opportunities around the world for what are described as the "post-harvest technologies"—the grading, the canning, the packaging and the freezing sectors—are immense.

When I was privileged to be a Minister I used to take businessmen around the world, trying to encourage exports. I found a common view, which was: "We want to trade with the British. Why aren't you here?". I do not believe that to be a sentiment; I found it to be a fact. We have a head start over many other countries, which all too often is lost. I was privileged to accompany the right honourable gentleman the Minister of Agriculture last month to the Far East, and I found that self-same sentiment expressed. In Singapore, for example, which despite its problems is a hive of activity, I was told that the Australians are there, the Americans are there, the New Zealanders and the Japanese are there but not nearly enough British.

There are two common wails that I have heard among businessmen. They are frustrated by two things: finance and banking. Why is it that we so often are unable to compete over finance, when all the other criteria—the price, the quality and the goods—are right? I give your Lordships an example. After months of negotiation one company was on the verge of securing a livestock contract to the Far East worth £8 million over three years and £20 million over eight years. So far as I am aware, that would be the largest single British livestock contract ever to any country in the world. The best financial terms the United Kingdom could offer was an interest rate of 7.4 per cent. and a three-year grace period (where you do not have to pay anything back), with a seven-year-pay-back period. Italy and Saudi Arabia offer an interest rate not of 7.4 per cent. but of 3.5 per cent.; not a three-year grace period but a seven-year grace period; and not a pay-back in seven years but a pay-back in 25 years. We just cannot match this. But the point is that those terms are therefore being demanded by that country for the contract from Britain, which Britain cannot meet. Yet both the recipient country and the supplying country want the contract.

Unfortunately, I am not a banker. All I know is that the United Kingdom is about to lose its largest export deal ever in this sphere because we cannot or do not compete financially, and that is a tragedy. This is not an isolated case, but it is typical of the problem which businessmen seem to encounter everywhere. Yet wherever the problem is discussed the blame or the cause—certainly the solution—are propelled like a billiard ball around the table and bounced off all the cushions but are never actually pocketed. I think that they should be.

If the interest rates which other countries can offer are lower than ours, our businessmen will lose out. If governments subsidise the interest rates of their exporters, maybe we should do the same. That is not as heretical as it may sound. The Government are spending so much, and rightly so, on youth training and helping the unemployed, but maybe they should consider spending some of that money helping businessmen to compete against unfair competition which prevents British business from creating the employment and British business from alleviating unemployment, which we all want to see happen.

It does not end with finance. One small company tendered for a canning factory in the Far East against the Dutch. The contract was about to be awarded to the British firm because it was the better and the more competitive. Then the Dutch authorities waded in and said that they would lay a cable from the power supply to the canning factory, which happened on the way conveniently to light up two kampongs which had never had electricity before. What happened? The contract was awarded to the Dutch and the British lost out in frustration. If that is the nature of the competition, do we not have an obligation to meet it? I know that the Government like—and in my view rightly—to disengage from business, but if they wish to see exports, from which employment will be created, succeed, I urge my noble friend to ensure that more tangible support is given to exporters to overcome odds against which they cannot hope to compete on their own.

It is not only the Government who may be asked to do more. I question whether British banks and merchant banks are doing enough to help our exporters. Of course they have their own financial guidelines within which to operate and they have to make their own commercial judgments. But I believe that there is a place for private enterprise to be more of a risk taker and supporter in this sphere. Why is it that so often exporters say, "There is no point in going to the high street banks, to the Big Five, for help over exporting. They are just not interested". I find that a fearful indictment, but I have been told that on many occasions. Exporters, in a curious chorus, tell me that if you want help with finance in exporting you should go to overseas banks; to the Hong Kong and Shanghai Bank, to Standard Chartered, even to American banks. American banks frequently provide the most competitive finance for British exports.

There must be something wrong for that to be the case. If our interest rates are the cause of British banks being so uncompetitive, my right honourable friend the Chancellor of the Exchequer might well address himself to that point. If British banks are not exerting themselves enough in the common cause of exporting, perhaps they might do more in that direction. Their substantial funds rightly come from successful business, but successful business in the export field needs helpful banking. I do not profess to know the answer, but the simple fact remains that if other countries are providing more competitive finance and more competitive banking, we ought to do so and if we do not we lose out. My fear is that we do not compete and we are losing out. In my humble opinion, if we wish to see exports succeed, as we all do, there is a case for the Government to do more to help exporters and there is room for the British banking system to do more for exporters, too.

5.45 p.m.

Lord Ezra

My Lords, I was very pleased to have been privileged to hear the remarkable maiden speech of the noble Lord, Lord Derwent, as I had the pleasure of meeting him on a number of occasions in one of his previous incarnations, and I look forward to hearing him many more times in this House. I am also pleased to be following the important speech just made by the noble Earl, Lord Ferrers, on the export problems that we face, because I should like to begin my brief remarks by turning to the balance of payments.

If one were to try to see in as encapsulated a form as possible the economic problems which this country faces, I think one could do no better than to study with some care the regular document issued by the DTI—the last one being on 23rd October—on the current account of the United Kingdom's balance of payments. I should just like to remind your Lordships of what is contained in the last issue of that series of reports.

What it shows is that, unfortunately, we are now heading for an overall deficiency on the current account of this country. This was indeed forecast in the statement made by the Chancellor of the Exchequer recently, when he said that the estimate was for a balance this year and a deficiency of £1½ billion next year. Unfortunately, the figures suggest that that might be rather an optimistic view, because the position so far overall for the first nine months of the year is that we are showing a net deficiency of over £200 million compared with, at the same time last year, a net surplus of £3 billion; and we ended up the year with just over £3 billion. So unless we show a remarkable recovery in the last quarter—and let us hope that we will—we are heading, I am afraid, for an overall deficiency this year. However, what is more important than looking at the overall figures is to analyse what lies behind them, and this is what shows the problem that this country faces.

The first thing that springs to mind in looking at these figures is the dramatic change in the oil revenues. Whereas last year we earned £8 billion net on overseas account on oil, we are now running on a comparable level at something like half that figure. At the same time, regrettably, our non-oil visible account is also slowing down compared with last year. If you just take our non-oil visible account, apart from oil, it is showing a rather lesser amount of earning than in the first nine months of last year. At the same time, however, the imports are continuing to grow and so it is not surprising, in spite of a very important contribution from invisibles, that we should be showing on our visible account a substantially greater deficiency than last year.

So this is the essence of the problem. We have benefited in terms of overseas trading from our oil account for a number of years. But as was foreshadowed in the report of the Select Committee which was presided over by the noble Lord, Lord Aldington, who I am very glad is to speak later on, the oil benefit is of limited duration. What we were unable to forecast then was the collapse in oil prices which took place after our report. We were merely basing this on the assumption that in due course the oil resources in the North Sea would diminish. Thus, the events that we forecast coming later have come earlier. So the question that we raised then, and the question which we must surely raise now with even greater emphasis, is: how are we going to overcome that problem? I am sure that everybody in this House would accept that there is a problem. We may differ on solutions, but what we cannot mask is the problem which is now glaring at us; namely, the problem of how we correct the balance in our economic affairs and in our trade with the rest of the world.

There is nothing much we can do about the oil. The oil revenues will depend essentially on what the oil price is likely to be. It is unlikely that the price will rise very much over the next few years, so the experts say. It may rise later, but at that stage we may be producing less, so there is nothing much more on which we can count on the oil account.

The invisibles, to which my noble friend Lord Diamond has paid testimony, have done very well, and are continuing to rise. However, in evidence given to the Select Committee on Overseas Trade by the Committee on Invisibles they made very clear that they did not think that invisibles on their own could close the gap. Thus we fall back on the manufacturing element; that is, the third element in our balance of payments. We have to look very seriously at that aspect of our affairs. If we can get manufacturing to rise again, if we can change the trend in our manufacturing exports, this is surely the way to close the gap.

The question must then be: how do we effectively set about that? The Government, although their policy is one of non-intervention, do intervene in a large number of ways. I do not blame them for that. Every Government must intervene from time to time. What worries me about the interventions is that they appear to be spasmodic and appear not to relate back to a coherent strategy. It is this that I should like to query.

What we need, I suggest, is to analyse once again the factors that have led to our manufacturing difficulties, which are in fact greater than those of our competitors. While all other major developed countries have suffered in their manufacturing, we seem to have suffered more. We have certainly suffered more in absolute terms. I note that the noble Lord, Lord Young, is shaking his head. In the evidence to the Aldington Committee, it was certainly made clear that, while there had been a reduction in the proportion of manufacturing in other countries with economies similar to ours, nevertheless we were the only country to show an absolute fall at the time at which we were considering the matter. Therefore, while this has been a general phenomenon, we seem to have suffered rather more.

As regards the closest competitors to ourselves with similar economies, we found that in France and Germany particularly there was a coherent and positive policy. In the case of Germany, which at present has a government of a political nature similar to the government in Britain, nevertheless it was quite clear that the economics ministry orchestrated a coherent policy, one that was dedicated to making sure that interest charges were kept low and were advantageous, in particular low interest charges for smaller enterprises. Secondly, we found that the currency was kept on a level basis and that Germany has even managed to survive the increase in the value of their currency. Thirdly, we found that very substantial support was given to industrial investment, to research and development and to trade. These were regarded as the key factors. When we went to France, exactly those points were identified as being those to which government in their policy were going to commit themselves.

All that I can say, to turn back to Germany, is that the proof of the pudding is in the eating, or, if you like, in the balance of payments; and the balance of payments on current account in Germany by the end of the year is likely to show a positive 30 billion dollars or £20 billion, and Germany had no advantage from North Sea oil. This was based entirely on the manufacture of goods that the Germans have produced themselves in a political economic climate similar to our own.

It looks, therefore, as though there are solutions to this problem, but the solutions must lie in a coherent policy, a policy that takes account of interest charges, of currency fluctuations and of the policy that we adopt to deal with the North-South problem. A lot of spasmodic things are being done. An article in today's issue of the Financial Times queried whether that was the right way to proceed on this fundamental problem, and whether the action being taken to deal with this disequilibrium within our own country should not be a broad defined policy within which the individual measures could then relate more coherently. Here then is a suggestion.

Without going through all that I believe should be done, I must say that I support the proposition made by the noble Lord, Lord Hatch of Lusby. I think that this is now a crucial issue facing the country—how to regenerate effectively our manufacturing industry over the years ahead. It is not a new problem, but it is new in its importance because of the decline in the oil revenues. In view of the great success that the Select Committee led by the noble Lord, Lord Aldington, had, I believe that it would be of value to the House—I commend this suggestion to your Lordships—that a Select Committee be appointed to have a look at the whole manufacturing scene, taking into account the North-South problem and the urban problem. I believe that we have the expertise in this House. I believe that that could be an extremely useful contribution to pointing the way to the solution to this important problem.

5.56 p.m.

Viscount Watkinson

My Lords, I should like to add my congratulations to the noble Lord, Lord Derwent, for his most effective maiden speech, and, if I may be permitted to say so, I do it in very affectionate memory of his father.

With regard to the noble Lord, Lord Ezra, the main point of my speech rests exactly on the challenge to our country that I think he has quite fairly set out. He also said that we may well differ on the means of facing it, but I hope that my noble friend who will wind up tonight will not try to pretend that we are now on a happy, successful course with no problems. That could not be in our country, and we should be mad if we expected it.

Some of your Lordships may remember that Sir Winston Churchill used to talk sometimes about the symmetry of party recrimination. All that I would venture to say about the noble Lord, Lord Bruce's speech is that he certainly made a very symmetrical speech. I do not want to stand in the way of that sort of thing.

I want to make what I think are two rather important points, and then sit down. First, we must be fair and, even allowing for the symmetry of party discrimination, I think that we must accept that the last few years have seen many of the foundations laid for long-term industrial progress. Inflation is under control, trade union relations have been reformed and overmanning has been faced up to with painful results but totally necessary ones. Much more progress has been made in manager-worker relationships than I have seen for many years. Taxation has been reduced, and the last Budget did what the CBI has been pressing the Government to do for a long time. It gave a little justifiable stimulus to the whole economy. The Government can justifiably take credit for all that.

If one looks back to the condition in which the last Labour Government left the country, the progress has been dramatic, and it is only fair to say so. However—here I come to the noble Lord, Lord Ezra, and to other noble Lords—measured against the progress made by our foreign competitors, it is not nearly enough to guarantee our long-term industrial success; hence the problem of how we build on what we have achieved—I am the last person to deny that achievement—and how we somehow manage to win those uplands that Winston Churchill saw as our goal in the darkest days of the war.

First, we need continuity of policy. We simply cannot go on standing this country on its head every time we change a government or even a minister. Above all, we must not go backwards and go through the terrible reversal—and I am not making a party political point; it lies in the actual programme as set out—that would result if we changed to a Labour Government in this country at the next general election.

As regards what the noble Lord, Lord Ezra, said, but concerning means rather than what I hope are accepted facts, the most important industrial task ahead of our country at this time is to stop the erosion of our competitive power in export markets. The all-party committee did a very good job. My noble friend, who I believe was also a member of that committee, will speak later and will cover this ground, and so I shall not do so now. However, I was very surprised at the rather bad press that it had. Perhaps the reason was that the country never likes to be told unpalatable truths. It warned a year and a half ago that the competitiveness of British industry is still declining.

I spent a lot of time and trouble on a recent book of mine in which I ventured to make the same case. That may not mean very much, but what means a great deal more is that the CBI at its successful national conference a week ago repeated that warning. Perhaps I may quote from a special feature of the conference, which was the pay presentation that sought to set out to employers why they should talk toughly to their employees and why they should not give large pay increases which were not related to anything. It said: UK costs remain substantially out of line with those of our major competitors". That is not very surprising. Despite what my noble friend Lord Young has said about productivity, if one takes a long-term view, United Kingdom earnings are increasing at double the rate of those of most of our competitors, while UK productivity, although it is increasing, is increasing at something less than half the rate of our main competitors. I am speaking of the United States, West Germany, France and Japan.

If we wish to achieve what noble Lords opposite say they want to achieve with regard to less unemployment, more manufacturing industry and all the rest, I do not think that that ball is in the Government's court. We must work harder; we have to be more productive. By "we" I mean "me" and not some other chap in the great British democratic tradition. We must not go back to the bad old days of high inflation, more nationalisation and trade union militancy. That way lies total failure.

Coming back to the remarks of the noble Lord, Lord Ezra, I do not think that we can plan ourselves out of this. Eight Prime Ministers before Margaret Thatcher have sincerely tried to put this country on its feet. They all failed. I was in one or perhaps two of the governments that failed, despite the great leadership given by my old Prime Minister who sits almost next to me and the struggle that we made. We must not think that it is an easy job. In my view the Government cannot do much more than set the frame, as they already have. I must say again that what we must do is to match the Germans, the Americans and the Japanese in productivity and in unit labour costs.

That is something that industry must do. It is something with which the Government must help when they can. I agree with that, but I do not agree with the noble Lord, Lord Ezra, that that means—and he will correct me if I read him wrong—that we can in some magical way make a great plan and get ourselves out of this. I think we must all do something about it. For example, I listened with great interest to the speech of my noble friend Lord Ferrers. He is right when he says that the City should be giving less emphasis to short-term paper profits and candy-floss and a great deal more emphasis to long-term investment in industry. I hope that the governor of the Bank of England and others—

Lord Ezra

My Lords, may I answer the question of the noble Lord? I was certainly not suggesting anything like a plan. I was talking about a greater coherence of policy. One of the things that my colleagues and I on the committee of the noble Lord, Lord Aldington, were struck by was the greater coherence of policy in Germany and France than there appeared to be here. That was the only point I was making.

Viscount Watkinson

Fair enough, my Lords. We do not disagree about the basic cause but I think we may have a slight disagreement about remedies. I should like to underline what my noble friend said. I hope that British bankers will read what he said and try to do something about it. At the moment I think that is one of our biggest disabilities in getting more overseas trade.

There must also be closer co-operation between management and unions. We must get production up and costs down. Again I do not think that that is a job for my noble friend Lord Young. It is a job for industry. He can perhaps help a bit but on the whole we have to do it ourselves. We have the Japanese model in our midst. I think it is perhaps the most depressing thing that I have seen in my long industrial life to watch the Japanese come over here, set up a factory in a depressed area, have one union for the whole factory, have a non-strike agreement and put right all the things that have bedevilled British industry for 50 years. It is a pity we cannot match them in that.

I wanted to make a short intervention on a particular point and perhaps I may summarise that by saying that I hope the present Government and my noble friend when he winds up tonight will say that based on success to date—and it is success—there is a long, hard slog ahead if we are to get ourselves totally right, prosperous and secure. Otherwise, I think industrialists, politicians and trade union leaders have a very difficult leadership job to do. I hope they will accept it and not get too involved in recriminations, particularly in a period leading up to an election. I hope they will try to do two things. The first task is to set out the facts. The second task is to make it plain that the answer is not always "Let some government do it"—even a government that is as free with their promises, as the Opposition are at the moment. We have to do it for ourselves. I believe that the task is "do-able", and I think the price of failure in a non-oil or a failing oil economy will be very painful and perhaps irreversible.

Lord Young of Graffham

My Lords, before the noble Viscount sits down, may I point out that I said that in manufacturing industry between 1979 and 1985 productivity in the United Kingdom has gone up at a far higher rate than that of France and Germany?

Viscount Watkinson

My Lords, I hear what my noble friend says. I shall send him a copy of the CBI paying document which he perhaps has not seen and which will give him a rather different picture. I admit that it is a document intended for use on the shop floor, but what it says is that we are paying ourselves an 8 per cent. per annum increase in earnings and we are not justifying that by a sufficiently increased level of productivity.

6.9 p.m.

Lord Dean of Beswick

My Lords, may I join with Peers speaking before me in congratulating the noble Lord, Lord Derwent, on an excellent maiden speech. Along with other Peers, I look forward to listening to further contributions from him.

I want to turn my attention to the question that concerns us all which is probably the foremost question before the nation today—that of unemployment. I think I must take the noble Viscount, Lord Watkinson, to task for his assessment of what he terms "success". He said that eight previous Prime Ministers of this country, Labour Prime Ministers and Conservative Prime Ministers, had failed the nation during their terms of office. I do not accept the implied criticism of the noble Viscount's colleague further along the Conservative Bench, the noble Earl, Lord Stockton, when he was Prime Minister. During his period of office unemployment was well under half a million. Under the next Conservative Prime Minister, the right honourable Edward Heath, unemployment was under half a million. I compare that record with the record of the present Conservative Prime Minister. Under her stewardship we have more than 3 million unemployed. Perhaps I may suggest that, in terms of running the nation, the eight previous Prime Ministers who the noble Viscount, Lord Watkinson, dubbed as failures were, by comparison, outstanding successes. Some of the social problems we have today have their roots in the fact that there are so many people unemployed who despair day by day and as weeks go by.

We shall never succeed as a nation unless we revert to our previous role as a major manufacturing nation. One has only to look back to see the enormity of the disaster that has overtaken us in manufacturing. For instance, in June 1979 7,113,000 people were employed in manufacturing industry in this country. In June of this year the figure was down to 5,349,000 people, a loss of 1,750,000 jobs in the manufacturing sector alone. Because there was a glimmer of hope in last week's figures we have lately been led to believe that things are on the way up and are getting better. Since 1979 in order to present an image of limited success on a rising scale the Government have changed 17 times the formula for calculating people as unemployed.

What is meant by saying that the Government have changed the formula for calculation? It means that they have arrived at an arithmetical assessment in a different way in order to suit their own political philosophy. It is grossly misleading. The fact that the calculation for unemployment is in real terms half a million higher than the figure the Government present does not mean that the Government have found half a million jobs. The fact that they have changed the criteria does not mean that a man who was unemployed under last week's criteria is not unemployed under this week's criteria. If he has not been found a job, it does not matter to him what the statistics say. He is still unemployed. I think that something of a con trick has been attempted.

I worked in engineering for 40 years until I became a Member of another place. I should like for one moment to quote some figures from the general engineering industry which is and traditionally has been the largest single employer of labour in this country. In June 1979 3,079,000 people were employed in engineering, mostly skilled men. In June 1986 that figure is down to 2,458,000, a fall of 621,000 in our largest manufacturing workforce. Surely that is a disaster by any criteria.

I should like to give some other statistics which I think are extremely damaging and dangerous. In 1975–76 there were 24,149 first-year craft and technical apprentice trainees, the seed corn for our industry without which it would have no future. In 1985–86 the figure for apprentice trainees is down to 9,300. Nearly 2,000 of those were on youth training schemes. I do not criticise youth training schemes. I think they are necessary and I welcome them, but they do not provide the same training as apprentices used to receive in the engineering industry. Certainly, they are not as productive at the end of the two years as was training on the real job.

I have heard it said by members of the Government —and it was said today by the noble Viscount, Lord Watkinson—that as a nation we pay ourselves too much. I do not know about that. I worked in engineering, first of all as a locomotive engineer, and then, at 40 years of age, when steam was on its way out because of cheap oil, I had to transfer my skills into the turbine manufacturing section. I had to go right across Manchester to start a new life virtually in another type of engineering. I did that, and I do not ever recall being paid high wages. I do not ever remember the Engineering Employers Federation willingly giving increases to engineers in a general sense. I refer to the time before the noble Lord, Lord Scanlon, was president of the engineering union, to the time when Bob Openshire and Bill Curran were presidents. On occasions, they had to fight for a matter of two or three shillings. I recall that during the war engineers were given as an increase the princely sum of three shillings a week. To get a shilling ratio as an increase the apprentices had literally to go out on strike.

It is nonsense for anybody to stand up in your Lordships' House and say about engineering that historically it is an overpaid industry. It is not. One of the odd things is that some of the most skilled men in engineering have traditionally been among the lowest paid. Take, for example, the manufacture of machine tools. Manchester was full of machine tool factories such as Cravens of Reddish and Kendle and Gents. Those have all gone now. Skilled men there were paid far less than their compatriots in the Midlands and in the South. Incidentally, their industrial record was absolutely first-class. So I will not have it levelled at them that they are responsible for their jobs going out of existence.

In a speech from the Front Bench my noble friend Lord Bruce referred to North Sea oil revenues. I do not think the figure has been quoted, but from 1979 this Government had £59.5 billion as a bonus from North Sea oil revenues. It is obvious that we are now reaching the stage when that will not be available for very much longer. My charge against this Government (and the charge is made by people in the Government's own party) is that that money has been wasted almost beyond belief. I do not think for one moment that the engineering jobs that have gone out of existence could have been saved by an infusion of that money into engineering. That would be a nonsensical claim, and I do not wish to make it. I should not have wanted that money to keep in being jobs that were really going out anyway. However, I am sure that with a little good will and effort much of that money could have been transferred into the sunrise industries to develop them at a faster rate.

During my time as a Member in another place the part of Yorkshire I represented was very heavily populated with clothing workers. They were in the cloth producing and tailored manufactured garments in bulk industries. Those industries have almost disappeared without trace. If anyone were to tell a wool weaver from Yorkshire or a cotton weaver from Lancashire that their jobs have gone out of existence because of the high wages they had been receiving he would be laughed out of court. It is absolutely nonsensical to make that suggestion. In fact, nothing has been brought into the area to replace those traditional industries.

I heard the noble Viscount, Lord Watkinson, and other noble Lords, refer to our need to compete. The Japanese were held up as an example. I am all for competition because I do not believe that anybody owes anyone a living; but are we competing on fair terms? About eight years ago I was in Japan when we had just lost a large engineering contract to Nippon. I was by no means satisfied with the answer I received to my suggestion that the Japanese Government were in some way funding some parts of the contracts, in order to obtain them, by carrying interim values or, for some periods, the loan charges. I suspect that sometimes our home industries are not able to compete on level terms.

America has also been mentioned. It is a fact that American industry is heavily subsidised in energy costs. In some industries the energy costs are a high proportion of the total costs. That is another area where our industries suffer a bias against them. So we must be careful when considering the situation. We must not blame it on high wages. We must not just take the view "keep wages down and have no strikes". I am all for some of the proposals that some noble Lords have spoken about, but there are times when people need to go on strike.

One aspect which worries me and, I am sure, the Government—and it must worry the Secretary of State who, unfortunately, has had to leave the Chamber—is the exacerbation of the difference beween the North and the South. It is growing week by week and there is no sign of it slowing down. I should have thought, being a north countryman—I have a foot in both camps; Lancashire and Yorkshire—that the North would want some hope and a message from the Government as to what can be expected in trying to get the area out of the terrible situation which has swept right across the North and now is even affecting Birmingham.

But what has happened? A Cabinet Minister visited Manchester last week. The chairman of the Conservative Party, who I believe also holds the post of Chancellor of the Duchy of Lancaster, laid the blame for the economic decline in the North totally on the workers in that area. I have never before heard a more calculated and gratuitous insult to people who are ready to work and always have worked. I do not know whether that politician went up on his bike, but to carry a message of that kind to the North of England, traditionally a hard working area with people who have never pitched their sights too high, is an insult that the people will not forget in a hurry. I hope that some of Mr. Tebbitt's colleagues in the Cabinet will tell him that he would do better without his "bovver boots" and might get people to listen if he were for once to wear carpet slippers. He should listen to other people and find out the facts.

I take my title, Lord Dean of Beswick, from a traditional working class area of Manchester which was the most heavily populated area in Europe. It survived and existed on a variety of industries including engineering, mills, chemical works, and local pits which, like many pits, have gone. The people of that area were industrious. They did not ask for anything unreasonable. They were on moderate wages but in regular work. They enjoyed that sort of situation. I was glad to see that during a recent debate in another place the Member for Manchester, Central, took the Chancellor of the Duchy of Lancaster to task for the nonsensical claims that he made.

I should like to close by asking the Minister whether he can give us some further information in this respect. I believe that the last time a figure was given for new jobs created by the Government was during Question Time. The figure, which I accept is correct, was upwards of 600,000. That was less than 12 months ago. In his reply the noble Lord, Lord Trefgarne, gave a breakdown which showed that most of those jobs were in the service sector. I make no disparaging remarks about the service sector; it is necessary but we cannot live off it. If the Government could have said that the 600,000 jobs were in the manufacturing industries they would have received applause from all sides. It is no good depressing wages in the service sector in order to try to lower the number of people, on paper, who are unemployed. In my opinion, that is a recipe for disaster.

I, too, have read the report of the Select Committee under the noble Lord, Lord Aldington. It is a first-class document. However, like most first-class documents which contain a hint of criticism for this Government it was rubbished by Cabinet Ministers before they even found time to read it. It is time that sort of behaviour is left to one side and that the Government should start listening.

This is a very interesting debate, but I want the Government to understand that if they keep telling people who are out of work, and who have never been on high wages, that it is their own fault, the Government must not be too surprised at some of the consequences that might occur in the not-too-distant future. A very dangerous situation could develop north of the Border. I was one of the Labour Back-Benchers in another place who was violently opposed to devolution. I was sacked from my position as a very junior PPS for voting against those proposals. However, I must tell the Government that if the situation continues in Scotland, and if the opinion polls are right, there will be an almost complete wipe-out of Conservative Members north of the Border. If Mr. Tebbitt speaks north of the Border as he did in Manchester, by God, there will be trouble, and I hope the Government are prepared to meet it when it comes.

6.28 p.m.

Lord Simon of Glaisdale

My Lords, it is over a quarter of a century since I was a Treasury Minister and there is not a speaker in your Lordships' debate who has not had more recent and thorough experience of commerce, industry and finance. Nevertheless, I do, with trepidation, address your Lordships today because I want to draw attention to what I believe is a typical area—one which I represented in another place. I am glad to see that the noble Lord, Lord Bottomley, is in the Chamber because he shared representation of that area with me. I want also to ask one or two questions about the Autumn Statement which I think come more easily from the Cross-Benches than from either of the opposing Benches.

At the beginning of the last century Middlesbrough was a small and most unimportant town. In the middle of the century it rose to an unexampled prosperity, owing to the exploitation of iron ore in the Cleveland Hills and coking coal in the Durham coalfield, Middlesbrough being placed in an appropriate position to enjoy both exploitations. A number of extremely able ironmasters took advantage of that situation; and ensuing upon the iron and steel industry's success came development first in engineering and then in chemicals. I venture to draw attention to that cumulator, multiplier effect in the economy of a district. However, just as one can multiply upwards, as happened then, so one can multiply downwards all too easily. At present the unemployment on Teesside has risen as high as 30 per cent. The waste in human resources and other material, the hopelessness and the waste of human spirit are potent factors in the downward movement.

I thought that the noble Lord, Lord Young, put it with great exactitude when he described human life being "blighted" by that sort of unemployment; and of course as an area goes down in that way—and it was largely because it was industrialised early that the capacity became uneconomic—so the secondary industries and commerce become caught up in the downward spiral. Young, enterprising people move out of the area to the more prosperous and expanding areas in the South of England. If I may say so, I have greatly admired the Government's conduct of the economy, as I have the way in which the noble Lord, Lord Young of Graffham, has handled his particular problem, but I do not think that enough attention has been devoted to the matter that I have just mentioned; namely, the multiplier factor. In other words, if there is one criticism to be made, it is that there is lack of a proper regional policy.

I can give your Lordships two examples, one negative and the other positive—or perhaps it ought to be the other way round. I have a feeling that the noble Lord, Lord Young, wants to ease planning permissions in the South of England—I see him nodding his head (I think it was a nod and not a shake)—and that of course means that it will be very much easier to set up business in the South of England. That is understandable, because on the whole economic growth has been marked by mobility of labour. Our own industrial revolution was a prime example of this, and the great industrial expansion of America in the last century and at the beginning of this one was fuelled by the immigration of a vast number of indigent but ambitious people from Europe. This is one example where I venture to think that the noble Lord is pursuing a wrong aim. Rather than draw people down to new industries it will often be more expedient to move people up to rehabilitated areas where the material background can be improved.

The other example that I said was negative concerns the decision about the universities in the North-East. I do not know whether that was justified on educational grounds but it was quite disastrous from the point of view of industry in the North of England. In my time one of the difficulties in recruiting able managers to Teesside was the absence of cultural facilities. The noble Lord, Lord Glenamara, dealt with this very matter when the announcement was made. I know that the noble Lord is an unreconstructed Jacobite, who thinks nothing of the Bill of Rights or the Act of Settlement, but he knows a great deal about the North-East of England and its employment problems and a great deal about education. It was the sort of decision that on the ground of a rational regional policy—which seems to me to be the only defect in the Government's policy toward this problem—appears to me to run counter to what is really desirable.

I should like now to come to the main problem of unemployment. When your Lordships debated this matter last year I ventured to remark that really we know very little about the causes of unemployment. We do know that it is by no means limited to this country; on the contrary, it is shared by practically all the developed world. That suggests that if one intends to adopt a policy of expansion it can only be done safely in an international milieu, otherwise it will run straight into our own balance of payments difficulty. I should be most grateful if the noble Viscount, when he comes to reply, will indicate his thinking on an international cognisance of expansion.

We know that there is some demographic cause for the unemployment. On the whole the number of those entering the employment market has increased, but on the other hand that increase has not been as marked as is sometimes indicated. Between 1979 and 1984 an extra 1 million entered the employment market. I obtained that figure from a Written Answer by the noble Baroness, Lady Trumpington, last February. That is the extra number of people who have been brought into employment during the last years. The figure for 1979 to 1984 cannot be the latest one. I wonder whether the noble Viscount can give us something more up to date. It looks, however, as if the demographic trend has not been a major cause of our present unemployment. I believe, on the other hand, that the demographic downturn over the next decade will substantially ease the problem, although it will undoubtedly have to be offset by the new technologies that will lead to economies in employment.

I have mentioned premature industrialisation of this country, which I consider as a cause. I should have thought, however, that the main cause was the overmanning in British industry prior to this decade. One can see this easily by looking at the newspapers. Even liberal newspapers like the Mirror and the Guardian have shed up to a third of their workforce. That picture is by no means rare. Then there is the over-pricing of labour. One can see this on going to any garage that is now self-service but that was once manned. Those workers have been dispensed with because they have been priced out of the market.

This brings me to what I consider the most important point to come out of the debate. It was mentioned by the noble Lord, Lord Diamond, the noble Viscount, Lord Watkinson, and many others. I refer to unit labour costs and the fact that labour costs, wages and salaries have increased far in advance of inflation, far in advance of productivity, and, most seriously of all, far in advance of those of our competitors. I ask therefore what is to be done about that situation. I thought, if I may say so, that the Labour Government were quite right in trying first to solve the problem by agreement through the social contract. As we know, however, that approach came undone in the winter of discontent. The Government were, I believe, right next to try weakening the bargaining power of the unions. But that has not worked. Our unit labour costs are still in the condition I have described.

I understand that the Alliance has a policy which I suggest is well worth trying. It is, I believe, twofold. First, it is fiscal. In other words, one makes fiscal control of excessive labour cost rises and, equally, one penalises fiscally the employer who grants them. That seems to me well worth trying. The other limb, I understand—I shall perhaps be corrected later if I am wrong—is arbitration. This has been tried quite successfully in a number of countries, including Commonwealth countries. My only criticism of the Alliance scheme is that it finally concedes the right to strike. That seems to me to be illogical. The right to strike was conceded to equalise more accurately the bargaining and staying power of labour against employers. If there was a system of arbitration and adjudication weighing all the factors, one should not have what is so damaging—a strike in consequence.

What, in the end, we want to hear from the Government is their regional policy to deal with unemployment. It seems to me primarily to be a regional matter. The noble Lord, Lord Alport, made that point, as did the noble Lord, Lord Dean. I ventured to draw attention to Teesside as another example. I am sure that the Midlands can equally provide an example.

I should like finally to refer to the Autumn Statement. Any criticism, I suggest, must come more easily from these Benches than from the Opposition Benches, which have been urging the Government to spend extra money precisely on matters for which the Autumn Statement makes additional allocations. Speaking for myself, I should have thought that the Government were running a considerable risk. I know that, initially, the statement seems to have been fairly soberly received in the financial markets. That is, I believe, purely because the Government are at the moment ahead in the opinion polls. But the surge towards the Government in the polls is due to a collapse in support for the Alliance. It is possible that the Alliance parties will get their act together in the near future, and that this will produce a very different picture. The increased expenditure means increased borrowing. That means that interest rates have to stay up. The lowering of interest rates is postponed to the great detriment of industry—one of the themes of this debate.

I find particularly alarming what may face us as the election comes closer. I should like to ask the noble Viscount one or two questions in the meantime about the statement. Is he satisfied that there will be no overrun as has happened in each of the last two years? What steps are being taken to ensure that this will not happen? It requires only a small overrun to throw out entirely the Chancellor's claim that this expenditure is within present borrowing limits. Are not the Government in the Autumn Statement relying on pay increases in the public sector of no more than 3.5 per cent? Do the Government really think that they can hold public sector pay at 3.5 per cent., if I am right in thinking that this is the basis of the calculation?

The third point is that made by the noble Lord, Lord Boyd-Carpenter. What is being done to control local authority spending? In the run-up to an election, it seems to me that the financial markets may well get jitters again, with the result that there may be a balance of payments crisis and a run on the pound. I do not expect the noble Viscount to say exactly what would be done. The natural measure would of course be an increase in VAT to control a consumer-led boom and equally a rise in interest rates. However, that seems to me to be a very unlikely course for any Government to want to take up before an election. I hope that the noble Viscount will say that there are plans made to meet that contingency and that he is confident they are adequate.

It is not only until the election during which period the Government are responsible, but even after, should there be a hung Parliament. There may well then be negotiations going on for some time while the present Government are still responsible, whether they continue to govern as sole party, or in coalition. That seems to me to be a situation of danger. I should like to think that all parties could agree on a policy in that situation. However, that seems to me to be unlikely. I therefore presume to conclude that the Government have taken a very great risk, in spite of their previous record, in the measures that they have taken and the Autumn Statement.

6.52 p.m.

Lord Vinson

My Lords, it is a great privilege to follow so many learned contributions to today's debate on Her most gracious Majesty's Speech, and it is through such debates that economic policy develops. I think it was the famous German General von Molke who made the remark that no battle plan survives contact with the enemy. It is probably equally true to say that no economic policy survives without adaptation and that whatever the undoubted success of the Government's policies—and undoubted success they have had in reducing inflation—I am sure that they would be the first to admit that there is always room for improvement. My desire is to make good policies better.

We are all monetarists today in the sense that it is universally agreed that money should not be printed and that credit should be controlled. However, the problem is that money and credit are virtually impossible to measure, and comparing this year's figure of money supply with last year's is like using one rubber rule to measure yet another rubber ruler. We used to laugh at the thought of our ancient forebears examining chicken entrails before they took decisions. I think it is now widely accepted that many of the monetary indicators used today are of little better value. We too should beware of being misled by them.

The Chancellor is quite right to question their validity and to reject M3. But whatever the inadequacy of the monetary yardsticks, they are all we have and they undoubtedly still influence many opinion formers both nationally and internationally. Steering the economic ship of state using inadequate instrumentation is a tricky job at the best of times. However, there is little doubt that some of the noises coming from the engine room are beginning to indicate a degree of overheating.

One of the principal causes of this overheating is the massive growth in personal credit. The Government's immediate response has been to tighten control of the money supply by the use of one mechanism—interest rates—giving us in effect a general credit squeeze. For a number of reasons this country now has the highest real interest rates in the Western World and I should have thought that the time had come to examine whether there are mechanisms available to control credit other than the use of this rather blunt instrument.

I am sure that the Government are well aware that the continuous very high real interest rate saps the economy and prevents much worthwhile enterprise from blossoming. That is enterprise which will produce new jobs. Can there be a better way to control excess credit than through the use of the interest rate mechanism alone?

While I fully appreciate that high interest rates are currently necessary to hold up the pound and to see us through the choppy period of pre-election nervousness, in the long run controlling inflation in this way is counterproductive. Indeed, the remedy exacerbates the very malady that it is meant to cure. However, there is a view propounded by some in Great George Street that maintains that interest rates do not matter, and that if businesses would look after their wage rates they could effectively forget about the cost of borrowing. This is a view that I wish to try to correct. I believe that it is altogether too sanguine and too simple an answer to what is a much more complex subject. In practice the whole economy works on the basis of making a return on borrowed money and high borrowing costs prevent much sensible marginal investment from taking place.

There was a massive book published about 10 years ago by Harvard University, as I recall it, which attempted to analyse why Japan was so successful. The book ran to some thousand pages but two words were the ultimate answer: cheap money. Interest rates in Japan were low due to a high saving ratio and the control of personal credit. Perhaps this is a trick that we too should try to learn. I accept that our conditions are different and that we are not where they were in terms of a low inflationary base. But I so agree with the noble Earl, Lord Ferrers, and the noble Lord, Lord Ezra; I should like to see more consideration given to try to achieve lower interest rates as a matter of national policy. The levels do matter, and they are most damaging. Perhaps I could quote some examples. It is so much easier to open up an overseas market if one is borrowing money at 3 per cent. than if one is borrowing it at 12 per cent. With one method, three years' losses cost about 10 per cent. and with the other nearly 40 per cent. on one's investment. Is it therefore surprising that the Japanese can buy their way into our market and into other overseas markets?

Likewise, it is so much easier to give six months' export credit if it costs 1½ per cent. for six months, whereas a UK manufacturer attempting to give six months' export credit has to put either 6 per cent. on the price and lose the contract or take it off his profit margin to the detriment of investment and jobs. It is also so much easier to carry stocks and spares if the annual on-cost for an item which stays on the shelf for a year is 3 per cent., whereas to a UK manufacturer it is 12 per cent. before he begins to add his normal costs. I could quote a thousand examples, from housebuilding to factory construction to finance, that would show that high interest rates help raise prices and are grit in the wheels of the proper working of the economy. They make for so much inefficiency. Your Lordships will be aware that the high cost of borrowing makes it virtually impossible to mature wine, which adds greatly to the gastronomic discomfort of many of us in this House.

On the small emergent business—and, thanks to this Government are we not all much more conscious of the importance of enterprise and entrepreneuralism? —these businesses, inevitably having heavily borrowed, spin their wheels in a time of real high interest rates while they attempt to service their heavy borrowings. They service their borrowings to the detriment of their expansion plans and of jobs. Can there be a better way therefore to control credit than through the use of the interest rate mechanism alone?

There is universal concern about the high level of personal borrowing and the ease with which individuals can borrow well beyond their means on a multiplicity of credit providers. It is, too, a moral issue. The reports from the Citizens' Advice Bureaux indicate clearly that something here is getting well out of hand. Such is the profit, due to high real interest rates, that lenders are tripping over themselves in their anxiety to throw money at the improvident. As a consequence, this country is awash with credit and even the cracked monetary alarm bells are beginning to clang. The immediate reaction of any government today is to increase interest rates, which in practice exacerbates inflation by putting up again the cost of mortgages and of borrowing both to the personal and the corporate sector, and so the inflationary merry-go-round is given yet another twist.

It could be said that excessive personal credit is working to the detriment of the industrial borrower, as interest rates are arguably higher than they would be if personal credit were better controlled. I can hear a voice in the Chamber saying, "Lord Vinson, do you want quantitative controls on credit? Do you not believe in the free market?". I can see that rising from some noble Lord's mind. I would satisfy it only by saying that I am a passionate believer in the free market, but I think that the one thing you need to control fairly sensibly is credit. In practice, there are many quantitative controls already in position: hire purchase controls, banks' lending ratios, the repayment period on credit cards and, not least, the Bank of England's continuous control of the money market. Of course distortions are made to the market the other way, by tax concessions given.on mortgage borrowing.

Credit has never been uncontrolled, but I believe that the present quantitative controls are inadequate and that excess personal credit is beginning to damage our economy. Not only does much of this go straight into imports, but, more seriously, British business has to fight for its market on the world scene with one hand tied behind its back due to excessively high interest rates. They are high partly in order to curb excessive personal credit and to correct the effect that that is perceived to have on the pound.

The object of this peroration is to help make better still the Government's successful record in controlling inflation and to help the development of their economic policies; to suggest that there may now be better ways of controlling inflation than through the blunt instrument of interest rates alone; and to suggest that excessive personal credit, which has shown itself not to be interest-rate sensitive, is ripping away due to inadequate controls and is doing so to the detriment of the interest-rate sensitive sectors of the economy—not least manufacturing and construction, sectors which are the basis of our strength as a trading nation and a fundamental source of our national prosperity.

If a lowering of real interest rates was the advantage to be gained from the tightening of existing quantative controls on personal credit, then this is the lesser of two evils and must be the right priority. It would be a sensible development of existing government policies.

7.2 p.m.

Lord Aldington

My Lords, we have just listened to a most thoughtful and interesting speech on a subject to which I propose to return later in my remarks. However, I am most grateful to my noble friend for stimulating all our thoughts on this very difficult question. I, too, should like to pay my tribute to the maiden speech of my noble friend Lord Derwent. I also remember his father. I was greatly impressed by what he said to us and the firm manner in which he said it. Since it accords with my theme, I hope he will think that he has a friend at least here.

I want to confine my remarks today to the subject of the competitiveness of British manufacturing industry in the world, about which the Select Committee on Overseas Trade of this House reported some 13 months' ago. For it is the improvement of our manufacturing competitiveness in world terms, about which my noble friend Lord Derwent was talking, that will best ensure the further sustained economic growth and the growth of employment to which the gracious Speech so rightly referred.

If, in some of my remarks, but not by any means all, I appear to be kicking at some Government doors, the door at which I am kicking is already beginning to open. In recent days a number of Government statements have shown the importance which the Government attach to manufacturing. I was struck by a statement made by Mr. John Butcher in August, in which he referred to manufacturing as: The core of the process of wealth creation". I should like to say at once that I applaud the words in the gracious Speech about the economy, as about other matters, and I see no reason at all for any words of "regret", as is suggested from the opposite side of the House.

In particular, I applaud the actions of my noble friend the Secretary of State for Employment which seem to me, in their emphasis on training, to give occupation and hope to the unhappy unemployed, as they provide the base for a much more competitive industry in the future. They combine care for the individual with care for the future of the British economy. I am very glad that my noble friend is here among us to hear the tributes which he has been receiving today from all quarters of the House.

The Recommendations chapter in our much discussed report begins with a sentence which is often forgotten: There has been a steady trend of deterioration in Britain's manufacturing performance taken as a whole over many years". I welcome support given to the report right across the political spectrum, which is just what we asked for. However, I have to say to some of your Lordships' that I do not welcome the use of the report to attack any particular government—and it seemed to me that the noble Lord, Lord Hatch of Lusby, was joining with me in that—as if they, and they alone, were responsible for the whole deterioration of competitiveness. A glance at the figures given in the report, and a little regard for 20th century political history will prove what rubbish that is. In particular, I have to remind the noble Lord, Lord Bruce of Donington—to whom I always enjoy listening, partly because of his combativeness and partly because of his good humour—that the sharp deterioration in competitiveness in relative unit labour costs in manufacturing shown in national currencies (and the noble Lord can check this at Table 33 on page 29 of the Report) took place between 1973 and 1979. That had absolutely nothing to do with the present Government's policies, and was a major cause of the reduction of the manufacturing base that took place in the first three years' of this Government's term of office.

The national challenge today is to reverse the long-term trend of that deterioration in competitiveness. It is all the greater challenge because the trend is long-term. We have to accept the challenge now in the conditions of today, many of which, despite the reduction in the size of the manufacturing base, are more favourable than they have been in most recent years for the regeneration that is required. As my noble friend Lord Watkinson said earlier in his speech, the task is a very large one. We also have to accept that the urgency is all the greater because our competitors have gained so much on us. Moreover, we have to accept that we cannot shuffle off all responsibility on to governments. Each one of us has a large part to play, and all that is clearly set out in our report.

Therefore, the task is a large one; and, as has already been said, since our report was published the situation to which we drew attention has, indeed, worsened. The deficit on the balance of trade in manufactures, which was the main reason for our being set-up is, according to the Autumn Statement figure, in process of increasing this year from £3 billion to £5½ billion, and next year it will go up to £7½billion. It will more than double in two years. Manufacturing output in Britain has not been increasing this year, but the Autumn Statement shows (and I am very happy to see this) that it is expected to grow by 4 per cent. in 1987. I very much hope that this will be so, but I have to make the point that it can only be so if the pound's exchange rate falls in relation to our competitors to compensate for the increase in our unit labour costs which, as the same Autumn Statement shows on page 21, are still rising. I should make clear that unit labour costs are the product of pay rates and productivity. We must find some way of linking pay to the world competitiveness of the product, and in all humility I do not think that I can agree with everything that the noble and learned Lord, Lord Simon of Glaisdale, said on that subject.

We also have to find a way of growing our productivity faster. It has been 3 per cent. a year since 1980, and the Government are entitled to take credit for that. But I have to tell my noble friend the Leader of the House that when he was Secretary of State for Employment the going rate was 3¾per cent. a year for increases in productivity, and that too is shown in the Autumn Statement. I think it will be found on page 20.

The difference of opinion between my noble friend Lord Watkinson and the noble Lord, Lord Young of Graffham, about the figures of the increase in productivity compared with the increase in productivity of our competitors overseas lies in the fact that he used percentage figures, and the base from which our competitors start is considerably higher than the base from which we start. It is the actual figures that matter in relation to our competitiveness.

I have spoken about and debated this matter in many parts of the country in the past year. I hope none of your Lordships underestimates the attention given in the country to reports of your Select Committees. Invariably I have found a warm response and an understanding of the importance of the manufacturing problem, and invariably I have found a puzzlement as to what in practical terms has to be done. The broad principles for change over the longer term, and for shorter term improvements too, were set out in our report. But on how, in practical terms, to regenerate manufacturing so that we recapture a substantial part of our home market and win more of overseas markets no one has yet clearly articulated. Even in the year-long inquiry we made that was not possible. Does it need to be done? I would ask my noble friend to consider whether it does. If it needs to be done, it ought to be done in the kind of open way, with the kind of public involvement, that Select Committees have.

What are the conditions which will encourage old and young industries, in large and small businesses too, to start the right new ventures and expand some proven ones? Some of these conditions have been assured by the present Government. Our report included this sentence which I think some of our critics have never read: The Committee entirely agree with the importance that is attached to controlling inflation, easing the burdens on enterprise, and encouraging new businesses. That is absolutely vital, and any political leader who thinks he can have a successful industrial policy without them is deluding more than himself.

The basis of success must lie in the quality of management available to manufacturing. Here the Government's education policies are important, and I believe helpful. The allocation of more resources at all levels of schooling and universities is a welcome step forward, as is the insistence on rewarding and educating for high quality. Egalitarian education policies will not regenerate industry. We need to level up, and not down.

But you will not, my Lords, attract enough good people into manufacturing industry either if you make it difficult for them to manage by having the balance between trade union power and managerial responsibility wrong, or if you threaten the successful managers and engineers with penal tax rates and so encourage them to drain off overseas. This is a point that I think my noble friend Lord Boyd-Carpenter made. On both these points the Government have chosen the right course, and anyone who proposes to reverse them cannot succeed in bettering the competitiveness of manufacturing, whatever his intentions may be.

How to encourage investment in innovation and in the development of new products is the question to be asked, and it has not yet been fully answered. I stress development. Development is far more costly than research, and in many things the launching of a new product is far more costly than development. Technological advance increases all these costs, and they are very high.

The low level of investment in manufacturing in Britain compared with other countries has a longish history. Recently manufacturing investment has been picking up; but not enough, so we found and so I have found since, in innovation and in new product areas.

I do not think that there has been, or is, any shortage of funds. There were other factors that we mentioned: lack of confidence in the future; the consistency of government policies, and all that; lower profitability in Britain; the cost of capital; and in the past, but not now, the high level of taxation. I would add to that now the short-term attitudes to be found in some financial quarters, bred by some financial experts' obsessions with quarterly or half-yearly reports unsupported by a full understanding or explanation of company plans. Let me acquit the banks and major institutions of this. The recent CBI conference discussion on this, as reported to me—and my noble friend who sits on my left heard it all—shows how much still has to be done to get a better understanding between industry and the city.

Our report, I have to remind the House, saw no need for, and did not advocate, a national investment or industrial bank. We saw a case for helping new and small businesses—the importance of which the noble Lord, Lord Young of Graffham, emphasised to us today—with a system of getting lower rates of interest just for them. This is still important when borrowing rates of interest in Britain are so high. Twelve per cent., (which is 9 per cent. in real terms) is so much higher than in competing countries. Your Lordships may not all be aware of what those interest rates are. They are 7 per cent. in Germany; 9½per cent. in France; 4 per cent. in Japan; and 7½per cent. in the United States.

That brings me inevitably to join with my noble friend Lord Vinson in a plea for lower rates of interest. We can all understand the absolute need to get money sound and keep it so; but to have a normal level of interest, as we have had in the best days, at something like 6 per cent. real, and then to have to up it to 9 per cent. real which is what 12 per cent. is, just because some monetary measure is exceeded really needs further consideration. I must add that I shudder to think of the gigantic interest rate that might follow the adoption of the full Labour Party programme, but perhaps nobody thinks that that will ever happen.

Then there is the question of the difference of interest rates in the export credit world, to which my noble friend Lord Ferrers drew our attention. I agreed with everything he said, and I welcome his loud voice. We have to match what other countries do, however contrary to our theology that may be.

Finally, there is the national attitude towards manufacturing. I have seen many signs of change for the better both in public opinion and inside industry itself, but I remain of the belief that there is still too little understanding of what "world competitiveness" means and of what Britain has to do. I hope that the Government will more frequently compare our actual performance with the performance of world competition. I am glad that my noble friend did that in the opening speech this afternoon. However justified the Government are in drawing comparisons with the more recent past in Britain, it is comparisons with what is happening today in the world which really matter. I hope, too, that the Government will explain to the country what is their national manufacturing industry strategy, for most certainly they have one. We know it; we hear bits of it and we can piece it together. Nothing but good can come of the explanation of their manufacturing strategy, as good came from their explanation of their medium term financial strategy.

The understanding of that strategy seems to me to be an important condition for fostering sustained economic growth. I say to my noble friend the Leader of the House that the Government have a much better story to tell than their economic theorists allow them to tell.

7.21 p.m.

Baroness Turner of Camden

My Lords, I welcome the opportunity of contributing to this important debate. I do not want this afternoon to deal with the macro-economic situation because other noble Lords have done this and will, I am sure, continue to do so in this debate. I should like to concentrate on some matters that concern me and that to some extent come within my own experience as a union official and as a present member of the TUC General Council.

We are all concerned with the problems and the evil of unemployment. We all know it to be an evil. It brings with it feelings of alienation and rejection as well as loss of income and the penury that comes with that. There is some evidence that it has an appalling effect upon the general health of the people who suffer in that way. It plays a role in inner city disturbances. If young people feel rejected by the society in which they are growing to maturity, they feel that there is nothing to lose by seeking a confrontation with what they regard as authority, and many of them may drift into crime in just that way. Although it is far too simplistic, as the noble Lord, Lord Alport, has said, to put the blame for breakdowns in law and order at the door of unemployment and social deprivation, it is obvious that they play a role.

It is true of course that there is unemployment in other countries, including our nearest neighbours in Europe. At an international trade union conference I was at in Geneva recently, the delegates from Western Europe were all concerned about unemployment, although the figures they were quoting were in no way so severe as our own. As the noble Lord, Lord Hatch of Lusby, has pointed out, we are pretty near the top of the league when it comes to unemployment figures. Moreover, we seem to be passing through a period of major social upheaval, exacerbated by the impact of new technologies upon an economy ill-prepared. politically or socially, to deal with them. These are major problems for us all. However, I believe that the Government's approach is based upon an ideological concept which makes things worse rather than better and fails to confront the problems in a realistic way.

First, so far as the employment figures themselves are concerned, the point has been made that they do not show the full extent of the number unemployed. Many of the new jobs to which the Government have been referring are part-time jobs. The underlying figures are very much greater than they would appear to be. Moreover, there is the problem of the long-term unemployed. About 40 per cent. of the total unemployed have been out of work for more than a year. Some 25 per cent. have been unemployed for more than two years. The prospects of finding employment become far worse the longer a person has been unemployed, and prospects are much worse in some regions than in others.

Incidentally, the new availability rules in relation to entitlement to unemployment benefit are already causing creat concern. They are seen by many as intimidatory—particularly women who are being asked questions about their domesic responsibilities as carers of others. One cannot help feeling that this may be another attempt to remove people from the unemployed records on the grounds that they are not available for work.

Yes, the Government are concerned about the problems of unemployment. I do not disagree with that, but the way in which they are seeking to remedy it gives rise to other problems. A recurrent theme—we have heard it again this afternoon from the noble Viscount, Lord Watkinson—is that wages are too high. We heard this argument extensively from the Government during the passage through your Lordships' House of the Wages Bill. The contention was that having to pay a basic and very minimum rate was a burden on business.

Relieve small businesses of the necessity to pay the barest minimum to individuals working for them—and usually in areas of high unemployment—and, we were told, small businesses would start prospering and offering greater job opportunities. However, this does not accord with general experience. In the regions of the United Kingdom where wages are low unemployment figures are at their worst. As we have heard this afternoon, in certain sectors, such as the finance sector in particular, some salaries arc exceptionally high. The low wage rates in the North, however, are not encouraging firms to move their operations there.

I understand that at a recent meeting with the Secretary of State for Employment, representatives of the TUC General Council challenged the Government to state that if, contrary to their assertions, the Wages Act failed to lead to higher employment levels in wages council sectors, the Government would reverse the provisions of the Act. The Government have not been willing to pick up this challenge, but it seems a fair one to me. If driving low wages down even lower does not produce a rise in employment, should not the policy be reversed?

Moreover, the general erosion of employment protection legislation and other measures to lift the burden from small firms does not seem to have made much impact on the employment situation. The real burden faced by small firms is not protective legislation but a lack of resources and the expertise which needs to be provided if they are to play the role the Government clearly envisages for them in the stimulation of the economy and the provision of jobs. Even so, the impact of small businesses on the problem of unemployment is likely to be marginal. Indeed, this is a point on which the CBI would appear to be in agreement.

The second point I should like to deal with is that of labour mobility. That has already touched upon to sonic extent by the noble and learned Lord, Lord Simon of Glaisdale. It is frequently contended that we in Britain have an extremely static workforce and that this is one of the reasons why there is very high unemployment in some areas, while the position is not so bad in some others. Among reasons recently advanced for this, sometimes by Government spokesmen and quite recently by the Chancellor of the Exchequer, is that it is national wage bargaining that produces a situation in which people are paid the same irrespective of the area in which they live. Greater variation, it is claimed, would encourage workers to move to areas where there is more demand for labour.

I believe that this is based upon a misunderstanding of industrial relations practice in this country. There are many enterprises where—since they exist as an entity with a workforce covered by the same grading or job evaluation scheme—a centralised wage or salary structure is the most appropriate and deemed to be the fairest. Large financial institutions such as banks come into this category, but even here there are large town allowances and, of course, substantial London allowances. So the picture is not one of uniform rates irrespective of local conditions.

Secondly, many national agreements exist to provide a "floor"—a basis upon which negotiation takes place over and above the minimum. In these negotiations attention is paid, among other things, to local conditions and the local labour market, as well as to the profitability of the local enterprise concerned. In some instances—the chemical industry is a case in point—there are national rates set at joint industrial council level for skilled and unskilled workers, but the average weekly wage can be very much higher than that, depending on local wage bargaining. The same is true of the engineering industry, where average weekly rates for unskilled workers turned out as a result of a recent survey to be 34 per cent. higher than those agreed at national level which had always been regarded as a minimum. I do not think that it can be established to any degree that the existence of national wage bargaining is a factor when dealing with mobility and attraction of labour into areas where labour opportunities exist.

Another factor that inhibits mobility is housing. However, the vast majority of house moves have nothing to do with employment changes and few employment changes require a change of house. On the margins, housing and its availability can be a factor. The shortage and high cost of accommodation in the private-rented sector is an obstacle to greater mobility. For owner-occupiers in the high unemployment regions, the fact that house prices in the South-East are 50 per cent. to 60 per cent. higher than in the rest of the country is an obstacle to mobility. The relative change in house prices between regions makes it more difficult for owner-occupiers in higher unemployment regions to move to the lower unemployment regions, and also discourages people in the South-East from relinquishing appreciating capital assets.

However, this again is a relatively small issue when it comes to looking at employment as a whole and employment prospects. I agree with the noble and learned Lord, Lord Simon of Glaisdale. Although mobility is a factor, nevertheless we cannot all move to the South-East. What we have to do, it seems to me—and the noble and learned Lord clearly made a very important and valid point here—is to develop an effective regional policy. I question whether anyone in your Lordships' House would want to see standards of living—standards in terms of wages, health and safety, and other standards for which many have campaigned over the years—undermined and brought down to the levels existing in some of the countries now competing with the Western world. I have seen the safety standards applying in some factories in Japan when I was there several years ago. I can say that those standards would not be tolerated for one moment in similar enterprises in Western Europe. Undermining the living standards of a large part of the workforce, our fellow citizens, is no way to tackle unemployment.

We on this side of the House believe in a far more radical approach. We believe—and it has been stated on all sides of the House this afternoon—that there must be support for the UK's manufacturing base. We believe that there has to be investment in our basic industries. We believe in an interventionist policy of the kind that so far this Government have opposed. We believe in a massive programme aimed at industrial regeneration which, of itself, would provide job creation on a substantial scale. Without such a programme, the problems we are facing will remain intractable, and we shall still be facing vast problems of unemployment in several years' time.

7.33 p.m.

Lord Wolfson

My Lords, first, may I join your Lordships' in congratulating the noble Lord, Lord Derwent, on a notable maiden speech. Not only was the content excellent, but he has such a fine speaking voice that I hope he will exercise if often in this Chamber.

I welcome the Government's policies for increased investment in housing, hospitals, roads and education and it seems to me that these represent a wise reinvestment of the capital receipts arising from privatisation. This programme, coupled with a commitment to reduce income tax rates in the years ahead and further to protect the environment, comprises a well-balanced package for the economy.

The economy continues to grow. As a businessman, I can see a significant improvement in management techniques in industry and commerce. They have increasingly adapted to technological change, competition and market requirements. Productivity, profitability and human relations are much better. There has been extensive modernisation and the creation of a wide range of new trades and industries. We are producing many high-quality products of world fame. Industry is exporting some £6 billion-worth of manufactured goods per month and supplying much more to the home market. Surely, this could not happen if we were an industrial desert.

At the same time, substantial expansion has taken place in the service industries to cater for new and innovative consumer products. There has been a large increase of investment, both at home and in overseas holdings, making a vital contribution to our balance of trade. Of course, as my noble friend Lord Young of Graffham has pointed out, the main problem—indeed, it is a world problem—has been the effect on employment caused by structural changes in the basic industries, and these have been especially serious in the regions where those industries operated on a large scale. The Government have used a variety of measures at their disposal to facilitate new investment in these areas, Nissan being the best known. I hope and feel sure that they will be added to and reinforced wherever it would bring about long-term benefits. Many regional cities are showing considerable enterprise. Indeed, it gives me particular pleasure to know that my father's home town of Glasgow has been named by the EC as "European City of Culture, 1990". I do not think that he would have anticipated that at the turn of the century.

Business will invest in every part of the country, in industries and services which produce and market the goods that are capable of being sold profitably at home and overseas. In a democracy, it is the consumer who is king. In order to add to the 24 million in employment, we shall need to develop further the policies of encouraging self-employment and small businesses and promoting the growth of those manufacturing and service industries which will help to provide the jobs of the future. In the longer term, modern technology will enable the Western world to move gradually towards a shorter working week and a review of the age of retirement. To equip us fully for the second industrial revolution, we shall need enhanced vocational training and language-teaching programmes.

The anachronistic view held in some quarters (not, I am glad to say, by the noble Lord, Lord Diamond) that service industries are somehow inferior to manufacturing—and I believe a similar view was held about manufacturing by the agricultural industry in the early part of the last century—underestimates the fact that services are going to make a growing contribution to employment in the years ahead. The imposition of Selective Employment Tax on service industries in the 1960s showed just how out of touch with future market demand was policy. The noble Lord, Lord Harris of High Cross, has pointed out in his witty way the failure of the macroeconomic policies of the 1950s and 1960s, when I experienced the microeconomic upheavals to business that they caused.

What of the future? Many experienced views have been expressed by a variety of individuals and by professional bodies and organisations seeking to promote a balanced programme of growth in the economy. I should like to take some of these ideas together with some thoughts of my own and briefly highlight them as follows. I should like to see, particularly for lower and middle incomes, a personal income tax system that follows the lines of the corporation tax changes in this country and the recent restructuring of the United States system, where (as the noble Lord, Lord Derwent pointed out) the highest rate of tax will be less than our lowest rate. Wealth can only be created through providing incentives, as even the Communist states are coming to understand, and we are in fierce competition with Europe and other English-speaking communities to retain and regain talent in all walks of life. A revival of the taxation policies of yesterday will diminish the yield, lose talent and thereby set back the very aim it purports to achieve—the sustainable improvement of standards for the old, the young and the less fortunate in society.

To get down interest rates, we need a stable currency, or at least a more stable currency. That is why entry into the European Monetary System at the appropriate time has its attractions. No one would claim that the European Monetary System is a panacea but certainly those involved in it appear to have enjoyed more stable conditions as a result of membership. A cheaper pound may temporarily be good for exports but at the same time there is the danger of building up inflationary pressures and allowing holders of stronger currencies to buy our assets at very favourable prices.

We should ensure that genuine reciprocal free trade arrangements are obtained. The noble Earl, Lord Ferrers, touched on this point. The United Kingdom is facing rising imports from the Far East, Eastern Europe and other parts of the world when in many cases our own exports of goods and services to them are restricted. This is an untenable situation and will inevitably lead to demands for protectionist measures unless it is corrected.

To further the realisation of a rapidly-growing property-owning and share-owning democracy, there needs to be closer and regular consultation on the part of the investment institutions with their shareholders and pension beneficiaries. The latter might very often be willing to authorise trustees and managers to take a longer-term view on research programmes and investment decisions. There is a real need for investors to have more published information regarding their trustees' investment policies, including those relating to take-over bids and high leverage transactions, which in any event need careful monitoring. Indeed, we have to be constantly on guard against speculative excesses and unsound lending practices to corporations and consumers. We know from experience the cumulative harm that arises from any loss of confidence.

While there are a growing number of excellent schemes, even more private partnership with urban development corporations is needed for inner city regeneration, in particular for new homes and for the earlier release of empty houses and derelict land. There is an urgent desire to reconstruct, on a more human scale, the concrete housing blocks which have blighted and made more unsafe so many of our cities. Improved road communications are a vital ingredient if the inner city programme is to succeed. It is the improved road system in this country that has done much to attract many new industries, homes and jobs.

As a final thought, I should like to see more matching funds made available to encourage grants from private sources for university scientific and technological research programmes—the seed corn of the future—and for arts projects. It would also be beneficial for education and health authorities' buying programmes to be more closely integrated so as to obtain the best value for the purchase of supplies and services, thus making more valuable the funds provided for the purpose.

There is no real shortage of capital for viable ventures, as the Wilson Committee revealed in 1976. To sell a large part of our portfolio of overseas investments, and with it the important income contribution such investments make to our balance of payments, begs the question as to where the tangible replacement is coming from. Inward investment is welcome on all sides, but I have never understood why the outward variety is regarded in a less favourable light.

Past experience does not suggest that the pensioner and investor will benefit from political second-guessing of business decisions. We need a flexible approach and we should concentrate on what we are good at in services and manufacturing, in medicine, scientific research, the arts and the humanities. These will provide the lasting employment prospects that we are seeking. The world of yesterday cannot be resurrected in that form, and the bandying of statistics from the past will not make this happen. The world of tomorrow must be our concern; and the creative way forward is to encourage talent in every phase of national life. This in turn will benefit the expansion of the social programmes that we all wish to see: a real combination of public and private enterprise. My Lords, we need a positive approach, not a punishing one, if we are to secure the overall success we are undoubtedly capable of achieving.

7.44 p.m.

Lord Mellish

My Lords, I first of all join with others who have spoken and congratulate the noble Lord, Lord Derwent, on his maiden speech. I thought in many ways that it was a model. It was contained within the time usually allotted, and it said a great deal. One particular thing he said intrigued me, and it must have interested everybody in the House. That was the fact that the American system of taxation has now been changed to such an extent that their highest rate of taxation is not as high as our lowest rate. If what he says is correct, what I am frightened of is that once again there could be another brain-drain from this country, with people going to America to work because their taxation rates are so much more favourable. I certainly think that the noble Lord's maiden speech was well worth listening to.

Those who have spoken in this debate are very highly qualified indeed, many of them, and I am very much aware of the fact that I am but a novice in the economy and other matters of that kind. However, I hope that my speech will be a practical one: it will be one that is directed by personal experience. I want to ask the Government, frankly, what their policy is for the future. I think the biggest problem for the Government—indeed, any government—is the divide between the North and the South. The appalling conditions at the moment in the North are known to every one of us, yet in the South (and I speak as a southerner) things are very much better. I propose to put to the Government the point that they have, by their own endeavours, learned a great deal of what can be done in the South. I would ask the simple question: why cannot it be done in the North? The noble Lord, Lord Alport, referred to the problems and heartaches of Merseyside. We cannot just walk away from such things: we have to face them. That then is the biggest problem that we face between the North and the South.

Before I go on to give examples of where we have been successful in the South, I say at once that I am one who recognises private enterprise as the main bulwark of our economy. Whether we like it or not it happens to be a fact, and anyone who produces ideas that reduce or restrict private enterprise is doing this country a great disservice. It is from private enterprise (hoping that they make profits) that the Chancellor collects most of his taxes. It is from private enterprise that most of our people get employment. It is madness to produce legislation, take actions or adopt attitudes that destroy private enterprise, unless you have the courage to say, "We will get rid of private enterprise entirely and run everything through the state". With great respect, that would be about the daftest thing possible, because the state on its own could not run a fish and chip shop.

We know that within the private enterprise sector there are many who are a disgrace. We know about the spiv, about the character who avoids tax and about the unfair competitor; but by and large the majority of those in private enterprise are crying out today for incentives and help. This is where they have demonstrated it down South when the Government have shown enough initiative to make sure that private enterprise can succeed. I would ask for that to be repeated in the North. Although, as I said, I am not a northerner but a southerner, born and bred in London, and they are not my kith and kin up North, they are my fellow countrymen, and it can be of no satisfaction to me, living in the South, to learn of the conditions under which some people are living in the North, as was described by the noble Lord, Lord Alport, in respect of those living in Liverpool, for example.

Your Lordships will be intrigued to know that one of the examples that I intend to quote of success through collaboration among private enterprise, local authorities and higher education is in Dorset. When you talk of Dorset you immediately think in terms of Bournemouth and places of that ilk with a very genteel way of life and not very much to bother about. I have to tell your Lordships that in the last 10 years there has been an industrial revolution in Dorset. It has gone unnoticed, without any razzamatazz. But I should like to give your Lordships some figures; they are incredible. For example, the total number of people in employment has increased from 177,000 to 198,000 in the last decade, an increase of 11.9 per cent. That contrasts with Great Britain as a whole, where there was a minus figure of 1.5 per cent. Dorset did all right in employing its increased population, did it not? Employment in manufacturing industry, about which we have heard a lot today, remained virtually static. It went up by 02 per cent. but that contrasts sharply with the Great Britain experience as a whole where there was a decline in manufacturing industry of 23.7 per cent. over the same period.

Dorset held its own. Employment in the miscellaneous services—cinemas, sports, hotels, restaurants and the rest—has gone up by 33 per cent. in that area of the country, while employment in other services, such as transport and communications, has gone up by 29 per cent. Why? How is it possible that this should happen in Dorset, when in other parts of the country we hear of nothing else but disaster and gloom?

I have to tell the House why I think this has happened. Instead of passing resolutions and wasting time by getting involved in all these silly matters in which some local authorities get involved, the authorities there have gone in for a job of collaboration, using the Manpower Services Commission. With the Institute of Higher Education and the chamber of commerce, they have collaborated to ensure that they train people to do the job for which they are required. Higher education does not just consist of getting a degree in Latin or something like that. What they get is a degree to meet the demands of employers.

I have figures for some of the extraordinary things that have happened in education. There are 2,000 full-time students at the college and over 1,500 part-time. What are they being taught? They are being taught every possible form of new technological advance. Every month the employers, the chamber of commerce, the unions and the Institute of Higher Education sit down to talk about students, what they are doing, what are their needs and how many are required for the new techniques.

Industry has been attracted into the area. What sort of people have come into the area? There are Plessey, Membrain, EIC, Penny and Giles and Hamworthy. Those are some of the great manufacturing firms that have gone in. In the industrial/commercial base there are the multi-nationals, such as the National Mutual Life Association of Australasia, Barclays Bank, Chase Manhattan and Abbey Life. They have all moved to Dorset. Why did they not go up North! There is no attraction there, no incentive, no understanding of what is required and no training facilities. The Dorset story is worth telling.

Your Lordships will expect me to mention London docklands, but I shall not talk about that for very long. When we took over 1981, only five years ago, it was derelict. The noble Lord, Lord Aldington, who has remained in the House, was chairman of the PLA and he will know exactly what I mean when I say that the entire area was derelict and defunct. I remember in July 1981 feeling sick at heart, but the government of the day—and do not let us deny this—had the courage to set up a corporation and give it money to buy the land, because we believe not in confiscation but in compensation. We compensated the PLA and others and took their land from them. Of course, we always had the threat of the CPO if they did not sell it, but they rightly did.

I shall not go over the whole story, but for every £1 million that the Government have invested in dockland, private enterprise is spending £8 million of its money. In fact, the Government are getting back a lot of their money. Again I ask the simple question, being a simple-minded chap: why do we not implement up North what we have done down South? Why can we not put vast areas of the North into the same position as our dockland? Why can we not follow the measures that have been followed in Dorset?

Why can we not ensure that there is liaison among the institutes of higher education, the employers and the unions about the vast areas up North and encourage private enterprise to go there? Do not talk about state industry going there. Talk about incentives to private enterprise to go there, to make profits on which it pays tax and, of course, to employ lots of people. Until we have that industrial strategy we shall get nowhere, but it is a problem for any government that is in power. You cannot leave the situation as it is now.

I know very well the Leader of the House who is to reply. I know that he is a person who is deeply concerned with the heartaches up North. But it is not enough to be concerned. You must have something to do and have some idea of where to go. If what we have heard about Liverpool is correct, and I know that it is—the noble Lord, Lord Alport, has given us some idea—we cannot let the situation stay like that. You cannot come up with theories in this House. You must come up with practical ideas. The only way to get private enterprise to do a job is to give it incentives.

For example, why did we have to apply a rate levy? Why do we not encourage people to go up there? Why do we not say: "If you open a business up here in the North, you will get the incentives that you deserve"? Why do we not ensure that there is education and training of the people required? We suffer a problem down South and do not let us think we can get away with it. The northerner is coming down South, becoming homeless and creating heartaches of the worst kind. Look at London tonight, with thousands and thousands of northerners who have no homes and who are sleeping under the arches. Everybody knows it is going on. I ask this House to consider the problems that have arisen from the great divide.

I am not prepared to believe that there is an easy solution. If there were, the Government would have found it. The noble Lord, Lord Young of Graffham, is no fool by any means, and so he would have found an easy solution. It is no good anyone on either side of this House thinking that there is a simple solution but there has to be a strategy and a lead in to the great incentive so as to enable private enterprise to function in areas which it will not touch with a barge pole. When I talk about the North, I include our friends in Wales and in Scotland. It is a dangerous signal for all governments. I plead with the Leader when he replies to say that the Government are not only concerned about the North but they intend to do something about it.

7.57 p.m.

Lord Butterworth

My Lords, I should like to speak tonight about the contribution which universities can make, in collaboration with industry, to the industrial base of this country. But, first, I should like to congratulate my noble friend Lord Derwent upon his speech, which seemed to me to achieve the almost impossible twin virtues of being non-controversial and extremely penetrating at the same time. I should like to take a leaf out of his book in a few moments and look at the American experience.

A few weeks ago, a committee of your Lordships' House was told that until a few years ago universities had been ivory towers and should be more welcoming to businessmen than they are. My right honourable friend the Secretary of State for Education in giving evidence explained that his officials had informed him that in 1984–85 universities had received no less than £47 million from industry for research, and this figure was 78 per cent. more than they had received in 1981–82. The Secretary of State pointed out, quite reasonably, that £47 million represents only just over 2 per cent. of the universities' total income.

I am sure he would recognise that those figures are very far from encapsulating the whole of the relationship between universities and industry, and indeed in last week's Economist the figures were brought up to date as follows: The 1985–86 figure looks like turning out around £70 million and the current year is expected to see another 50 per cent. rise to about £100 million. So the amount of the grants which come to universities from industry for research in which they are jointly engaged is rapidly increasing.

Of course, for generations universities have produced recruits for the Civil Service and for the professions and, indeed, have not known how to speak to industry. Only a small minority in industry were graduates. The total picture today is changing, and changing rapidly. The change began, I suppose, about 10 years ago. It was led in large measure by the Science and Engineering Research Council, which produced a series of schemes to encourage collaboration between industry and academic institutions.

I do not want to spend time on those schemes today except to mention one because I think it is pertinent to how industry and universities get together. This is the teaching company scheme, which was set up in 1974. It is really misnamed because it is not primarily concerned with teaching, and it has not led to the institution of a single new company. "Teaching company scheme" was really the name of a new form of grant to improve industrial performance by the use of academic resources. Academic staff participate in a company plan intended to achieve substantial change in the industry, in its techniques and in its procedures. The academic staff work in industry and recruit high calibre special graduates, who are known as teaching company associates, to work with them. I must stress again that they work in industry. Indeed, many of the teaching company associates get posts in industry with substantial responsibility and rewards.

The benefit of this is that the academics and industry work together, and they frequently reach solutions of which the industrial partner alone would not be capable. May I give a brief example? A teaching company starts on a problem and at first it is thought to be a problem in mechanical engineering but, as the work develops, it becomes clear that assistance and advice are needed either from a computer specialist or from an electronics specialist. Immediately one is brought in from the relevant dapartment of the university concerned and therefore a wider and a better solution is provided.

This year there are 250 teaching companies, and the scheme is still expanding. I think that the finance of the scheme is quite interesting. It will cost £10 million this year, one-third being produced by the council, about one-third by the Department of Trade and Industry and, most importantly, one-third from industry itself. The Economic and Social Research Council has recently joined the scheme because it has become clear that with many of the problems the real question is one of management. The Department of Economic Development for Northern Ireland has also joined with a contribution of about £150,000.

I could give many other examples to show how universities and industry are getting together—science parks, special companies founded to create relationships between universities and industry, industrial liaison officers, and so on. One thing to which I should like to draw attention tonight is the enormous spread of consultancies among academic staff—academic staff increasingly accepting consultancies in industry and commerce and therefore bringing the skills and the knowledge of the campus to industry, to commerce and to the community.

This is very relevant when we come to look at the experience in the States. There the collaboration between university research and industrial experience has developed very considerably. Indeed, research is frequently conducted wholly outside the industry concerned because it is discovered that, if the research is wholly within the industry, there is a danger that it will be confined too much to the existing products and in defence of existing capital investment. Research undertaken by the makers of carbon paper may result in the carbon paper being made cheaper. It may result in reducing the likelihood of the carbon paper to smudge. It may result in different coloured carbon paper. But what happens to the company when the xerox machine is invented?

Universities are often told that they must make their research relevant. Too often this means conforming to the predilection of the boss and to his bias. It is no good following the advice of the hard-headed businessman who says: give the customer what he wants, ask the marketing director. If one gives the customer what he wants, if that is the brief for one's research, it will merely result in a red stripe being added to the toothpaste.

The truth is that technology and science are now developing at such a rate that interdisciplinary research is leading to such a synergistic explosion of technology that industrial success is rapidly coming to depend on what is now known as the management of discontinuity—successful management when one product takes over from another: discontinuity when one technology replaces another and the management of that discontinuity. If we in Britain are to maintain a developed world income, we have to succeed in the more intellectual higher value added products. The capital of the future will be information-based intellectual property, not expensive plant and not land.

The greatest concentration and most powerful breeding ground of intellectual capability is to be found in the universities. Intellectual property will increasingly drive successful business. The United States recognises the value of its universities. Incidentally, it frequently recognises the value of ours as well. The United States knows that industry is technology driven, not market driven, not customer driven. In the States, science is regarded as the keystone of national progress, and the contribution of universities is recognised and accepted.

It is interesting that in the States successful larger companies wishing to research in some wholly new area tend not to mount that new research in the restricting and inhibiting atmosphere of their main plant. They send a promising young group to pursue the research in some remote corner of, say, Florida in what I am told are known as skunk works, or they fund a special operation in an appropriate university. Recent studies by United States consultant groups find that research funds spent on mature technology are only 20 per cent. as effective as those spent on emerging technology.

Universities tend to concentrate on multidisciplinary research and emerging technologies and are therefore much more likely to reward research investment. In California at least half a dozen leading microelectronic companies with sales of $1 billion and a workforce of comparable size have all grown from nothing in the last decade. Many of them have been formed by professors.

It is to be hoped that when funds are provided to succeed the Alvey scheme in this country, the contribution of academic institutions in collaboration with industry in the Alvey field will be fully recognised. If instead of expanding our industrial base our objective is to ensure that come what may all our leading companies shall for ever maintain their positions at the top of the heap we will bury all research in existing companies and fail to support the universities.

Finally, perhaps I may briefly refer to training. In 1984–85 there were a total of about 40,000 graduates who went into home employment. Of those, 7,600, or approximately 19 per cent., took jobs in scientific and engineering research and development and their support services. If we are to increase our research expenditure, as so many people now think is necessary for our survival into the next generation of technology, we may not have the workforce to mount it. Unless we invest more in education and training of high-tech people, our industrial base will continue its irresponsible decline and the standard of living which the British public have a right to expect will not be achieved. Successful innovation, the management of discontinuity and information engineering must be our present base for future prosperity.

8.12 p.m.

Lord Bauer

My Lords, I join the noble Lord, Lord Bruce of Donington, in regretting the recent death of the noble Lord, Lord Kaldor, whose contributions enlivened our economic debates. It was not necessary to agree with him to recognise his talents. He will be much missed.

I believe that this is the first time that employment has been added to the title of the economic debate on the gracious Speech—perhaps not surprisingly at this stage in the electoral cycle with a recorded unemployment at over 3 million. More surprising is the persistent belief in the efficacy of more government spending for reducing it. It may help if I bring up to date some statistics which I have presented on previous occasions. From the second quarter of 1979 to the second quarter of 1986, total spending in the United Kingdom almost doubled; yet recorded unemployment much more than doubled. Part of the explanation is that retail prices rose by 78 per cent. Retail sales hit record levels practically every month. Why should further increase in monetary spending substantially reduce unemployment? As the noble Lord, Lord Harris of High Cross, asked earlier this afternoon, why do governments hesitate to embark on further financial expansion which is not only popular with much of the electorate but also technically very easy? Is it not that they not only recognise the inflationary perils, but also that these would emerge soon?

All this was recognised by Mr. Callaghan in September 1977 when he said, in an oft quoted speech, that spending our way out of unemployment was no longer an available option, if indeed it ever was in recent years. But even if more spending would increase employment, why should the spending be by the state? It could be achieved also by lower taxes which allow people to choose what to buy—or indeed by sending everyone, say, £10 a month through the post.

Higher spending is also urged to reduce mass poverty. Mr. Kinnock said last week in another place that in recent years there has been unparalleled growth in poverty to some 9 million people at or below supplementary benefit level. His assessment was supported this afternoon by the noble Lord, Lord Soper. On this reasoning, poverty increases whenever benefits are raised, or administered more lightly, or when the uptake increases. These allegations divert attention and resources from helping the very many genuinely needy people, especially the old and including the victims of inflation or of social, economic and technical change—change to which the noble Lord, Lord Dean of Beswick, referred this afternoon.

The thrust of the amendment moved by the noble Lord, Lord Diamond, is also for more spending—especially state spending—to revive what the noble Lord, in common with others, calls the manufacturing base. With respect to the noble Lord, manufacturing is no more basic than transport or distribution, or indeed than agriculture which used also to be termed basic. Nor does spending become productive simply by calling it investment.

The distinction between manufacturing on the one hand and transport and distribution on the other is quite arbitrary. If a manufacturer uses his own transport, the employment is in manufacturing; if he uses a contractor it is in transport; if he invests in his own equipment this is manufacturing investment; if he leases the equipment, it is financial investment. Is it wise to try to base a policy on such an arbitrary distinction?

The maintenance and growth of manufacturing relative to other countries provides no index for present or prospective living standards. The noble Lord, Lord Hatch of Lusby, referred to the relative decline of the British steel industry. He regarded that as a key component of manufacturing and of prosperity. Switzerland, which is the most prosperous country in Europe, has no steel industry.

My noble friend Lord Derwent, in his exceptional maiden speech, which was memorable for its penetration and conciseness, referred to the effects of direct taxation abroad in diverting talent and productive investment from this country. My noble friend Lord Wolfson has also taken up this theme. This is far more pertinent to prosperity and prospective living standards than the size of manufacturing industries.

We should welcome the Government's past success in reducing inflation. Ministers may now be a trifle complacent. The Treasury estimate for inflation next year is 31¾per cent. This may be rather optimistic. The yield on index-linked stocks reflects expectations of 5 per cent. or more over the next few years. Yet even with inflation at 3¾per cent., £1 becomes 7.6p in a lifespan of 70 years. It is now easier than it was in 1979 for some people to protect themselves from the ravages of inflation by index-linked pensions and financial instruments. However, millions of people are still grievously harmed by its injustices. The protection of some must throw a heavier burden on others. Those most harmed are neither vocal nor organised, and are thus of little interest to politicians or the media.

Ministers may be too hopeful of the effects on unemployment of some policies and developments which may be welcome on other grounds. I have in mind upgrading of skills, job creation schemes, lower interest rates, greater international competitiveness and demographic change. Some of these have been mentioned earlier today.

We may welcome a labour force with more valuable skills, but will this do much for unemployment when there are already many jobs available for the unskilled unemployed? There are no porters at main line railway stations, as I saw for myself repeatedly at Victoria Station. Longstanding notices in London department stores advertise vacancies at all levels. Some time ago an advertisement by an employment agency said: "If you can walk, talk, write or type we have a job for you". All this mocks the statistics of recorded unemployment. Such anomalies will persist, and indeed increase, as people become more accustomed to taking up their social security benefits and less reluctant to claim them.

Special job creation schemes can be beneficial for various social reasons, but they are unlikely to reduce unemployment much. Since they are financed from taxes, taxpayers have less to spend on other goods and services. They are attractive because their benefits are concentrated and visible, while their costs are diffused and concealed. Lower interest rates may increase activity in the short period. But given the rigidities of the labour market, may they not create more unemployment by encouraging capital intensive methods at the expense of labour intensive methods in production and consumption?

Higher growth rates would undoubtedly help with unemployment but an increase by a few per cent., which is all that is practicable, could not reduce it significantly. Similar doubts arise about the effects of higher productivity or increased international competitiveness. Fewer school leavers, through demographic change, reduce the absolute number of the unemployed but increase the percentage of the labour force unemployed. Slower population growth reduces the incentive for productive investment and the adaptability of the labour force. This was recognised in the 1930s when a decrease in population was widely feared.

Unemployment will not fall greatly without major reforms in the labour and housing markets, in the social security system and in the level and incidence of taxation. This has often been emphasised in your Lordships' House, notably by the noble Lord, Lord Harris of High Cross, and by my noble friend —

Lord Bruce of Donington

My Lords, I am obliged to the noble Lord for giving way. He referred to the level of taxation. I take it he is aware of the widely held professional and publicised view that the United Kingdom is already a tax haven.

Lord Bauer

My Lords, I am surprised to hear that. I think this applies only because, at least until recently, companies were so taxed that they could arrange their affairs to pay little tax. But this did not apply and does not apply to the direct taxation of United Kingdom individuals and partnerships. I thank the noble Lord, Lord Bruce of Donington, for drawing my attention to this point and I shall try to word my remarks more carefully in the future.

Such reforms could promote more labour intensive methods of production and consumption and also freer mobility between places and jobs. But to think that more state spending, lower interest rates, faster growth and the like would solve unemployment is akin to hoping that population growth or change in food consumption would reduce the agricultural surpluses of the EC. The required reforms are of course unthinkable for the Labour Party. If Ministers rule them out as politically impossible, than large scale recorded unemployment will persist.

Lord Hatch of Lusby

My Lords, before the noble Lord sits down, will he note as a matter of record that I did not talk about the decline of the British steel industry? What I was speaking about was the overtaking, first by the United States and then by Germany, of the British steel industry, largely through better productivity. I related that to the fall in the British percentage of world exports, from 33 per cent, at the beginning of the century to less than 7 per cent. today.

8.26 p.m.

Baroness Carnegy of Lour

My Lords, I want to speak about a subject that has been touched upon by one or two noble Lords. It is very important in the context of this debate but has not really been explored at all. I refer to the subject of schools and how we can get the changes that are needed there if this country is to continue to improve on its success in the world economy and if each young person is to have a chance in future years of earning a good living in the modern world.

I want to suggest that in this matter we now have no time to lose. The world of education likes to proceed slowly and to wait until everybody has agreed before moving forward. But to my certain knowledge we have been talking for at least 20 years about the need for improved schools-industry liaison and the need to relate school more closely to real life and to working life. Some schools have made considerable progress. Many, quite frankly, are still just talking about it. The need for change is now so urgent that young people, their parents and the nation as a whole simply cannot wait.

I should like to suggest to the Government that what is required now is that Big Bang in the Stock Exchange be matched by a Big Bang in schools; that a change be made in the framework within which schools operate which makes it possible for everybody concerned to get together locally out of their own experience to make the changes in schools that their young people need. This is the right time for a major new initiative. We hope that soon schools will be putting behind them many months of damaging non-progress. They will be seeking a new sense of direction and ways in which parents, teachers and the local community can do for their children what is so desperately needed by them.

The general thrust of what is required in schools is now widely recognised. The changes of which your Lordships have been speaking so eruditely in this debate in terms of the way the world economy, the European economy and our own economy work, the way we conduct our business in commercial life, the effect of this on the nature of jobs, the scope there is for finding ways to earn a living and the fact that these changes will not be once-and-for-all but a continuous process through a young person's working life, all mean that what a young person needs from school now is very different from even 10 years ago.

Recent opinion polls have indicated that young people, their parents and employers now know pretty clearly what it is they want from schools, and they seem to agree about it. Whatever the aptitude or ability of a young person, whatever the subjects studied, what is wanted is that the young person should come out of school competent, capable, motivated and able to turn what he has learned into practical ability in life. What is wanted is that young people should be able to find their way with competence and with persistence through the rapidly changing labour market, to find new ways to earn when old ones cease to exist; not to be put off by people saying that it is no use looking for a job because none exists; not to be put off by people saying that it is no use entering energetically into your work because someone will take advantage of you. What is wanted is people who are able to cope with relationships and to arrive at a happy home life; people who can cope with the new form of housing market and the new forms of conducting one's financial affairs, and be good shoppers, informed voters and good users of leisure. These things all matter to employment and to the economy.

If young people are to learn this there have to he huge changes in the teaching approach in schools. Teachers must somehow find ways of relating every subject to the real life of every pupil. They must involve young people far more than they have up to now in what they are learning. They must involve parents, employers and the community, because those are the people who know what real life is about in the community.

I suggest that the matter would be greatly helped if there could be a big change built on the experiment which has been going on in Cambridgeshire in seven schools, where the budget of the schools was handed over to the schools themselves. I suggest that that should be done over the whole country for schools that want to run themselves. They should be given the responsibility for administering that budget. It should be done through the governors and the heads of the schools. In Scotland, it would need to be done through strengthened school councils. The budget would be based on the role of the school, with some weighting according to the area where the school is situated and the problems it has to meet.

The schools would be able to use their budgets in the way they wanted and to use savings made on one subject for another. Central government would continue to have a monitoring role through the inspectorate, and it would be for consideration whether the balance of advantage would be for the budget to go through the local authority, and the authority to continue to have some role in its administration, or whether that would be better done direct to the school, with the local authority freed of that responsibility.

Under such a system schools would be freed to bring together the teachers, local people, parents and local employers to help create the relevance for young people in their schools which is so desperately needed. The motivation and involvement of the customers would be enormously increased. The job satisfaction of teachers would likewise be enhanced. A by-product, and not an undesirable one, would be much less politics by far in schools—less politics with a capital "P" and with a small "p". I believe few of the customers would regret that.

I hope the Government will think hard about a strategy of that kind. It is very radical but some radical things have been said in this debate. Radical events have been happening in the world, in the economy and in employment and radical solutions are called for. I hope that your Lordships, too, will look at those suggestions with some approval.

8.33 p.m.

Lord Elibank

My Lords, one industry that has suffered more than its fair share of drama in the past 12 months since last year's debate is the oil industry, and as I have spent a large part of my adult life in that industry I view the drama with perhaps more interest than most. Moreover, what has happened in the oil industry, both to the economy and to employment, fits quite neatly within the confines of this debate.

It might be helpful to briefly review the events of the past 12 months in the industry. The barometer of the industry, as your Lordships know, is the price of crude oil. It is not the only barometer but it is a very public and obvious one, and most of the world knows it. This time last year the price per barrel stood at 28 dollars. In the past few months it has oscillated between 10 dollars and 15 dollars per barrel, but in fact it has descended into single figures for weeks at a time. Therefore, the main product of the oil industry is approximately half the value that it was 12 months ago.

As your Lordships know, the price is largely influenced by the conduct of OPEC—a cartel which operates like most cartels in striving to reduce the amount of its product available to the public in order to keep up the price. Currently OPEC produces rather less than 50 per cent. of the total world production, but in the past it has produced more and it is in a high degree probable that in the next decade it will return to its old position of pre-eminence largely because the main oil reserves of the world are in the Middle East.

This dominance of OPEC rather conceals the prominence of one country in it—Saudi Arabia. The Saudis produce from about 3 million to 4 million barrels a day at present, but literally almost overnight they could increase that threefold and swamp the market. That is a power which has resided in their hands for some time and it is only fair to say that it is a power that they have exercised, by and large, wisely and well, and with a proper sense of their responsibility to the world economy. However, it is perhaps a unique power in the hands of a small group of men who dominate the entire industry which, in a way, I doubt any other group of individuals can do in any other industry; and that is something of which we should all be conscious.

At about this time last year OPEC decided that the non-OPEC countries were taking an undue share of the market and as a result they resolved to increase production fairly sharply. The direct result of that of course was the fall in the price of oil, to which I referred.

Apart from the obvious and dramatic effect on the Treasury, this affects the viability of the different fields in the North Sea. Each field has a price, or a narrow band of prices, below which it is not economic to develop it. This price varies of course from field to field. In broad terms, it is fair to say that if the price of oil per barrel in dollars falls into single figures, only the largest and best established of the fields in the North Sea are viable. If the price falls to between 10 dollars and 15 dollars a barrel, the position of many fields is extremely uncertain. At the moment, when the price falls below that marker level for a particular field, the instinct of any oil company is to cut production, or certainly to cut development.

It has been said, rightly so, that cheaper oil is not an unmitigated evil. Cheaper oil, and its products, feed into British industry in various ways and no doubt that influence of cheaper oil is entirely benign. The problem is that although the harmful effects of this cheaper oil are easy to see and measure, and have their most immediate impact on the Treasury, the benign effects are much more dispersed and diffused and much more difficult to measure.

I should like now to turn to the effects on employment of this fall in the oil price. Many of the companies with large investments in the North Sea have cut their exploration and construction budgets by as much as 40 per cent. and this immediately has a dramatic effect on their payrolls. Various figures have been produced by a range of respectable bodies—some historic, some forecast, and I shall quote one or two of them—but they perhaps give a flavour of what is happening in the totality. The Scottish Development Agency has calculated that if oil remains at 15 dollars a barrel something like 5,000 off-shore jobs and perhaps 6,000 on-shore related jobs will go. The National Economic Development Office in a recent report on the engineering construction industry, regarding particularly its mechanical and electrical manpower requirements, has given a figure of 32,000 in 1986—that is, this year—dropping to 20,000 in two years' time, which is a drop of 39 per cent. in two years. The equivalent figure for on-shore work for 1981—five years back—was 14,000 mechanical and electrical manpower jobs; by the end of 1988 it is estimated that there will be only 2,200. A more global figure produced by the Bank of Scotland estimates that 32,000 oil-related jobs could go in the next year or two.

Obviously this hits the country fairly unevenly; but one of the first areas to be hit most dramatically is the Shetlands with the big terminal at Sullom Voe where throughput is declining. Requirements for jobs are diminishing fast and the effect on the economy of the Shetlands is likely to be dramatic. The probability is that in the next few years they will be forced back to the basic economy which they had before the oil boom.

One of the sad things about the development of North Sea oil—and it is a point about which the Minister of State for energy has frequently spoken—is the failure to take up export opportunities from the expertise which we have built up in the North Sea. For several decades now the North Sea has been at the forefront of oil technology, and opportunities have been there to build up a service supply and construction industry which, when our own production has diminished, could look to export orders to fill the gap. Unfortunately, apart from a few shining exceptions, that has not taken place and sadly I fear that the opportunity has largely passed.

The effect of this decline in work is that substantial numbers of highly skilled men—geologists, geophysicists, petroleum engineers, reservoir engineers, in fact engineers of all kinds of expertise, and drilling crews—will be and indeed are being thrown on the labour market. They have skills which in time of fuller employment would be readily available to other industries in the country but at the present levels of unemployment I think that most of them will have the greatest difficulty in finding other work.

One pauses now to consider what action should be taken by interested parties. The major oil companies tend to take a long view of their planning—five to 10 years is normal; 20 years is not in any way abnormal—and it is in a high degree likely that they will plan to ride through this probably temporary recession. That they are shedding some of their workforce is undoubted, but not for the most part in large numbers. For the smaller companies the position is much more parlous especially those with only upstream interests, because for the most part they are dependent on bank loans and of course the bankers are looking with an increasingly worried eye on the state of the industry today. I think it is to be feared that many of these smaller companies will either go into liquidation in the next year or two or will be taken over by some of their larger competitors, which is unlikely to have a benign effect on the employment prospects of their workforces.

Lastly, there is the Government. In this context the important point about government policy is taxation. I submit that it is not a situation that calls for any panic measures, but it does demand a sensitive government finger on the taxation side of the business. It demands a willingness to forgo taxation now in order to help some aspects of the oil companies' business and in order to recoup much more substantial sums in the not too distant future. It is no more than prudent administration to recommend such a course.

The situation in the oil industry is not one of great gravity. The industry is going through a short-term recession. I think that there is every prospect that in the next year or two the oil price will pick up and that employment will stabilise at least. The prospects of the oil industry returning to the high level of both employment and development of the early 1980s is remote. I think that it is not in doubt that this very worthwhile industry making very substantial contributions to the Treasury will continue into the 21st century.

8.45 p.m.

Baroness Seear

My Lords, the gracious Speech this year was somewhat shorter than usual. The result is that nearly everyone, led of course by the media, is assuming that we are on the verge of a general election. I am not totally convinced that this is so; I speak for myself. I believe that the Prime Minister, who, whatever else she is not, is an acute politician, will want to reduce interest rates and mortgage rates before she goes to the country and will certainly want people to have the benefit of any tax cuts in their pockets so that they can spend the money before she tries to reap the benefit of those tax cuts—if that is what she will do—at the ballot box. However, when I listened to the two opening speeches I began to think I was at the hustings rather than in your Lordships' House. Whether the election comes soon or whether this Government run their full length (which in my view is not impossible), it will be the greatest possible pity if your Lordships' House, with its increased reputation for dealing sagely and impartially with urgent political issues, and indeed with long-term political issues, were to start indulging in electioneering.

We are debating not only the gracious Speech but also the two amendments which have been tabled for today. The first comes from the Labour Benches and predictably emphasises unemployment. There is nobody in your Lordships' House—and this obviously includes the Government Front Bench—who does not deplore the present level of unemployment. Even the Government Front Bench, with the hard-faced men that some people would have us believe they are (and maybe they are, I do not know) would be the most foolish politicians if they wanted to go to the country with the present level of unemployment if they could avoid it. There can be no question but that unemployment is a deep and serious social and economic problem in this country and that it requires both urgent and immediate first-aid action and long-term policies which will relieve us at any rate of some of the burden of unemployment.

On these Benches we have always believed that modest expenditure of a capital kind on infrastructure could well be undertaken straight away—I am talking now of those things which could be done straight away—to improve the employment position, such as improvement and repairs to the housing stock and repairs to the infrastructure. We have said it often. No doubt it is boring to your Lordships to hear it again. We should not say it again if more action had been taken but things have to be repeated when no notice, or very little, is taken of them. Let us say once again that these are expenditures of the kind that, if one does not make them sooner, they are made at much greater expense later. They cannot be indefinitely postponed. There is a very real difference between expenditure on either the development or the maintenance of capital goods and expenditure on current consumption, though for some extraordinary reason the Government do not seem to recognise that very important distinction. That is one of the things that could be done staight away.

We are fully aware of the success that the Government have had in controlling inflation and of the importance of that success. It is easy to forget the horror that all experienced over rising inflation rates. We are glad that they are down. They must not be allowed to go up again. But modest expenditure could relieve unemployment without the risk of returning inflation. There could be modest expenditure on certain aspects of the social services. That would not make an enormous difference to the unemployment position but it would make some difference.

So there are things that could immediately be done. I join with the noble Baroness, Lady Turner, and with the noble and learned Lord, Lord Simon of Glaisdale, in urging an intelligent regional policy. We in the Alliance have been carrying out over the last year what we call a work search campaign. This has consisted of studies all over the country into what is going on in local job creation. We have found a great deal that is encouraging. We have also found, however, that it would be much better if there was some sensible regional co-ordination and regional support. I am not talking simply of administrative regional activity but the development of regional agencies with real money to spend on real development. This could be done quite quickly. It could be done to very good effect in improving what is already going on thanks to a good deal of local initiative, local imagination and local risk taking in order to increase jobs, particularly in the areas of highest unemployment. We have evidence that it is happening. We know that it could be done more effectively and more intensively. We are therefore asking for direct action to deal with an urgent problem and to bring quick relief on a small but still worthwhile scale.

The real long-term requirement—here we come to the second amendment, moved from these Benches—is, as practically every speaker, with I think the exception of the noble Lord, Lord Bauer, who is no longer in his place, agrees, is the need to revive manufacturing industry. The noble Lord the Secretary of State would have us believe that all is for the best in the best of all possible worlds. I admire his optimism. But it denies the facts staring us in the face. We believe that the position of manufacturing industry is extremely serious and that there is a need to take action to reverse long-term trends, not trends that are the result peculiarly of what this Government have done. The late Lord Kaldor used to tell us repeatedly—it was well worthwhile having it repeated—that the relative decline in British industry started in the last quarter of the nineteenth century. It has accelerated. At the turn of the century, we had 33 per cent. of world markets. By 1964, it was down to 14 per cent. In 1984, it was down to 7 per cent. I should like to know from the noble Viscount the Leader of the House what percentage of world trade this country now has. It has to be something higher than 7 per cent. if the optimism shown by the Secretary of State is to be justified.

The Secretary of State told us that our productivity was going up relative to other countries. As already pointed out, it is all a matter of how you present the statistics. If you do it on a percentage basis, starting from a very low base, you can produce very good figures. I would refer, however, to page 33 of the Aldington report that shows beyond peradventure that from 1962 to 1984 our improvement did not compare favourably with the improvement in other countries. That is not the sole responsibility of the present Government. It started long before their time. What is not justified, however, is complacency about what is going on at present and the need to revive manufacturing industry. This is not only urgent; it is also very difficult.

The real way ahead is surely for us to make a determined effort to get into high tech industries effectively. We are a long way behind. Indeed, Europe as a whole is a long way behind America and Japan when it comes to command of high tech industries. It is not only high tech industries for their own sake; it is high tech industries as they are applied to older industries in an attempt to revive them. That attempt has not been totally unsuccessful. We have already seen signs, for example, in the textile industry, that application of high tech to old established industries, especially if they are prepared to adjust their markets, means that those industries can have a future and need not be abandoned, as in the past so many have assumed that they had to be abandoned.

When we say from these Benches that all is by no means well in manufacturing industry and that it is urgent that something should be done, we have the support of no less an authority than the Prime Minister herself who, as reported in today's Financial Times, said that the reason that we could not go fully into the EMS at the present time was that the economy was not in a good enough state to do so. If everything is going as well as the Secretary of State would have us believe, why does the Prime Minister feel that it is the parlous state of the economy that prevents our entering the EMS? I should be grateful if the noble Viscount the Leader of the House could reconcile the steady optimism of the Secretary of State with the pessimism of the Prime Minister, with whom he normally so sings in tune.

It is always more difficult to catch up than it is to get ahead after starting even in the race. A move into high tech industries, retaining and expanding a position in competition with other countries already doing much better than we are doing, requires a change in industry and a change on the education front of mammoth proportions. Mr. Kenneth Baker is attempting to bring about improvements in education. I know that technically the discussion on education took place yesterday. But we are talking (are we not?) about the gracious Speech. I want to say how much I agreed with what the noble Viscount, Lord Eccles, said yesterday in talking about education. No longer can we think about manufacturing industry or indeed the whole of the economy and not at the same time think about education. They are two sides of the same issue.

Unless we make marked advances not only in our schools, as the noble Baroness, Lady Carnegy, said, but also in further and higher education in the polytechnics and the universities, we shall not catch up in respect of high tech industries. We shall not have recovery in manufacturing industry. If we do not have recovery in manufacturing industry, we can whistle for improvements in the standard of living and in relationships in industry for which we are all looking. What is required in education is not just a mild change here and there, not just 20 technical colleges, but a quantum leap so that we get the best people possible into education and pay them to stay there. Then we should turn out men and women at the top in research, and that includes the basic research side, but also at the lower levels, using the new technology to change, to adapt, to learn and to learn again. That requires a real investment in education. Education is an investment and not a consumer of goods. We need investment on a much larger scale than the Government contemplate at present. I know that the English do not really like education. The Scots and the Welsh are quite different in this matter, I am told. But if the Government want economic recovery, they have to foot the bill, and the bill is in education.

9 p.m.

Lord Williams of Elvel

My Lords, first, it is a particular pleasure for me to add my congratulations to those of other noble Lords on the maiden speech of the noble Lord, Lord Derwent. I say "particular pleasure" because the noble Lord, although not a friend in the political sense, is a personal friend. Indeed, he is the godfather to my stepson. It is, if I may say so without offence to the right reverend Prelate, as a godstepbrother that I welcome his full participation in the proceedings of your Lordships' House. We look forward to many speeches of the eloquence that he has given us today.

The noble Lord addressed himself to some of the problems of our social and economic policies, and the taxation policy in particular. That was taken up by the noble Lord, Lord Boyd-Carpenter, and other noble Lords, who emphasised that we should not create disincentives for those managers whom we desperately need—and we all agree that we desperately need—to run the economy of the future. I have to remind the noble Lord, Lord Boyd-Carpenter—because I always try to deal in the facts—that if one looks at taxes as a proportion of the gross national product the figures are as follows. From 1960 to 1975 the average was 31.3. In 1979 the average was 32.4. In 1985 the average was 36.3. We are therefore more heavily taxed as a proportion of the gross national product—the noble Lord frowns but I am quoting from the national accounts—than we were in the period 1960 to 1975 and in 1979. One can argue about the distribution of that tax, and whether it is more properly in indirect tax or direct tax. However, I think that the total burden of taxation is proved to be up rather than down. That is the first fact that I wish to establish.

The noble Lord, Lord Young of Graffham, also addressed himself to these problems He gave, as I think the noble Baroness, Lady Seear, pointed out, his usual glowing account of the economic state of the nation. I am not one of those people who believes that the noble Lord has no heart. I am not one of those people who believes that where a heart should beat there is nothing but a black stone—a grey stone perhaps, but not a black stone. Since we are approaching the season of good will I shall go even further than that and congratulate the noble Lord—and I mean this sincerely—on the Restart scheme which I believe has been, and I hope will continue to be, a programme of good sense, imagination and humanity. Anybody who is serious in wishing a reduction in long-term unemployment must welcome that.

By now I have probably exhausted my stock of good will. I shall turn to some of the serious points that the noble Lord made in his speech, and indeed to some of the other points that other noble Lords have made. The noble Lord raised a lot of "Aunt Sallys". It was, as the noble Baroness, Lady Seear, said, a slightly politically orientated speech. It is an obvious and old-fashioned political trick to raise Aunt Sallys and knock them down. Among other things I happen to be an adviser to my right honourable friend Mr. Roy Hattersley, the Shadow Chancellor. I can assure him that nothing that the noble Lord, Lord Young, has said about our policy bears the faintest resemblance to what we are trying to do, except in one important measure. We believe, as my noble friend Lady Turner pointed out, that government have to take much more direct action in trying to make the conversion from an oil-based economy, or a relatively oil-supported economy, to the manufacturing-based economy that I think all noble Lords this afternoon have asked for, with the exception that the noble Baroness pointed out.

However, I must reply to the noble Lord in putting the economic performance of the United Kingdom in some kind of long-run perspective. I have criticised the noble Lord before for the selectivity of his statistics. I have no doubt that I shall criticise him again for the selectivity of his statistics. But there is one statistic that nobody can deny: the arrival in power of the Conservative Party in May 1979. That is undoubted. It is in the perspective of the seven and a half years since then that I wish to place both the successes and the failures. Equally I think it right, following the noble Lord, to put those successes and failures into international perspective. It was after all the Prime Minister herself who used to urge us to look at international comparisons when we complained about the dramatic rise in unemployment in the early years of her administration. What was sauce for Mother Goose then is sauce for Master Gander now.

Clearly the greatest success has been in inflation—one must accept this—where we have performed only slightly worse than the OECD average. In the first half of 1979 our inflation was 8.1 per cent. against an OECD average of 8.4 per cent. In September 1986 our inflation rate was 3 per cent. compared with the OECD average of 2.4 per cent.—a very reasonable performance, but not all that much better than reasonable.

On growth we have done somewhat less well. Since 1979 the figure is 1.5 per cent. per annum compared with the OECD average of 2.2 per cent. The noble Lord wants the OECD figures. I am quoting figures published by OECD. Investment performance has been slightly weaker. with a 1 per cent. per annum increase against the OECD average of 1.7 per cent. In import penetration we have done, as I think the noble Lord, Lord Ezra, pointed out, rather worse than the generality of OECD countries. All in all the picture is a reasonable one, but not one to get very ecstatic about.

Lord Young of Graffham

My Lords, may I congratulate the noble Lord who has succeeded in being even more selective than I was in his choice of statistics.

Lord Williams of Elvel

My Lords, I am very grateful to the noble Lord. I like to rely on internationally published statistics. I do not like to select which countries I choose, or which economies, or which numbers or which years. I have stuck very strictly to 1979 to 1985, and I have used the OECD statistics. If the noble Lord is criticising the OECD statistics I can only say that he must address himself to the Treasury because they supply the statistics to the OECD.

The unhappiness that some of us have about this picture pales into insignificance when we look at the unemployment comparison, because in 1979 the average OECD unemployment rate was 5 per cent. compared with 5.1 per cent. in the UK; in May 1986, which is the last month for which figures on the standardised cross-country basis are available, the OECD average was 8.1 per cent., and the UK was at 13.3 per cent. That is the dimension of the problem; that is the record set out in black and white.

Let me remind your Lordships that that record is against the background of the receipt by government since 1979 of, in my view—and here I quarrel with my noble friend Lord Dean of Beswick on the figures—no less than £65 billion from North Sea revenues. There was nothing before 1979, but there has been £65 billion since: £1,150 for every man, woman and child in the country.

Lord Dean of Beswick

My Lords, I stand to be corrected by my colleague on the Front Bench, but my figures were supplied in a Written Answer by the Government.

Lord Williams of Elvel

My Lords, I am most grateful to my noble friend. It makes me even more suspicious of some of the Government's statistics that are produced. However, all that is in the past. Noble Lords will ask me what will happen in the future. The gracious Speech gives us very little clue. It says, "firm monetary and fiscal policies". I think the noble Lord, Lord Harris of High Cross, dealt with that. He reduced the expression, "firm monetary and fiscal policies" to the expression "Mr. Lawson's judgment", and I certainly would not quarrel with that. Indeed, the Autumn Statement passes over it, saying that for the past six years high rates of growth of broad money have been "consistent with appropriately tight monetary conditions". In other words, you can write the script in whatever way you want.

Does the expression "firm fiscal policies" mean no tax cuts? Does it mean that the receipts from VAT due to a consumer boom, which, as the noble Lord, Lord Vinson, said, is financed by consumer credit and which is running right out hand, will be so strong that income tax reductions are on the agenda? Is that what is meant by "firm fiscal policies"?

I turn to the phrase "firm control of public expenditure". The noble Viscount the Leader of the House knows much more about the public expenditure programme of the Government than I do, but I simply note that there is a £7 billion rise in the planning total for 1987–88, £5½ billion of which is due to failure to control current expenditure. One noble Lord pointed out that local authority expenditure had run above estimates.

All we have to go on about unemployment is a little sentence in the Chancellor's Autumn Statement in which he said: the prospects for some fall in unemployment are nom, more promising. But this promise could still be frustrated by excessive pay settlements". That is thin gruel indeed. There was a time when the Conservative Party had a stronger message. Indeed I am bound to say, as I quote it, that it is a message with which I tend to agree.

Mrs. Margaret Thatcher, speaking to an election rally in Birmingham on 19th April 1979, when unemployment was round about 1.5 million (we shall not argue, I hope, about the statistics), told us quite clearly how a Conservative Government would reduce unemployment: We are going to do it by creating the conditions for real jobs, so that once again the products stream from our factories and workshops while the customers of the world scramble over each other to buy them". I notice somewhat irreverent laughter from the Benches behind me. I happen, in fact, to agree with the sentiments that the Prime Minister was then expressing. The problem is that the performance has been lamentable. She was dealing with an unemployment figure of 1.5 million; and here we are hearing what I gather is the same message, when the unemployment figure, on any calculation, is above 3 million. I hope that the noble Lord will at least agree with the figure of above 3 million.

The Prime Minister referred to "real jobs" not to 360,000 on the youth training scheme or 5,000-odd a month in the community programme, which are today's figures. She referred to "products from our factories and workshops"; in other words, manufacturing industry. She spoke about the customers of the world who were scrambling over themselves to buy our products; not the salesmen of the world scrambling over themselves to sell their products to us.

There is a clear political divide between this side of the House and that side of the House, and we have to recognise this. But although I believe that Mrs. Thatcher's prescription was right, I do not believe that the way the Government are setting about fulfilling that prescription is right. We need—and this is what my party feels and is what I believe I sense from the Alliance Benches—much more direct intervention by government in all spheres. The noble Lord, Lord Ezra, called it a coherent policy, to make sure that the transition to an economy which was not dependent on oil, to a manufacturing based economy, was achieved satisfactorily.

I noticed that the noble Lord, Lord Aldington, adopted a slightly different line from the line he adopted when he was presenting his report. If I may say so with the greatest respect, and I stand ready to be corrected, I think he was intent on making sure that there was not too much support from these Benches for his conclusions because he felt himself—and I think rightly—rather exposed when the report came out and, frankly, it was rubbished by the Government before they had even had a chance to read it.

However, I think that the conclusions of the Aldington Committee—if I may refer to it as such to your Lordships—stand by themselves as such and have not been seriously challenged. The noble Lord, Lord Butterworth, gave us examples of the way universities co-operate with industry in the United States; the noble Lord, Lord Mellish, told us about Dorset and the experiments. All these things have to come together and have to be promoted by government in order to promote the sort of change, and the revival of manufacturing industry, that most of your Lordships this afternoon have wished to see.

Our amendment does not talk only about, adequate measures to deal with the present high level of unemployment". it also talks about, the problems created by it". Economic policy is not an end in itself. It is no good getting the money supply right, or growth in the gross national product; it is part of the social environment. If we can get economic policy right and social policy right—and I think that the noble Lord, Lord Vinson, made this point—we shall have more money to spend on the desirable social amenities for which we all wish.

The true tragedy of unemployment is economic, social, and psychological. It is economic in the sense that the money spent on paying unemployment and social security benefits—and the noble Lord, Lord Boyd-Carpenter, made this point—would much better be spent on something else.

Lord Boyd-Carpenter

My Lords, would the noble Lord allow me? I made the point in response to the extraordinary statement of his noble friend Lord Bruce of Donington—which I hope the noble Lord, Lord Williams, will deal with—that the Government liked to have 3 million unemployed and wanted to continue that situation.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord. I have no insight into the mind of the Government. I am simply taking the noble Lord, Lord Boyd-Carpenter, at his word when he said early on in this debate that he would like to see those revenues at present used to pay the dole, if I may use an old-fashioned expression, used for more desirable social purposes. It is a terrible waste of the money we receive from North Sea oil production that most of it has gone to pay—and I use the expression again—the dole. The problem is social in that the impact of unemployment is different between different groups and different regions, as the noble Baroness, Lady Seear, and my noble friend Lady Turner of Camden, pointed out.

I was impressed with the contribution of the noble Lord who is now on the Woolsack, Lord Alport, when he talked about Merseyside. That was an interesting and significant contribution to the problems that we face when dealing with the effects of unemployment. The signs of this tragedy are all around us. Without trespassing on the province of yesterday's debate, do we really need His Royal Highness the Prince of Wales to remind us that our inner cities are festering? Does it need Her Royal Highness the Princess Anne to tell us, when speaking as patron of the Butler Trust—a trust set up in memory of Rab Butler, who was a great one-nation Conservative—that conditions in many of Britain's prisons make it well nigh impossible for even the most determined and dedicated prison officers to achieve any form of genuine rehabilitation? Do we need reminding yet again that the National Health Service is consistently underfunded, and that our education system lacks books, teaching aids, proper premises, let alone properly paid teachers?

Lastly, was not my noble and learned friend Lord Elwyn-Jones right when he referred yesterday to the link between unemployment, especially youth unemployment, and civil disorder, quoting in support, as he did, not only President Johnson and the noble and learned Lord, Lord Scarman, but no less an authority than the noble Viscount the Leader of the House himself?

The problem of unemployment is also alienating different regions of our country from one another. The gap between rich and poor areas has widened since 1979, as the regional gross domestic product figures show. The South-East has forged ahead while the North and Midlands have dropped behind. In a report by the European Commission, the Second Periodic Report, it was shown how badly our regions are faring compared with the rest of Europe. More than one-third of the poorer regions of Europe are to be found in the United Kingdom.

I cannot speak for Scotland, but it comes as no surprise at all to learn that 13 per cent. of Scots, only one in eight, are in favour of the present relationship with the United Kingdom. It would appear that the consensus that the noble Lord, Lord Home of the Hirsel—who I am glad to see in his place—said in 1979 was essential for a successful devolution of political authority to Scotland, is there. The time has come perhaps finally to have the Speaker's Conference, to which the noble Lord said in 1979 that the Conservative Party was pledged.

I am very sorry that my noble friend Lord Blease was not here to speak on the problem of Northern Ireland because it is clearly a region of the United Kingdom where unemployment and the effects of unemployment are dramatic.

We have come nearly to the end of our debate We have to consider the contents of the gracious Speech in the round. We have to try to assess the message that the Government are sending to Parliament and to the country. I should be less than frank if I did not say that I find that message deeply disappointing. What is the message to the people of this country? What do I say to my neighbours in mid-Wales who tell me that their children are coming out of the youth training scheme and finding that there are 40 applicants for every job on offer? Am I to tell them not to despair because, Measures will be proposed to reform the administration of marine pilotage", and that the conservation and management of the Norfolk and Suffolk Broads will be facilitated? Is that really all the Government have to say to them?

When I was living in Paris, some 20 years ago, towards the end of the réegime of President de Gaulle, the newspaper Le Monde came out one day with one single banner headline: La France est morose"— France is morose. I believe today that Britain is morose, I, my noble friends and, I believe, the country, were looking for a message in the gracious Speech which was a message of hope; a message that the Government will be looking beyond the narrow electoral horizon to a vision of the future which accepted as a fundamental belief that it was the responsibity of government not to stand back and let things happen, but actively to intervene and care for those of Her Majesty's subjects who are disadvantaged, whether through unemployment, poverty, old age, sickness or our own racial prejudice. That message has not come. I have to say to the noble Viscount who is to follow me, and whom we all admire and respect, that unless he and his Government can deliver such a message of hope and vision, they will go down in defeat in the next election, and they will deserve to.

9.25 p.m.

Viscount Whitelaw

My Lords, over the three days of this debate, it has been clear that we begin this Session in the spirit in which I hope and expect we shall go on: one of constructive and courteous exchange of the differing views prevailing in your Lordships' House. I am bound to say that I have time tonight to reply to some very thoughtful speeches on the general subject of employment and economic affairs. That I will do. I should dearly like to take on the noble Lord, Lord Williams, on the broader matters of hope and political matters of a much more general nature. That is perhaps rather more to my taste, so he is fortunate that tonight I am kept firmly in the economic straitjacket, where I shall remain.

If I may say so, the debate started with a significant contribution from my noble friend Lord Young of Graffham. Many of your Lordships who have spoken do so from positions of great authority and experience. As always, there are some whose views do not accord with my own or with those of the Government. That is inevitable in the nature of political debate. I hope to be able to deal with many of the points that have been raised. I trust, however, that I shall be forgiven if I fail through lack of time to deal with them all, although I think I have heard all, or at least some part, of every speech that has been made in the debate. I will, of course, write in answer to any noble Lord where that may prove to be necessary.

First, I should like to join in a spirit of comradeship—if that is the right word—with the noble Lord, Lord Bruce of Donington. I should like to associate this side of the House with the regret at the death of the noble Lord, Lord Kaldor. I hope that that expression can be communicated to his relations and, indeed, to noble Lords opposite.

I turn from that to something rather more controversial. The problem of unemployment, about which we on this side of the House also care passionately, cannot be regarded in isolation from the rest of our economic position or from the world situation generally. The noble Baroness, Lady Seear, was generous when she said that of course she knew that the Government cared about this very serious problem affecting our country, and I am grateful to her. I have to say to the noble Lord, Lord Williams, that he was somewhat less than generous. To say that he does not know what is in the heads or minds of the Government could only lead me to the conclusion, having indeed had to deal with him when I was in another place, that the noble Lord has had too long an association with Mr. Hattersley.

We have said repeatedly that there are no instant or easy solutions. As my noble friend Lord Boyd-Carpenter has said, if there were, does anyone doubt that they would have been seized upon here and in many other countries where the problems are very much the same? Again, my noble friend made very clear, my goodness! what the Government could do with the money which they would have if they only did not have to pay it out in unemployment benefits. Some people have referred to my period of time—I might say almost of imprisonment—in the "Star Chamber", as it is called, this year. I can only say that if we had been able to look at the figures without the amount of unemployment benefits that we had to pay, a very different situation would have been seen. So let no one suggest that on grounds of politics, on grounds of the economy, on grounds of feeling for people and everything else, this Government do not care about unemployment. Of course, they do. And the plain fact is that unemployment is not a problem confined to one country. To tackle it we must get the general economic and industrial climate right, as the noble and learned Lord, Lord Simon of Glaisdale, very fairly said. That is what our policies are designed to do.

I shall return shortly to the particular points made by the noble Lords, Lord Bruce of Donington and Lord Diamond, both in their speeches and in the Motions in their names. But before I do so, I should like to answer some of the other points which noble Lords have made in the debate. I start, of course, with the very distinguished maiden speech made by my noble friend Lord Derwent. It has been widely praised throughout your Lordships' House—so widely praised that any further words from me are hardly necessary. He has also been reminded of the great affection in which his father was held in this House. I can only say that, if there are any hereditary Peers who might with profit be downgraded, he is certainly not one of them. I am sure we are delighted to have him in this House and shall look forward to his contributions in the future. Nor do I imagine, from the way he spoke and the way he marshalled his thoughts, that he would ever be a candidate for that immediate demotion from my noble friend the Chief Whip, about which he also spoke. I hope very much that we shall hear him a great deal, and I should like to thank him for a most outstanding contribution to the debate today.

I should now like to turn to one particular point, rather away from many of the others. That concerns the whole problem of manufacturing industry and the position of the Select Committee that was set up to look into overseas trade. Of course it also concerns the speeches of my noble friends, Lord Aldington and Lord Watkinson, the noble Lords, Lord Ezra and Lord Hatch of Lusby, and indeed the noble Lord, Lord Vinson, who, in a most important speech, came into the same area.

Much has been said about the work of the Select Committee on Overseas Trade. Sometimes it is thought or suggested that the Government were in some way unhappy about this Select Committee; that they did not want it or did not like what it said, and the rest. I can only say that, as the House knows, I was responsible in the first instance for setting it up. I took counsel with the House and decided that it would be a good Select Committee to have. I am not in the habit of doing something which I then subsequently regret. If I do regret it, I never admit it! And I certainly did not regret it on this particular occasion: in no way, my Lords.

In the response that I shall give to what was said by my noble friend Lord Aldington today I think it is fair to say, as the Government made clear at the time of the report, that many of the committee's recommendations were in fact accepted by the Government. Yes, there were others where my right honourable friends disagreed with some of the committee's recommendations. I think it was felt that in some ways the committee was somewhat too gloomy. But, on the other hand, there is something of great importance which came out of it, which is that the importance and significance of manufacturing industry to our whole economy today was very firmly underlined by that Select Committee. They gave that message to this country, and I believe that all of us in this House are considerably in their debt for the job which they did on that occasion. I should like to thank them all for what indeed happened.

I agreed very much with many of the things that my noble friend Lord Aldington said today about the need for competitiveness in our manufacturing industry. He also made the point that the Government should set out an explanation of their manufacturing strategy, and I shall certainly pass on that important suggestion to my right honourable friends who are concerned and point out to them the support that certainly received in your Lordships' House. I also think that what he said about the need for investment and innovation was very important. I should like to thank him not only for his chairmanship but for what he has said today.

The noble Lord, Lord Ezra, made the point about the balance of payments moving into deficit with the ending of the oil revenues and the reduction of the oil revenues. He referred to the need to follow some of the recommendations of the Select Committee. And again I think I can say that the Government, while not accepting them all and finding some of the comments too gloomy, nevertheless accept many others.

I thought that the noble Lord, Lord Hatch of Lusby, was rather like the curate's egg in his attitude to the whole thing. At one moment he was full of praise; he was very keen on no political feelings—there must be no political feelings between us. But then there were other moments when I noticed that the political feelings did just come a little bit into the matter. There was, for example, reference to a shortage of skilled labour, with no recognition of the great efforts that have been made by the Government in industrial training, of the considerable schemes sponsored by my noble friend Lord Young of Graffham and of what has been done for training in this country. Nothing was said about that.

However, on a more friendly note I could not agree with him more about the need to make sure that throughout our education system—and other noble Lords have come back on to this point—we should pay more attention to technology. Having been educated —I hasten to add not in the classics, because nobody would expect that—at a school which specialised in the classics, I hope that today it is paying more attention to technology. I am sure that is right.

I think also that, where the noble Lord was somewhat critical of management-shop floor relations, industrial relations, he was a little bit unfair—rather more than a little bit. Considerable improvement, as many noble Lords have said in this debate, has been shown in our industrial relations.

Here I come to my noble friend Lord Watkinson. After all, he is somebody who should know about improvements in industrial relations, because, if I remember rightly, he was one of my predecessors as Parliamentary Secretary at the old Ministry of Labour. He was there even before I was there and that was long enough ago. He and I have considerable experience of this matter behind us. I feel that amazing progress has been made in our industrial relations and in human relations on the shop floor, as the noble Lord, Lord Wolfson, also stressed to us. Therefore, while he certainly was right in saying that we should all get together in promoting our manufacturing industry, I hope that getting together means that I shall move to him and he will move to me, but he seemed to be moving a little bit away from me from time to time.

I doubt whether at this stage it would be wise to set up another Select Committee. I rather think that the Select Committee set out a great many things which a lot of other people in the country ought now to he doing, and it is up to them—to management generally throughout the country—to learn some of the lessons put forward by the Select Committee and to apply them in practice. That is what I hope will be done. I should equally like to stress what my noble friend Lord Watkinson said about our competitive power in export markets, of which he has considerable experience, which I am sure is crucial.

The noble Lord, Lord Vinson, raised the question of personal credit control and the danger of high interest rates. I thought that he made a most important contribution and I shall be only too pleased to point it out to my right honourable friend the Chancellor of the Exchequer as I think there is a great deal in it and it is extremely valuable for all of us to consider it carefully.

If I may turn from the Select Committee to some of the other points that were raised, the noble Lord, Lord Harris of High Cross, praised the Government for the steady course which they had been able to pursue with the two of my right honourable friends as Chancellors of the Exchequer through a great many difficult occasions; and it is sometimes forgotten what difficult occasions they were. I was interested to hear the noble Lord praising some things that were said by the ILO. It is a very long time ago since I was sent to the ILO, but when I was there I should have found it remarkable if the noble Lord, of all people, was loud in its praise, as he appeared to be at some stages today. However, it gave valuable information for him on this occasion.

I accept what the noble Lord said, that the need for the steady course to continue is very important; and he was quite right to say that the Government are on trial. I think that my right honourable friends concerned would accept that point of view. He stressed, as indeed did my noble friend Lord Boyd-Carpenter, the whole problem of central and local government expenditure. I am bound to say again, if I may quote from experience in looking at public expenditure in the Star Chamber, that there is nothing more difficult than seeking to deal with expenditure of this size and this quantity which, in any event, is largely out of the control of central government. That makes it an extremely difficult matter to handle. I believe it is inevitable as a result that a new and simpler system of financing local government should be introduced. It is to be introduced in Scotland, of course, in a Bill this year. I believe that that will be a much better way of making sure that this expenditure, which is so vital in the whole of the nation's finances and in its public expenditure, is more clearly under some form of control.

As to the speech of the noble Lord, Lord Soper, I certainly respect his sincerity; but that, I am bound to say, is so far as I can go because I totally disagree with him in everything that he said.

The noble Lord, Lord Alport, made an important speech from his researches into Liverpool and Merseyside. I accept that this is a very great problem for the country and for the Government. If I may say so to the noble Lord, I rather wish that he had not introduced the question of fiddling with figures at the same time because it makes it more difficult for me. But I shall overcome that and say yes I think that we should pay great attention to some of the things that he said.

At the same time, I must point out to him that, when it comes to a question of civic pride and the need for a civic authority in Liverpool, I believe that the Government have a responsibility, one which we do not shirk. But I think that all those concerned with Liverpool in the civic sense also have a major responsibility. Until that council and that area can produce some cohesion and some determination on behalf of its citizens, and perhaps shed some of its more unhappy practices, I believe that it will never be possible to get the improvements in Liverpool that are so greatly needed.

The noble Earl, Lord Ferrers, as chairman of the Agricultural Export Council, has considerable experience in this field. He made some important points about the need for greater help from merchant banks and banks for tangible support for our exporters. I am grateful to him for making them.

The noble Lord, Lord Dean of Beswick, made a speech which, if I may say so to him, had two parts, one of which I somewhat agreed with and the other of which he will expect me to have disagreed with. Regarding the part on which I agree with him, he was a Member in another place for the north of England; so—as may sometimes be forgotten by some of the people who express this—was I for nearly 30 years. Therefore, when people try to lecture me about the north of England, I tend to get a trifle irritable, but I try not to show it. The noble Lord did not lecture me in any way. He came in to the cooking of the books country at one moment and made some other party political points, which he is perfectly entitled to make, but he would not expect me to reply to them.

On the other hand, I agree with him that it is very important that we pursue a regional policy—and we do, actually. I should remind the noble Lord and a good many other noble Lords who have spoken that our policy of regional aid amounts to some £465 million a year which, after all, in terms of a regional diversion of resources, is fairly considerable.

It is on that basis that I turn to the noble and learned Lord, Lord Simon of Glaisdale. His considerable knowledge of Treasury matters led him to ask me a number of important and detailed questions. I hope that he will excuse me. I have all the answers written down in front of me. Some of them I understand and some of them I do not. I think therefore that it would be much wiser if I were to write to the noble Lord. When I have read what I have written, I hope that I shall understand it, and I hope that it will benefit him the better.

On the noble Lord's remark about regional policy in Teesside—which was the main point of his speech—I agree with him very much. I hope that he will take account of what I was saying in regard to regional aid.

The noble Baroness, Lady Turner of Camden, spoke of her experience in the trade union field. If I may humbly say so to her, it is of great value that someone with such experience in trade unions should enter the debate. She raised the question of the availability for employment rules and suggested that there was a fear that they might be in some way intimidatory. I may be wrong but I seem to remember—again in the dim, distant past, when I was Parliamentary Secretary to the then Ministry of Labour between 1962 and 1964—that those who were unemployed had to register very much more frequently than they do today and that the rules of availability were a great deal stricter. I never noticed then, or subsequently when the party opposite operated those rules, anyone suggesting they were intimidatory. I do not think they are in any way now, but it is important that the availability rules, which have operated all the time so far as unemployment is concerned, should be properly looked at and enforced in view of the sums of money involved.

My noble friend Lord Wolfson welcomed much in the Government's policies. He welcomed the figures of investment, he welcomed the improvements in human relations in industry to which I have already referred, and he then made a comment concerning Glasgow having secured the designation of the Council of Ministers as European City of Culture for 1990. I agree with my noble friend who said that his father who came from Glasgow would never have believed that that was likely to happen. I myself lived 10 miles from Glasgow for seven years of my life and nor would I have believed it, but I am delighted to think that it has happened at this time. I am sure the noble Lord, Lord Ross of Kilmarnock, also thinks this is good. There has been a remarkable regeneration of the city of Glasgow. That is not to the credit of any one government or group of politicians; it is an important point to make to those who are speaking of other cities in our country. I think that Glasgow's contribution has been considerable.

The noble Lord, Lord Mellish, again referred to the question of the North. I again answer with the point I made regarding £465 million of regional aid. The noble Lord then gave the example of the success of London docklands and indeed the considerable success in Dorset. Those successes are important and they show again that when people get together such successes can be achieved. My noble friend Lord Butterworth spoke about higher education and the importance of higher education and industry coming closer together. He gave the example of the teaching company scheme in which academics work in industry. I think that is a very important point. He made valuable suggestions about the need for the intellectual property which is found in universities to be used in industry to greater effect. We shall take notice of the views he expressed.

My noble friend Lord Bauer pointed out the value of the reduction in inflation, and I am also grateful to him for other remarks which he made. My noble friend Lady Carnegy of Lour referred to the need for change in education and made an important point about the budget of schools being handed on to the schools themselves. I shall certainly pass that comment on to my right honourable friend the Secretary of State for Education.

Lastly, the noble Lord, Lord Elibank, referred to the problems of employment and the oil price fall, particularly in Scotland. I should point out to him that the Chancellor of the Exchequer announced in the Autumn Statement that repayments of advance petroleum revenue tax were to be made and that a Bill would be introduced to that effect.

The noble Baroness, Lady Seear, to whom I have already referred, also mentioned education and stressed how important it was. She has considerable knowledge of that subject and great expertise. I am grateful to her for what she has said.

I turn in conclusion to the points made by the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Diamond, the one concentrating on unemployment and the other on manufacturing industry. I think the two matters have to be looked at together. No sensible person would advocate measures to tackle unemployment without considering their impact on industry generally, including manufacturing industry. The Government would be the first to admit that many firms have recently been through a hard time as recession deepens. Overmanning in particular has taught this country some very stern lessons which I believe we shall take on board for the future. I was glad to notice that the noble Lord, Lord Diamond, recognised the value of service industries, which are incidentally greatly encouraged by this Government.

The noble Lord also praised the work of the City and of our financial services generally, which I think are extremely important for our invisible exports and also for the success of our country. There are those who seek to run down the City. Certainly there are troubles which have to be sorted out (and I believe that this House did a great deal to sort them out through the Financial Services Act) yet we have to ensure that this part of our economy flourishes and flourishes properly.

It is here that I should like a little help from the noble Lord, Lord Diamond. I wonder whether he will take the noble Lord, Lord Bruce of Donington, on one side. If he took him on one side he might tell him that the City is a valuable place, is doing rather well in many ways, contributes greatly to our economy and is not, as the noble Lord, Lord Bruce of Donington, said—and I took down his words—a collection of "Young's yuppies". I do not think that they could properly be described as such even if I knew what they were. I discovered what they were the other day when someone described as "young yuppies" three of my newly appointed colleagues on the Front Bench who I greatly value and who I think the House will find are a great success. I asked the Chief Whip what on earth that meant. He was able to tell me, as always. So I do not think it is fair that the noble Lord should refer to the City in those terms, and I hope that he will recognise that fact.

Then we come to the Motion in the name of the noble Lord, Lord Bruce of Donington. This too is a little difficult to reconcile with the facts as they are. He seemed to charge the Government with inaction. There cannot be a better riposte than the highly effective speech made by my noble friend Lord Young of Graffham, who described a whole raft of measures to train young people, to give them work experience and to help the long-term unemployed find jobs. I do not believe, as many noble Lords have said during the debate, that these measures are worthy of condemnation.

I am grateful that the noble Lord, Lord Williams, should have complimented my noble friend on the Restart programme. Sometimes when I hear comments from noble Lords opposite about YTS, the community programme and the Restart programme, I wonder whether they really want them. I believe that they are very valuable, that they do a great deal to prepare people for work and to alleviate the despair and apathy that unemployment brings. They are concrete evidence of a compassionate response to unemployment on behalf of the Government, and I hope that they will be recognised as such.

The other element of our response is building the right environment for the creation of jobs. Here I should like to deal for a moment with the statistics. The noble Lord, Lord Bruce, is an accountant. My own reputation for facility with numbers, as your Lordships may know, is not of the highest. I do not think that it is as high as it probably deserves to be, but I am not sure. On the other hand, I was somewhat startled out of a rather peaceful reverie when I heard the noble Lord, Lord Bruce of Donington, say in a firm voice that numbers are not the same as figures. All right, if that is the case. One has to recognise these statements when they come. There we are, very good. But I think we might just look at whether they are numbers or figures. One million new jobs have been created since the 1983 general election. The party to which the noble Lord, Lord Bruce, belongs promises to reduce unemployment by 1 million. Even I can appreciate that to fulfil that promise would require the creation of at least 1 million more jobs in addition to the 1 million that have been created. I for one remain to be convinced that that would be achievable either on the timescale or, indeed, with the policies proposed by noble Lords opposite.

I noticed that the noble Baroness, Lady Seear, referred to a "modest" increase in expenditure. I do not think that modest increase would achieve such a result. I do not think that she suggested it. The noble Lord, Lord Williams, was more expansive, again, I suspect, under the influence of the right honourable gentleman Mr. Hatterslev. He said "much more". So we have the slight division of "much more" and "modest". Well it is all very interesting, but I do not think it would work on the standard that has been put forward. I believe that it would again put us at risk of having to call in the IMF. Indeed, as my noble friend Lord Watkinson so wisely stated, it would put at risk many of the improvements of recent years. I believe that would be a disaster.

On the basis of what I and my noble friends have said to the House, I should have thought that the Government have a very effective answer to both amendments of the noble Lords. I trust that the House will express its view on them accordingly and reject them out of hand.

Lord Bruce of Donington

My Lords, I should like to add my own tribute to the noble Lord, Lord Derwent, not only for the elegance of his speech and his diction but also for what I, at any rate, regard as welcome—a cutting edge to what he said, all of which makes for good debate. I personally hope that he will take part in many of our debates.

In replying to the noble Viscount, Lord Whitelaw, he has such an emollient and pleasant manner that time almost stands still. He is always very disarming. He might almost have been, in another context altogether, a political bomb disposal officer; because he always treats these matters with a great deal of urbanity.

I have only two comments to offer. The first is to the noble Lord, Lord Aldington. I observed this evening that he has apparently forgiven the Marxist denunciations that were hurled at him at one time, when the first copy of his report was released. I observe that his confidence in Her Majesty's Government is now so great that he wishes to know from them what, after seven years, their industrial strategy now really is.

In so far as this amendment is concerned, I want to add this. I have in front of me copies of every Queen's Speech that has been made since this Government took office. They make rather depressing reading. Listening to the noble Lord today one would imagine that seven years had not passed at all. But seven long years have passed and for the last three years—for the last three Queen's Speeches—unemployment in the United Kingdom has been running at or around 3 million under the new calculations and possibly 3.5 million on the old basis. Unemployment at this level and for so long, and after all the intitial promises made by this Government, is not acceptable. As the Prime Minister herself said in an interview with the Financial Times today, people must be intended to presume the consequences of their own actions. That is the position of the Government in regard to the 3 million unemployed.

9.59 p.m.

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

Their Lordships divided: Contents, 85; Not-Contents, 133.

DIVISION NO. 1
CONTENTS
Airedale, L.	Cledwyn of Penrhos, L.
Banks, L.	David, B.
Barnett, L.	Dean of Beswick, L.
Beswick, L.	Dean of Beswick L.
Birk, B.	Diamond, L.
Bottomley, L.	Elwyn-Jones, L.
Brockway, L.	Ennals, L.
Bruce of Donington, L.	Ewart-Biggs, B.
Carmichael of Kelvingrove, L.	Ezra, L.

Falkender, B.	Pitt of Hampstead, L.
Foot, L.	Ponsonby of Shulbrede, L. [Teller.]
Gallacher, L.
Galpern, L.	Prys-Davies, L.
Glenamara, L.	Robson of Kiddington, B.
Graham of Edmonton, L. [Teller.]	Rochester, L.
	Ross of Marnock, L.
Grey, E.	Seear, B.
Grimond, L.	Sefton of Garston, L.
Hampton, L.	Shackleton, L.
Hanworth, V.	Shepherd, L.
Harris of Greenwich, L.	Silkin of Dulwich, L.
Hatch of Lusby, L.	Simon, V.
Hirshfield, L.	Stallard, L.
Houghton of Sowerby, L.	Stedman, B.
Jenkins of Putney, L.	Stewart of Fulham, L.
John-Mackie, L.	Stoddart of Swindon, L.
Kennet, L.	Taylor of Blackburn, L.
Kilmarnock, L.	Taylor of Gryfe, L.
Kirkhill, L.	Tordoff, L.
Llewelyn-Davies of Hastoe, B.	Turner of Camden, B.
Lockwood, B.	Underhill, L.
Mclntosh of Haringey, L.	Vernon, L.
Mackie of Benshie, L.	Walston, L.
McNair, L.	Wedderburn of Charlton, L.
Mar, C.	Whaddon, L.
Mayhew, L.	White, B.
Mellish, L.	Wigoder, L.
Monkswell, L.	Williams of Elvel, L.
Morton of Shuna, L.	Wilson of Rievaulx, L.
Mulley, L.	Winchilsea and Nottingham, E.
Nicol, B.
Ogmore, L.	Winstanley, L.
Oram, L.	Young of Darlington, L.
Perry of Walton, L.	Ypres, E.

NOT-CONTENTS
Abercorn, D.	Glanusk, L.
Abinger, L.	Glenarthur. L.
Aldington, L.	Gray. L.
Arran, E.	Gray of Contin, L.
Barber, L.	Greenway, L.
Bauer, L.	Gridley, L.
Beaverbrook, L.	Grimston of Westbury, L.
Belhaven and Stenton, L.	Grimthorpe, L.
Beloff, L.	Hailsham of Saint Marylebone, L.
Belstead. L.
Bessborough, E.	Hardinge of Penshurst, L.
Boardman, L.	Harmar-Nicholls, L.
Boyd-Carpenter, L.	Harris of High Cross, L.
Brabazon of Tara, L.	Harvington, L.
Brougham and Vaux, L.	Hemphill, L.
Bruce-Gardyne, L.	Hesketh, L.
Butterworth, L.	Hives, L.
Caithness, E.	Holderness, L.
Cameron of Lochbroom, L.	Home of the Hirsel, L.
Campbell of Alloway, L.	Hood, V.
Campbell of Croy, L.	Hooper, B.
Carnegy of Lour, B.	Hylton-Foster, B.
Carnock, L.	Inglewood, L.
Chelwood, L.	Kaberry of Adel, L.
Coleraine, L.	Kimball, L.
Cork and Orrery, E.	Kinloss, Ly.
Cowley, E.	Kitchener, E.
Craigavon, V.	Lane-Fox, B.
Craigmyle, L.	Lawrence, L.
Craigton, L.	Layton, L.
Crathorne, L.	Long, V.
Davidson, V. [Teller.]	Lucas of Chilworth, L.
Denham, L. [Teller.]	Lurgan, L.
Derwent, L.	McFazdean, L.
Dormer, L.	Macleod of Borve, B.
Dundee, E.	Mancroft, L.
Eccles, V.	Margadale, L.
Elibank, L.	Marley, L.
Elles, B.	Marshall of Leeds, L.
Elliott of Morpeth, L.	Massereene and Ferrard, V.
Faithfull, B.	Merrivale, L.
Fanshawe of Richmond, L.	Mersey, V.
Fortescue, E.	Montagu of Beaulieu. L.

Morris, L.	Simon of Glaisdale, L.
Mowbray and Stourton, L.	Skelmersdale, L.
Moyne, L.	Stodart of Leaston, L.
Munster, E.	Strathclyde, L.
Murton of Lindisfarne, L.	Suffield, L.
Newall, L.	Swinfen, L.
Newcastle, Bp.	Teviot, L.
Pender, L.	Thorneycroft, L.
Penrhyn, L.	Thurlow, L.
Peyton of Yeovil, L.	Tranmire, L.
Portland, D.	Trefgarne, L.
Rankeillour, L.	Trenchard, V.
Reay, L.	Trumpington, B.
Redesdale, L.	Vaux of Harrowden, L.
Renwick, L.	Vickers, B.
Romney, E.	Vinson, L.
St. John of Bletso, L.	Vivian, L.
Sanderson of Bowden, L.	Ward of Witley, V.
Sandford, L.	Watkinson, V.
Savile, L.	Whitelaw, V.
Selborne, E.	Wise, L.
Selkirk, E.	Wolfson, L.
Shannon, E.	Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.

10.9 p.m.

Lord Diamond

My Lords, I beg to move, as an amendment to the Motion, at the end of the Address to insert: "but whilst recognising the contribution made by services to the economy, regret the lack of adequate provisions to revive the manufacturing base of British industry."

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

Their Lordships divided: Contents, 82, Not-Contents, 126.

DIVISION NO. 2
CONTENTS
Airedale, L.	Kirkhill, L.
Banks, L.	Lawrence, L.
Barnett, L.	Llewelyn-Davies of Hastoe, B.
Beswick. L.	Lockwood, B.
Birk, B.	McIntosh of Haringey, L.
Bottomley, L.	Mackie of Benshie, L.
Brockway, L.	McNair, L.
Bruce of Donington, L.	Mar, C.
Carmichael of Kelvingrove, L.	Mayhew, L.
Cledwyn of Penrhos, L.	Monkswell, L.
David, B.	Morton of Shuna, L.
Dean of Beswick, L.	Mulley, L.
Denington, B.	Nicol, B.
Diamond, L.	Ogmore, L.
Elwyn-Jones, L.	Oram, L.
Ennals, L.	Perry of Walton, L.
Ewart-Biggs, B.	Pitt of Hampstead, L.
Ezra, L.	Ponsonby of Shulbrede, L.
Falkender, B.	Prys-Davies, L.
Foot, L.	Robson of Kiddington, B.
Gallacher, L.	Rochester, L.
Galpern, L.	Ross of Marnock, L.
Graham of Edmonton, L.	Seear, B.
Grey, E.	Sefton of Garston, L.
Grimond, L.	Shackleton, L.
Hampton, L.	Shepherd, L.
Hanworth, V.	Silkin of Dulwich, L.
Harris of Greenwich, L.	Simon, V.
Hatch of Lusby, L.	Stallard, L.
Hirshfield, L.	Stedman, B. [Teller.]
John-Mackie, L.	Stewart of Fulham, L.
Kennet, L.	Stoddart of Swindon, L.
Kilmarnock, L.	Taylor of Blackburn, L.

Taylor of Gryfe, L.	Wigoder, L.
Tordoff, L. [Teller.]	Williams of Elvel, L.
Turner of Camden, B.	Wilson of Rievaulx, L.
Underhill, L.	Winchilsea and Nottingham, E.
Vernon, L.
Walston, L.	Winstanley, L.
Wedderburn of Charlton, L.	Young of Dartington, L.
Whaddon, L.	Ypres, E.
White, B.

NOT-CONTENTS
Abinger, L.	Hylton-Foster, B.
Aldington, L.	Inglewood, L.
Arran, E.	Kaberry of Adel, L.
Barber, L.	Kimball, L.
Bauer, L.	Kinloss, Ly,
Beaverbrook, L.	Kitchener, E.
Belhaven and Stenton, L.	Lane-Fox, B.
Beloff, L.	Layton, L.
Belstead L.	Long, V.
Bessborough, E.	Lucas of Chilworth, L.
Boardman, L.	Lurgan, L.
Boyd-Carpenter, L.	McFadzean, L.
Brabazon of Tara, L.	Macleod of Borve, B.
Brougham and Vaux, L.	Mancroft, L.
Bruce-Gardyne, L.	Margadale, L.
Butterworth, L.	Marley, L.
Caithness, E.	Marshall of Leeds, L.
Cameron of Lochbroom, L.	Merrivale, L.
Campbell of Alloway, L.	Mersey, V.
Campbell of Croy, L.	Morris, L.
Carnegy of Lour, B.	Mowbray and Stourton, L.
Carnock, L.	Moyne, L.
Chelwood, L.	Munster, E.
Coleraine, L.	Murton of Lindisfarne, L.
Cork and Orrery, E.	Newall, L.
Cowley, E.	Newcastle, Bp.
Craigavon, V.	Pender, L.
Craigmyle, L.	Penrhyn, L.
Craigton, L.	Peyton of Yeovil, L.
Crathorne, L.	Portland, D.
Davidson, V. [Teller.]	Rankeillour, L.
Denham, L. [Teller]	Reay, L.
Derwent, L.	Redesdale, L.
Dormer, L.	Renwick, L.
Dundee, E.	Romney, E.
Eccles, V.	St. John of Bletso, L.
Elibank, L.	Sanderson of Bowden, L.
Elles, B.	Sandford, L.
Elliott of Morpeth, L.	Savile, L.
Faithfull, B.	Selborne, E.
Fortescue, E.	Selkirk, E.
Gibson-Watt, L.	Shannon, E.
Gisborough, L.	Simon of Glaisdale, L.
Glanusk, L.	Skelmersdale, L.
Glenarthur, L.	Stodart of Leaston, L.
Gray, L.	Strathclyde, L.
Gray of Contin, L.	Suffield, L.
Greenway, L.	Swinfen, L.
Gridley, L.	Teviot, L.
Grimston of Westbury, L.	Thorneycroft, L.
Grimthorpe, L.	Tranmire, L.
Hailsham of Saint Marylebone, L.	Trefgarne, L.
	Trenchard, V.
Hardinge of Penshurst, L.	Trumpington, B.
Harmar-Nicholls, L.	Vaux of Harrowden, L.
Harris of High Cross, L.	Vickers, B.
Harvington, L.	Vinson, L.
Hemphill, L.	Vivian, L.
Hesketh, L.	Ward of Witley, V.
Hives, L.	Watkinson, V.
Holderness, L.	Whitelaw, V.
Home of the Hirsel, L.	Wolfson, L.
Hood, V.	Young of Graffham, L.
Hooper, B.

Resolved in the negative, and amendment disagreed to accordingly.

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