Manufacturing and Economic Prosperity

HL Deb 11 March 1987 vol 485 cc1054-121

3.5 p.m.

Lord Cledwyn of Penrhos rose to call attention to the importance of manufacturing industry to Britain's economic prosperity; and to move for Papers.

The noble Lord said: My Lords, I start by asking a question that has been in people's minds over many years; namely, what has become of the workshop of the world? With enterprise, drive and genius, Britain invented, produced, and supplied the world with goods of quality and novelty and carried them across the seas in her incomparable merchant fleet.

The Great Exhibition of 1851 was the shop window of an historic achievement. It was something to be proud of, something we can still be proud of. It was of course inevitable that we should lose this pre-eminence as competition gathered momentum. As the last century drew to its close, Britain began to slip behind in the league table of world trade and in the production of coal and steel. We seem to have been on a downward slide ever since, and this has inevitably affected national morale.

We look back upon the immense sacrifices of two great wars and the rightness of our cause, and we see our one-time enemies overtaking us and establishing what seems to be an unassailable lead over us. There is hardly anyone in the House who has not experienced a sense of frustration and dismay at one time or another. What indeed, my Lords, has happened to the workshop of the world?

We could not expect to maintain our lead of 1851. As I have said, there was growing competition. and this was inevitable. But another question is whether we have to he in the doldrums of 1987. As we look back, we recognise that the great decline cannot be put at the door of any one political party. All three parties have governed at one stage or another during the decades when our competitors have grown in strength and efficiency.

While the British Empire was still intact, the decline did not seem so obvious or so serious because we had ready-made markets and cheap sources of raw material. In the late 1940s and early 1950s, we still led the world in many directions—in aviation technology, in electronics and in shipbuilding. And we had the biggest car industry in Europe. It hardly bears thinking about. But, as the decade ended, Japan and West Germany swept ahead of us, and we began to sense that we were losing an important race.

Today, we have reached a most critical position. There are responsible authorities who say that unless we perceive and grasp the opportunities of technology we shall slip so far behind that we can never catch up. The consequences of that would be deplorable and unpredictable. Indeed there are those who go so far as to say that Britain is losing the race for industrial survival. In this debate, we should seek to look reality in the face.

The Government argue that the economic news is now good and that the country's industrial performance under the present management has been successful. I hope that this optimism is justified; it is very much in all our interests that it should be so. I know that we are all glad that the noble Viscount the Leader of the House is to speak in the debate, and we much look forward to hearing what he has to say. He will realise that manufacturing output is still running at 4 per cent. below its 1979 level, and that whereas in September 1981 over 6 million people worked in manufacturing industry the number last June was down to 5 million. The question is, if we do have a boom, whether we now have the manufacturing capacity to take advantage of it.

This leads to another crucial question. We are told frequently in this Chamber, especially by the noble Lord, Lord Young of Graflham—whose absence we fully understand and we are sorry he is not here—that losses in employment in the manufacturing sector can be matched and made up by gains in the service sector. Is this really true? I must say as strongly as I can that, on all the evidence I have read, a job gained in the service industry is not compensation for a job lost in manufacturing industry. Of ciourse, we welcome most warmly the development of service industries and the jobs they provide. Tourism, catering, banking, hairdressing and so on, are of great significance and can be an important source of jobs. But they will not create all the wealth we need.

Since 1973, our industrial output has dropped by 20 per cent. In 1983, Britain went into deficit in its trade in manufactures for the first time since the Roman occupation. The service industries are not the answer to the problem, although, in saying this, I do not underestimate them. I read a speech by Sir Adrian Cadbury, who, as the House is aware, has great knowledge of, and interest in, the service industries. He said that to compensate financially for every 1 per cent. fall in manufacturing exports, service exports would need to increase by 3 per cent. He made the obvious point that more jobs in manufacturing than service industries are full time, so that when they are lost they make a bigger impact on unemployment.

Finally, Sir Adrian said that the regions worst hit by unemployment are heavily dependent on manufacturing. This is the so-called North-South divide and it is the problem we are constantly emphasising. One cannot convert the North-East into a blend of Switzer-land and Jersey dependent on tourism and banking. That large, hardworking population in the North-East is composed of engineers, first class shipbuilders and miners who require a more constructive solution to their problems. One cannot sustain 57 million people on these small islands on the basis of a service economy.

This House deserves credit for producing two reports that go to the heart of the problems that arise in this debate. The Select Committee on Overseas Trade under the chairmanship of the noble Lord, Lord Aldington—I am delighted that he is to speak later—produced a most significant report which we debated on 3rd December 1985. We recall the unfortunate reaction to it by the Chancellor of the Exchequer. It was almost as if no one had the right to draw attention to the facts. Paragraph 6 on page 83 of the report summarised the massive threat posed by the developing problem. It is important enough for me to quote: Unless the climate is changed so that steps can be taken to enlarge the manufacturing base, combat import penetration and stimulate the export of manufactured goods, as oil revenues diminish the country will experience adverse effects which include:

1. (i) a contraction of manufacturing to the point where the successful continuation of much of manufacturing activity is put at risk;
2. (ii) an irreplaceable loss of GDP;
3. (iii) an adverse balance of payments of such proportions that severely deflationary measures will be needed;
4. (iv) lower tax revenue for public spending on welfare, defence and other areas;
5. (v) higher unemployment, with little prospect of reducing it; and
6. (vi) the economy stagnating and inflation rising, driven up by a falling exchange rate.

Taken together, these constitute a grave threat to the standard of living and to the economic and political stability of the nation". That was the considered view of a number of our noble colleagues of all parties and it has not yet been considered fully by Her Majesty's Government. One thing they said I must stress again: It would be prudent for Britain to plan on the basis that there may be no oil surplus by 1990 and a deficit again by the end of the century". That is a truth which must cause acute concern to every noble Lord sitting in this House. If the Government had planned to plough all, or even a part of, North Sea oil revenue into the selective modernisation of industry, we might have been in a much more promising position today than we are.

The second report from this House dealt with civil research and development. It was debated very effectively on 19th February with an impressive opening speech by the chairman, the noble Lord, Lord Sherfield. Therefore, I do not propose to go into detail. The noble Lord, Lord Sherfield, emphasised the need for much more public and explicit recognition by the Government of the essential importance of the advance of science and technology to the economic recovery of the country and the creation of wealth. It was a nice way of saying that the Government have gravely neglected research and development.

The noble Viscount the Leader of the House may well argue that this is not the case and that the Government are fully aware of the need for change. I hope that is true. For if it is not, we are in very real trouble. Radical change is taking place in other countries. In the United States, Dr. Bruce Merrifield, the technology minister, has said: Technology is now the engine driving the world economy; the innovation process has become more important than anything else … we are on the threshold of a new industrial revolution which is going to far exceed anything that notion could connotate in the past. If a country doesn't realise that this is going to happen, your manufacturing will be done by somebody else". That is as plain as a pikestaff. Someone else will do the work.

What are the facts? We have declined further than the United States, West Germany, Japan and France in manufacturing since 1980. We are the only country to have reduced our spending on research and development as a percentage of gross domestic product. The grim reality is that while our four major competitors are heading steadily towards the 3 per cent. regarded as essential for industrial survival, Britain is heading in the opposite direction. It fell here from 2.42 per cent. in 1981 to 2.27 per cent. in 1983. We should be grateful if the noble Viscount could tell us where that stands today. It is reported, and the Government must realise this, that the officials of OECD are amazed and incredulous at the failure of the British Government to assemble statistics on research and development. If the Government are asked for the statistics. they are not available. It is an extremely serious matter.

This is an area which calls for immediate government action. It is no good saying that the money must come from private industry, as the Secretary of State for Trade and Industry, Mr. Paul Channon, has argued. The Government themselves must take a decisive lead in both planning and investment or Britain will go to the wall within the next few years.

The writing to which I referred can be seen on the wall today; numerous examples of our decline could be given. Let me give some of them, provided by the Design Council. The council points out that when the Design Centre opened its doors to the public in 1956 it was possible to equip a house in Britain entirely with British products. Today the list of defunct or ailing industries is long, with typewriters, calculators, domestic hi-ft, cameras, car radios, irons, toasters and dishwashers among the range of products where buying British is difficult and, in some cases, impossible. That is nothing less than a tragedy.

Another recent example was the merger of Leyland Trucks with the Dutch company, DAF—a classic case of British manufacturing decline due to ineffective management over the years, or so the experts and the accountants say. One could go on. I know that Ministers will say that things are now improving, and I hope they are right. They will say that there is an underlying movement. But I have voiced my doubts this afternoon. We must face the fact that manufacturing output, as I said earlier, is still running at 4 per cent. below its 1979 level.

The Government therefore have a huge responsibility. If we succeed in turning the tide then we can look forward to a prosperous Britain, with higher standards in health and all those other services which people need. I know that this is the view of noble Lords of all parties and of none in this House. But it must depend on the wealth we can create through our productive industries. We are not going to get it in any other way. We must invest in the future and we must educate for the future. I am deeply sceptical of what some Ministers have been saying over the last few months.

Low investment generally has been our most serious problem. Between 1970 and 1982 there was a collapse of 36.5 per cent. in manufacturing investment; and in the three years after this Government came into office, it fell by 32.8 per cent. It is not enough to argue that this was due to lack of money, because the export of capital from Britain rose by 62 per cent. in those three years.

The Government must co-operate with industry in investment in education. Indeed, industry must be required to declare its spending on R&D so that we may know, and policies must be prepared to encourage research-intensive industries. For a century and a half, Britain has shown time and time again that it has the genius to devise and to invent. There is no lack of ability in this country. Most of the great discoveries of the post-war era have been made here. The tragedy is that they have been exploited elsewhere.

Then again, if I may say this very briefly, the engineer is not sufficiently respected in this country. He comes about top of the league in the United States, Canada and Germany. Here he comes somewhere behind the male model. I know that I carry everyone in the House with me when I say that Britain still has the ingenuity and the workforce to reverse the tragic decline and to compete with the best in the world, if we have determined and imaginative leadership to tackle the problem.

We can see the warning lights. The storm lanterns are up, and we are coming closer to them. We need that leadership today and I hope and pray that the Government can provide it; without it, the country will suffer a catastrophe. If the Government cannot provide it, then we are ready to assume the task. I beg to move for Papers.

3.25 p.m.

The Lord President of the Council (Viscount Whitelaw)

My Lords, I trust that no one in your Lordships' House would dissent from the principle expressed in the Motion before us this afternoon. Certainly there is no more important subject for your Lordships to discuss. Nor can there be any disagree-ment over the vital responsibility on the government of the day to pursue policies conducive to the health of manufacturing industry. I intend to explain how we have done this and perhaps in doing so to fill in an important and inevitable gap in the otherwise considerable speech by the noble Lord, Lord Cledwyn.

There are, however, two points I should like to make before I do so. The first is that to acknowledge the importance of manufacturing industry is not to decry the relevance of a dynamic service sector. The existence of one is not deterimental to the other. On the contrary, they are interdependent, particularly with modern technology.

Secondly, to acknowledge the vital importance of manufacturing industry cannot imply a commitment on the part of government to maintain this or that sector at a predetermined level of production regardless of changing pressures of demand, of technology, or of international competition. We have to accept that if manufacturing industry is to survive and prosper in the coming years it will have to adapt—and adapt faster than ever before, as technology advances at an unprecedented rate.

This acceptance has lain behind our policies since our election in 1979. We inherited severe problems of inflation, of overcapacity in our traditional industries, of poor productivity and poor cost-competitiveness. Tackling these deep-seated problems was never going to be easy or painless. And the more dependent an area was on declining industries—such as shipbuilding and steel—the harder would be the process of adjustment. But we have not been alone in finding this process painful, as recent redundancies in the coal and steel industries of Japan and the economic problems of the French shipyards perhaps testify.

I turn now to the policies we have followed to tackle those problems. First and foremost we have tried to create an environment in which manufacturing can flourish. We have created a stable financial and economic framework within which commercial decisions can be taken. This we have achieved, with the reduction of inflation from over 10 per cent. and rising when we took office to low single figures now and the limitation of public borrowing to a lower proportion of national income than the country has seen for many years.

We have sought to give greater control to manufacturers over their own destinies by lifting a great weight of unnecessary controls and regulations from business; for example, controls on prices, dividends, location of investment and foreign exchange. And we have taken various steps to help the small businessman.

Our industrial relations policy has sought to make trade unions more responsible and more responsive to the wishes of their members and to the needs of the industries and manufacturing processes of today, rather than of yesterday. Who now talks of the British disease of industrial stoppages and troubles, which so harmed our industrial reputation abroad in the past?

We have also had industry very much in mind in formulating our new policies for education and training. The new GCSE exam will test practical skills and raise standards of achievement. And in three years the Youth Training Scheme has provided more than a million school-leavers with foundation training. These and other initiatives will transform the standards of vocational education and training in this country. The universities too have a most important part to play. I am sure that my noble friend Lord Butterworth, when he comes to speak, will tell us about some of the initiatives taken by Warwick University—of which he was the first vice-chancellor—to establish mutually beneficial links with industry.

Finally, through our trade policy we have striven to keep world markets open to British manufacturers. During our recent Presidency of the European Community, a record number of 48 measures were approved in the programme to complete the Community's internal market by 1992. And the UK was able to lead the Community in formulating a constructive position on the opening of a new round of GATT multilateral trade negotiations.

Such have been our policies designed to create the right climate for business. But we have also provided considerable—and carefully targeted—financial support to certain industries and for certain purposes. We have concentrated help to industry where it is most needed and can be most productive, with the emphasis on the technologies on which the industries of the next decade will rely. Expenditure on support for innovation has trebled in the past seven years, with much of the help now going to promote the awareness and application of advanced technology among users, including advanced manufacturing technology, microelectronics and fibre optics.

But we have not neglected our major manufacturers. We have just given our full suport for the corporate plan put forward by the chairman of the Rover Group. I was particularly encouraged, on a recent visit I made to Cowley, to hear of the success of the new Rover models. We have backed the management of British Steel in turning the company's fortunes round. These are scarcely the actions of a government indifferent to manufacturing industry.

There can be no doubt that these policies have borne fruit. Indeed, the timing of today's debate is, in some ways, particularly opportune—for some people more than others—since the outlook for manufacturing industry now is better than it has been for years. The National Institute for Economic and Social Research—hardly the most slavish supporter of this Government's economic policies over the years—is now forecasting growth of 4 per cent. in manufacturing output this year. Certainly I accept what the noble Lord, Lord Cledwyn, said, and what no doubt other noble Lords opposite will remind us of this afternoon, that manufacturing output has yet to regain its 1979 level. But even they will accept that the indicators are more favourable than they have been for some time.

On exports, for instance, the decline in the United Kingdom's share of exports in manufactures, which the Overseas Trade Committee of your Lordships' House noted in their report in 1985, has been halted. And following the fall in oil prices the economy has already begun to show the kind of response, in both manufacturing output and exports, which the committee doubted—perhaps fairly doubted at the time, but it is, I think, different now. Sterling's competitive exchange rate and the benefits of lower oil prices on the economies of many of our main markets provide a clear opportunity for increased exports of manufactured goods; and early signs are that the opportunity is being taken.

The most recent monthly survey of the CBI is among the most optimistic on record, revealing strong improvements both in home and export orders and in business confidence generally. The Association of British Chambers of Commerce, in their survey for the fourth quarter of last year, confirm that prospects are seen to be bright throughout the regions of the United Kingdom. The Institute of Directors has reinforced this optimistic picture.

This widespread optimism about the future is also perhaps symptomatic of a new confidence among our manufacturers. For manufacturing industry today is in incomparably better shape to take on the competition. Having recovered steadily over six years from the ravages of the recession, manufacturing industry is now recording higher levels of profitability than at any time since the early 1970s, and we have to remember that it is profits which finance three-quarters of new investment.

Productivity, perhaps the great weakness of British manufacturing in the past, has improved by no less than 40 per cent. in the last six years—a rate of improvement matched by none of our major competitors. And cost competitiveness has improved also—by 15 per cent. since the Overseas Trade Committee reported—making Britain a much more attractive country for manufacturing industry.

I must apologise to your Lordships for the fact that there will be some whose contributions I shall be unable to be present for, as I have to leave the debate for a short period to attend a long-standing engagement. But I am sure we shall have an instructive debate about manufacturing industry, which is so vital to our country's economy. No doubt noble Lords will, as usual, bring a variety of perceptions to what, for the future, the Government ought to do.

For my own part, I believe the crucial point is that our manufacturers are now better equipped to compete in the present tough world markets than they have been for some considerable time. While the lion's share of the credit for this must belong to the companies themselves, the policies consistently pursued by this Government have played a significant part. As we look back on six years of successive growth, and forward to further achievement, the importance the Government attach to manufacturing industry is evident for all to see.

3.37 p.m.

Lord Ezra

My Lords, we have today, due to the Motion presented to us by the noble Lord, Lord Cledwyn, a debate of crucial importance to the future of the country and we have heard two vitally important speeches on that subject. If I may deal first with the speech of the noble Viscount the Leader of the House, he has told us of the tactics and the measures pursued by the Government in support of manufacturing industry which in his opinion have led to a situation in which there is now a sign of recovery. The noble Lord, Lord Cledwyn, referred to certain underlying trends which are cause for concern. I personally take the view that there has been some recent improvement, but I also take the view that we are right to be concerned about the future. I think that the purpose of this debate should be to identify what our problems are in the longer term, and to try to devise and recommend to Government a strategy for dealing with those problems.

There are many indicators which suggest that we are lagging behind in spite of recent improvements. We know, for example, from what the noble Lord and the noble Viscount have said that we have not yet got back to the level of manufacturing output that we had achieved in 1979. In fact, we are lagging some 4 to 5 per cent. behind. If you take the four main competitive countries which were mentioned by the noble Lord, Lord Cledwyn, they have in that period increased their manufacturing production by a factor of something like 10 per cent., and so we have fallen behind our major competitors. We know of course of the massive reduction in employment in our manufacturing industry which has gone on in that period—something like 24 per cent. To some degree the welcome improvement in productivity is because of the massive closure of less economic plants, so that naturally the more economic plants which have been retained have shown better productivity.

The next point I should like to make is that what is lacking is fixed investment, which has dropped by something like 25 per cent. over the period. By and large, we do not have increased production and productivity from more investment. We have it by the closure of less economic plant. This is in contradistinction to what happened with our major competitors who have not only closed plant but have invested much more than we have.

As the noble Lord, Lord Cledwyn, emphasised, on the trade account the balance of trade has changed completely so far as our non-oil visibles are concerned, with a surplus of £1 billion in 1980 and a deficit of £121/2 billion last year. A large part of that deficit was due to the manufacturing imbalance. That is the problem which we face. There has been some improvement, but there are some very serious underlying trends.

I happen to have the honour of being a member of the Select Committee on Overseas Trade presided over by the noble Lord, Lord Aldington. When we interrogated the Treasury on the situation, their view was that everything would sort itself out in due course. I regret to say that the committee, comprised of all parties in this House, derived very little comfort from that bland self-assurance.

We must recognise that there has been a massive change in the structure of industry, not only in this country but in the world. New sectors of industry of a much higher technological content have arisen, and some older sectors have weakened. The key issue, whether we are talking about established sectors of industry or the newer sectors, is the vigorous applica-tion of new technologies. The problem is that unless we spend enough on research and development and the application of those technologies we shall fall behind in both the newly emerging and the old-established sectors.

There have been other structural changes in the nature of British industry. There has been a welcome rise in the number of small firms. There has also been an increase in part-time and temporary work, which raises serious social problems—a matter with which we have yet to come to grips—but it may be the nature of industry in times to come. Then there is the question of the relationship between the service and the manufacturing industries. I am not one who believes that there is a hard and fast line of division between the two. Indeed, the whole area of manufacturing industry and service industry relationships is changing.

I happen to be chairman of a company which falls between the two. We provide a service but it is a physical service. We actually go and do things. We happen to be in the heat service business. We operate boilerhouses under contract on behalf of industry. I think there is a growing sector in what one might call the industrial support sector of this country. We have to recognise that we have a whole new structure to cope with and that we must make sure that we have the policies which will enable this new structure of industry to survive and to grow.

How do we bring that about? I have read with very great interest a book by Mr. Michael Heseltine, published last Monday, which devotes itself to this very subject and which is germane to the debate today. He is a person of great recent experience of government. He is a confirmed member of the Conservative Party—there is no question about that—but he has identified as one of the crucial requirements for our country's successful development in the future the elaboration of a clearly defined industrial strategy. He makes it clear—I agree with him—that such a strategy should not be a precisely planned series of objectives but it should be a broad strategy, the sort of strategy which has been successfully applied in Japan, in Germany and in France.

How can we bring that about? We need to have a degree of restructuring of government. We have a government system which is totally dominated by the Treasury at present. The Treasury's role is to make sure that the hooks balance, and it tends to do that in the short term. In the economic affairs of this country we suffer from the short-term approach, and regrettably right at the heart of government there is a short-term approach. The proper course would be to make sure that we have a government department which can stand up to that attitude. If I can revert to Mr. Heseltine's book, he makes the very sound recommendation that the Department of Trade and Industry should be substantially strengthened. He says: In spite of its name, the DTI is not responsible for the sum of Government's relations with industry". It is a sad consideration that we do not have a single overriding department of state responsible for the whole operation of British industry. We find that it is parcelled out between a variety of government departments. We do not have a government system in this country in which government does not intervene; it intervenes in many ways, some of which may be regarded as desirable and some as undesirable. The point I wish to make, about which I am particularly concerned, is that the system is in no way co-ordinated or related to a central determined strategy for industrial success.

That is what is needed to ensure long-term success in our industrial affairs. We need coherence and we need continuity of policy. Therefore, we need a much strengthened department responsible for the totality of industry's affairs and, as has been suggested, perhaps also the creation of a strong Cabinet committee responsible for industrial strategy. (We are not meant to know anything about Cabinet committees, but they seem to be generally known about and reported in the press). The role of NEDO, which has a very important part to play in this, should be that of ensuring sectoral success.

In defining such a strategy there are three basic elements. There is the question of investment; there is the question of training; and there is the question of R&D. All three matters have been debated at length in your Lordships' House in recent times. We need to divert as much fruitful investment into industry as possible. Under our present economy the biggest spending is in the consumer sector fuelled by very easy credit terms, and there has been a noticeable diminution in the level of investment in industry compared with our main competitors. That is something which should be taken into account in the new industrial strategy.

On the question of training, while much has been done to increase facilities for the training of young people, at a time when there is some degree of industrial resurgence we are still short of the necessary skills to fill the jobs needed in many sectors. That needs to be put right. As regards research and development, I need hardly add to the debate instigated recently by the noble Lord, Lord Sherfield, which emphasised the need to push ahead much more quickly in the industrial sector.

I conclude by saying that while there is some welcome short-term improvement in the industrial scene, I believe that it is our responsibiliity in this House to discern the long-term problems and, having identified those problems, to recommend an effective strategy for dealing with them.

3.51 p.m.

Lord Thorneycroft

My Lords, the House should indeed be grateful to the noble Lord, Lord Cledwyn, for introducing this debate. He said many things that find an echo in many parts of the House, and he expressed some anxieties which are shared by all.

The question is what we should try to do about manufacturing industry, and I may tell the noble Lord that if people in manufacturing industry had been approached eight or nine months ago, they would have said that their main anxiety was that they should not have the return of a Labour Government. The idea of facing once again strengthened unions, weaker management, the spread of the closed shop, rising inflation, top rates of taxation well beyond the bounds of what would ordinarily be called confiscation, controls and—if I may mention it to the SDP and the Liberal party—wage controls as well, was daunting. They and I have lived in a world where government habitually turned the gas up under the kettle and then sat on the lid in hopes that that would make it all right. That was the main anxiety.

I do not think that it is the anxiety so much today, and I do not think that that will happen. We are at a moment when there is a sort of sea change in public opinion. Central controls, inflationary expenditure, socialism in any extreme form, as I think the noble Lord will agree, are out, and what has come to be called popular capitalism and a freer, property-owning democracy is in. That change goes deep in this country. It goes deep into the old Labour heartland. It has echos today even in China and in Russia, where they are experimenting with the market mechanism.

It seems to me that the world which the noble Lord, Lord Cledwyn, knew has largely disappeared. If it is any comfort to him, the world I knew has very largely disappeared. I am, above all, a yesterday's man. I lived in a different world. I lived in the old boom-and-bust economy days. I lived in the days when it was smart to compromise with socialism. Nobody thought of denationalising anything in my day. The business world would have been shocked. They would have said, "Why are you doing this? Backwards and forwards, first one thing and then another!" That was the world in which I was brought up. I was brought up in the world of Rab Butler and Mr. Gaitskell, of Lord Stockton—and a merry spender he was, too; he spent a lot of money!—and of Ted Heath; the dash for freedom of Lord Barber and Lord Wilson. Perhaps the final memory which one has is that of Denis Healey being hauled off an aircraft at Heathrow and brought back to apologise to the IMF in order to get some more money. Perhaps I may say to the noble Lord, that that is the world we both lived in.

When I say these things, I am not speaking in derogatory terms. Some of them were very great men, and have much to their credit. But they were facing a different situation, and what they said is now utterly out of date. That world has disappeared; it is as dead as socialism. It was killed by Mrs. Thatcher and her Government, some representatives of whom we are proud to see on the Front Bench in this House.

Mrs. Thatcher's policies of bringing down inflation, of increasing production, of privatisation of nationalised industries, of setting limits on the power of the trade union bosses and giving it rather more to the members have utterly reversed the world in which the noble Lord, Lord Cledwyn, and I were brought up. I do not think that is going to change. I shall say frankly—I speak from the Back-Bench—that I think she is unstoppable. There is so much support for that new world that it is very difficult to think of anything else.

How, in this new scenario, are we to try and help industry? I do not know the answer. But I know what the debate will be about. The debate will be, in a free society in which we are above all dependent upon the market and in which the market determines what happens, about how and when and why (if at all) a government should intervene. That will be what the debate will actually be about. There are difficulties about intervention. If one may say so to the noble Lord, the Labour Party has given it rather a bad name. During the days when it held or was seizing the commanding heights of the economy, some desperate things happened.

Look at the old Post Office, holding on to the Strowger exchange until it nearly dropped off the hook! They did not dare to change that because the restrictive practices that were built around it were so complicated that no one could face negotiating another lot on an even more complicated exchange. Or take the steel industry, which became a sort of haven for people who would otherwise have been unemployed. Or take the coal industry, which was turned at times into a kind of political base for an attack on anything that was going around.

Therefore, interventionism has rather a bad name. Your Lordships' House, however, is on the whole interventionist. The report of the Select Committee on Overseas Trade has overtones of that sort. The research report published the other day takes something of the same line. Michael Heseltine has written a book. I may say that it is a very good book, very eloquently argued, which puts, in modest terms, very limited suggestions and no very dramatic views the case for intervention by government in a free society. I commend the book to the noble Lord.

I am a very cautious interventionist. I recognise the dangers. I suppose that if any single man was responsible for the introduction of Concorde through the British Cabinet and past the Treasury, it was me. By Heaven, I was proud of it! After all, we talk about the use of technology. We are constantly lectured about our failure to bring technology to the point of production and we are told that we ought to do something about it. Here we were, at a stroke (if I may borrow a phrase) in the very forefront of civil aviation technology. Noble Lords opposite will notice the absence of cheers for me on this side of the House. As time goes on one looks at these things and it is not quite the same. It is not quite the same glorious morning that it was.

Intervention takes place. This Government are rather good at intervention. Nobody who knows anything about information technology would question for a moment the role that was taken by Kenneth Baker and the Prime Minister in putting all the weight of government behind it. The industry is grateful to them. In Japan, in France and in some other countries the power of the Government, the banks and industrialists to work together in a kind of joint partnership has given immense strength to what they do.

Perhaps I may say to the noble Lord, Lord Ezra, that it was a pleasure to follow him in a debate. He spoke of the Department of Trade and Industry, a department in which I had the honour to serve. I would go some way along the road with him in that believe that the formation of industrial policy at government level could be strengthened and that the DTI could play an even larger part than it does at the present time. I believe therefore that we should be prepared to intervene.

The future of industry depends more than anything else upon itself. I am not such an interventionist that I would depart from that. It is an attitude of mind. The balance between manufacturing industry on the one hand and service activities and industries on the other, is in a way the result of an equation. It depends on what standard of life those who are engaged in manufacturing industry demand for themselves. If they demand, as they demand here and in many developed countries, a very high standard of life, you will find that they are in some difficulties and that there are a lot of service industries, too. It is up to them. If in this country we can make people believe that productivity and efficiency and not paying ourselves more than we produce are things that matter, then, whatever governments do, industry will flourish. But if we fail in that, we fail in all.

4.3 p.m.

Lord Beswick

My Lords, first, I should like to thank my noble friend Lord Cledwyn for allocating Opposition time to this subject and also congratulate him on the way he has sought by his own contribution to ensure that the time was constructively used.

Over recent years there has been much discussion. We have had Industry Year, the campaign of the RSA and of course that much discussed report on overseas trade from our own Select Committee. This is my first opportunity to say publicly how much I admired the chairmanship of that committee. If in those far off days when most of us wore uniform the young Brigadier Low showed half the energy and leadership of the chairman, the noble Lord, Lord Aldington, I can well see why the tide of battle turned in North Africa.

During all this recent talking there have been some encouraging signs. Some industrial companies are doing better; a proportion have improved export order books. The exchange rate has helped. Although I hate that glib phrase about a company being leaner and fitter, when usually it means that we have thrown more men out on the streets, nevertheless it is a fact that there has been a movement towards greater efficiency. All that is to be welcomed but it would be utterly wrong—and I agree with the noble Lord, Lord Ezra—to believe that we are now on a steady course to genuine prosperity and a happy society. I do not say that we have slipped back but I believe that we have gone askew.

The report of the Select Committee laid emphasis on the need to get our national attitude right. I am not convinced that we have that right national attitude. By "national" I mean everybody, all of us in the nation. The report was especially concerned with overseas trade but we cannot overstress the fact that overseas trade is influenced by, and it influences, the rest of our national activity. I shall refer to its relationship with the financial system. I should like to have spoken about its relationship with educational opportunities but shall say a word about what I call our related lifestyle.

It was fashionable a year or so ago to suggest that it was simply a matter of industry getting its house in order and keeping wage claims down. In that context I was fascinated by evidence given to the Select Committee by the Ford Motor Company. Some commentators at that time were fond of quoting the fact that Ford could not produce a car as cheaply at Dagenham as it could at Cologne. The Ford witnesses told of shortcomings at Dagenham but on further questioning we were told that their Halewood plant produced transmission components 3 per cent. to 4 per cent. cheaper than at Cologne. At the Bridgend engine plant, they said: We can produce as cheaply as anywhere else in the world". As for those excessive wage rates, about which we are often told, they said: We pay 75 per cent. of our German rate, 90 per cent. of our French rate and 70 per cent. of our Belgian rate". I suggest that generalised criticism about industry and the British worker does not help.

I would make one other qualification on figures quoted by Ministers—and we heard again from the noble Viscount, Lord Whitelaw—which purport to show that under their guidance output per head is rising. Examples can be given which show that this is true, but it is also true that if a company cuts back on research, restricts apprentice intake and sacks everybody over 55, its unit labour rate will go up for the time being but not necessarily permanently.

A genuine lasting improvement usually means more investment. One current discouragement of new investment from own resources is that if a company puts more of its earnings into new equipment and less into shareholders' pockets, then the share price falls and the company is vulnerable to the takeover bid, the merger man and the asset stripper. If we are to get the necessary increased volume of manufacturing activity in this country, a new and radical reappraisal of our financial system will be needed. There should be much more discussion about ways and means of achieving this, and discussion not tied to tradition and self-interest.

The productive efficiency of most public enterprises has risen faster since 1970 than manufacturing industry as a whole, according to the Institute of Fiscal Studies as reported in the Financial Times this month. That advance is largely due to their access to longer-term investment. I am not here arguing for public ownership of industry today, but this could be an additional argument for the National Investment Bank proposed by the Labour Party which would be prepared to take into account long-term national needs rather than short-term profit-taking when deciding their lending policy. There may be arguments against such a bank. All the aspects should be considered, but there can be no argument for leaving British industry paying so much more for borrowed money than its overseas competitors.

In any discussion of these matters, I would say that it is wrong to use the interest rate as an instrument for controlling inflation. There were better ways used during the last war. It is wrong in my view to attempt to bring down prices by actions which put up the cost of production and incidentally give greater purchasing power to those who do not produce. I would also go on, given the strength, to say that we cannot tolerate a system within which we can have an increase in money supply over a five-year period of £57,000 million, of which, according to the facts given me by the Government, 96.9 per cent. was created by the private banking system without government authority.

Of essential relevance to this Motion is that only a small proportion of that new money so created has gone into industry. During the period covered by the Government's figures, gross investment in manufacturing as a percentage of GDP has been at the lowest level since the late 1950s. I am sure my noble friend Lord Williams will agree with that because it is taken from the stimulating pamphlet which he has recently jointly written.

As to our lifestyle, the phrase once stuck that we had a "candy-floss" economy. I believe that that is now too kind a term; I suggest that we now have a "jacuzzi" economy. Maybe I was helped to settle on this term when reading a pretentiously printed account of a health centre now available to us, with all modern facilities for keeping fit, all possibilities of relaxing from the cares of whatever occupation enabled the club member to pay £800 a year subscription. This sum, however, included the joys of a jacuzzi. Once upon a time, in my innocence, I thought the top people went to the Reform or even the Carlton, though not I think, even today, at £800 a year.

On equally glossy paper in the same week, I had offers of available houses. I recognised one in which as a young lad trying to make my way in London I had rented a bed-sitting room for 12 shillings and sixpence a week. There are still the same number of rooms, I gather, but the house was offered at £360,000 and that included a jacuzzi. At £300,000, £400,000, £500,000, houses and flats are available freely in and around London and presumably there are buyers for them.

When I ventured the other day to call attention to the fact that we now grudgingly paid the heads of our judiciary, the civil and defence service chiefs, the pillars of our civilised society, only a fraction of what is gained by the new breed of entrepreneurs, I was told that unless these new six-figure salaries were paid we should not get the men we wanted. But I do not believe these men are going into our real wealth-producing factories. When I was a boy, we were taught the virtues of thrift—"Take care of the pence and the pounds will take care of themselves". But today there is a whole new service industry with Saatchi and Saatchi-type brainwashing, all to persuade us not to save but to borrow. One such appeal which came through our letterbox said "Why have trouble with those household bills when they can be paid with a loan from us?"

Another extravagant brochure tells us that if we fancy a new hi-fi or a new car or if we would like a special holiday abroad, then all we need to do is to borrow at least £2,000 for a period of at least two years. The wrong national attitude responsible for this is responsible also for the proposed closure of London football grounds to make way for the property speculator—not houses for those 100,000 homeless but in this jacuzzi economy we are told they are to be luxury houses.

Only in a jacuzzi economy should we see shares shooting up, as they are, when the country is going into the red in its overseas trading account. The Times, in an article recently, said that the tendency to treat shares in companies as mere tradeable pieces of paper has accelerated. I would go along with that.

As I have said, we have gone askew. This current distortion, this selective inflation, unless checked will lead to a collapse. It is a collapse which can be avoided only if we have a more determined effort to change direction and to strengthen the effort to increase a solid real wealth-producing industrial base. I do not ask for old-time subsidies. I do not want managerial decisions to be made at the centre of government; but a government can and must do more to provide the right environment, the needed financial back-up, the revitalised and refocused educational system and, maybe above all, to get that right national attitude.

4.16 p. m.

Lord Wolfson

My Lords, in following the stars of this important debate, and in particular my noble friend Lord Thorneycroft, whose sparkling remarks were a joy to listen to, I am conscious that I am rather in a the role of a B-film actor; but I am consoled by the fact that some B-film actors have done well.

It is self-evident that with 56 million people Britain needs a strong and prosperous manufacturing sector, one that is both financially viable and internationally competitive; one that is forward-looking, willing and able to invest in the future. Of course manufacturing industry is not a monolith but is composed of many capital and consumer sectors with some world-famous leaders among them. Britain now has some of the best manufacturers in the world and they are on the way up and we should not forget this. Industry is attracting investment both from home and from overseas. It has on the whole tackled successfully the basic objectives of producing a positive cash flow for investment, improving human relations and securing a better return on capital employed.

It is easy not to appreciate a turning point when it arrives. Industry has been involved in the most far-reaching structural and technological changes and it deserves considerable credit for the manner in which it has adapted in the face of fierce competition, particu-larly from the Far East. In the same way that many at the time did not appreciate the inflationary dangers in the 1970s which undermined the fragile cost structure of British industry and devastated liquidity levels, so we may now be underestimating the bright opportunities ahead.

There is certainly no room for complacency, but we must not become manufacturers of gloom and despondency. Happily, there is a more overall confident mood in the business world. We can see today the unhappy state of those economies in the world which have been inflation-driven. For the first time that I can remember as a businessman, we have a combination of sustainable growth and lower inflation, better productivity and greatly improved design and marketing techniques. The latter has been notable in the consumer trades in which I am engaged. While there will be ups and downs, our prospects look good and there is no reason for pessimism.

Professional managers and a co-operative staff who are increasingly participating in the success of their firms have radically improved human relations in industry. Rising profits and enhanced productivity are combining to make this country once again an attractive industrial base. Manufacturing companies are adapting fast and after years of decline are able to look forward to future expansion. The current fall in interest rates and the prospect of further reductions will aid that process and be widely welcomed.

The swing from a positive to a negative contribution in the balance of payments by the automobile industry has been a serious problem. It is one which represents a major priority to redress. An encouraging start has been made on a very long road ahead. The capital goods industries are now, on the whole, much stronger. The consumer sectors are making good progress by concentrating on design, quality and improved marketing techniques to increase market share. The exciting, newer technologically based industries ranging from computers, energy and communications to pharmaceuticals, chemicals and synthetics. have great potential for the future.

We must retain a sense of perspective. There are many problem areas, not unique to ourselves, but this country is not an industrial desert. Industry has done a great deal to put its house in order. The Government have a vital role to play in influencing the climate in which business can achieve responsible and sustain-able growth. We know from experience that stop-go policies have had a very damaging effect on confidence. We also know to our cost that governments are not good at second-guessing the market by picking those industries which are going to be the winners of the future.

Since 1979 the Government have provided substan-tial resources for the manufacturing area and for improving the nation's infrastructure. The national insurance surcharge has been abolished. There have been growing links between universities and industry, financed by grants from government, business and private sources. The recent debate in your Lordships' House highlighted the need for more investment in research and development. This requirement must be regarded as a priority for selective funding by industry and the financial institutions. I hope they get down to it. British research work is world renowned but too much of its development has gone overseas. It is the job of industry to improve its performance in this regard.

The training and rewards for engineers, to which the noble Lord, Lord Cledwyn, referred, also needs further consideration by government and industry. It is very good news that large sums of money have been channelled into vocational training which will undoubtedly improve employment prospects in the future. Between 1979 and 1985 the allocation for regional assistance and development grants have totalled some £4 billion. I am confident that both government and industry will continue to seek to attract viable investment for those areas of the country which have been most affected by the structural changes in the world economy.

The corporation tax changes have given business a highly competitive rate in world terms and have also resulted in higher tax receipts and earnings per share, while minimising waste and efficiency. I believe that it is just as important to achieve the Government's objective of a personal tax system on similar lines, particularly for those in the middle and lower end of the scale. It will have the stimulating effect of providing incentive, encouraging employment, and though the rates will be lower the contribution to the Exchequer could well follow the same pattern as that experienced in the corporation tax receipts.

Lower taxes on incomes are being adopted by more and more countries in the world, most dramatically in the United States of America. We shall surely lose talent in all walks of life if we are not competitive. It is no use seeking creative talent and threatening punitive tax rates or promoting growth while resisting change. It is clear that we have to create more wealth in order to expand the quality of our social services, which we would all like to see. Business itself is not a social service. It has to make sufficient profit to contribute to the welfare of the people who in many cases are its shareholders and staff as well as its customers. It must also keep ahead of its competitors in terms of investment and trade.

The growth of the service industries has been a most important and beneficial development. Indeed, it is the main area to which we can look for increased gainful employment in the future as manufacturing processes become more and more automated. As the noble Lord, Lord Seebohm, said in the debate of 18th February 1987: To talk about service industry and manufacturing industry in the way we do now is to my mind absolute nonsense". [Official Report, 18/2/87; col. 1131.] The noble Lord is right. Each contributes to and draws strength from the other, both in home and overseas markets. The financial and other service industries are making a substantial and positive contribution to our balance of trade and we must hope that the current competitive rate for the currency will enable the manufacturing sector to improve its overall performance in this vital aspect of our economic affairs.

Production must be related to demand, or as Adam Smith put it over 200 years ago: Consumption is the sole purpose of production". The consumer is king and the producer has glittering opportunities to provide the capital and consumer goods and services to meet his customer requirements in the world market-place.

Fluctuations there will always be, but I have every confidence that by getting the basics right, and given continuity, British industry will make a dynamic contribution to our economy and to the prosperity of our people. It must provide for the world of tomorrow, for science and technology have transformed the world of yesterday.

4.26 p.m.

Lord Lovell-Davis

My Lords, I start by saying that I wholly accept the implication of the Motion brought before your Lordships this afternoon by my noble friend Lord Cledwyn of Penrhos that manufacturing industry is important—vitally important—to the economic prosperity of our society; so much so that I do not intend to argue the case. What I should like to do is to consider why our manufacturing industry has declined so dramatically and indicate some of the lessons that that process of decline offers us for the future.

It is all too tempting to look back nostalgically to the time of our industrial greatness when we were probably the world's leading manufacturing nation and bemoan our present situation as though we had somehow been cheated out of our rightful inheritance. Of course, there have been global forces—historical, social, economic, technological—which have brought about massive changes in demand, in the availability and cost of raw materials, in the size of potential export markets, the cost of labour and levels of investment. World markets have changed and have been changing for much longer than has been perceived by manufacturing industry itself. We, with our inherent resistance to change, have all too often failed to adapt to the new environment.

It is in the past 40 years or so that the rate of change has accelerated as never before and for a dangerously long period it left us standing, almost as though we were unable to comprehend what was happening. During much of this period manufacturing industries have been unimaginatively and unadventurously led. Line management has been complacent and self-protective. Over-manning—understandably but regrettably defended by the unions, among others, I may say—has inhibited the development and use of new processes while increasing costs.

The result of all this was to create a sort of paralysis of our abiliity to confront the challenges of a changing society. Many of our manufactured products became obsolete and over-priced as our competitors eagerly seized the market opportunities we left wide open to them both here and overseas. The developing situation was there for everyone to see. During 30 years in which I have travelled, mainly on business, in something like 66 different countries I have had the depressing experience of observing, from what should have been our markets, our failure to equip ourselves to produce and then to meet the demands for new and better products.

It may seem to your Lordships that I am setting an over-doleful scene but, with some notable exceptions—and there have been exceptions—I believe it is a fair reflection of what has been allowed to happen. That is not to imply that I take a wholly pessimistic view of our future as a manufacturing nation. I am trying to say that it would be a sterile exercise to lay the blame other than on ourselves for the fact that where we were once leaders—in fields such as shipbuilding, steel making, motor car production, even, of all areas in which we led the world, motor cycle production (where now are all those British motorbikes that were once internationally famous and sought after?)—we are now barely in the world league.

The list of products is a long one and I shall not continue with it, not least because I wish to turn to a happier aspect of the future—the happy prospect of a future informed by the lessons of the past. As has already been said in this House this afternoon, above all we need to create a better climate for industrial development which positively encourages our own belief in the importance of manufacturing industry and our ability to take our place among the world's major producing nations. This will not come about as a result of exhortation. Neither will it come about through inadequate investment, nor be encouraged by the assumption which seems constantly to be bandied about these days that our economic future lies with the service industries. I must say that the service argument eludes me. Without a strong manufacturing base to our economy, whom will we serve and with what?

Our past experience should also demonstrate with absolute clarity the need for more cohesion within the industrial workforce from top to bottom, and that means enlightened leadership, advancement on merit, the fostering of new ideas and skills and a sense of partnership and fairly shared benefits. Only by creating those conditions can we hope to develop our manufacturing industries and not least make them attractive to the young people whom we desperately need to recruit and train. As has already been said this afternoon, we also need to develop our skills in research and development in the broadest sense so that we can devise and make products which are competitive in world markets. We cannot afford to fall behind when it comes to the technological state of the art and design.

As other noble Lords have said, that implies another prime need: namely, investment. In many cases that means increased Government investment, but it also involves banks and other financial institutions. All too often banks are reluctant to invest over the long term the sums of money that many small or medium-sized companies need in order to secure their future and to make their own investment in this country's future. It is often easier to send money abroad and make a fast yen than it is to invest in new technology.

Our ability to identify markets and marketing itself, with certain exceptions which it would be invidious to name, are areas in which we need to take new and positive initiatives. Selling also needs to be accorded a much higher status than we traditionally give it. There is little point in making even the best products if we do not know how to sell them.

One could go on listing what are or have been our shortcomings, which have to be made good if we are to build and maintain a strong manufacturing base for our economy. However, I consider that above all we need to rationalise much of our larger manufacturing industry. In fact, the process is already taking place and gaining momentum. The opportunity exists to carry it even further. I am not suggesting that we should engage in a programme of all-out amalgamation of companies to the point where we lose the benefits that healthy and useful competition brings—we have probably seen too much of that process recently—but that in our major exporting industries we should move toward avoiding unnecessary and wasteful duplication of products and effort and the sort of competition which is self-defeating.

Our membership of the European Community has opened up and offers the continuing chance of further and closer industrial co-operation and the opportunity to get our industrial act together. There are already many examples. One of the more successful is the Airbus, the design technology and production of which represents a combined effort between different countries. British Aerospace is responsible for the wings, although I notice that British Aerospace still awaits a decision from the Government on launch aid for the A330/A340 project.

In the case of cars and other vehicles, production is often dispersed over several countries, one being responsible for the manufacture of engines, another for transmissions, another for bodies and electrical systems, and so on. It seems to me that for certain products that is eminently sensible. I can see little point in an economic community in which every member state is producing or attempting to produce and sell its own complete range of manufactures—in this instance, cars. This is surely a case in which competition is irrational and self-defeating.

I believe that the process of rationalisation of our larger manufacturing and exporting industries can be carried forward within the United Kingdom and, in the broader field, within the European Community. In that way we can combine our skills, put the best into our products, avoid wasted effort, reduce our overall imports and concentrate on exporting to the rest of the world.

The scope of today's debate is rather awe-inspiring and certainly complex, as I began to discover after I put my name down to participate. I realise that I have touched on only a few of its many facets and that other noble Lords are more qualified than I am to pronounce on the subject. However, as I said at the start, I take it as axiomatic that a strong manufacturing industry is essential to Britain's economic prosperity and therefore that we must learn from our past mistakes, exploit the opportunities that we have so far failed to grasp, and remove obstacles that we ourselves have put in our path; then, given the will and encouragement from the Government and other sectors of our society, we must rebuild our manufacturing base.

Many companies are already addressing these problems and I believe that we have enough confidence in our ability to face up to economic reality and also enough confidence in the European Community of which we are a part to win back our place among the leading manufacturing nations of the world. Our future economic prosperity, indeed, the future quality of life in this country, demands that we do so.

4.38 p.m.

Viscount Hanworth

My Lords, I doubt if anybody would disagree with the terms of this Motion. The object must be to consider the reasons for decline in our manufacturing industry and to decide what should be done to improve the situation. I am no longer directly concerned with industry; so I intend to concentrate on the historical reasons for decline with reference to my own experiences since just before the last war. For me, this is an unusual approach but, in my view, knowledge of where we have failed in the past still has a direct relevance to the changes and improvements that we must make today. I hope—as my wife feared—that this approach will not simply be regarded as a old man's recollections of a bygone age!

Before I talk about my own experiences, I should like to start from the heyday of our industrial power in the 19th century, which was the time of many famous engineers such as Brunel and other entrepreneurs who carved out a fortune when it was sometimes said that with muck went brass. It was a period when the English nobleman and gentleman reigned supreme. Apart from managing their estates, gentlemen could only enter three suitable professions: the law, the armed forces and the Church. Even in my youth, snobs looked down on doctors and dentists as though they were, if not below the salt, certainly well down the table, but some of the City people qualified. That snobbery meant that the sons of successful engineers and entrepreneurs did not follow in their fathers' footsteps. They tried to become landed gentlemen. And so began the idea of industry as an undesirable profession, reinforced by other matters such as low pay for engineers and an aversion to commercialism. That is still partly true in England today. The result is that not enough able men and women choose to go into industry. That is not so in Germany where, as a result of Nazism, most people avoid the Civil Service and similar occupations. They go into industry.

Early in the 1930s, I joined the British Thompson Houston Company as an apprentice before going to Cambridge. Such apprenticeships were for five years if the full term were done. The company moved apprentices to different departments but that was about all, apart from the fact that one went to the "tech". I learned to swear, to offer port and lemon to girls at dances and not to mark out transformer insulation with a graphite pencil. Things have greatly improved, but there is still room for more improvement in training.

Later in the 1930s, I went to Cambridge and read mechanical sciences. Classics were still considered to be the only good training of the mind, and history came a poor second. Once again, the best brains eschewed more down-to-earth and relevant studies. How strange that some 15 years ago universities seemed to think that whatever they taught and however badly they taught it, because it was taught at a university it was self-justifying! Relevance is still important today. For most students, sandwich courses and a mixture of disciplines are required; for example, economics with business studies. In the days of the respected Professor Inglis who was then head of the mechanical sciences department, there was a lecturer on heat and thermo-dynamics. He came into the lecture and wrote on the blackboard—yes, it was a blackboard in those days—for three-quarters of an hour at a pace which students found difficult to take down and then he left, almost without saying a word. The notes were excellent. But was that an efficient way of imparting knowledge or stimulating students' interest?

My conclusion is that there is still a problem today. Methods of instruction are important. We must remember that on the Continent engineers spend five years qualifying while our students do only three years. Getting across the necessary information in the time is of vital importance. We still have many untrained lecturers. For primary schools, some years of training is a prerequisite. Can one obtain a balanced approach to business management if the lecturer has never moved outside academic life? The ivory tower, with all its traditions, may have been eroded, but in some cases it still survives.

In 1958, after 20 years as a Royal Engineer, latterly with alternating staff and technical appointments, I left and joined a well known company. I expected to find a greater degree of efficiency. I was bitterly disappointed. By an order of magnitude, it was not in the same class as the services. It believed that managers were born and not made and saw no outside courses in business management as being necessary or even desirable. Although it did not dare say so, it still thought that Britain made the best engineering goods in the world and that it was the customers' misfortune—not its—if they did not buy those goods. The company was sustained by cost-plus government contracts.

Much more important, was a man-management failure which extended from the top down to the workers. At management level, the question was: does his face fit? This meant that a new manager might offend someone who should have been retired for inefficiency years previously. At the lower level, the feeling must surely have been that management still had and would continue to have a big stick to wield over blue-collared workers. Whatever the company thought, it failed to learn the first techniques of, in army terms, leadership, or of inspiring its workers with a sense of purpose and corporate identity. That is still to some extent the issue today although I know that many firms try to do what I have suggested.

Such an attitude, with exceptions, was true in many of our industries; it led to domination by some unions without regard to their or the nation's longer term interests. As examples I would quote docklands—the Thames in particular—demarcation in our shipbuilding industry and of course our car industry. I think enough is said, without referring to the miners.

After leaving that firm, I had occasion to visit several others in different industries. Many members of those firms started the conversation by saying that theirs was efficient. My reply, if I unwisely made one, was that no firm composed of human beings could ever be completely efficient and that, with the pace of change, what was right yesterday must be questioned tomorrow. That attitude was put to me forcefully by Marks and Spencer which is of course one of our most efficient firms. They said that some time ago they thought they were efficient. Since then, they had made changes and improvements in the organisation, knowing now that it had not been efficient.

Later still, in this House, I once asked an eminent industrialist what he thought needed to be done to improve industry. He said that the pay of industrialists was insufficient and that the workforce thought only about wages. I pointed out that he had said the same about both sets of people. My conclusion, once again, is that we need to inspire all ranks with a sense of purpose in serving the nation. After all, although pay is important, to many men a challenge can be equally important.

I hope that from this rather unusual speech, your Lordships will have understood that there are some areas in which I believe we must look for improvement. To me, even more important is the need to change things in time in so many other areas; hence the debate I initiated last year on the need to consider making gradual changes in our parliamentary and democratic system if it were to endure.

Some years ago, whenever anyone criticised industry and asked for the necessary changes, the reply was that all would be well if only we did not "call it short". That was, I believe, the catch-phrase then used. For a nation or company which has reached the top, the hardest thing is to stay there. Full order books, and people go to sleep. Once a company is on the downgrade, it is difficult to reverse the trend. Money becomes tight and cuts are made in the all-important research and marketing areas. Much the same has happened to us.

I was impressed by the positive suggestion that we need greater help for our industry and that this could be obtained by strengthening the Department of Trade and Industry. That was mentioned by the noble Lord, Lord Ezra, with, I think, the agreement of the noble Lord, Lord Thorneycroft. We must not deny our industry the help it needs because of the Treasury's penny-pinching attitude.

4.49 p.m.

Lord Aldington

My Lords, the House is grateful to the noble Viscount, Lord Hanworth, for giving us the benefit of his valuable experience. It is a privilege to follow a number of noble Lords who have experience of this subject and who have thought about this important debate. I join with others in thanking the noble Lord, Lord Cledwyn, for putting down the Motion and opening the debate with such a carefully thought out and powerful speech. It was somewhat like the curate's egg; I agreed with a large part of it, but not all.

I should like to join with others in thanking my noble friend the Leader of the House for replying to the request of the noble Lord, Lord Cledwyn, and recognising the importance of the debate. If I may mention one other noble Lord opposite, it was a great pleasure to hear the noble Lord, Lord Beswick, in such good voice again, and sharing with us the wisdom and dynamism which he gave during all that year to the Select Committee. It was very sad to see him fall ill afterwards, but it is wonderful to see him back again nodding away—not sleeping, but nodding away!

There is no doubt where I stand about the importance to Britain of its manufacturing industry. I know of no reason to unsay anything that was said in the now famous report of the Select Committee on Overseas Trade published in October 1985; nor do I want to depart from what I have said in several debates about the need to strengthen the place of industrial policy within the government and ministerial machine. I join with the noble Lord, Lord Ezra, who has given a lot of thought to this, and with my noble friend Lord Thorneycroft, who gave us such a sparkling speech and made us laugh so much as well as making us think. There should be no doubt either about the improvement that has taken place in manufacturing output since we reported, the improvement in productivity and the particular improvements in the past nine months and the success of our exporters in the latter part of last year. Certainly the exchange rate has helped, but there have been other improvements too.

Even though there is still a massive inflow of manufactured goods into our home market, we can look with some hope at the increase in output per person in the manufacturing industry which the noble Viscount the Leader of the House mentioned to us in his speech. There has been a 40 per cent. increase over seven years—a notable figure. A large part of that was in the early years, for special reasons. Last year the figure was 4 per cent.—also a notable figure—but a figure which, I have to say to your Lordships, in my opinion is not a sufficient rate of increase in productivity to restore our international position. It is so very much better than what has been accomplished in most of the recent years that it needs stressing.

It must not be forgotten—especially, if I may venture to say, by noble Lords opposite when they point the finger of blame at noble Lords on the Treasury Bench on this side of the House—that output per person in manufacturing industry, which improved by 174 per cent. between 1970 and 1973, gained only 4 per cent. in the next six years. At the same time our competitors overseas—and this is the important point—produced a very substantial growth in their productivity. We fell sharply behind in those years and a gap opened up. We have to be chary when we look at percentage figures, because a 4 per cent. increase in Britain, while others increase by a lower percentage, may not close that gap which has to be closed if we are to be competitive internationally.

I wish to avoid any signs that I am being combative about manufacturing industry's performance or importance between the two sides of the House. One of the things that we found in the Select Committee was that in other countries which had greater success than we had there was a consensus in national attitudes towards manufacturing; for example, France, Germany, Japan and the United States. This consensus led to a consistency of industrial policies by all governments, change though they did.

The noble Lord, Lord Beswick, concentrated our attention again on national attitudes. He is right in saying that they have not yet changed enough, but they have changed. I have found in talking all over the country that some people do and some do not understand how important manufacturing is to them personally and in their business or work activities. I assume that when we talk about manufacturing we are talking about competitive manufacturing, because that is the only sensible thing. It is a good thing to rehearse, though many of your Lordships know four points as to why manufacturing is so important. The first is that the expansion of the manufacturing base is the principal means of achieving growth in developed nations. My noble friend Lord Weinstock gave this House some figures in our December 1985 debate which showed how our principal competitor countries had led their general economic growth, as measured by the gross domestic product, by a faster growth in manufacturing output. He gave figures covering the years 1960 to 1983.

All those countries are now well ahead of us in the OECD league table of GDP per person. In those years our general economic growth, our growth in gross domestic product, was faster than our growth in manufacturing output. It is very good to see in the Autumn Statement's forecast of what is expected to happen this year that manufacturing output is expected to grow by 4 per cent. higher than the expected growth of GDP. That is a good change.

Secondly, the service industries, which are of course very important to our economy, are in large part, or in a substantial part, dependent for their growth on the growth of manufacturing. We were told in the committee that at least 20 per cent. of all service industry has manufacturing as its customer. Thirdly, in a most impressive booklet entitled Wealth Creation and Jobs, written by David Sainsbury and Christopher Smallwood, the point has been made that the fastest growing services, both in Britain and in the United States, as measured by employment trends are particularly dependent upon a buoyant manufacturing industry.

Fourthly—concerning the employment point—because of productivity gains the expansion of manufacturing is not going to be the direct answer to the problem of unemployment. But in order to create the right climate for a fast expansion of the services sector, as well as giving it the necessary balance of payments strength, we must achieve an expansion in manufacturing which thus indirectly will help to solve the unemployment problem.

I have never argued, nor did the Select Committee's report argue, that manufacturing was inherently a more virtuous activity than services. I see the noble Lord, Lord Stoddart, sitting opposite. He had a little tiff with the Chancellor of the Exchequer, who misunderstood something he said on that point. None of us was taking a moral or virtuous position on the matter. That is not the point. The point is that world trade in goods is much larger than world trade in services—I am told it is four times as great—and quite apart from the point that manufactured exports have three times the value added of an invisible export we should have to perform miraculously well in services to compensate for a declining manufacturing performance.

If we accept the performance of manufacturing, do noble Lords understand the scale of adjustment necessary to build up an internationally competitive industry in the modern world? Yesterday The Times had an article written by Mr. Keith Smith which I recommend to your Lordships. We have to be competitive in the world in the largest and fastest growing product groups, where competition is about the ability to generate technological change in products and in processes. We have a long way to go to be successful there. We debated this matter on 19th February when we discussed the report of Lord Sherfield's committee. I guess that other noble Lords will wish to come back to that.

With two minutes to go I come to the question: what to do? My noble friend Lord Thorneycroft put that question before us. He claimed to be a cautious interventionist. I should like to follow him in that claim. I know of a lot of things that need doing. I shall not list them all. However, I do not know a full plan and I do not know whether anyone does.

I know what must be done inside industry. Some of those points were made by the noble Lord who spoke before me. I know that the emphasis both inside industry and in national policy has to be on change, adaptability and excellence. I know that we must persuade everyone how big the challenge is. I know that we have to get short-termitic out of our financial system. I know that we have to get more excellence in our education system and a better understanding in universities of the problems.

I know that we have to persist with the training arrangements so excellently made by my noble friend Lord Young of Graffham. I know too that any government here must match the support for industry given by other governments to our overseas competitors. I know that as a result of the financial prudence of my right honourable friend the Chancel-lor of the Exchequer there are now more resources available, both generally in the country and in the government sector, than there were in times when he felt bound to resist the request for more export aid, more R&D aid, and so on.

I hope that as we come towards the Budget, he will find room for greater support for manufacturing industry, and those activities behind it, so as to match what is given to our competitors overseas.

5.2 p.m.

Lord Butterworth

My Lords, I should like to make three main points this afternoon. First, if Britain is to achieve a national income sufficient to maintain the expected standard of living of the whole community, we must be successful both in the regeneration of certain established industries and also in a number of high-tech industries. In both sectors success will generally depend upon very similar qualities, especially the pursuit of appropriate technology in each field.

Secondly, research is extremely important, but as important is the need to attract ability into industry. Training is as important as research. Thirdly, we sometimes fail to recognise the extent to which the regeneration of industry has already occurred. The new high-tech industries with their higher value-added products are critical if our national income is to be suitably expanded. The opportunities that exist there are great because of the rate of change in high technology. In high technology success goes to the venture that comes out first. To be second does not secure the rewards. The recent report of your Lordships' Select Committee on the funding of civil science, of which I had the honour of being a member, emphasised the need to organise our research to obtain more value for money and ensure that we have the intellectual resources for success.

However, in my view, just as important as research—and research is important—is our ability to train and recruit into industry its fair share of the ablest. In the high-tech world especially, the top 2 per cent. of ability—the super stars, if you like—are of crucial importance. But more generally in industry we must secure a due proportion of the ablest. Our failure to do so has become more and more apparent as industrial technology has become more sophisticated and more science based.

One is constantly being asked why so many engineers and scientists go into the City and commerce. They do so because the pay is better, because they are made more welcome and because, although the life may be tough, it is also more fun. I agree with the noble Lord, Lord Cledwyn, that we must recognise engineers as a profession. We must see that their pay is comparable to that of other professions. They must be able to see good career prospects and their jobs must be fulfilling and, above all, challenging.

Too frequently in industry the organisation structure needs to be improved. Therefore, we need comprehensive programmes not only of research but also of training. In very high technology those two aspects—training and research—come together because that training can only be achieved by participating in research projects. It almost does not matter whether or not the research as such is successful. Perhaps in the United States few people actually believe that the SDI programme will knock rockets out of the sky in a fail-safe way, but 28 billion dollars going into technology will raise the United States to an even more elevated platform in terms of lasers, computers, electronics and software.

Notice that an announced goal exerts more pressure to perform than funding made available for general research support. A declared goal motivates more efficiently peer review and the determination not to let the team down. Programmes of training, of research and development are our best insurance. Training the largest number of best qualified technologists that we can will eventually provide sufficient power to drag along the technological illiterates.

Alvey was excellent but we now need to know what is to be the shape of the follow-up after the Bide report. What is to be the shape of our national space programme following the proposals put forward by the British National Space Agency? I hope that when the Minister replies he can tell us something about the follow-up to Alvey and how we shall deal with a national space programme.

Finally, I should like to say something about the other side of the house—the regeneration of established industry. I should like to do this by taking one company and looking at its regeneration over the past 10 years. It is Austin Rover, with which, as vice-chancellor, I had quite a long association. I do it because I believe that in the interstices of the story there are some interesting lessons to be learnt. Let me preface what I have to say by reminding noble Lords that the Rover Group spends £2,300 million a year with 2,000 companies, that it produces almost half the total UK-manufactured vehicles, as opposed to UK-assembled vehicles, and accounts directly and indirectly for some 134,000 jobs in the West Midlands alone.

The first ingredient in Austin Rover's regeneration was, often with the collaboration of Professor Bhattacharyya of the University of Warwick, the deployment of new technology to achieve the highest levels of production and to make quality and reliability the focus of the whole manufacturing process. The second ingredient, as indispensable as the first, were programmes of education and training for the men and women working in the company. There was a three-fold increase in producivity between 1979 and today. It was accompanied by the disappearance of many of the traditional manufacturing tasks. Men and women joining the company today must therefore expect to be trained and retrained several times during their working lives. A technological literacy is now just as important as the ability to read. Moreover, intelligent men and women working with the company need to be fully informed about what is going on. They need to be fully involved, as the company has succeeded in doing, in making the workforce a partnership with the technology.

One interesting indication of what has happened is the participation of graduates. Ten years ago with twice the workforce there were fewer than 200 graduates. Today the figure is some 150 graduates. Of those, 450 are in product and manufacturing engineering. Around 150 graduates are recruited each year and, with Professor Bhattacharyya, Austin Rover have set up a special course for graduate trainees. They attend during their training period for 13 weeks in the university in modules of about one week each, centred upon manufacturing engineering and associated problems. The modules are oriented upon the trainees' practical work in the plant, and are therefore particu-larly appropriate for post-graduate studies.

The course was joined in the early stages by Lucas, and more recently by Rolls-Royce, British Aerospace, Guest, Keen and Nettlefolds, Short Brothers, Vickers, and Thorn-EMI. A new course is now being devised and will be launched in the autumn. It concentrates upon a well-known problem in British manufacturing: the divorce between design and the manufacturing process. Young engineers on the design side will be introduced to the latest techniques in design and trained to develop and meet within the design process the needs of production and manufacture, for the latest technological advances enable design and production to be inextricably blended from the earliest stages. This could be one of the most vital developments to date.

Finally, Austin Rover have created a £5 million advanced technology centre on the campus alongside the university's engineering workshops, where high-calibre scientists and technologists will research and develop the technologies of tomorrow's cars, and the ways in which they should be designed and manufactured.

Through one industry one can see that the regeneration is already well under way. At one time the market share of Austin Rover was somewhere down at about 14. It was 16.8 in January. I am pleased to be able to say that in February it went up to over 17. The overseas market is beginning to return. Austin Rover sold 120,000 cars outside the United Kingdom last year. They are already back in the United States, and estimate that over 150,000 cars will be sold this year. Noble Lords may well have seen recently that they have taken on an additional 600 employees because of their increase in sales.

I think there is cause for saying that in recent years the improvement in British manufacture shows, as Sir William Rees-Mogg commented yesterday in the Independent, that we have moved from the fourth division back into the first division. We have already caught up with Europe. We must now plan to catch up with Japan. On car manufacturing, we must not forget the competition of either Korea or Taiwan.

5.15 p.m.

Lord Hatch of Lusby

My Lords, my noble friend Lord Cledwyn asked in his opening speech what had happened to the workshop of the world. That used to be a description of this country. My noble friend Lord Beswick answered the question with his concept of the jacuzzi economy. I would suggest that there is another answer—a serious and dangerous answer. It is that we are becoming the warehouse of the world, the so-called boom of today consisting very largely of warehouses bulging with foreign goods rather than goods produced traditionally in this country by our industry.

The noble Viscount who opened for the Government made a number of statements which seemed to me to be non sequitur. He talked about the interdependence of the service and the manufacturing industries. If this is so—and we would agree—surely the reduction in the manufacturing industry is bound to reduce the number and the quality of the service industries. Does the noble Viscount realise that the major difference between these two industries with regard to our economy is that whereas manufacturing industry provides 51 per cent. of our exports, the service industries can provide only 23 per cent. That is quite natural, because 80 per cent. of our manufacturing industry is tradeable whereas only 18 per cent. of service industries are tradeable. Therefore, in a crucial element of our economy—the export trade—the decline in manufacturing is not only reducing the service industries but is impoverishing the economy as a whole.

The noble Viscount asked what has happened to the traditional British disease of strikes. The modern British disease, as anyone who travels around the world knows, is that of industrial decline and unemployment. I should like to ask this specific question of the Minister who is to reply. What is the unemployment rate in manufacturing industry now? How many jobs have been lost? All kinds of figures have been thrown around. Where do we stand in the table of unemployment in comparison with our competitors? I have asked his noble friend Lord Young that question many times, and he has had to scrape around for Eire and Portugal. Can the noble Lord tell us which industrialised countries have a higher rate of unemployment than this country?

Can the noble Lord also tell us what has happened to manufacturing production? What is the output of manufacturing production today, not compared with 1981, but compared with 1979 when this Government came to power. The noble Viscount talked about a 40 per cent. increase in productivity. Starting from what base? It is like inflation. The Government talk about inflation having been reduced. Reduced from when? The first action of the Government was to increase inflation. Yes, since the high point of Conservative inflation, it has been reduced.

The noble Viscount also talked about British industry being prepared with the technologies essential for the future. I wonder whether the noble Viscount has read the recent report of one of the major microchip industries, Motorola, which has stated that Britain will fall further behind the rest of Europe in modernising its industry this year. That verdict comes from one of the most basic barometers, the sale of microchips.

The noble Viscount went on to talk about six years of successive growth—six years, not eight years since the Government came in. Again, starting from where? And where has it left us? It has left us with less production in manufacturing industry; lower investment in manufacturing industry; and with a deficit in trading balance in manufacturing industry and also on current account.

I should like to ask the noble Lord who is to reply this question: what have the Government been doing with their figures on current account? Up to a week ago, we were told that there would be a deficit on current account last year of £360 million. Last week we were told that the deficit is going to be £1.1 billion. One sees, looking at the monthly figures, how the estimated value of invisibles has gone up and down according to the political barometer—according to what is useful politically. We are left at the end of the year with this huge deficit which the Government never admitted during the year would be the result. These six years of successive growth have left us, too, with far more unemployed. How many? And how many in comparison with our competitors?

I want to concentrate, in the rest of what I have to say, on one concept which the noble Viscount introduced and which I believe would be acceptable throughout the House. One of the major problems of this country is our position in world markets. In order to return to anything like competitiveness, we have to find finance for industry. We cannot look to the financial institutions which are interested in the short term. Financing industry can only be long term if we are to compete with the Germans, French, Italians, Japanese and so on.

We need an increase in research and development. We need a total restructuring of education and training. But we also need something else, and I believe that this has not been mentioned so far. We need a revolution in our whole marketing approach. Here, I would refer in particular to what is, as the House knows, my special interest—our position in relation to the developing countries and the importance of the developing countries in restoring our position in the export markets of the world.

If noble Lords will turn to paragraph 209 on page 74 of the Report of the Select Committee on Overseas Trade, of which I was privileged to be a member, they will see a quotation from Sir Geoffrey Howe: Renewed economic growth in African countries is vital to British industry". Let us remember that this Government have cut overseas aid by 20 per cent; that they have cut down the services of the British Overseas Trade Board, its own institution to encourage overseas trade; and that they have cut the number of commercial diplomats in our diplomatic services across the world.

Let this House remember the lesson of Bathgate where British Leyland had to shut down its factory because the Nigerians, due to the change in the price of oil, were no longer able to buy the lorry kits produced there, putting British workers out of work. Let us remember, following the return of the first parliamentary delegation, after independence, to visit Zimbabwe, I asked the Government what they were going to do to support the Zimbabwean desire to re-equip their civil airfleet with British planes in competition with the Dutch Fokker company, which had the prospect of government support. I was told that this Government were not prepared to support British Aerospace in that way.

I could go on talking. I have quoted before from Mr. Macpherson of the Association of British Chambers of Commerce who gave this evidence to our Select Committee: Of course, we have to expand to get new markets because, my word, if we do not get into new markets and if we do not ensure that other countries in the world, nations which are not major industrial markets now become so, I believe the whole theory on which we base our economy will begin to fall to the ground". That is from the Association of British Chambers of Commerce, and not from the Militant Tendency.

I simply ask the House to recognise the importance of looking ahead, as the Japanese are doing. The Japanese are prepared to run a deficit in the short term—and the short term is 10 years—with developing countries in South East Asia in order to bolster the purchasing power of those countries so that in the future they will become markets for Japanese goods and will be able to supply goods to Japan. I believe that this is one part but a major part, of the strategy that should be followed in the face of the crisis in manufacturing industry.

Before I finish, I want to issue one word of warning, which again has not been mentioned elsewhere and which is perhaps on a different level. It is a word of warning as to the automatic value of growth. The value of growth depends on what grows, how it grows, and, above all, on what it does to the environment in which it grows. I would draw to your Lordships' attention a report which has only just been published—a report by the Worldwatch Institute in Washington—on the state of the world. I have not time to quote at all extensively from it, but I quote what Lester Brown, the project director of the report, said: No widely shared vision exists of the need for worldwide progress to stabilise population, control carbon emissions and revolutionise energy-using technologies". He goes on to talk about soil erosion, the danger of species extinction, and human-induced climate changes. The report examines in detail the change caused by human activity which is likely to be intensified by population growth, the rise in global temperature, its causes and likely consequences, and the multiplying threats to species survival which could amount to mass extinction.

I simply bring to the attention of the House this warning. I believe that we should look into it when we are talking about growth of any kind. I ask the noble Viscount once again: should not the situation that we face in manufacturing industry and future manufacturing industry, and the effect on people, on future generations and on the environment in this country be examined profoundly? That can only be done by the appointment of another Select Committee of this House to consider the whole implications of manufacturing industry.

5.32 p.m.

Lord Sanderson of Bowden

My Lords, I too should like to thank the noble Lord, Lord Cledwyn, for giving us the chance of debating this most important subject today. First, I declare an interest as a director of textile manufacturing companies whose centre of gravity lies far to the north of Watford Gap. I make no apology for addressing my remarks to that part of the manufacturing industry which I know, for I have worked in the textile industry all my life and I am at present in day-to-day touch with it.

The United Kingdom textile industry still employs approximately half a million people and in general it is an extremely loyal workforce. Half a million people account for nearly 10 per cent. of all those employed in manufacturing industry as a whole in the United Kingdom. Like many other industries we have seen, after a post war boom, a very steady decline in the number of mills and in the number of people employed. In the early days after the war there was little innovation in terms of design or methods of production and firms became complacent about the product and the service they provided. Customers came second and the United Kingdom was left far behind by worldwide competition as we went into the 1960s and 1970s.

These problems were compounded by the hike in oil prices between 1979 and 1982, which contributed to a loss of consumer demand and the enormous problems brought about by raging inflation. We must never forget that raging inflation is the enemy of all those who strive to survive in industry. I hope that is recognised by politicians in all parties, though I have my doubts when I hear about plans from certain quarters to take control of at least one major company in strategically sensitive industries or plans for renationalisation.

In the period up to 1982 the cost of energy, the oil-based raw materials price rise and labour costs rose significantly and gross and net margins were squeezed in our industry and in many others. At the same time, major customers, particularly in the retail sector, were becoming very much larger and very much stronger. They posed a real problem to the whole industry as buying power fell into fewer and fewer hands. I am not alone in thinking that this was the time for a sea change in the manufacture of textiles in the United Kingdom. Although output has risen by 10 per cent. from the trough reached in 1982, that rise in output is not paralleled by the rise in numbers employed, but what it has done is to secure in very many cases the jobs of those who are still employed.

I believe that there are two routes that the industry has taken to meet the demands of today, and has thus gained some competitive advantages over developing countries. First, there has been a vital shift in the core of textile operations into less commodity-based areas, and that means more added value for the goods produced. Secondly, companies have remained in business by pruning out activities in areas where the overseas challenge cannot be met or an adequate return on capital cannot be obtained. But attitudes in management have changed dramatically and a more professional approach right across the industry has been adopted, which means that companies which are able to meet the challenge of the market place and respond to the demands of the customer by competitive prices and reliable deliveries have ensured that rewards are beginning to appear. Those rewards are now showing through in the balance sheets of very many companies both large and small in our industry.

I believe that there are some areas where Government could help more. One of the most important is to assist groups who seek to stem the tides of the ever rolling increase in imports. I note with pleasure that the CBI is seeking to encourage the Department of Trade and Industry to pledge more funds for the "Support in Marketing" programme. Marketing is so very important and I have nothing but praise for those who from very small beginnings started the "Better Made in Britain" exhibitions designed to encourage the substitution for imported merchandise of United Kingdom-produced goods. I know that red tape has to be cut to get ahead with help from Government for these sorts of initiative, but the Government have the support of myself and very many others if they can support such initiatives by deeds as well as by words.

In addition I think the Government should realise that exports (in our trade particularly important) from the textile industry play an extremely significant part in the viability of the whole industry. I would just say that we ought to bear this in mind when we are talking to the United States, for our Government should make perfectly clear that any future tightening of import restrictions by that country pushed through by the United States Congress might necessitate the withdrawal of the EC's more open trading arrange-ments. I noticed with pleasure that the Secretary of State for Trade and Industry when in America last week raised this matter, for it is extremely important that the valuable exports gained in that market should be protected as well as possible so that we have a fair and free entry into that market.

I think it is the job of government to try to ensure fair competition in world markets. We welcome lower interest rates and, hopefully, even lower interest rates. We welcome efforts to avoid the violent fluctuations in currencies which we all live with and the increase to £415 million spending on research and development from the figure of £142 million in the period 1979–1980. We must encourage research and development, as almost every speaker has said in this debate today, for it is the seed corn for the future success of industry in this country.

I believe that modernisation will go ahead, certainly in our area and in the companies with which I have anything to do, if and only if taxation is reasonable and threats of even heavier taxation are removed. In this connection, were we not all delighted when the Government abolished the tax on jobs?

Rates have to be reasonable and I have no doubt more will be said about that in the proposed legislation for Scotland which is coming next week. Low inflation should not be just spoken about but acted upon; and we have to think about infrastructure, good roads, better roads, let alone the introduction of the Channel Tunnel. Help for education and training, particularly management training, is important; and the Manpower Services Commission should see to it that non-statutory organisations fulfil their obligations to the full in this regard.

It is very easy to talk about the difficulties in manufacturing industry. I have known over the last few years the pleasure of setting up from scratch a small business which, after a very difficult start is now employing 84 people. I have some appreciation of the difficulties of those who try to get going, and of all the hazards they encounter. But I also know the other side, when difficult decisions have to be made and when machines can overnight take away the jobs of six or more people just like that.

We have to be aware that the painful process of keeping up with technological change, which has to happen if the country's manufacturing base is to be maintained, has a very difficult side to it but one which we must face. There are no easy options but we have real opportunities and, like many other speakers in this debate today, I see that there is a future for manufacturing industry in this country because there is now a new realism about overmanning. As one noble Lord said earlier in the debate, we are not manufacturers of gloom and despondency. We ought to accept the challenge and I believe that, certainly in my industry, things are looking healthier than they have done for many years.

5.42 p.m.

Lord Donoughue

My Lords, I too should like to join those who have thanked my noble friend Lord Cledwyn for opening this important discussion with such an impressive speech. I should also like to thank the noble Viscount opposite, who has brought to us his seniority and experience. Some of your Lordships may feel that we have been round this course before and the basic problems—inadequate training of management and labour, inadequate research and development provision, unhelpful monetary policies and a British culture still fundamentally hostile to industry—have all been well investigated and well aired on earlier occasions in this House.

Yet, curiously, our general party political debate too often focuses not on these questions but on other issues which are not helpful to British industry: arguments about theoretical ownership, about nationalisation or social ownership, about privatisation, about introducing too much or too little trade union law, or about the alleged incentives or disincentives of higher or lower taxation—and we shall hear more about that in the forthcoming Budget—or even about the virtues of private education versus state education. I believe that none of those helps very much in the main task of improving our industrial background.

As regards the market mechanism of our reward system, that has turned even more unfavourable towards industry, with salaries in the financial sector (where I work) racing ahead. I agree very much with what the noble Lord, Lord Butterworth, was saying about the attraction and the syphoning away from industry of our graduates. They used to ignore industry and prefer the pleasant pastures of publishing or the security and power of the Civil Service. That has changed a little. They are now dazzled by the Porsches of many brokers and by Eurobond dealing. They are still unsufficiently attracted by industry. Now, even in my department in the City, we must offer graduates £12,000 to £14,000 a year to come into the City at 20; and between 25 and 35 they are assumed to earn £1,000 for each year of their age. I do not think that industry can easily compete with that. So we still have a problem in terms of attracting the right people. Industry suffers from a lack of fashion and a lack of pay competitiveness. Therefore, although we have seen the problem, it remains with us and it is well worth this House making another diagnosis.

Of course in manufacturing we are still looking at a very unsatisfactory situation. I agree with those who have pointed out that there have been improvements and there is nothing to be gained by going on about gloom and doom and pointing only to the black side of the picture. I do not think that helps anyway: it certainly does not help the argument. But the numbers are not very colourful. In terms of output, even now, five years into the recovery cycle—and there cannot be much more of that to go—manufacturing output, as we know, is still below where it was in 1979, whereas our competitors throughout the OECD have enjoyed an average gain of around 10 per cent. Output in fact is still below 1975, whereas our main competitors have enjoyed enormous gains. Even including oil, average growth in industrial production throughout the term of this Government has been less than 1 per cent. per annum and, without oil growth, is negative.

Even including services, growth has been less than 2 per cent. per annum and well below previous cycles of the postwar world under the often-maligned stewardship of various Prime Ministers: Wilson, Heath and Macmillan. They of course did not have the mixed blessings of North Sea oil. What they did have was a larger and more productive manufacturing industry; and that is what we need now. It is leaner and more efficient, and that is good. That is an improvement, and we owe some of that to developments in recent years. But now that it is leaner, we need to make it more substantial.

It is quite wrong to believe that we do not need manufacturing, and it is very encouraging to note that most of the wilder advocates of a totally service economy have modified their views. I think we owe much of that to education and to the excellent report of the Select Committee on overseas trade. We now have a fairly wide consensus, and that is progress. We have consensus that what we need is a balanced economy, with manufacturing as an important part. We note that neither Japan nor Germany has ever made a mistake on that point and neglected their manufacturing base. They understand, as we do, that a healthy manufacturing industry is absolutely essential to enable the services to flourish.

That is how our financial services industry, which is often held before us for praise, grew—on the back of manufacturing. That, I may say, is how the Japanese financial services industry is now growing, and very menacingly too. So healthy manufacturing is essential for services and for employment. We know that something like one and three-quarter million jobs have been lost in manufacturing since 1979, and that is the main reason why male unemployment in this country is on average roughly double what it is in the countries of our main competitors. We know that an expansion of manufacturing will not solve the unemployment problem because it will occur only in a climate of higher productivity, but it is a prerequisite of solving that problem.

Our competitors also understand that although—and I take the felicitous phrase of the noble Lord, Lord Aldington—there is nothing intrinsically more virtuous about productive activity than about service activity, it does have one great practical advantage which we need. That is, as has been said, that it is more tradable.

Our shrinking manufacturing industry may now be little over 20 per cent. of our national product, but it provides nearly three-quarters of our overseas trading income and of course a quarter of our jobs. The service sector, which represents 65 per cent. of GDP, earns only a quarter of our overseas trading income. So we cannot base our future on services. World trade in goods is still four times as great as world trade in services—I think that is generally accepted—and that will continue to be the case because world trade in goods is growing as fast as world trade in services. Therefore to put too many of our eggs in the services basket is a high risk policy. It will not produce the overseas earnings we need, even with the help of income from our recent overseas investments. That is why, given the lack of balance in our economy, we face deficits on our trade and balance of payments in the years ahead.

I should also like to make the point here that services are not only less exportable, but, where exportable, are often more subject to trade barriers. That is especially the case in the EC. The EC has been an open market in the kind of manufacturing goods where we have been less competitive and have less presence; but in financial services, where we are stronger, many barriers still exist. I trust that the Government will not slacken their efforts to create a true common market in financial services. The problem in Japan is even more intractable. But if we do not secure that progress with financial services, the dilemma that faces us is that, the deregulation in London having now taken place, it will allow the Americans and the Japanese to dominate our financial services here, while we are unable to secure compensating presence, access and growth in Europe or in Japan.

Although I support deregulation, and while it is quite possible that it will maintain Britain as a centre of the financial services industry, it is quite possible that we shall not compete adequately in that open market, and that the massive power of the overseas institutions, where one Japanese finance house has a capitalisation as large as all our merchant banks put together, will prevail. So the future in services, even in our best services, is still perilous.

So what do we do? Actually we are discussing the need for more explicit industrial priorities in government policy. That does not necessarily mean massive and detailed government intervention. The idea that civil servants can replace the market mechanism is highly discredited. But that is not the present situation and danger. In fact, we have the opposite danger, with the Government too often washing their hands of the fate of industry and hankering after laissez-faire. None of our main competitors makes that mistake. However much they preach non-government intervention, where the basic interests of their industries are concerned they intervene to preserve them.

Government have a crucial role of creating the right economic background for industry to flourish in terms of interest rates, which have come down a little and presumably will come down a little more, though in terms of real interest rates they are still punishingly high; in terms of exchange rates—I do not myself support further devaluations; we have had massive depreciation of the currency against our main competitors and I think the objective should now be stability—and also to encourage competition domestically in order to make our industries able to compete abroad.

We also need government positively to assist modernisation and efficiency—the process of adjustment and change. That relates to people through policies for adding value to people. That is mainly in the areas of education and training. The present administration have made quite significant progress in a number of areas there which we welcome because we must produce a more highly skilled workforce. It is the health of the education system as a whole that matters because there cannot be a healthy industry in Britain with an unhealthy education system. So it is not only the micro-measures which the Government are taking, but their approach to the whole of the educational system which matters, and we really want an education system that is not demoralised.

The issue of research and development has been discussed constructively in this House and we know that the total of resources allocated in Britain is not too bad. It is the distribution which is the problem—much too much to defence, and too little to civilian research and development.

We also need a massive increase in manufacturing investment. Current figures look better; but we need a prolonged period of several years with double this rate of investment in terms of source of funds. It would be helpful if we could reactivate the corporate bond market. That is difficult with interest rates at their present level. But perhaps the Government could look at the United States example of industrial development bonds which, to small businesses especially, make it possible to offer low cost borrowing.

Finally, I would pick up the point of the noble Lord, Lord Sanderson of Bowden. I think that the infrastructure for industry is crucial. The roads system is quite inadequate. It is not a party point. The Governments I served neglected them even more than the present one. So the problem is well-known. The case for expanding manufacturing industry is overwhelming, with benefits to our overseas earnings and to jobs. It will not be easy and it cannot be left to government alone. But there is much which government can and should do.

5.57 p.m.

Viscount Caldecote

My Lords, I do not think there is any need to make the case further for manufacturing industry. Its importance to the creation of wealth is self-evident in adding value to raw materials. But I think there is some misunderstanding about the role of manufacturing industry in job creation. Certainly the noble Lord, Lord Hatch of Lusby, seemed to be a bit muddled about that. The fact is that with the increased productivity that modern technology provides, as the Occupational Studies Group report, which was issued last year, indicated, by 1990 on present trends there will be some 650,000 fewer employed in manufacturing industry. But that does not mean that its output will be less. It will and must be more. That will be largely counterbalanced by an increase in employment in the service industries.

But the prosperity of manufacturing industry is essential for that increase in jobs in the service industries, as is very clearly indicated to any visitor to Japan. The noble Lord, Lord Aldington, has put the relation between manufacturing and service industries so clearly that I need say no more on that. So taking the importance of manufacturing industry as accepted, I should like briefly to take stock of the present situation and then look at the action needed to improve it as the noble Lord, Lord Thorneycroft, advocated.

Much indeed has been achieved over the past seven years by government in controlling inflation and trade unions, and in creating and stimulating the growth of enterprise and the climate for it. There have been major benefits in creating that right climate for growth and prosperity in manufacturing industry. Industry too has made massive improvements in productivity, with a reduction in overmanning and in costs, producing greater competitiveness. There have been major benefits there too, inevitably resulting in higher unemployment. But everything in the garden is not rosy, as some noble Lords seem to be suggesting. There are some unpleasant realities that need to be faced. There have been major steps forward, but our competitors have improved too—sometimes faster than ourselves. Our unit labour costs continued to rise in engineering last year by 1 per cent. They were too high already and our competitors are reducing theirs.

In the 1986 world survey of relative competitiveness by the Swiss-based World Economic Forum, the UK comes fifteenth out of 22 industrialised countries. The report notes: The small gains made by the United Kingdom shown in last year's Report in … overall competitiveness … have been lost again. Contributing to this is Britain's virtual specialization in low-value products bringing it more and more into competition with low-wage. but increasingly productive, Third World countries". That is a report of an independent organisation, and it is very worrying. It indicates that the main opportunities for improvement lie with industry itself and not principally with government.

Thirdly. our share in world trade is still declining, albeit more slowly. As suggested by the World Economic Forum report, that is partly because we give insufficient emphasis to higher value added products. I have the privilege to be chairman of Investors in Industry and we invest a lot of money in medium and small companies throughout the United Kingdom, often between £1 and £5 million. Almost invariably the new capital plant that we often finance—office equipment, material handling, automation, NC machine tools and the like—is foreign made. That is very depressing. There was a headline in the Financial Times yesterday: "Jaguar buys £50m car assembly lines from Italian group". Jaguar is another marvellous example, in addition to the one quoted by the noble Lord, Lord Butterworth, of the success from investment in product development. Of course it is right for them to buy the best equipment that they can, but it is very sad that it is not British.

Fourthly, in a recent lecture to the Royal Society of Arts the chairman of the Manpower Services Commission, Mr. Brian Nicholson, an experienced industrialist, said: My overwhelming impression is that many bigger employers have become obsessed not with development but with staying alive …I believe that during the recession they developed such a strong sense of self-preservation that the entrepreneurial spirit was lost. It is time in fact, that the bigger employers emulated the ordinary people who are prepared to step out in a hostile market place. Their new-found efficiency will help them to do it". And so it will, but their new-found efficiency will be of no avail if company managements are not prepared to put much greater emphasis on expansion of market share through investment in product development with attendant unavoidable risk. It can be done successfully, as many of the more enterprising manufacturing companies have demonstrated. Many more of those are needed.

The financial sector can contribute also. At Investment in Industry we invest some £350 million a year, much of it in British manufacturing industry, the majority with a substantial risk element in it, about one-third of it in equity investment. A major factor in the success of that investment—and we have made a return of some 19 per cent. on the capital; compound annual rate over the last 10 years—has been a substan-tial team of industrial advisers, engineers, accountants, market analysts and the like, able to analyse the whole business and not just look at the figures in the profit and loss account and in the balance sheet. If risk is to be taken, as it must be, then it must be understood and minimised.

Lastly, I come to the question of where emphasis should be placed to enable our vital manufacturing industry to increase its output and recapture a greater share of world trade, thus contributing more to our national prosperity, so desperately important as oil-based income starts to decline.

No doubt there are many answers to that question. I should like to focus attention on just two which I believe are extremely important. First, we need a change of attitude to manufacturing industry. That was the principal objective of Industry Year 1986. The whole country is involved and we need to carry that objective forward into the years ahead. The Government must show their dedication. We want no more Treasury mandarins expressing doubt about the relation between investment in product development and prosperity, or Ministers expressing reliance on the growth of service industries alone to solve our problems. In schools, colleges and universities staff must be persuaded that the prosperity of their establishments, of themselves and of their pupils, depends on wealth created by manufacturing industry.

The Churches—I am sorry there are no right reverend Prelates here tonight—must cease to equate services in industry with service to Mammon. Wealth creation is good. So is honest money-making. How money is used is the Church's concern, or should be, as well as the abuses that follow greed and power, not the wealth-creating process itself which all can support as an honourable task.

Industry must put its house in better order too, if more enterprising high-quality people are to be attracted. We must give earlier responsibility to new entrants, to young people. We must give them structured training, a greater recognition of skills through well thought out remuneration packages. I fully support the noble Lord, Lord Butterworth, in his comments on that theme. The noble Lord, Lord Cledwyn, also referred to our failure to recognise the contribution of engineers.

I read a depressing letter recently by an engineer in the professional engineers' newsletter of the United Kingdom Association of Professional Engineers. He said: Two positions were being advertised within the same Engineering company. The first was for a part qualified account-ant … with 2/3 years experience and aged about 23/25, salary circa f 14,500. The second position was for an Engineering Graduate with B.Sc. I/11 Engineering degree, 2/3 years experience in Vacuum Deposition Technology age about 25/26, salary circa £8,000… I myself am a 49 year old Chartered Mechanical Engineer with 25 years experience in the design of special purpose machines, on a salary off 14,500. To see a salary off 14,500 offered to attract a part qualified accountant is a bitter pill to swallow". So it is. It is not a good advertisement for industry.

Secondly, there is a crying need for more investment, mainly by industry but by government too—by government in education and training. Let us regard expenditure on education and training as investment, not as revenue expenditure. It is always successful in adding value to people. Britain lags behind our competitors abroad. We have no time to discuss that today, but we wish the Secretary of State for Education and Science, Kenneth Baker, every success. Neither is it appropriate to discuss government support for research. That was fully dealt with in the civil research and development debate. There is time only to reaffirm the essential role of research in supporting successful product design and development.

So to industry's task. Above all else, industry needs to invest more in product design and development for world markets. It must be industry's decision and initiative. The questions are: what are the obstacles? What can be done to stimulate and encourage that investment? There is no obstacle in the availability of money. The City is awash with money seeking investment. Lower interest rates will help, and I hope they will go down further as quickly as we can get them down; but there is nothing wrong with the financial system as it stands at present, although there is a gap in understanding between suppliers and users of money.

I recently took part in a radio programme on Radio 4. There was a fund manager there also, and he made this comment: "I've got no objection to company investment in R&D provided I am sure it will be successful". That indicates clearly the gap in understanding between so many in the financial institutions and in industry, for there is no certainty that profitable sales will follow investment in development. It is a risk investment; it can be very profitable but the whole lot can be lost. A merchant banker recently assured me that he understood the development problem. I asked him what his experience in development was and he said, "Property development".

On the other side, many inventors assume that any good idea must lead to successful and profitable innovation and they are aggrieved when an investment is refused in the absence of a convincing business plan. We need more education for better understanding in those fields. Perhaps the British Institute of Management can help.

Then there is the effect on profit of the expenditure on product development when it is written off. The noble Lord, Lord Beswick, referred to that aspect today, and the noble Lord, Lord Gregson, referred to it in our debate on civil R&D. It is a real disincentive, particularly to small and medium-size quoted companies. Profits go down when money is spent on product development. Share prices go down and such companies are an attractive target for takeover bids. Managements prefer their independence, so it is a disincentive to investment in product development.

In the United Kingdom, there is no compulsion to identify product development expenditure in company accounts. In the United States of America, it is compulsory to do so and the more expenditure on development that such companies show the more there is a tendency for share prices to rise. That is in contrast to our experience here. Therefore I strongly support the noble Lord, Lord Gregson, and others in suggesting that we should follow the United States practice here and that we should insist that that type of expenditure is shown clearly in the accounts. I hope that the noble Lord, Lord Lucas, in replying will give an assurance that the Government support that change.

There are many other areas to discuss. However, time is running out and I want to leave your Lordships with a final thought. That thought is the vital importance of encouraging in every way possible greater investment in new product design and development. Only in that way shall we recover our lost share of world markets.

6.23 p.m.

Lord Dean of Beswick

My Lords, perhaps I may begin, as other noble Lords have done, by complimenting my noble friend on the Front Bench on moving this very important Motion and on the way in which he did it.

Previous speakers have produced a series of figures of varying kinds to illustrate their concern regarding the situation. I listened carefully to what the noble Viscount the Leader of the House said in his response. He indicated that there were some crumbs of comfort to be drawn from what is happening at the present time. It would be churlish not to admit that. However, there are also some danger signs that give us an impression of the dimension of the problem. I remind your Lordships that just under 12 months ago we debated this subject. That debate had a slightly different title: "Co-operation with Industry".

Various noble Lords have quoted figures regarding the numbers of jobs in manufacturing industry lost since 1979. The noble Lord, Lord Donoughue, said that the number was about l.75 million. Perhaps I may repeat some figures that I gave 12 months ago in order to indicate what has happened since. At that time I said that nearly 1.8 million jobs in the manufacturing sector in this country had disappeared since 1978. In general engineering over half the jobs had been lost in nine years—and I shall give some figures to illustrate that. In mechanical engineering, the loss was 118,000 jobs; in electrical and electronic engineering, 87,000 jobs; in instrument engineering, 35,000 jobs; in shipbuilding and repairs, 470,000; and in metal goods generally, 382,000.

That was nearly 12 months ago. As I said, I accept that some of the points put forward by the noble Lord look reasonable. However, what has happened since then? The figure for jobs lost has gone to nearly two million; 1.97 million people have lost jobs in the manufacturing sector since 1979. The trend is not being arrested at anything like the rate that we should like in order to deal with this situation. I think I am right in saying that even at the present time the manufacturing sector is losing between 8,000 and 10,000 jobs a month. That is still very severe haemorrhaging in what was traditionally our strongest base. I think the figures must be put in context to show what is happening.

Nevertheless, I believe that all of us who do have the nation's well-being at heart must continue to assert the primary role of the manufacturing sector within the wealth-creation areas of British society. It appears that we have had a job convincing some people that that is the case. I make no criticism of the role played by the service industries. They are vital and necessary. However, they will never be able to replace our historical manufacturing base.

It seems odd that in 1984 the present Chancellor was quoted as saying, I am at a loss to understand the selective importance attached by the Opposition and some Tories to the manufacturing sector". He was even critical of some people in his own party who at that time were criticising policies he was responsible for, assisting in or enunciating. I maintain that it is not attaching "selective importance" to realise that we need our base in manufacturing and engineering as a base on which everything else is built. My noble friend Lord Cledwyn referred to our history. We have a history of 150 years in these types of industries on which our prosperity has been based. What saddens me is that, in the list of industries which I have given and which are shedding labour at a rapid rate, some are our historic old industries and are the very industries which we should like to see expanding.

Nevertheless, we are a trading nation and we always have been. We have had to trade to prosper. We need a thriving manufacturing sector expanding our markets abroad and providing the goods and services we need at home. It goes without saying that the provision of health care, education and all the other social services that we wish to build on and increase to a higher standard will not be available unless we restore our manufacturing base to create wealth.

I should like briefly to refer to what the noble Lord, Lord Butterworth, has said regarding the motor car industry. I am sorry he is not present. I wish to say how much I support the points which he made. We know that for a number of years the car industry in this country went through a very bad time. Some of that was self-inflicted. However, it has made a tremendous recovery and at this point in time there are over a million people employed in that industry, both in car manufacturing and in component supply. If we go as far down as the petrol pump, the figure is over 14 million people.

The industry is now a success story. It is pressing the Government, at a time when the Chancellor appears to have a reserve of money available to be used for policies dictated by the Government and with the dramatic turnaround in the industry's fortunes, for budget measures which will eliminate discriminatory taxation and encourage growth. Using 1985 figures, what the industry regards as unfair discrimination can be quantified at £802 million paid in the unit car tax and £700 million in recoverable VAT paid by the customer companies. What the industry asks for is a lowering of VAT or removal of some VAT in order that the industry can compete on a better basis. There is no question that the industry, as the noble Lord, Lord Butterworth, has said, has to plough back a considerable amount of money into research and new technology in order not to fall behind its competitors. I hope that the Government will listen sympathetically to that suggestion, because it is one area where an increase in jobs could be created.

If I appear to be flogging the same horse that I flogged a fortnight ago, I should like to put a specific question to the Leader of the House while he is present. Just over two weeks ago, your Lordships debated an issue which was vital to the future of our manufacturing industry. I am talking about the power station sector as directed by the CEGB. We debated fully the Layfield report and the different types of reactor. I do not want to take your Lordships down that road again. However, it is a fact that unless some action is taken in the very near future there is a danger that the CEGB may not be able to meet the demands made upon it by industry. I have persistently asked Ministers and noble Lords on all sides of the House to urge the Government to order immediately two new coal-fired power stations. That would have a tremendous effect on a basic industry. We were talking in terms of 900 megawatt power stations. My information is that they have considerable export potential but we live in an era in which people will not buy something unless they see it working. I put this point to the noble Viscount a couple of weeks ago during the debate on power stations. When I and other noble Lords have asked questions about the ordering of power stations we have been told that it is the responsibility of the CEGB and not of the Government.

I happened to be in another place during Question Time recently when the Prime Minister herself said—and I do not have it word perfect—that her right honourable friend the Secretary of State for Energy was now considering the basis of a future power station ordering programme and would hope to report soon. I say to the noble Viscount, Lord Whitelaw, that I see no reason at all, and nor do other people with knowledge of the subject, why that could not be triggered off almost immediately, with the consequent beneficial effects. We have done well in this area in the past in terms of exports but I am afraid that if action is delayed too much longer there may be a debilitating effect on the capacity of the industry to deliver the goods.

The noble Lord, Lord Thorneycroft, who I see is in his seat, commenced his speech in rather unhelpful terms. He appeared to blame past Labour Governments and trade unions for most of the problem. The noble Lord also referred to bad management as though that was the fault of Labour governments. That was the way his remarks were framed. To suggest that Labour governments were responsible for bad management is going too far. That is the sole prerogative of industry itself. It is sad that in some respects we have fallen behind our competitors in this area.

I have some figures before me but I do not wish to start quoting them at this hour. The amount of government money spent on training for excellence in the universities and on research in our industrial establishments is 1 per cent., compared with 15 per cent. in the United States. We fall considerably behind our competitors in this respect. No matter how thorough or industrious the people in our universities, training colleges and factories who are training for the future industries, such a disparity cannot easily be made up. Urgent action must be taken.

I am glad that the noble Lord, Lord Butterworth, has returned to the Chamber. I referred to his dissertation on the car industry and the way in which it has recovered, and I asked the Government whether they could see any way of assisting the industry.

I conclude as I commenced. I accept the point made by the noble Viscount, Lord Whitelaw, that organisations such as the CBI and the Institute of Directors are saying that things are looking better; but each month we are losing 8,000 to 10,000 jobs in manufacturing, not in the old and decaying industries but in some of those which ought to be our new frontiers. Unless we find a way—and the Government have a role which they ought to play more positively, although I know they cannot manipulate market forces—the haemorrhaging will continue and when North Sea oil finally peters out, which will be in the foreseeable future, we shall find it difficult to maintain our standard of living and the social services which we all desire.

6.26 p.m.

Lord Bauer

My Lords, the noble Lord, Lord Cledwyn, opened this debate with a characteristically eloquent and good-tempered speech rooted in much social and economic experience which makes it a pleasure to hear him but makes one hesitant to speak against his Motion. In expressing scepticism about singling out manufacturing industry for special attention, hesitation is particularly in order because over the past year or so doubts on this subject have already been expressed by distinguished speakers, including my noble friends Lord Gowrie and Lord Young of Graffham, as well as by the noble Lords, Lord Seebohm and Lord Harris of High Cross. Some remarks may, however, be permissible to supplement what has already been said on this subject.

The practice of singling out one or other activity for special attention goes back centuries. In the 17th century acquisition of bullion was so commended, followed soon by activities leading to a trade surplus. In the 18th century agriculture was regarded as the source of wealth, and other activities as derivative or even parasitic. This notion resurfaced intermittently in the 19th and 20th centuries, often garnished with arguments about agriculture as a way of life, or as of special value for defence. Thereafter for some decades only the production of tangible goods was regarded as productive. In this scheme of things, doctors, lawyers, teachers, nurses, even legislators, live off the producers of tangible goods.

In recent years high technology has often received special commendation and support. However, in the West at any rate, it has been widely acknowledged in this century that the distinction between tangible and non-tangible output is unrelated to the merits of an activity. Any activity is productive if it adds value; that is, if the output satisfies private demand, or is required for necessary public services, and can be produced at a cost less than the value of the resources used. Economic activity is a seamless web and the distinction between manufacturing and others is arbitrary.

Manufacturing output is not more basic than services. It is perfectly true that there can be no service activity without tangible goods; but equally if there is no trade or transport there is no point in producing tangible goods because they cannot be sold or distrib-uted. Nor does a given volume of manufacturing create more jobs than the same volume of services. This will depend on how labour or capital intensive is a particular process, which has little to do with whether it is manufacturing or something else.

Similarly, productivity in manufacturing is not inherently greater than elsewhere. Productivity depends on the skills of management and the workforce, the amount of useful capital and the nature of the processes employed. These do not hinge on arbitrary distinctions. How arbitrary is clear from simple observation. If a manufacturer uses his own fleet of cars or lorries, are the people employed there in manufacturing or services? The same can be asked about warehouses and shops. The production of television sets is manufacturing, but that of programmes is a service. Moreover, many manufacturers and builders lease equipment from finance companies so that does not register as industrial investment.

Britain's share in world manufacturing has declined over the years. In recent years manufacturing has also declined in absolute terms. The same was true of much of agriculture in the 19th century. What is regrettable is not the decline in manufacturing but the failure of workers to find other employment. This derives from factors such as the aftermath of inflation, various obstacles to employment rooted in the labour and housing markets and the operation of the social security system and taxation. None of these has anything to do with the distinction between manufacturing and other activities.

In recent decades, manufacturing has lost ground to services throughout the industrialised world. By now service employment far exceeds industrial employment in all OECD countries, including Japan and West Germany, those paragons of progress and modern technology. In the US, service employment is much more than double industrial employment. In Switzerland, perhaps the most prosperous country in the world, service employment exceeds industrial employment by about one-half. The fact that there are relatively few manufacturing albatrosses around the neck of the Swiss economy has helped it to prosper.

What activity attracts attention and support at any given time depends in part on intellectual fashion, but more on the play of political forces. Here special interest groups are often decisive, as can be seen in the treatment of agriculture from the Corn Laws to the CAP. May not the role of special interest groups explain the emphasis on manufacturing? Manufacturing companies are prominent or dominant in the CBI. Trade unions are more powerful in manufacturing than in the service industries and special interest groups are good at orchestrating fancy reasons for support. Few people are better at it than Sir Adrian Cadbury, to whom the noble Lord, Lord Cledwyn, has already referred and whose education, background and personality made him a most effective protagonist of special interest groups such as the CBI.

The visible as well as the tangible nature of manufacturing output helps its cause. When Thiers, President of France in the early years of the Third Republic, was asked why he favoured lavish support to uneconomic sugar production, he replied that he liked to see tall chimneys smoke. Visibility may help with political effectiveness. But we should not be deluded into thinking that manufacturing is especially helpful to the poor or merits special support as an instrument of employment, welfare or economic progress.

6.33 p.m.

Lord Monkswell

My Lords, I have to declare a special interest, and following so closely the noble Lord, Lord Bauer's speech it becomes even more important that I do so. I am an engineer, who has worked in manufacturing industry for the last 20 years. I am also a proud member of the manufacturing union AUEW/TASS; so I take on board Lord Bauer's strictures about special pleading. I realise that I have to be very careful when looking at the terms of reference of the debate. I recognise that we need to look at the alternatives to manufacturing industry with regard to the economic prosperity of this country.

One alternative to manufacturing industry and the need for manufacturing industry is to go back to nature. The idea of 57 million people in Britain going back to nature is, I think, incredible, even to our imagination. The simple fact is that there is just not enough land, even if the climate were suitable, which I fear it is not.

If we look at what manufactured products are and how they relate to our society, we can see that quite a few people would manage without railways and buses; in fact, some of the top people in the land never travel on them. But they could not do without their motor cars for transport; they could not do without modern tractors and combine harvesters to provide their foodstuff, they could not do without manufactured machines to spin and weave their cloth to provide their clothing; and they could not do without power stations, oil tankers, and gas pipelines. Otherwise, they would be too cold. They could not even do without their televisions, radios and teleprinters.

So the produce of manufacturing industry is essential to what we have described as a modern civilised society. It is not just a peripheral advantage; it is essential. If one says that instead of manufacturing these articles ourselves, we could find some other source of income and pay other people to make things, that is the argument of service industries providing our wealth and income as opposed to manufacturing industry. If, however, we look carefully at the major service industries of this country, we can see that in general it is not a very satisfactory alternative.

If we look at education, the knowledge industry, we can see that in real terms we are hard pressed to educate ourselves, far less produce the over-abundance of teachers, lecturers and university professors that would enable us effectively to rent some out to the rest of the world. If we look at health services, another major service industry, again we are hard pressed as a nation, to produce the nurses, the doctors and other medical workers that we need to provide services for our own people, far less provide those services in other countries. So that is not an option.

If we look at finance, yes, it is the rising star of the moment, but in the post-Bang world of high finance we can see that the competitive pressures will rise very quickly. The very mechanisms that the finance industry uses to perform its functions mean that it is not required to be located in any one country. Looking at developments in Europe, we can see the financial strength of Frankfurt as a financial centre. An article in today's Financial Times described how the French Government are going to change the basis of operation of their financial institutions to provide direct competition to the London market. Therefore, in real terms, I think the possibility of a massive income to this country from the financial services industry is rather a short-term one.

In regard to tourism, we must think back to the time of the grand tour when affluent British noblemen and their families would go to Italy and be shown round the resplendent artifacts of 100 or 200 years previously. I suggest that not many people in this country would like to see our economy existing in a similar way to the Italian economy of 150 years ago. Some sort of manufacturing industry is essential.

I hope I have demonstrated with those few examples that one cannot earn enough without a sound, long-term base and without producing goods ourselves, to pay for the manufactured goods that we need to sustain our living standards. I say that advisedly because there is another possibility that must be considered. The argument is put forward, "Why not choose? Why not specialise? We do not need to produce everything that we need. Why should we not specialise in making what we are good at and use the money earned from that to buy what we are not so good at?"

The problem with that philosophy is how do we choose? Do we leave it to the market? We need only look at the situation we are now in to see what leaving it to the market means. The fate of our motor cycle industry has already been mentioned. For over 10 years the Japanese never made a penny piece from selling motor cycles in this country. They effectively destroyed our motor cycle industry. Now you need to take out a second mortgage to buy a motor cycle.

We must consider today's economic climate. As the noble Viscount, Lord Whitelaw, explained, the economic climate has been generated by Her Majesty's Government. It is a climate of a high pound, high interest rates, and an emphasis on short-term profits. We must look at what effect that climate can have on what is a world leader in its own field. I refer, of course, to Pilkingtons—as I say, a world leader in its field. It specialises in glass manufacture. It is dedicated to investing in research and development and to enormous amounts of long-term financial investment. What has been that company's experience of today's economic climate? It was subjected to a takeover bid. I quote two interesting statements made by senior figures within BTR—the company which made the takeover bid. Sir Owen Green, the BTR chairman, said: We have never seen the ethical need or the material reward for placing research and development to the forefront of our activities". The BTR chief executive elect, Mr. J. Cahill—he is the guy who was going to run Pilkingtons—said: We'll still he known as a rust bucket company … There'll be no high-tech". Those are the people who were to be running one of the world leaders in technology; a dedicated company which reached its position by commitment to investment in research and development and long-term capital investment. In fact, what happened was that, at the last moment, BTR pulled back. We suspect that an awful lot of arm twisting went on in the back rooms to encourage that result.

Another factor was that Pilkingtons, in defence of itself and its position, had to declare that its profit in future would go up. Effectively, it had to declare an increased dividend to its shareholders. That could only come about by a reduction in investment in research and development and in long-term capital investment. Today's economic climate is effectively forcing a company like Pilkingtons to cut its own throat rather than have its throat cut for it.

Philosophy is important—the philosophy of what sort of environment we shape for our manufacturing industry and how we treat it. We must look at the history of manufacturing entrepreneurs such as Stephenson, Isambard Kingdom Brunel—who has already been mentioned this afternoon—and Pilkingtons, to which I have referred. Coming more up to date, we must look at Colin Chapman of Lotus and at Sir Clive Sinclair. Those people are all examples of successful manufacturing leaders. One common factor is that they are, or were, dedicated to producing or building particular items. Henry Ford wanted to build motor cars. He was very successful in doing so and made a fortune. Apart from one, all the examples I have given made enormous amounts of money at their activities.

I welcome the words of the noble Lord, Lord Butterworth. He said that a declared goal is a good thing and that it gives incentive for the activity to be carried through successfully. Unfortunately, one of the things he did not mention when discussing the turnaround in British Leyland and what is now the Rover Group, was the importance of large amounts of capital investment in the firm. We recognise that they have invested in other areas, too, and that the Government have also invested large amounts of money.

Time is getting short. However, we must recognise that manufacturing industry is essential for British economic prosperity. I have one final but major point. A sound industry is essential for our defence require-ments. If we need to turn our ploughshares into swords we must make sure that our ploughshares are of sufficient quantity and quality to fashion the swords we need.

6.48 p.m.

Lord Mottistone

My Lords, it is interesting to follow the noble Lord, Lord Monkswell. For almost the first time I thought I was going to agree with him throughout his speech. Certainly for the first two-thirds of it I found myself in sympathy with him, but then he seemed to go off on a rather strange tack which I do not support.

It has been a particular privilege for me this evening to sit next to my noble friend Lord Thorneycroft, who in my opinion made quite the best speech of all the many interesting speeches we have heard this evening. I should like to thank too the noble Lord, Lord Cledwyn, whose speech and choice of subject were particularly apt. It was a pity that when he referred repeatedly to statistics and the like they almost wholly related to the early 1980s and never later than 1985. It reminded me of the grandfather of my noble friend Lord Stockton who I believe said, when he was looking after the country's finances, that statistics are like looking in last year's Bradshaw for this year's railway trains. That is what the noble Lord, Lord Cledwyn, was trying to do.

The more up-to-date information given to your Lordships by my noble friend the leader of the House—and indeed by my noble friends Lord Butterworth and Lord Sanderson; and to a certain extent by my noble friend Lord Caldecote—is more reliable as a guide to the current state of our manufacturing industry. I appreciate that the noble Lord, Lord Dean of Beswick, gave more updated statistics but he concentrated on jobs. I believe, as we all do, that manufacturing industry is important but that its importance lies in concentrating on making products that other people want to buy at competitive world prices.

The prime reason that it is important is that it creates wealth for this country from which the many and growing caring services can be paid for and from which further investment in wealth creation can derive. That is investment not just in R&D and hardware but in education and training, as my noble friend Lord Caldecote has said. This wealth can be created by various services; for example, the financial services that other noble Lords have mentioned. Nevertheless I agree with those who said that we cannot wholly rely on such services and that we must possess a strong manufacturing base.

However, what should concern us most, especially those of us who are most keen on caring for the community, is the creation of wealth. With that as the first priority, jobs should follow and I am sure that they will follow in due course. It is taking a little time but they are starting to come. Indeed, I believe that we have created more jobs in the past half a dozen years or so than anybody else in Europe.

Government intervention in the market-place with very few exceptions (I cannot immediately think of them but I put that in just in case there are some) has not been successful, partly because government priorities are different from the need for straight-forward wealth creation but also because governments, as represented by politicians and officials who are not directly affected financially by the outcome of the intervention, are unlikely ever success-fully to outguess the market. This is particularly so in a country such as Britain which has a record going back several centuries of leaving trade to the traders. Such was the situation when Britain was the workshop of the world, as the noble Lord, Lord Cledwyn, observed.

Japan and Germany, with their greater experience of authoritarian government, have allowed governments to intervene with greater success in the past 30 years. It remains to be seen how long that will continue to be the case. Those two countries have also had the advantge that none of their major political parties is dependent on the trades union movement for its finance. I believe that is a fundamental factor.

Interestingly, if sadly, all other countries which now have or have recently in the past experienced authoritarian or other forms of centralised government have been going downhill for many years. Let me give your Lordships a few examples. Spain has the highest rate of unemployment in the European Community; Portugal and Greece are the poorest countries of the Community; all former British colonies in Africa are measurably worse off now than they were at the beginning of independence. I am tempted to say that this is because they were taught centralised government by people such as—he is not here, so dare I say it?—the noble Lord, Lord Hatch of Lusby. All countries in the Soviet empire are far worse off than comparable countries in the free world. I could continue. What is common to all those countries is that they have—or in the case of the countries in the European Community have recently experienced —excessive government intervention in industry and commerce.

If manufacturing is so important to the survival of this country and if direct government intervention usually ends in disaster, what can governments do to encourage manufacturing industry? One answer seems to lie in tax incentives or the removal of tax disincentives such as the current excessive tax on UK-produced motor cars. That will not help the unprofitable companies but unless such companies change their approach, make what people want and sell it at competitive prices, in due course the country will benefit from their departure.

In any case, there are many successful manufacturers in the country, several of whom have not yet appeared in the statistics. The CBI has started to publish periodical examples. My noble friend the Leader of the House referred to the latest, optimistic report of the CBI, but I have to say that I find it sad that, when asked for its comments in the light of this debate, the CBI was only able to refer to its remarks of literally two years ago on the report of my noble friend Lord Aldington, which the CBI itself then considered to be retrospective in outlook. I was delighted to hear the speech of my noble friend Lord Aldington this evening and to learn that he is now looking forward to a much greater extent than was indicated in his report two years ago.

What is more, the number of successful manufacturers is increasing. An organisation called Think British, which is chaired by the noble Lord, Lord Parry, from the party opposite, is seeking to persuade British consumers that many products which it was thought 10 years ago would never again be successfully produced in Britain are now among the best in the world. So we are relearning to be competitive in world markets for many goods. Engineering software which is the design and production of computer software with an engineering design or operational application is one example. The British are going ahead in this field and in some respects are leading the rest of the world, though there is still much way to catch up in the software market generally. It is in those sorts of goods that are not so obvious or well known that we tend to do well nowadays.

Yet however well we do in expanding our ability to produce manufactured goods and find new markets, in many countries we suffer from a variety of tariff and non-tariff barriers to our manufactured goods. The noble Lord, Lord Donoughue, mentioned the harriers to services in Japan. I can assure him—and I shall illustrate it in a minute—that Japan is bad in the area about which I am talking. It is another area in which the Government can help manufacturers and enable more companies to start up and be successful. Quite the worst advanced country in this respect is Japan, both in regard to excessively high tariffs on many imported products, especially (and this is notable) those superior to local products, and in regard to unexplained non-tariff barriers which Japan usually attributes to misunderstandings with lowly officials at the border.

All Western countries—and we must join together in this situation—must keep on at Japan to persuade that country that free trade in all goods is best in the long run for all of us and that otherwise Japan itself will eventually suffer. Manufacturing industry is important. There is evidence that it is regenerating itself in this country. That is best achieved by less rather than more government intervention and by carefully selective intervention rather than blanket assistance. Above all, as my noble friend Lord Thorneycroft said, we need the unstoppable Mrs. Thatcher to continue to direct affairs well into the future.

7 p.m.

Viscount Chandos

My Lords, this afternoon's debate has been of a quality commensurate with the importance of manufacturing industry. I strongly believe that contributions from all sides of the House should be considered carefully by the Government and influence the policy of this and successive governments. We are grateful to the noble Lord, Lord Cledwyn, for introducing the debate. I very much enjoyed his speech.

The noble Lord suggested that all three political parties had presided over Britain's economic and industrial decline. While I cannot deny that my noble allies in the Liberal Party formed or played a role in governments in the early stages of that trend, the contributions to that decline of the Conservative and Labour Parties have been more recent and more substantial. The noble Lord did not suggest many measures to reverse the decline. Perhaps the noble Lord, Lord Willians will try. I am confident that the policies of the Alliance Party, which I shall. mention, will have a significant and beneficial effect on our industrial economy.

By this stage of the evening, there are few more words that can be said about the importance of industry which other noble Lords have not already spoken. However, in view of the vital importance of manufacturing industry, the wide spread of the misconception that Britain could survive or even benefit from a continuing decline in its manufacturing industrial sector justifies one more voice being raised and a few more minutes being spent to refute it before I devote the rest of my time to suggesting what should he done.

Over a 15-year period, from 1968–1983, world trade in goods grew at the same average rate as world trade in services. It continued to run at a level four times greater than the trade in services. Within that trend significant changes have of course occurred, and in the same period the proportion of the total workforce employed in services has risen, with almost all growth in jobs in the past 25 years coming from the services sector.

Even within manufacturing industry, as my noble ally Lord Ezra said, the hidden service component of employment is growing, with the numbers directly employed on production falling and the numbers in essential but service-related jobs increasing. Although the service economy may provide much of the future net growth in jobs, which are so badly needed, the manufacturing sector represents the dominant element of economic activity and national prosperity.

It is inconceivable therefore that we can maintain, let alone increase, our national standard of living through single-minded concentration on the service economy, producing as it does only one-fifth of the total world trade. Many of the fastest growing service sectors provide intermediate services such as consultancy and banking, where, within the domestic economy at least, demand is governed by the health and activity of other, predominantly manufacturing, companies.

In terms of exporting such intermediate services, as the noble Viscount the Leader of the House said, we should strive to maintain or increase our share in the world market so long as it is not at the expense of manufacturing industry. That will, in itself, be a formidable task. Already, our share of world trade in services has been falling almost as sharply as our trade in manufactured goods, with a halving since the early 1970s of our market share in financial services and consultancy. We may have started with a disproportionate share of the world market in services just as at the end of the 19th century we started with a disproportionate share of the world market in manufactured goods.

The extent of our recent decline has been exacerbated by the same types of restrictive practice and complacency in the service industries as those which accelerated our fall from our dominant position in industrial trade over a much longer period. That is why the deregulation of the financial markets in recent years has been, albeit belated, vitally important, and why the additional burden placed on the legislative and regulatory systems should be tolerated. That is not so much because of the inherent desirability of halting the decline in our share of the world market in financial services; it is much more in order to have a competitive financial system to serve manufacturing industry.

The state of manufacturing industry at the time the Government took office in 1979 was indisputably poor. The noble Viscount the Leader of the House listed the measures that the Government have introduced in their attempts to improve the climate for manufacturing industry. I use those words deliber-ately, as I should not wish to suggest that the Government believe that they can directly improve the performance of manufacturing industry. They can only establish an atmosphere of enterprise conducive to business generally and to the growth of smaller companies in particular.

At the microeconomic level, few of your Lordships would dispute that there have been improvements and successes, although there would be much less unanimity about the acceptability of some of the costs to the rights of employees, to the environment and to the country's social fabric in achieving that.

On the macroeconomic level however, the Government's record gains much less widespread support from your Lordships' House and the country as a whole. The yo-yo course of the exchange rate over the past eight years and a level of interest rates consistently higher, in real and absolute terms, than that enjoyed by many of our industrial competitors have often been discussed in your Lordships' House, together with the irreparable and unnecessary damage done to industry by the Government's policy of pursuing their intermediate financial targets. Today's debate is not about broad economic management, but the importance of industry within the country's economic life makes it difficult to discuss industry other than in the context of macroeconomic policy.

I cannot avoid mentioning once more, therefore, the unnecessary difficulty caused to manufacturing industry by the Government's, or at least the Prime Minister's, refusal to expedite our entry as a full member of the European monetary system as a means of smoothing out the most extreme fluctuations of exchange rate movements and of maintaining interest rates at a significantly lower level.

The Government, with their disdain for full membership of the EMS, are behaving like the driver of a massive truck who believes that real men do not need power-assisted steering and who in wrestling with the unassisted controls of his juggernaut crashes to unnecessary and tragic disaster. Full membership of the EMS is not a panacea or solution on its own, but the pursuit of economic and financial policies that are supportive of manufacturing industry is insuperably handicapped by a refusal to bring the United Kingdom immediately into the system.

Every pound spent by the Bank of England in smoothing sterling's exchange rate movements, and every adjustment to sterling interest rates, would have its effectiveness enhanced and magnified by our full membership of the EMS. The Alliance, supported by the CBI and the overwhelming majority of manufacturing companies, has consistently and loudly campaigned for such a policy, while the Government and the Labour Party have, in the past, for their different reasons, set their faces against such a step.

Slowly but surely, however, almost every voice has been raised in support of early membership of EMS. Last week even Mrs. Frances Morrell in the New Salesman advocated it. That suggests that the far Left of the Labour Party cannot be quite as misguided as the News of the World would have us believe. One solitary, obstinate voice stands out, and manufacturing industry is even now suffering because of it.

When combined with the cynical and incompetent stage management of interest rates by the Government at the moment to provide a pretty backdrop for next week's budget, it is difficult to believe that the Government really believe that manufacturing industry is as important as the noble Viscount, Lord Whitelaw, has said it is. Perhaps the noble Lord, Lord Lucas, in winding up will be able to reconcile this policy with the claim for a stable framework for industry made by the noble Viscount, Lord Whitelaw. However, let the Chancellor redeem the Government's recent contortions in the money markets by announcing in the budget that we will become full members of the EMS. If his Prime Minister will not let him do as we are led to believe he would like to, let him instead do the honourable thing and resign.

As I have said the noble Viscount, Lord Whitelaw, concentrated on the Government's measures to create a favourable environment for industry, but he also emphasised the areas of direct support which he believed the Government have given to industry. My colleagues in the Alliance and I strongly welcome the support that the Government have given to the Rover Group's corporate plan and the consequent renewed investment. I wish, however, that I was confident that this decision displayed, as the noble Viscount claimed, the Government's commitment to support for industry as much as their acute awareness that a general election is now months—or even weeks—away. However, even if this is the case, let us hope that on other important decisions now pending, such as the matter of launch aid for the Airbus A330 and 340, the case for support will likewise start at least 15—love up rather than the 40—love down, which, without the imminence of electoral execution to concentrate their minds, the Government's ideology would otherwise lead to.

But what would be infinitely preferable to the conduct of industrial policy as a consequence of the short-term pressures of electoral expediency would be a consistent and logical approach by the Government towards manufacturing industry. Decisions have been taken now on Westland, Nimrod and the Rover Group, and decisions are pending on Airbus, HOTOL and other major projects. They are not unrelated and independent, although the particular aspects of each case must obviously be considered. They are all dependent on the Government's own perception of their proper role in the industrial world; namely, their attitude towards public purchasing policies, towards continuing investment in publicly owned companies and statutory corporations (without undue distortions resulting from the Treasury's arbitrary definitions of government borrowing) and towards assistance for research and development, education and training.

In his speech, the noble Viscount, Lord Whitelaw, singled out education and training as an area in which the Government were satisfied that they were giving the necessary support to industry. However, today's Financial Timescarries a leader on last month's announcement by the University Grants Committee that the London and Manchester business schools were both being threatened with the severest cuts of any of Britain's 53 university institutions in 1987–88, and with cuts of up to 23 per cent. in 1989–90. The expenditure by British industry on training at every level is woefully inadequate.

Whatever other pressures can be applied on companies themselves the Government cannot, and must not, avoid further direct action and support—and this is a critical part of the Alliance's overall industrial policy. The short-term revival in the economy which my noble ally, Lord Ezra, has agreed is occuring is to a large extent based on the short-term cost-cutting measures adopted by the Government in reducing productive long-term public sector capital investment and cutting funding for further education. However, the ultimate damage to our economic prosperity will become apparent.

The Alliance's budget priorities announced yesterday outlined the key measures for industrial policy which we believe would start to reverse the decline which this Government have largely failed to prevent. An industrial credit scheme and industrial revenue bonds would stimulate the supply of longer term fixed rate financing for manufacturing industry. I was delighted to hear the noble Lord, Lord Donoughue, add his support to this proposal. Increased support for training, research and development, innovation, export promotion and regional development can all, at comparatively small cost and in a short space of time, have a disproportionate effect on the industrial competitiveness of the country. Industrial democracy remains a central priority of the Alliance on the grounds that it alone can achieve the unification of purpose between all members of the industrial community whose absence has consistently undermined the slow progress made towards economic and industrial recovery.

Disquiet about the economic effect of the high level of mergers in industry has prevailed for longer than the current heightened concern about the propriety and legality with which these mergers have been pursued. For over two years the Alliance has advocated the reform of competition policy and the strengthening of the Office of Fair Trading and of the Monopolies and Mergers Commission. Central to this would be the requirement for companies involved in mergers or takeovers to prove that what they proposed would be positively in the public interest and not merely not against it. The introduction of this principle, combined with the streamlining of the whole OFT and Monopolies Commission procedure, would go some way to restoring a productive and effective balance between the workings of the markets and the national interest. I am therefore delighted that the Labour Party has also adopted a similar proposal for reform of competition policy.

7.16 p.m.

Lord Williams of Elvel

My Lords, I should certainly like to congratulate all noble Lords who have taken part in this most interesting debate on the Motion, if I may pay the compliment to my noble friend, so eloquently moved by Lord Cledwyn of Penrhos. I believe these congratulations are in order not only because your Lordships have demonstrated very considerable wisdom, but I think you have demonstrated without any doubt at all—if ever there was any doubt—that, in the words of my noble friend's Motion, manufacturing is important, and indeed centrally important, to the economic prosperity of Britain. There was universal, or almost universal, agreement to that, the only discordant voice perhaps being that of the noble Lord, Lord Bauer, to whom I shall return later. I say "if ever there was any doubt" because at one time I believe there was.

I seem to remember some years ago government Ministers were saying that there was no particular advantage in manufacturing; that we were moving naturally and inexorably to a service economy; that dividends from overseas investments would easily cover future deficits on manufactured trade, even when the oil ran out; and that anyway North Sea oil was to go on far longer than anybody expected so we should stop worrying. This position was, if I may say so, supported by a number of respected—or previously respected—commentators in the financial press. From the debate today and from the contributions on all sides of the House I think it is clear that those arguments have now run out. We had no lectures on the virtues of monetarism.

No noble Lord has pronounced that services will take up the slack caused by a disappearing manufacturing base. Nobody any longer thinks that dividends from overseas portfolio investments will suffice in future to cover the manufacturing trade deficit and the oil deficit that will re-emerge in the early 1990s. There are no longer any illusions about the task that lies ahead if Britain is to survive in conditions of anything that could be remotely described as economic prosperity. If I may say so, it is perhaps the greatest achievement of the noble Lord, Lord Aldington, that he has knocked the Treasury on the head in their automaticity argument, and we must all be grateful to him and his committee for that.

We, on these Benches, are very glad that those arguments are now dead and put to rest. We never believed them in the first place. We are glad not simply because they have gone out of fashion but because they do not stand up to the facts. It is a fact that our share of world trade in services has fallen, that our surplus on services, having altered the figures a number of times in 1986, fell from £5.7 billion in 1985 to £5.3 billion in 1986. It is a fact that the annual figure for dividends from our portfolio investment abroad is almost exactly equal to the oil surplus in 1986, and when that oil surplus disappears it will be required to cover just that without any contribution to the manufacturing trade deficit.

Indeed, I would go further. I believe that to compensate for the deterioration in our visible trade balance, to bring 1986 back into what I believe government Ministers used to call "broad balance"—although since the figures have changed, as my noble friend Lord Hatch of Lusby said, to a deficit of £1.1 billion, I do not think that that phrase is any longer appropriate—would need an even greater contribution from overseas investment than we have at present.

I wish to leave the old arguments aside. They are tired; they have gone to sleep; they have gone forever. I wish to concentrate on the new arguments that the Government and certain noble Lords have put forward. We are told that manufacturing is now doing very well. The noble Lord, Lord Mottistone, painted a very rosy picture of manufacturing and said that industry is leaner and fitter and doing business in a satisfactory and profitable manner. We are glad that that is the case. However, I join with the noble Lord, Lord Ezra, in looking a bit further into the future and asking: "Do we really have a plan? What will happen when the oil starts to reduce its contribution to our national economy and to our balance of payments in the early 1990s?"

I agreed very much with what the noble Lord, Lord Thorneycroft, said. The world has changed. It has changed, if I may say so to the noble Lord, in two respects. The world changed in 1979 because of the arrival of North Sea oil. We all knew that that was going to happen. The market discounted that early on; but it arrived and it had a dramatic effect on the balance of payments so that all the stop-go problems which the noble Lord has associated with this—indeed the noble Lord mentioned certain names of other people who were associated with those policies—and all the stop-go policies which were dictated by the problem of sterling were no longer a real problem. We had a breathing space during which North Sea oil contributed largely to our balance of payments.

However, the noble Lord was also right in saying that the world had changed in that we had now come to a realisation that the formulae which were right after the war for public ownership and nationalisation were not necessarily right in the conditions of the 1970s and 1980s.

We on this side of the House in my party have recognised that. I hope very much that the noble Lord will read the document that the Labour Party produced and passed at its last conference as it marked a very serious advance away from the Morrisonian concept of the nationalised industry in favour of working within the context of the market economy.

First, I must recapitulate some of the figures about the industrial decline on which a number of noble Lords have commented. Whatever the figures may say, whatever area one chooses, there is one outstanding fact. Since 1973 the United Kingdom is the only industrialised country which has experienced an absolute decline in manufacturing production. All others have suffered but all others have gone up to a lesser or greater extent. Of the industrialised countries, the United Kingdom is the only one that has gone down. The United States has gone up 31 per cent., Canada up 23 per cent., Japan up 44 per cent., Italy up 20 per cent., and so on. However, we have gone down 9 per cent. That is the quantitative extent of the decline. But the news when we come to the qualitative extent—this is the point that the noble Viscount, Lord Caldecote, was making and to a certain extent the noble Lord, Lord Sanderson—is slightly more depress-ing. We have in fact withstood best in the traditional: industries and worst in the new high value added industries that everyone has been concentrating on this afternoon.

The results are quite clear, as demonstrated by a recent analysis made by the Midland Bank of industrial specialisation by country. The high research industries—as the noble Lord, Lord Butterworth, remarked—are the fast growing new industries of the future. The United Kingdom scores badly: 0.6 against Germany's 1.5, Japan's 1.4, France's 1.2, America's 1.1. However, in the low research intensity industries the United Kingdom scores 2.0 against America's 1.1, 0.8 for Japan, 0.5 for France and a mere 0.2 for Germany.

It is of course in the high research industries that growth is fastest, profitability is greatest and price competitiveness is less important than it is in the low research industries. The noble Viscount referred to our recent export performance. We are very glad that exports are going up; but I agree with my noble friend Lord Donoughue that it is the exchange rate change—the very severe depreciation that has taken place—that has allowed low research industries to take advantage of price competitiveness.

I think that we are coming towards the end of that particular cycle. In other words, we have fallen behind quantitatively and qualitatively. Even the modest resurgence in manufacturing in the past two or three years that the noble Lord, Lord Ezra, and the noble Viscount told us about, welcome though it is, does not really begin to catch up the ground that we have lost over the years, let alone the ground that we have lost since the peak in 1966. That is the real problem. Let me say immediately that we believe that it can be done. We do not accept the fatalistic argument that Britain is sinking into permanent manufacturing decline, nor do we accept the argument that it will happen automatically by some change in exchange rate or some macro-economic environment that will bring back youth to this slighty middle-aged patient.

I listened very carefully to what the noble Lord, Lord Ezra, had to say about the strengthening of the DTI. I thought for a moment that he had got hold of a copy of the industrial policy statement that the Labour Party is about to produce. I thought that perhaps the Guardian mole had been at work again, because what he said was more or less exactly in line with what the Labour Party will be announcing. I was even more surprised when the noble Lord, Lord Thorneycroft, agreed with the proposition that the DTI should be the real motor department to co-ordinate all the various programmes that are in place for industry.

I have not had the opportunity or the honour to read the book written by Mr. Michael Heseltine, but no doubt I shall get round to that in the course of time. However, we are quite clear that we must have an industrial strategy for the long term organised by the DTI and not going as a government into the trading sector. I take the point that it is not alway successful for governments to go into the trading sector but by co-ordinating those various points and pieces of action that a government have to do it supports industry in what industry has to do.

A number of noble Lords have talked about finance. My noble friend Lord Beswick was kind enough to give a commercial plug to a pamphlet that I have recently written on the Investment Bank for the United Kingdom. I am grateful for that. That is part of a reconstruction of the financial scene that we would like to introduce. However, I wish to make it clear that that investment bank would not, as banks normally do, come under the Treasury, but would come under the DTI because we regard that as part of the industrial strategy rather than as part of the banking system.

We believe, as other noble Lords do, that there is necessity for a major increase in training. There I join with the noble Lord, Lord Butterworth. We made our views on research and development perfectly clear in the debate the other day. We believe that import penetration—to pick up the point made by the noble Lord, Lord Sanderson—has to be tackled seriously. Finally, we believe in a strong regional policy.

Returning to the problem that was posed by my noble friend Lord Cledwyn, Britain's economic prosperity is not measured by the number of economists in Whitehall or by the level of salaries in the City of London, high though they may be. That is the jacuzzi economy to which my noble friend Lord Beswick referred. The economic prosperity of Britain is measured in the ability of the vast majority of people who live in regions outside London to live their lives in economic comfort and freedom without sudden shocks and with a steadily expanding horizon. That is what we mean by economic prosperity.

Let me take this argument a little further and reduce it down to sectoral or regional level. The majority of people—whatever we think here—perceive their own locality, parish, borough or village, or whatever it may be, as an economic entity. There are many who live in one place and commute to another. Nevertheless, local regional boundaries still form the basis of most people's economic perception. When the local prime industry, whatever it may be, does well, the community does well. In an agricultural area, if agriculture is doing well the shops, the pubs and all the services which are dependent do well. In an industrial area, if manufacturing is doing well the service sector does well. If the prime industry does badly, the dependent service sector will do badly. The noble Lord, Lord Beswick, said that everything published in my pamphlet is automatically right. Noble Lords will have to take it from me that four out of five jobs in the service sector are in service units which are dependent in one way or another on the prime industry in the locality. Only one out of five is in the tradeable trading sector. In case the noble Lord opposite is making notes, I must specify that I regard financial services as being a prime industry. It is the dependent sector about which I am talking. That is the nature of the service sector. People who argue that services can exist without manufacturing, or indeed that manufacturing can exist without services, are embarking on a wholly false argument. The two are interdependent.

The next questions are: which prime industry can be used to activate all these dependent service jobs? Which is most flexible in its location? Clearly it is not agriculture. I do not believe that tourism is very flexible in its location. Mining is clearly not; it depends where the ore deposits are. The answer comes time and again: it must be manufacturing. That is the real importance of manufacturing: to energise communities and the service sector which depends on manufacturing and on the prime industry. I must take issue with the noble Lord, Lord Bauer. We live in the real world. Manufacturing is the only prime industry that is capable of being relocated, of taking over from other prime industries that may be dying, and of spreading economic prosperity through the service sector and the communities where the majority of our people live.

I realise that to argue in this manner is to deny the basic tenets of the noble Lord, Lord Bauer, and indeed some of the basic tenets of the Government. However, I am not bothered about that. I know only three essential truths. The first—and this has been echoed time and again in your Lordships' House this afternoon—is that the renaissance of a modern, high technology manufacturing base is absolutely essential not only for the nation as a whole but for the local and regional communities in which people live. The second is that we have been living in a slightly unreal world. It has been North Sea oil which has accounted for the balance of payments surpluses since 1979, and that prop will disappear in the 1990s. We have to plan now to make our dispositions.

The last truth is that in the North Sea oil bonanza this Government had a unique opportunity, not available to any previous government and never to be available again, to convert our obsolete prime industries into the industries of the future. I think that they have blown it. The next government, of whatever colour, will have a hard task. I think that noble Lords accept that. As my noble friend Lord Cledwyn has said, if they will not undertake that task, we shall.

7.35 p.m.

Lord Lucas of Chilworth

My Lords, this has been an interesting afternoon, as I thought originally it would be. I have decided, with a little help from your Lordships, that the brief which a few days ago I prepared with the aid of officials would not do. I wish to concentrate upon answering noble Lords.

I begin with the noble Lord, Lord Cledwyn of Penrhos, whose speech I greatly enjoyed. He began by asking what has happened to the workshop of the world, meaning the UK manufacturing industry. I shall tell him now. Since this Government came into power in 1979 we have been reequipping that workshop. We have reequipped it in terms of people, techniques, labour relations and so on, all with the aid of the policies that this Government have pursued single mindedly since we came to power. As I shall hope to demonstrate during the course of my remarks, we now stand on the threshold of the greatest opportunity we have had for many years. That answers the point of the noble Lord, Lord Williams, when he talked about the legacy that we inherited. That is what we have done. I say again: we stand on the threshold of a great opportunity.

I warmed to the noble Lords, Lord Cledwyn and Lord Butterworth, the noble Viscount, Lord Caldecote, and the noble Lord, Lord Donoughue, when they spoke about engineers. Being one myself, I have always suffered from exactly that point. I believe that we have to enhance the status of the engineer—whether chemical, scientific, biological or whatever—so that this contribution can be more fully felt not only in the productive process but in the boardrooms, in the decision-making areas.

I wish to pick out a point from the opening remarks of my noble friend the Lord President of the Council in the context of the speech of the noble Lord, Lord Cledwyn. My noble friend said that he wished to make two points. He said: The first is that to acknowledge the importance of manufacturing industry is not to decry the relevance of a dynamic service sector. The existence of one is not deterimental to the other". I do not believe that anybody has suggested that it is. A different emphasis has been put on those two factors. I believe that the noble Lord, Lord Williams, in his concluding remarks suggested little nuances here, but we believe that they are essentially interconnected. It is certainly not part of this Government's policies to put either one or the other above the one or the other. I put it that way so that there shall be no emphasis in the order in which I put them.

I want to turn to the point that I think the noble Lord, Lord Beswick, raised in his remarks about the reappraisal of investment; the voice, I think he said, in the balance sheet. He said that we ought to be taking a longer term view of these things. I want to say something about that, because a number of other noble Lords mentioned it. It seems to be believed that institutional investors are too concerned with short-term profits shown by the companies they invest in, and that they are not interested enough in expenditure essential for sound, long-term company performance, such as research and development, training, and so on. It is said that because of this, industrial managers are not able to give long-term expenditure the priority they know that it should have.

There are, of course, pressures in the City. The performance of institutional investors is monitored over even shorter periods, but I am not totally convinced that these pressures have led to a wholesale concentration on the short term at the expense of the long term. I believe that it is largely for the companies themselves to explain their strategies to investors and to convince them of their soundness.

I warmly welcome the establishment of the CBI's City Industry Force as a first step in the process of improving mutual understanding between industrial companies and the financial sector. There is a lot to be gained there. Indeed there is a lot to be learned there. My noble friend Lord Caldecote, speaking of his experience—I think on Radio 4—mentioned the relationship between the user of money and the supplier of money. I think he made that point extremely well.

The noble Lord, Lord Ezra, covered a number of areas. I think I have touched on the manufacturing versus services element and on the short-term and long-term element. I was fascinated, as indeed I was fascinated by what my noble friend Lord Thorneycroft, and the noble Lord, Lord Williams, had to say about the role of the DTI. I think it would be imprudent of me this evening to express more than my fascination, and I think I shall leave it there.

A noble Lord

Have a go!

Lord Lucas of Chilworth

We are always looking, of course, to discharge our responsibility as a supporter of industry and as a supporter of trade both at home and overseas. We shall continue to do that. That is as far as I shall go.

How far, my noble friend Lord Thorneycroft asked, do government intervene? We have tried in our policies to remove government intervention as far as possible. Again, my noble friend the Lord President of the Council said that there were certain areas in which government had to intervene. That was in the construction, if I may put it this way, of the general parameters of the climate in which industry and indeed individuals can pursue their rightful, proper occupations. I think that this is the right thing to do.

I greatly enjoyed the speech of my noble friend Lord Wolfson. He talked about the structured changes in industry and how things have altered. I thought he had an optimistic view of the changes in recent years and how we were going to move forward. He spoke, of course, across a broad spectrum. One thing worried me a little. My noble friend said that we must not be the manufacturers of gloom and despondency. A number of contributions this afternoon had this element of gloom. If we are not overly careful, I have a feeling that we are going to talk ourselves right back to where we came from in the mid-1970s. We have to make sure that we do not do that.

The noble Lord, Lord Lovell-Davis, said that at one time we were in the lead but that today we were not even in the league. I believe that my noble friend Lord Butterworth responded to that. We are high in the league of manufacturing, of employment, of exporting, and in our share of world trade. Let nobody go away from your Lordships' House, or anywhere else, tonight, with the thought that we are not even in the league. We are in the league and we are very high up in the league.

Lord Lovell-Davis

My Lords, will the noble Lord give way? If he reads Hansard tomorrow he will realize that I actually defined a number of significant major industries where, without any doubt, we are not in the league.

Lord Lucas of Chilworth

My Lords, I am quite sure that the noble Lord opposite will forgive me if I have misheard or misunderstood him. I shall of course carefully read what he said.

The noble Lord, Lord Ezra, spoke about investment. I feel bound to say that manufacturing investment last year, 1986, was 19 per cent. up on the low point of 1983. Certainly, it was down on the 1979 level. But we anticipate, and have good reason to anticipate, that manufacturing investment will be higher in 1987.

My noble friend Lord Caldecote assured us (I accept what he says; he is in the business of investing in manufacturing industry) that there is plenty of investment money available. His problem was finding the right things in which to invest. If my noble friend is right, that is no condemnation of lack of investment. Certainly, with the improved profitability of British business over this last year or two, with so much of that improvement going back into self-investment, I believe that industry is thinking in the right way about financing its own future progress.

I want to turn to the noble Lord, Lord Aldington. I greatly admire my noble friend for all the efforts that he has made, and particularly those of his committee. My noble friend said that he does not want to unsay anything written in his committee's report. He accepted—and I was grateful to him—that there have been improvements in manufacturing output and in prospects for the future in recent months. I wonder whether, if he and his colleagues were writing the report today, they would be so despondent as they were then.

Manufacturing output has grown steadily for the last six years. It is 14 per cent. higher than it was in the depths of the recession. Productivity is now 40 per cent. higher than it was in 1981; more than 30 per cent. higher than in 1979. Exports were at a record level in the last quarter of 1986. With the benefit of the competitive pound, we believe they will do even better in 1987.

Profitability is at its highest level since the early 1970s. As I said, manufacturing investment has risen considerably, in fact by 20 per cent. since 1983. Therefore, I do not totally accept all—

Lord Aldington

My Lords, would my noble friend give way?

Lord Lucas of Chilworth

We are on a limited debate, and I think that perhaps I will try my best to finish in time. It is a limited debate and I think I am entitled to refer to other comments that have been made.

Lord Beswick

Phony figures.

Lord Aldington

Phony remarks.

Lord Lucas of Chilworth

I want to turn to the noble Lord, Lord Butterworth, who gave us a description of the regeneration of some of the older industries. The noble Lord, Lord Williams, also made the point in his closing remarks that it is some of the older industries that have performed rather well. Certainly the Rover Group has revitalised its efforts; but let us not forget that a considerable amount of taxpayers' money has been put back into that company to enable it to reequip, reinvest and take advantage of the present market position. The regeneration has started. The noble Lord spoke about research. I do not want to repeat the fascinating debate we had three weeks ago on research and development, because I can add nothing at this stage to what I said then.

It would be right if I say something about the North of England, to which my noble friend Lord Sanderson referred. We had a debate earlier this year initiated by the noble Lord, Lord Taylor of Gryfe, upon the relationships between various areas of the United Kingdom. I do not want to go over that ground again, other than to say that it is inevitable that the effects of that long passed recession were felt most severely in those areas where heavy industry was concentrated. There have been developments in the North which have been to the advantage of the North: for one, ICI's recently announced programme of investment for Cleveland. My noble friend Lord Sanderson spoke about the textile industry, another of the older industries which have had to compete with world-wide competition, have adjusted and re-equipped themselves, and are now, as he said, in a healthy position. He, my noble friend Lord Mottistone and the noble Lord, Lord Donoughue, asked me about protectionist policies. Our policies remain those of open and fair trade. We shall certainly pursue those interests most vigorously both in the community and in the new GATT round. We believe this is the best way for world trade and our share of world trade to prosper.

The noble Lord, Lord Donoughue, and my noble friends Lord Butterworth and Lord Caldecote spoke about the reward systems. I understand very well what they mean by that. Returning to what the noble Lord, Lord Cledwyn, said, we believe that if the engineer and the scientist were more properly regarded then their influence would be greater felt. But it is for industry itself to make the profit (and then the wealth from which all other things flow) and recognise their worth and pay them their proper reward. Then we may get the better balance we are seeking.

I should perhaps add that it is a point that the Government have well recognised that employees, whether boardroom or shopfloor, should have a direct share in the success of businesses in which they work. It does two things: it removes a "them" and "us" barrier and improves motivation. All these things should be carefully considered by management to get a better equation.

I have referred to all the points that my noble friend Lord Caldecote made. The one point that I should endorse is that on training—which is primarily the responsibility of industry itself supported as it is by my noble friend the Secretary of State for Employment and by his department's activities in the MSC, and so on—it is for industry to recognise the relationship between training and trained staffs and profitability. It is almost equal to an investment in plant or research and development.

The noble Viscount, Lord Chandos, asked specifically about the exchange rate mechanism. Many of the arguments against ERM membership have weakened in force, but the Government have decided that at the moment the balance is still not in favour of our full membership. We shall certainly keep this under review. I thought that the noble Lord's analysis of the present position was perhaps a little naive. I found that he was not able to tell us a great deal about the alternatives which he saw available to his Alliance.

I was glad that the noble Lord, Lord Williams of Elvel, was able to set aside the old arguments. He asked whether we had a plan. No, we do not have a plan as such. As my noble friend the Lord President of the Council said in his opening speech, we have a number of policies. Those policies together make up the totality of the way in which we think we should go. It is certainly true, as the noble Lord said, that the older industries were succeeding well against the new industries. I agree with him there.

We support through a variety of ways the high-tech industries which are essential to our economy. He then spoke about North Sea oil as providing a prop. I do not believe that. I believe that the North Sea oil prop, or bonanza as he described it, has given us a breathing time in which we could equip and re-equip the manufacturing industry workshop which the noble Lord, Lord Cledwyn of Penrhos, mentioned in his opening remarks.

The climate for the United Kingdom manufacturing industry is now more favourable than it has been for many years. Inflation remains in single figures. The exchange rate is highly competitive. There is healthy expansion in world trade following the fall in oil prices. Unit costs have been rising no faster than those of our competitors and here we have been preserving our advantage. Our manufacturing productivity has increased faster than that of our main competitors. The profitability of our manufacturers, vital for future investment, is higher than since 1973. British business confidence is rising. The CBI February survey was one of the most optimistic on record. A majority of firms say that their order book is above normal. The ABCC has favourable reports of business confidence from all its regions and the Institute of Directors also reports favourably on business confidence.

The investment we have made in the years of our administration has paid off. We stand at the threshold of opportunity which industry, I have little doubt, will grasp. I am sorry that my noble friend Lord Aldington took offence at what I had to say. I really am sorry. Perhaps it was the only discordant note in what has been an extremely interesting, very worthwhile debate on a subject of absolute importance. We have had a number of thoughtful contributions, including a number which I regret I have not been able to acknowledge. I hope the noble Lords concerned will forgive me for that.

There has been unanimity about the central importance of manufacturing industry. There has been an opportunity to acknowledge the remarkable and sustained recovery in manufacturing industry since the mid-1970s, and I believe a number of noble Lords have acknowledged the contribution to that recovery made by the policies of Her Majesty's Government. I finish by saying that those policies will continue to make their contribution in the manufacturing industry of our country.

Lord Hatch of Lusby

My Lords, before the noble Lord sits down—

Noble Lords

No!

Lord Hatch of Lusby

—will he answer just two of my questions briefly? What was the manufacturing deficit in this country last year, and how many workers in manufacturing industry became unemployed last year? These are only two of the questions I asked him.

8.1 p.m.

Lord Cledwyn of Penrhos

My Lords, I am most grateful to noble Lords in all parts of the House who have taken part in this debate and who have made it, I believe, an effective, valuable and important debate. It would be wrong for me to pursue the argument and my pleasant task now is to say to the House that I much appreciate the effectiveness of the debate. Therefore I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.