Finance Bill

HL Deb 14 May 1987 vol 487 cc734-73

4.5 p.m.

Second Reading debate resumed.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord, Lord Brabazon of Tara, for having addressed himself to the Motion on the Order Paper. His contribution fell into two parts. First, he dealt with the fiscal aspects of the Finance Bill, and in the course of that he revealed the limited extent to which its taxation provisions would apply to those whose incomes are rather low. However, he was careful not to mention the massive benefits that are confirmed by the reduction in the rate of taxation to those in the higher income groups who on average benefit some 13 times as much as their less fortunate colleagues. I shall not endeavour to deal any further with the taxation provisions of the Bill and the various other more technical parts of it because most of them have been lost.

However, in the course of his remarks the Minister mentioned expenditure, and because it has long been the claim of the Conservative Party that it is the party of lower taxation, it may perhaps be in order for me to point out that since 1979—at which point government expenditure was some 38 per cent. of the national income—under this Government it has risen to 45 per cent. I do not want to make any further point on that matter, other than what is revealed by the stark statistics themselves. However, it perhaps enables us to place some value on the broader and more general statements which are made by Her Majesty's Ministers from time to time and which will doubtless be re-enforced in a more elaborate and colourful form during the electoral struggle with which your Lordships will not be involved but which will doubtless be fought with vigour up and down the country.

I do, however, have to ask the noble Lord about VAT. The Chancellor of the Exchequer and his right honourable friend the Prime Minister have in another place been singularly reticent about the future of VAT. Your Lordships will recall that, in speaking on 12th February, the Chancellor of the Exchequer said: I see the extension of the VAT base as an essential part of the budget strategy and a necessary counterpart to the reduction in income tax". That suggests to me that the Government have it in mind, in very much the same way as the former Chancellor, Sir Geoffrey Howe, when justifying the reversal of the election promises not to double VAT after the election, so very aptly said in his first Budget, and indeed pleaded as justification, that the income tax reliefs had been necessary in order that people could pay the increased VAT. I found that most disarming.

The question that I wish to ask the noble Lord, speaking in the absence of his noble friend, is a simple one. Can the noble Lord give the House an undertaking (on the possible assumption that the present Government are in office after llth June) that VAT will not be increased during the time that elapses before the next normal Budget, which will be in March/April 1988? That would immediately dispense with any misunderstanding about the matter. We of course know that the European Commission has brought a case against Her Majesty's Government—Case No. 416 of 1985—in which it is claiming that a 15 per cent. VAT should be imposed on all new buildings and on newspapers, as well as advancing a whole series of other provisions concerning which Her Majesty's Government have been brought to the European Court.

As your Lordships know, I am not of a suspicious nature. However, I am bound to say that the Government declined to let me, as an interested party, have their pleadings in the case which is being brought against them by the European Commission; they seemed to me to be singularly reticent about that. There is no legal reason why they cannot provide the pleadings. As your Lordships will know, normally in civil cases before the courts the pleadings are made public, the press can discuss them and during the progress of the case the whole of the prosecution and defence cases are revealed and made public. However, for some reason the Government declined to let me have the pleadings. When I wrote to the registrar of the European Court on the subject, the reply was that it cited as its authority a ruling which was concerned purely with the archives, which I thought was somewhat disingenuous. I shall not press the matter until a more convenient stage.

However, I suspect that the Government will very much welcome the increase in VAT. They will not fight very hard to resist such an increase because on the basis of 200,000 houses per annum—which is the low level to which housing has fallen during the past eight years—the increase would mean an extra £900 million revenue to the Exchequer. That figure excludes VAT on factories, warehouses and all the other marvellous wealth producing structures which the noble Lord has invited us to envisage as a result of the prosperity which he alleges is blessing the country at the present time. However, will the noble Lord deny that there is any idea of introducing a 4 per cent. tax on food? Noble Lords will recall that some time ago a Select Committee pointed out for your Lordships' information that this country was unique in having a zero rating on food. A 4 per cent. VAT on food was suggested as a means of standardising the situation. Are we to have any standardisation on the assumption that the party opposite is, through some oversight of the electorate, returned to government on 11th June? These questions should be answered.

In the course of the past six weeks we have observed a remarkable bouleversement in government policy. It reminded me very much of the statement made by the Prime Minister in 1985 attacking Members of her own government. I refer your Lordships to The Times of 9th July 1985. The Prime Minister attacked her colleagues who were seeking to have a mildly progressive policy and accused them of being spineless spenders. Who were the spineless spenders over the past six weeks, miraculously, in view of the forthcoming or anticipated election? Where have all the old concepts gone? Or is it merely a repetition of a matter that your Lordships will remember very well indeed? Immediately prior to the 1983 election, the right honourable gentleman the Member for Henley (who at that time was Minister of the Environment) said to the local authorities: "Spend, spend, spend." So of course they did. Unemployment at that time went down slightly. Will the noble Lord give the House some idea why this death-bed repentance has occurred?

The second part of the noble Lord's speech dealt with the Government's achievements. The noble Lord has proved himself a worthy deputy to the noble Lord, Lord Young of Graffham, in this respect. We regret the absence of the noble Lord, Lord Young, today. I understand that he may have more pressing duties as the public relations officer of his party during the forthcoming campaign. We understand the reason why—if it were not for pressure of work—he modestly refrains from appearing on the Benches today. It is because in spite of the adjustments, seasonal or otherwise, the figure of unemployment is unfortunately above the figure below which the other place will be missing the services of the right honourable gentleman the Member for Chingford. As noble Lords will remember, that honourable gentleman said that if unemployment was not below 3 million at the time of the election he would not be worthy of being elected a Member of Parliament. One can understand the noble Lord's reticence to appear today.

The noble Lord, Lord Brabazon, echoed what the noble Lord, Lord Young of Graffham, has said many times before, that suddenly we are on the threshold of a new heaven and a new earth. Production and productivity are increasing; the balance of payments is in swinging form; the exchange rate is magnificent; exports are rising; employment is increasing—though unfortunately not in manufacturing and industry—and everything is lovely. He cited a number of figures. Like the noble Lord, Lord Young of Graffham, he was selective in the figures he quoted and was careful to refer to "after 1980". The intellectual effort to go back to 1979 was evidently too much. The noble Lord referred to the past two or three years—he did not specify which. He referred to specific countries for specific years. I venture to suggest that, although what the noble Lord said was completely truthful, it was not the whole truth and nothing but the truth.

I remember the noble Lord, Lord Young of Graffham (and doubtless he will recall the incident, too) when he boasted to the House that the Government had brought down inflation from 20 per cent. to 5 per cent.—the figure that it was at the time. Such a statement was quite truthful, but not the whole truth. He did not say that inflation was 10.3 per cent. when the Conservatives took office, and that it was not until after they returned to power that the figure increased to over 21 per cent. Therefore, while it was quite truthful for him to say that they reduced the figure to 5 per cent., it was not the whole truth.

Lord Brabazon of Tara

My Lords, will the noble Lord give way? Does it not occur to the noble Lord that perhaps that may have something to do with the legacy that we were left in 1979?

Lord Bruce of Donington

My Lords, I am afraid that the noble Lord must do his homework a little better. I gave the complete reasons for the increase in the rate of inflation in one of the first speeches that I made in your Lordships' House. I gave the precise figures—for example, 4½ per cent. of the increase was due to the fact that the rate of VAT was increased from 8 per cent. to 15 per cent; and the other figures are listed. Even the noble Lord, Lord Cockfield, who, unhappily, departed to warmer and more lucrative climes, was unable to refute the figures that I gave on that occasion. I advise the noble Lord, Lord Brabazon, to refer to the figures, or alternatively to reinforce himself from the usual sources, if one requires mathematical and factual verification.

My noble friends will deal in some detail with various aspects of the Government's so-called achievements. They will consider their impact on the regions and the social services, and a number of other matters in detail, upon which, in the interests of time, I shall not touch. However, I am going to make one of their achievements very clear indeed. What they have done is to achieve the most massive shift of power to the owners of capital that has taken place since World War II.

I venture to remind your Lordships of something of which I am quite sure you must be aware. The role of capital in civilised society is to provide the means of production and then it is for management and workers to produce the goods and services which supply our material needs. For this purpose it does not matter whether capital is in private hands or in public hands. A pound note does not change its look because it is in the hands of a private individual or in the hands of the Government. That is the function of capital.

The Government have secured a massive shift of power and a massive excess of freedom to the owners of capital. The result has been very simple. The owners of capital have not found themselves subject to any particular social constraint or taken into account any particular social purpose as to where they put their money, whether at home or abroad. With the lifting of exchange controls as one of the first actions that this Government took after they first came into office in 1979, there has been a massive export of capital—£111 billion since they took office.

The noble Lord told us—and I shall most certainly return to it later—that there is a certain return of money to this country (I refer to "this country" geographically) by way of dividends and by way of other services that are provided; but whether they get into the pockets of ordinary people remains very much open to doubt. One thing is certain. Capital, free from its constraints, is invested wherever it is thought necessary in the world, in Europe or in this country, regardless of any kind of expressed or implied social responsibility for the country in which its owners live.

The result has been very simple, and these are the figures that the noble Lord did not mention. The manufacturing output in the United Kingdom still remains 4 per cent. below what it was in 1979 and investment in manufacturing industry is 28 per cent. below what it was in 1979. Consequently there has been a massive increase in unemployment by 2 million, mainly concentrated in the manufacturing industries.

It is said that we have prosperity. It is said that the economy is on the upturn and booming. We have to differentiate. We all have material needs and the Government themselves say that manufacturing industries have declined in other countries and manufacturing industries are of diminishing importance. If that be so, why is it that we are importing, in terms of manufactured goods, £30 billion worth of goods a year with a deficit, for the first time in our history, of some £5.8 billion in our exports of manufactures compared with our imports? Therefore manufactures are of importance in the supply of our material needs.

Yet, in spite of the slightly artificial pre-election euphoria, in which it is suggested that everything is booming, it would be very difficult to find any reputable economist or reputable analyst who saw any future significant expansion of manufacturing industry in this country. That will apply while the financial constraints are free and it is more profitable to indulge in takeovers and mergers—in fact, to do anything rather than perform the correct function of capital, which is to enter the tripartite arrangement to which I have referred; namely, in conjunction with management and workers, to produce the material needs of this country.

Do the Government envisage, in the course of the next few years, our living merely on a diet of computer printouts? That is all that has been produced by the City of London in material terms. That is not going to be very much of a diet for the people of the United Kingdom. The fact is, of course, that this freedom has been used to make money out of money on terms that many may think are scandalous. Salaries are grossly excessive, some representing a 150 per cent. Increase in a year. Salaries of £283,000 per annum are quite common. Your Lordships will see on page 20 of today's Independent newspaper that tables of remuneration are set out. The amount of increases to the lower orders, who are merely costs so far as this Government are concerned, are limited to around about 5½ per cent. per annum.

This, then, is the achievement; to make capital dominant. Moreover, it has enabled capital to take strike action where necessary; to strike, to refuse to invest where social responsibility—if there is such a thing as social responsibility—dictates that it should.

It is not the strike which is marked by the presence of pickets. It is not the strike which is marked by the presence of police. It is the strike which is consummated merely by the pressing of computer buttons which transfer sums of money from one side of the world to the other. This indeed is what has occurred and I well remember, when my party was in government and I was sitting on the Benches opposite, hearing the noble Viscount, Lord Watkinson, threatening at the time that we might have to face a strike of capital; and so indeed we have had selective strikes in that respect.

In this role also the Government have had a part to play, because of course the Government do not govern any more. They are the mere creatures of capital; they have actually increased the power available to capital by the transfer of public assets to the private sector in terms of British Telecom, British Gas, British Aerospace, Rolls-Royce and the transport undertakings—all at prices which, if they were subjected to the Companies Acts in a public company, would make them liable for misfeasance for having flogged off assets below their value.

At the same time they have done their duty in the process. What they have done is to endeavour to make this transfer of power to capital acceptable. They have done that by inducing small savers to transfer from their savings into ordinary shares so that one-fifth of the adult population have converted their savings into shares. Also, they have employed direct bribery to council tenants, with creative accounting invented by the Government, by selling off houses to tenants at half their real price in order to give them the illusion of somehow becoming capitalists themselves. They are the owners of shares instead of having their money in other forms of saving. Not all the people have money. Fifty per cent. of the population own only 6 per cent. of the United Kingdom's net disposable wealth. They are given the illusion of power through share ownership.

The Government have also acted as the tool of capital by weakening the power of the trade unions, by progressively diminishing or abolishing minimum wage standards and by the reduction in local government powers. I was amused at Question Time this afternoon to hear accusations of local government being involved in creative accounting. If anyone has been guilty of creative accounting over the past eight years, it is the Government. They have euphemistically called the proceeds from the sale of assets—in a term completely unknown to the accounting profession—negative expenditure. The realisation of capital assets has enabled them to reduce the public sector borrowing requirement.

Those are the achievements. The result has been large-scale unemployment through which our people have become imprisoned. Any talk of freedom becomes a complete irony to people who are denied any vista of freedom and who in many cases are denied even the ability to travel outside their own towns. Their lives are caged in by being denied the opportunity to work. There has also been damage to the social services and so forth.

We shall have to make some decisions very quickly. They should of course be made in a general election if people were afforded the opportunity of having the issues placed squarely before them by an unbiased press and media. People will have to make a moral choice. We must make the choice of either running our country with a naked cash nexus, as the Marxists would put it, being the principal propellant for activity, or governing the country in the interest of all its people. Instead of the all pervasive greed, we must substitute enlightened self-interest combined with cooperation and a sense of responsibility.

In place of envy, we should directly pursue competitive excellence. In place of fear, everyone should have the opportunity to work and therefore have the normal vista of freedom which the better off take completely for granted. Instead of despair, those who can work should have a sense of purpose, and for those without wages there should be the prospect of some serenity.

One of the most frightening aspects in the lead up to this election has been the arrogance displayed by the Head of Government. It is true that the right honourable Lady the Prime Minister has not yet completely echoed Hitler's boast of a thousand years of the new Reich. But in true arrogance she has suggested that she should be in power for at any rate a further nine years because she wants to rid the country of Socialism. That, if anything, is arrogance. It is to be hoped that when the time comes they will know how to deal with it.

4.35 p.m.

Baroness Seear

My Lords, we on these Benches hope that the noble Lord, Lord Bruce, will take his message to the hustings over the next three weeks. The Budget is a major instrument of economic policy. As such, it is based on assumptions about the state of the economy and predictions of its future development. I did not agree with a great deal of what the noble Lord said, but I agreed with his reference to the highly selective figures which had been given to create the impression of great success in our economy at present.

I ask the noble Lord, Lord Brabazon, to explain how he relates his figures to those given in the economic indicators in the current edition of the Economist. In case he has not read them, I shall draw his attention and that of your Lordships' House to what it has to say about the position over the past year and the past three months. The figures are for the 13 major industrial countries. I shall give the United Kingdom's ranking in relation to those 13 countries.

Over the past year the increase in industrial production in the United Kingdom has been 2.6 per cent. The United Kingdom did not do badly because it ranked fourth of the 13 countries. Over the past three months—of course three months is a short period and there can be many fluctuations and special factors during that time—the figure was 1.3 per cent., and the United Kingdom ranked eighth. Over the past year unemployment averaged 11.6 per cent. and the United Kingdom ranked ninth. Over the past three months, unemployment has indeed fallen to 11 per cent. and the United Kingdom ranked eighth.

Inflation has been the Government's boasted success. We welcome any improvement in inflation, as indeed must everyone who cares about the country's development and people's standard of living. Over the past year the average has been 4.4 per cent. and the United Kingdom was ninth. Over the past three months inflation rose to 4.9 per cent. and the United Kingdom was tenth. Over the past year wages and earnings increased by 7.5 per cent. and the United Kingdom ranked twelfth. In the past three months that figure has increased to 8.5 per cent. and the United Kingdom ranked twelfth.

It is difficult to equate those figures with the rosy picture that the noble Lord, Lord Brabazon, has given. As the noble Lord, Lord Bruce, pointed out, he chose—we all know this is the oldest trick in the statistical book—1980, which was an especially low year. That meant that increases would seem extremely high. If one starts from a low base, it is not difficult to achieve a high percentage increase. Surely 1980 was the year that we would expect to be pretty low. It was one year of Conservative Government following five years of Labour Government. What would one expect from that mixture? One would expect what happened—an all-time low. So much for the figures; so much for the rosy forecast based on those figures.

We do not see the picture as the noble Lord, Lord Brabazon, presented it. We grant that there have been some successes. There has been a reduction in inflation. There has been a slight improvement in growth rates. The picture is better than it was. It certainly does not justify the self-praise and eulogies that have been given to it not only by the noble Lord, Lord Brabazon—he is doing his best this afternoon with a difficult brief—but by his lord and master, the noble Lord, Lord Young of Graffham, to whom many of us have made these same comments in one form or another on a number of occasions.

What we see in the country is a widening of the gap between the poor and the rich with a despairing group of long-term unemployed who have given up hope to a considerable extent. That does not look well against the figures, and it does not bear out the opportunities and air of hope that the noble Lord has tried to convey to us this afternoon.

We see also that in many ways we are not comparing favourably with the countries with which we have to compete. It is not much good looking just at the figures showing what we in this country are doing unless we look at comparable figures for other countries, because we have to compete with them. If we are making progress but they are making faster progress, we are still losing out. That is what is going on in a great many areas at present.

Given our interpretation of the real economic situation, we on these Benches would not have handled the Budget in the way that it has been handled by the Chancellor of the Exchequer. We would not have cut 2p off income tax. We do not believe that the problems confronting the country can be dealt with just by throwing money at them. We know that parties and politicians who advocate that are appealing simply to the electorate. That kind of promise cannot be fulfilled except at a price, which the poorest would themselves have to pay.

However, when one has money to dispose of—there cannot be a 2p cut in income tax unless there is money to dispose of—a responsible Government, faced with the situation in this country, have to ask themselves very carefully how that money should be distributed—not, we say, in a 2p cut; not, we say, in maintaining for the higher income groups a level of mortagage interest rates that benefits those who are already best off and, incidentally, that tends to put up the already excessive price of houses.

We would use the money available in a quite different way. We see the problems of the country under three main heads. The need to revive industry must be the first, and with industry in particular but not exclusively we include manufacturing industry. We do not mean just small businesses. Small businesses have their place but they depend to a large extent on larger businesses, larger manufacturing industry, to which they act as sub-contractors and which they service in one way or another. The recovery of industry on a much greater scale than anything done so far is one direction in which the extra money should be aimed.

What is it that we should like to see? We should like to see an increase in research and development expenditure. In your Lordships' House recently we had an outstanding debate on our failure adequately to provide for civilian research. The research money that is being spent, as everyone knows, to an excessive extent, is going into defence and not into commercial research. I point out to your Lordships that our expenditure on commercial research is very much less than expenditure on commercial research in both Japan and the United States. That is a direction in which we would wish to go, linked with—this is of course a part of it—an attempt to revive and encourage research in universities. This we debated last week. How can the Government be so complacent about the longer term development of the country when research is so low and the people carrying out the research are leaving the country, as we all know they are?

Along with that, we would put far more money into the training and retraining of the older population to fill the jobs which are coming on stream but which we shall not be able to fill unless we spend money on proper training to convert people from older skills or give people who have never had it the chance to acquire skills in their more mature life.

We would encourage industry in other ways too. We should like to see a 25 per cent. cut regionally, selectively, in the employer's national insurance contribution. This is one way in which one can help both industry and unemployment. Unemployment is the second target, the second area in which we should like to see expenditure to encourage industry in this and other ways to take on more people. The reduction in national insurance contribution is an obvious start in this direction to encourage industry and to help the unemployed, with greater training opportunities for the adult population.

We recognise that the Government have put a good deal of money into the training of younger people, but the training of older people still lags sadly behind. Along with this there should be training and carefully selected job creation in infrastructure, and particularly expenditure on the kind of capital development which will have to be undertaken sooner or later. We have said this very often in your Lordships' House. A little has been done but nothing like enough in the form of road and railway development, and above all perhaps on the maintenance and insulation of housing, which is so badly needed as a way of preventing deterioration in one of the country's most important capital assets.

We would also devote some of the resources that the Government have seen fit in our view to squander on a straight attack on the alleviation of poverty. We know that throughout the country there are a large number of people who because of long-term unemployment are living at a deplorably low standards, while the growth of the ageing population continues apace.

We need to spend more money on the sharp end of the social services. There has been a great deal of talk about community care. Community care is a hollow mockery unless backed by money and by some of those resources that have been used in tax cuts and other ways by the Government to help their own supporters. That money should have gone into expenditure on community care to make it a reality.

That is how we should have liked to see the Budget go. Of course it is not surprising that we do not agree with the Government. We disagree with their analysis and with their objectives. We hope soon to be able to make them change their minds.

4.48 p.m.

Lord Boyd-Carpenter

My Lords, I can agree with one comment of the noble Baroness, Lady Seear; namely, that in our discussions on the condition and working of the economy we are right and sensible to use as a check comparison with conditions in other countries.

One comes straightaway in that matter to the question of unemployment. Unemployment, as the noble Baroness knows, is sadly endemic in practically all the major developed countries of the world and has resulted from many causes—common causes affecting them all in greater or less degree. If one is making a comparison, it is only fair to point out that the creation of new jobs in this country in the last year or two has been a great deal better than in the countries of our neighbours in Europe.

I accept at once, therefore, that one should make these comparisons, although I am afraid that they drive me to a totally different conclusion from that of the noble Baroness. She referred to the reduction in income tax provided in the Bill and said that she and her party would have used the money in a different way. That begs every question, does it not? It begs the question whether available funds should be laid out by the Government in the way that the Government think fit, or whether they should be allowed—I am sure that the noble Baroness will like a quotation from Mr. Gladstone—to fructify in the pockets of the people. In other words, will your economy work better if the major control of spending is organised and run by government or, if a very substantial amount of it is done not by government but by individuals, by companies and unofficial bodies?

Perhaps I may take up the comparison with other countries which was made by the noble Baroness. It is the unchallengeable fact that the two economies in the world that are doing best today—those of the United States and Japan—are the economies of countries which spend a smaller proportion of the gross national product with the government and have lower levels of taxation than we have. It is therefore so easy, particularly if one is a kind-hearted person like the noble Baroness, to think of all the good directions in which public money could be spent and no doubt very pleasantly and agreeably so. However, with respect, it is ducking the central question of our discussions: whether one wishes to see the main management of the economy and of spending in the hands of central government or whether one wishes to see it widely dispersed, with the private citizen and private individual having a larger say in the management of those funds and the management of the economy. That is the difference.

I was not surprised to hear that line taken by the noble Lord, Lord Bruce of Donington. This is the traditional, old-fashioned Labour view. I was rather surprised to hear it from the Leader of the Liberal Party. The Liberal Party at one time used to have a certain belief in the beneficial values of private enterprise—a belief which was not very conspicuously brought out by the noble Baroness this afternoon.

The noble Lord, Lord Bruce, had enormous fun, as he thought, with the general question of the use of funds. However, I should like to tell him in all seriousness how much I resented his personal criticism of the Prime Minister, which is wholly uncalled for. Perhaps the noble Lord speaks with a certain expertise on the subject, but to talk about arrogance in criticising the Leader of a party who has a policy in which she believes—a policy which she does not claim for one moment has yet fully come to fruition, and who therefore wants the people of this country to give her the authority to continue, and to carry through the job to the end—indicates a certain deficiency in the English vocabulary of the person who does so.

The noble Lord, Lord Bruce, said a great deal at very considerable length about the general freedom that had been given to capital which he thought was terrible. Who does he think should have that freedom? Is it central government? Apparently he does not know.

Lord Bruce of Donington

My Lords, the noble Lord is very kind. In the course of the remarks that I ventured to address to your Lordships I conveyed that freedom should be accompanied by responsibility and a sense of social responsibility.

Lord Boyd-Carpenter

My Lords, that is the most splendid platitude that I have heard for some time, even from the noble Lord. However, it does not answer the question. He knows that perfectly well. He is arguing basically that control of capital and control of investment should be in the hands of government. That is socialism. That is the policy of the Labour Party here and of socialist governments throughout the world. It is not without significance that those socialist governments throughout the world are doing a great deal worse in the present economic situation than the governments of the countries that pursue a more open and freer enterprise policy.

It is not enough just to criticise that freedom has been given to capital. Of course what the noble Lord was getting at—and I think at one point that he said so—was the abolition of exchange controls. That is finally dealt with in Clause 68 of the Bill. It is interesting, however, to see how that has worked in practice. The knowledge that we have no exchange control restrictions in this country has proved an enormous attraction to foreign investors whose investment in this country has greatly increased. They have confidence that if they place their funds here they will not be trapped by some governmental action, that those funds can be placed here to work remuneratively, and that this is a good country, particularly under its present Government, in which to invest.

The noble Lord seemed to think that because exchange control had been abolished there had been a fall off in investment in this country. Of course he is quite wrong. Last year the total investment in this country was £60 billion, the highest level ever recorded. Therefore, to argue that because the Government have abolished exchange control that investment has been restricted does not for a moment hold water. On the contrary, the fact that the Government have directed the British economy into the open area of advanced companies, advanced countries, and advanced economies in which trade is allowed to flourish, in which it is not restricted by government inhibitions or Government prejudices is one of the reasons why investment in this country was at a record level last year. Therefore, with respect, the noble Lord has no basis whatever for attacking the Government on those lines.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord. For the convenience of the House and the record I should be glad if the noble Lord would confirm that he said that outside investment in this country last year was £50 billion?

Lord Boyd-Carpenter

My Lords, no. I said nothing of the kind. I said that total investment was £60 billion. The noble Lord got the figure wrong. That is total investment in this country.

Lord Bruce of Donington

My Lords, I am obliged.

Lord Boyd-Carpenter

My Lords, a great deal of it was from British funds, and some was from foreign funds. I do not have the breakdown of the figures, nor do I think it material to my argument.

The noble Lord was strangely, and for him unaccustomedly, silent on the major feature of this Finance Bill—that is, the reduction of 2p in the standard rate of income tax. The noble Baroness, Lady Seear, to her credit, referred to it, but the noble Lord did not. This is very interesting. The party of the noble Lord, Lord Bruce of Donington, has stated publicly that were it to be elected and come to power it would reverse that. I wonder whether the noble Lord, Lord Bruce of Donington, is prepared to confirm that?

Lord Bruce of Donington

My Lords, yes. The noble Lord may not have been here at the time, or he may have been distracted, but if he reads Hansard tomorrow he will find that I specifically referred to the reduction in the rate of income tax. I am sorry to correct him.

Lord Boyd-Carpenter

My Lords, that was not the question I asked. I asked whether it is the policy of his party to reverse that cut.

Lord Bruce of Donington

My Lords, I have confirmed that.

Lord Boyd-Carpenter

My Lords, it is. The noble Lord seems extraordinarily shy on the subject. In this coming week millions of people, will receive an improvement in their paypacket of just under £4 a week in respect of a man of average earnings with a wife and two children, up to a couple of pounds a week for someone at half average wages. To all those people who will receive this improvement, the Labour Party is saying "As soon as we get to power we will take it away from you". I wonder whether the noble Lord is altogether happy about that. Does he not appreciate the extraordinary value of being able to reduce the burden of direct taxation in this way?

First, it means—I have given some of the figures—that the level of take-home pay for a man on average earnings can be substantially increased without increasing at all the labour costs of the industry in which he works. There has been some comment from those who have been critical of the performance of our economy that in certain industries wage costs have risen a little dangerously; but if you are able to say to people "You need not receive an increase in your nominal wages because you will get more through the reduction of taxation with the state taking less", you are benefiting the natural wishes of those who want naturally, as we all do, an improvement in their position without the inflationary effect of forcing up wages.

This is an enormous practical advantage. There are many others. There is the stimulus that this gives to enterprise, the stimulus to harder work, the knowledge that if someone does overtime he will receive a larger proportion of those overtime earnings to keep and to use.

Taxation in this country is still by world standards high. The proposals in the present Bill do not touch the higher rates and there is a considerable gap now developing between the standard rate and the first of the higher rates. From 27 per cent. to 40 per cent. is an enormous jump, and some time in the future some government may have to tackle that. We are still (the noble Lord himself said so) a highly taxed country. Therefore when a proposal is made for reducing—and reducing on this occasion only the standard rate of income tax—to come forward and say that it will be reversed at the first available opportunity is a startling proposition.

I wonder whether the noble Lord does not realise that he is strongly fortifying the feelings of those people who believe that the Labour Party is a party that likes high taxation for its own sake; that feels that people should not be allowed to have a very large proportion of their earnings to spend themselves; that a beneficent and benevolent state should take it from them and spend it on such purposes as that state thinks good. This is where I ask the noble Lord to accept that there is a profound difference between him, his noble friends and his honourable friends in another place and those of us on this side of the House. We accept that the major purposes of the state have to be served, and properly served, but the idea of retaining an unnecessarily high level of taxation for its own sake is abhorrent to us, as I have no doubt it will be abhorrent to a great many people outside when this is fully understood.

There are many other excellent aspects of the Bill. The reduction in the duty on unleaded petrol is an excellent improvement. The only further comment I shall make will be on the main criticism that the noble Lord made. We all of us—it has been said so often but I think it can bear being said again—wish to see not only a continuation of the improvement in our nation's economy, but we wish to see that operating, as I believe it is beginning to operate, on the total figures of unemployment.

But I believe, and I think many of us believe, that that beneficial effect will be achieved not by taking large sums in taxation and expending it through government machinery, but by spreading that wealth as wide as possible so that it stimulates the creation of further wealth and thereby will bring people back not into temporary jobs created by government expenditure but into real and permanent jobs created by companies that are creating wealth. That is the prospect which I believe, in the light of what my noble friend Lord Brabazon said earlier, is close to us if we have the determination to go ahead to get it.

I venture to end on what I hope the noble Lord will not regard as a frivolous note, by saying that when next week the wage packets of those on PAYE appear so much larger than they did last week there will be one or two people who will drink the health of Mr. Lawson.

5.5 p.m.

Lord Peston

My Lords, I start on a slightly personal note. May I say what a pleasure it is for me to follow the noble Lord in this debate? He does not know it, but some 25 years ago I was a very junior economist in the Treasury when he was a very senior Minister. I fancied myself as a forecaster in those days, as I still do, but I should never have forecast that both he and I would sit together in your Lordships' House. I suppose that if I had been able to forecast that I should also have forecast that he and I would sit on opposite sides and disagree in the debate today.

Indeed it is also of interest, following the speech of the noble Lord, Lord Brabazon of Tara, how one can look at the same reality and get a different perception of the events—a point that the noble Baroness, Lady Seear, also made. I do not think that happens just because there is a little whiff of politics in the air or even because economists are notoriously disputatious people, although they are and I am one of the worst of the breed. There are genuine differences in the way one views the economy and in what one feels ought to be done. I shall enlarge on those in due course.

I always believe in starting by saying where I agree with the people with whom I shall mostly argue. I certainly agree with one or two aspects of the Government's policy; the emphasis they place—although they are following earlier policies—on intensifying training and in general on investing in human beings, human capital as we call it. That is an extremely sensible policy. Emphasis on improving the workings of the labour market is clearly sensible. The emphasis they place, which again is following earlier administrations, on the need to raise productivity in both the private and public sectors is one that I should place myself.

If we have any future at all it must lie along the productivity route; we all agree on that. I even might say slightly cynically that the Government, at least some of the time, seem to want us to agree with them about public expenditure. It depends on which debate one is taking part in, but in discussing the public services the Government want to convince us that on those occasions public expenditure is a very good thing. However, I should go further. I believe it is worth saying that it is a good thing on a general economics debate. They are the areas of agreement.

However, on one aspect of this I am a trifle puzzled. It has to do with policies with respect to the labour market and all that. I refer in particular to a remark made by the Secretary of State for Employment the other day at Question Time when he was discussing the restart scheme. He linked that programme or scheme to the availability for work criterion. Surely the availability for work criterion is that a worker would be willing to accept a suitable job on more or less the going rate but with the usual conditions.

The point about the restart programme is that it is not linked to a specific job offer. It would be infinitely better if it were. Therefore it seems to me that a failure to co-operate with restart may be regrettable on some grounds, but I am bound to say it is not all that irrational on the part of workers who fully appreciate the depressed state of the labour market. A failure to co-operate with the restart scheme should surely never be grounds for threatening to end benefits. I should like the point made by the Secretary of State on that matter to be clarified.

The real issues here are to look at the Government's record and to note the paradoxes about it—the fact that government expenditure relative to national income is relatively high and the Government cannot make up their mind whether they like that or not. One reason for that is that national income is relatively low. Taxation relative to income is high.

Much more important within the context of some of the Government's beliefs is that we have the highest real interest rates in the world, and that famous indicator of the stance of policy, the money supply, notably sterling M3—although I gather from this morning's papers that it is going to be re-named, but I have not caught on to what its new name is going to be—is rising at an extraordinarily high rate. I should like an explanation of why that is no longer as dangerous as we were led to believe for so long. There are certain paradoxical aspects of the Government's record which are worth bearing in mind.

Another aspect of the matter that I draw your Lordships' attention to takes us back a long way. It relates to my opening remarks. People have talked a bit about performance relative to 1979 and other bases. What interests me in assessing the record is, say, performance relative to the 1960s. Many people on that side of your Lordships' House and their colleagues in the other place tell us how terrible the 1960s were. But if you make a proper comparison the position is quite startling.

In fact the rate of rise of gross domestic product per capita in the 1960s was significantly higher than it has been in the last seven or eight years. Even the much vaunted improvement in the rate of manufacturing productivity—and it is to be welcomed—is hardly any larger than it was in the dreadful 1960s. Of course our favourite is the inflation rate. During the period when I was taught economics and in the 1960s we were always arguing that the inflation rate was too high. We have to do something about it. Typically in the 1960s it was 4 per cent. per annum. We are now told that 4 per cent. per annum represents a spectacularly good achievement.

But the major comparison to make is with unemployment. Average unemployment in the 1960s was under half a million. I do not want to bandy words about whether this or that is a better measure of the total amount of unemployment at the present time, but no ones seems to disagree that it is more than 3 million, and that is an enormously large number.

We are not uninterested in these matters on this side of the House. We are interested in fighting inflation. I must tell your Lordships that both in the 1960s and the 1970s when I was a government adviser if I had been told that one of the rules of the game was not to keep unemployment low but that one could let it drift up to 3 million, I should not have found it in the least difficult to devise policies or to suggest initiatives that would have brought the inflation rate down, except that I should have got it down well below 4 per cent. per annum. A government, who having created unemployment of 3 million, cannot get inflation down to zero are about as incompetent as can be.

I view what has happened in the 1980s, if I may use a football analogy, with the notion that our side is not scoring any goals and the other side is, because the other side, so far as the referee is concerned, has changed the offside law and there is no offside for it whereas we are still stuck with the same set of rules. That is not as good an analogy as it sounded when I started off. What I am saying is that the rules seem to have changed if a figure of 3 million unemployed is now acceptable.

I should like to ask the Minister whether that really is the case. One of the things I am fearful about—and I know we always have to be arguing this politically but it is not entirely a political point—is whether noble Lords opposite and their friends in the other House have now more or less settled for a number like 3 million unemployed as the way to run the system indefinitely, give or take a hundred thousand.

If they have, then this is an apalling state of affairs in the policies of one of the great parties of our nation. It is not that long, 40 years or so, since the famous unemployment White Paper, when we were committed to full employment. If now the Government either wish to define 3 million as full employment or to say that they no longer regard that as a desirable or attainable objective, that is serious. I should like to know the Minister's view.

The noble Lord, Lord Boyd-Carpenter, referred to the tax cuts and the reluctance, as it were, to acknowledge the reversal of them. I have no reluctance whatsoever. Just before I joined your Lordships' House I spent quiet a bit of my spare time advising Shadow Ministers in the other House. I was absolutely adament that were the Government to decide to cut taxes in the forthcoming Budget it was a matter of honesty to say that were our party to be in power we should reverse those cuts. I say that in terms to the noble Lord.

I go further. One of the things I find most unattractive about the Budget speech and the Finance Bill is that the Government did not index the excise, which in a sense is an implicit tax cut. I would reverse that as well. I am absolutely confident that were the present Government re-elected they would find it necessary to reverse those implicit cuts in the next Budget. They would find it necessary to put at least the correct rate of duty back on alocholic drinks and on cigarettes, and not merely for general economic policy grounds but on broader social policy grounds. If I may reassure at least the noble Lord, Lord Boyd-Carpenter, about my "honesty" I object to both those tax cuts.

I object to the direct tax cuts on economic grounds. On economic theoretic grounds there is no basis whatsoever for the so-called incentive arguments about cuts in direct taxation. This is old doctrine. Lord Robbins, who regretfully is no longer with us but was a Member of this House, was one of the first to demonstrate in the clearest possible terms that there was no theoretical foundation for that view. What is also of great interest, since I believe that the Treasury has commissioned various studies on this subject, is that there is no empirical basis for the view that direct tax cuts are beneficial.

I would agree with the noble Lord if what he then said was that we could also use our judgment. We neither believe the economic theory nor the empirics. But at least one ought to recognise that to take the other view, the view that tax cuts are beneficial, flies in the face of pretty well all that is known on the subject.

The other reason for objecting to the tax cuts is not a wilful desire not to cut taxes or to have higher taxes. It is simply that there is a better way of using the resources. This goes back to my original point that one is debating what you would do with available resources. What my noble friend Lord Bruce and the noble Baroness, Lady Seear, said, and what I say, is that there are at this time in the economy better ways. If we have resources we can use at this time there are better ways in terms of expenditure on education, on health and on urban renewal. There are better ways of using these resources.

To go back to my search for agreement I believe that the Minister might well say that he thinks that as well, but he is not allowed to say that because he has to defend the position as it is in the Finance Bill.

Lord Brabazon of Tara

My Lords, I do not want to leave the impression that I might agree with the noble Lord. I certainly do not.

Lord Peston

My Lords, I do not mean the Minister himself. What I mean is that I am struck by how other Ministers on his side of the House will often tell us how valuable it is to spend money in those areas. I apologise to him for suggesting that he might think it was a good idea to spend more money on health, education, or any of the matters I mentioned. I strongly apologise, but I have heard some of his colleagues say that.

If you believe in the incentives argument, then the main incentive is one that the noble Baroness, Lady Seear, mentioned, which is cuts in the national insurance contribution of employers. They are a genuine disincentive to taking people into work. Therefore if there are resources available, those are where one ought to place them.

I discover, much to my regret, that I have prepared many more notes than I have time to enlarge on, but there is one final matter I should like to state—a more doctrinaire matter. It is sometimes said that the views of economists like myself are somewhat old-fashioned in that they were valid up to the 1970s but are not so any more. Setting aside the curiosity that members opposite regard the age of a doctrine as a bad characteristic, it is worth noting that the economic views that they appear to hold go back a long way. They were rampant in the 1920s and 1930s when they were held steadfastly in order to justify similar complacency about unemployment then as now. They were then incorrect and were convincingly shown to be so.

Unfortunately, unlike the natural sciences, error in economics can never be finally scotched. It remains and needs to be dealt with in every generation. I must take issue here with my noble friend Lord Bruce of Donington because I believe that he is criticising the Government for changing their economic position and doctrines. My noble friend seemed to imply that they were turning round a little and becoming a little spineless and wet, in the same way as some of us. I am not certain that he was saying that—

Lord Bruce of Donington

My Lords, if the noble Lord will forgive me, I should like to say that I am sorry I refrained from praising them. I certainly intended to do so.

Lord Peston

My Lords, my noble friend takes the words out of my mouth. Having spent a lifetime in teaching I know of the pleasure one has when the light shines in the eyes of the more recalcitrant students because they eventually get the message. The noble Lord, Lord Bruce of Donington, fully appreciates the point that that is the last occasion on which one should criticise or remind them of their past errors. It is precisely the time when one should congratulate them.

It seems to me that the time has come when not only do we need to change direction but we must intensify the change. Regretfully for Members opposite, but not for Members on this side of the House, that will require certain changes in political events of which we have no part but to which I look forward.

5.22 p.m.

Viscount Chandos

My Lords, I think that I should have enjoyed being a student of the noble Lord, Lord Peston. The opportunity to debate even the truncated Finance Bill which the Government have now proposed is most welcome because the economic policies of the Government, which this Bill symbolises, are the single most important factor in the election campaign now under way. In this area your Lordships' House does not have the same detailed revision role as it has in respect of other legislation. Therefore the removal of the more complex clauses from the Bill may strike a less discordant note with your Lordships than with our colleagues in another place.

All the same, in the Government's unseemly haste to call what the Financial Times today described as "this unnecessary election", a good deal of wheat has been thrown out with the chaff, as your Lordships' House is more acutely aware in connection with other legislation. Measures as important as those covering profit-linked pay do not deserve to be discarded like a used paper handkerchief, however confident the Government may be, in their complacency, that they will be in a position to reintroduce the measures after the election. I am not sure that the country will associate this with good government.

Predictably, the noble Lord, Lord Brabazon of Tara, based his opening speech on the strength of the economy and the evidence that that provided for the success of the Government's eight years of economic policy. Not only are those claims disputable, as other noble Lords have shown, but there is a logical gap in atttributing the improvements that there have been to the Government's premeditated policies. In today's Financial Times the authoritative commentator Samuel Brittan wrote: The achievement of a real growth rate above that of other countries is mainly due to last year's successful sterling devaluation". He went on to say: The Thatcher Government did of course let sterling soar in its first two years of office; and nearly all the serious argument about its degree of responsibility for the unemployment explosion goes back to the those years". The devaluation in the past year may have been successful but it was largely accidental, judging by the Government's stated economic objectives during this period; while the appreciation of sterling from 1979 to 1981, as Mr. Brittan rightly analyses, had a devastating effect on manufacturing industry's competitiveness, which can still be felt six years later. I differ from Mr. Britian in believing that such devastation needed to be precipitated to stimulate the necessary blitz on overmanning and productivity turn around.

It is ironic that today, as the noble Lord, Lord Peston, said, the Bank of England announced its intention to provide information on yet two more aggregates of broad money supply with the words: Any choice of a dividing line between those financial assets included in, and those excluded from, broad money is to a degree arbitrary, and is likely over time to be invalidated by developments in the financial system'". I am sure that the victims of the Government's early obsession with monetary targets will find comfort as they wait in the queue for employment, by this change of heart. But a favourable gloss on our economic performance can no doubt be put by the Government for three reasons. First, if sufficient damage can be done in early years, any recovery can be portrayed as a success, as other noble Lords have pointed out. Secondly, as my colleagues in the Alliance and I have always acknowledged, there have been some modest successes. Thirdly, the Conservative Party propaganda machine, recently operating so effortlessly with what should be the non-political government information services, will find imaginative and creative ways of portraying near disaster as heroic triumph.

It is over two years since I suggested to the Government Front Bench that their policies resembled the business activities of the asset strippers of the 1960s, selling national assets to make the books balance, whatever the consequences for the customers and the country, while preparing a false prospectus for the country laced with creative accounting. The noble Lord, Lord Bruce of Donington, has already used that phrase. We are now at a point where that false prospectus is about to be issued once more, and I believe that the vast majority of the country who are older, wiser and, if not all poorer many not much richer, will be very critical readers of that prospectus. Of course since the 1960s asset stripping has been replaced by corporate raiding, but the activity remains essentially the same and the Government's right to be called the raiders of the lost economy remains unchallenged.

Every corporate raider, having acquired its new victim, achieves a miraculous turn around in profitability through spectacular economies achieved by closing down the head office, attacking marketing expenditure, slashing research and development budgets and declaring a pension fund holiday. With their cuts, the only thing that the Government seem to have forgotten to do is to close down the head office.

The Alliance have this week issued their new prospectus, as my noble ally Lady Seear has said. Supported by an independent review of its fiscal viability, it outlines the increase in investment in those areas where the Government have been and are continuing to propose the most harmful cuts. For instance, in the Department of Trade and Industry's budget for assisting industrial research and development, as the noble Baroness, Lady Seear, said, we are proposing an 80 per cent. rise in cash terms after five years and a doubling of support for export promotion in the same period.

In adult and higher education an extra £2.2 billion is projected over the period, and an extra £400 million is projected for the funding of scientific research councils for which the Government are proposing the sharpest cuts in real support. Those are the long-term investments which are needed; not to boost our economic performance this year so that we can boast of being top of the league table among European and other developed countries, such as a take-over creditor comparing his growth in short-term profitability with that of his projected victim, but to give us some chance of having a successful and prosperous economy in the decade to come.

As the noble Lord, Lord Bruce of Donington, last month issued his customary dire warnings of retribution for the Alliance's failure to support his unsuccessful amendment to the Banking Bill, with its flawed design to alleviate the serious plight of the developing countries, I should like to draw his attention to the projections in the Alliance prospectus of more than a £4 billion increase in overseas aid in the next five years, to a level by the early 1990s of 0.7 per cent. of gross domestic product, which is the United Nations' target.

I cannot mention the phrase "rates of taxation" without taking up the challenge issued in another place to demonstrate the consistency of the Alliance's policy towards the Government's reduction in the standard rate of income tax, incorporated, by some odd coincidence, within even the truncated Finance Bill. As my noble ally Lady Seear has already said, as have my colleagues in another place, we would not have judged this income tax cut to be the fairest and most prudent way of exploiting the current short-term buoyancy of the economy and hence of the Government's tax receipts. The Government themselves, with their declared objective of lowering the standard rate to 25 pence in the pound, have had to make a judgment of what would be fair and prudent, as well as, I dare say, of what electorally would be most beneficial.

I am sure that many of your Lordships would agree that, by cutting income tax by only half their remaining targeted amount and thereby having a little more room for manoeuvre on public spending and for restraint of the apparent government funding requirement, the Government are trying to have it both ways. It is no less consistent for us in the Alliance to say that, the tax cuts now proposed having been enacted, an immediate reversal might be counterproductive and unhelpful for many taxpayers who in all sincerity would have agreed originally to forgo a tax cut for improvements to education, health and employment but who are now budgeting on the promised change. Families, like companies, cannot be expected to plan their life and prosper in a constantly and unnecessarily changing environment.

For that reason the Alliance would not reverse the tax change on taking office and has drawn up its plans, as outlined in the prospectus published this week, on the basis of the 27p standard rate proposed by the Government. Whatever government hold office after 11th June will thereafter need to review the levels of taxation on an orderly timetable in the light of the progress of the economy and a fair and balanced judgment of priorities in ever-changing circumstances.

The noble Lord, Lord Boyd-Carpenter, supported the principle of international comparisons by citing the strong economic performances of the United States and Japan, with their low levels of taxation. However, if my memory is correct I believe that the top marginal rate of taxation in Japan is 70 per cent.—10 per cent. higher than in this country. That is perhaps a salutary illustration that levels of taxation, as the noble Lord, Lord Peston, said, are not the only or even the most important influence on enterprise and economic success. But I am sure the noble Lord, Lord Boyd-Carpenter, may not really have wished to encourage noble Lords on the Labour Front Bench to increase taxation to comparable higher levels.

As your Lordships' House has a heavy programme still before it today, I should like to address only one other subject: the financing of the Alliance's proposed programme of spending. With the necessary increase in public expenditure, combined with the elimination of those cases of privatisation where the interests of the industry, the consumer or taxpayers are damaged, there is an inevitable but modest increase in the future borrowing requirement, but only to a level of under 2 per cent. of gross domestic product. Such a requirement, still of less than £,10 billion, in any of the future five years projected would be financeable through the sale of gilts and other government debt without any necessary increase in interest rates and with less disruption to the financing requirements of manufacturing companies which the Government have created through their excessive and headlong privatisation programme.

I think it was the noble Lord, Lord Brabazon of Tara, who treated with some ridicule my suggestion during the arduous passage of the Gas Bill that the Government's proposed privatisation programme risked squeezing out and disrupting corporate fund raising. I wonder whether the noble Lord might now be able to comment on press reports that in February the Treasury, against the strong advice of the Bank of England, insisted, in order to give the sale of British Airways the fairest of winds, that every sector of the sterling capital markets, even the Euro-sterling bond market, was closed for a week, leading to a period of considerable excess activity subsequently and consequent indigestion.

This Finance Bill represents an inglorious finale to this Government's eight years of economic mismanagement, and I am sure that all noble Lords on this side of the House look forward to the opportunity of the coming general election, however cynically timed, to ensure that these policies are changed.

5.36 p.m.

Lord Strathclyde

My Lords, before I begin, I apologise to the noble Lord, Lord Brabazon of Tara, for not being here when he was speaking. Unfortunately, all the efforts of London Transport could not quite get me here on time.

Unlike the noble Viscount, Lord Chandos, I believe that the Bill shows all the hallmarks of the responsible approach to financial management that this Government have taken since first being elected in 1979. The Chancellor was able to reduce the PSBR and reduce income tax against a background of real economic growth, lower inflation and the start of a sustained fall in unemployment figures. This is a creditable and extraordinary achievement, reached by continued good sense over the years.

Since the Budget, interest rates have fallen considerably in response to the Chancellor's words, which will give industry the boost it has wanted and thus lead to the prosperity which is ultimately what we all want. I do not think this situation would have been possible had the policies recommended by noble Lords opposite been followed.

With the election almost on top of us, it is fair to reflect that the only reason the Labour Party feels it can promise so much excessive extra spending is due to this Government's careful stewardship of the country's financial situation over the last eight years. It is inconceivable that the Labour Party in 1979 could have dreamt of carrying out the policies which it now promises so glibly. The reason it could not promise them then is that it did not have the money; but today money saved by this Government goes towards real economic goals of reductions in borrowing and tax. If the criticism and advice expounded by the Opposition were to be taken seriously they would simply send us back down the road to the IMF, where we were a decade ago.

At this point I should like to say a few words about the speech of the noble Lord, Lord Bruce of Donington. It was amazingly full of the most turgid dogma, reminiscent, with respect, of a very bored university lecturer talking to an even more bored bunch of first-year students. The phrase, capital controlling the means of production", slipped so smoothly from his tongue. It sounds so oldfashioned—though I know the noble Lord, Lord Peston, would tell us that it was not oldfashioned—and almost laughable, except that for one moment I felt the noble Lord, Lord Bruce, actually believed what he was saying.

It is not capital that counts. It is people who make economies grow, and it is this Government who put people first. Incidentally, would the noble Lord's party stop all the billions of pounds that have been invested in this country from abroad? Would he suddenly fling the barriers up and throw all that money back to the terrible foreigners to whom it belongs? And what about unemployment? I know the noble Lord, Lord Peston, mentioned this, but surely he realises that we now have over a million more people in employment than before, earning money and paying taxes. That is a real achievement.

However, I am not here to discuss the past record of the Labour Government. It seems unlikely that they will ever be able to put their proposals into effect. I am here to congratulate the Government on their economic direction and in particular on the way in which this Bill has not been used to create an artificial pre-election boom, the consequences of which would have been disastrous. No, the Chancellor has seen that there is no need to bribe the electorate with large-scale cuts in income tax but has offered instead a gentle reduction over the years.

I believe that the most valuable and relevant aspect of this Bill is the reduction in income tax. I know that the noble Lord, Lord Boyd-Carpenter, has already mentioned the point that a reduction of 2p does not sound much, but as an employer as well as an employee I can tell your Lordships that this reduction is extremely important in furthering the principle of allowing people to keep as much as possible of the money they earn.

There is nothing dishonest or selfish about that principle. It gives incentive and offers reward. I know that the noble Viscount, Lord Chandos, disagrees, but when I was campaigning in Glasgow in the general election of 1979 and again in London in 1983, the message was the same from the young who had just received their first pay packets, from families and from those approaching retirement. They felt that they could spend their money far better and more wisely than any Chancellor could ever do. So I congratulate the Chancellor for listening to the people and for reducing their burden of direct taxation.

Because of that tax cut, a married man on average earnings of £11,600 per annum will need a pay rise of only 2 per cent. this year to keep pace with inflation. That is a real success and one that I hope will continue. If I have any regret it is that there has been no reduction in the higher tax bands, especially since I feel that the jump from 27 per cent. to 40 per cent. is far too great. However, I believe that it is fair and correct that those on lower incomes should be the first to benefit from the nation's economic success.

I welcome this Bill for its positive outlook and beneficial effects. I look forward to a new Finance Bill in the near future in a new Parliament under a new Conservative Government.

5.42 p.m.

Lord Graham of Edmonton

My Lords, better than anything else, the last speech demonstrates the wide gulf in attitudes to the management of the economy and fiscal policy in this country that exists between the Government and the Opposition. It is rather sad that although there are certainly people who benefit from the Budget, we have failed to hear from Members opposite anything about large sections of the community who not only get very little in comparison with others but have been disadvantaged by the way in which the Budget has been drawn up.

Beneath the glitter, the tinsel and the dazzle of 2p off income tax the cold fact remains that a great opportunity has been lost. I do not underrate the remarks of the noble Lord about the usefulness of having 2p off income tax both to individual recipients and businesses, and I honestly believe that everyone including myself can find something kind to say about paying less tax. However, I think that the mood of the country, as it was indicated earlier this year and as I hope it will be reflected in the polls next month, showed that people of this country would be prepared to forgo a reduction in income tax if it would benefit the poorer sections of the community.

Let us look at the Budget and at the additional and ancillary financial measures that form part of the Budget strategy. One sees that the single pensioner can look forward to an increase in his pension of 80p a week. Let us reflect on that—80p a week. A married couple can look forward to receiving an increase of £1.30. If the Government had not decided to change the system that was in existence at the time they took office eight years ago and the option of deciding which of the higher methods were used had been taken, the single old-age pensioner would have received an increase of £7.20 a week and a married couple would have received £11.40 a week.

I am speaking about little people who are not very articulate. They are affected by the Budget. Instead of offering tax cuts worth £3 billion, which admittedly will benefit a lot of people, the Chancellor and the Government could have used the money differently. They could have used the money to build 90,000 new houses. Anyone who has been a constituency MP, as many Members on both sides of the House have been, will realise that the housing problem is one of the most agonising problems to solve. However, that was the Government's choice. I believe that most of the people who will now enjoy a reduction of 2p in income tax, when faced with that kind of choice would have wanted to assist housing.

Yet even if we do not consider 90,000 new houses, let us consider the 250,000 houses that could be repaired for that sum. This country has housing stock in very poor condition. The money could have been used to produce over 1½ million nursery school places. One cannot say that the Government must do one thing or the other but I think that there are higher social priorities than cuts in income tax. The money could have provided day centres for 2½ million old people or offered additional treatment in our hospitals for 3 million people, or the Government could have increased the old-age pension by £6 a week. I do not deny that the government of the day are entitled to decide how to spend the taxpayers' money. Every government can do that, However, I think that the Government's priorities are wrong.

So far as jobs are concerned. all the measures of tax reduction are estimated to generate 80,000 jobs, but if the money had been used to target job creation 300,000 jobs would have been created. I repeat that a great opportunity has been lost.

I should like to illustrate the enormous differences in incomes that the Government have not only sanctioned but encouraged. Reference has already been made to an article in the Independent newspaper today. On page 20 there is this statement: While the average director had a salary increase of 11 per cent. last year, the top 10 per cent. of directors received a rise of 18 per cent. And what might be called the 'A Team' of British managers, the top 10 per cent. of directors in large companies—those with a turnover of more than £500 million—saw their base salaries increase by a remarkable 45 per cent.". The figures are given in percentages, but what do they actually mean? We are talking about the top 10 per cent. of chief executives earning salaries of £263,000 a year. They earn more in a week than many people are expected to survive on for a year. Directors earn £124,000 a year.

Let me contrast those figures with another piece of government legislation that affects our kind of people. When changes in the statutory sick pay arrangements came into effect in April, which was the same time as the Budget, the Government who provided in the economy for the kind of salaries that I have just mentioned deliberately changed the rules. Prior to that time if one earned £74.50 per week or more—as little as that—statutory sick pay was £46.75. If one earned between £55.50 and £74.49, the sick pay was £39.20. If earnings ranged between £38 and £55 per week—wages as low as that—sick pay was £31. Instead of there being three bands of benefit the Government decided to reduce the number to two. At present if one earns £76.50 or more one receives £47.20; earning between £39 and £76 means receiving £32.85.

What on earth is the noble Lord talking about? There is a whole section of people who would have come in the middle band when it was a three-tier system, who earned between £57 and £76.50 a week—as low as that—who will now in fact, because there are only two bands, lose £6.50 a week in benefit. We are talking about people who when in work are earning less than £80 a week and who when they are sick will get less than £40 per week. There are thousands of low paid workers, particularly shopworkers, and the Union of Shop, Distributive, and Allied Workers has drawn this to my attention.

Is it not obscene and despicable that a Government who are proud of many things, not least the fact that they have distributed largesse of £3 billion, take action which results in people who are already living at a low level getting £6 a week less while they are sick? I think that noble Lords ought to reflect. I believe that they will be as angry as I am about the matter, if not ashamed.

Let me conclude by saying how grateful is the friendly societies movement for an action by the Government which has benefited them. Clause 30 is enormously beneficial to that movement. I have declared my interest before and the noble Lord, Lord Lucas, who presided over the passage of the Financial Services Bill, was always kind when I mentioned the interests of the friendly societies.

It is worth putting this on the record very briefly. In the Finance Act 1984, the tax exempt sum assured limit was reduced from £2,000 to £750 because at that time there were a great many new friendly societies which were acting in what I am sure the Minister and I would have said was an unpublic way of attracting business. That not only put out of business a great many people who did not deserve to be in business, but it also punished the traditional friendly societies—the small, long-time serving friendly societies.

This was pointed out to the Chancellor, and Mr. Ian Stewart in another place said, "Fair enough. If there is some damage to them, let us have a discussion". Discussions have taken place over a period of time. What the friendly societies wanted was something that would put them back to where they were, and I am told by them that they are highly delighted with the changes which have been made.

Changing the limits from a sum assured base to a premium base allows policies of the type offered by traditional friendly societies, which have a relatively high emphasis on life cover per £1 premium, to be for realistic sums assured. So I should be grateful if the Minister would take back to his colleagues the thanks not only of the Ancient Order of Foresters, which has an interest in this, but of the whole movement, because in this one measure the Government have done a great deal to promote thrift and help continue in existence the friendly societies which serve the nation well. To show that I am a fair-minded man in these matters, I shall certainly look forward to the Minister's comments on the latter part of my speech much more than on the first part.

5.53 p.m.

Lord Ezra

My Lords, noble Lords who have intervened in this debate so far have taken a broad view of the economic and financial policies of the Government and have expressed their views according to their particular party affiliations. This is absolutely right and proper, particularly in this context of an approaching election. But I feel at this stage that it might be helpful if I were to concentrate on a particular aspect of policy, because I have no doubt that my noble friend Lord Diamond, who will be summing up for the Alliance, will be taking a broad sweep of the economic and financial policies of the nation.

I should like to start with the reference by the noble Lord, Lord Brabazon, to the Government's achievement in the reduction in the public sector borrowing requirement. There is no doubt that it has been reduced very substantially. But what he perhaps failed to mention for lack of time was that there were two exceptional items which contributed to that reduction; namely, the fiscal benefit of North Sea oil and gas and the massive sale of public assets. Both of these are extraordinary items which are likely in time to diminish in their effectiveness.

I should like to restrict my comments to the privatisation of public assets, because I feel that that has been a most important part of the Government's economic and financial policy. It is a policy which they made clear they would seek to continue if they were returned to office. But at this stage it is not inappropriate to make some comments on what has happened so far and on what would be the implications if this policy were to be pursued in the future.

When you look back on the Government's privatisation programme, you can see that it divides fairly neatly into two parts. The first part roughly corresponds with the Government's first period in office from 1979 to 1983, and a whole series of enterprises, which were either actually or potentially in a competitive situation, were then sold off into the private sector. I think many would agree that on the whole that was no bad thing. Certainly the Government's manifesto for 1979 was fairly restricted in its intent on privatisation. It referred to the privatisation of aerospace and shipbuilding, which, in the latter case, has not been completed yet, of buses and of national freight. It said that in regard to those industries which remain in public ownership the Government would try to see that they were enabled to run their businesses with the minimum of interference possible.

However, in due course the Government's policy perceptibly changed, and that occurred in their current period in office, when they moved from the privatisation of smaller enterprises in a competitive situation to the privatisation of large-scale public utilities. That raised a whole new series of problems and, as it looks as if the Government, if returned again to power, would proceed in that direction and would seek possibly to privatise the water supply industry, the electricity industry, the Post Office and perhaps others, it is appropriate that we should ponder a bit about the implications of transfering large-scale monopolies in the form of public utilities from the public to the private sector.

It is notable that in the Government's manifesto for 1983 they said that, merely to replace state monopolies by private ones would be to waste an historic opportunity. So we will take steps to ensure that these new firms do not exploit their powerful positions to the detriment of consumers or their competitors". Mr. John Moore, who was then Financial Secretary to the Treasury and who seems to have been the philosopher on privatisation, added to that to the effect that, we are not so naive as to think that an unrestrained monopoly in the private sector would be less inclined to exploit its position than the monopolies in the public sector". So we have in those two statements acceptance, apparently, by government that monopolies are not a particularly desirable state of affairs, and that whether they are in the public or the private sector they are likely to use their monopoly position to their own advantage and to the disadvantage of others, unless restrained in some way.

Later on, Mr. John Moore said that the Government had concluded that, regulated private ownership of natural monopolies is preferable to nationalisation". This was just a statement without any corroborative evidence produced; indeed, none could be produced because this is a totally new concept. However, it raises two questions which were referred to repeatedly during the course of the debates on the Telecommunications Bill and the Gas Bill. The first question is: why was there not some restructuring to introduce a competitive situation in these two enterprises before they were privatised? The second question is: if they were to be privatised as they stood was the regulatory framework adequate? Those two questions are very relevant to future possible developments.

There are many conceivable ways in which big public utilities could be restructured, if that was thought to be desirable. They could be divided on a regional basis. They could be divided as between their common carrier capacity—most of them are common carriers, whether they be water, gas, electricity, the postal services or British Telecom—or they could have a degree of sub-contracting or franchising introduced into their systems.

In fact, none of those options appear to have been examined. The two public utilities which have been sold off so far were sold off exactly as they stood. We should be well advised to question the application of that policy should a future effort be made to privatise further public utilities.

Having sold them off as they stood, the second question is whether the regulatory mechanism which the Government introduced was adequate. There were many who doubted that during the passage of the two Bills, but the proposals made to that effect from these Benches were rejected by the Government and their supporters. However, I should like to draw the attention of noble Lords to the situation as it now exists of the two public utilities that have been privatised. In the case of British Telecom, which was sold off for a sum in excess of £4 billion, the annual cost of the regulatory authority, which has a staff of about 100, is under £4 million. That is a relatively modest body to control such a vast organisation. However, the figures that I have for the annual cost of running the regulatory body for the gas industry—an enterprise which has a turnover of £7 billion and employs more than 100,000 people—shows a sum of £1.2 million and a staff of 15.

On that projection, if the electricity industry were to be privatised as it presently stands, we might be lucky to obtain a regulatory body with a staff of about half a dozen costing a few hundred thousand pounds a year. Therefore it is not unreasonable to ask whether that type of regulatory framework is at all adequate for the massive change in the status of those large organisations.

I believe that that aspect of the Government's policy will need to be carefully reconsidered in the ensuing parliamentary session—whatever government may be in power—to see whether we have found the right way of dealing with those big public utilities.

I am not particularly arguing that the big public utilities should be publicly or privately owned, but there should be adequate safeguards for the various interested parties. I cannot see that the transfer of the two public utilities which have already been moved from the public to the private sector has been of any benefit to the taxpayer. On the contrary, the taxpayer has lost substantially because of the costs of privatisation and because of the relatively low rate at which the shares were sold. The shareholders have certainly gained. Whether or not consumers will gain, time will tell.

This is one of the areas which demands a good deal more consideration and more attention in any future attempts to privatise public utilities than has so far been given to it.

6.4 p.m.

Lord Diamond

My Lords, it is always an enormous pleasure for me to follow my noble friend Lord Ezra, who speaks with such authority on the matters that he is discussing. I found his speech today wholly acceptable. He was talking about the efforts that we all put in to try to provide some measure of competition in the gas industry when it was being privatised, in order to maintain the Government's philosophy that one should not turn a public monopoly into a private monopoly. In the time that we all all spent on that, I was not lacking in either industry or patience myself.

When I think of the time that we spent on that and our complete lack of achievement in persuading the Government of the continuing truth of their previous statements as to the foolishness of attempting to run a public monopoly as a private monopoly, I am very saddened. As regards that part of my noble friend's speech, I am more than delighted to be in the position of following him.

There is some usefulness in having a debate of this kind at this point in time. However, as a practical politician, I am bound to say that there is a slight feeling of artificiality about it. We are addressing one another and nobody else. None of what we are saying today will appear on television. None of what we are saying today will appear in the newspapers. They will fill their columns with other things. Of course, all that the Minister said was in preparation for the speeches that he will no doubt make in various constituencies when he will describe the Government's policy in a way which some of us would not recognise. I wish him luck.

I wish him particular luck when he goes to the North, the North-East and Scotland and explains to people there how successful the Government have been. I wish him joy. If he gets out of it without any physical damage, he will be very fortunate indeed. He will tell the people in those places that the Government have achieved unparalleled economic progress, unparalleled growth, a fall in the cost of living which has been unparalleled and an improvement in the standard of living which has been unparalleled. If the Minister says those things in those places, the people will naturally laugh at him in the way that they should.

I should like, if I could, to agree with some of the measures in the Finance Bill. There is very little of it left, and in what there is left there is very little to agree with. I do not think that the Government have received sufficient congratulations on the step that they took in the time of the noble Lord, Lord Barber, in establishing free exchanges. That was a very courageous step and it has been beneficial to the country. The Finance Bill contains a useful provision in that it makes it necessary for any future government who wish to change it to first have to prove their case before Parliament.

I am sorry that the provisions—this has been referred to already—for profit related income proposals have been dropped. They would have been very beneficial and I cannot see that there would have been much opposition to them. However, they have been dropped along with many other things.

I wish to tell your Lordships of the way in which I think the people of this country see the achievement of the Government since they came to power. They will give the Government credit for the following records: first and foremost, a record in unemployment which was previously unimaginable. As the noble Lord, Lord Peston, mentioned, in my time in government it was accepted that unemployment rates in excess of 1 million meant that there would be riots on the streets. Here we are, as a result of government propaganda, with 3 million embedded in our thinking as being a tolerable figure for unemployment. That is the first record that the people of this country will recognise.

The second record which they will recognise is a record in the reduction of the size of our manufacturing sector. Thousands of people who had jobs and who no longer have jobs in manufacturing will remember and be aware of that record. Those who are involved in the financial area will be aware of the record of achievement by the Government in real interest rates. I think that record goes back for all time. But certainly even in nominal interest rates the record they have achieved will be remembered.

They have also achieved a record in that the country, for the first time, has been unable to contribute to earning its living through the net export of manufactured goods. For the first time we are in a situation in which we import more manufactured goods than we export.

There is also a record, which has been expressed in humble language and which I wish to express in a more detailed way, in the change of direction and of increased divisions among our people. Perhaps that is the most serious matter of all. I cannot express, in one sentence, the record on social divisions. But I am able to express in one sentence the record on financial divisions. I am able to demonstrate, on the basis of the Government's own figures, what I have known to be the truth but could not prove by Government figures previously. Drawing on my recollection as the past chairman of the Royal Commission on the distribution of income and wealth, I believe that this is the first time in this century that there has been a movement away from equality. Through the period, there has been a growing together of the levels of income of those at the top and those at the bottom, and of the share of capital of those at the top and those at the bottom.

That is the shape of our society. There can be a difference of views as to the pace at which the richest and the poorest should be seen to become more comparable. There is a possibility of a difference of views about savings and capital. But there has never been a difference of view by any government, Conservative or otherwise, throughout this century, that we ought to drive as far as we reasonably can towards greater equality, until this Government came into office.

As I said, the ordinary person would see that in simple terms of the rich getting richer and the poor getting poorer. I wish to demonstrate that that is not an emotional statement: it is an accurate statement of the facts. Those facts are drawn from Government figures and particularly from the reply I received from the noble Lord, Lord Young of Graffilam, on Monday, 9th March, when I asked for the figures of the Gini coefficients for various years and was given them.

The Gini coefficient is a description, invented by a clever Italian professor, which enables us to have a look, simply and shortly, at the shape of our society in financial terms. A government statement from the Front Bench confirmed that it is the best available description. It is not perfect and I would not claim perfection for it. But it is the best we have. The figures go from 1979 to 1983 and further figures have been published for 1984 and 1985. The figures do not yet exist for 1986. However, common sense tells us that the differentiation has increased rather than reduced in that period. The conclusion for the years from 1979 to 1985 inclusive is that the inequality of original incomes—what people have earned first of all—has increased over all by nearly 10 per cent. It also shows that when a proper measure is taken—that is to say, the measure of post-tax incomes—and making all the necessary adjustments for cash benefits, income tax, indirect taxes and the like, then the inequality of post-tax incomes for families (because that is where the shoe pinches, rather than with the individual) has increased by more than 10 per cent. during that period of this Government's control of finances.

That shows a marked moving away from a trend towards greater equality which was obvious throughout the century. That moving away gives every justification to those who say that under this Government the rich get richer and the poor get poorer. It is not surprising, therefore, that people feel that importance should be attached to the figures which have recently been described of an 11 per cent. increase in the remuneration of chief executives who, on average, earned over £200,000 per year last year. Compare that with the kind of increase—less than half—which the Government are offering to those who provide all our essential services in hospitals and elsewhere. It is not surprising that people feel that there is a great drive towards division in this country.

I may say that it is not surprising to me either that the noble Lord, Lord Strathclyde, thought that in those circumstances a reduction in taxation was helpful because it would enable the people who earn more than £200,000 a year to keep more of their income. I was much moved by that argument. I am delighted to see the noble Lord. I had great affection for his late grandfather, as indeed I had for his father. I am delighted to see him among us. But perhaps I do not share his background and his views entirely.

That is the situation that we see, and we feel that this Government must answer for that at the next general election. That is why, if we had time, we would argue this Bill in the greatest possible detail. As we have not, we shall leave it by saying that those are the records of this Government. That is the achievement of the Government, and they ought to be ashamed.

6.18 p.m.

Lord Williams of Elvel

My Lords, I first have to apologise for my noble friend Lord Peston, who has been called away. I think he sent a message to the noble Lord the Minister. He was hoping to stay for the winding-up speeches but unfortunately, as is frequently the case in this House, we went on a bit too long and he was called away on urgent business.

I believe that this is the last debate on economic matters, certainly in this House and possibly in either House of Parliament. That is as it should be because the election is upon us and the general election campaign, in large measure, is going to be dominated by the conduct of the economy by the Government which is presently in power and the plans of the different parties for correcting what they perceive to be the imbalances that a number of noble Lords have referred to this afternoon. I think that it is a measure of the sophistication of your Lordships' House that we can debate these matters in a relatively tolerant and civilised way before the blood and the thunder of the election is upon us.

I should like to pick up three themes which a number of noble Lords have introduced in today's debate on the Bill. They are tests against which the Bill should be judged. First, does the Bill unite the nation? That theme introduced by the noble Baroness, Lady Seear, and taken up by my noble friend Lord Graham; the noble Lord, Lord Diamond, has also referred to it. Secondly, does the Bill aid the transition from a North Sea oil economy to a post-North Sea oil economy? I thought that the noble Lord, Lord Ezra, started along this line before he went on to give what I thought was an excellent exposition of the problems involved in privatisation of the utilities.

The third test, as has been put forward by several noble Lords, is: does the Bill contribute towards the generally desirable aims of growth and the reduction of unemployment? I think that noble Lords on all sides of the House will agree that both growth and the reduction of unemployment are desirable general aims.

The noble Lord, Lord Diamond, has already commented—and therefore I shall try to be brief—upon the question whether the Bill, and indeed the conduct of government policy since 1979, has united the nation. I agree almost entirely with the remarks of the noble Lord, Lord Diamond. All I can do is expand on the matter of the regional question which the noble Lord touched on, but perhaps did not cover in as much detail as he would have liked.

There is no doubt that there is a North-South divide. However, there is doubt as to exactly where that line between North and South should be drawn. Indeed, a study produced by Lloyds Bank argues that the line should not be drawn from the Severn to the Wash, but from the Wash to the Solent; and that the statistics show that the South-East and East Anglia are the two areas which have benefited most, and still benefit most, and that other areas are well behind.

I should like to quote some figures on the matter. The South-East and East Anglia are the only regions where the gross domestic product per head is above the national average. In all other regions it is below the national average. In Wales, it is 88 per cent. of the national average, whereas in the South-East it is 114 per cent. and in East Anglia it is 101 per cent. That is just one measurement of the unemployment situation.

The regional breakdown shows that the South-East and East Anglia are the only two areas where unemployment is less than 10 per cent. In all other areas it is higher than 10 per cent. For example, Berkshire, which is on the M.4 corridor, has an unemployment rate of 6.7 per cent. whereas Cleveland has an unemployment rate of 21.2 per cent. That is the measure of the regional disparity.

Indeed, the European Commission has pointed out that more than one-third of the poorer regions of the European Economic Community are to be found in the United Kingdom. Personal income tells the same story. Expenditure on housing in the South-East is 50 per cent. more than it is in the North. Average rent, rates and water charges are 20 per cent. higher than they are in the North. Investment in new company formation is much higher in the South-East and East Anglia than it is in the North, Scotland and Wales.

We have to ask the question: what does the Bill do to correct these imbalances? The answer is that it does not do anything. It does not do anything because the Government have never set out to do anything. I believe—and this point was made by the noble Lord, Lord Diamond, with great clarity—that the idea of trying to correct these imbalances went out of the window in 1979. There was a clear change in philosophy; there were imbalances regionally and imbalances between the rich and the poor.

In so far as concerns the balance between rich and poor, I agree with the noble Lord, Lord Boyd-Carpenter. I think that this is an over-taxed country. However, the increase in indirect taxation has been absolutely enormous. To return to the 1979 portion of gross domestic product taken by the Government in tax would, by my calculations, require a tax reduction in the region of £12 billion, which again by my calculations is equivalent to 9½p off the standard rate, rather than the 2p as suggested in Clause 20.

The next test is: does the Bill aid the transition to the post-North Sea oil economy? Various noble Lords have referred to the necessity to revive manufacturing industry and to promote research and development, about which the noble Baroness, Lady Seear, spoke at length. I totally agree with what she said and therefore I shall not repeat it. We must improve training and have more productive investment. Above all, we must make sure that manufacturing exports increase and manufacturing imports decline, or relatively decline—in other words, that our manufacturing balance of trade improves. The Government claim that the long-term decline in the United Kingdom's share of world trade in manufactures has been reversed. I wish that that were true.

However, the sad fact is that in making that claim the Government have once again moved the statistical goal posts. This was shown by The Henley Centre study at the end of March of this year. Formerly, DTI figures simply measured the share of exports as a proportion of main manufacturing country exports; those figures were reproduced at Budget time by the Treasury up until 1985. Now, of course, the Treasury produce rather different figures, giving greater weight to our largest export markets, and making an adjustment accordingly. What a surprise, the Treasury figures show a favourable picture, while the DTI figures show a volume share little different from the low point of 1981.

The reason is quite clear—our export markets have been less buoyant than those of our competitors. In value terms, the picture is worse, because over the past few years the devaluation of the pound, to which the noble Viscount, Lord Chandos referred, has been reflected in the revenue received, and that is really what matters. Our share of manufacturing trade has fallen drastically since 1961 and we need to do something about it.

I believe that the analysis made by your Lordships' Select Committee on Overseas Trade, chaired by the noble Lord, Lord Aldington, in a most distinguished manner, has yet to be disproved. That is a point on which we shall continue to insist and we shall be insisting throughout the forthcoming election campaign. In my view the Bill does nothing to help the manufacturing sector get the manufacturing balance of trade back anywhere near where it was in 1979, and anywhere near where it has to be as North Sea oil starts to run down.

The third test is whether the Bill contributes to the generally desirable aims— for example, growth, which we certainly need. Between 1979 and 1985 OECD figures show average OECD growth at 2.2 per cent. per annum and UK growth at 1.3 per cent. per annum. IMF figures for the period between 1979 and 1986 show world growth at 2.6 per cent. per annum, that for industrial countries at 2.3 per cent. per annum, and that for the UK at 1.4 per cent. per annum. As the noble Lord, Lord Brabazon, pointed out, at present our growth rate is relatively high, but there are dangers in this. Consumer spending is flat for the first quarter of 1987 compared with the first quarter of 1986.

Consumer spending was, after all, the great motor of growth over the past year or two. The world economic outlook, according to the International Monetary Fund, is deteriorating. The forecasts for 1987 produced by the International Monetary Fund in April 1986 show that for the group of seven countries there would be a growth of 3.3 per cent. When the IMF revised its forecast in April 1987 it said the figure would be only 2.4 per cent. It looks as though we may be coming to the end of what has been a growth cycle, from a low point in 1981 and now moving into somewhat rougher waters.

Nothing in the Bill does anything to promote growth in the United Kingdom and there is no reason why it should because the Government specifically rejected the idea which we used to hold and which my noble friend Lord Peston used to teach; namely, the Keynesian view that governments could actually do something about growth. The Government have specifically rejected that view, so it is no wonder that the Bill contains nothing that will ensure that growth in the United Kingdom is not just a once-for-all affair on the back of a consumer boom and on the devaluation against the Deutschmark to which the noble Viscount, Lord Chandos, referred, but is a solidly based performance over the years. Ultimately we come back to the question: what does this Bill do to reduce unemployment? Here I refer to the point that my noble friend Lord Peston made. It seems to me to be a very fundamental point.

Are we to assume that the Government are telling us that an unemployment level of 3 million is given for economic policy over the next few years, or are we to suppose that the Government do not accept that and that they have some other plan? Do we believe, with the noble Lord, Lord Boyd-Carpenter, that unemployment is endemic—I think that was the expression he used—in the industrial nations? Let us again look at the facts. The OECD standardised cross-country basis for unemployment, October 1986, gives the total for the OECD as 7.7 per cent.; for the US, 6.8 per cent.; West Germany, 8 per cent.; Japan, 2.7 per cent.; France, 10.5 per cent.; UK, 11.4 per cent.

Again we are right down the league to which the noble Baroness, Lady Seear, referred. What can we look for in the Bill to correct that? Every study made, as my noble friend Lord Peston said—unless the Treasury has made some new study of which we know nothing—has shown that direct tax cuts are a dreadfully inefficient way of reducing unemployment. That cannot be said too often. The noble Lord may report to us this afternoon, as a result of some new magical study which theTreasury has done, "Oh no, all that is rubbish and we really do believe, and we have solid empirical evidence to show, that cuts in income tax are the right way to reduce unemployment". Unless he can show that, we are compelled to come to the view that the Government accept that 3 million unemployed is going to be a given in our economic affairs for the next few years.

I believe by these tests of uniting the nation, aiding the transition to a post-North Sea oil economy and contributing to generally desirable aims such as a reduction in unemployment, that the Bill before your Lordships' House is a lamentable effort. Yet the underlying economic policy is presumably that which the Conservative Party is putting before the electorate. We all know—the noble Lord, Lord Peston, and the noble Viscount, Lord Chandos, have told us—that the monetary prospectus which was adopted by the Conservatives in 1979 was more or less bogus. They have now given all that up and say that monetary aggregates no longer really matter; you can choose the one you want and you can decide what you want it to be. But just because they got away with one bogus prospectus, there is no reason for them to get away with another.

I accept the view of the noble Lord, Lord Boyd-Carpenter, that there is a political divide between this side of the House and his side. I am quite happy that if this is put to the electorate in honest terms the electorate will be able to make up its mind. If it is put to the electorate in honest terms, we on our side are not in the least worried about the outcome.

6.35 p.m.

Lord Brabazon of Tara

My Lords, we have had an interesting debate this afternoon. I had intended to begin my closing remarks by dealing with any particular queries that noble Lords had on the Bill, but nobody has actually raised any question of detail on the Bill itself. I shall try not to take too long because I appreciate that there is a lot of business to follow, but I shall deal with some of the points that have been raised during the course of the debate. The noble Lord, Lord Diamond, said that he felt that there was a slight feeling of artificiality about this debate. We have even lost the television cameras this evening, so although we have been doing a good deal of electioneering, we may not get any reporting of it, and certainly none of us has a vote to cast when the election does come.

However, the noble Lord, Lord Bruce of Donington, began by querying the fact that although we have reduced taxation it still stands higher now than it did before. We regard real take-home pay as much more important than a percentage of earnings taken in tax. That takes account of both direct tax cuts and indirect tax increases. A two-child family on half average earnings has seen a 17½per cent. real increase since this Government came to power. On average earnings that increase goes up to 21½ per cent. in real terms since this Government came to power. I have to grant that in the period of the last Labour Government there was also an increase in real take-home pay for the two-child family. That was over the five-year period half of 1 per cent.

Lord Graham of Edmonton

My Lords, does that take into account any increase in VAT and other direct taxation?

Lord Brabazon of Tara

I said, "and indirect tax increases", my Lords.

The noble Lord, Lord Bruce of Donington, asked me specifically about the extension of VAT, and I should very much like to answer those points. As far as new construction is concerned, the noble Lord is well aware that that is the subject of a European Court Case and the hearing is due in September. The Government have made it quite clear that they are fighting the case vigorously. They will have to consider the terms of the judgment. Zero-rating for newspapers, however, is not part of the court case so it is not under threat. On food, my right honourable friend the Prime Minister repeated on 28th April in another place her 1984 undertaking that an incoming Conservative Government would not put VAT on food. I hope that that gives the noble Lord the reassurance he was looking for. Generally, the Government are committed to prudent reductions in the overall burden of taxation, especially income tax. As the Budget demonstrated, this is being achieved without commensurate increases in indirect tax rates.

The noble Baroness, Lady Seear, criticised us—not for the first time—for having chosen 1980 as a base date for certain figures we gave. So far as manufacturing productivity is concerned, it has grown faster than that of all other major industrial countries since 1979 as well as since 1980. That is in contrast to when we were at the bottom of the league in the 1960s and the 1970s. Total output in the economy has grown faster than in any other major European country since 1980 and that contrasts again with when we were at the bottom of the league in the 1960s and 1970s. Industrial production is at its highest ever levels and manufacturing output is growing faster. It is up by 4 per cent. over the past year and forecast to grow again by 4 per cent. this year.

Inflation is near its lowest level for nearly 20 years and under firm control. It is forecast to be at 4 per cent. at the end of this year and in the middle of 1988. I do not need to reaffirm the Government's determination to keep down inflation and further to reduce it. In fact, zero inflation is our aim.

Baroness Seear

My Lords, does the noble Lord deny the position in the league tables that I quoted from the Economist?

Lord Brabazon of Tara

My Lords, I cannot recall the figures that were quoted from the Economist. I shall look at them. I am telling the noble Baroness how we are doing now in comparison with other countries and how we did in the 1960s and 1970s.

Lord Williams of Elvel

My Lords, would the noble Lord like me to give him the inflation comparisons, because I can do so? They bear out what the noble Baroness said.

Lord Brabazon of Tara

My Lords, in order to get through the business, I shall not accept the noble Lord's offer. I shall look at the figures when they are published in Hansard. We agree that wage settlements are too high. However, the rapid growth of manufacturing productivity means that industry's competitive position has been transformed. United Kingdom unit labour costs are forecast to rise no faster in 1987 than those of our major competitors. Industry's tremendous opportunity is reflected in the optimism contained in the CBI's latest survey. I do not think that noble Lords can quibble about that.

The noble Baroness also talked about training. The Bill contains a specific measure designed to assist training. My noble friend Lord Boyd-Carpenter quite rightly took the noble Lord, Lord Bruce of Donington, to task over his remarks about my right honourable friend the Prime Minister. I am grateful to him for having done that.

The noble Lord also talked about the abolition of exchange controls—I am glad that this was endorsed by the noble Lord, Lord Diamond—and how we were finally abolishing them in the Bill. Of course they have not been used in practice since 1979. We are now finally getting rid of them, I hope. From the speech of the noble Lord, Lord Bruce of Donington, I was not sure whether it was Labour Party policy to reintroduce exchange controls. I had it in my mind that the Labour Party had dropped that idea, but perhaps that is no longer the case.

Lord Williams of Elvel

My Lords, may I verify the party's policy? It is clear. It has been set out in the conference document. We do not propose to reintroduce the old form of exchange controls because we think that we have a repatriation policy on portfolio investment which is rather better.

Lord Brabazon of Tara

My Lords, I shall perhaps be forgiven for having thought from the speech of the noble Lord, Lord Bruce of Donington, that he was probably keen on having them back.

My noble friend Lord Boyd-Carpenter asked whether the Labour Party, if elected, would reverse the 2p cut in income tax. Noble Lords opposite confirmed that they would do so. I have to tell my noble friend that I do not think that will be enough. The Labour Party has a public expenditure programme of some £34 billion. That would involve the doubling of income tax or the trebling of VAT. Noble Lords opposite may laugh. I am not saying that they would necessarily bring in the whole of that public expenditure rise at one go, but I suffer the misfortune of living in a London Labour-controlled borough. I have just experienced a 50 per cent. rise in my rates and I am promised a further 50 per cent. rise next year. That probably indicates that the calculations are not too far wrong.

The noble Viscount, Lord Chandos, gave us a good overview of the Alliance's published prospectus as audited—as looked at by Messrs. Coopers and Lybrand. I understand that "audited" is not the correct word to use. I thought that he made rather light of the fact that the proposal included a £4 billion increase in the public sector borrowing requirement. He said that that probably would not have any effect on interest rates or inflation. We have reduced the public sector borrowing requirement by £3 billion. That resulted in two points off the interest rates. I wonder what will happen as a result of a £4 billion increase.

The noble Viscount also said that the top rate of income tax in Japan is higher than it is in the United Kingdom. That is true. I understand, however, that the Japanese plan to bring down their top rate from 70 per cent. to 50 per cent. In any event, that top rate is not reached until income is well over £200,000, and so I do not think that that is an especially good comparison to make.

I can confirm that my right honourable friend the Chancellor of the Exchequer has said that the Government may need to bring down the top rate of income tax in the next Parliament. I hope that that will encourage my noble friend Lord Strathclyde.

The noble Lords, Lord Graham of Edmonton, Lord Williams of Elvel and others, suggested that tax was a less efficient means of alleviating unemployment than infrastructure spending. Many simulations of economic models show that extra public spending or tax cuts boost demand in the short run but that merely boosting demand ultimately leads to higher prices. The case for tax cuts is based on their longer run effects in improving incentives, rewarding enterprise and reducing distortions. Those effects are not given proper weight in any economic model simulations.

I am grateful to the noble Lord, Lord Graham of Edmonton, for his kind words about what we have been able to do to help genuine friendly societies. I shall certainly draw my honourable friend's attention to his remarks.

The noble Lord, Ezra, in the course of a speech which I imagine he had saved up from yesterday afternoon and in which I could not see any great relevance to the Bill, said that the public sector borrowing requirement had been reduced due only to privatisation proceeds and oil revenues. I am sorry to have to prove him wrong.

Lord Ezra

My Lords, I did not say that, I said that there were two extraordinary items which had helped to reduce the public sector borrowing requirement.

Lord Brabazon of Tara

My Lords, I stand corrected. Even without the privatisation proceeds, the public sector borrowing requirement last year was at its lowest level as a ratio to gross domestic product since 1971. That is also despite the £6.5 billion fall in oil revenues from 1985–86.

The noble Lord, Lord Diamond, talked about the inequality of income distribution. It is true that the inequality has increased, but all those in work, even the lowest paid, those on half average earnings and in the bottom decile, have gained substantially in real terms.

The noble Lord, Lord Williams of Elvel, and other noble. Lords talked about the United Kingdom's share of world trade in manufactured goods. On all measures of world trade, the United Kingdom's performance has improved, or declined more slowly, since 1981 after decades of decline. There has been no previous five-year period in recent history in which United Kingdom manufacturing exporters have been so successful. Manufacturing exports are at record levels at the moment.

Many noble Lords, including the noble Lord, Lord Peston, who is not here, the noble Baroness, Lady Seear, and the noble Lord, Lord Williams of Elvel, talked about full employment. The Government accept that unemployment is too high, but it is already falling steadily. The policies that we have put in place are creating the conditions for a sustained growth in output and employment. We can already see the results. Over 1 million new jobs have been created since 1983. With the labour force growth expected to slow down over the next few years, there is a good prospect of further falls in unemployment. We do not see 3 million as a base figure from now onwards.

The noble Lord, Lord Williams, talked about regional variations in unemployment. Although I have said that unemployment is of course too high, it has fallen fastest in some of the regions, such as Wales, over the past 12 months. In the past six months unemployment has fallen in all regions except Scotland where there has been a small increase. Even in Scotland the trend is improving. All regions will benefit from the £4.75 billion spending increases in priority areas announced in the last Autumn Statement.

A number of noble Lords have, not criticised but drawn attention to, the absence of my noble friend Lord Young of Graffham. The noble Lord, Lord Williams, said that this was probably the last debate that we would have in the House on economic matters before the Budget—that is, if I am lucky later this evening. All I can say is that I hope very much that, shortly after 25th June when we debate the Queen's speech, my noble friend Lord Young of Graffham will be standing here to answer the economist part of the debate.

The Bill contains a number of important measures. Chief is the reduction in the basic rate of income tax to 27p. The Government are well on their way to reaching an objective of a basic rate of 25p. It also includes measures to help businesses, particularly small businesses. The main measures in this category are the reduction in the small companies' rate of corporation tax to 27p in line with the income tax cut, and the package of VAT measures, especially optional cash accounting for traders up to £250,000 per year turnover. Business will also be helped by the favourable economic climate.

Your Lordships should not just take my word for it; let us look at the evidence: base rate down 2 per cent. since March, many foreigners now saying that Britain is the place to invest in at present; the CBI quarterly trends survey, one of the most bullish for many years; stock exchange indices within a whisker of all-time highs; we have already said that unemployment has been down for the last nine months in a row; and one million new jobs created since 1983.

This favourable economic climate, which is the product of eight years of prudent management, has enabled the Government to achieve the unique hat trick of lower taxes—down by £2.5 billion—reduced public sector borrowing—down by £3 billion—but increased public expenditure—up by £4.75 billion. The Finance Bill gives effect to the first of these. I commend it to your Lordships' House.

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

Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 12th May), Bill read a third time, and passed.