Overseas Trade: Select Committee's Report

HL Deb 09 November 1987 vol 489 cc1248-80

5.52 p.m.

Lord Aldington rose to ask Her Majesty's Government on what grounds they consider the 1985 Report of the Select Committee on Overseas Trade to have been largely discredited by events (per Lord Beaverbrook 21st October HL Deb. col. 121) and which of the recommendations they regret having accepted.

The noble Lord said: My Lords, I propose this evening to do my best to show to the House that the report of the Select Committee on Overseas Trade published in October 1985 has most certainly not been "largely discredited". I propose to do this in the hope that my noble friend will be able to agree with enough of what I say to withdraw from the records of this House a rather sudden Government slur upon and condemnation of that report.

The report's analysis and conclusions, which cover the long term in the past and the long term in the future, are still relevant and will be relevant for some years to come. They form a report that many of us had hoped—this applied, I believe, to the whole House when it was discussed two years ago—would be studied by many students both now and in the future. That is why I have asked your Lordships to discuss the matter this afternoon, so that we still have a report which does not suffer from discredit by the Government.

I am in the difficult position of anyone asking a Question in not knowing what the Minister will say in reply and, because it is an Unstarred Question, not being able to challenge any of the points he may make. Thus, I shall have to spread my fire rather widely. It was a wide ranging report which offers a wide target. I must make clear that I am not in any way questioning the Government's right to disagree or, indeed, to raise their disagreements. Those matters can be debated. The report was designed to provoke a nationwide debate. This House welcomed it as a basis for such an important nationwide debate. And that debate has indeed been going on. My only concern tonight—I ask your Lordships to be similarly concerned—is that the Government no longer think it worthy of debate, for that is what the words mean.

We are not dealing this evening with disagreements. We are dealing with the charge of discredit. It would have been no surprise to me if my noble friend Lord Beaverbrook had said in reply to the noble Lord, Lord Hatch of Lusby, that he disagreed with the report on some points including its references to Neddy, to consensus and to co-operation. That is a point of view. I do not agree with him; I stand by what was said in the report. But my noble friend would most certainly not have provoked me to start this debate if he had merely said that he disagreed. Instead—I must remind the House of the words—he used these devastating words: the Report … has largely been discredited by events since then". He went on to rub it in when the noble Lord, Lord Ezra gave him a chance to retreat. The House has learned to take my noble friend's words most seriously. Not only do we like him, but we admire his mastery of all kinds of briefs and the admirable way in which he speaks to us on behalf of the Government. I welcome his courage tonight in standing here alone in defending himself and not inviting either the Leader or the noble Lord, Lord Young of Graffham, to answer me directly.

It is possible that if I had been here that afternoon I might have been provoked into teasing my noble friend by asking him to which of the three questions asked by the noble Lord, Lord Hatch—because that is what the matter amounted to—he was directing that devastating answer. He was asked, first, whether he had read the report; secondly, whether he had noted the recommendation referred to; and, thirdly, whether the Government were acting accordingly. His dismissive reply reads to me as a strong negative answer to all three questions, including the first. Of course, I forgive him for that. He has a great deal to do. As a penance for him I have felt bound to read the whole report again, and I imagine he has had to suffer the same burden.

First, let me try to remind the House of the theme and main points of the report and of some of the Government's considered statements in this House in the past two years on the issues. While doing that, I refer to some very welcome improvements during those two years which seem to confirm, not discredit, what we said. I shall summarise some of the relevant events in statistics that have taken place since July 1985 when we finished the report. Our analyses showed that there had been a deterioration in British manufacturing performance as a whole over very many years, indeed over many decades. Of course there are a number of first class manufacturers, and we said so; but there are not enough. That is still true.

Our theme was that the national attitude to trade and manufacturing—I stress the words "trade" and "manufacturing"—needs to change and change radically if we are to avoid a major social and economic crisis in our nation's affairs in the foreseable future. We were not saying tomorrow, or the next year or the year after; we were looking far further ahead. The Goverment agreed with us about long term deterioration. They agreed with us about the importance of a change in national attitude which they said applied to the whole of the non-oil trading sector. I have no quarrel with that. We were not asked to report upon the whole of that sector.

The Government did not agree with our warning of the direness of the consequences of failing to change those attitudes and failing to reverse the long-term trends. That warning was directed, as most of the report was, at the longer term future and not at the next few years. It was not a forecast; it was a challenge. There is no way in which rational minds can discredit in two years that warning.

The warning struck a note of urgency because we were persuaded that it would take many years to reverse the long-term trends of deteriorating manufacturing performance, many years to build up a larger and more modern fully competitive manufacturing base, and many years to pull ourselves up the international league table of GDP per person. At that time, we were seventeenth. The sooner the process started the better, so it seemed to us. And, my Lords, as I shall show, it has started. Certainly, we gave a special importance to manufacturing—we were asked to do that—but we did not undervalue other sectors of the British economy such as the services sector, much of which is interdependent with manufacturing.

As to the importance of manufacturing I need only refer to the debate of 11th March 1987 on a Motion from the Leader of the Opposition. The Leader of the House supported the Motion calling attention to the importance of manufacturing industry to Britain's economic prosperity and added: Nor can there be any disagreement over the vital responsibility on the government of the day to pursue policies conducive to the health of manufacturing industry".—[Official Report, 11/3/87; col. 1058.] So I do not think that we need argue much about that. There are no events in the past two years that could have discredited what we said on the major long-term issue of the importance of manufacturing to Britain's future. Certainly, the debate on the powerful report on civil research and development of the noble Lord, Lord Sherfield, and his committee did not.

I return to 3rd December 1985, the day on which we debated the report. It may have been forgotten that the noble Lord, Lord Young of Graffham, speaking for the Government, used these words: I should like the House to be clear at the outset that there is much in the committee's analysis and in their recommendations with which the Government unreservedly agree. But we have serious misgivings about some parts of the report".—[Official Report, 3/12/85, col. 1202.]

Misgivings do not discredit. The noble Lord specifically welcomed the call to change attitudes and stressed the importance of the role of the education system, as we had done in the report. I want to say here that in my opinion the Government themselves have played a big part by their policies and by their leadership in starting a real change in those attitudes and in coaxing a welcome change in education circles regarding the importance of manufacturing as a career. But they would agree that we have a long way to go. The fruits of these changes will not mature for several years yet.

My noble friend went on to take the next six major points of the report and gave his views on every single one beginning with the word, "Yes". What we said on the need to improve competitiveness he blessed; what we said on the importance of restraining pay settlements he blessed. We said that there must be regard to cost competitiveness. Happily, in recent months, this regard has been had, with the result that unit costs have risen only a small bit. But the point will always be valid.

My noble friend liked what we said about productivity. Happily, productivity has improved sharply in recent quarters, and the average increase in manufacturing productivity of 4 per cent. per annum since 1979 is an important achievement. But, as the report stressed, it is relative productivity with our competitors that matters even more. I want to quote from page 336 of the Bank of England Quarterly Bulletin of August 1987 which makes the same point: The rather encouraging picture needs qualification in two ways. First, despite better productivity performance in the UK in recent years than in other industrial countries, UK levels of productivity remain below those of many of our major competitors". The second point was a warning about unit labour costs rising too fast in the future, when productivity increases which have been considerable—7 per cent. in recent quarters—average 4 per cent. and not higher figures. Both these points are implicit in the so-called discredited report.

Critics have argued that the report was directed solely towards the Government, whereas in fact it keeps on saying, if one reads it, that all people and all sections of society are involved. A large part of its discussions and conclusions refer to what industry, all who work in it, need to have in mind—competitiveness, investment, quality, design, reliability, delivery times, after sales service and marketing generally. All were discussed and illuminated by the evidence given to us by the successful leaders of great companies, and much progress has been made in all of them. Of course, these factors depend upon the people who manage and work in industry. Managers must be allowed to manage; and that is much better now than when we wrote. It is not unconnected with the Government's industrial relations legislation.

It remains true that in the modern world all governments have the role of leadership and help. I say again that the Government are to be praised for their role in starting a change in national attitudes. I do not mind at all if they say that that role had been performed before we reported. It merely proves how right they should think we were in our report. Their benificent action has not been confined to climates and tones. I am pleased that their exchange rate policy now has the same aim as we suggested; namely, stability at an industrially competitive rate. Of course, world events may intervene to upset the rates from time to time. But it is the aim of policy that matters. Likewise, with interest rates, the aim has been lower rates subject to exchange and anti-inflationary requirements. We stressed that rates of interest higher than our competitors were harmful. There is nothing discreditable about that, my Lords. The CBI is still emphasising the point even now.

Let us look for a moment at the very important measures in training taken by my noble friend Lord Young of Graffham. Certainly, industry itself ought to have done more in the past. There were some praiseworthy exceptions but not enough. What my noble friend has done is very much in keeping with the challenge from overseas and with what we had in mind. May the whole of industry follow up!

I know I have taken some time but I said that I would have to range widely. I come now to the statistical matters reflecting events since 1985. I have already said that manufacturing industry has done well. It has increased its output, its productivity and its general competitiveness. Exports have risen in a splendid way and the loss of share of world trade has been halted. I shall give a few figures. I have already given output per head. Output itself is 5 per cent. higher than in 1986 and probably more; but in 1986 it was only I per cent. higher than in 1985. Output is now higher than in 1979 but it is still below the level of 1973, whereas other countries' output is well above their 1973 performance.

There is one very important theme to our report. Manufacturing output in 1986–87 rose faster than did gross domestic product, as achieved by our richer competitor countries over the years. This is the first time for many years that it has happened. As to exports, in volume, the third quarter of 1987 showed an increase above the 1985 average of 12½ per cent., but the ratio of exports of manufactured goods to manufactured sales plus imports has fallen in that time; so we want to be careful that we do not get too complacent.

We must not forget imports. The report did not; some people do. Imports in volume in the third quarter of 1987 were 23 per cent.—not 12½ per cent.—above the 1985 average. This leads to the balance of trade in manufactured goods, which is what this House asked us to look into when they set us up in 1984. In 1985 there was a deficit of £3 billion; in 1986 it was just under £5½ billion; in the first three quarters of 1987 it was £4.8 billion; and the Financial Statement and Budget report forecasts a deficit for the year of £8 billion. I do not think it will be as much as that.

Import penetration has generally worsened since 1985 for most parts of manufacturing. The exceptions are chemicals, other transport equipment, and one or two smaller activities, but in the main it has worsened. Which of those events largely descredits the report? None, I submit.

Now it is said, "But look at the great strength of our total economy"—which I do—"and the quite sustainable position on the current account"—which I do too. I have all the confidence that the Chancellor has in the strength of our economy at the immediate time. Some will be heard to say, "You despondent members of the Select Committee forecast great doom by now". We did not, my Lords; never did we do that.

I have to repeat something here which my noble friend the former Under-Secretary of State for Trade—and he is a friend as well as my noble friend—in this House refused to hear on a famous occasion. We were not despondent. We issued a challenge. We had a faith in the British people once they understood the real position, and that is what we tried to show. Many of us had faith in Her Majesty's Government too. To be despondent is to be without faith.

We made no forecasts ourselves. We referred to the oil situation, but we did not base our report on the difficulties of oil, and we specifically said that if, for example, the price of oil fell sharply predictions would alter. But our report did not depend on estimates of what would happen in the short-term future. We were concerned with long-term trends and the need to reverse them for long-term reasons.

The oil balance has fallen by £4 billion. That gap has been partly filled by the wonderful performance of invisibles—a sign of the great success and value of our financial services and of the product of overseas investment. But the gap has not been wholly filled. So why, oh why, are the theme and conclusions of our report suddenly thought to be largely discredited? I wait to hear, and to hear which of the important conclusions that the Government told us they had unreservedly accepted they now largely regret having accepted.

6.14 p.m.

Lord Hatch of Lusby

My Lords, as the noble Lord, Lord Aldington, has reminded us, it was the Minister, the noble Lord, Lord Beaverbrook, who told me a few days ago, on 21st October, that our report was largely discredited. When the noble Lord, Lord Ezra, gave him an opportunity of withdrawing that charge he went on to say that it had been overtaken by events.

I sympathise with the Minister. He was not a Minister when the report was published, and no doubt he was largely ignorant both of its contents and of its reception. I believe that tonight he should not have been left to answer this charge, because he was speaking for the Government when he made those charges against a committee of this House and we should be entitled tonight to have a senior Minister answering this charge on behalf of the Government. Indeed, I should have expected, when those two comments were made and the Leader of the House was sitting next to the noble Lord, that he would have got up then and withdrawn the Government's charge that the committee's report was either discredited or overtaken by events.

I have no doubt that the Minister has read the reports of the CBI conference last week. No doubt he will have read the comments of the director general, John Banham, who called for a rebuilding of the industrial base of this country; who called for greater investment in plant and equipment, in innovation and technology, and above all in people. He went on to propose that there should be greater partnership between business and the public sector, particularly in education, in training, and in the inner cities. This is entirely in accord with what your committee reported to this House, and those parts were certainly sympathetically received by the Government if not totally approved.

Today we are told by the Chancellor of the Exchequer that we have a strong, booming economy. If it is so strong, then how is it that the indicators show that we are about to face a reduction in growth next year? It would appear to me, despite what the noble Lord, Lord Aldington, has said—and here I disagree with him—that the Government have been only half-hearted, if that, in putting our recommendations into practice.

When we examined the Chancellor as a committee he made it plain that he was the high priest of cutting public expenditure. Last week he appears to have been hoping to be recognised as the angel of greater spending. When he boasts both ways of keeping spending under control and of increasing spending, if those increases are looked at and put beside the increase in prices and the inflation that he himself forecast for next year, they become very small beer indeed.

Even when he was meeting us at the time that he was so opposed to any increase in public expenditure, public expenditure had increased under this Government. It had increased by 11 per cent. since 1979 in real terms. But on what has it been increased? So far as I can see, one of the pariahs of government expenditure has been in the encouragement of British industry and the restoration of our manufacturing base.

We are told that growth will be between 3 per cent. and 4 per cent. this year, but we are then told that it is going to fall to 2½ per cent. next year and that inflation is going to increase. Is that the sign of a strong economy? On the other side, if one follows the Chancellor and argues both ways, if we have a strong economy why is that not being used for the purposes of restoring our manufacturing industry, and particularly for cutting the growing deficit in our manufacturers?

Other countries do it, and our committee, as your Lordships know, went to look at other countries to try to learn some lessons. We found that since 1966 West Germany's share of world manufacturing exports has increased to 20 per cent., allowing the West Germans to spend over 40 per cent. more on health care than Britain does; allowing West Germany to provide an average pension of 41 per cent. of the average weekly wage, whereas in this country the figure is only 23 per cent. How is it that the Germans can do it and we are not doing it? I believe that the report is still relevant in the answer to that question. We have seen the trade deficit increasing year by year since 1983, and we pointed out in our report the grave dangers of that. We are now told that this year that deficit will be £7.5 billion. Next year it will be £9 billion.

If the manufacturing base of our exports is going to decline as it is declining, what is going to take its place? The noble Lord, Lord Aldington, half suggested that the service industries might do it, but not exports. This country's wealth and economic strength has been built up on manufacturing exports, and certainly our export industry is not going to be helped by the increases of 15 per cent. in electricity charges over the next two years. Nor should we neglect the fact, as again was referred to in our report, that it is not just a deficit in manufacturing exports that is undermining the economy of this country. According to the Chancellor, the balance of payments deficit is due to increase by 40 per cent. next year to £3.5 billion, despite the fact that we still have the windfalls of North Sea oil every year.

When the noble Lord, Lord Aldington, talked about increased productivity he quite rightly compared it with that of other countries. My Lords, do you realise that since 1979 output per head in this country has increased in the non-oil industries by no more than 1¾ per cent? Nor can we expect that industry in this country is going to regain its strength when the Government—and this is totally against all the recommendations of the Select Committee report, carefully worked out—are decimating the use of the National Economic Development Councils.

We have pointed out in the report that in Germany, in France and in Japan the combination, the co-operation between the trade unions, the management and the Government is the bedrock on which manufacturing industry has been based. When this Government start to undermine the use of the NEDDYs of this country they are undermining the chance of that national consensus on the importance of manufacturing industry which we found in our major industrial competitors.

I must say one last word about the subject that I dealt with almost exclusively in the debate that we had when the committee's report was published, because this has been my special interest through the committee and in its report; that is, the relationship between this country and the potential in the third world; between this country as an aid donor and this country as a potential beneficiary of that great untapped market.

I received only today from the major British exporters a letter from which I should like to quote one paragraph. It reads as follows: We are concerned that the Government is still not giving sufficient lead in the promotion of a much more enterprising attitude in relation to overseas trade. It is most important that Government and Whitehall representatives in the UK and overseas promote the UK in competition with other Governments. This change should include a much more robust attitude to the use of UK's overseas aid budget for the benefit of the UK as well as the recipient countries". This was the theme of the speech I made in the debate on the report. I believe it still stands, and I believe that if you read the evidence that was given to our committee you will see that one industrialist after another said that when the Government cut overseas aid they are making it more difficult for manufacturers to get markets overseas, and therefore they are reducing British employment. I have given this example many times. We have seen this in the British Leyland example in Bathurst. We have seen it many times since, but the Government are still cutting overseas aid.

I should like to ask the Minister one question of which I have given him notice. Is it the case that in last week's Autumn Statement the Chancellor announced that only £90 million was to be added to our present overseas aid budget? If that is correct, what percentage increase does it represent? And if it is correct, when that £90 million is added to our present overseas budget where will that leave the United Kingdom in face of the United Nations target of 0.7 per cent. of GDP to be given in overseas aid each year? This is not simply a question of charity; it is intimately and directly connected to the whole burden of our report. It is intimately and directly connected to the restoration of manufacturing industry in this country. It is directly connected to our future as an exporting nation, and it is directly connected to employment in this country.

6.28 p.m.

Lord Ezra

My Lords, I am very pleased to be standing here tonight in support of the Question asked by the noble Lord, Lord Aldington. Together with other Members of the Select Committee, I spent many months in very fruitful and useful discussion on the issue which was put to us by your Lordships' House.

I should like to say, before proceeding to the substance of the Question, that I believe we are here faced with an issue of principle. Your Lordships have recently been debating the procedures of this House. We have generally agreed that, on the whole the procedures work fairly well; but one thing is of great importance when we consider our affairs, and that is that we have gained in the public mind an increasing reputation for free objective and frank discussion of the major issues facing the country.

I believe that the report which we are here discussing was an illustration of that. After all, the Members of the Committee were representative of all the parties in your Lordships' House. We came out with a very clear analysis, having heard the leading personalities in the country concerned with these matters, in Government; in industry; in trade and in the trade unions.

We came to our conclusions; and as the noble Lord, Lord Aldington, said, many of our recommendations were accepted specifically by the noble Lord, Lord Young, when he spoke in the debate on the report. Some of the emphasis in our report was not accepted, but I feel that that in no way justifies the views recently expressed in answer to a supplementary question in this House. I very much hope that the noble Lord, Lord Beaverbrook, for whom I have a great regard, will explain to us precisely what he had in mind, and no doubt he will do so. I also hope that he will confirm that it remains the Government's policy to enable this House fully and freely to confront all the major issues that may arise and that any reports which may be prepared by future select committees will be dealt with in debate as objectively as possible by the Government Benches as well as by all other Benches.

Turning to the substance of the report, if the Select Committee had been set up today to look at the issue, let me ask whether it would have reported differently. I think that is a fair test because in fact the noble Lord, Lord Beaverbrook, said that events had changed. Of course much has happened since the Select Committee reported; and I am sure that my colleagues on the Select Committee would agree that there would have been a different emphasis. For example, we noted at the time of our report that the productivity of British industry was lagging, whereas now we would note that it has shown considerable improvement. That is a positive statement that would go into a report written today. However, what we should still have drawn attention to—and our inquiry would still have been entirely relevant to it—is our balance of trade in manufactures. It is almost precisely four years to the day since I put an Unstarred Question on this subject in this House. The date was 10th November 1983, which was the year in which we started showing a deficit in our manufactured trade for the first time for very many years.

It was as a result of the ensuing discussion that the Select Committee was set up. Regrettably it is still a fact today that we have a problem in that connection. In the Autumn Statement, and in his subsequent speeches, the Chancellor of the Exchequer freely admitted that with the decline in oil revenues we shall be running into a balance of payments deficit of something of the order of £2.5 billion this year. He admitted that it could be £3.5 billion next year, and he has not estimated what the position might be thereafter.

That is the essential problem that the committee was tackling and it made recommendations on how to overcome it. I am glad to say that many of the recommendations were not only accepted but acted upon, as the noble Lord, Lord Aldington, pointed out. The fact remains that we as a country are still faced with that problem. As the oil revenues decline, and in spite of substantial earnings from invisibles, there is likely to be a progressive increase of the deficiency in our balance of payments. Therefore, it is not unreasonable to be concerned about that issue. It is the specific issue which the Select Committee was set up to consider.

In the Government's reply to the report we were told that the committee should have concerned itself more widely with the economy. That is not what the committee was set up to do. It referred more widely to the economy but specified in particular what it considered ought to be done about manufacturing industry.

I conclude that had the committee been set up today, while it should of course have paid tribute to the progress made in the productivity of the manufacturing industry in the interval, it should still have drawn attention to the underlying problem of the balance of trade and still have made what I consider to be the same thoroughly constructive proposals on how that problem should be resolved. I think that that is all the more relevant in the present context.

The British economy is doing relatively well compared with others but Britain cannot isolate itself from the rest of the world. After all, one third of our GDP involves overseas trade; and the rest of the world is in serious difficulty, as we well know. This has had an immediately unsettling impact on financial markets, and there is a risk, which is being considered in the press, in television and radio, of that unease in financial markets spreading to industrial markets. That must be avoided and we must hope that it will be. However, we have to make absolutely sure that should that event take place in world terms, it is minimised so far as we are concerned.

Therefore many of the recommendations in our report are extremely relevant to the situation today. For example, there is the need to reduce interest rates, which in some measure the Chancellor of the Exchequer has already undertaken, and the need to establish a competitive currency on a stable basis, which was also a recommendation of our report. There is the need to make absolutely sure that we undertake the necessary investment not only in manufacturing industry itself but in the supporting infrastructure. That is being done progressively. Those are all measures that we recommended and they are all as relevant today as they were at the time that the report was written.

Therefore I conclude by saying that I am indeed disturbed, as must be the other members of the Select Committee, that this very constructive report which as the noble Lord, Lord Aldington, rightly said, concerns itself with the long term and makes very positive recommendations—many of which the Government supported at the time and have since implemented—should now be regarded as outdated. Indeed even stronger words were used about it.

I very much hope that as a result of this debate and in due course the reply from the noble Lord, Lord Beaverbrook, we shall have confirmation of what the noble Lord, Lord Young, said in receiving the report, and that many of the measures that the committee recommended should be taken have in fact been implemented and will continue to be undertaken in order to ensure that our manufacturing industry returns to the position that it held in the past so that it makes good the gap that will surely otherwise open up in our balance of payments.

6.38 p.m.

Lord Greenhill of Harrow

My Lords, I share the dissatisfaction of the noble Lord, Lord Aldington, with the remarks of the noble Lord, Lord Beaverbrook, and I look forward to his elaboration of them. I am confident that the noble Lord will be able to look after himself; I do not concur with the suggestion of the noble Lord, Lord Hatch, that he needs the protection of a senior colleague.

Since the report was published the Government have been justly able to claim credit for the improved situation in industry and overseas trade. That improvement is undoubted in the short-term but likely to be insufficient in the long-term. However, important long-term anxieties were voiced in the report and I should be most interested to learn how the Government now view them.

Among the long-term anxieties were the unsatisfactory public attitudes to trade and industry, educational short-comings, the impossibility of service industries wholly filling the gap left by manufacturing decline and doubts about the automatic growth of new and unforeseen industry, and particularly the possibility of balance-of-payment problems towards the end of this century. Can these anxieties now be ignored?

So far as the change in public attitudes to industry is concerned, a determined effort has been made by many, and I have little doubt that some headway has been made and is being made.

However, the events of the past few weeks, when the vision of the City streets paved with gold has blurred, will perhaps do more than anything to raise doubts in young people's minds about the choice of their careers, and these doubts may well be helpful to industry in need of talent. This country's educational shortcomings are undeniable at all levels. The Government, and many of the educational institutions themselves, have shown a welcome determination to tackle these problems over a wide area. However, any beneficial effect cannot be but long-deferred and our relative disadvantage must persist for some time.

During recent years the service industries have achieved much both in terms of earnings and in numbers of employees, but they can never fully substitute for the loss of manufacturing capacity. That was the view that the Government seemed to share at the time the report was published.

The events of recent weeks have reinforced the view of the committee for there is surely at least a prospect of reduced earnings in the longer term for invisible exports, and the income from our vast overseas investments seems more likely to fall than to increase. In their evidence to the committee, Government witnesses made much of their assertion that new sunrise industries would automatically and inevitably arise. The committee was sceptical about the extent of this automaticity. Do Ministers believe that this sceptism has been in any way discredited?

However, the most serious anxiety of the committee was the possibility in the long-term of severe balance of payment difficulties, if not a crisis. It is true that the decline in domestic oil production is more gradual than was once anticipated. There is the possibility of a significant rise of the future oil price; this has been frequently forecast. Can our visible and invisible exports possibly increase to an extent which would preclude such a balance of payments crisis? It is perhaps too much to ask Ministers to forecast the long-term future. However, I hope that in their calculations they do not dismiss or discredit the warnings which the Select Committee recorded.

6.45 p.m.

Lord Hanson

My Lords, once more the House is indebted to my noble friend Lord Aldington for raising this matter representing, as he does, such a formidable body of committee members experienced not only in manufacturing but in financial services, energy, and international trade.

Manufacturing, as I said in the original debate on 3rd December 1985, is the subject of particular importance to the nation, to us all, and to me in particular. I think that the central theme of my noble friend, Lord Aldington's speech at that time was that there was a need, as he said tonight, to change attitudes, and while I did not agree then with some of the points made by my noble friend I think that as the noble Lord, Lord Ezra, said that is somewhat a question of emphasis. There is much in the report, as everybody agreed at the time, that was extremely valuable to note; but it was my own view, and it is my own view today, that there was a little too much argument about the primacy of need of manufacturing over service industry: that our oil reserves are peaking so we must busy ourselves to stimulate the manufacaturing sector. That was, I believe, where we began to differ on this matter: this question of stimulation. My own view is that events have proved over the past two years that while the basis of the Committee's report was very accurate, and pointed out most of the things that obtain today, the course was already set for a good deal of improvement in manufacturing, and this of course has been proved. My noble friend Lord Aldington, has answered his own questions very well tonight by reciting all the good things that have happened and therefore it is not up to me to go over those again.

The noble Lord, Lord Hatch, took us on a slightly different path which I do not attempt to address; but, nevertheless, all the things that have happened have addressed the basic problems that face manufacturing in this country today. That is to say, the question of self-help. We are now the second-creditor nation in the world. The United Kingdom economy has grown faster than all the major countries since 1980, and with it the productivity growth in Britain's manufacturing industry has been among the highest in the major industrial countries. The inflation rates have been held down, a factor of the utmost importance to all of us in industry; indeed, the most important factor. Progress has continued in dealing with the loss-making nationalised industries and restoring them to their proper place in the profitable private manufacturing sector.

At the time of the debate I said that one of the principal problems of manufacturing has been that we have priced ourselves out of competition, and when we price ourselves back into competition our industry will grow, and I believe that has happened. It may well have happened as a result of the report; it may well have happened that there has been stimulation to manufacturers reading the words of the noble Lord's report. However, I took the view—and this is a question of emphasis—that it has been, largely with this whole problem, one of going out and getting the job done oneself. It is not a question that any goodwill will come from proposals for more government tinkering with this and that; interfering with that or, throwing money at the other. That was what I said at the time, and I still believe it now very strongly.

I feel that the point about education made by both the noble Lords, Lord Aldington and Lord Underhill, is still of primary importance. I said this at the time; and I think this is something which came out of the report very truly: education has a crucial role in this matter of change because there are so many examples of change taking place already.

These are encouraging signs from the Government that will encourage us in industry to see more young people coming into industry. We shall hear it talked about. It is no longer the dirty word that it has been in the past, to a degree, among certain governments. Now the encouragement is there. Therefore, my Lords, I welcome the formation of the city technology colleges and their concentration on educating our boys and girls to play their part, as the noble Lord, Lord Underhill, said, in an economy to which it is increasingly recognised they must be attracted. It must be made known to them that wealth must be created before it can be distributed.

We in industry look forward very much in due course to the influx from among the children of today coming to join us tomorrow; and in particular those graduates from city technology colleges. Therefore I am happy to give my own view that some aspects of the report have been overtaken by events. The positive attitude of this Government, as my noble friend Lord Aldington said, is having its effect on all parts of the economy; in particular, manufacturing. There is evidently no need for the stimulation which excited my attention in the original report as being unnecessary. I believe that industry itself will continue to create the success that it is creating at the moment.

Lord Greenhill of Harrow

My Lords, I am flattered to be mistaken for the noble Lord, Lord Underhill. I hope that that is correctly reported in the record.

Lord Hanson

I apologise to the noble Lord.

6.50 p.m.

Lord Barnett

My Lords, I am delighted to follow the noble Lord, Lord Hanson, in his attempt to support the Government. I am always interested to hear his support for the Government, but I should just have thought that occasionally he might be slightly more discriminating in that support. Tonight, even with his support, he was not able to agree with his noble friend the Minister in the words that the report was discredited. I noted that he could not quite bring himself to say that.

I do not wish to take up too much of the time of your Lordships' House, but, like others, I have said that the noble Lord, Lord Beaverbrook, is a very nice man. I like him very much indeed. Indeed I thought the debate would not take place today, because I half thought that he would make a grovelling apology to the noble Lord, Lord Aldington, and then we would not have had a debate, instead of which I assume that he is now going to defend what he said. At least I must assume that, or maybe he is now going to make a grovelling apology.

However, I listened with great interest to the noble Lord, Lord Aldington, who tried his best, while strongly defending the committee and, rightly, saying a few words in support of the Government. I understand that, as we all do in your Lordships' House, and he was quite right. The economy is stronger today than it was when the report came out. But, as he rightly said, the report was not dealing with the short-term strengths or lack of strengths of the economic situation. That is why I simply cannot understand how it can be said to be largely discredited. I take it as read that, provided there is no disagreement about the facts, the facts are not discredited. They are facts on the record. The noble Lord, Lord Aldington, quoted quite a number of them and they are not to be either agreed with or disagreed with. They are facts.

Indeed the noble Viscount the Leader of the House, in setting up the committee, as the noble Lord, Lord Ezra, said, gave it the following terms of reference, which are quoted on page 86 of the report: That a Select Committee be appointed to consider the causes and implications of the deficit in the United Kingdom's balance of trade in manufactures; and to make recommendations". As has been said, the committee was not being asked to look into the strengths and the weaknesses of the immediate economic situation. The report mentions one or two things that are now wrong, and in paragraph 231.2 one reads that they: led to such a severe fall in the output of manufacturing that output has yet to recover its 1979 level". I am delighted that output has now recovered to that level, but I am bound to say that, as a member of that administration, the level in 1979 was not particularly high. It was not something with which I was delighted. It was quite a low level.

Indeed, the noble Lord, Lord Aldington, and other members of the committee have made clear exactly what the Prime Minister has always said, that it is as much the responsibility and fault of past governments, both Labour and Conservative. She does not quite put it in that way, but she hints at it. She has constantly blamed those past governments for precisely the kind of problems that the report brings out. I am delighted to see the noble Lord nodding. If I had not said that, it would not have been known that he had been nodding.

However, the central point, as the noble Lord, Lord Greenhill, said, was the question of the deficit on manufacturing trade. We have had some facts from the noble Lord, Lord Aldington, and I shall not repeat them, but the fact is that there is a huge deficit on manufacturing trade. That is a fact which cannot be discredited. It happens to be regrettable, but it cannot be discredited, neither largely nor "smally"—if that is the right word. It is not in any way discredited.

Can anybody doubt that if we did not have North Sea oil—which is a central part of what the committee was saying—either today or in some years' time, and there was a deficit on the current account of the balance of payments of something like £12 billion to £15 billion, that would not be a serious matter which would affect the decisions we needed to make on economic matters? So can anybody really say, and can the Minister really say, that this report is largely discredited when you take the central point on page 83, which reads: Taken together, these and this is giving various reasons for the deficit— constitute a grave threat to the standard of living and to the economic and political stability of the nation.". Surely nobody can dispute that. Of course we shall have to take different economic decisions long before we reach that position, but can anyone imagine that it is not serious, that it is not grave? If one accepts that, how can one really say that this report is—and I quote the Minister's words—"largely discredited"?

I hope that in the event when he winds up the debate the Minister who, as I have said is a very nice man, will say that he apologies to the noble Lord, Lord Aldington, who on general matters wholly supports the Government on almost everything else. Therefore, while the report is not discredited, it is basically putting before your Lordships major problems which face this nation, and I hope the Minister accepts that serious steps will need to be taken to deal with them.

6.57 p.m.

The Viscount of Falkland

My Lords, I shall not detain your Lordships long, as I am following in this Unstarred Question some masterly and robust speeches, particularly the speeches of the noble Lord, Lord Aldington, and of my noble friend Lord Ezra. I do not believe for a moment that the noble Lord, Lord Beaverbrook, actually meant what he said when he chose the word "discredited", because it is quite plain, and it has been demonstrated here, that the report of the Select Committee of your Lordships' House and the findings of that committee have not been discredited. The fundamentals are exactly the same as they were when we reported to your Lordships' House in 1985.

As my noble friend Lord Ezra has said, in the short term since 1985 quite naturally there have been very important and very encouraging changes, as many noble Lords have said. There has been an encouraging change of attitude in the country towards wealth production and the importance of wealth creation to the future standard of living of our people. There has been an important increased income into the coffers of the Exchequer, although one must say that one cannot expect that kind of income to continue indefinitely. The bedrock of our prosperity in this country in recent years has been manufacturing. The manufacturing base of this country has been reduced. The manufacturing base which remains is more efficient. All this is encouraging.

However, what worries me is the fact that after a Select Committee of your Lordships' House met over 10 months and was, apart from myself, I modestly say, composed of a dozen or so highly distinguished members, people who have held high office in public and private life in this country, and who made that effort and that gesture to public life, the Government should now feel, if they do feel—I do not really believe it and I hope that the noble Lord, Lord Beaverbrook, will prove me right—that those findings, which were agreed at the time by the Government, have been discredited.

There was when the report was first published what certain sections of the press called a "knee jerk" reaction to it. Why there should have been a knee jerk reaction was not clear except that there were certain differences of opinion on matters of emphasis in that report. That came out when we discussed it. There are still differences on matters of emphasis in that report such as the relative importance of services to manufacturing, and so on.

However, what worries me more is the fact that after this period of time a Select Committee of your Lordships' House should be felt to be an irritation to Her Majesty's Government The other day I read a copy of Hansard concerning the report of the group which was set up to examine the working of the House. One noble Lord said that it was a fact of life that Select Committees of this House (and presumably of the other place as well) are always a matter of irritation and annoyance to civil servants and the Government. I am not too bothered about that because I speak to a number of schools about the workings of our House. I expect that many noble Lords receive such invitations. Something that I always stress to the schoolchildren, and something in which they are always particularly interested, is the workings of Select Committees.

As the noble Lord, Lord Ezra, said, the standing of your Lordships' House in the country today is very high. I know that it is also very high in the eyes of young people because I speak to sixth formers. One thing on which they all agree is that there is no forum in our land which is better placed or better qualified to examine subjects of national interest in depth and take a long-term view than the Select Committees of your Lordships' House. That is precisely what this Select Committee did. It reported to your Lordships' House. Unlike many Select Committees' reports, this committee's report was given prime time in your Lordships' House. It received a good deal of publicity and for several weeks it was the subject of press comment.

I suggest that what has needled the Government is of course the fact that certain people have used the report time and time again to bang the Government over the head. That is irritating and I myself would feel irritated by it. Therefore I am hoping that the noble Lord, Lord Beaverbrook, will in some way prove me right and concede what needs to be conceded—as the country knows what the situation is—that forums such as your Lordships' House are an extremely valuable contribution to thinking in this country. However, I do not expect the noble Lord, Lord Beaverbrook, to admit that the Government are needled at being banged over the head.

The financial aspects of this country are very short-term. Many aspects of this country are very short-term. We need people who consider things in depth and who take at least a 10 to 15 year view. That is precisely what we did, as the noble Lord, Lord Aldington, said. We had the time to do that. The Select Committee took up the time of people who were extremely busy and that of people who gave up their time for no remuneration. That is always the case with Select Committees of your Lordships' House. A great deal of public service goes on here and that is not something which is given great credit in the country today. But I believe that the country as a whole and those who increasingly watch television and see the proceedings of your Lordships' House, and who understand the kind of activity that goes on behind the scenes in Select Committees, place great value upon them.

At first I took the remarks of the noble Lord, Lord Beaverbrook—which I thought were liverish to say the least—as slightly unmannerly. I think that that view would be shared by those who were in the Chamber at the time. I was not in the Chamber but I read the noble Lord's remarks in Hansard with astonishment. Anyone who saw the debate on television would have been surprised. I am sure that as the noble Lord, Lord Beaverbrook, is charming and able he will have the grace to say to us that he acted or spoke impetuously. In my book he certainly chose the wrong word. I have been through Roget's Thesaurus and the Oxford Dictionary and I can find absolutely no justification for the word "discredited". I hope that the noble Lord will at least find another word with which he can correct the impression that he gave on that day. The country does not expect that kind of criticism of what is an extraordinarily effective forum for examining matters of national importance. Select Committees are also one of the few forums for examining such matters.

This debate has been a remarkable one for an Unstarred Question at this time of the day. If I may comfort the noble Lord, Lord Beaverbrook, my impression is that this debate will have done nothing but good so his remarks may well have been of benefit to us all.

7.5 p.m.

Lord Lucas of Chilworth

My Lords, I would not deny the importance of your Lordships' Select Committee's report, published as it was in mid-1985. However, it addressed questions which were largely apparent in 1984. I cannot see in any way that the Government have cast a slur on either that committee or the report, or indeed the members of the committee. Indeed, I find the putting down of this Unstarred Question by the noble Lord, Lord Aldington, as being a little oversensitive. The noble Lord referred to our debate on 11th March this year. His actions were not recorded in Hansard on that evening although his words were, and I found his words also to have been somewhat oversensitive. But perhaps that represented the degree of importance that he felt about this matter.

It is not for me to answer in any way for my noble friend or for the Government. They can do that perfectly well for themselves. However, on that afternoon of 21st October when I was in your Lordships' House and heard the exchange I felt that my noble friend had used the word in the context of the NEDCs. Perhaps rather more broadly and generously we might have thought that my noble friend was indicating to your Lordships that the Government were shifting the emphasis of what they were doing in response not only to the report of your Lordships' Select Committee but to what they have always wanted to do.

In paragraph 7 of Chapter 1 of the report the committee considers the need for a change of attitude to manufacturing industry. That is repeated in paragraphs 126 and 232. In paragraph 232 the Select Committee states that it hopes the Government will support such initiatives as Industry Year. Industry Year 1986 was the child of the Royal Society of Arts. It was fostered by the Government, by industry and by education. It is true to say that there has been a significant shift in attitude. That change is continuing and will, I believe, continue as a result of the relationships that have been formed between educational establishments and industry.

The noble Lord, Lord Hatch of Lusby, tried to establish a difference between manufacturing industry and the service industry. I do not believe that those two industries can be separated, because very much of what went on in a manufacturing industry and was considered by the standard definition and classifications as manufacturing has now moved out of manufacturing and gone into what we popularly call the service industry. Many of the separations are quite arbitrary and do not reflect truly what manufacturing industry is about.

As other noble Lords have suggested, manufacturing industry with its service sector is enjoying a historically high annual growth rate. That reverses the trends of the late 1970s and the early 1980s. It is to those trends that I think the Select Committee report was particularly directed. It is a fact that the manufacturing sector contribution to total exports by the old classfication of both visible and invisible is at present double that of the more popularly called service sector.

As my noble friend Lord Hanson has said, a number of changes have occurred in recent times. Output, productivity and profitability are all on an ascending curve. That has led us to have a far greater competitive edge in the world market which has in turn become increasingly more competitive. While profits are relatively high, we can now see adjustments by industry. A number of people might call that fine tuning. It is fine tuning in terms of the relationship between industry and education, the skills requirement, investment and research and development.

Most of those things are directly the responsibility of industry. I believe that that is accepted by industry. They are conditional upon the Government's domestic policy. I have believed for many years that those policies are, broadly speaking, right within this context. For example, the Ford Motor Company has announced a £1.9 billion investment programme. It has announced the building of a new plant in Dundee which will employ some 450 people. For an American-parented company—although I believe that the Ford Motor Company is as English as almost any other English company— to announce that kind of investment demonstrates confidence in the economy and in the way that the Government are managing the economy. Therefore, I believe that those things have changed.

The other condition which industry must take cognisance of is the world situation. Much emphasis has been placed on that in recent days. As regards the Government's resolve that we should remain an open trading society, non-protectionist and seek to reduce protectionism wherever it may occur, I attended, on behalf of the Government, a GATT meeting in New Zealand in February. At that meeting there was an absolute resolve that protectionist policies should be removed wherever possible and a fair trading policy adopted, certainly throughout the Community and among the members of GATT.

Perhaps I may also comment on the Government's support not only through BOTB but notably through the overseas posts, which is not always seen or recognised. In the short time I was with the Department of Trade and Industry, I visited some 30 overseas posts. I think I saw many of the commercial officers working in them. They have become increasingly more sophisticated and more aware of the needs of industry at home. I believe that they are doing a very good job and that they should have all the support that industry and indeed your Lordships can give them.

Finally, I believe that the Government show a commitment to the Select Committee' report in general terms. The parts where they perhaps disagree are set out quite clearly in the Command Paper published in December. I believe that the Government should, as is already happening and as is necessary, shift some of their emphasis from that which we perceived to be absolutely paramount in 1984 and 1985 at the time of the publication of the report. It is for British industry to show an equal commitment to change and to the world's market places. Then we shall see, as we are beginning to see, a change in the curve to which the noble Lord, Lord Barnett, referred.

7.15 p.m.

Lord Kearton

My Lords, coming ninth in the list of speakers I find that most of the things I might have said have already been said more powerfully and more effectively. However, there are one or two considerations which it may be worth while to draw to the attention of your Lordships.

One matter is that in 1984 and 1985, when the relative decline of manufacturing industry in this country was causing great concern in many quarters, a number of government speakers made statements which indicated that they regarded the decline of manufacturing industry with equanimity and even complacency. I think the report refers to certain speeches which more or less said just that.

By the time the report was published, the attitude of the Government had changed and they had become much more aware of the fact that it was not a good thing for manufacturing industry to continue to decline. Like the noble Lord, Lord Aldington, I feel that the Government deserve enormous credit for the changes they have effected in national attitudes and priorities. One of the outcomes has been that manufacturing industry is truly in a much better state today than for some years past. It looks as though the decline has been halted.

But is that enough? I suggest it is not, as my noble friend Lord Greenhill has pointed out. The deficit in manufactured trade has continued to increase. Our exports have risen, but so have our imports. The right honourable gentleman the Chancellor of the Exchequer is suggesting that the decline will continue into 1988.

One of the recommendations of the committee was that much new investment in industry was going to make existing industry much more efficient. That has been achieved. However, the report also went on to say that the committee was worried that there was not sufficient investment in new industry and products. That worry still exists. In fact, at the recent CBI conference it was one of the points made by several speakers and by the director general. Industry needs to invest more, and to invest more in new products.

Another matter which was touched on by the noble Lord, Lord Barnett, was the cushion of oil. In the debate two years ago I gave some figures concerning oil reserves and production. In his answer, the noble Lord, Lord Young, said: I hope that the noble Lord will accept that somehow as time goes by the reserves seem to be more and more".—[Official Report, 3/12/85; col. 1290.] That optimism has not been borne out by Department of Energy statistics. For instance, 12 years ago at the end of 1975 the total proven and probable initial oil reserves were 2,210 million tonnes. But at the end of 1986, according to the Department of Energy, the initial proven and probable reserves were 2,280 million tonnes. In other words, there was practically no change over a period of 11 to 12 years in spite of over a thousand experimental and appraisal wells.

In an Answer in the other place only a week or two ago the Minister mentioned that to date cumulative production was 952 million tonnes. He also mentioned that the rate of production had now begun to fall. From 1984 to 1986 the rate of oil production had been steady at about 122 million tonnes per year. So far in 1987 production is down by about 5 per cent. One can therefore hazard a guess that by the end of the year production will be perhaps 116 million tonnes. The significance of this figure is that it is at the lower end of the Brown Book estimates from the Department of Energy.

In his Autumn Statement the Chancellor acknowledged that oil production would decline. He said that he hoped that in 1988 production will be midway between the upper and lower of the Brown Book estimates. That would represent an improvement over the 1987 performance and one can only hope that he is right.

In the debate two years ago I drew attention to the fact that we might no longer have an exportable oil surplus in the early 1990s. The Brown Book published this year gives oil production in the year 1991 as lying within the range of 70 to 105 million tonnes. The lower end would just about satisfy home demand and leave no surplus. One hopes that oil production will stay high for rather longer, but it would not be prudent for the Government to depend on it in their forward planning. That was the point made two years ago, and I think it is valid to make the same point today.

Another point on the trade figures which I do not think has been mentioned is that in the last two years they have been considerably helped by devaluation of the pound. If we have a situation now where the pound increases in value relative to other currencies, as it is doing at the moment, if we do not increase our investment in new industry, and if oil production does not do better, then a main conclusion of the report of two years ago, that in a period in the early 1990s we may be facing serious problems, still seems to me to be a very valid conclusion.

I can say no more than state how much I enjoyed and agreed with the noble Lord, Lord Aldington's, robust defence of the original report.

7.23 p.m.

Baroness Seear

My Lords, there can be very few people in your Lordships' House who have not at some time or other made a rather rash and foolish remark off the cuff which they wish subsequently that they had not stated. If the noble Lord, Lord Beaverbrook, says that on 21st October he had a headache or even a hangover, I for my part certainly would not hold it against him and would be very relieved to hear that that was in fact the case, because, with great respect to him, that would not matter very much. What would matter would be if he was, as he is always supposed to be—and it must be very boring always to have to do it—speaking strictly for the Government and expressing only the serious and considered view of the Government. If he can get himself out of it by saying he was not doing that, he may not endear himself to the Government but I think it would endear him to your Lordships' House.

I was not on the committee and I am not included among the august people who made up that committee, but it really was a most distinguished body. The years of experience in industry of all kinds and the level of responsibility that has been handled by the members of that committee mean that they are a very formidable band. It is the privilege of your Lordships' House that we have such people here on our Select Committees. It is for this reason, as other people have hinted but I can far more easily say because I am not one of them, that this is a major reason that your Lordships' House has the respect in the country that it has.

That level of experience and knowledge is not to be compared in any way with the level of experience and knowledge of most politicians in or out of government or which the departments can bring. They cannot compare with the knowledge and experience of that committee. To challenge them in that kind of way is rather like the first year student taking on the professors. Just occasionally the first year student is right, but not usually. So it is as well to have regard to the calibre of the people who have in fact put forward these proposals.

I want to pick up a point which I think was made by the noble Lord, Lord Hanson. We perhaps confuse ourselves somewhat by trying to make a sharp distinction between manufacturing and services. The fact of the matter is that I do not believe that classification is valid. It is a very crude one at any time. I do not think it helps very much to understand what is going on because so many things which are considered to be services are directly used in what is considered to be manufacturing industry. Without them those industries would be unable to make the progress that they do. If we ceased using those two very crude definitions, I think that we would get on a great deal better.

What we are really interested in are the economic activities which most add value and which most increase our share of world trade. One can identify certain developments in certain forms of economic activity which have a greater added value and which do more to increase the share of world trade. If one analyses them in detail one would find that they were made up of a mixture of what we have traditionally called manufacturing and what we call services. The interplay between the two is considerable and progessively in the future it will be more so. If we did not talk quite as much in those terms as we have done in the past, it would help us to clear our minds.

I think that everybody has admitted that since the report came out there has been progress. Up to a point the Government take credit for this. It is also fair to say that matters over which they have had no control have contributed very greatly to the success which has taken place. In part this has been due to the fall in commodity prices, which nobody has mentioned. It certainly made it easier to get inflation under control and it has contributed to a reduction in manufacturing costs. As the noble Lord, Lord Kearton, said, unquestionably another factor has been the change in the value of the pound which has made us a great deal more competitive than we were at the time the report was written. If you were out to fault the Government on it, you could say that it was the excessively high level of the pound in the early 1980s which to a considerable extent put manufacturing industry into the bad position in which it found itself. The righting of a mistake is always to be welcomed, but it does not undo the fact that it was a mistake in the first place. However, progress there certainly has been. It really is not the enormous success which it has been cracked up to be.

As other noble Lords have pointed out, we are now back to where we were in 1979 and our share of world trade for manufacturing industry is still lamentable. I notice that in the Autumn Statement and in the material backing up the Autumn Statement, the only claim which is made is that the share of world trade, which fell so heavily from the later 1960s, through the 1970s and into the early 1980s, has fallen no further since 1981.

At the turn of the century we had 33 per cent. of world trade and in 1963, according to the Autumn Statement, it was at 16 per cent. In 1981 that had fallen to just about 7 per cent. It is not therefore a very proud claim that that position has now stabilised. One is glad that it has now stabilised otherwise we would have gone right through the floor. It is still something which leaves a great deal of room for improvement.

Need for improvement plainly still exists. Much of what has happened deals with the immediate present and, as is said in the Select Committee report, to a considerable extent we are under the tyranny of the immediate; and yet it is the long-term, as I think everybody has said, to which the committee was drawing attention and it is to the long-term that we should now be drawing attention.

That is true but so far from the report having been overtaken by events, in the past three weeks events have underlined the importance of the report in the sense that it is ever more important that we should improve our competitive position. In view of what has been happening over the past three weeks we can no longer assume that the more favourable trends which could and have been identified, are going to continue.

I draw attention briefly to some of the areas in which it is of the greatest importance that the points made in the report should be emphasised even more than they needed to be emphasised in the past. I dare say that a good many people have read the report from the chief economist of the NatWest pointing out the very great difficulties in which we find ourselves, assuming, as we must, that the American trading position will become very difficult indeed. The need is for greater competitiveness with Japan and with the European Community. Unless we are able to shift our trade in that direction, the position which has been created by what is happening in America may well land us in a very serious position indeed. That underlines the importance of doing even more of those things which have helped us along the way so far.

First, with regard to exchange rates, we must look very carefully again at how competitive we can make ourselves and how far we can let out exchange rates fall in order to increase our competitiveness. We need to look again, too, at the EMS. I know this has been raised already in your Lordships' House this afternoon and I know the inevitable answer and the reason why, but if we want to deal with problems of exchange rates intelligently inside the European Community—and the need for this gets greater and not less because of the current situation—then surely the EMS is where we ought to be.

We must also, if we are to increase our competitiveness, get inflation down. If we are to run into a very difficult trading situation, we must lower exchange rates so that we can trade more competitively overseas, and there must be a reduction in interest rates so that to some extent we can boost the domestic economy. That is what we seriously must do. Both measures were recommended by the committee's report and, so far from being out of date, both have a new relevance because of what has happened in the past three weeks.

I briefly also underline the education question. We should increase our quality as well as our price. Members of your Lordships' House have been saying that much has been done; I can only say that a great deal remains to be done. It will not be achieved over the long-term if we skimp on payments to universities and undermine civil research. Those are some ways in which the points made in the report, far from being overtaken by events and discredited, have a new urgency because of the situation in which we now find ourselves.

7.34 p.m.

Lord Williams of Elvel

My Lords, the House is grateful to the noble Lord, Lord Aldington, for putting this Question to the Government. I do not mean that the noble Lord was right in picking up what was perhaps an unpremeditated remark by the noble Lord, Lord Beaverbrook, at Question Time and I am certainly not asking for the grovelling apology to which my noble friend Lord Barnett referred.

I believe it is extremely useful every two years or so—after all, it is just over two years since this report was published—to review the analysis and recommendations in the report and that your Lordships should be able to discuss progress. Therefore, I concentrate on that particular aspect of this question rather than asking the noble Lord, Lord Beaverbrook, what his reply will be in response to the particular remark he made.

A number of your Lordships, particularly those on the Select Committee, have drawn attention to the terms of reference of the Select Committee, and that is absolutely right. The committee was set up to look at the long term and not at the short term. It was also set up to look at the manufacturing trade balance and the causes and the implications of that balance. This evening I believe that we should look at two aspects. The first is whether that analysis contained in the report still stands up in the light of events and with hindsight to what has happened in the past two years, and, secondly, to see whether the recommendations which the report made have been followed and if not, why not?

The noble Lord, Lord Kearton, I thought was absolutely right to draw our attention to one event which has taken place since the publication of the report: the very successful devaluation of the pound sterling during 1986, particularly against the deutschemark. This gave a substantial boost to our manufacturing exports and has fed its way through into the surge of exports that we have seen in 1987. The noble Lord, Lord Greenhill, was also right to draw our attention to a slightly negative factor; namely, that the world stock markets over the past months have engaged in a sharp correction—some may call it a crash—and that may affect in the medium term the level of world economic activity particularly, as the noble Baroness, Lady Seear, said, in the United States.

In the context of those two developments it is right, proper and opportune at this moment to look again at the analysis that the report produced for us. The noble Lord, Lord Kearton, also made a very important point—which is my first point about the analysis—in looking at North Sea oil production. It is sometimes claimed, occasionally by some euphoric articles in the press, that North Sea oil production is not really in decline, that it is not a secular trend but that somehow exploration is going to get going again and that in the next decade we shall see much more development.

We can only rely, as always, on government figures and what the noble Lord, Lord Barnett, correctly refers to as the facts. The noble Lord, Lord Kearton, rightly pointed out that the Department of Energy Brown Book in 1987 does not in fact produce forecasts which are materially different from those contained in the report of your Lordships' Select Committee. The 1988 House of Lords estimate, which the noble Lord, Lord Aldington, says was not an estimate made by his committee but drew on statistics provided from the Department of Energy and the Treasury, was between 85 million tonnes and 120 million tonnes. The latest Department of Energy Brown Book figures are between 105 million tonnes and 125 million tonnes. Indeed, the Department of Energy produces an estimate for oil production by 1989 which is more or less exactly what Lord Aldington's committee produced for 1988. Therefore, if anything, there has been perhaps a year's imbalance between the two; but that is not a bad record of forecasting, if I may put it like that. By 1991, as the noble Lord, Lord Kearton, pointed out, the Department of Energy itself forecasts oil production from the North Sea at between 70 million and 105 million tonnes per annum. That is significantly worse than anything which your Lordships' committee produced in its report.

Of course, that is reflected in the oil balance which is forecast by the Chancellor for 1988, which is a surplus now of only 3 billion, and as production goes down, we can see that growing smaller and smaller.

On the score of North Sea oil production, I do not believe that the analysis contained in the Select Committee's report was grievously at fault. I believe that the secular trend has been established and will continue. There is no evidence of a turn around in that. The central problem that the Select Committee points out is: what happens when North Sea oil stops bailing us out?

The second point of the report's analysis to which I should like to refer relates to the invisible balance. There was a great deal of discussion as to how far services would be able to take over from manufacturing. I use the expression, despite the strictures of the noble Baroness, Lady Seear, because we do not have statistics to mingle services with manufacturing; we have to look at what we have.

In 1985, the United Kingdom ran a surplus of £5.38 billion in services. In 1986, the surplus was £4.99 billion. In other words, on services we lost a further share of world trade. The noble Lord, Lord Lucas of Chilworth, frowns at me. I have to tell him that I am quoting from government figures upon which I always have to rely.

Overall, of course, in our invisible balance, there was a move from £5.1 billion in surplus to £7.48 billion in surplus. But that improvement was due, first, to the reduction in overseas earnings from the North Sea—in other words, a repatriation of profits from the North Sea due to the price decline and, secondly, a reduction in net transfer payments to the European Community, which together made up approximately £3.1 billion. So any argument that the invisible balance would in some way come to the rescue of the visible imbalance has yet to be proved by the statistics.

Indeed, when the Chancellor forecast, as he has just done, that we will run an £8.5 billion surplus in invisibles in 1988, I can only reply that we have had many discussions in this House—the noble Lord, Lord Ezra, will remember them well—about government estimates of what the invisible surplus is. Somehow it seems to vanish like the snow in spring, as we get down to reality.

The third part of the analysis relates to the manufacturing trade balance. The noble Baroness, Lady Seear, referred to our share of world trade. She rightly said that we have just been moving along, not very happily; but we are stabilised. I point out that in 1979—like the noble Lord, Lord Barnett, I am not proud of anything that we came out with in 1979—the United Kingdom share of world manufactures was 9.1 per cent. In 1983, it was 7.9 per cent., and since then until the second quarter of 1987 it goes 7.6, 7.9, 7.6, and 7.8 per cent.

Baroness Seear

My Lords, if I may interrupt the noble Lord, I did not say that we had been going on happily. I said that we had been falling seriously.

Lord Williams of Elvel

My Lords, I am grateful to the noble Baroness. We have not been going on happily; we have been going on unhappily. It has not been falling seriously in those years; it has been static since 1983.

I regard 7.9 per cent. to 7.8 per cent. as a "situation status" if I may use that expression. Manufacturing output has picked up—that is welcome—in the past year or so. Nevertheless, I have to remind your Lordships that the committee pointed to a serious comparison with other industrial countries. The latest figures, for the second quarter of 1987, show US manufacturing output up by 18 per cent. since 1979, German output up by 8 per cent. and Japanese output up by 30 per cent. Our manufacturing output was down 2.3 per cent. and France's down 3 per cent. We cannot claim that there has been a great turn around.

When we look at the main points of the analysis that the Select Committee made, I cannot believe that they have been shown by events and with hindsight to be discredited. I believe that they were one of the most remarkable pieces of forecasting and prediction that I have seen. As we all know and as the Chancellor said in his Autumn Statement, forecasting is a very, very difficult business, and, given the effect of the world stock markets, it has now become more difficult.

If the analysis is still valid, what of the recommendations? I accept what the noble Lord, Lord Aldington, said. There has been an improvement in competitiveness thanks, in my view, to the devaluation of 1986—in particular, the devaluation against the deutschemark. I accept somewhat more reluctantly than other noble Lords that there has been a change in national attitude. I believe that there has been a change in government attitude; I am not sure that there has been a change in national attitude.

The change in government attitude has been rather subtle. Whereas three or four years ago, as noble Lords will remember, we were run by a doctrinal Government with a specific theological view of how the economy behaved, we are now run by a rather pragmatic Government who say, "Oh, sterling M3 is not very right. Perhaps Mo is not right. We will now have the exchange rate as the main indicator. Public spending is perhaps not all that bad. It might come in." Now, we have, I think, a pragmatic Chancellor. I welcome that, because I think it is one of the points that the Select Committee was trying to make.

I am not sure that we have achieved exchange rate stability. Until a few weeks ago, I thought that we were tracking the deutschemark in the shadow exchange rate mechanism, and that we were on the point of achieving at least that exchange rate stability. But now all that is a bit open. The sterling/dollar exchange rate has moved rather sharply, and we do not know where it will go.

The main recommendations of the Select Committee on interest rates; on the consensus for the National Economic Development Council, trade unions, management and government working together; on investment; on civil research and development; on training; and on the support by government for major export projects: where are all those? I would argue that the Government have not yet learnt the lesson that your Lordships' Select Committee tried to put to them—that in order to get the manufacturing trade balance anywhere near where it has to be when North Sea oil starts to run down, they must take the lead themselves.

I believe that the question of the noble Lord, Lord Aldington, is well put. I do not ask the noble Lord, Lord Beaverbrook, to retract in any way. He may wish to apologise, or whatever. I do not ask for that. I ask him for a serious reply to the points that the noble Lord, Lord Aldington, and other noble Lords have made this evening.

7.48 p.m.

Lord Beaverbrook

My Lords, when the report of the Select Committee chaired by my noble friend Lord Aldington was first debated in this House, my noble friend Lord Young of Graffham acknowledged both the importance of the subject and the contribution which the Select Committee had made to the discussion. Both have been amply confirmed by what we have heard tonight.

Many of the Select Committee's conclusions were then and still are accepted by the Government. I cite as examples the committee's findings on the importance of initiative and enterprise; on the need for both price and non-price competitiveness; on the priority to be given to positive attitudes to business among the young, and to fostering the development of the skills needed in industry. The Government not only accepted the views of the committee; we have acted on them.

Where the Government differed from the committee was over its central thesis on the origins and significance of the deficit in the balance of trade in manufactured goods, and over the policies which the committee's reasoning led it to propose. We believe that the committee took too pessimistic a view of the resilience of manufacturing industry; and that the performance of manufacturing in the period since the committee reported has not borne out the committee's fears, but has confirmed the correctness of the Government's approach. This is the point that I was making, perhaps in a rather shorthand way, when I responded to the Question of the noble Lord, Lord Basnett, in your Lordships' House some two weeks ago. If my choice of words has given offence, I of course unreservedly apologise to your Lordships and most particularly to my noble friend Lord Aldington. I was perhaps using words in a robust tradition set by the committee itself when in its report it describes the report of a senior Treasury official, Mr. Byatt, as discredited.

Lord Williams of Elvel

My Lords, I am sorry to interrupt. Does the noble Lord agree with that analysis?

Lord Beaverbrook

My Lords, to have read all these reports for this debate would have been perhaps a little time-consuming; but now that the noble Lord brings it up, I shall of course look at Mr. Byatt's report with some interest.

In the two years since the committee reported, manufacturing output has risen by 5 per cent. and is now rising at a rate of 5 per cent. a year. The whole of the loss in the recession of 1979 to 1981 has now been made good. The important point—and this is a point that was brought up by the noble Lord, Lord Barnett—is that it is not only back to the 1979 level but it is still growing and is forecast to continue to grow.

Two years ago manufacturing productivity had risen by 30 per cent. since the depth of the recession. Now the rise has been extended to 48 per cent. This is a rate of productivity growth matched by none of our competitors. As a direct result, over the past year unit labour cost growth in British manufacturing industry has fallen and is closer to that of other major industrial countries. This has happened despite a continuing tendency for pay settlements in British manufacturing industry to run ahead of those of our competitors. But the committee was quite right to see excessive pay settlements as one of the main threats to the continuing improvement in the competitive performance of British industry.

Trends in manufacturing investment were until recently distorted by the progressive withdrawal of 100 per cent. first year tax allowances for capital investment which provided an incentive to bring such investment forward. Now that this distortion is out of the system, we see that manufacturing investment rose by no fewer than 7 per cent. between the second half of 1986 and the first half of 1987. Earlier projections of 4 per cent. growth in manufacturing investment for 1987 as a whole now seem likely to be exceeded, and healthy growth is expected to continue into next year.

Profitability is of course a major determinant of investment. After five years of uninterrupted growth, the real rate of return on assets achieved by manufacturing industry last year had recovered from a low point of 2 per cent. in 1981 to 7.2 per cent. last year. This will not only provide the resources companies need for investment, it will give them the confidence they need to commit these resources.

There are encouraging signs too that industry has taken to heart the committee's words on non-price competitiveness. The quality and design of British products has improved immeasurably over the past few years. Together with more favourable exchange rates, and the increasing realisation that improvements in labour relations are here to stay, this is leading more and more international companies to increase the output of their United Kingdom operations, both to supply the British market and for export. Partly because of this, in the third quarter of this year, the volume of our manufactured exports, excluding erratics, was at record levels, 11 per cent. higher than a year ago, and 40 per cent. up on their trough level of early 1981. After many years of decline, our volume share of world trade in manufactures has held its own since 1981. And if world trade expands as forecast, British manufactured exports should continue to grow through 1988.

Imports of course are rising a little faster, and the Industry Act forecast published with the Autumn Statement predicts that there will be modest deficits in the balance of payments this year and next. With last year's collapse in the price of oil only partly made good, and the British economy continuing to expand faster than those of other major industrial countries, this is only to be expected. There will continue to be a deficit in the balance of trade in manufactured goods, and it may even widen a little. But this one indicator is, I believe, less central to the underlying performance of the economy than the committee suggested. Its view that "sustainable growth has not been possible, and will not be possible without a favourable trade balance in manufactures" has not been borne out by events. Indeed, both the progress of manufacturing industry over recent years, and the prospects for the future, are widely seen by outside commentators as one of the most encouraging features of the British economy.

The Select Committee was of course right to point out that North Sea oil revenues are bound to decline. Indeed, they have done so much more rapidly than either the committee or anyone else could have foreseen, as a result of the collapse and partial recovery of the oil price. Now, the volume of North Sea oil production is also beginning to decline, and the oil trade surplus is likely to fall by about £1 billion in 1988. But this will in part be offset by buoyant earnings from invisibles, and particularly from the returns on our increasing portfolio of overseas assets. What matters is that the whole of the British economy, manufacturing and non-manufacturing sectors alike, should be equipped to meet the demands of a rapidly changing commercial environment, alert to the needs of the market, and quick to take advantage of all opportunities.

The Government differed from the committee in our analysis of the problem; so it is to be expected that our policy prescriptions should also differ. We recognise that manufacturing will have a vital place in the economy as far ahead as any of us can foresee. So of course will the service industries. As it is, the contributions, both direct and indirect to export earnings of what are classified as manufacturing and service activities are very similar. Estimates indicate figures around £30 billion for manufacturing and £25 billion for services for 1985. Nor can we foresee with any precision the relative importance of different sectors in the years ahead, and all our experience suggests that we should be very ill-advised to try. Indeed, as mentioned by the noble Baroness, Lady Seear, the very distinction between manufacturing and services is becoming less and less helpful. I would not go quite as far as the adviser to President Reagan, who said that manufacturing would become a service activity. But when computer hardware is a manufacture and software is a service, and when the effect of a manufacturing company contracting out its legal advice, or the disposal of its factory waste, is to boost the share of services in the economy at the expense of manufacturing it is at least legitimate to wonder whether the distinction has much value as a basis for policy.

Indeed, Mr. John Banham of the CBI said last week: Manufacturing and services are interdependent; we do not need to choose between them. We must not choose between them". This is why the Government see no reason to discriminate in their policies towards industry between manufacturing and service industries, still less for "picking winners" between manufacturing sectors, with the costs that implies for those not selected. What is needed is a climate in which industry—in the broad sense of those who are part of the market economy, not of manufacturing or of service industry—can expand and flourish. This requires low inflation; control of public spending; low taxes; the removal of unnecessary burdens on business; an expanded role for the private sector; and measures to enable markets to work more flexibly and effectively. All these this Government have provided.

Many of the Select Committee's specific recommendations were very much in tune with this approach, and were well calculated to improve both the capacity and the willingness of those in business to take advantage of new opportunities, wherever they appear. These are the qualities needed if the revival which the British economy has experienced in the 1980s is to continue into the 1990s. But they are needed in banking as much as in chemicals; in software as much as in hardware; in consultancy as much as in construction. Policies which discriminate between sectors implicitly second guess the way markets will develop. That is hard enough in all conscience for those who make a career in business. It is a field in which governments have not excelled in the past, and which they would be well advised to avoid in future.

I shall now turn to some of the specific points made by noble Lords. The noble Lord, Lord Hatch, asked me a question about overseas aid. After the Autumn Statement the UK will devote 0.32 per cent. of GNP to official development assistance. This compares with France's figure of 0.49 per cent., with the United States of America of 0.23 per cent., and an OECD average of 0.36 per cent. Overseas aid expenditure in 1988–89 will increase by £100 million on the 1987–88 estimated outturn. That is an increase of 7½ per cent. in cash terms. The increase in the net overseas aid programme provides for growth in real terms over the next three years.

My noble friend Lord Hanson and the noble Lord, Lord Greenhill, mentioned the importance of the awareness of wealth creation and enterprise in schools. My noble friend the Secretary of State for Trade and Industry has just announced the new objectives for the department. One objective is the encouragement of the growth of links between schools and the world of work. The Government will be taking initiatives in this area. The Government, through the industry education unit of the DTI, has taken a number of steps to promote awareness of both wealth creation and enterprise in schools. Examples include the mini enterprise in schools project which is designed to promote enterprise activity in schools throughout the United Kingdom. The schools curriculum industry partnership aims to promote students' understanding of industry and industrial society through the school curriculum and the work-shadowing programme, under which students shadow people in business for a week to try to dispel myths about industry.

My noble friend Lord Lucas of Chilworth mentioned Industry Year. I can tell him that the Government gave full support to the Industry Year campaign to change attitudes to industry organised by the Royal Society for the Encouragement of Arts, Manufactures and Commerce. The Government have provided £1 million towards the £1.5 million central running costs of the campaign and contributed to regional activities. On top of this, the Government launched new initiatives for Industry Year totalling £6 million. Additionally, many existing government activities support the Industry Year objectives of increasing awareness of the importance of industry and wealth creation.

The noble Lord, Lord Kearton, mentioned the difficulties of unstable exchange rates. Since the Plaza agreement of September 1985 the pound has appreciated against the dollar but fallen significantly against the yen, the deutschemark and the French franc. This exchange rate pattern has benefited many but not all United Kingdom exporters. The noble Lord, Lord Williams, mentioned the decline in the exchange rate, particularly against the deutschemark. I welcome the recognition both from the noble Lord, Lord Williams, and the noble Baroness, Lady Seear, that manufacturing exports have responded to exchange rate movements in the way that the Government anticipated.

The noble Lord, Lord Kearton, also mentioned the trend in imports. Recent figures have been very erratic, but some rise in imports is inevitable as the economy expands. As expected, much of the rise in imports over the past year is of basic materials, semi-manufactures, capital and intermediate goods reflecting rising output and investment.

The noble Lord, Lord Williams of Elvel, mentioned the OECD economic outlook. This shows that the United Kingdom had the largest invisible surplus in the world in 1986. It is likely to maintain its leading position in 1987. The invisible surplus is forecast to rise further from £7.5 billion in 1987 to over £8.5 billion in 1988, as the noble Lord, Lord Williams, noted. The net overseas assets of the United Kingdom rose by £37 billion since the end of 1985 to £114 billion by the end of 1986. This is the highest recorded level since the war and is second only to Japan.

We have all along accepted a number of the committee's individual conclusions and recommendations, and we have no reason to change our mind on those. But from the beginning the Government have been unable to accept the committee's view on some fundamental issues. Far from posing the grave threat to our economic and political stability which the committee foresaw, a sharper than expected fall in oil revenues has contributed to a more favourable pattern of exchange rates which in turn has contributed to improved manufacturng performance.

In our view, the committee attached both to manufacturing and to the manufacturing trade balance a special significance for which there is perhaps no economic justification. All wealth-creating activities are important and the manufacturing trade balance is only one element in the overall balance of payments. Furthermore, the trade balance of any sector is not a reliable indicator of its performance. Events since the committee reported have vindicated both our analysis and our policies. We shall therefore continue to pursue those even-handed policies which have served all sectors of industry so well, and which offer the best prospects for our future prosperity.

I hope that my noble friend Lord Aldington will recognise that in obeying this summons to the headmaster's study this evening I have at least now made quite clear the Government's position on his committee's report.