Lords Sitting of 29 November 1988

Preamble
The House met at half-past two of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.
Prayers—Read by the Lord Bishop of Chester.

Agricultural Set-Aside Scheme
Lord Mackie of Benshie Lord Mackie of Benshie asked Her Majesty's Government:
Whether they are satisfied that the new set-aside scheme will not have any adverse environmental effects.
The Parliamentary Under-Secretary of State, Ministry of Agriculture, Fisheries and Food (Baroness Trumpington): My Lords, the Government have taken care to build into the set-aside scheme provisions to prevent adverse environmental effects. Moreover, there is ample scope for set-aside to enhance the environment. I would commend to the noble Lord, Lord Mackie of Benshie, the Ministry's practical guide, which sets out many ways in which this might be achieved.
Lord Mackie of Benshie: My Lords, I thank the noble Baroness for her Answer. Is she aware that it is possible to take the set-aside on a whole farm and thereafter to plant that land? Is the Minister also aware of the story that wealthy forestry groups have been buying up land in Aberdeenshire for this purpose? The Minister is surely aware that if whole farms, which are not on the best agricultural land, are planted with forestry, that would make a desert of large areas.
Baroness Trumpington: My Lords, there is provision that that land must have been used for arable purposes last year before set-aside can be taken up. We do not yet have the full details of how many farmers are setting aside 100 per cent. There are some farmers who want to set aside all their arable land, but we understand that that is likely to be only a small minority. Many farmers will be maintaining other non-arable land in production. Like other participants they will still be required to maintain their falloWed land in good agricultural condition and to comply with rules designed to avoid environmental harm.
Lord Mackie of Benshie: My Lords, will the Minister be prepared to refuse permission on environmental grounds to set aside whole farms?
Baroness Trumpington: No, my Lords, I could not give that undertaking. It will be a question of horses for courses. We have our farm woodlands scheme which is separate from set-aside and which has great environmental benefits.
Lord Carter: My Lords, is the noble Baroness aware that virtually all the organisations connected with environmental issues regard the set-aside policy
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as being less than helpful to the environment and that it is an opportunity missed? Is the Minister further aware that by far the most environmentally friendly way to use the set-aside land is through graze grassland? There is considerable disappointment among environmentalists that the Government have rejected this option which I believe has been adopted by six other member states in the Community.
Baroness Trumpington: My Lords, I entirely disagree with the first part of the noble Lord's question. If he were familiar with the practical guide, as he should be, he would note that it includes creating good wildlife habitats and conservation headlands; that it advises on how to avoid bird damage; and that, among other things, it is concerned with amenity areas and organic farming. It very much brings out the benefit of conservation of the landscape. As regards the green fallow question, we are concerned that our beef farmers, dairy farmers and sheep farmers should not be burdened with people coming in and producing extra animals, which would kill the market in this country. I have no idea how other countries cope with that problem.
Lord Walston: My Lords, can the Minister give us an assurance as regards the leaching of nitrates into the waterways as a result of set-aside and particularly some forms of bare fallowing? I understand that there is evidence that that may take place. Will the noble Baroness confirm that that is so and that the Ministry is prepared to take steps to see that it does not happen?
Baroness Trumpington: My Lords, the question of nitrates is a separate one from that on the Order Paper today. I shall be delighted to answer it at any time when the noble Lord raises it. As regards the scheme we are talking about, the noble Lord believes that it should have been directed at nitrate-sensitive areas; the EC rules provide for the scheme to be open to all farmers and not just to those in nitrate-sensitive areas.
Lord Gallacher: My Lords, will the noble Baroness agree that the set-aside scheme, which requires 20 per cent. of the land to be set aside in order to qualify under it, carries with it the risk of redundancy for many farm workers? Is the Minister further aware that because of the nature of the farm industry the only protection that farm workers have is the statutory government scheme? In those circumstances will the noble Baroness ask her right honourable friend the Minister to consider an approach to the Commission whereby some of the co-responsibility levy paid upon cereals by British farmers is funnelled back to this country in order to top-up redundancy payments to workers who are made redundant by reason of set-aside?
Baroness Trumpington: My Lords, first, we take the view that it is too early to make any forecasts. Secondly, any reductions in employment due to set-aside will be offset by new opportunities arising, for example, from the wide range of afternative uses allowed on set-aside land. We shall be evaluating the

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impact of the scheme as it proceeds and I shall gladly take the noble Lord's question to my right honourable friend.
The Earl of Radnor: My Lords, is my noble friend aware that, from the point of view of the environment, it would perhaps be much better if set-aside land were allowed to fall back to nature? That is really what we are talking about. Are there any plans whereby that might be an allowable option rather than just the traditional fallow and green fallow, both of which cause a considerable amount of disturbance to plants, animals and insects?
Baroness Trumpington: My Lords, I am sorry; I am not quite sure that I understand my noble friend's question.
The Earl of Radnor: My Lords, perhaps I can assist my noble friend. Abandonment of land is what I mean.
Baroness Trumpington: My Lords, there cannot be abandonment of land under the scheme because farmers are required to manage the land even though it is lying fallow. My noble friend may be interested to know that I recently visited one of our bigger seed companies. It is carrying out experiments with packs of seeds of wild flowers and different grasses. After sowing a most attractive sight would result.
Lord Carter: My Lords, is the Minister suggesting that arable farmers should put one-fifth of their land into weeds?
Baroness Trumpington: No, my Lords; that is not what I am suggesting.

Baltic Claims to Sovereignty
2.45 p.m.
Lord Chelwood Lord Chelwood asked Her Majesty's Government:
Whether their continued de jure recognition of the independence of Latvia, Lithuania and Estonia means that these annexed countries are unequivocally entitled to self-determination; and whether this recognition accords fully with the United Nations charter.
The Minister of State, Foreign and Commonwealth Office (Lord Glenarthur): My Lords, we have never recognised de jure the forcible incorporation of the former Baltic states into the Soviet Union and make this clear to the Soviet authorities whenever necessary. It follows that we would respect the right of the peoples of Latvia, Lithuania and Estonia to say what their own future should be. This accords with the United Nations charter and indeed Article 72 of the Soviet constitution.
Lord Chelwood: My Lords, will my noble friend confirm that there is an insistent and growing demand in all three countries for a greater measure of
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economic and political sovereignty, highlighted best, perhaps, by the vote of 258 to one in the Estonian Parliament two weeks ago? Is it not further highlighted by the fact that 3.5 million of the Baltic people have signed a petition asking for greater sovereignty?
My noble friend mentioned Article 72 of the Soviet constitution. Is that not unfortunately contradicted by other articles? Does my noble friend not agree that one acid test of Mr. Gorbachev's sincerity will be his reaction to this increasingly dangerous situation?
Lord Glenarthur: My Lords, I agree with my noble friend that recent developments are more encouraging in respect of recognition by the Soviet authorities of the need to give all the Soviet people the right to choose their own future. It is important that we bear these encouraging trends in mind. I repeat what I said in my earlier Answer; namely, that it is important for the people of those countries to have the chance to express their own views freely and democratically and to discuss the various possibilities and options.
Lord Mellish: My Lords, is the Minister aware that some of us find the situation ironic? For many years—for decades, in fact—these three countries have been annexed by Soviet Russia. Today. because of Mr. Gorbachev's liberating—if that is the right word—freedom of thought, and so on, the people in those three countries are saying. "We want to go back to where we were". Would it not be a good idea for Britain to shut up, mind its own business, keep out of the matter and let the Russians sort it out? Some of us find the situation most amusing.
Lord Glenarthur: My Lords, I agree entirely with the noble Lord that it is a very delicate time. Certainly, caution is needed.
Lord Cledwyn of Penrhos: My Lords, I sympathise with the aspirations of the peoples of the Baltic states. However, does the Minister not agree that the best contribution this country can make is to improve trade relations with the Soviet Union? That, in turn, would help President Gorbachev's perestroika programme? Can the Minister tell the House what steps are being taken by Her Majesty's Government to improve such relations?
Lord Glenarthur: My Lords, the Question relates specifically to the countries of Estonia, Lithuania and Latvia, not to general matters of trade with the Soviet Union. However, I shall certainly see whether more facts about general trade with the Soviet Union relevant to the Question are available. I shall let the noble Lord know.
Lord Molloy: My Lords, following the correct and, I think, very useful Answer the Minister has given with regard to three particular states in the Soviet Union, can he say whether the same policy applies to other peoples whose lands are occupied other than by Communists?
Lord Glenarthur: My Lords, I am trying this afternoon to answer a particular Question relating to the Baltic states. I do not think it is necessarily right for the noble Lord to infer that anything I have said about this matter relates to any other part of the world.
Lord Bonham-Carter: My Lords, does the Minister not agree that it is probably in everyone's interest in present circumstances that any disputes or differences between the Soviet Union and, say, Estonia. Lithuania and Latvia, are settled peacefully and satisfactorily and that the best we can do to assist is to say as little as possible?
Lord Glenarthur: My Lords, the noble Lord is, I believe, absolutely right. The fact is that in the eyes of some there are still serious problems about the way these countries are run and the history behind that. As the noble Lord suggests, I am sure that it is quite right for us to say as little as possible.
Lord Chalfont: My Lords, I do not ask this question in a carping mood, but does the Minister accept that it might be possible to add a note of dissent to that answer? If we hope that perestroika and glasnost in the Soviet Union will have a beneficial effect on the relations between our two countries should we not bring pressure to bear on the Soviet Union to translate its words into actions?
Lord Glenarthur: My Lords, as I said in my earlier Answer, we raise that matter whenever necessary. I can assure the noble Lord that our views will be made clear, as appropriate, whenever the occasion demands it.
Lord Elwyn-Jones: My Lords, is this not a matter of some delicacy, bearing in mind the demands that are emerging from Wales and Scotland?
Lord Glenarthur: My Lords, that is another interesting point. I suspect that when it comes to various other aspects the noble and learned Lord may well have put his finger on a very important point.

Flood Prevention: Funding
2.51 p.m.
Lord Gainford Lord Gainford asked Her Majesty's Government:
What efforts are being made to improve flood prevention in the United Kingdom.
Baroness Trumpington: My Lords, with the assistance of drainage authorities, the Government have recently undertaken a comprehensive review of flood prevention requirements. This has identified the need for an increased long-term programme of work, and the Government have recently announced additional funding for both local and water authority schemes.
The Government, through their regional engineers and contact with drainage and coastal authorities, will continue to monitor flood and coastal defence needs.
Lord Gainford: My Lords, I thank my noble friend the Minister for that Answer. Will she say what is the exact level of government funding at the moment? Is it likely to increase in the future?
Baroness Trumpington: My Lords, in 1987–88 the Government contributed some £33 million in grant-aid to coastal and inland defence works. That sum will increase to £47 million by 1991–92.

Water Companies: Land Use
2.53 p.m.
Lord Molloy Lord Molloy asked Her Majesty's Government:
Whether, in the event of the water industry being privatised, they will take steps to preserve and protect the industry's land assets at full development value, in the Peak District, Lake District, Dartmoor, the Brecon Beacons National Park, the Gower Coast, and other areas of natural beauty.
The Earl of Arran: My Lords, most of the land which is transferred to the new water utility companies will continue to be required for operational purposes.
However, like their predecessors, the water utility companies will want to dispose of any surplus land holdings; but in national parks and areas of outstanding natural beauty, land is subject to stringent planning controls which severely limit the scope for unsuitable development.
Lord Molloy: My Lords, I thank the noble Earl for that reply. Does he agree that, as has already been said, part of the country's national silver has already been flogged off and now a great part of our real estate is at risk? Does he agree that the people who live in or visit many parts of rural England are concerned at the risk to those lovely pieces of our land? Will he say whether the new owners will have the right to sell those beauty spots or block access to them?
The Earl of Arran: My Lords, from an environmental viewpoint, the Government have continually exhibited a mindful attitude to areas of outstanding natural beauty and national parks. The privatised companies must be free to dispose of any land that they no longer require for operational purposes. Land in national parks and areas of outstanding beauty is subject, I repeat, to stringent planning controls which would prevent an unsuitable use of agricultural or forestry land disposed of by a new water plc.
Lord Dean of Beswick: My Lords, is the Minister aware that large slices of the land about which he is talking were taken from local authorities against their will without one penny of compensation being paid to them? In all fairness, if there is any surplus land, should it not be handed back to them to market for the benefit of their ratepayers and not flogged off to private speculators?
The Earl of Arran: My Lords, whether to dispose of land surplus to requirements will be entirely a decision for the new water plcs in conjunction with my right honourable friend the Secretary of State.
Lord Mason of Barnsley: My Lords, is the Minister aware that the nine water authorities in England have 350,000 acres of land, most of which is in areas of natural beauty? They have a duty and a responsibility to the state to preserve it at the moment. Will there be a legislative requirement in the new Act? Secondly, is he aware that there are 29 water companies in this country, as distinct from the water authorities, which are now being invaded by foreign interests, especially the French? If that state happens to obtain a major shareholding in one British water company, what safeguards will there be against its selling land, especially in areas of natural beauty?
The Earl of Arran: My Lords, the noble Lord, Lord Mason, mentioned the recent French dealings in water company shares. As I am sure he realises, the French companies have long experience of operating a privatised water industry. They can extend and diversify their operations. Privatisation will lift legal restrictions and give English water authorities and companies a strong base to develop similar international interests. We do not discriminate against international investment.
Lord Glenamara: My Lords, is the noble Earl really telling us that the companies which buy the water authorities will be able to sell the tens of thousands of acres surrounding Thirlmere and Hawes Water in the Lake District? Are not those areas just as much part of our national heritage as Westminster Abbey and the Mappa Mundi? Is it not utterly wrong that they should be sold to private individuals?
The Earl of Arran: My Lords, of course the Lake District and other areas which the noble Lord mentioned are extremely sensitive, but, as I said in my original Answer, the same vigorous and rigorous planning restrictions will apply.
Lord Glenamara: My Lords, will the noble Earl answer my question? Is it true that the whole of the Thirlmere basin and the Hawes Water basin could be sold to private individuals? Will he answer that question yes or no?
The Earl of Arran: My Lords, that is a question I cannot answer at this moment, but in the interests of your Lordships' House I shall reply to the noble Lord in writing.
Lord Mackie of Benshie: My Lords, is the noble Earl aware that the reason the French drink so much wine is that their water is so bad?
The Earl of Arran: My Lords, no. I have been to France many times and I have enjoyed both their wine and their water.
Lord Morris: My Lords, was it not from individuals that the water companies obtained the land in the first place?
The Earl of Arran: My Lords, forgive me, but I did not quite get my noble friend's question.
Lord Morris: My Lords, was it not from individuals that the water authorities obtained the land in the first place?
The Earl of Arran: My Lords, I am not sure that I see the constructive point that my noble friend is trying to make.
Lord Morris: My Lords, bearing in mind the question of the noble Lord opposite who suggested that there was something wrong in the water authorities selling land to individuals or independent interests, surely it was individuals from whom the water corporations obtained the land in the first place.
The Earl of Arran: My Lords, I believe that my noble friend is correct on that point.
Lord Hunt: My Lords, is the noble Earl aware that there are water catchment areas outside the national parks which have not necessarily been designated as areas of outstanding natural beauty but which have great scenic and recreational value for the public, such as the Elan valley in the county of Powys, which at present is safeguarded for public access by the Birmingham Corporation Act 1892? Will he assure the House that that area and other areas of great recreational and environmental value will be safeguarded for the public and from restrictive commercial development under the private ownership of water?
The Earl of Arran: My Lords, it would be wrong and improper were I to give the noble Lord that assurance. Areas such as those mentioned by the noble Lord may or may not become vacant for planning permission, but at the moment it is impossible to say.
Lord McIntosh of Haringey: My Lords, does the noble Earl recognise that his answers so far have given no comfort whatever to those of us who fear not only an ecological and natural disaster but also a financial disaster? That is in exactly the sense of the kind of sell-off we had of the Royal Ordnance factories and the undervaluation of the land that was bought on privatisation. Will the noble Earl give the House an assurance that there will be a full, complete, up-to-date and realistic valuation of all the land assets of the water authorities before privatisation is enacted?
The Earl of Arran: My Lords, to answer the noble Lord, the prospectuses of the successor companies will contain sufficient information to enable investors to take proper account of land holdings and value in deciding whether to apply for shares. The price for the shares will therefore properly reflect the value likely to be placed on the land. There are important constraints on the ability of a water company to realise the value underlying operational land; there are legal obligations to maintain services and there

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are practical obstacles to transferring operations from one site to another.
Lord Molloy: My Lords, can the noble Earl confirm that this British land and British water could be purchased by representatives of foreign governments? Even when British people buy these assets they will be able to sell them off to representatives of private organisations or foreign governments. Can the Minister say whether maintenance standards will be met and the necessary improvements made? It will cost a lot of money.
Is not the reason that the Government are doing this that they did not have the courage to maintain the water undertakings themselves? Ultimately the private owners will see to it that the consumers—the British people—will have to pay in order to make them handsome profits.
The Earl of Arran: My Lords, with great respect to the noble Lord, Lord Molloy, the Government are never short of courage. Perhaps I may suggest that many of the points which the noble Lord, Lord Molloy, is making might be better discussed at the stage of Second Reading.

Business of the House
3.1 p.m.
The Lord Privy Seal (Lord Belstead): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the debates on the Motions in the names of the Baroness Ewart-Biggs and the Lord Carter set down for 7th December shall each be limited to 2½hours and that Standing Order 35 and paragraphs 10 to 13 of the Rules for the Conduct of Short Debates shall apply to each debate.—(Lord Belstead.)
On Question, Motion agreed to.

European Communities Committee
The Chairman of Committees (Lord Aberdare): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That a Select Committee be appointed to consider Community proposals, whether in draft or otherwise, to obtain all necessary information about them, and to make reports on those which, in the opinion of the Committee, raise important questions of policy or principle and on other questions to which the Committee consider that the special attention of the House should be drawn;
That, as proposed by the Committee of Selection, the Lords following be named of the Committee:—

Allen of Abbeydale, L.

Attlee, E.

Bridges, L.

Broxbourne, L.

Carter, L.

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Cranbrook, E.

Greenhill of Harrow, L.

Hunter of Newington, L.

Kearton, L.

Lucas of Chilworth, L.

Middleton, L.

Murray of Epping Forest, L.

Nicol, B.

Oliver of Aylmerton, L.

Peston, L.

Renwick, L.

Robson of Kiddington, B.

Rodney, L.

Serota, B. (Chairman)

Shannon, E.

Shepherd, L.

Ullswater, V.

Young, B.

That the Committee have power to appoint Sub-Committees and to refer to such Sub-Committees any of the matters within the terms of reference of the Committee; that the Committee have power to appoint the Chairmen of Sub-Committees, but that such Sub-Committees have power to appoint their own Chairman for the purpose of particular inquiries; that two be the quorum of such Sub-Committees;
That the Committee have the power to co-opt any Lord for the purpose of serving on a Sub-Committee;
That the Committee and any Sub-Committees have power to adjourn from place to place;
That the Committee have power to appoint specialist advisers;
That the Committee have leave to report from time to time;
That the Reports of the Select Committee from time to time shall be printed, notwithstanding any adjournment of the House;
That the Minutes of Evidence taken before the Committee or any Sub-Committee from time to time shall, if the Committee think fit, be printed and delivered out;
That the Committee or any Sub-Committee appointed by them have leave to confer and to meet concurrently with any Committee of the Commons on European Legislation &c. or any Sub-Committee of that Committee for the purpose of deliberating and of examining witnesses; and have leave to agree with the Commons in the appointment of a Chairman for any such meeting.—(The Chairman of Committees.)
On Question, Motion agreed to.

Science and Technology: Select Committee
The Chairman of Committees: My Lords, I beg to move the second motion standing in my name on the Order Paper.
Moved, That a Select Committee be appointed to consider Science and Technology and that, as

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proposed by the Committee of Selection, the following Lords be named of the Select Committee:

Adrian, L.

Butterworth, L.

Caldecote, V.

Carver, L.

Clitheroe, L.

Errol of Hale, L.

Flowers, L.

Ilchester, E.

Kearton, L.

Kirkwood. L.

Lockwood, B.

Perry of Walton, L.

Shackleton, L. (Chairman)

Taylor of Blackburn. L.

White, B.

That the Committee have power to appoint Sub-Committees and that such Sub-Committees have power to appoint their own Chairman;
That the Committee have power to co-opt any Lord for the purposes of serving on the Committee or any Sub-Committee;
That the Committee have leave to report from time to time;
That the Committee and any Sub-Committee have power to adjourn from place to place;
That the Minutes of Evidence taken before the Committee and any Sub-Committee from time to time be printed and, if the Committee think fit, be delivered out;
That the Committee and any Sub-Committee have power to appoint special advisers.—( The Chairman of Committees.)
On Question, Motion agreed to.

Address in Reply to Her Majesty's Most Gracious Speech
Debate resumed on the Motion moved on Tuesday last by Lord Colnbrook—namely, That a humble Address be presented to Her Majesty as follows:
"Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament".
3.2 p.m.
The Minister of State, Department of the Environment (The Earl of Caithness): My Lords, it is very appropriate that we should be considering economic and environmental issues in the same debate. The stronger our economic base, the better able we are to meet the complex challenges of safeguarding our environment. Looking at the list of speakers, I have great faith that we have succeeded in the "greening" of the noble Lord, Lord Bruce of Donington, the Treasury Opposition spokesman. I think that his will be an interesting speech to listen to.
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My noble friend the Secretary of State for Trade and Industry will be speaking about the economy and I do not want to trespass on his patch. However, it is worth pointing out that we now have an unrivalled opportunity to take advantage of eight successive years of growth in bringing about improvements to our environment. Economic activity cannot be regarded as separate from environmental protection. We must use the resources available to us in a way that maintains and enhances our surroundings. Sustainable development is the central message of the Brundtland report which the Government supported in the formal response which we published in July this year. Regrettably only two other European Community countries—Denmark and the Netherlands—have so far published a response, but I hope that more will do so in the near future.
The record of our achievements shows that this is a realistic and successful aim. At the same time as our economy has gone from strength to strength, we have committed ourselves to initiatives of the greatest importance for the protection of the national and international environment. Last week my right honourable friend the Secretary of State announced on 23rd November that we shall be hosting an international conference next March on the protection of the ozone layer. This is the latest in a series of steps which we have taken to join and often to lead the international community in tackling this problem.
In September last year we signed the Montreal Protocol agreeing to cut the consumption of chlorofluorocarbons, known as CFCs, by 50 per cent. by the end of the century. A report by our own Stratospheric Ozone Review Group in October this year pointed firmly to the need for greater reductions of at least 85 per cent. When I met my fellow environment Ministers in the European Community last Thursday, I urged them to agree to work towards this higher target. We shall continue with our concerted efforts to ensure that the international community responds with the necessary speed and vigour to the need to protect the ozone layer.
CFCs are also recognised to play a significant role in the problem of global warming. Molecule for molecule, they are 10,000 times more potent as a greenhouse gas than carbon dioxide. We are contributing to international efforts to evaluate the potential effects of climate change which are primarily co-ordinated by the United Nations Environment Programme and the World Meteorological Organisation. The first meeting of the UNEP/WMO International Panel on Climate Change took place just over a fortnight ago and the appointment of Dr. John Houghton, director of the Meteorological Office, to head one of the panel's three working groups reviewing scientific information on climate change signalled once again the United Kingdom's commitment to the necessary international action. The other two will be chaired by the United States of America and the USSR.
Just 12 months ago London was the setting for another important international forum—the second North Sea conference. With the other North Sea states, we agreed a set of measures that are of major

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importance for the protection of the marine environment and which we intend to apply to all our coastal waters. These measures include a halt to the dumping of harmful industrial substances into the North Sea by the end of 1989; an end to marine incineration of waste by the end of 1994; and a 50 per cent. reduction in the inputs of dangerous substances into rivers by 1995.
We have also committed ourselves to a range of actions to ensure continuing reductions in the polluting emissions which contribute to the problems summarised as "acid rain". With our Community partners, we agreed a directive in June this year which will bring about a 60 per cent. cut in emissions of sulphur dioxide from large combustion plants by the year 2003 and a 30 per cent. drop in emissions of nitrogen oxides by 1998. Earlier this month we signed the Sofia Protocol under which emissions of nitrogen oxides in 1994 are to be held at 1987 levels. Targets for 1996 and beyond are to be set through scientific evaluation of environmental critical loads. In addition, measures agreed with our Community partners over the last 12 months, imposing tighter vehicle exhaust standards, will bring about reductions of some 50 per cent. in emissions from petrol-engined cars.
This is a wide-ranging programme of action on the environment which has been gathering pace over the last two years. It will extend into and beyond the next decade. Many of the advances to which we are committed can and will be secured without legislation. However, we intend to introduce within the life of this Parliament a major environment protection Bill. This may include proposals, which we have set out in recent months, to give Her Majesty's Inspectorate of Pollution statutory responsibility for controlling all emissions from industrial processes to all environmental media, as well as proposals for improving the present statutory system for controlling waste disposal. We have, however, already introduced this Session in another place a Bill which represents a major advance in our environmental legislation.
The Water Bill provides for the establishment of a powerful new national body—the National Rivers Authority—to protect our rivers and other natural waters for the benefit of all users. It will take over the responsibilities of water authorities in England and Wales in relation to water pollution, water resource management, flood defence, fisheries, recreation and navigation. It will put an end to the present conflict of interest, whereby water authorities both police the water environment and are major users of its resources through their sewage discharges.
The Bill proposes a comprehensive legislative framework for water quality standards, to cover all aspects of protection for rivers and water resources. The National Rivers Authority will be the pollution control agency, regulating all polluting discharges to water through a consent system and able to levy charges in respect of those consents. Polluting controlled waters will continue to be an offence, as will discharging effluent in breach of a prohibition.
Other powers will provide for the establishment, where necessary, of water protection zones in which
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activities likely to result in water pollution can be restricted with a view to preventing poisonous, noxious or polluting matter from entering the water environment. Under the Bill there will also be a new code of practice to help farmers to avoid causing pollution.
Lord Cledwyn of Penrhos: My Lords, before the noble Earl proceeds—I am grateful to him for giving way—I wish to put to him a question that I have put on previous occasions to Ministers without receiving a satisfactory reply. Under the Bill to which the noble Earl has just referred, will it be possible for reservoirs in this country to pass into the hands of foreign owners?
The Earl of Caithness: My Lords, as I understand the Bill, the areas that are surplus to requirements, which was the subject of a Question earlier this afternoon in your Lordships' House, will be a matter for the water authorities themselves when they have passed into the private sector. The Bill will also establish—
Lord Cledwyn of Penrhos: My Lords, I am much obliged to the noble Earl for giving way again. He is confirming that it will be possible for reservoirs in this country to become the property of foreign countries. Will the noble Earl say whether the security implications of that have been studied properly by the Government?
The Earl of Caithness: My Lords, as the noble Lord the Leader of the Opposition will be aware, the Bill is a long and comprehensive document in which there are many safeguards. Indeed, I believe the Bill was referred to in the Financial Times as binding future water limited companies hand and foot by regulations. The point the noble Lord raised is one of many that were taken into consideration in the drafting of the legislation. I know that is a point we will come back to on Second Reading and beyond. I look forward very much to debating it with the noble Lord, Lord McIntosh of Haringey, and others at that time.
Lord Nugent of Guildford: My Lords, I hope that my noble friend will be kind enough to allow me to intervene on a point of fact. The Water Bill, to which my noble friend referred, does not provide for that kind of disposal. But the water companies, which are now being sold to foreign hands, in some cases own large reservoirs. Those are already passing into the control of foreign buyers.
The Earl of Caithness: My Lords, as your Lordships know, my noble friend has an immense knowledge of the water industry. He is quite right to point out that the water companies that are already in private hands own reservoirs at present.
To move on, I would add that the Bill will also establish a new statutory framework for the control of drinking water quality, maintaining and strengthening present standards. There will be a new criminal offence, committed if a water undertaker supplies through its pipes water that is unfit for human consumption.

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The Bill provides for a fundamental reform of the water industry. The water and sewerage businesses of the present water authorities will be vested in limited companies. Each company will operate under a licence regulating what it can charge its customers. The existing statutory water companies will also be appointed to continue to provide water supply in their areas.
The Bill provides for the division of the property, rights and assets of the current water authorities between the successor water and sewerage companies and the National Rivers Authority. It also provides for the sale of shares of the new companies. In privatising the water industry we shall be freeing into private hands yet another important industrial sector. The main objective of privatising the utility functions of the water authorities is to introduce the opportunities and disciplines of private sector operation to the water industry. We believe that customers, employees, and indeed the nation as a whole will benefit. The industry should become more efficient and more responsive. In particular, private sector financial management, and competition in the capital and stock markets, will improve efficiency. Freedom from competition for limited public resources will make it easier for the industry to invest to meet higher quality standards. Services should become more responsive to the needs and preferences of customers.
Of course we recognise that the consumer will not be able to select which supplier runs water and sewerage pipes to his home. We have always acknowledged that the water industry is, and must remain, a natural monopoly. However, that does not mean there is no scope for competition. Competition in the markets will spur on the less efficient suppliers and reward the more efficient. There will be more intense interest in the comparative performance of the water and sewerage limited companies and the 29 private water companies. And there will be competition between suppliers to serve "inset" areas—those greenfield sites within the larger area of an existing supplier not currently serviced by water mains and drains.
In establishing this new framework for the supply of water and sewerage services, the needs of the water customer have always been foremost in our minds. The customer must and will be assured of good standards of service as well as protection from abuse of monopoly power in pricing. That will be brought about through a Director General of Water Services, a powerful new consumer watchdog, whose task it will be to monitor the activities of the new privatised companies and to meet the duties and standards laid down.
We believe that this Bill represents a clear, coherent strategy for the water industry and the water environment. We shall set the standards; the National Rivers Authority and the new customer protection arrangements will ensure that they are met; and a private water industry will enjoy every incentive to operate as efficiently as possible, drawing on private not public sector funds.
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Privatisation provides clear benefits for public and industry alike. But in order to ensure the continued success of the country's economy, we must also make sure that other services, which continue to be provided by the public sector are delivered as efficiently and effectively as possible.
In the last parliamentary Session your Lordships had the pleasure of dealing with three major Bills on local government, local government finance and housing. I am afraid I cannot promise your Lordships the same again in this coming year: what I can promise is a single Bill which will deal with all three of these subjects.
On local government, my noble friend Lord Henley, who made such an excellent speech in seconding the Motion for a humble Address, will be pleased to hear that we shall be bringing forward provisions which relate to the conduct of local authority business. In July this year we published a White Paper setting out our response to the report of the committee of inquiry on this subject which had met under the chairmanship of Mr. David Widdicombe QC and whose report had been published in June 1986.
The committee undertook a comprehensive analysis of the way local authorities are operating and found the trend towards politicisation continuing and inevitable. Accordingly it made a substantial number of recommendations designed to strengthen the democratic procedures within which local government operates, and we are most grateful to it for the quality and depth of its analysis and recommendations.
Among the measures we shall be including in the forthcoming Bill are a ban on senior council officers doubling as councillors in other authorities, together with other measures to preserve the political impartiality of council staff; a ban on co-option of voting members of committees; a requirement for pro-rata representation on committees; and a requirement for a core of standing orders. We shall also be providing for the rationalisation of councils' economic development powers and a new statutory framework for local authorities' interests in companies.
Turning now to local government finance, again in July this year we issued a consultation paper about capital investment by local authorities and the means by which they pay for that investment. This year, councils in England and Wales will spend about £6 billion on home improvements and new housebuilding, on new roads, schools and colleges, day centres, old people's homes and other buildings, on vehicles, computers, and other plant and machinery, and on derelict land reclamation and urban renewal. They will raise about £2.8 billion by selling houses and other property; the remainder will he paid for by borrowing or from government grants or from revenue. Over the years, councils have built up a very large stock of capital assets. Much of this was paid for out of borrowed money. Their borrowings are now about £45 billion, which is roughly 25 per cent. of the total national debt. Debt charges which fall to ratepayers and tenants amount to £6 billion a year. That equates to £170per adult.

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The consultation paper proposed a switch from controlling capital spending as such to controlling the money used to finance it, and we shall now be bringing forward measures to implement this. Money raised through borrowing and other forms of credit will be controlled within annual limits which we shall set in order to control the impact of the public sector borrowing requirement and to prevent authorities pursuing a "spend now, pay later" philosophy.
The Government will continue to pay grants towards some capital expenditure, although in the form of lump sums rather than annual contributions to loan charges. Authorities will be free, subject to the accountability of the community charge, to pay for capital spending from revenue. The provisions will also include a framework within which part of the cash from existing and future receipts will be used for the repayment of debt or as a substitute for future borrowing, and part will he available for capital expenditure which will benefit the areas where the receipts arose.
Spanning both local government finance and housing, we shall be bringing forward measures to provide a new financial regime for local authority housing in England and Wales. At present local authorities are required to maintain a housing revenue account if they choose to provide housing themselves. That account may not be in deficit at the end of the year but contributions from the general rate fund may be used, without limit, to bring it into balance. Balances may be held in the account and surpluses transferred to the general rate fund. The Government provide assistance to local housing operations through housing subsidy, rent rebate subsidy and rate support grant.
In future, following proposals outlined in a consultation paper, again published in July, there will be a single housing revenue account subsidy to replace existing forms of government assistance. The housing revenue account will be "ring-fenced"; that is to say, except in certain defined circumstances discretionary transfers of money into or out of the general rate fund will no longer be permitted. The amount of subsidy payable will be designed to meet the national deficit on the account, irrespective of an authority's actual decisions on rents and maintenance or its managerial efficiency. That will ensure direct financial incentives to efficient management, and in general the new regime will be simpler, more effective and fairer towards tenants and community charge payers alike.
The final substantial element of the Bill will be another housing item, home improvement grants. Following a Green Paper in May 1985, the Government re-affirmed their commitment in last year's White Paper, Housing: The Government's Proposals, to legislate to provide a fairer, simpler system. More details of our proposals were set out in a consultation paper issued in November 1987.
Private spending by individual owners already accounts, through income, savings and loans, for the vast majority of resources devoted to improving the private stock: that is as it should be. Where owners are unable to afford the full costs of essential repair and improvement work, we accept that help should
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be given through a reformed system of improvement grants. Assistance will be targeted on those in greatest need, and we shall shortly be issuing a consultation paper setting out the methodology we propose to adopt to enable this to be done.
The present five types of grant will be simplified. For owner occupiers wanting to repair or improve their property there will be a single form of mandatory grant available to bring it up to a new standard of fitness. Above that standard, grant assistance for certain types of work will he at the discretion of local authorities. Grants will continue to be available in certain circumstances for landlords and for tenants with repairing obligations, and also for the adaptation of homes for the benefit of disabled people and for elderly people to stay put in their homes.
The proposals that I have outlined in the last few minutes will I am sure provide plenty of material which we can debate at length, but at the same time I am confident that there will be much in the Bill worthy of support from all sides of the House. The Bill may also contain a number of less substantial items, including certain measures flowing from the Housing and Local Government Acts 1988.
Our legislation this Session, both on water and on housing and local government, will significantly improve the delivery of services to the public: in the first case, by bringing to the water industry the opportunities and disciplines of the private sector; in the second case, by improving the effectiveness with which local authorities provide services—whether directly or through grants to help people improve their own homes. The effect of both Bills will be to improve the conditions in which people live and work. In addition, the Water Bill—through the creation of the National Rivers Authority and associated regulatory powers—will make a major contribution to improving the green environment.
This Government are continuing to push forward a wide-ranging programme of actions to improve the environment. Its achievement is possible because this is a Government which combine a commitment to the protection of the environment with sound and successful economic management.
Lord Chelwood: My Lords, before my noble friend sits down perhaps he would answer one brief but I believe important point. He mentioned the foul effluents which come from industry and farming into our waterways and inland seas. Dieldrin is now banned, thank heavens, but is my noble friend aware that vast quantities of dieldrin and other substances are being exported to developing countries with tragic results? Can that be looked into, please?
The Earl of Caithness: My Lords, I shall certainly look into the point that my noble friend has raised. However, he will be delighted to learn that the Community's trans-boundary hazardous waste directive came into force on 14th November to cover the very points which my noble friend raised.
3.26 p.m.
Lord Bruce of Donington: My Lords, as the noble Earl, Lord Caithness, said, it is entirely appropriate that we should be discussing the environment and economic affairs in the course of the same debate. I am bound to say that I did think at times during the noble Earl's speech that he was making a series of pre-Second Reading speeches on some of the Bills that his Government are going to produce. Nevertheless we can leave those matters aside. Needless to say, when the Bills come before your Lordships, particularly those concerned with the environment, they will be most effectively dealt with by my noble friend Lord McIntosh of Haringey and his team and by others on the Benches behind me.
The noble Earl spoke at some length about the new Water Bill and quoted the Financial Times on the subject. In dismissing the Water Bill as a complete irrelevancy to the affairs of the country, as is the electricity privatisation Bill and all the rest, I should like to emphasise that its main purpose is to allow the Government to raise money. Following the announcement by the Prime Minister in the course of the Conservative Party conference that the Tory Party was the natural party of the environment, it obviously became necessary to revise the Water Bill in draft, making the establishment of the new rivers authority the main purpose of the privatisation.
Nobody is at all deceived by that, least of all the Financial Times, which in its editorial on 23rd November said:
"What is not clear is whether there is any advantage to the water privatisation itself. The rivers authority could have regulated the existing water supply industry. The new water companies will not be subject to competition. The cost of providing a commercial and financial services infrastructure to the industry will he an additional burden on consumers".
I think that that disposes of the Water Bill for the purposes of this debate without the necessity for any further argument about it at this stage.
The environmental issues raised by the noble Earl cover not only the ozone layer to which he referred and the efforts of the Government—which we on these Benches support—to ensure that the leak in the ozone layer may ultimately be plugged: that will take a long time. There is now another problem which has surfaced only in the past couple of days or so. That is the question of outer space which, according to Jodrell Bank, is now becoming littered with debris which may in itself constitute a very considerable hazard in possibly sensitive or tense areas when countries are being armed in order to answer alleged nuclear threats.
There are also the ordinary questions of the global environment to which I am quite sure the Government will devote some of their attention. Beneath the ozone layer there is concern in the world as a whole about the destruction of forests on a massive scale, mainly by private enterprise interests seeking to make a quick buck out of timber. There is moreover the question of the flora and fauna, which are important to our civilised life as we know it. Those are all matters on which I trust the Government will take some international initiatives. In so far as they do, we on this side of the House will most certainly welcome and support such initiatives.
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It is possible to take a variety of attitudes when considering environmental matters. There are several kinds of environment within the United Kingdom. There is the environment of the countryside; the environment of the neighbourhood or the place of work; and the domestic environment, which is of vital importance to everyone who lives in the land. Environmental questions are not limited to the preservation of a skyline behind a stately home. Such questions are not merely concerned with the preservation of the countryside itself, though I willingly concede its importance. Environmental matters cover a very wide spectrum indeed.
For the past 75 years on the basis of formerly illegal trade union activities my own party on this side of the House has sought to establish an ever more agreeable environment for those who do the country's work and those on whom the nation as a whole depends for its economic production. Noble Lords opposite have no real reason to assume that we are not very experienced in these matters. It has always been our aim to make the life of the maximum number of people as agreeable as possible and to make their whole environment—the domestic, neighbourhood and work environment—more endurable. All the battles of this movement over the past quarter of a century have been directed to that end.
Of course it is possible to take a more sophisticated view of what constitutes the environment. It should be said immediately that I per cent. of the adult population of this country already own 50 per cent. of the land, and, if that figure is enlarged to 5 per cent., the amount owned is nearly 75 per cent. of the land area of this country. If one is rich or well-to-do one can afford to take a more relaxed attitude toward what constitutes the environment. Noise may be inconvenient; flight paths around Gatwick may produce some disturbance; or the disappearance of favourite flora and fauna may cause some disquiet. One's attitude toward the environment tends to be rather more relaxed when the home environment and the immediate surroundings of the garden or estate are so environmentally agreeable that they are forgotten completely. Indeed, that is as it should be. A person should not be in permanent disharmony with his environment or be constantly reminded of its defects.
For the lower income groups, in addition to their participation in the general and more sophisticated attitude to the environment, what becomes important is the environment at their place of work, in their neighbourhood and in their home, and of course means of access to the countryside. When it comes to the poorer section of the population, and specifically that 25 per cent. of the adult population who are living at, near or below the poverty level, it is the domestic environment that takes on vital importance. It should be borne in mind that at the moment there are 120,000 people in the United Kingdom whose domestic environment is a park where they sleep under a wall, covered by newspapers, because they are completely homeless.
In addition, there are over 100,000 people in what is called temporary accommodation—bed and

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breakfast accommodation—which is overcrowded and for which exorbitant prices are paid. They have an unsatisfactory environment. Finally, there are the figures published this morning, which I saw again felicitously in the Financial Times. The latest government report indicates that in the United Kingdom there are 900,000 habitations which are unfit for human occupation. People live in those environments.
One comes to the obvious conclusion that the quality of the environment available to individuals—we are all life tenants on the face of this earth and some of us may live to be a hundred—is determined by our individual money resources. The quality of the environment for all of us who are life tenants on the face of this earth and who chemically are a mere nine buckets of water and a bag of salts is determined by individual money resources. Money is the possession of security. It means access to the outside environment and the establishment of a satisfactory personal domestic environment.
The Government admit that these disparities in wealth exist—disparities of income and disparities in the environment—but it is their case that a free enterprise society, by which they mean a society in which the influence of government save for the creation of a climate necessary for the success of business is minimal with free and unfettered private enterprise, private firms, private initiatives and private competition, is the only way in which the standard of life of the people as a whole, not only those on the top of the scale and the very rich but everybody right down to the lowest incomes, can be progressively improved.
The Government call that a sound economy. I see that the noble Lord is kind enough to nod, and I am most grateful for his assent. I suspect that on the basis of selective statistics that he may be able to produce covering different periods, he may be able to establish that case. I should therefore warn him in advance that in front of me are the latest OECD figures, and if he cites them I shall be in a position not merely to check the latest figures but also to outline the history of them.
I should have thought there is no dispute that a substantial portion of the economy is active. There is no question about that; the figures show it. However, large portions of the economy are completely immobilised. Two and a half million people are unemployed. A large amount of capital resources were destroyed in the 1979, 1980 and 1981 débâcle which occurred, oddly enough, at the time of the return to the United Kingdom of Sir Alan Walters. I sincerely hope that his forthcoming return is not a portent of what is likely to happen.
There is no question that economic activity has been achieved. Whether this is a sound economy or not is an entirely different question. A sound economy must first rest upon foundations of some kind. It is a good foundation to a sound economy to have encouraged higher education; facilities for higher education are one of the vital necessities for an economy to progress successfully. Expenditure on research and development is also vital. But, above all, there has to be a sound balance to the economy.
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I am bound to draw attention once again to the report for 1984–85 of your Lordships' Select Committee on Overseas Trade. That report drew attention to the fact that our manufacturing base was rapidly decreasing. It drew attention also to the undoubted fact that the manufacturing industry shortfall could not necessarily be met by services, and that the economy was completely out of balance, that it was in considerable danger and that it had been rescued only by the advent of North Sea oil.
Latest figures show that the penetration into our home market of imported manufactured goods has grown. In other words, import penetration is worse today than at the time when the report of your Lordships' Select Committee was published. The demand by the British people for manufactured goods has continued to expand. And that demand—with manufacturing industry half crippled by the Government's action of the 1980s—could be satisfied only by importations from abroad. Therefore, for the 10 months from January to October we have an overseas visible Made deficit of £17 billion, of which £14.5 billion is in respect of manufactured goods.
The noble Lord may say that part of this is due to the import of capital goods on a very extensive scale. Unhappily, however, he well knows that the increase in imports of manufactures accounts for only 23 per cent. of the import of capital goods. Seventy-seven per cent. is in respect of consumer durables and other manufactured goods into this country. Can this be called a sound economy in modern times?
Who is in control of the British economy, on the assumption that the Government are not? Indeed, the Government disclaim any responsibility for it. Noble Lords reading the Financial Times of 21st November will have seen listed the top 500 European companies in terms of market capitalisation. It may surprise your Lordships to know that no less than 212 of those 500 companies are British, taking up 43 per cent. of total European capitalisation. As noble Lords would expect from the balance of trade deficit on manufactured goods, the great bulk of those companies are financial services companies; banks, investment institutions and those engaged in the distributive trade. The list contains some manufacturing companies, but it is quite clear that the power in the United Kingdom at the present time is exercised by financial institutions. It is a dominance already being complained about, with considerable anxiety, by the CBI.
However, unpalatable it may be, it is true that at the moment 70 per cent. of the shareholding of quoted British public companies is in the hands of institutions and corporations and only 30 per cent. in the hands of individuals. The new capitalists on whom the noble Lord places such store for propaganda purposes do not, in any company, exercise any measure of control. Those companies are controlled by the large corporations.
Moreover, as Sir Nicholas Goodison has revealed, cash resources related to transactions going through the Stock Exchange are at the moment 60 per cent. concerned with acquisitions and takeovers and only 40 per cent. with the provision of new capital for

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industries or enterprises. As the noble Lord, Lord Diamond, pointed out accurately following the Chancellor's Autumn Statement, we have an economy which effectively is subject to the irresponsible—and I use the term deliberately—control of people who derive their power from nobody. They derive it from the possession of money. It is hardly surprising—because of this power—that most industrial companies are unable to make any long-term plans. "Short-termism" is the word.
The institutions—the unit trusts and so on—run leagues of performance as to the distribution of income and the growth of their funds. Except for the very powerful and liquid, most companies have to face the continued prospect of predators taking them over and stripping their assets. Therefore, the bulk of the activities of the financial market is concerned not with the creation of wealth but with the creation of claims to wealth: the creation of money out of money, whether it be by acquisition and sale or by exchange operations.
The question is this. What effect will this have on the environment? It means that just as the economy cannot be planned, so also the steps to protect the environment, to enlarge the enjoyment of the environment for our people, cannot be planned. It means that such steps emerge from a tame government dominated by finance merely as palliatives in response to public pressure as distinct from any purpose or aim for the benefit of the nation as a whole. That unfortunately is the position. There is no control and therefore there can be no proper aim for the improvement of the domestic and neighbourhood environments for our people, and that applies to the wider aims to which the Government pay lip service.
The aim must be to conduct our affairs so as to repair and enhance our environment at all levels and for all our people. To these ends my party and many other parties too are dedicated. These are the aims that we shall pursue to the end.
3.50 p.m.
Lord Ezra: My Lords, in making my contribution to this important debate I should like to express slight concern that, while I agree that the environment and the economy are linked, they are two very important subjects in their own right. I fear that we may have a slightly ragged debate because some noble Lords will be speaking about the environment and others about the economy. I hope that in future when we debate the gracious Speech we can divide those issues. When all is said and done, everything is linked—home affairs, social affairs, foreign affairs—and I am a little apprehensive that we have to wait until the noble Lord, Lord Young of Graffham, winds up before we have a statement on the Government's views on the economy. That will deprive us on this occasion of replying to his comments. But no doubt we shall have other occasions in the future.
I should like to stick to the economy. I should like to refer in particular to those parts of the gracious Speech which said that the Government,
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"will continue to pursue firm financial policies designed to bear down on inflation. They will continue to promote enterprise and foster the conditions necessary for the sustained growth of output and employment".
I believe that that is the crucial issue we face today.
I would like to start on a fair and balanced basis, following the noble Lord, Lord Bruce of Donington, who said that a number of things have been achieved. We have seen considerable improvement in the expertise and capability of manufacturing industries. We have seen a diminution in unemployment. We have seen a budget which has now moved into surplus. Those are all positive matters. What is worrying, however, is that there are now developments in the economy which could jeopardise further progress in a positive sense. The two issues with which we are mainly concerned are the growth in inflation and the widening of the trade gap.
It is not unreasonable that on this occasion we should debate whether the policies which the Government are pursuing to deal with those problems are likely to be effective. That is what I should like to do and also suggest some other policies which might be pursued. Indeed, I shall not be the only person making those proposals because a number of government supporters are now beginning to suggest that other means should be devised. Let us come to that in due course.
First, let us take the fact that the Government are committed to the one weapon of increasing interest rates. There has been a big debate about that, and that will undoubtedly continue. Let us see, if we can, what impact that is likely to have on inflation in the short and medium term. I have tried to work it out. So far as I can see, its impact on inflation will almost certainly be to push it up. I cannot see any other impact it would have. We are aware that mortgage interest rates will go up, as has already been publicised. That works its way into the inflation index. We are aware that industrial costs are going up as the CBI has recently stated, and that will work its way into the prices in the shops and into the inflation index. We are aware that the prices for basic services such as electricity and water will go up, and those will work their way into the inflation index. Following from those developments, we are aware that wage claims are going up and those will work their way into the inflation index.
I find it difficult to see on any logical analysis how the simple increase in interest rates, having those early effects, can bring down inflation. In fact, I can only see one way in which that could happen: that is, if we have the hard landing which the Chancellor says he wants to avoid. If we have a hard landing and go into recession—and for that reason purchasing and everything else is cut back—we might then see some deceleration in inflationary pressures; but if the economy continues as it is I cannot see it as a result of that one measure.
Let me now look at the impact that increasing interest rates will have on our other problem, the twin problem of the widening gap in our balance of payments. Here I am even more confused because I had the honour to take part in the famous Select Committee led by the noble Lord, Lord Aldington,

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who will be speaking later, when we analysed what we then saw to be the problems associated with the balance of payments. When we talked to the Chancellor of the Exchequer and the Treasury team we asked them what the situation would be when the balance of payments turned round as a result of the reduction in oil revenues and we ran into a deficit. We were already in deficit on our manufacturing balance, but that was offset by the positive balance of oil. The answer we were given was that it would be self-correcting, that the currency would then decline in value and as a result our goods would become more competitive and that would adjust itself. But is that happening today?
The reverse is happening. The Government seem to be committed to a policy of increasing the currency value at a time when we have a balance of payments deficit. I do not mind which theory is chosen. All I can say is that they cannot both be right. We cannot have a thesis according to which it is said that the self-balancing situation arises as a result of the currency going down at a time of balance of payments difficulty. But when that balance of payments difficulty arises we will be told quite glibly, "No, the best way to solve this is by doing the reverse and putting the value of the currency up". I believe that needs to be explained. I can only see the increase in interest rates, as the CBI has said in its most recent statement, making our goods less competitive, which will widen the trade gap and cause the balance of payments to become greater against us.
On both counts having tried to look at this matter as objectively as possible, I cannot see how the medicine now being applied by the Government will solve our problems. Apparently they are committed to applying it more and more. "It will go on for as long as it takes", says the Chancellor. I feel that our immediate problems will become worse. So those of us who are concerned about the well-being of the economy—I am sure that applies to everybody in this House—must be looking for other possibilities.
There is a wide range of other possibilities. For example, the main reason we are in difficulty is the massive growth in consumer credit. Why is it that the Government continually resist dealing with this problem at source? We are told, "You cannot deal with credit because we are now internationalised; the whole thing is global". We are not talking about restricting the credit of large international organisations. We arc talking about trying to limit the credit of Mrs. Smith of Surbiton, if I may choose her as an example. If we persuade her local high street bank manager not to continue to give her credit, will she then go home and immediately telephone her favourite gnome in Zurich to ask whether he will provide it?
I believe that we should deal with domestic credit by direct means. The problem is that the only section of domestic credit users which we are now affecting is that of people who have borrowed money to buy houses on the recommendation of the Government. They are suffering the most and they are suffering very unfairly. We need to persuade people to restrict their credit in other forms of purchase. According to the latest figures on retail sales, that is not happening.
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On the other side of the coin is the stimulation of savings. I read in yesterday's Daily Telegraph, which I assume reflects government opinions better than most papers, that the Government are seriously considering doing something about that. It may be that at this moment in another place the Chancellor of the Exchequer is talking about the issue. I hope that he is. At the time when we need to deal with the problem at its source—namely, the excess of consumer credit —we need to limit the sources of credit and to encourage saving by fiscal and other means.
We should also be doing more to stimulate exports. Recently I asked the noble Lord, Lord Young, a question about what was being done to promote exports. I was told that the figures do not really matter but it is the quality of the support which is important. That is fine, but the fact is that we are not exporting as much as we ought and I believe that the situation should be looked at closely.
If the Government were keen to make this country more competitive in order to reduce the impact in the deterioration of the balance of payments, there are other issues which should be examined. I shall not deal with them all but I shall mention one—the state of our roads. If ever there was an impediment to the free flow of trade in its physical sense it is the state of Britain's roads. I have obtained information from the British Road Federation. It has made clear the fact that over the past 10 years the growth in road traffic has enormously outstripped the growth in expenditure on improving our road facilities.
The Government should now be looking at a variety of ways in which we can remove ourselves from our present predicament. Basically we in Britain have made great strides. However, it could all be set at nought if inflation continues to mount and if the balance of payments becomes more and more out of balance. I believe that the single action which the Government are taking at the present lime will bring that about and I beg them to consider a range of other measures so that the positive achievements of Britain can be maintained and we can overcome these present difficulties.
4.4 p.m.
Lord Harris of High Cross: My Lords, among the interesting observations made by the noble Lord, Lord Bruce of Donington, came the revelation that outer space is littered with debris. As I listened to his subsequent reflections on economic affairs I could not help thinking that Labour observations and judgments are littered with a good deal of debris. At one stage the noble Lord said that the Government uphold "free and unfettered private enterprise." There is no dispute that the National Income and Expenditure blue book states monotonously every year that the Government and their central and local apparatchiks dispose of roughly half the national income. The same apparatchiks regulate often in considerable detail the remaining half of the national income. The noble Lord is frightening himself with a spectre, a phantom, of a free and unfettered market economy when part of our trouble is that not enough

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freedom and stimulus of competition has yet been liberated.
The economic section of the gracious Speech opens with the words:
"My Government will continue to pursue firm financial policies designed to bear down on inflation".
With a question mark over the word "continue", I believe that the Government have their priorities correct.
I may as well admit at the outset that I suffer from a number of handicaps in trying to judge the impact of the Queen's Speech on the immediate economic outlook. First, I have been a strong supporter of the Chancellor of the Exchequer and a strong admirer of his record. I understand why the noble Lord, Lord Bruce of Donington, did not dwell too much on that. It must be most galling for the Opposition to note that so far the Tories have weathered a gale of appalling balance of payments figures when past Labour governments were repeatedly swept off balance by every adverse puff in the trade wind.
It cannot be denied that the reason has been the remarkable success of the right honourable and learned Sir Geoffrey Howe and now of the right honourable Nigel Lawson in building up a framework of financial stability which inspired, and until recently justified, wide international confidence. Whether the present difficulties will prove to be a "blip", they are due chiefly to the fact that the Chancellor of the Exchequer has pushed expansion in precisely the direction that the Opposition have demanded over many years.
The noble Lord, Lord Ezra, spoke of our problems as being rising inflation and a widening trade gap, as though they were separate matters. However, both have a common source in the excessive expansion of demand which can be met only by our imports rising faster than our exports.
My second handicap is in being unable to take Labour and Liberal outrage on the matter seriously. Day in and day out, in this House and elsewhere, they have urged more spending in the name of reflation and now, without pausing for breath, they seek to make political capital out of the inevitable consequences of increasing demand. In order to conceal their responsibility they trump up the argument that it was due to the tax cuts. Yet if none of the booty had been saved and if every penny had been spent on imported goods, it could not account for more than a single month of the trade deficit. We must look elsewhere for the cause of our troubles.
My third handicap is that I have no confidence in official figures. In addition to political smokescreens, our vision is obscured by statistical fog. Macro-aggregates were always deceptive as lumping together heterogeneous components into apparently homogeneous heaps. It is increasingly acknowledged that the public figures for savings, foreign trade, investments, the money supply and unemployment are wholly unreliable as guides for macro-economic policy.
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I am glad that on this occasion the noble Lord, Lord Bruce, did not mention the money supply. However, whenever he has done so it has been to mock various measures of the money supply. I have had to acknowledge that they have certainly proved somewhat erratic under the influence of financial deregulation, banking innovation and competition.
However, we cannot ignore that every measure from M nought to M 4 or 5 has predicted the higher inflation which now confronts us; nor can we doubt that the Government have erred in the direction of monetary laxity since 1986 in order to reduce the official unemployment statistics.
Can we any longer take seriously a figure of above 2 million unemployed when so many employers have complained of difficulties in filling vacancies even for unskilled labour? How can a crude unemployment figure approaching something like 10 per cent. be consistent with the evidence of overheating in the upward pressure which we see everywhere on wages and salaries? In that situation the Government have no choice but to use interest rates to damp down demand and make it more costly for employers to concede unearned wage and salary increases.
However, this recurrence of inflationary pressure should direct our attention away from these macro-statistics to the reform of micro-policies. Why arc unemployment figures so high at a time of widespread labour shortages? I have said before in this House and shall go on repeating that many reasons can be traced hack to well intended social policies. Thus, the willingness of people to work is weakened by access to benefits combined with high marginal tax rates on very low earnings. At the same time the ability of those genuinely seeking work to take available jobs is diminished by obstacles to the mobility of labour. The most obvious is the housing shortage which the noble Lord mentioned, a good deal of which has been caused by the restrictive policies of all parties on rent control and land use which have reduced accommodation where it is most needed and inflated its cost.
There are then the malignant effects of uniform, minimum wages and other labour costs which narrow job opportunities in areas where unemployed labour is most plentiful. The nearest the gracious Speech comes to recognising these long standing brakes on the labour market is in the passage which promises:
"a Bill to remove unnecessary obstacles to employment".
I strongly favour the cause of repeal and hope that Her Majesty's Government will cast their net very widely.
As other countries with Labour and Conservative governments are discovering, in a world of changing products, techniques, comparative advantage and trade we cannot escape the need to adapt to new circumstances. The more inflexible our labour costs, public spending, green belts and other social policies, the less rapidly we can adjust to changing requirements and opportunites. The more rigidly we stick to our present ways, the more severe the impact of change on such variables as remain free to adjust, like our price level and our unemployment.

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For far too long social policies have been at odds with our economic ambitions. All parties have willed the ends of stable prices, high employment and rising standards of living and yet the Labour and Liberal Parties in particular have denied the means of freer adaptation to the imperatives of change. Since 1979 it has fallen to the Conservative Government to set a better example. They have shown how a bit more freedom can transform our economic fortunes.
Looking ahead to 1992 and ignoring the fanciful posturings of M. Jacques Delors, we see the prospect of keener competition between European governments in order to attract mobile labour, capital and enterprise. Victory will go to the most free and hospitable regimes. We must ensure that Britain maintains its lead in lowering barriers to progress and prosperity.
4.15 p.m.
The Earl of Harrowby: My Lords, the noble Lord, Lord Ezra, has put his finger upon the one solution to the present hiccup that we are experiencing in the economy: if we solve the savings ratio then everything else falls into place. I also agree with him that it masks the achievements that have been made in the management of the economy within the last decade, which I believe are enormous.
However, that is not what I wanted to talk about this afternoon. It would be curious if none of us had any concern about the medium term and perhaps I may air four anxieties in your Lordships' Chamber this afternoon in the light of 40 years in the financial services industry and, contemporaneously, the last 10 years in manufacturing industry.
First, I should like to congratulate the Government on taking the first steps to alleviate some of the harshness arising from the Financial Services Act. Many of your Lordships will have received a flood of paper and will have found tiresome changes which do not seem to have much purpose. Some of your Lordships will have been asked to sign documents and small print which may seem abhorrent. One came to me from my bank which I was asked to sign and which stated:
"You hereby authorise the bank to disclose or permit the disclosure of any information arising in connection with this transaction to any relevant authority or as required by such authority whether or not pursuant to the compulsion of law".
I found that abhorrent. I revolted and I did not sign for about two months but, as I was a trustee, I felt it better that I should sign in the end. Had I been a private individual I perhaps should not have done so. It does not matter what I think. However, it matters immensely what foreigners think and what action they take in consequence.
I now turn to the European Community. I hope that the Government will not confuse strategy and philosophy with tactics and politics. We cannot afford to be the lame duck the second time round. My concern is different. My concern is that the community will become inward looking despite its protestations. If, for example, it adopts—as it is showing every sign of doing—some of the labour legislation of certain member governments, it will
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inevitably become uncompetitive and have to turn in on itself.
Thirdly, I should like to refer to a point already touched on by the noble Lord, Lord Harris. It is ironic that we have to talk in the same breath of a shortage of skills and the social injustice, hardship and waste of 2 million of more unemployed. However, that is the situation in which we find ourselves. The noble Lord referred to the causes of that situation and I add only that those of us who served throughout the war know full well that the implementation of skills can be carried out and I trust that the Government will find politically acceptable ways of indoctrinating those skills. If we do not, and once industry has taken up every available part-time married woman worker, has persuaded every pensioner to work those few extra hours and has moved into the paperless factory which is now technologically perfectly possible—in short, has used up all its assets—of necessity we shall start with assembly and move on into manufacturing where those skills are available, and currently that is in South-East Asia.
I turn lastly to what is known in international business as even playing fields. Manufacturing industry is affected where pay-back is a long way ahead. We all know that certain major projects would not get off the ground if it were not for launch aid. I think that we all approve of that. Many of my colleagues believe that that principle should be extended and that, for important business where the pay-back is a long way ahead, aid should also be granted. The Government mostly refuse to grant that aid, and I believe that they are right. However, it follows from that that the Government have a moral duty to persuade other countries to play the game in the same way. That is the concept of the even playing field. I must admit that I have not noticed any great enthusiasm to grasp that nettle.
Even though I have been speaking in general terms, I cannot help feeling that my noble friend the Secretary of State may be relating this to a particular case and asking, although in more parliamentary language, "What's he grumbling about—he won the contract, didn't he?". I should have to say sadly—sadly, because that is the only emotion open to me in my present predicament—that that is perfectly true and that the contract was won, but at what cost? It is right that your Lordships should know the cost. It was three years added to break-even point, just over half the work placed overseas and a weakened balance sheet impairing the ability to tender for further work.
Perhaps I may make a suggestion to my noble friend. I suggest that, starting with the Community, where much of the real basic problem lies, he tries to persuade it to require in public sector or quasi public sector contracts that an auditor's certificate accompany the tender outlining the overt aid that has made that tender possible and commenting on the covert aid that might be held to affect that contract; and that, when the contract is awarded, the certificate of the winner of the bid be published alongside.
I am grateful to your Lordships for the courtesy extended to me. I trust that I have not contravened your Lordships' customs and rules and that I have

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not been too controversial. If I have, I apologise. However, I would not go quite so far as the professor who concluded an address to his students with the words: "These are my principles, Ladies and Gentlemen. If you reject them, I have others to offer".
4.24 p.m.
Lord Taylor of Gryfe: My Lords, on behalf of the whole House I have the pleasant duty of congratulating the noble Earl, Lord Harrowby. In anticipation of this duty I looked up the background and experience of the noble Earl. I was impressed by the wide range of interests that he covers in his involvement in industry and in his activities as a banker, and indeed by his sense of social responsibility. He is the governor of one of our leading teaching hospitals. Given that the noble Earl has that range of experience, I am sure that the House will be indebted to him in future if he finds it possible to attend regularly and to add his wisdom to our proceedings.
The House will not be surprised to know that I subscribe entirely to the general criticism offered by the noble Lord, Lord Ezra. I thought that he made an excellent speech. It makes me deplore all the more that previous provisions of alliance in the House between his friends and ourselves are not still in existence. He highlighted, rightly, as did the noble Lord, Lord Bruce of Donington, the crucial issue of combating inflation and the inability of the Government to devise other than a fairly blunt instrument to counteract this serious menace.
Like other noble Lords who have spoken, I do not believe that in itself an increase in interest rates will accomplish that end. Indeed a very serious consequence may arise. Noble Lords may have observed that, just as we pushed up our interest rates at the weekend, so yesterday the United States increased its interest rates to protect the dollar. If we push up our interest rates so that the pound becomes attractive and the dollar weakens, it is obvious that the United States will be concerned about protecting its currency. The result will be a spiral of increased interest rates, which as a consequence will slow down industrial investment. If industry finds it more and more difficult to borrow and cannot afford to service debt, the spirit of enterprise, which the noble Lord, Lord Young of Graffham, repeatedly emphasises publicly and in his public relations activities, obviously will he defeated. There is the serious danger that to increase interest rates will reduce industrial activity and increase the threat of a depression. That is a real concern.
Having created the climate of enterprise in this country, the noble Lord must not be surprised by the demands of workers for increased wages. He is after all creating an atmosphere in which the devil take the hindmost and private greed is elevated to being some kind of virtue. If that is a virtue in the City, the noble Lord cannot be surprised if Ford workers are similarly conditioned.
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The real criticism of the Government, apart from the detailed criticism made today, stems from the fact that in this country we have moved away from a spirit of community and community concern. We are elevating private greed. To echo what John Kenneth Galbraith said years ago, we are following a policy which encourages private greed in the midst of public squalor. It is that situation which is at the heart of our malaise. We on these Benches hope that there will be a greater degree of consensus thinking on politics and greater community concern.
The noble Lord, Lord Ezra, asked for an explanation from the Minister as to why the control of credit was unacceptable. I recall some years ago that the Government introduced control of credit and cut back the repayment time on consumer credit from three years to two years, and I believe from two years to one year. I am quite sure that that kind of measure could have a more immediate impact than increasing the mortgage and interest rates. We are in the ridiculous situation where the Chancellor is much concerned about cutting hack consumer expenditure. Yet one can turn on the television any day of the week and find repeated advertisements making credit easy in order to increase consumer spending. Day after day most of us receive through the post further opportunities for easy credit. All that is going on at the same time as the Chancellor is using the blunt device of increasing interest rates in order to frustrate consumer buying.
The noble Lord, Young, will not be surprised to know that, having attended a religious service this morning conducted by the Moderator of the Church of Scotland on the eve of St. Andrew's Day, I want to say a word about Scotland, not because Scotland is a special case but because the situation there is a reflection of the collapse of a sensible regional policy. Regional policy is not charity. Anyone who looks at the subsidy that is given to South-East commuters on the railways, for example, will realise that it is a waste of resources to be subsidising the South-East while neglecting the North and Scotland. It is a matter of a balanced policy in a balanced economy. We are not achieving that kind of balance. It is a nonsense that nine universities in Scotland turn out first-class graduates who have to look south in order to get employment.
There is a new experience taking place on the airlines. I travel from Scotland every week. The flights on the shuttle on Mondays are busier now with bricklayers flying from Glasgow into the South-East in order to work during the week and then flying back at the week-end. That is economic nonsense except for the airlines. The noble Lord, Lord Young, may say that it is too early to measure the impact of his initiatives which replaced regional policy. But they are not working so far. If I look at the statistics aright, unemployment in Scotland is still 10.9 per cent. as against 4.9 per cent. in the South-East. The average weekly disposable income is £210 as against £269 per week in the South-East.
Before the Recess there was a rather alarming political event in Scotland. I refer to the Govan by-election. Noble Lords may say that it is just one of those political blips, but that is not so. There is a deep

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sense of political resentment in Scotland against the ill-division of the nation's wealth. The fact that Scotland was singled out to be the nation that would get the poll tax first is deeply resented, as is the fact that in Scotland we have a business rating system. I have quoted in the House on a previous occasion the example of a chemical factory in Fife paying £9 million per annum to a local authority in the area. If that factory had been situated in Newcastle or Carlisle the rates bill would have been £1.25 million. The Government, having looked at the problem of the uniform business rate, have decided that they cannot intervene any more until they have powers in this direction. They have postponed the uniform business rate from 1990 to 1995. Scotland will resent this continued discrimination.
The Government must be thinking about how far their desertion of traditional regional policy is working out in fact; or whether it will take a few more Govan by-elections in order to convince them that theirs is a foolish and undesirable scheme. In winding up, I should like to hear a clear statement from the Government about the future of the Scottish Development Agency, because that has been regarded as a model for regional development. If I read the press aright, it will be encouraged to sell off its portfolio, and the responsibilities for training as well as industrial development will be vested in a new authority of which it will be a part. I say to the noble Lord that the SDA has been a very considerable contributor to any improvement that has been taking place in the Scottish economy. It would be seriously unwise to interfere with its responsibilities or, even worse, to put it under the control of a government department. If there is one factor from which it has benefited it is its ability to act free of the controls of the Scottish Office. It has been a model for other areas of industrial development where there are regional problems.
I look forward to a statement from the Minister on how he sees the future of the Scottish Development Agency, because that is a matter upon which there was a great deal of discussion during the Govan by-election. As the noble Lord, Lord Ezra, said, we on these Benches are concerned about solutions and not simply with criticisms. We have mentioned the question of credit control. I should like to see an extension of profit-sharing in industry which would give the workers a greater sense of sharing in the benefits that are coming from high profits in private companies. Above all, I should like to see in our society a completely changed emphasis on what we are about and the nature of the society that we are creating. If this Government have done anything they have established for themselves a non-caring image. It is not totally justified but nevertheless the people of this country are looking for change; they are looking for a method of getting away from the elevation of private greed; they are seeking some sense of belonging to each other. It is in that spirit that economic policy should be developed.
4.38 p.m.
Lord Alexander of Weedon: My Lords, I suspect that none of us ever forgets the first occasion on which we speak in any forum. I certainly well
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remember, more than 25 years ago now, newly-called to the Bar, arriving in Chambers to be told that I had received my first brief—or rather that, if I caught the Underground to Wood Green and from there took the bus to Manor Farm and so arrived at the Tottenham Magistrates' Court, I would receive my instructions on how to handle the case. I made the journey with mounting excitement. I arrived two hours early. One hour and 55 minutes later there appeared, not in any hurry, a solicitor's managing clerk beaming and holding an extremely slim document. "I know it's your first", he said. I scorned this triviality and seized the brief from him to know what I was to say on behalf of my client. The instructions were illuminating, welcome and short. They simply read, "Counsel will find enclosed a cheque for five guineas and will please represent the defendant".
Your Lordships will appreciate that on that occasion it was easy to be both brief and non-contentious. Today I will attempt, ill may, the same task in regard to the proposals in the Queen's Speech which affect takeovers. I must immediately disclose an interest, but it is an interest which gives me a neutral vantage point. The Takeover Panel, of which I am chairman, is not concerned to decide whether there should be more or less takeovers. It has the task—sometimes it seems a large enough task—of seeing that shareholders are fairly dealt with and that the ring is held between the rival and often warring contestants.
There has been much public debate recently about takeovers and their merits. I believe that this is healthy. Takeovers affect the structure of industry; they affect employees, shareholders, management, customers and, in some cases, the regions where companies are situated. Equally there are strong and widely diverse viewpoints. Some say that it has become too easy to take over companies. They are concerned that this country may be a point of entry for those in the United States and Japan seeking entry to the European Community. They are concerned that even the most efficient management may be harassed and distracted by the threat of takeover from the task of managing their company and making proper investments. They ask about the regions: what about York? Or, as we have just heard: what about Scotland?
There are powerful voices, too, on the other side of the argument. Those voices point to the openness of our markets as being a factor in our economic success in attracting foreign investment. They point to the fact that the stimulus of the risk of a takeover can keep management upon its toes. They observe that takeovers can sometimes lead to more logical use of assets. They also argue, with cogency, that it is management and shareholders who can, more effectively than governments or commissions, decide how business should conduct its affairs.
I am glad that this debate will continue, for, in my experience so far, the takeover scene evolves rapidly. The size of individual bids, the scale of bid activities and the methods involved, all change. We have recently seen in the United States a growth in the activity called the "highly leveraged bid", where a company undertakes a vast burden of corporate debt

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as a way of acquiring another company. Alarm has been expressed in the highest circles of the financial community in the United States about that tendency. It could cross the Atlantic.
I am glad that the message goes out from this country that we do not see Europe as a fortress and that we do not intend to be protectionist. But I am equally glad that in a rapidly developing scene my noble friend the Secretary of State for Trade and Industry retains the ability to act pragmatically and flexibly in the public interest, as and when occasion demands.
Perhaps I may now turn to the proposal in the Queen's Speech which specifically deals with procedures on takeovers. As I understand it, this is a proposal where there may be voluntary early notification of bids and where the Office of Fair Trading may resolve a potential problem of competition by seeking statutory enforceable undertakings rather than referring a bid to the Monopolies and Mergers Commission.
As I understand it, the proposals are not intended to make life easier for bidders. They are intended to simplify procedures. That raises the question of whether existing procedures have their anomalies. I think that they do. Perhaps I may give two illustrations. What tends to happen at the moment is that when a bid is launched the target company immediately lobbies furiously to try to persuade the Office of Fair Trading to refer the bid to the Monopolies and Mergers Commission.
As your Lordships know, if there was a reference the commission would consider whether the bid was in the public interest. However, that is not the primary object of the management of the target company as it seeks to pray in aid with the help of its public relations consultants all the lobbying forces which can bring pressure on the Office of Fair Trading.
The target company is seeking to secure a preemptive knockout blow, because if the bid is referred to the Monopolies and Mergers Commission it lapses. The reference inevitably takes some time and the bidder may go away without shareholders having any opportunity to consider a bid for their company.
Perhaps I may illustrate another problem. While the Office of Fair Trading is considering the position, uncertainty hangs over the company. The share price may drop below the bid price. What happens then is that the bidder steps in, snaps up as many shares as it can and, if the bid is cleared, it then has a stronger platform from which to seek to pursue its ends.
The other category of trader who steps in is the arbitrageur. The arbitrageur moves in with the hope of making a quick profit. The arbitrageur has no interest in the long-term future of the company. Yet it is the very arbitrageurs who if the bid is cleared may have a decisive effect upon the outcome.
I give those illustrations to indicate why it may be possible that there are better procedures. I certainly welcome the fact that the House will have the opportunity to debate and consider whether the proposals mentioned in the Queen's Speech are in fact helpful and simplify and streamline the process.
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In conclusion perhaps I may refer to my own, so far short, 18 months' part-time experience of assisting in the regulation of City affairs. The Financial Services Act 1986 created a balance of statutory regulation and regulation by practitioners. It would not be right for me to seek to debate today whether that balance was rightly drawn. But what I do know, and what makes it most heartening to be involved in this area, is that there is an immense number of practitioners of skill, energy and wisdom who are prepared to devote their time to making certain that the work of the regulatory bodies, including the work of my own panel, actually succeeds.
There is a recognition that we must have a well-regulated, efficiently regulated and strongly regulated City. There is also a recognition that the City of London has been a success story in this country. There is a recognition that thanks to far-sighted leadership, notably that of Sir Nicholas Goodison, the recently retired chairman of the Stock Exchange, the City is poised to keep its advantage within European financial communities as we approach 1992.
That means that, although we must have efficient regulation, we must have regulation which is not too bureaucratic, which is not over-costly and which does not inflict too great a burden upon industry. The balance is not an easy one to strike. We are all aware of the need in changing situations to be alert and vigorous as regulators. But we all wish to achieve our aims without imposing an unnecessary burden on those whom we regulate.
I have no doubt that we shall not strike the balance right all the time. I have no doubt that in any regulatory system there will be individual failures. However, what heartens me, and what makes it very enjoyable to take part in the work of the City in this way, is that the will and commitment of those who work there to get it right is present in abundance.
4.48 p.m.
Lord Jay: My Lords, I am more than happy to congratulate most warmly the noble Lord, Lord Alexander, on his lucid, polished and highly informative speech. I am sure that he will bring a great deal of both legal and financial wisdom to the House. I rather suspect that he is one of those people one finds it hard to disagree with whatever they say.
In the debate on the Finance Bill in the House at the end of July, I advised the Secretary of State for Trade and Industry to take the balance of payments deficit rather more seriously. Perhaps, after last week's trade figures, he will now do so. At present the United Kingdom has the largest current deficit in our history and unemployment double the level prevailing when this Government came to power. One may well ask how we got ourselves into this plight.
The violent deflation of demand by this Government from 1979 to 1981 led not merely to seven years of rising unemployment, but also to heavy loss of industrial capacity. That ended only when, first in 1985, the Government abandoned their earlier monetarist doctrines—incidentally, M3 is not

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mentioned in this year's Autumn Statement—and the banks then launched a rapid credit expansion which is still going on. Secondly, and more important at that time, the fall in the sterling exchange rate in 1986 did something to check imports, stimulate exports and so turn the tide.
Several morals emerge from that part of the story. One is that in the United Kingdom nowadays the level of the exchange rate is crucial to the whole economy; another is a more general one, that money demand is, as ever, fundamental in determining output and employment, as we have also seen in the United States recently. Some years ago, the Chancellor told us that he no longer believed in demand management, so what we have had in the past few years is demand mismanagement instead, which is indeed the only alternative. As a result, since 1986, despite oil earnings, expansion has plunged us, after only two years, into rising price levels and the huge current payments deficit.
The slide into insolvency in our overseas relations has proceeded so rapidly that the estimate of a £13 billion deficit for 1988, contained in the Chancellor's Autumn Statement published only a fortnight ago, is now completely out of date. In view of the latest trade figures, it cannot now be much less than £15 billion for 1988.
It is worth looking at the details. The main element in that growing deficit is our trade in manufactures with the Continental EC, which has again grown this year to rather over £13 billion. The swing in our trade in manufactured goods with the EC, from a surplus in 1970 to the huge deficit now, has been due to the removal of tariffs on manufactured imports from those countries and, secondly, to the raising of labour costs here through the workings of the common agricultural policy.
The other cause of the growing deficit is of course, as we all know, falling invisible earnings, due mainly to falling oil revenues, which the Government seem to ignore altogether. According to the Autumn Statement, our total invisible exports fell by —2 billion this year, of which —1.5 billion was due to oil.
The Government now estimate in the Autumn Statement that the total current deficit will fall in 1989 to —11 billion. That is not encouraging, but I am afraid that it is too hopeful. Even that estimated drop is due to wishful thinking. For this year, United Kingdom exports rose in volume by 2 per cent. only. The Government assume 7 per cent. for next year. The Government now purport to believe that imports, which rose in volume this year by 12.5 per cent., will rise by only 5 per cent. next year. I find those estimates absurd. At the present level of our exchange rate, which is much too high, both exports and imports are much more likely to behave next year in about the same way as they behaved this year. In that case, since invisibles will fall again next year, we face a total current deficit next year of nearer —20 billion than —15 billion on the official figures.
That is where present policies are leading us. The Chancellor evidently knows that, because he now says of course that the balance of payments deficit does not matter. No one told us that in 1947, 1949, 1955, 1964 or 1974. The alleged reasons why they do
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not matter are supposed to be our large overseas assets and our ability to borrow short term from abroad. But unfortunately, owing to the end of exchange control, the bulk of our oil earnings for the whole of the past seven or eight years has gone into private overseas assets which the Government have no power to mobilise.
Our official gold and exchange reserves today stand at about —30 billion. I believe that the Secretary of State will agree that that is approximately the correct figure. We are faced with a —15 billion deficit in 1989. So, unless we borrow, our reserves will last only two years at the rate at which the balance is going.
The Chancellor says that that does not matter because we can borrow from overseas. What used to be called going cap in hand to foreign lenders is now called capital receipts, which sounds much better but is exactly the same. In hard fact it means borrowing—I do not know whether it is at 10 per cent., 11 per cent. or 12 per cent., but it is something like that—short-terms funds which can be instantly withdrawn—unlike a loan from the IMF—by the lender when speculative sentiment changes.
By the Chancellor's policy of short-term borrowing and long-term investment of oil revenues overseas, we are literally lending long and borrowing short on the overseas market. All that is not hidden from our old friends the bankers, the speculators and the exchange dealers who operate on an even more massive scale nowadays than they used to.
The Chancellor may think that he can fool or befog the British public about what is happening, but the professionals, unfortunately, look at the figures in black and white and they see a prospect, if one looks a bit further ahead, which looks even bleaker: beyond 1990, a much heavier fall in oil revenues and the threat of this famous single market in 1992 which, whatever one thinks about it, and despite the Secretary of State's orations (which are splendid as orations I am sure), is much more likely to lead—if we judge by experience rather than theology in these matters—to the same effect, if any, as the removal of tariffs after 1972; that is, a further rise in our visible trade deficit with the Continental EC.
In those circumstances the risk is that some time in 1989 the exchange market will decide that the sterling exchange rate is bound to fall before long. It is far from clear what the Chancellor will do then. A further 1 per cent. rise in interest rates will not have much effect. The real need, if we are to avoid such a situation which one does not wish to exaggerate but which would be a serious one, would be to achieve what is now politely known as a soft landing.
The present payments deficit proves that sterling is much too high. It is probably 20 per cent. too high. Having got ourselves to this position by deregulation all round, the only practical remedy left (unless interest rates are going to 25 per cent. and none of us knows what effect that would have) is to reduce the exchange rate in an orderly fashion in time to avoid an uncontrollable rush for cover on the foreign exchange markets. It will not be easy, but it will at least be better than a total surrender to wishful thinking which now seems to rule in Downing Street.

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Most important of all, we must, as I see it, retain the maximum possible control ourselves over the sterling exchange rate and resist any device, however specious, for fixing the rate anywhere near its present level.
The Chancellor—how strange it is that history repeats itself—has followed almost month by month all the mistakes made by R. A. Butler as Chancellor in 1955; but R. A. Butler did at least have the grace to resign in December.
5 p.m.
Lord Mackie of Benshie: My Lords, I know that only one noble Lord is supposed to congratulate a maiden speaker but I cannot resist saying to the noble Lord, Lord Alexander, that I greatly enjoyed his speech.
I now come to the other speech, the gracious Speech, or perhaps one should say the graciously delivered speech. In it there were a couple of references to Scotland and the one relevant to today was:
"A Bill will be introduced to transfer the Scottish Bus Group to the private sector".
I wish to express the hope that when this Bill goes through the House the Government will seriously consider giving priority to management and staff buy-outs in Scotland. There is no shadow of doubt that that would give us a far better service as well as giving the staff and workers in this group the chance to preserve their jobs by competence. It would give a better local service, on which we depend in Strath Tay and all over Scotland. This would be a good and logical step which would retain and improve the services that we so badly need.
There was another reference applicable to this debate. I presume that the Government will admit that agriculture is an economic affair. The reference in the gracious Speech says:
"My Government will continue to work with our European Community partners to complete the single market, to reinforce budgetary discipline and further to reform the Common Agricultural Policy".
All good stuff.
"They will play a full part in multilateral negotiations designed to liberalise international trade and agriculture".
That is an impossible task. "To liberalise…trade" must mean that there already is fair trade in agriculture. We have never had that, even in the past with the so-called entirely liberal economic policy in this country. It is an impossible situation because of the vast numbers of primary producers. These primary producers, not only farmers but other trades, deserve some protection against the simple fact which I cannot repeat too often, that where there is no control over the market, a 5 per cent. surplus can result in a 50 per cent. drop in price.
Over the years many governments have built up systems to combat this. Denmark has encouraged co-operatives; in this country we have introduced marketing boards. The noble Baroness, Lady Elliot, is not in her place but long ago her husband was the architect of a number of the marketing boards which have operated in this country with great success.
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There is a great deal of unrest and foreboding in the farming industry about the various attitudes adopted by the Government towards marketing boards. I have not heard so much about farmers being feather-bedded and driving large motor cars recently; but I must stress that this year farmers in this country are facing the lowest level of income since the war. That is not due to incompetence but to a great many factors, for many of which the Government are responsible. High interest rates certainly bear very heavily on agriculture. Every point takes millions of pounds off the income of the farming population.
As regards the green pound, the difference in rates paid to farmers in this country as compared with those in the rest of Europe is something which the Government must tackle much more seriously than they have done. I know that the green pound is meant to disappear in 1992, but at the moment it is ludicrous that Danish farmers, for example, receive £11 for every tonne of malting barley they export to this country. There can be no possible reason for that. It is a positive factor in the complaints of the farming community and one with which the Government must deal.
Everyone in the agricultural community accepts that price must play a part in the regulation of surpluses. That is absolutely true, but at least farmers want a fair crack of the whip along with the rest of the producers in the European Community. As always, it appears to me that our joining the EMS properly might help more than somewhat, to put it mildly.
I hope that the abolition of the principle of protection inside the EC is not the objective of the Government. With the vast variety of climates, the difference in the number and size of farms and the conditions of agriculture in the world, we in Europe are entitled to produce as much of our own food as we can. I do not think we are entitled to produce surpluses which we dump on the world market, but we are entitled so to organise our affairs that we produce food and give the agricultural population the same standard of living as others enjoy. This is an aim of the EC and one which the Government cannot abandon.
I repeat that the primary producer and the farmer cannot organise their own marketing without some help from the Government in the form of marketing boards and other methods. I implore the Government to be much more pragmatic and less doctrinaire and not to tamper with the SDA. Perhaps in private the noble Lord, Lord Sanderson, will agree that it has been a very useful body. It has been a great success, as several noble Lords have mentioned, including the noble Lord, Lord Taylor of Gryfe, and it should be left alone if it works. That appears to me to be a better Conservative philosophy than to have change for the sake of doctrine. With that, I shall sit down.
5.6 p.m.
The Earl of Halsbury: My Lords, I do not know whether it was wise or unwise for me to put my name down to speak this afternoon. That will emerge in the course of what I have to say. At least it has this value

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for me, that I have been given the opportunity to listen to two quite astounding maiden speeches. It might have been unwise because I am not an economist; I am not a banker. I have not served in the Treasury or anything like that, but I comfort myself with the knowledge that not everybody else who has put his name down to speak falls into one of those categories.
I have been in manufacturing industry all my life, as an employee, director or consultant. My heart is very much where the heart of the noble Lord, Lord Bruce of Donington, is—in manufacturing industry, which is apparently in a parlous state, according to economic statistics. However that is not exactly what I shall be talking about this evening.
I was at one time a consultant on control engineering to two large engineering companies. I was struck with the resemblance between the mathematics used in economics and the mathematics used in control engineering. They both belong to a branch called network theory. That is the last I shall say about mathematics this evening. I am sure that your Lordships would not wish me to enlarge on the subject.
There is a great resemblance between the problems. The most familiar example of control engineering employed in one's house is the thermostat, which is also found sometimes in the motor car. It switches the heat on when the room is too cold and switches it off when the room becomes too hot. In addition, if we possess a lot of valuable furniture we may also want a humidifier, which keeps the relative humidity constant. It is not possible to get one machine to do both jobs; there must be a thermostat and a humidifier. If we want two points of control, we must have two control parameters. The thermostat does not keep the temperature constant; it makes it oscillate between an upper and a lower limit. If it is badly designed, those two limits become too far apart and the anomaly arises where the thermostat switches the heat on when the room is too hot and switches it off again when the room is too cold. I once designed something that did that; it taught me a lesson that has lasted a lifetime. There is a strong analogy between that and the stop-go cycles of our economy.
If I use the term "variables and parameters", I hope that it will not mystify your Lordships with science. A variable takes whatever value it does from day to day, and a parameter is some kind of a setting with which one hopes to control that. A variable is whatever is the case, and a parameter sets what one wishes it to be.
Economic variables are whatever they are from day to day: the exchange rate, the balance of trade, the retail prices index, the wages index, the index of inflation and so on. The economic parameters of control are the bank rate, the standard rate of income tax, the target for the public sector borrowing rate and whatever other parameters the Government have in mind in setting their policy. Of the variables, some are dependent and some independent of others. I am concerned only with the independent variables because they must equal the number of control parameters or the system will not be under control.
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I have a question which I hope the noble Lord, Lord Young of Graffham, will answer when he replies for the Government. How many independent variables and how many control parameters enter into Her Majesty's Government's calculations? I hope that I shall not be handed out a bit of fluff, being told that Her Majesty's Government depend upon sound monetary and fiscal policies. That is not an answer to my question; it never will be. It is too broad a brush. And broad brushes tend to have no bristles.
I have mentioned three controls: the bank rate, the standard rate of tax and the target for the public sector borrowing requirement. Three is not a magic number. There is no law of nature which states that everything must be measured in threes. What about a fourth? We have been searching for a fourth—by an instinctive feeling that we need it—during the 43 years that have elapsed since the war. First we had a selective purchase tax which was high on luxuries and low on essentials. Then we had what has already been suggested—hire purchase controls. Then we had a prices and incomes policy. And, finally, of the various fourth devices, we had what was known as the corset; that is, the special deposits with the banks.
All these have been tried out of the instinctive feeling that we need something else. All have been abandoned as failures for one reason or another. It has been part of my training all my life not to criticise unless I was prepared to make a constructive suggestion by way of an alternative. Therefore, I shall suggest something on which I have been brooding for a long time. I have a name for it. I have called in the subtax in contrast to surtax which is, or used to be, levied after income tax had been removed from incomes. The subtax is something that I would deduct from earnings at the point of earning. It is simply the wages index minus the productivity index as a percentage of earnings.
If wages were rising above productivity, every wage earner in the country, and every monthly salary earner, would get a weekly or a monthly reminder of it. The subtax would be under the control of the Chancellor of the Exchequer who would have enabling powers to enable him to vary it from week to week or from month to month.
The money collected would be returned to industry a year later as investment allowances. By means of this system I believe that quite a substantial cash flow would be filtered back from wages—difficult things to control—into investment which is, above all, what we want. I can see that the subtax would be divisive. But it is said that a government must di vide and govern. I can see that it would procure civil war within the TUC as union fought union on the basis that the demands of one would penalise another.
There would also be party warfare on the grounds that each side was putting forward fraudulent indices. But, in so far as our system currently is out of control, the Government are not governing, and I look forward to the day they do. I do not want to be told that the current results, which have been so freely debated across the Floor of' this House, are freaks. What is a freak? It is said to be a spiritual apparition of ominous appearance. I do not deal in them; I believe in the law of cause and effect.

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There is of course the alternative laissez-faire or laissez-aller. But no one believes in that principle; and no one applies it. If the Government really believed in laissez-faire, they would not already have three parameters of control: the bank rate, the standard rate of income tax and the target for the public sector borrowing requirement. So, I recommend my subtax for your Lordships' consideration, even if it is not a proper matter for us to debate.
5.16 p.m.
Lord Barber: My Lords, the noble Earl, Lord Halsbury, seems to take some pride in the fact that he had never been an economist or banker or served in the Treasury. I am bound to tell the noble Earl that I have been involved in all three activities. I do not believe that this makes me any better qualified to speak, but I intend to do so anyway.
I wish to add my tribute to my two noble friends who made their maiden speeches. Listening to my noble friend Lord Alexander of Weedon speak about his first brief for which he received five guineas, I recalled the first occasion I appeared before the High Court judge at Durham Assizes. I was defending. I received not five guineas but three guineas. And my client got seven years.
Anyone who has had any responsibility for economic affairs will not be surprised when I say that every now and again the unexpected occurs. Sometimes it is a development overseas which simply could not have been foreseen. On other occasions it is a forecast which in the event proves to be wildly out. My mind goes back to the fourfold increase in oil prices in the autumn of 1973 with its absolutely devastating effect on the balance of payments. I shall not however pursue that tale of woe. There is nothing more boring than an ex-Chancellor trying to defend his record.
I propose very briefly to limit myself to the immediate economic problem with which the Government are faced. During these past few days we have been concerned with an economic forecast made earlier in the year, namely, the current account of the balance of payments, bearing little relationship to what has actually happened. Any Chancellor, of course, accepts responsibility for the forecasts he makes. But, if I may say so, with all due respect to those who criticise the Chancellor, it really is ludicrous to pretend that he is guilty of some heinous offence if he, or more accurately the Treasury forecasters, get their forecasts wrong.
I readily grant that in the present instance it is arguable that, on the information he had earlier in the year, the Chancellor should not have reduced interest rates to the extent he did. But that, after all, was a matter of judgment. It was a matter of judgment on which there were genuine differences of opinion at the time. What nobody can seriously contend is that the Chancellor, on the information then available, should have been aware at the time of the likely magnitude of the September balance of payments deficit.
The question before your Lordships, is, I believe, not whether the extent of the deterioration in the
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current account of the balance of payments should have been foreseen, because nobody predicted anything approaching the size of the September deficit. The question for consideration surely is whether the Chancellor, faced with the unexpected, has taken the right action. There is, I think, general agreement that given the facts of the present situation what is called for is action to damp down demand. The question is how best should this be achieved?
Can it be achieved by an increase in VAT? Nobody has seriously suggested that. Could a mini-budget to increase the rates of income tax damp down demand? Well, that might impress a few simplistic pundits overseas, but I doubt that it would do even that. What is quite certain is that nothing could be more calculated to sap the new found confidence of the business community.
It was suggested by the noble Lord, Lord Ezra, I believe, that we should revert to credit controls. The fact is, without going into details, that in today's free markets one can be sure of one thing. The means would be found by many people to get round those controls. One has only to think of credit cards. As one who was involved with that kind of control in the past, perhaps I may say that even if minimum deposits and credit controls generally were the right answer in the past we have moved on from those days. I do not believe for a moment that they would be effective, and if they were effective to any extent they would be grossly unfair.
So the Chancellor has relied on interest rates. Those who still doubt the wisdom of that course must, I think at least acknowledge one major consequence: overseas confidence in sterling has been maintained. That was a matter referred to by the noble Lord, Lord Harris of High Cross.
The noble Lord, Lord Jay, in his speech seemed, if I understood him aright, to advocate a fall in the exchange rate and the overseas value of the pound in order to improve the trade balance that way. I am sure he would be the first to recognise that such a course would very soon work through into prices and so add to inflationary pressures. The problem is not that we are not competitive. Productivity is growing more rapidly in the United Kingdom than in any other country except Japan and manufactured exports are up 7½per cent. over the past year. The problem is quite simply an exceptional growth in domestic demand which British industry cannot satisfy. I believe myself that the Chancellor has taken the right action in the circumstances which faced him and I believe that he should be supported.
5.21 p.m.
Baroness David: My Lords, I speak as another non-economist. I want to speak about sponsorship and subsidy, their use by this Government and what that use tells us about the values and attitudes of the Government.
There can be no doubt that there has been a continuing shift over the past nine years from public subsidy, which allows cultural values and objectives to be achieved without regard to monetary values, towards sponsorship, patronage and self-sufficiency. It is my belief that that is to misunderstand the nature

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of cultural activities and must ultimately damage the cultural health of our nation. Increasing and unrealistic government pressure for private sponsorship means the substitution of arbitrary and uncertain income for subsidies which could be relied upon. Sponsorship will be given primarily for commercial reasons. It may be withdrawn at any time and it may be difficult to replace, particularly if every cultural organisation is seeking such income; and they are.
Already at least one potential sponsor has made it clear to the Minister that industrialists may be becoming increasingly reluctant to pick up the tab for what used to be government subsidy. In offering sponsorship, private companies are looking for public notice and favourable exposure. They are not interested in productions which do not fill theatres. They want their money to be associated with special events and are not attracted by the idea of meeting the cost of the staple cultural product of, say, a national theatre company and even less the massive overheads and payroll of a major organisation. They will expect the special events they sponsor to have general appeal.
Can one imagine a commercial company wanting to have its name linked to a production of "Timon of Athens", a little known Restoration play or a symphony by an unknown composer? But those are the very things which a civilised society, particularly one such as ours with a long and distinguished literary history, expects from its great performing institutions such as the National Theatre, the RSC, Covent Garden, ENO and the great orchestras of this country.
By shifting subsidy to private sponsors the Government are likely to achieve what Stalin and Zhdanov brought about by somewhat different means: the stifling of all artistic enterprise and the reduction of cultural experience available to the public to, at best, a dreary mediocrity.
The noble Lord, Lord Rees-Mogg, in his introduction to the 43rd annual report of the Arts Council, has put the argument for arts organisations themselves to raise a greater proportion of the funds they need, presumably by raising ticket prices. He said:
"The way in which the public discriminates is through its willingness to pay for its pleasures".
But the purchase of tickets does not depend entirely on taste. There is also the question of ability to pay. The noble Lord's policy would deny to the poorer members of the community the chance to see and hear anything above the humdrum.
The Government are applying the same tactics to basic scientific research. That is underfunded, as our Science and Technology Committee has repeatedly said. I know that Kenneth Baker has recently put an extra £300 million into science, but that is still far from adequate and much of it is earmarked for specific purposes. It is contracted research which is favoured, for no immediate profits or results can be guaranteed from basic research. Yet it is that which in the long run has enabled the most spectacular advances to be made. If it is starved of funds many talented and devoted scientists, and indeed other
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academics—the philosophers have recently been in the news—may be thwarted and will emigrate to more generous and imaginative employers overseas, at what future loss to our country the Government do not seem to care.
Meanwhile, the universities have been encouraged to go more and more to industry for help. It may well be that our universities became complacent and lacking in drive and needed sorting out. However, to treat them as purely functional, as vocationally orientated and directed purely towards economic goals is surely to have misunderstood the real aims of education.
Can the Government not admit that there are many educational, medical, welfare, charitable, artistic and social activities that cannot be evaluated in terms of money and of profit? All those are areas of life where something more than tooth and claw values, where human values should determine actions. I think that until now it has generally been recognised that those activities require and deserve public subsidy, because no commercial organisation based on profit would or could conduct them at a profit. I hope that the Secretary of State—who I see is not here at the moment—will give some response as to whether the Government are to continue the policy of reducing subsidy.
Of course we should all agree that there is virtue in self-reliance and enterprise. But it is a ridiculous assumption that everyone, if they pulled their socks up, could demonstrate those qualities or that they are of the first importance in every activity or, even if they were, that they could be brought into play at the turn of a switch. The speed at which the Government have sought to make the change has resulted in an appalling waste of resources.
The reductions in subsidy—by 14 percentage points in four years in the case of one big national company—has resulted in putting every major arts organisation into crisis. And what a squandering of special manpower and talent to make artistic directors and heads of research teams spend more than half their time-fund-raising.
It is not as if shortage of money was the reason for those public economies, at least if we can continue to believe the Prime Minister and the Chancellor's trumpeted claims that we have never had the economy so good. However, recent events have certainly made those claims seem incredibly hollow. Such benefits as may have accrued have all been used to lower taxes. The idea of giving greater freedom, greater encouragement to enterprise to the individual by that process may be good in itself but it has been embraced to such a degree as to result in the giving away of a small fortune to the already rich, thus feeding a consumer boom while being as tough as hell with the sick, the poor and—incredibly—the nurses (though there the reason seems to be less parsimony than just sheer insensitivity and bungling).
The answer to the question I raised earlier is that the Government do not accept that there are areas of life where market forces and monetary values should not be in sole control. One passage in the gracious Speech should give us pause:
"They will maintain firm control of public expenditure so that, while allowing further improvements in priority services"—

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the "further" begs a question—
"it continues to fall as a proportion of national income, thus providing scope for further reductions in taxation, as and when prudent".
In principle, the Government do not approve of subsidies. That is all of a piece with their general stance. Great play is made with the slogan of freedom, but we are only to be allowed such freedoms as the Prime Minister may approve. The real catch words are "authority", "the smack of firm government" and "Mother knows best".
The Government cannot take criticism and systematically emasculate any source—for example, the BBC or local government—from which criticism, direct or indirect, might come. Yet I believe that the good sense of the British public is beginning to be suspicious of what the Government are at. Not for much longer will it be misled by a false sense of wellbeing which is perhaps still felt by the largest proportion of the population but most certainly not by the less powerful, less fortunate members of our community.
5.30 p.m.
Lord Aldington: My Lords, one of the problems of such a debate is that one comes to the House wanting to talk about economics and finds that the fine and distinguished speaker from the Opposition Benches who has just spoken talks about something different. I hope that the noble Baroness will forgive me and not consider it an act of discourtesy on my part if I do not debate with her on this occasion, although I should have liked to have done so.
It is the custom now not to refer to maiden speakers unless one follows immediately after them, but I cannot resist the temptation to congratulate my two noble friends on their excellent speeches this afternoon. As I listened to my noble friend Lord Alexander of Weedon I realised how very fortunate anybody is to be represented by him in any other place, as it were. I should also like to say how glad I was once again to hear my noble friend Lord Barber, who sits beside me. I may wish to cross swords with him on one point, but I am delighted nevertheless to have heard him speak once again.
There has been much good progress in the British economy, let there he no doubt about that. There is much else too on which to praise the Chancellor of the Exchequer and his colleagues— for example in the handling of public expenditure and in the energising reductions in direct taxation. However, there are two clouds in the sky: one is inflation and one is the balance of trade. I shall talk on those two aspects and I hope that my noble friend, who understands me well now, will not think that I am critical on all points.
Those two matters are bound to be the principal concern of anyone who speaks in a debate on economic affairs at this time. We should follow the advice of the Chancellor of the Exchequer and not be panicked just because of one, two or three months of bad figures on either inflation or the balance of trade. We must look rather at the fundamentals. It is on the fundamentals affecting the importance to our economy of Britain's manufacturing industry that I
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want to weary the House and my noble friend once again. Before I do so I should like to stress that nothing that I shall say, or indeed ever have said, should be taken to indicate that I do not agree with the Government in putting the containment and eventual elimination of inflation at the top of the list of priorities. A sound currency is as fundamental to trade and industry as it is to social and political contentment. However, it is important that the measures chosen to tackle inflation should help and not hinder the improvement and expansion of manufacturing industry.
I am not talking or complaining now of crisis measures such as a sharp lift in interest rates. But constantly high interest rates with a known intention to keep them high in real terms not only increases costs and hinders investment in manufacturing, not only adds to the cost of credit sales because of the increase of interest (and I refer the House to Mr. Kenneth Warren's letter in the Daily Telegraph today), not only affects small businesses in particular in all those respects, but in addition leads to the exchange rate of the pound being higher than it otherwise would be.
In so far as I may differ from my noble friend who has just spoken, I am not an advocate of reducing the exchange rate of the pound just for the sake of reducing it. I merely plead that it should not be kept artificially high, which I think is different. To the extent to which the pound moves artificially high, British producers of goods, and of tradeable services too, have to compete on unequal terms both at home and overseas against their trading competitors. The effect on imports (because we compete there too) is just as important as it is on exports. For example, the result of the increase in the exchange rate of the pound over the period from the beginning of 1986 to the present day has been that, although many British manufacturers have improved their price and non-price competitiveness and in particular improved productivity more than their competitors, as my noble friend Lord Young of Graffham has said, the swings in the rate of exchange have cancelled out those advantages just as much as bad pay settlements could do. Unhappily it is true that in general, but not of course in every single case of British-made goods, the goods are now less competitive pricewise both in the export and our home market than they were at the start of 1986.
That is not just my opinion; it is all in the Government's statistics. It is notable that despite the fact that British manufacturing industry has significantly increased its output, it is not enough to cope with the demand by our fellow citizens for manufactured goods, which has increased much more. I venture to think that if the pound had not increased between early 1986 and now by 10 points on the new index, output would have increased substantially more. I refer today to output. I wonder how many noble Lords are aware of the gap that has developed between the demand by British people for manufactured goods and British output of those goods. That gap has developed over the past nine yers in particular although it started earlier.
Since the time when my noble friend Lord Barber was Chancellor of the Exchequer the demand for

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manufactured goods has increased by 25 per cent. That is between 1973 and the early part of 1988. But what has happened to the output of manufactured goods in Britain? From 1973 to early 1988 there was no increase at all. The gap of 25 per cent. was reduced by the fact that at that time my noble friend conducted the economy of the country so that there was a large surplus on the balance of trade in manufactured goods. There was a gap of 15 per cent. between output of manufactured goods in Britain at the beginning of the year and the demand at that time of British citizens for them. It follows as night follows day that if Britain does not produce the quantity of goods required by our fellow citizens, for which there is demand—and the noble Lord, Lord Harris of High Cross, reminds us frequently of the importance of market forces—we are bound to have a deficit in the balance of trade in manufactured goods. It does not matter that we want to import some and export others.
That gap is important and governs the deficit. I should guess that the gap has widened during 1988, even though manufacturing industry has shown an increase in output because demand has increased more than I think anyone has expected. It is partly because of the great increase in capital investment but partly, I fear, in recent months because of the little tiff that there appeared to be in high places about what the exchange rate should be. I think that the Chancellor was right when he said that to have an exchange rate of something over three Deutschmarks was not maintainable. Therefore when the rate rises to over 3.1 Deutschmarks one should not be surprised that people want to rush and import as quickly as possible.
There is the gap; and the problem is how we reduce that gap. Before I answer that question, some noble Lords will ask whether it is that gap that matters or the gap on the balance of payments as a whole. As your Lordships know, this year the gap is precisely the same, as has been pointed out by several speakers this afternoon. When the Select Committee reported to the House three years ago, the Government took the view that it was wrong to single out manufacturing industry or any sector of the economy for special treatment or for special importance. As the noble Lord, Lord Ezra, said earlier this afternoon, in evidence given by the Treasury to the Select Committee the point was made—and it was repeated by the Chancellor later—that one had to look at the economy as a whole, that manufacturing industry by itself was not important and that if it went into deficit something else would come into surplus. We did not think it would happen; it has not happened and it will not happen.
Services—invisible—are very important, and who am I to decry them? I have been chairman of an overseas bank and an insurance company. I know the importance of the work done by people in the City and the wonderful earnings they make for the country. But they will not increase earnings sufficiently to fill that enormous gap which is now nearly 4 per cent. of GDP. However, because the tradable sector is perhaps only 40 per cent. of the GDP, it works out at a much larger increase than 3 per cent. or 4 per cent.
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Nor can we rely on interest, profits and dividends, which some people have thought could fill the gap. They are important. In relative terms they are not such important contributors as they have been in other parts of our history. However, it does not seem likely to me that after several years of deficits they will be able to produce net earnings that increase so much that they can help with filling this gap.
It may be asked, "Why not try cutting demand?". Of course I understand what my noble friend Lord Barber said: in such a crisis one has to do something to dampen down demand. One certainly has to do something to dampen down the increase in demand. But we shall not sort out our balance of payments in the long term by having another repetition of what many people think had to happen between 1979 and 1981. I do not think that we shall solve the problem of this gap by cutting demand. Perhaps there might be some slow-down for a little while, yes, but it will not solve the very large gap of £15 billion. We have somehow to stimulate manufacturing industry to increase its output year by year more than demand increases. While it has been increasing in recent years, demand has been increasing more; the gap has therefore grown wider and the deficit larger.
How can the aim be achieved? That is what the report of the Select Committee referred to. I think that it is worth looking at it again. I shall not repeat what is said there other than to emphasise that first and foremost we have to improve further the competitiveness of British manufacturing industry in relation to the rest of the world. At the very least, we must not give it an artifically high exchange rate which makes it that much less competitive. Let us therefore get back to the true exchange rate and let us keep it stable.
In my view it must mean that we try to find some other way of containing inflation than by constantly high interest rates. Interest rates do not act directly at once to reduce costs. They increase them. As my noble friend has said, their effect is to act through reducing demand. We must therefore look elsewhere. The stimulation of savings has been mentioned. I would not abandon a search for credit control. To coin a phrase, it seems to me that it is rather wet of the Government to say that they cannot find a way of discouraging credit expansion. But however that may be, my advice to the House remains what it was three years ago; we have to give manufacturing industry a pre-eminent place in our economic policy if we are to have a sound balance of payments in the long run.
5.49 p.m.
Earl Russell: My Lords, the passage in the gracious Speech to which I wish to draw your Lordships' attention states that Her Majesty's Government will maintain firm control of public expenditure to ensure that it continues to fall as a proportion of national income. I also have an interest, which I must declare, in the passage in the gracious Speech which states the the Government will continue to take action to raise standards throughout education.
Perhaps I may ask with more than casual interest: which of those passages in the gracious Speech bears the greater weight? This policy with which we are

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concerned of reducing public expenditure as a proportion of national income has been in place for a very long time. During that time it has gathered justification like a snowball. I believe that it has changed a little in the process. It was originally a policy justified primarily on economic grounds. If we look back at the 1980 public expenditure White Paper, it argues that public expenditure is at the heart of Britain's present economic difficulties, on two grounds: that it was inflationary, and that it tended to generate borrowing. The words of the 1980 White Paper were that the country was suffering under the growing burden of taxes and borrowing. However, that White Paper did not say "public borrowing". This was perhaps a rather prudent omission in the 1980 White Paper.
I will admit that there was some economic substance originally in that case. The noble Baroness, Lady Blackstone—who is not widely regarded as an ally of the Conservative Party—writing in the Sunday Times recently reminded us of the problem as it was then: that of programmes growing faster than the gross national product. I accept that there was a problem. My concern is about the methods that were chosen to meet it. The Government have attempted solutions and have found that they have created a problem for every solution. They have tackled it principally along two lines: one of reducing public expenditure by privatisation and the other by reducing unit costs within the public sector. I am not certain that either of those policies has created the kind of results which were intended.
On privatisation, one has to consider why it is argued that public spending is inflationary. I believe—I hope that the noble Lord, Lord Young of Graffham will correct me if this is not right—that the case for arguing that public spending is inflationary must depend on the object of the spending rather than on the identity of the spender. I find it hard to see why the purchase of 10,000 paper clips by Her Majesty's Treasury is more inflationary than the identical purchase made (shall we say?) by ICI. It is inflationary if it leads to non-productive objects or if it is financed by borrowing.
I shall pass on the argument on which there is much to say and has already been said about whether spending on health or education is unproductive. I have no intention of going into that. The point I want to raise is whether it is any more inflationary if the money comes from a public pocket than from a private pocket. If we shift spending, leaving it at the same amount, from a public pocket to a private pocket, are we doing anything to make spending less inflationary? I take two of the proposals which are before us at present: the proposal for water privatisation and the White Paper on student loans. I believe I am correct in saying that there is no pretence in either of those proposals that they are intended to reduce the cost to the nation of either water or student maintenance. They are intended simply to transfer the cost from one spender to another.
I do not see how one would put up an economic as distinct from a philosophic justification for that,
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particularly when we consider what has happened during the past few years to the burden of debt. What we seem to have here is a kind of see-saw: as the public sector borrowing requirement has gone down, so the private sector mortgage requirement has gone up. If one were now to ask for a large expenditure from a private purse, that is more likely to be met by borrowing than a large expenditure from the public purse. That means that we are perhaps entering a period when private spending is likely to be more inflationary than public spending. The consequences of that on the Government's thinking may be considerable. I ask the Government to consider whether all they have been doing is robbing Peter to inflate Paul.
On unit costs, I should like to take up a challenge that the noble Lord, Lord Young of Graffham, gave me during our exchanges on the Autumn Statement. I said that I thought the public services had survived the past few years by running down reserves, accumulating debts, asset stripping and deferred maintenance. The noble Lord asked me to substantiate that statement. The rules of order forbade me to do so at that moment, but I am perfectly happy to do so at the first convenient opportunity, which I believe is now.
It may not give the House great surprise to find me turning first to the finances of the universities. I am in entire agreement with what the noble Lord, Lord Cocks of Hartcliffe, said when we were debating the Housing Act. I do not believe that universities are a special case. This is one case study about which I know something of what appears to me to be a general phenomenon. I am using the material to illustrate a disease which appears to me to run right through the public services. In universities the freeze has hit essentially on appointments. A group of people whom I know and trust have collected figures on the subject of history which are probably not untypical, though we have nothing quite like them from any other subject with which to compare them. Your Lordships may wonder how many historians under the age of 30 there are in full-time jobs in universities in the United Kingdom. The answer is 11. That is not very many.
In the figures for those a little older, there are 69 under the age of 35 in the whole country, and only 19 per cent. of permanent university employees are under the age of 40. That creates a real problem for the days when I and my contemporaries retire because there will be no one to take over.
The Government at that time will have to consider three options. They may create a flood of new postgraduates to fill the posts with anyone to hand, even if not all of them are up to standard. They may buy people back from the States, if they can, at exorbitant cost, or they may reduce our university sector to about half its present size. The decisions to avoid that choice have to be taken in the near future. There is no possibility of universities filling the posts on the finances at present available.
In these circumstances, Mr. Kenneth Baker's pledge during the election campaign that no university will have to close—welcome though it no doubt was—is beginning to seem a little attenuated.

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For example, if this policy is followed it will tend to justify the suggestion of Mr. Jackson that we should produce a bit more quantity even at the expense of a bit of quality.
Let us suppose that early in the 1990s we find that there is no world-class university in this country and that Conservative Members find that to give their children a world-class education they have to send them to Harvard or Yale at 18,000 dollars a year for four years on credit. I do not believe that either the Treasury or the Conservative Party chairman would find that very pleasing.
That is only one example among many. I now take a very different subject: London Regional Transport and in particular London Underground. That is something I know as a consumer, and therefore in the Government's eyes I may be thought to speak with possibly more authority that I can on universities. I shall not dwell on the King's Cross fire, partly because I hope it will be the subject of a separate debate and partly because, to be honest, I have not yet finished reading my copy of the Fennell Report.
It appears to me that the standard of service, even apart from the question of the fire, gives rise to major dissatisfaction. This may have something to do with the fact that revenue support has run down from a target of £95 milllion to £52 million. The annual report claims that service quality levels have been maintained or improved. If your Lordships believe that, you will believe anything. I suspect that I am not the only noble Lord who has stood on a platform waiting for a train that did not come and reflecting that the words "signal failure" are capable of more than one interpretation.
Another area, one that is not often considered, is the Inland Revenue. It has recently abandoned attempts to investigate the black economy among the self-employed in London, because it does not have enough staff. The Public Accounts Committee believes that between 16 per cent. and 17 per cent. of our burden of taxes is uncollected. Approximately three years ago The Times claimed that the Inland Revenue had 5 million unopened letters on its desks. I have written some of them and I have also been threatened for not having written. It seems to be the result of an obsessive determination to keep down the number of public servants.
I have mentioned the build-up of the debts of health authorities. In investigating the health authorities the Comptroller and Auditor General found that since 1st April 1983 their balances have shifted from assets of £53 million to debts of £77 million. If the picture is anything like that of the universities it is because they simply could not have afforded to carry on unless that occurred.
The National Environment Research Council, a body of importance to the Government's new green image, is reporting that, in order to balance the books, it expects to proceed with 50 compulsory redundancies which are part of a total job loss of 160 posts this year. It is waiting for recommendations on next year's budget before making a final decision on more job cuts in 1989–90.
I could go on all night giving such examples, but either you already know the case or you do not. I
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believe that once again we have become two nations. We have become a nation of service and a nation of profit. The lack of communication between the two can do only harm to both.
6.1 p.m.
Lord Wolfson: My Lords, I should also like to congratulate my noble friends whose maiden speeches have set such a high standard in the debate.
Despite the current economic problems, which cannot be underestimated and will take time to redress, I share the reluctance of the Government to return to the comprehensive stop-go policies that were used in the past. In the short-term they were somewhat effective; but in the long-term they damaged manufacturing industry, undermined investment confidence and resulted in a wide range of British-made merchandise being replaced by imports.
I support also the Government's reform of the corporate and personal tax systems to make them more internationally competitive, attractive to talent and revenue yielding. I hope that in the fullness of time a sustained Budget surplus, related to any trade deficit, will enable them to complete that programme.
Turning to other themes, I should like to see a review of economic policy in three areas: first, to provide stronger guidelines for leverage transactions, the point referred to by the noble Lord, Lord Alexander, in his maiden speech; secondly, to afford the same tax relief to individual investors as is at present enjoyed by institutional investors; and thirdly, to create an effective and flexible financial infrastructure for the European single market in 1992.
For most of my business career, finance has been the lubricant for commerce and industry. In the past few years that has started to reverse itself and a high leverage transaction is a manifestation of that process—in effect, debt or junk debt replacing equity. I believe that we now need to establish prudent gearing parameters for bank and other lending in order to finance high leverage transactions.
A powerful leading article in the Financial Times of 24th October, headed "A surfeit of debt", concludes:
"Be warned: old-fashioned banking text hooks were not cautious about leverage for nothing".
The chairman of the United States Federal Reserve Board has given a similar warning and has asked Congress to consider reform of the tax code to disallow relief on interest for such borrowings.
We must be wary of inflationary money supply in the banking system again finding potentially unsound outlets. In this context the suggestion for special deposits may be more appropriate than higher interest rates. We know from experience that leverage can work both ways. In any downturn reverse leverage can be very painful.
I turn to my second point—the same investment tax relief for individuals as for institutions in order to give a better balance in the existing system. At present the great majority of taxation relief is given to institutional investment. But, by and large, the individual beneficiaries do not feel personally identified with their own underlying investments. In

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order to reverse the dramatic decline in individual share ownership since 1963, I believe that tax relief should be equally available to all investors. In a competitive marketplace everyone should have the same oppportunity.
Many businessmen at home are concerned that too much emphasis is placed on short-term events. They contrast this with the attitude to organic growth that many of our major overseas competitors enjoy, particularly in West Germany and Japan. In those successful countries with strong currencies, business and financial institutions have a much closer and supportive relationship, both being prepared to take a longer-term view.
In our market we need a better British investor appreciation of viable long-term prospects and less emphasis on the short term. Otherwise, overseas investors, many with highly valued currencies in terms of sterling, will increasingly assume the former role. Among the ideas put forward for reforming the present system of investment tax allowances, Mr. Philip Chappell, in a recent CPS paper entitled Pensions and Privilege, makes a well-researched case for encouraging wider individual share ownership. He says:
"We need a far simpler and broad-based tax system and a savings market which responds to the needs of the individual".
Individual shareholders tend to take a longer-term view of affairs. To retain that confidence they need a cost-efficient dealing service and maximum legal protection against malpractices. The SIB compensation scheme, which came into operation on 28th August, provides a reasonable measure of protection for certain key classes of investors, but in the light of changing circumstances the regulators must keep the present arrangements under constant review.
I hope that the Government will issue a Green Paper on the subject of investment incentives so that we can debate the question of whether new concepts can be tailored to work successfully. We need to look beyond the current problems and ensure that prosperity is widely and, as far as possible, safely spread through ownership with which individuals personally identify.
Finally, I refer to the projected European single market in 1992. At present the Government are not in favour of its logical concomitant; a single currency area. Naturally they are concerned about sovereignty and about inward-looking arrangements or remote bureaucratic control. In the years ahead I believe that these reservations will be resolved. The member states have already accepted the essential need for the closest degree of economic co-ordination in EC affairs and 1992 is meant to see the completion of these arrangements.
In the meantime we must be concerned with practical and flexible measures which are both acceptable to Parliament and encourage ongoing and outward-looking business expansion within a market of over 320 million people. One such possibility might be the establishment of a European clearing house for financing EC trade surpluses and deficits. It could be somewhat on the lines of the old sterling area which
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proved durable for many years, this time based on the ecu with its equated rate of interest calculated on a currency spread.
For over 40 years Britain's growth has been frustrated by balance of payments constraint, now once again a real problem. Over the next three years there is the opportunity to consider new and sustainable methods of refinancing a large part of our trade with the EC. Over two-thirds of our visible trade deficit is with our partners. Trade expansion clearly depends upon co-ordinated financial arrangements. Here again, it would be helpful if the Government would publish a discussion document, setting out the various technical considerations together with appropriate recommendations.
At some stage the EC will have to insist upon more open trading arrangements for goods and services with Japan, South Korea and Taiwan in order to balance a much larger proportion of the persistent trade deficits with those countries.
From Bretton Woods and the establishment of GATT this country has played a leading role in promoting international co-operation for freer trading arrangements. There was a concerted effort after the war by the western world to reverse the inter-war anarchy of the unilateral devaluations, tariff leapfrogging and bilateral trade based on political considerations. While there is no lasting substitute for sound, overall global policies, we are now making a significant contribution to the Group of Seven and the central banks in their efforts to stabilise currency movements and to clarify the unresolved problems of debt settlement.
In accordance with the reference in the gracious Speech, I am confident that the Government, in the same spirit of partnership, will help to make 1992 the springboard for an outward looking, sustainably financed and expanding European market.
6.10 p.m.
Lord Cocks of Hartcliffe: My Lords, one advantage of speaking in a hybrid debate of this nature is that if one chooses the less well-used topic of the day, there is less chance that one's paltry points will have been pirated although one is well down the batting order.
I intend to speak for a few moments on the environment. I wish, however, to pick up two points which have already been made. My noble friend Lord Bruce spoke about homelessness. Once again I should like to weary the House with my very simplistic solution. If that, and also my second point which I have picked up from this economic material, are too simplistic for your Lordships, I ask you to excuse me. In the other place one qualification to enter the Whip's Office on my side was to fail the intelligence test.
Lord Stoddart of Swindon: I object to that!
Lord Cocks of Hartcliffe: My Lords, I apologise to my noble friend Lord Stoddart.
Last week there were a number of students demonstrating on Westminster Bridge and the traffic in central London came to a halt. Many students

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were carrying placards which said, "Education is a right". I would not disagree with that at all. However, when one of the most serious problems we face as a nation is the problem of homeless people and those who are moved about in bed and breakfast accommodation, I do not see that it is a right that the ablest young people in our society should be able to go away from home to courses elsewhere. When perfectly good courses are available in their neighbourhood they could live at home and study from home. I should have thought that if we are talking about a general community spirit and the stronger helping the weaker, that is something which could be done without any sacrifice in principle.
On the question of imports, I cannot help feeling that if one buys something, that is a conscious decision. A large number of people sitting at home wondering how they are going to manage the increased mortgage payments will have a foreign car standing in the drive or garage. Their kitchen is full of imported white ware and the television and hi-fi equipment are also imported. I do not believe such decisions are made because there is no satisfactory British substitute available. If there was more consciousness shown by people over their purchasing decisions, I am sure that the balance of payments situation could be substantially improved. Your Lordships will be delighted to hear that that is the end of my economic excursion.
I wish however to say a few words about the environment. The early Fabians were known as the gas and water socialists. They recognised that while theory was all very well for Hyde Park Corner, to improve their standard of living people really needed clean drinking water, heat and light. Therefore they concentrated on those matters. It was in this country that one of the first epidemiological studies was conducted which identified a particular pump as the source of cholera—a water-borne disease.
Having heard the noble Earl who introduced the debate speak about the water supply of this country and the propaganda concerning it, I feel that it is almost dangerous to take a glass of water now. However, a great benefit in this country is that nobody bothers about drinking water from the tap. When tempted to go abroad my first question always is, "What is the water like?" I feel that the noble Earl was giving a rehearsal of his Second Reading speech on the Water Bill which I regard, not in any doctrinaire sense, as a diversion from the very serious issues that face this country and that should be occupying our time.
I have spoken previously in this House about the environment, and I do not wish to make a series of party points. However, I should like to draw attention to a report in the Daily Telegraph of last Thursday where the Nature Conservancy Council expressed concern about the level of grants it could obtain. I ask the Government to realise that certainly as regards my colleagues on this side of the House, there will be no carping about any extra funds put into a body like that or any necessary research.
During the Minister's speech there was a brief intervention about exports of dieldrin. It is all very well to clean up one's own back yard. But if people
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who have been selling it internally in this country merely turn to exporting the filthy stuff, then we are not making a great deal of progress. The same point was made during the debate before the recess on the ozone layer and CFCs.
I should like to stress the time scale. There is now much greater awareness in this country on all sides of the problems of the environment. And, internationally, the awareness is taking off on an exponential scale. There was an article in The Independent last week by His Royal Highness the Duke of Edinburgh about Christians becoming better guardians of the natural world. Some of your Lordships may well have heard the sermon broadcast on Radio 4 on Sunday morning from St. George's Chapel when the Duke spoke again on the same subject. He drew attention to the fact that there is a real danger not only that particular species will be eliminated (indeed, some already have been) from this planet but that the whole of life as we know it may disappear.
I recently paid a visit to the Natural History Museum to see the Chinese dinosaurs, as I am sure a number of your Lordships will have done. I went so far as to spend some money on a brochure. If one looks at the brochure it basically tells one that dinosaurs in various forms existed on this planet for 150 million years and more. In the past, in casual conversation, we have used the dinosaur as an example of something which became extinct because it was unable to adapt. We sneered at it. It has been used as a pejorative term. People say, "That dinosaur, he is in the past".
In the brochure there is speculation as to why the dinosaur disappeared. Was it possibly climatic change or a meteorite shower? The brochure says that we shall never really know. However, for 150 million years the dinosaurs were with us.
If one moves away from the Chinese dinosaur exhibition one passes a display cabinet showing the work of Louis Leakey in the Olduvai Gorge in East Africa. Louis Leakey and his wife began working there and continued for many years discovering the earliest recorded existence of man on the planet. Even if one takes the most extreme estimates, that goes back only a few million years Compared to dinosaurs, we are still basically babies in the pram. Yet we have reached a situation where we can seriously talk about the possibility of life on this planet being extinguished.
There is now an awareness of the problems in this and other industrialised countries. However, we also have the problem of extrapolating this awareness and information into the third world which is desperately trying to improve its own standards and which would be delighted to have the same quality of tap water we have in this country. Time is very short indeed. I know that the Government appreciate that. But we must think how we can, as a nation., play our part in getting that message across and save the planet from possible extinction.
6.20 p.m.
Lord Bruce-Gardyne: My Lords, like the noble Lord, Lord Ezra, I feel that I do not have adequate

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skill to try to straddle the two worlds of the environment and the economy at the same time, unlike the noble Lord, Lord Bruce of Donington, and indeed the noble Lord who has just sat down. I therefore hope that the noble Lord, Lord Cocks of Hartcliffe, will forgive me if I turn back once more to the matter of the management of the economy.
On a day like this it is perhaps not wholly unreasonable to spend one moment recognising the tangible progress that has been achieved in the last year or two. When in the past would we have dreamt of seeing UK manufacturing investment growing by 18 per cent. in the course of a single year, as it is confidently expected to do this year? When in the past would we have expected to see UK manufacturing productivity improving by some 5 per cent. or more in a year? How far back do we have to go to see a sustained period of years in which the British economy has achieved a rate of growth of 5 per cent. or more, not for one year but for several years in succession? I do not think that we should allow that aspect of our current condition to escape unnoticed.
However, there is of course the serious problem of the balance of trade, to which many noble Lords have referred. Very appropriately, numerous references have been made to the report of your Lordships' Select Committee presided over by my noble friend Lord Aldington, who has contributed so eloquently to the debate. Many have pointed out, I think fairly, that the committee showed itself prescient in the light of subsequent events. To paraphrase what seemed to me to be the conclusion of the report, the committee was saying, in the words of the old song, "There's a hole in your bucket, dear Liza". It was saying that when the oil runs out there will be a very nasty gap to be filled which has built up in the balance of our manufacturing trade. Your Lordships may logically conclude that that is the problem that we are witnessing.
I confess that the aspect of the committee's report that worried me at the time and that continues to worry me a little is not its prescience, which I never doubted, but its accountancy. In its discussion of the Treasury, the committee seemed to be saying that the Treasury in some way should have ensured that, over the period in which we were shifting from a dramatic deficit on our trade in oil and energy products to a dramatic deficit on our trade in oil and energy products to a dramatic surplus, we should have been contriving at the same time to maintain a substantial surplus on our trade in manufactures and a substantial shift in the flow of investment from external investment to investment in the domestic economy. If my noble friend and other noble Lords on the committee in their private capacities—as chairman of a great clearing bank or of some other such institution—had produced a balance sheet of that kind, I think that they might have run into some slight difficulties with the auditors. I suspected at the time that we would have a considerable problem on the trade account as our oil trade began to decline with the fall-off of production in the North Sea.
There have been several comments today and on other occasions that my right honourable friend the
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Chancellor of the Exchequer has made the problem foreseen by the committee a good deal worse by his attitude at the time of the last Budget, in particular in regard to the inflation of domestic demand by large tax concessions. I have never been able to follow that argument. When my right honourable friend was budgeting for a surplus of some £4 billion—it looks much more likely to be a surplus of nearer £10 billion—I should have thought that by no stretch of the imagination could fiscal policy, notwithstanding the tax reductions, have been described as anything other than tight. At the time of the Budget and ever since the problem has seemed to me to be elsewhere. The problem was in the monetary policy. At the time of the Budget I thought that the Chancellor said far too little, and his actions suggested a degree of laxity towards monetary policy that was liable to land us in considerable difficulty.
It is striking to note that throughout 1985 and 1986, while real personal disposable income in the country was growing by a pretty impressive 10 per cent., personal spending was growing more than twice as fast. That was the scale of the credit boom that was being built up. I believe that the Chancellor was mistaken in the run up to the Budget to indulge in the reductions in rates of interest that he then applied. I think that the reasons were quite clear. I am afraid that he was sold to my mind a very odd and pernicious notion. It was that, as long as we tied the pound hand and glove to the deutschmark, we would be bound ineluctably to enjoy German levels of inflation. I admit that that seemed to me a very worthy proposition at the time. Unfortunately, as we all know, it did not quite work out that way.
However, in due course the Chancellor shifted his stance. I believe that he is now applying appropriate medicine, the appropriate remedies. We are told that interest rates are a blunt weapon. In this case they are surely a blunt weapon aimed precisely at the appropriate target: they are making the cost of credit substantially dearer. I do not see any more appropriate manner in which to tackle a credit boom that clearly had got out of hand.
The noble Lord, Lord Ezra. and other noble Lords have suggested the need for the use of credit controls. The noble Lord, Lord Ezra, referred to the prospect of Mrs. Smith from Surbiton going to her bank manager and having credit control imposed upon her, and the unlikelihood of her diverting her custom to Zurich. The trouble is that, while Mrs. Smith might not, I suggest to the noble Lord that her bank manager very well might.
I believe that most credit controls in the present deregulated environment are pretty ineffective. I wonder about the effectiveness of controls on hire purchase transactions. I think that they may have some effect at the margin, if only because hire purchase is a commodity used really only by the least sophisticated and the unbanked sector of the community. At best, that would be only a marginal assistance to the fundamental discipline, which I believe has to be dear and stringent money.
I have a feeling that the problem that the Chancellor may face in the months ahead is not so much the one that has worried some people in recent

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weeks of the pound skittering down the plughole, but rather of the pound appreciating significantly in value. I frankly admit that I do not see that as a problem. I believe that it is part of the solution. As I see it, if we are to make sure that the present blip in inflation, as the Chancellor calls it, which certainly is in prospect, does not become something a good deal more horrendous, we must ensure at all costs that rising unit labour costs in the private sector and for that matter in the state sector cannot be passed on to the customers. To that end, I think that it is a question not only of sustaining relatively dear money but also of aiming at an exchange rate that is at least as high as that which we have today, and preferably a somewhat higher one.
Will we achieve a soft landing in these circumstances? I do not know. I think that that largely depends on whether employers take heed of the Chancellor's warning and, regardless of the signals that emerge from the state sector—I suspect that the signals will be somewhat undesirable in the levels of settlements in the state sector that may be seen in the months ahead—the key question as to whether we achieve a soft landing will depend on whether those on the management and employee side recognise the need to get a grip on their costs in time. If they do not, profits will suffer first, then order books and eventually unemployment. If they do and they heed the new climate which seems to be lying ahead, I believe that my right honourable friend the Chancellor will have learnt the lesson of his experiences of a few months back and will not repeat that mistake again. The blip in inflation that we face in the months ahead will remain a blip and by the end of 1989 we may be in a position to look forward once more to a resumed period of healthy growth.
6.30 p.m.
Lord Alport: My Lords, for almost as long as I can remember my Sunday morning breakfast has been enlightened by the contributions of my noble friend, Lord Bruce-Gardyne, earlier and latterly from the noble Lord, Lord Harris of High Cross. There have been many occasions when I have felt compelled to dash off an immediate letter to the newspaper or alternatively to confront one or other of them on the telephone. But here in this debate there is an opportunity when I can, so to speak, get a right and left. I am not going to take that opportunity because my thoughts, such as they are, are along the lines of the earlier part of our debate which was opened by my noble friend Lord Caithness, earlier this afternoon.
There are of course a number of welcome features in the gracious Speech, more than one of which, it seems, derive from the initiative of the noble and learned Lord, the Lord Chancellor, and these were debated last Thursday. However, today we are treading on more contentious ground and in particular, so far as I am concerned, the proposals that will shortly come before Parliament to privatise the water industry. If the doctrine of the mandate has any validity there is no doubt that Ministers have a right to put forward what is a major piece of structural change. But I believe that the time has come to assess the consequences of the economic
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revolution through which we are passing. All revolutions that are based upon an ideology have one characteristic in common. Their leaders never know when to stop. During the heyday of the Socialist government in this country the objective was to bring everything into public ownership—all means of production, distribution and exchange: namely, industry, land, all the banks and all forms of transport.
It soon became obvious both that this commitment was an electoral liability to the party opposite and that it would have most damaging consequences to the national interest. If my memory serves me right, the late Hugh Gaitskell's "Fight, fight and fight again" speech was an attempt to rescind Clause 4 of the Labour Party's constitution which committed it to carrying the Socialist revolution to the bitter end.
A noble Lord: No, my Lords, it related to nuclear weapons.
Lord Alport: My Lords, now we are in the throes of a counter-revolution where everything must be privatised, including prisons, apparently; electricity, certainly; the coal mines, eventually; and water in the Bill that has now been published. All this represents a kind of political fundamentalism which I regard as just as dangerous and as distasteful as the religious fundamentalism which is the bane of unhappy countries elsewhere in the world. The claim, as I understand it confirmed by the speech of my noble friend Lord Caithness, is that the privatisation of the water industry will bring the advantages of competition and benefits to the environment.
As regards competition, this is most obvious nonsense. As far as I know, the only alternatives to water, for drinking, are wine and asses' milk in which to bathe. There are certain projects for privatisation which I strongly support—for instance, the privatisation of the steel industry. Indeed, 35 years ago in another place, as a member of the "one-nation group", I was among its strongest advocates. But today if there is a vote when the Water Bill comes to your Lordships on Second Reading, I personally shall vote "Not-Content". The issue is a simple one. You and I can live without steel and electricity; we can use wood or cook our suppers on Calor gas or read with an oil lamp or a candle. But no one in this country, man, woman or child over weaning age, can live without water. It is a total monopoly and one which requires strong governmental control over its investment and prices policy and its environmental impact. It is nonsense that all this must be left to market forces, because there is no marketplace for water.
If during the last many years there have been deficiencies in keeping the infrastructure, sewers and the like, up to date, the responsibility rests with successive governments. If the environmental safeguards have been inadequate then successive governments are to blame. If now, to remedy past failures, the Government intend to clamp the cost around the necks of the families of the poorest as well as the richest families, not only will it be a scandal, but it will create a sense of resentment for which the Conservative Party will pay a heavy price. Today it is

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reported that the Secretary of State estimates that within the next decade the increase in the cost of water to the average household will be 12½ per cent. I am willing to take a bet that it will be nearer 50 per cent.
I regret that, following the Government's conversion to the task of tackling environmental problems, there was no mention of one such problem that affects England, Scotland and Wales. In the late summer of this year I made a visit to Barnsley and the coal communities of South Yorkshire. I saw, as many of your Lordships, who live in the coal mining areas of Great Britain, know only too well, the environmental and social scars and the debris which the decline of the coal industry has left behind it. Amid what is a lovely part of the country are the gaunt, half-clad useless slagheaps; the acres of rotting and rusting machinery; the villages where the pride of miners and their families seeks, against a background of high, long-term unemployment, to maintain the dignity and self-respect of those who worked in earlier days in the most proud, prosperous and economically important industry in the whole of Great Britain. The mayor of Barnsley, a miner of many years' standing, assured me that they were not cringing or whingeing. I saw for myself ample evidence of the efforts that both the Barnsley Council and the Coalfields Community Campaign are making to attract new technological companies to their area through the Barnsley Business and Innovation Centre and the Enterprise Centre, through publicity and by approaches to the EC. I was concerned to realise that the coalfields communities in our country, perhaps, look more to Brussels than to London for help.
As regards South Yorkshire½this I believe the Government should bear in mind½there seems to be a widely-held impression that the Government are determined to make South Yorkshire pay for the part it played in the year-long coal strike by ignoring what represents economic, environmental and social problems equivalent to those of the inner cities.
I ask my noble friend who will reply, what additional regional help the Government propose for the coalfield communities to offset the decline in assistance for the development areas and intermediate areas which has taken place since 1984? Is it intended, when and if the coalmines are privatised, that, on an analogy with the water industry, the huge cost of dealing with the legacy of damage to the environment should be shouldered by the successor companies? Will the Government consider a development programme for the coalfield areas comparable with the urban development areas for the inner cities?
In the coalfield villages where the mines are being shut down, crime and drugs may not be the same problem as I saw in Liverpool. But the human and environmental damage of declining industry is just as great. Should not Parliament in this Session be asked to consider how to tackle a problem like this, rather than be asked to flog off another piece of the family silver to bolster up the cash flow of the Treasury in order to take another tuppence off income tax? In this
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Session of Parliament we shall spend long and tedious hours debating the Bill to privatise the water industry. If there were a referendum on the subject at least 80 per cent. of the public would vote against it. Those who have intimate knowledge of the water industry seem violently opposed.
It is clear that the pace and direction of the political fundamentalism of the Government's policy, which is identified with those most closely associated with the Prime Minister, is putting an intolerable strain on the loyalty and political judgment of an increasing number of those who believe in the historic values of the Conservative Party and who rely on the pragmatism and common sense of its leaders. It s high time, in my opinion at any rate, that those with standing and influence in the Government should turn their attention to reassessing the priorities for and the direction of these policies lest the increasing alienation of public opinion begins to discredit the undoubted progress which has been made under this Government during the past 10 years.
6.42 p.m.
Lord Stoddart of Swindon: My Lords, when I opened the Sunday Telegraph last weekend the headline,
"Defiant Lawson vows to fight on and on".
sprang out at me. I wondered what this was all about and so I read on a little. It seems that Mr. Lawson is to fight on and to fight one battle after another to secure the continued success of Britain's economy. I wondered who on earth Mr. Lawson is fighting. He is not fighting the Opposition, because the Opposition have advised him over a long period of time how to get the economy right. He is not fighting the CBI, because the CBI has consistently warned the Chancellor about a high interest rate policy and what damage that would do to the economy. He is not fighting the trade unions, because the trade unions have been most co-operative over the past few years in ensuring that wage demands and wage rises are rather behind the rise in productivity.
Clearly he is not now fighting the Prime Minister. It seems that in March of this year he was fighting the Prime Minister. However, she knocked him down, picked him up, dusted him off and then, very magnanimously, a few weeks ago praised him and said that he is the best Chancellor we have ever had. If the Chancellor is not fighting all those people, who is he fighting? He is fighting himself. The Chancellor is the architect of the very grave problems in the economy at the present time.
For the Chancellor to brush aside an overseas deficit of £14 billion is the height of irresponsibility. Although he may be able to count for a time on the international community financing that deficit, the international community will not finance it indefinitely. Those countries will not finance it indefinitely because to do so would put their own currencies in jeopardy. Why has this state of affairs come about? The Chancellor has allowed the boom in consumer expenditure to go on unabated. He has actually encouraged it while he should have been discouraging it. The Chancellor knew at the back end of last year that we would come up against problems

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of consumer demand. Yet in the Budget he not only reduced taxation, but, even worse, he did even more to pull up and increase consumer demand at a time when he should have been reducing it. How did he do this? He did it by ensuring that the housing boom not only continued but accelerated to a degree unseen before in this country.
On 15th March of last year he told people that he would end double mortgage interest relief, not on 15th March but on 1st August. That induced the biggest scramble for housing that we have ever known and increased housing costs and house prices. People were then allowed to borrow money in accordance with the increased value of their houses. This increased value had produced nothing at all. There were no goods to back this boom; and inevitably, because we do not have the productive capacity in this country to meet such a boom, imports were sucked in, with the consequent enormous deficit in our balance of trade. The only measure the Chancellor is to take is to raise interest rates. I have to ask the noble Lord, Lord Young—and I hope he will be able to answer—just how high the Government will allow interest rates to go. That is what people want to know. How high will interest rates go before the Government turn to other measures? It is clear, as we have seen so far, that the single measure of interest rates will not deal with this enormous problem.
The noble Lord, Lord Ezra, who is a kind man, said that there were many elements for which the Chancellor and the Government could take credit. I have to say to the noble Lord and to the House that the economic success over the past few years has been due not to the brilliance of the Chancellor, and not even to the brilliance of his predecessor. It has been due to the fact that the economy has had the bonus of more than £100 billion in North Sea oil revenues. If after receiving such a boost the Chancellor and the Government could not improve our standard of living, and improve the economy at the same time, they would he poor, would they not? I am afraid to say that a good deal of that boost and boom has been dissipated.
Like the noble Lord, Lord Ezra, I was proud to serve on the Select Committee for Overseas Trade under the brilliant leadership of the noble Lord, Lord Aldington, who has also spoken in this debate. Indeed, had the Chancellor of the Exchequer listened to our advice, had he even read the report before he condemned it out of hand and insulted the chairman and the members of the committee, we might not be in the mess we are today. I shall not go through the report because the noble Lord has already shown the House exactly how the Government and the Chancellor could have avoided some of the problems—indeed probably all the problems—that he has if he had followed the advice which we gave him at the time.
Industry needs a policy which gives it low interest rates so that it can better invest. It needs an import substitution policy, which we also recommended. It also needs, so far as it is possible, stable overseas rates for the pound. It is only under those circumstances that industry can thrive and meet the enormous
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demand, which the noble Lord, Lord Aldington, pointed out to us is in the economy and which cannot be met by British industry but which in the future will have to be met as North Sea oil revenues continue to fall even further than they have fallen at the present time.
I was also going to talk about privatisation, but I am glad to say that the noble Lord, Lord Alport, has saved me the trouble. He gave all the reasons—and did so brilliantly—why electricity, and water especially, should not be privatised. Those industries are best left in the public sector. Above all I ask the Government at this time when it is the economy which ought to be taking priority, when it is necessary to get these high interest rates down and when it is necessary to deal with the balance of payments for heaven's sake not to go along this doctrinaire route of wasting their time, the time of Parliament and the time of the country privatising simply for privatisation's sake.
6.52 p.m.
Lord Walston: My Lords, I shall not add to the plethora of advice, criticism and suggestions with regard to the economy that have been made by many of your Lordships who have great experience and knowledge of such matters. I shall confine myself to speaking solely about the environment, but obviously, that being such a wide-ranging subject, I shall not he able to cover anything other than a very small part of it.
It was refreshing and pleasing to hear in the gracious Speech:
"My Government will continue to attach very great importance to protecting our environment, both nationally and internationally".
It was also good to read reports of the Prime Minister's speech to the Royal Society in which she also emphasised that point. However, I must say that if it is purely a question of continuing what has happened so far, the prospects are not as happy as many of us would like to see them, because the Government's record in deeds—not in words—with regard to the environment is not one to be proud of.
I cannot help feeling—possibly the noble Lord, Lord Young of Graffham, in his reply may be able to reconcile the problem I see—that there is an innate contradiction between a profit-orientated society and one which preserves and enhances the environment. If one looks, going back a few centuries, at the things which give us most pleasure in our national and natural environment, there is not very much there that created a profit.
After all, St. Paul's Cathedral did not bring any profit—at least in this world—to those who designed and built it. The Wren churches were not built for profit, nor were our great houses, such as Chatsworth. Similarly, the gardens of Capability Brown, the scores, hundreds or thousands of smaller, less—I was going to say less ostentatious— remarkable manor houses with their parks and their gardens, and the farms with their ornamental trees which today give us all so much pleasure and which we now, rather belatedly, strive to preserve were not created, or built, in order to make a profit. Many of them came about through profits which had accrued

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elsewhere. However, the motivating force was not profit.
If one then looks a little nearer our present times, one sees the things which we decry and about which we feel shame. Why did they take place? To revert to the Wren churches, it is a well-known fact that the profit motive—one could call it the greed of the city fathers or, I am afraid, to some extent the Church Commissioners—was responsible for destroying more Wren churches than Hitler's bombs ever did. The creation of our sprawling slums, our hack-to-back houses, our dark satanic mills and the matters which now we try so hard to ameliorate and remove altogether, and which we all admit are a blot upon this country and its environment—why did they all arise? They arose because there was profit in them.
I see that the noble Lord, Lord Young, is saying no. But surely he cannot say that the slum houses were built for reasons other than profit; that the factories, the dark satanic mills, were not motivated by profit. If that is not so, it makes it even worse. If people did it for fun and not for profit then the blot is even greater upon us.
I suggest to your Lordships that there is a real conflict between a society which is based on the profit motive and a society which wishes to preserve and enhance the environment. I am not against the profit motive. I realise that because human naure is weak and frail it must be tempted to work harder, to put up its factories and build its railways and all the other things—some of which we now enjoy—in order to make a profit. However, we are fooling ourselves if we do not recognise that contradiction.
Today we have further threats to our environment. The ones I have so far mentioned are those of the Victorian era and the inter-war years up to a point—urban development, and so on. However, today we have a most frightening threat to our environment. I am sure that we shall be discussing this on many occasions in your Lordships' House, but I think it is worth mentioning as some other noble Lords have already referred to it. I am referring to pollution of our rivers and our oceans, as well as our atmosphere; the disposal of atomic waste; emissions from coal-fired power stations; emissions from cars—all of us are guilty here—and the noxious fumes from household waste and their disposal.
All those problems are man-made and controllable, but the control costs money and so does the policing of any regulations which may be promulgated by the Government. They are often more honoured in the breaking than in their observation. As I understand it, the number of inspectors of pollution is to be reduced because money must be saved. There have been resignations of high officials in that vital service. They feel that they can no longer work in the service because they are being hamstrung when carrying out their duties because they cost too much and government spending must be restrained. So all those things, which can be controlled but which cost money, are being pushed to one side. Despite all the fine words in the gracious Speech and elsewhere the results are not there for us to enjoy.
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It is worth mentioning that water pollution is not completely new to us. I should like to read two couplets by Coleridge written in 1828 when he was visiting the city of Cologne:
"The River Rhine, it is well known,
Doth wash your city of Cologne;
But tell me Nymphs, what power divine
Shall henceforth wash the river Rhine?"
A filthy, open sewer it was then. It still is, as are many of our rivers, grossly polluted. I thank my noble friend Lord Stewart of Fulham for reminding me of that poem, which is contemporary as well as being 175 years old.
The pollution of our waterways is causing us increasing thought, but despite that thought, the results are not yet there for us to see. For instance, the 1985 river quality survey showed a net deterioration on 903 kilometres (or 2.3 per cent. of the total river length) surveyed in England and Wales. In 1986, another net deterioration occurred on a further 514 kilometres. The position is getting worse.
In 1987–88, water authorities in England and Wales reported an increase of over 2,000 pollution incidents over the previous year; that is, a 9.5 per cent. increase. The total of 23,000 incidents was nearly double the number reported in 1980. When in the gracious Speech we read about continuing protection of the environment, we do not want to have that type of continuation.
There is a point which I hope the noble Lord, Lord Young of Graffham, will be able to answer categorically: in the case of water who will pay for the cleaning up of all kinds of effluence that are discharged into the water? I recommend a valuable little document produced for my party by the noble Lord, Lord Kennet, called Making the Polluter Pay. It goes into this matter in considerable detail with a great deal of knowledge. The principle that the polluter pays was agreed to by the EC and the United Kingdom as recently as September this year when we appended our signature to the document. It was agreed:
"Action by the Community relating to the environment shall be based on the principles that preventive action should be taken, that environmental damage should be rectified at source, and that the polluter should pay".
That is something to which we, through Her Majesty's Government, agreed; but on 22nd November in another place the Prime Minister gave a different answer to Mr. Hughes, who asked about this matter. She said:
"It will be the people who want those improvements in water who will have to pay. It is utterly irresponsible to suggest that we can have those improvements without being prepared to pay the price for them".—[Official Report, Commons, 22/11;88; col. 23.]
Of course we must pay the price for the improvements, but am I right in thinking—this is a direct question to the Secretary of State—that in that response the Prime Minister was turning her back upon the principle that the polluter pays, to which the Government had agreed, and is saying instead that the people who want the improvements will now have to pay? That principle goes beyond this matter to a wide range of efforts which have to go into the cleaning up of our water, our atmosphere and all the other things around us.

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There is a final point that I should like to make. The noble Earl, Lord Russell, touched on it. It may be somewhat parochial, but it is of huge importance to all who live in this city, to all Londoners and visitors to London; that is, traffic congestion. I am not talking about the toxic effluence from motor cars, buses and lorries; I am merely talking about the ability to move in a moderately attractive environment from one part of the city to another, from one's work to one's home, to one's pleasure, to one's recreation.
We all agree that one way to cope with the intractable problem is by good, cheap and safe public transport. That is the only way we can prevent the whole of London grinding to a halt in the years ahead. In other words, it must be recognised that public transport is not merely a business to be run for the maximum profit; it is a public service to be run for all of us—rich and poor, inhabitants of London, commuters to London and visitors to London—to enhance the quality of life. It should not be looked upon primarily as a source of profit.
In the King's Cross tragedy we have seen that, even when an undertaking is publicly owned—I make no distinction between privatisation and public ownership in this case—those responsible for public transport were instructed by the Government to make it profitable. They admitted at the public inquiry that that was their prime responsibility; safety and other matters came second or third on the list. There is once more the innate contradiction between a society which is run for the welfare, the pleasure and the convenience of people and a society which is run primarily to give profit to those who invest in the enterprise. In other words, are we to have lives put at risk in order to achieve a good balance sheet, just as, in the bad old days of Charles Dickens, lives were put at risk in factories and coal mines for a good balance sheet?
We must be told very clearly and unequivocally by all those, starting with the Prime Minister, who now extol the importance of the conservation of our environment how they propose to bridge the gap between those laudable objectives and profit for investors. The Government must show by their deeds that they can and will bridge that gap.
7.10 p.m.
Lord Vinson: My Lords, I think Polonius was advising his son when he said:
"Thou needst to be very right to he so very sure".
When it comes to dealing with affairs economic, one should indeed tread with great caution. Therefore I hope I shall be forgiven if I am foolhardy enough to raise an issue where both care for the environment and economics meet.
A number of noble Lords have raised the matter of using interest rates as a mechanism, or as the best mechanism, for controlling inflation. I share with many of them a concern as to whether in so doing we are attempting to treat symptoms rather than causes. However, any remarks I make are with the desire to reinforce the Government's highly successful record. They have reinvigorated the economy of this country and I wish to help them consolidate that position.
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The Chancellor felt he had to raise interest rates because the economy looked as though it was overheating and consumer spending was getting out of hand. There is of course nothing wrong in consumers spending their own money, as the Chancellor has been the first to say. But many of your Lordships will share a universal anxiety that much money being spent is not consumers' own money but that which they have borrowed.
I should like then to target my remarks on one particular source of consumer credit. The consumer sense of financial well-being that has induced this spending euphoria is caused as much as anything by the rapid rise in house prices. People fortunate enough to see the value of their property double over the last two years consider themselves sufficiently well-heeled to go off on a spending spree. The huge increase in property prices has given a borrowing base, has given collateral to millions of citizens that has only partly to do with a basic rise in national wealth. House prices have risen due to the shortage of houses; the shortage of houses is directly attributable to the scarcity of building land, But, as the Minister, Mr. Nicholas Ridley, has been brave enough to imply, there is no shortage of land outside the green belt. There is only a shortage of planning permission.
It has been well said that if you put 10 economists head to head they will still reach no conclusion. In economics one thing we can be certain about is that if we subsidise the buyer and restrict the supply of a commodity the price will inexorably rise. That is precisely what we have done to housing by being over-restrictive in the granting of planning applications and being over-generous with the tax treatment of mortgages. In our economy today there is a direct causal relationship between planning and inflation. I believe that this action for more specific government intervention. Of course we want to preserve the environment. Of course nobody wants a house built next door to him. But the fact remains that the demand for houses has reached the point where something has to give. The baby bulge is turning into the house buying bulge. People are living longer, living singly and occupying houses longer. They are marrying earlier. More people can afford a second home as prosperity rises. Raising interest rates suppresses but does not otherwise affect these pressures, which will surface again once interest rates come down.
No society can ossify in perpetuity its land settlement patterns. Our over-restrictive planning policies have forced up the price of land, and hence the price of houses, to the point where it is beggaring many of our young people, apart from underpinning inflation.
Over half the cost of a house in the south of England is represented by the price of the land. Yet if one were building in the prairies, the price of land would be negligible. I hope that it is not unreasonable to suggest that in a moderately advanced society land cost might represent up to 25 per cent. of the cost of the house, as it does in a good many parts of the rest of the continent of Europe. That means that the other 25 per cent. of the cost of a house in the South of England is pure scarcity cost. In other words, for a

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young couple paying a mortgage of £100 a week, £25 a week is paid for the privilege of maintaining land scarcity. Not only does this represent a very substantial cost and reduction in the standard of living for those families but it has the perverse counter-effect of raising house prices overall, thus raising the collateral against which people can borrow. Equally, industrial and commercial costs are raised, affecting our international competitiveness.
Is this really the scenario that society wants? Raising interest rates will dampen the demand for houses, but it is a genuine example of tackling symptoms, not causes. The best way to reduce this huge notional credit base is to release more land. Of course we do not want to bankrupt existing householders by seeing a dramatic fall in the price of houses. Nor is this likely, because it would not be possible to build sufficient houses that quickly. Fortunately, as with most shortages, the problem is only marginal. But unless that problem is tackled and demand is met where it should be met, through the release of more land outside the green belt, we shall in the future have recurrent consumer spending booms based on recurrent inflationary rises in house prices.
It would be a pity if we were the only economy in the Western world that has high interest rates for ever because, as a society, we flinch from tackling one of the root causes of runaway credit—that is, consumers pledging as collateral the inflationary increase in the value of their homes. Let us hope that the Government will use the existing check in house prices as an opportunity to let the demand for land and the supply of it come closer together.
In conclusion, I urge the Government first to tackle the primary cause of runaway credit—the acute shortage of building land. Secondly, I ask them to examine and not to dismiss another look at other forms of sensible control of personal credit. Thirdly, I urge them to ask themselves whether the very blunt weapon of interest rates is not overall a very damaging instrument to the economy, as other noble Lords have mentioned. It may be all right to use high interest rates as a temporary brake on an otherwise overheated economy, but as a long-term mechanism for controlling inflation they will surely exacerbate the very illness they are meant to cure.
Fortunately it will not be necessary to use this mechanism for long if the Government continue to tackle the causes rather than the symptoms of our underlying economic malaise—a course of action which has led them to so much success over the last nine years.
7.20 p.m.
Lord Addington: My Lords, in considering the privatisation of water in relation to the huge problems of the environment, the Government should surely be taking more positive action to combat the harmful effects of industrial waste, for instance, in all its guises, and the raw sewage that is being pumped into our coastal waters which makes many of them well below EC standards, while also setting in motion a comprehensive energy
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conservation programme. That would make the building of any great number of new nuclear power stations unnecessary. It would also have the very desirable by-product of greatly lowering the risk of another Chernobyl or Windscale type accident.
The gracious Speech proposes the privatisation of water in England and Wales and also the establishment of the National Rivers Authority. I cannot but feel nervous of the possible dangers of having such a basic national resource removed from the control of government, even if some of it already has been so removed. However, if the Government feel that privatisation is the only way to raise the funds that are so desperately needed to maintain and hopefully to raise standards in our water supply and water system, they must see that there are sufficient controls.
In welcoming the establishment of the National Rivers Authority, I hope that it will be a vigilant watchdog prepared to use its teeth, and that it will also have a healthy appetite for prosecuting those who break the law. It is to be hoped that cost cutting through irresponsible and illegal discharge of waste into our inland water system will be an option that will not appeal to even the most unscrupulous individuals or organisations. Surely it is right that water should be given some form of priority, as it is the basis of any preventive health care. We have also heard a considerable amount about preventive health care in the past. To put it in a historical perspective, we should remember that it was Chadwick's drainage system and not the medical profession which eradicated cholera in London last century.
The pollution of our waterways by nitrates and pesticides through surface water runoff and ground seepage—that is seepage into ground water sources—as a result of current farming practices, leads to damage of the ecology and danger to our drinking water. In parts of the country, particularly in East Anglia, the levels of nitrates in drinking water are well above the EC recommended level of 50 milligrams per litre. Peak levels can be double that figure.
Nitrate pollution carries a risk of stomach cancer and a variety of conditions caused by impaired oxygen absorption, for instance the blue baby syndrome. Pesticides are chemical compounds which attack organic life. It is not difficult to imagine that they are detrimental to the health of man. Furthermore, as pests become immune, new pesticides are required and then used. We are effectively creating a potentially lethal chemical cocktail in our soil, some of which is bound to find its way into our water supply at some time.
Agricultural waste is often more toxic than the by-products of industry. But sewage sludge and industrial waste can be devastating to rivers. The Mersey for example has long since ceased to be anything other than a chemical waste dispersal channel. If we are to have not only pure drinking water but also rivers able to sustain life, positive legislation must be enacted and also enforced. It is reported that in 1987:
"the number of…cases of pollution to inland waterways of England and Wales rose to a record 23,253, with 1,402 of the incidents regarded as serious".

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It is rather alarming to consider what is not regarded as serious. It is also very worrying that only 288 prosecutions were made. Many of those responsible were given only minimal fines or in many cases conditional discharges. Well known companies such as British Steel, ICI and BP seem to be able to flout the present environmental controls with almost complete impunity.
Where possible the polluter should pay, as was pointed out by the noble Lord, Lord Walston. Private enterprise should not be allowed to amass profits while the taxpayer is expected to foot the bill.
Nitrate pollution from farms is more difficult to deal with. Although water protection zones will restrict farming practices, the cost of extra treatment will still have to be met by the consumer. The fact that nitrates can take 20 years to work their way into our drinking water gives some idea of the timescale of the problem. What is to happen to the vast amounts of land which are owned by the water boards? That point was raised at Question Time today. Can we be sure that they will be preserved in some form after privatisation? What about the conservation of habitat for wildlife in those lands? As I originally stated, water is only a part of the environmental problem. As the environmental problem already exists, all measures are to an extent damage limitation exercises. Such action cannot be started too soon.
7.26 p.m.
Viscount St. Davids: My Lords, I find myself in very large agreement with the noble Lord, Lord Addington, on the subject of pollution, especially of our inland waterways. In fact it is already on record that I am putting a large sum from my own very small personal financial resources into doing something about that. So I must say that I congratulate the noble Lord. I am very happy to hear him speaking today. On another occasion I should be very happy to get together with him and do something about this problem. However, on this particular evening I have another subject to broach.
It must be truly astonishing for all parties on all sides of this House that nothing has been said on this occasion in the gracious Speech about the abolition of the Dock Labour Acts. Those surely are now due to go. To begin with, it would be very hard to imagine any legislation of any kind whatever which would be less to the liking of the present administration than a series of Acts which produce monopolies, closed shops, Spanish practices and just about everything which the present administration would wish to see abolished. There is an additional factor in this matter, which is that the Acts in question have become aged.
A great many Acts become aged in the course of time. That is a perfectly respectable process. One must say that Magna Carta itself has become aged, and that indeed by now every single clause in Magna Carta has either been abolished or has been abolished to be replaced with modern legislation which does the job better. That happens to the great majority of Acts.
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The Dock Labour Acts have gone through that process. An Act of Parliament is usually passed with the intention of doing good, although that is not always the case. However, quite often an Act does good, though as time goes on that good diminishes. It becomes less and less, and there comes a point where the Act does actual harm. Soon after that it does serious harm. At that point, should the administration not abolish it, it will not need to for the simple reason that the Act will haw, done so much harm that it will have totally destroyed the purpose it was originally intended to protect.
It may be that the present Government are not attacking those Acts for the very reason that they believe that they will deteriorate to the point where they will cease to do any harm. I have another thought, which I shall talk about later, but I believe that that is the view of the present administration. However, I am afraid that that view is wrong. It is wrong because there is something that will keep those Acts trickling on and continuing to do harm to our economy. The reason is that the Acts have created Dock Labour Scheme ports, protected by the Acts, at all the entrances to the inland waterways. As a result, all the cargo which goes in or out of our country through our main rivers and canals has to go through those Dock Labour Scheme ports.
This morning I asked the British Waterways Board what proportion of the cargo travelling on its waterways came in or out through Dock Labour Scheme ports. The answer was 22 per cent. The British Waterways Board is in a much better position than most of the waterway authorities because it controls the small waterways which carry cargo going to and from bases inside our country. Therefore the figure is comparatively small. Nevertheless, the position would be much better if the cargoes could come in or out without suffering the troubles which are experienced at the scheme ports.
The situation is much worse on other waterways. Cargo which is carried on British Waterways Board waterways is a fairly small proportion of the total which is carried on our waterways. All the traffic on our great main rivers travels through scheme ports. One hundred per cent. of cargo carried on the Manchester Ship Canal comes through scheme ports. The economic viability of the rivers and canals is reduced by those scheme ports.
Noble Lords will ask me what the damage is. One thing I shall not do is to start relating anecdotes, because they waste time and are one-off, and so on. Moreover, if I stood here with a pile of anecdotes it would hide me entirely from sight. I have assessed the information and the cheapest result is that a scheme port has an effect of seven to three, in other words it costs more than double a non-scheme port. The most extreme case I came across was 10 to one—10 times the cost of a non-scheme port. One can imagine where the traffic went.
That is not the worst case. There are a number of cases in which the unions—illegally, although no one dares stop them—entirely prohibit cargoes from going through scheme ports. I can cite one case in which cargo which should have gone by water to the west of London is now landed in Colchester because

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of the way in which dockers stopped it from travelling by water. That cargo is now moved to West London by road. That large tonnage of materials travels in road vehicles—of course by the M.25, which your Lordships may have heard of. That does not improve matters. London is deprived of the cargo. Must those cargoes go by road? Ought they not to go by water?
There is a converse to all that. Almost none of the non-scheme ports—because they started in a small way, on the periphery—are (I am not absolutely sure of my facts: I shall have to check them) connected to waterways. They are connected to roads. Cargoes from non-scheme ports go by road.
Noble Lords and others in another place keep asking me why we do not send more cargo by water and less by road. The answer is that the non-scheme ports are not connected by water, they send their cargo by road, like Colchester, in the case I have just mentioned. If one wants more cargo to travel by water one must abolish the Dock Labour Acts. There are no ifs or buts about that.
I hold a strange post. I am vice-chairman of the Parliamentary Inland Waterways Group. The chairman has to be from another place and a member of the leading party, and the vice-chairman is from this House and not a member of the leading party. So chairmen come and go but I go on forever. As a result I sit in on all the meetings.
At a recent meeting we met the newly appointed chairman of the British Waterways Board. A number of Members from another place asked him how more cargoes could be attracted to the wharves in their constituencies. He could not give an answer. I was naughty—being independent, I can be—and said that one could not get cargo to their constituencies unless the Dock Labour Acts were abolished, but if they were abolished we could get cargo to the wharves in their constituencies. I was quietly shushed on that matter.
I believe that there is another reason why the proposal does not appear in the gracious Speech. I shall be rather naughty, and then sit down. I suggest that if those Acts are not abolished very shortly they will be kept handy. At some moment the Government will suggest that the Dock Labour Acts be abolished. The unions concerned will then go on strike, as they have said they will. The transport union would have to back them. The Labour Party, on its political leash, would have to follow suit. With all of them agreeing to an unpopular strike the Government would then declare a general election. I believe that I had better say no more but just sit down having expressed that thought.
7.37 p.m.
The Earl of Lauderdale: My Lords, when my noble friend Lord Caithness opened this debate he referred to the strength of our economic base. Hardly any noble Lords on either side of the House in the 20 or so speeches since have referred to a critical component in industrial costs, particularly in capital intensive industries, namely the price of energy, to which the gracious Speech made a rather sidelong
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allusion in referring to what the Government were pleased to call the restructuring of the electricity supply industry.
Energy policy always faces the dilemma that there is a conflict between scientific forecasts for 45 years ahead and the short-term electoral needs of fewer than five years ahead. The key facts in the energy situation must surely be that the energy demands of the countries in the free world rose by 10 per cent. in the past five years and the demand for power station fuel in the OECD countries rose by no less than 30 per cent. in 10 years.
If those indications are any guide, unless our energy management improves or our resources multiply British energy prices must join others in rising. There will then either be blackouts—which have been forecast for before the end of the century—or we shall find that a country built on coal and almost floating on oil and gas has to import energy at penalty prices. Those penalty prices will be charged by the French, who have developed a very successful export industry in electricity and who are linked with us by a trans-Channel cable.
On taking office last year my right honourable friend the Secretary of State called for almost panic stations when he warned—as of course the Government had already been warned in the previous five years—that we needed at least 13 gigawatts of new capacity in power stations by the end of the century. That figure has since been raised to 15. It does not matter what a gigawatt is. I am talking about the replacement by the year 2000 of something like a quarter if not a third of our present generating capacity. In fact the figures show and the developments of the last few years suggest to me—I believe that this may well prove to be the case—that we are nowhere near that attainment and may well not get nearer than halfway to it.
One has to bear in mind (and noble Lords will have heard it said before) that the building of a power station, like the development of an oilfield or gasfield, takes about 15 years from the moment of conception, as it were, before planning permission is even applied for. Now the shadow of electricity privatisation has forced the Central Electricity Generating Board to seek a guaranteed uptake from the future distribution companies—that is to say, currently the area boards—before undertaking or going further with some four big coal-fired power stations which would produce, if built, about half the capacity that will be needed. In fact, for lack of those guarantees, one of them, Fawley, has been shelved and the future of the others is dicey. We have been led to suppose that possibly gas-fired power stations will come to the rescue and about four of those are in prospect. I shall not weary the House with the names and the details at this late hour, but their scale will be quite small. If they are built, all that they will contribute will be about 1½ gigawatts, which is a relatively minor contribution and only about 10 per cent. of what is required altogether.
On the side of nuclear power stations it may well be that PWRs will be on stream by about 1998, which would produce 3½ gigawatts. There are two others in prospect but they will be well after that period. So

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there is little reason to suppose that the target of 15 gigawatts, which is about 25 per cent. of our present capacity needing replacement, will in fact be there at the time required. The prospect is that by the end of the century we may be—and I believe we shall be—critically short of indigenous generating capacity.
Surely shortages of that scale in prospect should concentrate the mind, not least in looking ahead to the next generation. But our own nuclear policy is still ambivalent. We hear from my right honourable friend the Prime Minister that she believes that we need a "much heavier nuclear programme", but her Secretary of State, whose judgment I also respect, and whose political skill should not at all be underrated (he has a great future I am sure), says that our nuclear component should be about where it is at the present time; namely, 15 to 20 per cent. of the whole.
However, let us look at 1992, as my noble friend who will answer this debate has bidden us. Some of our European competitors in 1992 have a very different story to tell now. Some 36 per cent. of West Germany's energy is nuclear. In the case of the Swiss, who are not in the EC I admit, it is 37 per cent. In Sweden, which is also outside the EC but can be compared with the others, it is 46 per cent. In France, however, it is 69 per cent. And France is eager to export electricity and sell it to us. But she will not give it away. The French will demand a very high price for anything that they sell.
On the nuclear side—to which the gracious Speech does not allude, but in so far as the privatisation of ES1 is referred to it is included by inference—there are whole areas where policy has still to be determined. Perhaps the most urgent is waste disposal. That is still a key restraint on nuclear development. The search for a final disposal site for waste is still only "nearing completion", to quote the official version. Waste disposal problems surely mean that THORP (the thermal oxide reprocessing plant at Sellafield) and the fast reactor are both a serious and important part of any nuclear policy. Since the Magnox and PWR stations only burn up about 1 per cent. to 2 per cent. of the fuel that is put into them, THORP's reprocessing facility makes much sense, especially for fuelling the fast reactor as the next kind of generator.
But research and development on the fast reactor has now been slashed by nearly 80 per cent.—from £45 million a year to £10 million a year—on the ground that it will not be needed for 45 years. But there is privatisation of water, electricity and goodness knows what else to come. Are we not thinking of the next generation and the one after that? This is a House full of grandparents. Do we not think of our grandchildren? That is surely the perspective that we need to bear in mind when we consider these matters. We are told that this R & D can be suspended or cut back because it will not be needed for another 45 years, and these words come from a government who have already been caught unready (1 intended but will not us another phrase) with regard to the shortfall in generating capacity from ordinary power stations by the end of the century.
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The latest official figures show that government-funded British research on energy research and development is about £190 million a year, which is 4 per cent. of the gross national product. In France that research and development is £380 million a year, which represents 7 per cent. In West Germany it is more than £500 million a year, which is more than 10 per cent. That is the comparison
I shall not go into the disappointing decision to chicken-out of fusion research in 1992. This subject is worthy of a debate in itself. But we must face a key question. This House looks further ahead than the other place because we are not subject to the spectre of re-election. The key question that we must answer is whether we wish to forgo a lead position in both fast reactor and fusion technology, only to condemn our grandchildren to have to buy that technology back from the Japanese and Americans later on at a very heavy cost.
I have a slightly happier thought about coal. At any rate it is not going to be privatised now and the advance warning that it will be is welcome. However, I do beg the Government to consider giving us a Green Paper on the subject before they rush out an ill-considered, ill-drafted White Paper, as happened in the case of electricity. We should all be involved in discussing this matter beforehand. I plead with the Government to bear in mind that full management and labour participation will be essential and the private mines as they have existed hitherto on a small scale surely give grounds for hope. But in a reply in another place, the Secretary of State seems to suggest that we shall just be given an irrevocable White Paper. I ask for proper notice, proper discussion and a proper Green Paper.
My short complaint about our energy policy is that it involves either a lack of forethought or a lack of proper advice. Thus I am greatly interested in a letter that appeared in The Times the other day from a former chief scientific adviser to the Government, a former member of the Atomic Energy Authority, a vice-president of the Royal Society, and an honorary DSc. of some 14 universities. I refer to Sir Alan Cottrell who wrote:
"The Government's decision to cut nuclear fusion research…coming hard upon its decisions to scrap its fast breeder reactor programme and to privatise the electrical supply industry in a manner which will cripple this industry's outstanding heavy-electrical research and development activities, will ensure that Britain itself is crippled by energy shortages in the next century".
He goes on:
"We shall no longer have thermal fission nuclear energy, once the uranium supplies for reactors such as PWR are exhausted or priced outside our reach; and we shall no longer have the experienced force of research scientists and engineers necessary to bring about the transition to the alternative forms of nuclear energy which are based on fast-breeder and fusion reactors".
He continues:
"The Government's present anti-nuclear policy (for that is what it is in deed if not in word) can only mean that the Government is at present being gravely misled by incredibly bad scientific advice, to the cost of the country's well-being in the next century".
I stress that those are the words of a former chief scientific adviser to the Government, a former member of the Atomic Energy Authority, a vice-president of the Royal Society, one honoured with a DSc. from some 14 universities. If that challenge

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from a source of that significance and eminence does not concentrate the mind, nothing will.
7.54 p.m.
Lord Blease: My Lords, I shall not attempt to follow the very forceful and topical speech made by the noble Earl, Lord Lauderdale, on the very burning issues of energy. I shall attempt some reference to other speeches made during these four days of debate on the proposed legislative programme. In my opinion speeches have been direct and challenging. Some noble Lords have expressed concern about the absence of parliamentary measures to provide for the future well-being and prosperity of the people and the good government of this United Kingdom.
It has been indicated that the effects of the Government's proposed legislation will affect in manifestly distinctive ways the various regions of the United Kingdom and different groups of people. It is obvious that people in the regions and in different groups will he affected in varying degrees—for richer, for poorer, for better, for worse, for good or for ill. Surely the purpose of these debates must be to try to quantify and measure the overall effects of the proposed legislative changes. The purpose must be to bring parliamentary counsel to bear on the measures so that they may be tempered with reason and justice, enabling equality of opportunity to prevail throughout the United Kingdom.
I was pleased to note the attention directed in the gracious Speech to Northern Ireland. Noble Lords will therefore not be surprised if I direct my remarks to Northern Ireland affairs. I was also encouraged by the detailed remarks of the noble and learned Lord the Lord Chancellor when he dealt with Irish matters in his speech on Thursday. I warmly welcome the thoughtful and positive interest in Northern Ireland affairs shown by other noble Lords, especially my noble and learned friend Lord Elwyn-Jones, and the noble Lords, Lord Harris of Greenwich. Lord Hylton and Lord Moran, and the noble Baroness, Lady Faithfull. They indicate a fair spread of opinion throughout the House on Northern Ireland. Their remarks were mainly directed to some of the pending Northern Ireland legislative measures. However, we shall await the presentation of the relevant Bills and the full opportunity to debate these measures when they are laid before the House.
Much concern has been expressed about high unemployment, lack of investment in productive employment, the rising cost of living, educational opportunity, housing and general health and social welfare problems throughout the United Kingdom. These same economic and social issues are sadly compounded and made worse in Northern Ireland by historical events, by the continued political stalemate in the Province and especially by the current crimes of the paramilitaries and the terrorists. I am pleased to be able to say today that there appears to be a glimmer of light on the altogether dark horizon of Northern Ireland. Hopes have been stirred by the ministerial talks proposed by the Prime Minister, Mrs. Thatcher, with Northern Ireland elected leaders.
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I wish to mention three matters which have been presented to me in Northern Ireland over the weekend: the Provincial economy, privatisation and policing. However, I have completely ignored the matter of the environment. I was alerted by the remarks of the noble Earl, Lord Caithness, in his opening statement when he mentioned that the Government propose to take action against pollution in the North Sea. I should have been pleased to hear of some action that the Government propose in connection with the Irish Sea in which they have a major territorial position. It has recently been stated by an international organisation concerned with these matters that the Irish Sea is the most polluted water in the world. Although I may not wholeheartedly agree with that statement, I should like to have heard what the Government propose in this context.
However, to return to the Provincial economy, privatisation and policing, I should be grateful if the noble Lord, Lord Young of Graffham, would draw these issues to the attention of the Secretary of State for Northern Ireland, Mr. Tom King. I believe that the House will agree with me that he is a most capable politician with an extremely difficult brief. I have not given notice of the matters that I wish to raise, but if the noble Lord will accept the invitation to convey them, I shall be happy.
First, there is the general economy of Northern Ireland with its chronic high unemployment, the current forecast of further decline in the already low manufacturing base and the lack of high-tech research and development facilities. It has been put to me in no uncertain terms by people of considerable experience and standing in Northern Ireland public affairs that, although on the surface there is a considerable amount of public relations activity, there is a complete lack of any co-ordinated strategy for tackling the economic and social issues of the Province. Notwithstanding all the separate and hardworking efforts made by many, there is still the general impression throughout Northern Ireland that the economy is being—to quote from the brief I have been given—"allowed to just drift".
There is evidence also that the general operational effectiveness of the executive and administrative machinery at the separate Northern Ireland departmental levels has been sadly eroded by the centralised communications structure inherent in and imposed by the Northern Ireland Office. This has greatly impaired essential local input to administrative decisions at divisional levels within departments and even at the Northern Ireland Department level.
Arising from the gracious Speech and our debates I have the impression that in other regions of the United Kingdom, especially Scotland and Wales, there is also this trend towards Whitehall centralism. While Whitehall centralism may not be unique to Northern Ireland, it appears to be more pronounced and harmful to local Northern Ireland needs and initiatives.
The second matter is privatisation. I am sure that it will be understood that the workers in Northern Ireland are no less concerned than people in England,

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Scotland and Wales about the Government's rash and conflicting policies for the privatisation of industries and services. It has been publicly stated that the Government's privatisation "cure" for Northern Ireland will be much worse than the "disease" in its total repercussions for the United Kingdom. I do not know whether that is meant as a threat or a diagnosis of what will come out of it. But that statement has been conveyed to me by an organised and normally constituted group.
There can be no doubt that the Government's decision to seek private sector buyers for Harland and Wolff, Shorts and Northern Ireland electricity will have a dramatic and serious impact on the local economy. Wide concern has been publicly expressed in Northern Ireland about the way the Government have proceeded with the privatisation measures. No concerted effort has been made to provide the time or the means for capital restructuring and for technological developments to enable these major enterprises to be competitively presented to potential buyers. This is in blatant contrast to the privatisation methods employed in Britain when enterprises were groomed, preened and doctored before being offered for sale.
I have a briefing note from someone with interests in the future of Harland and Wolff. However, I understand that today Harland and Wolff management was in active consultation with the Northern Ireland Office about the practicalities of a management-worker purchase arrangement for the shipyard. There are also some parliamentary discussions in another place at present. I am sure other noble Lords will join me in wishing for a successful outcome to these deliberations.
The capitalisation of Shorts suggested during the debate in the House some four weeks ago now appears to be accepted by the Government. Also, the selling of the undertaking as a single unit is the Government's stated preferred option. However, one issue is vital to the solution of the private ownership of Shorts. The Government must recognise that the FJX aircraft is inextricably bound up with privatisation. Will the Government now confirm that they recognise the need to solve these two issues together; otherwise the future of Shorts is at serious risk?
Considerable disquiet in Northern Ireland over police cuts has been expressed on television, in the press generally and by public figures. Public concern arises from the fact that out of a total budget of £380 million for the RUC, the cut that the chief constable and the police authority were expected to make is only £1.5 million. No matter how tightly stretched an organisation is, it is difficult to believe that a saving of £1.5 million out of the total budget that I have just mentioned could not be effected without undue difficulty. However, the cuts seem to have been made without due thought to the effect on the quality of the police service to the public. They also appear to consist of one or two irrevocable steps such as the closure of police stations.
As a result of the cuts, while the anti-terrorist thrust may be maintained, the drive against road deaths and injuries will be considerably reduced at
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the most critical time of the year. The RUC may be reducing its budget but only at the expense of another part of the public purse which will have to pay for the results of increased injuries on the road. Surely, this financial decision is open to question.
It is suggested that not enough concerted thought and consultation have been given to finding savings in less critical areas. The quality of life for the civilian population, particularly those who are law-abiding, will decline. The police are being pushed into a role which confines them to confrontation with terrorists because of the reduction in normal, everyday, community policing. The irony is that at the same time as cuts in the community policing functions, the police authority and the chief constable have written to local government district councils asking them to encourage community policing activities.
Finally, in a parliamentary democracy government and community must be totally committed to dealing rigorously with terrorism within the rule of law. But there must also be a genuine commitment by Parliament to other factors which can ensure a better life for all citizens. Unless these principles are upheld faith in the parliamentary democratic system will be seriously diminished and terrorism will be strengthened. I look forward to taking part in this new Session of Parliament with other noble Lords in upholding these principles.
8.8 p.m.
Baroness Carnegy of Lour: My Lords, a number of speeches on the economic side in the debate have been about the problems of success, about how wages go ahead of the cost of living, how spending goes ahead of wages, what happens then and what we can do about it. But not everybody can negotiate high wages. Many cannot. They cannot buy the expensive imports. They cannot borrow. They are still not benefiting from the new opportunities offered by national prosperity.
I want to say a word about the continuing challenge; the challenge of spreading the opportunity of growing personal prosperity, not just to some of the people or most of the people but to all the people. I know from the days when I worked with my noble friend the Secretary of State when he was chairman of the Manpower Services Commission that that challenge is near to his heart. It is a challenge that faces every free developed country and it is proving to be very difficult indeed. The greatest barrier of all to sharing in economic success is unemployment. In a number of the most prosperous European countries the unemployment figures remain stubbornly high. In some countries they are still rising, with 30 per cent. out of work for a year or more. Here, despite a falling total, despite more jobs than ever before and despite 700,000 vacancies in the system, we still have over 2 million people on benefit and many others on low wages. Unless there is a higher wage earner in the family, those people are not as yet able to grasp the opportunities of personal prosperity which are available to the rest of us.
For those people the most crucial part of the gracious Speech is the Government's stated intention to continue to foster the conditions for a sustained

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growth of employment, to remove unnecessary obstacles to employment and to alter training arrangements. This is certainly not the moment—and— I am sure that noble Lords will be relieved that I think so—to ask my noble friend what the Government have in mind in their legislation. However, I should like to ask him whether it is their intention to do something about what is becoming known as the insider/outside effect. It is the way in which the insiders (the well paid people in good jobs) by strengthening their position and job security, can sometimes unwittingly weaken the position of the outsiders (the unemployed people seeking work and the low paid seeking better jobs).
I should like to give one or two brief examples. Among adults there are several hundred thousand who are now known to lack the basic skills of literacy and numeracy which are needed to obtain a job or to hold down a job in the future. Although much unemployment in Britain is now short-term—50 per cent. of people are back at work within three months and over two-thirds within six months—that is undoubtedly one of the reasons why there is a core of long-term unemployed. The number of people over the age of 45 who have been unemployed for five years or more has increased.
To their great credit the Government are putting £3 million of new money into open learning centres where people can go for help in literacy, numeracy and other basic skills. They have also provided £300,000 and £30,000 for pilot schemes in England and Wales and in Scotland respectively. Most importantly, they have also established the employment training scheme whereby long-term unemployed people can train in basic skills, including finding help in literacy and numeracy if they need it.
The schemes are designed to strengthen the position of the outsiders. But what is happening? Everyone knows what has happened to the employment training scheme. Mercifully the TUC has stopped short of the total boycott which the congress wanted, but many unions are reluctant to co-operate. In Scotland the CoSLA has totally refused to do so. The reasons given are many and varied. Undoubtedly the effect is that six months' training in basic skills is lost to hundreds of thousands of people who need it most.
As regards the open learning literary centres, it is early days but the talk is that many will be based in colleges where professional staff will teach groups of students. That may work, but the evidence suggests that people lacking basic literacy and numeracy are shy about their deficiency. Will they ever get past the college gate? If they do so, will they not be most reluctant to expose their inadequacy in a group?
It may not suit the colleges or their professionals but surely what are needed are small, friendly walk-in centres on the high street where a person can drop in, talk privately and be put in touch with a trained volunteer who can give help in privacy. There may also be scope for literacy centres in the workplace. Nowadays they are common in the USA and Canada and they are described by the United States Departments of Labour and Education in a recent
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publication. The threats to those two most important government schemes are, I suggest, examples of the insider/outsider effect.
Likewise there exists the situation which confronts many young people. A myth is going around which suggests that because by 1995 there will be 1 million fewer 16 to 19 year-olds in Britain, employers will be falling over one another to take them on and therefore, skilled or unskilled, their future prosperity is assured. Alas, the reality looks rather different. Their very scarcity will mean that youngsters will be tempted to sidestep training altogether and be lured into dead-end jobs. Then, as those jobs disappear and the only jobs available demand training and skills, those young people will become the unskilled, long-term unemployed of tomorrow. Your Lordships will have noticed that a recent study carried out by the Economic and Social Research Council suggests that jobs for young people are already being shed faster than the decline in 16 to 19 year-olds.
If, as I believe, YTS is to become more and not less important for youngsters, it must be made as attractive as possible to them so that they prefer it to the tempting dead-end jobs. The Training Commission is already asking employers to take on more YTS trainees as employees from the start. That would be much more attractive to them. I should like to ask my noble friend whether the Government will back that request and whether they can give incentives to employers and existing employees to back it? I ask noble Lords who are replying on behalf of the parties opposite whether all political parties will back it. If not, it seems to me that many young people are destined to be consigned by the insiders to be the outsiders of tomorrow.
This is an economic as well as a moral challenge. The economy needs everyone's contribution. If the opportunities afforded by growing national prosperity are to come within the grasp of all the people, I hope that any proposals that the Government bring forward which may help will be backed by us all.
8.18 p.m.
The Countess of Mar: My Lords, it is always a pleasure to follow the noble Baroness, Lady Carnegy of Lour. She speaks with so much knowledge of and sympathy for her subject.
In her most gracious Speech, Her Majesty has said that her Government will maintain a firm control of public expenditure; that her Government are committed to strengthening the National Health Service; and that there will be a Bill to amend the law on social security. I hope that the Government regard the National Health Service and social security as priority services. I saw the noble Lord, Lord Young, wince, so I should point out that I shall be dealing with the economic and not the social aspects. I shall not ask him any thorny questions.
The quest for individualism, encouraged by this Government's "stand on your own two feet" policy, has resulted in the loss of the sense of corporate responsibility. Most of us have benefited from the increased prosperity over the past nine years. That is most of us, but not all. Noble Lords may recall the

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furore after the address made in the spring by the right honourable lady the Prime Minister to the Scottish Assembly. In some circles it is now referred to as "The Sermon on the Mound". Many people then expressed concern that biblical quotations should be used to support Government policies. Many people also know that for every quotation from the Bible there is another which states the opposite.
The right honourable lady quoted the story of the woman with the alabaster jar. The inference taken was that the poor will always he with us so there is not a lot that we can do about it. In Deuteronomy, Chapter 15, Moses said:
"The poor will always he with you in the land. and for that reason I command you to he open-handed with your countrymen, both poor and distressed, in your own land".
As a Christian, I find it terribly hard to reconcile the philosophy of this Government with the teaching I have received. I could find their policies easier to accept if religion had not been brought into the arena.
As the noble Lord, Lord Bruce of Donington, said, the increase in the number of homeless and families living in substandard accommodation is deplorable. Those dependent on social security benefits have suffered a steady erosion in the amount of income they receive from the state, not necessarily because the benefits have not increased in line with inflation, but because the Government have made the terms and conditions more stringent. For example, family credit was heralded as an enormous improvement upon family income support, which it replaced. But why has the take-up been so extraordinarily low? First, there is the stigma of admitting that one is low paid. Then there is the daunting 18-page form to fill in. That is difficult enough for an educated person hut, without wishing to be patronising, to a person who is of a limited literacy it presents an enormous hurdle.
Similarly, the elderly fail to claim income support. Senility or confusion may prevent them from realising that they are entitled to claim and additionally there is that pre-war spectre of means testing hovering over them.
We are told that nothing can be done about the roundabouts and swings effect of social security policy on the disabled needing respite care. What happens if you are the one on the roundabout? "Hard cheese", say the Government.
What has happened to the promised undertaking for people formerly in receipt of domestic assistance allowance who were awarded special transitional protection—to be distinguished from transitional protection—in April this year? One feature of special transitional protection was that it would be uprated in line with inflation. There is no mention of that in the Autumn Statement.
Recent legislation has eased some of the problems created by the so-called poverty and unemployment traps, but a large number of families with children will still suffer. The introduction of the social fund can hardly be said to provide adequate assistance in emergencies for the poor. The distribution of grants and loans through DSS offices would appear to be capricious. There were abuses under the old system
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but perhaps the door has been closed too firmly against those in genuine need. I could cite more examples, but I shall save them for another occasion.
When I am told of the failure of regional health authorities to make adequate allowance to district health authorities for routine maintenance of buildings and equipment, of the failure to make provision for obsolete equipment to be replaced, of unfulfilled promises to build new hospitals—though plans have been in existence for 15 to 20 years—I ask myself how that can make economic sense. Each year of delay means higher costs in both financial and human terms. What economic sense is there in keeping a working man or woman on a hospital waiting list for months or even years, dependent upon statutory sick pay or income support, when an operation could get him or her back to work? What about the bill for drugs to keep them out of pain while they wait? What is the cost to the National Health Service of drugs and time given to the homeless and those unsuitably housed?
There is very obviously a need for thorough research, government-funded research, into the real rather than the assumed needs of the poor and into the effects which the policies of various government departments have upon their income and quality of life. A start has been made with the OPCS surveys of the disabled but much more needs to be done. Last year social security research represented a minuscule .003 per cent. of the social security benefit budget. The department has reduced its collection of statistical information, with the result that it has no measure of relative poverty.
A year ago the Prime Minister said that there was no such thing as society, only individuals and families. Thankfully the millions of carers who support the elderly and disabled, the volunteers who freely give their time and money to charities concerned with social welfare, and those who work in social services and health care for low salaries, demonstrate a marvellous sense of community responsibility.
The Churches could not understand at first why their report Faith in the City was so denigrated by the Government. It eventually dawned upon them that they were starting from different basic assumptions. Economics had replaced fairness and justice. As long as the economy was healthy there was no excuse for poverty. The poor should be able to pull themselves up by their own bootlaces.
The world is not like that—not the one I live in, at least. Yes, the poor will always be with us. Some may be poor because they are feckless but the vast majority, 30 per cent. of our population, have little control over their situation. Surely we must have a communal responsibility towards them. It is unreasonable to expect charities or cash-limited or rate-capped statutory bodies to meet all their needs, although it is not unreasonable that they should meet some.
Had the Chancellor been rather more generous to the less prosperous members of our society and those agencies which assist them, the extra income would probably not have been spent on imported consumer goods. Do they not deserve to have the freedom to

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choose whether to spend it on food, clothing, health or housing improvements? Do they not deserve to be free from the constant worry as to whether to pay the rent or buy a new pair of shoes for their children?
8.26 p.m.
Viscount Caldecote: My Lords, we are nearing the end of a long and valuable debate. I have listened to most of the wide-ranging speeches and I shall try not to be repetitive, particularly as I agreed with so much of what the noble Lord, Lord Ezra, and my noble friend Lord Aldington said, and they said much better than I could many of the things I intended to say.
Unfortunately I did not hear the maiden speech of my noble friend Lord Alexander of Weedon, but I want to add my congratulations to my noble friend Lord Harrowby on his excellent speech, particularly as it so happens that his experience and background are more or less a mirror image of my own. During the past 40 years I have spent most of my time in the engineering manufacturing industry and the last eight years in the financial and venture capital field. As an engineer I know all to well that seldom if ever is there an ideal solution to a problem but only the best in the present circumstances. That seems to me to be what we are seeking today.
The major problem is our growing balance of payments deficit, particularly in the manufacturing sector, which could reach well over £13 billion this year. I believe that that is the most serious aspect of all. I agreed with virtually all that my noble friend Lord Aldington said with such eloquence. However, I should like to try to reinforce some of the points made, with particular emphasis on the need for greater investment in the creation of new products in industry. That is how Germany and Japan have succeeded, albeit with very strong currencies.
It is dangerously complacent to shrug off our major and rising balance of payments deficit, particularly in manufactured goods, as of no serious concern because it can be sustained by capital inflows partly stimulated by higher short-term interest rates. I submit that those deficits matter very much indeed and if we do not take the optimum action soon to correct them, we shall be back in a long-lasting recession. However, we should not accept that higher interest rates, probably needed in the short term, are the only or best solution.
Although I agreed with much of the emphasis which the noble Lord, Lord Bruce of Donington, put on the importance of manufacturing industry, I hope that no one will conclude that our salvation lies in a return to the doctrinaire socialism of the party opposite, with centralised controls stultifying enterprise and initiative. Without doubt that would lead once again to our creating less wealth and becoming less competitive rather than industry making and selling more, which is the core of our problem.
I have no doubt that a growing manufacturing sector in the UK is the only basis for a strong economy in the long term. As my noble friend Lord Aldington said, a flourishing service industry,
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important as that is, can never be a substitute for a strong and growing manufacturing industry not least because much of the demand for services stems from and is dependent on manufacturing, such as communications, share and commodity markets, insurance, transport, foreign exchange transactions and much more.
A strong manufacturing sector is also essential to the reduction of unemployment. However, there is much confused thinking here. If we are to produce competitive products saleable on the world markets we need to make further major increases in productivity. Much improvement has already been made there, as my noble friend Lord Barber said. However, we started from a very low base. We are still some way—a long way in some cases—behind our major competitors. We are now producing only a little more in volume than 10 years ago, but we are doing it with 60 per cent. of the workforce. That is good, but how much better if we were producing and selling twice as much with the same workforce; and better still if we could produce and sell that greater volume with fewer people still. What matters is the volume and value of what industry sells, whether at home to reduce imports or overseas to increase exports.
If we could achieve such a major increase in sales, we would have a really sound base for long-term growth. Increased value and volume of production would stimulate demand for services and employment in the service industries, which in turn would stimulate more demand for hardware, computers, ships and lorries, telecommunications and office and leisure equipment. A strong manufacturing industry will be able to meet that demand; thus more jobs are created, mainly in the service industries, but without excessive inflationary pressure and without drawing in imports because competitive British-made products would be available to satisfy a large part of that demand. In this way a virtuous spiral of growth is achieved, so different from the present outlook, with the dampening down of growth through higher interest rates, however necessary that is in the short term.
Under this Government we have made great progress—magnificent progress—and we can crack this problem too if only Her Majesty's Government will give as powerful a lead in this field as they have in other spheres. However, Ministers do not seem to be concerned or to accept that a strong, growing, competitive manufacturing industry is an essential base for long-term prosperity.
In a supplementary question on 9th November I asked my noble friend Lord Young of Graffham whether Her Majesty's Government would do everything possible to stimulate greater investment by industry in new product development. My noble friend did not answer the question, but in his reply he simply drew attention to the importance of industry designing and making better products which, although true, was somewhat tautological. Sadly, I can only conclude that my noble friend did not give a direct and positive answer to my question because he does not believe that greater investment in creating new and competitive products is of the highest importance and priority, as I do.

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In a recent discussion at the Royal Society of Arts of a paper delivered by Sir Trevor Holdsworth, President of the CBI, on "Manufacturing as a Career", a very senior civil servant in the Department of Trade and Industry said:
"Two things trouble me slightly. In the first place you seemed to argue that manufacturing was in some way more necessary and valuable to the economy than services".
On 23rd November the Chancellor of the Exchequer is reported to have said to the CBI council:
"Inflationary pressures arising from pay awards have to he neutralised in the only way possible through higher interest rates".
That is patently inaccurate except on a very short-term view, and I believe indicates a serious misunderstanding of the nature of our problems in the longer term.
These and many other comments by Ministers indicate to me all too clearly that Her Majesty's Government do not accept that the root cause of our economic problems today is that manufacturing industry is not designing, developing, manufacturing and selling enough goods. It seems to me that Ministers—and indeed many speakers in the debate, although not, I am glad to say, my noble friend Lord Aldington—are obsessed with only one side of the inflation equation, the supply of money. The other side is equally, if not more, important—the availability of competitive British-made goods for the money in circulation to buy, and for export.
This Government, under the leadership of our tireless and forceful Prime Minister, have done great things: achievements that would have been thought impossible 10 years ago have come about. One thing more is needed, the acceptance by Her Majesty's Government that a strong, efficient manufacturing industry producing and selling a growing volume and value of goods, employing fewer and fewer people in doing so, is of paramount importance to the long-term prosperity of the country. It should therefore be accorded the highest priority, higher than the growth of service industries, which will take place naturally as manufacturing prospers.
If this conversion of Her Majesty's Government takes place, then truly we shall be on the right road. Every Bill and every ministerial edict will be scrutinised for its effect on industry and the growth of its output. Support for research, government purchasing policy, accounting standards, training, fiscal and economic policy, the long term/short term investment issue, merger and takeover policy, energy pricing, local government, overseas aid and much more will all be looked at against the criterion of the growth of manufacturing industry.
There is no time now to go into the detail of what needs to be done. In any case, that is the responsibility and domain of the directors and managers in industry, stimulated I hope by trade unions. But government have a vital role to play in creating the right environment, pressures and incentives and in demonstrating their commitment to that principle of priority for manufacturing industry.
I believe that we would all agree, even noble Lords on the Opposition Benches, that if the Prime Minister sets her mind to achieving an objective, whether it be defeating aggression overseas or terrorism at home,
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reducing government expenditure, cajoling the private sector into the inner city areas or any other worthy cause, then that objective will be achieved.
My plea is that Her Majesty's Government, under the Prime Minister's dynamic leadership, will turn the heat on investment and expansion of output in manufacturing industry before it is too late.
8.37 p.m.
Baroness Seear: My Lords, in many ways this has been a curious debate. It is largely an amalgam of a debate on the environment and a debate on the economy. As my noble friend Lord Ezra said, the two are linked, but they are of such great importance that we surely need more time than we have had to do justice to both subjects.
The noble Earl, Lord Caithness, gave us a Second Reading speech about the Water Bill, which we shall no doubt have repeated at a later date. He then disappeared from sight and no one has set eyes on him since. I am told that there is a good reason for that, but it is a little unusual.
I do not want to spend much time on the environmental side because a number of points still need to be made in connection with the economic aspect of the debate. One point struck me very much in that Second Reading speech on water. It was stated that we would get better water if it was privatised, presumably because private money would be put into the purification of water and the better handling of the water supply and there would be no conflict of interest, as one assumes it is implied that there is now, between the need to sell water and make money on it on the one hand and control quality on the other.
I find it incomprehensible that the Government should suggest that when water is in the public sector it is not just as possible as when it is in the private sector to see that the supply of water is pure. It only needs the resources to do it. It is extraordinary to say one has to privatise water for people to stop buying Highland spring water or whatever else they choose instead of drinking what comes out of the tap. I have managed 70 years on tap water, but I suppose that it is getting worse nowadays.
This is a most extraordinary condemnation of how the Government see their responsibilities when they are running a service of this kind. We should not be fed this kind of nonsense because it is perfectly possibly for the Government to give us the right water supply if they put the money in to control it. There is no need to privatise it in order to do that. In fact, there is less reason to believe that we shall get good water then rather than now. So much for the environmental aspect, which other people much better informed than I have dealt with during this long day's debate.
I hope that the noble Lord, Lord Young, is not going to give us his usual speech about everything in the garden being beautiful and that it is getting better and better every day. We have heard it rather often and it does not really match today's circumstances. There can be no denying that at some point the Government have got in wrong. Either they were wrong when they gave us a forecast earlier this year

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and made the mistake then or something has gone seriously wrong since. What the forecast was then and what we now have are two totally different things, and that matter needs to be redressed.
As everyone has said, the problems are those of inflation and the balance of payments. I echo my noble friend Lord Ezra in saying that we on these Benches recognise that this Government have some very real achievements to their credit and we are very glad that they have done many of the things that they have done. But there are still many problems that need to be put right. At the moment things are going seriously wrong. I repeat that the twin problems are inflation and the balance of payments.
The difficulty here is that in order to deal with one of those problems one makes the issues connected with the other more difficult. I accept that in the short run we have excessive consumer spending and that there is too much money around for a variety of reasons, one of which, and only one, was the Budget earlier this year. Given that this is the position, probably the only way in the short run to curb excessive spending is to have higher interest rates. That has a quicker effect, particularly as regards mortgages, than any other method that the Government could introduce at this moment. But by introducing high interest rates they are making it more difficult to deal with the other problem of the balance of payments.
It is fairly obvious that high interest rates have a very adverse effect on industry, for a number of reasons. For one thing they force up the value of the pound, making it more difficult to sell goods overseas. A greatly overvalued pound cannot be good for manufacturing industry and for external trade. It also makes it almost certain, whatever the Government may say by way of exhortation—and we are getting serious signs of this already—that wages will soar ahead of productivity and we shall be back with our problem of rising unit costs. In attempting to control inflation we are making the problems of industry worse. This must mean that the high interest rates approach for controlling inflation must be as short term as possible and that there must be countermeasures to assist industry in order that it can meet the additional problems created by high interest rates.
The noble Viscount who has just spoken mentioned a number of measures in order to help manufacturing industry and to bridge the gap between imports and exports and the balance of trade. I believe that it is a digression and an unnecessary confusion to make too much of the difference between manufacturing industry and the service industry. As I see it, they are interlocked and interlocking and many of the successful service industries, as has been said, will increase success and demand in manufacturing industry.
What is perhaps even more important is that a great deal of manufacturing industry now draws on what would traditionally have been called service industries. There are a great many service activities that are incorporated into the manufacturing industry. I hope that we can stop having the
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argument that distracts our attention from the main issue about the difference between the service industry and the manufacturing industry. In saying this I am not for one moment underestimating the importance of the manufacturing industry, but I suggest it is not an either-or situation. I believe that the noble Viscount wishes to interrupt.
Viscount Caldecote: My Lords, perhaps I may make the point to the noble Baroness that the difficulties of improving manufacturing industry are much longer term and much more difficult than those for service industries. Therefore they require more effort to get them right than do service industries, whose growth follows naturally upon the growth of manufacturing industry.
Baroness Seear: My Lords, I do not believe that the noble Viscount and I are very far apart. I am trying to make the point that we distract our attention by separating them so much when in fact they are interlocking. I certainly take the point made by the noble Viscount.
There are number of ways in which we can ease the problems. In the first place, there are other ways over the longer term of reducing excess expenditure and therefore reducing the need to keep high interest rates. Other noble Lords have spoken during the debate about the encouragement of savings. It was the noble Lord, Lord Wolfson, who pressed the importance of a much greater spread of share ownership and the encouragement of people to put their money into manufacturing industry. The Government have gone further along this line than any of their predecessors, but there is still a very long way to go. The encouragement of saving would be a much better way of curbing excess spending rather than the methods that are being adopted at the present time.
I recognise that this is a much more long-term point, but I wonder whether the Government might start examining the possibility of shifting tax somewhat from earning to spending. Encouragement should be given to saving by putting more taxation on money that is spent rather than on money that is earned. As the noble Lord will know, there is a considerable amount of work going on as regards this subject at the present time. It has been discussed in a number of ways, under different titles and with different degrees of complexity from the days of Lord Kaldor's early plans onwards. Some of the more recent proposals coming from the Institute of Fiscal Studies are much simpler and much less ambitious, but are still well worth examining because they would lead to a much greater encouragement of saving and the discouragement of spending. If we can achieve that we do not need high interest rates which are so damaging in their other effects.
As regards industry, in addition to the points which have already been made there are one or two other things that can be done quickly to assist industry with its costs. I do not believe it is any use thinking that with the present labour shortages that are developing all over the country and with manufacturers and employers of all kinds in many

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areas desperate to get certain categories of labour, they are going to resist wage increases. It is a pity, and I wish they would. The noble Earl, Lord Halsbury, suggested a sub-tax. That is a variation of some kind of an incomes policy. Standing on these Benches I am not going to deride that. Equally I am very well aware of the difficulties arising with any form of incomes policy. I do not believe that the noble Earl's sub-tax would be easier to apply than any of the other proposals for an incomes policy that have been put forward in the past.
Whatever we may be able to do in the future as regards some control over wage increases, if we are realists we must acknowledge that we have this problem here and now. Wages are going to rise faster than we would wish and earnings will go up faster still. This always happens when there is a shortage of labour. There is no reason whatever to suppose that it will not happen this time. That being so, and if we want to help industrialists to manufacture and sell in order to bridge this gap with imports substitution and the expansion of exports, we must look for other ways.
Why do we still have an employers' national insurance contribution of 10.4 per cent.? It would be a simple matter at least to reduce it. It is a large percentage payment to have to make. Unit costs would be reduced by a cut in employers' national insurance contribution. This could to some extent counter the extra payments which they will, I fear, inevitably be making in reaction to tight labour markets and pressure from employees.
This will be a matter not only of trade union pressure. We all remember that when labour was very short indeed it was often non-unionised firms which paid the highest rates. They did not face any kind of control from employers' organisations and were able to buy the labour they wanted on the open market. That could happen here. Will the noble Lord consider attacking employers' national insurance contributions as a way of reducing labour costs and therefore helping to increase our competitiveness overseas?
Employment and industrial prosperity would be helped if manufacturers had some expectation of stability in exchange rates. I know that the noble Lord expected me to mention this and I did not want to disappoint him. If one is to plan ahead one must know what will happen to exchange rates. This makes a terrific difference to the ability to sell overseas and to compete with goods being imported into this country. I know that the answer will be "when the time is right", but surely it is time, especially with 1992 approaching, to stop making a had joke of our relations with the exchange rate mechanism and instead tackle this problem and recognise that stability in exchange rates and the avoidance of violent fluctuations would help manufacturers in the difficult circumstances which we now face.
I wish to make another point to which there is no real reference in the gracious Speech. We are approaching a time when we shall be up against tremendous competition both in the EC and elsewhere. I am sure that the noble Lord has seen the latest report from the National Institute of Economic
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and Social Research. It underlines the point that in comparison with our industrial competitors we have a grossly undertrained labour force. I know that with the noble Lord, Lord Young, I am in many ways pushing at an open door in this respect. 1 do not know how much he will allow himself to agree with me, hut 1 suspect that in reality he does.
What we did with the Education Reform Act is nowhere near adequate in regard to providing the kind of labour force we will need if we are to hope to hold our own in the future. A quantum leap is needed, and not just a little more here and a little more there. We need to make the years 16 to 18 education and training years and not—I very much take the point of the noble Baroness, Lady Carnegy, because we are seeing it already—allow those years to be wasted. In many parts of the country youngsters leaving school can get what they still call a real job. That real job has no training content. They will be on the labour market scrapheap afterwards if they are allowed to waste their time in that way. There is no conviction in this country that this is a disastrous policy.
YTS has been accused of being inadequate as a training in comparison with the kind of apprenticeship that used to exist. This is a false comparison. No one ever said that the one-year or even the two-year YTS would turn out fully-trained people. What it is doing, and doing increasingly well, is providing a foundation on which to build. However, the building must go on, and we need employers who will take youngsters at the end of their two-year YTS and then build on their training so that they qualify for the national vocational qualifications which are being standardised and streamlined.
Employers must be encouraged to do this. Our employers have never begun to understand the amount of money that they need to spend on training if they are to compete with German, French or Japanese employers. Cannot the Government look at the problem and consider what incentives can be given to employers to take YTS youngsters and build on their training in order to give us a hope—it is not more than a hope—of holding our own in competition with other countries? If we fail to do so, we will not have a hope of holding our own. So few people in industry seem to understand that our whole approach has to be taken very seriously indeed.
I cannot sit down without making my next point. With the labour shortages we face, the failure to train older women of good quality—I am only talking about girls of 30—because there are not adequate resources to do it is simply ridiculous. The employment training scheme, which with all its defects is a step in the right direction, is still not available to so many women, many of whom have the educational base which would enable them to learn quickly, because they are technically not unemployed. How ridiculous can we be?
Lord Dormand of Easington: My Lords, before the noble Baroness sits down, I should like her to expand one point. She said that the Government have had a number of successes. Does she subscribe to the government view, which we do not accept, that it

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took two or three years to clear up the mess left by the previous government? Even if that were the case, they have had six or seven years in which to do something about it. Would she like to comment on that?
Baroness Seear: My Lords, having spoken for 19 minutes, I do not think that I would like to comment on that. The productivity rates are very much better. I should say that under the Labour Government there was a great deal of concealed unemployment which we needed to get rid of; and we have.
8.57 p.m.
Lord Williams of Elvel: My Lords, we have had a long debate which has ranged quite broadly across a number of issues. My sympathy goes out to the noble Lord the Secretary of State who will try to answer the points which noble Lords have made. I confess that the combining of economic and environmental affairs in the same debate has introduced a certain amount of difficulty in its conduct. I regret this decision and I must say to the noble Lord the Leader of the House that I hope we can avoid this in future.
We began, in the view of the noble Baroness, with the noble Earl, Lord Caithness delivering a Second Reading speech on the Water Bill. He delivered a series of departmental press releases and then walked out of the Chamber. And that was the end of that. Some of us have tried to respond to the environmental issue and have been looking at the noble Lord the Secretary of State for Trade and Industry while doing so. I have no doubt that he is perfectly competent to reply to the environmental issues, but those are not the responsibility of his department. He may feel himself somewhat embarrassed, but nevertheless we shall do our best.
During the debate noble Lords have opened up a number of avenues down which I am afraid I cannot walk, interesting though they may be. In a distinguished maiden speech the noble Lord, Lord Alexander of Weedon, raised the question of takeovers and mergers. He and I will have an opportunity to debate the issue (and no doubt the noble Lord the Secretary of State will join in) when we come to deal with the Companies Bill. I should love to follow the noble Lord, Lord Alport, who is now presiding over our affairs, and the noble Lord, Lord Taylor of Gryfe, on regional matters in South Yorkshire and in Scotland. However, I shall not do so because that is a subject for another debate.
I should very much like to follow my noble friend Lady David and the noble Earl, Lord Russell, on the question of government funding of the arts and of university research, and indeed on the whole subject of scientific research generally. But again I believe that that is not a subject with which I should burden your Lordships.
Finally I must simply pay tribute to my noble friend, Lord Blease, who has this evening made what I think was an important speech on Northern Ireland and Northern Irish affairs. I very much hope that the Secretary of State will pay particular attention to what my noble friend has said in regard to the
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Northern Ireland problem and that he will in turn draw it to the attention of his right honourable friend.
Perhaps I may deal first with the major economic issue which has concerned your Lordships this evening; namely, the balance of payments and the inflation problem. I accept the point made by the noble Lord, Lord Barber, that economic forecasts are extremely difficult to make and that no one can be quite certain that they will get it right.
I also accept, although to a lesser degree, the view expressed by the noble Lord, Lord Harris of High Cross, that economic statistics anyway may be all garbage. I enjoy his interventions because I always think that he should be speaking from the Conservative Benches. So I have to look on my left to listen to what I think is going to come directly from the Bench in front of me. However, I now know and understand, having listened to what the noble Lord said this afternoon, that he does not speak from the Conservative Benches, because he is far to the right of the Conservative Party. Listening to what the noble Viscount, Lord Caldecote, and the noble Lord, Lord Aldington, said, I can see that they would have great difficulty in sitting on the same Bench.
I turn now to the remarks made earlier by the noble Lord, Lord Harris of High Cross, about my noble friend Lord Bruce of Donington. I think that I just regard the noble Lord as part of the debris from outer space which comes into the Chamber, circles around us, enlivens our debates and makes them so enjoyable.
I return now to the major question of what we can agree on about the analysis of our problems. I think that we are all agreed that there is excess consumer demand; I do not think that anyone in the House would say that there is not. We also agree that the forecasts made at the time of the Budget were seriously flawed—it has gone wrong.
I think that we would also agree that what is now required is that the consumer should spend less. Whether that spending is less involuntarily or voluntarily is a matter which we have been discussing. Perhaps I may just start off with the possibility of the consumer voluntarily spending less; in other words—the noble Baroness and others have drawn our attention to this—the possibility of improving and increasing savings.
It is perfectly clear that one of the major features of the present decade has been the decline in the savings ratio. That is a matter of statistical fact. If we could raise the proportion of income which is saved rather than spent, we would obviously work ourselves out of a number of problems which we find we have.
Much has been said about the consumer credit boom. It is to my mind quite certain that the Government in the period from 1985 to 1986 did a great deal to stoke up that boom. Nevertheless, I find it difficult—I must be perfectly honest about this—to see, given the situation in which we find ourselves at present, what we do about it other than recognise that it is not credit cards that are the real problem. It is not even the local bank that is the real problem; the real problem is in mortgage lending. Mortgage lending accounts for over 80 per cent. of consumer

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credit. The government who subsidise mortgage lending by giving tax relief, especially at the highest rate, are in a sense defeating their own objective, because in mortgage lending there is substantial leakage out into general consumer purchase which has been calculated by one authority at £13 billion for last year.
What happens is quite simple. Someone buys a house. They borrow on a mortgage. They receive tax relief on the mortgage and if they have £5,000 to spare from the £30,000 mortgage, that sum goes into buying a new hi-fi, a new car or whatever. That is a phenomenon which has been responsible in large measure for the consumer credit boom that we have seen.
It is of course a question of personal balance sheets. There is a point at which a family balance sheet goes out of kilter. I suspect that by hammering the mortgage rate—which the Government have done—they may well be going some way to correcting the family balance sheet. Therefore from that point of view, provided they got their tax policy right, I do not think that I would be especially worried.
However, I would be rather worried if we were to try to encourage savings simply by offering tax reliefs of the kind suggested by the noble Lord, Lord Wolfson. If we were to go down that road it would lead us into a number of complications. I was surprised to read in the newspaper the other day that the Chancellor was considering doing so. It is quite unlike the Chancellor to do this; I thought that he was irrevocably opposed to such proposals. Nevertheless, it is possible. However, I do not believe that that is the right way through.
Neither do I believe that various extremely ingenious subtaxes invented by the noble Earl, Lord Halsbury, which are infinitely adjustable every week, are quite the answer to the technical problem. I simply say that I very much hope that the Government will not take the view that it is public saving which should be increased by reductions in social security benefits.
It is very easy to reduce saving by reducing the income of those people who cannot afford to save at all. I want to make that point very strongly. For instance, universal benefits are almost universally taken up; targeted benefits are not. If you look at the targeted benefits, housing benefit is taken up by 77 per cent. of those entitled to it; supplementary benefit is taken up by 76 per cent. of those entitled, and the figure in respect of family income supplement is 50 per cent., and so on. Therefore by introducing targeted benefits you in fact reduce the overall income of those who are not in a position to save.
We must try to adopt some sensible way of reducing domestic demand without going to the point of reducing the standard of living of those who are worst off. I do not at the moment believe that the Government have any alternative other than to introduce some sort of measure of short-term credit controls, mortgage control, or some control of lending, as the noble Lord, Lord Vinson, has said. I do not believe that the interest rate weapon is sufficient to get us down to earth.
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The prognosis is that there will be no soft landing unless the increase in domestic demand is restrained and that even a hard landing will be difficult to achieve. On some analyses that noble Lords have made there is a serious risk that the aeroplane will miss the runway altogether and that there will be no landing at all other than a great big crash.
Looking at the balance of payments problem, it is not clear—here I disagree with the noble Lord, Lord Barber, but agree with the noble Viscount, Lord Caldecote and the noble Lord, Lord Aldington—that this is merely a problem of temporary excessive consumer demand. It goes deeper than that. To put it simply, we believe that our current balance of payments problems are much more serious than the Government are prepared to admit. The balance of payments problem and the accompanying inflation problem, which is part of the same phenomenon, are of a structural nature and should be addressed as such.
In the 1980s, our foreign trade problem has been masked by the bonus of North Sea oil and the inflation problem by the re-creation of mass unemployment. Take away those two things and, as the noble Viscount, Lord Caldecote, said, we may well find that British industry is leaner, fitter and more efficient. However, in many sectors it is unable to satisfy demand because the productive capacity is not there. That is why import penetration in the United Kingdom has grown faster than in any other major industrial economy. It has grown three times as fast in the past four years as in Japan and France. Take away the protection of oil, and the result shows up in the trade account.
We shall also find that as the labour shortages, to which the noble Baroness, Lady Seear, referred, appear, or are appearing, even before unemployment gets down below two million, earnings are rising and will rise at a steeper rate. If our only alternative is to raise interest rates to try to cure that, there will he a massive profit squeeze on industry. I do not believe that there will be a response from management and unions to the idea, "Oh well, we are not competitive and therefore we cannot accede to the wage increases for which the unions are asking".
I do not wish to detain your Lordships much longer but before leaving this topic I make two further comments. Anyone who believes that the invisible surplus will in some way compensate for the visible trade deficit is living in a world of dreams. Services have been good at creating employment, but they have not been good on the balance of payments front. The Autumn Statement figures show the reality. The surplus on invisibles this year is likely to be £2 billion lower than in 1987. And the forecast for 1989 is that it will be £1.5 billion lower than in 1987. That does not augur well for the service sector taking up the deficit on the visible trade balance.
Secondly, the idea being peddled around that the payments deficit was in some way a private sector matter rather than the responsibility of government, is, I am afraid, ludicrous. I am glad to see at least that the Chancellor of the Exchequer, by his action on interest rates, has come round to the view that he, after all, is responsible for the general conduct of the whole economy.

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Of course, if they are unable to privatise the balance of payments deficit, the Government are, I imagine, going to succeed in privatising the electricity and water industries. They will use ruthlessly their majority in both Houses of Parliament to do so despite the comments made by various noble Lords, including the noble Earl, Lord Lauderdale, and the noble Lord, Lord Alport, about those measures. Our views are well enough known.
I have no intention of making Second Reading speeches on those measures this evening, but I cannot resist the temptation to say that a Secretary of State, who puts forward a National Rivers Authority as some newly conceived environmental protection agency and claims that competition for the privatised water authorities will come from Perrier water, demonstrates a certain lightness of heart when dealing with his new environmental toy. May we also have a National Rubbish Authority to clean up the filth in our towns? We have of course been pushed by the EC into doing something about our drinking water and our beaches. But why is funding into environmental pollution being cut? Why did we not early on join the 30 per cent. club to reduce emissions of nitrogen oxide? How can we take seriously all this environmental stuff from the Government when their record is so poor?
This is the last speech that will be made from these Benches on the humble Address. I have only one last comment to make in order to try to put the contents of the gracious Speech into perspective from our point of view. I shall put it in the form of an anecdote, if I may. Last weekend I was walking in the hills of mid-Wales where our home is and I met one of our neighbours on his Sunday round of shepherding. After the usual courtesies of talking about the weather, which was too cold, the sheep, all ill, and the rest of it, he asked me what I thought about the Government's programme and what would happen in the coming year.
I said to him, "Mr. Evans, in brief this is my view of the Government's programme. They are going to sell the electricity and water industries to the public, who already own them, thus cashing in a great deal of money which they neither want nor need. They will use this money not to make the health service better by bringing NHS buildings up to standard or building more hospitals to cut down waiting lists, nor to tackle the growing problem of homelessness, nor to allow us again to have free dental and eye tests.
"They have no intention whatever of using the proceeds to help those in need by uprating child benefit in line with inflation or the basic pension in line with the earnings of those in work. They will not even invest the cash in our industrial and technological future by building more roads, cleaning up our cities or by supporting British skills in fields like space or scientific research.
"You ask me what they will do with the money. I shall tell you. They will wait for a politically convenient moment and they will then give it to the better off in the community in the form of income tax cuts. As far as you are concerned, Mr. Evans", I went on, "I am afraid that the news is bad. You will find
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yourself paying more for your water to help pay for clearing up the filth in our rivers and lakes. You will also be paying more for your electricity since the industry needs to be fattened up to be sold off. On top of that you will be paying a nuclear tax to support privately owned nuclear power stations which you probably never wanted in the first place.
"You will also have to dig deep into your pocket to pay your bank the high interest rate it is now charging on your loan, which will be there for some time yet. Strictly between you and me, Mr. Evans, I am afraid that interest rates may be going up rather than down in the future.
"I am also sorry to tell you that Mrs. Evans will be asking for more housekeeping money"—perhaps the noble Lord will allow me to finish this paragraph before intervening—"because prices in the shops will be going up fast and will go up faster next year. I imagine that you are already saving up to pay the poll tax since you have told me on previous occasions that it will hit you hard as you have your wife, your son and your daughter living with you". Does the noble Lord now wish to intervene?
Lord Bruce-Gardyne: My Lords, I am grateful to the noble Lord. I wished to ask him about the egregious Mr. Evans, who was very worried about the additional burden of interest payments which he would face. However, did the noble Lord inquire whether Mr. Evans was a depositor? In that case he would make a lot of money out of the higher rates of interest.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, but he must be patient and listen to what Mr. Evans's reply was.
I continued, "There is only one crumb of comfort, Mr. Evans, that I can offer you. The Government intend, in their own words, to press for further reform of the European common agricultural policy. That means that with any luck you will find yourself being subsidised to produce more lambs and at the same time subsidised to take land out of production—to produce fewer lambs. If you think that a curious arrangement, I should not complain too loudly about it because the rule in life nowadays is to grab what you can, as much of it as you can and as quickly as you can. That, Mr. Evans," I said, "is the Government's programme for the coming year". He looked at me rather long and hard and he said, "Mr. Williams, they must be out of their minds". I said, "You may just be right, Mr. Evans, you may just well be right".
9.20 p.m.
The Secretary of State for Trade and Industry (Lord Young of Graffham): My Lords, we have come to the end of a long, long road which started when the debate on the gracious Speech was introduced so ably by my noble friends Lord Colnbrook and Lord Henley. Today we have heard a well informed and wide ranging debate on two issues of vital concern to the House and to the country—the environment and the economy. To the noble Lord opposite who expressed concern (as, I believe, have some others) at

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putting these two together, I am told that he should make inquiries of his own side. No doubt that is a matter to which we can come back on another occasion.
On the two disparate fields under discussion there are of course many points of view. I dare say too that many special interests are involved. Most of them have found an articulate spokesman, or spokeswoman, in your Lordships' House today.
Many noble Lords have pointed out, rightly, that the environment and the economy are not separate and unrelated spheres. They are linked by necessity very closely. The economic growth which all of us desire, and which this Government have been uniquely successful in achieving, does not always take the form or occur in the places which, from an environmental standpoint, we would prefer. Economic success can put pressure on the environment, and the personal affluence that comes with growth makes people value the environment all the more highly.
My noble friend Lord Caithness in opening today's debate dealt mainly with the Government's achievements in preserving and enhancing the physical environment, and our proposals for the future. I shall concentrate mainly on the economy. The wellbeing of the economy and the environment are closely linked. Indeed the need for them to go hand in hand is recognised in the concept of sustainable development which is the key message of the Brundtland Report. I do not think there is now any disagreement, even among environmentalists, that zero growth is simply not the way to protect the environment. But we cannot afford to pursue growth at the expense of the environment. We all have a part to play. The United Kingdom has a very good record. In particular, this Government have worked together with British industry to achieve a leading world position on action to deal with CFCs. Much more still needs to be done.
Nowhere do the needs of the environment and the interests of business march more closely in step than in our inner cities. New technology and service industries have a wide choice of location. They are no longer tied to old industrial centres. They will not establish themselves in derelict and depressing surroundings. But without the lifeblood of new private sector activity these areas will simply not survive.
This Government's objective under the Action for Cities initiatives is to create the right conditions for business and industry to flourish within our inner cities. The partnership of this Government and business can lead these communities back into the mainstream of economic life. And in so doing, I hope we will establish a circle of economic and environmental revival.
Let me now turn to the economy in more detail. I make no apology for reminding your Lordships' House of this Government's unparalleled record of economic achievement. I ask noble Lords to spare a moment or two to listen to the facts, some of which I suspect have been lost during the past few hours of debate. We have had seven years of uninterrupted
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economic growth at an average rate of 3 per cent. That is a fact.
Productivity growth in the whole economy since 1980 has been equal to that of Japan and better than that of any other major industrial country. That is another fact.
It is a fact that government borrowing has been eliminated. There have been major reductions in tax rates accompanied by significant increases in public spending on priorities. Prudent spending on priorities has improved the standard of living of each and every one of us. That is another fact.
Manufacturing productivity has risen by no less than 60 per cent. since 1980—a rate of growth outstripping that of all of our major competitors, including Japan. That is another fact. Manufacturing output, having recovered from the deepest recession for a generation, is now at record levels and still growing fast. According to all we have heard from noble Lords, including some of my noble friends, the growth in manufacturing this year stands at about 7 per cent. It will comfortably exceed the growth of the economy as a whole. It should do the same next year. That is another fact.
Unemployment has been down for 27 consecutive months. It has decreased by nearly 1 million in the past two and a half years. Now, at long last, I can stand in your Lordships' House and say that our unemployment is well below the Community average and still falling. Britain has more people in work today than ever before. That is another fact.
Every week 1,000 more businesses start up. That is another fact. Industrial profitability is at its best levels for nearly 20 years. It stood at over 10 per cent. in real terms for the non-North Sea sector in 1987. I wish to remind some of my noble friends that manufacturing profitability stands at 9 per cent. in real terms, its highest level for many years. That is another fact.
To those in your Lordships' House who were so concerned, and rightly so, about the state of manufacturing industry, I can say that investment in manufacturing industry is forecast to rise by up to 18 per cent. this year. What clearer evidence could there be of confidence in the future?
There are the beginnings at long last of a restoration by British industry of its reputation for the quality, design and performance of its products. I can tell the House that from first-hand information since today I travel the world helping to sell British products. All those facts show that this Government have the right policies, the right priorities and indeed the right perspective.
The success story is not over. There is more to come. In his Autumn Statement in another place my right honourable friend the Chancellor of the Exchequer forecast continuing growth next year: 3 per cent. in GDP, 4.5 per cent. in manufacturing output. Investment in the economy as a whole is expected to rise by 5.5 per cent. Above all, for those in your Lordships' House who are concerned about it, the increase in manufacturing investment is still in double figures.

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There are still those in your Lordships' House with a professional interest in finding a cloud for every silver lining. They too have been represented in your Lordships' House today. They have referred in particular to the balance of payments and to the increase in the retail prices index in recent months.
Let us examine each of those: first, the balance of payments. For those professional Jeremiahs the balance of payments deficit must have come as something of a cause for celebration. I am afraid to have to tell them that their celebration is somewhat premature. It is inevitable that the strong growth in domestic demand and economic activity will have led to some rise in imports of consumer goods. But it has also led to increased imports of capital goods, intermediate and semi-manufactured goods, which reflect rising output and investment by manufacturing industry. One cannot have industry increasing its investment by 18 per cent. without at the same time affecting imports. It is also inevitable that a good part of the deficit, which is due to the surge in investment, will be reflected in due course in higher exports, which will of course reduce the deficit.
I must also remind your Lordships' House that a balance of payments deficit is only a cause for concern if it cannot be financed. It can. Let us go back 11 years, to the year when the IMF came and the year that followed. If one translates that year to this year the Government would have to sell gilts to the extent of £44 billion. This year we may be paying back gilts up to a level of £10 million. Where would that £54 billion have come from if we had followed the old practices? Would it have been sucked out of investment in industry? What would the government of the day have had to do today to encourage the rest of the world to invest in us?
The simple fact is that the policies pursued by my right honourable friend the Chancellor of the Exchequer have ensured an unprecedented degree of international confidence in the economy of the United Kingdom. One has only to leave this country and look back from the outside to realise what they are saying about us all round the world. That confidence is reflected in the inflow of private sector capital into this country from investors overseas who recognise the transformation that has occurred in the United Kingdom under this Government.
What about the retail prices index? Let us not get this problem out of perspective. If one excludes mortgage interest rates, as most countries do, the RPI rose by just over 5 per cent. in the year to October and has barely changed since July. So the increase in the full RPI over that period to 6-4 per cent. is entirely down to the increase in interest rates, which is designed specifically to get inflation down.
Only this morning I heard the Opposition spokesman for trade and industry in another place berating the Government once again—this time for what he called "soaring inflation". He should not need me to remind him that even at 6-4 per cent.—which concerns us greatly—we have a long way to go to come near the best figure that the Labour Administration were able to attain.
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I can assure all your Lordships that my right honourable friend will continue to pursue the right policies, which will bear down on inflation, including higher interest rates where necessary, which in the past have proved their worth in keeping inflation in check and I believe will do so again.
In part of course these policies are reflected in the short-term effect on mortgage repayments of the earlier rise in interest rates. The purpose of that increase over the medium term is to maintain the downward pressure on inflation; and there are signs already today, particularly in the housing market, that their effect is beginning to be felt.
But there is one contributor to higher prices that is rightly a cause of concern: the continuing high level of pay increases. It may be true in manufacturing industry that they are still largely offset by productivity gains—and I certainly hope that they are. So the rises in unit costs are thus small. But the unit costs of some of our competitors are falling today and it must be in the long-term interest of manufacturing industry as well as all those who work in manufacturing industry to reserve some of the benefits of higher productivity for their customers at home and overseas in order to maintain them. In the service sector there is no way that increases of 9 per cent. in earnings can be absorbed by improved productivity, and such increases in the end must be directly inflationary.
To summarise, there will always be short-term problems demanding constant vigilance but they cannot be allowed to obscure the real, solid achievements of the past nine years—nine years in which this country has reaped the benefits of an unrivalled consistency in government policy. That policy has put the economy back on a footing which benefits us all.
I turn now to some of the points which have been raised during the course of today's debate. The noble Lord, Lord Bruce of Donington, said that the main purpose of the water and electricity privatisation Bills was to raise money for the Government. This year we are running at a surplus of £10 billion. I hardly think that this is a Government who are in need of money. What we need is greater efficiency in the nationalised industries and the greater efficiency that privatisation brings.
The noble Lord made a long speech in which he seemed to complain that only a minority of shareholders in companies were individuals. I agree and I hope that in a decade or so of more Conservative governments we shall see many more individual shareholders.
The noble Lord, Lord Ezra, paid tribute to improvements in manufacturing and employment. He was concerned about developments that could well hinder that continued progress. I agree with him that the first effect of interest rate rises is to increase inflation. We have seen some of those increases already. There is no doubt that we shall see more. If building society rates go up again we shall see it happen again. But if we consider the effect on industry and not the effect on private consumption—because it is personal consumption that we want to confine at this time—the CBI today

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still expects economic growth to be a record 5.5 per cent. this year, and still expects, despite increased interest rates, that investment will grow strongly.
The noble Lord wanted to encourage savings and discourage credit. Surely in the short term as well as the medium term high interest rates will do both those things: encourage savings and discourage credit. Indeed it is as well to remember in all that is said about building societies that they are funded only by savings and it is only by the savings of people and the higher interest rates that those people receive that we see the economy continue to grow. The noble Lord has many complaints about roads, as do many other of your Lordships. There has been an unprecedented growth of traffic during these past—
Lord Ezra: My Lords, perhaps the noble Lord will allow me to ask if he could indicate whether or not apparently well informed newspaper reports that the Chancellor was considering direct incentives to saving are soundly based?
Lord Young of Graffham: My Lords, the noble Lord knows that I do not have a long experience in politics, but even someone with my length of time in politics would know that I could not possibly comment on that suggestion. I am sure that if the Chancellor is working on any specific matters, we shall find out in due course.
Perhaps I may answer one point raised by the noble Lord, Lord Ezra. He complained that the Government had a problem on roads. That complaint has indeed been made by a number of noble Lords. Roads are not built instantly by governments. Roads are built after we have passed through the most intricate and long-winded system of planning appeals of any country in Western Europe. There are countless examples of road building that has been held up, such as the extension to the M40 which was held up decade after decade. Therefore although regrettably there are not enough roads, I do not think all the blame can be placed upon this or even previous governments.
The noble Lord, Lord Harris of High Cross, spoke about the gales that the Government have withstood about balance of payments difficulties. He contrasts those with the fog of the statistics themselves. However, he referred quite properly to the difficulty of labour market mobility. That is a difficulty that we have still not succeeded in curing for ourselves. He mentioned the effect of the single market. Indeed, I congratulate him; he was the first to mention 1992 this afternoon. But there is a very important point about mobility of employment throughout Europe that I put to all in your Lordships' House. In the earlier part of this year I was visiting the BDI, the German CBI. It complained quite strongly to me that too much German employment and manufacturing was leaving Germany and coming to the United Kingdom because in Germany corporation tax varied between 56 per cent. and 70 per cent. and payroll taxes were running at over 100 per cent. whereas in this country they were far lower. It seems to me that that is a healthy competition which the single market in Europe will bring about. There will
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be opportunities for good taxes to drive out bad. Time after time we shall see pressure on governments to reduce taxes.
Perhaps I may congratulate my noble friend Lord Harrowby on an excellent maiden speech. It seemed to me that, having adopted a new ruling in your Lordships' House where not every speaker congratulates maiden speeches, the excellence of the two maiden speeches we had today caused all of us to forget it. However, I wish to congratulate him on his very sensible suggestions about the relaxation of the financial services Acts.
We are trying now to make a very necessary distinction between the protection which the amateur investor should have and that which the professional investor need not have. I hope that as the changes in the Act and in the regulations come forward, it will become more apparent. I was very interested in my noble friend's ideas. I should be grateful he could let me have his suggestions in more detail so that I can then consider them.
I must say to the noble Lord, Lord Taylor of Gryfe, whom I greatly respect, that I found considerable difficulty with his thesis that we were moving to a society of private greed and away from what he called community concern, some halcyon days in which we all used to live. I cannot recall some 10 years ago living in a world of great community concern. I cannot recall living in a society during the 1970s when we were so intimately concerned with our fellow man, whereas today we are concerned only with private greed. I do not recognise that description and I am sure that on mature reflection the noble Lord will also agree with me.
The quality of the maiden speech of my noble friend Lord Alexander of Weedon was matched only by the quality of his chairmanship of the Takeover Panel. We are all enormously grateful to him for the work he has done in maintaining on a voluntary basis the regulation of markets. I look forward very much to his contributing to our counsels on the Companies Bill, which I hope will make very considerable changes.
Perhaps I may say to the noble Lord, Lord Mackie of Benshie, that perhaps—who knows?—a management buy-out for the Scottish Bus Group may well come into being. That may well make Scottish buses run on time and certainly on a more Scottish basis. I hope that the noble Lord will agree that it is now widely accepted that excessive government intervention in agriculture damages both developed and underdeveloped countries. I very much hope that we shall move into an era where there will be less government intervention in the workings of agriculture.
Indeed, the subject of government intervention brings me on to the speech of the noble Earl, Lord Halsbury, who demonstrated a mastery of control engineering. He talked about a number of indices on which the Government should be consulted. Perhaps I may say to him that the PSBR is now a blessed memory. We have have the PSLR—the public sector lending requirement. We no longer borrow; and I hope that that may long continue. I suspect that his very ingenious taxes are perhaps a little too ingenious

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for most of us and I suspect that they may not work as well.
I am grateful for the support of my noble friend Lord Barber. He has great experience of the difficulties of credit control, having both had to administer it and afterwards having to live with it. I am grateful for his recognition that in today's world after the abolition of exchange controls, credit controls simply do not work. There is no way one can live with them without leakage. There was leakage in the days when there were exchange controls and today it would be a nightmare even to attempt to bring them in.
I assure the noble Baroness, Lady David, that the three-year funding programme for the arts which was announced last year will continue. In the third year of the present series of funding programmes there will be some £25 million—6 per cent. higher than the amount in the first year. This will allow planning by arts bodies to continue.
My noble friend Lord Aldington started off very promisingly. He said there was much to praise about the Chancellor and the economy. He was concerned to see the increase of manufacturing industry. I agree that manufacturing industry is important. Indeed, all methods of wealth creation are important. I fully recognise and accept the importance of manufacturing industry. I also accept that high interest rates are not good for industry. But there is no evidence yet that interest rates have had any effect on investment. However, there is an enormous catalogue of evidence that wage rates have far more effect on the competitive nature of industry than almost any other factor. I hope that companies will keep their competitive edge by restraining unnecessary wage increases.
Let me say at the outset that we should endeavour to become a high wage country because that is the endeavour of all governments, but we must only be a high wage country with a competitive economy. That means making changes in productivity, improvements in productivity and sharing it—some to go back to those who create the productivity increases and the balance to give better value to customers. But I am sure that my noble friend will be happy to know that since 1987 manufacturing output has been more rapid than both output and demand generally. That looks like continuing.
I fear that I failed to follow the arguments of the noble Earl, Lord Russell. Spending on programmes is planned to go up in real terms by 3.25 per cent. per year for each year from 1988—89 to 1991—92. The Government are spending more money but because of the buoyancy of tax revenues we shall be spending less as a proportion of GDP. We find time and time again that this gives the Chancellor a dilemma. The more he reduces taxes the more he seems to take in taxable income. But it is only because of the past successes of the Government—and I believe the future success of the Government as well—that we shall see higher spending in priority areas.
I am grateful to my noble friend Lord Wolfson, but I hesitate slightly to say that people like me should set out guidelines or parameters concerning the ratios of
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lending that should take place either in bids or in any circumstances. It seems to me that the right and proper people to make that decision are the bankers making the credit decision. They are the people who will suffer and lose money should the project not proceed. If we were to set down any guidelines, parameters or rules there are always far cleverer people outside government who will be able to find ways through those rules. It is much better to leave it to the judgment of individual bankers and individual companies on each project.
My noble friend was also the first to mention GATT. I leave on Friday for the return meeting of GATT when trade ministers from around the world, some foreign ministers and other ministers such as agriculture ministers will be gathering in Montreal. It is extremely important that we begin to build on the foundation of GATT to keep open markets throughout the world. I hope that the result of the meeting next week will be that we shall take another step forward in keeping open the economy of the world. We should all remember that the awful decade of the 1930s was not caused by the Stock Exchange collapses of 1929 but by country after country throughout the world putting up the shutters and world trade slowing down.
I cannot promise to satisfy my noble friend's appetite for Green Papers. My department already produces a great deal of paper but I shall consider his position.
I agree with the noble Lord, Lord Cocks of Hartcliffe, that we must get across the message about the need to protect the global environment. For that reason I was delighted to learn that the Prime Minister has called an international conference on the ozone layer for next March. It is a real problem and many countries are aware that it can be solved only by looking at it on a truly international basis.
I am grateful to my noble friend Lord Bruce-Gardyne for his support for the action which the Chancellor is now taking. He drew attention to the importance of the continuing need to keep unit labour costs competitive. I was grateful for his thoughtful contribution to the debate.
In reply to the noble Lord, Lord Alport, who believed that the supply of drinking water and the treatment and disposal of sewage should remain in government hands because of their monopoly position, I would point out that a quarter of the population of England and Wales already receives its drinking water from the private sector—the statutory water companies. If a quarter of the population has been living happily, what is the difference if the remainder live just as happily within the private sector that is being run properly?
If maintaining a public monopoly over water supply is so important—and I have heard that said by many noble Lords opposite—I fail to understand why Labour governments of the past did not take the companies into public ownership.
The noble Lord, Lord Stoddart of Swindon, asked how high interest rates will go. As the Chancellor said, they will go as high as is necessary in order to contain inflation. In an endorsement a few days ago,

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the CBI said that it is much more important that we keep inflation down and interest rates at this level.
I turn to deal with the points raised by the noble Lord, Lord Walston, who saw the source of all evil in profit. He looked back to a golden age in which we all did things but never for profit. I must assure the noble Lord that all the great houses were built for profit. The profits of the landed estates were invested in the houses. The profits of the builders encouraged them to build the houses and there were profits for the architects who designed them. Even Wren worked for profit; how else could he maintain himself! If we contemplate that people at any time in the history of mankind ever acted without self-interest then we shall have Rousseau-like views of the past which I suspect will not be borne out in the real world.
The noble Lord complained about congestion on the roads. I have it on good evidence that the roads have been congested since Roman times and that there have been complaints ever since. I hope that after 2,000-odd years we can look forward to a period when we shall not complain about the roads. We are well aware of that.
My noble friend Lord Vinson put forward an important point which I have not previously heard expressed. It is the relationship between the absence of planning permission and inflation. The noble Lord pointed out that today over half the cost of a new house in South-East England is the land element. In a simpler age some 10 years ago or less I used to build houses. The land element then was only 13 per cent. to 17 per cent. and I am horrified when I think that the price of land has risen so much. There is great force and validity in the noble Lord's observation and I should like to consider it and decide whether we should examine it closely.
The noble Lord, Lord Addington, said that protection of the water environment is at the heart of the Water Bill. The Bill will indeed establish the National Rivers Authority as .an agency dedicated to ensuring that our rivers and estuaries receive the protection that they need. The National Rivers Authority will be the first authority that we have had which is dedicated to ensuring that our waterways are protected. That has never been done before and indeed it is a very substantial advance.
I am grateful to the noble Lord, Lord Blease. I shall certainly bring his contribution to the attention of my right honourable friend the Secretary of State for Northern Ireland and I shall see that regard is given to all those matters. I assure him immediately that the coastal waters protection to which he referred will apply to all coastal waters and will also include the Irish Sea.
I am grateful to my noble friend Lord Lauderdale for a thoughtful speech. I very much hope that power generation, the ordering of power generation and the type of station will be a matter for the industry but after privatisation competition will lead to an immense number of new opportunities. There are already 6 GW proposals from 15 organisations for new power generation. However, once again before we rail at the inadequacies of our nuclear industry we should remember that we have one advantage over the French; namely, we have planning appeals.
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Indeed it is those planning appeals which have been more responsible for the delay in the nuclear industry than almost any other single factor.
I am grateful to my noble friend Lady Carnegy of Lour. Indeed, I owe a great debt to her because during my time at the Manpower Services Commission and afterwards we worked closely together and it was she who brought to my attention the shortcomings as regards literacy and numeracy of unemployed people and thanks to her we conducted the first survey which showed that a significantly higher percentage of long-term unemployed people were suffering from literacy and numeracy problems.
This is very rare, but words fail me at the attitude today of the TUC. I cannot conceive that this is the same TUC with which we worked so enthusiastically to create YTS and yet this is the TUC which in the last few months has contributed to this real insider/outsider example, because unions members in employment are today unwittingly depriving the unemployed of their chance to get back into jobs. I very much hope that wiser counsels will prevail within the Trades Union Congress arid at least it will look back to those days when it worked with the Government, even a Government with whom it could not agree on economic matters but it could agree on matters in the interests of those out of work and in need of training.
I understand the interest of my noble friend Lord Caldecote in the manufacturing industry. I hope that that is an interest which we share. I am sorry that I have disappointed him in the past, but it is not up to people like me to choose which products should be manufactured or sold and in which sectors. Government created British Leyland and British Steel. I cannot say that they made a notable contribution to the state of British industry. I very much hope that we shall create a climate in which industry will grow. That climate is simple. It is 35 per cent. corporation tax, low rates of individual tax and an environment in which industry is growing and growing very fast indeed. As for my noble friend's wish that we should work together with the Trades Union Congress, I hope that Dundee has become but a dim and distant memory.
I am grateful to the noble Baroness, Lady Seear. I am glad that she shares my desire not to make too much of a difference between manufacturing and the service sectors. They are both wealth creation. I have some difficulty with her shifting taxes from earning to spending. If we were to announce that we are substantially to reduce income tax and increase VAT, or go from direct taxes to indirect taxes, that might well be regressive.
Baroness Seear: My Lords, perhaps the noble Lord will forgive me. I shall not give him a lecture on the matter now, but the Institute of Fiscal Studies will be very glad to correct his views about that.
Lord Young of Graffham: My Lords, I am grateful for that. I hardly thought that the noble Baroness thought that. Of course high interest is an encouragement to saving. I believe that national insurance taxes, although they are high, are much lower than in other countries. One reason why I

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would expect us to grow after 1992 is that we have one of the best tax environments in Europe. I suspect that we shall see better economic growth.
One has only to consider the Japanese, who saw the yen go from 260 to the dollar to 125 in just over two years, and what did they have? They had a manufacturing-led boom. There must be ways in which one can deal with that. Today any company can buy and sell forward and deal and cover its short-term risks. I suspect that we shall have to live with the exchange rates if the economy continues to grow.
Perhaps I may assure the noble Baroness, Lady Seear, that I believe that employers today are alive to the needs of training. I can see a considerable difference in attitudes when I go round industry. I think that the penny has finally dropped.
I should like to end my reply to the noble Baroness on a slightly personal note. It is my daughter's 31st birthday today, and I think that she would kill me if I described her as an "older woman"!
I come finally to the noble Lord, Williams of Elvel. I am glad to have his confirmation that mortgage increases are on the right lines. In some ways I wished that he had sat down at that point so that I could have congratulated him totally on his speech. He continues to advocate credit controls. My noble friend Lord Barber knows how difficult that is. I believe that industry today has a clear choice, either to maintain competitiveness or to give unnecessary pay increases. It is a very important matter that I think only industry can decide. If we lose the opportunity and continue this awful habit year after year of looking towards annual pay increases and giving increases in any event, I think that we shall run into severe problems ourselves in the future.
My heart goes out to worried, puzzled Mr. Evans. I can see him now wandering round mid-Wales in a total state of shock. I hope that the noble Lord will give me his address so that I can meet him and put him right.
Lord Williams of Elvel: My Lords, I should be very happy to give the noble Lord the address if he will drive for three and half hours along crowded motorways to get there.
Lord Young of Graffham: My Lords, I shall no doubt find a helicopter!
There must be many points raised in the long debate to which I have not replied. I shall endeavour to write to noble Lords who have raised points with which I have not dealt.
The gracious Speech inaugurates a major legislative programme on environmental and economic affairs for the Session. The proposals in the gracious Speech will further strengthen an already strong economy and seek to address that subject which in the past, at least to the public's mind, has so often taken a back seat to the more prominent and immediate issues with which the Government have had to deal. I refer of course to the environment.
The Government will carry out the proposals in the gracious Speech with the same vigour that they used
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to bring our country to the healthy position that it has so far reached. It is a programme well worth carrying out. It is a programme that we intend to carry out to the best of our ability.
On Question, Motion agreed to nemine dissentiente: the said Address to be presented to Her Majesty by the Lords with White Staves.

Port of Tyne Bill [H.L.] River Humber (Burcom Outfall) Bill [H.L.] Newcastle upon Tyne Town Moor Bill [H.L.] Harwich Harbour Bill [H.L.] Avon Light Rail Transit Bill [H.L.]
Read a first time; passed through all their remaining stages pro forma, and sent to the Commons.
British Railways (Penalty Fares) Bill [H.L.] Greater Manchester (Light Rapid Transit System) (No. 3) Bill [H.L.]
Read a first time; read a second time pro forma, and committed to Unopposed Bill Committees.
London Regional Transport Bill
Brought from the Commons; read a first time, read a second time pro forma, and committed to an Unopposed Bill Committee.
British Railways (No. 2) Bill
Brought from the Commons; read a first time, read a second time pro forma, and committed to a Select Committee.
London Docklands Railway (Beckton) Bill
Brought from the Commons; read a first time, read a second time pro forma, and committed to a Select Committee.
St. George's Hill, Weybridge, Estate Bill
Brought from the Commons; read a first time, read a second time pro forma, and committed to a Select Committee.
Birmingham City Council Bill
Brought from the Commons; read a first time, read a second time pro forma, and reported from the Unopposed Bill Committee with amendments.

Southern Water Authority Bill
Brought from the Commons; read a first time, read a second time pro forma, and reported from the Unopposed Bill Committee with amendments.
House adjourned at two minutes before ten o'clock.