The Free Market Economy

HL Deb 07 February 1990 vol 515 cc842-911

3.4 p.m.

Lord Boardman rose to call attention to the role of a free market economy in creating wealth and thus providing prosperity, jobs and better public services for the nation; and to move for Papers.

The noble Lord said: My Lords, before moving the Motion that stands in my name, perhaps I may say that I look forward, as I am sure do all noble Lords, to hearing the maiden speech of my noble friend Lord De La Warr.

My Motion calls attention, to the role of a free market economy in creating wealth and thus providing prosperity, jobs and better public services for the nation".

We tend in this House on such debates to spend much of our time in talking about social problems such as housing, transport, national health and so on. These are all extremely important and very useful. We usually reach the conclusion that we could provide much better services if only we had more resources. The question is this. Are we as a nation creating enough wealth to provide all that we desire? I suggest that quite clearly we are not; nor shall we ever do so. It is therefore timely to consider what has been achieved in recent years due to the creation of greater wealth, how it has been accomplished and what are the lessons for the future.

I begin by listing a few of the important achievements of recent years. I hope that I do not do so complacently because I recognise that there is much still to be done. The record over the past 10 years is extremely impressive. In the growth of our economy, whereas in the 1960s and 1970s we were at the bottom of the league for major European countries, we are now growing faster than any other European Community country. Our living standards are now at record levels. The take-home pay in real terms for the average family man is up by one-third since 1979. There have been significant increases to all family groups.

Our unemployment numbers are falling faster than in any industrialised country. Since 1983 over 3 million new jobs have been created. More people are in work than ever in the history of this nation. If we consider investment, in the 1980s our investment has grown faster than any other European country. Previously we were at the bottom of the league.

On productivity —a very important figure —the average employee today in manufacturing industry is now producing 50 per cent. more than he or she did in 1980. For the whole of the United Kingdom economy, output per hour is 50 per cent. higher than in Japan and only 5 per cent. lower than in West Germany. That figure is not generally known. I believe that it is one in which we can take considerable pride.

Enterprise as a whole is thriving. There are as many British companies as there are German in the top 100 companies in Europe. Small businesses now starting exceed the number that cease by over 1,200 a week. These are the seed corn. They are the businesses that will be carrying the nation through for decades to come. Under the previous Labour Administration small businesses were closing down at the rate of 100 a week. That is the change. I could go on, but I hope that I have said enough to remind the House of what is being done in providing prosperity and jobs, two of the items that are listed in the Motion.

What about public services? First, there has been a cut-back or transfer out of public expenditure of those jobs than can be more effectively done in the private sector. The savings by contracting out are substantial. I am told that in local government alone there is a saving of £300 million by contracting out services.

The second element of cut-back has been privatisation, where 20 major formerly nationalised industries have been returned to the private sector. There have been great successes on that return. One illustration which I am sure is well known to all noble Lords is British Airways. In 1982 when it was nationalised it was losing £500 million a year and was rated one of the world's worst airlines. I understand that it rated below Aeroflot and Nigeria Airways. In 1989 British Airways made a profit of over £250 million and is now considered to be the world's most popular airline. What a transition, my Lords!

The Government removed from the public sector a number of the activities which could more effectively be carried out in the private sector and thereby they have been able to concentrate more of their resources on priority areas. Again, the results are most impressive. The figure showing the amount of help given to the disabled has more than doubled in real terms. The whole range of family benefits has risen by more than a quarter across the board. They are the benefits which the last Labour administration cut.

In the National Health Service spending in real terms has increased by almost 40 per cent. A more meaningful indication is the translation of those figures into people. There are 70,000 more nurses and 14,000 more doctors. The achievement of the improvement in the public services is most remarkable. Of course, much remains to be done.

As regards law and order, there are 14,000 more policemen. There are still rising crime trends, but the provision of extra police in order to try to deal with them is impressive. I am sure that noble Lords opposite can and will try to identify areas where there are shortcomings or mistakes; we all could do so. From today's personal experience I would put transport high on my list. However, if we look at the trend over the past 10 years, the change from depressing decline to confident growth is remarkably impressive.

How was it all done? How was the wealth created? How were the resources provided to enable those changes to be secured? It was not only luck; there was of course luck —some good and some bad. It was not only administrative skill; that is largely the role of civil servants who, in accordance with their proud tradition, serve governments of all parties with equal dedication. It was not only the quality of the Ministers, although they are and were very good. Certainly, they are the league players in the production and the performance.

I suggest that the key lies in the Government adopting and pursuing free market economic policies. It should surprise no one; the examples are crystal clear. Noble Lords may recall that Aneurin Bevan said, "Why look at the crystal ball when you can read the book?". When one reads the economic book, one can see clearly the lessons that can be learnt of the benefits that come from a free market economy.

Noble Lords can look back to the period between the wars. The history books make clear the fact that during those years domestic and international markets were dominated by widespread protectionism, cartels and restrictive practices. The result was a massive reduction in trade and investment and there was also the great depression.

After the war there was a dismantling of trade barriers and quotas and reductions in tariffs. The progress has been patchy and a great deal remains to be done. However, it is clear that the greater the freedom that was given, the greater then flowed the growth in world trade and the greater was the general prosperity.

I suggest that the lesson most clearly visible today is in Eastern Europe. Those countries which for decades have been deprived of freedom, whether communist or socialist economies, have had ever-decreasing standards of living. The cause of that was not due to the citizens of those countries; individually, they are no less competent or creative than the people of the West. That has been shown by those who have escaped from their countries and made their careers in the West. The economic chaos, deprivation and hardship was due to the political economic regime that they endured. That is why, as one by one they shake off their oppressors, they seek to set up free market economies. They yearn for the miracles of Thatcherism.

The Motion refers to the role of a free market economy in creating wealth. I do not suggest that that means a market free from all guidance and regulations. Of course there must be disciplines and rules just as there must be speed limits and police to enforce them. The distinction that I make is between the rules that are designed to improve the effectiveness and safeguards of the market, and thus add to the wealth creation, and, in stark contrast, the controls that substitute the judgment and ambition of the state for that of the market and the individual. That is the contrast: the former produces the greater prosperity of which I have given examples from the past 10 years; the latter, in the extreme, produces the hardship and poverty of Eastern Europe or, albeit in a much diluted form, the relatively declining standards resulting from Labour administrations.

To noble Lords opposite I must say that there is no convenient middle ground between the two extremes. There is no middle ground where socialist policies can be pursued but concealed beneath a free market camouflage net. I say that because recently I read the Labour policy review document, Meet the challenge—Make the change. I say to my noble friends that to get through it is fairly heavy going, but it is not without interest. In the policy review document some lip service is paid to the free market. However, where that occurs it is quickly neutralised by the threat or promise—depending on which way one looks at it —of government intervention and control if the market does not respond to the party's requirements.

Renationalisation and strategic intervention occur in order to ensure that the free market is kept on a Labour leash. That is sad. I had hoped that at last the parties opposite had learn the lesson that is so plain. It is so clear from the history not only of the past 10 years but of that going back much further. The lesson is that in order to provide the prosperity, jobs and better public services which we all seek for the nation, we must have a free market economy which can create the essential wealth. I beg to move for papers.

3.18 p.m.

Lord Bruce of Donington

My Lords, it must be an occasion of regret that the noble Lord, Lord Boardman, used the debate not 10 reach any constructive conclusion nor to make any constructive suggestion but merely to act in a wholly partisan capacity. His was a partisan speech which, as some of my noble friends may indicate later, contained a number of statistical inaccuracies.

The Motion gives the House the opportunity to discuss the role of the free market economy within the United Kingdom. I was pleased that for once the noble Lord used the phrase "whole nation" and I shall return to that matter later. It also gives the House the opportunity of determining what the role of the Government, and, indeed, of all our citizens, ought to be within the free market economy. Therefore, we are very grateful to him.

Let it be said immediately that the operation of the free market economy in this country and in the West has during the past 150 years brought untold benefits not only to the people of Europe but also to the people of the United Kingdom. Today as a result of the operation of free market capitalism we are enjoying, or at any rate some of us are enjoying, a standard of living which could not have been dreamed of some 150 years ago. I trust that the noble Lords opposite will not regard that as too partisan a statement.

Indeed, the free market has many advantages. It gives a far wider range of consumer choice than can possibly be produced by any centrally directed economy on the Soviet style. Mind you, it produces certain idiosyncrasies, one of which was mentioned by the Prime Minister the other clay when she referred to the level of extremely high transfer fees in football as compared with the standard of accommodation for spectators. There have been other rather idiosyncratic levels of salaries, not by any means confined to the former Chancellor of the Exchequer but enjoyed by pop stars and people of that kind. That is the operation of consumer choice and is rather odd in view of what are generally accepted values. I am talking now of human values and not necessarily bank values which are generally accepted. For example, it is rather odd that a very highly skilled scientist should be paid one-tenth of what is earned annually by a pop star. However, that is one idiosyncrasy which for some time we have had to bear.

We should bear in mind that for the very poor—for at least 20 per cent. of the adult population—consumer choice is very restricted indeed. It not only restricts people as to the goods which they can buy or the services which they can command but it also restricts their sense of freedom because at present for large numbers of our population freedom is only that freedom which can be obtained by the possession of the wherewithal to purchase goods and services. So, indeed, there are imperfections.

We have had a long recitation from the noble Lord. He doubtless wished to mollify the Prime Minister's recently reported "fizzing with rage" by, as a banker, speaking almost as though he was on the Government Front Bench. I hope that, as a banker, he has now made his peace with the Prime Minister.

After all those benefits of which the noble Lord has spoken —the 10 years of progress to which he has referred and the "prosperity" in his Motion, which is almost an obscentiy when we consider the situation of millions of our people in this country—where are we now? Well, we have over 2 million people unemployed and that is before the fiddles were carried out. We have an adverse balance of payments deficit of £20 billion. We have the highest inflation rate among the leading manufacturing countries of the world. We have the highest rate of interest. We have 250,000 homeless people and we have 7 million people living below the poverty line. I do not wish to put it too controversially, as is my wont, but I suggest to your Lordships that those are not particularly impressive results, not by any objective standard.

I respectfully suggest to your Lordships with due diffidence that something has gone wrong. I believe that one thing which has gone wrong is the whole concept in the noble Lord's mind, and I believe in the Government's mind in so far as they have articulated any sentiments which are intelligible on the subject, of wealth creation. I respectfully suggest to your Lordships that real wealth creation means the production of goods and usable services within the Government concept of value for money which they are so prone to raise.

The noble Lord is a banker. How do the profits generated from the pirate acquisition of companies, very often with the aid of the banks and often with vast sums passing and considerable profits made, add to the real wealth of the country? The answer is that they do not. They increase the claims to wealth by a very limited section of the population indeed.

In this House I suggest that we are concerned with taking steps to ensure that the real wealth of our country is progressively increased. That is the end to which all parliaments and governments should address themselves. Quite clearly at present we are not fully using the human resources in our country; otherwise, there would not be 2 million unemployed and probably more —2,300,000, if you count those unemployed as distinct from those eligible for benefit. How can we use those resources to better effect? How can we draw them into the wealth-producing machine, whether it is in the industries which are run by the state or in the private sector? For that purpose that is quite immaterial. Just how can we do that?

Surely one of the first things we have to do is to start treating those who work in industry —I include management as well as those who work on the factory floor or wherever they may work —as ordinary human individuals with sensibilities, dreams, hopes and fears very much akin to those which we ourselves have but which are possibly more intense on their part. We have to make better use of people who are already at work producing and we have to make use of those people who are not in employment. We must use every effort possible to assist the manufacturing industry of this country. I say "manufacturing" because, as has already been pointed out by the Select Committee of your Lordships' House on the question of overseas trade, manufacturing industry is vital to the future of this country.

One of the first things we have to do, therefore, is try, if we can, to offset the Government's often expressed hostility and contempt for the organised working-class movement. We have to substitute for that a spirit of far greater co-operation. We have to project a sense of national purpose, and for that I turn to the Government. We have to draw together all strands of the populations that are involved in the production of goods and services instead of, as has been done over the last few years, the grading down of NEDC.

All those things we must do. Furthermore, as soon as we can we must have an organised and properly projected transport policy because, as the CBI will confirm, a very great cost upon British industry is traffic congestion, which it estimates amounts to some £15 billion a year —a wholly unnecessary charge. It is those matters, together with the training of the people who are there, including the proper education of our children, to which we should be attending. We should seek —I say this as an openly avowed politician with convictions —so far as we can in the United Kingdom to further the aspects upon which we agree rather than expatiate too much on what divides us.

3.32 p.m.

Baroness Seear

My Lords, I begin by asking your Lordships' pardon in that genuinely owing to an engagement that I entered into before I knew this debate was taking place I shall not be here at the wind-up of the debate.

As I listened to the noble Lord, Lord Boardman, I must say that I felt that the noble Lord did protest too much. He would have done his case a great deal of good if he had admitted, before the noble Lord, Lord Bruce, took advantage of the silence and pointed it out to him, the many aspects which are not as good as he would have us believe. There is a long, well known list, including high inflation and the overseas balance of trade. I will not repeat the items; they will no doubt be repeated many times this afternoon. Those things somewhat scar the picture that the noble Lord endeavoured to paint —that everything has gone so well since 1979. In addition there are the people sleeping in cardboard boxes, the rotten state of the roads, the need for much better development on the railways and indeed a high degree of private affluence in public squalor.

That said, we on these Benches need no lessons from any part of your Lordships' House on the value of the free market. We have not fallen for the fallacy of collectivism and central planning. I also remind the noble Lord, Lord Boardman, and your Lordships' House that we were free marketeers in the days when members of the Conservative Party were devout protectionists, very much the developers of cartels and supporters of monopolies. Let me say that one of the benefits of recent years, for which we owe something to the leadership of the Government, is that those false gods have been deserted. All that time —it might perhaps be said because we did not have the opportunity to put it into practice, which was not our fault —we have supported the free market.

However, while recognising the virtues of the free market, we also recognise that the market is an extremely valuable servant but it is not the master. For ordinary commercial purposes most of the time the market is probably the best way of distributing resources. That is a very important lesson that everybody ought always to bear in mind. However, it has to be a genuine market and so often that has not been the case.

As the noble Lord, Lord Boardman, pointed out, we are not talking about a jungle. We are talking about a market with regulations and appropriate controls, having a regard to obtaining the best kind of economy that we can, which is a market economy operating effectively under certain rules, and bearing in mind always that the object of the exercise is to serve the best needs of the consumer.

That implies that there must be genuine competition operating if the market is to be an effective, genuine and valuable market. First and foremost, that means that there must be full information about what is happening in the market. If that is not so, that competition, which is the true benefit of the market, is not there. It must be a market in which there is even weighting between the people who are negotiating, who are bargaining. That is why we have always opposed monopoly in any shape or form. That is why we have fought the Government when they have privatised public monopolies only in order to create private monopolies.

We are totally unconvinced that the introduction of a regulator, be it for gas or electricity, is any substitute for proper competition and proper operation of the market. It is a mockery for the free market to create private monopolies and pretend they are a substitute for the market by introducing a regulator. The idea that some benefit is created by privatising water —which of all things cannot possibly be regarded as a matter for which there can be competition unless we are all to drink Perrier for ever and bath in it —is very difficult to see.

The idea that that is always the best way to do things and that we just have to find out what the market says, whatever kind of market it is, we as genuine free marketeers totally reject. It is not only that many of the so-called markets are not really markets at all and have not created the conditions of competition which are the alleged benefit—and the genuine benefit when you get it —of the free market. It is also true that the market is not always the right instrument to use. The consequences of the operation of the market are not always the final decisive factor to be taken into account in determining what ought to be done.

I remind your Lordships that it was the great high priest of the market economy, Adam Smith, who made it quite clear that there were circumstances in which market forces had to be sacrificed because there was some other policy objective which was more important; that with our eyes open we would say that we would not allow the market to operate in order to achieve some policy objective of even greater importance. In his case, as may be remembered, it was the maintenance of the merchant fleet because of its importance to defence. I do not know what he would have said if he had seen the merchant fleet today, but that is another issue.

So we say that you have to examine and take into account that there are many policy decisions for which the market is not appropriate and many so-called markets which are not really markets at all. Not long ago in your Lordships' House we were discussing training. I argued that it was inappropriate not to apply training to youngsters between the ages of 16 and 18 and to leave it exclusively to the employer to decide what training they should have. I was astounded to be told that the young school-leaver would bargain with the employer to obtain the training that he ought to have; that if the employer did not offer that training, then market forces would operate and the young man or woman would go elsewhere and bargain with another employer to obtain the kind of training he or she ought to have.

Leaving on one side the extreme improbability that the great majority of youngsters would be clamouring for training, what kind of a bargain is it between a young school-leaver and an employer? It is a mockery of the whole idea to suggest that market forces can operate under circumstances of that kind. Another linked example of the way that the market is quite inappropriate is in education and training. In his long list of the great triumphs of the past 10 years the noble Lord, Lord Boardman, did not mention the report that came out only yesterday about the deplorable state of our schools. If it was the market at work there, it does not necessarily take a long view. One of the characteristics of the present Government has been their short-term approach and their failure to take a long-term view. It may be because they have taken too much notice of the signals from the market, which is short-term in its view and not long term.

If a long-term view were being taken we would not be getting reports of the kind to which I have just referred. The long-term economic survival of this country depends on a level of education which cannot be achieved by allowing market forces to operate in that vastly important field. An informed long-term view of economic benefit will not come from the market.

Such a view would say that nothing can be more important than real government investment in education and training. But the Government have done neither because, I suppose, the market has not told them to do so.

I am sure that the noble Lord is saying to his neighbour that the Government have put money into training, and so they have, and more than Labour ever did. I give the Government credit for that. However, the results are still woefully inadequate in comparison with what our competitors have done. The market economy is an extremely useful instrument but it is a servant and not a master. Policy considerations should be worked out on their merits and interventions by government into the operation of the market should be undertaken in the interest of long-term policy objectives.

3.41 p.m.

The Lord Bishop of Manchester

My Lords, many of your Lordships may know that a new report has been produced from within the Church of England called Living Faith in the City a copy of which is to be found in your Lordships' Library. It is a follow-up to the report called Faith in the City made five years ago. To some extent the new report is an update of what has happened since then. As with the original report, the press has at once shown interest in the extent to which it is another example of the Church of England slamming the Government. Noble Lords may have seen a rather delightful cartoon in one of the Church papers which showed a young reporter on the telephone to the bishop who chaired the committee responsible for the report and saying "Look bishop, I do not want to know what the report says; please, just give me the page numbers where it slams the Government".

I wish to make it clear that there is much more in the report than that. It is undoubtedly critical of certain government policies; that is not surprising. In the original report, Faith in the City, there were 17 recommendations to central government and four to local government. Of those recommendations hardly a single one has been acted on. As regards some of them, matters have gone the other way; for example, concerning child benefit. The report concludes that there are still "grave and fundamental" injustices in British society.

So the report is not uncritical of Government, and that is to be expected. Having said that, it is very positive on the role of a free market economy. It gives credit where credit is due in respect of what has happened in recent years —the reduction of unemployment and the bringing of great affluence to many people. Efficiency, productivity, wealth creation and factors of that kind do matter. I know that from time to time the Church of England and its leaders have perhaps been open to the criticism of giving too much attention to the division of the cake and ignoring the production of it which is necessary if our society is to have what it needs. So Living Faith in the City welcomes some of the changes that have occurred.

With the permission of your Lordships I quote from the report: We warmly welcome the major public commitment made by the Government to the problems of the inner cities, and the special attention being given to these issues by local authorities and their associations, the Confederation of British Industry, the Association of British Chambers of Commerce, the Trades Union Congress, the National Council of Voluntary Organisations, and others. The Church of England has been glad to be associated with them". It is important to say that because all too often the impression is given that the Church of England is negative about some aspects of what has been happening. The report quotes with approval the conclusion of the Audit Commission a couple of years ago that private sector-led growth is the main long-term answer to urban regeneration in some of these areas.

But Living Faith in the City goes on to point out that there is a debate within the Churches as to how far the free market economy can really meet the needs of our older industrial areas. I quote again: There is a debate within the Church as well as outside it as to whether a basically market-orientated approach will ultimately be sufficient, acceptable or indeed successful as a means towards the agreed end of removing poverty and dependence". The report points out that it is not good enough simply to point to a future of increasing growth, at the expense of those who are caught up in a cycle of deprivation. The present quality of their lives must not be sacrificed for the achievement of long-term objectives or the good of the rest of society.

I can see something of the effects of this debate in the area from which I come, within my own diocese. Some very good things have been happening. I refer to the remarkable development in Salford Quays, a renovated area which was once in crumbling decline. That is splendid to see. The Trafford Urban Development Corporation and others are bringing new life back into the cities. Your Lordships may remember what Trafford Park was like in the 1930s when it was a great powerhouse of industry and commerce in our part of the world.

In the centre of Manchester and our Lancashire towns and cities I can see things going on which are admirable. On the other hand, side by side with these developments, one can also see the negative situation. Living Faith in the City says: We are disturbed that the situation found in many UPAs today is in reality a tale of two (inner) cities. On the one hand are to be seen shining new workshop units sprouting on sites which until recently were derelict eye-sores constituting the remains of once-thriving industrial plant. On the other hand still exist decaying terraces or council estates where a large proportion of the residents are unemployed, lacking decent health care, educational facilities and other amenities which most of us take for granted. Four years after the publication of the report the verdict of those trapped in such areas is that the situation has not improved and not infrequently is worse than before". I am afraid that people living in those areas would not have recognised the picture that the noble Lord, Lord Boardman, painted. There are regional and class differences. I have only to go into inner city schools to see something of what the effects are on some of the children growing up today.

The wording of the Motion speaks about the creation of prosperity, jobs and better public services for the whole nation and not just parts of it. When we face that issue, to speak of a free market economy without guidance, constraints or restrictions simply will not do. Unless the provision of wealth is encouraged to go in the right direction, the free market can have a negative rather than a positive effect.

I was glad to hear the noble Lord say at the start of his speech that he believed that the market needs guidance and restraint. I believe that those were his words. He sounded as though that was simply to make the free market function more efficiently and not in order to do justice to the people who may be at the receiving end of the negative side of social change. I suggest to your Lordships that in that sense the last thing we want in this country is a free market economy. Certainly, we want a market economy and it has an important part to play. Other noble Lords who have spoken, in particular the noble Baroness, Lady Seear, have also made that point. Unless there are restraints, the market can almost destroy us.

I wish to point to three areas where this factor is important; namely, the environment; protection for workers and communities; and the danger of too much concentration on competition and profit. As regards the environment, I believe that we are all now largely agreed in your Lordships' House that there are tremendous environmental dangers facing our society and our world. Of course, controlled demand economies have done enormous damage to the environment —one has only to look at Romania or the Soviet Union itself to see what has happened there —but so has the ruthless and greedy search for profit on the part of capitalist economies. That also has done immense damage to the environment in the past, particularly in the 19th century. We are sometimes urged to return to Victorian values but we should think how in the older industrial areas we are still dealing with the negative side of that philosophy.

The same is true of the present. After all, what is the source of the threat to the survival of that noble animal, the African elephant, if it is not the search for uncontrolled profit? How deplorable to see our own Government giving way on the destruction of ivory stocks instead of taking a lead in this matter. Who is responsible for cutting down the forests of Brazil if not free market forces working to obtain profit where they can? While one can point to many examples of controlled demand economies, such as those in Eastern Europe, which have produced devastingly negative results for their peoples, one can also point to the same in uncontrolled capitalist economies, in El Salvador or wherever one wishes to mention. I suggest that the environmental damage that can be done by a free market economy is very considerable and that there is a constant need for constraints.

I turn to the matter of protection for workers and communities. This is absolutely essential today. It is sad that at the moment such protection is being seriously eroded, for example, by the weakening of wages councils. The noble Lord, Lord Boardman, mentioned as a splendid and positive point the privatisation of services related to, for instance, the National Health Service. That can have negative results too. How are these savings being made? Are they being made by saving on the wages paid to workers in already low-paid industries? There is strong evidence that that is happening.

I turn now to the European Social Charter and to your Lordships' Select Committeee report on the subject. There is at present a general debate on what constraints should be applied in the interests of protecting workers. It is sad that we are the one country which has not been able to accept the proposals of the European Social Charter. They are not radical proposals. They argue for a social dimension. If ordinary people are to have a sense of participation in 1992, the gains in efficiency and competition should be balanced by tangible benefits which can be felt by citizens throughout the Community. In Greater Manchester, Church leaders have come together and have studied what has been said about the social charter. We have written to our European Members of Parliament asking them to give it their support. We believe this to be fundamental both in the interests of fair trading with the Community and also for the protection of workers and communities.

The last point for which I have time concerns the question of competition and profit. The trouble with the free market economy is that it is based on self-interest and the search for profit. That is not necessarily a bad thing. We have to recognise the need for self-interest. It was William Temple who said years ago: A statesman who supposes that a mass of citizens can be governed without appeal to their self-interest is living in dreamland and is a public menace. The art of government in fact is the art of so ordering life that self-interest prompts what justice demands". Perhaps those on the Left have sometimes remembered too much the dangers of self-interest and the need for idealism; but those on the Right sometimes think too much of self-interest and too little of what justice really demands.

It is significant that in these days the higher values of community and co-operation are more than ever needed in our society. That is one reason why many young people —some of the best of our young people —are not all that enthusiastic about industry. When they look at what is happening in the City and see the enormous salaries being offered and the kind of competitive world that the City represents, that does not give them the sense of values and the sense of idealism they need.

3.56 p.m.

Earl De La Warr

My Lords, I am grateful to my noble friend Lord Boardman for introducing this debate and for giving me an opportunity to address the House for the first time. I must tell the House that I have just enjoyed an excellent lunch in your Lordships' Refreshment Room, where I was mistaken for a waiter. I am in fact a stockbroker. But having just seen the level of the Financial Times index on the tape before entering the Chamber, I am tempted to ask the noble Lord, Lord Ampthill, for a job in his excellent department. I have in fact worked in the City for more than 15 years and I hope that in some small way I may be able to contribute to this and future economic debates.

I should like to begin by saying a few words on how some of us in the City view recent events in Eastern Europe and in that way broaden the subject of this debate. As we observe the apparent collapse of the old order in Eastern Europe it is easy to think that those countries are learning a lesson from us. But equally we should be learning a lesson from them, the emerging democracies. Surely Marxism got it wrong, for capitalism has not destroyed itself by over-production; instead communism has destroyed itself by under-production, a direct result of centralised planning. The communist world is quite clearly bankrupt. It has proved incapable of supplying even the minimum requirements of civilised society —that is, enough to eat and the hope of something better in the future.

Yet even now, as these realities are demonstrated daily before our eyes, some in the West still argue that our system requires more, not less, regulation. To listen to them one would think that we were in the business of snatching defeat from the jaws of victory, at just the moment that the free market economy has demonstrated its superiority. Some say that it is a time to backtrack and to put tighter controls on the system which has brought us our prosperity. To me this confuses two subjects —how wealth is created, and how it is then distributed, for want of a better description. History has proved that it is dangerous to confuse the two. One is the means and the other the end. We cannot provide the prosperity, jobs and better public services that we all desire without the free market economy, which has proved itself to be the most efficient creator of wealth.

The history of the past 50 years has taught us that without a market economy we cannot create the necessary surplus. With a market economy we can fulfil public needs, but without it we cannot. Let us consider the past 10 years. The Government, by the fuller implementation of market economics—the reform of taxation, both business and personal, and the transfer of the nationalised industries back to the private sector—have surely vastly increased the resources available to the public services. Spending on the health service and on the infrastructure, to name but two areas of legitimate public concern, have both been increased. That would not have been possible without the freeing up of market forces which has increased efficiency.

Talk of more regulation misses the point: a reversal of the thrust forwards towards a free market would only limit the resources available. The City, the bastion of free markets, has a key role to play. It is emerging from its own reform, the Big Bang, designed to give a freer rein to market forces. It has not been a painless process, but it has, I believe, resulted in a strengthening of the Stock Exchange, improving the efficiency of the allocation of capital: without that, the free market cannot operate.

As your Lordships are no doubt aware, Stock Exchange activity is almost unheard of in present day Eastern Europe, but as the economies strengthen we can look forward to the development of national exchanges. It is worth noting that the Budapest Exchange meets once a week for a few hours. I hasten to add that that is a lifestyle which some of us in the City might envy. However, I return to my main theme. I suggest that it would be ironic if, just when Eastern Europe is reforming in our direction, we ourselves began to backtrack. I can do no better than borrow the words of Mr. Vaclav Klaus, the Czechoslovakian Finance Minister, who recently said: We believe in a market economy with no qualifying adjectives".

4.2 p.m.

Lord Boyd-Carpenter

My Lords, I am sure that I express the view of all your Lordships when I convey my congratulations to the noble Earl, Lord De La Warr, on a really very remarkable and highly impressive maiden speech. The noble Earl comes from a family which has some centuries of highly honourable public service behind it. He is clearly in a position to contribute to your Lordships' debates up-to-date knowledge of the workings of our financial system, and to address most interesting and stimulating arguments arising out of that knowledge.

I was glad to hear the noble Earl say that he hoped to be able to contribute to economic debates in this House in the future. I am sure that if he does so, he will be listened to with very great interest and attention. In the meantime, we all wish to say how well he acquitted himself with what is, let us all face the fact, the ordeal of a maiden speech. We all hope that we shall hear from him many times more in the future.

However, I cannot speak in precisely the same terms about the speech made by the noble Lord, Lord Bruce of Donington, when he opened the debate from the Opposition Front Bench. The noble Lord attacked my noble friend Lord Boardman rather fiercely and suggested that his speech lacked constructive proposals. I do not think that we can have been listening to the same speech. In my view, my noble friend put forward a clear and constructive series of ideas and proposals. Moreover, if the noble Lord, Lord Bruce of Donington, does not agree with him, that seems to me to be more of a reflection upon him than it is upon my noble friend. He also attacked my noble friend for indulging in political controversy. Surely that is a subject upon which the noble Lord, Lord Bruce of Donington, speaks with immense authority. I am sure that that splendid example of Satan rebuking what he believed to be sin will have given a great deal of pleasure to your Lordships.

I say that because the noble Lord, Lord Bruce of Donington, went on to distort the unemployment figures and cast a wholly unjustifiable reflection upon the devoted officials who provide the official figures. I am sorry, but I must insist on what I say. I even jotted down some of the words he used. He said that the figures had been fiddled. If he does not regard that as a reflection upon the people who produce them, then I would be very surprised indeed to know what are his standards.

We have thus far had a splendid debate, splendidly introduced by my noble friend Lord Boardman. He has the dual qualifications of having been both Chief Secretary to the Treasury and chairman of our largest national bank. Therefore he speaks with very peculiar authority on such matters. He presented to your Lordships the very interesting clash between political philosophies which exists in this country today. It is a clash which manifests itself in the approach to taxation and public expenditure and in all those vital questions related to such matters.

There are two philosophies. There is the one which believes that the first object of policy should be the creation of wealth so that there may be enough wealth available, without imposing upon it restrictions which will inhibit its future growth, to go on improving the benefits which government are able, through the proceeds of taxation, to give to the least fortunate members of our population; and to provide for all the other national needs of which national defence is far from the least. That approach says that unless and until you have produced enough wealth, you cannot do even a fraction of the good things which you want to do and which all social reformers or social workers wish to do.

The rival philosophy is that you should do the good things which you want to do —for example, for the relief of poverty and hardship and for the provision of the necessary services of government, and so on —regardless of whether you are affecting the means of producing the wealth to do so. That is a philosophy which has been tried out. It was tried out in the late 1970s. However, we ended up by having to bring in the IMF to bail us out. It is an approach which is perfectly understandable, but it is one which ignores the fact that unless and until you produce the means, you cannot do all the good things which all of us in all parties in this House wish to see carried out. That is the clash which this debate embodies.

Your Lordships may remember the words of the late and very much lamented lain Macleod. He said: Money has been described as the root of all evil. It is also the root of everything else". Of course that is true. Therefore the concentration which is needed on the production of wealth is the vital key to all the problems that affect us.

Many noble Lords, myself included, have often spoken in this House and said that more money should be spent on one cause or another about which we have felt strongly —and, perhaps justifiably. However, we come back to the fact that there is no rule of nature which says that, because of his nice blue eyes and fair hair, the Englishman should be entitled to one of the highest standards of living in the world. It is only if that standard of living is earned that Englishmen will enjoy it.

If your Lordships want an example of the practical working of the free market system on the one hand and of state management of the economy on the other, your Lordships have only to look at the contrast between the standards of life in the United States and the Soviet Union and the enormous difference in the amount of wealth which is earned and which therefore is available to sustain standards of life. There is a certain irony in the Labour movement. I have never known a more absurd phrase than "the Labour movement", because the Labour Party is the most static organisation in the world; it lives in a perpetual intellectual traffic-jam into which I think it has been clamped by some of its leaders. Let us contrast that with the communist world which is fed, almost literally, to the teeth by the absence of material for its teeth —the shortage of food —and is moving towards the market economy.

It is the curious reflection that at the time when the whole of Eastern Europe is coming to the conclusion that the poverty and hardship which it has endured over the years is due to a system of state control and state management, and that it can hope for improved standards of life by moving to a free market, noble Lords opposite, and the party they represent outside, should solemnly feel that the free market should be inhibited, and that we should return to state management and all the rest of it.

The noble Lord may say, "We do not really oppose the free market, we want a mixed economy".

Lord Bruce of Donington

Hear, hear!

Lord Boyd-Carpenter

My Lords, I am glad that the noble Lord says that because I was about to add that experience has shown that a mixed economy is a mixed-up economy. That is exactly what happens, because it is the areas of state control and government-controlled industry, and all the rest of it, which inhibit the working of the free market side of the economy and lessen its effectiveness.

I can recall the experience that I had when chairman of a major cement making company. We discovered that the only way in which we could obtain coal for our works at a reasonable price was by indicating to the Coal Board that if it did not cut its prices to us, we would import coal from halfway across the world at a much lower price. It is a serious reflection of our public ownership system that it was cheaper—it still is I believe—to import coal from halfway across the world than to buy it from our mines because of the state regulatory system. It is clear that the mixed-up economy is not the answer.

I do not disagree in certain respects with some of the things that the right reverend Prelate the Bishop of Manchester said about the necessity for the Government to regulate certain activities. If we want to give to all our people the highest possible standards of life, we need to widen considerably the free market economy not for any doctrinal reason but because that is the only way that it can be earned.

Anyone who can look at the facts can see how over the past 10 years that has been demonstrated. When the history of those 10 years comes to be written, it will be found that they were a great 10 years in this country's history. Thanks to the leadership of a great Prime Minister, we have built up an enormously improved standard of life and art enormously stronger economy. It has been by following those doctrines, which my noble friend Lord Boardman outlined in his opening speech, that that has been done and that achievement has been effected. I am sure that it will be regarded as a triumph for my right honourable friend the Prime Minister and for the theories and policies for which she stands.

4.15 p.m.

Lord Donoughue

My Lords, I am happy to begin by congratulating the noble Earl, Lord De La Warr, on an excellently argued speech. We look forward to many more contributions from him. He does not need reminding that he comes from a family with a tradition of considerable political independence. We also look forward to that. Perhaps I may give him a little advice as a fellow member of the Stock Exchange. One of the delights of coming to this place is that one has no need to look at the FT share index and its depressing effects. I recommend him to look just at the opinion polls, which are much more encouraging. I should like to be as generous to the noble Lord, Lord Boyd-Carpenter, but not today. He was unfair to my noble friend Lord Bruce over the unemployment figures. I am sure that he was not reflecting upon the great band of civil servants. Speaking as a patron of the London Symphony Orchestra, I know that if there is any disharmony the blame lies not with the fiddlers but with the conductor.

The debate comes at an opportune time and we thank the noble Lord, Lord Boardman, for raising the issue. It is opportune because, as others have noted, we see every day before our eyes the discrediting of extreme ideologies. The collapse of East European centralised state Communism will give great comfort to the people who have suffered under it and those who have opposed it from within and without.

It is not only Soviet dogmatism and extremism which is in disrepute; and here the noble Lord, Lord Boardman, who I am sure was hoping to assist the Government, may find that he has not wholly succeeded, because the debate will also expose the ways in which the Government are increasingly boxed in by their own free market dogmatism, extremism and rhetoric.

As others have said, it has become a tradition for everyone to bow to the free market. I happily do the same because we welcome the advantages which open markets bring in terms of disciplines and incentives. No one has yet invented a substitute for the markets in terms of allocating resources and determining prices. The sad experience of monopoly industries and services, whether public or private, illustrates how managements deteriorate and the customer always comes last when the market disciplines are absent.

Some of the problems of the 1960s and 1970s—problems often exaggerated as the rate of growth over that period was higher than in the past decade—under both Conservative and Labour Governments, were made more acute by the absence of those disciplines and incentives. There have been benefits in the past decade. There is no point in arguing that one side is totally right and the other side is totally wrong. There have been benefits from the attempts to introduce competition into areas where previously cosy cartels of producers exploited the public. Some of the nationalised industries and local government services needed stirring up. For that same general reason, I broadly support the approach of the noble and learned Lord the Lord Chancellor to the legal profession. However, the additional benefits to be secured from that process of injecting free market stimulants are now virtually exhausted. The Government appear addicted to the drug, and the patient's health is suffering from an overdose because the most pressing problems in Britain today are not curable by free market economics. Go out into London, my Lords, and ask any man or woman what are the problems. What is irritating, frustrating and hurting him or her? That is not hypothetical. Opinion pollsters ask those questions regularly, and there is no debate about the answers. The answers are clear.

The problems are these. The first is transport. The noble Lord, Lord Boardman, quite rightly brought that matter up. The Underground, commuter railways, gridlocked roads, crowded airports, all these are involved. On health, there are terrible waiting lists for hospital treatment, the shortage of GPs in inner city areas, the disastrous lack of facilities for treatment in areas such as those to do with psychiatric and demented people. Housing has been referred to. The number of homeless people is a record and the cardboard cities are a symbol of rampant free markets. For myself, as for the noble Baroness, Lady Seear, the most important area is education. There is the disgraceful inadequacy of schooling, as illustrated in the report this week by the inspectorate, and the inadequacy of training for young people. In other areas such as the arts, free markets never have provided and never can provide a healthy cultural climate. The environment has been referred to and is currently a fashionable topic. I mention even areas of social behaviour and law and order where there is no partisan view, but extreme free market philosophy does not necessarily always set the right example.

These are the problems which daunt our citizens. None of them can be solved by the free market philosophy. Some may be helped; some may be made worse. Even when we look at those areas where the free markets are most appropriate, we should be wary of accepting the Government's propaganda of success as set out by the noble Lord in his opening speech. He quoted some of the league tables. We hear tables in debate after debate and noble Lords know that it depends which league tables one chooses. I am sure that all noble Lords here are pleased at those league tables showing Britain doing better. The productivity table is a particularly good example.

But by most benchmarks Britain is now languishing at or near the bottom of those league tables. Noble Lords shake their heads, but perhaps we may look at the Datastream International indicators. The dozen leading nations of the world are clearly published and the indicators are quite independent. Britain is bottom in terms of inflation, production and current account deficit. That current account deficit, at nearly 4 per cent. of GDP, is not only the worst in history—much worse than when the IMF came in—in total it is more than the cumulative deficits of the entire Labour Governments of 1974 to 1979. So the noble Lord should not mention the IMF too often or it may hear him and come here. Those are short-run failures with which we bore the Government again, only because they bore us with their successes.

Lord Joseph

My Lords, in his speech the noble Lord makes so many relevant points that I ask him to withdraw one point which he made. The deficits under the Labour Government reflected massive government overspending. It is totally different now where we are running a massive government repayment of debt.

Lord Donoughue

My Lords, we are running a government surplus but the noble Lord refers to a time when we did not have the benefit of £80 billion of North Sea oil.

Matters of more concern are the longer term World Bank tables, for instance, on the proportion of young people in tertiary education. There we come bottom. In spending per household on education we come bottom. The latter area is the most critical. These tables change and we can pick and choose among the many economic tables, but they are the future of our country. If we are not performing well there now, we shall not perform well at all in the future.

Not only is capital investment currently collapsing but investment in human resources, industrial training and research and development are all cut in real terms in the latest Autumn Statement. I wonder whether the noble Lord, Lord Boardman, noticed that it was the economic adviser to his National Westminster Bank who told the recent conference of the Institute of Economic Affairs, a distinguished institution and one which is not particularly Left-wing, that the Government's record on education and training was "appalling" and "execrable".

The noble Lord referred to privatisation—and the Government always talk about it—as a contribution to the better working of our economy. I shall not attempt to defend all the public corporations which have been or may be privatised. I accept that the performance of British Airways is commendable, notably in an atmosphere of international competition. But I argue that in many cases privatisation is not a solution. It is often a red herring, a dogmatic spasm. In many cases ownership is irrelevant, whether public or private. I have felt this about many of the previous nationalisation proposals and I feel it about the many privatisation proposals.

The problems of many industries are not solved by changing the ownership, especially not into a private monopoly, and certainly not in the cases of water and electricity. What matters is efficient provision for public and social need. Competitive markets can contribute to that, but they are only a device. They are a means, not an end. They should be part of a properly balanced economy which also gives a priority to the social infrastructure and which has as its end a better quality of life for all.

4.27 p.m.

The Earl of Limerick

My Lords, it is helpful that my noble friend Lord Boardman has given us a chance to address this wide subject this afternoon. I wish to add my congratulations to my noble friend Lord De La Warr on an interesting and thoughtful speech. We look forward to hearing his future contributions.

It is always a pleasure to follow my former colleague the noble Lord, Lord Donoughue, but I shall resist the temptation to follow him down his broad, macro-economic avenues. I shall use my time rather to take up that part of the speech of my noble friend Lord Boardman which dealt with smaller companies.

Others have ranged and will range later widely across the whole broad breadth of the macro-political and economic spectrums. By contrast, I should like to look at the Motion through micro-spectacles from two points of view. The first is the proliferation of public-private development initiatives which have recently been growing, built upon an enlarging confidence in the enterprise culture. In this enterprise agencies play a key role but they in turn are dependent upon the partnership of private funds flow, especially as the role of private contributions moves from start-up to include development financing.

The new and entirely welcome development is the TECs, the training and enterprise councils. In that the "E", enterprise, is the key element. That was stressed in the December 1988 White Paper Employment in the 1990s. The government input into the partnership in terms of administrative support for vetting, monitoring and aftercare is the indispensable element. But the private institutions will participate only in the commercial sense, not regarding this as charity but substantially in a commercial sense through such initiatives as task forces, training agencies and now under the umbrella of the TECs.

Let us see what has been happening in recent years. In the 10-year span from 1979 to 1989 there has been a net increase of some 300,000 in the number of VAT registrations. The rate of new company formations is growing: in 1986 it was 500 a week; in 1988 it was 1,200 week. It has to be high, because inevitably with this form of small enterprise there is also a high fallout rate. Indeed a survey conducted in 1987 showed that only 50 per cent. of the companies then responding with VAT registrations were more than five years old. so there is a big fallout, but people are learning a great deal about business culture.

Secondly, as regards the impact on employment, between 1985 and 1987 there was a net addition of 290,000 to the employment register from firms employing from five to 19 people —small firms by any definition. At the same time, the increase in companies employing more than 20 people was a mere 20,000. Those figures, surprising as they are, come from the Department of Employment's Small Firms in Britain.

The number of self-employed people was 2 million in 1979 and 3 million in 1988. In the latter year they accounted for some 15 per cent. of the workforce. So the emergence of these TECs is a feature entirely to be welcomed. There are some 55 currently in the development funding stage and the first few should come on stream from 1st April. This is a new area of real hope.

Alongside this there are private initiatives conducted by those such as Business in the Community which has an admirable programme into which feed the individual efforts of many companies, including the bank of which I speak. A small programme of projects exists in Tower Hamlets. There are 20 initiatives to date which we monitor. We advise prople, mostly Asian who are starting up. I am happy to say that to date there have been no defaults. So there we see a small growth in an enterprise culture.

My second perspective on this topic is from even further down the micro-scale. I make my point in relation to what is happening at the border between education and the local community, particularly by reference to the Outreach work of the City of London Polytechnic, of which I am chairman, into the east London boroughs. It is an instructive and sometimes inspiring lesson in what can be achieved by the skilful and often dedicated use of tiny resources.

Since 1976, the polytechnic has been exploiting its strategic location to research, design and mount programmes aimed at meeting the convergent economic and educational requirements of the City and of east London—it was one of the first polytechnics nationally so to do—and to refine its education and training provision on behalf of its employer and student clients.

Recent reports from NEDO, CBI, IMS and the like confirm what we now accept almost as commonplace—the projected skill shortage faced by employers seeking to take people in the younger age groups. They also confirm the required counter-measures, which include planned recruitment from non-traditional groups—ethnic minorities, women, people with disabilities and the older age groups—backed, as they must be, by quality training and retraining programmes for new and higher level skills. So far, although we may appreciate this, too few employers have grasped the problem and the remedy to it, which has to lie with a training programme.

In referring to the City Poly, of course, one speaks of a certain advantaged location. First, there are the rising school rolls, in contrast to most of the country, resulting from a rising birth rate in the adjacent boroughs of Tower Hamlets and Hackney which buck the national trend. Then there is a large local pool of under-employed labour, which is suitable, after training, to join the City workforce and which is well motivated to do so given the availability of employment close to home.

The implications, from a public policy point of view, are for a programme targeted on groups currently under-represented in employment, sponsored jointly by the local education authority, now the City Corporation, and the polytechnic, to meet the Government's aims in respect of access and equal opportunities, as expressed in the Education Reform Act, and to act as a measureable performance indicator to such bodies as the Audit Commission, the Equal Opportunities Commission and so on.

The programme has been running for almost 14 years and is regularly reviewed and refined in response to changing needs and experience. Significant numbers of local residents are coming forward, contacting the polytechnic and using courses and services provided also through the community liaison programme.

I shall mention briefly, because that is all that time permits, some of the programmes of which I am speaking. There is the setting up of a special education advice service for Bengali speakers with interpreter support. Within almost hundreds of yards of the heart of the City of London one is talking about a problem not only of language but also of dialect. Then there is the institution of a pilot "schools links" scheme in four local schools, the aim being to establish a close, reciprocal relationship between the polytechnic and pupils in the third form with mutual visits and project work, which it is intended will raise motivation and awareness of opportunities, and lead to improved participation in education and training in the post-16 age group.

My last example is the small business management skills training programme for ethnic minorities which covers both women —that is sponsored partly by the Financial Times—and Bengali speakers. These courses have to be run on the doorstep of where the clients live. Some of your Lordships may yesterday have seen the programme on BBC 2 dealing with Brick Lane. We saw one side of Brick Lane, the development side and the many shops, but not so much the other side where the community is living in extremely cramped conditions and looking for some means of reaching out to a better future.

There are, of course, resource implications. Funding comes partly from the Home Office under Section 11 for staff costs, partly from the DES education and support branch, and in the past we have enjoyed strong support from the ILEA. That is now being taken on under discussion with the City Corporation. But we have to charge for these courses; otherwise we should not be able to provide them.

I should like to give your Lordships one or two examples of the many courses that are available. There are two courses, both of 15 hours in the evenings, called Starting in Business and Computer Skills for Small Businesses, each with a fee of around £100. There are two more full-time three-day courses on basic book-keeping and company accounts for non-financial managers, each costing £250. At the other end of the scale, and kept deliberately at an affordable rate, are courses run by the ethnic minority business development unit. These are Small Business Management Skills, consisting of 10 weeks of two or three hours per week in the evenings, at a total cost of £20 and Computer Applications for Small Businesses, a course run especially for Bangladeshis, costing £20 for one day a week for 10 weeks. So that is what one institution is trying to do.

I conclude very quickly by saying that the educational aspects are obviously for another debate on another day. The lesson I learn is that very few people want to rely on state handouts and still fewer want to be unemployed. There is a vast reservoir of would-be entrepreneurs on a micro-scale whose involvement in gainful activities has as much social as economic benefit. Hundreds of thousands of people, many of them within five miles of where we sit, lack only a helping hand to get them started. There is an untapped resource of real importance, the key to which need not be expensive. Let us recognise and encourage the many good initiatives which are increasingly to be seen, and let us argue for more resources to expand that good work.

4.40 p.m.

Lord Joseph

My Lords, I agree warmly with much that has been said by every speaker. I congratulate my noble friend Lord De La Warr upon surviving so effectively the ordeal of his maiden speech.

We see in the newspapers every day a recognition by many people in Eastern Europe of the old saying that free enterprise is the necessary, though not the sufficient, condition of freedom. I should go a shade further even than the noble Lord, Lord Donoughue, and say that capitalism, subject to the law and competition, is the least bad system yet evolved for increasing jobs, raising prosperity, providing decent public and social services and preserving freedom.

In this country we have seen much progress over the past decade. Not the least part of that progress is the recognition by the Labour Party, Her Majesty's loyal Opposition, that there is something in the market. Whether their policies will so qualify their acceptance of the market that they wreck its dynamism, no doubt we shall explore in debates over time. At least they no longer tie themselves to old panaceas that have proved unworkable. I am sure that this country will do much better if most of the voters do not believe in magic wands. That is why I believe that common ground in diagnosis between Her Majesty's Government and Her Majesty's loyal Opposition is very good in every way. There will be plenty to disagree upon.

I have said that there has been much progress over the past 10 years, but there is still much to do. I am constantly mortified by how much more prosperous our neighbours in North-West Europe appear to be than we are. I am even more mortified to find that they have achieved that apparently higher level of prosperity —coupled with decent public services, decent social services and political freedom —under governments which have sometimes had the at least nominal word "socialist" in their title. Even the socialist governments of those countries appear to have been able to provide greater benefits for their people than we have achieved here under various governments.

We need to consider why we lag behind. Your Lordships may often have thought about it, but it needs to be considered again. I believe that one of the reasons —perhaps the main one —is that for generations, under governments of all parties, we in this country have countenanced a culture which is hostile to the imperatives of prosperity, job creation and the private affluence which is necessary, as one noble Lord has already said, if there is to be public affluence. One cannot have public affluence and private misery. Those neighbours of ours, in Scandinavia, in North-West Europe and increasingly in Southern Europe as well, seem to have achieved the trick better than we have. It is enormously to the credit of my right honourable friend the Prime Minister to have recognised the need to create in this country a framework that will encourage business to benefit all the people of this country. I was glad that the noble Baroness, Lady Seear, paid brief tribute to that recognition.

In this debate I should like briefly to identify four or five issues that are relevant. In general those issues embody both cultural attitudes and policy making. Therefore, in as much as they contain cultural elements, they are particularly intractable for any government, however well intentioned, to grasp.

The first issue is the extraordinary business of productivity. There is no doubt that, as my noble friend Lord Boardman said, we have made a leap in the last 10 years. However, so have our competitors. Businesses in North-West Europe, let alone in other countries, have increased their productivity from a far higher base than we had, so that the gap remains enormous.

Lord Williams of Elvel

My Lords, will the noble Lord permit me to intervene to seek clarification? Does he accept —and I hope that he does, as it is a matter of statistical fact —that, as he said our manufacturing productivity has gone up very greatly but total economy productivity has not progressed at the same rate?

Lord Joseph

That is probably true, my Lords, but it is very difficult to measure the productivity of hairdressers, for example. There are statistical difficulties in measuring service productivity. Nevertheless, our neighbours have the same problem. In terms of the gap that is reflected between our own and overseas markets and of the impact of overseas manufactures coming into our shops, it is manufacturing productivity as well as service productivity that matters.

I must point out to the noble Lord, Lord Boardman, as I am sure he knows, that we are only superior to the Japanese in productivity because they keep their unemployed on the farm and in the high street. In manufacturing terms, they are far ahead of us. They overman their shops and their farms, partly to keep their unemployment figures low.

It should be obvious to management and trade unions that unless one is internationally competitive and profitable one will lose markets. That is why higher productivity should be second nature to management and to trade unions. I for one am very glad to see that some trade unions—notably the electricians and perhaps some others—seem to have adopted that truth. Many managements have raised markedly the productivity of their manufacturing operations. However, we still lag behind.

The second economic point that I want to make is that when we debate employment we seldom ask where jobs come from. The House may have heard me say before that I believe that jobs come ultimately from a person for whom we do not even have a word in our language —namely, the entrepreneur. I do not believe that that is generally perceived. I do not believe that even our intellectuals or many of our journalists understand that the risk-taker is imperative for the market economy. That is why we have to accept discrepancies in earnings and in wealth, just as people who take risks accept the sharp precipices in their way when they take risks. They are wealth creators and we need them. We need them for jobs and for the earnings that will sustain decent public and social services and decent pensions.

The Lord Bishop of Manchester

My Lords, I hope the noble Lord will forgive me for intervening. Is he suggesting that there should be no limits to the differentials beteween the salaries necessary to attract entrepreneurs and poverty? Can they rise as high as entrepreneurs like?

Lord Joseph

My Lords, I believe that entrepreneurship —which is not a gift that I have —is motivated to some extent by money. However, I believe that it is also motivated by a search for fulfilment, for satisfaction or for power. In answer to the right reverend Prelate, I should say that no limit should be laid down in law. Taxation has an effect upon different earning levels. Competition, the satisfaction of markets and the law are the disciplines upon entrepreneurs. The answer to that question, in my view, is no.

How do we encourage people to be entrepreneurs? All that I can say in this debate is that it would be a great help if the intellectuals, the journalists, the school teachers and the university dons did not disparage business as easy, contemptible or grubby. I believe that attitudes are changing, but there is a great deal further to go before we achieve the level of respect for businessmen —subject to the law and competition —that exists in North-West Europe.

The third point is very banal, but nevertheless difficult. That is the difficulty that we have in this country in achieving monetary continence. We have to accept that that is partly cultural and partly the result of policy. As one of those who so eagerly espoused the phrase "monetarism" all those years ago, I wish that I had persuaded my colleagues to use the phrase "monetary continence", because not even Her Majesty's Opposition at that time could have been in favour of monetary incontinence.

I move on to a subject that is even more difficult than the foregoing; namely, standards of education. One of the saddest things that has happened in this country has been the trahison des clercs which has led the intellectuals of this country and those concerned to ignore for so many years the raw deal that this country has given to half its children in offering them such low standards of education. How we shall put that right, who knows? I hope that the Government's present proposals —Her Majesty's Opposition have put no different proposals on the table —will make a great difference to those who have done least well out of our present education system. We all recognise that we have given a rough deal to many of our children.

Perhaps I may now turn to my final point. On the borderline of culture and policy making is our treatment of poverty. Every person in this House is, I imagine, in favour of helping as much as we can those people who cannot help themselves —the disabled and many other groups. However, in the design of safety nets we must be careful not to encourage dependency. Most of us have read Charles Murray's impressive books on what has happened with the best will in the world in America, where massive expenditure has led to an increase in the poverty that it was intended to curtail. I am not saying that we have reached that point, but there is a danger of ill-conceived, well-intentioned safety nets hurting people in this country and taking away money that could go to those people who cannot help themselves.

In a restricted debate one must necessarily pick out a few points. Before I sit down perhaps I may reiterate one message. The market, subject to the law and to competition, is the least bad system yet evolved to serve human needs, including jobs, prosperity, decent public and social services and freedom. Above all, it is improvable. We constantly strive to find ways to create a better framework within which the market can do its benign work. The alternative frameworks to the market, as seems to be generally agreed in the House today, are worse.

4.53 p.m.

Lord Roll of Ipsden

My Lords, I join with other noble Lords in congratulating the noble Earl, Lord De La Warr, on his maiden speech. As a denizen of the City, I naturally look forward to his future contributions, particularly on financial matters.

How to improve the performance of our economy and secure the social advance which should be its concomitant is a subject of which the House will rightly never tire. We must therefore be grateful to the noble Lord, Lord Boardman, for having given us yet another opportunity to debate it. I confess that I was made slightly uneasy by the terms of the Motion. I thought that we might be invited to make one of those ritual genuflections before the free market and that that would produce, as it were, an equally ritualistic antagonism. On the whole the debate has been fairly free from that. The noble Baroness, Lady Seear, and the noble Lords, Lord Donoughue and Lord Joseph, have from three different points of the political compass taken an extremely balanced view of this fundamental question of the market.

The market is a most remarkable social phenomenon. It arises partly from what Adam Smith called over 200 years ago the natural propensity of mankind, to truck, barter and exchange". In part it arises as a piece of organisation, sometimes a highly specialised piece of organisation such as the Chicago Board of Trade for commodities or the international Stock Exchange in London for securities.

As such, it is often an effective and suitable instrument for determining prices and allocating scarce resources. However, I find it rather odd that it should sometimes be treated with a reverence which makes even the slightest doubt of its ubiquitous and permanent beneficence almost akin to being, as our American friends would say, "against motherhood". We should remember the good English and Scottish principle of utilitarianism. These human arrangements must surely be judged by their usefulness. We occasionally have a habit in these matters to become almost doctrinal fundamentalists and as Cartesian as we often wrongly accuse our French friends of being.

That arises particularly when the word "free" is almost indissolubly linked with the word "market" and when, in addition, it is implied that the operations of markets are always rational. Keynes, who knew a thing or two about markets, particularly how to operate them profitably to his own benefit and to that of his colleagues and his insurance company, had this to say on the subject. If noble Lords will bear with me, it is worth quoting: Professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be". Those words were written over 50 years ago, and who is to say that they are not still to some degree true? Although we know that the art of forecasting in markets has become highly sophisticated —I have nothing against forecasting; some of my best friends are forecasters —a rational connection between events, forecasts of market reactions to them and what then happens in markets is often extremely difficult to find. I see that the latest fashion in the fraternity is to abandon the search altogether and to adopt what has come to be known as the theory of chaos.

When we speak of free markets we must distinguish between freedom of access to the market and conduct within it. In neither can it be seriously maintained that freedom is, or perhaps even can be, absolute and universal.

So far as concerns the former, many markets for goods and services are encrusted with the barnacles of history and convention, the financial requirements of conglomerates, the power of advertising, and so on. The prices that emerge from them are far from being the result of uninhibited bargaining. That is as true of the price of a permanent secretary as of a naval rating. Certainly, we can hardly say that the price of money is a matter of indifference to the wishes and actions of authority. We have certainly seen that in recent times. Even the former Chancellor of the Exchequer, in what was more or less a swan-song lecture that he gave last September and which was naturally a hymn of praise for the free market, had to admit that foreign exchanges could not be left to their own devices.

There are many labour markets which are perhaps never likely to become totally free. I suspect that if—and I know only too well what an enormous if that is —an effective system of wage restraint could be devised, some of the doctrinal attachment to total freedom of wage bargaining would quickly disappear. That is a big if and I do not know whether it will ever happen.

In trade, in the broadest sense and particularly in international trade, the removal of deliberate barriers has made enormous progress since Adam Smith's classic attack on the mercantile system. Our record in recent years has on the whole been good and often considerably better than that of our industrialised competitors. We are eminently right in fighting for a liberal European Community.

In the financial area, we have practised an open door policy in the City of London. That has certainly been an example of how successful enlightened self-interest can be for it has undoubtedly helped to make London a foremost financial centre. However, it would be wrong to suppose that access is entirely free. Traditionally, as well as through recent legislation in which the noble Lord, Lord Boardman, took such a notable part, we have rightly imposed many conditions on entry into various aspects of the financial industry. Much hard work and negotiation still lies ahead to ensure that both statutory and conventional Community-wide practices create a reasonable and level playing field. An important example in that regard, as many noble Lords may well be aware, is the rules which are now being debated for capital adequacy for different parts of the financial industry.

Legislation has also affected conduct within various markets designed, like so much economic legislation over the past two centuries, to make the operation of markets admittedly less free but more effective in order to protect the weak or unwary. Here too, as in so much social and indeed criminal legislation, freedom cannot be an absolute. It must have regard to the needs of society as a whole, needs which for a dynamic society obviously change.

This then is a very difficult balancing act, as is that of finding the right mixture of reliance on self-regulation and statute, which is so noticeable a feature in the financial area. I am not sure that in our very understandable desire to give as much scope as possible to the former—namely, to self-regulation —and to avoid making the City the kind of lawyers' paradise that Wall Street has probably become, we have yet found the right balance. In these matters it is easy to end up with the worst of all possible worlds rather than the best. I believe that we must be prepared to do some rethinking in these matters.

But whatever may be one's final judgment on these transcendental questions of the nature of markets, and even if we accept, as I am certainly willing to do, that a broadly free market economy is a necessary condition of economic advance, as the noble Lord, Lord Joseph, rightly pointed out, I do not think that, as he has admitted, in practical day to day terms it is a sufficient condition. There are innumerable others but perhaps I may briefly refer to four which seem to me to be particularly relevant to our present circumstances. They have relatively little —only by an enormous gearing process —to do with the fundamental question of free markets, and so on.

First, exclusive reliance on monetary policy to repress inflation while promoting growth is highly precarious. In theory it may operate more quickly than fiscal policy, although the history of the past few years shows if anything the opposite; but its effectiveness in the end cannot be ensured without the serious risk of side effects on business confidence, growth and employment. At the same time, I think that we must remember that errors made in fiscal policy, which subsequently political no less than economic factors make it extremely difficult to correct quickly, cannot quickly or easily be remedied by action in the monetary field.

My second point relates to the role of manufacturing industry. Reference has already been made in the debate today to the report prepared by a Select Committee of this House nearly five years ago under the chairmanship of the noble Lord, Lord Aldington. To put it mildly, the Government were pretty cavalier in their reaction to that report. On the whole the history of the past few years has testified in favour of the report rather than the Government. Perhaps Ministers can be persuaded to take another look at it and take the opportunity to have a debate in this House before the end of the month in order to show a more understanding attitude.

Thirdly, there is Europe. We have debated many times our attitude to current developments in the Community. I do not propose again to go over that ground other than to make one observation. Now that the tragi-comedy of the "ripe time" has at last left the stage, let us at least join as soon as possible the exchange rate mechanism.

Finally, if in the terms of the noble Lord's Motion we are to have an economy which creates wealth and provides prosperity, jobs and better public services for the nation, we must not ignore the vital role of education and training, to which the noble Lord, Lord Peston, and many other noble Lords from all sides of the House referred in a notable debate last week. However much we cherish the free market economy, it will be of no avail, as many of our competitors have shown, if we neglect investment in our human capital.

5.4 p.m.

Lord Selsdon

My Lords, I am most grateful to my noble friend Lord Boardman for initiating this debate and demonstrating so amply and well how my noble friends in this House and my right honourable friends in another place have captured the high ground of political and economic thinking and held it for so long. I admire the efforts of the noble Lord, Lord Bruce, who, like the best of British terriers, seeks to dislodge us from those starry heights and again and again raises these same issues. I am also most grateful to my noble friend and impressed by his remarkable speech. He demonstrates once more that we have admirable talent on these Benches.

I wondered today what were the factors that gave me some concern. It appears that everything is well and that the debate is one which centres more on philosophy than on practical economics. Two developments came to mind: the unprecedented growth that we have enjoyed and the unprecedented high real interest rates. I am not sure how the one can be equated with the other. The growth is a matter of fact. The high interest rates are not a matter of the free market economy but more a matter of government. I wonder how and why they came about and how and why they might go away.

It seems as though we have suffered over many years from either too little too late or too much too soon in our economic thinking and planning. My right honourable friend the former Chancellor of the Exchequer perhaps unwisely did too much too soon in relation to taxation. He probably did it for many sound reasons, including that he, like many of us, feared a major recession following the crash of 1987. However, recovery is difficult when one has had an unprecedented rate of consumer credit which is now coming to an end probably more quickly than the Government themselves realise. I am not sure how one sustains growth and encourages enterprise with interest rates at such a level. They have remained high for a long time.

The Government seem to have boxed themselves in so that they cannot relax fiscal policies and cut taxation. They cannot cut spending. All of us probably agree that more spending should be undertaken, particularly with a sizeable budget surplus. In their attempt to take action the Government have left themselves only one element of manoeuvre; namely, interest rates. The noble Lord, Lord Roll, mentioned the ERM. In an amateur way I tried to calculate what could happen to interest rates if we joined the ERM, not now but in the autumn. It seemed to me that it would be right for the Government to look for interest rates to fall to 12 per cent. or even less. I feel that that could be possible as the economy progresses over the next few months. Things are not bad.

We always produce historical statistics. Governments choose the date from which to start reckoning which suits them best. By starting at a time of 10 years or so ago, my noble friends on this side of the House demonstrate that the Government have achieved terrific growth. However, this morning I found that I had been a Member of your Lordships' House for 27 years. I wondered what had in fact happened over that period of time and whether the impact of our political thinking had been successful in relative terms. I asked myself what had happened to inflation. It has gone up by 704 per cent.

I am hesitant to talk about matches or pounds in pockets but I am prepared to talk about meals, having been a waiter at one time. When I first came to your Lordships' House, one could get a very good meal for a river. Now one can have the same meal for £35—in fact, it is a better one. The prices in your Lordships' House have not risen by that percentage.

We have to compare our 700 per cent. inflation with that in other countries. Let us look toward our major competitors. The United States figure is 265 per cent. The figure for Japan is 296 per cent. For France the figure is 466 per cent. and Germany has had 139 per cent. inflation. There is no doubt that the Government have been right in concentrating on inflation above all else. However, one must consider the impact of that inflation. It seems to me that if I had to choose one measure of how an economy performs it would be exchange rates over time, whether controlled partly or not controlled. The pound has fallen by 75 per cent. in that period against the yen and the deutschmark; it has fallen by 40 per cent. against the dollar and 30 per cent. against the French franc. whether we look at industrial production, standards of living, or whatever, our relative performance is almost irrelevant: it has been bad.

Can one see a chance of it improving? What are the assets to which we can add added value? I had the privilege of being a member of the Select Committee on Overseas Trade. In the way that we used the words "cataclysmic" and "disastrous" our report became a best-selling document. It is now outdated but it served a very useful purpose in drawing attention to a situation in which people still believed that manufacturing industry was the base upon which we should build an economy. The base upon which we build an economy must surely be that to which the greatest added value can be given at the most effective cost. In the early days it was raw materials. Later it has become services. The noble Lord, Lord Jay, pointed out how difficult it was to quantify that.

We are not an unsuccessful nation. The question is whether we can reverse the downward trend; and how. That leads me to worry because at the moment we believe that we can do something without the resources of the human being: training and qualifications. I chair one of the Engineering Industry Association bodies. We have 2,500 small firms. Most have fairly full order books. Their biggest worry is not that orders go up and down, but from where they obtain the people. Their other worry—and I suggest that the Government consider it—concerns the way that the small business now wishes to invest and expand, but the level of taxation bites too low so that it cannot afford to reinvest in plant and machinery. Often the owner will have to pay corporation tax and tax on his own income and will be taking as little as he possibly can out of the business. Those businesses that have begun with the encouragement that they should borrow are suffering. There is an unprecedented level of bankruptcies.

However, those that are more soundly based are doing quite well and could expand. Many are pointing out that they can no longer buy the plant and machinery that they want in this country, and they buy it abroad. But that was the basis on which our industry was historically based. We chose the best equipment. We did not do what the East European countries did —insist on buying internally —because the quality was not good enough.

I hear that the Government employ over 300 economists. It is amazing how many of those people are of East European background or origin. Perhaps they came here because their philosophy of free market economies could not be adequately applied in Eastern Europe. It makes me wonder when I consider that there are exactly the same number of countries in Eastern Europe as there are in Western Europe and exactly the same population. Countries come and go; and new names and new countries emerge about which many of us had forgotten. The same people —half of Europe, as Macmillan once said —have already gone but half may well be willing to come back again.

Before Christmas I had the privilege of being in Moscow and meeting some of those gentlemen in the military and (perhaps I dare say it) covert industries. They were all looking to expand. They realised that they were in a declining business. One pointed out to me that when defence spending falls there will be a form of deflation. Historically, if one considers the inflation trends since the 17th century, they always increased after a really good war.

We may ask: what of East Europe? It provides us with a remarkable opportunity now and a problem for manufacturing industry. The consumer or individual in the West has borrowed heavily. He has not borrowed so heavily as his friends in the United States. But a consumer in East Europe has not borrowed because he cannot borrow. The consumer in Eastern Europe has savings because he has nothing to spend them on. He has been quite well trained compared with some of the training in this country, but has not had the resources to be productive. The problem is that he does not have a convertible currency.

It is odd that when we had fixed exchange rates the creditworthiness of East European countries was very strong indeed. As we moved to floating rates they could not cope with the vagaries and shifts in exchange and interest rates, and those countries lost their credit rating. The time will come when people will say to you again, "The raw materials for industry in Europe came from Eastern Europe, not from South Africa". I believe that at the moment 65 per cent. of all our raw materials come from that area. However, it is not the situation that counts today. It is what we can do to create the quality of people with the skills to generate the added value that we have always had in the past. I do not differ from noble Lords on any side of the House on this point. We have too few young, too badly trained.

5.15 p.m.

Lord Jay

My Lords, the noble Lord, Lord Boardman, opened the debate with a somewhat political speech which we all enjoyed. I make no apology for confining myself to economics. Of course a free market, as almost everyone has agreed today, and freely moving prices are desirable over a major area of any economy, in particular over the production and distribution of a large variety of goods and services and the activities of small firms.

I give one example. In the UK I believe that nothing would revitalise our economy so much as if we were allowed to import food at world prices with the abolition of the common agricultural policy. There is great scope for free markets there. Again, I agree with the noble Lord, Lord Roll, that one cannot leave foreign exchanges entirely to a free market. On the other hand, I believe that freely moving prices have a very considerable part to play in foreign exchanges. A permanently fixed foreign exchange rate would probably do more harm than the flexibility that we have had recently. Nevertheless, I should like to add a brief footnote to the enthusiasm of the noble Lord, Lord Boardman.

First, the absence of government intervention does not ensure competition, as some people appear to be assuming. On the contrary, the natural drive of market forces in a great many cases is to create cartels, mergers, quasi-monopolies and indeed real monopolies in one sphere after another, especially in highly developed economies. That is why so many countries, led by the United States, have had to introduce anti-trust laws, monopoly Commissions and so forth.

I give an example. In this country we would have had fewer than four major clearing banks today if the British Government of the day had not intervened to stop further mergers some years ago when the old Westminster Bank merged with the National Provincial Bank. Similarly, it is beginning to look as though the much advertised 1992 EC single market, about which there has been so much propaganda, far from encouraging competition, as it was supposed to do, will be heralded by one of the great rushes for cover on an EC-wide scale known for years by great firms seeking to protect themselves with mergers, takeovers and joint ventures. Those are now the fashionable names, but the reality is much the same. Indeed, the aircraft, armaments, chemicals and pharmaceutical industries, to mention only a few, are busy greeting 1992 with every device for avoiding too much free competition. The truth is that only state intervention will preserve competition in these circumstances.

Secondly, free market forces cannot ensure the full use of productive resources in a modern economy. Some speakers have already accepted that. Unfortunately there is no hidden hand that brings the total money demand in the economy into harmony with the total money cost of all the factors of production, including labour and capital, that have to be employed if one is to have the highest possible use of capacity. After all, that is why the industrial economies swung repeatedly between high and low unemployment for nearly a century before 1939. That is why between 1929 and 1933 uncontrolled market forces generated headlong deflation, unemployment and poverty throughout the world. Those consequences were checked in the end only by intervention by the new Roosevelt Government. Indeed, again in the early stages of the 1980s, deregulation policies caused increased unemployment which we still have not fully cured. It is only fiscal and monetary policy set in motion by the state which can conceive consistently full or even high employment of labour and capital.

Thirdly, unregulated market forces, particularly in the financial sphere and during boom periods, are all too apt to lead to disasters and scandals. I remember the late 1920s, a period of glorious deregulation in the capital markets, when we in this country had the Hatry era and when there were scandals on Wall Street in the United States. During the early 1970s, after Mr. Heath's competition credit control policy, we had what was then known as the secondary banking crisis. Lifeboats were sent out to rescue from drowning a number of previously well-known financial firms. Finally, in the post Big Bang glorious deregulation of the late 1980s we have had the Guinness and Barlow-Clowes era, and various others, which has greeted this final liberation of market forces. That may not be a major feature in the modern economy but it is one example of what happens if deregulation is carried too far.

Fourthly, any system of unrestrained or nearly unrestrained market forces generates an even more serious and more fundamental evil. It has not yet been mentioned today that unlimited market forces generate ever-growing inequality of incomes and later of property. The richer the country the greater the inequality is likely to be. I could quote many figures to illustrate that point but there is no time to do so this afternoon. That is one reason why in Latin America, where redistribution of incomes by the state is so inadequate, inequality is so glaring and persistent. It is also likely to be one of the reasons why democratic stability is so rare in those countries.

Lastly, that evil brings with it an even more basic flaw in the theory of the free market. The market is supposed to work through the money demand of the consumer making his wants and needs effective. However, it is unfortunate that the want or need represented by the average rich man's pound is much less essential and less intense than that exerted by the poor man's pound. Yet each pound exerts the same effect on the whole productive machine. That fault underlies all our discussions this afternoon. It is a case not of one man, one vote but of one pound, one vote. Indeed, it is as though in the political sphere we had a vote for, say, every £100 of income.

For that reason the market system is heavily biased throughout towards satisfying too many less essential needs before it satisfies the more essential needs. That is unless the system is corrected by substantial redistribution of incomes through the state's fiscal machine. Surely that is why glaring inequalities of property and poverty subsist today even in the richest countries —even in the United States. That point seemed to puzzle the noble Lord, Lord Joseph, who has now left the Chamber. It is an obvious fact that no country in the world has decently housed the whole of its population by market forces alone, even North America.

I suggest that it is also the reason why these countries which have achieved major redistribution by the democratic state —for example, Sweden, Norway, West Germany and Austria —have achieved not merely a high level of social justice but also the highest level of real output and living standards of any country in the world. Incidentally, it is interesting to note that they have maintained a stable democratic system.

I believe that the moral is this: The less inequality of incomes you can achieve the stronger is the case for a free market system in our economic world.

5.25 p.m.

Lord Beaverbrook

My Lords, I too wish to thank my noble friend Lord Boardman for bringing this subject to our attention today. I greatly enjoyed the contribution of my noble friend Lord De La Warr. I have known him for many years and I hope to see him in your Lordships' House on many more occasions.

I also enjoyed the effusive support of the noble Lord, Lord Bruce of Donington, for the benefits produced by a free market economy during the past few decades. As I have said to him on many occasions outside the Chamber, I always enjoy listening to him and today he did not disappoint me one bit. However, some of his senior colleagues in another place take a different approach to the subject. The noble Lord alleged that the Government have no regard for what he called the "working classes". That is nonsense. The votes of the so-called "working classes" have ensured substantial victories for the Conservative Party in the three general elections.

Wealth creation is a pointless exercise unless we create the climate for wealth retention. My noble friend Lord Selsdon has reminded us how during the past 27 years inflation has eroded the assets of everyone in this country. It is the strict containment of inflation that dictates our success in holding on to the value of what we have fought for. That is a major problem in this country.

With the leave of your Lordships I should like to quote from the noble Lord, Lord Peston —who is not now in his place —when writing in The House Magazine dated 15th January. He said: If we start with inflation, it is apparent that when the economy gets anywhere near to full employment, a problem of prices emerges … In our country, more than most, it continues to be the case that once markets are buoyant and profitable, wages and prices rise rapidly … Something and preferably not permanent unemployment, has to be introduced to eradicate our inflation proneness". I was surprised to read the noble Lord's remarks. I believe that we must introduce a change of attitude by both management and workforce.

In the mid-1980s it looked as though shop-floor militancy was out. But now we are beginning to see the return of what our international competitors loudly acclaim as the "British disease". Unemployment is down, job security is up but militancy returns as more managements cave in, as happened in the 1970s.

I should like to compare this country with America. I should explain to your Lordships that my business interests are in the United States so I see a little of what happens there. We employ nearly 3,000 people. Our wage negotiations, which are at least two years apart, are quite different in approach. Our employees want a part of a bigger cake, whereas in this country wage claims amount to a bigger slice of the same cake. In the US management will typically start negotiations at 0 per cent. or even minus. Workers and unions start at around the rate of inflation. In the company for which I work we have always settled somewhere in the middle and, incidentally, on a rate per working hour, so eliminating inflationary rises thinly disguised by shortening the working week.

In this country we see management begin by offering rises at the rate of inflation and often settling eventually at a higher percentage increase. Until that attitude changes on both sides, and until terms such as the "going rate", the "norm" and the "cost of living increase" disappear from the lips of managers and workers we cannot sustain an improvement in our international competitiveness. Without competing better, wealth creation will inevitably be followed by wealth diminution.

One glowing success of the past 10 years has been the growth in small business in this country. That has happened because this Government believe in people as individuals and it is people who make business happen. Do not let us ever get it the other way round and believe that it is business which makes people perform. It is the British entrepreneur who has been motivated, inspired and rewarded. Let us look at the success. There is record tax revenue and unprecedented resources are now spent on health, on social security and on education without running the nation hopelessly into debt.

I say to the party opposite that if their proposals on taxation, nationalisation and centralisation are ever realised, which I doubt, it will be goodbye to the commercial climate that now generates the income that pays the tax that pays for current government expenditure, let alone the billions more the Labour Party has already pledged to dole out if it ever returns to power.

There is no alternative to this Government's policies—those of curtailing inflation, controlling the money supply and the prudent management of our nation's financial resources. Letting up on any of those will surely lead to economic stagnation, rising unemployment and unsustainable public sector borrowing.

5.31 p.m.

Lord Orr-Ewing

My Lords, I am privileged to take part in this debate and I congratulate my noble friend Lord Boardman for choosing a subject which seems to me particularly appropriate. I wish to speak in the debate partly because we read so much about gloom and doom. Bad news receives publicity almost every day but the good news seldom sees the light of day. We do not see that on our televisions or read about it in our newspapers. My second reason is that this week happens to be the 40th anniversary of my entry into Parliament. I started to serve in February 1950 and it has been nicely divided into 20 years in the other place and 20 years here. I must say that I have thoroughly enjoyed the service and friendship.

It is strange that we are just over half-way through this Parliament. On 17th December last the second half of the five years of this Parliament began so this is a very appropriate time, for personal and other reasons, to have a debate of this quality. I think we should congratulate ourselves on both sides for some very constructive and thoughtful speeches.

I should like to mention two matters. I think that we should take some pride in our job creation. Of course, one has to sow the seeds and that has been enormously effective. We have done very much better than many nations although, when we visit them, they seem to be palpably better off than we are. In France over the past 10 years only about 35,000 new jobs have been created; in Italy 250,000; in West Germany 2.3 million; and in Britain we have created 2.7 million jobs. Therefore, we have created new jobs and, as my noble friend Lord Limerick said, the growth in small businesses has been quite remarkable.

Of course, there is still unemployment. However, I believe that it is encouraging that our figure for unemployment is only half the average figure in Western Europe. That average figure is 9.1 per cent.

and our figure is 5.3 per cent., so our figures are markedly better as regards unemployment.

Increased productivity in manufacturing appears to be good, but, as my noble friend Lord Joseph said, we started from rather a bad base. We have improved by some 50 per cent. However, wage costs are disturbing. If one looks at that figure in manufacturing industry for the Netherlands, costs have gone down by 4 per cent. In France they have gone down by 3 per cent. and in Japan by 1 per cent. Those costs for West Germany are up by 1 per cent. and for the United States by 2 per cent., but our figures are up by 6 per cent. It is the inflation rate pressures which cause anxiety and, of course, the knock-on effect is considerable. I only wish that we had more of the Opposition with us in our efforts to settle wage costs at not too much above the going rate of inflation.

It is because of the tremendous upturn in wealth creation that the Government have been able to make some huge increases. A Question in this House only two weeks ago showed that expenditure on the National Health Service will be £22 billion per year. As was said at the time, that service employs 1 million people. That is an enormous growth. I remember that it was only six months ago that Mr. Kinnock was asking for at least another £2 billion for the National Health Service. We have given another £3 billion but it still has many problems. When the figures for social benefits were given, £60 million per year is to be spent in this field. Those increases are only possible because of improved wealth creation.

I should like to turn to another subject on which I hope I shall have support from all sides of the House. One cannot help but be affected by the huge number of charity letters which one receives, the causes of which seem to be equally deserving. Many of those cannot possibly be allocated from government funds. It is not possible for any government to meet the needs of everyone. Who will do that? I suggest that we should ameliorate our taxation arrangements in order further to encourage people to give to charities.

Nowadays, that is very big business. Currently the business is valued at £15 billion per year, which is a lot of money. I suggest that we need more for research. We each have our special hobbies and interests. I should like to see more for medical research. We all believe that the arts should be encouraged to make a rounded life for our children and grandchildren. We think of the opera, ballet, museums and galleries. On cathedrals, I read the other day that one cathedral alone needed tens of millions for restoration purposes. We cannot let those great monuments decay and die. We must find more money for recreation, particularly for the young, and for our universities and for educational needs.

The United States seems to do very much better. I have some friends who have sent children there to universities or schools. The moment the child arrives, he receives begging letters asking to give money for this or for that. As a result, on average four times as much per person is raised in that country. It cannot be said that they are more generous than we are because I am sure we are just as generous, but there is the very strong encouragement that all their donations are tax deductible. I feel that we should move further in that direction if we are to meet some of the country's needs.

I have tried to get accurate figures on this and the most accurate came from our Library. I must say that we receive a very thorough and prompt service from our Library. In 1987 the National Audit for England and Wales showed that in a single year charities collected £10 billion. More recently, in May 1989, a government paper (Cmnd. 694) showed that the annual turnover was £13 billion. The latest figure I have from Harvest Information Services —and I was not able to afford the publication because it cost £150 and not even the Library could afford that for a single book —which was reported in the Guardian on 16th June is a figure of £15 billion a year collected. I believe that it is generally recognised in this House that many social needs can be met from the voluntary sector more quickly and flexibly than they could through central or local government.

It is good news that whereas 23 per cent. of the population 10 years ago gave some of their working time to voluntary purposes, that has now risen to 44 per cent. I believe we can go further than that if we are more generous in our tax arrangements.

It is interesting to look at the big fund-raisers for charity. Oxfam raises £41 million a year and the National Trust raises £40 million a year. There are various others such as the Imperial Cancer fund, which raised £32 million; and there are other cancer charities. Considerable funds are raised from sponsorship. Many of our sports, and the arts, are sponsored. The Football League alone receives £25 million in sponsorship —I believe £9 million of that comes from Barclays. Cricket receives £2.4 million and tennis £3.2 million. That is small beer compared to the figures we were looking at before.

With regard to company donations, BT is top with nearly £12 million a year —some of which goes to the community. Strangely enough, NatWest, of which the noble Lord, Lord Boardman, was chairman for so long —I am sure he played a part in this because with donations the buck stops always with the chairman of a company —was second with £11 million a year; Barclays gave £9.5 million and BP £9 million. These companies are giving, but why are we not encouraging individuals to give in similar fashion?

The top British companies have increased their charity donations in the past year by 25 per cent. That is pleasing. It is sometimes in the form of cash handouts and sometimes in community contributions. But we are still far short of what could be given. If we look at company giving, 750 US companies each guaranteed 2 per cent. of their profits to be given to charities. In the UK, 120 companies —that is one-sixth —gave not 2 per cent. but one-half of 1 per cent. That is again a quarter of the US contribution.

In 1987 Nigel Lawson introduced a system of payroll giving to charity. That enables anyone now to subtract from his salary up to £480 a year —£40 a month —and have it sent direct to the charity. Last year £3 million pounds was collected from this source. I did not know that that system even existed. I wonder why we keep it so quiet. The number of people contributing is 162,000, which, compared with the number of people working, is tiny. We could well give much more publicity to that admirable scheme.

Lastly —it is a good time to make a last appeal to the Chancellor of the Exchequer and I hope it has support elsewhere —can we please look at the way we collect for charities, not only from companies but from individual people? There are people with money to spare. Why not make it tax deductible? I know the Chancellor of the Exchequer, or the Exchequer itself, may first say they cannot enlarge this facility. If they do enlarge it they will raise very much more money. If they do not enlarge it then the quality of life for our children and grandchildren will not be so good.

5.43 p.m.

Lord Harris of High Cross

My Lords, I am delighted to follow the noble Lord, Lord Orr-Ewing, who carries his 40 years in Parliament with such sprightliness that it can only encourage those of us who have just arrived at the starting gate of senior citizenship. I join other noble Lords in congratulating the noble Lord, Lord Boardman, on tabling the Motion, which has evoked so many excellent speeches including, I thought, some unexpectedly decorous professions of faith in the market from the Labour Benches and even further afield.

Whatever disputes we may have about statistics, it is surely common knowledge that the past decade has proved to be a remarkable period of sustained growth in productivity which has been reflected in rising earnings and spending power. I begin by affirming that the Government deserve unstinted praise for that central achievement. However, I have to go on to say that it is marred by two acknowledged failures, to which I shall add a third.

The first is the resurgence of inflation which is increasingly widely attributed to the neglect of monetary policy. In this respect noble Lords on the Opposition Benches, and least of all the noble Lord, Lord Bruce of Donington, are hardly entitled to criticise the Government because until recently both Labour and, it must be said, Liberal Democrats never ceased mocking what they usually called the "theology of monetarism" and urging resort to the old bad ways of trying to spend our way out of unemployment which was largely caused by other factors including social benefits, high taxation of low earnings, immobility of labour and the failure of education and training to which other noble Lords have referred. When the Treasury has again blotted its copybook, I think we should ponder the recent suggestion that a more independent Bank of England might do a better job in tackling inflation.

The second well-known weakness referred to by the noble Lord, Lord Joseph, is that improved productivity in manufacturing industry is still often below the best achieved by leading competitors. Far from causing me to modify my support for what the noble Lord, Lord Boardman, extols as the free market economy, the need to do better convinces me that we still suffer from an insufficiency of market forces and an excess of government.

In its latest lucubrations on urban social policy entitled Living Faith in the City, to which the right reverend Prelate has referred, the Archbishop of Canterbury's advisory group made much of its favourite contrast between market forces and interventionist solutions. As Mr. Ronald Butt observed in The Times last week, to pose the dichotomy in that way confuses councils by ignoring the present extent of state intervention, especially in social provision.

The right reverend Prelate the Bishop of Manchester announced, I thought with a flourish, that the free market is not enough. Whoever said it was? As the noble Baroness, Lady Seear, reminded us, 200 years ago Adam Smith acknowledged an important role for government, but by no stretch of the imagination would his agenda require governments and politicians to spend on the present scale.

One general measure is the bloated total of government spending which is to be financed by what is left of the market economy. The latest CSO blue book on national accounts shows that between 1979 and 1988 total government spending almost exactly doubled from £86 billion to £177 billion. Since the same source records that prices over that period again almost doubled, we can say that in real terms government spending in 1988 was no less than the level in 1979. It is true that as a proportion of national income the state's share fell from 25 per cent. to 43 per cent., but that was simply due to the great increase in national income through the market forces described by the noble Lord, Lord Boardman.

If we turn to state welfare we find that spending on health, education and social security rose massively over the decade from £40 billion to £100 billion, which allowing for inflation is an increase of 50 per cent. in real terms. The neglected twin truths to which I wish to draw attention are, first, that all this expenditure is a charge —I would say a burden —on the wealth created by the market economy and secondly, that the social services are almost completely insulated from the invigorating market forces which make such wealth creation possible in the private sector.

We now come to my third anxiety.

The Lord Bishop of Manchester

My Lords, I thank the noble Lord, but before he leaves that point can he tell the House whether he has the figure for the increase owing to unemployment benefit for the increased number of those unemployed?

Lord Harris of High Cross

My Lords, I do not have the breakdown of the figure though it is no doubt available from the blue book. An increase in social provision of 25 per cent. in real terms cannot conceivably be waved aside as just reflecting the increase in unemployment. Expenditure on health and social security separately has increased well beyond the rate of increase in prices. My anxiety is that public dissatisfaction with state provision of health, education and local government services will continue to haunt us into the 1990s as it has in the 1970s and 1980s.

Since more lavish spending has failed to rescue those services, where do we turn for a solution? In the past I have unavailingly cast the pearls of Adam Smith, Friedman and Hayek before the variegated Opposition Benches. Today I come armed with quotations from a most unusual expert witness and one of a dying breed of economists who would not strike you, much less sue you, for calling him a socialist or even a communist. Indeed I am following the advice of our excellent maiden speaker in trying to learn from Eastern Europe.

The name of my authority is Abel Aganbegyan who is the economic adviser to Mr. Gorbachev and author of what I believe is an epoch-making personal testament vividly entitled Moving the Mountain. It has displaced the revelations of life under Labour by the noble Lords, Lord Barnett and Lord Donoughue, as my favourite reading. Mr. Aganbegyan describes the aim of the perestroika revolution as purging what he calls the "administrative system of management" which he himself pillories as the cause of, backwardness in productivity, in efficiency and in quality of output, as compared to the developed capitalist countries". He diagnoses the key weakness as, the problems of motivation, care about one's work, incentives and individual responsibility which have become central to theoretical economics and practical economy". He candidly admits: We have not found the mechanism to ensure that people will be highly motivated in socialist conditions". This modern Samuel Smiles goes on to offer impressive examples of the transformation in productivity wherever central direction has given way to small-scale co-operatives, private enterprise, family leaseholdings and self-employment, and wherever the rewards can be closely related to market results, including bankruptcy for the unprofitable enterprises.

The target of the radical pricing and structural reforms now in prospect Mr. Aganbeyan describes graphically as nothing less than, the abolition of the dictatorship of the producer and a move towards demand-led production which will satisfy social needs". How is that for Thatcherism with a Russian accent! My conclusion is that the "administrative system of management" which Mr. Aganbegyan denounces as the cause of backwardness and lack of individual responsibility in Russia is precisely the dreary, discontented, politicised administration that gives us in Britain such poor value for increased spending on health, education and local government. It is exactly the failing system that would be perpetuated, for example, in the ambulance service by Mr. Roger Poole as the latest exponent of what we should henceforth describe as the "dictatorship of the producer", which remains in Britain, as in Russia, the main obstacle to the market aims of the noble Lord, Lord Boardman, of, prosperity, jobs and better public services for the nation".

5.45 p.m.

Baroness Platt of Writtle

My Lords, I am indebted to my noble friend who has raised this important subject in our House. I have listened to the variety of speeches with great interest and especially to the excellent maiden speech of my noble friend Lord De La Warr.

We take for granted the privilege of living in one of the oldest democracies in the world with all the freedoms that go with it. That includes many precious democratic freedoms which are not the subject of this debate, such as the freedom to vote and the freedom of speech. The dramatic events of the past few months in eastern Europe have unfolded before our astonished eyes as a modern miracle. Five years ago nobody could have predicted the upsurge of the human spirit in its quest for freedom in all those countries of the Eastern bloc. They are now in a position to work steadily towards democratic free market societies. That will be an uphill struggle for them all in a situation of a shortage of skills and experience in demographic government, a lack of entrepreneurs capable of setting up businesses to supply the basis of a free economy, and a desperate scarcity of the goods that people need but whose severely controlled economies, over the past decades, have clearly failed to provide. One hopes that courage, patience and persistence will create the free economies and achieve the democracy and prosperity for which those people crave.

Over the past decade we in this country have seen an upsurge of the entreprenurial spirit under the Government of Mrs. Thatcher which I am sure has been an inspiration to many of these countries and which has helped to give them the courage to work for change. In our own country inefficient practices have been worked at and in many ways eradicated, so that efficiency and productivity have increased. People's wages have increased without increasing the price of the goods they produce and thereby undermining our country's success in competitive markets of the world.

As John Banham, the director general of the CBI said recently, since 1980 manufacturing productivity in Britain has risen by some 60 per cent. overall. He believes that there will be, and needs to be, further improvement. Obviously, as well as increased personal productivity, improvement also depends on industrial and commercial investment in order to harness the many applications of the new technologies which in themselves can improve productivity tremendously. I hope that we shall see provision made in the forthcoming Budget to encourage that kind of investment, especially in manufacturing industry.

I was deeply involved with the Industry Year initiative of the Royal Society of Arts in 1986 which led to the "Industry Matters" campaign which has just ended. We were fortunate in receiving nationwide support from many influential bodies including the Government, so that a powerful network of people has been set up at local level to continue that campaign.

A clear example of the benefit of living in a free market economy is that it allows and indeed encourages individual and collective effort on a voluntary basis to work for the improved prosperity of our country. It works with the grain of the way people feel. People are therefore prepared to put heart and soul into voluntary work to the considerable benefit of our country and their fellow citizens.

I believe that the aims of Industry Year are vital to our survival as a prosperous nation. John Garnett, of the Industrial Society, said at the time of Industry Year: In industry and commerce we create the goods and services; we are the greatest providers of jobs, of the self respect that people get from a job, of their pay and of the friendships which are a vital part of a worthwhile life. We also create the incomes which set people free. We also create the exports which pay for the many necessities from overseas. Lastly we create the tax through pay as you earn and paid direct which finances the schools and their teachers, the hospitals and their medical staff, roads, homes for the elderly and the handicapped —the list is endless". I believe that is true. It is what "Industry Matters" was about, demonstrating, among other things, the benefits of a free market economy. I sincerely hope that as a result of that campaign our national and anti-industrial culture is turned upside down once and for all and rejected forever more. Meanwhile the free market economy encouraged by the Government over the past decade has produced a considerable increase in living standards. As my noble friend Lord Boardman said, average real terms take-home pay has risen considerably during that decade. By lowering taxation, people have been enabled to keep more of their incomes to spend in the way that they want. One has only to walk down the high street on a Saturday to see many families spending their money in ways they would not have imagined a decade ago. Old people, the middle aged and the young are looking prosperous, well fed and healthy.

Ownership of homes, shares and consumer durables has risen considerably. Home ownership has risen by 3 million since 1979, with all the pride in a home and the sense of security in old age that that brings. As my noble friend Lord Orr-Ewing emphasised, during that same period charitable giving has doubled in real terms to more than £750 million. So there is not just selfish enjoyment of this new found prosperity. People are helping others on a voluntary basis too. I see that clearly in my own community, including, I am glad to say, considerable giving to the Bishop's Urban Fund in Chelmsford.

Because of increased prosperity, public expenditure has been able to rise in real terms during the decade. So, too, as a proportion, have social security payments. Expenditure on the long-term sick and disabled will have doubled in real terms by 1990–91. More money is being spent on a whole range of benefits for the family. There has been an increase of 27 per cent. in real terms since 1979. As is well known, I should still like to see child benefit upgraded yearly in line with inflation, but one cannot have everything one wants, and one needs to go on working for that.

At the same time conditions have much improved for pensioners, with an increase in their average total income between 1979 and 1986 of nearly a quarter in real terms. As well as their pensions as senior citizens, 70 per cent. have an income from savings, 50 per cent. have an occupational pension and 40 per cent. have both. This shows just that independent spirit which enabled them during their working lifetime to accrue benefit from a free market economy in the way we are talking about.

The lifeblood of the development of prosperous industry depends on good transport. People need good roads and railways to travel to work. The fact that capital investment on roads has risen by nearly 60 per cent. in real terms since 1979 and that £3 billion has been spent on the railways will be very much to the advantage of our country's prosperity and would not have been possible without the wealth creation of the past decade. And of course more is planned in the future.

I could catalogue other improvements but that would take too long. I am aware that we still have many investments to make, and many more are planned, on roads, railways, education, training, the health service, the elderly and the homeless. Different sections of the community will view priorities in different ways, and locally and nationally we can expect dialogue and dissension, with pressure groups making their needs known very strongly. That is healthy in a democracy, and the freely elected government will have to take decisions which by their very nature can never please all of the people all of the time. However, the fact that we live in a free wealth-creating market economy gives us the prosperity and jobs, and the choice to spend our money on the services that people want and need.

6.4 p.m.

Baroness Carnegy of Lour

My Lords, I should like to return to a subject raised by the right reverend Prelate the Bishop of Manchester, the Church of England's new report Living Faith in the City. The right reverend Prelate confessed himself not to be too keen on the free market economy. But he pointed out, and I agree with him, that this report is very much more balanced that its predecessor. I pay tribute to the Church of England for that because I find it very much more useful and helpful. I commend it to noble Lords for what it has to say on the subject of this debate.

It poses a number of questions about public policy and particularly about the free market economy. It talks about the extent to which the benefits of that economy do or do not radiate out to the least well off in our country, particularly to those in the inner cities. The right reverend Prelate quoted a paragraph from the report which, as noble Lords will see when they read his speech, contains the nub of what the report has to say. In paragraph 15.16 the report refers back to its predecessor, which asserted: At present too much emphasis is being given to individualism and not enough to collective obligation". Elsewhere the suggestion is made that a key factor in the present Government's strategy is the promotion of private charity in place of public expenditure.

To what extent are the anxieties expressed in the report justified? We owe it to the Church to think about this. Can a free market economy reduce poverty and dependence? Can an economy remove poverty and dependence altogether? Are our current policies really not aimed at the inner cities? Is it justified to hint, as the report does, that the growing prosperity of the many is deliberately built on the backs of the poor? Are we really not taking collective action as a country to assist the least well off?

Many members of the Church of England and of other organisations too, and indeed a rapidly increasing number of the British public at large, now understand very well the crucial link between a free market enterprise culture and the spreading outwards of rising prosperity and an improved quality of life. My noble friend Lord Boardman and others explained this link and gave us convincing illustrations of the effects. I believe too that most people agree that the move towards the new enterprise culture must involve a move at the same time towards allocating a proportion of the wealth produced by the enterprise economy to the construction and operation of a safety net geared for the circumstances not of yesterday but of today. Those arrangements must help those who at any given time find themselves left out of the enterprise scene, with their income and quality of life falling below acceptable levels.

In today's context the kind of safety net arrangements we used to have —the blanket all-inclusive approach whereby broad categories of people received benefit and in the name of equality received some of it whether they wanted it or not —are simply no longer appropriate. Most people in this country know that the old way no longer works and that to have continued with it would have been counter-productive. They know that what is needed now is a different kind of safety net; one that supplements incomes when they become intolerably low, one that alleviates basic need as and when that arises and one that helps people back into mainstream living, but, most importantly, one that does so without removing the incentive for those who can in fact help themselves. That is the sort of safety net which people want. Moreover, that is precisely what the Government are trying to construct.

With a freer labour market, the changing nature of jobs, improved medicine, greater longevity, changing patterns in family life and more women wanting to work, many individuals and families who would normally be able to cope may need help only, say, at one stage in their lives. For example, many may need help for a week or two, a month or two or perhaps a year. Further, the help required may not be money; it may be literacy help, help with training, medical help, help to find a job or, quite simply, advice.

As the free market economy spreads prosperity wider —and it is spreading —there will nevertheless continue to be the need for a flexible safety net which is constantly updated and fine tuned. Hence we have the Social Fund, new forms of family credit, literacy help and many other new schemes about which we have argued and which we have discussed. However, many of us fear that some people will fall through the net and miss the benefits of such assistance.

It seems to me that we must hope that the safety net will be less used. However, we should remind ourselves that a free market economy does not involve designing such benefits and opportunities to match the economy as it develops. To suggest that there is no public commitment to do so is widely misleading. At present the taxpayer is contributing towards social security at the rate of £20 for every man, woman and child in the country. Moreover, by 1992, according to spending plans, that figure will have risen to £28 per week. Of course that does not take into account what is spent through social work and education via the taxpayer and the community charge.

I shall not go into any more detail because the relevant figures are all in the report to which I referred. It would be an excellent idea for noble Lords to study the document. I simply say that that sort of money is now possible because of the free market economy. So long as we can achieve this without damaging the incentives which enable the enterprise economy to continue, we should do so to the utmost of our ability.

6.12 p.m

Lord Benson

My Lords, the wording of the Motion before the House implies that "a free market economy" will provide the Utopian world in which we all want to live. I am sure that it may help to do so but it does not go very far along that road. We need a great deal else besides if we want to keep the word "great" in Great Britain.

By what standards do we judge ourselves? Forty-five years ago Germany and Japan were defeated nations, ravaged by war and merciless bombing. Both those countries are now very much stronger than we are economically and they carry much more influence in world affairs. Moreover, their currencies are strong while ours is weak and their balance of payments is favourable while ours is in dreadful deficit.

As noble Lords will know, only last year a Select Committee examined the industrial output of Japan and compared it with the position prevailing in this country. During the debate which took place on 15th November 1989, it was pointed out that we lagged behind in every aspect of industrial activity. In 1988 the gross domestic product of Japan expressed in thousands of dollars per capita was 23.3 while in Britain it was 14.1. In the years from 1980 to 1986 the average increase each year in GDP in Japan was 6.6 but in Britain it was 2.3. I have no doubt that if a Select Committee made a similar inquiry into the position in Germany it would arrive at much the same answers.

What is the reason for this dismal record? I believe that it is due to two factors: first there is the lack of determination and, secondly, a lack of sustained long-term leadership in the three elements which compose our industrial process—government, management and the unions.

In the past 45 years we have indulged in the luxury of nationalisation of industry, denationalisation, renationalisation and privatisation. Expenditure on new capital enterprise has been woefully deficient.

Our expenditure on research and development compared with our competitors has been very low. The selection and training of our workforce has been indifferent. Every two or three years we run into a patch of strikes and industrial action which brings a large part of our industry to a halt. If one reads the press reports every day one sees that we are about to enter a similar patch again. By common consent over the past 45 years the average education and early training given to the children of this country have been pitifully bad. In that period the Government have sometimes been interventionist and sometimes non-interventionist. In the past 25 years there have been 23 different Secretaries of State responsible for trade and industry in this country.

When I was working in the Bank of England a few years ago one of our major industries was in serious difficulty. I was asked by the governor to go to the Department of Trade and Industry to obtain some information. In the course of dialogue with the deputy secretary I asked him what the Secretary of State's policy was. He said "The Secretary of State has no policy". I thought that he was being facetious but he was not. The Secretary of State's policy was no policy. Moreover, many of the other 22 Secretaries of State were not in office long enough even to formulate a policy, still less to carry a coherent policy to fruition.

We are propping up the pound by high interest rates, but to speak in metaphor, we are doing no more than feeding the patient with aspirin to stop the pain; but that is not curing the disease. We shall never have a firm and strong currency until we get our balance of trade into equilibrium, which will require a huge expansion of our industrial output, not only in volume but also in quality.

There is one bright star in the whole of this dismal record. The evidence given to the Select Committee about which I have spoken showed that the best in Britain is equal to the best in Japan, or indeed anywhere else in the world. However, that layer is small and thin. In the huge mass of activity below the level of the best we are second and third rate. Noble Lords may think that I exaggerate or that I speak in extravagant language. That is not true. I speak in moderate terms. I ask noble Lords only to read four pages in the Aldington Report which was completed less than five years ago. I refer to pages 82 to 85. All that I have said is set out in those pages with great strength, great clarity and in much more detail than I could possibly deal with tonight.

In the debate on 15th November 1989 I put two questions to the Government. I asked, first, whether they would be willing to expose to the country the reasons for our slipping back as compared with our competitors. I received no answer. I also asked them what their policies were to restore our position and bring us back to where we were. I received no answer. I pointed out that if we were to get it right it would take at least a generation of time, and so I asked the Opposition what their policies were to restore the position. I received no answer. I believe therefore that it is fair to say that the diagnosis which I indicated earlier is right. There is a lack of determination and a lack of long-term leadership in the three elements necessary: government, management of industry and the unions.

6.20 p.m.

Lord Vinson

My Lords, I too am grateful to the noble Lord, Lord Boardman, for this timely debate and am privileged to follow the wisdom of the noble Lord, Lord Benson. I must be one of the few Members of your Lordships' House who describes himself on his passport as an inventor, a description of which I am still proud although I have to admit that the justification for that happened some years ago. As a former inventor I hope that your Lordships will forgive me if my speech moves the debate from the general, which has been so well covered by other noble Lords, to the specific. I should like to advance two ideas which I hope might strengthen this country's wealth creating base and reinforce the success of the Government's policies to date.

The Government have done wonders in re-establishing the importance of enterprise and the significant role entrepreneurs play in wealth creation. They have taken many steps to facilitate that process and the public recognition of the importance of wealth creation is at last central to the economic debate. However, whatever the good intentions, we singularly handicap the development of business by pursuing a single-minded monetary policy of attempting to correct inflation and excess demand through the use of the high interest rate mechanism alone. Whatever the merits of that policy, it has one singular fault in that it exacerbates in the long term the very malady it is said to cure. It snuffs out or retards the growth of many small companies which are inevitably heavily borrowed—the acorns that will turn into the oaks of tomorrow and meet the supply side problems of the economy of tomorrow. We must look for a better way of checking consumer demand than one that damages a great swathe of the big business sector due to the double squeeze of falling order books and higher interest rates.

Monetarism is a beguilingly simple theory. We should not be too absolutist. Monetarism is not always enough. To use the words of the noble Lord, Lord Joseph, no one wants to see monetary incontinence, but under the existing corrective policies we have to raise inflation to help cure it. We all know the problem of raising interest rates, which in turn raise the cost of mortgages, which in turn raise wage demands, which in turn fan inflation until the bloodletting of high interest rates has to be applied so hard that the patient gradually weakens —to normality, so called. But in so doing we have damaged the supply side of the economy. I want to suggest that, contrary to the wisdom currently prevailing, there might be a better way if we attempted to tackle inflationary causes rather than inflationary symptoms alone.

I realise that this begs the question of what can be done other than through the use of the blunt interest rate mechanism. Why, singularly, does the United Kingdom suffer from such inflationary cycles? What makes us different from our competitors? One of the fundamental reasons is the inexorable rise in house prices. They are an enormously important source of unrecorded notional credit collateral that feeds consumer expenditure.

We have debated the matter before in the House, but in simple economics, if one subsidises the buyer and restricts the demand, the price will always rise. If we give mortgage relief to house buyers and ration the supply of land through over-restrictive planning policies (enforced on us politically by the "not in my backyard" syndrome) then we, unlike other countries, continue artificially to boost consumer credit collateral. This is proven by the fact that land prices, in the South-East particularly, have risen at twice the price of building costs. That must surely be a sign of excess rationing.

I appreciate that to bring the supply of land and the demand for it into balance would be politically most difficult, but at least it is important to air the problem as a first step towards solving it politically. Unless we tackle that problem, it will remain one of the basic causes of inflation and doom the economy to the damaging discipline of continuous high interest rates.

It has been well put that one of the driving forces of the recent run-away boom could be encapsulated in the phrase too much credit chasing too few consumer goods". My first suggestion is a way of trying to limit that credit, which is based, as I say, on the collateral of ever-rising house prices due to over-restrictive planning policies.

My second suggestion is well aired. It is the importance of allowing companies to expand on their own self-generated wealth; in other words, to use the funds generated in any year on expenditure incurred in that year without tax penalty. This is all the more important at present when companies have to borrow at high real interest rates.

There is often a sterile debate about the importance of service and manufacturing industry. Both are important and both depend upon each other. However, it is much easier to achieve productivity gains by the mass production of goods through highly automated processes than it is to achieve productivity gains in service industries, many of which by their very nature are labour-intensive and non-exportable.

The numbers employed in manufacturing as productivity rises will continue to fall, but the output of manufacturing industry, which is the key matter, will continue to rise to meet our society's material needs. The consequences of higher productivity will enable there to be a high wage, non-inflationary economy. So the bigger the manufacturing sector in any economy, the greater the likelihood of fewer inflationary pressures, especially if competition ensures that manufacturing firms pass on some of their productivity gains by way of price cuts and do not hog it all.

However, to achieve investment in automated equipment needs a lot of cash up front, and our existing tax regime penalises companies that wish to invest in that way. In most cases it does not allow them to recover the costs of that investment under some seven to 10 years. As your Lordships will be aware, the accountancy term for that is the 25 per cent. diminishing balance write off. About four years ago companies could write off investment in the year that they made it, but the then Chancellor, Nigel Lawson, for good reasons, said that he would abolish that benefit, as he saw it, for the wider benefit of lower corporation tax.

While that did some good not least by encouraging more overseas companies to come to this country, it shot in the foot the very reinvestment programmes that we so badly need. We may congratulate ourselves on the fact that industry invested last year at a higher level than ever before, but even that was at a lower pro rata level than our Continental competitors, and the signs are that industrial investment, which is so badly needed to fill the supply side inadequacies of tomorrow, is fading away —a victim of our high interest rate policy and the consequence of a tax regime that has moved us from a regime of accelerated depreciation to one of retarded depreciation —it is in no way possible to recover the costs of any investment over seven years at a level to meet the full replacement cost of that investment in an inflationary period such as today.

What is more, the existing slow and low levels of depreciation encourage an attitude of mind that writes off investment against its mechanical deterioration rather than against its technological obsolescence. Much equipment is out of date the year that it is installed, and any forward-looking company wants to recover the cost as quickly as possible so as to be ready to drop its price and to reinvest in the next round of labour-saving machinery.

We need such things as part of our industrial policy and sadly they are so seldom discussed. Our existing tax mechanisms retard that process, and, with the exception of a few concessions on some electronic equipment, to make all industry depreciate at the same rate is like saying that all citizens should wear the same size pair of shoes—hardly a free market!

There is a simple solution: to allow companies to depreciate at any rate they wish, provided that that rate is used in their published accounts. Some companies would do so, some would not. Having decided on their pattern they would have to stick to it. I believe that the consequences of such a change would be to encourage investment, particularly at this time of costly borrowed money. It would enable companies to continue to invest using their own self-generated funds. That is just what is needed at present.

I hope that the Chancellor will listen carefully to the considerable weight of evidence before him to support the move to accelerated depreciation allowances. I for one believe that there is great force in the arguments put forward. One only has to look at our dwindling merchant navy to see the consequences of the present tax regime.

There are two suggestions from a passé inventor. Time is short; I have a number of others up my sleeve. Suffice it to say that the Government can continue to do much for the development of wealth in this country by minor changes in policies that positively further the development of our supply side which has inadequacies, be they the supply of land or the liquidity of our businesses, small and large alike.

Neither of these suggestions implies a tax handout. Allowing businesses to use their own self-generated cash on which to expand and invest leaves untrammelled the Government's wider monetary policy, but it would at least ease the burden and reduce the damage that the high interest rate policy has on the wealth-producing supply side sector of our economy. I urge the Government to reinforce the success of its policies and look again at these measures.

6.31 p.m.

Viscount Caldecote

My Lords, I wish to add my congratulations to my noble friend Lord De La Warr on his excellent speech. We are all grateful to my noble friend Lord Boardman for introducing this debate on an important subject on which many words of wisdom have already been expressed. I fully agree with him on the benefits of the market economy, free but sensibly regulated. I fully agree too that great progress has been made under the present Government over the past 10 years in rekindling the spirit of enterprise and risk-taking, as my noble friend Lord Joseph said. The removal of restrictive trade practices of all kinds, the privatisation of manufacturing and some other companies, and much more, all lead to a more productive and competitive industry which is of vital importance.

In many ways that is all highly satisfactory. However, I believe that my noble friend Lord Boardman would agree—indeed he said so —that much more remains to be done. The noble Lord, Lord Benson, has put forward in a dramatic way how much needs to be done and how long it will take. Much more should be done to achieve our objectives of lasting prosperity, providing opportunities for all to lead a satisfying and happy life.

However, the blunt fact is that the British version of the market economy is not yet working well enough to meet the country's needs in the home and export markets. I do not intend to quote any more figures, but I believe that there is widespread agreement that we need to create more wealth more efficiently. That has been made plain by many noble Lords, particularly my noble friend Lord Boyd-Carpenter. And as the noble Lord, Lord Benson, made clear, we particularly need to correct the huge balance of payments deficit.

I also agree with the emphasis placed by the noble Lord, Lord Bruce of Donington, on the importance of manufacturing industry. But the record shows that when his party is in charge of affairs, enterprise is held back and centralised controls and high taxation stifle enterprise, wealth creation and growth, with disastrous results.

I take it that we are agreed that there is an urgent need to create more wealth. I wish to look forward to how we might achieve this more quickly. There are two essential conditions: the reduction of inflation and increased investment. The chosen instrument for reducing inflation is high interest rates. It is a very blunt instrument which is already showing signs of controlling the money supply and consumption with their beneficial effects on inflation. But clearly it will take much longer to be effective, and I believe much longer than Her Majesty's Government originally envisaged. These high interest rates are now seriously damaging and depressing industrial investment. They are damaging it in the long term at the worst possible time because now, at the beginning of a reduction in growth and perhaps even a recession in industry, is the time to invest. Thus we shall be ready to make use of the investment with the increased capacity when in a few years' time —not too long, I hope—we come out of this period of slow growth. That investment is desperately needed now to be ready for a return to growth in the future.

I believe that we should seriously consider less damaging ways in which to defeat inflation by more direct means of controlling credit and consumer demand. As an amateur I wish to suggest what seems to me a simple way which would be effective. It would be to impose a tax on the use of any credit card issued to a UK resident based on a percentage of the monthly balance on the credit card account. It would be easy to collect, a powerful deterrent to consumption and no impediment to industrial investment. I suggest that if some such tax as this were put on it would be a partial substitute for high interest rates which could therefore be reduced sooner than otherwise, with all the attendant benefits that would bring.

Inadequate investment is a long-standing British problem, right from the days when the late Dr. Dalton squandered the post-war loan from the United States on consumption rather than investment. Ever since the war we have consumed too much and invested too little to provide for sustained growth through wealth creation. As many noble Lords, particularly my noble friend Lord Boardman, have made clear, we have made substantial progress over the past 10 years. Manufacturing industry is more productive, more competitive, more profitable. But the sad fact is that, despite all that, output has increased very little. It has certainly not increased enough to meet all our needs at home and those of the export markets. That, in my view, is the root cause of most of our economic problems. It contributes as well to inflationary pressure.

Investment is the job of industry. It is not primarily a matter for Government: it is a matter for industry, for the private sector. But overall we must, I am afraid, accept that industry is failing in this respect. It has failed to invest enough in capital plant for more efficient, low cost manufacture to counteract rising unit labour costs in comparison with our competitors. We are still not investing nearly enough in the design, manufacture and marketing of new competitive products.

As the noble Lord, Lord Benson, said, there must be a reason for these problems. I suggest that it is a combination of inadequate incentives to industry to invest, a lack of skilled human resources to make that investment effective and the short-term outlook in this predator environment.

I wish to make a few suggestions for the solution of the first two of these problems. They are suggestions as to what Her Majesty's Government can and must contribute to the solution. I do not intend to become involved in the problem of short-termism. It is too big a subject to start on this evening. I submit that there is a need for new, perhaps dramatic, initiatives which will act as quickly as possible. There is an opportunity to take those initiatives in the Budget which we shall soon have in March.

To encourage capital investment, why not allow 50 per cent. or more of the tax relief resulting from capital investment in 1990–91 to be offset against 1989–90 profits in addition to the normal relief which would be provided in 1990–91? This would give a much quicker boost to cash flow than any kind of tax relief in the year 1990–91, because it would be effective in the accounts of the current financial year.

Similarly, we could allow an additional 50 per cent. of R&D expenditure, as now clearly defined by the latest standard accounting practice No. 13, incurred in 1990–91 to be set off against 1989–90 profits and we could treat expenditure on training incurred in 1990–91 in exactly the same way. All those moves would have a relatively quick effect on cash flow and, as my noble friend Lord Vinson pointed out, this is of very great importance if we are to encourage the investment which industry needs.

I know well from experience in industry in a medium-sized company the very great pressures that are put on the management not to invest at times like this when orders are falling and cash flow is adverse. So some drastic methods are needed to counter those pressures and to encourage industry, to give incentives to industry to invest at this time.

I appreciate that implementing such schemes of tax relief would be expensive, but they would be very good value, for I fully recognise the need to reduce the tax burden on industry as a percentage of GNP as proposed by the CBI, because it is about twice as high as the average of our competitors. My suggested methods of tax relief would be much more effective than a direct cut in the corporation tax rate because they would ensure that money was used to the best advantage in higher investment and not squandered in any other less advantageous way. The CBI has also suggested other ways of reducing externally imposed costs on industry and I hope that those too will be looked at very constructively and sympathetically.

In passing, I should like to make a point about the Export Credits Guarantee Department, for I see that the Government are proposing to increase the insurance premiums for the export of capital goods. This really is a retrograde step in present circumstances. That is a charge which we all ought to share in the interests of the whole country in order to encourage industry to take the very substantial risks in exporting capital goods.

On the training side, Her Majesty's Government are already taking many initiatives and I leave others to argue whether those are the best way forward. Here again I would emphasise that training is industry's prime responsibility. But it is not only to train; it is also to attract high quality people into industry. There are widespread complaints of uncompetitive pay scales, lack of opportunities to use skills and bad planning and supervision of initial training and careers in manufacturing industry. All interact to make a career in manufacturing industry unattractive.

Above all, there is the lack of appreciation by manufacturing industry overall of its need for more high quality engineers on which the efficiency and long-term prosperity of manufacturing industry so greatly depends—engineers as managers, in design and development, in marketing, in servicing and in production. In the absence of that appreciation of the need for more high quality engineers in those fields, the rewards are too low and so the average quality and quantity of recruits suffer and we are in a vicious downward spiral. So the first thing industry needs to do to get better recruits and more highly qualified people is to recognise and create the demand for them, to increase the rewards in every sense that they get in industry and to make sure that their skills are used to the full as soon as they get there.

Finally, may I sing my old song again. Though products, output, training and investment are matters for industry itself, Her Majesty's Government must stimulate sound policies more effectively by demonstrating their conviction that manufacturing industry and growth in its output of competitive products is of fundamental importance.

In support of this I should like to quote two extracts from a new book by Peter Drucker, The New Realities. He says: Adversarial trade" — the condition we are now in— changes the basic rules, and drastically. It can no longer be assumed that competition is entirely beneficial, which is the basic postulate of the economist". Secondly, In the transnational economy the goal is not profit maximisation. It is market maximisation. Trade increasingly follows investment and indeed is becoming a function of investment". I hope that Her Majesty's Government will take that advice to heart as it comes from the very long and wide experience of Mr. Peter Drucker.

6.45 p.m.

Lord Cobbold

My Lords, there has been general agreement on all sides of your Lordships' House this afternoon with the first part of the Motion proposed by the noble Lord, Lord Boardman. A free market certainly, as my noble friend Lady Seear, said, has the full support of those of us on these Benches. It clearly has a major role to play in creating wealth, prosperity and jobs. It is only necessary, as several noble Lords have pointed out, to look to Eastern Europe and to the Soviet Union to see the total failure of closed, centrally managed economies to deliver wealth and prosperity.

The same does not apply to the second half of the Motion, which proposes that a free market has provided, or is best at providing, public services for the whole nation is a more doubtful proposition. The extreme position that the free market can solve all problems is clearly absurd. If that were the case there would be no role for government at all.

What then is the basic role of government? It is surely to devise rules of fair play, to provide an efficient infrastructure and a stable environment in which the game can be played and to act as umpire. It is in the creation of an efficient infrastructure and a stable environment that we on these Benches feel that the Government, in spite of much self-congratulation and hype, have manifestly failed. Under the heading of infrastructure, I include the basic services of health, education, transport and communications.

I wonder whether the noble Lord, Lord Boardman, has read a paper which has already been referred to by the noble Lord, Lord Donoughue, and which was presented by Mr. David Lomax, group economic adviser to the National Westminster Bank, to an Institute of Economic Affairs Conference on 9th January. If not I commend it to him——

Lord Boardman

My Lords, I have read the paper. Perhaps the noble Lord would read it in full. Unfortunately the noble Lord, Lord Donoughue, extracted one sentence out of a long article.

Lord Cobbold

My Lords, I have read the report in full. Indeed it is an excellent paper and I commend it to your Lordships. It is also from a first-class bank. It gives credit where it is due, but it does not hesitate to criticise. I should like to read a couple of extracts. I recognise that they are not representative of the whole paper—the whole paper is very fair—but they are nevertheless relevant to the point I am making. Mr. Lomax writes: There is one supply-side area where the present Government's performance has been execrable."— to use the word quoted by the noble Lord, Lord Donoughue— This relates to education and training. It is by now standard market economics that certain groups and services may be under-provided if supply is left entirely to market forces. These are the goods and services which are linked with externalities or are public goods, or where income deficiencies may prevent there being adequate demand for the goods or services in question … It is the charlatan's version of market economics to argue that such goods and services should be provided only to the extent to which the private sector is willing to pay for them… If the UK wishes to succeed in a competitive world, as a high income country, then it has to move up market in quality and skills. Cheap people producing cheap products only generate cheap incomes. I agree with the views expressed in those paragraphs. We have to improve our relative performance in education and training if we are to compete successfully with the single market of the 1990s. Many noble Lords on all sides of the House have endorsed that point this afternoon.

Other inescapable government responsibilities under the heading of infrastructure are communications, roads and railways. Responsibility does not mean control and nationalisation. It means partnership. Efficiencies can and have been introduced by privatisation but the Government retain overall responsibility, not least as a result of the planning laws.

The Government are fully committed to the single market in Europe. They must therefore be committed to a single market in the United Kingdom. It therefore seems to me to be the height of irresponsibility to leave the development of the modern high-speed communications network required to develop our domestic single market, and to link it to the single market on the Continent, entirely to private capital and for private developers to be forced to pay extra to meet the, highly desirable but nevertheless public, good of preserving the environment. That way nothing gets done until it is too late and we lose competitive advantage as a nation to our delighted Continental neighbours.

I should like to quote one more small paragraph from Mr. Lomax: To argue from the Channel Tunnel or from Docklands that only the infrastucture should be built which can be financed by the private sector is a complete travesty of market economics. In areas where there are externalities or public goods, there may be a decisive role for the public sector to play". Once the infrastructure is in place, market forces can indeed operate to determine the most efficient allocation of resources and comparative advantage.

Perhaps I may turn now to another area of government responsibility, to which I referred earlier—namely, the provision of a stable environment. One of the main themes on which this Government was originally elected was the promise to eliminate inflation, to move away from the roller-coaster stop-go economics of the previous decades, and to provide a stable monetary environment complete with medium-term financial strategy. Such a stable environment would permit sustained economic growth provided by free market forces.

For the first half of the decade, in a climate of falling inflation worldwide, there was undoubtedly success. Headlines proclaimed record growth of 4 per cent. in this country, while Germany was criticised as the laggard of Europe with only 2 per cent. growth. Then came 1987 and the October crash. Understandably the Government, together with Western governments, relaxed monetary conditions and lowered interest rates progressively until the spring of 1988. At that time the smouldering consumer boom was turned into a holocaust by a budget which gave five months to avoid tax changes on mortgage interest rates, pushing house prices through the roof—as has been mentioned in a thoughtful speech by the noble Lord, Lord Vinson —and leading to an explosion of consumer borrowing on the back of the resultant inflated asset prices. The roller-coaster was back in a big way.

Now we are having to pay for the damage. As several noble Lords have mentioned, we have a record balance of payments deficit, the highest inflation rate and the highest interest rate of all our competitors. Our growth rate has been forced back to almost zero while Germany has maintained and slightly increased its growth rate steadily throughout the decade.

Enough of the past. What of the next decade? The future for this country is undoubtedly as a participant in the single market in Europe. The single market has to be the most exciting challenge that the free market culture has ever faced. Can we really turn 12, and perhaps more, separate and diverse economies into a free and prosperous domestic market stretching across the continent? To achieve that will require political vision and leadership of the highest order. Unfortunately we have not seen much of that from the Government to date on this subject. We in Britain are seen as reluctant Europeans. Some new thinking is required, and long-term thinking to boot.

To take but one example, the free market will not be able to operate with maximum efficiency so long as there are still 11 currencies, 11 interest rates and 11 balances of payment within the Community. We must start looking at the Community as a single economy. The benefits of comparative economic advantage can never be properly gained unless that is the case. If the Germans are better at making cars than we are and we are better at financial services than they are, the benefits of those efficiencies should benefit the whole Community and not just one or other national balance of payments.

The Stage I EMS —I hope with sterling as a full member —can only be a transitional stage. For our Government in particular, with their poor record in monetary management —or monetary continence as it has been called this afternoon —new strategies are essential if we are to build up confidence in the stability of our exchange rate even within the exchange rate mechanism. We need to improve our country's credit rating.

We must consider seriously the separation from government of the power of money creation. We must consider matching the undoubted success of the Bundesbank with the granting of greater autonomy and a clear mandate to the Bank of England. We must debate and solve the problems of sovereignty and accountability that such a change implies.

We on these Benches support the free market. We believe that it has a great future. However, it is not perfect and it deserves better husbandry from now on than it has had in the recent past.

6.56 p.m.

Lord Williams of Elvel

My Lords, in many ways this has been a fascinating debate. It started with a Motion from the noble Lord, Lord Boardman, which was couched in terms for which we were all prepared. We were prepared for a philosophical debate about the free market—whatever that may mean; and I shall come to that point in a minute—and the consequences thereof. I hope that the noble Lord, Lord Boardman, will not mind my saying that I thought he got the debate off to a not very good start because his speech turned into a party political broadcast. Some of his figures were wrong, but I understand that in a party political broadcast. We then turned to a philosophical debate and then heard recommendations for the Budget, notably from the noble Lord, Lord Vinson, and the noble Viscount, Lord Caldecote.

I shall not pursue the recommendations for the Budget because I am sure that those have been noted by the noble Earl, Lord Caithness. I am sure that he will advise his right honourable friend what his noble friends have said on such matters as how to encourage investment, control credit, and so on. Nor should I like to engage in party political debate. As noble Lords will know, I am never reluctant to do so. However, certain themes have developed from the debate which I should like to pick up and which raise it beyond the party political arena. I hope that the noble Earl will cast aside his prepared speech and respond to the debate that has taken place this afternoon.

Some noble Lords have asked what is the Labour Party's policy on this matter. Perhaps I may quote from a document, the genesis of which I shall reveal in a moment. It reads: The country must restore adaptability and enterprise to its industries and must break through the net of trade restrictions, if it is to succeed in raising industrial efficiency, in maintaining employment at a high level, and so improving the standard of life". That was written by Mr. Hugh Gaitskell in 1945. That is what we believe should now be done.

The noble Baroness, Lady Seear, restored the balance of the debate and returned it to the realities of the world rather than the record of the Government, be it good or bad, North Sea oil, and so on. She started the real debate, which was taken up by the right reverend Prelate the Bishop of Manchester, the noble Lord, Lord Joseph, in a notable contribution, and the noble Lord, Lord Roll of Ipsden, on the subject of what we mean when we talk of the free market economy, and the consequences. Those are the themes that I should like to take up.

The debate appears to have posed four questions for noble Lords. First —to echo what the noble Lord, Lord Roll of Ipsden, and my noble friend Lord Jay said —what is a free market economy? Secondly —to echo the question of the noble Baroness, Lady Seear —does the creation of wealth automatically provide better public services and a better standard of life for the whole nation? Thirdly, what kind of economy do we have at the moment? Finally, what kind of economy would we like to have?

The noble Lord, Lord Boardman, knows that he has great respect in the House. I mean no offence when I pick on him personally, which I do not like to do, but the most depressing point about his speech was the fact that he said there was no middle ground. When I heard his speech I thought, "My goodness, we've been trying over the years to adapt our policies and the Government have tried to adapt theirs. If we cannot find"—to echo the noble Lord, Lord Joseph—"a middle ground in this matter, we are dead because we shall continue the ping-pong across the Benches. We shall continue the adversarial situation in which we shall do this and they will do that and we shall never get anywhere". I was depressed by the noble Lord's comments because there is middle ground, as was set out by my noble friend Lord Donoughue and by the noble Lord, Lord Joseph.

Let us consider my first question—what is a free market economy?—leaving aside the ayatollahs and fundamentalists of the free market, such as the noble Lord, Lord Harris of High Cross, who is no longer in his place. He operates in political outer space.

Lord Joseph

My Lords, I hesitate to intervene, particularly after the noble Lord has been so kind to me, but that is unfair to the noble Lord, Lord Harris of High Cross, who is absent. He simply believes that we would be effective in the things that we want to do for all our citizens if we let business run better.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord and accept what he says. I used the phrase "in political outer space" because we are dealing in politics, not just in economics. The noble Lord has his own beliefs and I am sure that they are sincerely held.

I should like to move on to deal with the question: what is the free market? Clearly, there is no perfect market. The only perfect market that I knew when I was at the Price Commission was the offshore financial market. It was perfect in terms of non-regulation, total freedom of entry and total information from all sides so that the market could operate in the Marshallian sense in a perfect manner. As my noble friend Lord Jay said, the result is a unique price across the board and the development of monopolies and cartels. The noble Lord, Lord Boyd-Carpenter, talked about his experiences in the cement industry. The noble Baroness, Lady Seear will remember, as I do, that when I was chairman of the Price Commission the noble Lord argued persuasively in favour of the cement cartel and said that it was important for the future of Rugby Portland Cement that the cement cartel should operate at a fixed price across the board. I sometimes wonder whether people changed their minds or whether it was simply a spasm of the moment.

Baroness Seear

My Lords, I am not surprised that the noble Lord does not wonder about that any more, considering the amount of changing of mind that has gone on on his Benches.

Lord Boyd-Carpenter

My Lords, I do not know whether it was as a result of my alleged persuasiveness or whether perhaps as a result of the merits of the matter, but the noble Lord will recall that the Price Commission approved the set-up at that time in the cement industry.

Lord Williams of Elvel

My Lords, I have no objection to cartels. I do not argue in favour of the free market economy. The noble Baroness, Lady Seear, rightly said that we are changing our views in this party. That is right. However, I remind her that she and her party —when it was the Liberal Party, before it became some other party —supported the Labour Party in office for some time when we were accused of operating non-market policies. I have no doubt that she has always been in favour of the free market.

My second question was: does the creation of wealth automatically provide better public services for the nation? The right reverend Prelate the Bishop of Manchester more or less made my winding-up speech for me. I agree with what he said. As my noble friend Lord Jay said, it is a matter of record that the free market develops inequalities. Unless there is government intervention, it does not help the worse-off. As the noble Lord, Lord Joseph, was good enough to admit, the point of the free market is that it rewards entrepreneurs. But at the same time there is only one cake, and if one awards more of the cake to one group one must award less to another group.

Lord Joseph

My Lords, but there would be a bigger cake too —more, if you like.

Lord Williams of Elvel

My Lords, there could be more cake, but I did not notice how the noble Lord suggested that we should have it. Whatever anyone says about the growth of the gross national product between 1979 and 1989, it has been on the long-run trend. Nothing has happened apart from the discovery of North Sea oil.

As I do not wish to waste noble Lords' time, perhaps I may move on to the question of the kind of economy that we have. We do not have a free economy; we have a partially free market economy. We have a government sector which still takes nearly 40 per cent. of the gross national product. We have natural monopolies. In some cases we have a price-competitive sector and, in other cases, distorted sectors, such as housing or agriculture, which are all in one way or another distorted by various measures, government or Community.

I accept the point made by my noble friend Lord Jay that the economy in its present balance—we shall have a great deal of time in a fort night to argue out what the present balance is—does not fully employ the proper factors of production. We have too many unemployed and too low investment —here I join with the noble Viscount, Lord Caldecote —which is the result of lack of government intervention.

What kind of economy should we have? I accept the argument of my noble friends and of noble Lords on other sides of the House that there is a case for the mixed economy. I believe that the noble Lord, Lord Boyd-Carpenter, said that it was a mixed up economy. I do not believe that the mixed economy has done us any harm. We join with the noble Baroness in disliking private monopolies. We believe that, if there are to be monopolies, they should be publicly owned, but, if they are not publicly owned, they should be properly controlled.

The Labour Party has never been opposed to the mixed economy. I quoted from Mr. Gaitskell speaking in 1945. That theme has been consistent throughout periods of Labour government and opposition since then. However, I should like to remind noble Lords, even those on the Left and to the Left of the Labour Party, that in 1917 a certain statesman came to office and said: Capitalism long ago abolished small independent commodity production, under which competition could develop enterprise, energy and bold initiative to any considerable extent, and substituted for it … joint companies, syndicates and other monopolies … Now that a socialist government is in power our task is to organise competition". That was Lenin. It may be that we are all Leninists. I hope that the noble Earl will say that we all agree that the job of government is to organise competition and make sure that it is properly organised. The most satisfactory model for the economy is that of the mixed economy with the state intervening to correct market failures —failures that subsist in education and training and in all the other things that noble Lords have pointed out —to control monopolies and also to ensure that non-economic factors, such as the environment, with which the noble Earl himself was very much involved in the context of the Water Bill, should be brought into the economic equation. That is the model that we think is right and that is the model that we shall pursue.

7.11 p.m.

The Paymaster General (The Earl of Caithness)

My Lords, today we have had a most stimulating and, indeed, as the noble Lord, Lord Williams, said, a most wide-ranging debate. I am grateful to all noble Lords who have taken part. Alas, there should have been more noble Lords, on the Benches opposite but we understand that they do not like to take part in debates on the creation of wealth and the betterment of the economy.

There is however one person, namely the noble Viscount, Lord Oxfuird, whom I think all the House misses. He had intended to take part in this debate. I am sure that all noble Lords will join me in sending him and his wife our very best wishes. We hope that we shall see my noble friend back in his place in the very near future.

I am extremely grateful to my noble friend Lord Boardman for initiating the debate which has been very beneficial. It has clearly shown that over the past 10 years this Government have improved the situation with the free market and that the free market is the only effective mechanism for improving the prosperity of the nation.

The history of Western civilisation cannot be divorced from the development of the market economy. However, over the post-war period, the benefits of the market economy —freedom, choice, and competition —were increasingly lost from view. The apparently inexorable power and scope of the state advanced largely unhindered.

It is easy to see why that happened, particularly in this country. The use of state power had led to victory in the Second World War. Those who shaped post-war Britain saw no reason why the power of the state should not be just as successful in achieving the peacetime goals of economic and social progress. That preoccupation led to the paradox that the post-war economic recovery—which owed much to the "bonfire" of wartime controls and regulations that affected even the most trivial decisions —was frequently presented as a triumph for planning and control at a macro-economic level. My noble friend Lord Joseph put his finger on the main problem.

The legacy that this Government inherited in 1979 was thus one of over 30 years of a fundamentally misconceived approach to economic policy. The post-war consensus was that growth and low unemployment could be achieved through expanding the budget deficit, with the state taking a major role in directing resources in the economy.

Lord Williams of Elvel

My Lords, is the noble Earl saying that the period of office of the Conservative Government between 1950 and 1964 was a complete waste of time?

The Earl of Caithness

No, my Lords, I am not saying that it was a complete waste of time. It was a great deal better than anything that we could have had from the other side. I do say that the economic policy has been much better in this 10-year period than it was under previous administrations since the war.

To return to what I was saying, it was thought that if that method produced inflation, it could be tackled by direct controls on prices and incomes. That approach not only failed to deliver economic success. It did grave damage to the economy. While inflation rocketed, excessive interference and controls meant that important markets ceased to work effectively and some barely worked at all. That is why the restoration of the free market stood alongside the defeat of inflation —and that defeat was keenly sought by my noble friends Lord Selsdon and Lord Beaverbrook —as one of the two main elements of our economic strategy in 1979.

Much has been done to rectify the problems that we inherited, which are still the cause of many problems that we have to face. We appreciate that there is still much to do. However, my noble friend Lord Orr-Ewing was right to say that we should also look at what has been achieved. My noble friend Lord Boardman rightly said that recent developments in eastern Europe have clearly revealed the effects of excessive government interference in the economy. Czechoslovakia, for example, was one of the wealthiest and most successful countries in Europe before the war —and before the central planners took control. In the 1930s GDP per capita in Czechoslovakia was higher than in Austria. Today it is about half.

The clearest lesson is that state control and massive quantities of inefficient investment get nowhere. In countries like Poland and Romania, investment accounted for around a quarter or more of national income, significantly higher than in Britain, or for that matter other advanced industrial countries. But we can see from the economic problems that these countries now face that the amount of investment alone means nothing.

State control and intervention have resulted in a massive misallocation of resources. We have suffered that recently in this country. In fact the GLC did not do terribly well. In 1984, of the 18 companies in which the GLEB (Greater London Enterprise Board) held 10 per cent. or more of the equity share capital, there were four in liquidation, one in receivership and nine failed to provide audited financial statements. Of the remaining four only one had made an operating profit and two had negative share capital and reserve. Let us contrast that with my noble friend Lord Limerick's examples of where highly successful progress was being made without political interference. If the Labour Party were ever to resume power, which with any luck it will not, then my noble friend Lord Selsdon and all those people like my noble friend Lord Vinson who have created employment will find the heavy hand of the noble Lord, Lord Bruce of Donington, lying on their shoulder and will hear him say, "You can't do that. You must do it my way." However, the great thing about the noble Lord, Lord Bruce, is that he has not changed; he has not become a convenience politician like so many others.

An illustration of how far views have changed about the market can be seen from Labour's debates of the early 1960s. In the days when the Labour Party conducted its arguments through the civilised columns of Encounter, Mr. Richard Crossman castigated what he called Tony Crosland's mixture of Bohemian flippancy and economic punditry". He went on to say: The Communist countries demonstrate with ever increasing force the efficiency of nationalisation. Progressively year by year we shall see that, judged in terms of national security, scientific and technological development, popular education, and, finally even of mass living standards, free enterprise is losing out in the peaceful competition between East and West … The superiority of socialised economies is being triumphantly vindicated in world affairs". I am sure that many of your Lordships will know from Crossman's famous diary that he sometimes failed to record events accurately. But those errors are nothing compared with the errors in his forecasting and, indeed, the errors in the policy that the noble Lord, Lord Jay, continues to promulgate.

The recent rapid and very welcome changes in eastern Europe only serve to underline the reasoning behind the changes that have been introduced by this Government over the past 10 years. There is no doubt that the message from eastern Europe to the Conservative Government is, "Thank you Mrs. Thatcher for your lead and inspiration". The message to the Labour Party is, "Don't ring us; we'll ring you".

The rehabilitation of market forces in the early 1980s was seen at first as an aberration of the post-war consensus. But as other Western nations have followed this path and as eastern Europe abandons state control, I have no doubt that over time people will judge that intervention and planning were the aberration and that the market economy is the normal, healthy state of affairs.

There have been many elements in the Government's programme to revitalise the free market in Britain. Large parts of the economy have been freed from bureaucratic interference and made to work more effectively, and the tax system has been reformed so as to encourage enterprise and reward people for their efforts.

A key element in that strategy has been the privatisation programme. Privatisation has resulted in some of the most radical economic changes that have taken place in Britain in the 1980s. It has transformed large parts of the economy and industrial structure and reintroduced incentives for efficiency, enabling dramatic improvements in performance for businesses which the Government inherited in 1979 as subsidised public enterprises.

The noble Lord, Lord Donoughue, admitted that Labour governments had hoped that nationalised industries would be able to operate efficiently, reaping the advantages of economies of scale, yet at the same time fulfil various social objectives which were never very clearly defined. He admits that these industries were not able to live up to such ideals but still thinks that they should exist without explaining why, having failed before, they should work in the future. Indeed, the noble Lord, Lord Williams of Elvel, supported him and said that nationalised industries should be properly controlled—whatever that means. No doubt it means whatever the noble Lord, Lord Cobbold, meant: that he must continue to interfere.

Lord Williams of Elvel

My Lords, can the noble Earl indicate any point where I said that nationalised industries should be controlled?

The Earl of Caithness

My Lords, that is what I wrote down. If I did not write it down correctly I can apologise, but I shall look at the Official Report to see what the noble Lord said.

Lord Williams of Elvel

My Lords, if I may intervene again, what I said was that monopolies, whether private or public, should be properly controlled.

The Earl of Caithness

My Lords, in other words, the noble Lord has confirmed that he said that nationalised industry should be properly controlled. I presume that to mean, as the noble Lord, Lord Cobbold, so clearly spelt out, his keen desire to interfere.

I do not think that either noble Lord has ever explained why it is impossible for businesses to operate in a commercial way when they are constantly faced with the prospect of political and bureaucratic interference, however well intentioned. Decisions taken by managers on price levels or investment plans have had to take into account, and will have to take into account, government objectives which are often in conflict with their own goals. In the final analysis there was, and will be, no real incentive, to succeed, since businesses knew that they could always rely on the finances of the state to help bale them out when they were in trouble.

We have seen great improvements made in the performance of the nationalised industries since 1979. Ultimately there is no substitute for the disciplines and responsibilities of the market place. The success of our privatisation programme bears this out. So far we have transferred about half of the 1979 state-owned commercial sector to the private sector —29 major businesses, with over 0.75 million employees. The benefits to the businesses themselves, to the employees who become shareholders and to the taxpayers and consumers, have been tremendous. Across the board these companies are now reporting greatly increased efficiency, profits, turnover and investment.

It is not only the newly privatised industries that have benefited from the Government's actions. Throughout the economy the operation of normal market forces was constrained by a battery of direct controls —controls on prices, incomes and dividends among other things. These were all swept away at an early stage. Management was at long last free to manage. The resulting improvement in the quality of management decisions has played a particularly important role in Britain's economic renaissance.

The most striking example of the effects of deregulation at work is in the financial sector. The decision to abolish all exchange controls in 1979 created a new range of investment opportunities for Britons wishing to invest abroad and has encouraged foreign investment to flow into this country. The abolition of controls on banks and building societies has greatly increased the flexibility of the markets and has led to a much wider choice for consumers. Big Bang has already given the London markets the freedom that they need to maintain London's role as a leading financial centre of Europe.

My noble friend Lord Beaverbrook mentioned the reforms that the Government have introduced in the labour market, which are just as significant. A proper framework of law is now in place and has curbed much of the trade union excesses and destruction seen in the past. That is to the great benefit of industrial relations.

Lord Bruce of Donington

My Lords, can the noble Earl inform the House when he intends to start winding up the debate?

The Earl of Caithness

My Lords, I have been winding up the debate for 13 minutes apart from the odd speeches that the noble Lords have made as they have intervened.

My noble friend Lord Beaverbrook mentioned strikes. It is interesting to note that the only strike that the Labour Party have not supported in the 1980s is the one that they had at their own headquarters.

Lord Bruce of Donington

My Lords, the noble Earl has a Central Office brief!

The Earl of Caithness

My Lords, it is a good deal better than the one that the noble Lord managed to produce. The Government have also encouraged schemes which give employees a greater stake in the performance of the companies for which they work, through profit-related pay and employee share ownership schemes. These changes have made the labour market more flexible, improving its ability to deal with the changes inevitable in a dynamic economy. A properly working labour market is the key to creating jobs.

The key to creating wealth is a tax system which does not distort private sector decisions; a tax system that encourages entrepreneurship and rewards effort. My noble friend Lord Selsdon mentioned corporation tax. He will agree with me, I know, that the reduction in marginal tax rates, both in corporation tax and income tax, made by this Government has vastly improved the working of the enterprise economy. Not only that, but there are advantages —my noble friend Lady Platt of Writtle lucidly extolled them —when people are free, as now, to keep more of what they earn to spend as they like.

In the 1960s and 1970s the United Kingdom grew more slowly than any of the other EC countries. In the period since 1980 only Spain of the other major European countries has matched our performance. Even including the slow growth forecast for the United Kingdom in 1990, we shall still be near the top of the European league and comfortably ahead of our major competitors, France and Germany.

The strong growth over the past eight years has been associated with a combination of strong productivity and employment growth. The economy has created over 2.75 million new jobs since 1983. The efficiency with which the labour force is employed has been significantly increased. Since 1980, whole economy productivity has increased more quickly than the average of the other major industrialised countries and productivity in manufacturing industry has increased more quickly than in any of them.

A major factor behind the much improved productivity performance has been the improvement in the quality of British investment decisions. Investment is no longer undertaken simply in order to take advantage of tax breaks but in order to earn a profitable rate of return. The profitability of British companies is now higher than it has been for 20 years. British business clearly has confidence that this is a permanent improvement, and it is investing in the future. Contrary to the impression that the noble Lord, Lord Donoughue, gave, I can tell noble Lords that business investment as a share of GDP looks likely to have reached a new record last year.

I listened with care to what my noble friends Lord Vinson and Lord Caldecote said on this and related matters. They know that I cannot comment on what they said today. However, let me reassure them, as I can reassure all noble Lords, that I shall draw their remarks to the attention of my right honourable friend the Chancellor of the Exchequer. It is not only British companies that have been convinced of the wisdom of investing in Britain. For example, three of the most important firms in the Japanese car industry have made significant investments in the United Kingdom, attracted by the liberal business climate that this Government have fostered. The beneficial effects of these and other decisions on British manufacturing industry will be felt for years to come.

My noble friend Lord Boyd-Carpenter was right to say that it is only this increase in efficiency and the creation of so many new jobs that has led to a substantial increase in prosperity and living standards. This increased prosperity has been widely spread through society. Contrary to what the noble Lord, Lord Jay, and the right reverend Prelate seem to believe, it is not true that the rich are getting richer at the expense of the poor getting poorer. The poor are getting richer too. For all the interference that the noble Lord, Lord Williams of Elvel, still believes in, the real take-home pay of a married man with two children on half average earnings rose by only 4.2 per cent. under Labour. In contrast, under this Government it has risen by over 24 per cent. —nearly six times as much.

No less importantly, the freeing up of the economy, the recognition and rewards now possible in an enterprise culture, have started to erode the "them-and-us" divide. To be an owner, manager of a businessman is no longer the preserve of one class, one income group, or one part of the country. The numbers of people who now work for themselves, or run their own company, own shares and own their own home have all reached new record levels. This reflects the increased prosperity that can be generated by a free market economy.

Of course the public finances must be in order if any economic system is to function properly. The Government have made sound public finances a cornerstone of their economic policy and have successfully reduced the share of economic resources controlled by the state. The increased prosperity of recent years, however, has generated the resources necessary to allow increased public expenditure on priority areas in real terms. For example, the Autumn Statement included the announcement of significant real increases in expenditure on the NHS and transport.

I agree with my noble friend Lord De La Warr, who made such a good maiden speech, that only as a result of running a sensible free market economy have we been able to generate the increased wealth necessary to allow us to spend more on areas such as the environment. Noble Lords know well my concern about water and the dreadful investment decisions that were taken in the 1970s. The Labour Government also ordered the Drax B power station but it was the Conservative Government which had the finances to have it fitted with flue gas desulphurisation equipment.

At the same time as spending on priority areas, the Government have been able to reduce the share of resources taken by public expenditure, reduce tax rates, and start to repay the national debt. This enviable combination has been made possible only by the success of the restoration of the free market. It is true that the economy currently faces some short-term difficulties. In recent months they have been discussed and debated at some length.

The noble Lord, Lord Bruce of Donington, gave us an out-of-focus snapshot of part of the present picture in the UK. He did not look at the trends over the 1980s and compare them with earlier trends. Inflation and the current account deficit are too high. I remind noble Lords that the current account deficit is a private sector deficit. The Government have taken strong action to deal with those problems and there are now clear signs that the tight monetary and fiscal policies are working. Demand growth has slowed down significantly and inflation and the current account deficit are forecast to fall this year.

However, short-term problems should not be allowed to obscure the long-term and lasting improvements which have taken place during the last 10 years. The economy enters the 1990s in much better shape than it entered the 1980s. Britain is in a strong position to take advantage of the challenges which lie ahead.

My noble friend Lord Orr-Ewing brought home to all noble Lords the dramatic increase in real terms that has taken place in charity giving. He said that he wanted further tax reliefs. I note his comments but know that he will understand that I can say no more at this stage.

The noble Lord, Lord Harris of High Cross, chastised the Government for spending too much taxpayers' money during the past 10 years and mentioned in particular social services and health spending. In contrast, the right reverend Prelate would like to see a massive increase in spending. Both those different concerns were well expressed by my noble friend Lady Carnegy of Lour. She said that the important factor is the level of the safety net necessary in the market economy. The problem of how to help those worst off without creating a dependency culture is difficult and is one which we are always considering.

Many noble Lords said that there was still much to do, and I agree. However, I remind noble Lords that the recent Housing and Education Acts have still to make their full benefits felt. Much was said about training and education by the noble Baroness, Lady Seear, and by my noble friends Lord Joseph and Lord Selsdon. The noble Lord, Lord Roll of Ipsden, reminded the House that only a week ago we debated this subject. Therefore, I have decided not to spend time on the matter today because much of what I could say was said then by my noble friend Lord Strathclyde.

In the 1970s the consequences of the post-war social democratic consensus combined with the financial mismanagement were clear. Britain was an inefficient, slow-growth economy which could not deliver the living standards, the public services and the wider opportunities and choice that our people wanted. It was clear that the mixed economy in Britain had failed.

It was also clear from Germany and Switzerland, North America and third world countries such as Singapore and Taiwan that in the long run market economies delivered the goods. And that is what people voted for in 1979. What is more, the Government have succeeded in realising these ambitions to a greater extent than any of their critics, or even their friends, believed possible in the early 1980s.

In the late 1970s we recognised that we had something to learn from other countries. In the 1980s the success of market-based liberal policies in this country have led other nations to decide that they have something to learn from us. It is neither an exaggeration nor hubris to say that Margaret Thatcher and the economic policies of her Government have become the role model for the new non-communist governments in central and eastern Europe.

I believe that the outlook for this country in the coming decade is brighter than at any time that someone of my generation can remember. We have succeeded in rebuilding a market economy in Britain. We have also now succeeded in creating a genuine internal market within the European Community. And we now have the prospect of new market economies being established in central and eastern Europe. These changes will be of immense benefit to the citizens of the countries concerned; and as part of a wider liberal trading economy will bring immense opportunities and benefits to the citizens of this country.

7.35 p.m.

Lord Boardman

My Lords, I wish to thank all noble Lords who have taken part in the debate. They have made many well-informed contributions. In particular I thank my noble friend Lord De La Warr for making his maiden speech on this occasion.

I have only two points to make. First, the noble Lord, Lord Williams of Elvel, criticised my use of the middle ground. If he reads my speech in Hansard he will see that I referred to the middle ground as a vision of principle and showed two ways in which it could be held in stark contrast. I said that there was no middle ground between them. However, there is middle ground as regards policies and their administration. We must all seek a compromise to obtain the right solution. If the noble Lord reads my speech perhaps he will decide that his criticism is not fully justified.

Secondly, as expected, noble Lords suggested areas in which there are shortages of resources and have used that as a criticism of the Motion. We all know that a great deal remains to be done. The Motion set out the achievements resulting from the policies I have outlined, while recognising that a great deal remains to be done. A number of noble Lords appealed for more to be done in education and training. I was pleased to hear my noble friend Lord Caithness say that he has taken note of that.

Of course much remains to be done, and that will always be the case. But in order that we can achieve as much as possible, the right course is the creation of further wealth. In that, the free market has a most important role. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.