Address in Reply to Her Majesty's Most Gracious Speech

HL Deb 14 November 1990 vol 523 cc336-438

Debate resumed on the Motion moved on Wednesday last by Lord Kimball—namely, That a humble Address be presented to Her Majesty as follows:

"Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament".

3.10 p.m.

The Lord Privy Seal (Lord Belstead)

My Lords, we have now reached the final day of the debate on the gracious Speech. During the previous three days the House has heard most excellent maiden speeches and today we look forward to hearing for the first time from the noble Baroness, Lady Castle.

Last year no less a body than the Organisation for Economic Co-operation and Development concluded a report on the United Kingdom economy with these words: UK economic performance in the 1980s has been marked by an unusually sustained expansion and by distinct signs of improvement on the supply side". Nevertheless, the Opposition have put down a highly critical amendment about the Government's general conduct of economic policy. In the light of the OECD's comments, the amendment surely cannot be referring to the past decade as a whole. So what of the more recent record?

As your Lordships will know, 1987 and 1988 saw the fastest growth in both demand and non-oil output in any two-year period since 1945. But as demand outstripped capacity to meet it, inflationary pressures re-emerged. Once the extent of demand became apparent, interest rates were raised sharply. In saying that, I certainly recognise that the slow down in demand has been considerably more gradual than we anticipated; but I think it is fair to make the point that the resilience of the economy in the face of very tight policies, a resilience which has surprised everyone both within and outside government, is in itself testimony to the greater strength of the economy.

With hindsight it can be argued that interest rates should have been raised earlier. But there were good reasons for not acting sooner; there were the effects of the stock market crash of October 1987, and the statistics that were available at the time simply did not paint a picture of over-rapid demand expansion. But did those who now accuse the Government of incompetence—that is what the amendment says—actually recommend tighter policy then? Did they interpret what was happening in 1987 and 1988 better than the Government? The answer on both counts, as noble Lords opposite are well aware, is no.

I shall not pretend that in the short term we face anything other than a brief period in which output is likely to fall. In the economic forecast which he presented just under a week ago, my right honourable friend the Chancellor of the Exchequer foresaw a small fall in gross domestic product between the first and second halves of this year, but thereafter the forecast is for some recovery, with GDP growth of more than 2 per cent. from the second half of 1990 to the second half of 1991. I have heard it asserted within the past few days that the current economic situation is comparable to 1980 and 1981 and that over the decade nothing really has changed. But that is not so. I ask the House to look back over those 10 years.

In the early 1980s output fell by a total of 5 per cent., leaving it only 6 per cent. above the level prevailing back in 1974. Now output is expected to rise by the end of next year to a level nearly a third higher than it was in 1981. The scale of the inflationary problem that we face now is also very different from a decade ago. Demand growth had risen to just over 4 per cent. in 1978; but inflation subsequently soared to a peak of nearly 22 per cent. in 1980. This time demand growth reached a remarkable 8 per cent. in 1988 but inflation looks set to peak at around its present rate of just under 11 per cent.; that is much too high but is a very different story compared with 10 years ago. The noble Lord, Lord Williams of Elvel, will not be entirely surprised when I say that on this side of the House we shall be unable to agree to an amendment which regards it as "incompetent" that the inflation rate has risen to its present level, an amendment, if the noble Lord will forgive me for saying so, put down by the party opposite which 12 years ago sowed the seeds for the subsequent peak inflation of double that amount; namely, 22 per cent.

Meanwhile, it must be very important for our country's future competitiveness—

Lord Callaghan of Cardiff

My Lords, I am sorry to interrupt the noble Lord, but he seems to be forgetting that his Government were in charge when inflation soared to that figure. When I left office, inflation was at 10.3 per cent. It rose very quickly afterwards because Sir Geoffrey Howe doubled value added tax. If we are going to have comparisons, let us have some fair ones.

Lord Belstead

My Lords, the noble Lord is always fair and I shall attempt to be fair in reply. The noble Lord is absolutely right when he says that the then Chancellor of the Exchequer, my right honourable and learned friend in another place, increased the rate of VAT; but there was a package which included the cutting of tax rates. What I cross swords with the noble Lord about is that he seems to have forgotten that the Government under his command faced a total collapse of incomes policy in the winter of 1978–79 which led to the inflation rate of 10.3 per cent. when the noble Lord and his Government left office—an inflation rate which inevitably rose higher and higher and eventually peaked at 22 per cent.

Meanwhile, it must be very important for our country's future competitiveness that our fiscal position is stronger today than any of the Group of Seven countries with the single exception of Japan. The present financial year is expected to be the fourth year running that the Government have achieved a budget surplus, an outcome unprecedented in the past 40 years. The new planning totals for expenditure next year, announced last week in another place by my right honourable friend the Chancellor of the Exchequer and by my noble friend Lord Hesketh, who is to reply today, in this House, represent a tight overall public expenditure settlement which, although involving tough decisions, is affordable and prudent. Nonetheless, within those extra resources we have been able to concentrate more money in three main areas: social security; health; and support for local authorities with improvements in the key areas of education, public transport and the environment.

One matter which is common ground on all sides of the House is that there is never enough public money to pay for all that we want for our country. But a strong, sustained rate of economic growth certainly helps, to put it mildly. It enables the country to put increased resources into its public services, without having to resort to higher and ever higher taxation or higher borrowing to finance them. And the key to economic growth is the private sector—the wealth creating sector.

The Government have recognised this basic truth, and in the 1980s the economy of the United Kingdom, together with that of Spain, has grown faster than any of the other major Community countries. It is the first post-war decade in which the United Kingdom economy has grown faster than the economies of France and Germany. This strong growth has brought with it prosperity and an increase in living standards which have had widespread benefits. While it is true that employment has reacted inevitably to the slow down in the economy, it needs to be remembered that our unemployment is still well below the average rate in Community countries, and that today there are very nearly 2 million more people in employment than there were 11 years ago.

In the long term, growth and employment depend on improvements in the supply side of the economy. I think it is fair to claim that the need for such improvements is recognised throughout the industria-lised world and now, not least, by the new democracies in Eastern Europe. So it is very important that we in the United Kingdom have gone further than most in the supply side reforms which will stand us in good stead for the future.

The most obvious example is the labour market. The proper framework of law which is now in place has transformed industrial relations. The number of stoppages is now at its lowest level for over half a century and about one third of what it was in 1979. Flying pickets are, thankfully, a thing of the past. The 3.75 million jobs created since 1983 reflect the greater opportunities in the labour market of today. Since 1979 the numbers of self-employed people have risen by 75 per cent. and there are ever increasing numbers of women joining the job market. The enterprise allowance scheme, which owes its existence to my noble friend Lord Young of Graffham who will be speaking in the debate, has encouraged over 500,000 people to start up on their own and the small firms loan guarantee scheme has helped to finance around 26,000 smaller businesses.

The once intractable problem of long-term unemployment has also been tackled head on, as it needed to be. The numbers have fallen by 850,000 from their peak. The creation of the new employer-led training and enterprise councils should sustain this moment um and they will almost certainly be spending more next year than they are likely to spend this year.

Elsewhere we have done everything possible to sweep away unnecessary regulations and controls. But the most dramatic restoration of the market framework has been the privatisation programme. Already half of the state owned commercial sector of 1979, some of it at that time making enormous losses, has been transferred to the private sector.

Previously industrial policy meant trying to override the market. Decaying industries were artificially resuscitated and new industries were supported according to the views of the government of the day. By contrast, we have relied on competition policy to give new life to industry, while responding in ways which I have indicated to the particular needs that we believe have emerged.

That policy has borne fruit. Last year business starts exceeded stops by 1,700 a week, so that there were 25 per cent. more firms in existence than in 1980. That has not been concentrated in one area at the exclusion of others. In fact, the regions which appear to be least affected by the current slowdown are the areas traditionally associated with industrial decline, such as the North East.

One clear piece of evidence of the improvement that has come about concerns manufacturing productivity. Where the United Kingdom was at the bottom of the league table of major industrialised nations in terms of productivity in the 1960s and the 1970s, we now find that the UK actually headed the league in the 1980s, and of course the recent export performances of our manufacturers have continued to be strong.

The principles we have followed at home, and which I have been endeavouring to outline, have also guided us in our approach to 1992. In the single market, for example, we have helped to shape many of the most liberal directives which are creating exciting opportunities for people and businesses in the Community. With Denmark we lead the field in implementing single market measures in our national legislation and we continually argue that a single market must not lead to a fortress Europe. That is why we have been enthusiastic supporters of plans to extend the benefits of the single market to the EFTA countries and to develop the plan for association agreements with the countries of Eastern Europe.

At the same time the Government fully support Stage 1 of the Delors Report which includes completion of the single market. I fail to see, therefore, how the amendment of the noble Lord, Lord Jenkins, can imply that the Government are in some way "separating" the single market from progress towards economic and monetary union. Far from it. My right honourable friend the Chancellor of the Exchequer has put forward concrete proposals for progress beyond Stage 1.

The practical merit of the proposals for a hard ecu and a European monetary fund is that it would allow the Community to move forward together. It would be a common currency for Europe, and it could develop into a single currency if that is what peoples and governments so choose.

The Government's disagreement with the noble Lord's amendment is more fundamental than that. The main reason for our entry into the Community 18 years ago was to join a common market of over 300 million people close to our shores. But the Community is not even yet a true common market and each advance towards the goal of 1992, each directive which puts into effect a genuine single market within Europe has had to be argued for and worked for and in that Britain has played its part. At the same time, we have had a tremendous task in encouraging British industry and commerce to prepare for the single market.

So I must say that the Government take issue with the implication in the noble Lord's amendment that the Government's single market credentials are questionable because of another issue which is to be the subject of an intergovernmental conference which has not yet taken place!

Today's debate centres around the Government's economic record. There has indeed been record growth in investment and in employment and something of a revolution in production. So today the economy is better placed to meet difficulty and challenge. What is more, we have taken action on three very important fronts.

First, we have made it possible for a great deal of restructuring of British industry to take place in advance of the single market. Secondly, our public finances are strong, our current fiscal position being stronger than that of Germany, France or Italy—a remarkable record in anyone's book! Thirdly, tight policies to slow demand and reduce inflationary pressures are now clearly working and a sharp fall in inflation is expected next year.

Those are not "incompetent" actions; they are actions which faced up to doing the things that needed to be done, and which will stand our country in good stead for the years ahead.

Lord Molloy

My Lords, before the noble Lord sits down, can he explain a matter which is perplexing many people in this country? I refer to the fact that the Confederation of British Industry could hardly agree with anything that he has said this afternoon. Therefore, will he say that what the CBI has stated in the press, in its magazines, and in statements made by Mr. John Banham, should be ignored because it is incorrect?

Lord Belstead

My Lords, I think that we should wait for the noble Lord to make his own speech in the debate. I have sketched out the way I believe that the economy is going both at home and abroad. In the meantime, I wait to hear what other noble Lords have to say.

3.27 p.m.

Lord Williams of Elvel rose to move, at the end of the Address to insert: "but regret the incompetence of Your Majesty's Government in their general conduct of economic policy".

The noble Lord said: My Lords, I should like first to join with the noble Lord the Lord Privy Seal in looking forward to the contribution of a most distinguished maiden who now graces our Benches. I refer to my noble friend Lady Castle of Blackburn. I am sure that her contribution will be well worth hearing and that it will be as uncontroversial as was her long political career.

I turn now to deal with my amendment which the noble Lord the Lord Privy Seal accused of being—how shall I put it? —perhaps somewhat brutal. If that is so, I apologise for its language. However, I think that your Lordships know me well enough to know that I see no point in mincing words. So far as I am aware, a spade never suffered from being called a spade.

Lord Hailsham of Saint Marylebone

A bloody shovel!

Lord Williams of Elvel

My Lords, I refer the noble and learned Lord to the conventions of parliamentary language.

Having worded the amendment in plain English, it is obviously my task, and that of my noble friends who will follow me, to substantiate the charge. Our charge is this: over the past few years there have been serious mistakes in economic management. In short, there have been blunders. Furthermore, those blunders were not provoked by external shocks, or for that matter unforeseen domestic events, but have been the direct and predictable result of Government decisions. Taken all in all, our charge is that the Government have been, and still are, incompetent in their management of economic affairs.

I should perhaps first say a word about the amendment to be moved by the noble Lord, Lord Jenkins of Hillhead. I have a certain sympathy with the Lord Privy Seal over that. With the greatest of respect to the noble Lord, I mean that genuinely. I rather regret the tabling of that amendment. I was hoping that this afternoon's debate could concentrate upon the domestic economy. I fully recognise that we cannot debate the domestic economy without reference to the broader European economy since the two are clearly interlinked; but we shall have the opportunity to say pretty well everything we want to say on European questions in the debate which will take place on Thursday of next week on the report of your Lordships' Select Committee on European Monetary Union and Political Union—a report, incidentally, that I have read with the greatest interest. I congratulate the committee and its chairman the noble Lord, Lord Aldington, on its report.

The wording of the noble Lord's amendment also strikes us as being uncharacteristically imprecise. After all, the Community properly takes a wide range of "initiatives"—to quote the words of the amendment—in a number of different directions. Many of them should be separated from the single market. A Community initiative, for example, on hostages in Iraq has nothing to do with the single market; nor—if I may move from the important to the absurd—does the latest Community initiative to define in a directive the status of a carrot, which is, I gather, to be regarded as a fruit when used to make jam and a vegetable for other purposes.

On the other hand, I have great sympathy with the notion that the single market is not the be all and end all of the Community in the way that a number of government spokesmen would frequently have us believe. If the noble Lord had done us the courtesy of consulting us on the wording of his amendment in the way that I consulted his party on the wording of ours, we could probably have devised something which would have commanded the support of all of us on this side of the House. I am sorry that that has not happened.

The gracious Speech tells us little about the Government's economic policies. We learn only that the Government intend, to reduce inflation and foster conditions necessary for sustained growth". Those words of course have a fairly familiar ring. That is exactly what we were told in 1979, and we now find ourselves, 11½ years later, not merely with no reduction in inflation but in a period, not of sustained growth, but of negative growth; in other words, what is known by any definition as recession.

Why? What has happened? Why is it that after all this time, after the enormous benefit that we have received from North Sea oil, after the suffering of unemployment, homelessness and of the sick and disabled, the Government have landed us in this mess? There are two reasons. They relate, first, to short-term mistakes; and, secondly—and perhaps more fundamentally—to a lack of vision.

Let me examine first the short-term problem. I believe that it is now common ground—I think that the noble Lord the Lord Privy Seal alluded to this—that there were serious policy errors in the period 1987–88. It was a combination of the rise in house prices and de-regulation of the financial markets that allowed, and indeed encouraged, a raging boom in consumer expenditure with a consequent explosion in the monetary aggregates. Houseowners, seeing the value of their properties rise almost daily, were able, without penalty, to increase their mortgages and indeed call upon other sources of de-regulated credit to pay for the good life—and that they did in full measure. Between 1985 and 1989 personal consumption rose by nearly 25 per cent. Nothing on that scale had ever happened before. Total indebtedness of households in that period increased by over £200 billion. The result was predictable and was predicted. Inflation took off. The balance of payments went into deep deficit. In turn, the consumer rampage, once started, was fed by unnecessary and unwise income tax cuts. That was not just a consumer boom: there was an accompanying upsurge in what became known as business investment.

That term can mean anything, but the truth is that it is designed as an expression to hide the fact that that upsurge in investment when set off was directed to entirely the wrong sectors. Instead of a major increase in manufacturing investment which was, and still is, so badly needed; the big increases took place in the service sector: in office blocks, retailing and financial services. Investment in manufacturing came in the end, but it came right at the end of the queue.

In response to that situation, the Government took the deck ion to rely upon one weapon to fight the inflation for which they themselves were responsible. It was the weapon of short-term interest rates. The immediate effect of that decision was predictable, and indeed predicted: inflation, because of the consequent rise in mortgage rates, instead of going down, went up. That in turn led to increased claims for wages and salaries, not least, may I say, from directors and senior executives of large companies who were themselves committed to high mortgages. However, the use of interest rates as the sole way of reducing demand has at least two serious disadvantages.

In the first place, the size and timing of the impact are extremely uncertain; and, secondly, the interest-rate weapon is just as likely to cut investment as consumption. That is the last thing that we need. Nor was the policy, if I may say so directly to the noble Lord the Lord Privy Seal, helped by a series of ministerial pronouncements to the effect that inflation would soon be brought under control so that the public need not worry too much about some short-term discomfort. There would be, we were told, a soft landing—your Lordships perhaps remember that expression—under which procedure inflation would be eliminated without undue hardship for the majority of the public, or at least for Conservative voters. That expression was repeated constantly, and Ministers, surprisingly enough, were taken at their word, to the point where no one really believed that their own personal position would be affected, other than in the very short term, and so all continued to borrow a they did before.

At that point, in the Autumn of 1989, it was clear that the economy was in serious trouble. There was a change of Chancellor. Mr. Lawson's name was duly blackened, and, after his short detour at the Foreign Office, we were presented with Mr. Major. Here, it was said, was the real tough guy. If it did not hurt, it was not working; and, suddenly, it started to hurt. Some time in the summer of this year, the economy went into a nosedive. We now have an economy that is sharply contracting, not in a mild recession of the type described by the noble Lord the Lord Privy Seal, but in a sharp recession. If ever there was a hard landing, this is it. But it is by no means finished yet. Even by the Government's Autumn Statement forecasts, real GDP is to continue falling well into next year. The CBI October industrial trends survey shows a grimmer picture, suggesting a trough around the middle of next year at GDP growth of about minus 2 per cent. The business optimism indicator is about where it was at this stage in the deep recession of 1980. The export optimism figure has collapsed. Substantial de-stocking is predicted. As a result, unemployment will certainly rise, profits will certainly fall, and investment with them.

Instead of an inflationary mess, we now have a deflationary mess. What do we do now? What is the proper policy response? Classically it would be an easing of monetary policy at this stage of the cycle by means of a cut in interest rates. If it is true that the headline rate of inflation is to come down 5½ per cent., as the noble Lord claimed—it may well do so if the recession is deep enough —then one could argue that there might be some relaxation in monetary policy.

Is there any scope for interest rate cuts? Not really very much. This is partly because any monetary reflation at the present moment of domestic demand would soon spill over into our already horrific balance of payments deficit and partly because, now that we are in the exchange rate mechanism, we have lost control of our interest rate policy. We went in to the exchange rate mechanism, as I remind your Lordships, purely to achieve an interest rate cut in time for the beginning of a Conservative Party conference. The result was that the ERM honeymoon, as it was called, lasted about half an hour. Sterling has been bumping along as the laggard in the ERM ever since. This morning, it dropped below 2.90 deutschmarks. The market is even now fearful of the possibility that interest rates will actually have to rise again if sterling is not to slip off the edge.

It seems to me that we have accumulated, one after another, problems for ourselves by faulty, hasty or ill thought-out decisions. We ask ourselves: who is to blame? We can immediately eliminate one possible scapegoat—the international economy. There are no oil shocks such as we had twice in the 1970s. Growth in the major industrialised countries has tapered off but there is still growth—in Germany and Japan, quite fast growth. The world scene is quite unlike that of the 1970s and early 1980s. The growth of world trade in manufactures, for instance, is forecast to stay in 1990 and 1991 at around the average for the 1980s.

Nor can anyone seriously argue that there have been any unforeseeable domestic events that have made a great impact. Of course we understand that if there were a war in the Gulf the whole world would change, but we have to follow the lines of the Autumn Statement and assume that we shall be successful in avoiding it. The introduction of the poll tax had inflationary implications. These were easily foreseeable and were foreseen. Electricity privatisation will also be inflationary, if it ever happens. But that is government policy too.

I return to my first and central theme. The Government have nobody to blame but themselves and we have nobody to blame but the Government. Of course, it is the general rule of this Government, when they run into economic difficulties, to put all the blame on to those lucky enough to have a job. We see it happening again. It is the poor old worker who is to blame; if he tries to keep his pay packet up in line with inflation, he is doing something wrong. That is the normal stuff we get from Ministers. They have not yet blamed the financial markets, as they used to, but that will come in time.

I am afraid that the sad fact is—and I say this directly to the noble Lord the Lord Privy Seal—that people no longer have faith either in what Ministers say or in what they think they will do. That message comes across quite clearly in the opinion polls and the by-election results.

Moving to the longer term, it is the longer term lack of vision that will be the most serious legacy that this Government leave behind them. As long ago as 1985 your Lordships' Select Committee pointed out that there was one key requirement to bring our economy into balance and that without it all the clever manoeuvres in the world would be of no effect. That requirement was a recovery in manufacturing industry. They were right then; they are right now and we are right to repeat their argument. The British economy has had and still has a continuing and serious structural problem. Here I come to the long term effects of government incompetence. It is a problem that the Government have not simply allowed to develop but have actively exacerbated during their period in office. Not until we recognise that fact fairly and squarely shall we be able to mount a serious attempt to do something about it.

Perhaps I may give an example of what I mean. For all the ministerial boasting about investment in manufacturing industry, the truth is that net fixed capital formation in real terms was negative in manufacturing from 1981 to 1986, apart from 1985. Although it was positive in 1987 to 1989, the decline in capital stock has not been made up and is therefore lower than it was in 1979.

Another example of a field in which we have fallen behind in the past decade is civil research and development. Everybody knows it, it has been said a thousand times in your Lordships' House and will be said again. Not a squeak comes from the Government.

A third example is our balance of payments. Again, the importance of manufacturing is paramount. In 1990 it looks as though exports will have increased by 50 to 60 per cent. over 1980 but imports of manufactures will have increased by 110 to 120 per cent. No strategy is viable which does not somehow or other ensure that that adverse trend is halted and then reversed. So what do the Government do? They announce yet another cut in the industry budget in the Autumn Statement.

None of these considerations seems to have entered the Government's thinking at all. They seem to be wrapped in a fog of complacency. But perhaps just for once they might do us the honour of listening to what we and the rest of the world are saying. The imbalances that have traditionally characterised the British economy have not in any way disappeared. Far from it; they have actually intensified in the past decade but have been masked by North Sea oil. We enter the 1990s with the most serious structural problems, which urgently need addressing. Let us for goodness' sake recognise that before it is too late.

Finally, we can now rewrite the Conservative manifesto for the General Election of May 1979. It runs something like this: "We intend to remain in power for three parliaments. By the end of 1990 our target is to achieve, after much pain and suffering, an inflation rate similar to the one we inherit, but with an economy in recession and with a balance of payments surplus that we inherit turned into a £15 billion annual deficit in spite of North Sea oil. Unemployment will about double to over 2 million, in spite of our efforts to keep the total as low as possible by fiddling the figures. We expect to receive nearly £70 billion from North Sea oil revenues, which no government have ever had before, and a further £25 billion from the proceeds of selling assets to the public who already own them. We will fritter away these vast sums either in direct tax cuts or in redeeming gilt-edged stock. We do not propose to lighten the total tax burden but we will make sure that that burden is shifted away from those who can afford to pay on to those who cannot. Finally, we expect Britain to be overtaken in terms of per capita GDP not just by France, Germany, Belgium and Holland but also by Italy and possibly Spain. We should be most grateful if you would go out and vote for us".

Of course, that was not their manifesto, but it is their record. That I call incompetence. I beg to move.

Moved, at the end of the Address to insert: "but regret the incompetence of Your Majesty's Government in their general conduct of economic policy".—(Lord Williams of Elvel.)

3.48 p.m.

Lord Jenkins of Hillhead

My Lords, I begin by saying that I do not wish the amendment in my name on the Order Paper in any way to pre-empt the debate which we shall have on monetary and political union on 22nd November. I regard it as vital that your Lordships' House should have a full and reflective debate on the most valuable report produced by the committee presided over by the noble Lord, Lord Aldington. We are greatly indebted to him and to the noble Baroness, Lady Serota, for the service they render to the House and the nation on matters of European policy. I shall therefore steer my European remarks today as far away as possible from the specific issues with which the report so authoritatively deals. At the same time I do not think it would be remotely reasonable, at the present juncture in our affairs, that this House should impose upon itself a kind of trappist vow of silence on Europe for the next eight days.

It will not have escaped the notice of your Lordships that matters are currently moving rather fast in the evolution of this country's European argument. I also do not think that the debate on the Address should be allowed to pass without the party which I have the honour to lead in this House setting out and indeed voting upon its own clear-cut and consistent line on what is the dominant issue of the day for this Parliament and for the country.

The Conservative Party is manifestly in a state of almost unprecedented disarray on the issue. I remember how recently it was that the noble Lord, Lord Belstead, in those familiar and well loved terms, expressed more in sorrow than in anger the fact that he had to rebuke us for having such nasty thoughts. He repudiated the idea that there was any serious difference between the Prime Minister and the Deputy Prime Minister. I remember how excited one or two noble Lords became when I suggested, in connection with the Statement on the Rome Summit, that the Prime Minister's xenophobia had become a major disadvantage to the interests of this country. That view was almost precisely endorsed by Sir Geoffrey Howe in his speech yesterday.

I can certainly think of no occasion, at least since the last days of the Balfour Government, when the Conservative Party in government was in such continuing confusion. I may add the comforting thought that it then took the Conservatives 10 years to get back to office of any kind and 17 years to get back to independent power. I should very much like to hear the views of the noble Lord, Lord Blake, on the matter to which I am about to refer. Some historians of the 19th and 20th centuries might take the view that one would have to go back still further, to 1846, to find a state of affairs with such a deep-seated capacity of reverberation. Some 28 years passed before a return to more than a snatch of power occurred.

I wish to turn for a moment to the official Opposition in response to the views expressed by the noble Lord, Lord Williams of Elvel. I gathered before and I gather today that the Labour Party is not altogether happy about our amendment. One distinguished noble Lord was reported as saying that the Labour Party may not be able to vote for the amendment. That, if I may say so, is its problem. If, as may well be the case, the Labour Party will soon be in government, it is not a bad thing that it should be brought up against the fact that one cannot have all the political advantage of running with the European hare while hunting with the anti-European hounds. Otherwise the period that Labour is in government will be just another sad chapter in the bungled history of our relations with the Continent over nearly the whole of the past 40 years; namely, fair words in opposition and foolish performance in government.

I have a high regard for the European record of the noble Lord, Lord Cledwyn. He played a notable part in the referendum campaign of 1975. I believe also that the noble Lord, Lord Williams of Elvel, has strong European instincts. However, it must be said that, as a political entity, the Labour Party has an appalling record of tergiversation and opportunism on the issue of Europe. I shall mention only one instance of that. The convincing nature of Mr. Kinnock's criticisms of the present isolationism of the Prime Minister are to say the least somewhat vitiated by the fact that only seven years ago he was enthusiastically advocating the complete withdrawal of Britain from the European Community.

I become increasingly convinced that the two party politics in this country have served the vital question of our relations with Europe remarkably and almost impartially badly. The European card was played quite strongly by the Conservatives in the late 1940s and the very beginning of the 1950s, partly because the Labour Government believed—I think they were probably mistaken in that—that the Durham miners would not let us join the Coal and Steel Community. But in office all that led to was the disaster of Anthony Eden refusing to let us participate in the Messina Conference.

The Labour Party under the noble Lord, Lord Wilson of Rievaulx, behaved in a reverse fashion. In opposition he denounced the Common Market as just an arrangement for trying to sell washing machines in Düsseldorf. But in government, after a fairly short interval he moved towards initiating the second British application to join the Common Market in 1967. Then, in opposition in the early 1970s, he devoted more attention to party unity than to consistency. That began the disintegration of the Labour Party as a party of government, at any rate for some time.

Meanwhile the Conservative Party became the great party of Europe. In the referendum campaign it was almost united whereas the Labour Party was deeply split. Even the noble Baroness, Lady Castle of Blackburn, whose speech I greatly look forward to but who I cannot see in the Chamber at the moment, was disunited with me on that issue. That may seem unbelievable. It seems to me in retrospect that what united the Conservative Party was the confluence of two quite different streams. Those who had a strong genuine Heath-like enthusiasm for Europe were still strongly placed and were buttressed by others without much genuine enthusiasm but who looked to Brussels in those days for protection against the threat of an insular socialism that they still took seriously.

The Labour Party at government level was then lukewarm. Great though my respect is for the noble Lord, Lord Callaghan of Cardiff, it must be said in honesty that it was his government who first kept us out of the exchange rate mechanism of the European monetary system. At party level that Government's stance became increasingly hostile. Then the great reversal of position that first occurred in the mid-1980s began. The Labour Party lost its hopes of insular socialism and began to find 10 Downing Street a more intransigent foe of its aspirations than the Berlaimont. It also saw an opportunity of twitching the tail of an increasingly isolated Mrs. Thatcher. The Conservative Party as a natural corollary lost its fears of insular socialism, not because it liked it any more but because that concept became more improbable. With a shift in the internal balance of the party, some natural chauvinism reasserted itself.

It has been a dismal tale of party prejudices and party manoeuvring which has prevented us from playing either an effective and consistent hand in Europe or developing a distinctive and inspiring national vision of what we want to achieve. That does not need to be an extreme or homogenised federal vision. My view of Europe is not very different from that expressed by Sir Geoffrey Howe yesterday. I do not want to see the analogue of the United States of America imported into a Europe which will and should retain many distinct national characteristics. I do not regard the Delors plan as written on tablets of stone. One would have to be an even more charitable person than I am to regard every pronouncement of one's successor—even if it is one's successor but one —as being immutable truth in all circumstances. I do not believe that the Rome Summit was conducted very considerately, although Mrs. Thatcher's manner on such occasions is not calculated to inspire or deserve consideration from others.

However, I believe that it is essential to see European problems overall and I do not believe that one can compartmentalise them. In my view there have been few more narrow-sighted and meanly materialistic views than that one could have a Europe of the single market and nothing else, a Europe of freely moving lorries which had nothing to do with a common currency, a stronger parliament, a common foreign policy or all the wider aspirations which move the hearts and minds of men and women as opposed to merely moving packages and which make the European Community such a beacon of hope— primarily non-materialistic—to the emerging de-mocracies of Eastern Europe.

Until we see things in that overall pattern and rise above the exigencies of party gain, we shall not get our relations with Europe right. In my view the trouble with Britain's relations with Europe has always stemmed much more from politicians than from the people who would always have responded to a constructive lead.

When we vote on the amendment tonight we may be in a fairly small lobby, what with the Labour Party trying to reconcile its conscience with its sense of party tactics and the Conservative Party trying to hold together some part of the wreckage. Nevertheless, I almost guarantee—one should never guarantee the future—that within a few years the policy of whichever party is then the government of this country will be in line with the sentiments of my amendment today. If only we could for once do something early and gracefully rather than late and sourly. How very welcome that would be!

4.4 p.m.

Lord Harris of High Cross

My Lords, whatever our differences, we are all looking forward with the keenest anticipation to the maiden speech of the noble Baroness, Lady Castle. I hope she will not steer away from the European issue, on which she has considerable experience, since some of us wish to know in which direction she may bestow her greatly valued favours.

We are debating a humble Address to thank Her Majesty for the gracious Speech. The first amendment stands in the name of the noble Lord, Lord Williams of Elvel. I cannot help reflecting from the Cross-Benches that if there was any gratitude in politics he might have moved a rather different Motion: still humble thanks, but to a rather different lady. After all, the Labour leaders owe an enormous unacknowledged debt to the Prime Minister. It was she above all others who shamed them into dropping their socialist baggage and adopting at least the rhetoric of the market economy. In the process Labour is said to have become electable. We shall see, that was the idea behind their graveside conversion.

I say that because the noble Lord, Lord Williams, talked about not mincing words. For 10 years I have watched the Labour Party, even in this House, opposing tooth and nail every market measure that the Tories brought forward. Now they appear to go in for drag, stealing Mrs. Thatcher's foundation garments with their designer labels of trade union reform, deregulation, supply side policies, low taxes and even the right to buy.

The noble Lord, Lord Williams, may have been especially thankful to the Prime Minister because in 1977 he was languishing as chairman of the Price Commission engaged, like some amiable East European apparatchik, in a daily hand-to-hand struggle against rising inflation. It proved an unequal battle even for the noble Lord's formidable talents. It was from that unhappy impersonation of King Canute that he was rescued by Mrs. Thatcher in 1979.

The noble Lord's Motion speaks of Her Majesty's Government's, incompetence in … their general conduct of economic policy". We all regret economic or other incompetence, especially in others. However, it has to be said that there is a powerful amount of incompetence wherever there is over-extended government. Indeed, the Labour Party has a long and intimate acquaintance with economic incompetence, as seen during its 11 years in power from the glad, confident morn of 1964 to the nightmare of 1979, by which time the noble Lord, Lord Jenkins of Hillhead, had taken refuge in Brussels.

It cannot be denied that the present Government have recently displayed a deplorable degree of incompetence in their central battle against inflation. However, their record suggests to a well-disposed observer a number of possibly extenuating circumstances. First, their present lapse comes after a much longer period of notable economic success. In the circumstances they might be charged with inadvertent incompetence whereas Labour when in office practised incompetence as a way of life.

Secondly, the Government's failure does not stem from their market reforms of state industries, labour supply, lower taxes and higher productivity. Most of their worst problems come from the remaining socialised sector—education, health care and local government. All three stubbornly display the same incorrigible deficiencies everywhere associated 'with politicised control; namely, financial laxity, overman-ning, public sector unions, national wage setting, misdirected investment and insensitivity to consumer choice and convenience. That is why I believe that we need more Thatcherism and not more fudge.

Thirdly, the Government's most surprising income-petence is the failure to keep down inflation. Again, it is not a failure of market policies but of the politicised sector, which reflects no credit on any party. The noble Lord, Lord Williams, displayed a good deal of hindsight in his criticisms. Liberal and Labour spokesmen throughout the 1980s vied with one another in scoffing at monetary policy and calling for more government spending and lower rates of interest. According to Professor Tim Congdon, it was the abandonment of monetary targets and the switch to shadowing the deutschmark that fuelled the Lawson inflation after 1987.

The question that neither the Treasury nor the Opposition—nor the noble Lord, Lord Williams—seems capable of answering is the following. If the Bundesbank can deploy monetary policy to regulate the deutschmark why cannot we rediscover the success that enabled Sir Geoffrey Howe, assisted by the noble Lord, Lord Cockfield, and, from a distance, Professor Alan Walters, to bring down inflation from 20 per cent. to below 5 per cent. in the early 1980s? I fear that the necessary discipline will prove no more palatable for tying sterling at an arbitrary rate to the deutschmark inside the ERM. Indeed, we may soon find that the result will be to throw a still heavier burden of adjustment on high interest rates and unemployment.

I come now to the second amendment, in the name of the noble Lord, Lord Jenkins of Hillhead, which regrets that Her Majesty's Government, persist in separating the single market from other European Community initiatives, notably a single currency". I shall try to match his moderation of language and tone and the avoidance of cricketing metaphors.

As a strong supporter of the open single market, associated with the name of the noble Lord, Lord Cockfield, I hope to avoid the self-righteous moralising of some Euro-zealots, of which I detected just a whiff in the mostly earnest waffle of my old friend Sir Geoffrey Howe yesterday. My settled view is that the intemperate campaign that we have witnessed to make M. Delors' timetable for the EMU a test of Euro virility ill serves the aim of full economic integration through the single market, which should unite us all as our still far from accomplished priority. I shall content myself with posing some further questions which can no longer be dodged in the coming days.

My first question is whether we can be sure that a single currency promoted by the same people who manipulate the common agricultural policy would prove as stable as the deutschmark—which anyway has lost two-thirds of its value since 1950. The second question follows on: how can true independence of a central Eurobank be reconciled with some degree of accountability? It may be noticed that even President Pohl of the Bundesbank seems less independent of Chancellor Kohl at some times than at others.

Thirdly, does the EC conform to the textbook requirements for an optimum currency area, or would its economic diversity aggravate political tensions and require huge continuing regional subsidies to the adversely affected regions? Fourthly, would a single currency impede entry of East European nations, to which I am becoming increasingly attached as a regular visitor to the Soviet Union? Fifthly, would a single currency be designed by the characteristic European processes of national interest bargaining and compromise beloved by Mr. Heseltine, which so easily descend into shifty prevarication and retreat in the name of some phoney consensus?

Sixthly, is a single currency imposed in the end by political clout preferable to the evolution of a stable currency tested in practice—like the old gold standard —by the evolutionary discovery procedure of competition? Seventhly, with so many uncertainties, might M. Delors' pet EMU turn out to be the greatest gamble since the South Sea Bubble which, as your Lordships remember, invited support for projects that "will hereafter be promulgated"?

For too long, those questions have been ducked by those whom I shall now christen the Euro-dodgers. My final question therefore is: when such conscien-tious doubts, widely shared by leading scholars in Europe and beyond, are, whether loftily or cynically, falsely dismissed as evidence of anti-European sentiment, is the Prime Minister not performing yet another invaluable service to our country and beyond by expressing them with all her characteristic candour? If present local difficulties provoke an open and balanced national debate of our relations with a wider Europe, I have no doubt that the Prime Minister's stand will be vindicated. Meanwhile, I suggest that there are reputable and weighty grounds for noble Lords to vote against both these unbalanced amendments.

4.13 p.m.

Lord Young of Graffham

My Lords, this is the first time I have had the pleasure of addressing your Lordships' House since I had the privilege of sitting on the Front Bench. This is in many ways my real maiden speech, for this time the words are all mine and not those of nameless officials labouring deep into the night. If your Lordships' House has benefited from my absence for the past 16 months—as I suspect it has —I have to say with great sadness that I fear that the noble Lord, Lord Williams of Elvel, has not. His grasp of economic policy and his understanding of the current position has advanced little, if at all, since I stood down, but I am an optimist by nature and have great hopes for his ultimate redemption.

This afternoon I do not wish to deal with the general thrust of government economic policy; that was ably dealt with by my noble friend not many minutes ago. But I should like to deal with two specific areas: first, Europe, and then the duopoly review which my right honourable friend in another place, the Secretary of State for Trade and Industry, announced yesterday. In connection with the latter, in the presence of my noble friend Lord Sharp of Grimsdyke, my predecessor, I should like to declare an interest as the executive chairman of Cable and Wireless, whose subsidiaries, Mercury and Mercury Personal Communications, operate in our domestic telecommunications industry.

An enormous amount has been said about Europe over the past two or three weeks. The amount of paper consumed debating the points will have destroyed countless trees, if not forests. But when all was said and done, what was it that the Prime Minister was saying in Rome? I believe she was saying simply that we should get our priorities right. It may well be that one day we shall have a single currency in Europe; it may be that one day we shall have some form of political union across the whole of Europe. That day is still distant. Whether it takes one year, two years, decades, or even centuries, we will all one day find out.

In the meantime, there is a far more urgent and pressing question; the GATT round. Here I must declare another interest because I happen to be a member of a faintly ridiculously-named group called the Eminent Persons Group on World Trade. Part of our function for the past nine months has been to draw to the attention of world leaders the real problems facing us all if the Uruguay round of GATT is not successfully concluded.

I can say without fear of contradiction that GATT is one of the most boring subjects around. During my time in office at the DTI I had to summon all of the willpower I had just to get down to the minutiae of details that it entailed. But it is just as important as it is boring. Let none of us in this House forget the terrible decade of the 'thirties that led on to the orgy of destruction of the 'forties, which was not caused by the stock market crash of 1929 or indeed of any other year. After all, time after time we have seen how the world carries on after stock market crashes. What took the world down into that awful depression was the sound of barriers being erected in country after country, first in the United States and then elsewhere —barriers erected as some form of protection, in the mindless thought that it would protect home industries.

We are today very close to history repeating itself. One has only to read the protectionist speeches being made day after day in Congress to know that, if the Uruguay round were to fail or be fudged, one could see a series of bilateral deals being negotiated by the United States of America. Only 10 days ago Senator Lloyd Bensen was here, and I am told he was arguing that if the round fails it will, in his words, reward the virtuous and penalise the bad. The definition of "good" and "bad" depends only on where one is sitting.

One has only to read the recent press statement of M. Calvet to realise that similar protectionist views are to the fore in France. He for one—and he represents a considerable strand of Community thinking—would like to deem all Japanese cars built in this country which have an agreed 80 per cent. European content as Japanese until at least the turn of the century. What would that do for the average citizen of the Community? Why should we all be condemned to pay more for an inferior product?

What has that to do with Europe? The principal complaint of the Prime Minister was that the agricultural Ministers could not agree a position with which to return to the negotiating chamber. We, the Community, were the only party out of more than 100 negotiating parties who could not agree a position to negotiate. When a great deal is said about Europe we should remind ourselves that those who were foremost in advocating a united Europe were foremost in resisting an agreement in their own national self-interest.

But—I fear too late—we may have come to an agreement. I remind your Lordships' House of the position. The American attitude was that it wanted a 75 per cent. reduction in agricultural subsidies over a five-year or 10-year period. The painfully agreed position of the Community—a 30 per cent. reduction —is seen at first sight to be a step forward until one realises that it is calculated from 1986 levels and is probably worth at best no more than 12 per cent. or 13 per cent. I am told that fine print, negotiated in the last hectic hours of that negotiation, negates much of that saving. My information is that the Cairns group and possibly the United States are thinking seriously of walking out from the negotiating chamber.

We have less than one month left. The consequences of a failure of the GATT round would be far greater than the failure of those talks over Europe. I can think of no better example of the battle of form over substance than the spectacle of our other 11 partners in Europe refusing even to discuss GATT in Rome but instead spending all their time and energies on setting a date for the start of new financial disciplines that have yet to be agreed.

Not only have they yet to be agreed; they still have to be defined. Are we talking of one independent central bank or are we talking of 12? Will countries within the Community run their own deficits; or will there be independent central control over national expenditures? Shall we have a hard ecu, a parallel ecu or a single ecu? Those are questions that have not yet even been formulated let alone answered. We are surely returning to the days of debates over how many angels can dance on the head of a pin if we agree the starting date first and think of the substance later.

I should like also to make some comments about telecommunications policy and in particular about the duopoly review. I remind noble Lords of the interest that I declared a few moments ago. I have always been a supporter of open markets. That prescription applies to telecommunications as much as to any other industry. I championed liberalisation when I was in government. However I was always conscious that some regulation was needed to keep the telecommunications market open.

Perhaps I may give three examples of what liberalisation has already achieved. The earliest example of liberalisation was in the equipment field. The Government announced early in 1981 that in future members of the public would be able to buy their own telephone. Many noble Lords will remember that until that time we had a choice of two: a Trimphone from BT, or nothing. Two days after that announcement, I remember seeing a notice in a shop window in Mayfair announcing that telephones were for sale. They were all totally illegal at the time. However the market responded. Today we have a tremendous choice of equipment for people to use in their own homes.

Secondly, let us consider cellular mobile tele-phones. In about 1984 or 1985, West Germany and the United Kingdom agreed to introduce forms of cellular telephones. West Germany has 20 per cent. more population and the standard of living income was 25 per cent. higher than that in this country. However, both of us estimated that by the end of the decade we would each have about 100,000 subscribers. In Germany they licensed one operator; in this country we licensed two. The Germans achieved their target. There were 100,000 subscribers in 1980. We have I million users. The power of competition reduced the price. That ensured that this country has a better mobile telecommunications market than almost anywhere else in the world.

My final example of the beneficial effect of competition is closer to home. I hope that noble Lords will forgive a small commercial. Last week Mercury reduced the price of a three-minute call to the United States to £1.20. Ten years ago, when there was only one carrier, the call cost the equivalent of £3.03 in today's money. How many other commodities have dropped in price by over two-thirds in real terms over that period?

Competition has already brought better quality services, more variety and lower prices. I therefore welcome the Government's discussion document published yesterday which emphasises a further opening of the market. The proposals in that document continue the process of telecommunications deregulation of which my noble friend Lord Joseph is the father. My involvement in that process began when I had the privilege to serve as his special adviser. I should like to comment briefly from the perspective of my personal experience. Before doing so perhaps I may say that the reaction within Cable and Wireless and Mercury to the duopoly review is to welcome it with a sense of excitement at the opportunities, and confidence in the future. With more opportunities to offer a greater variety of services to more customers, they regard the review as positive for their customers and indeed for themselves.

Putting that interest aside, my personal reaction stems from my belief that more open markets will benefit the consumer. I do not agree with those who argue that ending the duopoly will harm the cause of BT's competitors—quite the contrary. The more open the market the greater the opportunities that it will bring. In due course perhaps the market will evolve a second force, not one imposed by government fiat but a much stronger one imposed by market forces.

If there is one measure in yesterday's document which I commend to your Lordships' House it is the support given to the principle of equal access. It provides the most effective way of introducing competition into long-distance communications. It dramatically lowers the barriers to entry. The United States has adopted equal access as the main means of introducing competition into long-distance com-munications. Competitors have taken 35 per cent. of the market from AT&T. In one part of the United Kingdom we too have a competitive regime. It is in Hull. Over the past two years Mercury has taken more than a 50 per cent. share of the long-distance market because it has the virtue of open access.

I very much hope that all parties in the industry will accept the proposal that equal access should be implemented. I hope that all will co-operate in its implementation and that few will obstruct it. Some critics have accused the industry of conspiring against the consumer. Early implementation of equal access by all parties in the industry will enable us to prove them wrong.

This afternoon I have touched upon two topics: Europe and telecommunications. I believe that both are critical to our country's economic future. Neither topic is easy. In both cases I believe that the general thrust of government policy is correct. There will of course be a great debate about the details, but the policy is correct. The details will follow later.

4.29 pm

Baroness Castle of Blackburn

Fellow Peers, this is the third maiden speech that I have made in my three phases of parliamentary life. The first was in the House of Commons; then I spoke in the European Parliament; and now in this historic House. You may say, "Some maiden after 45 years of public life!". Indeed a journalist said to me at lunch-time today that politics must be the only profession in which one can be a maiden three times.

The House will understand if I feel more than usually irked by the conventions attaching to a maiden speech. I am also very conscious of the fact that we all have half our minds on the excitement going on in another place, with dead sheep and dead parrots leaping to life all over the place. Nonetheless, I feel that this is a good moment for me to make my maiden speech, because it is a moment at which both this House and another place are deeply exercised in their minds about what should be Britain's relationship with the European Community.

I have watched for 10 years in the European Parliament the British Government muddling through a love-hate relationship with the European Community: willing to wound and afraid to leave. It has been very interesting to observe that the European Parliament and indeed the members of the Commission had a greater respect—I might almost say affection—for those of us who had been overtly against Britain's membership in the first place and remained highly critical. They felt that at least there was there a sincerity and a curious kind of comradeship, whereas the British Government continued to patronise them. The Prime Minister, even when she was conducting a very legitimate battle to reduce Britain's contribution to European funds, outraged the Parliament by talking about "our money" when she among others had voted for Britain's entry into the Community on terms which meant that we clearly earmarked part of our money to be their own resources.

All along, they felt there was something deeply insincere about the British Government's attitude, although they talked about being good Europeans and of course the Prime Minister, at Stuttgart and other summits, signed the communiqué pledging herself along with the rest to proceed rapidly towards European union. And ever since she has complained that the others did not know what they meant by it. Of course she enthusiastically endorsed the internal market. We were one of the prime instigators in that. Now she complains about the threat to national sovereignty. What is the internal market but a threat to national sovereignty? It is far more than just a wider commercial market: it is the introduction of a situation in which any Community firm, Community worker or Community professional will have equal rights with their British counterpart in our country.

Finally, she takes us into the Exchange Rate Mechanism simply as a political sop to her own restive party conference. Do not think this goes unobserved over there in Europe. They are not fools: they have got us all sized up. She took us in on the worst of all possible terms. Madrid was forgotten. She has taken us in on an over-valued currency at a time of record inflation and at a time of the worst balance of payments situation in Europe, with one of the lowest growths in Europe and in a situation in which we are least well equipped to deal with the disciplines involved.

It is no wonder the Chancellor of the Exchequer admits at last—it is dragged out of him—that in this country we are heading for a recession. He says it is moderate, but that is not what the CBI says or what its survey reveals. So it is a question of recession and it is going to get worse in 1991. He admits that growth will fall to 0.5 per cent. Unemployment will rise, perhaps by 1 million—certainly to well over 2 million —and already, under the constraints of this recession, made worse by the terms of our membership of the ERM and the way we went into it, firms in this country are cutting back on the investment of which we are already so dangerously short. Take some small businesses of the kind that have been referred to earlier by other speakers. I was in my local butcher's shop only the other day: a nice prosperous little local butcher's shop. The owner said to me, "Mrs. Castle, if this goes on I will be shut in six months' time." That is happening all over this country, and the way in which we have tied ourselves to a new form of the gold standard can only make that matter worse.

So, as a country, we are now faced—all because the economists tell us that this is only the start and it will lead us irresistibly on to a single currency and a European central bank—with a dreadful choice. If the economists who are enlightening us on all these complex matters in column after column of the business sections of our great national newspapers are correct, we shall at last belatedly have to face the choice into which we have drifted as a result of this Government's policies. Either we must go forward into greater monetary union, which will wreak havoc on our weakened economy, or we shall be left out.

I do not like either of those choices and I do not think the majority of the Members of this House like them either. So what are we to do? We have left it very late: perhaps too late. But one always has to work constructively and hope for a third way. I believe there is just an outside chance of a third way, a way in which we could at last regain the ear of the European Community which is now closed to us by the Prime Minister's style, and not only by her style but also by her philosophy.

I think the way is this. I know from my experience in the European Parliament, where I had so many good friends with whom I could argue constructively and effectively, that their desire for union is very strong and very deep. I remember talking to a couple of young Belgian socialists who said, "You know, Barbara, we were born into the Community: we do not like a lot of it any more than you do but we have never known anything else." That is a scenario which will not be altered by lecturing, hectoring and bullying. You have to understand it, and they do want closer integration.

However, what has happened because of so much confusion of thought in Europe is that the financiers, the big boys, the bankers, the City boys have jumped in and turned that desire for greater integration into their form of monetary and economic union, with all the consequences that we all know for the weaker economies. The Chancellor of the Exchequer himself said the other day to Peter Jay on the BBC's "Money Programme" that to go for a single currency with so many unequal economies in Europe would lead to massive unemployment and massive movements of population from the weaker areas to the more prosperous ones. My heavens! he must have been reading my speeches.

He is right of course, but what has he offered as an alternative? There is an alternative for which the European Community itself is crying out. That alternative is a planned Community policy to create the convergence between the stronger and weaker economies which at present does not exist. We know —do we not?—that we fall into the category of weaker economies. Herr Pail told us this during his recent visit to London. He said that weaker economies should not join the monetary union because they could riot stand the pace and they had better stay out and wait a bit. He meant us.

I tell the House that Europe does not like the idea of a two-tier Europe: the people of the Community do not like it, nor, certainly, do the members of the European Parliament. In that body I have heard as much talk about the need for convergence in order to bring tie economies closer together as I have heard about mechanistic monetary union. There have been many reports and resolutions on the need for a stronger regional policy and for a battle against unemployment; for the helping of the smaller man; for the extension of training standards and harmonisation of the human elements; for the treatment of the elderly and guaranteeing them a minimum standard of life; and the fight for women's rights. All those matters have occupied the European Parliament. That is what is meant by a European Community—a people's Europe. That should bring the lowest up to the standard of the highest. Even the strongest economies like Germany know that that is absolutely essential if the Community is to work.

The other day there was a debate on monetary and economic union and on the internal market. I can remember a Portuguese socialist reminding the Parliament that a worker in a German factory earned eight times as much as a Portuguese worker in the same type of factory. That is not what Germany wants. It can see that the whole thing will blow up in our faces unless we harmonise in the most constructive way.

I tell the Members of this House why that is so. The Community is alienated from our British Government not merely because of the Prime Minister's Boadicea chariot-type nationalism but because of her nine-teenth century Victorian values which are out of date: unregulated free enterprise; keep government out. When she rejected Jacques Delors' charter of fundamental social rights she said, "I am not going to have socialism brought in by the back Delors"! Do not believe that those remarks go unnoted. Why should we be listened to when we are no longer strong? Also, we are not listening nor are we co-operating in the great Community effort to lift the economic standards; throughout the whole Community to the level of the best.

The issue is this. We should lead that campaign in Europe by saying that convergence must come before monetary union. Left to itself, monetary union will make matters worse. I believe that millions of voices are ready to listen to us in the European Community.

4.42 p.m.

Lord Walston

My Lords, little did I think, when I first had the privilege of meeting the noble Baroness, Lady Castle, some 40 years ago that I should have the privilege and pleasure on behalf of your Lordships of thanking her for the most stimulating and exciting maiden speech to which I have listened. I did not listen to her other two maiden speeches, which may have been the same. I suspect that they were. However, it is good to know that after all her experience not only has she not lost her fire, her enthusiasm and her capacity for straight speaking but she has been able to combine them with the traditional non-controversial speech which is our custom. It makes me even more anxious to listen to her future speeches when she will not be trammelled by any such impediments of convention.

So far we have been listening to a series of fine, able, electioneering speeches, with the exception of the speech by the noble Lord, Lord Young of Graffham. I hope that your Lordships will not be surprised and will not object if I do not follow the electioneering speeches which we have been privileged to hear. However, I shall follow the first point raised by the noble Lord, Lord Young of Graffham, because I agree with him that when one compares the problems of the Uruguay round with the other problems which are exercising politicians in this country and in Europe today, there can be no question but that a successful outcome to the Uruguay round will have a far greater impact on the prosperity of the whole world than any of the other matters which we have been discussing. I share the noble Lord's fears as to what will happen to world trade if we fail to reach agreement. There is not now much time to enable such agreement to be reached.

There can be no doubt in any of our minds that the reason that we are having such difficulty in the Uruguay round is solely because of the Community's agriculture. Several points must be borne in mind when we are discussing that. First, throughout a very large part of the world—and we must not forget the third world in particular—and certainly within the European Community agriculture is going through a very difficult time. I know that it is nothing new for farmers to complain of recession, bankruptcy, and so on. However, on this occasion I say quite frankly that they are speaking the truth. We have a grave problem in agriculture which must be faced today.

I shall not weary your Lordships with too many figures, but since 1979 there has been a decline in the real income of farmers which averages 9 per cent. per annum in real terms. That is a quite serious and steady decline. Interest payments to the banks by farmers in the same period have risen from something less than £260 million per year to something over £950 million. Total bank borrowing has risen from just over £2 billion to £6.5 billion. Those figures are far more important than any statistics produced about bankruptcies, and so on. Farming is particularly resistant to the bankruptcies of the butcher of the noble Baroness, Lady Castle, smaller shopkeepers and people of that kind. When farming profits decline, the farmer does not do his job properly and he knows that. Above all, and of particular interest to the public at large, he is unable to do his duty in looking after the environment.

We need only look at what happened in this country during the agricultural depression of the late 1920s and early 1930s to see what that meant. I am firmly convinced that help must be given to farmers not only in this country but throughout the world. I do not believe that people realise sufficiently what an enormously capital-intensive industry is agriculture. The reason we have such good agriculture today—we are proud of it, and the consumer benefits from that as does the country's economy as a whole—is that for the past 50 years we have enjoyed stability. That has encouraged not only farmers to invest their money but also manufacturers to invest their money in producing new appliances and in developing them also.

The chemical industry spends billions of pounds a year conducting research into various agro-chemicals which make possible a new and efficient form of agriculture. The seed breeders, the basic scientists and the genetic engineers for plant breeders have all contributed. Their work will take 20 years to come to fruition; they will not invest that money unless there is a degree of stability in the industry, something which has fortunately been given to us over the past 50 years.

That is a lesson learnt by virtually all countries throughout the world. For more than a century most European countries have protected their agriculture; certainly for half a century we have done so in Britain. But it is not only a matter considered within the Community. I apologise for bringing statistics to your Lordships' attention, but they are significant. They are taken from the OECD publication of 1989. New Zealand, the least protected country of all, gives 2,000 dollars per head to each of its farmers; Australia gives 4,000 dollars; the EC, surprisingly, gives only 8,000 dollars—double Australia's support; Canada gives 13,000 dollars; Japan gives 15,000 dollars; the United States gives 20,000 dollars to each farmer. The differences, to a large extent, are dependent on whether the farms in those countries are large or small.

I shall restate those figures as a percentage of a farmer's income. New Zealand farmers depend on subsidies of one kind or another for a mere 5 per cent. of their income; in Australia the level is 10 per cent.; in America it is 27 per cent.; in Canada 35 per cent.; in the EC 38 per cent., and in Japan a colossal 72 per cent. Therefore the Community should not be the only scapegoat. It is simply doing the same, to a greater or lesser extent, as all the other countries. Without some, often substantial, help, many farmers throughout the world would face bankruptcy and much land would be deserted.

Help is needed. I hope that point is accepted by noble Lords and others. However, the help should not be that provided by the present common agricultural policy. That may possibly have been sufficient when first introduced in the old days for a Community of six, with food shortages and memories of war and all the troubles that then existed. Today it is completely useless and harmful to the agriculture and trade of the Community and the world. We must wipe the slate clean and evolve an entirely new policy. In so doing there is another factor which must be borne in mind.

Within the next five years or possibly sooner, the countries of Eastern and Central Europe will have revived their agriculture. They will once more become, as they were in the years before the war, major exporters of agricultural products. Interestingly, two years before the war Bulgaria exported 30 billion dollars' worth of agricultural produce; Czechoslovakia exported 25 billion dollars' worth, and Poland 43 billion dollars' worth. Hungary, Romania and what was until recently East Germany were also huge producers of surpluses, and were countries which were looking for overseas markets for those surpluses.

That situation will return once their economies begin to thrive. At the same time they will be more closely associated with the EC than at present. Any plans which are evolved for dealing with the present problem must bear in mind that it is not only the need to contain our existing surplus in the Community of 12 which must be considered; we shall have to deal with the far greater export surplus of those other countries.

I shall not repeat at this stage what I have said on other occasions regarding the right way of dealing with the problem. I simply remind those noble Lords who may have listened to me on other occasions of the kind of approach there should be. First, we should abolish intervention buying, and the enormously costly and trade-disruptive method of subsidised exports. That would greatly please all our colleagues in the GATT. At the same time farmers and the countryside must have support, so we must make payments to them of some kind or another. It should be left to each individual member state, without disrupting the Community and its agricultural policy, to decide the best way to distribute such sums as are allocated from Brussels among farmers so as to fulfil the purposes of, above all, maintaining and improving the environment; paying farmers for doing what the public want rather than producing food which the public does not want.

Those are the bare outlines of a scheme. It is, alas, too late to work out the exact details of such a plan in time for the Uruguay Round. However, I urge Her Majesty's Government to speak to their colleagues in Europe and try to persuade them to go to the Uruguay Round with proposals along those lines. They should say, "We suggest this. We will collaborate with you, and if you have a better idea let us use that". Above all, they must abolish intervention buying and the dumping on world markets of export surpluses. At the same time they must protect our own farmers and our environment.

4.59 p.m.

Lord Butterfield

My Lords, I am honoured to have the opportunity to convey my personal congratula-tions, and I am sure those of other noble Lords, to the noble Baroness, Lady Castle, on her third maiden speech. I am particularly grateful to the Whips for giving me this opportunity. When I was a lowly professor and vice-chancellor in Nottingham I received the most courteous and kind reception and help from the noble Baroness when she was running the Department of Health and Social Security. I should like her to know that for many years—it is still to be found on my bookshelves—her work on the priorities in medicine was a great help to me when I was thinking about the future of the health service; it is one of the most thumbed reference books from the government of all my collection.

I can say in the presence of the noble Baroness, Lady Dunn, that we have had an outstanding series of maiden speeches. The noble Baroness, Lady Castle, has certainly maintained the high standard.

I conclude my congratulations to the noble Baroness by saying that I only wish I could speak with the same fervour, eloquence and enthusiasm that she commands on European issues which I espouse just as strongly and deeply as she does.

I shall speak about a quite different and, in my view, quite precious part of our economy; namely, our young people and particularly our able young people. Europe has different forms of educational process. I am intrigued by the German procedure which permits people to repeat parts of their courses. I do not believe that that would be popular in this country, although I have to tell your Lordships that I had to repeat a course when I was a medical student. I returned from the States, failed an obstetrics exam and had to take it again. When I attained the position of Regius Professor of Physic at Cambridge I was pleased to hear from my immediate predecessor, Professor Joseph Mitchell, that he too had failed obstetrics. It is a great help when speaking to distressed students who have failed an exam to be able to start the exchange by saying, "I have done the same and I know exactly how sad you feel".

The other side of the German system which may cause some difficulties for our young people is that it takes a long time to get through the educational process. Indeed, young people in their late twenties and early thirties are just emerging from their masters degrees in German universities and going on to the labour market. Therefore, there is a way of employing young people in Germany which probably assists the employment figures.

By contrast—and here I am grateful to the noble Baroness, Lady Elles, for providing me with a report from the Thames-Chiltern Chamber of Commerce and Industry about European school education—it is disturbing to hear how distressing it is for people visiting Nantes, a university town with over 20,000 students, to find that they are solicited so often by young unemployed people who are begging.

Therefore, although I know that all our young people have a great hope of becoming Europeans I am sure they will want to proceed step by step into the new situation. I do not know whether that is what the noble Baroness, Lady Castle, meant by convergence but if it is, I know that that is what the young people are striving for in the university world, in the polytechnics and elsewhere.

I put down my name to speak in this debate because I was anxious that at least someone should say how pleased they were that in the gracious Speech the Government indicated their intention to take action to improve quality in education. I am sure that all noble Lords were as delighted as I was to hear later, in the Autumn Statement, that the Government are to spend an additional £500 million on education, and that a great deal of that is to finance the record number of students that we now have in higher education.

I have to tell your Lordships that I spoke to people in the office of the Committee of Vice-Chancellors and Principals and I shall report directly what was said. They are pleased with the outturn of the Autumn Statement. Indeed, one lady said that perhaps we should subscribe to send the Chancellor a bunch of roses. I am not sure of the political significance of the rose but that is exactly what was said and it is a point on which the Government can take some pleasure.

I have also spoken to Sir Ronald Dearing, chairman of the Polytechnic and Colleges Funding Council. He is delighted with the additional infusion of money for the rising number of students, but he is worried that there is still a backlog of maintenance work that needs to be carried out on the polytechnic buildings. Your Lordships will remember that the polytechnic buildings stayed under the control of local authorities long after it was clear that they were to be transferred to a funding council. Not surprisingly, maintenance was not a high priority within the local authorities who were to give away these buildings.

I should also point out, lest people think that we are over-pleased and over-optimistic, that there is hardly a research laboratory in British universities where people are not lamenting that much better equipment is available to those with whom they are competing in Germany, Japan and sometimes, perhaps I may say to the noble Baroness, Lady Dunn, in Hong Kong. Therefore, I should not like it to be thought that, although we are doing better and achieving a much higher proportion of the 18 to 19 age group getting into higher education, we shall not be continuing, like everyone else to make pleas and demands for support for our young people in the way they are polished and assisted in their way forward.

I conclude by saying that there are other parts of the work of universities which fit in with points in the gracious Speech. The gracious Speech stated that the Government, will promote further international co-operation on environmental issues". I remembered, and extracted from my filing system, the work that the universities are doing on the environment generally. I give your Lordships a few examples so that you can see that a good investment is being made in our universities and young people, which is the main point that I wanted to make. Computer models from the University of Anglia Climatic Research Unit are being used to predict the global greenhouse effect and to provide information for planning in the future. Bradford University is mapping the lichens on trees in order to follow what is happening as a result of acid rain. The University of Manchester Institute of Science and Technology is mapping acid rain hot spots in Britain. As regards the ozone hole, which is related to the greenhouse effect, I am glad to say that atmospheric modelling at the University of Cambridge is providing international workers in that field with helpful information. I could go on and refer to the investigation of natural resources at Reading, Newcastle and Strathclyde. Others are keeping a close eye on oceanography.

Perhaps I should also mention that the gracious Speech included a reference to the Government maintaining a substantial aid programme for the developing countries. I should like you to know that there are committees of the British Council which do great work in assisting developing countries. Your Lordships will also be well aware that the Association of Commonwealth Universities does all it can to find people to assist the universities in the Commonwealth. A great deal of private work is going on. I have the privilege occasionally of going to Oman. Qaboos University in Oman is largely based on advice given by university administrators from Oxford University.

I hope that with those few brief words I have been able to remind your Lordships that we have an important economic heritage—perhaps "asset" would be a better word, although it is becoming a heritage —in our young people, and I hope that the Government will continue to do all they can to foster them.

5.9 p.m.

Lord Boyd-Carpenter

My Lords, as one who has had the privilege and pleasure, on and off, during the past 45 years of listening to the noble Baroness, Lady Castle of Blackburn, perhaps I may say what a personal pleasure it was for me to have the opportunity of hearing her again this afternoon. I hope she will allow me to say that that pleasure was accentuated by the fact that, far from having lost any of her previous vigour, she seems stronger and more determined than ever. As such, she gave great pleasure to all her admirers, among whom I venture to number myself. I am sure that she will be a very great asset to your Lordships' House and I hope she will speak frequently on issues, though I somehow doubt whether I shall always find myself in the completest agreement with her.

I am in agreement with the noble Lord, Lord Williams of Elvel, on one point. At the beginning of his speech he said, I thought very rightly, that it was a pity that the noble Lord, Lord Jenkins of Hillhead, had put down his amendment on a very important subject; but it is a separate one which your Lordships' House will in any case be debating on 22nd November.

I shall, therefore, confine myself to the amendment which the noble Lord, Lord Williams of Elvel, so eloquently, forcefully and inaccurately proposed. When I looked at the Order Paper and saw the extraordinary proposition which he had tabled by way of amendment I began to feel that he had an unsuspected sense of humour. For the spokesman of the Labour Party to come forward with criticism of anybody else for incompetent management of the economy argued a degree of courage, determination and forgetfulness that I had not previously associated with the noble Lord.

One must admit that on the subject of incompetent economic administration the Labour Party speaks with enormous authority. It has great experience on the subject; it has displayed it in every administration that it has formed. I am glad to see the noble Lord, Lord Jay, in his place. As he will recall, the government of which he was an ornament, until I succeeded him as Financial Secretary in 1951, left our economy in the most awful mess. It is unnecessary to remind the noble Lord, Lord Callaghan, that in the 1970s the Labour Government had to call in the IMF to bail us out. Therefore, it argues extreme determination and courage on the part of the noble Lord, Lord Williams, to accuse the present Government of incompetent management of the economy—

Lord Jay

My Lords, perhaps the noble Lord will allow me to say that every government to which I have belonged, whether as ornament or not, began life with a huge balance of payments deficit left by a Conservative Government and ended their term of office with a balance of payments surplus.

Lord Boyd-Carpenter

My Lords, if the noble Lord is trying to attribute blame he will recall that the government of the late Lord Attlee to which I referred succeeded a coalition government in which Lord Attlee was Deputy Prime Minister. I forget whether the noble Lord, Lord Jay, was a member of that government—

Lord Jay

My Lords, the noble Lord is not even accurate about that. They succeeded a caretaker government which did not include the Labour Party.

Lord Boyd-Carpenter

My Lords, the noble Lord is of course pedantically right; they succeeded a caretaker government which lasted for about four weeks. However, that is utterly irrelevant to the argument and no one knows that better than the noble Lord. The succession as regards the management of economic policy fell to the coalition government and the noble Lord will well recall that in 1951 they left behind them a mess.

The noble Lord, Lord Williams of Elvel, charges the present Government with incompetent manage-ment of the economy. Does he realise the actions which this Government have taken? For nine successive years there has been a substantial growth in the economy, the first time that has happened in this century. Business investment is now at an un-precedented rate. Is that incompetent management of the economy? There are more people at work in this country today than ever. Is that incompetent management of the economy? The unemployment rate in this country is one of the lowest in Europe and it is particularly low among young people. Is that incompetent management of the economy?

The noble Lord mentioned the fact, apparently critically, that living standards have risen substanti-ally. He will find that most people outside this House are thankful for that. The standard of life for ordinary people is higher than ever, and there is frequent possession of cars, television sets, washing machines, refrigerators and so forth. That represents a higher standard of material life and existence than this country has ever known. Is that attributable to incompetent management of the economy?

As was mentioned by my noble friend the Lord Privy Seal, for three successive years there has been a repayment of the national debt which is now lower than at any time since before the 1914 war. That is a change which will save subsequent generations substantial interest payments and it has liberated capital for productive use. Can that be described as incompetent management of the economy? It does not appear that the noble Lord has begun to establish a case for that argument. The noble Lord tended to dismiss the service industries as being unimportant, yet their growth has done an enormous amount to build up the strength of the national economy. The noble Lord may be aware that the more advanced an economy the higher the proportion of its effort is in the service industries as compared with the manufacturing industries. He has only to look at the United States to see that that is so. In addition there has been a steady reduction in the levels of taxation. Most people would not regard the reduction in the levels of direct taxation as being a mark of incompetence. Most people are grateful for it and would "like to see it go further.

The noble Lord was wrong to quote the CBI in defence of his position. He may have seen the letter published in The Times last Thursday written by my noble friend Lord Hanson who is a major supporter of the CBI. It includes the following sentence: This government has achieved immeasurable benefits for everyone in industry over the last ten years and now that the country is facing a downturn the last thing we need is statements which can be seen as attacks from what might ordinarily be perceived to be the industry's natural supporters". If the noble Lord, Lord Williams, was trying to quote the CBI, his witness appears to have let him down.

Noble Lords who travel regularly on the Underground will be familiar with the intoned advice, "mind the gap". When I listen to the noble Lord's speeches the expression "mind the gap", comes into my mind. There always appears to be a gap between the argument that he is trying to sustain and the facts that he is presenting in support of it—

Lord Williams of Elvel

My Lords, is it the gap in the noble Lord's mind to which he is referring?

Lord Boyd-Carpenter

My Lords, I am delighted that the noble Lord should equate himself with me but I refer to the gap in his distinguished mentality. Probably he does not have to use the Underground but the expression "mind the gap" is only too familiar to those of us who do. There is a gap in the noble Lord's reasoning.

Noble Lords may recall that when speaking the noble Lord, Lord Williams, never touched on what is the really important issue: that the creation of wealth is what everything else depends on. Many noble Lords, myself included, can make appeals for various good directions of expenditure—areas where we should like to spend more, where we could relieve poverty and improve the situation. However, that is all dependent upon the creation of wealth. Unless the economic policy of a government helps in that way all the other good things that they may wish to do become impossible. Yet the noble Lord devoted none of his speech to the basic question: what is the best way of creating wealth and are the Government going the right way about it? It is upon the correct solution of that problem that the solution of all our other problems absolutely depends.

I shall devote the remaining part of my speech to one or two suggestions for making even further improvements in the creation of wealth. If we can create more wealth there is so much more that we can do. As the experience of the Labour Party should convince the noble Lord, failure in the creation of wealth results in failure to achieve all the other admirable public-spirited objectives that one may have.

I suggest that a 40 per cent. rate of direct taxation, although lower than it used to be, is still very high indeed. I trust that my noble friend will be able to hold out some hope that the rate will come down. Such a high rate hampers wealth creation. It gives an incentive to able people, particularly able young people with a high earning capacity, to go abroad where they do not have to submit to such a heavy levy. It is also an incentive to older people to remove themselves to the Channel Islands or other places where they are not subjected to these heavy rates of taxation.

It is an illusion to believe that a high rate of tax brings in a high revenue return. That does not happen because the higher the rate of tax the greater the incentive to people to avoid it, either by perfectly legal and technical methods or by illegal methods and refusal to disclose. Therefore the higher the rate of tax the smaller the percentage of the nominal yield. The converse is undoubtedly true—and experience has shown it—that the lower the rate of direct taxation the higher the proportion of the possible yield going to the Treasury.

I very much criticise the incidence of VAT. It is an inflationary tax, particularly where it is imposed upon labour costs. From that point of view it compares very badly with the old purchase tax, which the noble Lord, Lord Jay, will recall, as he used to administer it before I followed him in doing so. The old purchase tax was adjustable so that it did not inflate the cost of living. It was very high on luxuries. I recall that the rate was 66.66 per cent. on jewellery. It did not apply at all to many necessities. It certainly did not apply to children's clothing. It was therefore a much more flexible instrument of taxation with the additional advantage that it did not add to inflation. I very much hope that the Government will adopt a severe attitude towards those, including those in the European Community, who are always urging us to extend the scope of VAT.

There is one especially shocking example of its drawbacks. If one buys a car one pays not only the price of the car but tax on the car and then VAT on the cost of the car as inflated by the tax already paid on it. That is not only unfair but also inflationary. It is distressing to see that the European Community, about which we have heard so much from the noble Lord, Lord Jenkins of Hillhead, now proposes to extend VAT and wishes to apply it to airline fares. I hope that the Government, from the point of view of the proper management of our economy, will be quite resolute in resisting efforts to extend VAT, with all its damaging effects.

I should like to hear a little more from my noble friend Lord Hesketh about what is being done to deal with the massive payment which we in this country have to make to the common agricultural policy. The policy does much harm to the world economy and to non-European producers of food. The damage it has done to New Zealand has been very serious indeed. It derives from the fear which French and German politicians have of their small farmers. It is a fact that the working of the Code Napoléon in France has meant that there is a large number of small farmers. Noble Lords will recall that, under the Code Napoléon, when someone dies his land or farm cannot go only to his first born but is spread equally among all his children. The result is that there are many small farms. They are too small for economic administration but large enough to constitute large bodies of voters. It is the indirect effect of the Code Napoléon which motivates this excessive expenditure on the common agricultural policy. I hope that my noble friend Lord Hesketh will be able to tell us how much the policy will cost the country this year. The figure is indeed substantial. If we could eliminate it we would be able to make further tax reductions.

My next point arises on the amendment of the noble Lord, Lord Jenkins. Until the European Commission shows the ability and will to deal with the common agricultural policy many of us will be hesitant to entrust any further responsibilities to it. One must doubt whether a body that is incapable of controlling the common agricultural policy could handle the infinitely more difficult matter of a common currency.

Perhaps my noble friend can tell us how much of the British contribution to the common agricultural policy goes for the infamous purpose of subsidising tobacco growing. It is mainly in Spain and Greece that tobacco is grown. As consumption of tobacco in the advanced countries diminishes as education spreads, more and more of the exports of this crop go to Africa. It is quite immoral that we should subsidise the production of this health damaging commodity simply to maintain in business those who wish to grow it in Community countries. I hope that the Government will be resolute and say that, quite apart from the expenditure, from a moral point of view it is wrong to subsidise the production of this commodity. Morally there seems to be little difference between doing that and subsidising cannabis and having done with it.

In connection with tobacco, it is my only regret that, in the current Finance Act—I hope it will be remedied in the next one—we have not substantially increased the duty on tobacco. I say that with no hostility to those who wish to smoke, but I would say that those who follow a practice which must inevitably increase the cost of the National Health Service, with all the illness and disease that it will breed, should at least be called upon to contribute something extra towards the cost of maintaining that service. That makes good sense.

We have had an interesting year in which the handling of the economy has not been free from difficulty. But it appears that we are getting a grip on inflation and that exports are rising. We already export more per head than either Japan or the United States. The economy is responding to the Government's firm handling. I very much hope that the Government will not allow themselves to be induced to weaken that firm handling simply because of criticisms such as are contained in the amendment. I am quite sure that if they persist in this policy the economy will come fully right, their policies will be justified and the country will be able to go forward once again with confidence and good will into a prosperous future.

I believe that this lies within our hands if we do not lose our nerve. I hope that the House will reject the amendment of the noble Lord, Lord Williams, and then show its emphatic support for the Government's policies which have worked so well over the years and which are working so well today. We can then go into the future with quiet confidence.

5.30 p.m.

Lord Callaghan of Cardiff

My Lords, I should like to begin by adding my congratulations to my noble friend Lady Castle for her maiden speech. Running through many of the themes of today's speeches, it seems to me that we have experienced a rather fresh breeze. I do not know whether she is already having the effect on us that she had on the European Parliament, but certainly the robust frankness which she expressed in her speech seems to have been reproduced in the speeches of others. For myself, I must say that I am beginning to feel rather at home. I trust that I shall be able to continue in that particular vein.

I listened this morning to Mr. Kenneth Baker on the radio; indeed, I always seem to be listening to him on the radio. He said that there has been a fundamental transformation in the fortunes of our country. In the same programme Mr. John Cole referred to another Conservative who said that the Government have effected an economic miracle. Well, in the robust spirit which has characterised the debate thus far, I must ask: who do they think they are kidding? That is absolutely absurd. Moreover, Mrs. Thatcher made the brazen comment at the Guildhall that she had broken, the post-war mould of bureaucracy and decline". That is a new line; usually she just blames my noble friend Lord Wilson and myself for what has happened. However, the noble Lord, Lord Boyd-Carpenter, had better note that this time she includes him. It is not just the government I led and that led by my noble friend Lord Wilson, it is also the government led by Mr. Heath—perhaps that is not surprising—by the noble Lord, Lord Home, by Sir Anthony Eden, by Harold Macmillan, by Winston Churchill and by Mr. Attlee. I have noticed that the noble Lord is very ready to condemn the government of Mr. Attlee; but he cannot escape being part of the bureaucratic mould which the Prime Minister has removed during the past few years. I see that he is anxious to intervene. I am happy for him to do so.

Lord Boyd-Carpenter

My Lords, I hope that the noble Lord, Lord Callaghan, will withdraw the charge that he made against me of having been a member of Mr. Heath's Government.

Lord Callaghan of Cardiff

My Lords, I did not mean to say that. In any event, I apologise to Mr. Heath and congratulate the noble Lord.

As to breaking the bureaucratic mould, I must say that that is a bit rich coming from one of the prime mover; of the poll tax which has been fastened on this country in recent years. If we wish to get nearer to the truth about what the position is in our economy, we must consider other factors. I propose to make further distinct party comments about them in a moment. I give noble Lords opposite that warning so that they may leave the Chamber if they wish to do so.

It would be nearer the truth to admit that in our economy today, as in our economy 11 years ago, the tendency to inflate whenever the economy is growing is as great today as it was in the 1970s; indeed, there has been no fundamental change. The tendency to consume more than we produce is the same today as it was in the 1970s. There has been no fundamental change in those attitudes. Therefore, for the Government and government apologists to pretend otherwise is self-delusion and is concealing the truth of a serious situation which has not been fundamentally changed, despite what has been said by noble Lords opposite.

Admittedly, the fundamental change was brought about of making the rich pay less in order that the poor might pay more. That was supposed to bring about a change of attitudes. However, it has not worked, as I shall show your Lordships later. Of course the 1980s yielded a new breed; namely, the Yuppies, which is an ugly word but one which adequately describes the greed and selfishness of the era which spawned Thatcherism.

I intend to back what I have said by a snapshot of the economy as it existed in 1979 and as it exists today. All the figures I shall use have been culled from government statistics. It is my desire not only to remove the smears that I have heard about the Labour Government of 1974–79—although that washes over me like water over a duck's back —but also to show the country, if I can, and certainly make your Lordships comprehend, that the situation we face is as grave today as it was in the 1970s and that it has still to be remedied.

Chancellors of the Exchequer always use four main indicators to measure the health of the economy at any one time. The first is the rate of growth of the economy; the second is the rate of inflation in the economy; the third is the level of unemployment in the economy; and, the fourth is the balance of our payments with other countries. I shall deal with them one by one. In 1978 the rate of economic growth was 2.7 per cent. In 1990 it is expected to be about 1 per cent. The government apologists will no doubt say, "Ah, this is only a temporary slow down after a long period of record growth". However, next year's growth will only be one-half of 1 per cent.

Let us be fair. Let us take a run of years just in case objection should be taken to my abstracting a single year for comparison. We can consider a run of years of the 1960s, the 1970s and the 1980s to see whether there has been this fundamental change in the rate of growth during that period. In the 1960s, the average rate of growth was about 3 per cent. per annum; in the 1970s—a decade for which I have some responsibility—the average rate of growth was 2 per cent. per annum. That was a decline. There was the great oil shock which I shall neither explain nor defend because everyone knows about the situation at that time—indeed, both governments shared part of the guilt.

During the Thatcher decade the rate of growth has not been 2 per cent. or 3 per cent.; it has been about 2.2 per cent., and that ignores this year's figure of 1 per cent. and next year's of one-half of 1 per cent., or whatever it may be. Where is the fundamental change? There is not much sign of it in the economy and fortunes of this country.

I turn now to the rate of inflation. I have already had an exchange of words about this with the noble Lord, Lord Belstead. In fact, I agree with him that when I left office wages were increasing. There had been the Ford settlement which, incidentally, the Conservative Opposition at that time supported wholeheartedly. It helped to break that particular issue. In any event, I agree that wages were increasing. However, I believe that the noble Lord would accept—I think he has already done so—that what Sir Geoffrey Howe did in doubling the rate of VAT clearly added to inflation; indeed, there was almost a runaway in inflation after that time. Nevertheless, I stand on the figure in my snapshot. When I left office it was 10.3 per cent. and it is now 10.9 per cent.

Perhaps I may emphasise the point made by my noble friend Lord Williams of Elvel in what I thought was an outstanding speech. He said that we have always inherited a higher rate of inflation than that which we left. I wonder how many of your Lordships remember that when the Labour Government took over the government of this country in 1974 the rate of inflation was 13.5 per cent. and that in one month it had risen to 15 per cent., because of events which had taken place beforehand. We took over with an inflation rate of 15 per cent. but when I left office it was 10.3 per cent. I see no reason to be ashamed of that situation.

There has been no fundamental transformation from a government who were supposed to be returned in order to rid this country once and for all of inflation. This is the third bout of inflation that we have experienced under this Government. Perhaps I may re-interpret Oscar Wilde: to have one bout of inflation might have been careless; two was reckless; but, to have had three, as my noble friend said, is sheer "incompetence". On that ground alone we are entitled to vote this evening. I believe that Sir Geoffrey Howe has let the cat out of the bag. He has told us that, but for the Prime Minister's obstinacy, the third bout of inflation could have been avoided.

The third Treasury indicator is unemployment. When the Labour Government which I headed left office, the number of unemployed people in this country stood at 1,140,000, and it was falling. Conservatives were deeply shocked. Saatchi and Saatchi produced that famous poster showing a long queue of unemployed people with the caption, "Labour isn't working", and displayed it on every hoarding in the country. It helped the Conservatives win the election. Today another half a million people are standing in that queue. The latest total is 1,667,000 and it is rising. There has been no fundamental transformation there unless it is for the worse.

The fourth major indicator is the balance of payments—the ultimate test of whether Britain is more competitive than it was and whether it is paying its way. I almost hesitate to mention the figures. It is almost indecent to do so. When we left office there was a small surplus of £1 billion. I hope that noble Lords are aware of the figure today—an expected deficit of £15 billion. If our industry is so much stronger, so much leaner, so much fitter, and has shed so much of its inefficiencies, why is it that a small surplus of £1 billion has been translated into a deficit of £15 billion? That is something that would have been unheard of in the days when I had some responsibility for our affairs. I shall be interested to hear the Government's explanation of that point. I have my own, but I shall not give it because I should be speaking for too long. I am afraid I am making rather a long speech, but I want to put some of these points on the record. I shall not refer to them again, but whenever I hear a Minister stand at the Dispatch Box and tell us how much worse things were in 1979 I shall have my copy of Hansard in my pocket.

In 1979 our share of world trade was 9.7 per cent. If we have effected that fundamental transformation in our economy, why has our share of world trade diminished from 9.7 per cent. to 8.2 per cent? So I could go on.

Lord Graham of Edmonton

Go on!

Lord Callaghan of Cardiff

My Lords, all right, I shall give one or two more examples. I am always ready to yield to a little encouragement. I was told that interest rates were high under a Labour Government. I agree that they were inhibiting growth and development. They were 12 per cent. Today they are even higher at 14 per cent. Where is the fundamental transformation there? Where is the economic miracle that I was told about by Mr. Kenneth Baker on the radio this morning? The mortgage rate is 14.5 per cent. When we left office it was 11 per cent. Personal savings were about 13.5 per cent. Today they are about 5 per cent. to 6 per cent. As for the health of this entrepreneurial economy, there were more bankruptcies in the three months ending October than there were in the whole of 1979.

I have produced enough evidence to demonstrate that claims of an economic miracle are a mirage, a sham and a confidence trick, made believable only by clever propaganda. Of course the Government made some important changes. Of course the Government have made some improvements. Not even this Government could be in power for 11 years without doing something worth while, but the truth is that there has been no fundamental change in our position. We face the same problems as we faced in 1979, and there has been little improvement in the way in which we handle them.

The problems are long-standing, but, as Sir Geoffrey Howe pointed out in his speech yesterday, it is the nature of the challenge that is changing. That is something that he recognises even if others do not.

The 1992 process, the unification of Germany, the growing links—political and economic—of the Community, Eastern Europe and the EFTA countries, and the intense pressure from Japan and America, to which the noble Lord, Lord Young of Graffham, referred—I agree with much of what he said on that point—make the pace and form of economic and monetary integration hard to predict, but I am certain that it will come. I have no doubt of that. Equally I am convinced that Britain's best interests will be served by making it clear to our partners that we fully accept economic and monetary integration as a final long-term goal, and that we shall play a constructive and leading role in shaping its form.

Our requirements are—as my noble friend Lady Castle said —economic convergence (that is vital); the evolution of democratic practices as we transfer competence from the national level; parallel development of all regions in the Community; and the establishment of understanding between the social partners: between commerce, industry and agriculture, and between employers and trade unions. In that last respect many countries in the European Community are well ahead of us. That is one reason—I shall return to this point in a moment—why the trade unions of this country have started to view the future of the Community with rather less suspicion than they did some years ago.

Starting from that position, Britain will be well placed to give a lead in the difficult task—I agree with what the noble Lord, Lord Boyd-Carpenter, said about this—of setting a long-term, open-ended timetable for economic and monetary union; but I believe that it should be set, and that when we have set that open-ended timetable it is one towards which member states can move at their own varying speeds.

I support the decision to join the ERM, although I fear that Mr. Major has made a serious mistake in entering at a central rate of 2.95 deutschmark to the pound sterling. That rate is too high. I can see his dilemma. Fix the rate too low, and he runs the risk of fuelling inflation. Fix it too high, and he restrains exports and increases unemployment—perhaps up to as much as 2 million within a relatively short time, and certainly within the next 18 months. That is the course he has chosen. Ministers defend it by pointing to the recent improvement in export levels. We heard that this afternoon, but that has occurred because sterling was much lower than 2.95 deutschmark when the improvement in exports took place. I have the figures. As recently as last January, the sterling/deutschmark rate was 2.80 to the pound, not 2.95. Since then, sterling has risen against the deutschmark by 7 per cent., although inflation has been rising at the same time. It cannot be right to have chosen such a rate against that combination of economic circumstances.

Mr. Major has taken a substantial risk. It brought back to my mind the classic decision of Mr. Churchill after the first war when he fixed the dollar/sterling rate at five dollars to the pound—a decision that led directly to the General Strike of 1926. I hope that my fears are misplaced on this occasion. I do not believe that that would happen, but the decision that has been taken to fix the rate at that level will rebound. I do not know whether we shall be able to hold it. If Mr. Major holds it, it will only be at the price of more unemployment and lost jobs and of some of our industries going to the wall.

There is little doubt that a European central bank will be created. The question is not whether we can veto it—we cannot—but whether Britain will be a founder member. The answer must be yes. Should it be independent? Here a little history of the 1930s is needed. Many of your Lordships will recall that it was the idiosyncrasies of Montagu Norman (Mr. Skinner), when he was Governor of the Bank of England in the 1920s and 1930s, and the economic consequences of his handling of the Bank of England at the time, that convinced many of us who were then young in politics that the Bank of England should not be entrusted wholly to the bankers without some accountability, and led to its nationalisation. So it was in 1946.

I observe today's banking fraternity. I do not have undiluted admiration for it, but there is no doubt that the banking fraternity of 1990 is different from what it was in the 1920s. Even so, a new central bank cannot be wholly independent. I agree that there will be difficulties in working out how it should operate, but its objectives are clear. The principal one must be the avoidance of inflation. These objectives and others must be laid down clearly by governments, but at the same time an appropriate means must be found to make the central bank accountable at regular intervals. I could suggest a number of devices for that purpose that would begin to make it accountable. I am sure that: they are in your Lordships' minds in any case. Under those conditions and subject to the fulfilment of those conditions, I am sure that such a central bank should have strategic and tactical operational independence.

As I said, an important development has been the more positive attitude taken by the British trade unions to the Community. They have spotted that with the removal of trade barriers a European labour market is developing with growing cross references in wage claims and other negotiations. The social action programme put forward by the Commission to which this Government have taken exception is one reason why the suspicion in the 1970s by the trade unions is now giving way to this more affirmative approach.

Given the concern of Ministers about the adverse effect of large wage increases—which they constantly express while saying that they can do nothing about it—I simply do not understand why the Government have spurned what seemed to be constructive ideas put forward by the TUC and some trade unions. For example, I refer to ideas such as the proposal to synchronise the wage round in order to avoid leap-frogging; the idea of pendulum arbitration in order to encourage wage claims that are realistic and responses from the employers that are reasonable.

On these and other matters it seems to me that in such areas as training and retraining, how to get the best out of employment for women, not only for their own sakes but for the sake of the economy, the trade unions have much first-hand experience and goodwill that they would have placed at the disposal of the Government if the Government had had the wit to take them up.

I conclude. The Government's claim that Britain has experienced an economic miracle and a fundamental transformation is untrue. Until we face that fact, we shall not be ready to take the steps that are necessary in order to improve our situation and make the claim true. My noble friend used these words; I had already written them down and I must repeat them because the same great idea occurred to both of us. What is more, the British people have ceased to be taken in by such claims. People no longer believe what Ministers say because the evidence of their eyes tells them that it is not so. That is where we are. We have a Prime Minister who is so blinkered that she cannot come to terms with the changes that are taking place; and so domineering in Cabinet that Ministers are prevented from doing what they believe to be necessary in the economy's interests. We should be failing in our duty tonight if we did not record our votes.

5.53 p.m.

Lord Ezra

My Lords, we have had many important speeches in the debate so far, not least from the noble Lord, Lord Callaghan. I was especially pleased, like the rest of your Lordships, to hear the maiden speech of the noble Baroness, Lady Castle. I had the pleasure of sharing a platform with her in the late 1960s when together, but on different subjects, we addressed the National Union of Mineworkers in Lancashire. I was impressed then with the vigour of her presentation, as we all have been today. I should like to come back to the substance of her remarkable speech in a moment.

I begin by turning to the remarks of the noble Lord, Lord Williams. He drew attention, as other noble Lords have done, to the difference between the estimates in the Autumn Statement which was read to us the other day and the views of how the economy is likely to go in the short term, expressed from other quarters, notably the CBI in their various publications.

I remind your Lordships that the estimates contained in the Autumn Statement were that by about the middle of next year growth would be resumed, the balance of payments gap would be substantially closed, unemployment would start falling and headline inflation would be cut in half. That is a very convenient degree of timing. We must be sure whether these are realistic estimates. Until one recognises the nature of the problem, it is difficult to determine the remedy.

The noble Lord, Lord Boyd-Carpenter, purported to report the position of the CBI from a letter of the noble Lord, Lord Hanson. However, I read from the CBI's report on the economic situation for October 1990, which must be taken as its authoritative statement. The review showed the largest drop in business confidence for 10 years, with manufacturing reporting sharp falls and output and orders both at home and overseas also falling. Investment intentions have fallen likewise. These were hard words to read. They can be contrasted with the rather more positive statements indicated by the Government in their Autumn Statement.

I believe that we must try to resolve these problems (which will be relatively short-term, if the Government are right, or longer term if the CBI is right) not by short-term expedients but by recognising the importance of longer term solutions. The worrying aspect of all this is that we seem to be returning to the stop-go or boom and bust situation. Who is to say that after some degree of recovery, following the present recession, we do not again get into difficulties?

It seems that we should look for remedies which have a longer term impact. The noble Lord, Lord Williams, referred to a longer term vision. We need to see whether we can find remedies which will enable the economy to be maintained on a sustainably higher basis than previously. I wish to make some suggestions as to what might be contained in such a policy by referring specifically to monetary policy, infrastructure policy and industrial policy.

As to monetary policy, the difficulties that we have had in recent years—they emerged in statements made only yesterday in another place—are in large measure ascribable to changes in the approach to monetary policy made by the Government in the mid-1980s. Until that point, they had regarded the control and limitation in the growth of broad money as being of importance. Broad money, of course, includes credit. However, from 1985 onwards they seem to have given that up.

At the same time the currency was fluctuating widely. So we had neither the restraint of a currency linked with stronger currencies nor the control of broad money supply. As a result, as we know, the growth of credit mounted enormously. It is from that that we now suffer.

The decision to enter the ERM will impose some measure of discipline which we were then lacking. I believe it is now commonly agreed on virtually all sides that we would have been far better advised to have entered the ERM in 1985. Whatever the case, we are there now. It is important to build on the situation. I agree with the noble Lord, Lord Callaghan, when he says that we shall inevitably have to enter into monetary union. There is no way round it. We are members of the Community; we fully subscribe to the single market; and we have entered the ERM. We cannot just stand still at this point. That is precisely what lies behind the amendment proposed by my noble friend. The amendment seeks to emphasise that we must move forward. To move backwards would mean getting out of the Community. And to stand still is an impossibility. Therefore we must move forward. The question is: what role should we play in that forward momentum?

The noble Baroness, Lady Castle, with her unrivalled experience of debates in the European Parliament has pointed to the importance of obtaining some convergence of economies before we finally enter monetary union, and particularly before a single currency is established. I agree that that would be highly desirable but nothing in my view emerged from the last meeting of the Council which suggested that a single currency would be introduced tomorrow. The Council has talked about it being introduced in the year 2000. There are to be discussions between governments in December on the way this is to be achieved. It would be perfectly appropriate for the view expressed by the noble Baroness, Lady Castle, to be aired at that stage. It would, of course, be far better and more effective for a greater economic convergence to be achieved before the final step is taken towards a single currency. However, my belief is that the two should go together. We have, therefore, the opportunity in a European context, of establishing a more effective monetary policy than we have hitherto had. That should lead to sustained control of inflation.

It has been a worry to many of us on this side of the House that the Government's policies towards the various aspects of the infrastructure have not been drawn up on a co-ordinated basis. Two days ago there was a debate in this House on transport in which my noble friend Lord Tordoff said that the Government's transport proposals show … lack of coherence".—[Official Report, 12/11/90; col. 173.] My noble friend went on to explain how that had arisen. The Government keep telling us that they are spending substantial amounts of money in such important sectors as transport, education and health. However, every time we suggest that there should be some co-ordinated policy in those matters, the Government draw back. The idea of a co-ordinated policy is not something that they accept; yet unless we can move ahead on that basis it will be difficult to know whether the Government's expenditure in these areas will be justified, as expenditure in one part of the transport network may well create difficulties in another unless they are all brought together. It is possible that we need more expenditure in certain parts of the infrastructure: we certainly need a much more co-ordinated approach on a long-term basis.

There is also the matter of industrial policy. Here the problems from which industry, and particularly manufacturing industry, suffer are well recognised and have been well rehearsed. Inadequate effort is put into research and development. There are many ways in which this could be put right; for instance, additional expenditure on basic research. That must inevitably fall on the public purse. We need a stimulus to industry to carry out more applied research. This can be achieved by fiscal measures, as is the case in many other countries.

I now turn to training. There is continuing debate about education and the training of young people at school. However, the continued training of people at work is equally important, particularly when technology is developing at such a fast pace. Here again, some fiscal incentive to industry to extend its training facilities and operations is highly desirable.

Finally, there is the question of investment in industry. For a long time recommendations have been made that there should be an additional fiscal incentive for manufacturers in particular to invest in plant and machinery. This incentive was reduced some years ago to a figure of 25 per cent. The CBI strongly recommends that the figure should be increased to 40 per cent. I fully support that recommendation. If the figure were increased to 40 per cent., manufacturers could write off in tax terms the value of equipment of this kind in two-and-a-half years. That seems about right.

We face a difficult situation. The depth of it is a matter for debate and argument, but its existence is beyond doubt. The argument that I put forward—I have referred to the speeches of other noble Lords in support of my argument—is that in trying to resolve present difficulties we should adopt long-term solutions. There are ways of doing that and we should make a start now.

6.5 p.m.

The Viscount of Oxfuird

My Lords, I too wish to congratulate the noble Baroness, Lady Castle of Blackburn. It is the first time that I have ever seen her take part in public debate. I am sorry that she is not in the Chamber at the moment. We hope to see her again very soon.

I speak not as an economist but as one who works daily in the manufacturing sector of British industry for a company called Lansing Linde, which makes mechanical handling equipment. Certainly our sector of industry is more depressed than at this time last year. However, that has not prevented my company from starting on a £40 million investment programme on a world-leading production unit.

We should not forget that since 1983 some 3 million new jobs have been created in this country. That figure does not just apply to the service sector. Although the Chance for forecast no overall increase in manufacturing output for this year, there still abound pockets of real growth in places where hard-working and dedicated teams of men, both managers and workers, are welded into a force that defies the forecasters.

The survey of European companies carried out by P E International that was summarised in the Sunday Times on 4th November adds to the reality of this debate. That survey quantified the truth that British companies are still Europe's top corporate performers. The survey, which covered Europe's 250 biggest companies, confirmed that our major British industrial enterprises are top on all of the three parameters measured which comprised the return on total assets, margins of profitability and added value per employee. Some 80 per cent. of the top 10 and 54 per cent. of the top 50 companies in the survey are British. Why is it then that we hear so little about this good news? Does it raise the old question that good news does not sell media products?

The word "loyalty" comes to mind in this connection. I mention that concept in the context of loyalty to our country's endeavours, its achievements, its hopes and its workforce. Why is it that we seem to take a delight in discounting our national abilities? If one looks at other European industrialised nations which are also under strict economic pressures, one is led to the belief that we are incapable of describing our cup as being half full but are much happier with the thought that it is half empty. The spreading of doom and gloom seems to be a national sport. Bad news sells newspapers and success is quickly forgotten. Yet in reality this process is contrary to human nature, for pain and unhappiness are harder to recall than joy and felicity.

When we look at the increase of 21 per cent. over the next three years in the external assistance programmes of the Overseas Development Administration, we are looking at a cup that is well on the way to being full if not overflowing. We may have problems, but let us get up in the morning acknowledging that for every problem there is a solution. Being subjugated by problems and revelling in self-criticism will do nothing to improve our economic performance.

For too long we have been bedevilled by short-term views. We must seek to change that mental attitude and to think in the longer term. The company director is wasting his talents if more than 50 per cent. of his time is spent keeping his bank manager happy. The bank manager cannot be regarded as loyal if he has to change the goalposts with each and every economic fluctuation. Perhaps noble Lords who are directly involved in the banking world would care to think deeply as to their loyalties at this time and not withdraw their support from those industries which have been accorded the red carpet treatment in the recent past but now face the pressures of anti-inflation policies, which must be long term.

Long-term solutions need wise and long-term support and the courage to keep British customers first. Let us consciously unite and display a loyalty to our industries and reject the tears-before-bedtime amendments before the House tonight.

6.11 p.m.

Lord Donoughue

My Lords, this is proving a very good debate. I should like to begin by congratulating the noble Baroness, Lady Castle, on her characteristically rousing, punchy, and—I dare say in her absence but I should be more nervous if she were present—lengthy maiden speech. I should also like to congratulate my noble friend Lord Williams for his very effective and enjoyable demolition job, and also my noble friend Lord Callaghan who brought his customary authority to our proceedings. I apologise to the Minister that I shall be absent from the inevitably rather late conclusion of the debate as I have to host a long-standing engagement.

The most striking and disappointing feature of this Government as it draws unquietly to its close is the sad sense of déjà vu. How long ago seems the initial excitement generated by the Thatcherite militia and their friends in the media concerning the hope that at last the chronic weaknesses of the British economy were being tackled. It is a matter of public record that even from an opposing political position I personally wished them well because Britain would have benefited had they succeeded.

Now we are back where we were a decade ago and there has been much suffering among the unemployed, the poor and the homeless along the way. As my noble friend Lord Callaghan made very clear, all talk of the economic miracle and the fundamental restructuring of the British economy, all the hype which surrounded the 1987 election campaign which often filled the speeches of the noble Lord, Lord Young, to this House, has faded. It was rather like the Saatchi and Saatchi advertisement to which my noble friend Lord Callaghan referred, and just as bogus.

Instead, what are the headlines today? There is a recession. That has finally been admitted by the Chancellor on television. It is already the third worst recession since the war. Bankruptcies have risen by 60 per cent. over the past year and are at their second highest level ever. Inflation is in double figures. Unemployment is shooting up beyond 2 million. I see that today Goldman Sachs forecast unemployment of 2.2 million by the end of next year. There is a multi-billion pound annual trade deficit which is forecast to total over £60 billion in the period since the last general election in 1987. Sterling is very weak. Interest and mortgage rates have been at record high levels for record lengths of time. Labour productivity, of which the Government were previously rightly proud, has sadly been falling since mid 1988. Even the domestic budget, which is often paraded before us, has been briefly in surplus but is expected to be several billion pounds in deficit by the end of next year. That is a depressing tale. Not even the much-maligned Labour Governments of long ago did as badly as that in an off year.

To adapt the lovely old song by Tennessee Ernie Ford, which I am sure is familiar to all noble Lords and noble Prelates opposite, "You work 12 years, And what do you get? Twelve years older, And deeper in debt" that might almost be the theme song of the Thatcher administration. I say that without pleasure or venom since we all lose from any government's economic failure and many would have benefited had the Thatcher experiment worked. Sadly, it has not.

I should like to look more closely at three aspects of that long litany of economic failure: the recession, inflation, and sterling in the ERM. I shall try to be brief, but those three aspects interact in complex ways and have created an economic box for the Government. It may prove a coffin. It is not easy to see how the Government can solve the problems relating to those three aspects, especially within the timescale of the next election. That is not least because the obvious short-term remedies for one, such as recession, tend to aggravate another, such as inflation. Sterling's position in the ERM, at a perilously high rate, takes away some of the Government's room for manoeuvre. Being of Irish descent, it is tempting for me to say that the best solution would be not to start from here.

As to the recession, the Chancellor has been curiously coy and the Prime Minister characteristically blinkered in denying its existence until this week, when on television Mr. Major was pressed on the matter. Even the Autumn Statement ducked the word. The Minister, with his customary charm and skill, ducked it at Question Time again today. The forecasts in the Statement make it clear that we are now in recession in the second half of 1990. British industry has made it clear to all who would listen for some time that we are in recession. The latest City forecasts show real growth presently to be negative, right through the year to mid 1991. They show it to be zero in the calendar year 1991. That is not a modest recession, that is very painful. There is little doubt in my mind that the Chancellor's forecasts in his Autumn Statement last week will once again prove to be optimistic. The recession will be longer and deeper than he presently admits.

In such a recession it would be natural to ease interest rates. It is bizarre to contemplate interest rates of 14 per cent., or even 13 per cent. as they may be in the New Year, in the middle of such a recession. However, the Government do not have that freedom because of their failure on inflation and because of the sterling factor. They are boxed in. Therefore interest rates will stay in double figures next year.

The headline rate of inflation will inevitably fall next year as the Government-induced increases of the recent past —mortgages, poll tax, excise duties, various public sector charges—drop out, but the underlying rate will stay stubbornly high. I should like to ask the Minister whether he will then, like his recent predecessor, still press this House to focus on the underlying rate and ignore the headline rate. Will the headline rate still be described as meaningless when it is falling?

I have a further question about inflation. Has the Minister any views which he is prepared to make in public about the Treasury's record on forecasting inflation?

This year we have an inflation outcome double the forecast in the last Autumn Statement and 50 per cent. up on the Budget forecast. Perhaps I bored noble Lords throughout the summer by repeatedly questioning the noble Lord's predecessor on the validity of those forecasts. He stuck to them, shrewdly declined to take a bet on them and then wisely moved on to more distant problems before the truth emerged. Perhaps the present Minister will tell us how he proposes to be less exposed to bad Treasury forecasts.

After recession and inflation the third wall that is boxing in the Government's economic policy is sterling. Perhaps I may say that the fourth is the Prime Minister, but I shall leave that issue to the private grief of noble Lords opposite and Members in another place. Sterling's entry into the ERM was a two-day wonder which has since gone very sour. The stock marker is down to its pre-entry level and sterling is towards the bottom of its ERM range. That was before the Prime Minister's present troubles. Why is that? The reason is that entry into the ERM was fatally mismanaged and was clearly initiated for party political reasons. The currency markets know that the decision was not taken as part of a planned monetary strategy. I should declare that I employ a team of currency traders—I may be in a minority on this side of the House in that position. They know that the Chancellor and the Bank of England had a later date in mind for entry when interest rates and inflation would be more convergent. They know that the Prime Minister panicked ahead of her party conference and intervened to decide to cut interest rates, prematurely in the view of the Bank. They know that entry into the ERM was an after-thought extracted from a reluctant Prime Minister by the Chancellor as the price of agreeing a premature rate cut.

In sum, the markets know that it was a panic package and that our monetary authorities were unhappy with it. That is why the currency traders remain unhappy with the conduct of our monetary policy and why they will sell sterling at the first smell of further political interference. Confidence, once it has been handbagged, is hard to win back. That closes the box. Ideally, normally, to help the domestic economy the Government should cut interest rates drastically. It cannot do so because of the impact that that would have on sterling. It should reflate the economy but it dare not do so because of the impact on inflation.

In this dilemma we must all wish the Chancellor well because Britain loses if he fails, and the next government suffers if they inherit a greater economic mess. But it is not a happy story. After 12 years of this Administration these problems are of their own making. We look forward to hearing the Minister tell us how he will get out of the box. I am not that sure he can.

Lord Young of Graffham

Before the noble Lord sits down, since he was kind enough to refer to me during the course of his speech—although I found the use of the word "bogus" perhaps a little unkind—perhaps he would explain to your Lordships' House how the very witty refrain "12 years old and further in debt" applies to the National Debt.

Lord Donoughue

My Lords, the National Debt has been reduced; but that is a single aspect. I am sure the noble Lord does not think that is the only aspect of debt which concerns the economy, or the 50 million or so people of this country.

6.23 p.m.

Lord Moran

My Lords, I had some hesitation in putting my name down for this part of the debate on the gracious Speech, for to take part in a discussion of economic affairs is, for me, an unusual experience. I am doing so today because the questions of a single European currency and a European central bank seem to me of transcendent importance, and a single currency is referred to specifically in the amendment moved by the noble Lord, Lord Jenkins of Hillhead. It has given me the opportunity to listen to an exciting maiden speech, full of fire and eloquence, from the noble Baroness, Lady Castle of Blackburn.

Essentially, I want to make two points. First, in the national debate which has now begun, I think those with knowledge and experience of economic and international affairs have a plain duty to put this issue to their fellow citizens in a clear, comprehensible and, above all, frank and honest way. Not all of them are doing so at present.

Secondly, I believe that any profound change in the way in which our country's affairs are run, and certainly a revolutionary change of the kind now being considered, should be made only when the broad consent of the people of this country is not in doubt. As yet, they have not been asked.

What would a single European currency mean to us and to our fellow countrymen? Those in favour of it frequently argue that it would not affect our sovereignty. For example, Mr. Heseltine is reported to have said on 9th November that nobody seriously expected the creation of a federal Europe in which the member states surrendered their sovereignty to a common government, and that only a handful of people thought such a thing conceivable. In his speech yesterday to the Kangeroo Club in Hamburg, he said, rather more ambiguously, "I do not expect the emergence in the foreseeable future of any political structure that would submerge the instincts of national sovereignty". I am not sure what he meant by inserting the word "instincts". The Foreign Secretary similarly told the CBI the other day that "no one is seriously expecting Britain to submerge our Parliament … into a federal state". But I think that is exactly what those who want rapid progress towards economic and political union are expecting, though obviously not immediately. However, in this country those who believe in a fully integrated Europe appear to be reluctant to come out and say so.

By contrast, I listened to the President of the Bundesbank, Herr Pöhl, on television the other day, just after he had seen the Chancellor, and he at any rate explained clearly that he expected the creation of a European central bank and a single currency to lead to centralised control of economic and financial policies, and in due course to centralised control of political decisions. That must surely be right, but who is saying it in British public life? I know of no instance in which a single currency does not mean a single nation. The Library has kindly checked for me with the Treasury, which says that it is unaware of any example of a common currency being sustained by two or more countries for any appreciable length of time. It is true that the pound sterling and the Irish punt were effectively linked until the late 1970s but that scarcely seems a relevant precedent.

Lord Jenkins of Hillhead

My Lords, why does the noble Lord dismiss the Latin Currency Union which persisted from 1861 to 1914 and which included France, Belgium, Switzerland, Italy and Greece?

Lord Moran

My Lords, I must confess that that seems to have escaped the notice of the Treasury which did not mention this point to the Library. Money is fundamental and, as I see it, the establishment of a single, as opposed to a common, currency would mean not just the extinction of sterling but that the key step in the creation of a European state had been taken. The Queen and this Parliament might continue in being, but their essential sovereignty would have gone.

Three and a half years ago, when we were discussing in this House the Single European Act designed to "transform relations as a whole among their states into a European Union," my noble and learned friend Lord Denning said that sovereignty was being eroded and we were coming under another sovereignty—that of Europe—and that it looked as though that was one step towards a federal union. It is true that we have already surrendered a good deal of our sovereignty, but not yet the capacity to take independent action, or our freedom of choice, or our ability to call to account our own elected Government.

Of course we need to work closely with our partners in the Community and to present a common front when we attempt, for example, to deal with Japanese protectionism. But that is not in question. What we are talking about is the way in which the Community should develop from now on.

We now have the report of your Lordships' committee under the chairmanship of the noble Lord, Lord Aldington, on Economic and Monetary Union and Political Union. It will be debated on 22nd November. I saw it only on Monday and have not yet had time to study it carefully. But I see that committee argues that there is a strong economic case for a single currency but says that this must involve a willingness to make political commitments and indeed sacrifices. The report states in paragraph 75: One concern has been that a single currency would jeopardise national sovereignty. The Committee do not consider that the power to issue and regulate a national currency is in itself of such importance that a decision to pool this power would mean that Member States' international sovereignty would have been lost. In any case, in an interdependent world economy, Member States' freedom of action is in practice severely curtailed. However, power over currency does normally rest in the hands of national States, and a decision to relinquish control over monetary policy will not be taken lightly". It may be that in itself a single currency would not automatically mean the loss of member states' sovereignty. However, my view is that it is such a giant step that sooner or later—and probably sooner if M. Delors has anything to do with it—it would mean the creation of a European state.

I believe that it is very important that there should be more frankness in the public debate. There have been a number of recent pronouncements, from Sir Leon Brittan among others, which seem designed to soothe, to allay fears, to suggest that nothing very unusual is happening and that there is nothing to worry about, coupled with suggestions that anxieties could be met by putting the Queen's head on one side of the ecu used in the United Kingdom, or something like that. I believe that that does the public a disservice. I can see no reason why those who honestly and sincerely desire a European state should not say so. Why, I wonder, are they so reluctant to say plainly what they mean? There is a case for it. Equally clearly, some of the leaders of other Community countries want to move rapidly in that direction.

Apart from the "softly, softly" integrationists, another group adopts the "it's all over bar the shouting" approach. I confess that I find it extraordinary that Mr. John Banham, director general of the CBI, should say on 4th November: We do not want the United Kingdom's commitment to a single currency to be questioned". I emphasise "questioned", my Lords. He continued with what seems almost quasi-religious dogmatism: We believe in economic and monetary union. We believe in the long run in the desirability of one currency". I think that what we need, contrary to Mr. Banham's wish, is the asking of every kind of question, in fact a genuine debate on the pros and cons of a single currency, and of M. Delors' concept of Europe, with the issues clearly brought out and put before the public in a form that they can understand. I do not believe that the public are stupid. They are entitled to know what knowledgeable people in public life really think or believe. They should not be fobbed off with bromides. The debate needs to focus on the real issue of what the Community is to be and how we as a country can best help it to develop on sensible lines. It does not help, as Dr. David Owen pointed out in a notable speech in another place on 7th November, if the issue is trivialised. The BBC and some of our newspapers have been presenting it purely in terms of personalities and of manoeuverings within the Conservative Party. The issue is more important than that.

I come to my second point. A change of this magnitude ought not to be made without broad consent from the British people. Too often in the past they have not been asked—whether about the transformation of British society since the war through mass immigration, or beforehand about entry into the Community, or about the Single European Act. I believe that they have a right to be asked. In refusing to give way to pressure to commit this country to an arbitrary timetable for the transfer of responsibility for economic and financial policy before it is clear precisely what we shall be letting ourselves in for, the Prime Minister, as I see it, has been defending the fundamental interests of this country. She has been violently attacked for doing so and the vigour of her defence does not seem to have won her too many friends in her own party. She is fully accountable to Parliament week in and week out and fears that that accountability may disappear.

Are her fears justified? Your Lordships may have seen the first page of the business section of today's edition of The Times where it is reported that the draft statute for the European central bank, is understood to include provisions that would completely insulate the ECB from national or even supranational political control, while giving it sweeping powers over the domestic monetary policies of member countries". If that is correct, what sort of accountability or democracy is that?

I do not think it is fair to describe the Prime Minister's vigorous objections to this sort of proposal simply as "obsessive xenophobia", as did the noble Lord, Lord Jenkins of Hillhead, in this House the other day. Is it not rather M. Delors—who does not have to face any prime minister's question time—and some other European leaders who have been trying to bounce the Prime Minister into signing up for policies which do not seem to her, or to Her Majesty's Government, wise or appropriate?

Surely the right way to build a united Europe is to allow Europeans to get used to working together, to establish mutual confidence, to let close co-operation grow naturally into a common approach, to take account of national feelings, prejudices and sensitivities, and to use tact and courtesy, and not to hector and force the pace?

If I were convinced that a solid majority of my countrymen considered that the independent British nation had run its course and that our future lay as part of a European state, I should be immensely sad, but I would accept that. But I am quite sure that it would be wrong to go further in surrendering our sovereignty without firm evidence of general assent by the British people. The Prime Minister pointed out in another place on 30th October that that House decided to go into the Community by a majority of eight votes. I do not believe that that is the way to take great historic decisions. We should have a thorough debate. We should put the issues to the public squarely and honestly. Then, before taking any irrevocable step, we should, I believe, have a national referendum.

6.37 p.m.

Lord Bruce of Donington

My Lords, I listened to the noble Lord, Lord Moran, with great interest. Were it not for the fact that we shall be debating the subject in detail next Thursday, I should have liked to take his argument a stage further.

In one respect he is quite right. It is the utmost intellectual arrogance for anyone proposing a certain course of action to say, "It is inevitable anyway". Nothing is inevitable until it has happened. Inevitability depends upon the experience of the event. I am by no means persuaded that because an author advocates certain courses of action—either in relation to the European Community, or in relation to the world at large—as inevitable, they are thereby rendered inevitable. All such courses can be and ought to be subject to proper argument with all the facts and inferences to be drawn from them laid before the country and before Parliament. Nothing is inevitable until it has happened.

The noble Viscount, Lord Oxfuird, made a speech about pessimism and a general sense of gloom. He surely missed the point. I am a confirmed optimist. I believe that many of the evils and disabilities that are suffered by a country can be or will be altered. I do not lack faith in my country. I lack faith in the present Government. I am determined to change them. On this side of the House there are reasonable grounds, not for glee, because there is nothing to be gleeful about yet, but for cheerfulness. Perhaps after the necessary political changes and the economic directions that will follow from those political decisions have taken place we shall move into slightly balmier times.

My noble friend Lord Williams of Elvel has put down an amendment in terms of excessive moderation. He merely complains of the incompetence of the Government. Had it been left in my hands I should have used the words "gross incompetence", because only a government of the type that is at present inflicted on the country could have achieved the record to which my noble friend Lord Callaghan referred and achieved such a dismal result, after having had the benefit of £8 billion worth of North Sea oil revenues. Only a government who have lost all contact with any kind of reason could possibly have achieved the results that this Government have achieved.

There has been talk of an economic miracle. For approximately 250,000 people, or probably slightly more, there has been an economic miracle. The rich have had massive tax reliefs; they are able to disport themselves and their yachts all over the world and their spiritual homes, which is where their money is, can be spread not necessarily within the counties of England but in the Seychelles, in the Antilles, in Guernsey, Lichtenstein, Luxembourg and indeed possibly in the south of France by the Gran du Roi or La Grande Motte, where their yachts lie in basins, or in Gibraltar. They have had a wizard time, and for them there has been an economic miracle.

However, for the rest of the population, and particularly its poorer sections, there has been no such miracle and none is yet in sight. There are many people in the little streets of Britain tonight who have every reason to curse and to refer in the bitterest terms to the infliction upon them of burdens imposed by Mrs. Thatcher's Government. Many of them are living lives of misery, to which most noble Lords in this House are not accustomed and of which they have very little knowledge.

In dealing with the incompetence of the Government, I am bound at the same time to express some fears. I am optimistic that we shall get over them but I think there is a danger, possibly within my own party, of underestimating the difficulties that are going to face the next Labour administration. One thing bothers me and it may also bother your Lordships. One of the figures that was not given owing to the time that had passed referred to manufacturing investment in the United Kingdom. Such figures have not been part of the success story. Valued at 1985 prices, investment in manufacturing industry in 1979 was £11 billion. The average for the next 11 years, during which Her Majesty's present Government have been in office, was £8,690 million—a considerable drop.

Therefore in order to be competitive, particularly under fluctuating sterling rates of exchange against the dollar and the deutschmark, we have exerted an upward pressure on unit labour costs by failing to invest at the same rate as our competitors, because unit labour costs are composed not only of wage levels themselves paid to individuals but also of other costs. If one neglects research and development and also training, there is pressure to send up unit costs. How could it be otherwise? Wage rates in the United Kingdom are from 20 per cent. to 30 per cent. lower than those obtaining on the Continent of Europe. The reason unit costs tend continually to press upwards in competition with our competitors is precisely that there is a shortfall of manufacturing investment, a shortfall in training and a shortfall in research and development.

The trouble is that it is one thing to recognise this and another thing to be able to take action. The fact has to be faced that there will have to be a two-year gestation period before any improvements can take effect in order to counteract this monstrous lack of investment which has been part of the Government's policy—partly because they tend to encourage overseas investment rather than internal investment from our own financial resources, as the figures show very well.

This has resulted in there now being profound skill shortages. If one looks at the manpower survey of skills and shortages one finds these figures, as reproduced in the Financial Times for 15th October last: Nearly half of Britain's employers were experiencing shortages of skills in mid-year according, to a survey of 1,400 personnel officers published by Manpower, the employment services company. Nationally 44 per cent. said they were experiencing a shortage of skills, a figure which rose to 50 per cent. in the Midlands, 53 per cent. in the South and 72 per cent. in the West and South Wales". The figure for Scotland was under 28 per cent. and that for the North West 34 per cent.

This situation has resulted in employers competing with one another for the skills available. That stokes up wages claims. All these things will become chronic unless they are tackled speedily. I take the view, and always have, that there has to be a degree of consensus between all sections of our community in solving national problems—the kind of consensus which has been so successful in Japan, Germany and many other countries.

Confrontational politics in the old style, apart from the normal confrontation in debate, as I am sure your Lordships appreciate, are out. One has to induce in the United Kingdom a spirit of co-operation between those who work on the shop floor, those providing the services, the supervision and management, those who determine policies and those who finance them, government services, educational services and everything else. There has to be a degree of co-operation, but for this Government "consensus" is a dirty word. One of the daftest things they have done in the past month is to snub the TUC approaches at Neddy for there to be tripartite discussions on the future development of the economy. That is something the Government will regret. The only cause for optimism that they will not be in office for very much longer.

6.50 p.m.

Viscount Massereene and Ferrard

My Lords, the noble Lord who has just spoken says that in Europe wages are far higher than in this country. However, he cannot say that about the whole of Europe. In certain countries in the EC wages are definitely lower. Also, he has not taken housing into consideration. I am an employer in agriculture and industry. From my knowledge, our housing is far superior to what I have seen in many countries in the EC. Of course there may be exceptions. However, I shall not follow the noble Lord in everything he said because that would take too long and I intend to be brief.

I am against a single currency. The Single European Act came to the House of Lords on the day before the Recess, having been rushed through the House of Commons. We did not know that it was coming here so soon. I saw a sheet of paper and did not even know what it was until I read it. We were astounded that here was an Act which would alter the whole of British law of which we had no advance information.

I believe that the noble and learned Lord, Lord Denning, spoke on that occasion, as did about five other noble Lords. I spoke briefly but I am small fry compared to the noble and learned Lord, Lord Denning. The noble and learned Lord was very upset about the matter. I was concerned that he might have a seizure. The noble and learned Lord is a great expert on the law and he was very upset. The Act has now been softened somewhat. However, that was quite an experience.

About 18 months ago I wrote a letter to the Daily Telegraph about Mr. Delors. He had said, although he probably regretted the remark subsequently, that when the Single European Act came into force it would destroy 80 per cent.—he must have been exaggerating—of British law. That was an amazing thing to say. My letter was published but there was no response to it. I do not believe that the answers were known. However, it is a fact that he said it.

I was delighted when we discovered oil around Britain, as I am sure was everybody. I said at that time that I hoped that the Government would re-equip our factories and modernise them from the proceeds of our fairy godmother: oil. Those proceeds amounted to a considerable sum, I believe some £80 billion. The problem is that, for example, at Ashford two large companies have folded as have companies all over the country. I wish that the proceeds from oil had been used for the benefit of our industry. The Government have of course used those proceeds beneficially in other ways, but our industry is very important.

The Government have improved considerably the standard of living of the people of this country during the years in which they have been in power. They must take same credit for that. They have improved it in a number of ways; namely, by denationalising many industries and by reducing the national debt. That has saved the country a good deal of money in interest payments. On the whole, therefore, the people of this country are far better off than when the Government came to power, inheriting as they did from the former government an extremely serious economic position.

Mr. Lawson tried to achieve parity with the deutschmark. Had he been able to do so, that would have been satisfactory. However, he failed. As a result, very high interest rates were imposed. Before the Conservative conference this year there was a cut in interest rates. But until that time we were paying 18 per cent. We are now paying 17 per cent. That causes considerable difficulties, however efficient the employer I have never dismissed a man. It is very difficult. I am a chairman of a public company, but I am not talking about that. The position is very difficult for private employers because they know all their employees and become fond of them. I have never dismissed a man even if he is redundant; I would never do so. However, it may become impossible for me to pay my employee because of the very high interest rates.

Inflation is a very serious problem. However, I do not believe that it is as serious as having a great number of companies closing down. I hope that in the near future the Government can and will bring down interest rates. One cannot start up a new business if one has to pay such high rates of interest. I hope that something can be done.

7 p.m.

Lord Dormand of Easington

My Lords, in one of the less well publicised speeches made at the recent national conference of the CBI the chairman of a company used these words, Inflation is not an act of God. High inflation is a man-made disaster like southern beer and nylon shirts. It is caused by economic mismanagement". I quoted from that speech for two reasons. First, I hope that the Government will take more notice of a successful businessman than they do of those of us on these Benches, who have been saying exactly that for a long time. Secondly, when we on these Benches raise the great economic disasters of this Government—inflation, high rates of interest, balance of payments deficit and unemployment—the Ministers' replies express concern, yes, but they are couched in language that suggests such problems occur in the natural way of things; that they could not possibly have been brought about by the incompetence of the Government. In fact it is the sheer incompetence of the Government that has caused the present difficulties. My noble friend Lord Williams of Elvel made that one of the themes of his excellent opening speech. It was confirmed by my noble friend Lord Bruce in his excellent speech, and I have no hesitation in supporting that view.

The Government, during their time in office, have trotted out a number of reasons for the difficulties; for example, the militancy of the trade unions. They cannot now say that. One of their most frequent boasts is that they have smashed the power of the unions; they have tamed them. That excuse cannot be used any more. They also frequently called in aid the importing of inflation. That indeed occurred from time to time. But they cannot use that reason now. Most of the countries from whom we import have much lower rates of interest than we. The average rate of our European partners is half our own. We were told a thousand times that industry and business were not investing enough. We are now informed that we are investing more than ever, yet we have these major problems in our economy.

There is yet a further reason why the words of that company chairman are valid. This Government have had unbridled power for more than 11 years. When a government have been in power for one Parliament they can legitimately claim that they did not have time to do everything that they wanted to do. They can, though with less conviction, say the same thing after two periods of office. What they cannot do is use that reasoning in their 12th year in office. Given that, and the other reasons I mentioned, this Government have nowhere and nobody to turn to. The sheer incompetency is there for everyone to see; it has been reflected in opinion polls and election results for several months.

There have been two fundamental causes for the present sorry state of affairs. First, the problems caused by the so-called Lawson boom. The Government—not just Lawson—were so obsessed with cutting taxes, particularly in 1988, that they paid insufficient attention to the growth in domestic demand that eventually came about. Consumer spending was projected to rise by 4 per cent.; in fact it rose by 8 per cent. That is only a 100 per cent. error! In that context, it was a most serious mistake.

Allied to that was the incredible under-estimation of the effects of financial de-regulation on the spending of both ordinary people—if I may so describe them—and the company sector of the economy. Almost everyone took advantage of the easily available credit. It can be argued that the Government are still doing little or nothing about that. That also was a mistake of great proportions.

All of that took place against a structure which is of fundamental importance in a modern society. I refer to the essential need of a sound industrial base. The devastation of our manufacturing capacity in the early 1980s caused by the monetarist policies of those days was such that we have not yet fully recovered from it. It is significant that our industrial manufacturing rate is now 20 per cent. as a proportion of gross domestic product compared with 30 per cent. in Germany and Japan. The difference is crucial. It is the difference between success and failure. If the industrial base is not rebuilt, living standards cannot be raised. The substantial needs of the health service, education, transport and all the matters that we hear about in your Lordships' House almost every day, will not be met unless that base is not only restored but improved.

Things might be better if we could see light at the end of the tunnel. However, there is no doubt that the economy will become worse. That friend of the Government, the Confederation of British Industry, tells us that is so. I assume that the Government will take notice of what it says even though they do not take notice of what we on these Benches say. In its recent report, which I am sure your Lordships have read—the gloomiest report for several years—the CBI say that output will remain flat in the coming months; investment is under threat; jobs are being lost, and order books are at their weakest for eight years. How that differs from the reeling off of the success stories that we heard from the noble Lord the Leader of the House in his opening address today! I thought I was living in a different country when I heard that contribution.

All that I have said stems from a government who we are constantly told understand business, understand money, know what being an entrepreneur means, and know how to maximise profit and efficiency. They are even refraining—my noble friend Lord Donoughue referred to this—from using the word "recession", when the evidence is all around us that we are well and truly into a recession.

The figures for my own part of the country are probably no worse than those elsewhere. In the North as a whole 3,500 businesses failed in the first nine months of this year—that is 600 more than in 1989 —and another 72 firms have called in the receiver. A disturbing feature of those figures is that all types of business are being affected, from heavy engineering employing hundreds of men—for example, Northern Engineering Industries, which announced 600 redundancies only two weeks ago—to the smallest service firms employing only two or three people.

The Forum of Private Business—the Minister will note that I always quote from friends of the Government to be absolutely impartial on these matters—said in its recent report that high interest rates, the poll tax, and other direct government policies have strangled hopes of expansion for businesses and robbed the northern region of thousands of jobs. Perhaps I may remind the House that the northern region has always had the highest rate of unemployment outside Northern Ireland. In the past two or three years I must say that there has been some improvement, in spite of some unimaginative policies such as the wholesale closure of pits in areas where no alternative employment was available.

However, we are once again on the slippery slope. Unemployment in the country as a whole has increased in each of the past six months as a direct result of government policy. When we raise unemployment matters on this side of the House the standard response from the Government is, "We have more people in employment than at any other time in our history". We heard that again today in the opening speech of the noble Lord the Leader of the House. That may be true, but in view of the doubts —indeed, the proven inaccuracy—of government statistics these days we have to be generous in accepting them.

What is true is that the number of unemployed is still higher than it was when the Labour Government left office in 1979. If, after getting on for 12 years in office, the economic miracle still has 1.5 million unemployed then the word "incompetence" does not begin to meet the inadequacy of government policies.

I believe, and I say this sincerely, that noble Lords opposite and Ministers in particular do not know what unemployment means. The personal devastation and the effects on families have to be experienced to be fully realised. The worst feature is that of long-term unemployment; people who have, by definition, been unemployed for more than a year but who in fact may have been unemployed for several years. Long-term unemployment is now again on the increase. There can be no stronger condemnation of the Government's economic policies than that. It is significant that the word "unemployment" does not appear anywhere in the gracious Speech. We have to assume, therefore, that a figure of 1.5 million for unemployment is the norm for this Government.

The unemployed have become the forgotten people of our society. I ask the Minister who is to reply to the debate to deny that the number of people who will be unemployed by the end of next year will be 2 million. The only satisfaction I obtain from the present economic situation is that the Government have at last been rumbled by the people of this country. Their incompetence has been exposed as never before in their 11 years in office. The result of the next general election will not be changed whether it comes in 1991 or 1992. Perhaps I may also add—and I end on this because of the present circumstances of the Conservative Party—that it will be regardless of who is leader of the Tory Party.

7.12 p.m.

Lord Grimond

My Lords, I wholly agree with the noble Lord, Lord Dormand, in his criticism of the Government and with his insistence on the importance of manufacturing industry. I was also particularly struck by two previous speeches—one by my noble friend Lord Ezra and the other by the noble Lord, Lord Callaghan. I am sure that my noble friend Lord Ezra was right to stress that what we need are some long-term measures to assist the economy of the country. As for the noble Lord, Lord Callaghan, who has held all the great offices of state—he particularly graced the office of Prime Minister in which his performance was much better than in other offices —my heart warmed to his dismissal of the myth that some sort of Thatcherite miracle has been performed. It is absolute nonsense and high time that someone in authority exploded that myth.

The noble Lord, Lord Callaghan, pointed out that in every major index of our economic success the Government that he presided over, which is now regarded particularly in Tory circles as something of a disaster, was far better than we can produce today. Future historians will be amazed that we were conned into believing that there was any kind of major miracle in our affairs. The only changes—nearly all for the worse—are an increase in bureaucratic attitudes and in the extent of government. The nanny state has extended vastly more under this Government than ever it did under any Labour Government.

I see sitting next to the noble Lord, Lord Callaghan, in a semi-recumbent position, the noble Lord, Lord Jay. As far as I remember, the noble Lord, Lord Jay, was pilloried for suggesting that the gentlemen in Whitehall knew best. It is quite possible that in that highly technical matter relating to nutrition the gentlemen did know best; but now the gentlemen in Whitehall, the town halls and in innumerable quangos are thought to know best about everything. The whole extension of the bureaucratic attitude for which the noble Lord, Lord Jay, got into trouble has been enormously extended. In fact, he stands out now as a rather rugged individualist in a semi-socialist world.

The next change has been that the division between rich and poor has enormously increased. The third change is that there has been a considerable increase in materialistic greed. Finally, there is now the belief that public relations can cover up all ills.

The noble Lord, Lord Callaghan, dealt with the internal position in this country, but in comparing this country with foreign countries the position is just as bad. I am amazed at the complacency of the Government. The noble Lord, Lord Williams of Elvel, read out what he thought the Conservative manifesto at the last election should have contained in view of what has happened since then. Noble Lords on the Government Front Bench might at least have blushed but they show not the slightest sign of anything except being well content with an absolutely disastrous performance.

Compared with this country our neighbours on the continent —France, Germany, Belgium, Italy and the Netherlands—have all increased exports and decreased their imports in recent years. Taking the years 1979 to 1985, one need only refer to the report from the Select Committee on Overseas Trade, and particularly the graphs on pages 8 and 9. The position has not improved since then but the Government appear to be completely satisfied. With a smaller workforce and with no oil—I cannot too often emphasise that any success this Government have had has been due to the enormous bonanza of North Sea oil—the German national income has increased by 46 per cent. more than ours since the war.

Our record in manufacturing is particularly bad, as the noble Lord, Lord Dormand, said. Employment in manufacturing industry has fallen by 63 per cent. since 1958 but by only 17 per cent. in Germany. When the North Sea oil pipes were laid I remember being struck by the fact that they were nearly all manufactured in Japan or on the continent. Now we see that the major pipe producing works in Scotland at Clydesdale are to be closed. Why cannot we make pipes in competition with the continent or Japan bearing in mind that for 15 years we have had oil on our doorstep?

Incidentally, I should like to know what the Government intend to do about the steel industry in Scotland. I do not believe that a steel industry is essential to a nation and I would not expect British Steel to keep open the works in Scotland if convinced that the works are uneconomic, but I have to say that the treatment in this matter has been appalling. Even the Secretary of State for Scotland has protested strongly against the methods used. These have been to make promises that something will happen, which does not happen, and then gradually to cut down, not only at Clydesdale but at Ravenscraig and other steelworks in Scotland. The Scots are entitled to know whether the Government have washed their hands of the industry—certainly the Secretary of State does not appear to have done so—and if not, what attitude they propose to take. The Government should at least make up a package of steel production in Scotland which, if the board cannot operate it, can then be offered on the private market.

In regard to investment generally, it is true that we have invested enormous sums of money, a great deal of it abroad. Again, the Government have boasted that they have attracted investment into this country. In fact, between 1980 and 1989 the outflow was 108 billion dollars more than the inflow of investment in this country; and the return on that investment is only 11 per cent. compared to the figure for Germany of 20 per cent.

The Government have also told us that it is Japanese management that has made the motor car industry in this country semi-successful. If that is their assessment, and it appears to be, it seems strange that every year those in management and on the boards of companies receive increases in salary far beyond the rate of inflation while calling upon their workers to take less. How can we expect the workers of this country to take less when in many cases management increases its salary, perks, pensions and every other emolument regardless of whether there has been an increase in profit?

If too much money is chasing too few goods one of our troubles is that the chase is led by the top people. Only yesterday we read that Members of the Cabinet increased their salaries by 8.5 per cent. We are told that that is well below the rate of inflation. However, only last week the Chancellor of the Exchequer told us that the rate of inflation will fall to 5.5 per cent. If the Cabinet really believes that it will fall to 5.5 per cent. surely it can rub along on its not totally insufficient salary for a month or two until it comes down to that figure or lower. Only a year ago the Government were going to abolish inflation. Members of the ordinary public are not given much confidence if the Cabinet feels it necessary to take an increase of 8.5 per cent. while saying that inflation will fall to 5.5 per cent.

Another issue that we must look at is indexation. It began by being a perfectly sensible policy but now it is wholly out of hand. Practically everything is indexed. I discover that as a Member of the House of Lords my car allowance is indexed and rises along with that of God knows how many others in the Civil Service. I reckon that if I had a car I could live on my car allowance. I believe that we should look at indexation. We shall never stop inflation unless people have an incentive to stop it—and the top people do not—and while there is a failure to achieve wage awards and so forth far below the present rate of inflation. Indexation prevents both those things.

I am sure that we are an under-trained nation and that we should train more. However, my experience is that no amount of training will do any good unless it is properly applied. There is a lack of skill. One sees in this House the lack of skill in drawing up statutes. One sees on the Underground the lack of skill in keeping escalators running. All around this country there is a grave lack of skill which can be cured to some extent by training. However, it requires more than training.

I remember that during the war the Germans in Normandy had practically no airforce or artillery and an army of only old men and boys. However, they had a few good tanks and one or two nasty mortars. They held up the whole British and American effort because they were skilful at using what they had to hand. When we arrived the Falaise Gap was full of horses because a great deal of their transport was still horsedrawn. Yet they held us up because they knew what to do with it. I do not believe that training is enough and I suspect that German success still relies not upon their expertise and up-to-date machines—although they may exist —but upon the fact that they use their resources so well.

I do not share the view that the Government have controlled the money supply or credit with any efficiency whatever. I agree with the noble Lord, Lord Dormand, that to flood the place with credit, totally fail to control the broader money supply and then to be surprised by inflation is a bit much. However, that was the Government's policy. We are now told by the Chancellor of the Exchequer that the Government's great hope is to be able to continue with their policies. If they do, goodness knows where we shall end up! So far their present policies have hardly cured the troubles that we face. We face serious troubles, including a recession. In doing so we are led by a broken-backed government in which not even the Conservative Party has any confidence. The Government are introducing no new thoughts upon those matters whatever. In my view, the sooner we have a general election the better.

7.24 p.m.

Lord Jay

My Lords, it was a pleasure and like old times to listen to my noble friend Lady Castle of Blackburn. After listening to her uncontroversial speech today I look forward with great pleasure to her controversial speeches to come.

In our previous economic debate in July I was optimistic enough to express the view that if the Government were to enter the ERM the euphoria would last for a few months or perhaps a few weeks. In fact, it lasted only two days which is a shorter period than that after a party conference. My noble friend Lord Williams said only two hours, but on this issue I am slightly more charitable.

Apparently some people believed that joining the ERM meant an automatically fixed exchange rate behind which we could do what we liked with interest rates and other internal policies. Unhappily, under any system, if more people sell your currency than buy it, the rate will fall. Therefore, we are now compelled to maintain a cripplingly high interest rate which damages the domestic economy. For that reason we as a country have in effect abandoned the control of interest rates in addition to exchange control, credit control, low-cost food imports and any incomes policy. It is not surprising that after decontrol on that scale—an orgy of decontrol—the economy is now wholly out of control. Indeed, for the first time since 1945 we have at once a huge balance of payments deficit, high and rising unemployment and falling output, profits and investment.

For a deficit country to fix its exchange rate is, in effect, to deprive itself of the one effective mechanism for returning into external balance. But, in addition, to fix it at a grossly over-valued rate is not so much a gamble as an act of unilateral disarmament. That the rate of 2.95 deutschmarks to the pound is over-valued is proved by the fact that we are suffering from unemployment and a balance of payments deficit at the same time. The right exchange rate for any country is that which enables the country at once to employ its full productive capacity and preserve a sustainable balance of payments. In our case the probable over-valuation is at least 20 per cent.

The tragedy is that we have been through all this more than once. In these matters a little experience is worth a ton of theory and a mountain of political propaganda. In 1925 the sterling exchange rate was fixed at a rate probably over-valued but by only 10 per cent. All the promises that we have heard during the past year were then peddled around. We were told that we were to have stability and a strong currency. After six months of euphoria we had a prolonged coal strike, a general strike and six years of rising unemployment until the over-valued rate was abandoned in 1931. After that we enjoyed five years of rising output and employment.

In 1979–80 roughly the same mistake was repeated. The rate was allowed to rise to the hopelessly over-valued level of 2.40 dollars to the pound whereupon output fell disastrously, unemployment rose by 60 per cent. in less than two years—that had never happened before—and we lost valuable industrial capacity which has not yet and may never be regained. It was only in 1985–86 when the exchange rate fell substantially against the deutschmark that the downward plunge was halted. The then Chancellor of the Exchequer discovered that for a short time he had created an economic miracle.

The same lesson stares us in the face from overseas. Nobody has mentioned this point, but from 1931 to 1935 France, Belgium, Switzerland, Italy, Holland and Poland operated what was then called the gold bloc, an almost exact prototype of the ERM today, with fixed parities and exchange rates and close central hank co-operation. In those four years, while the United Kingdom recovered after the drop in the exchange rate, the gold bloc suffered deeper and deeper depression and higher and higher unemployment until Belgium broke ranks in 1935 and France in 1936. It has all happened before.

In one crucial respect however the ERM is even more crippling to the deficit country than either the old gold standard or Bretton Woods. Both the gold standard and Bretton Woods put some pressure on the creditor country to reflate as well as on the debtor country to deflate. The ERM puts all the pressure on the debtor country alone, and thus is an even more primitive system than the classical gold standard. If we were to slide down the slope any further and plunge recklessly into the extremism of a single currency, the result in terms of unemployment would be even worse. In that respect I wholly agree with what the present Chancellor said on television on Sunday. I shall not pursue the argument today because I understand that we are to discuss European Community matters next week.

What must be expected from all these policies over the next year or two? The over-valued exchange rate will subsidise imports and discourage exports, both those tendencies increasing unemployment, reducing output and increasing the payments deficit. Incidentally, the Autumn Statement estimates for the balance of payments and for the RPI are simply not credible. We must not forget that when France and Italy joined the ERM unemployment increased very substantially. In France it has doubled since that country joined. In our case, as a result of the worsening of the balance of payments, the exchange rate will sink towards the ERM minimum—indeed, it has already done so—and interest rates will have to be kept very high to prevent a further fall. That will depress real investment. Indeed unemployment may well reach 3 million again on present policies by the end of 1991. Reserves will be lost and more foreign exchange borrowed on top of the £20 billion a year which we are now borrowing to cover the deficit in the current account. All this will inevitably weaken the country further, economically and diplomatically.

We are asked to endure all this damage in order to restrain the rise in the RPI. I am not surprised that the Government are worried. The Government are trying again to cure a cost inflation in the belief that it is a demand inflation. In fact it is money costs which are rising because the Government have no incomes policy other than exhortation. And exhortation will not be heeded from a Government who have not lifted a finger or raised a voice to restrain company chairmen and City operators paying themselves outrageous salaries. Even the previous Chancellor of the Exchequer, since he left office, has not exactly been a shining example of pay restraint.

How right Winston Churchill was in 1925 in writing a private minute in the Treasury in which he said: I would rather sec finance less proud and industry more content". Lasting damage has been done and is being done by the present over-valuation of sterling and other policies. Fundamental changes will be necessary before our economy is really restored.

7.35 p.m.

Lord Alexander of Weedon

My Lords, perhaps I may first make the briefest mention of the Uruguay round of GATT talks and the contentious issue of agriculture. Western Europe is, in world terms, comprised of rich countries. It seeks to promote free trade within the Community. It seeks access to world markets on a multilateral basis. Yet in regard to agriculture it has been and is protectionist, and is currently grudging in the concessions that it offers. For many of the 107 countries taking part in the Uruguay round, countries less rich than those of the Community, the main hope in negotiations is to secure big gains from cuts in farm protection. It was wholly appropriate that this should have been the principal topic on the agenda for the recent Rome meeting of heads of government. It was wholly inappropriate that the issue was not debated then and that the stance of some Community countries remains curmudgeonly and self-seeking.

I very much hope that the present ungenerous position will be modified as the GATT talks come to a climax. It would be not only sad but highly damaging if those talks were to fail. I agree with every word said by my noble friend Lord Young of Graffham on this topic. I speak on this subject more strongly because I believe firmly in the progress of the Community. Participation of this country in that progress depends on two principal factors: our domestic economic and monetary attitudes, and our commitment to the development of Community institutions.

I start with our domestic challenge. It is heartening that the Chancellor of the Exchequer consistently pledges the Government to the task not only of reducing inflation but also, when this is done, of maintaining for the future a low inflationary discipline. To achieve this will be painful. At present we are "boxed in" to a thoroughly unattractive corner. Industry requires, as the CBI reminds us, a significant reduction in interest rates to avoid continuing damage to the corporate sector. Yet such a reduction of interest rates, quite apart from its potential effect on the value of sterling within the ERM, would carry the risk of renewing inflation through increased personal spending. There is said to be a good deal of pent up demand for housing. We dare not, as I see it, risk the encouragement of any new surge in house prices or in personal spending.

Shortly after the recent interest rate reduction, I read a newspaper report which suggested that house prices might start to rise a little. The headline read "Good news for house prices". A senior German banker, to whom I mentioned this last week, suggested that in his country the headline would have read "Bad news for house prices". We cannot afford any such inflationary risks, in the same way that a false "boomlet" before the next election should. I believe, be regarded as wholly off the agenda. We should give the Chancellor the fullest and continuing support in his resolute stance against inflation.

Our membership of the exchange rate mechanism should obviously require us to impose an anti-inflationary discipline. That is one reason why in my view it is to be welcomed. Another is the opportunity it gives us to be taken seriously in the coming inter-governmental talks. I cannot begin to match the knowledge of economic history of the noble Lord, Lord Jay; but on practical grounds I diffidently but firmly disagree with his conclusions. I believe, with respect, that they ignore the dynamic of reality. It is difficult to over-emphasise how vital it is that we as a country should play a full and constructive part in the next stage of negotiations.

Much of our past history in our dealings with the Community has been unfortunate. We stood aside from the initial shaping of Community institutions and rules, only to join later on terms which had been agreed by others. Those terms included the common agricultural policy, which I mentioned earlier, and that should surely serve as a salutary reminder of the dangers of absence from the table.

Surely now our participation is even more important because of our present status as a member of the Community. In many aspects of economic and social affairs, Community laws override our own. Except on those issues which require unanimity, we can be out-voted. In practical as well as legal terms, the impact of Community developments affects our affairs: we have for a long time had scant real sovereignty over our exchange rate, and 60 per cent. of our exports already go to Europe. Decisions are taken there which affect our ability as a country to compete. It is a major issue of foreign policy that we should use our full negotiating skills to ensure that we are not disadvantaged at this crucial time.

What then should be our stance? Perhaps I may join those who paid tribute to the report of the Select Committee on the European communities. In general, I respectfully share their views and I do not propose to rehearse them again tonight. However, I should like to emphasise that the Government's proposal for a hard ecu, so ably and tirelessly explained across Europe by Mr. Robin Leigh-Pemberton, has merits. It focuses the arguments on the need for economic convergence to precede currency union, and for such union to take place when, and only when, the market-place is ready for it. There are clearly elements in the proposal which could form part of Stage 2 of the route to currency union.

One problem is that, when initially proposed, the hard ecu proposal was regarded as a stalling device. It is sadly true that we carry at present less credibility than we would wish in Europe. Some are even doubtful as to whether we are sufficiently committed to an anti-inflationary discipline should the going prove tough, as it did in France when it accepted the need to maintain a stable exchange rate early last decade. We must continue to strive to dispel that impression, as we have much to contribute. In particular, we can help in our pragmatic way to ensure that the impetus for speedy progress is tested on a hard-headed but constructive basis. One virtue of the hard ecu proposals is that they concentrate minds on how much there is still to be thought through.

I believe that the hard ecu proposal cannot ever begin to carry any weight abroad unless the Government acknowledge that it is intended as a constructive way forward to ultimate monetary union. There are undoubtedly difficulties to overcome and the process may not be as simple as some may hope. There is no reason to be starry-eyed or idealistic about what still falls to be achieved. The Community as a whole is a long way from economic convergence; nor is there a clear acceptance by all governments of the need for an independent, central European banking institution which will, after all, replace some of the powers of the Bundesbank as well as those of the Bank of England.

The division of responsibilities between central and national banking will need to be negotiated carefully. Yet the principle of subsidiarity, so relevant to this task, has yet to be precisely defined or made enforceable in Community law; nor have we worked out whether, or to what extent, fiscal powers will need to be exercised from Brussels. All those are momentus questions. Monetary union will undoubtedly increase calls for economic and political integration. As an adherent of the need to make progress, I accept that fact. However, those are but illustrations of the hurdles to be crossed.

I also believe that the logical coin of a single market is a common currency. It would reduce transaction costs, eliminate exchange rate uncertainties and, above all, it would further the simplicity of trade within the market. We must also accept that our partners in the Community increasingly and understandably pursue this objective. We must play our part in making certain that we traverse the route in a thoroughly practical way with the goal clearly in mind.

If we do not adopt that approach, other countries will probably seek to go ahead without our participation. That possibility is increasingly spoken of on the Continent, and we should not regard the idea as posturing or as the idle beating of drums. As has been said by others, two speed Europe carries a logic for those countries ready to move ahead. But for us it has the danger of being a two-tier Europe. I, and many others, are much concerned at the effects of such a development on the City's current position as Europe's leading financial centre.

London has been a dominant financial centre for so long that some assume its place is immutable. It is in the middle of time zones, its skills base is formidable and wide-ranging and leading financial institutions from abroad currently have their base here. But competition from Frankfurt and Paris is determined and it is accelerating. In the past, the deregulated nature of our markets has helped us enhance our competitive edge. But this advantage is diminishing as our European partners themselves deregulate their own markets. It would be of the greatest concern if we were rot in the mainstream of the next developments which promote economic integration and growth in the Community. It would put at risk our dominance if other countries furthered their political, economic and monetary integration and we stood as an island apart. We would be seen to be peripheral, away from the centre of gravity where commercial interests are determined.

This Government, under the courageous leadership of the Prime Minister, have done, as my noble friend the Leader of the House mentioned briefly earlier this afternoon, so much to reverse the decline of this country. I hope that they will have the confidence, which they are entitled to have, to take and keep our rightful place in the mainstream of Community decisions.

I shall end with one final thought which I hope is wholly non-contentious. It is undoubtedly right, whether or not we agreed with the idea, that membership of the ERM, and further progress towards monetary union, will limit the scope for us to seek to influence individually our own monetary policy. We shall lose the ability to seek to secure competitiveness by financial adjustments in the future. That will throw us back even more on fundamentals. It will mean that education, training, investment, productivity and infrastructure will provide the essential long-term keys to competitiveness. The extent of our commitment to these basic qualities in our society will be the touchstone of our future success I believe that that is healthy, but it is also a mighty challenge to all of us.

Viscount Massereene and Ferrard

My Lords, before my noble friend sits down, I should like to ask him a question. I am a sheep farmer in England and Scotland. Now that the price of lamb is half what it has been, can he tell me why it is that butchers are charging exactly the same price for it as they did last year, bearing in mind the fact that it was actually more expensive at that time?

Lord Alexander of Weedon

My Lords, the House will not be surprised to know that I cannot answer my noble friend's question. However, I very much look forward to being present in the Chamber when he puts forward such a question for answering at Question Time.

7.48 p.m.

Lord McCarthy

My Lords, it is a pleasure to begin my speech by congratulating my noble friend Lady Castle on what I suppose is technically a maiden speech. I would have said more about that, but it appears that the lady has vanished and therefore it is perhaps better left unsaid until the next time we meet.

In supporting this amendment, which was especially well argued by my noble friends Lord Williams and Lord Callaghan, I do not wish to follow the general line of the debate. That is what people usually say when they want to change the subject. However, that is not quite the case. I wish to focus upon part of the area covered by my noble friends Lord Callaghan, Lord Dormand and Lord Bruce of Donington; but not, I am afraid, that covered by the noble Lord the Leader of the House or by any government speaker. In some ways that is remarkable, but it is also perhaps healthy.

Recent speeches made by Ministers in another place—namely, the Secretary of State for Employment, Mr. Howard, in a speech which he gave to the Institute of Personnel Management, and the Chancellor of the Exchequer in a contribution he made to the recent meeting of NEDO—have focused on the need to solve the Government's problems and the problems of the economy by reducing the level of wage settlements. Several Ministers, especially those two, have said that what we need to solve the difficulties which Members of the House have discussed this evening, to stop the increase in unemployment, to reduce the increase in prices and to regain competitiveness is not real wage improvement but real wage decline. In other words, we now need a period during which the level of wage settlements is significantly below the level of price increases, especially the level of increases in historical prices in the RPI.

I have four questions. My first question is: is that economic policy? Although it has been mentioned by the Ministers to whom I have referred, it has not been mentioned in the House tonight. Do the Government believe that an essential part of our economic recovery, even of our economic survival, is that we should now move through a period of negative real wage growth; that is, a period in which wage increases fall below the level of price increases? If the Government are saying that, a number of further questions follow.

If they are saying that, why is there so little evidence that the difficulties we are in—the deficit in the balance of payments, inflation, high interest rates and the recession—have been caused by undue real wage advances? There is no evidence for that. Between 1982 and 1989 earnings in this country were remarkably, and most unusually, stable. The increases were between 7 per cent. and 9 per cent. Over those years, the average was 7.9 per cent. Prices moved up and down for various reasons and in some years produced a real wage improvement and in other years did not, producing a real wage advance over the period 1982–89 of something like 2 per cent. a year.

The Government won two elections, partly by pointing to that real wage advance. They contrasted it to the detriment of the previous Labour Government, and said that of course during much of the period of that Labour Government there was no real wage advance. If noble Lords remember, in those days that was part of the Prime Minister's economic miracle. It may now be Sir Geoffrey Howe's economic miracle or Mr. Lawson's economic miracle. Mr. Heseltine may claim that it was his economic miracle, but a miracle it was. The problem is that that miracle—that modest but sustained increase of 2 per cent. or 3 per cent. in real wages in that period—went wrong. It went wrong in particular after 1986; after the long period of devaluation; after the Government's own goals on poll tax; after the election boom; after the RPI began to rise. It rose between 1986 and 1990 by 66 per cent. That is what eroded the real wage advance.

The annual rate of increase in the RPI between 1986 and 1990 rose by 66 per cent., but earnings increased by only about half that rate—31 per cent. Annual earnings were remarkably laggardly in following the upward movement in prices, as a result of which between 1986 and 1990 the whole of the previous real wage advance was wiped out. This year the figures suggest that we shall have negative real wage growth: an increase of about 10.2 per cent. in annual earnings and 11 per cent. or more in the level of prices, and so a period of negative real wage growth after a period of remarkable stability in earnings.

Lord Monson

My Lords, I am sorry to interrupt the noble Lord, but he claimed that the RPI increased by 66 per cent. between 1986 and 1990. If he checks the figures I believe he will find that he is incorrect, because as far as I am aware the RPI has increased by 60 per cent. since 1982.

Lord McCarthy

My Lords, I do not think that the noble Lord is right. The point I am making (and I think he will find that I am correct) is that the RPI has increased considerably more than the increase in earnings. That is the essential point, and so any advance in real earnings over the past decade has now been wiped out. I do not believe that the noble Lord will challenge the fact that we now have negative real wage growth.

That brings me to my third question: if the Government are still committed to real wage decline —if that is the Government's policy despite the fact that it has not been mentioned this evening—how much real wage decline do we need and how long must it go on? When Mr. Lawson was Chancellor of the Exchequer he was committed to the notion that there were all kinds of advantageous consequences if one could only get down the level of real wages. He produced a document entitled, The relationship between employment and wages: empirical evidence for the United Kingdom, published by the Treasury in 1986. That document was much disputed at the time, especially by those who were said to have contributed to its conclusions and who said that it suggested a much more positive relationship between the level of wages and the level of employment. Nevertheless, we can take that publication as some kind of index of what the Government believe that they might achieve by negative real wage growth.

"Lawson's law" suggests that a 1 per cent. reduction in real wages produces another 165,000 jobs. In other words, a 3 per cent. reduction in real wages cuts unemployment by about 500,000, or about 2 per cent. My question therefore is: is that the Government's policy? Do they accept that relationship? Do they still accept Lawson's law? Do they believe that to cure the problem of rising unemployment and to knock something like 500,000 off the figures we should now see a reduction in real wages of about 3 per cent.? If that is the Government's policy, how long would it need to continue to produce that result?

Is that policy practical? In that respect, we can look back to the few occasions when we have managed to reduce real wages. It is unusual to reduce real wages. After all, if real wages did not rise people would never be better off. If real wages did not rise we would still have the standard of living that they had in Dicken's day. The main way in which working people raise their standard of living is by obtaining wages which are slightly ahead of prices. It happens in all countries virtually all the time. Nevertheless, since the 'sixties we have managed to drive down the level of wages below the level of prices one year in six.

The problem is that except on one or two occasions that has been followed by a compensating rise in real wages in the following year, or the one after, which has largely wiped out that position. The only two occasions that I can see when we can argue that there has been a more or less lasting (not permanent) reduction in real wages is in 1981–82 when the unemployment rate rose by about 10 per cent. to 12.1 per cent. and there was a small reduction in real wages. So my next question is: is that what the Government foresee —a return to the unemployment levels of 1981–82? Is that how we will drive down real wages? If so, we cannot say that we are doing it to increase employment.

Secondly, there was the much despised period of 1975, 1976 and 1977, with the concordat with the TUC, when as a result of an incomes policy which I am bound to say in retrospect was much too ambitious and tough the Labour Government got the RPI down from about 24 per cent. to about 7.8 per cent. in three years. Is that the model? Perhaps not under this Prime Minister but the next, will the Government launch a wages policy? History would suggest that there are only two models to get real wages down: mass unemployment or an incomes policy.

I do not suggest, and I hope that noble Lords will not think that I do, that there is no relationship at all between real wage growth and economic activity and prosperity. I do not suggest that it never matters to the economy how far real wages move ahead. Indeed, if we look at some of the countries whose economies have been praised in the debate this evening—Germany and Japan—we see that the notion of sustainable real wage growth is an essential part of their economic success. It is understood in those economies that there must be something like a rate each year, depending on circumstances, in which real wages can advance. If real wages systematically attempt to advance beyond that sustainable rate, various things must happen which the economy will not like and which would probably bring real wages down.

We have had something like that in the past. There have been periods when it was reasonable to argue that the rate of real wage improvement was a problem. In the 1960s there was undue escalation in real wage growth in the upswing of the cycle. That upswing produced all kinds of shortages in the labour market which the noble Lord, Lord Bruce of Donington, has mentioned. This fed further wage increases. We thought that the answer was incomes policy. I do not believe that it is. The answer is on the supply side. The answer is training, to try to meet the shortage of skills before the upswing.

There are occasions—and there was one in the 1970s—when, as a result of some external factor (in that case a deterioration in the terms of trade), there needs to be a reduction in real wage growth. If the external factor is sufficiently severe, there may even need to be not a reduction in real wage growth but a period of negative real wage growth. That is what we tried to achieve in the 1970s with the incomes policy. As a result of the two oil shocks we suffered a traumatic deterioration in the terms of trade which necessitated a reduction in real wages. We tried to bring it about by the incomes policy. The Labour Government did so. They were so successful that in one year they reduced real wages by 7 per cent. and the next year they ran away.

I do not suggest that there are no circumstances in which Teal wage growth is a problem. There are two ways of solving it. One way is the way of the Left which has been mentioned in this debate. It is to try to have some kind of round table economic assessment with a new bargaining agenda and some way of bringing the parties to the bargaining process to discuss the state of the economy and to try to arrive at an understanding of sustainable real wage growth. Presumably that is not obvious or available at the moment.

However one action can be taken. I wish to end by suggesting this to the Government: they must stop trying to talk out and rubbish the historical notion of the RPI as a measure of the justice or adequacy of a wage settlement, in favour of what they now use—the forecast rate of the RPI. They must recognise that they have failed to predict the RPI for three years. I have looked at the economic surveys and it seems to me as though since 1980 the Government have forecast the RPI too low on five occasions; too high on one occasion and just right on five occasions.

The difficulty is that the times when they forecast too low include the past three years. That has devalued the notion of forecasting the RPI. Again, I calculate that in the past three years the actual increase in the RPI has been 25 per cent. in the period during which the forecast increase was 14 per cent. Thus the postulations of the RPI have been more than 50 per cent. out. That is why the Government must go for the historical RPI. It is the only figure that makes sense to working people. If the RPI continues to go up and down from year to year, as it has in the past, then it all comes out in the wash. If we try to relate wages to historical prices and they fall next year, we are better off. If they rise next year, we are worse off. It all comes out in the wash.

If the Government are right and the RPI is now heading steadily downwards, never to rise again, to the 0 per cent. in which Mr. Lawson used to believe, then we can afford it. If we have a declining RPI which will not rise in the foreseeable future, we can afford real wage growth. If, as I suspect and as many speakers on this side have said, the forecast of a 5 per cent. RPI by the end of next year is hopelessly optimistic, then it is a good thing that we should not seek to link pay settlements to it.

I believe that even this Government could get somewhere near common sense if they would say, for example, in the public sector and certainly generally that a historical measure of the RPI is the best way to talk sense about wage settlements. There may be companies that cannot afford the RPI. They have to say to their employees that this year the RPI means bankruptcy. That makes sense. Other companies will say to their employees, "We can only just afford the RPI. If you want more than that there must be a contribution, some productivity, some improvement". At least in those circumstances we have a base of sense on which to talk.

In the meantime and in any case, I reiterate my questions. Do the Government consider that declining real wage growth is a key to recovery? If so, for how long? How much? How do they believe it would affect unemployment? Why not accept the case for a historical RPI?

8.7 p.m.

Lord Briginshaw

My Lords, I rise to support the amendment proposed by the noble Lord, Lord Williams, and congratulate him on his presentation. I should like also to make one or two brief remarks in response to Her Majesty's Government's proposals for the coming Session. I wish to talk about three subjects which, for our purposes, can be called: the big problem; the big question and the big idea.

What is the big problem? It is that this Government have, after 10 years in office, utterly and miserably failed to place the nation's economy on an internationally competitive footing. How has this come about? The answer is depressingly simple. The Government have sacrificed, are sacrificing, and plan to continue to sacrifice, our manufacturing industries and capacity in favour of what can only be described as speculative and short-term economic arrangements.

We need look no further than the square mile for the evidence. The City's verdict on the ill-timed entry into the European exchange rate mechanism makes plain the Government's failures. The exchange rate mechanism was not designed as a panacea. Its stability is only valuable as a background to proper economic management. It is a facility rather than an answer to the problem. Its likely short-term effects make this abundantly clear.

It is possible, though far from certain, that come the spring there will be a temporary revival in the southern British economy based on an easing of interest rates. The property sector may recover enough to enable those who are clever enough to do so to take their money and run. The aim, of course, is to shore up the crumbling walls of the so-called Tory heartlands. Interest rates, however, can only ease if the pound remains at its current high level. This is not good news for our manufacturing industries, still based largely in the Midlands and the North, as they need a lower pound to compete in the international market place. By entering the exchange rate mechanism with this high pound, the Government have ensured that manufacturing industry will suffer in the coming year. They have once again sacrificed a prospect of sustainable growth for political rather than economic gain. We admire the Germans and the Japanese. However, they are not sacrificing their manufacturing sectors. They encourage them at all costs. We should do likewise. However, there is no such encouragement outlined in the Government's plans for the new Session.

What, then, is the big question that I referred to? It is the question of who will manufacture and sell the goods to satisfy the vast market that is unfolding to the east of Germany. It looks at this moment as if the American/German axis will supply the mechanics of the answer to what has been the most important question to face Europeans this century. A conclusion that denies British interests is not however inevitable. The expansion of potential and existing trade eastwards will take up much of the next four decades. If, in the short term, manufacturing industry is given the support it deserves and in the long term proper investment in education and technology is made, we can still participate in the prosperity that we would otherwise miss.

Finally I turn to the big idea that I referred to. My party espouses this idea of education. A skilled and educated workforce is the greatest form of long-term encouragement to manufacturers who seek to compete with the Germans and the Japanese. Patchwork measures such as a few city technology colleges do not qualify as encouragement in the real world. What is needed is billions more pounds than the sums currently proposed to be spent on creating a modern and technologically advanced educational infrastructure. It is all very simple. Better education means greater manufacturing strength.

8.3 p.m.

Lord Boardman

My Lords, I join other speakers in congratulating the noble Baroness, Lady Castle of Blackburn, on her maiden speech. I do so with particular pleasure because I made my maiden speech in another place on an occasion when the noble Baroness was on the Front Bench conducting a transport Bill through that House. I am afraid that I made far less impact upon her and upon the House on that occasion than she made upon me and upon this House on the occasion of her maiden speech today.

The topical issue today is the amendment which has been moved by the noble Lord, Lord Jenkins of Hillhead. However, before I discuss that, I must refer to the amendment moved by the noble Lord, Lord Williams of Elvel. All kinds of statistics have been bandied across the Floor of the House. I do not propose to do likewise. I noticed that the noble Lord, Lord Callaghan, perhaps drawing inspiration from what the noble Lord, Lord Donoughue, said, drew his figures from a date which happened to be particularly convenient for him. We are now in a period where the economic position is less favourable than it has been in the past.

I shall sum up the present economic position by saying that we have had 11 years of ever-increasing prosperity. Rising standards of living have occurred in that period. The noble Lord, Lord Peston, shakes his head, but he can argue with me when he has the opportunity to speak. There has been rising prosperity and rising standards of living for young and old alike across the board. The noble Lord will no doubt try to refute that but I hope he will choose his statistics less selectively than has been the case in some speeches today.

As I have said, the economic position today is less favourable than it has been in the past. We are going through a difficult period. We are going through what I believe was referred to earlier this afternoon as a technical recession. However, that phenomenon is very different from the kind of depression which previous generations experienced when the economy of this country suffered from bad political management.

I believe that the main cause of our present downturn, if it is a downturn, was mentioned by the noble Lord, Lord Williams of Elvel. There is no doubt that overgenerous credit has been granted worldwide in previous years. Today this has resulted in a worldwide credit squeeze. That applies across the board. The Opposition cannot deny that. When I was a banker I was constantly criticised for the banks having failed to provide the money needed to enable expansion and growth to take place. Now my successors are criticised by the very same people for making improvident loans which are causing problems as regards repayment.

As I have said, there is now a worldwide credit squeeze. That is having, and will have, an adverse effect upon world trade for some time to come. The United States of America, Japan and Europe are all suffering from similar symptoms. This situation may well last throughout the year ahead. Britain has now entered the exchange rate mechanism. That is imposing, and is intended to impose, a severe discipline upon us. Your Lordships will recall that that step was necessary as the value of sterling had fallen by an average of 5 per cent. per annum against the deutschmark since 1970. Therefore United Kingdom exporters were able to retain their markets while increasing wages to a higher level than those of Continental firms. However, the exchange rate mechanism will mean that such a process will no longer be possible.

Increases in wages must now be in line with those of our major competitors in Europe or else we will suffer a heavy loss of jobs. I hope that noble Lords opposite, including the noble Lord, Lord McCarthy, who has now left us, will wish to press for salary and wage restraint in line with that in the Community. That is a strong medicine and in the short term it will he quite painful and not entirely pleasant. However, I believe it is right. The noble Lord, Lord Callaghan, referred to the point at which we entered the exchange rate mechanism. He asked whether the figure of 2.95 deutschmarks was correct. I do not know whether that figure was right. It was a difficult decision which had to be taken. However, on balance, I support the Chancellor in fixing the rate at that point.

There is one area of the economy which causes me exceptional concern; that is, agriculture. My noble friend Lord Alexander of Weedon referred to this matter earlier. I do not wish to start a discussion on agriculture but I must voice my concern. I believe agriculture is the most important industry in this country and it is getting a raw deal both from the Community and beyond. There are signs of major bankruptcies occurring. My noble friend Lord Young of Graffham referred earlier today to transatlantic telephone calls. He gave an example of where competition had brought down the price of transatlantic calls. He appeared to challenge any other industry to match that achievement. However, agriculture is suffering from prices which in real terms are far below those which existed even before the war. I believe the consequences of that are somewhat alarming. I do not expect my noble friend to deal with this matter today, but it is an area which demands special attention. I should declare an interest because I have a small involvement in a farming business.

I turn now to the amendment standing in the name of the noble Lord, Lord Jenkins of Hillhead. I recognise that we shall have an opportunity to debate the Select Committee report in a few days' time and that perhaps it would be more appropriate to save most of my remarks for that occasion. However, one cannot avoid mentioning the single currency in an economic debate because it is such an important factor in our economic planning for the years ahead.

I hope that I am a good European. I have consistently supported measures aimed at producing a wider and fairer Europe. I see the attraction of a single currency, but I also see some of the problems. It must inevitably mean a European central bank with authority over many matters which are at present under the control of individual nations. It must mean control of our monetary policies, control of interest rates and the pooling of reserves of gold and foreign currencies. Those are major decisions. It is also conceded by all the advocates of a single currency that it must mean a degree of political union. At the same time it must be free of political control.

The Bundesbank is often quoted as an example of the type of central bank that Europe should have. I question, however, whether it has the degree of independence that some advocates claim for it. Dr. Pöhl himself, when giving evidence earlier this year to a select committee, said that Parliament could change Bundesbank law with a one-vote majority. That is not complete political independence. We all know that when a very important decision had to be made on the basis on which the deutschmark and the ostmark would merge the decision was more that of Chancellor Kohl than of Dr. Karl Otto Pöhl.

If there is to be a European central bank I question how it would be created and democratically controlled. Earlier the noble Lord, Lord Moran, referred to an article in The Times today which mentioned the draft statutes which had been agreed, but not published, by the central bank governors and apparently claimed that a European central bank must be independent. I understand that. So too must all the national central banks, which again I accept would be a logical consequence. The draft statutes also state that the governing council should be appointed by the Council of Ministers. Its members should have long tenures and should not he subject to recall or replacement by national governments or the European Parliament. I ask, therefore, how democratic control is to be exercised. I wonder how many of the other 11 members of the Community would be prepared to leave their economies to be ruled by such an undemocratic process. Of course I see the attraction of a single currency to tourists, exporters and, largely, to the City.

Tonight is not the time to deal with questions of regional policy. That is a matter which I hope can be debated when we debate the report some time next week.

Finally, it would be ironic if Europe were to move towards a federation or confederation, or whatever name is given to it, because the pooling of our resources into a European central bank with political and monetary union must move in that direction, while at the same time the other major economies were delegating such authority to their constituent parts, such as in the USSR. Those are matters which need consideration. I have no concluded view. I am not trying to be an advocate for or against, but I believe that the proposals need much more thought, not just by us but by the other countries involved in the operation. I hope that that consideration will be given before any decisions are made.

8.25 p.m.

Lord Mulley

My Lords, the House always listens with great respect to the noble Lord in view of his wide experience and the well-informed contributions that he makes to our debates. However, I fear that on a number of the points I cannot agree with him. I agree entirely however that the position in Europe is central to the whole of our economy.

I had thought of making a comparison and taking Shakespeare's words that a rose by any other name would smell as sweet and saying in reverse that a recession by any other name is equally unpleasant and disastrous. I cannot possibly agree with the noble Lord, Lord Boardman, that we are now in the midst of a technical recession. That is a new term. My noble friends have already documented the extent to which the economy is on an uncontrolled downward trend. I would go so far as to say that we are back to the dreaded stop-go method of controlling the economy which was the nightmare of successive governments in the 1960s and 1970s. One stopped when there were desperate balance of payments problems and then boosted the economy in the month before one expected to have a general election. That, at least, was the policy of successive Conservative governments. It is very likely that that is what is happening now.

We all thought that once we had the God-given gift of North Sea oil the position would change and we would never have the problems suffered by the governments of which I had the privilege to be a member under the noble Lords, Lord Wilson and Lord Callaghan, of facing the IMF simply because of the lack of exports to sustain necessary imports. It was widely believed that the 1979 election was a particularly good election to win because the new government would have the benefit of the flow of oil. I venture to say that if anyone in your Lordships' House had suggested at that time that the deficit on the balance of payments, which was £1 billion, would amount to £15 billion in 1990 it would have been widely thought that there was a second reason why that noble Lord should not have a vote in parliamentary elections.

In the same way, I believe that anyone who years ago had predicted the present dramatic changes in Eastern Europe would have found little support. We discussed such questions in detail yesterday but they have a bearing on our economic circumstances. I confess that I am anxious about the position of President Gorbachev, without whose immense influence the transformation in Eastern Europe could not have happened. I cannot understand why we do not raid the larders of the Community and get rid of the stocks of meat, milk, cheese and even the wine lake and send them out there. President Gorbachev does not need lectures on capitalist economics or how to run a market economy to sustain him. He needs something to put on the shelves for the consumers. It is widely understood that living standards in his country are a great deal lower today than when he first came to power. I should have thought that what I propose, together with assistance from our friends in the United States and Canada who must have plenty of grain which they could contribute, would make the transformation which is essential for stability in Europe.

I want particularly to talk about our relations with Europe and what, I believe, sadly, is a history of lost opportunities. Until we can assess the situation with our European friends we need to face up to what place and role we have in the world—something that we have never done. There are still those who think that we are a great power; we are not. In my view, we cannot be a great power. As my noble friend Lord Williams pointed out in moving his amendment, in what I thought was an extremely able and persuasive way, our standard of living was certainly higher (with the possible exception of neutral Sweden and Luxembourg, based on the steel industry) than anyone else's in Europe in 1945 and in 1957 when the Common Market started. Now, except for southern Italy, of the original Six we are well behind. In my view we have not faced up to the circumstances of a changing world.

In a sense, I think one can compare our problem with that of Austria which in 1919 found itself to be a very small state, having had an enormous empire. Austria had a bad time over the years, ending up, as one knows, with the Anschluss to Nazi Germany. They faced up to the situation, and Austria is now a very prosperous country.

I feel it is probable that in our relations with our European friends we have lost 45 years. My own views about European union were shaped by that great European, Jean Monnet. I had the privilege of visiting him when he had just become president of the Coal and Steel Community. After dinner in a long conversation, fortified, I confess, by some excellent brandy from his family firm, he persuaded me of the essential role that we all had to play in Europe. He said that as a Frenchman he believed France had a contribution to make to the world and could not make it alone. That was why he felt that France had to work in conjunction with European allies. As an Englishman, I believe we have a contribution to make. I also believe we cannot do it alone. That is why we should use the Community to pursue the ends that all of us wish to achieve.

I accept that since we were offered the leadership of Europe at the end of the war and turned it down, it could be alleged that the Labour Government of the late Clement Attlee and Ernest Bevin were mistaken in not joining the Coal and Steel Community in 1951. But I think they had already done a tremendous job in harassing, or rather harnessing, the United States to Europe (with a little bit of harassment as well) through the Marshall Plan and the Treaty of Brussels which led to NATO. I think their contribution was enormous and will be duly recognised by history. But in those circumstances one can understand that they tended to have a transatlantic rather than a European view. I am bound to say that many thought that the idea of a supra-national authority was a totally alien concept. I recall people flicking their fingers through the index of Erskine May and not finding any reference to it at all. That was one opportunity lost.

There were great expectations in Europe when the 1951 Government came to power because that great man, Winston Churchill, had raised many expectations in Europe with his speech at The Hague, his great oratory at the foundation of the Council of Europe, and his proposal that there should be a European army. There was great disappointment in Europe when it was found that he followed the same foreign policy as his predecessors.

It is worth reflecting that the reason that the concept of a European army failed was because France was not prepared to join together with Germany without us. That is in stark contrast to the recent history of the Community when we have all been a little concerned about the dominance of the Franco-German alliance. It was possible for German re-armament to take place only when, in the modified Treaty of Brussels, we committed ourselves, uniquely within NATO, to a 55,000-troop commitment and a tactical air force commitment on the Continent. In the contributions that we have made to NATO we have stretched our resources rather more than we should. The fact is that we missed all those opportunities. I was not surprised when Paul-Henri Spaak told me that it was his intention next time not to get just some commodities into a European framework; but they were going to have something which would control the whole of the economies. That led to the conference at Messina which led to the Treaty of Rome. For reasons that I have never understood, we were not represented, even by an observer, at the Messina Conference. We lost a great deal as a result. I am quite certain that things would have been very different had we been there. People sometimes talk nonsense when referring to sovereignty; it is quite ridiculous because every time one signs a treaty one does it in good faith; one is giving up a certain amount of one's sovereignty. In a rather important area, the British Parliament has given de facto if not de jure sovereignty to the Falkland Islands—to what I should imagine amounts to a rather small parish council—by giving them a veto over our affairs with the Argentine. In this day and age in no way can it be accepted that one can be totally in charge of all one's affairs.

Although belated, I welcome, as did the noble Lord, Lord Boardman, our membership of the ERM. Unlike him, I think that we have gone in at the wrong time, at the wrong parity and for the wrong reasons. I have never been taken with the idea that sterling is something sacred; I believe it is so only in politicians' speeches, not in any other real sense. One understands that when one runs at a very adverse balance of payments deficit, to have a lower rate of sterling against the mark and other currencies is in the short run an immense problem. It increases the attraction of imports and probably makes it more difficult to get a quick balance. But in the long run it is the only way to reach a solution; namely, more exports and fewer imports. I have never been persuaded that we should allow sterling to dictate our economic policy.

Equally, I believe that a great deal of nonsense has been talked about the importance of a high rate of interest in order to bring down inflation. While I was very much in agreement with the noble Lord, Lord Boyd-Carpenter, who stressed the importance of indirect taxes in pushing up the inflation rate, for many people their increased poll tax is rather more serious than marginal increases in VAT.

Let us face it. The real reason that the rate of interest came down, and why we joined the ERM to obtain some stability for sterling, was because it was widely reckoned that with the likely loss of capital through the decline in the value of the pound because of our declining economy, we should not be able to borrow the necessary money to bridge the deficit between our exports and imports. That is the main reason why a fall—in my view a too small fall—in the interest rate occurred. However, whatever happens down the corridor was put into perspective by a French journalist. This morning on the BBC, when asked his view about whether or not there would be an election within the Conservative Party, he said, "It will not make front page news in France. We have far more serious issues to consider. We have a students' strike at the moment." It is probably salutary to consider matters in that context.

We must avoid some of the mistakes that we have made in the past, very largely from a lack of understanding. We have not accepted as right some of the different procedures—in parliament and in government—that our Continental friends adopt. However, we should avoid the arrogance of saying that our way is the only way and necessarily the best. We would do better to listen more, to learn, and to preach rather less.

The preamble of the Treaty of Rome is in very eloquent prose. It states the virtues—and I believe in many of them—of a collective Europe and its contribution to world peace and prosperity. Among the annexes and protocols one finds, for example, that there had to be special arrangements for Luxembourg agriculture. I did not realise that in the 1950s this was one of its problems. I thought it was prosperous as a result of the Arbed steelworks. We also find a special arrangement to import an extra quota of bananas to Germany. We find special arrangements for imports of unroasted coffee beans to Italy and the Netherlands. In a sentence, one has to speak the language of the preamble and look after one's national interest, as in the spirit of the annexes.

My experience in Europe is that if one is thought not to be looking after one's own national interest, there is something extremely suspicious about one. I worry every time the right honourable lady the Prime Minister embarrasses 11 colleagues by banging the table and saying that her job is to look after our national interests. What does she consider that the other 11 are engaged upon in that gathering? I suggest that the difference is that many of them look after their national interests rather more effectively and efficiently than we have managed to look after our own.

Finally, I know that it is the greatest crime in politics to be right if one's party is wrong. If one is wrong and the party is right one can be forgiven. But if it is the other way round, one is never forgiven. However, in the interests of Europe and of our own national interests, I believe that many more people in all parties ought now to take that risk.

8.45 p.m.

Baroness Seear

My Lords, first I should like to join with others who have congratulated the noble Baroness, Lady Castle (elusive though she may be) on her very powerful maiden speech. It was a remarkable speech. To have achieved triple maidenhood must be a near miracle. In addition, I should like to say how grateful I am, as another woman, to the noble Baroness for all that she has achieved in her career on behalf of women. It will not surprise noble Lords that I frankly do not agree with a great deal of what the noble Baroness says or does. However, I very much agree with the work that she has undertaken in that area. She and Margaret Thatcher—and I recognise that they are not always coupled together—must forever have killed the myth that women do not have the stamina, the toughness, the determination, or even the sheer downright beastliness when required, to play the game of politics and to play it very successfully.

Looking back over the past 20 years, I am also extremely grateful to her for the initiative that she took to get the equal pay legislation on to the statute books. No doubt she had to fight not only opponents on the other side of the House, but opponents inside her own party. I was never privy to those debates but it would surprise me very much if she had not encountered considerable difficulties on both sides of the House. However, the determination that we saw this afternoon carried it through. Ahead of what was being done in other countries in the Community, it was the start of the improvement of the position of women which was of the greatest importance and which we undoubtedly owe to her.

Listening to the speech of the noble Lord, Lord Williams—it now seems a long time ago—I felt that one had to have a very short memory if one were to accept the argument implicit in everything he said: that the Labour Party is the party of financial responsibility, efficiency in government, and clear economic vision; and that its economic policies had brought success to this country, and would do so again.

In my pocket I have a little chart. It shows the decline of the UK share in world markets in manufacturing. It is a steady downward trend through both governments with very few upward blips. It is a decline in both volume and in value. When the noble Lord spoke of the failure of the Government to control inflation, I cannot but remember the days when, for example, the noble Lord, Lord Shepherd—sitting where the noble Lord, Lord Belstead, now sits—stated in a debate in 1975 that the country looked over the abyss of appallingly high inflation and then drew back.

Nor can I forget the heavy overmanning that characterised industry during the days when Labour was in power. They were unable to tackle it because of their subservience to the trade unions. I know that the noble Lord, Lord Bruce, wishes to take me by the throat, but I do not propose to give way at this time of night. Nor do I forget the inadequacy of the Labour Government's contribution to training and to education. It is our greatest disaster that we are woefully behind our competitors in Europe and in the Asian countries in good training. However, that did not start with the Conservative Government. The Labour Government had been in office long enough in order to have had an opportunity to put that right, and that they failed to do. There is great joy in Heaven over the one sinner that repenteth, and I am almost prepared to believe that the Labour Front Bench here has repented. We may or may not have the opportunity to see whether they can put their new determination into practice.

That being so, on the Government's performance, which is what we have been discussing today, I would say that in the early days of the Conservative Government they did a number of things that very greatly needed doing. They took on the issue of the trade unions. That needed to be done. I remember canvassing in 1970 in my last totally unsuccessful attempt to get into another place and being told in Labour neighbourhoods, "We are Labour here, of course; but what are you going to do about the unions?"

I believe that today the Conservative Government have gone too far in their attack on unions; and you cannot run an industrial country without some trade unions. However, the unions were completely out of hand before, and the reforms that were brought in were necessary. Also necessary was a very great deal of the de-manning inside industry. Industry needed to be made a great deal more efficient. Those of us who studied these things at the time know perfectly well the comparative studies which were done inside companies then using the same machinery and making the same products in different countries. They proved again and again the low level of our productivity in relation to the productivity of factories in other countries. The noble Lord, Lord McCarthy, talked about levels of pay. I was very interested because at no point did he talk about the relevance of levels of productivity in relation to levels of pay. He talked only about the RPI in relation to levels of pay. But surely both must be taken into account if you do not want inflationary pay settlements of one kind or another. I agree that excessive payment to top managers has been unwise and has given an extremely bad example.

However, just to get the record straight, I should like to say that while the increases to the very top people have been outrageous in many cases, the average level of pay to our managers in this country is low in comparison with their competitors elsewhere. That may in fact have something to do with our poor performance. But it is by no means as simple an issue as has been represented by some speakers today here and elsewhere. There were therefore some very big improvements, and getting into people's heads the value of the market—something which we have heard very little about—and the importance of competition have been genuine gains.

Having said that, things have gone pretty badly wrong since; and I think there is a bigger failure on the part of the Government. I should like to spend a little time on that aspect. I believe that the years 1989, 1990 and 1991 will be seen in the future as historic years of major dramatic changes in the world, politically and economically. We are moving into a global economy. The changes are of a very great order of scale and importance and I do not believe that this Government have framed strategies on a long-term basis to deal with the totally new order of challenge with which we are being presented at the present time.

I should like to give one or two examples, but before doing so I should like to give the Government up-to-date credit for one thing, and here I echo the noble Lord, Lord Alexander. I am very glad that they are fighting for the Uruguay round. Strong European though I am, I am ashamed that we are holding up the settlement of the Uruguay round because of differences in farming policies inside Europe; and the Government are right to be fighting this battle. However, as I said a moment ago, they have not prepared adequately either themselves or the country for the scale of change with which we are being confronted.

The scale of change is global. I have just mentioned the Uruguay round, and part of that change involves our attitude towards developing countries: our trade with them, our policies towards them, our debt policies and our policies in relation to population. These all form part of the problems of the economy and tonight does not give us time to spend on them. However, I would remind your Lordships that in this great global change that is going on we are facing a doubling of world population between now and the year 2025. That is a figure which dwarfs almost all other figures in importance economically, politically and socially. Any policy dealing with the change that is going on in the world as a whole must be a policy to deal with the problems of developing countries.

Not least of those problems is the poverty of those countries; so there is management of debt, there is trade and, used judiciously, aid. There are opportunities for training there. The need is of the highest order and we have heard very little about it. There is very little, if anything at all, in the gracious Speech about what attitude we are going to take towards that whole segment of the world, which is important not only in its own right but important to our trading position in the future.

Then there is the problem of getting our competitiveness right in two major ways. We have talked about it so often before. Infrastructure is one element and making the most of the opportunities which will open up with the Channel Tunnel is another. How extraordinary it is that the money has gone into the Channel Tunnel but that we are failing to provide the necessary transport links so to make it possible to put goods on the train in Liverpool or Newcastle and take them off in Dusseldorf. Money invested to achieve that would pay off in a very short period of time in so many ways; in straight trade terms and in the alleviation of unemployment in various parts of the country. It is so short sighted. I think it is the short-sightedness of the Government for which they are most culpable. It is so short sighted not to see that money put into this now will pay dividends again, again and again in the years not very far ahead.

As to training and education, I have talked so often about this that perhaps the noble Lord, Lord McCarthy, might say it should be put to music because it is the same old song. But the fact remains that we are grossly behind and the tinkering that we are doing in those areas at the present time does not begin to meet what is needed. There will not be work for the semiskilled, and the unskilled in this country and in the highly industrialised countries of the world in the future, except for a very small number.

We should be looking in every possible place and seeking in every possible way to up-rate the levels of knowledge, skill and competence of all the people in this country, young and old. The sixteens to eighteens are very important indeed; but so are a great many people in the older age groups, who, because they never had training before they left school and left school only too willingly, have never really acquired any skills or competences. Much can be done if the resources are there to upgrade those skills. The prejudice against employing older people is keeping many women of a high level of potential out of the labour market where they are very badly needed. These are just some of the major schemes on a long-term basis which we urgently need to have developed if we are to meet the real problems of the future.

Again, another example which has already been referred to many times today concerning the lack of a long-term policy of the Government is their attitude towards Europe. Of course we went into the ERM at the wrong moment. We went in at the last possible moment and we should have been in five years ago. We were urging the Government from these Benches to enter five years ago, and they did not do that. Changes are taking place whether or not we want them. I shall not spend a lot of time on this matter this evening because we shall discuss that next week when we debate the report from the Select Committee. However, unless we are there to influence what is happening, we shall lose out extremely badly.

We should have been at Messina. Had we been there, the balance in favour of agricultural interests against industrial interests would not have taken place because we, as an industrial power, would have ganged up in our own interests, as the noble Lord, Lord Norrie, said—and why not?—in order to see that there was a proper balance between the industrial and agricultural interests. However, we were not there. Again and again we have not been there.

Of course, I believe in the single market, a single currency and a central bank as general ideas. Nobody yet knows what their shape will be. The important matter is to be in on the shaping so that it comes out in a form and in a way which is acceptable to us. As we have said before from these Benches, the Government should not continue to say "No, no" but should say, "Yes, but" and be there to argue the toss. It is very important to be there to argue the toss.

Here I disagree with much that was said by the noble Baroness, Lady Castle. As she is now here, perhaps I may say to her how much I enjoyed her maiden speech although she would not expect me to agree with all of it.

I do not believe that Brussels should be laying down in detail what should be done in social terms. There should be some social programmes to match the economic development. Without that, there will be no economic development. That is two sides of the same coin. However, the details of that should not be laid down by Brussels. The details of general principles, laid down in Brussels and agreed by the Council of Ministers in the parliament, should be worked out in the individual countries. That is what subsidiarity—a horrible word—is all about. However, we should be there to explain what is involved in subsidiarity and to insist that we get it right and that the right decisions are made in the right places.

On a previous occasion I believe that I quoted the words of Paul-Henri Spaak—a great socialist European. I make no apology for repeating those words because they are so apt to our circumstances today. Thirty years ago I heard Paul-Henri Spaak speaking in Chatham House, and he said, "At the end of the war you people in the United Kingdom could have done anything you wanted with Europe. We expected you, we waited for you, you did not come, so we went on alone". Are we going to do that again?

9.3 p.m.

Lord Peston

My Lords, most of the relevant topics have been covered. I hope therefore that I shall be forgiven if I concentrate on only a few themes. Of course, I begin by congratulating my noble friend Lady Castle on her maiden speech. I was particularly impressed by the balance of her exposition and by her objectivity. Perhaps I may echo the words of the noble Lord, Lord Walston. I cannot wait to hear her when she feels truly able to speak her mind.

I wish to deal with one remark made by the noble Lord, Lord Belstead, which was repeated by the noble Lord, Lord Boyd-Carpenter. The noble Lord, Lord Belstead, produced the standard cliché on wealth creation and the private sector. Is he saying that the purveyors of pornography in Soho are the wealth creators while the people in the medical profession who help the workforce to return to work are not? Is that what he means when he pushes the private sector against the public sector? Is he saying that the Sun newspaper, with its disgusting front page yesterday attacking his honourable friends, is an example of wealth creation while the teachers in our schools are not?

Both of those private sector activities are designed to make money. To my mind, or that of any reasonable person, that should not be called wealth. I believe that when noble Lords produce those clichés, they should reflect rather more on exactly what they are saying.

While I am criticising the noble Lord, Lord Boyd-Carpenter, I pursue the point made by my noble friend Lord Jay that the noble Lord should get his facts right. He referred to nine successive years of growth as being unprecedented in our economy. From 1959 onwards for 15 years there was continuous economic growth. Indeed, that was the heyday of Keynesianism and again that is something which he should not forget. Indeed, I believe that he was a Minister at that time and although it seems to me that he is currently anxious to go down with a sinking ship, he should not underestimate the contribution of his own government.

Lord Boyd-Carpenter

My Lords, while thanking the noble Lord for the compliment to the late Conservative administration, which is unusual from him, does he not realise that the long continued development under this Government is a complement and continuation of that? There is no conflict between the two ideas.

Lord Peston

My Lords, there is merely a conflict of fact. I believe that one should get one's facts right. He said that nine years is unprecedented, but 15 is a larger number than nine. Therefore, he is simply mistaken. That is the only point I am making.

While I am in this mood, perhaps I should make a similar comment to the noble Lord, Lord Boardman. He referred to 11 years of continuing prosperity. That number should be eight or perhaps nine because we do not yet have the figures for 1990. Noble Lords opposite seem to have a problem with 1981 and 1982. In both of those years output fell. Sigmund Freud may have understood their desire to repress those two years but it is somewhat beyond me.

Perhaps I may turn to the noble Lord, Lord Young of Graffham, who I cannot see in his place. When I was preparing for today's debate, I looked forward to hearing his speech. In particular I thought I should try to predict what he might say. In my personal life I am deeply conservative and absolutely hate change. The noble Lord, Lord Young of Graffham, did not let me down. He devoted the opening part of his speech to a personal attack on my noble friend Lord Williams of Elvel. He has been doing that for four years and much as I always seek to protect my noble friend, I was delighted that the noble Lord, Lord Young, did not feel able to change his standard pattern. However, he said something with which I agree. Indeed, the noble Lord, Lord Alexander of Weedon, said exactly the same thing. They emphasised the importance of the GATT round. It is vitally important that that should succeed. From reading newspaper reports many of us are extremely gloomy that the whole thing may collapse.

Curiously, the noble Lord, Lord Young, referred to the tariff barriers of the 1930s. I cannot help but reflect on the history of that time. It was essentially members of the Conservative Party who were the greatest exponents of tariff barriers in those days, aided and abetted by the Beaverbrook press. The great figure who encouraged us, when the war was coming to an end, to fight above everything else to move towards free trade was Maynard Keynes. Again, he was a figure much denigrated on those Benches. If one favours free trade arrangements and suitable monetary affairs one should recall the great contribution that Keynes made.

I turn to the remarks of the noble Lord, Lord Jenkins of Hillhead, who again does not seem to be in his place. I am not sure what is happening with his amendment; perhaps it has been withdrawn. We shall no doubt be told about that in a moment. I was surprised by some aspects of his comments. When I was a student I was taught, and still believe, that the essence of British parliamentary democracy is party government. I do not, and never would, apologise for being concerned with party unity. I make that point especially to noble Lords opposite as a non-party matter. Party unity is extremely important.

On the European issue I can say that I am in favour of the European Community. I regard those who take the opposite view as mistaken. I do not regard them as evil or as enemies. I simply disagree with them. Again addressing noble Lords opposite, as well as my own friends, I do not regard this great European question as a valid ground for leaving a party, let alone destroying a great political party.

I do not propose to say much more in this debate on the European Community or on EMU. I was a member of the committee chaired by the noble Lord, Lord Aldington. Its survey of the subject and analysis of the problems are first rate. In my view its conclusions are sensible, and your Lordships will be able to debate them in detail next week. I am not a Euro fanatic. If I may recycle an old joke, the only way I can retain my degree of pro-Europeanism is never to visit Brussels. Merely setting foot in the Berlemont converts me into a raging anti-European even more than one or two of my noble friends.

More seriously, realism requires us to recognise that we are permanently in the Community, and the only way to go is forward. I for one wish to see us lead that forward march in a sensible direction, not lagging behind like a recalcitrant child moaning and groaning and—to continue the simile—asking for a smack.

Perhaps I may refer briefly to a remark made by my noble friend Lord Donoughue which was of extreme importance. One or two noble Lords referred earlier to the reduction of the national debt and the government claim that that is some kind of achievement. Reducing the national debt simply involves a reduction in internal transfers from taxpayers to interest earners, and many of those are the same people. In discussing the cumulative balance of payments on current account deficit, the noble Lord, Lord Donoughue, put the figure at £50 billion but I would put it higher. He referred to that correctly as a reduction in the net assets of this country. That is what is so important and also so frightening.

Turning more generally to the balance of payments deficit, if there has been a supply side transformation, and if the rate of exchange was right—whatever that means—the deficit must be attributable to excess demand on a massive scale. But that excess demand is directly attributable to the Government's policies. All that can be said for the Government at the moment is that they are attempting to rectify, albeit belatedly, their own errors.

Unfortunately, matters are worse than that. We must ask what level of capacity utilisation and what level of unemployment the Government are aiming at. In particular, we must ask what they are aiming at which is compatible with a satisfactory balance of payments. The Chancellor of the Exchequer is careful not to tell us. However, we can infer from his pronouncements that it will he a long time before we return to anything like stability. The sustainable position for the real economy will continue to involve large-scale unemployment. In the Government's view, 5 per cent. to 6 per cent. unemployment is the best we can do even in the long term.

Finally on this point, to reiterate what my noble friend Lord Williams said, the Government's position implies that what is called core or underlying inflation will be permanently stuck at around 5 per cent. Per annum, which means that the value of money is halved every nine years. As my noble friend Lord Callaghan and others said, that really means that improvements on the supply side have been on an altogether smaller scale than the Government claim. Our manufacturing base is far too small. Without active policies involving more research and development and much more training we cannot reach a viable position. Apropos the Autumn Statement, it is disgraceful that in these circumstances the training programme is being cut back, that research and development is not given a central position and is not being strongly enhanced.

As for the rate of exchange, the silence on this matter is disturbing. I understand the anti-inflationary benefits of a high nominal value for the currency. However, that only works if those who set incomes and prices act rationally and rapidly. But what are the Government doing to encourage that? They are pursuing a covert incomes policy in the public sector. Clearly again from the Autumn Statement the Government expect workers in the public services to suffer real wage cuts in the coming year. That is so, even though no one is arguing that the cause of our troubles is excessive real wages in the public sector.

The Government offer pathetic exhortations to the private sector which in my view are echoed by even more pathetic remarks from the leadership of the CBI. Both the Government and the CBI were silly, as my noble friends have said, to reject the initiative offered by enlightened union leaders at the recent NEDC meeting. I should like to add, while on the theme of the CBI, that it looked as though the CBI had learnt that its role was not to be a slavish devotee of this Government. After all, the recent policy antics of this Government have been so damaging to British industry.

I cannot emphasise too much therefore my distaste at recent statements by the CBI which appear to imply that given a choice between a Labour Government which would help industry and the Conservatives, its friends, it would go for the latter. I remind the CBI, since there may be one or two noble Lords present who know the people involved, that it seems increasingly likely that there will be a Labour Government fairly soon and that leading figures in business will have to learn to co-operate with us, whether they like it or not.

Reverting to the rate of exchange, sadly one is obliged to take note of recent events in the Conservative Party. I had intended to refer to what has happened as the "twilight of the gods" but that would be to exaggerate the stature of some of the people involved. Nonetheless, the instability of government that has emerged and which must now, whatever happens, continue right up to a general election is extremely damaging to sterling.

I wondered why the Chancellor of the Exchequer, when he took us into the ERM, chose to go in with broad bands rather than narrow ones. It certainly did nothing for national pride to justify that, as he did, by drawing a comparison with Spain and Italy. However, now I understand. Clearly he had a very strong inkling of the likely political background and sterling could not have been kept within the narrow bands in the midst of a political crisis. As it is, the position remains perilous.

To get a perspective on the whole of Tory rule it is worth looking at some of the key ratios in the economy. What emerges is startling. Certainly over the decade—I take the whole decade of 1979 to 1989 and I hope I can be forgiven for not referring to 1990 because, as I said, we have not yet gone through the whole of this year—there has been a small decline in the ratio of current government spending to the gross domestic product. Noble Lords opposite may favour that but I, for one, do not—a point I have often made in the past. There has also been a rise in the ratio of total investment to GDP, but, as my noble friend Lord Williams and others have indicated, much of that is poorly structured and if we do take account of what I agree are the rather poor figures on depreciation it is not even obvious that net investment has risen at all.

What does stand out is the rise in the ratio of consumer spending to GDP, an even bigger rise in the import ratio, and a serious fall in the export ratio. That is what lies behind all our troubles. If one asks what has happened to North Sea oil, the answer is simply that it has been spent on consumer goods from abroad.

Recently, the Minister replied to a Question from my noble friend Lord Bruce of Donington, who emphasised the fall in the export ratio. My noble friend's view was rejected by the Minister, who quoted figures in constant prices to rebut my noble friend's assertions. However, my noble friend was right. When we refer to the balance of payments, it is figures in current prices that matter. That is why the fall in the export ratio is of such great significance. If the noble Lord doubts that, I point out that bills, not least those occurring on current account to our foreign creditors, have to be paid for in current money. I regret to say that one cannot pay in so-called constant money because there is no such thing, except in the minds of economists.

I come to my conclusion. I listened most attentively to the Leader of the House, but I have to say that it was not so much that I was puzzled by what he said in his speech but that he himself must have been puzzled by what he said. If there has been so much success, if people are so contented, if they are so much better off, why do all the tests of public opinion show the nation to be so pessimistic? Why do they view the future with such concern? Why are the Government so committed to so stringent a set of policies? Why are the opinion polls, let alone the by-election results, so bad for the Government?

Since becoming a Member of your Lordships' House I have learnt that the Government specialise in blaming everyone but themselves for our economic ills. Are they now, as it appears, to blame an ungrateful electorate? If so they must soon recognise that the ungrateful electorate has turned on them. For once the short-termism of the Government—by which I mean their desire to be elected no matter what happens to the country—cannot succeed. It is time for a change of government and a change of economic policy.

9.20 p.m.

Lord Hesketh

My Lords, I was in no way surprised by the speech of the noble Baroness, Lady Castle of Blackburn. I mean that in the most complimentary manner. I was expecting a superb performance. Your Lordships' House was well rewarded and its chalice overflowed. I cannot wait to see the noble Baroness when she is really in high dudgeon.

I now wish to make an apology. Earlier today when answering a Question I pointed out to your Lordships' House that I was unable to answer on behalf of the Financial Times. No doubt that was of great relief to the shareholders of the Financial Times. The noble Lord, Lord Bruce of Donington, had referred to a quarterly figure. It was for the second quarter rather than the third quarter to which I had referred. I did not have the second-quarter figure and was unable to confirm the figure that he gave. I am now able to confirm the fall of 1.8 per cent. I hope that the noble Lord will accept that my omission was not intentional.

The noble Lord, Lord Peston, went to some length to take apart the Government's record. A tremendous restoration has occurred this evening because in the noble Lord we saw a re-emergence of scientific socialism. The Government's aim is to keep firm control over public spending totals to bring a steady fall in the share of public spending in national income. That is essential to defeat inflation and to keep the burden of taxation to a minimum.

In this aim we have had success. Since 1982 we have reduced the ratio of public spending to national income by a full 8 percentage points from nearly 50 per cent. to under 40 per cent. In doing so, we reversed an upward trend which had lasted for nearly 30 years. In this survey, despite a weakening of economic activity, we have held the ratio stable for the next two years. In 1993–94 the downward trend is set to resume with the ratio falling to 39 per cent., the lowest level since the mid 1960s.

Our second aim has been to ensure that resources are directed towards priority areas of spending. Spending on the health service has been increased in real terms by nearly half since this Government came to office. In this survey we have provided for resources for the NHS to increase by £3 billion next year. We have protected these most in need. Planned spending on social security benefits is up in real terms by more than 40 per cent. as compared with when we came into office. Benefit spending for the long-term sick and disabled has more than doubled in real terms.

Investment in transport has been increased dramatically. During the next three years we plan to invest some £7 billion in public transport; that is twice as much as in the past three years. Spending on trunk roads and motorways will rise to more than £2 billion in the next three years. The settlement also allows local authorities to carry out road improvements worth nearly £2½ billion during the same period. All this has been achieved by careful budgeting within planning totals which are prudent and affordable. Total spending is projected to rise by 1.75 per cent. a year in real terms, well within the trend growth of the economy.

This Government's commitment to investing in infrastructure can be seen clearly by comparing our record with that of the previous administration. Investment in British Rail has risen by more than 40 per cent. in real terms. Under the previous government it rose by only 8 per cent. Investment in London Transport is up in real terms by more than 200 per cent.

Capital spending on trunk roads and motorways next year will be more than double the real level of Labour's last year of office. Under Labour, spending fell by more than 40 per cent. Capital spending on schools per pupil has risen by more than a quarter in real terms since 1978–79. Under the previous administration it fell by 60 per cent. Capital spending on hospitals in England will be nearly 60 per cent. higher next year in real terms than in 1978–79. Under Labour it fell by 16 per cent. We are now funding the largest ever programme of capital spending in the history of the National Health Service.

We are also investing heavily in improving the environment, in waste recycling, in energy efficiency programmes, in improving the quality of drinking water in Scotland and Northern Ireland where it remains in the public sector, and in building up our flood defences.

I have spoken at some length about public spending. I should now like to return to where my noble friend the Lord Privy Seal so eloquently began the debate—by discussing the economy as a whole. I am in something of a difficult position here. Traditionally a wind-up speech should address the issues raised during the debate. But after this particular debate, that will prove difficult. Many of the comments made and the suggestions put before us seem to apply to another age, a bygone age. I know that many noble Lords present would wish that they could turn the clock back 10 years to 1980, or better still right back to 1974, when we still had five years of economic mismanagement to look forward to. But they cannot. It is 1990 and the situation, as the Lord Privy Seal made clear, could not be more different from what it was then.

Those who wish to draw a comparison must be clinging to a straw. By highlighting the fact that 1980 was the last year that saw the economy's output actually fall for more than one quarter in succession, they beg the question as to what happened in the period between. I shall tell the House. In the 37 quarters since and the nine and a quarter years between the first quarter of 1981 and the second quarter of 1990, GDP has fallen only four times and each time for only a single quarter and by an average of 0.1 of a per cent. Much more importantly, for the other 33 quarters it has risen and done so strongly.

I think the House will agree that this is an impressive record of strength and stability especially when set against the previous decade when GDP was up one minute and down the next. It is also a record which puts the current slowdown in its proper perspective. Noble Lords are no doubt tiring of statistics and I sympathise. But they do need reiterating; otherwise those who work on the principle that if you say something enough times you will make it true will win the day. Fiction—and we have heard a good deal of it today—will supplant fact and we really will be back where we started all those years ago.

What are the facts? In 1990 the economy's output will be more than 25 per cent. larger in real terms than it was in 1979. In other words, after allowing for inflation, the economy is a quarter larger now than it was then. That is solid achievement. This growth has helped to bring about prosperity. Real personal disposable income has increased by more than a third since 1979. That is a fact.

The statistics leave no doubt as to the very real improvements in economic performance achieved by this Government. For my own part, I have never been completely comfortable surrounded by statistics. I hope that a simple analogy will work better. I hope that noble Lords will bear with me for a moment if I ask them to imagine the economy as a motive force, designed to move forward something like a train. After a necessary and for some an undoubtedly painful overhaul that was long overdue, the past nine years have seen impressive forward progress by the economy. As I have said, at times the speed has varied and there have been four brief halts at stations before the train has picked up momentum again. Now we are faced with another such halt. Some of the slowing down was entirely necessary. The demands on the engine in 1987 and 1988 were too great and it was in danger of overheating and wrecking the engine permanently. But this behaviour does not indicate any structural problem. The train has not been derailed as it was in the 1970s. This confidence stems from two features. First, because the private sector has been reinstalled in its rightful position at the front of the train, as I pointed out to the noble Lord, Lord Peston, recently, the whole of the economy will move and the whole of the community will benefit.

Secondly, the Government have thankfully given up their attempts at old-style demand management which, interestingly enough, I note will be restored. Indeed, I was fascinated by the interesting remark made by the noble Lord, Lord Peston, that industry will have to learn how to co-operate: "We the Labour Government have ways of making you co-operate; we know how to have a demand economy; and we know how to run industry better". It is very attractive. I have been at the DTI for only about three months and some days I already sense that I could be out there running an industry. The temptation is too great to resist. However, if there were a Labour administration the price we would pay would be borne by those least capable of bearing it.

My noble friend the Lord Privy Seal gave many examples of the improvements that have been made. I should now like to draw the attention of noble Lords to one particularly crucial area; namely, investment. It is perhaps less tangible than the increase, consumption that is evident all around us, but it is of equal if not greater importance for our future prospects.

The UK's record on investment over the 1980s as a whole is a microcosm of what the Government's approach has set out to achieve. In 1984 there was a major reform to the structure of corporation tax. The rate of tax was cut from 52 per cent. to 35 per cent., giving the UK one of the lowest rates in the industrial world—an incentive to invest in itself. At the same time, we scrapped the distortionary tax breaks which led to investment being undertaken as a way of reducing tax bills, rather than because it was expected to earn an economic return. We were told at the time that cutting back on investment tax breaks would lead to a collapse in investment and that no one would invest without the carrot of a 100 per cent. depreciation allowance in the first year. But what actually happened? After 1984 investment grew and grew. That applied particularly to business investment, which increased by 45 per cent. in the three years to 1989 alone.

It was not only, or mainly, the tax reforms which produced the investment boom. A lower inflation rate than that experienced in the 1970s provided the environment necessary for companies to plan ahead with confidence. There was a marked recovery in the rate of return, which meant that investment became profitable again—without tax breaks. Taking the 1980s as a whole, UK growth in business investment outstripped that of every other major industrial country with the exception of Japan.

By the end of the decade the United Kingdom was no longer investing at a lower rate than our competitors. Indeed, the proportion of GDP accounted for by non-residential investment in the UK in 1989 was among the highest of the major industrialised countries. Let me remind noble Lords that this investment record is only one aspect, albeit an important one, of the progress that has been made. Such progress will ensure that in the years ahead the United Kingdom, facilitated by the completion of projects such as the Channel Tunnel, will be competing alongside the best that Europe and the world have to offer. Let me also assure noble Lords that by simplifying the situation I have no intention of trivialising it—far from it. The Government are keenly aware that the current economic situation has left some businesses and consumers in difficulties. But the Government have never shirked from difficult circumstances.

Let us take the example of manufacturing. We heard much in the debate regarding its plight, as we have heard for much of the past decade. Incidentally, at times I wonder whether some speakers are aware of the other three quarters of economic activity which takes place apart from manufacturing. That is not to deny that manufacturing is still an important element in our economy. We have to face up to the fact that, as in all other major industrial countries, its importance has diminished over the past 30 years. I speak as someone who dirtied his hands bashing metal in the Midlands.

Nor do I wish to play down the traumatic experience of manufacturing at the beginning of the 1980s. But the manufacturing sector which emerged after that inevitable shakeout was more productive, more profitable, less strike prone, and much better equipped to hold its own in world markets, and that is borne out by the much improved performance of UK manufacturing since then. In each of the three years to 1989 manufacturing output grew faster than the whole economy, at an average annual rate of over 5½ per cent., and 1990 is likely to be regarded as the second year running that sees an increase in our share of world trade in manufactures. Until the 1980s, the story had been one of decades of decline.

There are two further items, one of which was mentioned by the noble Baroness, Lady Seear, who rightly pointed out that the solutions to the manufacturing problems are not entirely fiscal. The noble Baroness referred to the level of middle management pay; she may well have a good point there. We must remember something else. Manufacturers depend upon consumers. There has been a huge change. We are no longer making cars that no one wishes to buy. We are making cars that people wish to buy. Design is important. Marketing is important. The concept that by one twist of the economic button we can restore good faith in the nature of British manufacturing is a myth, and a dangerous myth, to sell to the country.

Notwithstanding that news, it is clear that our economy is in a difficult phase. The Government have no wish to conceal that and no interest in doing so. Rather the opposite. The more aware people are of the threat posed by inflation the quicker our current difficulties can be overcome.

Inflation must be squeezed out of the economy once and for all so that it can never return to plague us. As the noble Lord, Lord Harris of High Cross, pointed out, there is no room for complacency or half measures. The assertion that it is policy that has pushed the economy into recession conveniently ignores the threat posed by an inflation rate at its present level. The alternative to our tight policies to defeat inflation is a continuing acceleration of inflation. While inflation is not under control, the economy is existing on borrowed time, continually on the brink of a descent into economic destruction.

That is why the defeat of inflation remains the Government's overriding objective, and why we shall not reduce interest rates further until it is safe and prudent to do so. Membership of the ERM reinforces our counter-inflationary policy.

I refer now to the concise way in which the noble Lord, Lord Callaghan of Cardiff, summed up the position of the ERM and difficulties over the rate of entry. I was grateful, as I am sure were other noble Lords, for his summation, which was neat and easy to understand, which is a great advantage in all European matters. But the one figure that has never been given from the other side of the House all day is a suggested alternative rate at which to join the ERM. I have waited for suggestions from a party which is talking about power. No suggestions came.

Lord Bruce of Donington

My Lords, 2.60 deutschmarks.

Lord Hesketh

I turn now to the subject of economic and monetary union. I shall limit myself to a few observations since we shall be debating that important subject at much greater length next Wednesday. On economic and monetary union, the Government continue to play an active and a positive part in discussions—a fact which some commentators seem strangely to have ignored. Perhaps they have been dazzled by the brilliance of the federalists' rhetoric, for they certainly cannot have been looking at the substance. Others may have made grandiose statements. The UK has made concrete proposals.

One is tempted to contrast the ease with which some in the Community sign up to the Delors' prescription for a single currency with the difficulty they experienced in agreeing urgent practical proposals on GATT, which, I immediately concede, the noble Lord, Lord Peston, and my noble friends Lord. Boardman and Lord Alexander, pointed out. The noble Lord, Lord Walston, gave some interesting facts and figures which are worth thinking about. He brought to your Lordships' attention the reality of Eastern Europe's potential agricultural output. He reminded your Lordships' House that in 1939 Poland exported 42 million dollars' (1939 dollars) worth of agricultural produce. These are relevant and important issues to which we shall no doubt return.

The noble Lord, Lord Boyd-Carpenter, asked me to supply him with the information on tobacco. Men are still scurrying in Whitehall, but I fear I have to admit to the noble Lord that I do not yet have the figure and I shall write to him.

I turn to some of the points which were raised. Reference was made to businesses going into receivership. It is important to remember that business formation is still riding at high levels. It is worth remembering that business registrations, using VAT as the only way to obtain a reliable figure, were only 300 a week in 1980. Even today in difficult circumstances the 1990 figures still outstrip deregistrations.

The noble Lord, Lord Peston, referred to 1982 as another year of no growth. I am reliably informed that output as measured by GDP increased by 1.8 per cent. in 1982, if that is of use and assistance to the noble Lord. I do not intend to bandy statistics because of the lateness of the hour.

The noble Lord, Lord Boardman, referred to the noble Lord, Lord Callaghan, taking advantage of his better years. I feel that I could do nothing that the noble Lord, Lord Callaghan, would find to his benefit in arguing the toss over which year what happened. As a possible exception, I remind your Lordships that a matter not mentioned this afternoon is our old friend—or rather old enemy—the PSBR. That is a memory, and a fine thing that it should be so.

The noble Lord, Lord Butterfield, drew your Lordships' attention to his failure in his obstetrics examination and that of his predecessor. The noble Lord congratulated the Government on the increase in funding that they had provided and it was gratifying to hear that at this Dispatch Box.

The national debt has been rather derided by the Labour Party, but as long as this Government are in office they have an interest in reducing the national debt. The noble Lord, Lord Moran, expressed concern over the public debate on European currency. He also regretted the trivialisation of the debate and referred to accountability. I am sure that he will return to the subject next week, and I look forward with interest to listening to him.

The noble Lord, Lord Bruce of Donington, made interesting observations on the value of the word "inevitability". The noble Lord, Lord Grimond, drew your Lordships' attention to indexation, which he deplores, and also to Scottish steel. He then went on in a separate reference to mention returns of British companies at 11 per cent. compared with German companies at 20 per cent. I should add to that the outcome of government intervention in the positioning of steel plants. There are three different positions which I believe are impossible to reconcile to produce a world leader.

The noble Lord, Lord Dormand of Easington, suggested that Ministers on this side of the House had no experience of unemployment. I wrote that down carefully. I assure noble Lords that I have had the experience of having to tell colleagues that they are unemployed. I remind the noble Lord, Lord Dormand, of what he said.

The noble Lord, Lord Donoughue, moved us into a four-argument reason why this Minister would be boxed in. The difficulty is that every box I have ever seen has six sides. I await with interest the remaining two arguments which will ensure that the noble Lord, Lord Donoughue, is correct.

Great play has been made on this side of the House of wealth creation, but very little reference has been made to it on the other side of the House. When we talk about wealth creation, let us consider what the Labour Party means by it. If I were asked to tell an English or foreign businessman what I knew about prospective Labour Party policy it would be that they announced one quite interesting proposal: a 10p. increase in the top rate of tax and the uncapping of NIC. I should have to advise someone that if they wished to come into the United Kingdom and start a business they could look to pay 70 per cent. tax as the cost of employing a manager in the UK. That is Labour's big idea to get us back on the road to success. However, I do not think it works.

The noble Lord, Lord Williams, in erecting his temple of doom, placed beautifully in its place, like a master mason, the theory which suggests that nothing has happened in 12 years and that the level of inflation is roughly the same today as it was in 1979. However, there is a vital difference. In 1979 inflation was going west to 21 per cent. whereas today it is going south to 5.5 per cent. According to the great argument of the noble Lord, Lord Williams, whom I greatly admire, inflation was brought about through low interest rates in late 1987 and early 1988. I hope I may take advantage of the noble Lord, Lord Williams, in the subtlest of ways in pointing out that he was in a way insinuating that there had been a bonfire of financial vanities. However, it is worth recalling who else was standing behind and beside this figurative bonfire of explosive growth and over demand. It was said at the time that interest rates must be cut significantly. It was further said, "This is a time for judgment and that judgment decrees that there should be a big cut in interest rates". Thus spoke the Leader of the Opposition, Mr. Neil Kinnock. However, noble Lords may feel that he sometimes fluffs figures on television.

However, according to Mr. John Smith, a much admired man, then was the time to cut interest rates to stimulate the economy. The fact of the matter is that there is only one answer and that is to curb inflation. This amendment has one problem: it is 11 years too late. It should have been moved by the Conservative opposition in 1978 to 1979.

9.47 p.m.

Lord Williams of Elvel

My Lords, it is my duty to thank all noble Lords who have taken part in this debate. I thank the Minister for his winding-up speech, which was full of jokes. However, I think most of them were unconscious jokes. I understand that he is uncomfortable with statistics, but we shall get back to that matter in time. I am also glad to see so many noble Lords opposite whose faces I do not recognise. I am so glad that they have been attracted to your Lordships' House tonight by the quality of the speeches in the debate. My noble friend Lord Peston tells me that many of the noble Lords were not in the Chamber to listen to the speeches. However, I am sure they were listening very carefully in the bar, or wherever they were. It remains for me simply to ask noble Lords whether they agree with my amendment.

On Question, Whether the amendment shall be agreed to?

Their Lordships divided Contents, 87; Not-Contents, 171.

Division No.1
CONTENTS
Addington, L.	Ewart-Biggs, B.
Ardwick, L.	Ezra, L.
Barnett, L.	Falkland, V.
Birk, B.	Gallacher, L.
Blackstone, B.	Galpern, L.
Bonham-Carter, L.	Graham of Edmonton, L. [Teller.]
Bottomley, L.
Bruce of Donington, L.	Grey, E.
Callaghan of Cardiff, L.	Grimond, L.
Campbell of Eskan, L.	Haden-Guest, L.
Carmichael of Kelvingrove, L.	Hampton, L.
Carter, L. [Teller.]	Harris of Greenwich, L.
Castle of Blackburn, B.	Hatch of Lusby, L.
Cledwyn of Penrhos, L.	Holme of Cheltenham, L.
Cocks of Hartcliffe, L.	Hooson, L.
David, B.	Howie of Troon, L.
Dean of Beswick, L.	Hutchinson of Lullington, L.
Dormand of Easington, L.	Hylton, L.
Ennals, L.	Irvine of Lairg, L.

Jacques, L.	Peston. L.
Jay, L.	Pitt of Hampstead, L.
Jeger, B.	Prys-Davies, L.
Jenkins of Hillhead, L.	Rea, L.
Jenkins of Putney, L.	Richard, L.
John, Mackie, L.	Robson of Kiddington, B.
Kilbracken, L.	Rochester, L.
Kirkhill, L.	Roll of Ipsden, L.
Llewelyn, Davies of Hastoe, B.	Russell, E.
Lockwood, B.	Seear, B.
Longford, E.	Stedman, B.
Macaulay of Bragar, L.	Stoddart of Swindon, L.
McCarthy, L.	Taylor of Blackburn, L.
McIntosh of Haringey, L.	Tordoff, L.
Mackie of Benshie, L.	Turner of Camden, B.
McNair, L.	Underhill, L.
Mayhew, L.	Varley, L.
Milner of Leeds, L.	Walston, L.
Mishcon, L.	Wedderburn of Charlton, L.
Monkswell, L.	Whaddon, L.
Morris of Castle Morris, L.	White, B.
Mulley, L.	Williams of Elvel, L.
Nicol, B.	Winchilsea and Nottingham, E.
Ogmore, L.	Winstanley, L.
Oram, L.	Young of Dartington, L.
NOT-CONTENTS
Abinger, L.	Faithfull, B.
Aldington, L.	Fanshawe of Richmond, L.
Alexander of Weedon, L.	Fisher, L.
Allerton, L.	Forbes, L.
Ampthill, L.	Forte, L.
Arran, E.	Fortescue, E.
Barber, L.	Fraser of Carmyllie, L.
Bathurst, E.	Fraser of Kilmorack, L.
Beaverbrook, L.	Gainford, L.
Belhaven and Stenton, L.	Geddes, L.
Beloff, L.	Gibson-Watt, L.
Belstead, L.	Gisborough, L.
Bessborough, E.	Goold, L.
Birdwood, L.	Gray of Contin, L.
Blatch, B.	Grimthorpe, L.
Boardman, L.	Haig, E.
Borthwick, L.	Hailsham of Saint Marylebone, L.
Boyd-Carpenter, L.	Hardinge of Penshurst, L.
Brabazon of Tara, L.	Harmar-Nicholls, L.
Brentford, V.	Harris of High Cross, L.
Bridgeman, V.	Harrowby, E.
Brookes, L.	Henley, L.
Brougham and Vaux, L.	Hesketh, L.
Buckinghamshire, E.	Hives, L.
Butterfield, L.	Holderness, L.
Byron, L.	Hood, V.
Caithness, E.	Hooper, B.
Caldecote, V.	Howe, E.
Carlisle of Bucklow, L.	Hylton-Foster, B.
Carnock, L.	Ingrow, L.
Cavendish of Furness, L.	Ironside, L.
Clanwilliam, E.	Jenkin of Roding, L.
Cochrane of Cults, L.	Johnston of Rockport, L.
Coleraine, L.	Joseph, L.
Colnbrook, L.	Killearn, L.
Colwyn, L.	Kimball, L.
Constantine of Stanmore, L.	King of Wartnaby, L.
Cork and Orrery, E.	Lane of Horsell, L.
Davidson, V. [Teller.]	Lauderdale, E.
Denham, L. [Teller.]	Long, V.
Derwent, L.	Lothian, M.
Dilhorne, V.	Lucas of Chilworth, L.
Downshire, M.	Lyell, L.
Dudley, E.	McAlpine of West Green, L.
Eccles, V.	McColl of Dulwich, L.
Eccles of Moulton, B.	Mackay of Clashfern, L.
Eden of Winton, L.	Macleod of Borve, B.
Elibank, L.	Mancroft, L.
Ellenborough, L.	Manton, L.
Elles, B.	Margadale, L.
Elliot of Harwood, B.	Masham of Ilton, B.
Elphinstone, L.	Massereene and Ferrard, V.
Elton, L.	Merrivale, L.

Mersey, V.	Rochdale, V.
Middleton, L.	Rodney, L.
Monk Bretton, L.	Romney, E.
Montgomery of Alamein, V.	St. John of Fawsley, L.
Morris, L.	Saltoun of Abernethy, Ly.
Mottistone, L.	Selborne, E.
Mountevans, L.	Selkirk, E.
Moyne, L.	Shrewsbury, E.
Munster, E.	Skelmersdale, L.
Murton of Lindisfarne, L.	Southborough, L.
Nairne, Ly.	Stanley of Alderley, L.
Nelson, E.	Stodart of Leaston, L.
Norfolk, D.	Strathcarron, L.
Norrie, L.	Strathmore and Kinghorne, E.
Northesk, E.	Swinton, E.
Nugent of Guildford, L.	Thomas of Gwydir, L.
Oppenheim-Barnes, B.	Thorneycroft, L.
Orkney, E.	Tranmire, L.
Orr-Ewing, L.	Trefgarne, L.
Oxfuird, V.	Trumpington, B.
Park of Monmouth, B.	Tryon, L.
Pearson of Rannoch, L.	Ullswater, V.
Peel, E.	Vaux of Harrowden, L.
Peyton of Yeovil, L.	Wade of Chorlton, L.
Platt of Writtle, B.	Watkinson, V.
Plummer of St. Marylebone, L.	Wedgwood, L.
Polwarth, L.	Whitelaw, V.
Quinton, L.	Wise, L.
Radnor, E.	Wolfson, L.
Reay, L.	Wynford, L.
Redesdale, L.	Yarborough, E.
Renton, L.	Young of Graffham, L.
Renwick, L.

Resolved in the negative, and amendment disagreed to accordingly.

9.59 p.m.

Lord Jenkins of Hillhead

rose to move at the end of the Address to insert: "but regret that Your Majesty's Government persist in separating the single market from other European Community initiatives, notably a single currency".

The noble Lord said: My Lords, I am not a great believer in second speeches, particularly at this time of night. Therefore I am inclined to move formally my amendment. However, in view of the fact that the noble Lord, Lord Hesketh, did not reply to it at all, I must comment. At first, I thought that maybe it was a little discourteous; then I decided that it was a really wise move. The noble Lord is an ardent and buoyant government spokesman. Who knows what European policy he will have to speak to in two weeks' time? I congratulate him on his wisdom. I beg to move.

Moved, at the end of the Address to insert: "but regret that Your Majesty's Government persist in separating the single market from other European Community initiatives, notably a single currency".—(Lord Jenkins of Hillhead.)

On Question, Whether the amendment shall be agreed to?

Their Lordships divided: Contents, 32; Not-Contents, 149.

Division No. 2
CONTENTS
Addington, L.	Grey, E.
Barnett, L.	Grimond, L.
Bonham-Carter, L.	Hampton, L.
Craigavon, V.	Harris of Greenwich, L.
Ezra, L.	Holme of Cheltenham, L.
Falkland. V. [Teller.]	Hooson, L.

Howie of Troon, L.	Robson of Kiddington, B.
Hutchinson of Lullington, L.	Rochester, L.
Hylton, L.	Roll of Ipsden, L.
Irvine of Lairg, L.	Russell, E.
Jenkins of Hillhead, L.	Seear, B.
Mackie of Benshie, L.	Taylor of Blackburn, L.
McNair, L.	Tordoff, L. [Teller.]
Mayhew, L.	Whaddon, L.
Mulley, L.	Winchilsea and Nottingham, E.
Ogmore, L.	Winstanley, L.
NOT-CONTENTS
Abinger, L.	Howe, E.
Ampthill, L.	Hylton-Foster, B.
Arran, E.	Ingrow, L.
Barber, L.	Jenkin of Roding, L.
Bathurst, E.	Johnston of Rockport, L.
Belhaven and Stenton, L.	Joseph, L.
Beloff, L.	Killearn, L.
Belstead, L.	Kimball, L.
Bessborough, E.	King of Wartnaby, L.
Birdwood, L.	Lane of Horsell, L.
Blatch, B.	Long, V.
Boardman, L.	Lothian, M
Borthwick, L.	Lucas of Chilworth, L.
Boyd-Carpenter, L.	Lyell, L.
Brabazon of Tara, L.	McColl of Dulwich, L.
Brentford, V.	Mackay of Clashfern, L.
Bridgeman, V.	Macleod of Borve, B.
Brougham and Vaux, L.	Mancroft, L.
Bruce of Donington, L.	Manton, L.
Buckinghamshire, E.	Massereene and Ferrard, V.
Butterfield, L.	Merrivale, L.
Byron, L.	Mersey, V.
Caithness, E.	Monk Bretton, L.
Caldecote, V.	Monson, L.
Carlisle of Bucklow, L.	Moran, L.
Carnock, L.	Morris, L.
Cavendish of Furness, L.	Mottistone, L.
Cochrane of Cults, L.	Mountevans, L.
Coleraine, L.	Moyne, L.
Colnbrook, L.	Munster, E.
Colwyn, L.	Murton of Lindisfarne, L.
Constantine of Stanmore, L.	Nairne, Ly.
Cork and Orrery, E.	Nelson, E.
Davidson, V. [Teller]	Norfolk, D.
Denham, L. [Teller]	Norrie, L.
Derwent, L.	Northesk, E.
Dilhorne, V.	Nugent of Guildford, L.
Dudley, E.	Oppenheim-Barnes, B.
Eccles, V.	Oxfuird, V.
Eccles of Moulton, B	Park of Monmouth, B.
Eden of Winton, L.	Pearson of Rannoch, L.
Ellenborough, L.	Peel, E.
Elles, B.	Peyton of Yeovil, L.
Elliot of Harwood, B.	Platt of Writtle, B.
Elphinstone, L.	Plummer of St. Marylebone, L.
Elton, L.	Quinton, L.
Faithfull, B.	Radnor, E.
Fisher, L.	Reay, L.
Forbes, L.	Redesdale, L.
Forte, L.	Renton, L.
Fraser of Carmyllie, L.	Renwick, L.
Gainford, L.	Rochdale, V.
Gibson-Watt, L.	Rodney, L.
Gisborough, L.	Romney, E.
Goold, L.	St. John of Fawsley, L.
Gray of Contin, L.	Saltoun of Abernethy, Ly.
Grimthorpe, L.	Selborne, E.
Haig, E.	Selkirk, E.
Hailsham of Saint Marylebone, L.	Shrewsbury, E.
Hardinge of Penshurst, L.	Skelmersdale, L.
Harmar-Nicholls, L.	Southborough, L.
Harris of High Cross, L.	Stanley of Alderley, L.
Henley, L.	Stodart of Leaston, L.
Hesketh, L.	Stoddart of Swindon, L.
Hives, L.	Strathcarron, L.
Holderness, L.	Strathmore and Kinghorne, E.
Hood, V.	Swinton, E.
Hooper, B.	Thomas of Gwydir, L.

Trefgarne, L.	Wedgwood, L.
Trumpington, B.	Whitelaw, V.
Tryon, L.	Wise, L.
Ullswater, V.	Wynford, L.
Vaux of Harrowden, L.	Yarborough, E.
Wade of Chorlton, L.	Young of Graffham, L
Watkinson, V.

Resolved in the negative, and amendment disagreed to accordingly.

On Question, Motion agreed to: the said Address to be presented to Her Majesty by the Lords with White Staves.

House adjourned at ten minutes past ten o'clock.