HL Deb 07 November 1991 vol 532 cc326-97

Debate resumed on the Motion moved on 31st October last by the Earl of Selborne—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.

3.28 p.m.

Lord Brabazon of Tara

My Lords, over the last three days we have debated, among other things, foreign affairs, defence, the environment, health, education and social affairs. Today we turn to the economy. It is only right that we should do so because, whatever our aims and ambitions for those subjects, their fulfilment depends in a large part on our ability to pay for them, and that depends on the state of the economy.

I have already relayed the details of the Government's expenditure plans for the next three years in the Autumn Statement which I repeated yesterday. Today I propose to concentrate more on the economic prospect which is the background to those plans. The new Industry Act forecast is little changed from the view presented earlier this year by the Chancellor in his Budget Statement. As predicted then, inflation has fallen sharply and those gains are likely to be consolidated in the year ahead. The second half of this year will see a small rise in output and the upturn will gain strength as 1992 progresses. All the signs are that the economy is coming out of recession and is now on the verge of sustainable, non-inflationary growth.

What is the basis for this assessment? There is a mass of evidence to indicate that the emergence from recession is under way. The decline in manufacturing output has halted while output in the service sector may have stopped falling as early as the spring. Regrettably, unemployment is still rising though its rate of increase has definitely slowed. Though consumer spending fell in the same quarter, the rising trend in retail sales apparent even before then suggests that the first stirrings of a consumer-led recovery are in the offing.

That comes as no surprise. Seven months ago my right honourable friend the Chancellor first pointed to an end to recession and a recovery in the second half of the year. Critics have picked the bones of any unfavourable statistic that has come their way and ignored the accumulating evidence which day by day reinforces the message of recovery. In our reading of the economic runes we have shunned the slavish interpretation of each individual piece of new data that is published. Instead we have looked at the underlying trends over a period of time; at the full picture which emerges from the pieces. That picture is increasingly bright and this view is bolstered by increasingly positive signals from the two most important precursors to recovery.

The first of these is the outstanding achievement on inflation. Inflation has been cut by more than half in the course of only a year. Successive reductions in interest rates have played their part in this, but the fall cannot be dismissed solely as the result of special factors working their arithmetical magic; for other measures of inflation, such as producer output prices, have headed steadily downwards too. There is clear evidence of inflationary pressures abating sharply across the economy as a whole.

That process will continue over the next year though inevitably on a less spectacular scale. The headline inflation rate is forecast to be 4 per cent. by the end of 1992. It could well fluctuate a little around that rate during the year as this year's special factors drop out of the annual comparison. But the path of underlying inflation will be steadily downwards. Excluding food, drink and tobacco, producer output price inflation in the fourth quarter of 1992 is projected to be 3½ per cent., which is the lowest figure for more than 20 years.

These figures are an irrefutable testimony to the success of government policy. They are proof that the Government's prudent and cautious policy was the right one. But they are more than that. Low inflation is the first prerequisite for a high performance economy. That has always been the Government's belief. These figures hold the promise of a future with a high degree of price stability and of sustainable growth rooted in that certainty.

Yesterday I mentioned that our inflation rate may soon fall below that of Germany. In fact, with the return to trend growth in the second half of next year, the IMF says that we should be growing faster than Germany in the year as a whole and over the year our growth performance should compare favourably with that of France and Italy; and all the while underlying inflation will be falling.

The other key to recovery is confidence. The recession made a large and painful dent in confidence. But it has shrugged off the blow. Confidence is coming back among consumers and business alike. Consumer confidence has been on a rising trend since its low point in the spring. Last month it attained its long-run average level for the first time in almost three years —a sure sign of a bounce-back.

Business confidence is on the up too. The best guide to that is the long-established CBI survey whose results have consistently tracked movements in activity over the decades. Reliable as the CBI optimism balance is, nevertheless it requires some adjustment to account for its marked seasonal pattern. We all know that we feel more confident about the future at some times of the year than at others. Of course, it is not quite as simple as that; but then, the noble Lord, Lord Peston, as an economist, probably knows more about the mysteries of seasonal adjustment than I do. Even so, it sends a clear message from business charting the way to recovery.

We know that the return of confidence is vital to the recovery, because business itself has told us so. And we know that confidence has returned because people themselves know that government policies are working. They know that from our record on inflation; but they also have over a decade of solid economic achievement on which to judge us.

It is important not to lose sight of just how far the British economy has come over the past 12 years. Then, we were a second-rate economy, kicking our heels at the bottom of all the European and international league tables. We were wedded to outmoded and ineffective practices in industry, business and government. Today, despite the trials of recession, we lead the way with our record on growth, investment and productivity.

From 1981 to 1989 the United Kingdom economy enjoyed eight successive years of growth averaging over 3 per cent. The last time that growth held up over such a long period was the 1960s. What is more, we grew faster than either Germany or France over the 1980s as a whole, and that after two decades when Britain had the slowest growth rate in the EC.

We can be equally proud of our record on investment. Of all the major seven economies, only Japan's investment growth was faster in the 1980s. Progress over the years 1987 to 1989 was particularly impressive. Investment underwent its fastest three-year growth period since the war to reach record levels. Investment of course has fallen during the recession, but it will revive soon and by the second half of next year should be 4 per cent. above its current level.

Investment on that scale represents a vote of confidence in the future, with the capital stock built up for years to come. It was not just home-grown businesses which were voting with their capital spending. The 1980s also saw a steady flow of inward investment from overseas businesses eager to participate in the UK's industrial renaissance which amounted to £19 billion in 1990 alone.

In the past few years the United Kingdom accounted for a higher proportion of inward investment in the EC than any other EC nation. Over half of that was from the US and Japan. We can look at that another way. The UK attracted more Japanese overseas investment than the rest of the European Community put together. That investment is not just here today and gone tomorrow. It will enhance the economy's potential, creating jobs and sustaining growth for years to come.

This new found confidence is founded on a fundamental improvement in our industrial performance. Over the 1980s United Kingdom manufacturing productivity grew faster than in any other major industrialised nation. In the 1960s and 1970s our manufacturing productivity growth was the slowest in the G7. Like investment, productivity has naturally fallen in the course of the recession, though there is already some sign of a turn-around to pre-recession levels as manufacturing output has begun to rise again.

Profitability too is at levels far higher than a decade ago. The credit for that can be shared equally by managers and workers, for it would not have been possible without the sea change in industrial relations which was such a feature of those years. In any case the gains of the 1980s represent a real strengthening of our industrial base which will stand the economy in good stead as the recovery gets underway.

Those are achievements on a grand scale which testify to years of careful stewardship. But they are also achievements whose effects filtered down to make a real difference to individuals and their families. That, after all, is the real measure of economic success and the one by which every government are ultimately judged.

Since 1978–79 the real after-tax income of the average family has risen by nearly 37 per cent., and the real wealth of all groups in society has grown since then by an average of around 60 per cent. More and more ordinary people have taken a stake in the economy. One in four adults is now a shareholder and two thirds of homes are owner occupied.

Those are the bald facts. But what lies behind this transformation? From a look at the overall direction of government policy in the past 12 years several clear themes emerge. Chief among these is the desire to create the best possible environment for economic activity—not to engage in that activity itself, mind; that is clearly for the private sector.

That is why we have pursued policies designed to reduce and simplify taxation. That is why we have striven to control public spending and to increase the value that the taxpayer gets for his money. That is why the control and defeat of inflation has been at the heart of the Government's economic policy. The policies that were adopted to meet those ends yielded benefits in their own right. It is plain to see how lower inflation makes people better off, for example. But they offer more than short-term gain. They are the tools with which the Government have created the overall framework essential to the success of our dynamic modern economy.

Establishing such a framework is the role to which government are best suited. That is why the head of the CBI explained only a few days ago that the first requirement for industrial success was the right government—a government who understand this. Years of hamfisted intervention, and the experience of the dead-beat economy it produced, has taught us that the real driving force behind economic progress is not government but the individual citizen.

Hence the other major theme of policy: the freeing of markets to function as they should. For too long the British economy was handicapped by markets that simply did not work: a bit of inappropriate state meddling here, the grip of trade union stranglehold there, built up over the years to clog the market mechanism in so many industries. The state of the labour market exemplifies the problem: it failed to do its own job of allocating labour properly and as a consequence other markets were further undermined in their ability to do theirs.

That is why labour market reform and the rethink of the role of the trade unions that goes with it, has been one of the cornerstones of micro-economic policy. But the cause of markets has been pursued in other guises too. Privatisation has seen chunks of industry returned to the private sector. Forty-six major businesses and more than 900,000 jobs have been transferred, including the main public utilities. And they are managed better there by businessmen than they ever could be by civil servants.

The privatisation process is really about clarifying ownership. It boils down to plain common sense. Once it is clear who owns an asset, it is obvious who should look after it and making the link stronger between ownership and responsibility pays off in performance. More effort goes into running the business and that tells in hard results.

The relationship between ownership and outcome is not something that the Government have dreamt up on their own. It was spelt out long ago in the concept of the social market. We have long recognised the market as the most efficient means of organising economic activity. But it has an equally important quality that is often ignored. That is fairness. Markets are really about co-operation. They are what happens naturally when people get together to sort out their material needs.

But of course it cannot do that on its own. The market is only efficient and fair if it operates within the rule of law. No one claims that individuals can be left entirely to their own devices to produce a socially desirable result. It is human nature to try to beat the system. Therefore the market needs a legal framework to ensure that that cannot happen. Only government can provide that. Even so, they should use those legal powers with moderation. It is only too easy to overdo it and for regulation to extend into intervention. Our own experience and the lessons from Eastern Europe are warning enough that the invisible hand of the marketplace works more efficiently than the dead hand of the state.

Nor would anyone argue that the market—however firmly regulated—is best fitted to provide all the services that a modern industrial nation might require. The maintenance of law and order is an obvious duty of the state, as is the provision of defence; and governments must also concern themselves with health and education. You might call this part of the social framework which makes the fair play of markets possible.

That is reflected in the Government's public expenditure plans. Those continue to support the Government's objective of balancing the budget over the cycle. It is of the utmost importance that public spending be constrained so that the ratio of general government expenditure to national income falls over time. And it is a rule of good government that the existing commitments must be honoured. That is especially true where the most vulnerable members of society are concerned. But it is true for all our policies.

We are spending more on health: a real term increase of 4 per cent. That brings the real rise in NHS spending to over 50 per cent. since 1978–79. We are also determined to go on increasing the number of students in higher education. In 1979 one in eight 18 year-olds went on to higher education. Next year the ratio will be one in four. It must continue to grow if we are to have the highly educated, fully skilled workforce we need to compete in the 1990s.

But the Government have also endeavoured to direct funds towards meeting our longer term economic objectives. That means focusing on infrastructure investment. Public transport investment will be 70 per cent. higher in the next three years than it was in the last, and provision for national roads will more than double from 1988–89 to 1994–95. That is a real contribution to our future.

We know that we are especially well placed to make the most of the years ahead. The ideas that I have described, and the principles distilled from them, have been the guiding light of Government policy. Throughout the 1980s they delivered tangible results. The domestic economy flourished and our international reputation soared. Our share of world trade is likely to rise in 1991 for the third successive year; and that has not happened for decades.

However, our progress abroad is not all on the economic front. The Government are continuing their positive contribution to the negotiations on economic and monetary union. The issues to be decided are of profound importance for our economic and political life. We have always made clear that we could not accept any changes to the Treaty of Rome that would bind the UK to move to a single currency without a separate decision by the British Parliament. Although there remains much to be resolved, there are signs that our constructive approach is bearing fruit. The Government continue to work for an agreement at Maastricht that will be acceptable to all 12 member states.

Just over a year ago we took sterling into the ERM. The cynics said that our membership would not last. But experience proved them wrong. By adding the discipline of the ERM to our policy framework, we have achieved the goal of lower inflation, lower interest rates and a strong currency. That is a sign of confidence in the economy from all sides. That confidence is fully justified, for the United Kingdom's prospects are brighter than ever. With the economy poised to grow, it is instructive to look at how far it has come already. This year GDP will be 27 per cent. higher than at the previous low point 10 years ago. Manufacturing output will be 25 per cent. higher and business investment will be up by 59 per cent. These are not fly by night statistics. They are a sure sign of an economy that is fundamentally stronger.

The last year has been a difficult one for many people but the sign now is that the gloom is lifting. Around such a turning point it is important not to lose sight of the longer view. That view is an encouraging one. We know about the achievements of the past and we can look forward with confidence for the gains yet to come.

3.47 p.m.

Lord Williams of Elvel rose to move at the end of the Address to insert: "but regret that the policies of Your Majesty's Government have wrought serious and unnecessary long-term damage to the economy and thereby to the social cohesion of the United Kingdom."

The noble Lord said: My Lords, I should like to start by drawing your Lordships' attention to the text of the amendment. I do so because it refers quite specifically to the three major points that I wish to make today. It will come as no surprise to the noble Lord, Lord Brabazon, to know that my interpretation of economic events differs substantially from his.

First, serious and long-term damage has been done to our economy for which we believe Government policies are to blame. Secondly, I draw attention to the fact—and I believe that it is a fact and will argue the fact—that that damage was done unnecessarily. Thirdly, I shall draw attention to the social condition of our country, in many respects extremely worrying, which is to be directly attributed—as again I shall argue—to the economic policies pursued by this Government.

I am introducing this last theme—the noble Lord, Lord Brabazon, touched upon it and your Lordships might find it a little strange in a debate about economic affairs—because I wish to make it clear beyond peradventure of doubt that I and my noble friends do not believe that the economy (as we call it) is a thing in itself to be discussed in the abstract. It is the sum of all that happens every hour and every day in the lives of everybody, whether rich or poor, high or low. In other words, the economy is about people. If that seems a strange concept to some of your Lordships I point out that the word "economy" has its origin in ancient Greek. In that language it means the management of the household. It is the management of the whole national household that I wish to address this afternoon.

I put our charge against the Government simply and in direct terms. They have grossly mismanaged our national household. The result of that mismanagement is that when they leave office next year, as they most assuredly will, they will leave behind them a legacy of which even noble Lords opposite who are honest—and I know that noble Lords opposite are honest—will look back on with a deep sense of unhappiness.

In substantiating that charge I wish to concentrate on the longer term. The noble Lord, Lord Brabazon, has again taken us through the short-term forecasts of the Autumn Statement. I shall concentrate deliberately on the longer term. I do not propose to engage in debate on how much and in what particular the Government have decided to use our money—and I speak as a taxpayer—to offer inducements to this or that section of the electorate. As regards the Autumn Statement I have little to add to what my noble friend Lord Peston said yesterday; I very much hope that we are on the road to recovery. I do not want bad news. I very much hope that the recession has already bottomed out and that we can soon look forward to what I regard as the real recovery which will be when unemployment stops going up and starts to come down.

My argument is directed to the longer term but I have one immediate plea to make to the noble Lord, Lord Brabazon, and other Ministers. When dealing with economic issues will they please show greater openness and honesty in their statements to the public? May we have an end to selective statistics and biased, comment? I fully understand that the Government are facing a general election and that they are worried about that fact. However, it does not provide even half an excuse for the series of statements that we have heard during the past two years. They have been so devious —and I use the word advisedly —that I believe the public have simply stopped believing what Ministers say.

Your Lordships may remember that, first, there was to be no recession but something called "a soft landing". Then, if there were to be a recession it would not be very deep. Indeed, "shallow" was the word used. All that was under Mr. Major's period at the Treasury. In all decency I shall pass over that, remarking only that all the catastrophes that have overtaken us in the past few years—inflation, the poll tax, recession and so forth—have occurred while Mr. Major has been in charge of our national affairs one way or another. I am afraid that is not a proud record.

During the past few months announcements have been made at regular intervals of a recovery being "round the corner", or of there being "green shoots of spring", and other similar flights of fancy from an unknown poet in the Treasury. But to cap it all, a week or so ago the Chancellor of the Exchequer marched out of 11 Downing Street to announce—as the noble Lord, Lord Brabazon, has announced today—that there was an almost unprecedented rise. In what, my Lords? In something called the seasonally adjusted CBI business confidence indicator. Imagine that—a seasonally adjusted business confidence indicator! It is quite clear that the Treasury took a CBI finding, which in itself is a fairly crude measure, applied a statistically dubious seasonal adjustment factor and, hey presto, there came out something that the Chancellor proclaimed to the world as the greatest news possible.

This is not just a matter of poking fun at Ministers, however much I might enjoy doing so. It is much more important than that; it is a matter of confidence. What the nation needs above all, whether it be business, consumers or old age pensioners, is confidence that they are being told the truth. I say most directly to noble Lords opposite that the public no longer believe that they are being told the truth. If Ministers want proof of that they need only look at the opinion polls on the National Health Service. Whatever the merits of the argument—I shall not go into them—a clear majority of the public simply does not believe what the Government are saying.

The same is true about the Government's approach to Europe. The public should be told where the Government stand. This is not a new issue. Perhaps I may remind your Lordships that this Government signed the Single European Act which in its Preamble committed us to economic union. The Government then took us into the exchange rate mechanism. If, at the Government's request, we have signed up to European economic union, as we have, your Lordships would be entitled to think that the Government should follow the logic of their previous position and move towards that.

But instead, what do we have? As the next instalment we have the dithering around with what is known as an "opt out" clause in the proposed amendment to the Rome Treaty. Nobody else wants that—indeed, the Treaty would become absurd if everybody could opt out—and the rest will go ahead anyway. So why are the Government not giving the public a clear and honest lead following the logic of their previous undertakings? Why have we started apparently to let loose a sustained, and frequently offensive, barrage on Ministerial attacks on the European Commission and, indeed, on its individual members? Are we to be at the heart of Europe, as the Prime Minister has said, or are we not?

There is no doubt that this Ministerial prevarication—for that is what I call it—has done and is doing serious and long-term damage to the national economy. How can we expect companies to make their investment plans in this kind of atmosphere? How can we expect private households to make the everyday decisions of life unless they have honest answers from the Government to honest questions? But, in my view, worst of all is the effect that sustained disinformation has had during the years. Time and time again we were told that during the 1980s there was some kind of miracle in the British economy. Ministerial statements endlessly repeated were actually believed. But the truth of the matter is that there was no miracle in the British economy—it was all rubbish. Not only was there no miracle but the British economy, as it comes out of this recession, is in desperately bad shape.

Perhaps I may refer to the balance of payments. In every previous recession since the war our balance of payments has moved into surplus. In the mid-1940s, the mid-1950s, the mid-1960s, the mid-1970s and during 1980–1982 the pattern was always the same; we went into recession with a balance of payments deficit and came out with a balance of payments surplus. That occurred for obvious reasons. If you cut domestic demand you also cut demand for imports and business has a greater capacity to export. But what do we have this time? We have at the height of recession a balance of payments deficit of £6.5 billion or so and an expected deficit as we come out of recession of £9.5 billion or so. All that is in spite of the enormous benefit of North Sea oil. And to explain it all away on the grounds that it is "financeable" is nothing short of mendacious. The truth is that the economy is seriously out of balance on its external account, and even the Government cannot see it getting any better.

Let us take unemployment. Again, in every previous recession since the war, bar 1980–2, unemployment has settled back—within reasonable distance on either side—to where it was before the recession began. Now, what happened in 1980–2, when resulting unemployment peaked at over 3 million, can at least be argued intellectually to be the result of a necessary effort to improve labour productivity. It is an argument which I would willingly debate but it can be sustained intellectually. This time unemployment has been across the whole economy and has been simply used as a crude counter inflationary weapon. What is the result? The result is that the numbers of young and long-term unemployed increase. As the number of young people whom we fail to provide with skills, and the numbers of adults whose skills we allow to fade away increase, so does our structural unemployment problem. Every new recession—and there will be more if noble Lords opposite have their way—has a ratchet effect on our problem of structural unemployment. Increasingly, a low skill workforce is faced with high skill vacancies; and the two obviously fail to match.

Let us take our manufacturing sector, which everybody now accepts is the key to our future prosperity as a nation. Output since 1979 has grown at a slower rate than any other OECD country except Greece. Manufacturing investment has collapsed—down over 18 per cent. on the year, and due to fall again next year.

Let us take economic growth. We have fallen behind here, too, in spite of what the noble Lord, Lord Brabazon, said. Noble Lords opposite like to pour scorn on the 1970s, but how do they like the figures? Between 1974 and 1979 our economy averaged a growth rate of 2 per cent. per annum. Between 1979 and 1991 our economy averaged a growth rate of 1.75 per cent. per annum. And if noble Lords opposite do not believe my figures they should consult the OECD Economic Outlook of July 1991 where they may, to their surprise, find exactly the figures that I have quoted.

Finally, let us take our record on personal prosperity. In terms of per capita GDP we are now below the Community average. Furthermore, since 1979 we have fallen further behind. Real incomes in the UK between 1979 and 1991 have increased by 19 per cent. against a Community average of 24 per cent. Germany, France, Holland, Belgium, Luxembourg and Italy are, of course, way out in front of us. Again, if noble Lords opposite do not like the figures that I am giving them I would be happy to provide them with the source which, I hope I do not need to add, is an official publication.

I hope by now, although I say this with a certain degree of humility, that noble Lords opposite are getting my message. We are no longer a rich country in Europe. We are a poor country in Europe. In terms of real income per head we are now below the average, and the average includes Greece, Portugal and Spain. If, as is proposed, the EFTA countries join with the Community we will go even further below the average.

Now noble Lords opposite may respond that they hear what I say but that for their part they have a fine life. They do not feel economically below average. I can understand that. I imagine that they have all benefited from the shift in the tax away from income tax and on to VAT. They would no doubt say, as Mrs. Margaret Thatcher said of her Government's programme at the start of her full year in office as Prime Minister: It … means more inequality, but it means you drag up the poor people because there are more resources to do so". Now I have no doubt that noble Lords opposite have been trying, over the past decade or so, to drag up the poor old poor people. But I have to tell them that their efforts have been unsuccessful.

In our country of 55 million people, some 7 million go without essential clothing, such as a warm waterproof coat; some 10 million people cannot afford adequate housing—their home is unheated, or damp, or both; or older children have to share a bedroom. Around 5 million people are not even properly fed by today's standards. Some 6.5 million people cannot afford essential household goods, like a fridge or a telephone. They cannot afford holidays. That is what has happened to Mrs. Thatcher's "poor people".

Those are facts. This deprivation is with us; and it is the Government's management of the national household, combined with its philosophy of inequality, that is entirely responsible. Is it any wonder that there are riots on Tyneside, or that the crime rate is soaring? The wonder is that more people are not more angry. But the worst effect has been to create an impoverished underclass, and that underclass is now opting out of the political process. And that way lies social disaster.

So what has the gracious Speech to tell us about these problems? It tells us nothing; absolutely nothing. It states that the Government, will promote enterprise and training and improve the working of the economy. That is all it says. Yes, of course the working of the economy needs improving. But how do the Government propose to do it? Do they propose to adopt the proposals of the Confederation of British Industry; or the proposals of the Labour Party, which in fact are very similar? Apparently they do not.

The plain fact is that the Government have run out of ideas. Ministers are tired and quite obviously rather bored. The gracious Speech is a catalogue of measures either to correct their past mistakes or simply to keep Parliament going; measures which can be junked if they wish to cut and run for an election. It is perfectly clear that the main, indeed the only, objective of this Government is to fasten their eyes on the opinion polls to try to pick the most favourable time to hold a general election, for all the world like rabbits staring at the headlights of an oncoming car. Well, I will tell them something: rabbits get run over. And so, most certainly, will they. I beg to move.

Moved, at the end of the Address to insert: "but regret that the policies of Your Majesty's Government have wrought serious and unnecessary long-term damage to the economy and thereby to the social cohesion of the United Kingdom."—(Lord Williams of Elvel.)

4.7 p.m.

Lord Jenkins of Hillhead

My Lords, as I have rather a bad cold I may speak even more briefly than usual. I know that that is something which your Lordships always find easy to accept. I may also speak rather lass benignly than I did last Thursday. I hope that your Lordships will also accept that.

This subsiding Parliament can hardly be regarded as glorious from a legislative point of view. The poll tax is undone, the Broadcasting Act is unloved, that minor monstrosity of a football Bill remains unimplemented as does that more serious nonsense, the War Crimes Bill. Alongside an appalling record of misjudged legislation there is the dismal economic story, for such it is, of the past four years. We may or may not now be moving out of recession. I hope that we are and think that we may be, although, in view of his past chirpy but false predictions, it must be allowed that Mr. Lamont saying so is not evidence. Whether or not we are, there can be no doubt that all those claims of the mid-1980s or even more, of 1987 and 1988, that the British economy had been turned into a miracle of the western world look not just tarnished but ludicrous today. Even the noble Lord, Lord Young of Graffham, were his voice not so sadly stilled among us, would find it hard to coo quite so complacently as he did in those years.

The plain fact is that we went into the recession earlier than almost any other country, stayed in it longer and are coming out more slowly. We remain an economy with more problems than most. I should not dream of blaming the Government exclusively for that. I am prepared to admit that these problems are pretty deep-seated. Any other government might well find it difficult to do much about them. However, let us at least be spared the myth that the British economy is now living happily ever after, since the Thatcher revolution.

On the contrary, the troubles were undoubtedly made much worse by Mr. Lawson's mismanagement. We heard a great deal yesterday about prudent finance, and this Government's record, apparently throughout the whole period, of fiscal and spending rectitude. I believe that the question of whether or not Mr. Lamont is a prudent financier is at the moment non proven, but the case against him looks just a little potentially menacing.

Let there be no doubt that the great, profligate Chancellors of recent decades have been Conservatives. The noble Lord, Lord Barber, and Mr. Lawson stand in a class by themselves. Mr. Healey had his fling of profligacy, but at least he stayed and, with a little encouragement from the IMF, cleared up at any rate part of his own mess.

What is the position today? We had significant public expenditure increases announced yesterday which I welcome in the short term. However, they do not fit very well with the holier-than-thou smokescreen about public expenditure discipline which was so proclaimed. The deficit will be just over £10 billion this financial year and none of us would be surprised if it were £20 billion next financial year.

Nor do I believe that any of us could really convince ourselves that yesterday's Statement would have taken the same form had the election not been pending. Mr. Lawson's jollities earlier in this Parliament set the economic cycle out of phase with the electoral cycle. The dithering over the election date and yesterday's package are both attempts to correct for this.

The other prediction which I make with a good deal of confidence is that if the Government win the election and Mr. Lamont stays as Chancellor, he will be carrying out a cutting back exercise by about this time next year. That pre-election, post-election dance will be in the strict traditions of one or two of his Conservative predecessors as Chancellor.

I turn finally for a few minutes to Europe. I believe that Mr. Major wants a deal at Maastricht and on the whole he will get one. But I am depressed by many aspects of the way he is going about it because I believe it is likely to produce a deal which is least in the interests of the country. It may be thought to be in the interests of the fragile unity of the Conservative Party, but that is a different matter. Let me give one specific example of what I mean. It is pre0sented as a great negotiating triumph that we have secured the right to opt out of monetary union in 1997. I do not in the least mind the scheme having then to be submitted to Parliament. Everything needs to be endorsed as one goes along. However, what I greatly mind is that for the next six years at least it should be a basic fact of Europe that there are 11 members wanting to go ahead and one whose centre of interest is in having the right not to do so.

Let us consider what this means in terms of the specific issue of the site of the central bank. I would very much like to see it in London. Had we been in the exchange rate mechanism from the beginning, I have no doubt that with Britain rather short on Community institutions and London still the greatest financial centre in the Community, we would have had an overwhelming case for it to be here. Obviously we do not if, during this period of decision, this run-up, our main interest is in the right to opt out. No one in their right minds could think in those circumstances that we are a serious candidate. That illustrates a wider point. I believe that the median national mood—if one can conceive of such a thing—in this country on Europe is that we would like more British influence and that having the central bank in London would be a tangible symbol of it.

On the other hand, the mood towards Europe, particularly in the business community and among the young—and I speak from my strong experience of talking to many audiences in those two categories—is totally unimpressed by sterile doctrines about the legalistic sovereignty of Parliament. In so far as it is thought about at all, there is a realistic suspicion that it is much more the sovereignty of the Government Whips than of the people.

I am convinced that public opinion is now ahead of the political classes on Europe. That began to show strongly with Mrs. Thatcher's ill-judged campaign in the 1989 Euro-elections. But even before that, people were mostly willing to respond to a firm lead on Europe on the rare occasions when they were given one—in 1971 and at the time of the 1975 referendum.

If Mr. Major were now to stop the persistent barrage of anti-European noises off which, apart from anything else, suit Mr. Hurd's style remarkably badly, he would be surprised at the positive response he would receive. Instead, alas, while wanting a deal and being likely to get one, he shows every sign of being about to repeat, perhaps in a minor key, the mistakes of nearly every party leader's handling of Europe over almost the whole of the past 20 years. There is too much party finessing; no message of inspiration for either Britain or Europe; no really effective protection of British interests and not even the safeguarding of narrow party political interests. The handling of this issue destroyed the Labour Party as a party of government for at least a dozen years. We could see a repeat applied to the other side of the House. Let us remember that the Government show not a hint of offering an alternative strategy to a European orientation.

As we approach this period of decision, there are some extraordinary puffs of British chauvinism which come out of the rather dying - I hope - volcano. Some found their echo in your Lordships' debate on Monday. There is the view that the poor benighted Europeans do not know how to run a democracy, a legal system or even an economy. There is even the view expressed that they are all obsessed by jealousy of us because we won the war. I fear that such excessive nostalgia is now a British and not a continental European habit. I fear too that the predominant feeling towards Britain among our Community partners is far from being one of jealousy. I perhaps would like to see it a little more so, but that involves our not going on making the same mistakes over and over again.

4.20 p.m.

The Earl of Halsbury

My Lords, I am sure that all noble Lords know the story of the troubled musician who confessed to his friends, "Last night I dreamt that I was conducting a symphony at the Albert Hall and woke up to find that I was". I am rather in that state of mind over economics. For a number of years—I do not know how many—but at almost any time I could have said "Last night I dreamt that I was in a state of economic crisis and I woke up and I found that I was".

So in preparation for this debate I tried to see if the Library could produce anything that would be a guide to some kind of a conclusion. It produced a very interesting book The British Economy Since 1945. It was published in 1991. Searching through it I found —surprise surprise!—that it stopped in 1987 when our present troubles may be dated to. So I was left with no conclusion that I could quote on any authority to your Lordships and have to depend on my memory of events starting with a mistake made by the Chancellor of the Exchequer of the day who reduced the bank rate at the wrong time. He could not possibly have done that against determined opposition from the Bank of England, the Treasury and No. 10 Downing Street. Although they may have had reservations on this point or that, he could not have carried it through against a coalition of all three influences. So we must suppose that the best advice available just was not good enough at the time.

When remembering the past, if the party of the noble Lord, Lord Williams, were to win the election it would have a wonderful alibi for anything that went wrong in the future. It could blame everything on the inheritance of mismanagement from the previous government. But I have heard all that before. I refer to the 1979 election. The incoming government inherited massive inflation and massive unemployment and had to cope. Those factors could be blamed on their predecessors. I go back to 1970 when the incoming government inherited a very large series of pay rises leading to inflation. That again led to a wrong basic decision. The government of the day got, not what they intended, which was investment in industry to mop up unemployment, but a housing boom which made the situation even worse.

With all these yesterdays still fresh in my mind I have the temerity, not being an economist, to address your Lordships on the subject of the economy. However, I was a friend of a very eminent economist, the late Lord Robbins. He was not only of great stature as an economist; he was also of great physical stature and possessed great presence. His legs were so long that he had only limited space in which to stretch and sit with comfort during Question Time and at other times. For friendship's sake I used to sit beside him, he being the chairman of the court of governors of the London School of Economics and I being one of its members. In the nice little interval that we have each day between Prayers and Starred Questions, he used to give me tutorials on whatever piece of economics was in the news together with the latest information as to what was going on in the school.

He was my spiritual mentor in these matters. What he taught me and what I shall never forget is that economics is concerned with the allocation of limited resources to competing ends. Why the ends are what they are is a matter for a psychologist and not for an economist who must keep out of it. But since the allocation of limited resources must involve compromise, and compromise invariably involves squabbling, we find ourselves invariably squabbling over how to run the economy.

If something, regarded as a cause, interacts with something else regarded as an effect, the interaction may be positive or negative. By this I mean that a cause may have either a promotional or else an inhibiting action on its effect. The former, known as positive feedback, may have a destabilising effect on performance. The latter, known as negative feedback, may have a stabilising effect. If there is a lapse of time between cause and effect, a time lag, one can be converted into the other and the system may oscillate. In the sphere of economics, these oscillations are what we call crises. Because it is a periodic phenomenon, that is why we are going through it all over again as we have done so many times in the past. It is so much easier to blame someone else's mismanagement than to get down to the nitty gritty of why we are in this kind of perpetual mess.

I ran into this situation during the war when I was trying to study the transformation from Austenite into Ferrite of the kind of lightly alloyed steels of which armour plate is made. I did that by preparing a network which enabled control of a furnace while it was cooling over a very long period and at a very steady rate. I thought that I had achieved a masterpiece of design, but the result was absolutely disastrous. The thing proceeded to oscillate quite wildly from high to low temperatures because of the time lag involved between heat getting into and out of the walls of the furnace. The only course left to me was to re-invent the bicycle which is known as feed-forward. That is trying to anticipate what is going to happen.

I took all the relays out of the system and inserted myself in it as a relay. Unfortunately, my powers of prophecy were not what they should have been and the result was even worse. Finally, I did what I should have done in the first place which was to get down to basics and learn something about the subject. I have still got a large compact volume of the notes that I wrote on my shelves at home. Noble Lords are probably most familiar with control engineering in the form of a thermostat. A thermostat is a device which stabilises the temperature of your room and keeps it at a fixed temperature irrespective of what is going on outside. As a matter of fact, a thermostat does not do anything of the kind. It controls the rise and fall of the temperature in your room between an upper and lower limit by switching the source of heat off when it reaches the upper limit and on when it reaches the lower limit.

If you refine the difference between these two limits and thereby make it narrower and narrower, you make the system more and more sensitive to any time lag that there may be between a cause and its effect. That can mean that you pass over from negative to positive feedback and the system proceeds to oscillate. With all these matters in mind it was during the 1960s that I found myself with access to an analog computer. The economy was misbehaving as usual at the time and I tried to put it through the analog computer, not quantitatively, but qualitatively. To some extent it confirmed what I believed, but my results were overtaken by groups of people with access to digital computers who produced very much more sophisticated programs. There was one at the Bank of England, another a the Treasury and another at Cambridge. Academe generally did its best to study the economy with digital computers. One of the leaders in the academic field, in an interview, said to me, "My trouble is always input. Input always reflects what there was, not what there is. That is why I am unsuccessful in predicting what the economy is going to do. I cannot get a value for work in progress that is less than six months out of date. That is just enough to make it impossible for me to predict what is going to happen next."

Therefore, the only advice that I can give to noble Lords, who face one another in Government and Opposition, is exactly the same—which is befitting from the Cross-Benches; we have no preferences for one or the other. We have to uprate our information services so that we get more up to date relevant information in time to make use of it. Then we shall be able to avoid the type of oscillation which we consider to be an economic crisis.

4.30 p.m.

Lord Boyd-Carpenter

My Lords, I always listen to the noble Lord, Lord Williams of Elvel, with pleasure and with admiration. I often reflect—nervously, from his point of view—that he bears a very considerable resemblance to Socrates. Socrates, as your Lordships will instantly recall, was charged and convicted with the offence of making the worse appear the better case. Your Lordships will also recall that a penalty was imposed. That is why I am rather apprehensive that I may be called upon to administer a glass of hemlock in the Bishops' Bar to the noble Lord who has, I think, fully earned it on the Socratic principle.

The noble Lord made a most extraordinary speech. At no point in his speech—and I am sure that he will recall this—did he say what were the mistakes or errors that the Government have made which produced the situation he so vividly described. He was full of all the matters that have given rise to difficulty. He did not, incidentally, say a word about inflation, though he dealt at very considerable length with the subjects that have given rise to difficulty. At no point in that speech and this is surely relevant to his amendment to the Motion for a humble Address—did he indicate what were the actions of the Government which had brought about this situation.

No one disputes that this country, and indeed every other major country in the world, has been going through and is going through a period of considerable difficulty in certain directions. No one disputes that for a moment. But the noble Lord's amendment does not simply rely on that. His amendment, if he will allow me to say so, suggests in rather pompous terms that this was wrought—that was his word—by the policy of the Government. It was therefore surely up to him to indicate what were the errors of government policy which brought this about. We were given no indication whatever; and no indication whatever of what the party of which he is so distinguished a representative would do in the unlikely event of it being in a position of power and responsibility.

I was lost in admiration when the noble Lord began to indicate how much better things were in the late 1970s. He did not have time though, in discussing that, to mention the fact that the British Government and the British economy at that time had to be bailed out by the IMF and that any relief, or release, that we enjoyed at that time and during the closing years of the Labour Government was due to this country being in the humiliating position, for the first time in its history, of having to ask the IMF for assistance. That has not happened under the present Government.

Therefore, one really is driven to the conclusion that the noble Lord, in proposing this amendment to the Motion, is in a position of very real difficulty. If one is to criticise a government, and if one is to attribute the misfortunes which a country has suffered —great or small—to the action of that government, it is surely incumbent on one to point out what those actions were and why they had this effect. But the noble Lord simply brushed aside the fact that some of the difficulties which we have faced over the past few years are difficulties which we have shared with most —not all— other major countries. They have had their degree of recession; they have had their problems of one kind or another. What we have suffered has not been unique to us, as might be inferred from the suggestion that it was caused by the British Government, but has been very general throughout the world. Indeed, in that respect I was struck by the noble Lord's indication that government policy had made investment in industry in this country unattractive. The fact remains that that is not the view of foreign investors. It is not the view of Japan which, with the whole world as its choice, has invested very heavily in this country.

It is perhaps significant—and the noble Lord cannot brush this aside—that those with money to invest anywhere freely in the world have, in substantial degree, decided to invest in this country. That suggests a very different view of the economic management of this country from that to which the noble Lord referred. Nor did he mention at all the success of the Government in dealing with inflation.

I hope I do not need to say to your Lordships that inflation is the most damaging economic disease of all. Inflation undermines an economy; it imposes terrible hardship on individuals; it dislocates the working of the economy in one way or another. But we have succeeded very successfully in dealing with inflation which, as your Lordships know, has now come down to 4 per cent. Therefore, we find the charges made against the Government have not been substantiated.

It seems to me that your Lordships will do very well to reject, when the time comes, an amendment that has been proposed without any substantial support. No one would pretend that the Government's policy has always been free from error. That is not true of any government in this country, nor will it ever be. But broadly speaking the Government have seen us through a period of world difficulty. The economy is slowly but steadily improving. If that is so, it cannot be the fact that the Government have, as the amendment proposes, wrought lasting injury to the economy. On the contrary, I suggest that the Government's record is good and that it will continue to be good. Of course the medicine for dealing with inflation is painful. Every country in the world that has suffered inflation, and has indeed gone on to overcome it, has had to face considerable problems, not least from the point of view of employment. No one would dispute that. But the noble Lord did not say that the Government were wrong to do that. He just said that they were generally wrong in what they said, without specifying the errors which he alleged they had committed. Therefore, I hope your Lordships will consider in this debate the position of our economy in a more balanced way than the noble Lord, Lord Williams, indulged in.

I should like to deal with one point raised personally with me yesterday by the noble Lord, Lord Donoughue. He referred to the fact that I had said that the Autumn Statement was modest. The noble Lord said: Perhaps I may recall the comment made by Clement Attlee about one of his ministerial colleagues that he had much to be modest about".—[Official Report, 6/11/91; col. 247.] Noble Lords will realise that he got that the wrong way round. It was Sir Winston Churchill who remarked that Clement Attlee was a nice, modest little man with much to be modest about. Therefore, the noble Lord, Lord Donoughue, who I am sorry to see is not in his place, indulged in a quite extraordinary misquotation.

On the merits of the case I am a general supporter of the Government's policy. The present Chancellor of the Exchequer is doing an excellent job, but it will need most careful handling. I have two or three brief points to make which concern where I believe taxation is being misapplied. I understand that the Inland Revenue is approaching the universities with a demand to charge tax on the earnings which the universities, or some of them, make out of consultation or the grant of conference facilities. Whether technically, as a matter of taxation law, that is right, I do not know, but I believe that to seek to charge corporation tax on the universities at this moment in circumstances in which it has not hitherto been charged will cause a good deal of harm and ill will and be quite unnecessary.

Once again, because I have done it before, I beg my noble friend and the Government to consider the operation of inheritance tax on people's principal homes. By taxing them many people are driven out of their homes. If those homes happen to he famous and historic houses, that merely imposes a further financial burden on the state as those houses have to be maintained. In any event, someone's principal home is very important to the person and his family. There is already an exemption in respect of tax on improvements. Surely inheritance tax could be withdrawn from that area.

I hope that the Government, in providing, as they are doing at the present time, very large and necessary public expenditures, will not overlook the fact that we are still a heavily taxed country. The high rate of tax on personal earnings should be reduced as soon as possible. I hope that I shall hear from my noble friend that the Government realise the necessity of reducing taxation. Taxation discourages enterprise and work. High taxation makes people wonder whether it is worthwhile investing and whether it is worthwhile attempting an enterprise. The lower the level of personal taxation the greater the encouragement to enterprise.

Of course I understand fully the need to maintain some balance between expenditure and income. We are at the moment, after the Autumn Statement, dealing largely with expenditure. But it is impossible to separate the two. I hope again that we shall have some indication from the Government today that they have not lost heart in the policy of reducing taxation and that they will, as soon as they can judge it possible, make some reductions, particularly in direct personal taxation. Value added tax is a highly inflationary tax. It adds to the cost of everything. If VAT could similarly be reduced in due course, that again would give an easement to the economy.

Contrary to what has been said by the noble Lord, Lord Williams, most people in this country realise that the Government are tackling an immensely difficult job and are doing so with a considerable degree of success. I add the personal note that I am quite sure that that success will continue while our finances are handled by my right honourable friend the Member for Kingston-upon-Thames.

Lord Williams of Elvel

My Lords, before the noble Lord sits, down, perhaps he can help me on one point. He was Kind enough to compare me with Socrates. I am extremely flattered that he should so compare me. However, I am afraid that he did not get the charge of which Socrates was accused quite right. If he will consult his neighbour to his left, the noble and learned Lord, Lord Hailsham, he will learn the true charge of which Socrates was accused; and I shall declare myself not guilty of that charge.

Lord Boyd-Carpenter

My Lords, knowing my noble and learned friend's high professional reputation, I realise that to consult him is a very expensive operation.

Lord Hailsham of Saint Marylebone

Not now, my Lords.

Lord Williams of Elvel

My Lords, before doing so, perhaps the noble Lord might accept the glass of water offered by my noble friend Lady Hollis.

4.48 p.m

Lord Stoddart of Swindon

My Lords, I listened to the speech—or perhaps it was an eulogy—of the noble Lord, Lord Brabazon, and wondered whether I was living in Wonderland. What is certain is that the people in Langbaurgh, for example, have not received his message, as we shall see this evening when the Labour Party wins that seat with a substantial majority.

As we move inexorably towards the end of the electoral cycle we hear more and more of the business cycle. The "business cycle" is the "in" phrase with Ministers at the moment. What they are trying to do —and they were helped by the noble Lord, Lord Boyd-Carpenter—is to shift on to business the blame for their own appalling mismanagement of the economy. That is the idea. They are trying to shift the blame away from themselves and on to someone else. They must not be allowed to get away with it. The present economic situation has been caused not by world events, not by business itself—not by productive business anyway—but by the Government's complete mismanagement of the economy since 1987.

Let us have a look at the record. In 1987, just as the economy was booming, the increase in GDP was 3.5 per cent, but in 1988 it was 4.4 per cent. The economy was on an upswing. But at that point in time the Government decided to cut interest charges to the very low level of 7.5 per cent. Therefore, they poured money into an already booming economy. The result, of course, was complete disaster. That added to inflationary pressures which were already in the economy because it was overheated. That was their first mistake.

However, if that was not bad enough, the 1988 Budget not only reduced taxation but also sparked off a mad property boom which was engendered by the Chancellor of the Exchequer through the policy of giving six months' notice of the withdrawal of double mortgage tax relief. That sparked off the property boom. There are so many poor people still living with the consequences of that absurd policy which helped persuade people to make a decision to go into a property market which was bound to become overheated.

Hand in hand with the property boom went a further credit boom which was encouraged by the Government—it was certainly not discouraged by them—and fuelled by irresponsible and greedy lending institutions which were completely out of control. Indeed the Government looked on apparently helplessly at the progress of this monster which they had created. Borrowing for housing and consumption was at an all time high. The savings ratio was at an all time low. Manufacturing production was diving, and imported goods were rising. Moreover, the balance of payments had a record deficit approaching £20,000 million.

The noble Lord, Lord Boyd-Carpenter, asked us to examine the record. I have just done so. I hope that he agrees that that was a disastrous record and one which brought us to the point where interest rates had to be increased to an intolerably high level. We advised, other people advised, economists advised and even the CBI advised that there should be some measure to control this credit monster that had got out of control. But the Government sat back and said, "No, we will simply use high interests rates to do the job."

To continue with the record, just as the Government's medicine was hurting—whether it was working is another matter—they made another blunder, or perhaps it was, exceptionally, a brainwave. That blunder was to join the exchange rate mechanism. I said that perhaps it was a brainwave because they no longer had the opportunity to blame the trade unions or the Labour Party for their disastrous policies. After all, they had brought in so much legislation that the trade unions were almost powerless to do anything and the Labour Party had not been in office for 12 years. So they could not blame us. Therefore, they had the brainwave of, "Let's blame the foreigners." By joining the ERM they could say, "Well it is nothing to do with us any longer; it is all those people in Europe." I believe that it is generally known that I did not agree with our joining the ERM. But now whenever I, anyone else or the CBI suggests that interests rates should be cut they say, "We can't do it because we are in the ERM and we must protect the exchange rate." Of course people then say, "What is the ERM?" In response they say that it is 12 nations supposedly acting together. The Government can then say, "We have our international commitments. Therefore, we cannot reduce the interest rates; it's all their fault."

The Government made the same mistake. Just at the time when their medicine was going to cause deflation they fixed our interests rates and virtually went back to the gold standard. That meant that tens of thousands of businesses collapsed and unemployment moved quickly towards 2,600,000. If that is not a disastrous economic performance, I do not know what is. The Government simply do not deserve any praise for what they say is their achievement of low interest rates. Joining the ERM can only have baleful consequences for our economy, especially as regards unemployment; indeed it is stopping the Government giving the economy the boost which it needs at present.

In his Autumn Statement yesterday, the Chancellor of the Exchequer announced a modest increase in public expenditure and in the PSBR. In my view, public expenditure needs to be considerably higher than projected, particularly expenditure on health, transport, education and assistance to industry. However, I accept that higher public expenditure cannot be envisaged because of the parlous state of the economy generally. That is particularly so as regards manufacturing industry which, after all, is the real key to a successful and vibrant economy. We find that we still have stagnation in that part of the economy.

In paragraph 33 of the Autumn Statement, the Chancellor of the Exchequer said: I have never wavered from the view that the defeat of inflation is a necessary condition for economic success. The best performing economies are low inflation economies". [Official Report, 6/11/91; col. 236.] He is only partially correct. The best performing economies —namely, those of Germany and Japan —hold that position because their manufacturing base is large. It is from that large manufacturing base that their low inflation rate stems, and not vice versa. It is because those two countries recognise that a high level of manufacturing capacity is the key to success that they are world leaders. Conversely, it is because this Government have not given manufacturing the priority it deserves that we are in the economic doldrums.

I served on the Select Committee on Overseas Trade—that great Select Committee under the leadership of the noble Lord, Lord Aldington, which gave so much good advice to the Government, but which they wilfully ignored. I can remember questioning the Treasury about manufacturing industry and stressing the need to build it up so that it could take up the slack when oil revenues went down. The attitude of the Treasury was, "Don't worry chaps. Just leave things alone and they will all balance out." In other words, as oil revenues came down so manufacturing industry would go up. Of course that has not happened, and it could not happen. That is why the Government were completely wrong in not heeding the advice given to them by industry, the Select Committee and many other people.

We do not need to quote any Labour Party material to show the grim news about manufacturing industry. The CBI was good enough to send me a document which I am sure that it sent to other noble Lords. I shall refer to the graph (exhibit 4) on page 11 of that document. It shows that taking 1975 as the base of 100, manufacturing output in Germany in 1990 was 260–260 per cent. above what it was in 1975; in Japan, it was 180; in the United States is was 138; and in the United Kingdom 118. That is 18 per cent. only above the level in 1975. That is why our economy is in such a parlous state. That is the dismal record under this Government. Until we take steps considerably to boost manufacturing output in this county, this country will drop further and further behind in the economic and living standards league.

I shall illustrate in real life terms what is happening to the British economy. On Tuesday this week I visited Iveco/Ford in Slough to see its new cargo truck. It is an excellent vehicle. It is well planned and constructed and is built by good British workers; but what has happened to Iveco/Ford? Vehicle production has fallen from 14,900 per annum to 6,000 per annum. The UK market for those vehicles is down by 54 per cent. That is what tells us the state of the economy. Its revenue is down by 200 per cent. The number of jobs —in Tory Slough, mind you, not the North of England—is down from 1,400 to 800. That is a drop of 600 out of a workforce of 1,400. That is the state of the economy. That is the state to which the Government have brought us.

I do not want to be destructive; I want to be constructive. I want manufacturing industry to succeed, but the Government must understand that they have a contribution to make, and they must make it. The first contribution that they must make is to boost the economy by an immediate reduction of 1 per cent. in interest rates. That would do more to boost confidence, the confidence of industry in particular, than anything else. I hope that the Chancellor will do that, and do that shortly.

Furthermore, manufacturing industry in particular needs greater assistance through better tax allowances for new plant, machinery and working methods. Again, I hope that between now and the Budget the Government will give a great deal of consideration to that point. We need incentives for people to invest long-term in manufacturing industry rather than for quick-profit speculation. We need to switch the ethos and encouragement offered to invest in houses to investment in goods. It is wasteful for us to spend some £7 billion to £8 billion per annum subsidising owner-occupation, whether the person needs subsidising or not. It is about time that we learnt to apply housing subsidies—whether in the private or public sector—to those who need subsidies. The money which would then be released could go into building our economy for the future.

We need to give much more assistance to the exporting industries to ensure that they can compete equally with their competitors abroad. The Government should work closely with industry instead of keeping it at arm's length. Finally, there needs to be a sea change in attitudes towards people working and making their careers in productive industry. For too long, manufacturing industry has been the Cinderella service. It is about time that people in schools, universities and the professions understood that no one can do anything better for their fellow men than to work in industry producing goods for people to use and enjoy.

5.6 p.m

Lord Vinson

My Lords, it was the Grand Old Duke of York who marched his troops to the top of the hill and marched them down again. The performance of our economy over the past 20 years closely resembles his conduct. Recession follows boom and the correctives necessary to reduce recurring inflation leave the economy with productive capacity inadequate to meet the country's requirements.

A number of noble Lords have drawn attention to our membership of the ERM and the stabilising effect that it is hoped it will have on our inflation rate; but I believe that that view is sanguine. Fixed exchange rates will deal with the symptoms by keeping us in a prolonged state of recession, but we should examine anew the causes of inflation which, uniquely to this country. are rather more fundamental. As the noble Lord, Lord Jenkins, said, the problems are deep seated. Like the hedgehog, inflation is hibernating and will reappear as the economy warms up.

Rather than rely upon the ERM mechanism alone, there are parallel actions which the Government, or indeed any government, should be taking. They should take steps to prevent inflationary pressures coming from the housing market and encourage alternative forms of saving, as the noble Lord, Lord Stoddart, said; take another look at the traditional controls of bank lending; and last but not least take steps to meet our endemic balance of payments problem.

In sum, we need a recovery strategy to ensure that growth does not rekindle inflation. I seek your Lordships' tolerance to expand upon three points which might help "to improve the working of the economy". I believe that what makes inflation in the UK almost inevitable is over-restrictive town and country planning, with the effect that that has on land prices and consequently ever-rising house prices. With that conies equity withdrawal, the feel-good factor, excessive spending and off we go to another boom: we spend too much and save too little. We are spending what we have not earned or even possess, as the illusory house market of 1988–89 with its tragic consequences has proved.

All that is fuelled by excessive bank lending because they are inadequately constrained by regulation to their monetary base. Since this subject was broached in a similar debate in your Lordships' Chamber some two years ago, the remedies are being more widely accepted —encouraging local authorities to release more land to meet housing demand where it occurs and constraining the reserve ratios of the banks and other financial institutions.

That leads me to my second point. I recognise that adequacy ratios are being tightened; but market man as I am, I believe that the Bank of England should exert its traditional role with greater determination. It should downgrade the banks' capital ratios if they securitise mortgages. It should downgrade them again if they lend money to customers at more than 90 per cent. of the value of the property, or at more than 3½ times the borrower's annual income. Building societies should be treated to the same effect. Houses should be subject to indexed capital gains tax just like any other investment. Last but not least, mortgage relief should be withdrawn.

In this way sensible long-term checks would be put on the amount of money sloshing about in this area. That would bring positive benefit to the first-time buyer due to the stabilisation in house prices and it would prevent the growth in credit collateral that has repeatedly fuelled our inflationary cycles. I hope that the Government will reconsider this problem. Due to the recession, house building starts are close to an all-time low, yet, out there, there is massive need in the housing market which must somehow be met without inducing a further boom.

We are left with a third major problem facing the economy, which is the supply side. The Government have done wonders to free up the labour market and reduce restrictive practices, and no doubt industry is much leaner and fitter than it was. But in capacity terms it is quite inadequate to meet the needs of the country at post-recession levels. Inevitably we shall enter a new balance of payments crisis as imports are sucked in to meet demand. That will mean that interest rates will have to rise to defend the pound and the whole grisly, self-inflicted stop-go cycle will start all over again. However, there is hope. I believe a number of helpful steps could be taken in this area and I hope that the Government will consider them.

Any examination of our balance of trade shows that it is not our inability to export that lies at the root of the problem —we export a higher percentage of our gross national product than do either Japan or Germany—but rather our propensity to import, and to import goods from others who have no inherent natural trading advantage. We import goods that could perfectly well be made within our own economy. A leader in the Daily Telegraph of Saturday 15th June stated: The recession has once again emphasised the fundamental weaknesses of the British economy that we do not produce sufficient goods of the kind we ourselves wish to buy. The folly of the view taken by some influential economists in earlier years that manufacturing is unimportant is now recognised". What a baleful and damaging influence that was within the Treasury.

The argument that manufacturing no longer matters at all and that the UK can make its way largely through service industries always was bogus. I see not a grain of evidence to support this concept in any other major trading nation. The world's most successful economies, both traditional and emerging, are those that give priority in the formulation of their economic policy to the manufacture of material goods for a material world. They do so not only because they are more exportable but because productivity gains from manufacturing are easier to obtain and, thus, high real wages can be paid without high inflation. Productivity is not everything but, in the long run, it is almost everything. A nation's ability to improve its standard of living depends almost entirely on its ability to raise output per worker.

Why bother to have science, engineering or chemistry at our universities if there is no outlet for these fundamental talents? As the world gets more scientific we should be aiming to make our trading base more so not less. However desirable tourism and the service sector are, most services are simply not exportable and cannot substitute for imports. We must expand our productive base as we need it more than ever. Present levels of investment, although better, are quite inadequate to meet a demand upturn.

Our manufacturing underperformance is a symptom of a more general economic malaise, because when a country is forced to use high interest rates as the mechanism for containing inflation or holding the exchange rate, it shoots itself in the foot because manufacturing industries—slow cycle, higher capital cost industries—are precisely those that are doubly hurt by high borrowing costs. As the service industries in turn become more capital intensive, this will apply to them too.

Perhaps it would be helpful to spell out the cost to business of inflation which, over the past four years, has totalled some 30 per cent. This means that the working capital requirements of every business in the country have gone up by 30 per cent. The clear proof of the effect of this is the record bankruptcies we see around us today, where companies starved of cash and sales simply run out of money. The flood of rights issues currently being handled by the Stock Exchange is a sign of larger companies trying to replenish their liquidity. But for smaller companies, reliant as they are on bank lending, there is no alternative but to retract or go bust. It is this retraction that has been so damaging to our productive base.

The matter has been compounded by the accountancy profession, which has sat on its hands over the introduction of inflation accounting. That profession continues to produce accounts which grossly overstate real profitability, by failing to index stock or make allowances for replacement of plant at present rather than historic levels. The consequence of this is that many companies are paying tax on wholly fictitious profits when they should not be paying tax at all. That is yet another blow to corporate liquidity. If the accountancy profession and the Inland Revenue had together conspired to think of a system more likely to damage capital investment and accelerate bankruptcies, they could not have bettered it. Hundreds of thousands of people who were encouraged—I helped encourage them—to start their own business over the past 10 years have been betrayed by a financial system that handicaps rather than supports them.

It really is ironic that full relief is given to all gains on house purchase and full indexation to the ownership of stocks and shares, but relief is no longer given to the wealth creating heart of the economy. While the general "across the board" cut in corporation tax was good for many businesses such as finance houses, property developers and cash businesses like retailing, the withdrawal of indexed relief was singularly bad for the high capital intensive business. Many of us believe that that is just the sort of business this country needs.

At this point when inflation is being contained—I give full credit to the Government for that—it is perhaps too late to introduce inflation adjusted accounts and indexed stock relief, but it would be timely to do something about the cost of money. That is a matter that affects every investment decision. A relatively simple solution is at hand. Your Lordships will recall a debate in this House earlier in the year on the report of the Science and Technology Committee. It clearly showed that there was no shortage of innovative ideas in the UK but rather a shortage of capital at the right price. This is a key issue. Over 20 years the cost of capital in the UK has been higher, and often much higher, than that of our competitors as a consequence of our anti-inflationary fiscal policy.

Currently interest rates are absurdly high. Unless real interest rates fall, there are limits to the amount of productive investment that pays at current levels. Investment is not and simply will not take place at an adequate rate and our supply side problems will remain. It is a sad irony that one of the consequences of being in the ERM is that our interest rates are likely to remain high when they should be falling due to German borrowing to re-equip Eastern Germany. They will repair their manufacturing base at our expense.

Somehow we must offset this handicap. Let us try to be positive about this. What steps can we take within EC competition policy, within our own control and without subsidy to strengthen our manufacturing base, to replenish its liquidity, to reduce the cost of capital and to mitigate the ravages of inflation on corporate liquidity? The concept of two-tier interest rates is unworkable, but what we could do is to allow our businesses to use their own self-generated funds for investment before they pay tax. The Japanese do this and, indeed, it is one of the secrets of their success. Let us take a leaf from their book. So, I would suggest to the Government that they re-implement the following policy: allow capital equipment to be charged as a revenue expense for taxation purposes in the year in which it is purchased. This is not a tax handout; it merely shifts the cash-flow benefit of depreciation back from the Treasury to the business concerned, and after some five years is virtually tax neutral. Accelerated amortisation was one of the most helpful aspects of our corporate tax structure prior to the Lawson reforms where he threw out the baby with the bath water. It should be re-introduced as a matter of urgency. As a fundamental matter of government policy anything which raises industrial and manufacturing costs and thus inhibits exports or encourages imports should be reviewed.

Reducing costs to our productive industries by tax mitigation would help counterbalance the inherent disadvantage of attempting to invest and grow in a high capital cost economy. One very much appreciates that the Government's sensible priority is to keep corporation tax low, but the re-equipment of industry lies at the heart of our economic success and should be a first call—even if other less capital-intensive businesses have to pay a touch more corporation tax pro tem.

Those and other changes must be debated more widely and not dismissed as special pleading from business. The Department of Trade and Industry, where we have had 12 Secretaries of State in 12 years, will, one hopes, under its excellent present incumbent, reassert its role as an influential department of state whose views really count.

In conclusion, I hope that as part of their recovery strategy the Government will take essential steps to tackle the underlying causes of house inflation and, more importantly, increase the nation's productive capacity by letting companies use their own self-generated funds for investment before paying tax. I fear that without such action the Grand Old Duke of York, in the form of an economic cycle, will be seen to have marched us up to the top of the hill and marched us down again.

I am very grateful to have had the opportunity to speak early in this debate and apologise for the fact that I shall be unable to stay until its conclusion.

5.20 p.m.

Lord Ezra

My Lords, with a general election looming it is only to be expected that attention should increasingly be focused on the economy; hence the importance of our debate today.

Of course, because we happen to be going through a recession, attention is directed mainly at the prospect 3 for recovery. A variety of signs are identified by the media every day of the week which appear to suggest either that we are on the way to recovery or that we are not yet on the way to recovery. On balance I believe that probably a slow recovery has set in. It will take a long time and for some time it will be accompanied by an unacceptably high level of unemployment. However, like other noble Lords who have spoken, I should like to concentrate on some of the longer term aspects.

It strikes me as very important that in seeking to emerge from the present recession we do not sow the seeds of the next one. The noble Lord, Lord Brabazon, spoke not only about signs of the recovery having set in; he considered that we were now entering a period, of sustainable, non-inflationary growth. I am afraid that I cannot agree that there are yet signs that that is likely to occur.

What worries me particularly is that in looking for prospects of recovery from the present recession we seem to be hoping for a resumption of consumer spending Yet it was precisely an excess of consumer spending which pushed us into the recession. The question can fairly be asked: how would the government of the day, from whichever side, deal with the level of consumer spending in the future when it reached a point of overheating? I recall the many debates on the economy which we have had since 1988 in which a number of us from these Benches have drawn attention to the overheating of the economy. The Government's response was that it was not overheating; it was real growth. As it turned out it was not healthy growth but a form of economic obesity. We must ask how we are to avoid suffering from similar excessive indulgence in the future.

I have recently returned from a meeting in France. I often go to the Continent, as do many of your Lordships. I met a number of industrial and financial personalities. France has an economy very similar to our own. It is much the same size. France has run into similar difficulties and has a high level of unemployment. The French have also coped increasingly well with inflation. The present rate of inflation in France, at 3 per cent., is lower than ours. But the French are worried about the future and how they can recover.

In their recent budget the French Government set out a policy for recovery. It is different from ours because it puts the emphasis on a resumption of investment and a massive stimulation of exports. The budget estimates show consumption running level, one year with another. They also show a high level of savings, of not less than 12 per cent., being maintained this year and next.

I believe that that is something that we should seriously consider. Should we not be looking at a way out of recession which really sows the seeds of long-term sustainable growth? I do not believe that a re-stimulation of consumer spending is the right way forward. I do believe that what is required is a stimulus of investment—and I hope that the Budget will include measures to achieve that —and a massive resumption of effort in the export market to improve even on the better results which we have recently achieved.

That is very much the view which has come out of the recent report prepared by the CBI's manufacturing advisory group. The report states quite positively, in respect of government relations with industry, that the policy of benign neglect is no longer sufficient. It calls for a new partnership between government and industry. It draws a distinction between support on the one hand, which would be welcomed, and intervention on the other, which the CBI does not ask for.

In particular the CBI report draws attention to the position of the DTI, which has figured in some of our previous debates on the economy. It emphasises that the dual roles of the DTI, on the one hand as a regulatory body and on the other as a body which is intended to stimulate enterprise, can no longer co-exist. The report calls for a separation of those roles so that the government department concerned with industry will wholeheartedly support industrial policies and fight its corner in Cabinet and elsewhere for that purpose and not be confused by its regulatory role, which must consistently be holding it back. I hope that that proposal will be considered very seriously by the Government.

The time has indeed arrived, appropriately with an election coming up, for a reconsideration of industrial strategy, for a restructuring of government responsibilities, for much greater stimulus of investment and more positive export promotion. I deplore the Government's privatisation of the insurance services group of the ECGD. That will not help our export effort; it will simply add a degree of confusion. More attention should be paid to the transport infrastructure and to training and research, as we heard yesterday the Government intend to do. However, it worries me that that effort is being made so late in the day. It is something we have been seeking for years and could easily have been financed at an earlier stage when we were receiving the benefits from the North Sea and when privatisation revenues were at their height. It is now being done—we welcome it being done at all—when it is likely to lead us into a severe PSBR situation, a borrowing requirement of no less than £10 billion this year and, as it is generally estimated, of not less than £20 billion the following year. Although we welcome the steps now being taken, can they be sustained alongside such a high PSBR? That matter must be considered.

We must have a positive policy towards the European Community. We have the opportunity to play an effective role there—the Prime Minister himself has said so—but, as my noble friend Lord Jenkins of Hillhead said, we appear to be making the worst of our position, probably ultimately signing the agreement on economic and monetary union but deploring it frequently before we get to the table for signing. That does not put us in the best negotiating position.

Above all, in the period ahead we must avoid diverging from our main task of bringing about sustained industrial recovery. I fear that one of those diversions is the proposed privatisation of the coal industry to which the gracious Speech referred. The Government say that they are continuing to prepare for that privatisation measure. The problem facing the coal industry is what kind of future it will have and how effectively we can reconcile its various difficulties and maintain a viable source of indigenous energy for a long time in this country with all the skills we have for exploiting it. That is the main issue, not the question of ownership.

However, if the Government are in a position to carry that through, I should draw their attention to two features which, above all else, must not be broken up in any privatisation venture. Those features relate on the one hand to safety and on the other to research.

First, the mining operation is inherently unsafe. British mining experience has shown that we have made it the safest underground mining venture in the world. I played quite a part in that during my period in the industry. That tradition and experience of safety cannot be maintained if the responsibility is broken up.

Secondly, research in the mining industry is concentrated in two research centres. The first is mining research. There again, Britain leads the way in long wall mining technology. Substantial exports of such equipment have been based on our research effort. The second is a research centre on coal and the use of coal which undertakes a great deal of work on clean-coal technology, now becoming much more important given the environmental pressures.

I impress upon the Government, with regard to any plans they have for privatisation, not to break up those research centres. The question of research arose when we debated the Electricity Bill. It was never made clear what would happen to it. Long-term research in electricity generation has in fact been severely curtailed by the existing generating companies whose pressures and objectives are different from those that existed at the time of the Electricity Council which co-ordinated the research. We should be warned by what happened in the electricity industry and prevent it happening in another basic industry.

I should like to conclude still on the subject of energy, but on a more positive note. I welcome the increase mentioned in the Autumn Statement in the funding of the Energy Efficiency Office. We have debated funding in that regard many times. We believed that it was inadequate, but the Government have announced that it is to go up from £42 million to £59 million. A large part of the increase is to be spent on the home energy efficiency scheme which is handled largely by Neighbourhood Energy Action of which I have the honour to be president. That organisation insulates the homes of people on low incomes, particularly the elderly. We are doing so at present at the rate of 200,000 a year. The increased revenue will enable us to achieve a level of about a quarter of a million a year and I am most grateful for that.

I thought, in concluding, that I would balance what I had to say with a positive expression of appreciation to the Government. I hope that it will tempt them to take on board some of the other remarks that I have made.

5.35 p.m.

Lord Campbell of Alloway

My Lords, it is always a pleasure to follow the noble Lord, Lord Ezra, especially in a debate such as this where he has such vast expertise, and more particularly today because, like the noble Lords who preceded him—my noble friend Lord Vinson and the noble Lord, Lord Stoddart of Swindon—he made a most constructive contribution. Whether it is right or wrong is perhaps for others to say, but no one can doubt the spirit in which it was made and the importance of the contributions of all three noble Lords to the debate in the context of the manufacturing industries.

The economy should not be considered in the abstract. In the classical sense, it must be treated as the management of the household. It is not wholly and exclusively concerned with the manufacturing industries. With respect, the way in which my noble friend the Minister, Lord Brabazon of Tara, dealt with the matter appeared to be just about right because he dealt with the subject on the basis of the management of the household. Indeed, there is no other sensible way in which you can deal with economics or economic affairs other than in the lecture hall, if you happen to attend, or in the classroom, where one is taught theory. I go back to my days at Cambridge before the war, but certainly to no practice.

By and large, one must take a broad view: the Government are to be congratulated and, broadly speaking, in difficult times, have got it about right. With regard to the Opposition's attempt to rubbish my right honourable friend the Prime Minister by name and to cast aspersions upon the honesty of the Government, I took notes of their charges of sustained disinformation and so on. I do not reply in kind. I simply suggest to your Lordships that such charges afford no substitute for reasoned and constructive argument on such an important occasion when we all have to do our best to express our opinions for what they are. worth.

There is no perfect empiric solution. As the noble Lord, Lord Jenkins, with his experience, said, it is a deep-seated problem. As my noble friend Lord Boyd-Carpenter said, it is a world problem. One cannot pluck a cure out of the air or off an apple tree and say, "That's it". One can only apply sane, sensible and flexible policies.

It is interesting to note that, if this rather broad and simple analysis of the background as I conceive it is right, the Opposition have made no specific charge of mismanagement that I could note down and seek to answer. That is why I put down my name to speak in this debate. But I do not know the charge that I am supposed to answer. Assuredly, I would have listened to this debate in any event to hear what policies were proposed by Her Majesty's Opposition, but I have heard none. I heard some very constructive ideas proposed by the noble Lords to whom I referred, but I heard no constructive proposal advanced by the Opposition.

Down in the engine room of our export economy with its balance-of-payments set-up bolstered by oil and integrated within the European Community system, the orderly conduct of industrial relations is absolutely essential. That is why I say that my noble friend tie Minister got it right. As he said, it is the cornerstone. Without that one can forget the rest. Why?—because it affords predictability as to cost and supply not only of goods but of services.

Of course there must also be due provision of certain public services—the noble Lord, Lord Ezra, touched upon that point—such as transport, electricity, gas, water and telecommunications. Without the due provision of those public services both manufacturing and the services industries would grind to a halt. There must also be a benign fiscal regime, perhaps such as was referred to by my noble friend Lord Vinson, and financial policies to contain inflation, maintain a stable exchange and afford credit.

But with such a wide canvas, which also covers training. retraining, promotion of employment and problems arising from our integration within the European Community structure, one has to use a broad brush. Using that brush, is it barely to be doubted that, taken by and large, over the past 12 years the Government have duly discharged their obligations in the conduct of economic affairs? Indeed, would it not be fair and reasonable, standing back, to say that certainly governments make mistakes—we all make mistakes—and when governments make mistakes they are more important than the mistakes that we make? But would it not be right to say that by a shrewd, flexible combination of relevant measures and policies the United Kingdom, over this period, has literally been raised from its sick bed and from being the sick man of Europe?

The Opposition say no, but the difficulty is that our status in the world 12 years ago is not judged by the Opposition on the Benches today. I do not seek to be impertinent to noble Lords, but it is judged by other members of the European Community and that is as it was seen by them 12 years ago, when the Administration, which I support by and large, came to power. That is how we were seen. And that is the immeasurable service that the Government which I support have done, whatever else they have or have not done. That is a plain fact of international life.

If, as it is said, we are now seen in a different light, that is due almost entirely to the fact that down in that engine room there have been 12 years of relative industrial peace. Let us not forget that as an achievement and relevant policy of this Administration. It led to our remarkable recovery, a recovery which would not have ensued but for that.

It is well understood that the Opposition should table an amendment. But the terms in which the amendment is cast, humpty-dumpty, as a charge of damage to the economy by the party which I support, beggar credulity. Is the winter of discontent or the sad saga of mass civil disorder so soon to be forgotten? Is it to be forgotten that 12 years ago we were a second-rate economy, clicking our heels, toting the begging bowl around at the IMF? Is all that to be forgotten?

As it stands, the amendment has a false ring about it and as a coin of worth it would not pass muster on the nail. How is it to be supposed that the legal reforms in the trade union laws, introduced by the Thatcher Administration to remove the clog on productivity, have caused, in the terms of the Motion: serious and unnecessary … damage to the economy and — social cohesion of the United Kingdom", or that the measures proposed in the Citizen's Charter or in the Green Paper, Industrial Relations in the 1990s, could have any such effect? It seems to have been forgotten—so many things seem conveniently to have been forgotten over the decade or the 12 years since the Conservatives came to power—that it was in fact the rank and file membership of the trade unions which supported the Conservative advent to power and indeed sustained them in power. The members of those unions may well welcome the proposals in the Green Paper to proscribe certain aspects of malpractice. For all one knows, they may well welcome the consumer protection proposals in the public services in the Citizen's Charter, a document that was once described by a noble Lord from the Front Bench opposite in a fit of misjudgment of exuberance as "waffle." Indeed, it was on that occasion, if I am not mistaken, that it fell to my noble friend the Leader of the House to expose the ineptitude of that description, which indeed he did, as recorded in Hansard.

Whatever the status of that document, its acceptance by the electorate or any section of the electorate, it is idle to discuss it here and now or to seek to pre-empt an election. This is a matter for the views of the electorate. But if principles are the rudder and compass of policy, are not one or two things totally plain? First of all, those in command of the ship of state, by isolating the militants and bringing industrial relations within a new dimension of the rule of law, have put the economy of this country back on its feet; they have made a substantial contribution to social cohesion; and they have set and propose to continue to set the only safe and proper course in the interests of the economy and the consumers.

Is it not equally plain—and I stress this and shall not repeat it again—that the party opposite has not as yet decided what course it is to set? Is it not plain that the amendment is moved as a critical and destructive political tactic without offering any viable constructive alternative resolutions. That is a tactic which is totally permissible. I do not criticise the tactic; I criticise only the content.

I would have dealt with certain matters but I have run over my time. I wish to conclude by expressing the hope that no legislation to reform industrial relations will be introduced until after the next election; that the policy of each respective party may be made plain in each manifesto; that public services—referred to in Chapter 4 of the Green Paper in implementation of page 46 of the Citizen's Charter—may be defined by express primary legislation; and that no enabling powers to designate or amend categories shall ever be conferred on a Secretary of State by subordinate legislation such as by regulation or statutory instrument.

Perhaps I may express the hope that after the next election there will be a consolidation statute on trade union laws. I hope that the Motion tabled by the Opposition may be rejected on objective consideration of its merits.

5.52 p.m.

Lord Jay

My Lords, the Minister's speech today sounded to me as though it had been written not by the Treasury but by the Conservative Central Office. It reminded me of the golden scenario about which we used to hear a year ago. Noble Lords will remember that at that time we had not merely an economic miracle but the golden scenario too. The golden scenario—using the broad brush, as the noble Lord said—about what was to happen in 1991 went something like this: joining the ERM was the best way to revitalise the British economy; the new fixed exchange rate would, according to the fantasy, enable interest rates to be speedily reduced; industrial production and investment would be stimulated; growth would be resumed and unemployment would fall during 1991. In the resulting glow of prosperity all round, a Tory Government would be re-elected some time at the end of the year.

Those of us who took a less imaginative view predicted that a fixed and over-valued exchange rate would produce the same results that it has always produced: an old-fashioned deflation with still high interest rates, falling output and investment, and rising unemployment. In the corresponding debate in this House on 14th November last year, I was rash enough to forecast that unemployment would rise by 50,000 to 70,000 a month and reach 2.5 million by the end of 1991, with the balance of payments still in deficit.

What has actually happened? Output and industrial investment have both fallen, the total output by 2 per cent. throughout most of the year, as the Government now admit. Unemployment has risen by 65,000 a month. It now stands at just under 2.5 million and is still rising towards 3 million which, on the previously accepted method of calculation, it has probably already reached. The balance of payments deficit for the coming year is now forecast by the Government to be £9.5 billion.

Indeed, the Government admit that the balance of payments deficit is partly due to the artificially high exchange rate since it is said in this spring's Budget red book that, owing to the somewhat higher level of the exchange rate, exports are forecast to grow slowly".

Until 1980 UK governments had always been forced to choose between the objectives of low unemployment or a viable balance of payments. Under present policies, and in the ERM, we have neither. I believe that those factors explain the Government's new definition of recovery: a state of affairs in which things are getting worse not quite so quickly as they were six months ago. We are now promised—we heard the promise again today—not recovery but predictions of recovery. It is little comfort to discover that in France, which also joined the ERM, unemployment has been rising at the same time and that, at about 10 per cent., it is even higher than our own.

The present level of almost 3 million unemployed has been deliberately imposed by government policy. It is surely shown by the present Chancellor's famous remark that it was, "A price well worth paying" for restraining the rise in the RPI.

Mass unemployment means first a huge waste of output, goods and services which we might be producing and consuming. At the very least, 10 per cent. of the total productive capacity of this country must be idle and unused at the present time. However, with a GDP now of £600 billion a year it means that we are depriving ourselves of about £60 billion a year of real resources that we might have. Incidentally, £60 billion is roughly equal to the total yield of UK income tax.

We argue fiercely about £1 billion or £2 billion more or less for the health service or defence, and at the same time we throw away about £60 billion a year through our economic policies. Purely financially, this loss due to unemployment shows itself in huge extra budget spending directly on unemployment, which I understand now runs at about £20 billion a year.

Secondly, under-use of capacity on this scale means falling productivity resulting inevitably from idle plant and industry working short time. Again, the Government's red book this year admitted that by stating: productivity has fallen, as it usually does when the economy goes into recession". Thirdly, every time the economy is acutely depressed, as we all know that it now is, real capacity—and in particular manufacturing capacity—is lost, much of it for good. Plants that would be perfectly viable with a reasonable level of demand in the economy have to be abandoned because they cannot any longer be financed in idleness. The same is true of labour. There are now over half a million people in the UK who have been unemployed for a year or more. Inevitably their skills deteriorate and are often permanently lost.

Such is the price we have to pay economically for a policy of deliberately tolerating mass unemployment at this level. On top of all that, as even Mr. Nigel Lawson, reminds us, mass unemployment beyond a point leads to unrest, political instability and even crime. Yet, with present policies, unemployment is likely—indeed is almost certain—to increase further for at least another year. The Government have apparently now abandoned all responsibility for the level of unemployment. Their doctrine is that we are suffering from a mysterious visitation—which they call recession - which will one day just as mysteriously disappear through some force of nature. According to this doctrine, all the Government can do is to stand by and watch these tides flowing this way or that. Unfortunately, recovery from depressions does not necessarily occur automatically. It did not do so in the Great Depression of 1933 and it is not happening in the United States at the present time.

As I see it, the reality now is that even in deep depression we have a £9.5 billion balance of payments deficit and heavy unemployment at the same time. Frankly, so many mistakes of policy have been made —and, incidentally, so many instruments of policy have been thrown away—that probably the only way to escape from the present deadlock is to lower interest rates substantially and soon and let the exchange rate find its own economic level. It is no service to the public to hide from it the fact that, unless we act in some such way soon, the outlook for the economy with the present policies and a fixed exchange rate is prolonged stagnation with a chronic 3 million people unemployed. That will further weaken this country not merely economically but also politically and diplomatically.

6.1 p.m.

Baroness Denton of Wakefield

My Lords, this is my first experience of a debate on the gracious Speech. I have noted with interest the division of subject matter during the four days and have wondered at the wisdom needed to make these decisions. There is a total interlinking of a successful economy with all other aspects. I was interested to see that view confirmed in the amendment tabled by the noble Lord, Lord Williams of Elvel, by relating the economy to social cohesion. I hope that the noble Lord means the same as I mean: that profits are wages and the necessary support for the social infrastructure. Although his Greek is superior, we are on common ground about people being important.

It has been an interesting week in industry. A week may be a long time in politics but it is a short time in industry. However, with the CBI conference, the British Telecom figures and major dramatic changes in one of our large commercial companies there has been an opportunity to observe events as they are and not as they are historically measured or forecast. I have a nervousness about surveys. When such forms arrive in a company, even government forms, the skill is not in completing them but getting them onto somebody else's desk.

Two events that happened last week strike me very firmly. If one reads the results of British Telecom without being critical of the chairman's salary—which I confess is difficult—or is concerned about the strength of the regulator—which is crucial—one has a company apologising for making profits and looking for a brownie point because of its downturn in the latest quarter. That is ludicrous. Are we not in danger of being driven by the lowest common denominator and leaving managers without motivation? When talking about the health service on this morning's "Today" programme the interviewer asked, "Is there not a fear that this money will go into management?". If money does not go into management and management training I fear that in a few years' time the noble Lord's amendment could be right.

In Washington recently I spoke with representatives of a major electronic company looking to locate within the Common Market. I was obviously pitching the cause of the West Midlands but was told that the UK could not be on its list because it did not have the skill levels to compare with its German colleagues. That overrode the language disadvantage. How did they perceive that we did not have the skill levels? They said that we had told them so. Time and again they had read reports from this country that we did not have trained people. Of course we do not have enough trained people—there is always further to go —but we have some of the best skilled people in manufacturing and engineering in the world. It is sad that we are giving the world a different message. Fortunately, as my noble friend Lord Boyd-Carpenter pointed out, the Japanese came and looked for themselves. Digging our own holes and shooting ourselves in the foot will not be the climate in which we attract growth of the economy. That is on the whole very British. The Japanese buy the cars that they build; we buy other people's cars. German trains do not always run on time but people believe that they do. The French have major industrial conflict but it is not fed around the world by the news networks day in and day out. One of the first requirements for the economy to gain in strength must be our own commitment to it and confidence in it.

That brings me to the CBI conference. Attendance was smaller than usual. Although that may be bad for the hoteliers in Bournemouth, is it bad for British industry that people are working at it rather than talking about it? As my noble friend Lord Brabazon said, conference was confident that manufacturing output had levelled off and that an upward curve was ahead. It was also realistic and many directors with optimistic views of the coming year were returning to their companies to take out more costs and inevitably more people. However, I can say with confidence that they will not be taking out more women managers because, despite the CBI consisting of those business leaders who applauded the Prime Minister so vigorously at the "Opportunity 2000" launch, one did not need two hands to count the number of women managers visible.

It is obvious from their action that an upturn in the economic climate will not take us back to where we were. It will take us forward but the shape will be very different. Many years ago Machiavelli wrote that change was difficult to instigate as protectors of the old order held on to their security. A recession is a painful but inevitable means of forcing the pace of change. There will in future be more investment in technology in all areas. That will be at the expense of some people but to the benefit of others who will become more highly skilled and divorced from repetitious work. Measuring the state of the economy only by unemployment figures is no longer possible. In future Budgets it may be possible for the Government to support by fiscal means investment in technological solutions which will increase our global competitiveness.

Our economy must build on global competitiveness and I must disagree with the noble Lord's amendment that the Government have caused serious long-term damage to companies and to the economy. Companies have been forced to put their houses in order and to play on the international scene. It has always been interesting to note that the companies which in the past have not received government largesse, such as those in the pharmaceutical industry, should emerge as infinitely more successful global players than those in the defence industry which have been reliant on government grants and, even worse, costs plus contracts. I have yet to discover how anyone can run a successful company operating on the cost plus basis. Additionally, I have never found it helpful to the future of the manufacturing industry for the only profit in the company to come from the Treasury and to be based on currency gain.

In recent years we have seen manufacturing industry turn round from the philosophy of, "What can we build?", to, "What do our customers want?". I fear that I must share the view of the noble Lord, Lord Stoddart of Swindon, that building vans is not difficult; building vans which the customer wants and will buy is difficult. Technology has made it possible for small vans to do what the large Ford vans did so well for so long.

Quality has become a hygiene factor for good companies and it is built in and not inspected for afterwards. The power of the manufacturing director has been balanced at the boardroom table by that of the sales and marketing director and as a team they can enter world markets.

We have reason to be grateful to the Japanese for showing us the importance of long term strategy and core focus and for emphasising that knowledge is not a prerogative of senior management and that a team covering the whole of the process is an efficient way of improving that process. The lessons are well learned by many British companies.

We should be grateful, too, to the Government for having the foresight to encourage inward investment when other European countries were putting up barriers—invisible in many cases, but totally effective at keeping inward investment out. The result is now that in this economy, of which the noble Lord is so critical, we are about to become a net exporter of both video players and cars and probably other products. We have to be grateful that the Government were prepared to go to the table and ensure that other member countries of the Community played by the rules and accepted these products, and that they have given us the opportunity to show that a British workforce can build world-class quality.

I should like to move nearer to the area of which I have the greatest knowledge; that is, the Black Country. The gracious Speech identifies that work for the regeneration of our cities will continue. We have been working for the regeneration of the Black Country with the development corporation for four years now and, with government money to pump prime, have managed to achieve success even in a difficult climate.

We have built, or have under construction, 4 million square feet of industrial and commercial floor space. Four years ago I negotiated rents for our own office at £2.50 a square foot for refurbished premises; the latest new building opposite us is in the market at £15 per square foot. We have helped to return some wealth to the area.

We have created 7,600 jobs from new schemes and, although there have been losses from some companies —not all from failure, but some from increasing productivity—there is still a net gain in jobs in the area.

Eleven hundred homes have been built and, even more important, sold. Companies investing in the area have bought land, built houses, sold houses and bought more land —hardly a failed economy. It could just be that those houses were sold because they fulfilled local needs for small starter homes and that the final cost to the buyer bore some relationship to the cost of land and the cost to build, which could not be said about housing prices just before the downturn. Over our lifespan so far, we have attracted £350 million worth of private investment to be firmly committed to the area, which means that we are achieving a gearing ratio of four to one on our use of government money.

Now, we are entering a new phase, whereby, after years of assembling and reclaiming land, we have substantial packages to market and people are going out and selling them. There could be lessons to be learned from success in this small 11 square mile patch. It may be small physically, but, with 35,000 people living in it and 76,000 working there, would it have happened without us? It seems extremely doubtful. The £100 million road, authorised by the Department of Transport this year, was not even in the submissions from the local council when we arrived, yet it opens up acres and acres of dereliction. Developers had little confidence in the planning committees, whereas now, having discussed their applications with our officers and met our very stringent environmental requirements, they know they can bring their bulldozers on site the same afternoon as the meeting. We do not ask them to tie up their money and ambitions for endless periods of political wranglings. We were brave. We helped developments to start by providing funds for site reclamation with claw-back agreements. I am pleased to report that we were the first development corporation to receive a claw-back. We have been involved in public consultation; we have listened and we have trained; we have a projected spend of £2 million, over three years, on training. The areas range from foundries to construction to security, and I show no prejudice in telling your Lordships that the money invested in training women returners has represented some of the best value we have found. The women have found jobs quickly and many have triggered a hunger for qualifications, which can only be to the benefit of the area.

We have ahead of us a local government Bill and it will be interesting to see which of the lessons learned in the hardest possible climate can be used for the value of future regional developments. For regional development has proved hardy enough to weather the storm. London and the South East have bent and uprooted in the tough climate both physically and very noisily. However, if one talks to people in the insurance industry about the great storms of 1987, they will tell you that the wind speeds were no greater than the wind speeds that blew through Scotland in 1967; there was just a lot more to hit and it was a lot closer to the media, as was the South East recession. The media is an area where we have not succeeded. It is possible for them that the end of the world has been moved in recent years from Watford to Milton Keynes; it still has a long way north to go.

Much of the success in the Black Country, I am pleased to say, has been built on industrial and commercial business, but these are the blocks around which retail and service industries provide the cement. I think it important that we do not allow their success to fade. Jobs in those areas, described condescendingly as "Mickey Mouse" by many people who should know better, are real jobs, bring income into real families and allow people to return to work, for them to be part of a team and to learn to work. The current leasehold rental systems on retail property are long overdue for examination.

The learn to work brings me full cycle, because if there is one part of the gracious Speech which has a crucial effect on the economy, and is of crucial relevance to the economy, it is that: Action will be taken to improve quality and choice in education". Industry can work wonders. It has. However, it needs the raw material to enable it to compete worldwide. Improving and constantly focusing on our educational programmes will be the long-term key to our success. Other Members of your Lordships' House have, arid will, swap figures of great magnitude, but they are all built up of single units. I hope that I have managed to share with your Lordships policies which have allowed growth and a bright future.

6.17 p.m.

Lord Sefton of Garston

My Lords, I too could relate my experiences of a development corporation, going back to the movement which the Labour Government started in the 1940s. There were new town developments all over the country. I accept the case which is made out for the development corporation in the Black Country. Elsewhere, the same story can be told. Runcorn could have boasted about being the first new town which had the Japanese investing in its industry. We could have boasted that we were the first to have finally persuaded the Government to send to it a department of the Ministry of Labour. I have no doubt that today Merseyside can boast that it holds a garden festival and that it has improved the Albert Dock and turned it into a tourist attraction.

When all that has been said and tribute has been paid to the work carried out by the new town corporations, especially in the north of England, there remains the undeniable fact that the differences which existed before between the North and the South still exist. The deprivation suffered in the North is just as bad as it ever was. It has not improved in relation to the South East.

I make no apologies for the fact that I tried to guess how this debate would proceed. Of course, it has gone as I forecast. People have spoken about macroeconomics and whether or not the Government are right in doing this, that or the other. One side has said they are and the other side has said they are not. I do not wish to become involved in that because I do not claim to be sufficiently clever to decide whether we are coming out of a recession, going into a recession or staying in a recession; I do not know.

I was tempted to ask a question of the noble Lord, Lord Brabazon, yesterday as to whether he would publish all those optimistic reports and surveys so that we could all read them. He was questioned about the accuracy of the estimate or rather lack of an estimate of unemployment figures. He replied that it is impossible to be precise in estimating unemployment figures. I was tempted to ask him in which economic estimates this Government have ever been precise. I have no intention of getting involved in macroeconomics and whether or not this country is coming out of a recession. I am more interested in the latter part of the amendment that has been moved: damage to the economy — and thereby to the social cohesion of the United Kingdom".

In 1979 I made my first speech on the Address and I know how one feels. I was brave enough to suggest that there was a belief in Great Britain that the country was a tremendous financial centre which was perhaps under threat. In addition, when the Financial Times started printing a copy in Frankfurt, it was felt that that might indicate that we would lose our privileged position as a great financial centre. I was pooh-poohed. This man from Liverpool was coming down here suggesting that our sacred citadel, the capital, was under threat. It does not seem so secure now, especially if the Government are going to dither about whether we will wholeheartedly take our place in Europe.

Whether we do or not, it is important that the south east of the country be made viable, a place that will attract people from other parts of the world. It must be a place to which financiers and big businessmen wish to come. Do they want to come now? Is the capital of Great Britain such an attractive place, commercially, socially or in any other way? Is it so great that it will attract people? Of course not.

In 1979 I also drew attention to the fact that in the North people believed that there was a North-South divide. Some people even suggested that I was imagining it, it was a figment of my imagination that a divide was growing up between the north and the south of the country. They do not say that now. Even Mr. Heseltine admits that the divide is there. He went so far as to suggest, having seen some of the problems in Liverpool—as the noble Lord, Lord Alport, said from the Benches Opposite in the debate on Liverpool —that, if there were a revolution in this country, it would probably start in Liverpool. He said it because he had seen the deprivation, suffering and anxiety of the people there. He had begun to understand.

I plead with the Government here to begin to understand the anxiety, the depression and feeling of hopelessness, the feeling that people have been deserted by our prime institutions of political government. The Government should begin to understand and do something about it. I pleaded that whenever we had development in the South East and discussed increasing the wealth and prosperity of the capital city of Great Britain, we should give just a thought to the consequences of the development for the rest of the country. I thought that perhaps when we were proposing and building the Channel Tunnel it was a sufficiently important and large-scale development to have consequences for the north of England. Therefore I suggested to the House that we should have an inquiry and examine the consequences of building the Channel Tunnel for the rest of the country. What did the Government say? Oh no, there was no need. The committee managed by the Government said that perhaps there was a need to consider the consequences upon Kent. I wonder what the consequences of the tunnel will be, when it opens, we hope, in 1993 for the west coast of our island. British Rail has evidently made up its mind that it will concentrate on the east coast. Bravo for that area; hard luck for Merseyside. We shall have one container depot, which will not encourage more activity in Merseyside.

My belief is that the tunnel will have a very bad effect upon the west coast, particularly North Wales, Holyhead, and Northern Ireland. I notice that the Leader of my Party is pleased with the reference to North Wales. I am glad. All this has been done without any thought. With the advent of Mr. Heseltine's concern about Liverpool and other places, I thought that things would change. Then along came Canary Wharf. Would that be a fine thing? Of course it would. Did anyone suggest to me that it would not have an effect upon the City of London? People are not saying that now. The poor old estate agents and people who deal in property are suffering and down go the rents. Did the Government consider the consequential effects on the City of London? No, they allowed it to go ahead. They said, "Let private enterprise move in. Not only that, pay it to move in". They give it millions of pounds to put up a monstrosity that need never have been built if we had made proper use of the office accommodation that already existed in London.

Did anyone give that consideration? Of course not. Regional policy had acquired a bad name, "regional" was a dirty word. There was regional policy in name only, all it provided was aid to the deprived regions. That is not what we want. We want a regional policy that also takes into consideration the problems that exist in the South East.

I swore that I would not take longer than 10 minutes and I will do my best to finish in time. I wish to deal with what has happened in London. I have mentioned the Channel Tunnel, Docklands and Canary Wharf. The airport sits right on top of the docks, much to the comfort of local people! On the site at the Tate Gallery, the bureaucrats in London bought it for £300 million and then told the Government. When I asked the Government whether it was true that we were buying the site at the Tate Gallery they said "Yes". Did we know what for? No. Did we know how many people would be employed there? No, the Government did not know anything about it, the PSA had evidently done it without their knowledge.

Another example is Vauxhall Cross. Noble Lords may not even know what that means but they will shortly. It is a building that is being erected on the other side of Vauxhall Bridge. It will probably employ 6,000 people according to the estimate of the developers. I understand it was built as speculative offices and that the Government have bought it. I ask the Government what for. Perhaps the Minister will tell us in his reply what it is for.

Rumour hath it that the British KGB will go there. What the hell we want to put the secret service into London for I do not know. It could well be the other side of Birmingham. No one considers that. Why do we need such a large institution? I thought we were talking about a peace dividend; perhaps they will spy on the Russians to see how they affect our economy. Or perhaps they will spy on our partners in the Common Market and see what they do.

I conclude on this note. I believe that we are inextricably bound up, economically and socially, with the continent of Europe. I have always supported that view. I told my own party that they were talking nonsense in opposing the idea of going into Europe. Regardless of whether they or anyone else liked it, we would go into Europe because economic forces would compel us to do so. If we go into Europe, I want London to be one of the best financed capital cities in the world. We had better make our minds up and get in there and try to make the bank in the City of London the premier bank in the Common Market. We had better hurry up and decide and then go in.

Over and above all that, social cohesion means that when the Government plan or decide on anything such as changing all the methods of communication between here and the Continent, they should take the whole country into consideration. It means that we must begin to plan. I know that because of events in Eastern Europe central planning is now a dirty expression. Nevertheless, unless we plan our economy centrally it will fragment and individual companies will begin to take decisions which are purely in their own interest.

I am not going to talk about the problems of Liverpool. I say to both parties that for 45 years while I have been in active politics I have been fighting to redress the balance between North and South. I am prepared to admit that I have failed because that redressing of the balance has not been achieved. In the 1960s there was just a glimpse of it because we nearly got big investment in Liverpool. However, some do-gooders wanted to keep the Albert Dock so we did not gel the investment. Since the 1960s there has been a steady decline in the belief in Liverpool among ordinary working class folk, who are just as entitled to a decent standard of life as people living anywhere else in the country. There is a general belief that those at the centre of our political activity have neglected Liverpool.

This is not a party political issue, but one where the economy has been allowed to run rampant. Our party should have done something about redressing the balance but it did not. Politically, we are now suffering for that. There is no need for Mr. Heseltine to talk about the possibility of a revolution and suggest that it will start in Liverpool. It has already started. It is not a violent revolution at the moment and I hope to God that it never will be. I hope that we shall never see again the riots which occasioned the visit of Mr. Heseltine. But there is a revolution because people in Liverpool are beginning to believe that the North-south division has now become the division between them and us. "Them" are in the south east of England and "us" are residing in the North, sometimes in misery, because of the South.

6.32 p.m.

Lord Wade of Chorlton

My Lords, I am another one of ' us" because I too come from the North West, which I also shall be referring to. I have always believed that government should only do what individuals cannot do for themselves. It also follows that where matters can only be dealt with by government the government should see to them. There are a number of measures related to this debate on the economy which I believe the Government are not taking, but which they should be taking and which only they can deal with. They do not relate to expenditure but, to a large extent, to attitudes.

I refer to Sir Robert Peel's Tamworth Manifesto in which, as noble Lords will remember, he referred to, that great and intelligent class of society… which is much less interested in the contentions of party, than in the maintenance of order and the cause of good government". The noble Lord, Lord Williams, said, in the only part of his speech with which I agreed, that the economy is about people. It is the mass of people that we most need to consider. The prime concern of the Government should be an ever-growing and steady improvement in the economy if we are to benefit all people and give them a better standard of living. That is what the economy and its growth should be about.

In that context I wish to refer to one or two issues in the North West to which the noble Lord, Lord Sefton, also referred. I shall refer to some of the issues which do not cost money. The Government are not taking decisions which only they can take on matters which can do a great deal to improve the economy of that area. The North West is the second largest region in the United Kingdom. It is the most important for exports from this country. It is the most innovative area for manufactures and, in particular, new manufactures.

During the past 10 years the population of the North West has fallen and it is the only region where that has happened. It is the region with the lowest increase in the dwelling stock. The number of houses built has been less in the North West than in any other region. There is another figure which is depressing. We have the highest level of young people leaving school without qualifications. At the same time, we employ more people in agriculture as a proportion of the population than any other region. The average number of people employed in the United Kingdom in agriculture is 1.4 per cent. In the South East it is only I per cent. Of those in employment in the North West 4.6 per cent. are employed in agriculture. I see that the noble Lord, Lord Cledwyn, is nodding his head because exactly the same situation applies in Wales.

We are all aware that the one industry in this country which is under the greatest threat and which will suffer more economically than most is agriculture and many of the industries associated with it. So, of all the regions the North West is the one where we are likely to suffer most from the loss of jobs and economic activity as the agriculture industry declines. Therefore, we must be very aware of the need to create other centres of wealth to replace the economic activity now coming from agriculture.

On the good side, I refer to the fact that we have had an enormous increase in the GDP per head in the North West. During the 1980s the manufacturing base and its GDP increased in the region by about 76 per cent. We are now the second most effective area in terms of GDP within the United Kingdom.

The North West contains a great number of hard working people. There is a great deal of innovation. Yet it is a declining area as a great many people are leaving because standards are not being generated in the way they see them being developed in the rest of the United Kingdom. There are two or three provisions which could go a long way to redress the situation, but governments are preventing it. There is only one government that can have any impact on the present position.

The North West appreciates its problems and wishes to take a number of actions to redress them. There is a great desire among the people of that area to have economic growth, the growth of cities and to improve inward investment. Only 4 per cent. of the total inward investment into the United Kingdom comes to the North West against its GDP of 10 per cent. Therefore, we are not offering the attractive investment opportunities, as are other parts of the country, to those who invest on a multi-national scale. Inward investment, which is valuable to us, is not made by people who will decide between Liverpool and Birmingham or Chester and York. These people decide between the United Kingdom and France or Germany, Greece or even Eastern Europe if the investors are offered more attractive sites and opportunities in those countries than we are able to do here.

We need to have a much more positive approach towards encouraging the selection of attractive inward investment opportunities to the North West. We are aware of the problem in the North West and have taken great steps to develop our structure plans to meet it, but it is this Government who have taken action to stop them. I find that extremely unacceptable and it is also unacceptable to many people in the North West.

Salford University has recently demonstrated that a daily flight between Manchester and the United States of America would provide 1,400 new jobs and increase the economic activity of the area by £14 million. That is, for each flight between the USA and Manchester. We are at present seeking to build a new runway at Manchester airport. I find it odd that we are having extreme difficulty in doing that. Clearly there is opposition to the project, but it is essential for the economic growth of the area. It is not a question of whether we might or might not build a new runway because it is essential. It will bring enormous funds to Greater Manchester, Merseyside and the whole of the region. The Government seem to be able to stop that development, which will bring investment, but do not seem able to help us to make the necessary decisions which will encourage more investment. We in the North West cannot understand that. In order to get further flights into Greater Manchester airport, American airlines are prepared to invest. Two American airlines wish to commence services from Manchester to the United States, and would do so tomorrow. The Government say, quite rightly, that the first opportunity should be given to British Airways, but no British airline is prepared or wishes to do so. As a result the Government have not yet given permission for any of the American airlines to proceed with their offers which the Manchester airport authorities wish to accept.

This is yet another instance where the Government, through their policy decisions, are preventing a great deal of commercial and economic activity which could be a great boost to the North West. It would not be at great cost, but it would do a tremendous amount to improve the economic position of the North West.

We were very glad to see the extra funding for transport. But a number of essential issues remain. There is no railway line to Manchester airport, so passengers to the airport have to travel by bus or car. We are anxious to see a proper electrified line running between the airport, the city of Manchester and other prominent cities in the North West. We were hoping that resources would be made available for that. Clearly such plans are in the programme and British Rail is anxious to carry them out. We hope that the British Government will ensure that, if they are to make commitments, they will make the area one of their primary targets to ensure that the airport will have the opportunity to grow, as undoubtedly it can grow.

One of the successful industries in the North West has been the Mersey Docks and Harbour Company. The noble Lord, Lord Sefton, may not think that that company has been improved as much as it has, but the abolition of the dock labour scheme has turned that company into one of the most successful companies in the North West. It has improved because the Government, through my noble friend Lord Brabazon, did a great job in promoting the Bill which abolished the scheme. The scheme had permitted restrictive practices to hold back the performance of that company and of the whole of the city. Yet, at the same time, our Government are imposing light dues on vessels using UK ports—dues which are not having to be paid by vessels visiting any other European port. Those dues have increased twice this year. It seems to me that it is just as much a restrictive practice to impose dues on our ships visiting our ports, when dues do not have to be paid in our competitors' ports, as it is to have a restriction on how to utilise labour. It is important that restrictive practices, which can apply in all areas, and not just in the use of labour, should be taken away.

We have already discussed the need to bring inward investment to the UK. In that regard we must compete with countries and cities throughout the whole of the EC. We must also look at how we utilise the funds which are available from the EC. It is a matter of considerable anxiety to many of us that companies can invest in the UK and get the full benefit of grants available from the EC in addition to grants from their own countries. The principle of additionality does not apply as it does in this country. It is against the interests of many of our companies in the UK. If that rule did not apply they, too, could receive grants from both the EC and our Government. But because of our additionality rules that is not possible. They lose the benefit which they would have had; whereas our competitors get the benefit of support from their own countries together with the support of the EC. I can give many examples. For instance, the German company, Muller, is investing a large amount of money in Cheshire to build the biggest yoghurt plant in the whole of Europe. That company is getting the full benefit of funds from its own country, from the Bavarian region in which it operates, from the EC, and all the benefits provided by the UK Government. It is getting many more benefits than its competitors or that I would receive if I wanted to build a yoghurt factory in Cheshire. I would receive only the regional grants that would be available in that area.

There are a number of issues which it is now essential for the Government to consider in order to make the growth of our economy the most important matter for our society. There are many other pressures on governments to protect this and to protect that. However, there are certain times in our history when we should put those other things on one side and say that the first step we have to take is to stimulate the economy and create the wealth that will then make the other things possible. If the Government do not make that a clear priority, then the rest of us cannot.

I conclude by referring to the amendment of the noble Lord, Lord Williams, which I find utterly and completely unacceptable. Although I have drawn attention to a number of actions which the Government can take to improve our region, I have no doubt at all that the prosperity we have created over the past 10 years has been enormous. I have seen individuals whose wealth has surpassed all their dreams of 10 years ago. The noble Lord, Lord Williams, referred to the fact that people go without overcoats, yet at the same time the Littlewoods company is selling more overcoats each year. The largest bedding company in the world is in the North West. The man who owns it refers to himself as the manufacturer of the world's biggest playpens. He sells more and more mattresses each year. The way that sales of these items have increased is no indication that people are becoming poorer.

Therefore, the idea that the Government's philosophy and the economic philosophy of the past eight years have been wrong is not acceptable. It is the right approach. The fewer restrictive practices and the more market-led we allow our people to be, the more prosperous we shall he. No governments have been more restrictive than Labour governments; and no governments are more likely to impose more taxes and more restrictions on the way industry grows and develops than Labour governments. However difficult things may be at moment—and I am certain that there are many things which I have described that the Government could do to improve the situation—I hope and pray that it is by a Conservative government that this country will continue to be economically led.

6.48 p.m.

Lord Ardwick

My Lords, I am sure that we are all very pleased to have heard in succession the realistic speeches of two noble Lords from the north. Indeed, I wonder whether the Whips were doing a little grouping because I too came originally from Manchester. However, as it is 45 years since I was there, I am afraid I cannot bring the message the two noble Lords have brought today.

Until the day, the mind of the Government must be concentrated on the election. I am not blaming them for that. But this time, so the pundits tell us, there is to be no election boom; no big tax reductions are expected. There will be just the kind of rather modest stimulus of which we have learnt.

I thought the Government received a rather bad press from their friends. The Times judgment of the extra sums devoted to the National Health Service, education, the railways and so on, was to describe them as a pre-election giveaway on a scale not seen for many years. I thought that valid only in comparison with past paucity. The Government have, however, taken one short step away from Thatcherism—and that is a good thing.

The Government are now anxiously watching for the day when the signs of the recession coming to an end, which they themselves optimistically see, are big enough to be visible to electors yearning for relief. The Opposition spokesman in another place said that the Government's attitude reminded him of a song about good times just around the corner. It reminded me of another song, "Faint in the east behold the dawn appear"; but so faint that it requires the eye of faith to see it. Even if the Government's faith were justified, it would still be faith in slow recovery of modest size; slow growth, more bankruptcies, continued mass unemployment and a stagnant housing market. That is the prospect.

As we have heard from several of my noble friends, many people are suffering either directly from the recession through unemployment and bankruptcies or because the Government have not been able to provide the resources needed for adequate social provision. There are the very poor, particularly the one-parent families, faced with a baffling system of payments; there are the young, poorly equipped with skills and feeling hopeless about their opportunities; there are the owners of small businesses whose courage, enterprise and hopes have been defeated by the recession. There are those laid off from the big industrial concerns; there are the redundant professional men and women of a class that has never known unemployment and in districts that until the past year or two always enjoyed prosperity. And now the Government hope to be given credit for bringing to an end a recession the creation of which they see as being no responsibility of theirs. I am sure however that that responsibility will be pinned on them.

Any belief that the Conservatives have achieved a miracle has been shattered. Any belief that the Conservatives have a unique genius for managing the economy has faded away, although not in the case of the noble Lord, Lord Campbell of Alloway, who I regret to see is not in his place. I wonder about the kind of people he meets when he can regard the effects of government policy with so much complacency. Even the boast that the economy is stronger to meet the challenge of 1992 looks thin. It is true that inefficient firms have been driven out of business. But many firms that were not inefficient have also disappeared or have been much reduced in size. So now there are real anxieties about the size of our industrial base and its capacity to expand when, in time, the chances are there.

What disturbs many young people is that there no longer seem to be any formulae for a return to growth and full employment. Most of us remember the years after the war when we had full employment and believed that it would go on forever. It seems a golden age in retrospect. I had a distinguished colleague, Fritz Schumacher, the prophet of intermediate technology, who used to pass on his faith that all the problems of economics had been solved. Alas, poor Fritz. Or I think of Tony Crosland, with his belief that continuous economic expansion would create continuous full employment plus painless provision for welfare, education and greater equality. Alas, poor Tony. When the Keynesian remedies were not working in the 1970s, other prophets such as Friedman convinced many people that they had the magic secret. All one had to do was to control the money supply and inflation would disappear—the vulgar version of monetary theory. But that too, in time, was found wanting. Today even the Opposition do not make claims that there is one sure way that will quickly restore growth and full employment.

Nevertheless, some people are brave enough to raise the odd Keynesian voice. My hopes were stirred at the weekend by Mr. John Grieve Smith of Robinson College, Cambridge, who said that a generation is growing up that is in danger of adopting the inter-war attitude of fatalistic acceptance of mass unemployment. That, he thinks, is to some extent due to the growth of the extreme doctrines of market economics associated with Friedrich von Hayek and Friedman, which provided the intellectual content of Thatcherism and created the idea that governments should not—indeed could not—influence the economy. Mr. Smith says that demand management has continued but that the emphasis has shifted towards keeping demand down to fight inflation. Mr. Smith admits that expansionary policies will be possible only if we devise alternative means of tackling inflation. At present, any recovery, even some kind of automatic recovery, is liable to lead to a renewed wage-price spiral, and so Mr. Smith is led back to what many of us regard as an impossible remedy—a crucial change in pay bargaining methods. Bargaining over individual claims should be preceded by a national agreement on the general size of increases. That is a beautiful, logical solution, but one can see the difficulties of making it work.

Yet there is a new climate in the world. It is possible for Labour men to talk, as they do on the Continent, about unions and employers as social partners, a phrase which not long ago would have been condemned as the mortal Marxist sin of class collaboration. There is another change. Everyone is aware that the pursuit of full employment in one country is impossible. So Mr. Smith would like the Community to adopt the achievement of full employment as one of its policy objectives. He points out that the Dutch draft treaty on economic and monetary union lists high employment as an objective but nevertheless seems to reflect the need to keep demand down to fight inflation. Indeed, he might have added that the strict criteria for convergence could have that very effect.

I have not done justice to Mr. Smith's argument but it has to be considered if we are to get out of this age of unemployment. Other theories have to be considered. There are 28 million unemployed in the OECD area. That is intolerable in a great democratic tract of the world whose members vowed from the beginning to make its prime object the seeking of high employment and growth coupled with financial stability; but perhaps that is the philosopher's stone.

7 p.m.

Lord Jeffreys

My Lords, I am sorry to break the sequence but I am not from the North West; indeed, I have hardly ever been there. However, any place that can produce the Beatles, the Grand National, Liverpool Football Club and a bishop who has played cricket for England must be a good one.

Our economy is entering a critical phase; we are still engulfed in a recession and yet the first glimmers of light are beginning to appear at the end of a tunnel. At this stage I should like to make a small plea to my noble friend to take great care that, in the coming months, some of the short-term mistakes that have been made are not repeated. Inflation—the defeat of which has been the centrepiece of government strategy in the past 12 years—did not appear on its own. A combination of the expansion of M4 money supply and drastic interest rate reductions in 1987–88 were both major contributory factors.

The overall boom to bust situation that we have seen must never be repeated. I can appreciate that some factors relating to the current recession have been beyond government control. However, the doubling of interest rates in the space of two years and consequent unemployment of an extra 1 million people, with all its social cost, is quite unacceptable. It is like a blunt axe in the hands of an eminent surgeon and, as an instrument to fight inflation, is both indiscriminatory and unnecessary. What is needed is due care and attention and a correct diagnosis before inflation has had a chance to appear. We need proactive, not reactive government.

While there are many things that go together to produce a successful economy, it is the lead given by the Government of the day, and their agent the Bank of England, that sets the tone. Many of those seeking a recovery in the economy pin their hopes primarily on the housing and retail sectors. I very much hope that this will not be the case. Certainly some stability is needed as this will allow first-time house buyers struggling under the high cost of our housing a chance to purchase. We should not be looking for a short-term fix to bail out a few overstretched property dealers.

On the retail side, another spending boom would be a complete disaster. What is needed is a return of consumer confidence, a modest recovery and the return of good housekeeping by the consumer. People should be encouraged to save money. That is the only way in which long-term economic stability can be achieved with low interest rates, gentle but sustainable growth and a reduction in unemployment. Perhaps, to this end, the Chancellor of the Exchequer might take steps, first, to reduce excessive bank lending against property assets and, secondly, to reintroduce the tax exempt savings and endowment policies that were abolished in 1984.

In that respect, I accept that the introduction of personal equity plans has gone some way down the line. But they cover only one investment and anyone who experienced the 1987 crash will know that it is not necessarily a safe one. One wonders whether some greater independence for the Bank of England along the lines of the Federal Reserve in New York might not further promote this stability. As an aside, it might also head off a takeover by Brussels.

Not only the individual, but also the corporate sector of our economy has suffered badly. Again, stability is essential. While the enormous strides in productivity and performance over the past 12 years are most welcome—and that cannot be understated —I am forced to conclude that, when taken too far, this can seriously undermine long-term investment strategy.

In particular, this drive for higher productivity has had some undesirable spin-offs in the investment fraternity. Not surprisingly, this sector has become almost entirely results driven. I would cite, for example, a company which, in order to satisfy the demands of its shareholders, is forced to borrow money so as to maintain a satisfactory dividend. Again, that is totally unacceptable; it reduces funds available for investment in plant and machinery and also contributes to higher interest rates. Perhaps some guidelines to curb the immense power of the institutional shareholders would be in order.

I listened yesterday to the Chancellor of the Exchequer's Autumn Statement. I shall say only this: it is traditional at the end of a recession, and before an election, to increase spending. Given that taxes are unlikely to be raised, it would appear that the funds will have to be raised by borrowing. That will inevitably cause interest rates to rise. I sincerely hope that the economy has recovered sufficiently to cope with this rise because, if not, the scenario of rising interest rates and an economy still in recession—or, at least, bumping along the bottom—is almost too awful to contemplate.

The noble Lord, Lord Williams of Elvel, hopes that we will support his amendment. On that point I suggest, as other noble Lords have done, that he made no case at all for our doing so. Indeed, I think that perhaps some noble Lords on these Benches have been more helpful in that respect. In addition, I may be a young Member of this House but I remember well the unemployment and high inflation that existed under the last Labour Government. For that reason, I find his amendment more than hypocritical and I urge your Lordships to vote against it.

7.6 p m.

Lord Desai

My Lords, as the last speaker before the Front Bench speakers conclude the debate, I believe that my task has been made somewhat easier by the noble Lord, Lord Jeffreys. He brought us back to the amendment before the House. I should like to speak to that amendment and perhaps advance a case which some noble Lords think, possibly misguidedly, that my noble friend Lord Williams did not put forward.

The amendment mentions two things. It says, first, that the Government's policies, have wrought serious and unnecessary long-term damage to the economy"; and, secondly, that, the social cohesion of the United Kingdom has been damaged.

Perhaps I may begin with the problem of "social cohesion". In the streets of London, and in those of all major cities, we have visible homelessness and begging. It is something new. I have been in this country for 26 years, but it is only in the past four or five years that I have seen third-world-like scenes in the centre of London. The change in entitlement for the young has meant that many of the homeless wandering the streets of London are young or even juvenile. They have nowhere to go and no money with which to find housing. They are roaming the streets of London and are therefore open to all sorts of evil influences.

As regards business, we have had 45,000 business failures recently. We have had mortgage repossessions. Many of the people concerned did not want to be homeless. They were actually prudent and responsible householders who were saving money. They had been told that the rainbow was there and that, at the end of it, they would be part of the property-owning democracy. Eighty five thousand of them have had their houses repossessed. One does not know where they are currently being housed. The burden has, perhaps, fallen on local authorities that have only limited resources with which to accommodate them.

As many noble Lords have mentioned, we also have unemployment. Indeed, twice in the past 12 years the level of unemployment has nearly doubled. It has not reached the high figures of the early 1980s, but neither the gracious Speech nor the Autumn Statement offer any hope that unemployment will come down at any speed. If anything, it will increase. If we were to calculate unemployment on the basis upon which it was calculated in 1979 when it was 1.5 million, it would be way above 3 million. Let us now forget about that.

Three building societies this year have had to be rescued. We have seen bank failures. One of the major omissions of the proposed legislative programme is that there has been no mention of the fact that the system of financial regulation is in a sorry state. It is time that there was a comprehensive look at financial regulation across the board— banks, building societies and other financial institutions. Let us now forget about that too.

We have had the homeless, the jobless and profitless businesses. Let us look at the question of the long-term unnecessary damage. The noble Lord, Lord Boyd-Carpenter, who I am glad to see has just returned, said that my noble friend Lord Williams had not pointed to the errors that had caused the damage. Where shall I begin? The night is not long enough for me to tell your Lordships. Over the past 12 years the Government have abandoned their philosophies a number of times. Does that provide a coherent vision of how the economy works or could be bettered?

We have had an epic tragedy in two long acts. In the first long act we were told, as my noble friend Lord Ardwick has reminded us, that the control of the money supply was everything and that if it were controlled miracles would happen. Indeed the Government's friends, such as Professor Friedman and Professor Minford, were heard to tell the Treasury Select Committee in 1980 that if the money supply were controlled, inflation would decrease painlessly and there would be no increase in unemployment because the market works so efficiently. We know much better now. It was not painless and nor was it successful. As Professor Beckerman of Oxford has pointed out, the drop in inflation was due more to the collapse in world commodity prices than to a successful control of the money supply, which of course was not controlled. However, that is a long story which need not be retold.

Even were Ito grant that the Government then had a coherent philosophy—not a good one—it was abandoned after 1986. In the rush to win the 1987 election there was a conversion to Keynesism. We were then told that Keynes was dead and that Friedman was the new king. The then Chancellor of the Exchequer made a pre-election Autumn Statement in 1986 and launched the economy into a boom. Then the second tragedy started. The first tragedy caused a great deal of unemployment, painfully controlled inflation and almost destroyed manufacturing industry. The second act was different. It seemed as though we were to have prosperity. Indeed we were told that we had prosperity.

The Chancellor was the darling of the party opposite. Now of course he is hardly mentioned. He said that inflation was the judge and the jury. The inflation rate doubled once again. In the second quarter of 1979 inflation was at 10 per cent. By 1981 it was 20 per cent. Then it came down. Between 1986 and 1989 we again doubled or even trebled the rate of inflation. It is easy to claim that inflation is now under control, but who increased it in the first place? We were not in power. We were a long way from it. The Government increased inflation and then they brought it down. That is very nice, but it is not a consistent philosophy upon which to run an economy.

We have wasted five long years. It has taken from 1986 to 1991 to bring back the rate of inflation to almost what it was in 1986. It is still somewhat above it. As the Autumn Statement shows, it has now reached a plateau. It is difficult to say whether the RPI will go much below 4 per cent., despite entry into the ERM. If I were on the other side, I should be cautious before I claimed too much success with inflation.

We have heard about blips and such matters. The inflation was not a blip, it was caused deliberately. It was chosen, and it damaged the economy severely.

My noble friend Lord Williams has said that the damage to the economy was unnecessary; it need not have been caused. The Government had the remarkable achievement of not just having a pre-election boom, which is perhaps forgivable—we are all weak—but a post-election boom of an unprecedented nature for which I saw no necessity; but we had it. We had the most incredible credit expansion by a government who said how financially prudent they were going to be. They thereby wrecked the economy severely.

Let us now consider manufacturing output. It is not a statistic that Members opposite want often to mention. In the second quarter of 1979, when the Government took office, the manufacturing production index was 108.7 (the base being 1985); in the second quarter of 1991 it was 112.6. Let me be generous and say that that is a 4 percentage point rise over 12 years. The highest it has been—let me not be unfair—is 119. In 12 years hardly 1 percentage point per year growth in manufacturing has been achieved. It is no good saying that industry is lean and fit; it is dying and emaciated. It is not lean and fit.

Let us then turn to the Government's great claim—repeated in the gracious Speech—about the downward trend in government expenditure as a percentage of GDP. The Government's great claim is that over the past 12 years they have achieved that remarkable miracle. If your Lordships study the Autumn Statement, or today's Financial Times, you will see that in 1978–79 the Government's share of expenditure, as a percentage of GDP, was 43 per cent. Under the first Thatcher Administration it rose to 47 per cent. From there it was brought down to 40 per cent. in 1988–89. The Autumn Statement promises that by 1992-93 it will be at 42 per cent. Between 1979 and 1992 we shall have achieved a staggering 1 percentage point reduction in the ratio of government expenditure to GDP. Was all the destruction worthwhile for that small achievement? That is why I say that there have been frequent changes of philosophy—monetarism one day; Keynesism another day; financial responsibility one day; and profligate credit expansion another day. Where is the coherent philosophy upon which the Government will build sustained growth? What sustained growth? A growth rate of 1.75 per cent. over the past 12 years! Is that large? It is certainly way below the capacity rate of growth of the economy which is 2.5 to 2.75 per cent.

Even when we are coming out of a recession all we are promised is a growth rate of 2.5 per cent. That means that the loss of output over the past year will not be made up over the next year. We shall have a deficit. The economy should be growing much faster than it is if the Government have got the economy right. However, the Government have not got the economy right. Noble Lords opposite have differences of opinion on this matter. It is quite clear that the frequent changes in philosophy that have occurred have been damaging.

The Government should say to themselves, "Enough of all this turning and twisting. The time has come to think very carefully about what policy will obtain steady growth in the 1990s". The Government should have thought about this matter much more carefully and they do not have much time left. The Government must think about a stable macro economic framework. That has been lacking over the past 12 years. The Government must adopt a decent, long-term supply side policy on manufacturing, investment, innovation and education. That was promised but not delivered. Despite what some people may pretend, the Government must admit that there is a difference between a real economy and a paper economy. It is time we turned our attention back to the real economy. As we enter the single market if we are not strong in our real economy, we shall become marginalised in a way that has not been the case for a long time. I urge noble Lords to support the amendment of my noble friend Lord Williams.

7.21 p.m.

Baroness Seear

My Lords, I hope—however I cannot believe this—I heard the noble Lord, Lord Brabazon, use the words "the social market" in his opening speech. If I heard him correctly and he now approves of the idea of the social market, that is indeed a conversion greatly to be welcomed. I suppose that IS a sign of what we are now coming to call post-Thatcherite conservatism. However, I do not see that philosophy greatly reflected in the gracious Speech.

It is always a great pleasure to hear speeches made in your Lordships' House by former colleagues of mine from the LSE. That is a pleasure I shall have enjoyed rather often this evening. There was much in the speech of the noble Lord, Lord Desai, that was of the greatest value. However, I would suggest to him that it is a little unwise, even from the Back Benches of the Labour Party, to accuse any other party of changing its policies. It is also perhaps a little unwise to taunt one's opponents too greatly on the subject of rising inflation. That is now being controlled. After all, wider the previous Labour Government inflation reached a figure of 25 per cent. at one stage. I remember the noble Lord, Lord Shepherd, saying that the British public at that date looked over the abyss and then drew back. They drew back partly because we were rescued by the IMF. People in glass houses —even if they were in those glass houses a long time ago and have attempted to construct a different kind of building since—should be a little cautious about where and at whom they throw stones.

I do not see much evidence of the change of heart I referred to reflected in the gracious Speech. There is an extraordinary optimism about much of the gracious Speech. A leading theme of that speech is the Government's intention to, maintain the conditions necessary for sustained growth". Other speakers this afternoon have paused over the word "sustained". After all the Government themselves have admitted that there has been a fall of 2 per cent. I imagine that is not the kind of figure the Government wish to see sustained. A great deal has to be done—I suggest a great deal more than we see in the gracious Speech—if growth that we can be proud of is to emerge from the position we are in at present. I admit, of course, that during the past 12 years there have been periods of considerable and valuable growth.

Neither in the gracious Speech nor in the debate this evening, except to some extent in the speech of the noble Lord, Lord Wade, have I heard any recognition of the fact that this country must recover in a global economy and live in that economy. We are still talking as if we were a single trading unit peripherally involved in the activities of the European Community. But no one has talked about the challenges coming from the little dragons or from a recovery in the United States. However, we realise that recovery is some way off yet. No one has talked about what may well happen if the eastern European countries really get under way. It is even possible that some day there will be a real recovery in Russia, let alone in China. Until we wake up to the fact that we are operating in a global economy with all that that involves, any idea that we shall achieve a sustained economic recovery and continued economic success in this country is the idea of someone living in cloud cuckoo land.

We can start to get ourselves involved in the global economy through the obvious method of getting inside—I believe the Prime Minister uses the expression getting "at the heart of—the European Community. We should use the EC as an instrument for being effective in the global economy. The Community can go either way and we should be there influencing it so that it does not become a fortress but rather an instrument for a worldwide improvement in international trade.

No one else has referred to my next point. I am glad to see the gracious Speech stated that the Government will, with our Community partners, pursue the successful conclusion of the Uruguay Round of multilateral trade negotiations". Nothing can be more important than that the Uruguay Round should succeed. The failure of the Uruguay Round would lead to the worst possible restrictions on international trade. It is a grievous matter that our position in the European Community is not strong enough to ensure that we bring about a satisfactory outcome to the Uruguay Round. The Uruguay Round means so much to many of the things to which we pay lip service. A successful outcome would give some hope to developing countries which, ultimately, can become markets. If the negotiations are unsuccessful, there will be a cut back in trade throughout the world.

I realise we all have our farming friends. My farming friend is not here tonight, thank goodness. But those people are a minute problem compared with the size of the whole issue of playing an effective role in the global economy and operating effectively in global trade. Of course there are problems with the Uruguay Round of talks and now is not the moment to discuss them, but let us back that sentiment in the gracious Speech for all we are worth. But we shall not do so successfully unless we are powerful and accepted and respected within the European Community. At the moment we are none of those three things.

Part of the Uruguay Round negotiations relates to the form of the common agricultural policy. The CAP is a quid pro quo for success in the Uruguay Round. I am not saying that all the faults with that policy lie on the side of the European Community. America is by no means Simon Pure in the matter. However, those are issues that must be fought through. We cannot stand by and allow ridiculously small changes to be made in the CAP. I hardly ever agree with the noble Lord, Lord Jay, but it is, of course, perfectly true that the effect on consumers of the way in which the CAP has operated has been disastrous for the people and the economy of this country, and particularly for the poorer people in this country.

There are other ways in which, as an effective and leading member of the EC—which is what we should be—we could be taking steps to improve our position here at home. Let us back an independent bank. That will come. However, I fear that we shall do what we have done all along: we shall carp at it, we shall drag our feet and then, when it has been shaped and developed by other people into a form which we do not really like, we shall go in and have to put up with it. We have done that time and time again. This time we ought to be in there, leading.

Let us get into the narrow band of the ERM. That will give us greater discipline and make it easier to reduce interest rates than if we stay in the wider band.

Working through the European Community we can do much to improve the position of this country in a way which would otherwise not be possible. We shall never be effective in the global economy if we attempt to operate on our own with only marginal co-operation, grudgingly given, with the other members of the Community.

That is the scale of what needs to be done. That is how we should be approaching the tremendous problems which we face. I am not optimistic about the future. We must grapple with those problems. The competition from all over the globe is very serious indeed. The social market means that success in the market will provide us with the wherewithal for the social policies which we all want to see. It is the foundation of success in the economy, and success in the economy depends on all the matters which I have mentioned, and others as well.

Turning to more local matters, it is not only in the European Community that we have to find our salvation. There is also a great deal that we can do here at home at the same time. I greatly welcome and support the speech of the noble Baroness, Lady Denton. That is not just a feminist conspiracy. Her experience of what can be done in terms of sensible regional policies, properly worked out, properly staffed and properly backed should be a model for the way we ought to proceed.

Where there is to be intervention—and we need intervention, of the right kind—it cannot be from the centre because the climate of each region is so different. It must be by people who live and work in the regions who are in daily contact with those living there and the problems they encounter. Those people must have the wherewithal, the money and the ability to make decisions for their regions if those policies are to be effective.

So on the one hand we are looking at the global, Community, level and on the other hand—this is an example of subsidiarity (and there should be a huge prize for anybody who can think of a better word than "subsidiarity")—there is the smaller unit of the region in which the really effective, down-to-earth, day-to-day work which produces results can be done effectively.

The gracious Speech talks about encouraging enterprise. I now come to what in many ways is the nitty-gritty. We all know that small businesses, which are a very important part of enterprise, are going to the wall day in and day out. One very important reason for that is the refusal of people to pay their bills on time. In this House we have asked again and again for the Government to take action on this matter. It is monstrous that finance departments in large organisations, and in local authorities and government departments, are extremely bad about paying up. If a small business cannot get credit from its suppliers, it still has to pay its rents and wages at a regular time, and if it has to wait weeks before receiving its money from creditors it will go broke.

Perhaps I may add, since I am in the midst of such a problem at the moment, that that also applies to voluntary organisations. Up and down the country voluntary organisations, to which the Government pay so much lip service, are in deep trouble because they are not paid on time. In particular, they are not paid on time by the TECs. That is making it impossible for many voluntary organisations to operate effectively. An average of nine weeks to pay bills is enough to put many voluntary organisations into the bankruptcy court and is doing so in some cases. Therefore, we ask that, along with all the big schemes, the Government should look again at how pressure may be brought to bear on people to pay their bills promptly.

The gracious Speech also favours the encouragement of training and education. That comes out like the refrain of a song, and it is sung by all parties. We sing it too. The TECs will need more money in order to do their job. They are woefully behind. There have been cuts in the money available to TECs. Can more money be siphoned into the TECs and channelled quickly to the people who have to do the training? Without that, the statement that there will be great improvements in training is so much pie in the sky. We beg the Government to look at this again and to see that the financing of training of all kinds, not least for people with special needs, is adequately met. At present the money is not adequate, as everyone concerned with training will tell you.

The expansion of the universities is something that we all wish to see. However, I beg the Government not to try to do it on the cheap. It has been said by people who are well aware of how universities operate that if we continue as we are at present there will be no world class university in this country in 20 years' time. That would be a disaster. I read in the newspaper only the other day—and this may not be true—that there is a proposal to do away with tutorials. I do not want to go into details in your Lordships' House, but all of us who have taught in universities know that the tutorial system is essential if there is to be high class work, at least for some categories of student.

Again I put in a plea for support for graduate students. They form the backbone. They are the people who will take leadership positions in academia, in industry, in the civil service and in politics. At present we are starving them, and that is a most shortsighted economy. The expansion of universities leading to the greater numbers which we all want to see must not be paid for by cutting down on quality.

7.37 p.m.

Lord Peston

My Lords, I shall deal first with some individual contributions and then develop some broader themes. I was delighted to discover that the noble Earl, Lord Halsbury, and I have something in common. I gather that he was taught what little economics he knows by Lionel Robbins. I was taught all the economics that I know by the same great man. The noble Earl is right to quote Lionel Robbins as referring to economics as concerned with the relationship between ends and scarce means which have alternative uses. I learned that as an undergraduate as the answer to an examination question and it has never left my mind. Robbins emphasised, of course, that it was not the business of economists to pronounce on ends. The trouble is that ends are so interesting that it becomes irresistible to think about ends. Robbins gave in to that temptation as the as the rest of us.

Turning to the noble Earl's remarks on policy, there are three maxims: do not stimulate a system which is already expanding; do not dampen a system which is already contracting; and, most important, if one does not know what the economy is doing, for goodness sake do not intervene. Curiously, when they were first elected in 1979 the Government seemed to understand those maxims. As my noble friend Lord Desai said, they argued that they would set a monetary framework and all would be well. What has been interesting about the last 12 years is that from Sir Geoffrey Howe's excessive contraction at the beginning, through Nigel Lawson's excessive expansion to Mr. Lamont's fine tuning, the Government have always done the exact opposite of the basic principle which they themselves laid down.

It is always a pleasure to know that the noble Lord, Lord Boyd-Carpenter, will be taking part in an economics debate in which I shall be winding up. He always asks the right questions. The trouble is that he invariably gives the wrong answers. He asked the central question; namely, what were the mistakes? I thought that my noble friend Lord Stoddart of Swindon gave all the answers that were required in a devastating contribution. I shall certainly not repeat them. I was puzzled by the noble Lord, Lord Campbell of Alloway, who said that no one answered that question.

Lord Boyd-Carpenter

My Lords, my criticism was of the noble Lord's noble friend Lord Williams of Elvel who said how terrible things were, but did not indicate a single mistake that he could allege the Government had made.

Lord Peston

My Lords, I must reiterate the point. I had not intended to do so, but, if the noble Lord insists, I shall have to take longer and give the compete list of mistakes that my noble friend Lord Stoddart gave. Perhaps I may give a few of them; the list is so long that it becomes very tedious.

Perhaps we may start with the excessive fiscal and monetary expansion of 1986 and 1987. Incidentally, for those people who think that the excess started in 1987, I should point out that they are quite wrong; it started in 1986. That is the first mistake. The second major mistake is that, when that became obvious, the Government simply failed to rein back early enough. The third mistake was the excessive and continuous reliance on the expansion of consumer spending, the excessive borrowing by consumers and the house price boom. The list is endless. The most peculiar mistake of all is the Government's total inability to control the money supply on which they originally got themselves elected. One of the great paradoxes of the past 20 years is that the Labour Government had the money supply under complete control, although they were non-monetarists who did not believe in it; yet every measure that the Tory Government, who believe in all that kind of thing, try just collapses in their hands. It is one of the most amazing experiences in my life as an economist.

Like the noble Lord, Lord Boyd-Carpenter, the noble Lord, Lord Campbell of Alloway, said that he did not hear any exposé of the Government's mistakes. I assume that the noble Lord has a kind of filter so that he eradicates my contribution or that of my noble friend Lord Stoddart. However, I believe that he was in his place when his noble friend Lord Vinson spoke. If you were to ask me who did a better job on the Government than either my noble friend Lord Stoddart or me, I would say that I thought the noble Lord, Lord Vinson, tore the Government apart to only the required degree. Indeed, I sat here wondering what the noble Lord was doing on those Benches.

Perhaps I may now deal more generally with the Government's mistakes. I talk to many businessmen. I have never known members of the business community to be so antipathetic to the Conservative Party as they are at present. They may not vote for us—I am not suggesting that at all—but they certainly say to a man or woman that they will definitely not vote for the other side. Above all, they express a total contempt for the Department of Industry under its present leadership. Our businessmen do not want special treatment; they want the kind of support from our Government that is given to their foreign competitors by their governments.

The noble Lord, Lord Brabazon, described the reduction in the inflation rate—I use his exact words —as, irrefutable testimony to the success of government policy".

No, my Lords. It is irrefutable testimony to the failure of government policy. We would not have had the inflation problem in the first place were it not for government error. Putting those errors right has caused a great many efficient firms in the real economy to be destroyed because of financial difficulties, as my noble friend Lord Ardwick said.

The noble Lord, Lord Brabazon, praised privatisation. Again, his exact words were that it, pays off in performance". It certainly pays off in higher salaries for top management, far in excess of their market value. In the case of British Telecom, it pays off with massive monopoly profits and the exploitation of the consumer. Perhaps I may tell the noble Baroness, Lady Denton, whose excellent speech I thoroughly enjoyed, that the objection of people on this side and of most economists on the Conservative side is not to profits; it is to the monopoly exploitation of consumers. As almost everyone recognises, one of the more absurd features was the creation of a private monopoly through privatisation.

The Government now wish to privatise further. I understand that they want to privatise railways and coal. For the latter, as far as we can understand, privatisation will mean the virtual disappearance of the industry. It is all very well for the noble Lord, Lord Ezra, with whom I agree on this matter, to say that we must maintain safety if the industry is privatised. The problem of safety will be a complete irrelevance because, on present plans, there will be no viable industry to keep safe. As regards railways, everyone else in Europe believes that privatisation would be the craziest thing that one could possibly do. The railways need more public support and a rational transport policy environment, not privatisation.

The ultimate paradox—this is what I was thinking when I listened to the noble Lord, Lord Brabazon—is that in one case, suddenly and remarkably, privatisation is inappropriate. The Government are terrified of the use of the word in connection with that case. If privatisation is so good and if it pays off in performance, why limit its application? Why are the Conservatives unable to follow the logic of their own policies? In other words, why do they react with such horror when they are accused of wanting to privatise the NHS?

I must say a few words on the history of unemployment under the Government. They inherited a low rate of unemployment of about 5 per cent. I thought that the contribution of the noble Lord, Lord Jeffreys, was most interesting and that much of it was damaging to the Government. I was mystified by the noble Lord's claim to recall the high level of unemployment under the last Labour Government. At its peak, unemployment was lower than the minimum figure ever reached by this Government. It is preposterous for him to suggest that he remembers the high rate of unemployment under the last Labour Government. This Government ended an unemployment rate of 5 per cent. which, I might add, was measured in the old way that pushed the figures up. They drove the rate up from 6 per cent. in 1980 to over 10 per cent. between 1982 and 1987. Towards the end of the decade, they were able to get it back down again to 6 per cent., but, having got it down to that figure under their regime, the economy became uncontrollable again. It looks as if from now on the rise will take us well back to 10 per cent. next year.

It appears that, as a result of the Government's policies, a figure of 6 to 7 per cent. unemployed will be the lowest level that we can now have in the economy under the Government; otherwise the economy becomes uncontrollable and inflation increases. As has been said, that is so despite all the limitations on the powers of the trade unions and all the heralded supply side measures, the verbal but not the actual commitment to monetary control and the alleged return to prudent budgetary finance. It is clear that, with this Government's policy, the country will be saddled with a permanent army of unemployed above 7 per cent. of the labour force.

As to inflation, perhaps I may reiterate a point that I made early on in my time in this House. If I had known that it was permissible within a civilised society to drive unemployment up to 3 million and beyond, I could have advised Labour Ministers to get rid of inflation. If we could have done that, we would have got rid of it for ever. There is a world of difference between trying to get rid of inflation while maintaining full employment and getting rid of inflation when you have destroyed the lives of over 3 million people and their families.

I wish also to express my concern about the Chancellor's rather cavalier remarks in the Autumn Statement on the ease of financing a current account deficit. The cumulative deficits of the past six years, which will last through 1992, 1993 and, on every forecast that I have seen, well into 1994, have seriously weakened our net overseas asset position. There has been and will continue to be a consequential deterioration in the invisible account which will make the current account even harder to sustain.

As noble Lords wish to know what we on this side think, my judgment is that a policy priority of the highest order must be to bring the current account back into surplus. As the noble Lord, Lord Ezra, remarked, that will not be helped by the consumption-led expansion upon which the Chancellor appears to rely. Furthermore—these are Treasury figures issued yesterday—the 2.5 per cent. decline in real fixed investment in 1990, followed by the 10.75 per cent. decline in 1991 is particularly shocking. Perhaps even worse, the Chancellor expects total investment next year to rise by only 1.25 per cent. and what we might call total business investment—in the productive part of the economy—by only 1 per cent. We are storing up trouble for the future. Once again when we try to expand, our expansion will be limited by lack of industrial capacity and also by serious skill shortages.

In this connection what are the Chancellor's responsibilities at the moment? He is trying to talk up the economy. Optimism, seasonally adjusted or not, is today's watchword. But is that right or sensible? Are our economic problems solved to such a degree that it is safe to encourage households to spend more, save less and perhaps even start borrowing again on a large scale? I think not. The underlying problems remain and it would be imprudent for anyone to encourage households to commit themselves in that way at this time.

My advice to business also would be to proceed cautiously—at least so long as this Government remain in power or if there is a risk of their being returned to power. As I argued yesterday, the Government's expenditure plans and tax proposals do not add up to a prudent financial policy. They imply either a new bout of inflation followed by a government-induced recession or alternatively, if the Government are returned to power, there will be a full reversal on the fiscal front.

I turn to a subject about which most other noble Lords have not spoken; namely, monetary policy. It is rather difficult to ascertain what in fact is the Government's monetary policy. I assume that it is to adjust interest rates to keep sterling within its broad bands in the exchange rate mechanism; and also to hope that markets will be reassured sufficiently eventually to allow some further interest rate reductions to help the domestic economy. Let me add that as an economist I was particularly interested in the contribution to the debate made by the noble Lord, Lord Jeffreys. He argued—I shall have to think about this a lot more—that the danger was a rise in interest rates. I shall not dwell on that point at the moment but I promise him that I shall think through the issue because I find that even more alarming.

Unfortunately, because of worries on the domestic front the Chancellor of the Exchequer is unable to move sterling to the narrow bands, which is a great pity. Some time in the not too distant future we must move to the more disciplined approach of almost every other member of the exchange rate mechanism.

I come now to a slightly more controversial matter. I wish to say that what matters in the monetary field is our position on economic and monetary union. I believe that the stance adopted by the Prime Minister and the Foreign Secretary is unhelpful, to say the least. The image of a rump of Tory anti-marketeers apparently driving government policy is unedifying. To see Britain continually as the recalcitrant, nagging complainer is unattractive. The long-term interests of the united Kingdom lie with the EC. I say that not as an enthusiastic marketeer but as a realist. Sometimes the Commission goes too far and pushes its nose into things which do not concern it. Of course they do that and the Foreign Secretary is right to object to it. But the issue is minor compared with the great issue, which is the decision on economic and monetary union.

I understand those who oppose further developments in the EC. Many did not want to join in the first place and they continue their campaign. They are entitled to do so. Why should they not? I find it harder to comprehend why those who voted for entry and for all further extensions, notably the Single European Act, now say that they did not understand or appreciate that it would lead to a demand for a single currency or a European central bank. Of course the Community would go in that direction. However, I agree with the Bruges Group and others that we must have a great national debate on these matters. It would be a disgrace if we moved into EMU by stealth. At least noble Lords know where I stand on the issue.

Because I favour economic and monetary union let me say that I do not believe that introducing a single currency or an independent central bank will be easy. There are serious problems of convergence that we must look into. An inability to devalue means that vast funds must be devoted to regional policy, as my noble friend Lord Sefton, and the noble Lord, Lord Wade, pointed out; indeed it was an implication of what was said by the noble Baroness, Lady Denton. I strongly support the need to proceed further on the regional side. We need to examine carefully what fiscal restraints need to be placed on national governments. Certainly I would not die in the last ditch for the sovereignty of Parliament which enabled it to say that we can run budget deficits as big as we like. If that is the definition of parliamentary sovereignty, I can do with rather less of it.

But we must devise rules, and I do not think that they will be easy to find. In my view it all boils down to how we approach the matter. In my judgment, if we are to solve the detailed problems with respect to EMU, we must have commitment in the first place. To say that we must first solve all the problems and then we shall make up our mind what to do is to say that we do not wish to join and that we want the rest of Europe to go on without us. I cannot believe that that is in the national interest.

Perhaps I may say a few more words about Labour Party policy. We say that we need to spend more on health, education, training and infrastructure. We have never hidden that from the electorate. But we know that we can only spend what we can afford and we believe that it is our duty to make that plain to the electorate. We have not kept secret our taxation plans and we shall endeavour to convince the electorate of their validity in the election whenever it happens.

When the noble Lord, Lord Brabazon, pointed out yesterday that moving the national insurance contribution limit was a taxation increase, I nodded my head. It is a taxation increase. They are resources that we should like to bring in because we need to spend them on more important things than imported consumer goods. We are quite honest about that. We also do not look for easy ways out by talking about such nonsenses as national lotteries which somehow will finance the health service, the arts, every football stadium that we need, and so on. I hope that we do not spend too much time on such nonsense. We do not and shall not pretend that we can spend more and cut taxes yet not have an unmanageable budget deficit as a result.

I wish that the Conservatives would respond to my noble friend Lord Williams of Elvel. He made a very simple request. He asked them to come clean and explain how their various economic proposals can be made to stick together. I know of no economic commentator today who, having looked at the Autumn Statement, can see it as a logical whole. Even in their dying days, this Government must face up to their responsibilities. Certainly when our term comes in the very near future we shall rise to the needs of the nation.

7.57 p.m.

The Lord Privy Seal (Lord Waddington)

My Lords, we have had four days of most interesting debate. I should like to congratulate all those who have taken part, particularly the three maiden speakers: the noble Lords, Lord Craig of Radley, Lord Ponsonby of Shulbrede and Lord Skidelsky. The noble Lord, Lord Ponsonby of Shulbrede, said that he hoped one day to be working to abolish the House of Lords in its present state. All I can say is that the speeches which I have heard in this debate have been a credit to the House and have not added to the arguments for our abolition.

When one reads the amendment, it is hard to believe that the author could have been as close to the centre of events in the late 1970s as was the noble Lord, Lord Williams. I am unclear as to what the noble Lord means by "social cohesion" but I cannot think of a nearer breakdown of social cohesion than that which we all saw with our own eyes at the time of the winter of discontent. That was a time when one citizen was set against another and little regard at all was paid to the rights of the most vulnerable in society.

The winter of discontent in fact offended the most basic of civilised standards of behaviour. It is just worth reminding people about it every now and then because there is a new generation growing up which did not have to live through those horrifying, dying months of the last Labour Government. In the early weeks of 1979, ports were blockaded, the dead left unburied, rubbish piled high in the streets, hospitals reduced to emergency cover, schools closed and much of industry was at a standstill. Violent picketing threatened the rule of law and many began to think that Britain was ungovernable, or certainly ungovernable without the permission of what were then known as the union barons.

As my noble friend Lord Campbell of Alloway reminded us, we were referred to as the sick man of Europe because of our lamentable industrial relations. We were a laughing stock when we went abroad, as most of us, if we are honest with ourselves, well remember. People looked at what was going on and talked of Britain being in permanent, irreversible decline. They wrung their hands saying that they did not know what could be done about it.

When I think of a breakdown in social cohesion I also think of runaway inflation and the effect of that in the second part of the 1970s. Inflation—the unfairest tax of all—ravaged the savings of people of modest means who had put something by for their old age and who could not protect themselves by striking. To adapt the words of the noble Lord, Lord Jenkins of Hillhead, Mr. Healey cleared up only a small part of the mess he had caused and for some—those people with small savings—the mess he caused could never be undone. A large part of their savings had just gone.

Lord Callaghan of Cardiff

My Lords, will the noble Lord allow me one moment? I have corrected Ministers before and I correct the noble Lord now. When the Labour Government left office in 1979 the rate of inflation was lower than it had inherited from the Conservative Party in 1974. If he is comparing social cohesion, what does he say about the miners' strike and the three-day week when we all lived under the shadows of candles in the House of Commons?

Lord Waddington

My Lords, the noble Lord is perhaps forgetting that the peak of inflation was reached during those years of the Labour Government; and if one takes the whole period of the Labour Government and compares it with the whole period of the Conservative Government, what does one find? One finds that the average rate of inflation, year on year, has been exactly half of that under the Labour Government. Therefore I do not consider that the point made by the noble Lord is a good one.

Lord Callaghan of Cardiff

Perhaps the noble Lord will allow me to intervene again. Is he aware that the peak of inflation, which he said occurred during the early days of the Labour Government, followed on the policies of the Conservatives in 1973–74 with the second oil shock? Inflation was taken in hand by my noble friend Lord Wilson and later by myself and reduced to a lower level than we inherited from his party.

Lord Waddington

My Lords, the noble Lord was not present in the Chamber when the noble Lord, Lord Desai, spoke. The noble Lord made quite a point of the fact that inflation reached 20 per cent. in 1980. There was certainly no reference from the noble Lord, Lord Desai, to the fact that that was the fault of the Labour Government and not the fault of the Conservative Government. So I do not consider there is much in that point either.

Lord Callaghan of Cardiff

You increased VAT. That is why it went up. The Government's claims are untrue.

Lord Waddington

My Lords, I believe that I have answered the point adequately. As my noble friend Lord Boyd-Carpenter pointed out, it was quite amazing that the noble Lord, Lord Williams of Elvel, who spoke for about 20 minutes, never once mentioned inflation. It seemed that he had no comprehension whatever of how destructive inflation can be to society. It seemed as though he had no recollection whatever, and had never read in the history books, of what happened in Germany in the 1920s.

Noble Lords


Lord Waddington

My Lords, inflation was not a factor that mattered. It was not mentioned once by the noble Lord, Lord Williams of Elvel.

Britain is certainly a different place from the Britain of those days—those last years of the 1970s—and thank goodness for that. One has certainly to be blind not to see the signs of increased prosperity: higher car ownership, higher home ownership, more homes with central heating, more homes with colour television and more homes with a telephone. More people go abroad for their holidays. One in four adults owns shares. That represents a real increase in income for all groups of society. For many it has also meant a very much fuller life.

When I go into a house, I am struck by the number of times on the mantelpiece there is a photograph of the son or daughter, or grandson or granddaughter in his or her graduation gown. Far more young people now have the opportunity of higher education. As my noble friend Lord Brabazon pointed out, next year one in four young people will have the opportunity of higher education compared with one in eight in 1979. Yet it is argued that somehow or other those have been wasted years and that nothing has happened. The figure will not be one in four: by the end of the decade one in three young people in this country will have the opportunity of higher education.

The amendment refers to serious and long-term damage to the economy. But that assertion is not easy to square with the facts. I invite your Lordships to consider the facts, even if they are painful. Even after the recession GDP is up 23 per cent. on 1979. Business investment is still up nearly 40 per cent. despite the fall during the recession. The noble Lord, Lord Jay, said that productivity had fallen; but consider the whole story. In the 1960s and 1970s we were near the bottom of the European league for growth in manufacturing productivity. Now we are close to the pre-recession peak after the fastest growth in the G7 in the 1980s.

I ask your Lordships to consider the United Kingdom's share of world trade. In volume terms it is expected to rise for the third year running after decades of decline. We have been through a very painful recession but there is no doubt about the signs of recovery, and the fall in the RPI has created the conditions for a return to sustainable growth and the reduction in unemployment that we all wish to see.

The noble Earl, Lord Halsbury, made an important point about statistics. There is not the slightest doubt that we should all work to improve the quality of statistics at our disposal. It is only as a result of good quality statistics that we can react as we ought to changes in the economic situation.

My noble friend Lord Boyd-Carpenter pointed out, rightly I submit, that foreigners choose to invest in this country rather than elsewhere in the European Community. They certainly have confidence in the economic management of this country. He raised three points with me. I understand he was saying that the Irland Revenue was approaching universities to seek to charge tax on what they earn from conference facilities. I shall look into that matter and will write to my noble friend. He raised the question of inheritance tax or homes. I shall pass that on to my colleague. My noble friend wants an assurance that the Government attach importance to reducing taxation on earnings. I can give your Lordships that assurance. It remains the objective of the Government to reduce income tax to 20p iii the pound when it is prudent to do so.

The noble Lord, Lord Stoddart of Swindon, made an interesting speech. Unless I heard him wrongly, he complained about our cutting interest rates after Black Monday in October 1987. I remember our being urged to do so by the Labour Opposition at the time. If a misjudgment was made, it was certainly a misjudgment that was shared by almost every prominent member of the Labour Party at that time, including Mr. Kinnock. The noble Lord also said that the best performing economies were those of Japan and Germany. That is probably correct; they are certainly not socialist economies. The last action that the governments of either countries would take would be to Adopt the policies now being advocated by Her Majesty's Opposition.

My noble friend Lord Vinson made a detailed speech which warrants most careful reading. The noble Lord, Lord Peston, said that he liked it. However, I doubt whether he liked the comments about over restrictive town and country planning—

Lord Peston

I did not understand them.

Lord Waddington

My Lords, I do not believe that the noble Lord liked other ideas which my noble friend mooted in the field of taxation. However, I take the point made by the noble Lord, Lord Peston. I cannot do justice to the speech by replying in a word or two.

I assure the noble Lord, Lord Ezra, that safety must be paramount. When any industry is put into the private sector, machinery must be put in place to ensure that there is no decline in safety standards. I certainly take the point that he made.

My noble friend Lord Campbell of Alloway thought that the Government were right in their response to the present economic position. He referred to our record on industrial relations reform. There are few who do not now applaud that. My noble friend spoke of the Green Paper, Industrial Relations in the 1990s, and asked me to confirm that no more industrial relations legislation will be introduced before the general election. There is no reference in the gracious Speech to the introduction of such legislation. The consultation period on the Green Paper has not yet concluded or was concluded only in the past week, so my noble friend can take it that there is no question of such legislation prior to the general election. He wanted consolidation of the statute law on trade union law and I shall pass on that suggestion. It would be of great convenience to practitioners.

In an interesting speech the noble Lord, Lord Jay, said that output had fallen recently. In fact it has risen during the past three months. When he said that there are only predictions of recovery but no real recovery he ignored that fact. He also ignored the fact that there has been a rise in retail sales during the past three months compared with the previous three months. Manufacturing output too has risen as has export volume and the number of car registrations. Furthermore, one cannot ignore the renewed business confidence shown by the recent CBI survey.

All noble Lords were most interested in the speech made by my noble friend Lady Denton of Wakefield. She spoke with great authority, not least because of her experience with the Black Country Development Corporation. She described how so often we as a country run ourselves down. She spoke of people saying that we do not have such good training as is available overseas. Recent figures show that more 16 and 17 year-olds in this country have formal qualifications than do those in Germany. I am sure all noble Lords will agree that we damage ourselves by the criticism to which, without sufficient foundation, we subject ourselves. She said that there was no long-term damage to the economy but that companies have had to put their houses in order.

I am a northerner so I listened with great interest to the speeches made by the noble Lord, Lord Sefton of Garston, my noble friend Lord Wade of Chorlton and the noble Lord, Lord Ardwick, who hails from the North West, even though he no longer lives there. I am sensitive to criticism that not enough is being done for the North West. It is nice to hear someone such as the noble Lord, Lord Sefton, bang the drum for the North West. However, I do not believe he is right in suggesting that every time a development takes place in the South there should be an inquiry to see what impact that might have on towns in the North—

Lord Sefton of Garston

My Lords, I was serious all right! The noble Lord would not suggest to this House that the building of the Channel Tunnel was not important and did not have a consequential effect on the economy. Neither would he suggest that the building of Canary Wharf and the Dockland Development Corporation did not have a consequential effect on the economy. I was serious in making my suggestion. I tied it up clearly with the fact that we have a capital city that is more congested than any other, that is more badly run and that this Government have destroyed any possibility of a decent government for the capital.

Lord Waddington

My Lords, I assure the noble Lord that I was not treating his remarks with frivolity. I merely believe that in some respects he went a little too far.

I agreed with much of what was said by my noble friend Lord Wade. He referred in particular to the development of Manchester Airport. I understand that the Government recently negotiated with the United States for three new routes for regional airports and all have gone to Manchester. I also understand that the construction of the rail link between Manchester and Manchester Airport has begun.

My noble friend Lord Jeffreys made a most thoughtful speech to which I cannot possibly do justice now. I shall read it with great care tomorrow.

The noble Lord, Lord Desai, pointed out that unemployment is not calculated in the same way as it was in 1979. He will be the first to agree that the Labour Party has not suggested that the definition should be changed in any way. He made the remark to which I referred when dealing with the intervention of the noble Lord, Lord Callaghan, who criticised the Government for having an inflation rate of 20 per cent. in 1980. I thought that the remark was a little unfair but I must try to reconcile the remarks made by the noble Lord, Lord Callaghan, with the remarks made by the noble Lord, Lord Desai. I do not believe that the two can be reconciled.

Lord Callaghan of Cardiff

My Lords, perhaps the noble Lord will allow me to intervene. The more aggressive he becomes the more inaccurate he is. Surely the noble Lord knows that the reason why the rate of inflation rose so fast when his Government came to power was because Sir Geoffrey Howe increased the rate of VAT to 17.5 per cent. The rate was almost doubled and that increased the retail prices index. The two elements are compatible.

Lord Waddington

My Lords, again I must point out to the noble Lord that inflation was reduced to a level which was, on average, half the level of inflation achieved by the Labour Government. I believe that concludes the argument in our favour.

I have dealt as quickly as I can with all the various interventions. This has been a good debate and I have tried to do justice to the speeches that have been made. I submit that the Government have won the battle in respect of the amendment without a great deal of difficulty. The arguments put forward have been rather frivolous and I invite my noble friends to reject the amendment.

8.19 p.m.

Lord Williams of Elvel

My Lords, I am grateful to all noble Lords who have taken part in the debate. I accept the view expressed by the noble Lord, the Lord Privy Seal, that noble Lords opposite will probably win the vote in the Division Lobby. I wish to make only one serious point, because it is not right to make a long speech. In moving the amendment, I made a plea to Ministers to be honest and truthful in their presentation of economic matters. I am afraid—and I must say this—that my plea has gone unheard. I say directly to the noble Lord, the Lord Privy Seal that in this House we like to have matters straight and honest. I beg to move.

On Question, Whether the amendment shall be agreed to?

Their Lordships divided: Contents, 63; Not-Contents, 124.

Division No. 1
Ardwick, L. Kagan, L.
Beaumont of Whitley, L. Kilbracken, L.
Boston of Faversham, L. Listowel, E.
Callaghan of Cardiff, L. Lockwood, B.
Carmichael of Kelvingrove, L. Longford, E.
Carter, L.[Teller.] Lovell-Davis, L.
Desai, L. Mayhew, L.
Donoughue, L. Milner of Leeds, L.
Dormand of Easington, L. Monkswell, L.
Ezra, L. Morris of Castle Morris, L.
Falkender, B. Murray of Epping Forest, L
Gallacher, L. Nicol, B.
Galpern, L. Peston, L.
Graham of Edmonton, L. Pitt of Hampstead, L.
[Teller.] Prys-Davies, L.
Grimond, L. Richard, L.
Harris of Greenwich, L. Seear, B.
Hatch of Lusby, L. Sefton of Garston, L.
Hilton of Eggardon, B. Serota, B.
Hollis of Heigham, B. Shackleton, L.
Houghton of Sowerby, L. Stallard, L.
Howie of Troon, L. Stoddart of Swindon, L.
Hughes, L. Strabolgi, L.
Irvine of Lairg, L. Taylor of Blackburn, L.
Jacques, L. Turner of Camden, B.
Jay, L. Underhill, L.
Jeger, B. Wedderburn of Charlton, L.
Jenkins of Hillhead, L. White, B.
John-Mackie, L. Williams of Elvel, L.
Judd, L. Wilson of Rievaulx, L.
Aldington, L. Campbell of Croy, L.
Arran, E. Carlisle of Bucklow, L.
Astor, V. Carnegy of Lour, B.
Balfour, E. Cavendish of Furness, L
Barber, L. Clanwilliam, E.
Bathurst, E. Clinton, L.
Beaverbrook, L. Cochrane of Cults, L.
Belhaven and Stenton, L. Colnbrook, L.
Beloff, L. Colwyn, L.
Belstead, L. Cork and Orrery, E.
Blatch, B. Cross, V.
Boardman, L. Dacre of Glanton, L.
Borthwick, L. Davidson, V.[Teller.]
Boyd-Carpenter, L. Denham, L.
Brabazon of Tara, L. Denman, L.
Brougham and Vaux, L. Denton of Wakefield, B.
Butterworth, L. Downshire, M.
Byron, L. Eden of Winton, L.
Caithness, E. Elibank, L.
Campbell of Alloway, L. Ellenborough, L.
Elles, B. Munster, E.
Elliot of Harwood, B. Murton of Lindisfarne, L.
Elliott of Morpeth, L. Nelson, E.
Elphinstone, L. Northbrook, L.
Elton, L Oppenheim-Barnes, B.
Erne, E. Orkney, E.
Faithfull, B. Oxfuird, V.
Ferrers, E. Park of Monmouth, B.
Foley, L Pearson of Rannoch, L.
Forbes, L. Perry of Southwark, B.
Fraser of Carmyllie, L. Portsmouth, E.
Gibson-Watt, L. Quinton, L.
Glenarthur, L. Reay, L.
Gridley, L. Renwick, L,
Grimthorpe, L. Rochdale, V.
Haig, E. Romney, E.
Hailsharm of Saint Marylebone, L. St. Davids, V.
Halsbury, E. Salisbury, M.
Henley, L. Savile, L.
Hesketh, L. [Teller.] Seccombe, B.
Holderness, L. Selborne, E.
Hooper, B. Selkirk, E.
Howe, E. Shrewsbury, E.
Hylton-Foster, B. Skelmersdale, L.
Jeffreys, L. Southborough, L.
Joseph, L. Sterling of Plaistow, L.
Kinnoull, E. Stodart of Leaston, L.
Lane of Horsell, L. Strange, B.
Lauderdale, E. Strathclyde, L.
Long, V. Strathmore and Kinghorne, E
Lucas of Chilworth, L. Swinfen, L.
Lyell, L. Thomas of Gwydir, L.
Mackay of Ardbrecknish, L. Trumpington, B.
Mackay of Clashfern, L. Ullswater, V.
Macleod of Borve, B. Vaux of Harrowden, L.
Marlesford, L. Vivian, L.
Massereene and Ferrard, V. Waddington, L.
Merrivale, L. Wade of Chorlton, L.
Mersey, V. Wedgwood, L.
Monk Bretton, L. Whitelaw, V.
Montgomery of Alamein, V. Wolfson, L.
Mottistcne, L. Wynford, L.

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.