Manufacturing Industry: Job Losses

HL Deb 08 July 1992 vol 538 cc1146-82

3.38 p.m.

Lord Dean of Beswick rose to call attention to increasing job losses in manufacturing industries; and to move for Papers.

The noble Lord said: My Lords, in opening the debate perhaps I may first express my pleasure and satisfaction at being successful in the draw in order to debate this subject which, I am sure your Lordships will agree, is extremely important in terms of maintaining our standard as a leading industrial nation in the world and also in helping us to maintain our present standard of living and to improve it if possible.

In speaking today on this subject I have a feeling of déjà vu. The last time that I spoke in a debate on the subject was before the general election. Although we have had a general election, nothing has altered other than that things have become progressively worse. I remind noble Lords that on 5th February of this year I tabled a Starred Question in which I asked the present Minister about the loss of jobs in the manufacturing sector over the past three years. He gave me two sets of figures because I do not think that those for the last year were quite complete. They showed that from November 1989 to November 1990 job losses in the manufacturing sector numbered 94,000. In the following year, November 1990 to November 1991, the figure had risen to 350,000, which in terms of accelerating the total was a 400 per cent. increase. I submit that that is startling and alarming by any standards.

At the same time the Confederation of British Industry issued a report showing that, unless things started to alter, in the first quarter of this year there would be a loss of 70,000 jobs. I do not have the figure for the first quarter but I understand that it is not very far short of that mark. I was therefore rather surprised when I received a brief from the CBI in my mail on Monday morning which tried to impress upon me the fact that things are getting better when every denominator from every other source indicates quite clearly that they are getting worse. I asked myself, "What is the CBI up to?" I believe that it has a national responsibility to mirror national concerns and to deal with them instead of simply acting as a nodding donkey for the Government.

There is no question at all about the fact that what the CBI said during the election and during the period when I was asking those questions conflicts with what it is saying now. I am almost reminded of the little boy in Holland who put his finger in the dike but the holes kept appearing until he ran out of fingers—and the CBI is running out of excuses. That is the situation with the CBI. Bearing in mind the fact that two or three months ago it was saying exactly the opposite, I do not think that the brief that it is now sending out has any credibility. As I have said, things have not changed, other than to get worse.

There was a debate on this matter in another place the other day. It began with an excellent speech by the Labour Party spokesman on industry who gave such a catalogue of figures showing the adverse situation that has developed that the new President of the Board of Trade and Secretary of State for Trade and Industry, the right honourable Mr. Heseltine, admitted twice in his opening remarks that we are in a recession. Before that people were talking about a "slump", not about a recession, but Mr. Heseltine has now admitted fully that we are in a recession.

If noble Lords want to know about the type of recession that we are now bumping along in, perhaps I may remind the House that when I asked my original question about job losses, the Minister said that the figures had been exacerbated by the transfer of jobs from the manufacturing sector into the service sector. That may have had a minimal effect, but it cannot in any way be a major cause for that alarming increase in the figures. It is not only Ministers but Government Back-Benchers also who say periodically, "Well, in a time of technological advancement, we are bound to shed jobs". Some figures have been sent to me by my union, the Amalgamated Engineering and Electrical Union (the AEEU) which has done a first-class job producing a national report on job losses in the manufacturing sector. I advise noble Lords—whatever their political persuasion—to get a copy of this report and to read it.

The House will understand if I refer only to the two areas of the United Kingdom with which I have had personal contact. I shall speak first about Yorkshire and Humberside. The report lists 32 firms which have shed a total of 2,665 jobs. I found it alarming that quite a high proportion of those firms are in industries which should be expanding. They are not the old smoke-stack industries that are disappearing. The companies include British Aerospace and BP to name but two in Yorkshire. I cannot go through the full list, but there are others. I should now like to consider the North West because I am basically a Mancunian and spent my years in industry working in factories there. That area has recently lost 4,378 jobs in 33 industries including plastics divisions, the Ford Motor Company, British Aerospace and Delco Electronics. Those are all industries that are not going out of existence because they are dated; they are industries which should be expanding and providing jobs for our young people.

What are we doing for our young people? According to all the figures that have been produced, training places are not being taken up and are not successful. The malaise affecting young people is extremely damaging and its effect is being shown in the disturbances in some of our cities. I should like to give your Lordships a little example from very close to home about the problems facing our young people. By virtue of the introduction of Short money under the last Labour Government, the group of Labour Peers in your Lordships' House is now able to employ three young researchers. Naturally, as they progress they move on into better jobs. Some go out into the television world or the world of journalism. We have just lost the services of a very able young woman.

As I understand it today from my noble friend Lord Graham of Edmonton, we have had over 200 applications for that one job in this establishment. Although it is reasonably paid, it is not over-paid because even with Short money we do not have the money for that. An overwhelming number of those youngsters—in fact all of them—are products of higher education. In some cases they have struggled to get good degrees and a proper education. We can only appoint one person, so what happens to the others? A significant point that must be made is that we are facing a tragedy of enormous proportions when that type of thing is happening.

At the time of the general election there was a hiccup upwards and we were told that the motor car industry was lifting out of its recession. But no such thing has happened. One of the main motor companies has sent me some figures today which show that the industry is slipping back and that it will continue to do so—to the point, I understand, at which it is considering further decreasing the cost of its cars so that it can get rid of this year's lot before next year's are ready for registration. One might say that that is a good thing for somebody who wants to buy a motor car but it is not a good thing for the industry or for continuing employment, especially when one realises that the motor car industry is one of the biggest employers—if not the biggest—in the manufacturing sector.

It may well be that the Minister or a Member from the other side will quote certain figures to try to debunk what I am saying today. Tomorrow, however, the Labour Party will publish a very detailed factual document on what has really happened in the employment sector in a general sense. I should like to quote from an extract in The Times of 6th July, which stated: Britain is near the bottom of the international league table for job growth, Labour said yesterday. Releasing new figures, the Opposition said that during the first 18 months of the recession, only Finland out of 15 industrialised countries had suffered a bigger slump in its employed labour force. The number of Finns in work had fallen by 8 per cent while Britons fell by 5 per cent. Britain had also fared badly across the 12 years of Tory government. The number of people in work had increased by only 3 per cent, compared with 20 per cent in Portugal, 19 per cent in Canada and 18 per cent in the United States. Only France had done worse than Britain".

It also quoted the words of Mr. Henry McLeish, a Labour employment spokesman in another place. I submit that that state of affairs is simply not good enough and that what remedies the Government are trying today to try to put right this terrible situation are not working and will not work satisfactorily.

Since the Conservative Party's election victory of 1979 it has used the trade union movement as a whipping boy every time it is in trouble. Conservative Governments have introduced a succession of measures in Parliament that have literally sterilised the unions in terms of their ability to act on behalf of their members. There are now further proposals to deny the unions the present facility of collecting union fees at the place of employment. The Government are even going to try to monkey about with that. I say to the Minister—and I hope that he will convey this to his colleagues—that the trade unions have had to learn a bitter lesson, and it may be the case that part of it was necessary. But the fact is that over the past few years industry and government have had the complete co-operation of the trade unions, although, as I understand it, the Government have locked them out of the decision-making process.

My own union has had a history of balloting for almost everything. It has adopted a new feature in order to compete with our opponents. I refer to single union arrangements in places of employment. It has agreed to a number of such arrangements in order to destroy demarcation disputes. It has made various agreements with Japanese companies. They are working well. The leaders of my union deserve credit. Instead, they and other union leaders appear to be whipping boys for the Government.

The building industry, which may not be thought of as part of manufacturing industry, is also in decline. The number of repossessions of owner-occupied houses is increasing despite anything the Government have done. That is happening because of the number of people being made unemployed in the manufacturing and building sectors. It is absolute madness economically to let that continue.

I intended to say a few words about the retention or otherwise of the European fighter aircraft but my time is nearly up. Before doing anything drastic such as doing away with the aircraft I hope that the Government will consider carefully the ramifications that such a decision may have. Once a project team in that sector is dispersed it never gets back together. That would be a waste of some of our finest talent.

I am not alone in thinking that the exporters of this country often do not get a fair deal in competition with our opponents when they are vying for contracts. I ask the Minister whether it is not time to look at the Export Credit Guarantee Scheme to see whether we can speed it up and be more generous so that exporters in this country—certainly on contracts where large expenditure is required at the initial stage—are given a chance to compete on level terms with French, German and other foreign competitors. Unless we do that we shall continue to decline.

I have had my 15 minutes. I am grateful for the opportunity of opening such a debate and I look forward to hearing the contributions of other noble Lords so that we may come to some conclusions that may assist the situation. My Lords, I beg to move for Papers.

3.54 p.m.

Lord Rochester

My Lords, I am sure that the whole House will be grateful to the noble Lord, Lord Dean of Beswick, for having introduced the debate at such a timely moment. We must all be concerned about the extent of current and prospective job losses in manufacturing industries. On these Benches I propose to deal with the employment aspect of the Motion, in what I hope will not be thought too narrow a way, and my noble friend Lord Ezra will speak later on the economic and industrial issues that the Motion raises.

Within the employment field, like the noble Lord, Lord Dean, at one point in his speech, I think I can best contribute to the debate by relating the Motion to the part of the country where I live—Cheshire. I am sure the noble Viscount, Lord Ullswater, will agree that the bodies best able to assess local labour markets are the training and enterprise councils set up by the Government with that purpose in view. I have it on the authority of the chief executive of the North and Mid-Cheshire TEC—NORMID TEC for short—that in that area major industrial companies, many of them household names, are continuing to reduce their workforces and that at least for the next few years there will be no respite from that process.

The most startling example of what I have in mind concerns the company for which I worked for nearly 30 years, ICI, where up to as many as 18,000 jobs are now at risk, largely at Runcorn on Merseyside. I want to use the opportunity provided by the debate unashamedly to draw the attention of the House to the gravity of this problem. In doing so I no longer have a financial interest to declare, but your Lordships will understand how deeply I feel about the potential loss of so many jobs. Threatened with closure are altogether four plants producing chlorine and caustic soda. Together they provide 7,000 jobs, the majority at Runcorn. A further 3,000 people are directly involved in the business as contractors, and 8,000 others work in associated downstream activities.

Chlor-alkali and derivative products in the United Kingdom have a sales value of about £750 million per annum in the domestic market and export sales of about the same amount. The total effect on the country's balance of payments is thus about £1,500 million per annum. Large quantities of electricity are used in production, equivalent to about I per cent. of total United Kingdom electricity demand and accounting for more than half the total cash costs of manufacture. The Merseyside operation alone uses as much electricity as the whole of the city of Liverpool.

Following privatisation of the electricity industry, ICI has since April 1991 been faced with increases in electricity prices of more than 30 per cent. That does not sound to me like a true market. It has suddenly put the company at a severe disadvantage in relation to its major competitors in continental Western Europe and the United States, where electricity price levels are between 45 per cent. and 85 per cent. of present UK prices to ICI. The company's cost base is internationally competitive in all respects except electricity costs. Substantial investment is now needed to underpin existing operations and for selective expansions. Those investments simply cannot be justified at today's electricity prices.

Those prices should be viewed alongside the massive increases in profits recently recorded by the electricity producers and regional distribution companies, not to mention the salary increases that their executives have seen fit to award themselves. So while overseas producers are reinvesting in their assets, ICI may be forced into the plant closures I have described. I believe that this threat is a real one and I fear that unless some remedial action can be promised, the company could begin to withdraw progressively from Chlor-alkali production within a few months.

ICI has been involved in lengthy discussions with the electricity generators and the Government, but has so far been unable to gain what it regards as realistic prices for the business. The problem has arisen from the radically different electricity pricing structure that was implemented at the time of privatisation. The overall costs incurred by the generators and distributors have scarcely changed since then. As with any complex new structure, the electricity pool price mechanism is understandably experiencing teething problems, but there has been a reluctance to implement the changes that are now clearly required.

If your Lordships will forgive me, I should perhaps outline in a little more detail the fact that the Runcorn site buys power from ICI's own power purchasing subsidiary, Impchemix —a member of the electricity pool. I understand that the company's move to set up Impchemix followed a suggestion from the noble Lord the Leader of the House when he was Secretary of State for Energy in the other place. The suggestion was that large electricity users unhappy about prices should go and compete in the market. But Impchemix must still buy from the pool where prices are so much higher than under the pre-privatisation tariff.

At this point I should say that I was interested to read an article in today's Financial Times which stated that OFFER, the electricity industry watchdog, yesterday proposed a new pricing formula which, if implemented, would result in a substantial reduction in the National Grid company's charges. As I understand it, under the formula National Grid would have to keep prices to three percentage points below inflation. That might permit very large industrial consumers to make savings, but they would be small in relation to ICI's needs. In any case, it remains to be seen whether National Grid will accept the new formula. If it does not, perhaps the noble Viscount, Lord Ullswater, will confirm that the matter would then be referred to the Monopolies and Mergers Commission.

In my view, there is now an urgent need for the Government to re-examine the pool price mechanism and to reconsider the way in which costs are allocated to uniquely large feedstock users of electricity. I feel sure that if such a re-examination could be offered, ICI, for its part, would be happy to collaborate and, within the flexibilities available to the company, tailor its demands so as to minimise the costs incurred by the generators, transmitters and distributors of electricity.

I am well aware that, in general, the Government are unwilling to intervene in the workings of the commercial market. But this case involves one of the country's greatest wealth creators and exporters, and an acknowledged leader in the fields of industrial relations and training. It will be a tragedy for the Merseyside area—and, indeed, for the whole country —if ICI is obliged to withdraw from chlorine and caustic soda production. That is why I have deliberately highlighted that case, though clearly other major energy users share the view that current electricity prices are having the effect of making British industry uncompetitive in Europe.

When the noble Viscount replies to the debate—and I have, of course, given him notice of the matter that I shall now raise—I hope that he will be able to tell me that there may be some way in which my anxieties, and those of many others, can be relieved. In the last resort, it seems to me to come down to the question of the value that we place not simply on employment protection but also on this country's long-term international competitiveness.

For the rest, I should like to suggest a few ways in which more jobs in manufacturing industry might be created in the region about which I have been speaking. In my view, when recovery comes, it must be investment led, not consumer led. That could be done as the CBI advocates—so it does not always agree with the Government—by taking steps to stimulate investment in the infrastructure, thus providing sorely needed work for the construction industry, as the noble Lord, Lord Dean, advocated.

Further investment in transport, especially rail transport, is urgently needed, not least in preparatory work for the freight links from the North West to Europe which are essential if the region is to take full advantage of the single European market. Traditionally, many manufacturers in the area have used the Channel and Humber ports for exports and, more recently, the developing facilities at Felixstowe and Harwich. However, routes to those ports are becoming increasingly congested. If the North West is not to find itself isolated on the periphery of Europe, north-south and east-west access by road, rail and indeed air must be improved as a matter of urgency.

I referred earlier to NORMID TEC, the council responsible for training and enterprise in the part of Cheshire where I live. In the report just published by that TEC on its first nine months of operation until 31st March this year, the chairman has written: We need more funding flexibility from Government. If next year does not bring greater Government commitment to the strategic alliance, the TEC will be unable to carry out a business plan in line with its March statement. In addition, many of the board members leading the TEC movement will return to other priorities in life and the TEC movement could wither on the vine". The noble Viscount would be surprised if, in a debate of this kind, I made no reference to training. I share the anxieties of noble Lords on this side of the House concerning the adequacy of the resources available to TECs to promote training, and particularly to fulfil the Government's youth training guarantee to 16 and 17 year-olds. Those anxieties were expressed most recently in the debate on an Unstarred Question only last week. Therefore, I shall not dwell further on the subject on this occasion, except to ask the noble Viscount the following question. Can he confirm the truth, or otherwise, of a report in the Financial Times of 1st July that the Secretary of State has launched an investigation into why TECs are failing to meet the training place guarantee? If the report is well founded, that is an encouraging sign and one which I hope the Minister will be glad to acknowledge.

But increased training, though of crucial importance for the long term, will do little or nothing to create more jobs in the immediate future. That objective could, however, be more readily achieved by placing strong emphasis on the enterprise aspect of the TECs, mainly by encouraging business start-ups and growth opportunities in small to medium-sized companies. I was therefore delighted to learn that during its first nine months of operation NORMID TEC has been instrumental in starting 210 new businesses and that it has set itself the target of at least 370 new starts in the next year. Further, the TEC considers that an important part of its remit is to liaise with other local organisations in providing funding for the counselling and informed advice which play such a vital role in ensuring the long-term survival of fledging enterprises.

But what I think the TEC of which I am speaking would most value—that is, apart from the provision of additional funding—would be the ability to exercise more flexibility than it has at present in using the resources with which it is provided to meet the needs identified not by the Government nor their agents but by the TEC itself. In his reply, I hope that the noble Viscount will indicate that both he and his department have sympathy with that aim and that they will do all they can to help achieve it.

I conclude by simply expressing the hope—as, indeed, did the noble Lord, Lord Dean—that the debate will help in some small way to alleviate the serious problem to which the Motion has called our attention.

4.9 p.m.

Lord Joseph

My Lords, I am glad to take part—I hope constructively—in the debate initiated by the noble Lord, Lord Dean, and to recognise, as I start, that suggestions for economy in any of our services, such as were identified by the noble Lord, Lord Rochester, are highly relevant to the competitive economy which we need to reduce unemployment.

Examination of the proposition put forward by the noble Lord, Lord Dean, would be more usefully considered under several different headings. First, there is the loss of jobs due to what used to be the serious British problem of overmanning. That was the responsibility of management as well as the trades unions, and the blood letting of the early years of the 1980s did at least, with great misery, squeeze out some of the overmanning that had, until then, crippled our competitive performance as a country.

In addition to the job losses due to overmanning, or —dare one put it—as a result of bad management. there are the constant, always to be expected, failures of firms, large and small, in manufacturing and services.

In that context I must acknowledge that it is a tragedy that the Conservative Governments of which I was, until 1986, a member, misjudged the strength of the boom in the second half of the 1980s and thus had to introduce high rates of interest to reduce inflation with the consequences that we all recognise and deplore today. It is true that most of our main markets went down the same path and now suffer from recession which limits the exports that we would otherwise make to them.

It is ironic that today there is announced an examination, at the behest of Her Majesty's Treasury, of the performance of the profession of economists in forecasting. The National Institute of Economic and Social Research has this very day published a report which I am eager to read. It examines the lessons of that failure in economic forecasts. It is a lesson which. I am sure, will be taken on board by the Treasury which, after all, initiated the research. I had believed that only Professor Tim Congden had identified, early on in the mid-1980s the dangers that this country's economy faced, but perhaps there were others.

There is not much comfort for Her Majesty's Opposition from what I have just acknowledged: namely, the Tory Government's failure to recognise the strength of the boom in the mid-1980s, because —I make, I suppose, a partisan point, but only to protect my flank after my candour—Her Majesty's Opposition were at that time pressing the Government to lower interest rates further, when the real need, as we now see with hindsight, was to raise them.

I come now to a third category of the unemployment which the noble Lord. Lord Dean, rightly deplores. Even in a healthy economy there will always be job changes. Jobs will always be lost, but —this is the huge difference—at the same time jobs to which people can move will be being created. They will not always be in the same place or in the same skill; but there will be new jobs. What we all deplore now is that there is not the normally-to-be-expected birth of new jobs in anything like the numbers needed to balance the loss of existing jobs.

There are some encouraging signs. I do not want to exaggerate them. There is the revival of the car industry under the management of the Japanese. They are welcome here with their management skills. I recommend that noble Lords look at that remarkable book—I shall declare an interest in a moment—The machine that changed the world—which introduces the concept that after the craft production of the centuries leading up to the 19th century, and after the mass production of the late 19th century and the first three-quarters of this century, the Japanese have introduced lean production (lean manufacture) which puts all competitor countries and all managements in services as well as manufactures on their guard to look at the economy of labour at every stage from marketing through design, through manufacture and all the rest of the processes.

I have to declare an interest merely because my stepson wrote one of the chapters in The machine that changed the world. It is a graphic and vivid portrayal of the remarkable initiatives in their manufacturing skills that the Japanese have taken. The blessing of the Japanese coming here is not just that they revived the main factories involved, but they had benign repercussions in the sub-contracting world—subcontractors both British and from elsewhere. Of course there is not nearly as much as we should like, but there is new home-grown enterprise as well, although all new investment is now hindered by the squeeze of the banks which have their own problems caused by their past mistakes with which to deal.

There is a deeper problem preventing the creation of new jobs in the United Kingdom that all parties in this House and another place need to face. We have to ask ourselves where jobs come from. I believe that the answer is that whether they are jobs involved with machine tools or heavy equipment, and whether they are bought for investment or consumption, jobs come from customers. Jobs come from customers at home and abroad. Unless we satisfy customers with the value for money of our production of goods or services, we shall not hold the jobs. That is true of public sector jobs as well as private sector jobs, because public sector jobs are paid for out of taxation on private sector jobs. If private sector jobs do not yield enough employment and dividends to produce good taxation, there will not be the money to pay for many public sector jobs. The two are linked, and all depend upon customers.

Who creates the perceptions that this or that market of customers is ill-served at the moment and could do with new products, new variants of existing products or better products or services than are now on offer in terms of value for money? I believe that individual is underestimated in our society. He is of course the prime mover. The French have a word for it which we use (the entrepreneur). We can call the function that of barrow boys or barrow girls, but they are the prime movers.

The noble Lord, Lord Dean, would have made an even more effective speech if he had identified the fact that in this country, perhaps more than in our rival countries, we have discouraged that character, that job creator—the entrepreneur. The entrepreneur is not deeply loved. We have to explain to people why he or she is so important. I shall argue today that one of the main obstructions to enterprise (to risk taking) is something that could be altered if we were to recognise the damage that it does. I am talking about capital gains taxation.

I do not believe that any noble Lord will disagree that people who create jobs take risks. They invest their time and energy. They often leave existing jobs. They say to their wives, "We must mortgage the house". They take great risks. They give up their company cars, their pensions, their monthly or weekly cheques, and they take risks. They do not all do it for money. They have other motives; but probably all of them, to some extent, do it for a money reward. With that money reward, in the rare cases where that risk comes off—noble Lords will be aware that most entrepreneurial efforts fail—the risk taker finds that there is a terrible penalty to be paid through capital gains tax.

I admit that recent Chancellors of the Exchequer, including Mr. Norman Lamont, have mitigated the tax, and that there is a new base of 1982 values which is indexed for inflation. But, on the other hand, my noble friend Lord Lawson raised the capital gains tax from 30 per cent. to 40 per cent., I believe most unwisely. That capital gains tax produces a big figure. I believe that the figure is £2.5 billion for the most recently published year, but that is a trivial fraction of this country's total tax revenue. I believe that it is between 1 per cent. and 2 per cent. So I am not asking for something unimaginable when I say that it should be reduced sharply or abolished. There are many arguments for and against it. I shall not bother the House with them today. I believe that it is an important factor in discouraging risk taking.

Let us look for a moment at our competitor countries. The US, Australia and Spain have rates of capital gains tax either similar to ours or above ours. Japan, however, has a rate of 20 per cent. with an option for the payer to pay only 1 per cent. of the proceeds of sale of the asset. France has a 16 per cent. rate, ours is 40 per cent. Germany has a heavy rate for short-term gains, but nil for any gain realised after six months. In Belgium, the Netherlands and Italy there is no capital gains tax. Thus, I suggest that the Government could consider abolishing the tax, or reducing the rate or moving to a short-term rate with no capital gains tax when the asset is kept for more than a limited time.

I am not saying that this is the only factor that will bring about the harvest of new jobs to balance the loss of jobs. There are numbers of cultural factors that governments—no matter how much they wish to— cannot quickly or easily alter. For example, there is a tendency for the most talented people in our country —and I do not mean only those who are academically talented, but those who possess shrewdness in terms of the market—to be urged to take salaried jobs and not to take risks. I tremble to think what will happen to our entrepreneurial capacity when the Conservative Government carry out their project to double the proportion of our population going on to higher education. Whether it is snobbery or ignorance, there is a tendency in higher education to urge people into what are thought to be more "respectable" activities. I say nothing against those activities. People are urged into the professions such as the Civil Service, professional services, social services and academic life itself, neglecting the fact that all these careers depend on the prosperity that comes from manufacturing and services.

Of course, there are reasons against bright people going into industry. Until recently, there was Luddism. Thank God, there is less now. There are all kinds of mismanagement. Some of our companies are the best in the world in the terms of management, but some are less than ideal.

Thus those who worry about unemployment—and I do not doubt that your Lordships do—should, when considering how to deal with it, contemplate the action I suggest. What I say would be true, I believe, whether or not we had joined Europe and the exchange rate mechanism. We need it if we are to prosper with relatively full employment as a country. I argue that all parties need to recognise the central importance of the entrepreneur. If we can, we need to convince the country that the cultural hostility to entrepreneurship is self-damaging. We also need to abolish the capital gains tax or to shift to a short-term tax only, as in Germany.

All I am saying is relevant to the services as well as to manufacturing. The subject of entrepreneurship and how to encourage it is important, recognising that few of the risks that entrepreneurs take succeed. We need many risk-takers so that there will be a good enough birth-rate of small firms to give us a yield over time of the medium sized firms which are so sadly lacking in this country. Some of them will grow into multinational giants employing scores of thousands of people.

Of course, training and investment are important; so are research and development, education and management. But the capital gains tax should be altered. It would not be a panacea, it would not work overnight, but it is an important part of the answer to the Motion of the noble Lord, Lord Dean.,

4.24 p.m.

Baroness O'Cathain

My Lords, one of the strangest things about your Lordships' House is that the words "my noble friend" do not necessarily mean what they seem. I was asked by a friend, who has extended great friendship to me since I joined this House, to take part in the debate today. I hope that we shall still be friends when he hears what I wish to contribute to the debate—though I am unable to call him "my noble friend".

I am grateful to the noble Lord, Lord Dean, both for his instigation of the debate and for asking me to participate, because I believe that it is important that we refocus on the job losses that have occurred in manufacturing industry, not from the narrow view of this sector in isolation, but from the viewpoint of the economy as a whole.

When I first joined manufacturing industry in 1966, there were 9 million people employed in it. In the sector in which I worked, the motor industry, there were 858,000 people employed. The comparable figures in 1990 were 5.1 million in manufacturing industry and 248,000 in the motor industry. On the face of it, that is a huge reduction.

The numbers for 1966 masked low productivity, bad working conditions, and, most destructive of all to our international competitiveness, appallingly bad labour relations. I can truthfully say that although everyone employed in manufacturing industry was a "worker" (or pretended to be), there was precious little mutual respect. Fresh from university, new to this country, I found it pretty difficult to accept that no one on the shop floor had a good word to say for management and vice-versa.

We all know what happened. There was an even further deterioration in Britain's industrial position. To give one example, output per man in the car industry was five cars per annum compared with Japan's 23. No wonder that we were heading fast down the slippery slope to becoming an "erstwhile industrial country".

However, the rot stopped. New attitudes prevailed. People began to accept that management did not have the monopoly of all the good ideas. Unions accepted that they could not condemn their members to boring, repetitive jobs with antiquated work practices which had resulted in a low wage, non-competitive industrial sector.

In 1966, car output amounted to 1.6 million units, produced by a workforce of 858,000 people. In 1990 the comparable figures were 1.3 million units produced by a workforce of 248,000—a huge increase in productivity. New investment in technology in the intervening 24 years led to this increased productivity and resulted in an improvement in the working environment, but it was inevitably accompanied by job losses. However—and this is most important—that very investment led to a great increase in jobs in the service sector.

The old industrial classifications can no longer be examined in isolation. So many jobs previously classified as manufacturing are still being done, still exist, but are now called something different. I feel sure that the job losses which are causing anxiety to the noble Lord, Lord Dean of Beswick, are nothing like as numerous as a bald examination of the figures suggests.

Let me just give an example from my current area of activity. The Barbican Centre has about 1,000 people employed on site, yet the Barbican Centre staff —that is those who are paid directly by the Corporation of London which owns, funds and manages the centre—number just over 200. The remaining approximately 800 include self-employed maintenance men, contract cleaners, contract caterers, security guards employed by a contract security firm, contract telephonists, self-employed stewards, and so on. All these people would previously have been classified as employees of the Barbican Centre. If one takes the narrow classification, it looks as though job losses of about 80 per cent. have occurred. The reality is that as many people as before—or almost as many —are employed at the centre, but not registered as such.

Of course, I am not saying the experience of the Barbican Centre is mirrored absolutely in manufacturing industry. I am sure that it is not. What I should like to suggest is that the same tendency occurs to give short or long term contracts to groups of individuals who in turn will operate in a position of service to the sector. Yet these people do not appear in the manufacturing industry statistics.

Perhaps we should press for a total overhaul of the statistical service. As soon as I say that, I fear that there will be groans all round. In principle, it might not be a bad thing; but in practice it would be an exercise with little benefit to anyone other than the economists employed to undertake the task, and of course it would be a very expensive undertaking.

It appears that the message of the fundamental change in the structure of the whole labour force in this country has still not got through to some people in the House. It would not matter too much if ignorance of the change stopped at the doors of the Palace of Westminster; but I fear that debates like this can cause several problems if the facts were misrepresented.

Problem one: a superficial examination of the figures could lead people to believe that British industry is in terminal decline. This is not so. But this in turn could discourage customers from buying our goods. Who wants to back an industry in terminal decline? British industry is internationally competitive to an extent that I wish it had been in the 1960s and 1970s.

Problem two: bad news stories about a so-called massive decline in British manufacturing industry could cause a marked reluctance for our young bright school-leavers and graduates to consider the sector as an employment opportunity. This would be a disaster, as the manufacturing sector needs all the brains it can get. This point has been made much more eloquently by the noble Lord, Lord Joseph.

Problem three: international investors could give Britain a wide berth when deciding where to locate their future manufacturing facilities, to the detriment of Britain's strong geographic and financial position vis-a-vis the European Community.

For these three considerations and many more, would it not be better if we all tried to see the job losses in manufacturing industry for what they in part are; namely, a transfer of work from the narrow manufacturing industry classification to the service sector? The figures support this. In 1966, of a total workforce of 26.2 million, manufacturing industry employees totalled 9.1 million and service industry employees 1.6 million. In 1978, of a total workforce of 26.3 million, manufacturing accounted for 7.3 million and services 1.5 million. By 1990 there had been a fundamental shift: the workforce totalled 28.5 million, manufacturing industry 5.1 million and services 15.9 million. These statistics are probably indigestible but the percentages are easier to digest.

In 1966 manufacturing accounted for 35 per cent. of the workforce and the services sector 6 per cent.; in 1978 the comparable percentages were 28 per cent. and again 6 per cent. In 1990 the percentages were 18 per cent. and 56 per cent. Added to this, the self-employed category had increased by 94 per cent. from 1.7 million in 1966 to 3.3 million in 1990. Of course, I am not claiming that all the increases in the service sector and self-employed categories are replacing the job losses in manufacturing, but I suggest that a large proportion are.

Finally, we must be realistic and admit that there was a major problem in keeping large numbers employed in huge manufacturing sites on low wages in low productivity and repetitive jobs, while our competitors were achieving great increases in manufacturing productivity. We are not, nor do we want to be, a low-wage, low-expectation, industrial economy—no other developed western economy is. We now have a manufacturing sector that is lean, efficient and meeting delivery schedules that would never have seemed possible when I first joined the sector in 1966. I hope that through this debate we become more supportive of the sector and do not talk ourselves into a downward depressive spiral.

4.33 p.m.

Lord Desai

My Lords, we are grateful to my noble friend Lord Dean of Beswick for having initiated this debate. Already we have heard some excellent contributions and before I make my own I must say that I am an academic with no experience of either manufacturing or government but I hope to talk in fairly general, but I hope analytical, terms about the problem at hand.

There are clearly some short-term aspects of the problem which I shall mention quickly now and come back to later. We are in the middle of one of the most serious post-war recessions. It is going on much longer than we expected and it is costing a lot of jobs, not just in manufacturing but all around. One of the factors which motivates concern on the part of the noble Lord, Lord Dean, and many others is not just that there have been losses in manufacturing but that the jobs which have been created elsewhere are not sufficiently well paid to enable us to relax and say, "Well, there are jobs".

For a number of years we have slipped back from a full employment position. Whereas in the 1960s we would have thought of a 2 per cent. unemployment rate as full employment, now we would be lucky to get a 6 per cent. unemployment rate. That is a long-term structural shift in the context of which the short-term problems are somewhat severe. However, we have to admit that manufacturing sectors in all economies are shrinking. That is the nature of manufacturing. Productivity has grown all round the world, and to some extent we can produce the same manufactured goods with fewer workers. That has to be welcomed: we cannot say nay to it.

The concern is that somehow here the shrinkage of the manufacturing sector is greater than it has been in other countries. I do not want to give statistics but that is a problem I want to turn to because, as the noble Baroness, Lady O'Cathain, said, there has been a growth of productivity and we have a leaner manufacturing industry. However, I think it is leaner and somewhat smaller than used to be the case. Productivity growth there has been, but the overall growth rate has not kept pace. Although we had a spurt of rapid growth between 1981 and 1988, overall in the past 15 or 20 years—I cannot be too exact about this—the growth of the economy has not been commensurate with the growth of productivity so we now have a manufacturing sector which is smaller than one would ideally wish.

In spite of the growth in other sectors such as services, we still have an economy where insufficient jobs are being created and we have to consider why that is. The reindustrialisation of Britain, as it was fashionable to call it, has been going on for about 20 years. First of all, after the oil price rise we had a shift of products from here to elsewhere. Many activities went over to the third world, to Eastern Europe or elsewhere. We have had big import penetration and a problem of a declining export share. That decline has been halted lately but we still see that the British economy has a perpetual balance-of-trade problem which we have to cope with again and again.

In the past we have coped with that problem by successive devaluations, and one has to admit that the problem persists and successive devaluations cannot be the answer. The solutions must be structural ones and one cannot just rely on perpetual devaluations. Given that we have faced such crises since 1973, as many of your Lordships will be aware, the whole nature of manufacturing has changed from what used to be called the old Fordist technology to a new and more flexible technology, and that technology increasingly requires a workforce which is much better skilled and educated than we used to have. Normally the ideal was that a school-leaver went into manufacturing at 15 or 16, and those who stayed on went into the so-called better jobs, as the noble Lord, Lord Joseph, has said.

We can no longer afford that. The people who left school at 16 will not get jobs in manufacturing: I do not know where they will get them, but they will not get them in manufacturing because manufacturing needs now a whole new range of highly skilled and education-intensive jobs. For that kind of manufacturing industry we have to prepare ourselves in advance, both with the good training of our school-leavers and the perpetual retraining and re-education of those who are already in manufacturing jobs. We must constantly retrain and give sabbaticals to manufacturing workers. I enjoy sabbatical leave in my own job and therefore I believe everybody should have a sabbatical year, even manufacturing workers, so that they can retrain and recharge their batteries. Unless we have such a flexible, highly educated workforce we shall not be able to maintain even such a manufacturing sector as we have.

There is a problem resulting from the shift away from the UK in the 1970s, followed by the second shock of the decline of the Fordist technology and the emergence of new technology. For a long time we were not so much a high wage economy as a low wage, low productivity economy. The combination of low wages and low productivity meant that our unit labour costs were much higher than elsewhere. Some of that was no doubt due to overmanning, bad management and the wrong choice of product, but it was also due to the fact that in the 15 to 20 years after the Second World War, while our current rivals were engaged in reconstructing their economies, we had an easy time in export markets. While we had an easy time in export markets, roughly between 1945 and 1965, we did not sufficiently renew our capital equipment and invest in new technology. Therefore, we suffered a severe shock when our rivals—Germany, Japan and other countries—recovered and started competing with us. I believe that we have to go that far back to trace the roots of our manufacturing decline, without in any sense minimising the short-term factors.

Because we were a low-wage, low-productivity economy, attempts were made in the 1980s to reduce overmanning, as the noble Lord, Lord Joseph, and the noble Baroness, Lady O'Cathain, mentioned. There was an immediate rise in productivity. However, we did not change the educational and skill basis of our manufacturing. Therefore we are not now a high-wage, high-productivity economy; we are somewhere in between. We have not been able to produce the new generation of manufacturing products, which are research and development intensive. Although I admit to comparative ignorance in this respect, by and large what we are doing is producing the goods which we used to produce but with fewer workers. What we are not doing is producing new goods and new services, in which the market lies. The markets in advanced capitalist economies will lie in a variety of new products, as the Japanese have demonstrated with a number of electronic products. The goods which we used to produce, and which we still make with high productivity, are goods which newly industrialised countries in the third world are better able to produce. They have naturally lower wages than we do and we shall not be able to sustain our advantage in those activities.

In the manufacturing sector there will be further job losses as some activities face greater competition. Therefore, we have to continue to add new manufacturing activities where the new jobs will be created. In that respect we have to consider strategies in terms of encouragement through taxation and other policies to direct investment into manufacturing or policies regarding the supply side of the labour market.

As many noble Lords have pointed out, we have a much greater flow of direct investment from Japan, America and other countries. I believe that we have to say clearly that we welcome that. We live in a global economy. It is not possible to shield the UK from world market forces. Indeed, if we are interested in job creation rather than specifically jobs created by British employers we have to welcome job creation from wherever it may come. So long as they are good manufacturing jobs and high productivity jobs involving good labour relations—and many Japanese companies have demonstrated some tremendously innovative aspects of labour-management relations —we should welcome that.

There is direct investment from all over the world which is creating jobs. Of course there is anxiety that companies which come may leave quickly. Therefore, we have to devise a set of policies which will encourage job creation in manufacturing industry both by British employers and by other employers. However, a policy of merely inviting direct investment and perhaps keeping the lid on the growth of earnings will not be sufficient to halt the shrinkage in the manufacturing sector, despite the growth in productivity. There are some initiatives taking place, but in many respects we need a much greater presence in basic research and development which will identify where the next generation of products will come from. There is a great deal of such investment in Japan, we hear, in the new generation of computers and new materials. We must employ our scientists, who are very good—some of them in basic research and some in applied research —to look 10 or 15 years ahead and tell us what those products are likely to be.

Of course it is a risky business; no one either in the private or the public sector can predict the outcome. However, unless we look that far ahead and experiment with new lines and introduce pilot projects, either in the public or the private sector, and unless we train the labour force which will come on stream at that time in the appropriate skills for the task, I believe that we might be discussing this subject again in five years' time; and that would be a tragedy.

4.47 p.m.

Lord Mackay of Ardbrecknish

My Lords, it is always a pleasure to follow the noble Lord, Lord Desai. Indeed, he and I might be forgiven for thinking that every time we put our names down to speak in a debate the mysterious powers who draw up the list of speakers always put us one after the other. Usually they put the noble Lord first. The reason for that will immediately become obvious when I say that I should follow the confession with which the noble Lord began his speech by confessing that I was not involved in industry; nor, your Lordships will be pleased to hear, have I been an academic economist.

When I decided to take part in the debate for which the noble Lord, Lord Dean of Beswick, has kindly provided the opportunity, I read some papers and newspaper articles by economists. In such cases I find that if I have a 50 per cent. scoring rate in understanding them I am doing pretty well. I managed that scoring rate with one economist and thought that I might take part in the debate.

As I read some of the papers which I accumulated three questions came to my mind. What is manufacturing industry? Who is counted as working in manufacturing industry? Is the movement in the size of the labour force, either down or up, a true measure of the prosperity of manufacturing industry?

The noble Baroness, Lady O'Cathain, dealt with that point in some detail and I was very interested to listen to her. While the statisticians may define manufacturing industry rather more tightly than the public definition, there is a general view, at least in Scotland and I suspect in other parts of the United Kingdom with a similar industrial history, that manufacturing industry inevitably means a great deal of sweat, toil and tears on the part of those who work in it, is usually very dirty and usually involves knocking the blazes out of sheets of steel to create something else. For many decades that would have been a very good definition of manufacturing industry. No doubt noble Lords could, like myself, take people round their own areas and name some of the places which have disappeared from the map, places which employed very many people in just those kinds of manufacturing industries. From that we could easily conclude that manufacturing industry in the United Kingdom was in serious decline and even in some parts of Scotland in terminal decline.

But that is not the whole of manufacturing industry. It may be a small part of it but there is a lot more to manufacturing industry than just that. For example, the noble Lord, Lord Rochester, drew our attention to one narrow part of one of the important manufacturing industries; namely, the chemical and pharmaceutical industry. It is well worth saying that that is not in decline. In fact the United Kingdom chemical industry had a trade surplus in 1991 of £3 billion. Output over the past 10 years has increased by 45 per cent. Two of the top 10 pharmaceutical companies in the world are British. In fact those two companies produce on a world scale some of the most important drugs which are widely sold around the world. Indeed, we are the third largest exporter of pharmaceutical products.

Another terrific growth area in manufacturing, especially in Scotland, is in electronics and computers. Fifty per cent. of all personal computers sold in Europe are manufactured in the United Kingdom. That is not a sign of terminal decline in a manufacturing sector. IBM personal computers alone are worth £2 billion in export value to this country.

Greenock is a town which in many ways epitomises the change from the old to the new industries. According to the last statistics that I saw, IBM employed something like 3,000 people in that town. National Semiconductors, which is also there, employs around 1,500 people and has just announced another 250 jobs. That is a considerable number of people. But I suspect that people who are driving past Greenock en route to their holiday may look at the rather sad sight of Scott Lithgow's yard which is all but empty and think that manufacturing industry had gone from that part of Clydeside. But it has not. It has changed. However, I suspect that for the people who are employed in the new industries in many ways that employment is a great deal better, more pleasant and probably much better paid. We have to be very careful when we define manufacturing industry.

The computer industry brings me to my second question: who is counted as working in manufacturing industry? With regard to the computing industry, it is easy to see that the people who manufacture the hardware indeed work in manufacturing industry. But are those who produce the software without which the hardware cannot be made to work working in manufacturing industry? I do not know the answer. Perhaps my noble friend will help me when he replies.

Perhaps we can go a step further. Are the people who sell and those who teach others to use the computers working in manufacturing industry? Without them the whole exercise would be pointless. There may be many more people working in manufacturing industry than we count. The noble Baroness, Lady O'Cathain, mentioned the way in which contract cleaners are counted. For example, consider an industrial commercial manufacturing plant. If the cleaning or catering is contracted out, do those people suddenly drop off the manufacturing list count? I understand that they do and I suggest that in that case the manufacturing list count is not a very sensible figure. It certainly cannot be considered to be a good thermometer of the health of British manufacturing industry. Perhaps we should look at some other factors in the health of British manufacturing industry.

I have already mentioned the strength of the pharmaceutical industry and the electronics industry. In general, our share of world manufacturing trade has risen over the past three years. I understand that we export a larger percentage of our gross domestic product than do the Japanese. That is not the sight of a manufacturing sector in terminal decline.

With regard to cars, we are seeing the rebirth of the British car industry. I regret that it is not driven by British manufacturing itself and has to be driven by assistance from the other side of the world. But it is being driven and motor cars are being exported. Car exports from the United Kingdom were up something like 50 per cent. in 1991 from 1990. Production forecasts for cars made in the United Kingdom show an increase of 50 per cent. before the end of the century.

There is one interesting statistic which in a way has turned on its head over the past 10 years the whole way in which one looks at the production of television sets. We have a trade surplus in televisions. Our production of televisions doubled in the 1980s. Television exports are up something like 10 times. I hope that with those examples I have illustrated to your Lordships that all is not, as some people try to pretend, doom and gloom in the manufacturing industry.

The noble Lord, Lord Dean of Beswick, quoted my right honourable friend Michael Heseltine in the other place in the debate on Monday when he accepted that there was a recession in the United Kingdom. The noble Lord did not go on to point out that my right honourable friend also said that there was a similar recession in Canada, Germany, Switzerland, Australia, New Zealand and certainly the United States. We all know that, and that the considerable recession in the United States endangers the re-election of President Bush. We have a problem of mild recession here but we must not ignore the fact that it is a problem shared by other countries around the world. One can only hope that the G7 leaders have perhaps taken some steps to bring a little life back to the world economy.

One certainly hopes—the hope has been expressed frequently in your Lordships' House of late—that the United Kingdom presidency of the Community can drive the Uruguay Round and the GATT negotiations to a successful conclusion. But what can governments do? There is some feeling, which is perhaps stronger on the Benches opposite, that if only governments intervened more all would be well. In my lifetime I have seen governments do a lot of intervening. They are very good at identifying sunset industries and pouring lots of money into them. I must say that it can be for the best of all possible reasons. Often those sunset industries employ vast numbers of people and to see those companies go down means that considerable numbers of people are thrown on to the unemployment heap.

I do not think it is nearly so easy for governments to pinpoint the sunrise industries. My noble friend Lord Joseph in his interesting speech told us clearly that the people who will identify the sunrise industries are the entrepreneurs. Last October, the CBI in a paper called Competing with the World's Best from the Manufacturing Advisory Group said: It has become quite clear in recent years that Central Government cannot and should not be in the business of picking winners". That is not to say that central government should do nothing. Central government have roles to play and they should play them. I welcome the announcement last Friday by Michael Heseltine of what he intends to do with the Department of Trade and Industry. He does not intend to make it interventionist. He intends to try to make it a vehicle to help industry develop and expand and perhaps even to help the entrepreneurs mentioned by my noble friend Lord Joseph.

I especially believe that we need the new industrial competitiveness division which he intends to set up. I understand that that division will look at and guard against anti-competitive legislation and anticompetitive action both in the EC and outside it. Perhaps I may tell your Lordships of a rather worrying piece of anti-competitive action which I should like to draw particularly to my noble friend's attention. I understand that the European Commission proposes that shipyards in the former East Germany should receive subsidies of something like 36 per cent. on the price of building a new ship. In the, remainder of the Community that subsidy varies from 9 per cent. to 13 per cent. It looks as though shipbuilding demands are beginning to increase around the world. What chance of success does the United Kingdom have if the Japanese and Koreans subsidise their industries and within the Community there is some preferential subsidy? I am naturally interested because at Kvaerner and Govan in Scotland we have one of the few remaining major shipbuilding yards in the country. It has been doing well. I should like it to do much better. I should not like to believe that it was failing because of unfair competition.

The Department of Trade and Industry proposals go in the right direction. The taxation policies of the Government have certainly gone in the right direction. Low inflation is essential for business and commerce, as is some certainty about exchange rates. So long as we are not too pessimistic and do not paint a pessimistic view to the remainder of the world we can have every confidence in our manufacturing sector.

5.1 p.m.

Lord Alport

My Lords, I join in thanking the noble Lord, Lord Dean of Beswick, for giving us an opportunity to discuss unemployment in industry. I hope that noble Lords will forgive me if I interpret the Motion in a somewhat wider sense. I have to confess that, unlike my noble friend Lord Mackay and the noble Lord, Lord Desai, I am not an economist. I am certainly not an industrialist. I am simply a retired politician.

The loss of jobs in manufacturing industry can be properly assessed only if it is considered in relation to unemployment as a whole. The most surprising aspect of the last general election was the fact that unemployment was not made a central issue in the campaigns of any of the parties. Yet it is from unemployment and the fear of unemployment that most of the social and economic problems that we face are derived. I refer to the decline in consumer demand, increased Government expenditure, falling industrial output, house repossessions, mortgage arrears, crime, homelessness and the pervasive sense of insecurity and pessimism which characterise the mood of Britain today.

I shall not worry your Lordships with too many statistics. However, as has already been said, between March 1991 and March. 1992 employment in the manufacturing industries fell by 300,000. Between 1979 and 1987 unemployment rose from under 4 per cent. to 11 per cent. and, after a decline to about 5.5 per cent., is now nearly 10 per cent. Noble Lords know that the figure is now over 2.7 million on the present statistical basis; and on that basis it will reach 3 million in six months' time. That is the equivalent of about 4 million on the statistical basis used in 1979. The cost to the Exchequer is between £350 million and £400 million for every 100,000 out of work or about £12 billion a year. According to the press, the Government are considering ways in which to reduce that huge cost by cutting some unemployment benefits.

The means test, civil unrest and poverty are too depressingly familiar to those of us who have lived long enough. Those are factors that we promised ourselves would never occur again. Of course there is a difference between this slump and the great depression of the 1930s. The social security safety net is much more effective, and training schemes are designed to take many young people off the streets. But those are palliatives. They do nothing to solve the real problem.

There is no substitute for a job which enables men and women to earn an income from employment with which to meet their needs and those of others who may be dependent on them. It was assumed in the early 1980s that job losses in manufacturing industry could be absorbed by the expansion of employment in service industries. That always seemed to me to represent the belief that we could have a prosperous economy based on taking in our own washing. It is our ability to manufacture, export and sell, and the skill of our industrial management and workforce which makes economic progress possible.

There is no alibi in the belief that the British do not work as hard as the Japanese or are not as well trained technically as the Germans. Nor is it sufficient to argue that unemployment is also a problem of other industrialised countries, as my noble friend Lord Mackay suggested. What is missing today is public recognition by the Government that unemployment is the major issue which the country faces, and a commitment by them to use all the resources at their disposal to provide jobs.

The attack on unemployment must be the Government's first priority with the manufacturing base as a starting point. I believe that the construction industry offers the most effective point of entry. Action on public works, transport, housebuilding, cleaning up the environment—"priming the pump", and "a new deal" are familiar slogans to my generation—represents a combined effort between the Government, industrial management and trade unions. All those factors may mean higher taxation. But I would rather see money spent on getting men and women into work than the borrowing of billions of pounds to support increasing thousands on the margin of poverty and desperation.

Such action will mean much courage on the part of government. It will need the abandonment of the laissez-faire policies of the past decade—that decade of debt—and the belief that such problems can be solved by some form of financial legerdemain.

Someone said to me today, "I'm glad that I lived my working life when I did because then there was hope". People feel instinctively that reliance on market forces is not, and never was, enough to cope with the present unemployment situation. The initiative lies with the Government and Parliament. I hope and believe that under the Prime Minister's leadership a new drive will be undertaken and that if we have to live through another winter of discontent the spring of revival and declining unemployment will not be far behind.

5.8 p.m.

Lord Ezra

My Lords, the time has now come for this very interesting debate to draw to a close. We are much indebted to the noble Lord, Lord Dean of Beswick, for having introduced the Motion and for so clearly stating the problem. He reminded us that over the past year about 350,000 jobs have been lost in manufacturing, far in excess of the previous year. Unfortunately this trend looks likely to continue. While no doubt some of that job loss may lead to leaner, more efficient operations, a large part of it undoubtedly is due to businesses having to go out of work into bankruptcy, unable to cope with the present recession. Therefore such job loss is a serious problem.

Noble Lords who have spoken in the debate have each made an important contribution. My noble friend Lord Rochester referred specifically to the problems in Cheshire with which he is familiar, in particular to ICI at Runcorn and to the problem which that major chemical manufacturer faces as a result of the substantial recent increase in electricity prices. This issue will no doubt be dealt with when the noble Viscount, Lord Ullswater, replies. He also drew attention to the problems of the TEC in that part of the world. It was set up with the objective of stimulating effective training by involving practising industrialists. However, the scheme seems to have run into serious difficulties as a result of lack of sufficient funding.

The noble Lord, Lord Joseph, speaking from his great experience in government, drew attention to the key role of the entrepreneurs and the need to stimulate them. He also spoke of the inhibiting impact of the present level of capital gains tax.

The noble Baroness, Lady O'Cathain, from her business experience, told us that she considered that there was a leaner, more efficient manufacturing sector. She is absolutely right. There have been great achievements in British manufacturing and there are companies which are competing successfully on the world stage. However, the problem is that there are not enough such companies and that their totality does not represent what we need to re-establish our trading position. I shall deal with that matter later.

The noble Lord, Lord Desai, with his academic experience, thought that, although manufacturing employment throughout the world had shrunk in recent years, the shrinkage had been taken too far. He drew particular attention to the need to put more resources into training and education.

The noble Lord, Lord Mackay, strenuously rebutted any thought that British industry was not performing effectively and efficiently. He identified the role of central government as being one of guidance in creating the right framework and not one of intervening directly. He supported the recent measures announced by the President of the Board of Trade for getting closer to the industrial sector.

The noble Lord, Lord Alport, emphasised the key importance of the unemployment problem. He considered that we had not paid sufficient attention to that problem which is now having a wider social economic impact than we may have realised.

So all in all we have had a most considered and important debate on the subject. Perhaps I may add a few thoughts of my own. Undoubtedly there has been a considerable improvement in the efficiency, leanness and effectiveness of many sectors of British industry. By way of example, I refer to the coal industry with which I was associated for many years. As a result of world developments, it is going through great difficulties. However, during the past five years its productivity has improved enormously—indeed, at a faster rate than I thought possible when I was involved. That is a remarkable achievement, and there are other industries which have done the same.

I believe, however, that for one reason or another we have allowed our industrial capacity to diminish below desirable levels. That problem was alluded to in the report on overseas trade produced in 1985 under the distinguished chairmanship of the noble Lord, Lord Aldington. That was the first year in which we began to show a deficiency on our manufactured trade balance. The report made many recommendations on how the problem could be dealt with. Unfortunately those recommendations were not sufficiently pursued. In subsequent years we have seen a substantial increase in the deficiency of our visible trade balance. Even now during a recession, when one would have thought that the balance would have evened out and that there would have been less demand for imported goods, we still have an annual rate of deficiency on our trade balance of approximately £13 billion.

That suggests that, in spite of the undoubted achievements and in spite of undoubted successes in the export market, we need to stimulate our economy not only to overcome the present recession but in order to look to the long-term and the size of the industrial base that we should be creating.

I now wish to make a few suggestions. First, we need to look at the level of investment. If there is inadequate investment in the future of our manufacturing industries we shall not have the quantum of manufacturing capacity that we need. The latest CBI report on manufacturing investment shows that, compared with the previous year, the level of investment in manufacturing industry in 1991 fell by no less than 15.5 per cent. That is an enormous fall at a time when we should be building up. The prospect for 1992 is that there will be a further fall, which it puts at 3 per cent. but now admits that that is likely to be exceeded.

The question of what can and should be done about that is immediately raised. Is it an area in which government should intervene? There is a way in which government can do something about the problem; they can increase investment allowances. For many years that proposal has been put forward from all sides of the House. I believe that the time has come when it should be looked at again. We cannot allow our manufacturing industry to be starved of investment.

But the solution cannot be left only to government and I wish to refer next to the financial institutions. Their record of lending during the past decade shows that, while lending to manufacturing companies increased by a little less than half, personal lending increased by six and a half times and loans for property by more than eight times. Those ratios demonstrate clearly why we got into the difficulties of overheating during the late 1980s. I should like to believe that the financial institutions have learnt by that lesson, will be changing those ratios substantially, and will do everything that they can to increase their lending to manufacturing.

I wish to raise the well-worn topic of the infrastructure, which has been debated time and time again. The infrastructure must play a key role in enabling manufacturing and industry in general to operate successfully. The elements of the infrastructure which are crucial in this regard are education and training on the one hand and transport on the other. At present the Government are devoting a large part of public funds to those areas. However, they face a situation in which there is likely to be retrenchment because of the growing level of the public sector borrowing requirement. We are moving up to a figure of approximately 5 per cent. of GDP, which is a good deal higher than in recent years.

However, is that the right way to look at the matter? Although we have a public sector borrowing requirement which is the equivalent of 5 per cent. of GDP, private savings have escalated to 11.5 per cent. of GDP. I suggest that when we talk about the cash flow of the nation we must include both the private side and the public side. If private individuals are now saving to that extent, it is appropriate that the public sector should be expanded somewhat more than is the case at present. When the private sector starts spending substantially again, the situation could be changed. However, if both the private and the public sectors cut back, the result will be that we could get into a deflationary spiral and all the elements about which we are worried—continuing unemployment, a lack of industrial capacity and so on—will continue.

Therefore, I should like to believe that we shall have a reassessment of the relationship between public spending and private saving and that we should take it in its totality. We need a better infrastructure now to stimulate the recovery. We need it to help us to diminish the level of unemployment. That could be money well spent. Later on this evening I shall ask an Unstarred Question about investment in the Underground system and its extension. That is extremely relevant to the point that I am now making.

In conclusion, I believe that this has been a very important debate which has enabled noble Lords who participated to make extremely valuable contributions. I have tried to add my own. We now face a situation in which major decisions must be made. Like the noble Lord, Lord Mackay, I am pleased that the President of the Board of Trade is now taking a more pro-active role as regards the DTI. I hope that the points which have been made in the debate will be very seriously taken into account in that role.

5.21 p.m.

Baroness Turner of Camden

My Lords, we are all grateful to the noble Lord, Lord Dean of Beswick, for introducing the debate. Manufacturing is vital for everyone. Of course other sectors of the economy —for example, financial services, distribution and public services—are necessary too. We could not do without them. However, to a large extent they are dependent upon our capacity to produce. The wealth created by manufacturing industry helps to pay for essential public services, as the noble Lord, Lord Alport, has already pointed out.

Moreover, manufacturing industry can help to fill our trade gap. The balance of payments crisis is largely caused by the largest share of our domestic market being taken by imported goods. Often those are goods which years ago were manufactured in the UK; they no longer are. That is largely attributable to the policies followed by the Government, particularly from 1979 to 1982. At that time there was much talk of creating a fitter, leaner industry. It certainly is leaner. Many jobs were lost. Whether it is fitter is a different question. It is certainly much smaller.

At that time the Government seemed to think that we could get by on services alone. It was in that sphere that the new jobs would be created. Indeed, for a while it seemed that there was something in that, at least superficially. There was the City "big bang" in the late 1980s and suddenly the future seemed to be in the hands of young men and some women, although not so many, who sat surrounded by VDUs yelling incomprehensibly into several telephones at once. It was just like the film "Wall Street". Those days are over and the euphoria has gone. Some of our largest and most respected financial institutions are now facing difficulties.

In the City in the 1970s and early 1980s, when I was a union negotiator in that area, there were no involuntary redundancies. When a large company wanted to update its technology, redundant staff were redeployed or in some cases took early retirement on good financial terms. However, mass redundancies have now been taking place in some major financial institutions. One of our great banks—the Midland —has been at the centre of a takeover struggle, with thousands of jobs at risk. Even a national institution like Lloyd's now has its problems.

Some of us feared that that was likely to happen; namely, that the boom was artificial and could not last. However, over the decade we listened to a succession of Ministers extolling the virtues of government policy, claiming that it had brought unprecedented prosperity to the British people.

We hear the same story nowadays when there are record levels of unemployment. I have sometimes whispered to my colleagues on the Front Bench when sitting through some of those orations, "Do they really believe it?" However, I suppose it depends where you are in the social spectrum. Those years have been all right for some. The gap between the weekly incomes of the richest 10 per cent. and the poorest 10 per cent. has grown in Britain during the 1980s. In the two years 1967 and 1978 the gap was much the same —about 10 to one. However, by 1988 it had widened to nearly double what it had been in the 1960s and the late 1970s. Between 1979 and 19N8 the number of people with incomes of less than half the average had doubled to 10 million.

Unemployment was particularly severe in manufacturing in the early 1980s at a time when we were getting leaner and fitter. As a number of noble Lords have said this afternoon, matters have not improved. According to the latest figures I have, the number of employees in manufacturing industries in Great Britain stood at 4,532,000 in April 1992; that is a fall of 16,000 since the previous year.

Therefore, the decline continues and it is accelerating. There are particular problems in certain industries. The noble Lord, Lord Rochester, referred this afternoon to ICI. It would certainly be a disaster for that area if anything were to happen to that major and important company.

The CBI, the TUC and the Engineering Employers' Federation all stress the need for increased investment. The Engineering Employers' Federation in its recent submission prior to the Budget said, quoting from an earlier report in 1986: The recent growth of demand in the UK economy…has been largely in increased consumption rather than investment. Given the existing low levels of investment in the UK compared with those of our main competitor economies, the weakness of UK investment is a warning of future problems. Any country which fails to invest adequately or fails to balance its foreign trade may be able to enjoy a temporarily high level of consumption which eventually must be reduced as capital is consumed and as foreign debts have to be met". The Engineering Employers' Federation says that it is still concerned that UK industry's investment levels are not only lower than those of its major competitors but are falling further behind.

It goes on to say that in the wake of the North Sea oil boom the UK manufacturing sector has become efficient but too small, which is a point already made in this debate by a number of Lords. It says that UK manufacturing no longer has sufficient capacity to meet the demands of economic growth. From 1987 to 1989 demand grew strongly in the UK, but too much of that demand could be met only by imports instead of UK production. It says that the present recession is largely a consequence not of demand growing too fast but of the economy's inability to supply that demand.

That analysis is remarkably similar to that of the TUC. In its 1992 Budget submission the TUC says that the first step must be to restore investment levels, not only to make good the cut-backs of the past but also to begin to match the investment levels of our major competitors. Compared with 1979, investment in German and French manufacturing was over 50 per cent. higher in 1990 and investment in Italian manufacturing over 20 per cent. higher. In contrast, investment in British manufacturing barely reached its 1979 level by the late 1980s and is now in sharp decline.

Both the TUC and the Engineering Employees' Federation are in favour of tax allowances; and I was interested to hear that the noble Lord, Lord Ezra, made that point this afternoon. The TUC believes that a new tax incentive should be introduced, initially as a counter-cyclical measure limited to two years. The House of Lords Select Committee on Science and Technology has called for allowances of 150 per cent. in the first year for R&D spending and at least 100 per cent. for training.

We then have the problems which are likely to arise in the defence industries. We have already seen that 40,000 jobs are dependent upon the European fighter aircraft. Around 760,000 civilians earn their living from defence work, of which 140,000 are employed by the Ministry of Defence. The remainder work in the private sector for primary suppliers such as British Aerospace, GEC, Rolls-Royce and their subcontractors. Footwear and food and clothing manufacturers all have a direct interest in the defence business. It has been estimated that around 425,000 people are directly dependent on the spending power of defence industry employees.

In those circumstances it is vital that the Government should take the initiative in attempting diversification programmes. The workforce involved is highly skilled but the spin-off from R&D is less than in some other developed countries. The Government's Advisory Council on Science and Technology (ACOST) addressed the lack of spin-off in its report, Defence R&D—A national resource. It said that the UK is less successful than some other countries in bridging the military/civil divide largely because it has inadequate institutional arrangements to encourage cross-fertilisation. Diversification is essentially about how we deal with the so-called "peace dividend" without further harm to manufacturing industry and without further levels of unemployment. It is a separate and complex subject and is perhaps worthy of a full-scale debate on its own at some time in the future.

It seems to me to be crazy for any government to close down the NEDC at this time. It is the only forum of its kind bringing together Ministers of the Crown, employers and trade unionists in an entirely co-operative and non-confrontational way. It is not accurate to say that it has accomplished nothing. I draw attention to an excellent article appearing in the Guardian on 29th June, when details of some of the initiatives for which NEDC was responsible were given. They include using its status to bring together universities, suppliers and big users to accelerate the pace of technology transfer in electronics. There is also its initiative in bringing together 80 medium-sized chemical companies in order to attack the difficult Japanese market. And there are many more.

Nor does it appear that the Secretary of State contemplates any successor body. I should have thought that this Government—indeed any government—would welcome that forum as a sounding board for ideas, if for nothing else. Its termination seems to be most inappropriate and is bound to send out the wrong signals to people working in that field, particularly in fairly small companies which can do with whatever help is available.

In the meantime I return to what I said in opening. I thank my noble friend for introducing the debate. I hope that the Minister will not tell us again that everything is fine. We have heard one or two contributions to the debate which seem to indicate that a number of noble Lords believe that everything is the best it possibly can be. But I would point out that recently information was issued in regard to the position of the UK within G7—the world economic league. It appears that our recent performance was the poorest in G7. There was a fall of 2.4 per cent. in GDP last year and that may be followed by a further contraction in 1992. It is reported that since the summer of 1990 the recession is the longest since the 1930s. Over I million people have been added to the list of unemployed in two years.

We face an extremely serious situation. I await with interest to hear what the Minister says this afternoon.

5.33 p.m.

Viscount Ullswater

My Lords, we have had an interesting debate and, as the noble Lord, Lord Dean of Beswick, said, we have visited this subject before. The fall in manufacturing employment is not a new phenomenon. Employment peaked as far back as 1966 and has been on a downward trend ever since. I have spoken those words before. The decline is by no means unique to the United Kingdom. Employment in manufacturing has declined since the late 1960s in most major Western industrialised nations. In the United Kingdom most of the job losses in manufacturing occurred during the last recession. To some extent that was inevitable given the general inefficiency of the sector and the need for restructuring. My noble friend Lord Joseph drew attention to what he called the serious problems of overmanning in the 1970s. Jobs in manufacturing are still falling but the rate of decline is easing.

Unlike noble Lords opposite, I do not take the pessimistic view that current job losses are a reflection on the underlying strength of our manufacturing industry. Manufacturing industry has had some remarkable successes over the past 10 years or so and still accounts for broadly the same proportion of GDP as it did at that time.

The 1970s left our economy, and manufacturing in particular, inefficient and burdened by restrictive practices. During that period UK manufacturing output declined in terms of its share of total output. After the shake-out of the early 1980s there was an impressive turnaround. Looking across the economic cycle from 1979 to 1989, there was a period of strong growth in manufacturing activity. Manufacturing output and exports grew by more than either France or Germany and manufacturing productivity grew faster than any other G7 country. Even during the recession manufacturing industry has had some substantial successes.

For example, in the automotive industry productivity increased dramatically between 1981 and 1991 by more than 80 per cent. The noble Baroness, Lady O'Cathain, gave us a number of statistics to support that fact. I should say to the noble Lord, Lord Dean, that the sale of new cars in June of this year was 4.4 per cent. higher than in June of 1991, the third consecutive month showing a year-on-year rise. However, in the first half of 1992 as a whole new car sales were 4.1 per cent. lower than in the same period last year.

That indicates that the productivity of our car industry has considerably increased. During the same period output in the pharmaceutical industry increased by 90 per cent. The pharmaceutical industry has had a trade surplus every year in the past decade; the surplus is growing and in 1991 stood at £1.3 billion. My noble friend Lord Mackay of Ardbrecknish drew our attention to that excellent state of affairs.

Electronic consumer goods were another successful sector. In real terms the value of television sets exported was almost nine times higher in 1991 than in 1981 and the United Kingdom had a trade surplus in television sets last year up to £440 million from £259 million in the previous year. That was another point made by my noble friend Lord Mackay.

That is what I mean when I say that manufacturing is in a healthy state. It does not assist the manufacturing sector for noble Lords opposite to insist that it is not. In my travels around the country I speak frequently to leading industrialists and manufacturers. I can assure the House that, far from being pessimistic, the people most closely involved are optimistic about the future. Manufacturing industry seems set to have a healthy future. In the year to April manufacturing productivity rose by 4.9 per cent.—the best annual growth rate since before the recession. Manufacturing output in the three months to April was 1 per cent. higher than in the previous three months.

Of course the speed at which the recovery will impact on manufacturing will depend partly on individuals realising that jobs will be created only if the goods we are making remain competitive. For that to occur it is essential that we do not pay ourselves more than we can afford.

Important though manufacturing is—I recognise that it is the subject of today's debate—we must not lose sight of the importance of the service sector. During the past 10 years more than 2 million jobs have been created in the service sector. Those jobs should not be undervalued. They were created in response to the needs and demands of our society. Some of the decline in manufacturing employment can be accounted for by the reclassification of certain jobs. I must agree with both the noble Baroness, Lady O'Cathain, and my noble friend Lord Mackay, who drew our attention to that and explained some of the details.

Many jobs that were previously carried out by a manufacturer's own employees have been contracted out to organisations in the service sector and are therefore now classified as jobs in that sector. Even so, jobs in the service sector have been increasing steadily and they now account for over two-thirds of all employment. This changing distribution of employment away from manufacturing and towards the services is a trend shared by all Western industrial nations, as I believe the noble Lord, Lord Desai, drew to our attention.

He also said that that was not satisfactory because the jobs did not pay as much in the service sector as they did in the manufacturing sector. He said that the jobs were not as rewarding by moving them into the service sector. I have to say to him that those people who work in the service sector consider that their jobs are just as rewarding as those in manufacturing industry.

Nor should we under-estimate the contribution of small firms, whether in manufacturing or the service sector. Although individually small firms make only a limited contribution to the economy, their collective contribution is substantial because there are so many of them. Between 1985 and 1989 firms employing fewer than 20 people created over 1 million new jobs— more than twice as many as larger firms. Small firms will have a crucial role in creating new jobs as we emerge from the current recession.

It is something of a cliché that signals are mixed when the economy is about to recover. None of the published data tells us what is happening now; rather it is backward-looking. It is only after some time that we can look back and realise that recovery has been underway. There are now encouraging signs that the worst is over. Manufacturing output is growing, confidence is high and inflation and interest rates are lower.

It is clear that the continuation of the recession in the UK has been due in part to the slow-down in the world economy. Last year the American, Canadian and German economies were all in recession, and other economies in continental Europe and Japan experienced a slow-down. Now some of those economies are growing again, adding to the prospects for a UK recovery.

According to a recent EC Gallup survey, consumer confidence in the economy is now beginning to rise and business confidence is also increasing. The CBI quarterly Industrial Trends survey shows that there has been a sharp rise in confidence: it is now at its highest level since 1988. Expectations of improving output have been backed up by better orders and deliveries. This survey is backed up by others; for example, those carried out by the Institute of Directors and the Association of British Chambers of Commerce, which show a similarly encouraging picture.

All recessions attract a great deal of attention, and they deserve to because of the great difficulties people face during any period of economic downturn. But the underlying state of the British economy is sound, and if we look back over the lifetime of the Government we can see the improvement in the supply performance of the British economy which has resulted from our coherent framework of economic policies.

As a part of this framework, we have tried to ensure that the tax burden does not stop firms employing people. In too many countries the level of taxes and the regulation involved in employment means that employers are wary of increasing employment and taking on new staff. In the United Kingdom the Government have done their best to reduce the tax on jobs. The result is that it costs less to employ someone in the United Kingdom than in almost any other major EC country. Our labour costs in manufacturing are less than two-thirds those of Germany.

The noble Lord, Lord Desai, said that we were a low-wage, low-productivity economy. I do not believe that that is now the case. I agree with him that, with these lower costs that I have identified and its excellent industrial relations record, it is hardly surprising that the United Kingdom is now the most favoured European location for internationally mobile investment. In 1988–90 the United Kingdom accounted for 46 per cent. of United States and 48 per cent. of Japanese inward investment to the European communities. I, and I believe my noble friend Lord Joseph, would welcome that investment.

According to a survey published this year by the German Chamber of Commerce, the United Kingdom is also the most favoured location for German investment in Europe and is second only to the United States for German investment worldwide. The noble Lord, Lord Rochester, and I would agree that one of the surest ways in which we can maintain the competitiveness of our industries is to maintain a flexible, highly skilled and well-motivated workforce. We must ensure that people are able to adapt to new working environments and that they have the necessary skills and expertise to be able to meet the many diverse demands of the next century, enabling the United Kingdom to compete in the world economy.

The Government believe that this cannot be achieved unless all sectors of the community are involved in training. Government, employers and individuals form a partnership, with each party having an important role to play. The Government's role is to create the climate and framework to encourage training and direct funding support where it is most needed. I must say to the noble Lord, Lord Ezra, that although there is a recession, which we accept, the Government are still spending over £2 billion this year on training. The role of the employers is to upgrade the skills of the employees and to make the necessary investment in training. It is up to individuals to take greater responsibility for their own training and development.

But I am also very aware of the difficulties faced by all those who have lost their jobs. I can assure your Lordships that no one in government under-estimates the problems that unemployment can cause. That is why we are doing so much to help unemployed people get back to work. I am pleased to be able to say that just under half of those becoming unemployed leave unemployment within the first three months and just under two-thirds of all those becoming unemployed leave unemployment within six months. All in all, the Employment Service placed 1.332 million unemployed people into jobs in 1991–92. The target for 1992–93 is to place 1.425 million unemployed people. That would represent 5,632 unemployed people being placed into jobs every working day. Those who have still been unable to find jobs after six months are entitled to extra help from the Employment Service. They will be invited to attend Restart interviews to discuss job search methods, to assess any further future needs and to discuss the training or employment opportunities that are available to them.

Nearly 1 million places will be available on government employment and training programmes in 1992-93, an increase of 100,000 on last year. This substantial and comprehensive package means that more practical help and advice are now available than ever before to unemployed people to get a job. My department has issued an information pack entitled Local Action for Employment—Tackling Joh Losses, which sets out the way in which the Employment Service and the training and enterprise councils can assist companies declaring redundancies. The Employment Service regions and some TECs have developed tailor-made support to assist with planned, large-scale redundancies.

Before I close I should like to deal with some of the individual points which were brought up by noble Lords. The noble Lord, Lord Dean of Beswick, apart from the matters which I have already mentioned, said that this Government always turn to the whipping boy and to the trade unions. I believe that he then said that the trade unions have learnt a lesson which perhaps they needed to learn. I say to the noble Lord that we must learn by experience from the past few years. In the 1970s an average of nearly 13 million working days were lost each year because of industrial action. During the past four years the days lost have averaged fewer than 3 million, which is less than a quarter of the 1970s figure. There were more days lost in 1979 alone than in the seven years 1985–1991. That indicates what kind of improved industrial relations we now have.

The noble Baroness, Lady O'Cathain, also indicated where we needed to move from in the motor car industry. I think that I have demonstrated that that has improved quite considerably.

Baroness Turner of Camden

My Lords, I am grateful to the noble Viscount for giving way. Can he tell us how many working days are now lost through unemployment as compared with industrial strife in the 1970s?

Viscount Ullswater

My Lords, I am not sure that those two things are sequiturs. What is important is that if we are losing jobs through strikes, that is costing not only the industry, but the country a great deal of money in terms of exports.

The noble Lord, Lord Dean, also quoted the Henry McLeish article on unemployment. I must advise the noble Lord that, however we measure it, during the economic cycle there has been an increase of 1.5 million jobs between the peaks of 1979 and June 1990 or, if we look at it the other way, there has been an increase of about 2 million jobs between the troughs of March 1983 and the situation as it is now. Between 1979 and 1989, UK employment grew faster than the European Community average.

I should like to deal with one particular point made by the noble Lord, Lord Rochester. He said that, in his opinion, the TECs were best placed to assess industry's local employment requirements. I agree with him. He quoted the experience of the NORMID TEC during the nine months in which it has been operating. We are satisfied that the Government's objectives and guarantees as they relate to the NORMID TEC area can be honoured within the terms of the agreed contract.

The noble Lord brought to the attention of the House the problems that are facing ICI at Runcorn. There is no doubt that it is a difficult problem. Average industrial electricity prices have fallen in real terms in each of the last five calendar years, but I recognise that prices for a small number of very large consumers, including ICI, have risen. These received preferential terms under the nationalised industry arrangements and, to some extent, these price rises are the inevitable result of moving to a market-based system. I understand that DTI Ministers have recently had talks with ICI and others about electricity prices and are considering this particular matter. We have established a competitive market in electricity. We expect large consumers, including ICI, to use their considerable buying power in the market to negotiate the best possible deals. If ICI believes that the market, including the pool arrangement, is not operating properly, it can take that up with the independent regulator who has all the necessary powers to take action.

The noble Lord also drew attention to an announcement by my right honourable friend the Secretary of State for Employment. She announced this week that she was putting in place new measures to establish an improved system for monitoring the number of young people covered by the YT guarantee and seeking a place on it. That is not an expression that the guarantee has failed; it is a continuing expression of the Government's commitment to that YT guarantee.

In a wise and thoughtful speech my noble friend Lord Joseph brought to our attention the question: Where do jobs come from? He drew our attention to the fact that, of course, they come from customers both at home and abroad. To get customers, we need entrepreneurs. I think that my noble friend Lord Mackay of Ardbrecknish would call them the "sunrise industry makers". My noble friend indicated that many of these failed, but I very much agree with him that we need a culture in which entrepreneurs can thrive. He directed our attention to the discouragement that capital gains tax causes entrepreneurs when they come to pass on their businesses. I have a great deal of sympathy with what my noble friend has said and intend to pass on his comments to my right honourable friend the Chancellor of the Exchequer.

My noble friend Lord Mackay of Ardbrecknish asked three questions: what is manufacturing industry; who is involved in the industry; and is a measure of it the employment that it provides? He also drew to our attention the role of the electronics industry and quoted examples from Scotland. I must comment on the success that Scotland has had in that industry. My noble friend demonstrated that manufacturing industry was changing and has changed from the old image of metal-bashing that he painted for us. He also drew our attention to the fact that the classification of jobs has somehow answered the third question that he posed.

My noble friend also made us aware of one of the difficulties that we face in Europe. We must make sure that we are not in an anti-competitive situation with, say, the East German shipyards. We must take care, through the Commission, that we maintain the level playing field that we hear so much about.

My noble friend Lord Alport raised the scare of unemployment benefit perhaps being cut. I can say to him that that is pure speculation. There is no intention to do so, but the Government have done a great deal to improve the infrastructure in this country and to commit a great deal of money to it. I believe that that was one of the ways in which my noble friend wanted the Government to make certain that we tackled unemployment. He suggested that we make that investment. The Government have announced some £30 billion of total capital expenditure, including £16 billion over three years on roads and public transport. That is the way in which the Government are playing their part in making certain that this country's infrastructure is not neglected.

The noble Lord, Lord Ezra, drew our attention to the problems with our trade balance. The total deficit for 1991 as a whole was £5.2 billion, down from the £16.1 billion in 1990. As a share of GDP, the deficit is now just over 1 per cent., compared to 5 per cent. at its peak in 1989. The United Kingdom's share of world trade is estimated to have risen in 1991 for the third year running after decades of decline.

The noble Lords, Lord Ezra and Lord Rochester, and the noble Baroness, Lady Turner of Camden, said that we needed an investment-led recovery and called for a change in the rules on investment allowances. I must advise them that increased allowances would distort investment decisions and lead to lower quality investment. It is better for business—not government —to decide how much to invest and on what, based on commercial considerations rather than on the availability of tax breaks. The noble Baroness will understand that existing capital allowances are already on average more generous than the strict system of commercial depreciation. The 1984 business tax reforms led to a substantial reduction in the rates of corporation tax. Tax cuts mean that more profits are retained for investment. The reduction in the main corporation tax to 33 per cent. for 1991 will boost companies post-tax profits, help cash flow, encourage profitable investment and increase incentives for overseas firms to invest in Britain. That, I believe, is the way to set about it.

The noble Baroness also brought our attention to the problems facing the defence industry. Indeed, what she says is correct in many instances and, I believe, has already been taken up by a number of firms. I refer to the idea of diversification. Many companies have responded to the effects of the reduction in defence spending and the MoD's increasingly rigorous procurement practices. For instance, Redifon Limited has reduced its dependence on defence from 70 per cent. to less than 50 per cent. It determined to identify new markets for its electronic communications system, equipment and services. The Dowty Group set out to identify a product sector technology judged to provide an opportunity for growth and has reduced the military application of its business from 52 per cent. to 33 per cent. Businesses should look to their commitment to the defence industry and should also look to how they can diversify for the future.

Employment cannot be created by Act of Parliament or by government alone. Government policy will be directed to bringing the conditions favourable to the maintenance of a high level of employment … But the success of … [this] … policy … will ultimately depend on the understanding and support of the community as a whole and especially on the efforts of employers and workers in industry; for without a rising standard of industrial efficiency we cannot achieve a high level of employment combined with a rising standard of living". Those words, which come from the 1944 White Paper on Employment Policy (Cmd. 6527), are equally relevant today.

As I have mentioned in your Lordships' House before, the Government's role is to create the right economic and financial conditions in which enterprise can flourish and produce the goods and services that people want to buy at the price they are willing to pay. That is how jobs are created.

I referred earlier to the health of the manufacturing sector. It is healthy.

Lord Dean of Beswick

My Lords, there are only a few minutes left and the Minister has spoken for nearly half an hour. Is he going to talk out the debate and not allow time for the usual courtesy of a very brief reply?

Viscount Ullswater

My Lords, I am finishing immediately.

Noble Lords have mentioned an export led recovery. I should like to finish by reminding the House that between 1988 and 1991 we attracted nine times more inward investment than Germany, five times more than Italy and three times more than France. Exported goods account for more than 18 per cent. of the United Kingdom's GDP, compared with 9.6 per cent. for Japan and 7.1 per cent. for the United States. These are impressive statistics and grounds to be optimistic about the future.

6.3 p.m.

Lord Dean of Beswick

My Lords, I thank all those who have taken part in what has been an important and impressive debate. I am sorry that the Minister appears not to have heeded some of the suggestions that were put forward. The Government could be accused of wallowing in complacency. In his reply the Minister said that we were going to turn the corner. I remind the House that in an economic sense the Government have turned more corners than there are in the Pentagon but we are still in trouble. The prophecy coming from independent sources—not political sources—that there will be a further 20,000 job losses every month this year in the manufacturing sector does not bode well for the country. The defence that there has been a transfer of jobs into the service sector has been overstated. I have a list which I can give to the Minister of 20 high-tech industries that are shedding jobs now and will continue to do so.

The Minister referred briefly to my point about the trade unions. I pointed out that the record of the trade unions had become immeasurably better and that they were working more than ever in a constructive way. I asked why the Government were considering further legislation to deal with the trade unions when it is completely unnecessary.

The noble Lord, Lord Mackay, made great play of the fact that the computer industry is doing well. Two years ago the Government, by a deliberate act of philosophical brigandage, sold off an industry which is related to the computer industry. I refer to the selling off of Inmos to Thorn EMI, which then sold it to a French company. At that time the adverse balance of payments regarding the industry was more than £2 billion. I understand that the figure has grown larger since. We should ensure that jobs stay here and are not exported for profit.

We have had an excellent debate. I have no doubt that we shall come back to this matter. The Government have had two very good sailors on board today—the noble Baroness and the noble Lord, Lord Mackay. If the Government are not careful, they may in an economic and industrial sense be like John Paul Jones and start to fight when the industrial and economic ship has sunk. That is my worry and I think that the Government would do well to heed some of the advice that has been given today from this and from their own side. I hope that we are wrong and that jobs will be saved and manufacturing industry will continue to expand. But on the figures quoted today there is no way that the manufacturing base is expanding. It is contracting to a dangerous extent.

However, we have had a good debate. I once again thank all those who have participated in it. I have no doubt that we shall return to the subject in the not too distant future. My Lords, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.