The Economy

HL Deb 04 March 1992 vol 536 cc843-65

3.8 p.m.

Lord Peston rose to call attention to the state of the economy and its social consequences; and to move for Papers.

The noble Lord said: My Lords, it gives me great pleasure to welcome our maiden speaker, the noble Lord, Lord Rodgers of Quarry Bank. I shall refrain from reflecting on how unpredictable is the course of human events which sees him sitting where he is. I shall merely emphasise how much I and all noble Lords are looking forward to hearing what he has to say.

My speech is organised as follows. I shall set out briefly the present state of the economy. I shall then pose and answer the question: how did we get into the present mess? Finally, noble Lords will wish to hear any suggestions I have to make on how we can solve our problems. Many of the relevant topics will be covered by my noble friends. In particular, the rather difficult question of the public sector borrowing requirement will be covered by my noble friend Lord Donoughue at the end of the debate, although I may find a moment or two to make one or two remarks on that myself.

I shall concentrate on our economic predicament: on what caused it, what remedies are available and how long they will take to work. Before doing so, however, I must emphasise a point of principle. We are not interested in the workings of the economy for its own sake. Our concern is and must always be for the welfare of the people and how that is affected by economic performance, including financial performance. By "the people" I mean the whole community and not some favoured fraction of it. I shall have much to say on this Government's failings in the economic sphere. But the greatest objection to their policies is how little of what prosperity we have achieved has accrued to the poorest people in our society.

In that connection, it is all very well for Mr. Lamont, the Chancellor of the Exchequer, to argue that the rise in unemployment is a price worth paying for a fall in inflation —a proposition which, incidentally, the Prime Minister does not seem to have felt able to repudiate. But those who bear the costs —those who bear the unemployment—are not those who receive the benefit; they have lost their jobs, many of them permanently and many others for long periods. What have they been given in return? They have been given a tougher regime on social security benefits and there has been a failure fully to index link child benefit and pensions which are not index linked to earnings. But, worse still, they have also been offered the insult that they are the cause of their own troubles and the further insult that they are the cause of ours.

Perhaps I may put the following proposition to your Lordships. Let us consider a party that offered the following: "If you elect us to power we shall achieve these things: inflation will be our top priority and we shall do anything needed to control it. We shall therefore produce an average inflation rate of 7.5 per cent. per annum. We shall produce an economic miracle. Our gross domestic product will grow at an annual rate of 2.1 per cent. per annum"—that is, gross domestic product per person employed at 1.7 per cent. per annum; in other words, an economic miracle corresponding precisely to the previous decade of their period in power. "Unemployment will treble and on a sustainable basis will be some 50 per cent. above the level we inherit".

"Despite experimenting and manipulating the figures, we shall always keep unemployment above the level that we inherit. The balance of payments on current account through our years of office, despite the bonus of North Sea oil, will deteriorate. At its worst, the deficit will equal 4 per cent. of gross domestic produce. The external value of sterling will fall by 15 per cent.—i.e., we shall devalue sterling by 15 per cent. We will raise total tax and social security revenue relative to national income but make sure that more of the burden will fall on poorer people. The chief gainers will be the relatively rich".

"More generally, and with respect to income and wealth, we shall widen inequality. Although we are against taxation and public expenditure and favour prudent finance, we shall eventually worsen the public finances so that the public sector borrowing requirement comes to exceed 3 per cent. of gross domestic product, rising towards 5 per cent. We will then finally, as part of our manifesto, create at least two recessions in which output actually falls. One of these will be the deepest and the other may turn out to be the longest of modern times".

Would any party go to the country on such a platform? More to the point, would it expect to be elected? But the latter is a summary of the economic record of this Government—a government who have the cheek to attack the Labour Party for the damage which it might do to the economy. We have no need to retaliate in kind; we can let the Conservative record speak for itself.

I have said that I wish to discuss policy, but I shall do so with some trepidation. All I know is what is in the public domain. I have a suspicion that matters are actually worse than they seem to be and that the Treasury knows a good deal more than it is letting on. In a few weeks I, and, more importantly, my right honourable friends, will be confronted with the worst case scenario. It has always been my view that economic policy must be based on considering what is the worst thing that may happen and not on the motto "Things are looking up", which is the approach of the Prime Minister and his Chancellor of the Exchequer.

In that connection I must say, first, that it is impossible to emphasise too much the weakness of a balance of payments on current account. The figure just announced for last month of a current account deficit of £794 million is simply too bad to be true. But, even if next month's figures turn out to be somewhat better, we are still confronted with a serious deficit in the depths of a recession. That means once again that we are constrained by the balance of payments. Above all, it means that a consumer-led recovery will be foolhardy. It also means—and I regret to say this because it will affect the new government —that no recovery can be very rapid.

Secondly, the unemployment figures continue to deteriorate. It is hard to believe it, but it is now clear that unemployment is likely to rise to 3 million this year on the present method of measuring. If we examine the record of this Government's anti-inflation policy, what it has actually turned out to be is nothing more than the 19th century view that if you create enough unemployment you will deal with the inflation problem. The position that they leave us with —that is, with about 7 per cent. of the labour force being unemployed—is where inflation starts to get out of control. That has happened despite all their alleged reforms of the labour market. The headline inflation rate is down. But it is down from the level that the Government pushed it up to. It is far from zero. The core rate of inflation—or, if one prefers it, the underlying rate of inflation—is in the general area of 5 per cent. per annum.

Thirdly, the manufacturing base was seriously eroded, as noble Lords have pointed out, between 1979 and 1987. It has improved since that time, but in 1991 manufacturing output fell again. The Government's one signal success, on which I would always congratulate them, has been the improvement in manufacturing productivity. There can be no doubt that there has been an improvement. But it is still nothing like sufficient to solve the trade problem and has not turned out to be an engine of economic growth of the kind that one might have wanted.

Fourthly, while looking at the balance of payments constraint and the state of the economy, perhaps I may quote a statement from the Financial Times, which despite its pink paper is not usually sympathetic to my party. It says: The likely medium-term combination of a tight monetary policy with a deterioration in the structural fiscal position"—

that is the Government's policy— is frightening".

I hope that noble Lords will note the word "frightening". It continues: It looks especially risky for a country with a substantial current account deficit in the midst of a deep recession, above all if the tax cuts were largely aimed at boosting consumption".

More generally on policy, we have the old cliché—whether we are talking about Sir Alan Walters, Professor Minford or many others—that with friends like that the Government do not need any enemies. Mr. Lamont must be encouraged in his labours at this time to be told that they are opposed to tax cuts and increased borrowing and that they refer to laxity in public expenditure and favour leaving the exchange rate mechanism. Who is it who talks about the Government commanding, more and more of people's savings in order to pursue the hare-brained ideas of Heseltine and the social soporifics of Patten and his 'compassionate Conservatism"?

It is certainly not me; I am too kind and gentle. Those remarks belong to that loyal Tory supporter, Sir Alan Walters.

My heart goes out to Mr. Patten. Underneath the electoral posturing which inevitably accompanies being chairman of the Tory Party is an intelligent and concerned person. He ought to know that no amount of ranting and raving will satisfy those in the mad militant wing of his party. He would be better off not trying to pacify them at all.

How have we got to where we are? I think that the main policy mistakes are the following. The Government eased monetary policy excessively after the stock market crash of 1987. That was a mistake, but I do not blame them for it. I must tell noble Lords that I would have made the same mistake.

Noble Lords

Hear, hear!

Lord Peston

My Lords, I think that "hear, hear"s are a little premature.

Following that mistake, the Government saw too slowly that a slump was not in the offing. Therefore, monetary policy stayed relatively easy when that was not what was needed. But the biggest error took place in the period between 1985 and 1988. In those years output grew respectively by 3.9 per cent., 3.7 per cent., 4.4 per cent. and 4.1 per cent. per annum. The Government, and notably the Prime Minister and the Chancellor of the Exchequer of the day, convinced themselves that there had been an economic miracle and that the sustainable growth rate of the UK economy was 4 per cent. per annum; in other words, they made the biggest mistake that a government can ever make—they believed their own rhetoric.

There had been no miracle. All that had happened was that the economy had got back on to the right track with its historical growth path of 2.5 per cent. per annum. To go faster than that meant balance of payments problems and inflation getting out of control. That, too, was recognised rather late in the day, with the obvious result that restrictive measures, both monetary and fiscal, were introduced with too much delay and also in an over-reactive fashion. The effect has been the recession, or the slump—call it what one will—of 1990 and 1991. There has been no doubt that the recession was government-induced. There is also no doubt that it has lasted as long as it has because of the Government's over-optimism in three respects which we heard in your Lordships' House throughout last year. The first is their over-optimism about the recovery in consumer spending and the fall in the propensity to save despite the debt overhang. The second is their over-optimism about the recovery in business spending despite the worsening markets and high interest rates. Finally comes their over-optimism about the expansion of world trade. Essentially the Government failed to see what was happening.

Perhaps I may quote again from the Financial Times, which stated: The unexpectedly sharp rise in the trade deficit has simply added to the air of general economic malaise that currently engulfs the UK economy. It may have strengthened Mr. Major's misplaced claim that the world economy is to blame for the absence of recovery". However, it then rightly states: But few are fooled". The cause of the absence of recovery is the Government's failure to act.

I am sure that noble Lords are by now finding my catalogue of government errors rather tedious, so I shall turn instead to the principles of policy. The first matter about which I hope to persuade noble Lords is a technical one. I certainly do not see that it has anything to do with party politics.

When we look at the Budget we must get into the habit of distinguishing current expenditure from capital expenditure and, in so far as we are concerned with balance, we must start with the concept of balance when paying for current expenditure. Equally, however, it makes perfectly good sense for a government to borrow for long-term capital expenditure. The principles that apply to governments are no different from those that apply to firms.

Let us take a first example. If we build a hospital this year, we use resources this year and in that sense it is obvious that it is paid for this year, but I know of no valid argument that says that this year's taxpayers must pay for the whole of that hospital which will be available to the taxpayers of the next 50 years. It makes perfectly good sense to borrow for capital investment, bearing in mind that eventually one will have to tax to repay that capital, but that is another matter. That is why we must distinguish the current from the capital side of the account.

Secondly, just as a business should not be afraid to borrow in the right circumstances, nor should the Government. Perhaps your Lordships will notice that I said "in the right circumstances." That means—and Keynesian economists, of which I am one, often forget this—that one spends in a recession but also that one does not spend in a boom. Unfortunately, some of my colleagues seem to think that one should spend all the time. But that is not my view.

Having mentioned investment, I should say that what is mostly needed is an encouragement for both the private sector and the public sector to invest. There may be consequential increases in consumption, but there should be no—what is the ghastly expression?—"kickstart" coming from consumption. We want the start to be the result of investment.

I hope that it is not controversial to say that I believe that we must keep sterling within the exchange rate mechanism at its present parity. I, for one, favour moving as soon as possible to the narrow bands. I regard that as the best anti-inflationary policy that we have because, to the extent that that is credible, the rate of interest can come down. However, noble Lords should accept—this is again a technical point—that in a free international capital market world forces will always dominate what happens to the rate of interest. The monetarists are wrong to think that leaving the ERM and allowing the pound to float will cause the rate of interest to fall. If anything, because of the exchange rate, it will cause the rate of interest to rise. In my view, floating the pound is simply an invitation to governments to solve their problems by inflation.

The size of the public sector borrowing requirement —that deficit—and the size of the external deficit, both of which are left by the outgoing administration, mean that the incoming administration's immediate priority must be to bring the national finances under control.

The Conservative Government are spending money as if it will become obsolete in the near future. Indeed, on their policies it may well become obsolete in the near future. We still hear about tax cuts but, given the dangerous outlook, we must be extremely careful about further promises on public expenditure.

In my judgment, however, once the nation's finances are controlled by my right honourable friend Mr. John Smith, who is a prudent Scotsman as well as a lawyer and therefore has the advantage of not being an economist, there will be strong possibilities that economic growth will enable us to meet desirable commitments on health and education. Our view is that we should spend the money once we have it—not what the Government are doing, which is to spend it before they have it.

One problem for the Government is that they have now run out of alibis. They blamed us for their inheritance and then proceeded to make things worse. They now blame their good friend, Mr. Lawson, for excessive expansion, although they were happy to accept his claims about an economic miracle at the time that he made them. They blame the rest of the world for going into recession just when we were counting on the rest of the world to have a boom to get us out of our slump. They blame consumers for saving, which is a curious turnround from this Government who supposedly favour financial prudence and deplore profligacy. They even seem to be insinuating that the present Opposition are somehow to blame when it will be only a couple of months until they really can blame us because we will be in charge. I suppose that noble Lords opposite and their friends in the other place are trying to get in practice for their period in opposition in the near future. But at the moment all this is extremely worrying.

The basis of rational action is to face reality and to accept responsibility. The Prime Minister and the Chancellor of the Exchequer seem unable to do that. However, while they retain their jobs they have responsibilities to analyse the present position and to choose policies that do not make things worse. The Prime Minister claims to have laid the foundations for further advance but I for one think that that is nonsensical and that a consumer boom would be deadly dangerous.

In conclusion, the Government now consist of tired men who cannot find remedies to cure the ills that they have created. The time has come for them to step aside for a rest cure and let us take over to put things right. I beg to move for Papers.

3.27 p.m.

The Minister of State, Department of Transport (Lord Brabazon of Tara)

My Lords, I am pleased to see that the Motion put down by the noble Lord, Lord Peston, acknowledges the crucial link between economic performance and social welfare. The record of this Government on social issues is one of real progress in increasing provision to those who most need it. This progress has been based on a fundamental improvement in the UK's underlying economic performance.

It is the underlying strength of an economy that generates the prosperity which makes a high level of social provision possible. Wanting to help is simply not enough. It is also necessary to generate the prosperity that makes it possible to help. It is this fundamental truth that noble Lords opposite all too often fail to understand.

It is easy to forget just what a state the British economy was in when we came to power in 1979. The runaway inflation of 1975 had led on to the humiliation of going cap in hand to the International Monetary Fund, normally the preserve of third world countries. Along with the IMF bail-out came imposed economic discipline and, for a brief period, even single digit inflation. This, however, was soon swept away by the wage explosion that accompanied the winter of discontent, and by May 1979 inflation was back over 10 per cent. and rising.

Our poor inflation performance in the 1970s had its counterpart in slow growth. As in the sixties, the UK economy grew more slowly over the period than that of any other G7 or EC country over the decade of the seventies. In 1979 a Conservative Government were elected with a clear mandate to defeat the inflation that had so damaged our economy.

There were many in 1981 who argued that we should relax monetary policy. Notable among them were the 364 economists, including the noble Lord, Lord Peston, who wrote to The Times warning of never ending recession at just the time when we now know that a strong and sustained recovery had already begun.

The reward for holding firm against those calls was low inflation, which fell to below 5 per cent. by the start of 1983. And, just as high inflation in the '70s was accompanied by low growth, so lower inflation in the '80s was accompanied by higher growth than was enjoyed by our competitors. Indeed from 1981 we had eight consecutive years of growth averaging over 3 per cent. per year.

More important than our growth rate at the height of the cycle, however, was the improvement in our performance over the decade as a whole. In the period from 1980 to 1990 our economy grew faster than those of any other major EC country apart from Spain.

That improved performance was aided by a transformation in productivity growth. In both the '60s and the '70s manufacturing productivity grew more slowly in this country than in any other of the G7 industrialised nations. Over the 1980s it grew faster than in any of these countries. I am glad that the noble Lord, Lord Peston, acknowledged that fact.

That rapid improvement in productivity contributed to much healthier company profits. Higher profits led in turn to a huge increase in business investment, which rose by more in the three years to 1989 than in any similar period since the war. Higher investment contributes to better productivity growth in the future, so setting off a virtuous circle, and the extent of the improvement in our investment record is demonstrated by the fact that, even during the recession, business investment as a proportion of GDP has remained higher than it was at any point under the Labour Government. Higher productivity and investment have helped us to arrest the long-term decline in our share of the world trade in manufactures, which is likely to have risen for the third successive year in 1991, after stabilising during the 1980s, following decades of decline.

In 1987 stock markets around the world experienced their worst crash since the Wall Street crash that heralded the great depression of the 1930s. There was no post-war precedent from which to gauge what effect this would have on modern economies. Our response, as in other countries, was to allow some easing of monetary policy to offset the feared repercussions. This happened at a time, as I have said, when the economy had been growing strongly for several years.

With hindsight, it is clear that the effect of the stock market crash was less than we feared, demand pressures were stronger than we realised, and we loosened monetary policy too much in response. As a result, some of our hard-won progress in eliminating inflation from our economy was lost. That episode demonstrated that the struggle against inflation is never finally won. Constant vigilance is needed.

In retrospect, there was one signal that should have warned us that we were heading off course. For the first time since our coming to power, the Opposition supported our monetary policy. Indeed even when we had recognised our mistake the Opposition continued to urge yet more easing of policy.

I would not deny that the relative position of the UK has fallen back a little as we have started this decade by going into an economic downturn earlier than other European countries. I would remind noble Lords that the UK did exactly the same at the beginning of the 1980s. But we emerged from recession earlier than most other countries and then grew more rapidly than most over the decade as a whole. I have every confidence that under the continued stewardship of this Government we shall do the same in the 1990s.

After a difficult period, we now have in place the conditions for a return to sustainable growth. Not only the Government but virtually every independent forecaster expects the economy to recover this year. The preconditions for such success are already there for everyone to see. We have cut inflation by well over half since the autumn of 1990. Our rate is now below the EC average and virtually the same as Germany's. We have cut interest rates eight times since October 1990, by a total of 4½ per cent. And our commitment to keeping inflation low as been reinforced by joining the exchange rate mechanism.

Earnings growth is lower than for 25 years and yet —because of low inflation—real earnings continue to rise. And there were fewer days lost to industrial action last year than in any year since records began a century ago. For decades high inflation and poor industrial relations were seen as main symptoms of the so-called "British Disease". The 1980s will be seen as the years during which that disease was cured.

We have laid the ground for a return to sustainable growth, and the benefits of that growth will be felt by all sections of the community as they have been over the past decade. As a result of the policies pursued by this Government over the past 13 years, living standards have risen markedly. For example, for a married man on average earnings, with two children, real take-home pay has risen by 35 per cent. since 1979. The average real net incomes of pensioners rose by 34 per cent. between 1979 and 1988.

The solid foundation of prosperity that we have laid has also enabled us to maintain and improve the social programmes which are important to all sectors of society. In the health service, for example, total spending has grown by over 40 per cent. since 1979 and 30 per cent. more in-patients and day patients are being treated annually.

Spending on education is an investment in the long-term future of the economy. Between 1979–80 and 1989–90 expenditure per pupil in English schools rose by no less than 40 per cent. in real terms. Another area of real concern is homelessness. Here too we have been able to make extra resources available.

That degree of activity, in the face of the current economic climate, is possible only because of the overall discipline within which government spending is carried out.

The subject for debate today is of course wide-ranging, and I do not wish to take up more of your Lordships' time than I need. But it would be wrong for me to sit down without mentioning unemployment. I do not deny that the recent increases in unemployment are disappointing. They reflect the fact that recovery from the recession is being affected by world economic circumstances. Rising unemployment is not unique to the United Kingdom. Unemployment has risen in recent months in most EC countries and is higher today than it was a year ago in every EFTA country and in every G7 country. It should also be remembered that the United Kingdom has a higher proportion of people in work than any other EC country except Denmark. The latest figures show that the total workforce in employment is still 575,000 larger than it was in 1979. To help cope with the tragic effects of unemployment on individuals, we are expanding the help available through the employment and training programmes. Nearly 1 million places will be available in 1992–93, which is an increase of 100,000 on this year. That amounts to more help than has ever before been provided to unemployed people.

The state of the economy has inescapable social consequences for good or ill. But the prudent management of this Government has enabled us in better times to make the investments which now shield the major social programmes from the ravages which they suffered during the uncontrolled inflation of the 1970s.

3.38 p.m.

Lord Jenkins of Hillhead

My Lords, we thank the Minister for his gallant reply. I am not sure that it bore much relationship to the facts, but we congratulate him on being steady under fire from economic facts. One of Adlai Stevenson's better and more remembered remarks was: I offer my opponents a bargain. If they will stop telling lies about me, I will stop telling the truth about them". I offer the Government a bargain. If they will stop going on with the nonsense about the miracle of the 1980s, I shall not pretend that the present deep recession is due exclusively to the Government's mismanagement. Considerable world factors are of course involved, but they are by no means exclusively the factor, because the British recession, as the Minister admitted, came earlier, has gone deeper and may well last longer, on present indications, than in the countries of most of our competitors.

That is essentially the case because, first, the miracle was always spurious; and, secondly, because of the gross mismanagement by successive Conservative Chancellors since 1988. If there was a miracle, the speed with which Mr. Lawson, Mr. Major himself during his year at the Treasury, and now Mr Lamont have dissipated it is remarkable. Although the mismanagement has been prodigious, I do not believe that it has had quite the full consequences because I do not believe that the miracle was ever there.

I believe that for the following reasons. Many people have admitted that there were five major faults in the British economy at the beginning of the 1980s —deep-seated, long-standing faults for which everyone bears a share of the responsibility. Over the decade of the 1980s three of them have remained more or less the same, uncured but not particularly exacerbated. However, two have become markedly worse over the period. The three which have remained more or less the same are, first, a long-term deficiency of investment; secondly, a poorly educated and inadequately trained workforce by international standards; and, thirdly, an inflationary tendency well above the average for the Western world.

The last point requires a gloss of explanation. In the 1970s probably most of us, at any rate in our hearts, would have put the main blame for the tendency on excessive trade union power and aggressiveness. That power and aggressiveness have been cured in the 1980s. In my view, that is one of the relatively few achievements of this Government. However, in its effect it has had more of a socio-industrial result than an economic result for it has failed to make a significant impact on the high inflationary tendency which was thought to be its most damaging and obvious result.

On the other hand, the two faults which have become markedly worse have been, first, the inadequacy of our manufacturing base, with its clear effects upon the balance of payments. There is inadequate export capacity and any pick-up in the economy goes disproportionately into imports. This deficiency was made much worse by the since uncorrected effects on manufacturing industry of the deep slump of 1980 and 1981.

The second of the faults which have become worse is the bad British disease of short-termism, with the pattern of ownership making industrial companies subject, to an incomparably greater extent than in Japan or Germany, to the urge of investment fund managers to out-perform each other on a year-on-year basis. Immediate profit thus becomes more important than long-term market share. The deleterious effects are greatly increased by the Government's policy of encouraging corporate raiding and by their complete indifference to the vulnerability of even the companies closest to the heart of our national interest to takeover bids.

So that is the score—three diseases uncured, two made worse. The result is the present unenviable position: a massive balance of payments deficit at the bottom of the worst slump or recession since the 1930s. The Prime Minister, who seems to have been miraculously converted, almost in the past 24 hours, to the virtues of anti-cyclical Keynesian economics, should bear in mind what a menacing position this is. The normal pattern is to be in surplus or, at the very worst, in balance at the bottom of a recession and to be ready, therefore, to rise up from the trough to dissipate the surplus. To have the present deficit before the upswing even begins is frankly catastrophic —and with North Sea Oil as well!—plus a public sector borrowing deficit of £25 billion before any stimulus which the Chancellor, looking desperately unsteady as the last man in on a bumping pitch with a blinding light, may decide to apply in the Budget.

It really is a case both of, "If I wanted to get to Ballylicky, I wouldn't start from here", and of improvidence on a gigantic scale. As I pointed out previously in your Lordships' House, the great improvident Chancellors of the post-war period have been Conservatives to a man. I see the noble Lord, Lord Thorneycroft, sitting in the Chamber. He was not one, but he was the exception. They were Maudling, Barber and Lawson and now probably Lamont. It really is a formidable roll call.

How do the Government react to this? They react, first, by screeching at their opponents, almost as though they were southern state American TV crooked evangelists denouncing sin. They screech at them, "You're improvident, you're improvident". Secondly, they react by the spectre of Mr. Lamont trying to make up his mind not what the economy needs but whether the electorate will respond to an income tax bribe or whether it means what it says when it asks for better services instead. If he is not taken seriously as Chancellor, Mr. Lamont has only himself to blame for adopting that posture.

There is a case, which I accept a little cautiously, for increasing borrowing even from the present high levels for investment in the future. But there is no case at all for doing it for an income tax cut, which will certainly be taken back, either directly or indirectly, after the election.

To hold the balance, in my view the case against the Opposition is not they are improvident now but that they have become so anxious to appear cautious and respectable that they have become like rabbits caught in the headlights of a car, losing all room for initiative. I would be more worried that Mr. Smith in office, if he gets to No. 11 Downing Street, may turn out to be more like—

A noble Lord

Mr. Jenkins!

Lord Jenkins of Hillhead

—Philip Snowden than Hugh Dalton. Mr. Major made a remarkable statement overnight, in which he said that there had been only handfuls—I was not sure whether he meant one handful or two, five or 10—of years with a budgetary surplus since the days of Henry VII, which I thought was pitching it a bit strong. As a progenitor of one of that handful, I nonetheless recommend Mr. Smith to have a bit more of a song in his heart. At least it would be difficult to sound worse than the chirpings of Micawberism—which is all we hear at present from the Government—of economic failure. Their only sign of morale is their passionate desire to cling to office.

Lord Peston

My Lords, we were told that the noble Lord the Leader of the House wished to make a Statement now.

The Lord Privy Seal (Lord Waddington)

My Lords, we have discussed the matter through the usual channels and I understand that it was not convenient for the noble Lord, Lord Prys-Davies, to respond for the Opposition at this juncture. Therefore, in order to accommodate him I have arranged through the usual channels—and I hope this is acceptable to other parties in the House—that the Statement should be taken after the speech by my noble friend Lord Boyd-Carpenter.

3.50 p.m.

Baroness Hollis of Heigham

My Lords, 50 years ago HMSO printed a report for which people were queuing in the streets. That was the Beveridge Report. Beveridge and the British people wanted to slay five dragons; those of want, disease, squalor, idleness and ignorance. Nye Bevan sought to slay the dragon of disease and Rab Butler's 1944 Education Act sought to slay the giant of ignorance. A strong local government was to tackle the squalor of dereliction, homelessness and the need for town and country planning. All parties were determined to eradicate the idleness of unemployment.

To tackle want Beveridge devised a new social security system based on insurance and national assistance. Many of your Lordships were associated with those great changes. Yet since 1979 health care has been sent into the market-place, and so, increasingly, has education. Local government has been devastated. On the old calculations unemployment is now running close to 4 million. The number in poverty has more than doubled since 1979. According to the European Commission's definition of poverty —not mine —of 50 per cent. of average income, 4.9 million people were in poverty in 1979. That figure is now nearly 12 million or, to put it another way, one in four of the households in the EC defined by the EC as poor live in Britain. That is a higher figure than in any other member state. Who are those people? About a quarter of those in poverty are unemployed and another quarter are in low paid or part-time work. A further quarter are pensioners and most of the rest are single-parent families or the disabled.

The number of unemployed people has tripled under this Government. Young people cannot enter the labour market and older men cannot re-enter it. The low paid and part-time workers often comprise women, disabled people and black people. Precisely because they are in marginal jobs, they go in and out of the peripheral labour markets between bouts of unemployment. They never get out of poverty. In consequence, there is now a wider gap between the top 20 per cent. of those in work and the bottom 20 per cent. That gap is not only wider than it was in Beveridge's time 50 years ago, but it is also wider than it was in Charles Booth's time 100 years ago. Are we comfortable with that position?

A further group of very poor people comprises pensioners. Two-thirds of them are women, for poverty is a women's issue. Pensions now stand at 16 per cent. of average male earnings. That is a quarter less in relative terms than in 1979.

The final group dependent on benefits comprises single-parent families, the disabled, and the 16 to 18 year-olds who lost their benefits in 1988 on the grounds that they should go home: back home where they may have been abused or in care. That latter group is in many ways the most horrifying of all. They are now at risk of everything we dread for our own children. They are at risk from hunger and sleeping rough and from petty crime, drugs, prostitution and suicide attempts. If we dread such a fate for our own children, we should not tolerate it for anyone else's.

The number in poverty in 1979 was 5 million and now that figure is nearly 12 million, one-fifth of our population. Why is that? Sometimes people become poor through fate. They may be in the wrong place at the wrong time, have the wrong skills or have the wrong gender or race. Their poverty is rarely due to lack of personal skills. Such poverty is not God ordained. The crux of my argument is that it has been largely Government constructed.

Since 1979 we have seen a cynical, callous paring of benefits that has driven down the income of our poorest people. What have the Government done? They have scrapped some benefits, halved others, frozen yet others and tied the rest to the RPI. They have scrapped some benefits. They have scrapped industrial injury benefits for nine out of 10 of those eligible for them. The earnings related supplement has been scrapped and, above all, benefits for 16 to 18 year-olds have been scrapped.

The Government have halved other benefits. Mortgage interest payments were halved in 1988 for the first 16 weeks of claiming benefit. The definition of what was full-time work has been reduced from 30 hours to 24 hours. In April it will be reduced still further to 16 hours. At that point people lose income support and passported benefits such as help with their mortgages. Child benefit was frozen, housing benefit cut.

Alongside the 30 adjustments to unemployment figures that have occurred we have seen some 15 cuts in unemployment benefit. As a result, it is now worth only 80 per cent. of what it was worth in 1979 to a couple with two children. As the Government have chosen since 1980 to tie benefits to RPI rather than earnings, that has meant that old age pensioners have lost something like £28 per couple. That cut in pension was paid for by a cut worth 5p in income tax. The real average income of the population has increased by 35 per cent.; the bottom 10 per cent. of the population —after taking into account housing costs—has seen no improvement at all.

Social security expenditure has grown but almost entirely because of the number of claimants and above all the number of unemployed. Indeed the most recent academic research has shown that a family on income support with two children where the adults do not smoke or drink and use electricity or paraffin heating, who pay off no debts and whose sole recreation is going for a walk or watching the TV, and who live confined lives on a drab diet wearing dreary clothes, now receive income support that meets just 64 per cent. of what Government departments themselves say is essential to meet basic daily needs.

Of course those people can always apply to the social fund, can they not? That is true, but 75 per cent. of the applications to the social fund are refused either because families have not been on income support long enough or because the money has run out, or because they are too poor to repay the loans. One should make sure that if one's cooker, job or marriage expires, it does so in May or June when there is still a chance of money in the budget. So cruelly ill-conceived has the social fund been, that yesterday the Social Security Advisory Committee called for its fundamental reform as it is too much of a lottery. It drives people into debt.

The independent Institute of Policy Studies showed last week that 2.5 million families are in debt. That is a higher figure than at any time since the 1930s. Those are mainly families with young children, on low pay or desperately low benefits. The Institute says those families are unable to meet their basic needs. They face multiple debts of housing costs, poll tax, water rates, fuel charges, court fines and HP costs. Every time they borrow to pay off those debts, they displace those debts and go further down into poverty from which they cannot recover.

It is worth reminding ourselves that 44 per cent. of those in prison for less than six months are there because they cannot pay their debts. The institute says that these people are not feckless, just very poor. I would argue that the Government have helped to make them so. There have been choices. Those of us on £40,000 a year have received tax cuts worth some £77 a week. That represents virtually the entire pension for a couple. Those of us on £70,000 a year have received tax cuts worth £700 a week. We have seen rebates worth £6 billion given for private pensions. Real choices have been made. The Government have chosen to encourage the rich to work harder by cutting their taxes and the poor to work harder by cutting their benefits.

The Government have increased insecurity and called it enterprise. The Government have increased inequality and called it initiative. The Government have chosen punitive means testing but have called that targeting. We see around us the waste of people, of opportunity and of our common wealth. We have seen the re-emergence of Beveridge's dragons of stress, distress and destitution. Things can be different. There are pathways out of poverty. Those pathways are training, investment, a minimum wage and decent pensions and benefits. There are pathways and we must take them if we are to call ourselves a civilised society. As Beveridge said: want, squalor, disease, ignorance are common enemies of us all—not enemies with which we may individually make a separate peace, escaping oneself to personal prosperity, while leaving our fellows in their clutches. That is the meaning of social conscience—that one should refuse to make a separate peace with social evil".

3.59 p.m.

Lord Joseph

My Lords, the present situation is deeply poignant for the people of this country, particularly for those whose lives have been, I hope only for the moment, transformed for the worse. It is also poignant on a lesser scale for the Ministers concerned who had hoped that their efforts during the early 1980s had by the mid-1980s set this country on an increasingly internationally competitive course with benefits to come for employment and prosperity and, through social benefits, for those for whom the noble Baroness, Lady Hollis, has just spoken. If there were more time I should have liked to take up some of the points which she made because in my view she overstated the case, but I want to concentrate on the central issue of the Government's handling of the economy which has led to our present recession and higher unemployment.

We can surely all agree that with hindsight what turned into an unsustainable boom was not recognised officially and by the bulk of the members of most parties in sufficient time. There were people, even economists, who recognised early what was likely to turn into a boom which might be dangerous. I mention Tim Congdon and Nick Budgen in another place—I am still not quite sure how to refer to colleagues in the other House—who both proclaimed as early as 1985 that the acceleration of house prices and land prices boded ill for the future. However, as far as one can tell the officials and Ministers concerned were comforted by the falling rate of inflation, which had dropped to about 3½ per cent. in 1985, and the rising demand for jobs, unemployment having peaked in 1985 or 1986. The situation looked extremely healthy for our international competitiveness in comparison with what had been the case. I shall not upset the noble Lord, Lord Jenkins, by talking of miracles, but the improvement in productivity surprised and pleased everyone in this House. It is true that the reduction in trade union power was the principal cause, but it produced benign results for this country's prospects for prosperity and full employment.

The question we have to ask ourselves is why the officials and Ministers concerned, who were all deeply dedicated to keeping inflation on a downward trend, did not recognise the dangers. He or she would be foolish who judged that it is easy to decide what is the reality. I regret that the middle term financial strategy, which, ironically, had been invented by Mr. Nigel Lawson and Sir Geoffrey Howe, was jettisoned early in the mid-1980s and that we ignored the danger signals of what was then M3. I recognise some of the arguments—that we had deregulated and it was difficult to use the figures as a valid guide. However, the fact is that an unsustainable boom was not recognised in time. Her Majesty's Opposition did not help. They were arguing for lower interest rates when, belatedly, the Government decided to raise interest rates in 1987–8.

On top of that misjudgment came what, to my mind, was the second parallel and interrelated mistake of rushing into the exchange rate mechanism. I am not a classicist and I had to look up the encyclopaedia to make sure of my reference, but there is a horrifying story from mythology of the past of the shirt of Nessus. The shirt was given by Nessus, a ferryman, to the mistress of Hercules with the advice that if ever Hercules' love should wane the shirt should be given to him, and it was so medicated that it would revive the love of Hercules for that particular maiden. In fact it had been poisoned. Hercules was persuaded to put it on. In due course he tried to take it off—and I invite noble Lords to consult the encyclopaedia if they wish to know the rest of the nauseating story. The ERM was predicted to become the shirt of Nessus if we joined it because domestic conditions requiring a lowering of interest rates might he precluded by the ERM rules. That is precisely the shirt which the Government have put on.

Ironically, it was also the shirt which Her Majesty's Opposition put on. The very Opposition which clamoured for lower interest rates just when the Government had nerved themselves to raise them—and they needed to be raised—is now precluded from asking for lower interest rates because the ERM prevents the Government from doing so. That is an honourable posture but it does not serve the interests of this country well when Her Majesty's Opposition support a government policy which, in my view, has been mistaken; namely, joining the exchange rate mechanism.

Because of that prohibition on lowering interest rates in order to avoid falling from our allotted place in the ERM, the Government are struggling to find some alternative0 remedy to provide a tonic to revitalise the economy which only a fall in interest rates could achieve. They have to turn their hand to the alternatives. Should they lower taxes and encourage investment? It is for the Opposition, as well as my noble friends on this side of the House, to have some sympathy for the Government which both sides have encouraged to wear the shirt of Nessus which has prevented them taking the obvious course.

We have to take comfort from what has happened. We have to take comfort from the dramatic and now sustained rise in unit productivity. That bodes well for international competitiveness in the future. However, I take issue with the noble Lord, Lord Jenkins. We can agree that standards of education and of training need improvement. The Government have creditably embarked on what are, at least to some extent, unpopular steps to improving both of those. It will take time to achieve that. However, I cannot agree with the noble Lord that, in judging the Government's performance, we must look at the quantity of investment alone. There has been plenty of investment in the past. Alas, it was the quality of that investment, the productivity to which it was put, and the markets which it sought to serve which were often mistaken. We must judge the quality as well as the quantity.

In the meantime let us see the poignancy of the present situation, which is made worse because the alternative remedies are reduced by the exchange rate mechanism handcuffs which the Government have put on themselves. Let us at least rejoice in the improved productivity and some of the other underlying improvements which are observable. For my part—and I hope that the House will not think it a King Charles's head—I hope that we shall appreciate the importance of the entrepreneurial function. We do not seem to have that in as much abundance as we should like. However, be the businesses created small or medium sized or whether they lead by heroic entrepreneurship to large industries and businesses, let us recognise that we shall not prosper and we shall not have anything like full employment unless, by British means or by means of overseas investment in Britain, we have a much larger volume of highly respected entrepreneurship than we have now.

4.9 p.m.

Lord Rodgers of Quarry Bank

My Lords, the unpredictability to which the noble Lord, Lord Peston, referred in his kind opening remarks brings me to this House in the twilight of a Parliament. I find that it is a somewhat awkward experience, because it has drawbacks and surprises—but perhaps that is an excuse to make a maiden speech at a rather indecently early stage so that I shall not be left hanging and waiting for a new dawn after the election has taken place.

The other surprise to me is that I was led to believe that the House was marked by a robust independence of party which occasionally spilled over into consensus, but it seems to me that there has not been a great deal of seeking after consensus this afternoon. I hope that it will provide an excuse if I occasionally stray from the anodyne into the mildly controversial. Perhaps I can say to the noble Lord, Lord Brabazon, that, if I do so, I hope that he will regard my remarks as of a general nature—shall we call them generic? —in that they would be addressed to any other government at any other time in comparable circumstances.

I was elected to another place almost exactly 30 years ago. I remember the frequent debates that we had on the economy at that time. This country had enjoyed a long period of prosperity after the great reforms and inevitable austerity of the immediate post-war period. But, as we learned, that prosperity concealed a historic decline and by the early 1960s the party was over. Indeed, there was a debate in this House on 18th April 1962 to call attention to the economic situation. In other words, the terms of the Motion were not very different from the terms of the Motion that is before the House today. Lord Alexander of Hillsborough, for the Opposition, mentioned: stagnation in production and repeated crises in exports and balance of payments". [Official Report, 18/4/62; col. 843.] Lord Mills, Minister without portfolio, referred to inflationary pressures and the noble Lord, Lord Shackleton, said that the budget which had just been announced, was no stimulus to invention, exports, output or consumption.

Everything changes but everything remains the same. The terms of the debate may be different but the problems with which we seek to deal are very much those which confronted this country and this House 30 years ago.

For the past four years, and perhaps a little longer, I have had some responsibility as director general of the Royal Institute of British Architects. That has brought me very closely into touch with the fortunes of the construction industry. Only seven weeks ago your Lordships had a debate about the construction industry and housing. What was said then—and my own personal experience as director general of the RIBA—is germane to our debate today.

With the leave of the House, I shall say a few words about the economic situation, looked at not from the position more generally of the construction industry but specifically from the viewpoint of a profession. That profession is one in which many architects are struggling for survival. By nature an architect's profession is responsive and flexible. The profession is well accustomed to dealing with recessions and finding a way through them. But this recession, taking its length and depth together, is worse than any that anyone can remember.

The profession will admit, as I know this House and noble Lords opposite admit, that the peak of the boom was too high. But I believe that the onset of the recession was plain much sooner than the Government were ready to concede. From January 1989 in every quarter of the year the RIBA's own figures showed that architectural workloads were in decline. Indeed, since 1989 commissions have fallen by 50 per cent. At present underemployment in the profession is almost one-third. Figures lately made available by the Association of Consultant Architects show that 31.5 per cent. of all architects and technical staff have been made redundant during the past two years. Some of the largest, best known and most successful practices have fared worst.

Today I lunched with people from a successful and distinguished West End practice. I talked to them about this debate and the issues as seen by them. They said that three years ago there were 425 people employed by their firm and today there are only 150 people. The message they gave to me and which I pass on to this House is that what is impossible for them to cope with is a wild see-saw in the economy. They ask for stability. They would much prefer to avoid the very good times if they could only avoid the circumstances with which we are faced today.

It often seems that we order our affairs in a strange way. By common consent we need more schools, more homes and greatly improved infrastructures. There is an immense job to be done of maintenance and repair. The construction industry, and architects with it, have too little work to do. There is an identified need and an available means but we cannot put the two together. I believe that we must in the future find a solution that is far more permanent than any that we have found in the past 30 years.

It would be pleasant if I could argue that there are some advantages in the situation and that somehow the construction industry and the profession will come out leaner and more successful. I see no evidence that that is the case. With their present difficulties architects cannot spend money on training. They cannot buy new technology. Of all the students at present in training, one in three is unable to obtain practical experience. I find it difficult to believe that, when this recession is over, it will be possible to point either to that profession or to any of the professions in the construction industry—or to the industry itself —and say that some advantage has resulted from this very unhappy period. To highly trained professionals, with seven years' full-time training behind them, unemployment comes as a profound shock. I hear every day that many architects are selling their homes; many have lost their lifetime's savings; and many can scarcely afford the subscription to their professional body. There is real hardship and no good can come out of it.

I should like to thank noble Lords for their very friendly welcome in the Corridors and Lobbies and I am grateful for their tolerance of my rough remarks today.

4.18 p.m.

Baroness Hilton of Eggardon

My Lords, it is an honour to follow so distinguished a parliamentarian as the noble Lord, Lord Rodgers of Quarry Bank. I congratulate him on an excellent and powerful maiden speech. It is clear that we have much to look forward to in his future speeches in this House.

The subject that I wish to address in relation to the economy is the consequences of crime in our society. Of all the social consequences that may be produced by a mismanaged economy, an increase in the levels of crime causes not only great distress to victims but captures the attention of the media. Over the past few weeks we have seen banner headlines about the doubling of recorded crime since 1979. In that year the figure for recorded crime in the United Kingdom stood at about 2.5 million. In 1990 the figure was over 4.5 million and for last year it is likely to be over 5 million—a 20 per cent. leap in one year. Moreover, behind those headline figures there is the dark figure of unreported, unrecorded crime, which may be four or five times as high.

I believe that many of the Government's ideological and economic policies have been directly responsible for the disintegration of society and social controls, with a consequent rise in crime. Society needs a sense of structure and moral continuity if it is to exercise influence over young people, who are mainly responsible for crime.

The causes of crime are multifactorial. A career in crime, like any other career, is not the outcome of a single factor. The influence of family, friends and teachers as well as job opportunities and living conditions are all relevant. Certain conditions of despair, truancy, bleak job prospects and criminal associates will, however increase the probability of some boys and young men, and more rarely girls, becoming criminals.

The peak age of criminal offending is 15. It is at that crucial point of transition from school to work—of adolescent rebellion against authority—that government policies have been most destructive, removing the support of social security benefits from 16 and 17 year-olds, and offering them in return neither job prospects nor adequate training. It is no wonder that London looks like a third world city with its young beggars and vagrants.

Relatively more criminals come from broken homes-26 per cent. of adult prisoners have been in care—or from families which have moved around. The vain pursuit of employment can only have increased that disruption. Unified families, integrated with the local community, are less likely to produce criminal children, but economic pressures —unemployment, high levels of debt due to the 1980s credit boom—may trip some over the edge into disintegration and crime.

I am amused to see that the Home Secretary has lately become a convert to the idea that crime has a social basis. No doubt he will now be getting his task force to make further explorations along the wilder shores of criminology where it will discover Durkheim and may even find something called "society"! In 1895 Durkheim suggested that, fiercely rising commercial competition … broke … through traditional rules and restraints … Society put before people the one goal of getting rich, but many, especially in the poorer classes, could sec no hope of arriving there if they stuck to the rules for doing it legally". If the only goals presented to people are materialistic then those are the ones that will be pursued by fair means or foul.

Over the past 13 years the Government have suggested that material wealth is the only goal worth pursuing and that all human endeavour must he measured in monetary terms. The pursuit of value for money in the police service has thus, for example, devalued human qualities and the role of the police officer in the community because its worth cannot be calculated in pounds or ecus. The focus instead has been on performance indicators such as response times, clear-up rates and devolved budgeting.

This Government have propounded the most materialistic ideology that we have seen this century and have underpinned it with 18th century notions of magic market forces for which Government need take no responsibility and on the curious idea that wealth is subject to the force of gravity. They have also mounted a sustained vendetta against local government, destroying the essential foundation for secure and positive local communities. A government that have, on the one hand, centralised power and, on the other, rejected strategic planning has been ill-placed to counter long-term and deep-seated problems. Even they have not pursued all of Adam Smith's ideas. In this squeamish age the idea that too high a level of unemployment can be reduced by heightened levels of child mortality has been too much even for them.

Most crime is petty and squalid with both victims and perpetrators living in deprived areas on featureless housing estates where many families are on social security or below the poverty line. That has not been assisted by the present system of government grants to local authorities which places Westminster eighth, Liverpool 30th and North Tyneside (where last year's riots took place) 150th. The increasing centralisation of power in this country has left local authorities with less and less power to build decent housing or provide the services to the community which would prevent crime and increase social integration and local autonomy.

On 20th February a leader in The Times quoted Home Office research which indicated that, in years when the average personal spending rises little or even falls, property crime grows relatively fast". Over 90 per cent. of crime is property crime. A quarter of that is motor vehicle crime; that is, mostly stealing car radios and other portable property from cars, rather than stealing cars. In view of the current state of the economy it is not surprising that property crime has risen by leaps and bounds.

I also believe that it is no coincidence that the 1981 riots on the streets of our major cities coincided with the previous recession, nor that we had serious disturbances in Cardiff, Oxford and North Tyneside last year. I do not look forward to the coming summer with much optimism.

To redress the existing damage to our society will not be easy. We need to pursue policies that are integrative rather than divisive. We need to reduce the gap between rich and poor. We need to develop a different value system which emphasises human rather than materialistic values. Education should be seen as an end in itself, not merely as a route to a non-existent job. Policing should be community based, not merely reactive. Surveys of people living on bleak housing estates have shown endlessly that people are concerned about hooliganism, vandalism and car parking, not about serious crimes. Yet most police resources have been directed to specialist squads dealing with serious crimes, drugs, robbery and so on. We live in an increasingly overcrowded and impoverished planet. We have, I believe, very little time left in which to develop a society in this country which will be sufficiently integrated, mature and resilient to withstand the difficulties of the years ahead.

4.25 p.m.

Lord Boyd-Carpenter

My Lords, it is a temptation to follow the noble Baroness in her disquisition on the causes of crime. However, owing to the strict time limit under which one operates I prefer to come straight back to the main central issue of the debate, which is the state of our economy, the responsibility of the Government for some of its difficulties and the remedies which could properly be effected.

Before I do so, I wish to add my tribute to the noble Lord who has just made his maiden speech. He made it with a confidence that for a moment made one almost forget that it was a maiden speech. I hope indeed that we shall hear him frequently in future. I have no doubt that we shall have that felicity.

The noble Lord, Lord Peston, opened the debate with a tirade—I think that that is the correct word—against the Government, alleging that virtually all the economic difficulties which the country is encountering were the direct and inevitable result of government policies which would have been avoided had the noble Lord, Lord Peston, been in charge of our affairs. But of course he neglected entirely to look at some of the more agreeable and cheering aspects of what is, in truth and fact, a very mixed situation. I am sorry that the noble Lord is not in his place. For example, he wholly ignored the fact that countries such as Japan, which have complete freedom as to where to invest and to make investments in industry, are investing and continue to invest in this country. Objective, sensible people seeking to invest profitably and to build up successful businesses would not invest predominantly in a country whose condition was anything like that which the noble Lord, Lord Peston, described. It is one of the reassuring factors of the present situation that objective investors are investing in this country. It obviously indicates the view that in the not necessarily long term, but in the reasonably short term, this country is in for an economic recovery in the profits of which those countries hope to participate. That is a very reassuring factor to which we should pay attention.

Another important factor—it has been mentioned briefly once or twice—is the way in which we are now virtually free from strikes. That is the direct result of the series of measures affecting trade union law and industrial relations for which the Government have been responsible. Year after year improvements have been made in our labour relations law and the result can now be seen in the great freedom from serious industrial disputes which we now enjoy. The fact that the trade unions now operate in an infinitely more sensible way than they did some years ago is again one of the cheering factors.

We are, of course, dealing with the consequences of a world-wide recession. There is no avoiding some of those consequences, particularly their effect on our export market. But the picture that the noble Lord, Lord Peston, sought to draw of this country in that situation was completely unreal. He did not refer to the most important aspect of Government policy; that is, their recent success in the battle with inflation. Indeed, if I understood him correctly, he went so far as to suggest that inflation did not matter to the poor. He said that the poorest section of the population would not suffer from it.

That was a most extraordinary observation. The noble Lord has only to contemplate what is happening in other countries which suffer from inflation. The Commonwealth of Russian States is one example and Germany some years ago is another. If one has inflation, with the value of money diminishing weekly, the poorest—that is, those with the least money —will be brought up against its effects most sharply and most immediately. To argue that policies which combat inflation are not designed or intended to have the effect of helping the poorest section of the population shows an utterly unrealistic approach to the problems of our economy. In fact, the Government have been most successful in dealing with inflation. Our rate is now below the European average and it is extremely cheery to see that.

The noble Lord made another extraordinary observation. He said that if the Government had stated at the beginning of their career that they offered a 7.5 per cent. rate of inflation they would not have been elected. That is an interesting figure because it is exactly half the rate of inflation which subsisted throughout the Labour Government of 1974–79; the average rate was 15 per cent. Again, the noble Lord, in his anxiety to damage the Government in every possible way, seemed to be departing from reality.

I am extremely sorry that the noble Lord is not in the Chamber. I hope that he will read my observations. Although it may be an exercise of wild optimism I hope that they will have an effect upon him. I do not believe that a speech such as he delivered to your Lordships' House is particularly helpful in a debate of this kind. It is a debate on the second most important public problem with which we must cope. The first most important is the preservation of peace. Beyond that, the proper management of the economy is the most important of subjects.

As your Lordships may know, I was involved in the subject from time to time, having two tours of duty at the Treasury. I know that it is most difficult to judge various factors against each other and get one's priorities right. That is a most difficult aspect of the matter. The Government, rightly, have given priority to coping with inflation. Inflation produces misery all round, not only to the very poor but to almost everyone. It is damaging to the efficiency of the economy and to the morale of those engaged in industry and commerce. It is gratifying to note that the firm and courageous measures that the Government have taken have been extremely effective. We should express our gratitude for them.

The recovery is on the way. Of course, its timing is a matter of uncertainty and doubt. The fact that it is on the way is supported by most of the organisations which are in direct touch with industry and commerce. The recovery is coming as the result of the courageous handling by this Government of the policies to which I have referred. I am quite sure that they will bring us through the present difficulties. As the world recession recedes and as world trade builds up again, so this country will continue to play a leading part in that recovery. It will be possible to say, as in the moving words of the poem: The threats of pain and ruin to despise To scatter plenty o'er a smiling land And read their story in a nation's eyes".