Address in Reply to Her Majesty's Most Gracious Speech

HL Deb 13 May 1992 vol 537 cc351-444

3.13 p.m.

Debate resumed on the Motion moved on 6th May last by the Baroness Carnegy of Lour—namely, That a humble Address be presented to Her Majesty as follows:

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

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Baroness Denton of Wakefield)

My Lords, we have now reached the final day of the debate on the gracious Speech. Once again the debate has proved an opportunity for your Lordships to share much wisdom and perhaps, occasionally, a little prejudice. The quality of the maiden speeches we have already heard in this Session leaves us with a great sense of anticipation for future contributions. I am delighted that in the case of my noble friend the Lord Privy Seal the wait will be no longer than the end of the debate.

In the gracious Speech Her Majesty informed the House that, My Government will pursue … firm financial policies designed to achieve price stability and maintain the conditions necessary for sustained growth … they will promote market mechanisms and incentives and improve the working of the economy. To use, if I may, my own language, we will ensure that the UK is where it belongs: prosperous, with a quality of life for everyone and ahead of its competitors.

We have been in the depths of recession; a recession which was not exclusive to us and which took its toll worldwide. Indeed, some countries remain very much at the bottom of their economic cycle and such is the interlinking of countries around the world today that a shout in Tokyo echoes in London almost instantaneously. No one country can hope to isolate itself entirely from developments elsewhere. But I do not believe I will be a hostage to fortune if I say that here in the UK the recession is coming to an end. Virtually all forecasters, including, most recently, the IMF, agree that growth will become firmly established during this year. This recovery will be sustainable because it will be securely rooted in lower inflation.

I recognise that recent economic indicators have been rather mixed. I recognise too that some of the green shoots viewed in the autumn seem to have suffered an early frost. We have in the past few months seen many uncertainties affect the economy, not least the political timetable. But, with the election behind us, there are signs of renewed confidence throughout the economy—in businesses, households and the financial markets.

Without detracting from my optimism, I must ask your Lordships to remember that recovery will doubtless reach some parts sooner than others. Indeed, those companies which have improved their profits by making hard decisions involving the loss of jobs will be ahead of those with some similar decisions yet to make. We would be unrealistic to expect encouraging signs of recovery to be immediately reflected in the lower unemployment figures. It is possible that there will be many Thursdays yet for the noble Lords opposite to question my colleague about the size of those figures, and his anxiety and ours will be as great as theirs. Bankruptcies too may continue to rise, but that will not be totally negative news. Even when their asset value has begun to improve, some firms are still pushed into liquidation. In due course we will see those two indicators become more positive, joining others on our growth agenda. For that is what the phrase "industrial policy"—a phrase which seems to raise shivers in many quarters—actually is: a growth agenda. Had the media concentrated on the significance of the trade part of my right honourable friend's title rather than the term "President", they would have shown more awareness.

We should not allow the recession to blind us to the changes that took place in the economy during the 1980s; changes that were both dramatic and far-reaching; changes that transformed our underlying performance for the better. From being the laggards of Europe, we have emerged among the leaders. Our inflation rate has tumbled since autumn 1990. Sustained low inflation will bring enormous benefits to millions of businesses and individuals.

Our supply side reforms have created a new spirit of enterprise. Trade union reform has set management free to manage. The rewards of success have been increased by reducing personal and corporate tax rates. Management has been kept on its toes by competition that is sharp and sustained and by the removal of the soft option of government bail-outs for failure. The industrial relations turmoil of the 1960s and 1970s is now a distant memory. Last year days lost to strikes were the lowest ever. A British industry delivery date has moved from fiction to fact.

As is often pointed out in this House, there were almost a quarter of a million more people in employment at the end of last year than in 1979 and the number of small businesses—the seed-corn of economic success—has grown by around a third. Of course, in a dynamic economy where enterprise is fostered and companies are responding to new demands, some are bound to fail. If we give people the right to succeed we automatically give them the right to fail. The crucial thing is that since 1979 births have massively outstripped deaths. Indeed they are not deaths. They are experiences —extremely painful—but extremely valuable for future activities.

Productivity, the key to a sustained growth in living standards, has risen rapidly. Our manufacturing productivity grew the fastest of all the major industrialised countries in the 1980s, having been bottom of the international league table in the previous two decades. But we must not be complacent. We still have some way to go to match the performance of our best competitors who continue to invest heavily in future productivity growth.

Industry has increased exports by nearly three-quarters over the past decade. It has demonstrated its flexibility by switching production to export markets when home demand was weak and its competitiveness by expanding exports to new record levels even in the face of a world slowdown. Our share of world trade has continued to grow. We should praise loudly those companies responsible for that. Weaknesses in quality, training and innovation are being addressed with fierce concentration. Education aims at excellence, not the lowest common denominator, so that we can take on the world.

The UK has become a magnet for overseas investment. By 1990 we had attracted two-fifths of all Japanese investment in the European Community, five times as much as either Germany or France. Inward investors have helped invigorate key sectors such as consumer electronics and motor vehicles. We now have a trade surplus in televisions and we could well be a net exporter of cars by the middle of the decade for the first time since 1974. Inward investment has illustrated that there is nothing wrong with the British workforce. Well trained and well managed, our workforce can build worldwide quality. That is a message to be repeated often.

The task of the Department of Trade and Industry is to build on those achievements; to help industry build a globally competitive manufacturing base. With consolidation of the stable, low inflation environment, industry can plan and invest. Few things damage business more than uncertainty. Our membership of the ERM provides for stability in exchange rates, making it easier for businesses to plan ahead.

We will continue to fight for the interests of British industry overseas. The GATT round, which I am sure noble Lords will mention, must be brought to a successful conclusion so as to ensure fair access for British goods all over the world. We must protect the competitiveness of British goods and make sure it is not eroded by unfair subsidies given to competitors. We must continue to open the doors of foreign governments, especially in their public procurement policies.

British industry is inextricably bound up with the European market; over half of our total trade is with the Community. When talking about trade markets, "domestic" now means Europe. We have many tasks within Europe. We must ensure that markets are opened up, and kept open, in practice as well as in theory. We will continue to show the Community the benefits of open markets and deregulation. We will resist to our utmost unnecessary and unacceptable interference with working practices which imposes restrictions and costs on our companies.

At home we will continue to forge a close and effective partnership with industry. That does not mean paying out increasing sums of taxpayers' money to keep the inefficient in business. That is the failed strategy of the 1970s. It is not what industry wants. As the CBI said recently: Government cannot and should not be in the business of picking winners. It does mean creating a framework within which industry can compete effectively, a framework which allows industry to reap the benefits of its enterprise.

It means continuing to promote competitive exports; to invest in research and development; to encourage the spread of the latest manufacturing technologies; and to explore ways for smaller firms to learn and benefit from their larger brethren. It means intensifying our efforts to develop a much closer and deeper relationship and understanding between government and industry so that we can help industry solve the complex problems and challenges it is facing.

It means playing a more active role in ensuring that industry's needs are reflected in all government policies which impinge on industry; from tax to education; from training to transport. Our colleagues are supportive and well aware that wealth creation is essential for their policies to be funded and effective. It means ensuring the competitiveness of our manufacturing base by identifying market opportunities, raising the profile of quality, standards, design, and environmental awareness.

The latter items, along with consumer affairs and small firms, are my particular concerns in the Department of Trade and Industry and that gives me great pleasure. Our design education system produces some of the best designers in the world but we export too many of them and then import their products. I hope to be able to encourage industry to be aware of this lost opportunity. The Citizen's Charter illustrates well this Government's commitment to the individual and to looking after the consumer. We shall bear in mind that company profits are based on a successful relationship between the customer and employee.

In today's competitive environment, advantage is not simply based on size or even resource, but on knowledge. We shall encourage small firms to harvest that in abundance. We will encourage seedcorn, advice on planting and, as I have said, the friendly climate. We will not pick winners or losers but watch the field ripen and mature.

The world stands on the threshold of a most exciting decade, a decade of enormous opportunity and challenge. The single market will create a home market for British industry of 340 million consumers. The countries on the Pacific rim will continue to grow rapidly. The collapse of communism will in due course open up vast opportunities for trade and investment.

The policies of the past 13 years have brought a fundamental improvement in our underlying performance. There is much still to be done, but we have the solid foundations on which to build. The seedcorn is in the ground. The Government are determined that British industry will be able to seize the opportunities that arise. We are not talking handouts. We are looking to boost—perhaps even turbocharge—the successes already in place and in so doing, to create a new era of prosperity for the workforce and the employer.

3.28 p.m.

Lord Williams of Elvel

My Lords, perhaps I may start with what I hope your Lordships will feel is the pleasanter part of my speech before moving on to matters which some of your Lordships at least may find rather more controversial. This is the first occasion that I have had in this Chamber to welcome the noble Lord the Lord Privy Seal and Leader of the House. I offer that welcome in all sincerity. I am particularly glad that he has decided to reply to today's debate. I am sure that he will be able to shed light—perhaps I should rephrase that—I am sure that he will do his best to shed light, however difficult that may be, on some of the murkier aspects of the Government's economic policy since the subject of your Lordships' debate this afternoon is economic affairs.

Next I should like to congratulate, and indeed welcome, the noble Baroness, Lady Denton of Wakefield, in her promotion to Minister at the Department of Trade and Industry. Her background well suits her to the task that she will have to discharge. I am confident that our counsels will benefit from her presence in that role.

In passing, as it were, since I wish to get on to the substance of what I have to say, I hope that your Lordships will not think me churlish if I remind the noble Baroness that the life expectancy of DTI Ministers in this House is, in my experience, somewhat on the short side. Noble Lords may recall that, when I took on the Trade and Industry portfolio in 1986, I found myself addressing the noble Lord, Lord Lucas of Chilworth. He soon gave way to the noble Lord, Lord Young of Graffham, whom I am glad to see in his place this afternoon and who, in turn, gave way to the noble Lord, Lord Trefgarne. The pace then quickened and we went through the noble Lord, Lord Hesketh, and then the noble Lord, Lord Reay. It was sometimes rather difficult to catch up because one Minister seemed to follow another at bewilderingly rapid intervals, each in succession disappearing before my eyes—blown away, as it were, by some sort of wind, like the autumnal leaves, as the poet said, that "strow the brooks in Vallombrosa".

Your Lordships may think that I am being rather frivolous, but I am trying to make a serious point which is that unless there is a sensible degree of ministerial stability at the Department of Trade and Industry in this House—after all, it is an important portfolio—I really do not believe that your Lordships will be able to play the role which, by virtue of the experience and expertise in these matters which are represented here, we would be entitled to expect. It is in that context—with perhaps a nod in the direction of the noble Lord the Leader of the House to make sure that he has taken my point on board—that I wish the noble Baroness, Lady Denton, a degree, but only a degree, of longevity in her present office.

Having studied the gracious Speech and the accompanying ministerial pronouncements, and having listened to the noble Baroness this afternoon, I wish to put three arguments before your Lordships. The first is this: as it stands, the Government's general economic strategy, as set out in the gracious Speech and as repeated by the noble Baroness, is, I believe, inherently flawed. My contention is that even on the Government's economic logic—not for a moment that I accept it—there are internal contradictions within what is proposed which, in the end, will mean that one or other of the Government's objectives will have to be abandoned. In other words, if I may put it crudely, it is not going to work.

My second argument is that in the heart of government itself there is now a policy conflict. Given the nature of the personalities involved, that conflict has all the characteristics of a major geological fault line. The conflict is what we perceive to be the new aims of the Department of Trade and Industry as set out by the noble Baroness this afternoon, and about which, incidentally, we heard nothing at all in the gracious Speech, and the aims of the Treasury, about which we heard a certain rather guarded amount in the gracious Speech. My contention here is that that conflict is without hope of resolution and that the resulting clash will lead to severe and possibly dramatic seismic eruptions.

My third proposition can be stated quite simply —in the realisation that it belongs in the divide between the party opposite and my noble friends behind me. It is this: economic policy is in the end about people, and I do not see how we can lay any claim to being a civilised country while at least one-fifth of our people live in conditions of poverty or near-poverty, many without a home of their own, and while we have getting on for 3 million unemployed. I simply do not see it. It is a matter of the greatest regret to us that the gracious Speech made no reference to those matters at all.

By way of background to the arguments that I wish to deploy and at the risk of repeating some facts of which your Lordships will undoubtedly be aware, perhaps I may rehearse some of the features of our present economic situation. We are at last perhaps —and, as the noble Baroness rightly said, it is only a "perhaps"—or at least we hope that we are coming out of a long and painful recession. As we might expect, the indicator that has performed best in the recession has been inflation, although it has not been defeated—I believe that the expression used on another occasion was "licked", but it has not been licked. Even the Government recognise that there is a long way to go before their stated target of price stability—in other words, of zero inflation—is reached.

Throughout this recession—and as far as I know this is quite unprecedented—our balance of payments has remained in substantial deficit. The current estimate for 1992 is that we will be £6.5 billion in the red. Unemployment is 2.65 million according to government figures and the latest consensus forecast shows it at 2.84 million by the end of this year with no fall expected in 1993. For good measure, and in spite of what the noble Baroness said, perhaps I should add that the average annual growth rate of the economy over the past 12 years has been 1.7 per cent.

Those are the facts. They are not my facts; they are either government facts or from the consensus of independent forecasters. Therefore, I hope that noble Lords opposite will accept them, at least for the purposes of our discussion, as providing the backdrop against which we must examine the Government's intentions.

Let me now take my first argument: that the economic strategy outlined in the gracious Speech itself lacks coherence. The Government's first objective, we are told, is to achieve price stability—in other words, as I have said, to achieve zero inflation. Their second objective is to meet the Maastricht convergence criteria. Their third objective is to balance the budget over the medium term and their fourth objective is to reduce taxes, by which I take the Government to mean direct taxes since Conservative Governments seem not to regard indirect taxes as taxes at all.

The means for achieving those objectives is—I quote the words of the gracious Speech, as did the noble Baroness—to, pursue, within the framework of the Exchange Rate Mechanism, firm financial policies". So far, it is perfectly clear. In order to achieve the first objective of zero inflation and starting from where we start, real interest rates will have to be kept at penal levels and public expenditure will be, to use a well known expression, "squeezed until the pips squeak". Again, that is perfectly clear. That ought to achieve the Government's first objective of zero inflation but, in doing so, the treatment will keep economic activity at such a low level that there will be no earthly possibility, at current tax rates, of achieving the third objective, which is to balance the budget in the medium term and, indeed, before we are all dead.

If, on the other hand, the Government wish to balance the budget—again, of course, without raising taxes—they must rely on the consumer to go out and spend. It may well be that, given the current difficulties in Germany, there is a window of opportunity which would allow sterling interest rates to fall without disturbing the ERM framework and that, as a result, consumer spending would then take off. But we should not be deceived. If that does happen—and it is quite a big "if"—then before too long, as night follows day, there will be a crisis in our already weak balance of payments for the very simple reason, as many of your Lordships have repeatedly argued, that we do not domestically have the capacity to satisfy any substantial rise in consumer demand in the one sector that is crucial to our trade balance. I refer, of course, to manufacturing. When we are hit by a balance of payments crisis "firm financial policies" will most certainly be needed to stop sterling falling out of the ERM bed, let alone to meet the Maastricht convergence criteria, and we will be back again, miles from zero inflation, in the same merry-go-round of high inflation and subsequently renewed recession. That is the basic problem of the Government's strategy. Zero inflation as an objective is incompatible, starting from where we start, with the objective of a balanced budget, leaving aside the other consequential effects.

As for their fourth objective—that of further cuts in direct taxes—if I were them I would simply forget it. I would forget it for two reasons. First, the money will be required to pay for provision for the poor and the unemployed. I shall come back to them later. Secondly, if there is the money available, the Government would do better to devote it to investment in the productive engine of the economy, the manufacturing sector. Now from what the noble Baroness has said today, there may just be a glimmer of light. It is nowhere mentioned in the gracious Speech, but in the appointment of Mr. Michael Heseltine to the Department of Trade and Industry we may be seeing the start of a policy change. I for one welcomed the indications that the noble Baroness gave us. Perhaps the rather curious return to the name of President of the Board of Trade is really meant to tell us—since for the life of me I cannot see any other reason—that there is, miracle of miracles, about to be an industrial and trade policy. We shall welcome it, for the prerequisite for a sustained, low inflation recovery is not, as the Government fondly believe, firm financial policies designed to achieve price stability". I certainly do not wish to deny the necessity for firm financial policies, but the prerequisite and the necessary condition for a sustained, low inflation recovery is the expansion of capacity in the economy's internationally traded sector, to allow a revival of exports. That is the only sensible way forward and I hope—and from what the noble Baroness has said, I believe—that Mr. Heseltine will follow that way.

Of course the programme for such a policy has been mapped out by at least two of your Lordships' committees; one chaired by the noble Lord, Lord Aldington, and a second chaired by the noble Viscount, Lord Caldecote. But in addition to their recommendations, which we have endorsed and which I do not wish to repeat this afternoon—although I particularly stress the need for increased civil research and development—I would emphasise two further requirements. First, we must have a much more active regional policy. That means not just throwing money at regional imbalances but embarking on a serious programme of decentralisation, and that means decentralisation of the Department of Trade and Industry itself. We can no longer afford to regard the regions as branch economies with decisions taken in Whitehall or in the City of London. They must be economies in their own right—of whatever size, however small—with decisions taken there in the regions themselves. Secondly, we must be prepared to support our exports. Apart from the necessity to achieve success in the GATT Uruguay round, a matter on which the whole House is agreed, the one sector in which it is possible for a policy change to have almost immediate effect is in the financing packages available for large long-term projects. We have been losing out badly in world markets, not because of lack of skills or the price of the goods we produce, but because of uncompetitive support from ECGD. We must be prepared to match the advantages that our competitors give to their own exporters.

But—and I am afraid that it is a rather big "but" —in spite of what the noble Baroness said, there is no getting away from the fact that these programmes require money, and a good deal of money at that. This requirement for money runs directly contrary to the Treasury-set objectives that I described earlier and which were written into the gracious Speech. Even the Citizen's Charter, which the noble Baroness mentioned, was dismissed by the Chief Secretary to the Treasury last week in another place as, finding better ways of converting the money that can be afforded into even better services".—[Official Report, Commons, 7/5/92; col. 169.] There is not much hope for more money there. So if there is to be a more active DTI, if Mr. Heseltine really means what he says—and indeed means what he has written—then there will be a fierce confrontation between Mr. Heseltine and the Chief Secretary to the Treasury. In this I am pessimistic. In the battle which will no doubt be an epic battle—Tarzan versus the Bonecrusher—my money is on the Bonecrusher. The Treasury will always win in the end.

My conclusion is that there is neither clarity nor inspiration in the Government's general economic thinking, but rather confusion and contradiction. In so far as there are new ideas in a previously neglected Department of Trade and Industry they will be snuffed out without difficulty. I warn your Lordships to look for a relatively rapid political cot-death in Victoria Street.

But this is by no means the end of the story, since I come finally to the plight of the unemployed, the poor and the homeless. They have found, I am afraid, no place in the gracious Speech, and I regret that. But economic policy is not just about the conduct of the economy. The most reverend Primate reminded us of that yesterday. It is a sad day, for those of us who were brought up in an older tradition, when the disadvantaged in our society are forgotten, as they largely are today.

Now I recognise that this is an unfashionable thought. Attitudes have changed, not just here but throughout the European Community, and perhaps in the United States as well. The "haves" are no longer prepared to make sacrifices for the "have nots". In the recent elections in Italy, for example, the rich North refused to continue paying for the poor South. In Germany, wage earners in the public sector, and now in the private sector, have shown that they are not prepared to see their standard of living reduced in order to raise the standard of living of their poorer brothers and sisters in the East. In France, the redistributive policies of the present government are demonstrably unpopular.

The consequences of this change in attitude are difficult for some of us to grasp—I admit that—but we must be prepared to face up to them, because in the rest of Europe the consequences have been, and are, the emergence of parties of the extreme Right; of Monsieur Le Pen, of neo-Nazis in Germany or the Lombard Alliance in Italy. In the United States, the Californian underclass, who are now wholly outside the political process, which they believe has nothing to offer them, has simply put Los Angeles to the torch. None of us can afford to ignore these developments, because they may be nearer to us than we think. As far as the Government are concerned, they will have to do what they can within the context of the already rather tired ideology set out in the gracious Speech and elsewhere. As far as we are concerned, our task is to speak for those who have lost out over the years, or who have never had a chance in the first place.

But I should not like noble Lords opposite to think that we shall be so introspective about developing policies that they will have an easy ride. Far from it. Each Minister will be tested, if necessary to destruction. As far as concerns the Government's economic policies, let me finally put our position beyond doubt. We believe that they do nothing to respond to the situation in which they themselves have left us, that they will not work, but will end in failure and conflict within the Government themselves. They will bear down not only on the disadvantaged in society but in the end against society itself. Against that, my Lords, we shall fight with all the energy and vigour at our command.

3.49 p.m.

Lord Rodgers of Quarry Bank

My Lords, I hope that it is not impertinent of me, as I am a new Member of the House, to join the noble Lord, Lord Williams of Elvel, in expressing my own good wishes to an even newer Member—the Lord Privy Seal. Our paths have crossed and re-crossed over many years, but I think that this is the first time that we have found ourselves speaking in the same debate.

I hope that the Lord Privy Seal will not mind if I tell the House that I first met him at Fabian weekend and summer schools in the 1950s. To save him any embarrassment, I should say that he always made clear that he was an agnostic on ideological matters and that he enjoyed listening to the arguments and reaching his own personal conclusions. Despite some of his chosen political bedfellows since that time, I am sure that he has been a benign influence on the Government. To put it at its least, things would have been worse had he not been there. I know that he will listen to everything that is said in the House and that sometimes what is said will change his mind and perhaps even change the Government's mind.

I have already apologised to the Lord Privy Seal for the fact that I must absent myself from the House in the early evening. Greatly to my regret, I am co-host in a professional capacity to a reception for new Members of another place which is taking place outside the Palace of Westminster. I am afraid that it is a duty that I cannot escape.

I have long assumed that the gracious Speech was kept on computer in the Cabinet Office, ready for minor amendment at each opening of Parliament. There is always a reference, as there was on this occasion, to the North Atlantic Treaty Organisation, to Britain's nuclear deterrent, to the United Nations and to the Commonwealth. There is always a state visit where the name of the Sultan of Brunei is interchangeable with that of the President of Kenya. But even on economic policy the computer record has required little amendment, at least since the late 1970s. I shall now quote what I might call the standard text for this Government: My Government will give priority in economic policy to controlling inflation through the pursuit of firm fiscal and monetary policies. By reducing the burden of direct taxation and restricting the claims of the public sector on the nation's resources they will start to restore incentives, encourage efficiency and create a climate in which commerce and industry can flourish. In this way they will lay a secure basis for investment, productivity and increased employment in all parts of the United Kingdom. For those who are hard of hearing, that might sound quite like the Queen's Speech of 1992. In fact, it was the Queen's Speech of 1979; but the sentiments and many of the words, are the same. Before the noble Lord rises to say that that similarity shows a remarkable and welcome consistency of government from the early days of Mrs. Thatcher to the new era of the common man, I should say that I am quite ready to concede the point. Indeed, I would go further and at least approve of some of the consistency. It was certainly right in 1979 to be concerned about inflation, which had reached 27 per cent. under the previous government, and it is right now.

Despite a self-induced bumpy ride in the early 1980s, with government policy pushing inflation well into double figures, core inflation is now below 4 per cent. and, with the help of the ERM and the Government's commitment in the gracious Speech to the convergence criteria of the Maastricht Treaty, it is likely to stay there. That is a good thing. An obsession to push inflation down to the levels of, say, the 1950s or zero whatever the cost—and here I agree with the noble Lord, Lord Williams—would be an error. But inflation as low as 3 per cent. has everything to commend it.

Similarly, it was obviously right in 1979—and it is right now—to encourage industrial efficiency, although the word as distinct from the idea did not occur in the gracious Speech this time. Productivity has risen over the past decade and British industry as a whole is better managed, although, I should say, not as a result of the extravagant salaries that top executives are currently paying themselves. We also benefited from the examples of working practices and standards set by much incoming investment, including that from Japan. I hope that standards will continue to rise. If that happens, British industry should be better placed to compete in the world.

However, I do not think that I can completely follow the complacent and, if I may be forgiven for saying so, bland account given by the noble Baroness. I say that because although there have been very considerable achievements there has also been an obverse side. As the House knows, there is the current level of unemployment. I shall say no more about that: the record is plain to see. There are the continued failures in training—an issue to which the House will perhaps turn later today. There is also the decline in Britain's manufacturing base and a short-termism in British industry which puts instant rewards for shareholders well ahead of investment in research and development. That is a powerful indictment of much of what has been neglected over 13 years. Those are matters that the Government must address in the next three to four years, assuming that that is roughly the period of this Parliament.

At this point I should like to ask the Lord Privy Seal about the role of the President of the Board of Trade. I agree with the noble Lord, Lord Williams, although not necessarily with his conclusions, that the appointment of Mr. Heseltine as president may in fact mark a new age. However, I should like to discover whether that is indeed the case. The distinctive title of President of the Board of Trade was needlessly abolished in the 1970s at a time when modernising Whitehall to produce monster conglomerate departments was all the rage. But I believe that there are still seven Members of the House who were once Presidents of the Board of Trade. So it was at least a good formula for a long life in public affairs. From that point of view, and from others, I am happy to see the title revived.

But—I address this question to the Lord Privy Seal —has the title been revived to please the personal vanity of the new incumbent? It is possible that "vanity" is too strong a word, but is it an award in acknowledgment of his seniority or has something of substance occurred? May we expect the title to disappear again when Mr. Heseltine moves on in two or three years' time, or will it be bestowed on his successor?

As the House knows, the department was once responsible for shipping and civil aviation, but that has long since changed. Tourism also seems to have gone elsewhere—perhaps to National Heritage. There were further changes during the peregrinations through government of the noble Lord, Lord Young of Graffham, who is to speak shortly, with small businesses disappearing to the Department of Employment. Then there was the creation of executive agencies—10 of them at the last count—distancing former parts of the department from proper accountability. Overall, the DTI has increasingly looked like a public relations and marketing organisation, sometimes promoting a pretty empty product.

Now there are to be further changes in the department's responsibilities. Back come small businesses, together with the core functions of the Lord Privy Seal's old Department of Energy. But out go the inner-city task forces and, more significantly, the responsibility for the oversight and regulation of the financial services sector. What is the logic of those changes? I hope that the Lord Privy Seal will be able to tell us. I am not necessarily saying that they are wrong, but Prime Ministers should not tamper with the structure of Whitehall just to please individual Cabinet colleagues or for the presentational advantages of change.

But we need to ask a further and more fundamental question about the role of the Department of Trade and Industry under a new president. What is to be its role at the policy making level in government? Once upon a time the department—that is, the old pre-1970 Board of Trade—identified with industry and represented its views to government. It tried to get government to adopt policies that were helpful to industry. That was true even during the times of great Permanent Secretaries like Sir Frank Lee, who was plainly an enthusiast for what was called free enterprise.

There is a serious case for the President of the Board of Trade being a powerful, alternative voice in Cabinet on economic policy, with his opinion called for as often as that of the Chancellor of the Exchequer. Inevitably, the Chancellor of the Exchequer takes a short-term view of the economy, but the President of the Board of Trade should have a longer perspective. As we all know, the new president had some interesting ideas on that during what we must call his wilderness years. He was in favour of a strong, interventionist Department of Industry. Has he abandoned his ideas, or has he persuaded the Prime Minister to adopt them in appointing him to his new office?

The noble Lords, Lord Callaghan, Lord Roll of Ipsden and Lord Croham, among others, would be relieved to know that I am not advocating the re-creation of the Department of Economic Affairs (the office of the First Secretary, George Brown) which lived in creative tension with the Treasury in the middle of the 1960s, although as a junior Minister I enjoyed those noisy times. Nor do I suggest that there should be a written concordat between the Chancellor and the President, adjudicated by the Prime Minister, as happened in 1964.

However, I believe that the country would benefit if the President of the Board of Trade became a powerful voice for industry, with a strong department behind him and worked positively with industry to improve investment in research, innovation and design. Above all, industry needs economic stability, but there is much that can be done to help at the micro-level too.

As for the current economic situation, I hope, as the noble Baroness suggested, that the recession is coming to an end. But the Government should certainly not be carried away by over-confidence into believing that that is so. Apart from unemployment and the misery and waste in human resources involved, the signals we are receiving are mixed, as indeed the noble Baroness said, and mixed signals on the prospect of recovery should be treated cautiously.

We have had some more optimistic forecasts from the CBI, which are welcome. Earlier this week it also talked about the prospect for small companies. But if one reads the small print recovery is fragile and very finely balanced. Small companies can still expect to shed jobs, and although 28 per cent. of small businesses are optimistic about the future, 18 per cent. are less optimistic. The motor industry reports improved sales, but the construction industry remains immensely gloomy.

On a previous occasion I have referred in the House to unemployment and gross underemployment among architects. But all professions in the construction industry are affected. The Royal Institution of Chartered Surveyors has recently concluded that the hopes of a recovery have been dashed. The National Council of Building Material Producers has said that the recovery is expected to be slower than anticipated. The Building Employers' Confederation has said that there is still no sign of renewed growth in output. Although there are some suggestions that house-building is picking up, the signs here are contradictory too. And so in one major industry, and there are others, the outlook is still bleak and we must therefore, for that very reason, be cautious about assuming that recovery is safely on its way.

It would be churlish at the beginning of a new Parliament not to wish the Government well in their central economic policies, given that growth without inflation will remain their aim. At least we all have an interest in the Government doing a great deal better in the next five years than they did in the last. With good economic management—and the Chancellor's job is the most difficult job in government—it is possible, given the stabilising influence of convergence within the European Community, that we shall achieve a growth rate of 2.5 per cent. to 3 per cent. over the lifetime of this Government. The question will then be —and this is the overarching question for the whole of economic and fiscal policy—whether we shall see the reduction of direct taxation as the single, obsessive philosophy of the Government. I can only say that I hope not.

Mr. Mellor is now in charge of the Department of National Heritage. I understand, although it is not specifically mentioned in the gracious Speech, that he is also in charge of the national lottery. It may well be that because Mr. Mellor is an able and restless man that he is the next candidate to succeed as Chancellor of the Exchequer. I hope that if he does so he will not take the national lottery with him and we shall find that instead of sports and the arts—which are very worthy recipients of the proceeds of the national lottery—we shall find education, health, housing and, goodness knows, perhaps the infrastructure subsidised out of the national lottery as well.

As I have said, this is an overarching question. If Britain does become prosperous, if we do achieve a high level of growth, if inflation remains at its present levels or lower and if we do give economic and political leadership in Europe, what then shall we do with the product of our success? That is not a question which I can pursue today, but I hope that we shall be able to return to it on some future occasion.

4.5 p.m.

Lord Flowers

My Lords, I have followed the noble Lord, Lord Rodgers of Quarry Bank, on several matters in the past. Indeed, there was nothing in what he has just said that I could not follow today. Instead, I venture to intervene in this debate on economic affairs to draw attention to the importance of research and development in the process of industrial renewal, which underlies the increasing productivity of which the noble Baroness spoke in her opening speech.

I shall do so briefly, because it is only a few months ago that your Lordships were good enough to debate a recent report of the Select Committee on Science and Technology entitled Innovation in Manufacturing Industry, already referred to by the noble Lord, Lord Williams of Elvel.

Under the experienced chairmanship of the noble Viscount, Lord Caldecote, our report called for a campaign, to convert the country to the realisation that manufacturing industry is vital to our well-being as a trading nation". We denounced short-term attitudes towards industry, especially those of business leaders who prefer to uphold the dividend rather than to invest in the future Of the company through innovation. Here I do indeed follow the noble Lord, Lord Rodgers. We demanded a change of attitude towards industry on the part of education, the financial community and the Government, and we wanted a much higher proportion of companies to invest in innovation, as the best undoubtedly do. As the Fellowship of Engineering has since concluded from its study of 11 successful British companies: Any company which neglects to invest consistently in its people, and in its products and manufacturing technology, will ultimately fail, or fall victim to one of its more enlightened competitors". Soon after our report was published, Mr. Peter Lilley, then Secretary of State for Trade and Industry, began to speak publicly about the importance of industrial innovation in a manner hitherto neglected for a very long time by Her Majesty's Ministers. That was very welcome, even if Mr. Lilley did reject most of our specific recommendations. I shall be glad to hear from the Lord Privy Seal when he replies that the Government will now be prepared to look at these recommendations again. I, too, welcome him to the leadership of this House and I look forward to his speech at the end of this debate.

Nobody wants any longer to substitute public handouts for industrial competitiveness any more than does the noble Baroness. Nevertheless, some additional assistance with the risky and long-term processes of innovation does seem justified, so that British industry faces no greater difficulty in this respect than its competitors abroad. I welcome the words of the noble Baroness in this respect. We argued in our report for some additional assistance, so I shall not recall our specific recommendations here, especially since the noble Viscount, Lord Caldecote, may well wish to do so when he speaks a little later on.

Since then, however, Sir John Fairclough, the former Chief Scientific Adviser to the Government, has proposed the creation of an umbrella organisation for technological research along the lines of the famous and highly successful Fraunhofer Institute in Germany. That might be an acceptable vehicle to carry the particular form of public intervention we were seeking, and I warmly welcome his proposal.

I hope that Mr. Michael Heseltine, whose appointment as the new Secretary of State and President of the Board of Trade I greatly welcome, believing him to be the right man for the job at this time, will follow up that suggestion with his customary vigour. I shall be grateful if the Minster would bring it to her right honourable friend's attention. The Select Committee, when it is reconstituted—if it is reconstituted, I suppose I should say, until, as one hopes, that happens next week—may also wish to look at that proposal and at what the Government propose to do about it.

I welcome also the creation within the Cabinet Office of the new Office of Science and Technology, to he led by the Chief Scientific Adviser under the ministerial direction of Mr. William Waldegrave as Chancellor of the Duchy of Lancaster. I applaud that, for I have confidence in Mr. Waldegrave and I wish him well. From the beginning, your Lordships' committee has pressed for science to be represented within government by a Minister of Cabinet rank. Now we have it, and I believe that we should all be grateful for it, although no doubt we should like to have a sharper perception of Mr. Waldegrave's duties in that respect. To what extent, for example, will he have oversight of the research activities of other government departments or industry? In particular, I understand that he is to represent us at meetings of the science Ministers of the European Community. How far will his remit in that respect extend'? It is early days, I know, but I should be grateful for any elucidation the Lord Privy Seal can provide.

But the research councils will certainly be under Mr. Waldegrave's wing in the Cabinet Office, where there also resides the top advisory body in the field, the Advisory Council for Science and Technology (ACOST) and also the Science and Technology Secretariat; so they will be at the very heart of government, where they once were when the noble and learned Lord, Lord Hailsham, was Minister for Science—long, long ago—and on the whole it was a good arrangement.

The research councils, as your Lordships are well aware, are responsible for basic research of a long-term nature. However, without basic research a sustainable programme of industrial innovation would not be possible. As Ludwig Mond once put it: The steady methodical investigation of national phenomena is the foundation of industrial progress". I should therefore expect that the new, central position within government of the research councils will be of immense benefit to all concerned with industrial innovation.

Of course it will be necessary to build and maintain links with other departments, just as there were links between the former masters, the Department of Education and Science, and the customer departments such as Trade and Industry, Environment and Health. That is also a matter in which the Select Committee retains an abiding interest. One new link, however, will be required, and that is with higher education through the Department of Education, now shorn of its responsibilities for the performance of the research councils. The link between the research councils and higher education is manifestly of immense importance in a system that places most of our basic research in the universities.

Why, then, do I welcome the fact that the research councils are no longer responsible to a Secretary of State for Education and Science? It is merely because for many years there has not been a Secretary of State who was interested in both education and science. There was therefore little link in practice between the two.

It was your Lordships' committee that pointed out about this time last year that the Advisory Board for the Research Councils (ABRC) and the Universities Funding Council (UFC), both then responsible to the Department of Education and Science, seldom spoke together, while the department itself never even sought to add up the sums each allocated for research under the dual funding regime to see how the total varied over the years and so came to false conclusions about the prosperity of British science. Now that research councils are responsible to one Minister and universities to another, it will be necessary to build a formal link between the two—one that can be monitored externally by your Lordships' committee, among others. The matter can no longer be avoided, or hidden in departmental practices, nor should it be. I hope that the Lord Privy Seal will confirm that the Government have it in mind to build such a link.

One final point, and I am done. I thank your Lordships for your patience. During the latter period of the previous Government, it was acknowledged practice for the Prime Minister to chair the Science and Technology Committee of the Cabinet, the body —so one is given to understand—that attempts to co-ordinate research and development policy across the whole of governmental activity in the interests of the national economy. In some fashion, science and technology are nowadays to be found in almost every department and agency of government, so that differing tendencies of policy and practice are only to be expected. If ministerial heads have occasionally to be metaphorically knocked together—sometimes physically, I should not wonder—then the advantage of the Prime Minister's retaining that particular hold on the system is very great indeed.

If, in his reply, the Lord Privy Seal can assure me that that is indeed the Prime Minister's intention, I shall be greatly comforted. The potential contribution of science and technology to the renewal of British industry is great and pervasive. It should be properly reflected in the organisation of government.

4.18 p.m.

Lord Young of Graffham

My Lords, perhaps I may start by welcoming and congratulating my noble friend on her contribution to this afternoon's debate. I knew her well in her former life. I am grateful to her for all the help she gave me from the MSC years onwards and I look forward to hearing from her on many occasions in the future. I am glad that she drew attention to the great contribution the car industry will make to our balance of payments. Respectable academic work has it that in five to six years' time we shall be exporting 500,000 cars a year, which will make a substantial difference and, I suspect, change the whole profile of our balance of payments. But, in congratulating my noble friend, I fear that I must have some feeling of disappointment, because I have been waiting for many years to congratulate the noble Lord, Lord Williams of Elvel, and my hopes have been dashed once again.

I should have let the noble Lord know, since I am the holder of the current record in the DTI—two years, one month and one week—that I join with him in hoping that my right honourable friend the President of the Board of Trade will, in the fullness of time, break my record. How much difference that makes, I am not too sure since I should point out to your Lordships' House that the current record of MITI in Japan is even shorter. The Japanese have had an even greater number of changes of equivalents, without apparently affecting the export potential of Japanese industry.

I fear, however, that my right honourable friend the President will not break my record if he follows all the advice given him today by the noble Lord, Lord Williams of Elvel. It seems to me that a short-term increase in exports of manufactured goods to countries which, in the end, cannot pay for them is not the right way to see the rebuilding of British industry. We must look with great caution at the way in which the international export of manufactured goods is financed. There have been many mistakes by all countries over the past few years.

I welcome the noble Lord, Lord Rodgers, having heard him today for the first time. However, I fear that I must disappoint him. The office of the President of the Board of Trade was not abolished. I was President of the Board of Trade, as were my predecessors and successors. I do not know why they did not use the name, but I must tell the House that it seemed to me that the title of "President" sat ill in your Lordships' House.

I am glad that since 9th April a great feeling of confidence has spread across our land and we have seen the economy begin to respond. If the figures of Mercury—and here I declare an interest—are to be an indicator, then the economy started to lift up in the first week of January. However, clearly this change does not yet apply to all parts of the economy.

Are we set fair for the future? This very much depends on what happens during the remainder of this year. I see two main impediments to our recovery. First, as has already been mentioned, the GATT Round must be completed. This is nothing new; in the debate on the loyal Address last year, it was a matter of great anxiety. I thought then that we only had a matter of weeks in which to agree the round, but so far we have been lucky.

Its importance cannot in any way be overestimated. A recent OECD report said that the completion of the round would bring with it an increase of £110 billion in world trade, including services, during the remainder of the decade. Only last month, presidents Bush and Delors met and agreed on the need for an early conclusion to the round and happily rejected any notion of postponement of the round until after the November election in the United States.

However, alas!, any agreement on the round depends upon parties not at that meeting. Until France is willing to bite the bullet on agriculture, I suspect that we shall not get an agreement. If we do not get it, then I do not believe we should forget what happened last time. In 1930 we saw the outbreak of a trade war that I believe led directly to the hostilities of World War II. What we do not want to see is any breakdown in negotiations leading to a re-run of the Smoot-Hawley Tariff Bill of 1930. What we do not want to see is international trade declining by over 30 per cent. in three years, as it did then, and GDP declining even more.

However, it is not just a one issue negotiation, it is not just agriculture. The United States has an agenda of items on services and other matters that still have to be agreed. There is much work to be done during the next few weeks, for the two presidents agreed to settle the outstanding matters by the end of June. Let us hope that they succeed.

There is more than just GATT for the Government to worry about. In a few weeks' time we assume the presidency of the Community. Anxieties about employment and the economy were, I suspect, only partly alleviated by the result of the last election. My anxieties went far further than the punitive and enterprise eliminating taxes that the Labour Party then wanted to introduce. Those could be repealed in time and some of the damage repaired.

My anxieties were far greater for they could not be repaired in time. The Labour Party undertook to accede to the Social Chapter as one of their early actions on gaining office. Happily, that disaster was averted, but the danger has not passed. Therefore, my second worry is about Europe. I believe that it is about time that the considerable differences in attitudes and laws between us and our partners in Europe were properly ventilated and understood.

I do not believe that I have to prove my credentials as a dedicated European. I believe that our future is in Europe and is part of Europe. But at the same time, let us not forget the great gulf that separates us from our partners—a gulf far wider than the English Channel. English common law—that great jewel of nearly a 1,000 years of our heritage—is a permissive system. Basically, anything can be allowed until the law forbids it. It was the evolution of that legal system 250 years ago that facilitated the creation of the first industrial revolution in the world. It allowed the limited liability of companies in time. It allowed for the structure of partnerships. When 50 years later that was happening, along came Napoleon Bonaparte who was not so much the great general, the great conqueror or the great emperor as the great regulator. Under the Code Napoléon, simply put, everything is forbidden until it is permitted.

Therefore, we see the spirit of much of the legislation and many of the directives that come from Brussels going away from our tradition. When we look at the code concerning, for example, employment protection for part-time workers, the limitation on the number of hours in the working week and all the regulatory paraphernalia that is alien to our tradition, I suspect that it would have an entirely different effect on our tradition compared with the effect it would have across the water.

Thus I believe that we must look with great seriousness at this, for our recovery over the next decade will be checked and halted if we find too many of these impediments at work.

Finally, I wish to congratulate my right honourable friend David Mellor on becoming the Secretary of State for the new department of National Heritage. As well as broadcasting, sport and the arts, it includes tourism. Tourism has long been the forgotten part of our economy. Back in 1985, your Lordships' House showed me great indulgence when, as Minister without Portfolio, I brought your Lordships' House a paper: Pleasure, Leisure and Jobs. It drew attention to the virtues of tourism and to the help it has long been to our economy. It provides at least £25 billion in help to our economy, and no fewer than 1.4 million jobs. That is 7 per cent. of all employment in the country, and that employment grew by 25 per cent. between 1981 and 1991.

I have little doubt that this new department will play a considerable part in the life of our nation. Matters like the future of the BBC will occupy acres of newsprint and many man-years of programme time on television over the life of this Parliament. The new lottery and the help that it will give to the arts—and I must mention the Royal Opera House—and to sport will be at the forefront of our interests. But I very much hope that we shall not forget the claims of tourism, for this is the first time for many years that we have not had a separate Minister for Tourism. I hope that we can have one again. It is that type of industry —a very competitive industry at that—that will provide the employment of the future.

Thus, with these caveats, I look forward to the economy continuing to grow over the remainder of the decade. I look forward to it continuing to grow with a secure political framework, with inflation within bounds and with the Government carrying out a proven programme that will add to the lives of all the citizens of this country.

4.28 p.m.

Lord Houghton of Sowerby

My Lords, this debate has started on a high level of economic analysis and criticism of the Government's economic policy. I must do my best to keep it there. First, I must say that it is becoming increasingly evident to me that the electorate went through the election in blinkers as regards the economic difficulties and perils of Britain and Europe.

We are at the beginning of a new Parliament. The electorate has reached a conclusion about the kind of government it wants and we are here to work with it or against it or to co-operate as much as we can in furthering the policies that the Government have chosen and with which we can agree. There is no longer any ideological divide between the parties so there is no socialist answer to any of the matters that confront the country today. That means that all parties now occupy more or less common ground on economic analysis and on policies which relate to the economy and which have probably a solution in terms which could be common to all, if we could only find them.

I believe that we are all full of admiration for the competent analysis given by my noble friend Lord Williams of Elvel. I do not think I have heard anything quite as comprehensive and lucid before from our Front Bench or any Front Bench. His analysis constitutes a good programme of work and attention for Parliament in the near future, but all of it has to be fitted in to our position in Europe. I am afraid that that fact must be impressed upon the country all the time in the days to come.

I see the noble Lord, Lord Cockfield, is in his place. He made one of his notable speeches only last Thursday on a subject which we shall have to go over thoroughly and time and again in the next few years. What does it mean? For an explanation we only have to go back to the events of last Saturday during the informal meeting of finance and economic Ministers, with the governors of the central banks in attendance, that was held at Oporto in Portugal. That meeting set an agenda with which we have to comply.

I have the full report of the meeting as far as it is available and I believe that it is taken from the Wall Street Journal. That article states that the consensus at the meeting rejected the French pressure for easement of interest rates and the easement of restraints on expenditure as part of the economic policy of the Community countries. The consensus went against the French and much discussion took place particularly with regard to the difficulties of Germany. If we wish to consider our economic difficulties, we need look no further than the position in Germany at the present time. Germany is undergoing a virtual revolution of the policies it has followed with great success for a long time. It looks as if the Germans are no longer willing to submit to the disciplines and restraints that they have imposed upon themselves for so long to secure the recovery of Germany and the reunification of Germany without inflation. They are desperately anxious to avoid inflation. We know that from the experiences of German history going way back.

Two matters arose from the meeting held last Saturday. A co-ordinated lowering of interest rates was rejected and a co-ordinated easing of spending restraints was also rejected. Those at the meeting concentrated on the possibility that the enormous cost of reunification in Germany and the present unrest there might lead to an intensification of the German policy of borrowing to spend to meet the increasing strain that reunification is imposing on the German economy. That undertaking is beyond the grasp of people in this country. They cannot comprehend what is involved in that process or the sacrifices that are made by the West Germans to enable the reunification of their country to take place. How astonishing it is that after 70 years of communism and all that was regarded as possible and welcome under that system we find a country that from a modern technological point of view is virtually a scrapyard. From our point of view there is nothing there but a bag of nuts. In those circumstances Germany has much to overcome.

The Ministers at the meeting said that while they are against short-term fixes they are very much in favour of a policy of long-term development of stable prices and economic growth. However, they are not prepared to risk price stability as the price of economic growth. They want something more permanent and more lasting than might otherwise be the case.

I think therefore that we have to fit all that my noble friend said into the consensus policy that the Community economic and finance Ministers arrived at as recently as last Saturday. Within that framework there may be much that we can do to strengthen our own economy. We ought to identify those measures, study them and try to act upon them. But if we cannot do that we must either alter the consensus or we must break it and that would involve untold calamity as regards the position of Britain in relation to Europe and the rest of the world.

We must go along now with Europe and influence its consensus policies and our part in them. What is so deplorable is that Britain's relationship with the Community is so unsatisfactory, so unenthusiastic and so withdrawn that we have sacrificed our claim to leadership. It may be that what we have to do is to import into our place in the Community a stronger force of leadership. We shall reach an agreement on the Maastricht document shortly when the Bill comes before us later in this Session. We shall see then what the attitude of both Houses is towards this inevitable step forward.

We also have to face the single market in 1993. What will be the competitive position of much of British industry next year when the tariffs and the barriers are down and we are in a freely competitive position in Europe? Those are the problems that face us today. For my own part I shall study my noble friend's speech in detail to see what falls within our capacity to develop within the framework of economic policy which has been agreed so far by the Ministers concerned. That is the job we have to do. We could do a great deal to help if we were to go over that ground carefully. However, it means that lowering interest rates will not be part of the strategy in the immediate future. The small reduction in interest rates announced the other day of one-half of 1 per cent. had nothing to do with us. That announcement concerned the fact that the deutschmark had weakened under the stresses of Western Germany due to the problem of wages and economic freedom.

The Irish Government, the French Government and the British Government took advantage of the temporary weakness of the deutschmark to reduce our interest rates by one-half of 1 per cent. That is how it stands. But it was dependent on the exchange rate of the deutschmark. The German economy and its rate of exchange will certainly be under very strong pressure for some years to come. The Germans have a very long haul in front of them if they are to retain their leading role in the economic policy of the Community. They are confident that, when they do recover, their spending capacity will depend much more on the savings of the German people than on borrowing on the international market.

That is my best effort made on the spur of the moment to try to sum up the situation as I see it. I emphasise again that we know what confronts us in the consensus of Ministers. That is the policy of the Community now. We cannot break away from it without upsetting the agreement reached. If we try to do so we may disturb the harmony and thereby the economic conditions under which we shall be free to do much good. We must see what we can do within the framework of our commitments to Europe which on more than economic grounds are of overriding importance. Within that framework we must try to strengthen our position.

There may be a good deal that we can do. Earlier I saw my noble friend Lord Varley who was Minister for Trade and Industry during the Labour Government, and I remember thinking that he went through that situation. We all went through it. What are we failing to deal with in British manufacturing? What is the degree of import penetration into our home manufacture? Who is displacing Britain in the markets of the world?

We hear about recession. A large part of the recession in the retail industry has taken place because people have been tightening their belts. Sometimes it is a condition of economic recovery that consumer spending should be restricted. That upsets the retail industry. The retail trade and manufacturing industry in Britain are in pretty poor shape to meet any upsurge in demand by the public for the goods that have not been sought for the past 12 months or so. Freedom of choice is not there as it used to be. It is on that basis that we must work.

We need constructive legislation from this Parliament. We must do our best to achieve it—otherwise, we fail the people. This is no moment to prolong the mood of the general election with the disputations and the nonsense that was spoken in order to make political points. On that score this debate has begun well. Let us hope that it continues in that spirit.

Let us hear more from the captains of industry who have received their honours but who do not come to this Chamber and speak about their work. This House represents more of active industry than does the other place. Why then do not the leaders of industry come to tell the House of their experience, their desires and their needs? This House could give a lead on industrial policy if all those who are able to contribute to its work would do so. We can offer a Select Committee of the quality of the one on unemployment chaired by the noble Lord, Lord Aldington. We can find out where the nation is falling short, what can be done and what industry can do to respond to a demand for improved output and capacity. That is the challenge. I should like to see a firm understanding in this House before we finish the debate today that that work will go on.

4.44 p.m.

Lord Rees

The noble Lord, Lord Houghton, has had a long and very distinguished career. It gives a particular authority to his words that there is no longer an ideological divide and that in economic matters all parties occupy common ground. His words are music to my ears.

It is sometimes said—a depressing and rather facile view—that general elections change nothing. All too often the rhetoric remains the same, particularly if debates are resumed too soon and take place too often. There must be a time to digest the real changes of mood and consider what is possible and what is realistic. I dare remind the House that the country was perhaps best governed when the House rose between August and February. There was then a chance for cool reflection and unflustered administration.

I am particularly delighted to see in his seat on the Front Bench my noble friend the Lord Privy Seal. He contributed massively in the other place and I know that he will contribute here. With his great personal distinction and authority he told us that he intends to look at our working practices. Perhaps he will reflect a little on the suggestion that I presumed to make. I want to offer a few reflections on public expenditure and taxation so I am delighted that there are three former Chief Secretaries, including myself, in the Chamber. Perhaps that will give the debate a particular emphasis. I hope so.

It was evident that the very proper austerity, at least in public expenditure terms, of the last administration was relaxed a year or two before the general election. I shall not speculate at any length as to why that should have been the case. I leave others to analyse that rather melancholy situation. Let me say at once that I intend no criticism of the Ministry of Fun, as I believe it is generally called, although my right honourable friend who occupies the ministerial position in that Ministry may have some difficulty in marshalling his dispersed responsibilities.

My right honourable friend the Prime Minister emphasised that sound money is the true basis of good administration. I listened with some hesitation to his suggestion that inflation had been eliminated. I cannot quite remember whether it was he or some other public figure who used the word "licked." But particularly under an elective democracy inflation can never be eliminated. It must be a matter of continuing concern for all administrations of whatever complexion. Perhaps the noble Lord, Lord Barnett, who proposes to speak in this debate, will refresh our memories about the kind of problems faced by his administration in this field.

One can argue about how strict a discipline the exchange rate mechanism affords and whether the pound should be tied to a broad or narrow band. One can argue about the status and powers of the Bank of England or a European central bank. Certainly I would welcome a greater degree of autonomy for the Bank of England. Decisions in that field should not be too opaque.

But we must return again and again to the issue of levels of public expenditure. To my great regret, of late a facile formula has been adopted to the effect that public expenditure should reflect a fixed proportion of gross domestic product. That is fine when gross domestic product and tax revenues are increasing. When they are static or decreasing, quite a different series of policy options present themselves. Few governments have either the nerve or determination to decrease levels of public expenditure. Few indeed have the nerve or determination to hold them broadly stable in real terms, which was the formula to which I attempted, with not total success, to adhere when I had some slight responsibility in that field.

The new Chief Secretary has a hard task. I wish him well. I am sure that, having known him since his more youthful days when he was a political adviser in the Treasury, he will acquit himself with distinction. He may be tempted to try some small public expenditure initiative in the summer. He may recall, as I certainly do, a similar attempt in June or July 1983. I remind him with regret that there are enormous practical difficulties in making mid-year adjustments. However, it may be correct to send the right chill message to the spending departments before the true public expenditure round gets under way. It will of course be for the Prime Minister to disabuse spending Ministers of their belief—all too often encouraged by the Civil Service—that their careers depend on achieving a greater share of public expenditure for their departments.

I hope too that our debates and those in another place will puncture the fallacy that many problems —in education, health or housing for instance—are soluble by increasing infusions of public money and that however large the share of budget achieved for them, there must be still more. Even if that achieves some episcopal respectability, there is an underlying fallacy.

Few reputations have been made by concern for the cost effectiveness of public expenditure in any field. All too few voices are raised to commend effectiveness and to condemn profligacy. I hope that in our debates, and perhaps through our Select Committees, we shall consider the effective expenditure of public money more often than the overall amount.

I turn briefly to taxation. I hope that the general election has at least demonstrated—in this I am on common ground I hope with the noble Lord, Lord Houghton of Sowerby —that the politics of envy which have disfigured post-war politics now pay few electoral dividends. There is now a time and place for rational debate on taxation policy. I applaud the continuing reduction of direct taxation achieved by past administrations. But I recognise that further cuts must be made prudently and consistently with what I have ventured to say about public expenditure. I recognise that it may be some years before substantial reductions in rates or thresholds in income tax may prove possible.

However, I believe that there is scope for some imaginative measures in some areas. The yields of inheritance tax and capital gains tax are modest. According to the Red Book, published in March, they yield barely over £1 billion in each case. Those are two possible areas of reform that are not costly.

A majority of our fellow countrymen believe in the creation and transmission of private capital. Against that background I believe that the rates of inheritance tax are still too high (and the starting points too low). I approve very much the special relief for farming and businesses which the Chancellor of the Exchequer foreshadowed in his March Budget. They are to be applauded. However, I suggest that the general thresholds and rates for inheritance tax must be lowered. It is impossible now to pass on a house in almost any area of London without being charged tax. Some noble Lords may see that as not an entirely typical situation. But few of the council houses which have been purchased by their occupants under the previous administration can be passed on to the next generation without a charge to inheritance tax. That will bring home to a broad sector of our fellow countrymen that the tax is in need of reform.

I now turn to capital gains tax. Again, the yield is barely over £1 billion. I believe that it is in need of radical reform. One considerable error of the previous administration was the assimilation of capital gains to income for tax purposes. There was no wide consultation about that measure so far as I am aware. It was not foreshadowed in any previous Conservative manifesto. Capital gains tax is complex and expensive to administer for both the Inland Revenue and the private taxpayer and his advisers. I suggest diffidently two solutions: either the charge should be tapered to take account of the time that an asset has been held; or, if the Government wish to sharpen still more acutely the distinction between speculation and long-held investment, we should revert to the short-term gains tax which was introduced by the late Lord Selwyn-Lloyd —for which I believe he received all too little applause —and we should abolish the current system of capital gains tax for long term gains.

I finish as I began. I believe that when the results of the election have been digested, they should lead to a change in the rhetoric with which we have analysed and debated those issues. We may at last shed the attitudes of the 1970s, 1950s or even 1930s that have for far too long and far too often made our debates in this field sterile and unilluminating.

4.57 p.m.

Lord Ardwick

My Lords, the economic situation in the merry month of May seems to be pretty well the same as it was in sweetly showered April. Is the recession lifting or is it still rigid? The answer that one gives to that question depends less on concrete evidence than on one's hopes or fears. We must be content to wait and see.

I see little point in rehearsing today the economic arguments designed for the election but deployed for many months before that event. It is too soon. With that I agree wholly with the noble Lord, Lord Rees. However, I thought that the remainder of his speech was deeply regrettable. For anyone to talk about the politics of envy when there is a whole underclass, perhaps 10 per cent. of the people, living below the poverty standard is not acceptable.

We shall have to come back to the arguments that we used in the election. However, today it will be more useful if we look beyond the present and examine the long-term problem. On our side of the House, we have to face the bitter reality that we lost the election to a failed Government that had been in power for 13 years. We have to face the bitter truth that we who were in office in the 1940s, 1960s and 1970s have no hope of getting back into power until the second half of the 1990s.

The economic situation and all its problems is at the heart of our dilemma. The dismay on the Left is of course excessive. Last year the pundits were saying that it would be an electoral miracle if the Labour Party won enough seats to give it a majority in the House of Commons. In the event we were pretty far from that. But we reduced the overall Tory majority to 21; and the prize would have been denied them if Labour had been successful in a dozen narrow marginals.

Why then the gloom on the Left, the self reproaches, the fervid search for the causes of defeat? The answer is of course the opinion polls. We listened to false prophets and they built up false hopes, indeed false certainties, not only in us but also in the newspapers and even in those hard-bitten officials who have to prepare offices and policies for an overnight change in their masters.

I am one of those who finds it difficult to believe that if during the next four years Labour adapts itself as radically as it has during the past four years to our changing economic and social conditions we shall not he capable of beating the Conservatives. The difficulty is to see Labour forming a government with a confident majority over the whole of the rest of the House. That lesson is plain and unpalatable to people who, like me, are cradle socialists.

The best hope that Labour has of fulfilling its historic role of providing Britain with an alternative government is to find friends who can share immediately relevant ideas about the economy and the social fabric that it supports. In our half-world on the Left ecumenical ideas are already being bravely floated. And while we are into these churchly phrases perhaps we might say that we are in not for a decade but for a quinquennium of political evangelism.

But there are great difficulties and already the resistance has begun. The mood is expressed in the cynical American ballad sung I believe by the Wobblies. The noble Earl, Lord Gowrie, could have confirmed that had he been present. The ballad expresses what some of my old comrades are now saying. It is: Now the old time religion is good enough for me, Twas good enough for Jesus when he walked upon the sea, Twas good enough for Daniel when in the lions' den, So surely to God it's good enough for honest working men". So it may well be, but is it good enough for a modern electorate trying to distance itself from the hardships of the past and to forget the romantic political struggle?

This Tory Government have not been elected on a wave of love and gratitude. Better the devil they knew, many people thought, than to risk a change. They are not convinced Tories. It was of course Labour which created the welfare state on the base courageously provided by Lloyd George and his fellow Liberals at the beginning of the century. But, sadly, we have known for long that the welfare state, once achieved, undermines by its beneficence the radical forces which brought it into being. Its gifts seem to young people, even to middle-aged people, not to be the fruit of political effort but to be as natural and God-given as the air that they breathe.

One of the great questions before the people of this country is how much welfare they want. What kind of welfare? How much are they willing to pay for it? How is it to be distributed; selectively, universally or by a discreet mixture of the two? The difficulty is that money for welfare must be raised by taxation and most of that taxation is paid for by ordinary people, by the average struggling family, and not just be a well-to-do minority. As the election made clear it will be difficult to obtain their consent to any increase in state welfare which depends on raising their tax rates either now or in the future.

John Galbraith, with his brilliant gift of encapsulating social truth in an unforgettable phrase, has written a new book on what he calls "the culture of contentment". In the United States the top 20 per cent. of taxpayers will not vote for increased welfare. And progressive politicians in their turn fear to ask them to do so. The affluent 20 per cent. are determined voters. Most of those who need welfare do not vote at all. Only 50.1 per cent. of the electorate went to the polls at the previous presidential election. At the previous congressional election the figure had fallen to 33.4 per cent. The Americans may think again after Los Angeles. There the social effect of a rich nation neglecting its inner cities is plain for all to see. Yet the tragedy could still have what the technicians call a "displacement effect". It could cause America to think anew. A displacement effect is most clearly seen whenever we have a war.

Galbraith's arguments cannot however be transferred en bloc to Britain. Our vote last month was 77 per cent. of the electorate, which was commendable. But we can profit from Galbraith's insights. To many people in Britain the contentment which many Americans have enjoyed for several generations is comparatively new and rather fragile. I suspect that many people share my bewilderment at the consequence of years of inflation. We have no idea what a plumber will ask or should ask. We do not know what to give a beggar or a grandchild. We do not begin to understand how much people receive in social security payments or what are the arcane qualifications for entitlement. As for the educational system, even the teachers are lost.

Our standard of living is much higher than that of recent generations but it is still a dodgy affluence sustained by hope rather than by solid savings. Of course, it is particularly vulnerable at this moment of deep recession. We may own a home but the mortgage is killing us. We may have an array of technology in the kitchen but at any moment the washing machine may pack up just as the television is on the blink or the car must face the dreaded consequences of the MOT. Such incidents may mock one's plans and aspirations.

So there is no margin for increased tax rates. The only hope of increasing state expenditure must come from an expanding economy which provides an expanding yield of taxation without putting up the tax rates. And we shall be in great need of that extra yield, even if we do not obtain the dreamed-of but still illusory peace dividend.

We have such heavy demands on public funds. We have to do more for the very poor and homeless. We have to rebuild the inner cities where most of them live and hope to work. We must repair the social provisions of schools, hospitals and prisons. We need to spend a lot more on education and we must look to our infrastructure; our roads, railways, harbours and rivers. Added to all that are the problems of the environment.

The Government see clearly enough the enormity of the national burdens. They see that only as the recession fades away, as production increases and more people return to work, will they be able to carry out their tax cuts. Yet the truth remains that the electoral dividends of a tax-cutting government are national losses looked at from another angle.

We can hope for growth but that will not be easy to obtain. We all saw clearly that it is possible to stimulate growth artificially in a single country. It was hoped that the European arrangements would permit a joint search for growth. Unfortunately, as was said by the noble Lord, Lord Houghton, all that for the moment is frustrated by the problems of Germany and we do not know how long it will take for Germany to solve them.

I believe that the heart of the political battle in the next decade will be the creation of wealth and how it can be used in the best interests of the nation. Those of us who are left of centre must concern ourselves with the pursuit of economic efficiency in order to attain the humane, aesthetic and spiritual objectives of a civilised society.

5.10 p.m.

Lord Sanderson of Bowden

My Lords, I begin by apologising to the House because I must leave the Palace of Westminster between 6.30 and 7.30 p.m. but I hope to return in time to hear my noble friend the Leader of the House wind up this very important debate.

Yesterday we were privileged to hear the most inspiring speech from the noble Lord, Lord Rix, in which, in reference to caring for the mentally handicapped, he said (at col. 250 of Hansard): "Today we have to provide". Today we are debating the means by which we are able to provide—that is, wealth creation, for if we are unable to maximise our ability to create wealth, then all else fails.

I wish to speak today about the Scottish economy. That economy is central to the health of our nation (dare I say the United Kingdom?) and I believe it was centre stage as people made up their minds at the general election on 9th April. We do not need to gaze at the crystal when we can read the book. The Scottish economy has undergone a remarkable transition in recent years from being an overmanned and heavy industry-based economy to a high productivity, high-tech industry, which is export-orientated with a strong and diversified base. As a result, it is infinitely more capable of withstanding economic downturns than in years gone by. That has been proved true in the recent international recession when, though the storm of recession has been raging in Scotland, as elsewhere, we are pulling through comparatively well.

However, there are siren voices, particularly in the Scottish Trades Union Congress, which have displayed a propensity to run down Scotland's economic successes. But, my Lords, what are the facts? Living standards, as measured by GDP per head, are at an all time high and are up 28 per cent. since 1981. Seasonally adjusted unemployment, for the first time in living memory, is lower than in the UK as a whole at 9.2 per cent. instead of 9.4 per cent. Productivity in manufacturing industry, so dear to our hearts and indeed those of the party opposite, is up 5.2 per cent. per annum during the 1980s, which is faster than in Japan and France. As regards small businesses, 24,800 have been created since 1980, which is a fairly substantial increase. Finally, inward investment planned in Scotland has totalled some £4.2 billion since 1981 creating and safeguarding over 80,000 jobs.

What is the present news from the front? As your Lordships may imagine, I do not believe every survey I read in the newspapers these days, particularly some Scottish newspapers. However, the latest quarterly report of business activity in Scotland published by the Sunday Times and Price Waterhouse pointed to increased business confidence. That is a hopeful sign that the recession is coming to an end. More than 50 per cent. of those firms polled said that prospects were better—and I refer to January to March of this year —and 36 per cent. report growth in their primary markets. Four in 10 firms said that they had delayed investment decisions until after the election. Significantly, more companies said they would increase employment rather than cut jobs. This week there is evidence of investment of £50 million by National Semiconductors in "Silicon Glen" in Greenock, creating 250 new jobs.

Against that background, I was amazed—and I dare say some of your Lordships were dismayed—to see the reports of the recent STUC annual conference in Perth. The proceedings were dominated by grandiose talk of constitutional change and multi-option referenda. There was not a lot about Scotland's economic prospects: the engine that drives the ship of state. It stated: Scotland desperately needs a radically new approach to policy making to tackle the widespread destruction of industries and communities. Their route is a full-blown tax-raising assembly with power to levy higher taxes on businesses and individuals in Scotland, much higher than elsewhere in the UK.

Without rehearsing all the obvious arguments against the concept of an interventionist tax-raising body, I find it extremely depressing that the STUC should continue to portray Scotland and its economy as an economy in decline. That is simply not true; and more important, it does infinite damage to future job prospects.

The STUC states: A Scottish tax raising parliament should have strategic economic powers and powers to plug the gaps in the economy". The noble Lord, Lord Williams of Elvel, who spoke extremely eloquently earlier in the debate, said that the Government's policy was inherently flawed; and he later mentioned bone crushing at the hands of the Treasury. I respectfully suggest to him that he uses his influence to bone crush some of the STUC dinosaurs.

Potential inward investors must wince at such statements. They are the people who matter, having invested over £4.2 billion of foreign investment in Scotland in the past 10 years. I say yes to pump priming by Scottish Enterprise and the Highlands and Islands Enterprise; but I say no to massive state intervention and direction. In my judgment, continued success is achieved by low tax, low inflation and lower interest rates combined with a highly skilled workforce, which we have, ever-better transport arrangements coupled with an excellent quality of life. I believe that that is a recipe for Scotland's success.

I now turn to two matters which I wish to draw to the attention of my noble friend the Leader of the House. First, as regards the harmonisation of business rates north and south of the Border, the noble Lord, Lord Taylor of Gryfe, mentioned yesterday the disparity between Scotland and England and that the gap is still wide. I know that the Government have spent considerable sums in recent years narrowing the gap. I ask that the gap be closed as quickly as possible. It will reap handsome rewards to my right honourable friend the Chancellor of the Exchequer if he agrees to that. High business rates in Scotland are a killer. They are far higher than many equivalent businesses in England; and that should stop, and stop as soon as possible.

Secondly, I turn to my noble friend on the Front Bench who has responsibility for small businesses. As someone who has recently helped a new company to he born—and I am happy to say it has started to flourish—I cannot speak highly enough of the business expansion scheme. It was not business expansion but business start-up. Far more than any pump priming grant from any government agency, I saw the use of such moneys give the firm concerned a chance to gain enough capital to survive in its early days, to avoid natural cash flow difficulties in its early days of trading, and above all, it ensured that as a business, it was not entirely dependent on its bank manager.

I must say to my noble friend that I do not believe, as claimed, that the scheme has outlived its usefulness. Perhaps the truth lies in that it is a complex scheme to administer in which case I say—and say very sincerely —that he should simplify it but not crucify it.

Finally, Scotland's economy is part—and I contend a vital part—of what has helped to put the word "great" into Great Britain. The unionist cause, of which the noble Lord, Lord Taylor of Gryfe, spoke yesterday, must not fail or all our hopes for a strong United Kingdom economy could be dashed.

I end with a quotation from our national bard: Be Britain still to Britain true Among oursels united For never but by British hands Maun Britain's wrangs be righted".

5.20 p.m.

Lord Benson

My Lords, I take as my theme a sentence from the report of your Lordships' Select Committee on Science and Technology in 1991 which stated, In the past, manufacturing industry has suffered from a perceived neglect by Government and from Government's indifference to the decline of our manufacturing base. This must now change". I enjoyed the buoyant optimism of the noble Baroness who opened the debate. But, alas, it did not seem to deal with that specific criticism from this House. This country's prosperity and the employment of its citizens ultimately depends on trade and industry and on no other factor. It is therefore astonishing that the words "trade", "industry", "commerce", "manufacturing", "employment" and "unemployment" did not appear in any part of the gracious Speech.

The facts are not in dispute. In the past 10 years good strides have been made in many directions. The country's attitude towards productivity in industry has improved enormously and that has been particularly noticed by investors from overseas. The best of our industry is equal to the best of anywhere in the world. All that is a matter for satisfaction. But it does not get down to the root of the problem which is that the great rump of our industry below the best is not satisfactory. The balance in our current account is adverse not in millions but in billions. The average standard of our productivity in manufacturing is below that of the United States, Germany, Japan, France and Italy. That is the core of the problem.

The Government are committed to a social charter. But above everything else we want an industrial charter. From the point of view of the prosperity of the country the difference between the two is as moonlight is to sunlight and as water is to wine. If we can find the great leadership that this country needs, the pay-off in a few years will be dramatic.

Let us consider what might be included in an industrial charter. Industry covers many sides—management, the workforce, the provision of capital, shareholders and the needs of the customers. What is needed above everything else is a massive new outlay in vocational and technical training in and for industry. That must be not only in the schools and universities but also in the long years thereafter. I suggest that that initiative should be targeted to certain specific objectives and I should like to suggest some of them.

The first is that our industry must be of a much more professional character than has existed in the past. The standards we must set for ourselves for that purpose are the highest international standards. Secondly, the best brains and the best talent of this country must be targeted into manufacturing industry. At present it is drifting away into the professions, the City and the service industries. There must be greater emphasis on the selection, training and deployment of the workforce. Financial information and management needs special emphasis and the deplorable inadequacies that we have seen in the past three or four years tell their own story. We must make better and quicker use of the new technologies which are being developed in every industry day over day. And last but by no means least, there must be better training of non-executive directors.

But those are only some of the features that are essential to remove the difficulties to which I referred. There are many others. Again and again this House has drawn attention to the need for new investment to improve our output. That can be partly achieved by the better education to which I referred but much can be done to encourage it by fiscal and other incentives. Both management and the workforce realise only too clearly that new investment often means a loss of manpower. But we must satisfy ourselves that that will be overcome by increased output, the maintenance of existing markets and the creation of new ones. The Luddite atmosphere must disappear.

Again and again this House has emphasised a much greater need for research and development, collaboration in research projects, dissemination throughout industry of new developments and partnership sourcing between customers and suppliers. The Government could set a tremendous example by the huge volume of their buying power. We want better management of capital. In recent years management has been profligate in raising extravagant loans with little thought to repayment. The banks have lent imprudently. We have been wasting a significant part of our stock of capital. The position of shareholders requires redefinition. Again and again our big industrial groups are broken up by means of takeover bids which result in extravagant borrowings that they have great difficulty in repaying. The result is that shares in companies are now regarded as counters to be traded in the bazaar rather than as the bedrock of our economy.

There is therefore no lack of material for inclusion in an industrial charter. But there is one crucial point. I believe I would be right in saying that a great many Members of this House who sit on the Benches on my left would be much opposed to intervention by the Government in the management of industry. I share that view. Government have neither the knowledge nor the skill to deal with it and we have suffered from that in the past.

But there is another side to that coin. It is the responsibility of government to watch our trade and industry at all times. If they find that a specific industry is failing by reason of effete management, or if the resources of industry are not willing or able to engage in new markets which will compete in the markets of the world, the Government must step in in some shape or form. Therefore, in drafting any charter, policy or strategy the difference between government meddling on the one side and government initiative on the other will require careful definition.

In the absence of an industrial strategy, in the absence of any clear directive or help in the gracious Speech, perhaps the noble Lord who is replying to the debate can help us and tell us precisely what the Government's policy is regarding the criticism I mentioned in relation to the decline in our manufacturing base.

5.28 p.m.

Lord Boyd-Carpenter

My Lords, as most noble Lords who have listened to the debate will agree, the subject matter of today's debate is infinitely the most important of the subjects which your Lordships' House has been discussing on the Queen's Speech. It is upon the successful handling of the problems of our economy that the solutions to all the other problems we have discussed—defence, social welfare, education and many others—depend. It is only if the economy is strong and profitable enough to sustain those activities that they will be successfully maintained.

Your Lordships will have listened, as I did, with great respect to the speech of the noble Lord, Lord Benson, who speaks with enormous authority on this subject. I, too, will be interested to hear what my noble friend the Leader of the House says in relation to some of his comments.

When I listened to the noble Lord, Lord Benson, I certainly was not wholly clear as to how many of the things which he indicated needed doing—and most of us agree that they do need doing—are matters which the government of the day should properly do or whether that government could serve those causes better by securing a general upturn in the economy and enabling industry and those who control it to do those things for themselves. There is obviously a difficult line of demarcation on which opinions may well differ. When one considers what the noble Lord has said, as I am sure we all wish to do, one must have in mind the very difficult question as to where one draws the line between what can best be done by government and what is best left to be managed by industry and those who control it.

When he opened this debate the noble Lord, Lord Williams of Elvel, indicated complete hostility to the Government's economic and industrial policies. Indeed he did: if he reads his own speech, which I am sure will give him great pleasure—perhaps if he has any difficulty with insomnia it will give him a great deal of pleasure—he will see that he did very much criticise the Government's policies. In the circumstances it is quite interesting and perhaps significant that for the first time for many years the Opposition have not put down an amendment involving a vote dealing with the general policy of the Government to be considered when the main Question is put tonight. It is quite interesting that the Opposition who believe, as he says, so strongly in criticism of the Government, have not followed what is the general practice when the Opposition are against the policies of the Government; namely, to force a vote, as is legitimate and proper, at the last stage.

I have one other point to put to the noble Lord, Lord Williams of Elvel. He said that the gracious Speech contained no reference to dealing with the problems of the very poor. If the noble Lord will look at the text he will see at the bottom of page three these words: My Government will continue to improve and modernise the social security system with sustained emphasis on those groups with the greatest need. Legislation will be introduced to maintain an additional rebate for holders of personal pensions aged 30 or over". In those circumstances it is quite unfair to suggest that the problems of the poorest are ignored in the gracious Speech. They are dealt with there with very practical proposals.

The problem with which we are concerned today is that of increasing the wealth of the country and the resources therefore available both for the Government arid individuals. During the past few months we have all listened to debates in which people concerned with different activities such as education, social services and scientific research, have all complained loudly and repeatedly that they are—and this is the key word—"underfunded". The suggestion all through is that all these activities could be carried on more effectively than at present if more funds were available.

Generally of course that is true. There are activities which would be very useful indeed if we were to increase the funds available. However, the dilemma which must be faced by those who are genuinely upset about the underfunding of activities in which they are interested is that if one is to increase the funding of such activities then one has to increase taxation to finance them. I very much agree with what the noble Lord, Lord Ardwick, said on this subject—that is to say, that it would be a great mistake to increase taxation for that purpose.

Where we are concerned with the creation of wealth, the level of taxation is extremely important. There is a point —where that point is exactly may well he a matter of controversy—at which increases in taxation diminish the creation of wealth. They take away the incentive, particularly for the higher earners, to exert themselves to increase their earnings. Increases in taxation also give an incentive to people of ability to work overseas in countries where they will retain all or a larger percentage of what they earn. Increased taxation also gives incentive to people who are retired or living on their own investments to withdraw to areas such as the Channel Islands or the Isle of Man where they are free from direct taxation.

As has been discovered in the past, particularly by governments of the Labour Party, if one increases taxation one very quickly learns through these consequences that one does not get an increased yield which is anything like in proportion. On the contrary, one diminishes the creation of the wealth on which everything depends. Some of your Lordships, and many people outside who are interested in good, worthy activities, seem to feel that if the money is not produced by the Treasury—for example, if the Chief Secretary to the Treasury, whoever he may be at the relevant time, refuses to increase the funds made available—he is merely sitting on a great pot of gold which could be raided perfectly well to support these worthy and excellent activities.

Of course the state as such has virtually no resources. The resources we are talking about are those obtained by taxation from the taxpayer. It is now only too clear that the raising of taxation, particularly direct taxation, has an adverse effect on the creation of wealth. Therefore I concede that it is the very difficult job of government to judge at what point taxation must be held lest one damages the economy and the sources of increasing wealth. That is the very big problem. There is very little doubt that it is the duty of government to resolve that problem courageously.

There seems little doubt that, as matters are now, with the increase in productivity of labour, and the increases in exports which have been reported in recent months, the economy is coming through the worst of the recession. It would be a fatal mistake to check that recovery by increasing taxation. Indeed there is almost everything to be said for decreasing taxation to quite a brave level because that is the best possible stimulus to the economy. If one stimulates the economy then over the years one is going to increase the revenues very much. In that way one obtains the means to finance and support the good causes which we all wish to see supported.

That is the main point which I wish to leave with my noble friend the Leader of the House. Perhaps I may add quickly two or three small, additional matters which I wish him to deal with. The first is the absurd state of the National Insurance scheme. In the days when I was responsible for it as Minister of Pensions and National Insurance, a job that I held longer than anybody else, national insurance was a true form of insurance. One paid a premium from one's salary or pay and, in that way, one earned a pension and other benefits. It was a true insurance scheme and was accepted by those who had to pay for it as very good value for money. However, it is now in an absurd state. Those on high earnings have to pay an enormous amount—9 per cent. of their earnings up to a considerable level. It is, in fact, additional taxation because that enormous contribution does not produce an increase in the pension benefits that are due.

Therefore, one of the things that I hope the Government will tackle is the transition that has taken place from the true insurance scheme, as contemplated by the late Lord Beveridge and as operated by a number of governments for a good many years, to the present scheme. I hope that the Government will tidy up what has ceased to be an insurance scheme because the premiums that are paid by someone on high earnings are now enormous and are not reflected by any increase in the pension above the graduated pension level to which we moved when I had responsibility for these matters.

The second matter on which I should be grateful if my noble friend the Lord Privy Seal would comment is the danger that is coming from Brussels of a move to impose a 48-hour limit on the working week. It is a bit of a cheat because, having been driven out of so-called social chapter or charter—I do not know whether it is a chapter or a charter because it is sometimes one and sometimes the other—that proposition is now being included as a health and safety proposal. However, it has nothing to do with health and safety. Some jobs could not conceivably be performed for anything like 48 hours a week, but others involve much less strain and people can and do work at them for many hours more than the 48 that are proposed. I refer, for example, to jobs that involve supervision of various processes or with readiness to deal with emergencies. It would be extremely damaging if that limitation were allowed to be imposed. I hope that my noble friend will say that Her Majesty's Government simply will not accept that proposal whatever M. Delors may say.

The final point that I wish to press most strongly is the question of what the Government are to do about the Uruguay round of the General Agreement on Tariffs and Trade. We have been told again and again that the failure to move ahead with the GATT talks will damage world trade, and especially the trade of this country which is so dependent on world trade. We know perfectly well that the main obstruction comes from France and from the unwillingness of the French to face the reductions in agricultural support that are necessary. They are aided and abetted in that by M. Delors—perhaps understandably in view of his own possible ambitions for the future.

Surely Her Majesty's Government, in discussions not only with European governments, but especially with the United States and the Commonwealth governments, will insist on making some progress. If we fail to do so, however effective the Government's domestic economic policies, they will not succeed as fully as they might because of the crippling of world trade. This is a matter of immense importance and, as has been emphasised again and again, it is very nearly too late. Therefore, I hope that my noble friend will be able to say that Her Majesty's Government will use their great power, and especially their influence as leaders of the European Community from the beginning of July, to insist on progress. It is a matter on which this country has a good record and our interests in it are enormous. It is necessary to take resolute and, if necessary, extremely unpopular action to get it right and to get world trade moving again, and I should have thought that that was the supreme objective of those responsible for economic policy in every country in the world.

5.45 p.m.

Lord McCarthy

My Lords, it seems to me that in some ways we would have been having a similar debate even if there had been a change of government. There would have been an equal—or perhaps more crowded—list of items in the gracious Speech. No doubt they would have been different items; but there would have been many of them. I have no doubt that most noble Lords would have complained about the things that had been left out of that gracious Speech. Indeed, they may have complained about the same things, such as there being nothing in the gracious Speech about an industrial charter, the GATT round or share reform.

However, I believe that one subject would have been included in a different gracious Speech which is not in this. It was mentioned by my noble friend Lord Williams of Elvel and by others on these Benches. I refer to the fact that there would have been something in such a gracious Speech about unemployment—or at least about employment. I may be wrong (and if I am, Hansard will show it), but I believe that the noble Lord, Lord Boyd-Carpenter, is in error because my noble friend Lord Williams of Elvel was stressing that there was no reference to unemployment in the gracious Speech—and, indeed, there is no reference in it to unemployment.

In that respect, the noble Lord, Lord Rodgers of Quarry Bank, was also wrong. He referred to and quoted from the gracious Speech of 1979. If one had listened to it carefully, one would have heard one sentence on unemployment. The Government promised to bring the figure down. Perhaps that is why a similar phrase does not occur in this year's gracious Speech.

The noble Baroness, Lady Denton of Wakefield, whom we welcome to her new position and whose speech was wide-ranging and persuasive, did not really correct that deficit. It is true that the noble Baroness mentioned unemployment and the trend in unemployment. She said that the Government were as concerned as we are about unemployment. I am glad to hear that being said from the Government side of the House. However, I understood her to say that she expected unemployment to get worse—or, at least, that she did not expect it to get better for some considerable time. As the noble Baroness explained what she thought were the much-delayed green shoots of recovery, it all seemed to be about the other side of the economic equation. It was about profits; the rewards for enterprise and about what she called "turbo-charged success". There was nothing about those who, for reasons that are not their fault, are excluded from the rewards of enterprise and from the green shoots of recovery and who see no sign of any "turbo-charged success".

Therefore, it is legitimate for us to ask why there was nothing in the gracious Speech on the economics of unemployment and why nothing has been said in this debate about what the Government propose to do to solve the economic problems of unemployment. I hope that the Government and the noble Lord the Privy Seal, who is to reply to the debate, will not say that the Government cannot say anything to us about unemployment because they do not give forecasts. If the noble Lord does not say that, it may well be because I have said that he will say it; but I hope that he will not because that is what the Government usually say. We do not ask MinistersߞI do not know why not—to give forecasts of unemployment figures because we know that they will not do it. The only reason that they give for not doing so is, "Because the Labour Government did not do it"; but that does not seem a sufficient reason to me. However, even if the Government will not do that, it is no reason why they should not make commitments on unemployment. It is no reason why they should not express their desire to do something about unemployment and to put it, if not in the gracious Speech, at least in the reply to tonight's debate.

As was said by the noble Lord, Lord Rodgers of Quarry Bank, the gracious Speech is full of statements that are not attached to forecasts, as is standard form. There are three modes; an active mode, a less active mode and a passive mode. For example, in the gracious Speech the Government enthusiastically and energetically seek to combat drug abuse. Why do they not say the same about unemployment, particularly long-term unemployment? They say that they will work to enhance the quality of life. Why not say that they will work to enhance the degree of job security? They say that they will strive to strengthen the United Nations, that they will aim to develop Western European union, and so on. In the less active mode, they will promote the free market; they will promote law and order; they will even promote the Welsh language. Why not say that they will promote, or seek to promote, or energetically seek to promote—a higher level of employment?

The second answer which the Government might give—I hope that we shall not have this answer, either —is that there is no need to say anything particular about the level of unemployment at the moment because it is self-correcting; it is about to get better and there is something built into the green shoots of recovery which will solve this problem for us. If the Government want us to accept that as an argument, I am afraid that we shall have to go through the grisly business of reciting just how bad it is.

We now admit to an unemployment rate of 9.4 per cent. Most people who job back to the figures as they used to be calculated would say that on that basis we have an unemployment level of 12.2 per cent., which is about where the level was in 1938. It is the highest rate of unemployment anywhere in the European Community except in two countries. It is the highest but three in the whole of the OECD. It is the most rapidly rising figure of all the countries in the OECD in the past three months. The figure has never been satisfactory since 1979. Its average rate has been 10 per cent. It has never fallen below 5.9 per cent. on an annual basis and it has never returned to the level it was in 1979. Therefore, looking at the seriousness of the problem, looking at the fact that the Minister has told us today that, even if the green shoots of recovery are just around the next bend, we shall continue to have unemployment rising for at least another 12 months, it is not enough to say that the employment situation is self-correcting. It has never been corrected. Even in the last recession, when the Government were doing far more than they are doing now in their job creation policies, when the Government were claiming —rightly, I believe—that they were taking three-quarters of a million people off the unemployment register, it was not self-correcting. It never fell below 5.9 per cent.

The third answer which the Government might give us—I respect this answer to a considerable extent—is that everything that the Labour Party is about to urge has been before the electorate and has been rejected by the electorate. The kind of positive policies for reducing unemployment which the Labour Party and the Liberal Democrat Party put before the electorate of a work programme, of releasing capital receipts from council house sales to stimulate the construction industry—we claimed that that would help the problem not cure it. The Government might say that all this had been put before the electorate and rejected. They might rightly say, "It is not for you at this time to tell us that we should adopt a rejected policy." I respect that argument.

My answer to it, however, is that their own policy —although this did not come through in the general election I do not blame them for not specifying it—for alleviating unemployment is very largely in ruins. Indeed it has largely been abandoned by the Government.

They closed down the community programme and relied upon employment training to carry out what was done by the community programme. It is now universally accepted that, if ET is to mean anything, and if the chairmen of the TECs are to be contained and pacified, more money must be spent on every trainee. If more money is not spent, ET will become a farce. I do not believe and the Government have not said—I should be very happy if they did—that they intend to spend more money on ET. They have not said that they will increase resources to help ET replace the community programme. Therefore I say that that strand of the Government's policy is a busted flush. But so is work fair. One third of the so-called volunteers for this scheme refused to go on it. The enterprise allowance scheme is also being rapidly run down. In the early 1980s—I give the Government full credit—they did a great deal in terms of special measures, although not as much as we would have wanted. But in terms of special measures today this Government have no policy.

What policy do they have? Their only policy is in the benefit offices and Jobcentres. They wish to solve the problem of unemployment by what they call "remotivation"; by changing the definition of the availability to work test; by fusing benefit and placement so as to cut the cost of administering the placement service, and make it more easy to discipline the recalcitrant long-term unemployed who are not sufficiently active in finding work. That is why the definition of availability to work has been changed; that is why workers have to have a wider area of job search; that is why they must endlessly seek and search; that is why we have seen the progressive erosion of the suitability test. Workers can no longer say that they are not suitable for certain work or that they do not normally do that work; they have to do the job that is offered to them. If they fail to satisfy these new tests, they fail to get clearance from the department, they fail to get unemployment benefit and they then go on to means-tested income support.

Moreover, this policy has been combined with the lowest unemployment insurance/earnings ratio in Europe and the lowest take-up rate for benefit. Nine-tenths of our unemployed workers are not on insurance based benefits—and yet our unemployment is still the highest in Europe and is still the fastest rising in the Western world.

The Government reject all alternative policies. The Government say that they feel for the unemployed but they do nothing for the unemployed. The Government are like the royal family in the Sleeping Princess. The fairy Carabosse has not been asked to the feast and when she comes she is an embarrassment. We all know what happened in the Sleeping Princess. The Government should beware.

5.58 p.m.

Lord Trefgarne

My Lords, I should like to make a brief intervention on industrial and commercial matters and in a moment offer some food for thought about what might emerge in due course from the Department of Trade and Industry under its new dispensation. It is a slightly unusual experience for me to be squeezed between the noble Lords, Lord McCarthy and Lord Hatch of Lusby. It is a little like a garibaldi biscuit. Be that as it may, I was a little disappointed by the speech of the noble Lord, Lord McCarthy. While he was quick to point out some of the current problems—many would agree with what he said—he did not have much in the way of solutions for them. Indeed most of the things that the noble Lord advocates—I know that he is a distinguished academic in these matters—have been tried at one time or another and have failed. I am afraid that the noble Lord will have to think of a new range of policies if he wants to generate any sympathy for them in this House.

Lord McCarthy

My Lords, the noble Lord must make up his mind: either I am not advocating anything, or I am advocating things that have been tried and have failed. He cannot have it both ways.

Lord Trefgarne

My Lords, the noble Lord did not advocate anything today; it was on previous occasions in your Lordships' House that he advocated a number of policies, often speaking from the Opposition Front Bench. Today we heard nothing of that kind but, assuming that he still adheres to his old policies, I am afraid I have to tell him that they do not work.

I very much welcome the appointment of my right honourable friend Mr. Heseltine as President of the Board of Trade. I want to say no word against his predecessors—namely, Mr. Ridley, Mr. Lilley—and less still against my noble friend Lord Young of Grafffiam. I believe that my right honourable friend Mr. Heseltine is just the man for the job at present, especially having regard to industry's rather delicate condition as it emerges from the recession. It is indeed, undoubtedly, just beginning to emerge from the recession as my noble friend Lady Denton was right and entitled to claim in her opening remarks.

During his speech, the noble Lord, Lord Williams of Elvel, complained about a lack of ministerial continuity in the Department of Trade and Industry. Of course, just a few weeks ago, the noble Lord and his noble, honourable and right honourable friends were seeking to destroy continuity not only in the DTI but also in every other department. Happily they did not succeed, but presumably the noble Lord welcomes the outcome of the election at least on that score.

Be that as it may, my right honourable friend Mr. Heseltine has been advertised as someone who will be a rather more interventionist Secretary of State, or president, than some of his predecessors. I think by the word "interventionist" most people may mean: spending more money. However, I doubt that my right honourable friend has that in mind. I have had the privilege of serving with him in a previous incarnation in the Ministry of Defence. I do not think that he can for a moment be regarded as a spendthrift; nor do I think that he would be allowed to be, even if he was. But my right honourable friend most certainly is a more "hands on" Secretary of State and a more "hands on" president. I believe that to be a good thing. I also very much welcome the continued appointment of my right honourable friend Mr. Sainsbury in the Department of Trade and Industry and not least the appointment of my noble friend Lady Denton.

What then of the future under that stalwart team? First, I should like to see a continued momentum towards the completion of the single European market which is supposed to be achieved by the end of this year. I hope that everything is on course and on track for that time. There is barely seven months to go now. When he replies, I hope that my noble friend the Lord Privy Seal will be able to confirm the Government's determination to achieve the targets in that programme and to attain the goals that have been set. If he has time, I hope that he will also be able to give us something of a progress report.

Perhaps the next most important task for Ministers in the DTI is to ensure, in the words of that very hackneyed cliche, that the playing field is properly level. Ministers in the past, including myself, have paid endless lip service to the need to maintain a level playing field with endless references to the shortcomings of others in achieving that desirable goal. We say how important it is for the French, the Germans, the Italians and the rest of them to comply, for example, with the various needs of the European Community directives, but we perhaps do a little less about achieving that level playing field than we do in talking about it.

I very much hope that Ministers will address their minds to ensuring that British companies are indeed competing on all fours with other European countries —and not only with other European countries but also with other countries in the rest of the world. An example of what I mean is to be found in the environmental field. There has recently been a stream of directives and regulations emanating from Brussels —and rightly so—about the need for industrial concerns to have the highest possible regard to environmental considerations. The foundry industry is a case in point. It has recently been subjected to a number of regulations in connection with the conduct of its business. It is not clear that European companies are being harried with the same vigour to comply with those directives as are British companies. Further, there are a number of foundry enterprises in the Far East which are most certainly not required to observe those directives but which are, nonetheless, competing with British foundries in a way which cannot be described as fair or reasonable.

I hope that the Government will take account of those difficulties. I am not suggesting that British firms should be subsidised or propped up in any way; but they must not be placed at a disadvantage by inadequate or unequal enforcement of the regulations in that kind of area. The market for British foundry products in this country has been subjected to competition to the extent of about 10 or 15 per cent. in recent months by overseas suppliers, especially those from the Far East. I am clear that the costs that those firms incur in producing their products are considerably less than those which UK firms rightly have to face.

I also hope that the Department of Trade and Industry will become a rather more vigorous champion of the needs of industry within Whitehall and Brussels; in other words, that it will argue the case rather more loudly and effectively than hitherto. There have been a few cases and, indeed, some of them will he well remembered by your Lordships; for example, the business of the export credit guarantees department where industry's case has, I think, not been argued with sufficient vigour either in the corridors of Whitehall or in those of Brussels.

With regard to ECGD, I must confess that I was somewhat apprehensive when we were putting its short-term business into the private sector a few months ago in your Lordships' House. I believe that my fears were largely misplaced. I think that the transition has gone through successfully. But the concerns that were expressed at that time about the future of medium-term export credit guarantees have been borne out. The truth is that British firms are even now finding themselves competing in markets where they, and they alone among their European competitors, do not have the benefit of medium-term cover from the state credit insurance organisation. Further, the rates that they are sometimes obliged to pay, in markets where there is cover available, are sometimes three times those that other countries have to pay to their credit insurance agencies. That can hardly be said to be competing on a level playing field.

There is also the problem of ATP (aid and trade provision). That ran out, rather unfortunately, at a point last year because not only had the 1991 allocation been spent but so, apparently, had the 1992 allocation. I can assure your Lordships that that problem does not afflict our French competitors. I very much hope that Ministers will look again at the problem.

For the DTI to discharge those roles effectively, I believe that it needs a better interface with industry. The reforms which were imposed upon the department two or three years ago have not been a great success. The truth is that in my judgment Ministers are not now adequately informed about the needs and concerns of industry largely because the lines of communication from industry to the DTI are not very clear. The department needs better communications, not least for statistics. It may be here that the trade associations can fulfil a useful role in garnering and marshalling trade statistics for the benefit of the department in a way which is not being done at present because of the lack of the necessary facilities and resources.

Speaking of trade associations—and I must declare an interest as president of one of the engineering trade associations—I read recently of my right honourable friend's plans to delegate to the CBI and to some Chambers of Commerce some of the activities of his department, particularly in some of the enterprise support schemes. I have nothing but admiration for both the Confederation of British Industry and some of the Chambers of Commerce, but I again believe that the trade associations are in many cases better placed than either of those bodies to deliver effective support schemes. For example, my own trade association now has the benefit of an export adviser who is particularly active in assisting small companies. I am pleased to say that that particular post is supported by the DTI—and very welcome that support is, too.

On the question of the promotion of exports I agree with the noble Lord, Lord Williams, that this is an area which needs special attention—and I apologise for keeping him, yet again, from his cup of tea.

I have referred already to the problems of ECGD and to ATP, but there are other areas of export support—for example, in mission and exhibition funding—which need to be addressed.

Finally, perhaps I may make a plea for manufacturing industry. I fear that in the past we, the Government, have perhaps not been sufficiently clear about the importance of manufacturing industry vis-à-vis the economy as a whole. I say "we" advisedly because I was certainly part of that ethos. The Government took the view in former times that the difference between service industries and manufacturing industry was not particularly important and that if manufacturing industry declined but service industry grew that was all very well. I am afraid that I do not now take that view. I now believe that manufacturing industry needs a shot in the arm. I was greatly encouraged recently when the CBI appeared to be taking a greater interest in this matter and set up the National Manufacturing Council. I very much welcome that.

Manufacturing is wealth creation in its purest sense. It is taking a piece of material, applying the skill of a man or a woman to it, and selling it for a much greater sum than the cost of the material. It is the very basis of our national wealth and our national life. It has declined as a proportion of our domestic product in recent years. I believe that that decline needs to be arrested and I believe that the Government need to address themselves to that point as a matter of considerable urgency.

I hope the points that I have raised will generate a certain amount of thought within the Department of Trade and Industry. I dare say we shall have an opportunity to discuss these matters again on future occasions.

6.13 p.m.

Lord Hatch of Lusby

My Lords, this debate is taking place within the bounds of what one might term the culture of growth; naturally so, because that is how we have all been brought up. As the noble Baroness quoted from the gracious Speech, the Government are pledged to maintain the conditions necessary for sustained growth. On all sides of the House there has been an assumption that the economic objective of this country should be to resume and, if possible, to increase growth.

I want to suggest that some of these assumptions should now be questioned and that we should examine the probable consequences of continuing along the lines to which we have been accustomed in looking, through economic terms, for growth. Crudely, growth means "more equals better". It is, of course, true that western European and North American capitalism over the past century and a half—and eastern European state capitalism more recently—has produced much higher material consumption and comfort, and better health and leisure activities. But at the same time it has also created much greater global inequalities. It has given us the most violent century in human history; a violence which is clearly and tragically still escalating. It is now a menace to human life on this planet. We have seen the gap widening between the rich and the poor. To give some rough national figures, last year directors and executives increased their salaries by 10 per cent., the workers by 7 per cent. and the 20 per cent. underclass were losing. Internationally, the difference between the world's rich and the world's poor is now estimated at about 150 per cent.

Twenty per cent. of the world's population is using 80 per cent. of the energy created, and the other 80 per cent. has to make do with 20 per cent. We have seen surpluses on the one hand and famine on the other. We are even seeing now the poor countries subsidising the rich as they did during the days of colonisation.

I have been speaking for two minutes. During that two minutes somewhere in the world 50 children have died from starvation. We have also seen that one of the most powerful industrial conglomerates throughout the western world—the manufacture of arms—has gone on increasing and appears to have become a staple of our industrial life.

The Government often claim that Britain is now at the centre of global affairs. I wonder what the Government are doing, if Britain is at the centre of world affairs, to meet these challenges to civilisation. Unfortunately, when one looks, for example, at overseas aid one sees that over the past 13 years overseas aid to the poor countries has been cut in half by this Government.

What then, are the probable, almost certain, consequences of pursuing the objective of economic growth? During the past two years—years of recession —carbon dioxide emissions in this country have increased by almost 2 per cent. That is during recession. What is going to happen to the level of emissions if we resume growth? What is going to happen to the pollution of the globe if industry gets into full gear again? We have been warned that this will mean a rise in sea levels resulting in the covering of shore areas and many islands in the world, with deforestation, a shift in agricultural production and the consequent mass movėment of population. There will be more and fiercer hurricanes, floods, droughts; and a consequent increase in cancer, glaucoma and tropical diseases. We cannot be certain, but we should observe that the scientists of the world today are virtually all agreed that these are the probable consequences of a pursuit of economic growth in the developed northern world.

What is the alternative? I suggest that we should at least consider—and I am only making suggestions for our consideration this afternoon—whether we have reached a point at which the objective of society in the developed world should be to maintain an equilibrium in material consumption; to put the quality of life before the quantity of goods.

We have reached a point of affluence which can sustain a rich and varied lifestyle. Is that not enough? It can be enough only if it is accompanied by a redistribution of wealth and by an effort to achieve sustainable development in those areas of the world at present suffering from poverty. I say "sustainable development", not "sustained", because "sustainable development", as defined by the Bruntland Commission, means that we shall develop without at the same time depriving future generations of the resources we are using. We shall leave to our children, grandchildren and great grandchildren the same opportunities for life that we have.

That will, of course, challenge some of the established assumptions of our life, not least within my own party. It means that we shall have to tackle the question of the burning of fossil fuels; in particular, of coal. The party has always had within its ranks the important community of miners. We shall have to spend money on cleanburn and on the transformation to combined heat and power. We can do that only in conjunction with the miners' union or there will be conflict between us.

We have to look at the subject of vehicles. The number of vehicles on our roads has increased by 42 per cent. since 1980. It is estimated that by 2025, with business as usual and as it is today, there will be a further increase of between 83 per cent. and 142 per cent., if we continue as we are. That is our "car culture", to use Mrs. Thatcher's words. We have then to look at the use of petroleum. It has been announced today that the European Community has been studying the question of a carbon tax. That is one alternative, but a carbon tax is almost inevitably a regressive measure. Another suggestion is that we should look at the development of a quota system with —let us not balk at the word—the rationing of petrol. That could be put into effect in a progressive as distinct from a regressive way. We must study the great menace of our lifetime of nuclear accidents and of the dangerous disposal of nuclear waste. We have, perhaps above all, to look at the possibilities that exist for greater energy efficiency and the promotion of renewables.

All those measures affect employment, as my noble friend Lord McCarthy pointed out. The issue of employment is one for a civilised society. Can we say that we have a civilised society when the number of unemployed is approaching 3 million—even on the Government's amended figures—and there is little doubt that that figure will rise above 3 million during the next 12 months? Some of the measures—many Greens will not face this—that I have been discussing on an environmental basis may lead, at least temporarily, to increased unemployment. We must face that fact. We are living in an age of automation. There will be losses as a result of a change in technological production. There will be, and should be, losses if we reduce our armaments, at least to the level of the rest of Europe, and use that expenditure for social purposes.

Instead of taking the conventional view that employment is inextricably linked to the production of profits, it should be looked at as a provider of social needs and not, as widely advertised, of luxuries. The objective of a civilised society should be a return to full employment, but that full employment cannot be the conventional form of employment to which we have become accustomed, for the reasons that I have outlined briefly.

There are different kinds of employment: there is the tedious, repetitive work and there is the satisfying work. It must be reasonable that those engaged in the dull, tedious work should work fewer hours than those engaged in satisfying work. We must look at methods of work sharing and at part-time work, without the exploitation to which many part-time workers are subjected today. There should be greater opportunities for more women to take part in employment, shorter hours—surely the objective of a civilised society—and longer holidays. We should get away from the old puritanical philosophy that hard work is a part of virtue.

Our people should have increased leisure and should be enabled, through our education system, to use that leisure constructively and creatively and in satisfying ways. That, of course, will necessitate close relationships, co-operation and partnership with the trade unions. It will also require the development of new forms of democratic decision-making at the national, regional and local level.

I recognise that that scenario is not as yet even on the political agenda in this country. I believe that it has begun to force itself onto that agenda. Before the end of the century, all political parties will be compelled to recognise the central importance of the issues that I have just been raising.

There are dangers which can never be removed by market forces or by the simple, primary pursuit of profits. It is that culture which has created the threats to our survival. At no time can we expect market forces or private capital industries, in this or any other country, to protect our environment if it threatens, as in many cases it will, the pursuit of profits.

Socialists still believe that greater freedom flows from the more equal distribution of wealth and power within the nation and throughout the globe. Those focal issues will be at the heart of the socialism that develops during the 1990s and into the 21st century.

6.30 p.m.

Lord Campbell of Alloway

My Lords, perhaps I may bring the debate back home and turn away from the most interesting world problems to which the noble Lord, Lord Hatch, referred in an authoritative speech. I wish to say a word about industrial relations in our own backyard which are perhaps especially relevant to the new industrial strategy for manufacturing industry, to which the noble Lord, Lord Benson, referred in a truly remarkable speech.

The gracious Speech proclaims the Government's intention to introduce a Bill further to improve industrial relations, to retain laws introduced by my right honourable friend Mrs. Margaret Thatcher and to build upon them. They are laws which, as my noble friend Lady Denton said, not only restore the health and wealth of our economy, but also restore the status of our nation, no less.

The contents of the improvement Bill are not yet known. Some of the Green Paper proposals which were published during my right honourable friend's tenure of office, as reflected in the manifesto, were debated in your Lordships' House shortly before the Dissolution of Parliament. They were much criticised by the Benches opposite.

It is not my purpose today to reopen that debate. The purpose of this speech is to suggest that far beyond the area of that debate, there is a measure of improvement of fundamental consequence. It is a measure to which no reference was made in the Green Paper, in the Citizen's Charter or in the manifesto. It involves the need to set up, in consultation with the TUC, machinery for the resolution of recognition disputes between the unions and employers and also between union and union. As my noble friend Lady Denton said, there is nothing wrong with our workforce. We have to create the right framework and recognition machinery is surely part of the right framework in a highly industrialised society such as ours.

I agree with the concept that, as the noble Lord, Lord Williams of Elvel, said, a debate about the economy is a debate about people. But I cannot agree with the way in which the noble Lord sought to analyse the true interests of the people, nor with the advice that he gave to the Government which I support. With respect to him, the creation of wealth is the true touchstone. Many noble Lords have dealt with this aspect: the noble Lord, Lord Ardwick, and my noble friends Lord Sanderson of Bowden, Lord Boyd-Carpenter and others.

Although we return to this Chamber to speak from the same places, could it be that the body politic, in a short interval of time, has assumed a new form and that already we have entered upon a new dimension —that is, a dimension in which militants may no longer misuse trade unions as an instrument of subversion; a dimension in which the unions can no longer control the Labour Party and the Labour Party can no longer control the unions? It may be a new dimension in which no government other than a government of the middle ground would be acceptable to the electorate. Could it be that, with the reaffirmation of a stable government, seen as such both at home and abroad, dedicated to leading us out of the recession and committed to governing according to constitutional usage under the Queen in Parliament, militant and class-fed party politics have suffered a painless evolutionary eclipse?

If not, then why does the Labour Party, in the belated wake of the initiative of the so-called Gang of Four, reach out for that middle ground with or without the help of the other party that already stands upon it? If so, then what changes in the law on industrial relations are to reflect that shift to the middle ground? The requisite improvement of vital consequence is to set up machinery for the resolution of recognition disputes. Some such machinery is essential if collective bargaining is to fulfil its true potential: to make that substantial contribution which only the unions can make to the economy.

The importance of that contribution has been acknowledged by the pre-strike postal ballot proposal in the Green Paper which ensures, on analysis, that when collective bargaining breaks down strike action —the weapon of last resort—is wielded not by or at the behest of the unions but at the behest of the members of the unions.

Collective bargaining is a coin minted by Beatrice Webb, the obverse of which is recognition. It is the status emblem of the trade union movement now that so many of its welfare activities have been subsumed by the state. Remember, if you will, the Ford fiasco not so long ago where a single union agreement could not be made, with the lost economic advantages and the disastrous consequences on unemployment.

That type of agreement and the no-strike clause agreements are now the order of the day. The machinery is essential if we are to fulfil the requisite support for the new industrial strategy in the manufacturing industry of the noble Lord, Lord Benson.

It is also relevant to point out that without recognition machinery there can be no collective bargaining on industry-wide agreements or workplace agreements on pay or conditions of work, which include health and safety. Without such agreements, it is difficult to achieve predictability on prices, deliveries and unit costs which include the costs of labour and profits, all of which elements in predictability are relevant to the attraction of investment and the creation of employment. On health and safety at work —I add this as a mere postscript—there are some disturbing findings, which noble Lords on all sides of the House will remember, in the Cullen Report as regards the absence of any recognition machinery.

The problem of recognition in context with collective agreements is far from new. It was considered by the Appellate Committee of your Lordships' House in the case of Stratford v. Lindley in 1965 (in fact the dispute arose in 1964) not for the first time, and it was also considered in the Donovan Report of 1968. I remind your Lordships and particularly noble Lords on the other side of the House that in about 1970 in the wake of In Place of Strife the Labour Government drafted an industrial relations Bill which included some rather cumbersome and complex machinery for the resolution of recognition disputes. However, it worked. With the fall of the Labour Government the Heath Administration introduced the Industrial Relations Act and took over that machinery lock, stock and barrel. However, it was operated by the National Industrial Relations Court.

As the noble Baroness, Lady Turner of Camden, would agree, those provisions worked fairly well, to her knowledge—albeit in times of tension which no longer exist today—to the broad satisfaction of both unions and employers. Her personal note on trade union recognition published by the Institute of Employment Rights in which she made reference to the introduction of, a new fair legislative framework commands serious attention and respect.

In conclusion I would say that times have changed and that the mood of this country has changed with the times. My right honourable friend the Prime Minister has established a new ethos and a new style of government. Surely the reintroduction of such machinery is ripe for reappraisal. Perhaps consultations could ensue with the TUC and perhaps an ad hoc Select Committee of your Lordships' House could be set up to take evidence and to consider the need for legislation and the form which such legislation should take. I speak with faith in the cause which I espouse. I hope that it may commend itself to your Lordships and to my noble friend the Leader of the House as at least worthy of consideration.

6.44 p.m.

Lord Selsdon

My Lords, last night I was wondering why I was to have the privilege of speaking from these Benches rather than from the Benches opposite. Was it because of the success of the previous Government's economic policies or was it because of the fear of the economic policies of the parties opposite? I worried about those concepts as neither of them were really true. It did not make sense to me that an eminent Member of the Labour Party was accusing my party of having raised taxation more than anyone else in history and yet at the same time the electorate were fearful that he intended to raise taxation more than anyone else in history.

Although many of us from these Benches have warned the Government over time about some aspects of their economic policies, they have not listened too carefully and I concluded that they had not been altogether perfect. Obviously these thoughts caused me considerable anxiety as I tossed and turned all night and this morning I woke up with a trapped nerve which is the most painful thing one can ever have. I would not wish that ailment on any of your Lordships. Therefore I may not speak as coherently and fluently as I would wish as a result of that ailment.

In trying to be optimistic I came to the conclusion that to have a trapped nerve for a few weeks or a few months was far better than the cold, sad agony of the longest recession that any of us have ever known or may ever know again. I wondered whether there were signs of optimism. As regards the recession I feel that the Government have done what governments over time have always done, that is, too little, too late. They have not listened soon enough, pretended they have listened and thought backwards. When I thought about the question of taxation and the move from the public sector to the private sector I wondered whether there could be such a phenomenon as a private sector tax that had been by chance introduced.

In playing around with a few figures such as mortgage rates, interest rates and house prices I came to the conclusion that there had been a capital tax on the nation equivalent to 25 per cent. of its wealth and that that wealth had been wiped out by the decline in house values and rising interest rates. I wondered also whether there had been any taxation at the highest level. When one talks of £1 billion or more one comes to the conclusion that a loss is equivalent to tax. I considered the losses suffered by Lloyd's of London. I should like to return to that subject at a later date as some £1 billion or more has been lost at Lloyd's.

I came to the conclusion therefore that the private sector was infinitely more capable than the public sector of taxing people. I thought that we should start with a clean sheet today. I do not believe that one can ever get away from the terms of the past, that is reflate arid deflate. Those were the terms that I was taught. Somehow people have tried to forget those terms and they have talked about inflation or various money supply actions. There sometimes might be a need for reflation but the most deflationary aspect of all must occur when interest rates are more than twice the real rate of inflation. I for one have felt more confidence in our country than have the Government. I see no reason why we should not seek to reduce interest rates so that they would always be no more than twice the rate of inflation. They could easily come down to 6 or 7 per cent. by the end of this year. Governments and politicians think that when interest rates are reduced the pound will fall, but the pound is as strong as it has been for many years. They express surprise at that fact. There are other countries with lower interest rates. We can look to the United States for example.

I shall return to the basis of our own economy. The noble Lord, Lord Benson, and others have talked about this. The basis of our own economy is and always has been trade. That does not mean the retail trade; it means trade throughout all aspects of society where added value is created. Previous governments —when I refer to those governments I am going back a long time—have always attached more importance to trade than have the governments of today. The recognition by the Government of today that the President of the Board of Trade is an important person is correct. He always was an important person. He was entitled to fly a flag upon his car. That is not a question of vanity.

I remember once, as I slowly climbed the ladder of trade, that I received a letter asking me to join a body that I thought was the Board of Trade. I discovered, however, that it was the overseas trade board. I did not understand the difference between those two bodies and I became more confused when I visited the Middle East with one of the short-term Secretaries of State for trade when the Head of State there paid me the great compliment of asking how long the Secretary of State concerned had been my secretary and whether that situation was going to continue.

I would like to know a little more about the Board of Trade or the overseas trade board. During a brief interval I went to the Printed Paper Office to ask whether I could be given a list of those members of the Board of Trade over whom the president of the Board of Trade would preside. Unfortunately such a list was not available and I went to the Library. I should have thought that when a government announce an appointment they might announce the people who are members of the body concerned. It seems that that is difficult to do. But the department of Trade and Industry is a good department. I have a great affection for it. There are some very competent people there.

I telephoned the head of personnel. He said, "No problem". He pulled a book off the shelf—he thought that I was applying for a job. Basically he said to me, "The President of the Board of Trade has with him, under Order in Council dated 1786, the most reverend Primate the Archbishop of Canterbury, the First Lord Commissioner of the Treasury, the Chancellor and Under-Treasurer at the Exchequer, the First Lord Commissioner of the Admiralty, the Speaker of the House of Commons, the Chancellor of the Duchy of Lancaster, the Paymaster or Paymaster General of HM Forces, the Treasurer of Her Majesty's Navy, the Master of Her Majesty's Mint and Her Majesty's Principal Secretaries of State." There is no mention at all of my noble friend the Lord Privy Seal. That means that your Lordships are not represented on the Board of Trade.

However, there was one member of the staff. It was one necessary woman—my noble friend Lady Denton will appreciate that. She was paid the princely sum of £50 a year. She was not so much the necessary woman as the woman in charge of necessary matters. That may appear lighthearted but I do not see why we have a body which brings together all the ingredients that are needed to give strength to a department and do not recognise it.

Therefore I should like to ask my noble friend whether he would tell the House who are the members of the Board of Trade and what are its functions. It last met in 1986 to celebrate its 200th anniversary. It has not met since. Mr. Churchill was very much in favour of it. It was also Mr. Churchill who invented the export credit mechanism which worked with considerable success until such time as the Government decided that trade was unimportant and that those concerned with trade should only be invited to lunch with rather rare overseas Ministers from fairly small countries.

The lifeblood of this nation has been and always will be trade. There were moments when we were not competitive. Today we are competitive again. Whether or not we cite extracts from various manifestos, productivity has gone up; and even with sterling at present levels, we are as competitive as anyone in the world.

I do not like the term "level playing field". One might say that I was fortunate enough to go to private schools which had appalling sports facilities. We never had a level playing field. It went up and down. And since the wind blew in one direction, it was the British who started the business of tossing to choose which way one would play. There is and has always been a role for government in trade. That is made manifest by the charter of trade of Charles II. I commend it to your Lordships to read. Among other things it says that we shall protect our trade upon the seas upon our lawful occasions. The terminology is very true and good.

There is a role for government and the Government should look at it carefully. If at the moment that role is to assist in the financing of trade, regrettable though it may be, so be it. If that role is to protect trade within GATT or the Uruguay Round, that is important. But it is wrong to say that government wish to step back and leave a free-for-all, but wrong because we cannot compete in prices. The term "source"—noble Lords will have heard it—begins to come in. Companies are emerging all over Europe and the term goes round. It is said, "We shall not source from the United Kingdom because it is better to source from Italy, France or Germany, where the terms of credit may be better".

There is hope. If we are to have a revitalised Board of Trade, I for one will support it. If the flag is to fly with pride around the corridors of Whitehall and there is a committee giving support for trade, which can overtake even the strength of the Cabinet, then I approve. The signs are not bad. Economies turn when foreigners start to get interested. Post-1974 or 1981 investments were beginning to come in from abroad. They are now coming from the East. There are people looking around to buy shares in manufacturing industry because they believe that they are cheap. There are now foreigners—or internationals—who look towards us first, and we look to them. I am, despite my trapped nerve, which will go away soon, more optimistic than I have been for many months.

6.55 p.m.

Lord Harris of High Cross

My Lords, the speech of the noble Lord, Lord Selsdon, is one of the rare pieces which we might all wish had lasted twice as long. Another welcome feature of the debate is the participation on the Tory side of no fewer than four powerful Ministers in this House only a few years ago. To judge by the performance of the noble Lords, Lord Young and Lord Trefgarne (with the noble Lord, Lord Skelmersdale, and the noble Earl, Lord Gowrie, to come), it seems that there is no sign of them becoming extinct volcanoes.

After we have expressed our formal thanks to Her Majesty for the gracious Speech, it might fall at least to me to spare some well-earned thanks to another lady who is shortly, it is said, to be joining us. The noble Lord, Lord Houghton, referred to what he called the narrowing or even closing of the ideological divide. I wonder whether we can doubt that the courageous example and policies of Margaret Thatcher have been a major—perhaps the major—influence in teaching the Labour Party to discard the more virulent manifestations of socialism, of which we had just an echo from the noble Lord, Lord Hatch.

Although the Labour Party's welcome moderation did not quite prevail in the general election, I suspect that most occupants of the Opposition Bench, might, at least privately, feel some consolation at being reprieved from execution, if not from protracted disembowelment at the hands of their friends in another place. If that is a little provocative, I now venture one observation from the Cross-Benches which might be unanimously endorsed in this House, in another place and indeed widely throughout the land. I would assert that even among the Tory faithful no one can be wholly content with every single aspect of the gracious Speech. How could it be otherwise? All would prefer that some measures had been dropped and others perhaps included. From that truism, I shall later attempt to draw rather large deductions.

First, I want to offer my own quick balance sheet of debits and credits on the gracious Speech. At the outset, I find it easier to welcome the prospect of completing and extending the European single market than to accept the Maastricht Treaty, with so much centralisation and politicisation that works in a precisely contrary direction. Still on Europe, I strongly endorse continued pressure against the common agricultural policy in the interests of GATT. But I am totally unable to accept that the exchange rate mechanism should continue to stop significant cuts in domestic rates of interest.

I turn closer to home and find it easier to support the inclusion in the gracious Speech of a further Bill to improve industrial relations than to understand the omission of a Bill to repeal the wages councils. On a national lottery, I suffer from the rare and troublesome affliction of an open mind. But unlike the noble Lord, Lord Rodgers, I am very worried indeed about the link with subsidising national culture and sport. I fear that for my money the amiable opera-loving soccer fan, David Mellor, as the so-called Minister of Fun, looks too anxious to buy popularity with artistic and sporting elites by subsidising what I regard as strictly other people's fun.

On housing, I await further and better particulars of the promise to improve the rights of local authority tenants. I hope that others will stand ready to join in opposing any further threatened measures of leasehold enfranchisement, which generally portends what a friend of mine has termed a market in stolen property rights.

Finally, I strongly welcome the pledge to reform social security towards those in greatest need, so long as it means a decisive shift from indiscriminate to selective benefits. We must heed the American warnings against creating an underclass dependent on automatic state subsidies. Indeed, we should work towards encouraging self-help by phasing out unconditional benefits for able-bodied people and ending the taxation of low incomes.

So much for my own modest evaluation of what I would call Her Majesty's Government's menu for the coming year. Others will assess the mixture of dishes somewhat differently. Indeed, it is central to my indictment that no two assessments are likely to be the same. The trouble with all political menus is that citizens cannot pick and choose. Ministers serve up often unsavoury recipes and force the rest of us to swallow them whole and pay through the nose.

I invite your Lordships to compare this travesty of so-called representative democracy with the miracle of direct democracy in competitive markets. It was the late Lord Robbins on these Benches who used to rhapsodize about the economic market as a "perpetual referendum". In plain truth, markets enable consumers to vote every day with their pennies and pounds, between dozens or hundreds of menus, each for countless thousands of goods and services to match every conceivable taste.

The difference between the political and the economic market is the contrast between table d'hôte and à la carte. Mr. Paddy Ashdown has persuaded himself that liberalism comprises nothing more than progressive taxation plus proportional representation. He scorns any electoral outcome that is supported by less than 51 per cent. of voters. Yet not only would his magic 51 per cent. individually favour different policy mixes; they would still have to impose the whole programme on the other 49 per cent. There is no conceivable electoral reform that can match the market in catering sensitively for minorities. The snag about political table d'hôte is that all of us have to endure a great deal of forced feeding on dishes that we would never have bought with our own money.

The neglected boon of the competitive market which I have long upheld is the freedom of choice associated with à la carte. Put simply, you do not have to eat, much less to finance, other people's tripe and onions. Of course, for essential services, and for handicapped people who cannot flourish in free markets, a mixture of selective income support and health and education vouchers is far more democratic than universal "free" services. Who would deny that luncheon vouchers are better than state soup kitchens, whether run by Labour, Tory or Liberal Democrat chefs?

My conclusion is that if we are interested in the substance of self-government rather than in sterile special pleading on proportional representation, the logic of Lionel Robbins is that politics merit the full tale of democratic only when confined to the essential but limited functions of government, well aired in the liberal literature. All politics necessarily rest on the coercion of captive minorities and indeed of captive majorities, while markets rely on case by case consent of free individual consumers.

The proportion of average earnings taken by the state is one rough measure of the extent of coercion in society. I welcome the strictures on taxation by the noble Lords, Lord Rees, and Lord Boyd-Carpenter. It is surely time to beware when all the parties have come to accept that around 45 per cent. of the net national income should be spent by government table d'hôte on the mess of pottage that they think best for us all. If your Lordships relish that kind of feast, I can only say, "Bon appetit". However, if you do not relish that, I suggest that we begin to search afresh for ways of cutting government down to size in the best interests of democracy, of over-burdened politicians and, not least, of their overtaxed victims.

7.4 p.m.

Viscount Caldecote

My Lords, I should like to add my congratulations to the noble Baroness, Lady Denton, and the noble Lord, Lord Wakeham, on their new appointments and wish them every success in your Lordships' House. I hope that neither of my noble friends will take it amiss when it becomes apparent that much of what I shall say about manufacturing industry will not be far away from the views expressed by the noble Lord, Lord Williams of Elvel. However, I hope that my noble friends will accept that that accords with the tradition of your Lordships' House: that at least in the early days of a new Parliament, we should not shrink from expressing agreement with noble Lords opposite when it exists on important issues.

I wish to support very strongly the plea of my noble friend Lord Sanderson of Bowden for simplification and continuation of the Business Expansion Scheme with its great advantage of attracting equity as risk capital for new and growing small companies. I fully support too the comments of my noble friend Lord Trefgarne and the noble Lord, Lord Benson, on the importance of manufacturing industry.

At the Institute of Directors Conference in April, the Prime Minister said: I hope we will go on working together in order to root the values of enterprise, choice, ownership and opportunity ever deeper in the bedrock of Britain". He has also spoken of promoting a more classless society. Those objectives form a wide and worthy vision for our future to which we know the Prime Minister is sincerely dedicated. But there are many hurdles to be surmounted before we reach that promised land. Surely the first target of economic policy must be the elimination of that underclass mainly composed of families living in squalid housing or in bed-and-breakfast rooms or those suffering from long-term, debilitating unemployment, some three-quarters of a million of whom have been unemployed for more than a year, often in run-down areas where hope deferred has become hope abandoned. No one living in those conditions can aspire to enterprise, choice, ownership or opportunity in a progressively classless society.

The solution lies in a growing economy and greater investment within it. That will be most successfully achieved under a Conservative Government. But the obstacles for that growth are fear of a return to rising inflation and a failure to pay our way in the world in overseas trade.

In all discussions on those issues, I am amazed by the emphasis given to purely financial factors—money supply, interest rates, housing prices, and so on—to the almost total exclusion of factors affecting the supply of goods and the creation of added value in manufacturing industry. The fact is that until we create within the United Kingdom more in value of the goods and services that we consume, so long will economic growth with all its job creating potential evade us because increased demand will lead to inflationary pressure, a mounting, unsustainable deficit in overseas trade, pressure on sterling requiring relatively high interest rates to protect its value, and the damping down of growth.

Thus the vicious circle continues. In it we have the old story of too much money chasing too few goods. Here I must take issue with my noble friend Lady Denton that the incipient recovery that is certainly on the way will be sustainable because of low inflation. Low inflation is a necessary condition for sustainable growth but it is not sufficient. The only way out of that vicious circle is increased output of competitive products from our manufacturing industry. A healthy services industry, to which the City of London contributes so much, is important too, but it can never replace manufacturing output, for only some 30 per cent. of services industries' activity is tradeable overseas compared with over 70 per cent. of manufacturers' output.

Let us hear no more from those economic gurus that manufacturing output does not matter because any deficit in overseas trade can be taken care of by capital flows. That is simply a euphemistic description of living beyond our means.

Competition stimulated by market force is a good springboard. Over the past decade enormous progress in improving productivity, profitability and profits of industry has been made. It has resulted from government policy acting on the principle of competition stimulated by market forces, as my noble friend Lady Denton made clear. But in spite of all that —in spite of the reduction in taxes, of deregulation and of ample opportunities in world markets—the overall output of our manufacturing industry is little changed from 1979. Its rate of growth has been far outstripped by our principal competitors. Nevertheless, there are many bright spots. Our best companies are world class. As always, the task is to stimulate more widely spread growth and to raise overall performance. With our improved competitiveness a great opportunity now exists which we shall miss at our peril.

Yesterday evening I attended the Lord Austin memorial lecture at the Institution of Electrical Engineers. It was given by Mr. Fridrich, the vice-president for world-wide manufacturing at IBM. He told us that through wise investment in product development and in manufacturing processes the UK plants of IBM, which have been so successful, are now competitive in world markets with products from the low-wage countries of the Far East. That shows what can and must be done by more of our companies.

During the past 10 years, we have taken the axe to the dead and dying trees in industry. Others we have drastically pruned and some new trees have been planted. If ever there were a time to benefit from all that and gather the fruits of a more productive and competitive industry it is now. But that improved competitiveness has been bought at a high price in unemployment and wrecked businesses in which so many people have invested their life savings and sometimes their homes and houses. Livelihoods have been destroyed in this economic war just as lives were lost in battle 50 years ago. The only justification for the suffering and misery on that scale is by ensuring that the sacrifices are put to good use.

The free play of market forces is an essential stimulant to industry. However, experience shows at home and within our most successful competition that market forces alone will not produce the results that we need to meet the Prime Minister's declared objectives. So I hope that the new Secretary of State for Trade and Industry—the President of the Board of Trade, so interestingly described by my noble friend Lord Selsdon—will react more positively to the needs of manufacturing industry.

In particular, I hope that he will study the report of your Lordships' Select Committee on Science and Technology, Innovation in Manufacturing Industry, to which the noble Lords, Lord Flowers and Lord Benson, have referred. I shall not go into the details of its proposals because there may be other occasions on which to do so. However, I am hoping to discuss the report with my right honourable friend Timothy Sainsbury, the Minister of State for Trade and Industry. That report contains many constructive proposals virtually none of which have been accepted by the Government.

Our problems will not be solved by a slavish adherence to the dogma of laissez-faire. Nor will they be solved by the intervention of Government in industry. However, there is the world of difference between intervention and constructive support for what industry would like to do but does not do. In some cases there is a place for partnership between Government and industry to share big risks and potential rewards. Therein lies the solution to our difficulties. I look forward with enthusiasm and hope to a fresh and more constructive approach by our new Government stimulated by the Prime Minister's exciting vision of the future. I hope that my noble friend Lord Wakeham will be able to confirm that that is indeed the policy of Her Majesty's Government.

7.14 p.m.

Baroness Sharples

My Lords, my noble friend Lady Denton, in opening today's debate on the gracious Speech, referred to the seed corn or acorn of the business world without which none of us could prosper. In 1980, with advice and assistance from a number of your Lordships and especially from those on the Opposition Benches, I set up a Back-Bench committee to discuss the difficulties facing small businesses. We met over quite a long period. Now, 12 years later, small and independent businesses still have severe problems especially resulting from the late payment of invoices. However, steps are being taken by Her Majesty's Government and by the CBI to remedy that situation.

The proposal that a condition of holding a government contract will be that a clause in all dealings with a subcontractor must ensure prompt payment is a good step. A further measure which should also help is that large companies should state how quickly they pay their bills. Another suggestion is for more simple procedures in small claims courts. It is often counter-productive for small businesses to take customers to court as future business could be lost. Together with the prompt payment code of the CBI, which is now subscribed to by nearly 400 companies of all sizes, those moves should go a long way to improving relations between large and small businesses. They need each other and, as a result of leadership and example on all sides, the future looks good.

The various organisations representing small businesses—my husband is a former chairman of the Small Firms Association—are by their very nature independent and cannot, it appears, agree among themselves whether legislation is needed. I believe, therefore, that time should be given for the proposals that I have outlined to take effect.

7.17 p.m.

Lord Barnett

My Lords, I wish to concentrate my remarks on the problem of unemployment and on what we can do to solve that problem. I wish to give your Lordships one figure. It is not the level of unemployment-sadly, that is all too well known—but the increase in the number of people unemployed for more than 12 months. The latest Department of Employment figure, published in January 1992, is 747,000. I hasten to assure your Lordships that the United Kingdom situation is not unique. Worse figures apply to most of the EC and OECD countries.

I raise the problem because it is so serious. Indeed, I do not believe that "a catastrophe in waiting" is too serious a way of describing it. What is the solution? I do not have a simple solution; I wish that I did. In the short term, as we come out of the recession, there will be a little relief. However, as was made clear by the noble Baroness, Lady Denton, it will be some 12 months or more before that unemployment figure falls. As was said by the noble Viscount, Lord Caldecote, the reduction in inflation will not solve the problem on its own. The noble Viscount made a number of other points to which I wish to refer.

There will also be a slight reduction in unemployment with a greater cut in interest rates than we have yet seen. I, like many others on this or the other side of the House, or like this or that commentator, believe that we should cut our interest rates below those of the Germans. However, I do not believe that that will provide a long-term solution to the serious problem to which I have referred. Perhaps I may remind your Lordships that no government of this country since the last war has ever come near achieving a 3 per cent. level of growth on a consistent basis. Therefore, it is wrong to pretend that we shall be able to do that and I do not believe that that is a solution. I wish it were otherwise but I am sorry to say that it is not.

Nor is a solution likely in or out of the exchange rate mechanism. I have always been in favour of joining the exchange rate mechanism and the Community but there are some —called sceptics today —who believe that we should come out. The idea that by coming out of the exchange rate mechanism we would achieve a consistent growth of 3 per cent. or more is so absurd that it hardly needs replying to.

The constraints on economic growth in this country are considerable. They go back to the points made by the noble Viscount, Lord Caldecote, and the noble Lords, Lord Benson and Lord Trefgarne, about the state of British manufacturing industry. Sadly, its very base has been devastated in recent years. I do not say that with any pleasure. In his very well known report, the noble Lord, Lord Aldington, said something similar. The situation has got worse in recent years. That is why, even during the longest and deepest recession since the war, we have had an extremely large balance of payments deficit.

When we come out of recession, as I desperately hope we shall do, what on earth will happen to that balance of payments deficit? I welcome the noble Lord the Leader of the House to this House. I had the pleasure of debating with him on other occasions in another place and I look forward to his reply as regards what will happen when we come out of the recession.

I do not wish to discuss Maastricht this evening because we shall have other opportunities to do that. However, whatever our exchange rate when we entered the exchange rate mechanism, to come out of it now is, as I say, no answer to the problems we face.

Another possible solution was provided in a sort of way by the most reverend Primate the Archbishop of Canterbury. He drew attention to the problems of wealth creation and how we use the wealth we create. He said, or seemed to imply, that by reducing directors' salaries and company dividends we could do something about our difficulties. With the greatest respect, that does not solve the problem either, because, in the current climate, companies must provide decent salaries, must compete with each other, must provide incentives and must pay dividends if they are to raise the capital to provide the investment which is desperately needed.

In Sunday's Observer an article by the chairman of the TI group, a very much respected industrialist, Christopher Lewinton, offered a suggestion. He had what he described as a simple solution. That simple solution was to increase the intake of the best brains into manufacturing industry. I believe that the noble Lord, Lord Benson, and the noble Viscount, Lord Caldecote, and others mentioned that as a possibility. I should like to see it happen but to do that alone would be to fail to grasp the nettle. Christopher Lewinton mentions some of the things we have neglected to do in the past; for example, we have neglected to exploit fully all our good British ideas. He mentioned some of them: the jet engine, liquid crystal display, carbon fibres, the electron microscope, optical fibres, the zoom lens and so on.

While I should like to see the best brains going into, and staying in, manufacturing industry rather than perhaps the other place, the academic world or the City, we should be conscious of the fact that that is not much more than a hope. In that one sense it may be that the most reverend Primate got it right. As I say, I hope he meant that we need to use the industrial wealth we create for a longer-term perspective; that is, that companies should take out less in dividends and higher incomes. On the other hand, as I said, it is wrong to blame directors, who must live with the existing system.

However, creating such a perspective requires somewhat different conditions from those which apply today. Indeed, last week the President of the Board of Trade—I do not mind what he calls himself: it can be the Secretary of State for Trade and Industry, as the noble Lord, Lord Young of Graffham, did, so long as he pursues the kind of policies which a number of noble Lords have indicated—Michael Heseltine, is reported as having said: Governments have a very powerful influence in creating the conditions in which industry succeeds or not". I do not know exactly what he meant by that but I hope he meant that he will be allowed by the Cabinet to create the conditions which will allow industry to get on with the job of creating the industrial wealth which is so desperately needed in this country.

I make it clear that it will not be a short-term solution. As I have said, there is not one. In the short term, we should be helped by cuts in interest rates and the structural reforms referred to recently by the ECOFIN Ministers in Portugal. They talked about fiscal rigour, but that usually equates with cuts in public expenditure, which in turn equate with cuts in spending on education and training—things which the Ministers said they wanted to increase. Therefore, I am not too hopeful about the ECOFIN Ministers either. Your Lordships will see that I am not very hopeful about anything at the present time. I once said that I had started in politics, especially in government, as an optimist and finished as a pessimist. The then Prime Minister commented, "You always were, weren't you?" He may have been right.

On the other hand, if we are to avoid the catastrophe in waiting to which I referred, we need to take a longer-term view of profits and dividends—that is, how we allocate the growth which I hope we can achieve. Only a government can create the right climate for industry to do that. If that is what the right honourable gentleman the President of the Board of Trade meant, I wish him well. I only hope that he will have the support of the Cabinet. I look forward to hearing from the Leader of the House this evening that at least one Member of the Cabinet agrees with his colleague the President of the Board of Trade.

7.28 p.m.

Lord Skelmersdale

My Lords, I have been referred to in many ways in your Lordships' House over the past 16 or 17 years for which I have had the honour to be here, but never as a volcano, whether or not extinct.

While waiting for Her Majesty to enter the Chamber to deliver the gracious Speech last week, I happened to be sitting between my noble friend Lord Selsdon and my noble and learned friend the Lord Advocate. My first noble friend spent some time discussing the state of the economy. He said that he had been searching for omens of an end to the deep recession which we have suffered for far too long. There is no doubt that recent figures have been disheartening and my noble friend was quite justified in feeling not exactly bearish but—shall I say?—a mite gloomy.

The construction industry, for which I had some responsibility some years ago, is regularly considered as a weather vane for the state of the economy. In the words of my noble friend Lady Denton, how can we be complacent when major companies are in great difficulty and each of the big three seem to spend much time watching the other two going from one well publicised difficulty to another? The spectre of Olympia & York and Canary Wharf looms ever larger. Another example is the brick industry. Its capacity has been mounting for two years and that is expected to continue while the number of employees fell from a peak of 14,000 in December 1988 to 9,900 in 1991. It is expected to fall by another 10 per cent. by the end of the year.

On another front, yesterday's newspapers told the story of how truck and van sales have fallen by another 11.3 per cent. in the past year. Nor can the country take much comfort from the figures emanating from the high street stores. We heard that Marks and Spencer increased its profits by £9 million in the past year, not from increased trading rather from internal economies.

There is a continuing increase in the level of unemployment, regularly alluded to by the party opposite and it has been alluded to today but not in quite such touching terms—indeed I believe in the right terms—by my noble friend Lord Caldecote. But those figures must be treated with caution. As my noble friend Lady Denton nearly said, history has taught us that it is several months after the ending of a recession before the unemployment figures first level off and then start to decrease. In the early stages of coming out of a recession the most that happens is that fewer and fewer people suffer the humiliation and distress of unemployment as recorded month by month. I believe it is a good sign that that is at last happening.

But my noble friend perked up when I told him a story much closer to home; a story of the "green shoots" of recovery, to use the language of today's debate. I was able to point to the recent trading pattern of my own family business. Admittedly it is a minute niche business; admittedly it is a mail order firm—or perhaps a mail dispatch firm would be a better way of putting it—in that there is an element of Christmas or a birthday present when one receives an order. Even with those undoubted advantages it has been hit by the three major national recessions in the 20 years during which my wife and I have been running it. We have therefore gained a little experience of what happens and know that we are the last to suffer and among the first to recover.

We have two trading periods which equate almost exactly with the two halves of the calendar year; so we can quickly see what is going on. I was able to tell my noble friend that we are growing quite strongly. We recorded a fall in the volume of spring orders of 6 per cent. between 1989 and 1990 and a further 9 per cent. last year. We almost recaptured that 9 per cent. last autumn—not quite but almost—and our hearts naturally lightened. To use a horrible modern expression, we could see both the wood and the trees; the latter rather dimly. Then our printers, on whom we relied heavily, went bust as a result of, as the noble Lord, Lord Flowers, put it, under-investment in modern technology. Nonetheless, the trees are now sharply in focus. The last months have shown a 19 per cent. increase in the volume of orders. That augurs well for the future and I have no doubt that for the third time industry will follow in our footsteps.

There is another augury which concerns me deeply. My noble and learned friend sitting on my other side —I would not go so far as to call them sinister and dexter!—discussed what was going to be in the gracious Speech. Inevitably we covered the subject of privatisation, not in any depth but enough to get my little grey cells working. Ever since being involved with the privatisation of Amersham International I have developed an interest in the subject, although my subsequent postings have prevented me on the whole from addressing the House on the issue, with the sole exception of the nine months when I was a water Minister preparing for the rebirth of the water authorities within the private sector. However, I was in no way responsible for the legislation.

Nonetheless, I have always seen the state as the worst possible organisation to produce, or in the case of water to clean up, and subsequently sell anything to consumers, for two reasons. The first is that it is too mean to pay enough to attract many of the top managers—though there are honourable exceptions to this rule to be found in your Lordships' House. The second is that nationalised industries are run by politicians who persist in interfering. I accept that there is a necessary interference role for Secretaries of State and quangos. After all, I was involved in the creation of the National Rivers Authority, but I believe that fears for the level of the PSBR have determined the capital investment strategy of the utilities for decades. Politicians of all parties have only themselves to blame for under-investment in water, telecoms, gas and of course rail.

One of my many Secretaries of State in the Department of the Environment used to refer to the dead hand of the Treasury. History has shown us how capital investment has improved by leaps and bounds once that dead hand has been removed. So when I heard that the Government plan at last to release coal and British Rail from the shackles of the state, I was more than pleased.

I was pleased also to see reports of my honourable friend Mr. Waldegrave's speech in another place on Monday. He clearly agrees with me when he says, rather more elegantly than I have just expressed it, that, the state as industrial manager is not at its best".—(Official Report, Commons, 11/5/92; co1.379.) He can say that again! He referred also to the Government "where possible" setting a framework for competition to deliver real and effective power to the consumer. He said that regulation on behalf of the consumer must be tough, following on, I presume, from the Competition and Services (Utilities) Bill which the House discussed in the last Session and which quite rightly tightened the regulatory screw. I am sure that we all agree that the original proposals, with the possible exception of the electricity industry, were too lax. Nonetheless, prices to the consumers have come down dramatically since privatisation.

It so happens that during a break from canvassing during the Recess I joined a House of Lords delegation to British Gas. Among other things they told us how proud they were that gas prices to the domestic consumer had fallen by 15 per cent. in real terms since privatisation and that they believed they would fall much further as a result of the recently agreed new pricing formula. Indeed, it could be a cut not only in real terms but in absolute terms as well once a correction has been made for forecasting errors last year—the so-called K-factor in the formula. I am sure that all noble Lords at that meeting gained the impression that all was sweetness and light between the company and the regulator.

Articles in the press over the past week have shown how wrong that impression was. Threats have even been made to take British Gas to court. That is an extreme step. Surely the Government and the regulators are not so unsure of the strength of the powers that Parliament gave them that they are contemplating that action. It would almost be tantamount to taking themselves to judicial review —very strange performance indeed. I can only assume that the threat was made to add to the pressure on British Gas to move faster in reducing its prices, as it surely will. And is it really right to conduct negotiations of this nature through what appears to be the newspapers? Is it true, as the media stated, that the director general of Ofgas is refusing to meet either the chairman or the relevant senior managing director? If so, that is quite inexplicable, especially as I understand that meetings between other utilities' chairmen or appropriate directors and their regulators happen on a fairly frequent basis.

There is a whole string of interests involved in the matter. There are the consumers, of course, but also the small investors who were enticed by Sid into buying shares—here I must declare an interest; there are the pension funds, which have a much larger stake and the taxpayer who benefits greatly from the corporation tax levied. The Government and the regulator have to balance all those interests. If they get out of sync I am genuinely worried that utilities will find it increasingly difficult to raise money for the capital expansion of which the Government are justly proud. That will dent the Citizen's Charter which is all about quality of service, and none of us wants that. Huge amounts of money are involved. Relevant again to this debate is the jobs spin-off of the extra investment which is correspondingly great. It would not help to speed our way out of the recession one little bit.

7.37 p.m.

The Earl of Gowrie

My Lords, in no sense ever a volcano, but not I hope completely extinct, I am sad to say that my remarks this evening will have nothing to do with arts, leisure or fun except that I agree with my noble friend Lord Young of Graffham that fun pays. I wish my right honourable friend Mr. Mellor and the nation all the gaiety that I am confident he will provide for it.

It was also music to my ears to hear my noble friend Lady Denton in her opening speech say how greatly she regretted the way that our brilliant designers often had to export their successful designs. I have the honour to be provost of the Royal College of Art, which is the leading school of design and indeed the only graduate school of art and design in this country. The best-selling new sports car in the world today was designed there, but it is made in Japan. Art and design and leisure and fun are therefore economic affairs and it is economic policy that we are debating today.

I must say also that it is a particular pleasure to follow my noble friend Lord Skelmersdale. His mail order business is growing at the rate of 19 per cent. and I am sure that he is a harbinger of recovery. I was most encouraged to hear what he said.

If I have to clear my throat from time to time I apologise, but the green shoots of recovery are also difficult for those of us who suffer from hay fever. Unless your Lordships have changed very much since I used to work here, I believe that most of us in this Chamber are thoroughly in favour of public spending. Most speakers today bear witness to that. I believe that we instinctively look to government for provision, or at least help. We look to government where cherished projects like the arts are concerned and we look to them where moral imperatives such as the social services or the education and training of the young are concerned.

Reluctantly I have come to the view that most of us may be wrong. I have come to that view not as the result of reading something or dallying on the wilder shores of what used to be called, I believe erroneously, liberalism and what is now called Thatcherism—also, I believe, erroneously—and still less have I come to it as a result of indifference to what my noble friend Lord Caldecote called the dangers of laissez-faire. I have come to that view as a result of 15 years experience of working for the state in and out of government. Such an experience is a tremendous privilege but it is also frustrating.

It confronts one's dreams of contributing, however modestly, to the greatest possible good of the greatest possible number with what seems to me to be a single and impenetrable road block. The road block is this: improving the lot of one's fellow human beings involves setting up instruments and institutions for doing so. The instruments and institutions take on a life of their own. They cost money, employ people and have quite legitimate axes to grind from their point of view. Outside the realms of government, or of the public services, businesses behave in precisely the same way—only satisfying customers, only the market and keep their eyes on the ball of their original intention.

Noble Lords will be well aware that company chairmen make speeches from time to time about the excellence and importance of market forces. I make such speeches from time to time myself. But privately we loathe market forces. They are vicious disciplinarians. It would be heavenly to be chairman of Sotheby's were it not for the existence of the competitor whose name temporarily escapes me. Market forces, of which competition is just one, deny us fat living, fat profits, pomp and ceremony and status. The most reverend Primate the Archbishop of Canterbury should be thoroughly in their favour. I have no reason to believe that he is not. Market forces get us out of our chauffeur-driven cars and on to our toes.

The degree of this new administration's commitment to many social issues such as health, education and training, as well as to the public utilities, will in my opinion depend on the degree to which an internal market in them is created or maintained. An excellent start was made in health in the previous administration by my right honourable friend Mr. Waldegrave. My right honourable friend Mrs. Bottomley has the charm, and I believe the steel, to see it through. The Thatcher administration was right to privatise. Alas, public spending imperatives—for it is an historical nonsense to say that Mrs. Thatcher was not a big public spender—demanded that we hive off utilities at the best price and that was sometimes at the expense of securing sufficient competition.

I hope that that is not libellous to my former colleagues, but I believe that I was the only Member of the Cabinet to squawk at our method of privatisation. I may be wrong but I think that is so. I squawked and, very properly for the most junior Member, I was squashed. My blushes were saved only by what I took to be a sympathetic gleam in my boss's eye.

There is no way through the road block of institutional interest where social services or public utilities are concerned, but there is in my belief a way round it. It involves taking an axe to some of our cherished and traditional assumptions. Perhaps I may grind this axe just a little. Why not, as the noble Lord, Lord Harris, suggested, trust the people? Why not trust them with their own money? The vast majority of people who are well off, or at least comfortably off, make sensible arrangements for their own welfare and that of their families. Of course, some abuse their position and some waste their substance, but the vast majority do not by a very long way.

At the end of the 20th century why do we not turn away from some at least of the Victorian values which prevailed at the end of the 19th century? Do we really believe in Victorian paternalism, in doing good for other people rather than allowing them to do good for themselves? Is institutional paternalism, paternalism by committee, desirable? Should we not encourage people to seek education, training and even health in the market place? If people cannot afford it and do not have enough money, why not give them the money with which to enter the market place? A few may abuse it and place coals in their baths, so to speak. Most will not.

I am all for taxation. For nearly 15 years I was in Government, in Opposition, and in Government again a Treasury or a Treasury affairs spokesman in your Lordships' House. In prison, 15 years is a long life sentence. I am even in favour of quite high taxation, as high, that is, as the market for sustained real growth will bear. The transfer of tax pounds from the wealthy and comfortable to the poor and uncomfortable is just as much a moral imperative to me as it is to the noble Lord, Lord Williams of Elvel, or, I believe, to my right honourable friend the Prime Minister. But if the social services and the public utilities are to satisfy those who most use them and have most need of them, then they should resemble Tesco and Safeway supermarkets more than the kind of organisations which come to mind when we use the phrase "the welfare state".

Many of your Lordships educate your children—or perhaps I should say help to educate your grandchildren—at independent schools. All schools should be independent even if they work to common educational standards. But no one should be denied the money or the mobility to shop around. My right honourable friend Mr. Clarke made an excellent start in the previous Administration and I believe that my right honourable friend Mr. Patten is superbly well qualified with his background to drive things forward in this one.

Having ground my axe perhaps I may say that I am also a realistic man. I do not expect the institutional landscape to alter as much as I might perhaps wish in the lifetime of this Government. So the demands on the public purse will remain very high. They will be higher perhaps than they need be if we transferred cash more readily, but not, thank goodness, as high as I believe they would have been if the Opposition were now in power.

Everyone has a pet theory as to why the Opposition did not do better at the election. I believe that there are two reasons: one is tax policy and the other is that Labour is still stubbornly identified with producer interests. Most of us, and most producers even, think of ourselves as consumers.

I wish to end by suggesting how these high demands for public spending can be satisfied, or, if not satisfied-because I am not a Utopian and certainly not when I am in the presence of four previous Chief Secretaries to the Treasury—at least accommodated. First, I agree with my noble friend Lord Rees that the Government must be very tough indeed in the first year or two. My right honourable friend Mr. Portillo must forget that he is the youngest and, therefore, by definition the least prejudiced and most promising Member of the Cabinet. He must turn himself into the oldest, crustiest and most disliked Member.

"No lottery, no fun" should be emblazoned on Mr. Portillo's T-shirt. Recovery is under way and revenues will rise, but the Government must not compete too fiercely for funds with those of us in business who are issuing in that recovery.

Secondly, the Government must prepare themselves, the political system and the country for high and continuing high employment. That is the downside of the exchange rate mechanism policy. It is Mr. Smith's policy too, by the way. As a Tory I am a lot more frightened politically by Mr. Gould than by Mr. Smith. High real rates of interest and low inflation mean that we are not going to return to the effective full employment of the 1983–89 years. We will become a nation of savers, not spenders. The outlook for gilts and bonds is good. As tax revenues revive, they must be directed principally towards the young. We should draft my noble friend Lord Young of Graffham back to the Manpower Services Commission!

Finally, the Government's clever and communautaire diplomacy must not allow them to forget that our European partners are also our competitors. The thing to do when one has competitors is to provide not only better services and goods, but also better prices-in short, to undercut them. The interest of our continental partners—and, as my noble friend Lord Young reminded us, our continental partners have a prescriptive legal tradition—is to drag us onto their expensive playing fields. These are expensive in terms of employment protection, social benefits, union rights and the rest. Time and again one hears the Government accused—the noble Lord, Lord McCarthy, accused them today—of not matching European provisions and standards. Excellent, my Lords, may they long be so accused. The accusation will be a sign that we are still upwardly mobile, that we are overtaking our partners in per capita income and overtaking them competitively.

This is an able and excellent Administration. If it has a fault, it is that it likes too much to be liked. If it keeps its nerve a combination of low inflation, political stability, low taxation, and the deregulation of services and public utilities will move us sharply up the ladder of wealth. In the last decade of the 20th century we shall become wealthier than at any period since 1914 and our wealth will be incomparably better distributed. No group has a greater stake in that process than the poor, who were mentioned by the noble Lord, Lord Williams of Elvel, and referred to in the gracious Speech. The prize is enormous. I have absolute confidence that my noble friend the Leader of the House, his Cabinet colleagues and the Prime Minister are determined to win it, and that their determination will prevail.

7.52 p.m.

Lord Desai

My Lords, now that the election is over I had hoped for a degree of realism in the speeches made by noble Lords on the opposite side of the House. Now that they have won they no longer need to pretend that everything in the economic sphere is all right. Now that the election is over we can go back to where we were before the election and look again at the books. When we look again at the Red Book we will realise that this economy is in very serious trouble.

Perhaps I may remind noble Lords that on the last day of the last Parliament, when we debated the Finance Bill, I said that this country's public finances were in such dire straits that the party that won the election would have to revise all the promises that it had made. That remains the case. The public sector borrowing requirement is £34 billion for 1992–93. If one deducts the proceeds of privatisations, it is £28 billion. If the economy is supposed to grow at 3 per cent., the PSBR will stay at £29 billion excluding privatisations, and at £34 billion including them.

Therefore, we are facing a serious public finance problem. Like it or not, we are collecting far too little in taxation and our spending levels are rather high; and that is not only due to the fall in revenues as a result of the recession. Let us go back a bit to the glorious cuts in corporation tax and in income tax that were so popular in 1988–89. It is now clear that, even as late as 1996–97, our tax revenues will not be sufficient to match the expenditure that we should like to undertake.

Although the gracious Speech states that the Government, will reduce the share of national income taken by the public sector and balance the budget over the medium term, reducing taxes when it is prudent to do so", that is not a coherent or consistent set of objectives. We are already hearing cries that we did not hear before the election. Nobody told us then that the Government would embark on a swingeing public expenditure round. Before the election we were told that health and education would receive more money. Everybody was happy because in February and March we were promised expenditure of nearly £3.5 billion. However, we are now suddenly hearing talk of swingeing cuts in public expenditure.

That will have to happen, but it will not take us very far. If the Autumn Statement is to be believed, and if the Government were not telling total lies before the election, it is unlikely that the public expenditure cuts will be large. I hope and wish that if such cuts have to be made they will not fall in the fields of education or research and development, wherever else they may fall.

Despite all the talk of cutting taxation, by which noble Lords opposite always mean personal income tax, I make this forecast, which will be true by the time that we get to the next election, that VAT will be increased. I do not see any other way in which we can get out of our public finance dilemma with the large deficit of nearly 5 per cent. of GDP. Indeed, that deficit is likely to remain high for the next four years unless somebody comes clean and increases taxation in this country—even if the Government are not saying that at present.

Since personal income tax cannot be increased because of the erroneous belief—there is no economic support for it—that personal income taxation has a disincentive effect, I believe that we shall see an increase in VAT. I believe that at some stage, after a brave fight with Brussels or elsewhere, the Government will say, "We shall have to abolish VAT zero-rating in the interests of convergence." Noble Lords will see from the Red Book that the zero-rating of VAT is costing £18 billion in lost revenues—and £18 billion is a convenient sum to have. Therefore, I believe that over the next three or four years we shall see a substantial increase in the rate of indirect taxation. Indeed, I should prefer that because now that the next election is not for another five years I can say the things that I said about taxation before the election—that we shall need higher rates of taxation because that is preferable to making drastic cuts in public expenditure. While the recession lasts—and it will last a little longer—it would be folly to cut public expenditure drastically. We shall borrow this year and next year, but sooner or later we shall have to recover that money from additional taxation.

Currently we are in a favourable position with the gilts market. Money is pouring in because the market believes, in its infinite wisdom, that this is a good country in which to invest money. I welcome that. Now that gilts can be sold rather cheaply we should sell as many as possible and even perhaps overfund. However, sooner or later we shall have to pay that money back. It should be done through taxation rather than through borrowing.

Whatever people say in speeches—one need not hear the truth—I hope that someone somewhere in the back room is planning a proper reform of public finance; first, by thinking about including taxation, and, secondly, as we were saying before the election, by instituting a proper separation between capital and revenue accounts of the public budget. As the noble Earl, Lord Gowrie, pointed out, it is always capital expenditure which suffers when cuts are made because we have a misleading system of public accounts. If we had proper public accounts we would realise that what is wrong is the deficits on the revenue account—deficits for current spending—and that we could have deficits for capital spending. I hope that within the next year we shall have a reform of our budget procedures and that someone will think rationally about taxation. It is inevitable that taxes will go up.

On the exchange rate mechanism, I think that things are much better. There is a great deal of misunderstanding about the exchange rate mechanism. I try my best to write letters to the newspapers but people do not understand. The exchange rate mechanism is not like the gold standard. It is not even like the gold exchange standard or the dollar exchange standard which previously existed. There is no fulcrum in the exchange rate mechanism and so it does not matter that suddenly the German economy is in trouble. The Deutschmark is not necessarily the fulcrum of the ERM. The ERM is a system in which currencies can move together. The capital flow in the global financial markets determines what interest rates shall be. It is quite possible for us now to have lower interest rates than Germany. There is no problem. I urge the Government to be much bolder in cutting interest rates. As long as we have the wide band of 6 per cent. we should exploit it fully. We should not stay anywhere near 2.95. We should stay as close as possible to 2.78 and get as many cuts in interest rates as we can.

On the fiscal policy front we shall not be able to be very lax. Our fiscal policy will have to be tight. The only hope then is for monetary policy to be a little looser. As we do not want to realign, and as we cannot unilaterally devalue, we shall have exchange rate stability, but we do not need to go for interest rate stability. We should have frequent cuts in interest rates. I hope the Government realise that while real interest rates are as high as they are it is unlikely that any recovery will be very strong. If there were imagination in monetary policy we could look forward to much lower interest rates before the end of the year. I hope that that is what will happen.

There are various other problems of which I shall mention only one. I refer to GATT. Many noble Lords have mentioned the precarious situation over the GATT negotiations. It is time for us to say clearly and boldly that agricultural protectionism in the United States and in the Community is costing us a great deal of money. The common agricultural policy is nonsense and the sooner we get rid of it the better. Last month the United Nations development programme published a human development report which pointed out that protectionism is costing the developed world £80 billion a year and the less developed world much more because protectionism denies the third world access to good markets. I wish the Government were much bolder and clearer in saying that the common agricultural policy will not do. If we are going to be active in Europe, and if we are going to play the Maastricht game, the least we can get is a sensible agricultural policy. It is in our interests and in the interests of the world that the common agricultural policy should be reformed as soon as possible. That would save us all a great deal of money.

8.5 p.m.

Lord Harmar-Nicholls

My Lords, the advantage of this House compared with another place or the European Parliament is that, by and large, if a point has been made in this House by some other Member, it is not repeated again and again by those who follow. It is taken for granted that it is on the record and that note will be taken of it by the government of the day. There is therefore no need to repeat it. Coming as low on the list of speakers as I do tonight, it is pretty obvious that the main points that I should like to have made have already been covered. I can tell my noble friend that if he answers the noble Lord, Lord Benson, and my noble friends Lord Boyd-Carpenter and Lord Young of Graffham, he will be answering the points that I would have made had I figured higher in the list of speakers. Most of the points that I could usefully have made are already on the record. There it is.

Emphasis should be placed on inflation, and the efforts that have been made over recent years to win that battle should be continued. It is obviously the right thing to do to bring down the cost of living. I was interested in the CBI's views on this matter. It stated that every point of inflation is worth about £5 billion a year. We need to make certain that money is wisely and sensibly spent. If by reducing inflation through sound leadership one can save £5 billion for each point, that adds to something that is very worthwhile.

The advantage of the reply to the debate coming from the Leader of the House is that it comes from a member of the Cabinet who is in a position, if he is impressed with any of the points that are made, to see that they are interpreted in a way that will mean something. I hope that he will approach those points in a way that recognises that all wisdom does not reside in Whitehall or even in government offices. When Ministers have been in charge for as long as ours have, thank heaven, there is the possibility that, although they have the theory right, they may not see some of the practical things which are seen by people who are outside in the ordinary world having to earn their living. It is those practical points which noble Lords on the Back-Benches and Members on the Back-Benches in another place can bring to the Government's attention.

One weakness of the debate has been the almost certain acceptance that we must approve the Maastricht decision. It will be argued in a fortnight's time and a decision will then be taken. I hope my noble friend will not take it from the way it has been referred to in this debate that the general view of this House is that the Maastricht decision ought automatically to be reinforced by signing up on the next day.

In terms of the general possibilities of developing this country, there is every reason to continue sitting on our hands. I am not saying that we should withdraw from what the Prime Minister achieved so far as concerns Maastricht, but we did not win a battle; what was achieved prevents us losing a vital battle. If he had not won time to allow for second thoughts and thereby hold the matter up a little, I think that the result could have been quite disastrous. Therefore, in reporting the views of this House, I hope that my noble friend does not take it for granted that the Maastricht thing will be automatically approved. That would be rather stupid, bearing in mind what the Bundesbank is now saying, the position of the German Government and what is happening in Denmark.

Those of us who had doubts about the Europe situation right from the time of the introduction of the Treaty of Rome—that is, those of us who felt differently to the powers-that-be in those days—cannot get out of our minds the thought that we were manoeuvred. We were promised that all sorts of things could not and would never happen. We had all sorts of powers to reserve our position. But, before we knew where we were, we had approved the thing. Moreover, many of the protections that we were told would be there for ever have gone.

Occasionally I get the impression, although I know that the situation is different now under the present management, that they are not manoeuvring us. But I hope—indeed, it was suggested as regards the treaty—that there is no question of our approving Maastricht now in the hope that, after we have done so, if we find weaknesses we can manoeuvre ourselves out of it. I do not think that that will be easy. In fact, I think that it would put us in a very weak position.

The other point that arises as regards the saving of money and how we use it is the question of social services. Many of us have been in politics for a long time. Indeed, I was active as a very young man in the 1930s—and some noble Lords present will also remember this—when we had the great battle which resulted in the means test being looked upon as a dirty phrase which must not be allowed to exist. I recognise the fact that it was the way that the means test was presented to the country that made it seem something awful and completely undesirable. I remember when we were asked, "Do you know what the means test people are doing before they will give people help who really need it?" "They are making people sell their pianos and their gramophones. They are deemed to be independent of any need for help if they have those things". None of that was true. Ernest Brown was the Minister responsible. I was one of the young men that he recruited for the regional committee to go round to see how much truth there was in some of those charges about how it worked.

The truth is that one of the problems which has arisen in recent years—and which will continue to do so even more now; that is, unless this Government is prepared to face up to it—is that there is a need to have a means test if we are to keep taxation at a level which will not ruin all the incentives which we need in order to get the social services to do anything.

I was very interested to note that that point of view, which has always been mine, is apparently the view of Mr. John Smith who, by the way things are going, seems likely to be the new leader of the Opposition party. He has issued a pamphlet entitled New Paths to Victory. It is very good and very sound. Moreover, on this issue it is particularly sound. In it he tells a truer story than he did during the election when he said that people who are in dire need at the bottom of the list are possibly one third of the people who are receiving social help in one way or another. Two thirds are often not all that in need of it, although they are getting it because of the general application that because you are 65, you must have an old-age pension or because you have other problems you must have help, when there is no absolute proof that there is need.

I shall always remember—in fact I was rather impressed—when Harold Macmillan, after he ceased to be Prime Minister, and Viscount Montgomery made a show of waving their old-age pension books when they went to collect their old-age pensions. I hope that what they were trying to do—certainly this is the message that I took from their action—was to show what a nonsense it was that people should be taxed in order to pay an extra pension to someone who was already receiving a former Prime Minister's or a former Field Marshal's pension. Mr. John Smith seems to defend that in his pamphlet. On this occasion, I should like my noble friend to pay some attention to what he said. He said: We must be prepared to examine in an open-minded way some of the fundamental features of our approach. What is the right balance between universal and selective benefits? Should the national insurance system be integrated with income tax? That is good sense. I believe that it ought to be borne in mind by the Government when they are thinking in terms of wanting to keep taxes down but when, at the same time, they want to give help where it is properly needed to people who are most in need. Therefore, with the speech of the noble Lord, Lord Benson, my noble friend's speech and that of my noble friend Lord Young of Graffham and the points that I have raised, that is the contribution I should like to make to the debate. When my noble friend reports the debate to his colleagues, I hope that he will tell them what this House really thinks.

8.16 p.m.

The Viscount of Oxfuird

My Lords, tonight I must start with the promise to my noble friend Lord Selsdon to read the charter of Charles II—may it be as compelling as his speech. We have all listened to erudite and interesting contributions from many noble Lords. But the most exciting thing about today's debate has been the message of hope and of expectation that has been a common theme running through so many of the speeches. No one will deny that we have suffered a very severe recession in the past few years. Indeed, in the materials handling industry, with which I am personally associated, it has been the longest and the deepest recession this side of the Second World War. But most of the signs are there: recovery is now on the way. The uplift in morale that that has generated is as evident on the shop floor of Basildon and Dudley as it is in the City of London. So if there is one message that I should like to see go out from this House this evening it is: away with gloom! There are much better times ahead as this nation draws on its international competitiveness.

We have heard today a number of comparisons which confirm that we have begun to outstrip some of our principal world competitors. Nowhere is that more evident than in manufacturing industry. The efforts of the Confederation of British Industry in that area, spearheaded by its deputy Director-General Mark Radcliffe, should be highly commended. A recent article written by the latter and published in The Times states: The United Kingdom has roughly 1% of the world's population, it produces 4% of the world's output, and sells 5.6% of the world's Exports". The latest figures show manufacturing export volumes at an all time high! Late last year they overtook those of France for the first time in decades. United Kingdom exports per head of population are 40 per cent. higher than those of Japan and double those of America. Our share of the main manufacturing countries' exports rose from 7.9 per cent. in 1985 to 8.7 per cent. in 1990, reversing 40 years of steady decline.

These are interesting facts indeed, and as already highlighted by my noble friend Lady Denton, strike days in the United Kingdom have now fallen to the lowest since records began 100 years ago—sound testament to the industrial relations policies followed by Her Majesty's Government over the past 13 years. I hope that noble Lords from all sides of the House will join me in expressing enthusiasm for the passage in Her Majesty's gracious Speech that promised new legislation to improve even further the law on industrial relations.

Her Majesty's gracious Speech also promised policies to ensure that the United Kingdom meets the convergence criteria set out in the Maastricht Treaty, providing proof that we are just as good Europeans as our other Community partners, and that we will be using our period of presidency to complete the historic single market agreement.

We have to be seen to be good Europeans and that is to be commended, but let us not forget that it is just as important, probably more important, to be good internationalists. It was therefore with particular pleasure that I noted the commitment in the gracious Speech to, strive for a successful conclusion to the GATT trade negotiations". Let us not in the enthusiasm for our success at achieving a single market forget the vital importance of GATT. My noble friend Lord Boyd-Carpenter has already confirmed that we should use our period of presidency to demonstrate to the whole world that "Fortress Europe" is a dead concept and that with priority being given to the enlargement of the Community we are set on a course which will promote the removal of all artificial world trade barriers.

I move on to make another international trade comparison. Here I must declare an interest in as much as I am deeply involved with the British Standards Institution, particularly the Standard BS.5750. It is part of my work and I also consult for the institution.

It was in 1982 that the White Paper on standards, quality and industrial competitiveness was published. Since then, following the actions and effectiveness of the British Standards Institution, we have seen more British enterprises adopting quality management systems.

Over 15,000 British enterprises are now registered to BS.5750, or in its international guise ISO.9000, which is more than the rest of Europe put together. This is in part due to the far-sighted efforts of the Department of Trade and Industry which has made quality one of the main planks of its enterprise initiative. But it is actually more than that. Most of the industrialists to whom I speak have realised that an effective quality management system cuts costs, improves productivity and makes a positive contribution to winning export orders.

In 1989 the National Audit Office commissioned the Cranfield School of Management to analyse the performance of a representative sample of companies certified to BS.5750 compared with a matched sample of non-certified companies. The school found that between 1983 and 1986 the increase in sales turnover of certified companies considerably exceeded the non-certified group. In some later work published recently, Cranfield has shown that BS.5750 registered firms have survived the recession far better than non-registered firms by a factor of almost four to one. BS.5750, or ISO.9000, is now being taken up by more overseas governments and enterprises but it is heartening that the United Kingdom —thanks to the far-sighted actions of Her Majesty's Government and the British Standards Institution—leads the world.

I should like also to commend the work of BSI in the field of European standardisation in support of the single market. BSI has almost doubled its rate of standards output in the past three years. European and international standardisation now represents over 80 per cent. of its current workload. How favourably do its achievements compare with the works of the Brussels Commission? Those who have tried to unravel the mysteries of the construction products directive have retired baffled and confused. How reassuring therefore that Her Majesty's Government are rightly resisting the inexorable demands of the Commission for more power and more control over our everyday lives. It seems that many dedicated Europeans are taking a second look at some of the current proposals. There seems to be some disparity on the subject of growth, particularly on the Opposition Benches. The noble Lord, Lord Hatch, demands no growth, but the noble Lord, Lord Williams, complains that we have insufficient growth. Is it possible that the noble Lords should meet more often and perhaps come to a consensus opinion?

I should like to conclude by reinforcing the message of hope and expectation with which I began. I believe that the tough economic policies maintained by this Government, frequently under pressure from the soft option of Opposition electioneering, can now be seen to be paying off. We can now strive for the sunlit uplands of economic success knowing that the worst is behind us, with our industrial competitiveness improving almost by the hour.

8.27 p.m.

Lord Mackie of Benshie

My Lords, I must apologise to the House for subjecting noble Lords to an extra speech, but it will do your Lordships good! I was at a meeting in Paris and I managed to get away in good time, so you are being subjected to this. It is extremely brave of me, because I am coming in before my deputy leader and I shall talk about agriculture. I have to say to my noble friend Lady Seear that her view of depression in agriculture is when a farmer has to sell his second Bentley. That is a common delusion which I shall take care to dispel.

I must also apologise for not hearing the noble Baroness, Lady Denton, and the noble Lord, Lord Williams. However, I shall bear that as best I can and proceed to talk about the gracious Speech and the references to agriculture.

First, we have the reference to GATT, and allied to that is, to press for changes in the common agricultural policy". Already we have heard various people—great economists such as the noble Lord, Lord Desaiquoting enormous figures which will result from the abolition of the common agricultural policy and in protection all over the world for farmers. I imagine that he is basing these figures on the totally false prices which are caused by the subsidised over-production of food which is poured on to the market, setting a completely false world price.

It is extremely important that the foolishness of the situation into which we have allowed the common agricultural policy to get must be corrected. The reason for it, of course, is purely political. Mechanisms were put into the CAP to ensure that the market was followed, and they were always ignored by the Council of Ministers which merely wanted to appease farmers in Bavaria, and perhaps Wales, Scotland or somewhere else, with the result that something now has to be done otherwise the whole thing will blow up.

I am pleased that the Government say that they are going to pursue that matter, but I ask the noble Lord the Leader of the House to note that the policy put forward by Mr. MacSharry of giving permanent support—I stress the words "permanent support"—to the incompetent, inefficient, small producers of Europe is disastrous. If he had produced the policy advocated by a number of sensible people, of buying them out over a period of time with a simple bond having a capital value which could last for 10 or 15 years, there would be some sense; but to subsidise those farmers for ever is a nonsense and a policy which does no good to this country's competent farmers.

Our farmers are competent. Let us take the production of wheat (it is pronounced differently in England and Scotland, I understand) in Oregon—an enormously efficient state where they drive over the horizon and cultivate vast acres at low cost. The cost per tonne there is £86, whereas in East Anglia we are producing at £90 per tonne. To talk of lower figures would mean a great loss to this country's balance of payments, a matter of great importance. I hope and trust that the Government will be vigorous in achieving a sensible policy in Europe and will use all their best efforts to that end.

I hope that the Government will also remember that agriculture is enormously valuable to this country's balance of payments. The balance of payments is one of the biggest problems we face. If we achieve the prosperity about which everyone is talking, the consumption of goods will rise and so will imports. That is dangerous. Agriculture makes an excellent contribution towards our balance of payments.

In the gracious Speech the Government also say: Legislation will be introduced to promote improvements in agricultural marketing". That is important because we can do an enormous amount to promote our exports to Europe and elsewhere, not just of our basic good food but also manufactured food. We could, for example, sell a great deal of our excellent lamb to Germany, but it will take a major campaign and a great deal of money to promote it there. The Germans like good food. They have plenty of money. They do not eat nearly enough lamb. That is one direction in which we could go. We could also sell haggis.

Baroness Seear

My Lords, no, no!

Lord Mackie of Benshie

My Lords, haggis topped up with a little whisky is a most delicious delicacy and, with a proper advertising campaign, we could delude the world into believing that. All manner of things could be done. I presume that when the Government say that they will introduce legislation they will back marketing abroad. I hope that the allocation of the money will be done with courage; that it will be done by a committee which includes some competent businessmen and not left entirely to the Treasury. If the Government do those two things I shall think a great deal better of them than I have done in the past, and that is not saying much.

8.34 p.m.

Baroness Seear

My Lords, after the unexpected —I suspect to the Government side as well as elsewhere—victory in the election, which had at least one satisfactory side effect in that it knocked the pollsters for six, it can be understood why there are rays of self-satisfaction gleaming from the Government Benches. If I were in their shoes, I should be exuding self-satisfaction in the same way. However, there are limits to which complacency can be carried, even following that surprising victory. It might be that that victory is not so much evidence of great support for the Government's wonderful policies as evidence, in the old phrase, "of a fear of getting something worse". Be that as it may, the degree of complacency—I do not like to say this about the noble Baroness who opened the debate—reflected in that speech frankly left me nearly speechless.

One would think that everything was for the best in the best of all possible countries. One would think that the unemployment figures were not huge and rising; and that the quality of life in this country was superior to that to be found in neighbouring countries on the Continent. I suggest that your Lordships take a short journey on British Rail and then on one of the French main lines and then ask yourselves whether standards are as good as all that. This country's cleanliness as compared to that of its neighbours is not evidence of its great superiority. I could go on and on.

Of course there have been some substantial improvements. We on these Benches would not wish to deny that. There have been substantial improvements during the three Conservative administrations. It is true that productivity levels have increased. If they had not, what our position would be today does not bear thinking about. That was due in no small part of course to the fact that the Government managed to get over the concealed unemployment which had existed for so long inside manufacturing industry and which had been tolerated by previous governments of both complexions.

Productivity levels have also been increased for some of the other reasons that the Minister gave, but to pretend that our recovery now puts us on a peak, as it were, of industrial countries is just plain ridiculous. We had fallen to the level of having only a 6 per cent. share of world trade. We continued to fall. We then bumped along at that figure, and have been gradually pulling up. If one is as low as that, it is not difficult to show improvements. If one is practically on the floor, then even getting up is a great achievement. That is, to a considerable extent, the position in which we have been. Yes, there have been improvements. We recognise that, but they are most emphatically not grounds for the complacency which has been reflected in speeches from the Government Benches today.

The Minister then said that we have greatly improved industrial relations. We are told in the gracious Speech that there will be further measures to improve industrial relations. The first thing I would say about that is that the level of strikes, which is always taken by the Government as the index of good industrial relations, is a remarkably negative way of measuring relationships.

We do not measure relationships between individuals by the number of occasions upon which we restrain them from hitting one another. That is the parallel with industrial relations, if it is measured in terms of the absence of strikes and the absence of warfare. That is not a good measure of good relationships. Even if we do take that as the measure, the Government must be aware that in all the records of strikes over many, many decades, strike levels always fall when unemployment is high. Of course they do. People are all too afraid of losing their jobs, and they are well aware that their employers do not mind much if they strike when trade is bad. They shut their factories and lose little by it. It is when trade is good that strikes can be effective. That is one of the major reasons why industrial relations, as measured in terms of the number of days lost in strikes, have changed remarkably in recent years.

The point that I wish to make follows up that made by the noble Lord, Lord Campbell. We are told that there will be further legislation on industrial relations. The legislation we have had in the past on industrial relations has been aimed at restricting the powers of the trade unions. We on these Benches support some of it; some was very badly needed indeed and we were glad that the Government had the courage to tackle it.

The return of power—perhaps "return" is not the right term, I doubt whether members ever had it—the handing of greater power to the member as distinct from the official is something that we all applauded. We are not saying that all the legislation was bad, but there was an element of vindictiveness about it which has grown with additional pieces of legislation. It would have been better if some of it had not been passed, particularly the more recent legislation.

We very much hope that the further legislation promised—and we do not know what it will contain—will not be vindictive. As the noble Lord, Lord Campbell, said so plainly, one cannot have a successful industrial country unless there are properly organised trade unions. We on these Benches have never accepted that trade unions should have special powers in a political system, but we have always recognised that in the industrial system trade unions need to have a proper place, a proper role and should be given adequate support to carry out that role.

One cannot run an industrial country without well organised labour relations. I beg the Government in any new legislation which comes forward to show recognition of the proper place of trade unions and the proper need for support for well organised trade unions. That has been a source of strength—until the last week or two—in the Federal Republic of Germany. That government would not have been able to deal with many of the problems they faced, had they not had properly organised industrial relations such as they have had ever since the Second World War.

I add that we gave them the system. It was Herr Genscher who remarked to my colleague, David Steel, "You British are remarkably generous. You gave us in the Federal Republic a good trade union system. You gave us decentralisation of power, you gave us a system of proportional representation. You generous people, you gave it all to us and did not take any of it for yourselves". Good trade unions are an essential part of a strong industrial system. I beg the Government to see that in the forthcoming legislation this is recognised.

If the Government wish to show a token to the trade unions that they recognise their place and recognise the right of free association, after all these years they could reverse the decision about trade union membership in GCHQ. Nothing would be a stronger gesture to the trade union movement, if the Government wished to get it on their side in the recovery of industry, than to say that they do not now regard it as necessary to retain the prohibition which has been seen as vindictive and insulting to the loyal members of the organisation—an organisation essential to the well-being of the country. They should say that that restriction need not be kept in place any longer.

Having said that, I am afraid that I cannot join in the enthusiasm and optimism which has been so prevalent in the debate today. I see nothing in the gracious Speech which reflects any realisation of the serious problems that this country is up against. These are the problems of the next decade. After all, it is the job of government to exercise leadership, not just to look at what has happened in the past or the immediate present. I am sure that the Government wish to get rid of the reputation they have acquired of being governed by the short term. They need to look forward at what the issues will be over the next decade and beyond.

I believe that there are three issues which have not been dealt with at all adequately in the debate today. We have talked about the importance of wealth creation. I should be the first to agree that it is necessary for it to be discussed, but, like the noble Lord, Lord Hatch—although I do not in the least reach the same conclusions as he reached—I believe it must be sustainable wealth creation. It must be wealth creation which has a medium and long-term benefit, not just a short-term benefit. It is more expensive to produce sustainable wealth than to produce wealth that has regard only to the effect on the immediate future.

If we are to have the level of wealth creation that we need for our problems in this country, that is only the beginning of the things for which we need it. We must do a great deal more than we have done in the past or than is proposed in the gracious Speech. We must stand up to the competition in the European Community, but that is only the beginning. We must also stand up to the increasing competition from the Pacific rim. It is getting stronger and stronger all the time and we show no sign of being able to stand up to it.

We need, as a matter of urgency, to improve our transport systems. What nonsense it is that the Channel Tunnel will presumably be opened more or less on the date given to us but our transport system is not adequate to take advantage of it. We need a transport system which will enable goods to be loaded in Liverpool, Newcastle and Scotland and taken off in Dusseldorf. Our present system does not begin to be adequate.

If we do not obtain the markets that will open up on a wider and wider scale inside the Community after the beginning of 1993, other members of the Community will get them. If we fail to get them because of the inadequacy of our transport system —which is only one of the problems but a very real one—the Government will be to blame for their failure to strengthen railways in this country.

As I travel around in a car, I find one can hardly move for the traffic on the roads, but if one travels by rail—as I do frequently—one finds that the need for improvement on the railways, the infrastructure and the whole way in which the railways are run is apparent on every journey that one takes. That is part of economic development and economic recovery.

Again, there is a need for more to be done on the training front. I know we keep saying it and we are almost deafened into indifference because it is said so often. Do we realise how far behind we are and how important it is that people have the basic education, skills, ability to learn and relearn that our competitors already have? They are improving on their skills.

Inside the European Community, in Japan, and in the countries of the Pacific basin, people are better trained. They will compete for the only kind of work which we can now obtain, which is not the work of the unskilled. The work requires knowledge, the ability to learn, the ability to delegate work to a wide range of people to carry out on their own initiative and their own understanding.

Only yesterday I was at a meeting inside the European Community at which people were talking about the learning company and how people inside organisations are planning to enable the whole range of workers to make positive personal contributions to productivity and success. That can only be done if we have a far better trained and educated labour force than we have. It is not only that people are leaving schools inadequately trained. Because of our failure in the past, we have a huge backlog of untrained people and we shall find it extremely difficult to use them. This is a crisis; it is not something that can be dealt with calmly and slowly, bit by bit. That would be too little and too late.

The second point is that there is nothing in the gracious Speech that shows the realisation of the seriousness of tackling the environmental issue. That is one of the reasons why we must have a high level of wealth creation because environmental measures are expensive to implement. We should not fool ourselves about that. Those measures cannot be implemented on the cheap and the wealth to implement them must come from somewhere. Yet, if we do not tackle those issues, what will we hand on, probably in the next decade but certainly in the next generation? Nothing in the gracious Speech gives any idea of the serious need to deal with the environment on the scale that is required.

Finally, Members of your Lordships' House have talked about GATT. However, I wonder whether we realise just how important are the implications of GATT and the Uruguay Round. The Prince of Wales in a recent speech was absolutely right to talk about the linked problems of poverty and population in the developing world. Population is the biggest problem the world faces. It is greater than the problem of the nuclear bomb. The world population is due to double between now and the year 2030. Some 94 per cent. of that increase will occur in developing countries.

I was in Kenya last year discussing population issues. I was told by a Kenyan Minister of Health that in 10 years' time Kenya will neither employ nor feed its people. If this situation continues, the people of North Africa will be determined to reach the southern Mediterranean shores and the problems with racism which we are already witnessing will grow and grow. We are faced with hideous issues here. Aid is important, but those countries need trade. We must get rid of the protectionism which is preventing those countries from earning the kind of living which will encourage people to stay in their own countries and build up a standard of living which is reasonably acceptable, although it is of course miles away from the standard of living of even the poorest people of this country.

When the deputy Leader of the Labour Party talks about equality as the core characteristic of the modern socialist party, it is no good for him to confine his view of equality to this country. Poverty in this country is as nothing to the poverty in the developing world. That is the issue of the future and that is the issue which ought to be reflected with urgency in the measures which do not appear in the gracious Speech.

8.52 p.m.

Lord Peston

My Lords, I must start by echoing the remarks made by noble Lords welcoming the noble Baroness, Lady Denton, to her new ministerial position. If I remain in my present position I shall look forward to debating economic, financial and industrial matters with the noble Baroness. I must also, of course, extend a welcome to the noble Lord, Lord Wakeham, the Lord Privy Seal. Although, technically, this is not his maiden speech, I believe that, in terms of substance, it is his first contribution to your Lordships' deliberations. I for one certainly look forward to hearing what he has to say.

While I am on the subject of personalities I must apologise to some noble Lords that I shall not respond to what they have said. As noble Lords are fully aware, that is not because I ever avoid a battle. The truth is quite the contrary. However, in the case of the speech of the noble Lord, Lord Sanderson of Bowden, which I found fascinating, I must admit that I do not know enough about the subject of the speech to respond to it. I know it is shocking that I am not knowledgeable about Scotland. There must be something wrong about that state of affairs. However, I am not knowledgeable about Scotland and therefore I shall avoid responding to the noble Lord's speech.

I also found the speech of the noble Earl, Lord Gowrie, fascinating. I believe I know all there is to know as regards the future of the public sector but I cannot devote the whole of my time this evening to that subject. However, the noble Lord raised an issue that I regard as an absolutely central one and I hope we shall get another opportunity to debate the public sector in terms of reconsidering fundamental principles. I hope the noble Earl accepts my apology but I shall not do battle with him this evening.

I must also apologise to the noble Viscount, Lord Oxfuird, as I cannot see any sign of the sunlit uplands, or whatever he was talking about. My speech will be a good deal more gloomy than almost anyone else's. I shall not take up much of your Lordships' time in commenting on the timing of the end of the recession and the start of the upswing. I am not sure which of the available clichés your Lordships prefer. I shall list a few. We have seen too many false dawns and most first swallows turn out to be figments of the Treasury's imagination. I believe the noble Baroness, Lady Denton, preferred the cliché about the green shoots. However, I believe they may be subject to a little frostbite in due course. However, I can agree with the noble Baroness, Lady Denton, that it must be the case that the recession will end some time this year. Possibly the next quarter's GDP figures will show an increase but surely there will be an increase in the following quarter. I have sat here now for two years listening to the Government say that the upswing will occur in the next quarter. They have ground me down. The upswing must occur in some quarter in the foreseeable future.

However, the more serious question concerns how fast the upswing will he and what will drive it. I cannot see a fast upswing in prospect and I cannot remotely see what will drive such an upswing. For either households or firms to borrow at existing real rates of interest looks perilous to me at least. If nominal rates can fall at all, they cannot go much lower. Assuming the Government would not encourage extra inflation in order to lower real rates, what is there left? To me, world trade looks sluggish. Desirable though export-led growth would be, I do not see it happening. Perhaps it will all depend on a reduction in the household sector's propensity to save, but we know how volatile and unreliable that can be.

Those with direct experience in retailing state every day in the Financial Times and other papers that they see few signs of recovery and they are not predicting a large upturn. The confidence indicators look better and I hope that for all our sakes, but especially for the sake of the unemployed, that that confidence will be translated into action. However, for the moment no one can see that being the case.

One indicator is performing extremely well. I refer of course to the stock market and share prices. To the extent that share prices are supposed to be set rationally and to reflect expected future profits, the rise in share prices is quite extraordinary. Again I hate to dampen the expectations of those noble Lords who are fully committed to the market but I find it hard to see where the extra profits will come from, especially if the Government pursue an anti-inflationary strategy, as I think they should.

The gracious Speech refers to balancing the budget. The Government of course have singularly failed to do that throughout their period of power. Except for a period of about two years, the public sector accounts have been in deficit. There were small surpluses in the public accounts for two years but after that they returned to deficit. As noble Lords have pointed out, the deficit is high and is expected to continue. Although in the gracious Speech the medium term is not defined, I can think of no definition of the medium term which makes balancing the budget feasible.

As has been pointed out, the Prime Minister himself during the election campaign gave an absolute pledge that VAT would not be raised. I oppose my noble friend in that I believe what the Prime Minister has said on that. The Government are fully committed to lowering direct taxes. Therefore there is no possibility of the deficit being dealt with on the tax side. I shall echo something said by the noble Earl, Lord Gowrie. The important question is whether the deficit can be dealt with on the expenditure side. However, I know of no Government Minister who has ever made a successful career by cutting expenditure, though I know many who have ruined their careers by destroying this, that or the other.

There will be some benefit and advantage from the recovery of the economy. The recovery will bring in tax revenue and social security benefits will decrease.

However, I cannot see that those factors will make a great deal of difference. I agree with the words of the noble Earl, Lord Gowrie, although my attitude on this matter is different to his. I agree with him that we shall experience the toughest restraints on public expenditure that we have seen for a long time. I also believe we shall experience the toughest conflict within government that we have seen for a long time.

I hope I may say a few words on the balance of payments problem in responding to the noble Viscount, Lord Caldecote. I used to think of myself as an economic guru but I have grown out of that. I hope the noble Viscount will agree with one or two of the remarks I am about to make, particularly as regards the so-called balance of payments constraint on growth. It was argued not long ago, not least by the Treasury, that a balance of payments deficit, especially if caused by the private sector and financed by private sector borrowing, was not a bad thing. Of course one can find good theoretical arguments to support that. However, I must remind noble Lords that what is borrowed, whether by the Government or by the private sector, has to be repaid. If it is borrowed across the exchanges, it has to be repaid.

Running down our net overseas asset position, which is what a deficit and borrowing implies, makes the Government's task of maintaining a fixed rate exchange rate system all that more difficult. Although a temporary deficit is acceptable, particularly if the deficit is there for investment purposes, in my view a permanent deficit undoubtedly weakens the economy. Without saying that manufacturing is all that matters, a permanent deficit relating to the manufacturing deficit—the noble Lord is quite right, and other noble Lords have argued it over the years—is something about which we should be very concerned. To echo other noble Lords, the persistence of a deficit with the economy as slack as it is and operating so far below capacity as we are, is distinctly worrying.

With regard to GATT, I am glad that the noble Lord, Lord Young of Graffham, introduced that issue and that other noble Lords added to it. The GATT is enormously important. I may be alone in saying that I am extremely pessimistic. In a sense, I think that the Uruguay Round has failed already. Certainly I cannot see among the powers-that-be—I am thinking of the American presidential election—who now has the power and interest to get the GATT to succeed this year. I do not welcome that. Perhaps the noble Lord, Lord Young of Graffham, was rather more optimistic than I was. I should like to believe for once that he is right and I am wrong; but I do not. I think that this time the GATT talks are over and done with and we have to start again.

I do not propose to say anything of substance on the Maastricht Treaty, although a great deal of it concerns economics and therefore comes within my field. Other noble Lords—probably not I—will have ample opportunity to debate Maastricht in the near future. However, I must express one concern; namely, that it is vital that we are fully informed and understand what that treaty means. Too often in the past this Government, and especially the former Prime Minister, have signed documents—notably, the Single European Act—but subsequently have said, "That is not what I meant; not what I meant at all".

We now all have copies of the treaty—at least I am told that we are supposed to have copies. I have one. I have great difficulty in understanding it, and I have the English version. I must ask the Government and the noble Lord who will reply to the debate whether the Government propose to publish a detailed exegesis of the Maastricht Treaty so that we can satisfactorily scrutinise what we are letting ourselves in for. I do not say that I am against it. I merely like to know what I am signing when I sign on the dotted line.

With regard to interest rates, I disagree with a number of noble Lords, including some from my own side. What limits our scope in cutting interest rates is not membership of the ERM. What constrains our interest rate policy, long term and short term, is free international movement of capital. One simply cannot move very far away from interest rates set knowing world capital markets. That was a decision made by the Government some 10 years ago, and I for one welcomed it. A floating rate of exchange, as I have argued before, may give one a little temporary flexibility on monetary policy with respect in particular to the short rate of interest. But one only has that by paying a very heavy price; namely, that of adding exchange risk to the exchange rate. Therefore in the longer term one ends up with higher rates of interest. So I personally do not blame the ERM for our problems with interest rates. There is no easy way out, once there are world capital markets moving away essentially from world interest rates.

I go on to two more technical matters which are rather less high-flown than the macro-economics that we have been discussing so far. First of all, I should like to say a few words on the national lottery, which is mentioned in the gracious Speech. I regard it as an economic phenomenon even though it will not be dealt with by the Treasury but, to my amazement, by either the Home Office or—do we have agreement on what the Ministry is called?—the Ministry of Fun. I shall confine myself to the economics of the matter. Certainly I shall not go into the moral issues of the national lottery.

Let us assume that the running costs and profits of the lottery are similar to those of, say, the football pools, and that furthermore the lottery is taxed in exactly the same way as football pools and similar gambling. In order to make the bet competitive—there is no way of avoiding the fact that a lottery is a bet and a gamble—about the same percentage of the stake must be returned through the lottery as is returned through the football pools. When that is added up, it is perfectly obvious that there is nothing left over to disburse for good causes. There is no pot of gold.

One possibility is that a much smaller fraction of the stake will be returned as prizes. The difficulty of that is that the bet then becomes a very much worse bet. If that is publicised, one can hardly see the lottery succeeding. Alternatively—I raise this point now in order to ask noble Lords to think about the matter —the Treasury will take less in taxes. That seems to me to raise the most serious issue of fiscal correctness. In essence, if the Treasury forgoes revenue and the Ministry of National Heritage or the National Lottery Board then spend what the Treasury does not take, not only is Treasury control of public expenditure weakened, one is also well into the area of hypothecated taxation, which is not something that we should just allow ourselves to drift into.

The lottery White Paper is rather obscure on this point. It states: Stakes in the national lottery should be subject to a new lottery tax; the rate would be decided at the relevant time". But attempts to evaluate the lottery cannot be based on such a vague statement. One needs to know the precise rates in order to evaluate it. More to the point, it is said that: the disbursements of a national lottery will be classified as public expenditure in the national accounts". To emphasise my concern with the national lottery—I do not expect at this moment a detailed reply on this point from the noble Lord, Lord Wakeham—I believe that we are entering into very dangerous ground. It is ground in particular which properly involves the Treasury in terms of public expenditure, and so on. That is something that cannot just go through on the nod.

In the case of the national lottery, I made some comments on an issue that is in the gracious Speech. I turn now to another technical matter. I hope noble Lords will bear with me. It is not mentioned in the gracious Speech but ought to have been. My concern is with the first Council Directive 21/12/1988 of the Community entitled Approximating the laws of the member states relating to trade marks.

Noble Lords ought to be aware that we in this country are fully committed to that approximation. We were fully committed—again it is one of those commitments to which we signed on the dotted line—to bringing our laws on trade marks into line by December 1991. I gather that there may be some flexibility in the date which will enable us to do it before December 1992. However, we must do something in that important area.

When noble Lords argue about what is important to the country, I believe that the protection of intellectual property is as important as protecting any other capital. We must introduce that legislation soon. I do not see it as a party political issue. We are in agreement with it. It would occupy your Lordships most satisfactorily within the next few weeks. I hope that the noble Lord, Lord Wakeham, will encourage me by stating that we shall do something on that technical matter.

Before concluding, I raise one further matter with some trepidation. However, since this may be our only debate on economic affairs for some time, I raise it, albeit with reluctance. I refer to the possible change of ownership of the Midland Bank. Within our financial system, the decision cannot be left to the shareholders of the Midland Bank alone. There is a national interest in the ownership of one of the four commercial banks. I do not wish to pre-judge the outcome, but I am certain that the arrangements should not be biased in favour of one potential owner or another. I think that I favour—I am not completely sure—faute de mieux a Monopolies and Mergers Commission inquiry, although after its investigation of the motor car industry, I am not sure that I have much faith in the Monopolies and Mergers Commission getting anything right in the future. But I do not see any other way to deal with the national interest in this matter. I cannot remember whether it is called the Department of Industry, the Department of Trade and Industry or the Board of Trade, but certainly that department cannot stand back and say that it is nothing to do with it. I am extremely concerned about the intervention of the commission on these matters.

I conclude with some remarks that are aimed more at my own colleagues than noble Lords opposite. However, I do not mind noble Lords opposite listening! My difficulty is simple. I believe—and noble Lords have heard me argue this many times—that the economic policies on which we fought the election were correct. I believe that our proposals were in the national interest. I do not resile from saying that even though we lost the election. I go further; it may amaze the noble Baroness. I also find it hard to disagree with the Liberal Democrats' proposal to raise income tax to finance improved education.

However, in a parliamentary democracy it is no good being right if not enough of the electorate agree with you. I do not make the mistake of saying that it was the electorate that failed us rather than that we failed the electorate. Clearly, as my noble friend Lord Ardwick said, we on this side must think again.

However, I believe and always will state that the first priority for the economic dividend of the growth of the economy must still be to give as much of it as possible to the poor. I still believe that we must find more resources for education and health. I believe that homelessness is an avoidable evil and not something that we have to accept. I certainly believe that unemployment of the scale that we have experienced throughout the decades of the 1980s and 1990s is a disgrace.

Our task is always to persuade the public of the correctness of our objectives and the correctness of our means of achieving them. I still believe that we shall succeed in doing so.

9.12 p.m.

Lord Wakeham

My Lords, we are now coming to the end of four days of this most interesting debate.

I have had the pleasure and privilege of listening to most of the speeches made on all four days. It has generally been for me a most enjoyable experience—with one or two exceptions! There has been an extremely well-informed level of debate, which I had been told to expect; and I have not in any way been disappointed. I say that as one whose long experience in the Whips' Office has taught me to be a better listener than speech maker—as your Lordships will soon discover over the coming months. It is perhaps rather too late in life to learn to do much about it.

My old father, long gone to the great gallery in the sky, always told me that the real place in which informative speeches were made was your Lordships' House rather than another place. Certainly if he were listening he would not have been disappointed—at least until now; and perhaps a certain paternal pride will keep him going for a few more moments.

We have had eight maiden speakers. I congratulate them all. They were first class and made useful contributions. There have been many other interesting speeches, in particular today. As my noble friend Lord Boyd-Carpenter said, it is probably the most important of the four days of debate. I shall do my best to answer the points that have been made.

I cannot do justice to all the points. I shall write to noble Lords if I fail to give a reasonably adequate answer but I shall have a go. If I miss out some points, noble Lords may believe that they are too difficult for me to answer. Perhaps they will be right but I shall not admit that. I shall have a go at doing the best that I can with the most interesting points that were made.

Perhaps I may first comment on the speech of the noble Lord, Lord Williams of Elvel. He indicated that policies to maintain pressure on inflation will make a balanced budget objective impossible to achieve. In my view, the present deficit will to a significant extent be self-correcting as the economy picks up. I believe that that is the answer to some of his worries. After all, about two-thirds of the rise in PSBR during 1992–93 is explained by higher expenditure. Most of that represents cyclical increases in social security benefits, British Rail and London Transport external financing and redundancy payments. That spending will have a tendency automatically to tail off as the economy recovers.

In the view of the Government the underlying position remains sound. Even in 1992–93 the PSBR is expected to be 4.5 per cent. of GDP. That is well below the average for the period of, for example, 1974–79, which was 6.75 per cent. The fact is that we are coming out of the recession with low interest rates and low inflation. Our growth during the 1980s was faster than that of Germany and France. That can be compared with the 1960s and 1970s, when we had the lowest growth in the EC. Therefore we are set fair to do better than our competitors during the 1990s.

My old friend the noble Lord, Lord Rodgers, said some nice things in welcoming me. He also said some wise things in his speech. He commented on the fall in inflation, the improvements in productivity during the 1980s and the better management of British industry. In our view those fundamental improvements provide the foundation for the non-inflationary growth that we seek to achieve in the future. The noble Lord also asked questions about the organisational changes in government. Those are matters for the Prime Minister, who is the authority on the exact reasons why he makes such changes. I have not discussed with my right honourable friend Mr. Heseltine why he is known as the President of the Board of Trade. However, I am almost certain that the reason is because he believes that the trade part of his portfolio must be emphasised in particular in the years to come. I am sure that he is right in doing so.

Perhaps I may make one comment about the changes in the structure of government, in particular in so far as it affects the DTI. My old department, the Department of Energy, is now part of the DTI. It is important to recognise that structures of government must change when circumstances change. The situation of the energy industries in this country has changed fundamentally since 1979. In 1979, 60 per cent. of all the energy used in this country was produced by state-owned corporations. Today 90 per cent. of all the energy used in this country is produced by the private sector. Noble Lords will recognise that in terms of government interference and effort that represents a considerably different proposition from the situation which we inherited in 1979.

However, that does not mean to say that governments and government agencies do not have a role in a privatised sector. The regulators are still very important. On the other hand, the change in the structure of government which was necessitated following the change on the ground is important too. We now have a market in energy where none previously existed. That will be of significant benefit to the customer. As my noble friend indicated, gas prices in the domestic field have fallen by some 13 per cent. since privatisation. During the first year of privatisation electricity prices for 75 per cent. of large industrial users—those using more than 1 megawatt—fell by 10 per cent. Prices for 30 per cent. of users were reduced by more than 20 per cent. Perhaps I may say in passing how well my officials served me during my time at the Department of Energy.

The noble Lord, Lord Flowers, is always listened to with great interest in this House when he speaks about matters of science and as chairman of the Science and Technology Select Committee of this House. I shall certainly draw to the attention of my right honourable friend the Chancellor of the Duchy of Lancaster the noble Lord's remarks this afternoon. Science and technology cut across the Government's business, and the setting up of the Office of Science and Technology at the centre of government under a Cabinet Minister underlines this Government's commitment to these matters. The office will take an overview of science and technology interests but I assure the noble Lord that my right honourable friend the Prime Minister will also take a great interest in the subject, as he has done until now.

I do not wish to say anything about the Cabinet committees because, as the noble Lord may well know, this Government are planning to do what I believe- no other government have done; that is, to publish the composition of the Cabinet committees. However, it is not for me to announce that at this time of night at the end of this debate.

My noble friend Lord Young of Graffham is one captain of industry who speaks in this House and I am delighted to see a number of my other noble friends here who also do so. I agree with my noble friend about the increase in confidence since the election and also that there were some signs of that before. My noble friend was the first speaker to raise what I believe to be an extremely important point, which a number of other noble Lords—in particular, my noble friends Lord Boyd-Carpenter and Lord Oxfuird and the noble Baroness, Lady Seear—also raised. That was the great importance of the GATT negotiations.

The failure of the GATT round would imperil the stability of the world trading system and the United Kingdom has consistently urged the EC to take a liberal and constructive attitude in this matter. All I can say to your Lordships is that the prestige which I believe our Prime Minister has will help in trying to reach a settlement, particularly during the period of our presidency of the EC. However, I share with everybody my anxieties about that.

One of the privileges of coming to this House has been to hear for the first time the noble Lord, Lord Houghton of Sowerby. When I was a small boy during the war, I remember that he used to broadcast on the wireless. I believe that the programme was called "Can I help you?" or something like that. I must say that I was slightly shocked when I heard that he had become a Minister in a Labour Government. It seemed to me that he had talked so much sense in those days that I wondered what had happened to him. I am delighted to have been in the House to hear him speak this evening. I was much reassured by a number of very sensible things that he said about the ideological divide. I hope that everybody else who heard what he said will agree with me that it was an extremely worthwhile contribution.

Indeed, we had some evidence of that in the sense that my noble friend Lord Rees and the noble Lord, Lord Williams, both seemed to agree that inflation can never be completely licked. To be slightly discordant, I must say that my noble friend Lord Rees played, in the Government of which I was probably the Chief Whip, a distinguished part in containing public expenditure. The day of the noble Lord who speaks for the Opposition may come but I shall not encourage that too soon. We shall see. At least both noble Lords agreed on the importance of controlling inflation.

The speech of the noble Lord, Lord Ardwick, was extremely interesting. As I believe has already been pointed out, it was in contrast to one of his noble friends who spoke afterwards in the sense that he made a sensible point that was picked up by my noble friend Lord Boyd-Carpenter; that is, unless we have economic growth we are unlikely to have the taxation necessary to pay for the increasing demands of providing the services we need.

My noble friend Lord Sanderson spoke with great authority, as one would expect, in regard to Scotland. What he said was extremely sensible. I remind my noble friend of the Chancellor's Budget and the help for the business rate which has a cost to the Exchequer of £480 million in 1992–93 and £590 million in 1993–94. That is a considerable help for what I agree are difficult purposes.

I turn to the speech of the noble Lord, Lord Benson. It was an important speech and was referred to in one way and another by the noble Lord, Lord Barnett, and my noble friends Lord Caldecote, Lord Boyd-Carpenter and Lord Harmar-Nicholls. I agreed with much of what the noble Lord, Lord Benson, said. He spoke with great authority. But perhaps I could tentatively suggest to him that the situation has somewhat improved since he and others began making speeches incorporating these points. The Government can take small credit for that. The noble Lord can take a great deal of credit for it. He has been one of the foremost to point out the need for higher professional standards in management, in the way that directors conduct themselves, and all the matters he spoke of so eloquently in his speech and supported by others.

However, our manufacturing base has not declined. Output is up by one-quarter; investment is up by one-third; productivity is up by one-half and exports by three-quarters since 1981. The Government have an industrial strategy which is to create the stable, low-inflation environment which industry needs to enable it to plan for the future. For those who did not hear my noble friend Lady Denton, who spoke of the work of her department, she made a number of points in her speech which I strongly recommend noble Lords to read.

My noble friend Lord Boyd-Carpenter quite rightly referred to the level of taxation. The Government are committed to reducing the share of national income taken by public spending. Our manifesto reaffirmed that pledge. The noble Lord, Lord Harris of High Cross, made the same point in his style which I had heard before I came to this House, which I enjoy and hope to hear more frequently.

The noble Lord, Lord McCarthy, courteously told me that he had to leave to catch a train and I shall therefore write to him rather than answer his points this evening. My noble friend Lord Trefgarne spoke in a wide-ranging speech of the importance of the completion of the single market. I absolutely agree with him. Our time as presidency of the EC will give us the opportunity to achieve that, and that is what we must do.

I enjoyed listening to the noble Lord, Lord Hatch, but I do not find myself in a position to give what he may think is an adequate answer to his wide-ranging speech. I can see that my note is inadequate to the task of responding but I shall read from it in order to assist the noble Lord. I wrote that on 30th April No. 10 announced that the United Kingdom is willing to return the CO, emissions to the 1990 levels by the year 2000 if other countries agree to take similar action. In view of the range of his speech, that may sound a rather modest contribution to it. But I have to say to him that that proposal of itself is a real target of considerable cost. It is one to which the Government have set themselves. After considerable thought we are determined to achieve it, but perhaps on not such a grand scale as the noble Lord outlined in his speech. I hope that it is a real contribution.

Lord Hatch of Lusby

My Lords, perhaps I may ask the noble Lord a question.

Lord Wakeham

My Lords, I believe that I should keep going. The House has been kept for a long time. I say to my noble friend Lord Campbell of Alloway that, as often, he may well be right. He is ahead of the Government. I heard his speech with interest. He wants us to revise the policy on trade union recognition for collective bargaining. I am very glad to know that he is in touch with my noble friend in the employment department. The Government's position is still the same, but, as I say, my noble friend has been in front of our thinking in the past and he may well still have influence on it.

I am afraid that the speech of the noble Lord, Lord Selsdon, was the only one today that I did not hear. However, I have a note of high praise for it. I shall certainly pass on his concerns on the whereabouts of the other members of the Board of Trade to my right honourable friend who is President, though he may not know where they are, either. Perhaps he may not even worry as much as the noble Lord.

My noble friend Lady Sharpies made some very important points about small businesses of which I have taken note and with which I agree. I was delighted to listen to the speech of my noble friend Lord Gowrie, which covered a wide range. While he was making his speech the one matter that struck me about it was to remind myself of the time when I was privatising the electricity industry and breaking it up into 18 separate companies. As chairman after chairman came to see me to tell me how much he relished competition, that he enjoyed it and was looking forward to it, to each of them I made the same comment: "Things must have changed since I was in the private sector. I disliked competition when I was in it. I did everything I could to find a quiet corner of the market which I could exploit and where nobody else would notice me, but unfortunately others found out too soon and I was never able to enjoy what I thought was the best thing". I thought the charm and realism which my noble friend put into his speech was a joy to hear.

The noble Lord, Lord Desai, made a very important speech. He is certainly a man of expertise to listen to. I felt that he was a little depressed or depressing. I make the point to him that the PSBR is projected to peak at 4.75 per cent. in 1993–94, which is considerably less than the average level of 6.75 per cent. of GDP under the last Labour Government.

I have two more points to make quickly and then I shall sit down. The noble Lord, Lord Peston, asked me about the Government's commitment to introduce a Bill on trademarks. As I pointed out, the Government's legislative programme for this Session is already substantial and challenging. I am sympathetic to and certainly recognise the strength of the case put forward by the noble Lord that the Government should be able to find time in their programme for such a Bill. He said that a Bill would have the support of noble Lords opposite. The fact that it will have that support is certainly helpful to me, but I am not in a position to say "yes, we can do that". I can give no commitment, but in view of what the noble Lord said I shall certainly discuss it with my right honourable friends to see whether we can find a way forward, because I recognise that it is a very important matter.

On the question of the Midland Bank merger, perhaps as I know so very little about it, I had best keep off the subject.

With the uncertainties of the general election behind us, the economy is poised to return to growth. The conditions for recovery are in place. Low inflation and sterling's ERM membership lay the firmest of foundations for sustained, non-inflationary growth. The achievements of the past 13 years mean that the economy is in a position to benefit fully from the stable environment that they offer. Our ability to attract inward investment was second to none in the EC. Our manufacturing productivity growth was the fastest in the G7. I believe that the economy will emerge from recession primed to build on this record.

That is testimony enough to the underlying strength of the economy and the success of government policy towards it. I look forward to the coming Session with great enthusiasm.

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

House adjourned at twenty-four minutes before ten o'clock.