Lords Sitting of 4 November 1992

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Salisbury.

Lord Plant of Highfield
Raymond Plant, Esquire, having been created Baron Plant of Highfield, of Weelsby in the County of Humberside, for life—Was, in his robes, introduced between the Lord Underhill and the Baroness Hollis of Heigham.

Lord Gilmour of Craigmillar
The Right Honourable Sir Ian Hedworth John Little Gilmour, having been created Baron Gilmour of Craigmillar, of Craigmillar in the District of the City of Edinburgh, for life—Was, in his robes, introduced between the Lord Hailsham of Saint Marylebone and the Lord Weinstock.
Lord Bullock Lord Bullock—Took the oath.

The Lord Chancellor: Leave of Absence
2.58 p.m.
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, before the commencement of business I take the opportunity to inform the House that I have accepted an invitation from the Prime Minister to attend a lunch in honour of the President of Russia on Monday 9th November. Accordingly, I trust that the House will agree to grant me leave of absence for Monday 9th November.

Hong Kong: Democracy
2.59 p.m.
Lord Judd Lord Judd asked Her Majesty's Government: What is their policy concerning democracy in Hong Kong.
Baroness Trumpington: My Lords, the Governor of Hong Kong has said that his aim is to extend the participation of' individual citizens in public affairs, and to ensure that the 1995 Legislative Council elections are broadly based, open and fair. We share those aims and fully support his proposals which he announced to the Legislative Council last month. Discussions with the Chinese Government have only just started. We look forward to continuing this dialogue.
Lord Judd: My Lords, will the noble Baroness accept that there is widespread goodwill and support for the Governor in his immensely demanding task? Does she agree that our commitment is not simply to the success of the economy and the stock market, vital
1424
though those are as ends in themselves, but to the millions of people who make the community of Hong Kong? Does she agree that if that responsibility is to be discharged, human rights, of which democracy is the guarantee, must remain on the agenda? Can she explain how the strengthened executive will help in that respect after 1997?
Baroness Trumpington: My Lords, perhaps I may first answer the last part of the noble Lord's question. We continue to believe that the simplest way to develop democracy in Hong Kong is to increase the number of directly elected seats in the Legislative Council. My right honourable friend the Foreign Secretary put that to the Chinese Foreign Minister when they met in New York in September. As regards the first part of the noble Lord's question, I value his remarks. We greatly support Mr. Patten's proposals. We are convinced that they represent the best way forward for Hong Kong. Mr. Patten has emphasised that he wishes to continue discussing his proposals with the Chinese side. Our aim is to reach as much agreement as possible.
Lord Marlesford: My Lords, does my noble friend agree that the publication last week of previously confidential correspondence between the British and Chinese Foreign Ministers in January and February 1990 shows clearly two things; first, that in no way can the Chinese claim that the proposals of the present Governor of Hong Kong betray any agreement privately made in 1990, and, secondly, that in negotiations carried out in 1990 Britain was fighting just as doughtily for the rights of democracy in Hong Kong behind the scenes as the Governor of Hong Kong is doing at present rather more publicly?
Baroness Trumpington: My Lords, I believe that have already answered to a degree part of my noble friend's question. We have always supported the future of democracy in Hong Kong. As regards the release of the exchange of messages which took place in early 1990 between the Foreign Secretary and the Chinese Foreign Minister, China proposed that we should do so and referred to them in public. We wanted to set the record straight. The documents
make clear that there was no secret deal over any aspect of the 1995 elections in Hong Kong.
Lord Cledwyn of Penrhos: My Lords, while I accept entirely what the noble Baroness says, can she confirm that the speech made by the Governor, Mr. Christopher Patten, on 7th October in the Legislative Council in Hong Kong, conforms with the Basic Law? If it does not conform precisely, do Her Majesty's Government propose to reopen negotiations with the Chinese Government?
Baroness Trumpington: My Lords, there was a dialogue between the British and Chinese governments while the Basic Law was being drawn up. That took nearly five years and involved Hong Kong's people as well. We regard it as a generally acceptable reflection of the Joint Declaration but, as we made clear at the time, there were a number of provisions which we did not particularly like. The limit of 20 on

1425
the number of directly elected seats to be allowed in the first post-1997 Legislative Council is one of them. The Chinese Foreign Minister has suggested that talks should continue in the joint liaison group and we are following this up with the Chinese side.
Lord Mackay of Ardbrecknish: My Lords, does my noble friend agree that the Governor's task—
Lord Cledwyn of Penrhos: My Lords, perhaps I may pursue my point so that there may be complete clarity. Is the noble Baroness now saying that the Basic Law, as it exists, was not agreed completely between Her Majesty's Government, the Hong Kong Government and the Chinese Government? If that is the case, is she saying that Her Majesty's Government will reopen negotiations so that the Governor's proposals may be included in the Basic Law?
Baroness Trumpington: My Lords, I am sorry if I did not answer the question of the noble Lord, Lord Cledwyn, properly the first time around. I had better try again. In our view, Mr. Patten's proposals are within the terms of the Joint Declaration and the Basic Law and they have been very well received by the people of Hong Kong.
Lord MacLehose of Beoch: My Lords, while I greatly admire the way in which Mr. Patten has endeared himself to people in Hong Kong in such a very short time, will the Government keep firmly in mind the fact that the reforms that he has proposed will be quite valueless to the people of Hong Kong in the long term unless they can be carried through 1997? Having so much in common with the Chinese Government over Hong Kong, is it not a great pity that this dispute over electoral matters should have developed into what amounts to a major confrontation? Will the Government bear in mind the admirable dictum of Chou En-Lai,"Let us set aside differences and concentrate on points in common"?
Baroness Trumpington: My Lords, who should know better than the noble Lord, Lord MacLehose? We want to provide the maximum possible continuity for Hong Kong when sovereignty is transferred in 1997, but Hong Kong is a dynamic society, as the noble Lord knows only too well. It cannot stand still either politically or economically if it is to maintain its vitality. The Governor's proposals are still receiving a remarkably high degree of support in Hong Kong in spite of sustained hostile campaigns in the pro-China press. Markets and international confidence remain strong. We do not seek a row.
Lord Bonham-Carter: My Lords, is it not the case that the response to Mr. Patten's proposals has to come from the Chinese Government and that it is not for us to appease them but to stick by the proposal that he has made? We hope that Her Majesty's Government will support him in the ingenious plan that he has put forward and in the courage with which he has supported it?
Baroness Trumpington: My Lords, as I said, the Chinese Foreign Minister has suggested that talks could continue in the joint liaison group.

British Rail: Fare Increases
3.7 p.m.
Lord Stallard Lord Stallard asked Her Majesty's Government:
What discussions they have had with British Rail concerning increases in rail fares.
Viscount Goschen: My Lords, Ministers were consulted on the British Rail fares increase due to come into effect on 3rd January 1993 in view of their role in setting British Rail's financial framework and objectives.
Lord Stallard: My Lords, I thank the Minister for that reply, but it begs some obvious questions. Why did the Government apparently not question these horrendous increases of up to 9.5 per cent. at the same time as contemplating limiting the wage increases of commuters to 1 per cent.? Why should the cost of the recession, which I understand was one of the reasons for these increases, be borne by the commuters who are in no way responsible for the recession, which is quite clearly the Government's responsibility? Is it not a fact that between them the Government and British Rail have made an outrageous mess of the whole British Rail service?
Viscount Goschen: My Lords, increases above the rate of inflation are justified by the needs of British Rail and London Transport for additional revenue to help to meet the costs of maintaining services and investment. It is only fair that travellers should make their contribution.
Lord Mellish: My Lords, with respect, the Government's main policy is to control inflation. It is hard for us to believe that they did not say to British Rail,"Look, keep the fare increases to the rate of inflation or below it". Instead of that they have allowed the fare increases in some instances—I have a number in mind—to go well above the rate of inflation. Why?
Viscount Goschen: My Lords, the increases in fares are required for investment in British Rail. That is the primary reason.
Lord Taylor of Gryfe: My Lords, are the complicated and complex proposals for the privatisation of British Rail likely to result in increases or decreases in fares? Has any cost benefit analysis been made of these proposals?
Viscount Goschen: My Lords, the aim behind the privatisation programme is to encourage efficiency and innovation. These benefits should come through the system to the fare-paying traveller.
Lord Clinton-Davis: My Lords, I hope the House will forgive my Clinton croak—too much campaigning is the problem. Is the Minister aware that, quite apart from the new increases contemplated, British Rail charges just about the highest fares in Western

1427
Europe? Is he further aware that we have just about the oldest stock on our railways and just about the lowest investment? Is that not a matter of great concern to the Government? Is it not far more important than the question of the ownership of British Rail'? What are the Government proposing to do about it?
Viscount Goschen: My Lords, fare levels reflect the proportion of costs met by the fare-payer rather than by the taxpayer through subsidy. We do not accept that the international examples of more heavily subsidised systems are the right model to follow.
Lord Boyd-Carpenter: My Lords, is not what was said by the noble Lord opposite as to the state of British Rail the most powerful argument for getting on quickly with denationalisation?
Viscount Goschen: My Lords, I quite agree with my noble friend.
Lord Tordoff: My Lords, does the noble Viscount agree, as a world expert on railways and transport, that the French railways are in many ways more efficient than the British railways?
Viscount Goschen: My Lords, I can only repeat what I said earlier. We believe that the other international and more heavily subsidised systems are not the correct model for us to follow.
Lord Jenkins of Putney: My Lords, is the Minister really saying, as I understood him to say, that it is the Government's policy that the fare paying passenger should not merely carry the additional day-to-day expenses of British Rail but should also be responsible for its capital expenditure? Is that the Government's policy?
Viscount Goschen: My Lords, the Government are committed to a high quality, safe and efficient rail service. But this service must be paid for. This is a question of the distribution of the burden between the rail traveller and the taxpayer.
Lord Barnett: My Lords, if the explanation is that the fare increases were allowed because investment was needed, why did not the Government permit a larger fare increase to allow the even higher investment that is also needed?
Viscount Goschen: My Lords, the reason is that this is a question of balance.
Lord Campbell of Alloway: My Lords, my noble friend referred to privatisation. Can he say whether in any of these privatisation agreements a mechanism for the control of fares will be built into those arrangements?
Viscount Goschen: My Lords, where there has been more than one operator on a route, competition will keep fares low. The fares of operators which enjoy monopoly power will be controlled through the franchise contract.
Lord Clinton-Davis: My Lords, is it not a fact that, under the franchise contracts, for a very long period of
1428
time subsidies will be paid by the taxpayer through the Government to those franchisees? Is that an equitable way of doing this?
Viscount Goschen: My Lords, indeed it is.

Student Fees: Tax Relief
3.14 p.m.
Lord Gainford: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so I declare an interest in that I am a student of the Open University.
The Question was as follows:
Whether Her Majesty's Government have any proposals to make university and college fees paid by students, particularly those who are pensioners, tax deductible.
The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley): My Lords, tax relief is already available for certain course fees paid by students. In particular, relief is available for further and higher education courses leading to national vocational qualifications and Scottish vocational qualifications up to level 4. Her Majesty's Government have no proposals to extend those reliefs.
Lord Gainford: My Lords, I thank my noble friend for that Answer. Is he aware that certain education relief grants are rather dependent on local authorities whereas nationwide tax relief could help a great deal when many people considering changing jobs are seeking new qualifications?
Lord Henley: My Lords, I join the rest of the House in congratulating my noble friend on his Open University course and wishing him success in the future. There are certain reliefs but we believe that before we extend any reliefs further in this field we must be sure that there is a need for extending them to provide further incentives to individuals to participate in particular courses. We see no such need.
Baroness David: My Lords, does not the Minister realise that there is a tremendous need for more qualified people and that a great many of these people are over the age of 25? Tax concessions and help through grants for younger people are of course available but it is older people who very much need such tax concessions. Am I not right in thinking that pensioners are not eligible for loans?
Lord Henley: My Lords, the noble Baroness is quite right regarding pensioners not being eligible for loans. In fact no one over the age of 50 is eligible for a loan. But that is another question. We are talking purely about fees. Anyone taking a full-time first degree course will be eligible for having fees being paid by the LEA. So we are only talking about those taking postgraduate courses, other forms of higher or further education or part-time courses. There has been a great expansion over the past 10 or 12 years in the number of people following those courses; therefore it does not appear that there is need for such an incentive.
Lord Peston: My Lords, we are also partly talking about the Open University where fees are charged and where students are not eligible for help, as the noble Lord, Lord Gainford, will undoubtedly tell us if he rises a second time. Surely the fundamental point is that people who invest in their own education are raising their productivity just as much as firms which invest in capital equipment. Is it not the case that they should be treated in exactly the same way from a tax standpoint? I understand that with the present state of the Government's finances the Treasury cannot make any concessions, but in terms of fundamental principles, surely it must be right that in the end one ought to be able to allow the costs of one's education against tax.
Lord Henley: My Lords, I note what the noble Lord says. It depends really on how far he is prepared to see any extension go. If the extension were to include all self-funded fees, the cost—the figures must have a large health warning as they are very broad range—would be something of the order of £50 million. If the extension were to embrace all private school fees—I do not necessarily see the distinction—the cost could be something of the order of £500 million.
Lord Peston: My Lords, I agree with the noble Lord that there is a practical problem in terms of money. I am simply asking whether he will at least concede the principle that investment should be treated on all fours regardless of the part of the economy one is dealing with.
Lord Henley: My Lords, we have accepted the principle on certain occasions where there is need for that incentive. Hence the concessions that I announced in my original Answer and the various other concessions—the non-statutory concessions—operated by the Inland Revenue. However, if we take purely the Open University, there is no evidence that lack of any tax relief has acted as a discouragement to people taking up an Open University course.
Lord Annan: My Lords, can the noble Lord say what the reaction of the Government would be to the proposals being mooted in some universities to charge top-up fees? What line would the Government take with the Universities Funding Council regarding those proposals?
Lord Henley: My Lords, without notice I cannot answer that question. The Question on the Order Paper is specifically related to tax relief for fees. I have given my answer. If the noble Lord wishes to put down another Question on top-up fees, no doubt the Government would be prepared to answer it.
Baroness David: My Lords, does the Minister really have evidence that no one has fallen out of an Open University course because of inability to pay the fees'? My understanding is quite different.
Lord Henley: My Lords, the noble Baroness should consider the vastly increased number of postgraduates—the figure rose by something like 50 per cent. during the 1980s—or the number of part-time students who
1430
increased by about 34 per cent. during the same period. It occurs to me that there is not a disincentive. I do not see tax reliefs as being the way forward.

Gibraltar Airport: EC Regulations
3.20 p.m.
Lord Merrivale Lord Merrivale asked Her Majesty's Government:
Whether the European Court of Justice has decided upon the admissibility of the action taken by the Gibraltar Government against Council Regulation No.87/602/EEC and the further action taken under Regulation (EEC) No.2343/90 by the Gibraltar Development Corporation in so far as these regulations affect access by air to Gibraltar airport.
Baroness Trumpington: My Lords, no. The European Court of Justice has yet to reach a decision on the matter.
Lord Merrivale: My Lords, I thank my noble friend for that Answer. However, does she recall that in a Written Answer in Hansard of 22nd October 1991 (Col. WA.129), her noble friend Lord Caithness said:
"This case is still under preliminary consideration by the European Court of Justice. We would expect a decision on the admissibility of the case in the next 12 months"?
Further, does my noble friend agree that it is somewhat unjust that the application of the provisions of the regulations to Gibraltar airport should be suspended, thus excluding it from the air transport liberalisation measures of the European Community, as the Gibraltar Government were not involved during the three-year period of negotiations culminating in the joint declaration of December 2nd 1987 on the expanded use of the airport?
Baroness Trumpington: My Lords, I must tell my noble friend Lord Merrivale that the ball is in Gibraltar's court. Gibraltar has only to implement the airport agreement to lift suspension. Gibraltar's inclusion in EC aviation liberalisation regulations is not possible until it implements the airport agreement.
Lord Cledwyn of Penrhos: My Lords, can the noble Baroness tell the House whether Her Majesty's Government support the case which the Gibraltar Government have made to the European Court of Justice?
Baroness Trumpington: No, my Lords.
Lord Merrivale: My Lords, does my noble friend agree that the airport agreement cannot come into force without the concurrence of the Gibraltar House of Assembly, that its members represent the people and that her noble friend Lady Chalker said in October 1988 that,
"we will not attempt to impose it on the people of Gibraltar". —[Official Report, Commons, 19/10/88; col.966.]
Will Her Majesty's Government do everything in their power to expedite the course of justice?
Baroness Trumpington: My Lords, with regard to the court of justice, there is not much we can do to hurry it up. We believe that it is in Gibraltar's interest to accept the airport agreement. They have only to do

1431
so and their suspension from the air liberalisation measures will be lifted. Gibraltar's concerns about concessions on sovereignty are unfounded: the airport would remain under British control, through close UK-Spanish consultation and co-ordination which is obviously needed.
Lord Bruce of Donington: My Lords, can the Minister tell the House the date upon which the most recent consultations took place between Her Majesty's Government and the Government of Gibraltar?
Baroness Trumpington: My Lords, I can tell the noble Lord—no, hold it! The answer is no.
Lord Bruce of Donington: My Lords, I am not sure that the Minister understood my question. I asked her for the date upon which the last and most recent consultation by Her Majesty's Government and the Government of Gibraltar took place. The answer cannot be "yes" or "no". Will the noble Baroness just give the date?
Baroness Trumpington: My Lords, the answer was, no, I cannot give the date. However, I can tell the noble Lord, Lord Bruce of Donington, that the Gibraltar Government were fully consulted over the airport agreement. The then Chief Minister, Hassan, was present during the negotiations and at its signing; but I am sorry I do not know the last consultation date.

Economic Recovery
3.25 p.m.
Lord Jenkins of Hillhead Lord Jenkins of Hillhead rose to call attention to the measures needed for sustainable economic recovery; and to move for Papers.
The noble Lord said: My Lords, I think that perhaps it can be agreed that we have today chosen a subject of importance and topicality. We have also not so much chosen, as had allocated to us, a day with a certain number of competing excitements taking place both along the Corridor in the other place and across the Atlantic—urbi et orbi, as it were. However, we decided that it was right not to make our debate time limited. That would have put a considerable restriction on the times of speeches. But, if I may be permitted to say so, I hope that that will not lead to too much expansiveness. I shall endeavour to set a good—or, at any rate, a fairly good—example, especially to the Opposition Front Bench.
On Monday, the Governor of the Bank of England said that he felt more uncertain about the state of the real economy than at any time he could remember. The governor occasionally suffers from a little myopia, but I thought that on that occasion he was fully justified, and if had also added more uncertainty about the state of the Government's economic policy, he would have been even more justified.
After the Chancellor of the Exchequer finished singing in his bath about the collapse of what he said in July was essential to avoid economic perdition, he was obviously told that a period of silence from him would be most welcome. We heard nothing more from
1432
him until his evening in the Guildhall among the pikemen. While I can feel a certain retrospective sympathy for anyone who finds that particular atmosphere a little hostile to scintillation, nonetheless, I did not find that he had anything very illuminating to say—nor, presumably, did the Governor of the Bank of England who was sitting next but one from him at the time.
When a difficult choice has to be made, I am now quite uncertain as to what are the Government's major economic objectives and what are the methods—I am in favour of several methods and not with obsession with a particular instrument or dial—by which they are to be attained. Is the reduction of inflation still the overriding objective? Is unemployment, in the words (I think last summer) of the Chancellor of the Exchequer, still a price well worth paying for it? Is zero inflation still a goal within the Government's sights? It could hardly be taken seriously in view of the fact that we now have a devaluation of significantly over 20 per cent. which is not yet over but which is almost half as big again as the traumatic one of 1967. But it is part of this Government's trouble that the fact that something is not serious does not prevent their propounding it, although I doubt whether Mr. Major is now devoting much time to his July hope of sterling replacing the deutschmark as Europe's premier currency.
What about the new emphasis on growth, if there is one? Is it to be given a new priority over inflation? If so, how is that to be achieved? Alternatively, is the Government's main counter-recessionary measure to be the restricting of public expenditure? If that now sounds almost ridiculous, let us not forget that that was precisely the doctrine not only in the Titanic days of July but also when the band still played on at the Conservative Party Conference.
I have no doubt that we shall hear a great deal from the noble Earl, Lord Caithness, about how all those objectives—that is, low or very low inflation, a strong pound, lowering interest rates, falling unemployment and reviving growth and business confidence—are all continuing objectives to which we are asked to believe the Government will lead us; and that any choice would send out the wrong signals. I do not know what sort of signals have been emerging recently. Unrealistic objectives, pursued by unclear methods, are a certain recipe for the continuing drift and confusion which we have seen since September and which are all too likely to lead to further humiliations of the type we have experienced. When that happens, it is the Government who get the egg on their face, of which they have recently had a good deal. Before we laugh too loudly, we should remember that it is the nation whose economic future is further undermined and imperilled.
We have therefore to make some firm policy choices based on more than a combination of wishful thinking, shot through with the remnants of the Right-wing Anglo-American dogmas of the 1980s. Without government stimulus, the recession will not cure itself in a tolerable timescale. That is to some extent true throughout the developed world, although our position is one of the worst because of: first,

1433
endemic declining competitiveness and a much more than average built-in tendency to high inflation; secondly, a massive balance of payments deficit, even in the depths of a recession, and the prospect made still worse by the fact that there is still a cushion of oil which is bound to be removed at some stage in the future; thirdly, a deliberately reduced manufacturing capacity which is now manifestly inadequate; and, fourthly, the great and unusual volume of private indebtedness which lies like a cloud blocking the revival of the housing or consumer durables market.
Everyone is up to their ears in debt. That is a strange product of a decade of so-called Victorian values. There is, however, one respect in which the United Kingdom is relatively favourably placed. Although the public sector deficit is currently large and growing, mainly because of the massive costs of unemployment, the dead weight or aggregate debt as a percentage of GDP is one of the lowest in Europe. It is only marginally below that of Germany, France and Spain, but it is massively below that of Belgium, Italy, Ireland and even the Netherlands
I do not suggest that that should make us careless about the size of the public sector deficit, although there are considerable anomalies about the way in which it is calculated. But it does suggest that it should not be our major obsession, particularly when the evidence is so clear that attempting direct and immediate reductions in public sector borrowing, at a time of recession and mounting unemployment, is not only misguided but is a self-defeating process.
I should therefore be prepared to take a calculated and limited risk here. As it happens, as the only Chancellor since the war who, until the oil flush of the mid-1980s, ever had a public sector surplus, I cannot be accused of natural profligacy in that respect. Circumstances in 1969– 70 were clearly very different, with unemployment under 600,000. I now envisage a considerable short-term increase in public sector borrowing, provided that it is directed specifically at desirable infrastructure investment. I should be careful that there was no long-term slipping towards what one might call the Italian position, in which debt becomes over 100 per cent. of GDP and in which its servicing, as in Italy, takes 15 per cent. of GDP and the position begins to look so hopeless that it hardly seems worth doing anything about it.
We are miles away from that position. Before we become too superior vis à vis the Italians, it is worth bearing in mind that there are many other strengths in the Italian economy which we do not have, and, as a result, rather strangely—I notice in passing that we have been in a de facto monetary union with the Italians for decades past—stirling and the lira have marched more or less in step with each other for 30 or 40 years, with neither keeping near the deutschmark, or, more recently, the French franc.
But I do not want a communality of debt experience. In embarking upon that programme of extra borrowing I should lay down firmly that the budget should be brought back into balance during
1434
the next economic upswing and that there should be a willingness to use taxation—preferably direct taxation—if it is necessary to achieve that aim.
The 1980s saw a massive switch of relative resources from poor to rich. It would be intolerable if on top of that cuts in benefit or increases in regressive charges, at which the Government have been adept, were to be used to pay for, say, the Jubilee Line or other necessary pieces of railway investment.
The anti-tax dogma has done a great deal of recent harm in the Western world. It blighted German reunification. It hobbled a responsible handling of the United States deficit and was a big contributory factor to the excuses—rather I should say the "excesses" because we all have an opportunity to read the excuses—of the noble Lord, Lord Lawson, from which we are still suffering. But there are changes afoot. We shall no longer have to read the lips of Mr. Bush.
I do not believe that in this country taxation increases are currently called for, but I would not hesitate to use them if they became necessary. That, I guess, would be not out of touch with the mood of much of the battered, bewildered but fundamentally civic-minded British people at the present time."Two years' hard slog" was a phrase I ventured to use, with some realistic light at the end of the tunnel, many years ago. I guess that that might get a better response today than the false complacency of the general election message.
A recovery programme for Britain will obviously have a better chance of success if it can take place within a co-ordinated international framework, although we must, in my view, attempt it anyway. Maybe today, of all days, we can at least temporarily think,"Westward, look, the land is bright". We should certainly try to get the European Community to work out with President Clinton a co-ordinated expansion programme which could be adopted before or at the next Western economic summit. It was done at the economic summit in Bonn in 1978 and might, I believe, have brought significant benefit had it not been aborted by the second oil crisis which came in the six months following that.
However, the first essential is to reach a GATT agreement. I agree that the French are being immensely tiresome, but the key to dealing with that in hard, realistic terms is the Germans, both because of the strength of the Franco-German partnership, which our combination of weakness and petulance has made still closer this autumn, and because of the natural balance in Europe, almost an ecological balance, in which the German interest in an open trading system balances and has frequently overcome French inherent protectionism. From this, as well as from many other points of view, a reversal of the irresponsible post-Black Wednesday quarrel with Germany is a vital and central British interest.
A general European pick-up would be of enormous benefit not only economically but for the battered morale of Europe. I thought it a mistake that Mr. Major did not try to get the non-summit at Birmingham to address itself to the problem. I am a

1435
strong believer in the ratification of the Maastricht Treaty and I am delighted that my party in the other place is voting as it is.
No one can doubt my opposition—sometimes I am sorry to say almost my contempt—for the present policies of Her Majesty's Government. But I do not believe that the right way to defeat them is to vote against one's convictions. Those who live by tactics are liable to die by tactics. I saw the Labour Party beginning to die as a great party of government on this issue in the early 1970s. I am sorry and surprised that it has not learnt more from the experiences then. However, that is for another day.
Now we need both Maastricht and a general European pick-up. I do not believe that we shall get one without the other, but the general European pick-up would of course make a much more popular impact. Equally, our ratification of Maastricht, while desirable, will not solve our own economic problems, though if it were abandoned our economic prospects would become immensely worse from the point of view of inward investment, inflation from a plummeting exchange rate and business confidence.
The external framework is important to create the conditions for success, but we shall nonetheless remain dependent upon our own efforts. These require the rejection of a great deal of the nonsense we inherited from the 1980s. First, the miracle did not take place. Secondly, there are worse evils than a moderate increase in taxation. Thirdly, it is not a necessary test of being a good citizen to own one's own house, whether or not it suits one's circumstances or one's pocket-book. Fourthly, privatisation at all costs, so as, for instance, in the case of the electricity industry, to close down the coal industry as a by-product of the obfuscation of relative costs, is not desirable. Fifthly, a strong manufacturing base is of vital importance. To pretend that it does not matter provided we have enough oil and enough financial services is a form of unilateral disarmament at least as damaging as that which was advocated by CND. Sixthly, training schemes are vital to our competitive position and should be seen not just as a form of massaging the unemployment figures. So is investment in education generally.
The short-term need is to create hope and confidence almost in a Rooseveltian sense, to give a feeling that this country is starting something—some major investment projects—and not just closing down everything in sight.
The medium-term need is to rebuild our manufacturing base and increase the skill and qualifications of our workforce. The overall need is to create a sense of consistency of purpose. It used to be said that the assumptions on which business had to work change violently and damagingly every four years. That has passed. The problem with the Conservative Party, as I said the other day, has not been winning elections but providing a decent government when it wins them. We are now lucky if we have consistency for six weeks at a time. Since September the Government have had no policy. They must find one quickly and then stick to it. I beg to move for Papers.
3.47 p.m.
The Minister of State, Department of Transport (The Earl of Caithness): My Lords, the Government believe that sustainable growth needs to be based on low inflation. That is not an optional extra but a prerequisite for a better and more prosperous Britain.
Contrary to what the noble Lord, Lord Jenkins of Hillhead, has just said, it is clear that we need to continue the achievements of the 1980s—the years of growth. In that decade we would not have been able to increase the health service budget by one-third in real terms, build over 3,000 miles of motorways and bypasses, increase spending on education and training by 17 per cent. in real terms—all achievements warmly welcomed by your Lordships—unless we had attained those years of growth.
It is worth reminding ourselves that, in GDP growth, whereas we were bottom of the league in the 1960s and 1970s, in the 1980s we grew faster than every major EC country except Spain. It was the first decade since the war in which the UK grew faster than Germany, France and Italy. In manufacturing productivity in the 1980s the UK's growth was the fastest of the G7 economies, whereas in the 1960s and 1970s we had the slowest growth. In that same decade our business investment growth was second only to Japan among the G7 countries.
We need to return to that kind of growth on a sustainable basis and therefore I welcome the Motion of the noble Lord, Lord Jenkins of Hillhead, and the opportunity to discuss the important issue of sustainable economic recovery. I should also like to take the opportunity to welcome the fact that we have four maiden speakers today and I shall listen particularly closely to my noble friend Lord Clark of Kempston. He brings to your Lordships' House enormous experience in this area.
I should also like to add my apologies to the noble Lord, Lord Jenkins. He knows that I shall not be able to be present for much of the debate this evening as I have been summoned to be with His Majesty the Sultan of Brunei. I apologise to the House for not being here but I shall of course read with great care the record of what has been said in the Official Report. As your Lordships will be aware, I am constrained to some extent in setting out the Government's position because we all await the Autumn Statement which my right honourable friend the Chancellor of the Exchequer will present on 12th November. However, what I can say is that firm control over public expenditure remains a major tenet of the Government's policy.
What we have said for many months is now much clearer. It is not just our own economy but that of the wider world that faces economic difficulties. Expectations about growth in the major economies have weakened. It is sad to see the announcements of 32,500 job losses in the motor industry, with another 7,500 in aerospace; that capital equipment manufacturers expect production to be 5 per cent. down on 1991; that industrial production has fallen in six out of the last seven months and that in a large part of the country it is estimated that only half the labour force is productively employed and that same area needs an

1437
injection of funds of about £60 billion per annum for the foreseeable future. Germany is having to contend with a rapid weakening of its economy. In Italy there have been more than 100,000 business bankruptcies so far this year; that is a higher rate than in Britain.
However, the problems are not confined to Europe. The Japanese economy, too, has slowed sharply. Fujitso, Japan's biggest computer company, has just reported its worst results ever. Its parent company's pre-tax profits are down 86.5 per cent., while capital spending plans for next year are to be reduced by 44 per cent. Nissan motor company has announced its first pre-tax loss since World War II. In the US business and consumer confidence remain weak despite low interest rates.
It is against that background and the damaging blows to confidence at home, in particular the uncertainty following our withdrawal from the ERM, that my right honourable friends the Prime Minister and the Chancellor of the Exchequer have spelt out the Government's ambitions for growth. With domestic inflationary pressures abating it is now clear that the balance of risks facing our economy has indeed changed.
Let us first reflect on the relaxation of policy that has already been made. A lower exchange rate gives British exporters greater strength in competing for foreign markets even though they, too, face enormous difficulties. Our industry should take that opportunity and not squander it on higher wages and prices as some have done in the past. The greater flexibility outside the ERM, together with a prospective loosening of German monetary policy, has enabled the Government to take a further two percentage points off interest rates, making our interest rates the lowest in the EC.
These measures have already opened up new opportunities for British business at home and abroad. However, there is more to be done. Confidence has to be restored so that business has a thriving home market to sell to. Confidence comes from the private sector, from individuals' spending decisions and from firms' investment and employment decisions. However, the Government can and should work with industry to restore confidence and we will ensure that every aspect of policy will be supportive of industry.
The Autumn Statement on November 12th will outline new public expenditure plans. Within the constraints of a sound fiscal position of broad balance over the medium term the Government will seek to direct public money towards projects which promote growth. That means a greater share of resources for capital spending. In his Mansion House speech last week my right honourable friend the Chancellor of the Exchequer reinforced this commitment by announcing that, from the first Unified Budget in December 1993, the government accounts should be drawn up to make a proper distinction between current and capital spending. This should help to underpin our determination to maintain long-term infrastructure investment notwithstanding the immediate requirements of the fiscal position. I am sure your Lordships
1438
will welcome the fact that we shall also be looking at ways of allowing private sector financing, alongside that of the public sector, for large capital projects.
This is a new emphasis for industry and for growth but it is not a break with the past. The goal of government policy has never been the defeat of inflation alone, but rather low inflation as a means to sustained growth and prosperity. Just as real growth can be undermined by too lax a policy, so too can it be threatened by too tight a policy. Towards the end of our ERM membership policy had become tighter than necessary to keep inflation coming down. The Government judged this worthwhile because of the long-term benefits from low inflation. However, the opportunities arising from sterling's suspension, together with the changes in the balance of risks I referred to earlier, make it appropriate that that policy should be rebalanced to take more account of growth.
Some businessmen tell me that the word "inflation" does not feature in their dictionaries today but we know from past experience that in looking further ahead we need to be careful. Inflation has the potential to rise again and threaten all our hard won gains. So let there be no doubt that low inflation remains central to macro-economic policy. It is the basis for the sustained growth and secure employment which the Government are determined to achieve. Much has been achieved already. The increase in underlying inflation over the past year has been only 4 per cent. That is good progress. But we must build on that achievement. Why must we do so? It is because even now over half our manufacturing exports go to countries which have inflation rates lower than ours. Thus the Government's objective for underlying inflation during this Parliament is a demanding 1 to 4 per cent. per year. In the longer term the aim is to bring inflation down towards the lower end of that range. The UK's inflation performance must match the best in Europe if we are to compete successfully with our main trading partners. Of course, to succeed, the Government must maintain a tight fiscal position and that means firm control of public spending. As I have already indicated, my right honourable friend the Chancellor will be giving priority to maintaining spending on the infrastructure to promote recovery and long-term prosperity. The Autumn Statement will seek to balance these aims against the need to ensure that the Government's fiscal plans are sound.
However, monetary policy retains its importance and my right honourable friend the Chancellor of the Exchequer has recently spelt out more details about how it will operate outside the ERM. The Government continue to take account of the exchange rate in assessing monetary conditions. Some noble Lords may be uncomfortable with that, and argue that the pound should be allowed to find its own level. But changes in the exchange rate may reflect market perceptions of an easing in policy. They can influence the tightness or looseness of conditions under which UK businesses operate. They can directly affect import prices—not just consumer goods but the raw materials and components industry needs. Even though the Government have no specific target for the exchange rate they clearly cannot ignore it.

1439
The Government will also be guided by a range of domestic indicators. The growth of the "narrow" monetary aggregate MO has proved to be a timely and reliable indicator of economic conditions. We have had a target range for its growth for several years now and the present range of 0 to 4 per cent. will he retained. For the broader monetary aggregate, M4, the position is less straightforward. The behaviour of this series of data has been harder to interpret. So the Chancellor will set a "monitoring range" for M4 annual growth. That will give some idea of those rates of growth beyond which we should have cause for concern.
The behaviour of asset prices, and especially house prices, will be taken into account. Various market rates of interest and the relationship between them will then he monitored. These can often be a source of useful indicators on inflationary expectations. As important as the policy itself, however, is the credibility of that policy. The Chancellor is therefore moving towards greater openness in decision taking. The Government will now publish regularly details of the indicators being studied and will explain fully changes in interest rates.
I have set out the Government's positive strategy. It is a strategy for growth and for prosperity. The monetary framework, which I have outlined in some detail, will provide the security of low inflation. The Autumn Statement to be announced in the House next week will set out plans for public expenditure fully consistent with our inflation objective but which encourage and promote the economy's recovery from this recession.
Since we left the ERM there has been a substantial but justified easing of monetary conditions. Partly, that is the result of the fall in the external value of the pound. But interest rates have also been reduced by two percentage points to 8 per cent. The cuts were in line with the Government's target for low inflation and benefit UK industry and consumers. The full effect of each one percentage point cut is worth over £1.25 billion gross to business and, if lenders follow suit, reduces repayments on a typical £30,000 mortgage by over £15 a month.
British industry must not let a lower pound distract it from making necessary structural adjustments. In order to sell in this world we must be competitive. No one will buy our goods just because they are British. They need to be the best goods, the most competitive goods, the goods people want and they need to be delivered on time. There is no reason why British industry cannot now take advantage of the lowest interest rates in the EC and the very competitive exchange rate, provided it keeps costs down. Industry must turn its attention to the creation of real wealth and permanent jobs. If that could be done by waving a magic wand it would have been. It needs a clear strategy, commitment and hard work.
We know that conditions are difficult, both at home and in our export markets. Our focus should not be just on Europe, important though that is. It should be on every market in the world. We regret that the GATT talks between the US and the EC have broken off without agreement. Nevertheless, the two sides are
1440
clearly very close together and we still hope that talks can be resumed to resolve the remaining differences. At stake is a boost of some 200 billion dollars per annum to world output. The recent news on GATT is not encouraging, but this is an opportunity which should not he sabotaged. Neither the US nor the EC will benefit from a trade war.
We want our industry to flourish. We want it to take advantage of the opportunities. For their part, the Government will continue to devote their monetary policy to providing the necessary framework of low inflation.
4 p.m.
Lord Peston: My Lords, I must thank the noble Lord, Lord Jenkins of Hillhead, for introducing the debate. It is no exaggeration to say that we needed such a discussion in your Lordships' House as a matter of urgency. However, I agree with the noble Earl, Lord Caithness, that there is a limit to what we can discuss in advance of the Autumn Statement.
I look forward to the contributions of all the maiden speakers. I am sure that they will add to the quality of the deliberations of those of us who concentrate on economic matters. In particular I must refer to my noble friend Lord Eatwell. Your Lordships' House has lacked a Cambridge academic economist for some years. My noble friend follows in the footsteps of one of the greatest economists of our time. I am sure that he will be equal to the task before him.
I shall start with some acerbic remarks. I must warn your Lordships that I shall then get really nasty. Those of a weak disposition should leave now.
I am aware that I am not alone in contrasting the behaviour of the head of the London Ambulance Service with that of the Chancellor of the Exchequer and the Governor of the Bank of England. Mr. John Wilby said, in connection with a certain problem:
"I am deeply conscious of the lack of public confidence which has been expressed following service failures… I have decided that the honourable course of action is to offer my resignation".
While not under-estimating what happened to London ambulances, Mr. Wilby's failure is tiny compared with the failures of the two gentlemen I have mentioned. One presided over the BCCI debacle, the other over the biggest economic disaster of recent times. They are still in post and, so far as I know, have not even apologised. Even worse, in my judgment their continuation in office is the most serious obstacle to any improvement in the economy. As the noble Earl, Lord Caithness, said, policy, especially anti-inflationary policy, depends on credibility. How can someone who says one thing one day and the diametric opposite the next expect anybody to believe anything he says at any time?
My point is not to deny that we get things wrong. We all do that. My point is that we must recognise our errors and pay the consequences. That is especially so in the case of the Chancellor whose errors were wilful. I have pointed out for a long time the seriousness of our economic predicament. I pointed it out before the election. I pleaded with the Government to recognise that fact as a first step to putting matters right, and

1441
that is what the Chancellor of the Exchequer specifically refused to do. He was always looking on the bright side. What is so appalling, as the noble Lord, Lord Jenkins, pointed out, is that he continues to do so.
Our defeat by the speculators was as significant, in economic terms, as the Norway catastrophe of 1940. It is extraordinary that the people who led us to that defeat are still there and that they are unapologetic. Some people say that defeat was unavoidable, that there was a tidal wave of speculation and that we could do nothing about it. I disagree with that view totally. I have always argued in relation to speculation in foreign exchange that speculators sell currencies which they do not have in order to buy currencies they do not want. They do so in the hope that they can buy them back at a lower price than the price at which they sold them. They cannot possibly maintain that position for other than the shortest period of time. That means that so long as the central banks of the world are willing to outlast them—and central banks can always settle later than the speculators—they can always defeat the speculators. In other words, in my judgment the central banks were not overwhelmed by an unstoppable tide. That is simply not credible.
The essence of the matter is co-operation by the central banks, which is supposedly a central element of the exchange rate mechanism. That particular argument does not depend on the exchange rate being sustainable in the long run; it is always sustainable in the short run by central banks which are determined to beat the speculators. Therefore, my conclusion is a fairly obvious one. The Bundesbank must have decided not to provide limitless funds to the Bank of England; or the Bank of England must have decided not to request such support. As someone who is completely outside the system, I suggest that possibly one or both of them wanted a realignment; one or both of them intended to achieve that their own way, if not by persuasion then by force.
My problem is that the Government have not told us what actually happened. So far as I and most noble Lords are concerned the 30-year rule means that we shall never know what actually happened—although the noble Lord, Lord Strathclyde, may well look forward to finding out. I have my suspicions. My central point is that allowing the speculators to make the money they did has nothing but deleterious consequences. In other than the short run it is bound to raise our interest rates and it is bound to make the control of inflation harder.
I turn to a different but related theme. It was not my intention to say a word about Maastricht, but the noble Lord, Lord Jenkins of Hillhead, felt that it was appropriate to attack me and my colleagues. I find the attitude of the Liberal Democrats on the matter more than mildly irritating. I have stated my support for the Maastricht Treaty fully and seriously, as have my colleagues. I do not doubt the Liberal Democrats' support for the treaty. It is my view that the saboteurs of the treaty are the Conservative Party, including its leader. It is they who have gone for the opt-out clauses. The aspects from which they seek to opt out
1442
are the essential parts of the treaty. Having left the ERM we have no commitment to rejoining it. If we have no commitment to rejoining the ERM, then EMU, which is the central economic part of the treaty, is finished. I am somewhat surprised that the other place is to go through all the details of the treaty when, in practical terms, the treaty is dead in the water.
Furthermore, perhaps I may remind the Liberal Democrats of yesterday's response by the Prime Minister and the Foreign Secretary to Mr. Bangemann's comment on the political future of the EC. As I understand it, the Liberal Democrat view of the political future of the EC is precisely Mr. Bangemann's view of the treaty. However, the Prime Minister and the Foreign Secretary immediately said,"Nothing doing". How the Liberal Democrats can support them and attack us is beyond me. The noble Lord, Lord Jenkins of Hillhead, once wrote a fascinating book on your Lordships' House entitled Mr. Balfour's Poodle. The Liberal Democrats and their leader may now be seen as Mr. Major's poodles.
Let us now assume that we had a serious government in power. What economic steps should they take? For that matter, what should they avoid? There is one rather dotty proposal of the Chancellor's which I can deal with immediately. The Treasury employs a large number of economists; it also has an academic panel to comment on its forecasting work. It is now proposed to bring in even more economists, of widely differing views, to reinforce that. The only possible rationale must be the monkeys and typewriters principle. While I accept that given enough time the monkeys can write the works of Shakespeare I do not believe that that number of economists can in any amount of time come up with an agreed policy, let alone a sensible one. I stand second to none in my advocacy of employment-creation programmes for fellow economists, but in this case if the Treasury is unhappy with the economic advice it is getting the best thing to do is to fire the existing staff and hire new people.
In commenting on economic policy one problem is whether we can take seriously what the Chancellor has to say. What are we to make of someone who is unaware that his original objective of zero inflation was much more stringent than his present one of achieving an inflation rate equal to the average of our competitors? I do not object to the change. Noble Lords will have heard me argue not long ago that that is precisely the objective we should have on inflation. My difficulty is that I can say that because I believe in it. But how can the Chancellor suddenly switch to that view? How are we to interpret his view that raising public expenditure does not help economic growth? If that were universally true, given the state of the public finances why does he not cut public expenditure drastically and balance the budget? On his argument it would have no deleterious effect on employment or growth. How can we have confidence in someone who believes in the expansionary benefits of a devaluation of more than 15 per cent.—it has become more than 20 per cent. since I wrote these lines—and simultaneously says that he believes in high inflation, as he said last week? It may not matter that I and

1443
others of your Lordships cannot follow the subtleties of the Chancellor's mental processes, but I notice that leading businessmen have avowed that they approve of what the Chancellor said last week. I can only suppose that they are the same businessmen who just before the election wrote to The Times to say that all that was needed for economic recovery was the return of a Tory administration. At least this time we have been spared the crocodile tears of sorrow at the necessity for men and women to lose their jobs for the greater good of defeating inflation.
The policy of giving greater weight to growth is correct. However, it represents a fundamental change in the Government's previous position that inflation was all that mattered but, more to the point, that technically output and employment would take care of themselves. That was the essence of the policy. That was not just a matter of the political position of the Ministers; it was also the technical economic advice advocated by the Treasury. I for one cannot wait to hear what officials have to say when they next appear before the Treasury Select Committee.
As far as inflation is concerned, I believe that those—including one or two of my colleagues—who say that devaluation and interest rate cuts make things easy are mistaken. Unless we go to the other extreme and say that inflation has no weight whatever—I cannot think of any rational person who takes that view—we must have an anti-inflation policy. I have not budged.1 believe in a fixed nominal exchange rate as the way to anchor down the economy. If I could I would have stuck to that policy; I do not resile. I know that at least analytically and theoretically the alternative would be strict control of the money supply. That is the only other way I know of controlling inflation. Unfortunately, it is difficult if not impossible in a sophisticated open financial system such as ours. What to me is not acceptable is a government who do not appear to believe in either the exchange rate anchor or the money supply anchor but in a set of indicators that, speaking as a Keynesian, seems to be Keynesian economics gone completely barmy.
We should not be led into any kind of complacency by the fact that the inflation rate is currently rather low. I do not believe for one moment that the noble Earl, Lord Caithness, was saying that; but we must not be. One does not have to listen to a Keynesian like myself to accept that view. I remind you of the views of the late Professor Hayek. He emphasised not only the inflation proneness of government; he said also that the time to be on one's guard was when inflation was low because that was exactly the moment when governments decided to go for growth and take risks. That is precisely what the present Government are doing.
The international position is gloomy. The main point is exactly that to which the noble Earl, Lord Caithness, drew attention. It is not merely the case that we have difficulties. Several of our main markets have difficulties; Germany, France and maybe others. The worry is that the possible benefits from devaluation—I have emphasised I am not a devaluer—will not be realised because there will not be the
1444
markets in which to sell the goods. That is the nature of the problem. I agree with the noble Lord, Lord Jenkins of Hillhead, that if we are now to take risks we must take them on the side of an expansionary fiscal package. I believe that in the depths of this depression, or recession, that is what we have to do. I am, however, alarmed by the state of the public finances. Most forecasters seem to believe that the deficit will rise to something of the order of 6 per cent. of GDP. There is a good deal of talk about balancing the budget over the cycle. In terms of all the work I am doing I cannot see the budget becoming balanced even to start with, let alone producing a surplus, before the turn of the century. Even the EMU prerequisite of stabilising the deficit at 3 per cent. of GDP is not easy to attain.
The irony of all this—which must trouble the Treasury as much as anyone—is that if we can only restore full employment, unemployment and related benefits will fall drastically and the public finances will be in extremely good shape. To use a cliche, we have a vicious circle: everything gets worse making things worse still. What we need is a path back. For the moment, I think that we have to take fiscal risks to find that path but I recognise that it is not easy.
I conclude as I began. I believe that the essence of policy is credibility and that what has happened in the past few weeks not only makes the Government incredible but regrettably means that we will be stuck with an incredible government for the next four years.
4.15 p.m.
Lord Clark of Kempston: My Lords, this will be the third maiden speech I have made in the Palace of Westminster. I made one when I was Member for Nottingham South. Unfortunately, I lost that seat. I stood for East Surrey and made a second maiden speech. And here I am endeavouring to make another maiden speech today. It could be said that I have some experience in the matter. I understand that I must not be controversial. Perhaps therefore I have picked the wrong subject on which to speak because it is very difficult not to be controversial.
I listened with great interest to the noble Lord, Lord Jenkins of Hillhead. He was right to remind us that when he was Chancellor in a Labour Government he managed to balance the books. Of course he forgot to tell us that under Conservative governments Chancellors not only balanced the books on occasion but repaid a substantial amount of the national debt.
I believe that we take the temperature of the economy far too often. As soon as any statistic comes out there is always a forecast or projection made as to what is wrong with the patient. I believe that on many occasions silence would be welcome. The Government have reduced the base rate from 15 to 10 and then 8 per cent. Before very long the chances are that it will go down to 7 or possibly 6 per cent.—as my noble friend said, the lowest in the European Community.
The Government can never unilaterally reduce the base rate particularly when operating within the ERM. I have never understood why countries such as Italy, France, Spain, and, to a certain extent, Germany have too high a base rate. I would have

1445
thought that concerted action over the whole field whereby the base rate of each country was reduced by four or five points would leave those currencies in the same competitive position but at a lower rate and that this would help industry throughout the Community. Obviously, if we had taken unilateral action sterling would not have been able to withstand it.
One factor we overlook is the cost of the reunification of Germany. In my opinion the bankers got it wrong. The rate was first one deutschmark to one ostmark and then one for two over a certain figure. That was at a time when the ostmark was hardly negotiable. If a buyer could be found one might have got one deutschmark for 12 or 13 ostmarks. So the rate of one for one and one for two was obviously wrong.
There was another thing wrong. Although bankers knew how many ostmarks were in various deposit accounts in Eastern Germany, what they did not realise and could not estimate was how many ostmarks lay under the mattress. In those countries, particularly countries behind the Iron Curtain as it then was, the general public had a fear of banks and always kept some of their money liquid. They did not put it in the bank. That meant that the sums were wrong and the money supply in Germany escalated. I should have thought that that would have brought into question the so-called independence of the Bundesbank. In my view, the rate of one for one and one for two must have been a political decision. It could not have been a decision of the bankers.
As my noble friend said, we await the Autumn Statement next week. My right honourable friend the Chancellor has reiterated that capital investment will remain intact. However, two factors in our economy are continually overlooked. In many cases the small businessman runs a very profitable company. His one difficulty is cash flow. There are late payers who deliberately keep small businessmen waiting for their money. It is high time to look at the possibility that, after the agreed credit terms have expired, it should be mandatory for interest, say, four or five points over the base rate, to be charged. Many large stores—Harrods is an example—automatically add interest to a bill left unpaid by a certain date.
I hope that my right honourable friend the Chancellor will also look at capital allowances. Capital allowance stood at 100 per cent. That 100 per cent. was then abolished. At the same time corporation tax was reduced and we now have one of the lowest corporation taxes in the world. But we must have another look at the matter. At the moment, with 25 per cent. capital allowance on a reducing basis, it takes just over nine years to write off an investment. Consideration should at least be given to a straight line capital allowance of 25 per cent. each year. As a result businessmen would be able to recoup their money within four years. These days I would go further and say that for the first year it should be 50 per cent. and 25 per cent. in each of the two following years. One would then recoup in three years.
We hear too much in the media of what I call the gloom-mongers who always talk down the UK. It is
1446
high time that we started to talk about our achievements. My noble friend mentioned some of them. Manufacturing output is up; exports are at a record level; inflation, as we know, is down. My one fear is that unless we start to talk more about our achievements and less about gloom and doom, the recession could last even longer.
4.25 p.m.
Lord Rodgers of Quarry Bank: My Lords, it is my particular good fortune to be the first to congratulate the noble Lord on his maiden speech. I overlapped with him for upwards of 20 years in another place. I always found him informed, forthcoming and suitably controversial. He has started in that way in this House today and I am sure that he will continue to make lively contributions to our debates.
The noble Lord, Lord Peston, said that we all make mistakes from time to time. And it is always painful to be reminded of them. I have been reminding myself of my remarks in the debate on the Address which took place less than six months ago. I said then:
"It would be churlish at the beginning of a new Parliament not to wish the Government well in their central economic policies … With good economic management … 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".—[Official Report,13/5/92; col.364.]
I was naive and I was wrong. Goodwill in politics—I was feeling very warm toward the new Leader of the House—is dangerous. It catches one off guard. But I believe that it was possible at that time, only six months ago, to accept that the Government at least had a sense of direction and that the important argument might eventually be how to spend the product of success; whether, for example, by improving public services (the overwhelming preference on these Benches) or by reducing direct taxation still further. All that has now gone. There is no sense of direction, no optimism and no confidence. There is only a frightening sense of drift. Certainly nothing said by the noble Earl today has brought this House much comfort.
The Chancellor of the Exchequer's speech in the debate on the Address in another place is now a wry entertainment. He said:
"the British people have given a ringing endorsement of the Government's economic policies".—[Official Report, Commons,13/5/92; col.628.]
In so far as the British people now know what such policies are, the polls give no endorsement of them whatsoever. The Chancellor added boldly (col.632) that:
"In the years to come … we will continue with the same policies that brought us a fourth successive election victory".
The litany then went on (633):
"with the election behind us, with confidence coming back and with interest rates lower, Britain's economic future is certainly brighter".
As my noble friend Lord Jenkins of Hillhead said, the overriding preoccupation of the Government at that time was with inflation. Indeed, in the latter part of the speech there were nine separate references to it in less than three column inches, which must surely be a record. It was low; it was getting lower; and the

1447
Chancellor promised to push it down still further. It seemed like an obsession and a dangerous one. But, foolish or not, the policy again was clear.
Then in September came the crash and withdrawal from the ERM. I shall not dwell on the details of that because your Lordships debated the course of events six weeks ago on 24th September. However, what was so extraordinary was the ability of the Chancellor, after a few glum moments, to behave as if defeat actually meant a welcome dash for freedom.
I have been reading a new biography—not that of the noble Lord, Lord Skidelsky, although I hope to come to it—which deals among other things with a previous devaluation. The author says that, when it happened, the Prime Minister of the day was:
"at the very least expected to put on a show of mourning. Very oddly he declined to do so. It was not just the Cabinet which found him incongruously cheerful".
Soon after that, as we know, the nation was led to believe that the pound in its pocket had not been devalued. For the Prime Minister of exactly 25 years ago in November 1967, read the Chancellor in September. The term "cheerful" may be going too far, but "relieved", and "liberated"—yes. As for the pound in your pocket, from the Chancellor we hear the phrase,
"the opportunity to rebalance our policy".
That is a euphemism for,"We have been forced to think again". It is a form of words used again by the noble Earl today. They are now buzzwords; and I believe that they will be remembered as much as, and in the same way as, the reference to the pound in our pocket not having been devalued. How much better it would have been if the Government had stated plainly that their policy had collapsed. But knowledge of that was damaging to confidence in Britain at home and abroad. How much better to have conceded that at that stage there was no alternative policy.
We are now led to believe that the Government have had time to gather their thoughts—although on the basis of what we have heard today what those thoughts are remains to be seen. We have to assume that Parliament must wait for the Autumn Statement next week to hear the story from the Chancellor. Meanwhile, apart from closing down the coalmines and putting another 30,000 men out of work, all we know about the new policy was contained in the Chancellor's Mansion House/Guildhall, speech."One cheer for the Chancellor" said the Financial Times."Welcome but only as a first step," stated the Independent."Norman Lamont now has a half decent economic policy," granted the Guardian with unusual generosity. There were other remarks in a similar vein.
However, if the Government seem to be pointed in the right direction, it is still very unclear how they expect to achieve their target. In his Mansion House speech, the Chancellor said that Government and industry need to work together to rebuild confidence. But what does that mean? Industry is certainly not responsible for the loss of confidence. For the most part it is a victim of it. Much of industry has been destroyed by this Government, and nearly 3 million men and women are out of work. If Government are genuinely asking for partnership with industry, they
1448
must start listening. They must then respond to the wishes of industry and not reject intervention out of hand as if the market will solve all.
There have been references to a debate in another place tonight. I do not intend to follow the example of the noble Lord, Lord Peston. I thought that he tied himself in knots trying to explain the position of his party. If the explanation was clear to the noble Lord, it was clear to him alone. I hope that he will find an opportunity of explaining it with the same lack of clarity at a further debate. However, I am glad that the Government are pressing ahead with their Motion. Industry does not believe—it is a central consideration—that it will survive and prosper in a Britain half in and half out of the European Community, with Britain acting as a constant brake on progress. For the most part industry believes that being in the ERM was a measure of Britain's European commitment. I agree with the Chancellor that we are likely to remain out for some time. But working together with industry means getting back in at the right exchange rate as soon as possible and not being mealy-mouthed about it.
It would he doubly disastrous if the future of our domestic industry was further undermined and at the same time inward investment turned elsewhere because Britain was no longer seen as a gateway to the rest of Europe. If the Chancellor has an instinctive dislike of the European Community and is frightened of the ERM, the sooner he goes the better. I agree with those who have said—and others will join in—that no single act could do more to restore confidence than for the Chancellor to resign.
In the meantime, how could working together in partnership be applied to industry, and in particular a single industry—construction? We all know the facts. They have been set out on a number of occasions. Over 450,000 people have left the industry in just over three years. In my own day-to-day activities, I am made painfully aware of the gross under-employment, declining earnings and real hardship among architects. That is quite outside their previous experience.
If the construction industry is to be put back on its feet, if there is to be partnership between government and industry, there must be a response in the Autumn Statement next week. In the first instance, government must protect all existing capital programmes from public expenditure cuts. Secondly, they should increase spending on social housing by releasing the accumulated capital reserves of local authorities. Thirdly, also primarily in the field of housing, they should provide incentives for a massive programme of energy conservation measures of the kind which would soon pay for themselves. Fourthly, the Government should bring forward at the earliest convenience a new capital programme for hospitals and schools and other essential community services. Fifthly, they should stop dithering about the Jubilee Line and talking nonsense about getting landlords to pay when the nation as a whole will be the beneficiary of its completion. It is a very dangerous principle, and to the best of my knowledge a new one, that major new transport projects in the national interest should be pursued only when a private sector godfather is

1449
available to share the costs. Other similar projects, such as Crossrail in London and new light urban railways elsewhere in the country, should go ahead.
I take for granted that lower interest rates are desirable. However, after the Government left the ERM, I did not share the euphoria that interest rates would fall steadily and painlessly and stay down. I would be surprised if over the next couple of years they are on average lower than in the two years up to September. Therefore the Government must not hold out the promise of lower interest rates to the construction industry or to anyone else as a substitute for taking other steps towards recovery, especially in the public sector.
The Government have lost the confidence of the country and deserve to lose the confidence of Parliament. It will require a vision and competence that the Government have previously lacked, and a remarkable Autumn Statement, before many of us can wish them well again.
4.36 p.m.
Lord Eatwell: My Lords, perhaps I may first express my gratitude to my noble friend Lord Peston for his kind remarks and for his having called a temporary truce between the London School of Economics and the Cambridge Economics Faculty. I shall try to do Cambridge justice.
I am faced with a dilemma. It is the custom of your Lordships' House that maiden speeches should be non-controversial. But it is also customary that maiden speakers should address matters within their field of competence. As a professional economist, I confess that I find those two requirements difficult to reconcile. However, my task is made easier by two factors. First, the Prime Minister has told us that he is "going for growth". I could not agree more with that sentiment. I know that we all look forward to actions which match the words. Secondly, there is general agreement as to one of the sources of our current economic troubles—the deregulation of the financial sector. For example, Mr. Norman Lamont, the Chancellor of the Exchequer, wrote earlier in the year that in the late 1980s the overall balance of the economy,
"was being threatened by one of the Government's micro-economic reforms, deregulation of the financial sector. There was an explosion in bank lending in the late 1980s which sent broad money growth soaring into the high teens. That unleashed a boom in asset prices, particularly homes, which generated an unprecedented and unsustainable surge in consumer spending".
The sharp increase in lending to which the Chancellor refers led in turn to an historically unprecedented increase in the debt burden of families and of companies, particularly property companies. It is that burden of debt, combined with sharp falls in asset prices, which is today stifling any increase in spending and disabling all the traditional levers of economic management. As American experience has shown, with debt/income ratios at all time high levels, cutting interest rates, even to as little as 3 per cent., does little to stimulate consumer spending.
1450
But without a boost to consumer demand private investment will remain depressed. There is no potential for growth there. And with the world economy sliding towards recession there will not be much of an increase in export demand either, however much the pound is devalued. That means that the only possible source of that increase in demand which is so desperately needed to pull the economy out of recession is increased public spending. Cutting public expenditure in such circumstances would, as I am sure your Lordships agree, be the height of folly—for it would only prolong the recession and so ultimately weaken the public finances. But whenever the recovery in spending comes, and wherever it may come from, simply expanding demand will not create sustainable growth in our economy. Keynesianism is not enough.
When in the depths of a recession we are running a current account deficit of £1 billion every month, and when we know that any recovery in the domestic economy will inevitably be accompanied by a sharp increase in that deficit, everyone will be aware of the difficulty of attaining, let along sustaining, a rate of growth that will even begin to reduce unemployment. The growth which we need will lead to a volume of imports that we cannot afford.
The current account deficit, and our persistent need to borrow abroad to cover the deficit, is a measure of our inability to pay our way in the world. It is the true measure of the uncompetitiveness of our economy. At the very heart of our competitive difficulties lies the performance of our manufacturing industry, which still accounts for well over half our trade.
For the past 40 years a persistent trend has eaten away at the foundations of our manufacturing prosperity. On average, year after year, the share of manufactured imports in national product has risen at roughly twice the speed of the share of manufactured exports. At first, back in the 'fiftees and 'sixties, that did not matter very much. The volume of our manufactured exports was huge in comparison to imports; for example, the absolute value of a 1 per cent. increase in exports would far outweigh a 2 per cent. increase in imports. But year after year the inexorable trends have continued—imports always growing faster than exports. Eventually, in 1983, and in contravention of Aesop's fable, the import hare caught the export tortoise—and since then the hare has raced ahead.
Unless we can reverse those trends, unless we can restore our competitive position in manufacturing, the long-run economic prospects for this country are bleak indeed. Yet for far too long the needs of manufacturing industry and the means of increasing the competitive strength of manufacturing have been persistently neglected.
Modern industrial competition is not just about price competition or about ever cheapening the cost of production; it is today also about quality, design and product and process innovation. Competitiveness is about the skills of the labour force and about size and quality of the R& D department. In other words, modern competitiveness is about a sustained commitment of resources to long-term development.

1451
Therefore, any coherent industrial policy must consist of measures which will encourage and reinforce that long-term commitment.
As regards government action, it is now widely accepted that there must be an expansion of public investment in education and training, in support for R& D and in infrastructure of all kinds. But the success of manufacturing in our major competitors is not based only on governments who take a long-term view as regards their own actions; it is also based on a market framework, an institutional framework, in which the private wealth-creating sector is induced to make long-term investments and receives backing from the financial sector in that long-term endeavour.
In Germany and in Japan such a framework exists. It consists of a supportive government, of a rational framework of collective bargaining and relationships between finance and industry which bias decision making toward the long term. Of course, it would be folly to suggest that we can simply replicate German and Japanese institutions here. We cannot do so. But we do need a fundamental reform of corporate structures and of financial institutions in order to replicate, within a British context, the results achieved in Germany and Japan.
That is the key to a successful industrial policy. It is not government intervention in decision making but government creation of a market environment in which private decision making is strongly biased toward long-term investment. Regrettably, the framework of financial institutions within which our industry operates today does nothing to encourage the long-term commitment which is so vital. The short-termism of finance is exceeded only by the short-termism of government. And the financial deregulation of the 1980s which helped create our short-term problems has exacerbated our long-term problems. It has left this country with too much debt, too many office buildings and not enough factories. A commitment to the long term is desperately needed to replace the endemic short-termism which has done so much damage to our economy.
4.46 p.m.
Lord Joseph: My Lords, on behalf of the whole House I congratulate the noble Lord, Lord Eatwell, on his maiden speech. It was packed full with analysis and with proposals which many of us will wish to discuss, no doubt in some cases to be persuaded by him during the years to come. We thoroughly welcome his presence even though he adds to the number of economists in this House. We believe that he may enjoy his life more now that he is free from the job of advising the holder of that most difficult task in Her Majesty's Kingdom; namely, the Leader of Her Majesty's Opposition. It is in the nature of that job and that of his—or her—adviser that one wants the country to do well and the Government to do badly. It is a constant exercise in schizophrenia and therefore we hope that the noble Lord will now enjoy his time in this House as much as we shall enjoy his membership.
I wish to take issue with the noble Lord on one point. I do not believe that the misjudgments made
1452
during the late 1980s, which led to the sustaining of a boom and in turn led to the troubles of inflation and overheating, were a reflection on the deregulation of the financial markets so much as a reflection on the judgment of people, some of whom were elected and some of whom came from his own profession, in interpreting the condition of the time. However, that is only to quarrel with one part of the noble Lord's interpretation.
I wish to take issue with a wider sphere of what the noble Lord, Lord Jenkins of Hillhead, said. It is true that it would be a vast over-generalisation to describe the 1980s as a period of miracle. But certainly elements of it could justly be described as miraculous considering what had gone before. Perhaps I may suggest to the noble Lord elements such as the unshackling of trade union power; the growth in productivity which resulted partly from that; the freedom from controls—pay, price, dividend and exchange; most privatisations; and even the benefits to the rich of which he spoke. After all, the rich were previously perversely over-taxed and the revenue from that sector of the population has risen as a proportion of total revenue since the top levels of tax were reduced. I therefore take issue with the noble Lord in that, while he is unavoidably right to criticise some aspects of the 1980s, much of what was achieved by governments during that time under the leadership of my noble friend Lady Thatcher was in the nature of miracles, considering what had gone before.
I turn now to the Motion before your Lordships. Much has been made—quite rightly—of the ignominious repetition of the same mistakes decade after decade. The phrase was used,"Stop-go". We are certainly back with a "Stop" now. The sequence of the phrase misleads. The real sequence should be "Go-stop", because the initiation of a "Stop" is a premature, over-prolonged or misjudged "Go". That is what we are now suffering from.
To remedy a repetition in the future of yet another "Go-stop" cycle—from which many in this House have suffered, or have seen the nation suffer, not twice but three times, if not more—we need to return to the concept of monetarism. I wish we had labelled it "monetary continence". Scholars tell us that the concept of monetarism does not lie to the credit of my noble friend Lady Thatcher, nor to the credit of my noble friend Lord Howe or the noble Lord, Lord Lawson. It lies to the credit of the noble Lords, Lord Healey and Lord Callaghan, who under the influence of the IMF in the mid-1970s introduced, albeit covertly, albeit furtively, the concept that later became known as monetarism.
We are lucky to have in the House the biographer of the great Lord Keynes. My noble friend Lord Skidelsky will be speaking later and I hope that in the second volume of his biography—which we look forward to reading when it is published later this month—he will tell us whether Lord Keynes was a monetarist. I believe that Lord Keynes was far nearer a monetarist than many of his disciples. I am not an economist and cannot analyse these matters in detail but I believe that he would have prevented some of the episodes of "Stop-go" by drawing attention to them.

1453
In the light of the emphasis in this debate, let alone elsewhere, on the Prime Minister's articulation of a government policy that will, in his phrase,"Go for growth", we are given an uncomfortable resonance from previous periods that historians now tell us resembled not so much "going for growth" but "dashing for growth". In the light of that danger and the airy assumptions of the noble Lord, Lord Eatwell, of all the things that should be done and announced in next week's public expenditure statement, and other assumptions made by previous speakers, including the noble Lord, Lord Rodgers, there is a danger that we may reinvigorate inflation before long.
The noble Lord, Lord Peston, was right to remind us that Hayek had urged governments to remember that the time to worry about inflation is precisely when inflation is falling. In my view therefore we need a framework. Perhaps what the Chancellor of the Exchequer said at the Mansion House and what my noble friend Lord Caithness said today represents the beginning of the formulation of a framework—a Middle Term Financial Strategy announcing what the Government would watch, M3 and M4. We are now told that the Chancellor will watch all kinds of things, including M0, M3 and M4. It is essential, if we are to avoid another "Go-stop" situation in a few years' time, to produce a framework within which interest rates, public spending and all the other activities conditioned by government can be judged by the public as well as by ministers.
I welcome the steps being taken towards a Middle Term Financial Strategy. I shall be told that it is much harder to judge what is the real meaning of growth in different descriptions of money supply now that there is deregulation. That is true. It must be much more difficult. But the Bundesbank and France seem to manage it. Why should not we? I admit that it is hard and that the Bundesbank operates within a culture far more hostile to inflation because of recent German history than the Bank of England would operate here. Nevertheless, I am sure that it can be done.
The noble Lord, Lord Eatwell, used the powerful phrase,"Keynesianism is not enough". I used the phrase in the 1970s that "monetarism is not enough". If Keynesianism is not enough and if monetarism is not enough, what else matters? The noble Lord had the answer to that also. He said that competitiveness matters. Of course he is right that design, marketing and research matter desperately. But what matters also—though it is unpopular to say, no doubt, for the Benches opposite—is that the growth in productivity that for 10 years we have been witnessing in this country should not be nullified by earning growth that exceeds the growth of productivity. I am sure that the noble Lord would agree with that. How to achieve it is a different matter. I believe that managers hold the responsibility for securing understanding by their colleagues in the workforces that it is in their interests to allow prices to be competitive and profits to he made, to co-operate in keeping prices steady by not demanding excessive pay increases to, in many cases, go far beyond productivity.
1454
I come to my final points. In the current circumstances where the Government want to encourage benign growth, they should take seriously the possibility of underfunding part of the deficit. I am not an expert in these subjects but I gather that normally a deficit, to avoid inflationary consequences, must be funded by the non-bank community. To allow underfunding would mean that the banks would be allowed to fund part of the deficit and thus to reduce the risk of crowding out corporate borrowers who may want to clean up their balance sheets from excessive debt by transforming it into equity.
I turn to my King Charles head, with which some noble Lords will be wearily familiar. Within the framework of what I hope will be a Middle Term Financial Strategy we must release the animal spirits of entrepreneurs. If we do that, we should look again at how our rival countries conduct their capital gains tax policies. The Germans have a sharp capital gains tax for gains made within six months. Fine, but I believe I am right in saying that they have no capital gains tax for gains made after six months. Something of that kind may be far more suitable to release the animal spirits of our entrepreneurs as times and conditions permit.
The noble Lord, Lord Peston, provoked me to say something in regard to the ERM. He said that it was important. Yes. He said that it was important because it was on the way to EMU. Yes. He did not say that EMU means a single central bank and in the view of many of us that means a single central government. That is why Herr Bangemann yesterday hit the nail on the head when he spoke of the federal aims of the European colleagues. I do not believe that the ERM is such an innocent device. We must deal with the control of our money supply by our own understanding and efforts.
It only remains for me to wish the Government well in designing the least bad policies now available to achieve and sustain low inflation and yet achieve sustainable growth.
5 p.m.
Earl Russell: My Lords, the House is indeed fortunate today to have heard two such notable maiden speeches from, first, the noble Lord, Lord Clark of Kempston, to whom I listened with great pleasure. I was particularly glad to hear him say what he did about the economic consequences of German reunification. That is not often enough said: I hope that the House heard it.
I listened with equally great pleasure to the noble Lord, Lord Eatwell, who had so many interesting things to say. I shall read them with great care tomorrow. I agreed particularly with what he said about action on interest rates not being enough and about our needing not just an increase in consumer spending but a real revival of manufacturing industry. I hope that it will be our privilege to hear both noble Lords on very many future occasions.
Somehow or other—I shall not speculate from where—the idea has got into the air that there is some kind of conflict between our allegiance to the European Community and our economic recovery.

1455
There is going around the phrase,"control of our economic destiny." I am not quite sure what is meant by that. We are a trading nation. We have a convertible currency. What happens to the economies of our trading partners is necessarily of importance to us whether we are formally linked with them or not. What people outside this country who may buy or sell our currency happen to think of our economy gives them power over us whether we are formally linked with them or not.
This notion of having control over one's own economic destiny gives me some problems. In fact, since the war I can think of only one country that has had control over its economic destiny. That country is Albania, where Mr. Hoxha was, I believe, the only world statesman I have ever come across who actually agreed with Plato that nothing more disastrous can happen to a state than to have a large export trade. I do not believe that Mr. Hoxha's example suggests that it is really a good idea to follow it.
We live in an international market. The notion of control of our economic destiny always was a pipe dream. It is about time that we lived in the real world. In that real world I have a vivid memory of the period between 1979 and 1984 when the floating pound turned into the cork pound. In the United States I was living on a salary paid in dollars and having to be in this country for about three months of the year to do research. When I had to take decisions about my summer spend some time in February or March, I never knew within 30 per cent. how much my money was going to be worth when I brought it over here. That gave me a very lively sympathy with the constant reiteration from industry that it cannot manage without stable exchange rates. For me 30 per cent. may have been simply the difference between pleasure and pain. But in any normal business if 30 per cent. is not the difference between a profit and a loss, then it ought to be. One is making grossly excessive profits if it is not. That is why I am in full and strong agreement with my noble friend Lord Rodgers of Quarry Bank about the need to be back inside the exchange rate mechanism as soon as we conveniently can. I see no other way.
On the wider problem, I cannot help agreeing with the sense that the noble Lord, Lord Joseph, expressed of having been here before. A great deal of this situation has a depressingly familiar note about it. Over and over again we have tried to bring down inflation. We have taken money out of the economy, and we have reduced production in proportion. Time and again we have tried to revive the economy. We have put money into it without increasing production in proportion. I believe that the warning given by the noble Lord, Lord Joseph, about inflation was well taken. We should not change from thinking that inflation is the only factor that matters to believing that it is the only thing that does not matter.
If we want money in the economy we want it to be translated into the production of goods. We do not simply want it to go either into inflation or higher import prices. Here I wish that I were the noble Lord, Lord Home of the Hirsel—whom I wish good health—with his matchsticks. I cannot help thinking that the
1456
present methods of trying to reduce inflation are like trying to level a pair of steps by planing them down from the bottom. One does not get them level until they are destroyed.
We need to think about increasing the marginal propensity to produce. Over the past 30 years why is it that when we have had a little more money we have put it into services such as lending money to buy houses rather than investing it in manufacturing? It is for us to produce the answer. I happened to stumble across the answer, given with blinding simplicity in a speech in another place in 1624. It is what happens when interest rates are higher than profit margins. It is more profitable to lend the money than it is to invest it in producing anything. I do not believe that at the moment I need to convert the Chancellor to the importance of lowering interest rates, but we need to encourage him to think about increasing profit margins. That means lowering industrial costs. When I say that I do not mean doing so by lowering wages. First, that of itself has a recessionary effect. Secondly, if wages are lowered below a certain point the bill simply tends to be transferred to the state in the form of housing benefits and other provisions. One simply puts up public spending.
I am concerned with rather more direct ways of looking at industrial costs. I was glad that the noble Lord, Lord Clark of Kempston, said what he did about business taxation. I would start with an urgent review of the uniform business rate. I would go on from there to the repeal of the statutory sick pay legislation placing extra costs on industry right at the beginning of this recession. When I looked at the infrastructure I would be looking at ways in which work on it could keep industrial costs down. It has made a very deep impression on me that the CBI says that the costs of congestion in London to its members is in the region of £15 billion a year. That figure is some years old and is probably due for uprating.
I agree with the Chancellor that the present levels of sterling create export opportunities. It would be a great deal easier to take those opportunities if money were being spent on a Channel Tunnel rail link. I would also want us to look at the fact that we should not be relying on industry to do things in the financing of our public services which ought to be the proper responsibility of government. Pushing those provisions on to industry increases industrial costs, and that is not what we need to be doing.
I am extremely glad that my noble friend Lord Jenkins of Hillhead said what he did about the public sector borrowing requirement. We should recognise it for what it is. It is not a problem of excessive spending but of insufficient revenue. It is caused by the fall in revenue as a result of unemployment. That is something on which the Treasury was taken by surprise. It happened because the Treasury did not compile the necessary figures. The Treasury does not keep figures of loss of revenue as a consequence of unemployment.
That brings me to the subject of forecasting. At the moment it is fashionable to blame the forecaster and indeed the forecasts have not been very good. I believe that there may be an element of shooting the

1457
messenger. The forecaster cannot do any better than the statistics which he has to feed into his forecast. If wrong information goes in, wrong forecasts will come out. I remember clearly a debate in this House on 13th March 1991 on government statistics. A strong case was made for having an independent statistical service. If we did that, by getting away from the Rayner principle—that the Government collect only the information that they want to know—I think that we might get much better economic forecasts. We would have had estimates of future loss of revenue as a result of rising unemployment and we would not have been taken by surprise.
I do not want to reopen the endless argument about what is the correct unemployment figure; I shall repeat that what is the correct figure may depend on what one wants to know. The Government perfectly properly want to know how many people are on unemployment benefit. There is nothing wrong with keeping a figure for that. However, if one is making a forecast, that may not be exactly the information that one most needs to know. If we ran through the economic forecasts since 1988 again, feeding in instead the levels of unemployment that have been calculated by the Unemployment Unit, which are about 3 per cent. higher, I should be very interested to know whether our forecasts would have been more or less accurate. If we had an independent statistical service, these questions could be looked at without too much partisan input.
The final thing that I want to consider is a point that I have returned to many times: the cost of unemployment. The number of people who have to live on the public purse because they do not have work is rising. According to a Written Answer that I received the day before yesterday,10.6 per cent. of all adults in this country are on income support. In England,21 per cent. of all children are dependent on income support and in Scotland the figure is 23 per cent. of all children. That is a very considerable load that we are carrying—a very considerable number of people who cannot make a productive contribution. Although they do not get very much each, it is an awful lot of money when one adds it all together.
We had information in a report published by the National Children's Home last week that people on benefit were spending on average £9.10 a head on food each week and 62p on clothes. Those figures must have a relevance to the recession. If I were in the clothes manufacturing business and I saw that figure of £0.62 applying to well over 4 million people, I would be thinking of reducing staff. That is why if there were any further cuts in benefit levels the recessionary impact would be very severe indeed.
My noble kinsman told me last week that we could not afford any increase. If that is so, he is conceding what I have been telling him for some time—that in the literal cash sense, we cannot afford this level of unemployment. When we set our new priorities for government, which I think and hope is being done now, preventing inflation should share pride of place with preventing unemployment. If that is not done, we shall not get anywhere.
5.13 p.m.
Lord Northbrook: My Lords, first I must crave indulgence as being the third member of the Baring family to subject your Lordships to a maiden speech during the past year. Coming from a family that over several years past has had an involvement in the commercial life of this country, I am as anxious as any to try and pinpoint the elixir which will result in sustainable economic growth in this country.
To understand how this goal has been so elusive we need to look back in history. One hundred and forty years ago the Great Exhibition of 1851 showed Britain's vast advances in science and industry, supremacy in machinery and immense new range of factory products. But what has happened since? We have allowed the United States, the Far East and Germany to outstrip us economically. Some would say that this was inevitable following the decline of the Empire. They would say that we exported manufacturing to our colonies, used their cheap labour, but gave all this away when they became independent. Others would claim that Britain has always been a great inventor of products but far less skilled in selling them. A third category might say that the ability of the Germans and Japanese in particular to start rebuilding their industry from scratch after World War II gave them a great advantage over our mainly Victorian factories. Their workers' greater emphasis on training and acceptance of cheaper wages helped to make them much more economically competitive.
In the UK, on the other hand, the Victorians in a sense did too well. They were responsible for much domestic and commercial infrastructure and every generation since has fed off their energy and sacrifice. They built many of the factories and warehouses; they gave the country gas mains and piped water; and they created heavy industry. But for much of the 20th century commercial attitudes have been very different. Companies have decided that capital investment has a low priority. This attitude has continued even in recent years. Since 1975 British companies have on average retained 45 per cent. of their earnings for reinvestment. Over the same period American firms have retained 54 per cent., Japanese firms 63 per cent. and German firms 68 per cent.
Such lack of reinvestment may be reflected in the different economic growth rate of the UK compared to other countries. Between 1960 and 1980, economic growth in Britain averaged a mere 2.3 per cent; in the former West Germany 3.7 per cent; in America 3.5 per cent. and in Japan no less than 7.7 per cent. It is notable that during those years UK companies tended to make investment abroad where more productive assets could be had for the money. As a result, old factories here carried on unchanged. In this period the average age of UK factories was more than 35 years. Meanwhile, in Japan this figure had been whittled down to six years as old has been continually replaced by new.
Yet suddenly in the 1980s everything seemed to change. The free-for-all in deregulation and privatisation, along with cuts in subsidies to loss-making enterprises, tax reform and trade union curbs all seemed revolutionary at the time and did mark a

1459
major and exciting break from the past. The most favourable business climate was created for many years and, as a result, real domestic demand surged by 4.6 per cent. in 1986.5.2 per cent. in 1987 and 7.5 per cent. in 1988. Yet there were more unforeseen problems ahead.
The Government's reaction to the exceptional circumstances of the 1987 stock market crash, although based on the best of intentions to avoid a repeat of the 1930s depression, was to loosen credit further. The timing of the cut in the top rate of tax from 60 per cent. to 40 per cent. may have helped stoke up credit more. The theory was that by cutting taxes and getting the Government off people's backs an era of sustainable growth would be achievable. By freeing up credit controls a huge boom was created in consumer spending with banks falling over themselves to lend to individuals and companies. People borrowed not only to pay for houses and cars but also holidays, school fees, new clothes and consumer gadgets galore. Property prices went through the roof as credit spilled everywhere.
From a City viewpoint the major mistake during those years was the failure of the authorities to watch M3 money supply growth more carefully. I am no economist, but I remember being worried at the time by the explosive growth in this figure of broad money supply. While not totally supporting monetarist theories, it seemed an ill omen when it was advised that no further attention would be paid to this important indicator which was way above its target range. The subsequent inflation which followed was triggered to a considerable extent, in my view, by the excess money supply growth, and inflation reached a peak of about 11 per cent. in the out-turn of 1990. The blunt instrument of interest rates, which rose from 7.5 per cent. to 15 per cent. in an overkill measure to repress it, has been a major cause of the present recession. Therefore, how can we seek to regain the hard-won benefits of the 1980s; how can we avoid the economy becoming overheated and inflation once again running out of control? What can be done to get us away from a stop-go cycle?
First, I believe that more care must be taken about the collection and interpretation of economic statistics. I welcome the Chancellor's decision as announced in the Mansion House Speech to set up an independent forecasting panel separate from the Treasury. I am more concerned about the accuracy of the statistics that are collected. For instance, it was not until two years ago that the sales figures from a leading store chain was looked at as part of the Government's retail data. This seemed a rather surprising omission in looking at consumer spending patterns. Actual statistics must be looked at more carefully rather than relying on models of the economy. Governments must not be afraid to use data available from the City economic sources. Unfortunately, communication between politicians and the City seems to have deteriorated (not helped by the sight of screaming foreign exchange dealers on the evening television news) but there does exist
1460
independent expertise in addition to these dealers which can be usefully consulted without jeopardising the confidentiality of the economic strategy.
Secondly, I believe in a more powerful role for the Bank of England in the model of the Bundesbank or the Federal Reserve. Both the latter institutions are able to operate on an independent basis; and whatever one thinks of the Bundesbank, it is certainly good at putting internal economic conditions at the heart of the strategy at the expense of outside influences.
Thirdly, I believe in selective support for industry. In the 1980s there was a widespread feeling that manufacturing was not important. Experts pointed out that there was a fundamental shift in the economy from one based predominantly on large enterprises to one relying more on small firms: from heavy dependence on manufacturing to greater reliance on services. The boom in financial and information services was going to usher in a post-industrial world. In spite of my family's background in the City, even at the time I did not believe that view, noting that manufacturing still provides more than half Britain's export earnings.
The 1980s did achieve one thing for manufacturers—greater productivity improvements. But the easy part has now been done; axing jobs and closing plants. British firms now have to do the difficult part: matching their foreign competitors' investment rate. This is where selectively government can help. Very few subsidies are given to manufacturing industry compared with other areas. Capital allowances should be reintroduced in full to help reinvestment in machinery. Urgent attention should be directed to whether the unemployed could be trained to help with infrastructure projects rather than being unable to find any work. Overall, I believe the President of the Board of Trade has seen the wisdom of selected industrial intervention, and I welcome that.
Finally, the features of economic cycles should be more readily recognised by governments. Economic growth does not go on for ever and warning signs have to be watched more carefully. Money supply, retail sales, industrial production and balance of trade figures need to be continually monitored to look for changes in the cycle. Monetary policy should not just be determined by interest rates: credit controls should be considered and tax increases even when necessary to curb demand. Like a barge in a canal, the economy needs watchful steering; a particular turn on the tiller can take much longer to have an effect than expected and therefore needs to be implemented in good time. But it is too easy to overcompensate for bad steering and to head off-course into yet more trouble. The margin for error can be narrow before the boat strikes the side.
My Lords, sustainable economic growth is much easier sought after than achieved. Both Germany and Japan have done so much economically since the war by paying greater attention to these last two principles—selected intervention and pragmatic economic management. We must make sure we put into practice what we have learnt from their success.
5.25 p.m.
Lord Barnett: My Lords, I am delighted to be the first to have the opportunity of congratulating the noble Lord, Lord Northbrook, on an excellent maiden speech. I am sure that all who heard it will have appreciated it very much indeed. I hope to return later in my speech to some of the excellent points he made.
I want to start with the fact that the Government have occasionally been criticised about the U-turns they have made in recent weeks and months. They were called relaxations by the noble Earl, Lord Caithness. I want to make it quite clear that I do not regret the U-turns that have been made. Indeed, in some cases—I shall refer to them—I welcome the U-turns as a positive movement in the right direction. I should like to list some of the U-turns, say why I agree with them and put forward some more which I think the Government might usefully make. I do not mind if they call them relaxations. They can call them what they like so long as they make them.
Perhaps I may refer first to the exchange rate mechanism. We were told by the Government very firmly and clearly of the benefits of being inside the exchange rate mechanism. That was the view of the Government when we were within the exchange rate mechanism. Now we are told with even more emphasis of the great benefits of being outside the exchange rate mechanism. I oppose the idea that the exchange rate mechanism was a fixed rate mechanism. It was nothing of the kind. It set fixed but adjustable rates. I am bound to say that I disagreed with at least part of what my noble friend Lord Peston said in this regard. I see my noble friend nodding in agreement with my disagreement. I think that that is what he is doing. I do not often disagree with him because, as always, he made an excellent speech.
The point has been made in the debate that for there to be a single market and for Maastricht to be implemented, even without economic and monetary union, a start needs to be made fairly quickly on being inside the exchange rate mechanism. It is far from clear to me how we can join a single market and be at the heart of it without being also in the exchange rate mechanism on the way to economic and monetary union and a single currency. I hasten to add—and here I might agree with my noble friend Lord Peston—that
I see the difficulties of our achieving all the criteria of a single currency let alone other member states. For example, it is difficult to see Italy achieving some of the criteria unless it uses some of the moneys that are not clearly visible.
I was sorry about the U-turn of leaving the exchange rate mechanism. I am not bothered whether the Germans did or did not offer us a realignment. We could have asked for a realignment and we would have got it. We could have got a realignment. If the Government were offended by the idea of calling it a devaluation, we could have called it a realignment and stayed within the exchange rate mechanism. Indeed, if the objective was to bring down the rate of inflation, as we were always told when inside the exchange rate mechanism, what on earth are we now saying about
1462
how long it will take to get back within it when we could have stayed in it. I very much regret the fact that we came out.
I say to my noble friend Lord Peston that devaluation occurred because there was clearly a lack of convergence between ourselves, the Germans in particular and others as well. That lack of convergence caused us to devalue. There was no choice in the matter. Nor was it caused by speculators. My noble friend's shorthand version of the word "speculators" was—I hate to use the word specious—not entirely an accurate description of the kind of people who were speculating. After all, there are people in the City who buy and sell currencies not out of love for the idea—they make some money—but in the main because they are acting on behalf of institutions, companies, pension funds and others and it is in the best interests of their clients that they take the best possible steps. When they see that that is what is going to happen, they would not be doing their job if they did not do so. I see that my noble friend wishes to intervene. I gladly give way.
Lord Peston: My Lords, I am obliged to my noble friend. I hope that he realises that I did not make a single critical remark about speculators; I fully accept that that is the business they are in. My critical remarks were about the banks—namely, the Bank of England and the Bundesbank—which is a different matter. I do not blame anyone who is in the business of making money for trying to do so.
Lord Barnett: My Lords, I am obliged to my noble friend for his correction.
I shall now leave aside the exchange rate mechanism and the Government's U-turn and focus on the third of the U-turns; namely, what they said about devaluation requiring higher interest rates. In practice, we are now told—and we have seen—that what will happen is lower interest rates. It is fairly obvious. We now have them and they are about to go even lower, not that they are the answer to all our problems. But it certainly would be a movement in the right direction. I am personally very happy about going for lower interest rates of possibly 6 per cent. or 7 per cent., but it is certainly not the answer to our economic problems, as we have seen in other countries. For example, in the United States they have a much lower rate of interest but they still have a recession about which we all know. That was one of the reasons for the change of government. Perhaps if we get down to a level of 3 per cent. in this country we might get another change, but that might be going too far.
I turn now to the fourth U-turn that the Government have made in relation to the zero rate of inflation. The noble Earl, Lord Caithness, spoke today about low inflation. I welcome that U-turn. I am delighted to hear that we are no longer aiming for zero inflation. That is the way to madness and it certainly would not meet the objective of going for economic growth; indeed, it would delay any economic growth almost indefinitely. Even assuming

1463
that we could ever achieve zero inflation, it was crazy to even talk about it let alone put it forward as a target.
I now come to what I call the next U-turn, flexibility or whatever; namely, the strategy for growth. Again, I welcome it. I am delighted that the Government have now got a strategy for growth. However, I wish that they would tell us what it is and how they propose to achieve it. I am delighted to hear that they are proposing such a strategy, although a week before we heard about the strategy for growth from the Prime Minister we were told by the Chancellor of the Exchequer that there will be no kick-start to the economy. I am not sure how we can achieve a strategy for growth in the short term without some kind of kick-start to the economy. I am sure that one could call it something else and that, given the flexibility within government, another form of words to replace "kick-start" could be found.
As I said, I welcome that U-turn. That brings me to what I believe would be the biggest U-turn and kick-start towards achieving economic growth. I refer to public expenditure. What effectively is needed is a dropping of the rigid and inflexible target of £244.5 billion for 1993– 94. In current circumstances it is crazy still to aim for that kind of target. The Government have told us,"We don't mind borrowing more money for capital expenditure". I am not suggesting that they should borrow more money for current expenditure. We are told that in December 1993 we shall have balance sheets which will separate out, quite rightly, the difference between current and capital expenditure. That must make sense. But why wait until December 1993? We desperately need expenditure now on capital investment. In his maiden speech the noble Lord referred to that. I entirely agree with him. Of course that is what we need. I hope that they will drop that particular target. It would be the best U-turn or relaxation that the Government could effect or have yet done.
I gather from some of the press reports that I have read that there is talk about some form of creative accounting. I speak as one who has done a little—in the five years that I was Chief Secretary to the Treasury. Fairly obviously, I have no objection to the Government having in mind some creative accounting. For example, I would be perfectly happy if they changed Treasury rules to allow local authorities to use more of the money that they receive from council house sales. Given the state of the construction industry, it is madness not to let them take more than 25 per cent. and ensure that it goes into the construction industry. You can make sure that it does and does not go into current expenditure. If they want to change those rules, God bless them. I would welcome it.
The other idea is a little more difficult but one which I would still go along with. I refer to a change in the Treasury rules to allow private companies or large public companies to spend money on public sector projects like, for example, the Jubilee Line. They would do so on the back of leasing it in advance to government. Whichever way you look at it, it is effectively borrowing. But if it enables the
1464
Government to get off the hook and spend the money on capital expenditure which is desperately needed, I would strongly support it. I am not suggesting that it would bring the recession to an end; but it would certainly help to move the economy in the direction which everyone is suggesting we should be moving.
I turn now to the public sector borrowing requirement. I believe that my noble friend Lord Eatwell said in his excellent maiden speech that as a percentage of GDP it is modest by comparison with many other countries in Europe. Therefore, to be concerned with that percentage this year, especially at a time of major recession, would in my view be quite wrong. Again, the Government would have my support if they allowed it to increase to finance capital investment. Having said that, I must make it quite clear that all that alone will not massively reduce the level of unemployment. It will certainly not do so this year or, I guess, next year.
That brings me to my final U-turn; namely, intervention. We need to ensure that we take advantage of the lower exchange rate. Many speakers referred to what has happened in the past. I am not blaming any particular government because all governments have seen a reduction in capacity in manufacturing industry over many years. One has to face that fact. The Government will tell us, and they constantly have, that between 1979 and 1991 output increased by about 17 per cent. I do not dispute that figure. However, the problem is that consumer expenditure during the same period increased by 37 per cent. That is the major reason that we have such a huge deficit during the middle of a major recession.
If we are to move out of that, not immediately and not next year, we need to make a start on increasing capital investment. A number of speakers mentioned the issue; for example, the noble Lord, Lord Clark, in his maiden speech. I had a number of disagreements with him in the other place, but I shall not disagree with him today. The noble Lord, Lord Northbrook, also in his maiden speech, mentioned the need to do something about capital investment to provide for increased capital allowances. I would go further than both those speakers. In the short term I would go for 100 per cent. investment allowances, not necessarily for a long period of time but certainly for a short period. That would encourage companies to put their money into industrial investment which is so vitally needed now and not in a few years' time.
That is one measure that I would take. I turn now to the other. The President of the Board of Trade has promised us intervention for breakfast, lunch and dinner. I do not know when he has those meals, but he has not yet carried out much intervention. I hope that he has in mind to do it and to do it fairly quickly by investing and thus helping to kick-start companies' investment in research and development. That must be right at such a time. It can be done. Those are some of the things that I would do: some of the U-turns that the Government have made that I welcome; some of the additional U-turns or relaxations that the Government should make.
I repeat, I do not believe that what I or anybody else have said will provide a quick solution to the

1465
major problems that we face. It might get us moving in the direction of achieving what the Government have said that they want to see; namely, to move the economy towards a growth target. That is what I, the Government and everyone else, I hope, want to see.
5.40 p.m.
Lord Hothfield: My Lords, I am very honoured to be able to take part in a debate in this House amid so many distinguished speakers. I do not have the experience of my noble friend Lord Clark. This is my first maiden speech and, naturally, I feel a little anxious, like a diver who has just left the springboard, but I am much heartened to see your Lordships happily splashing about in the water below.
As a civil engineer, I make no apology for approaching the debate from that point of view. We have lately been hearing a great deal about the problems of the miners. There were mass demonstra-tions with unlikely alliances of solicitors, housewives and faceworkers, and every tint of the political spectrum. I have much sympathy with the miners, having worked in open-cast mining; but, the mining job losses being talked about are some 30,000. The construction industry is reckoned to have lost 450,000 jobs in the past three years and is expecting to lose another 50,000 in the next 10 weeks. That is an acceleration with no end in sight.
It is easy to see why there is so little public outcry for construction compared to mining: there is no concentration of redundant families as there is in the pit villages, but a uniform spread throughout the country. Construction workers, by the very fact that their contracts are fixed-term, are used to periods out of work and having to be mobile to find another job. But the health of the economy is very much bound up with the health of construction. It is hard to prosper when the infrastructure is neglected. Construction in the UK constitutes a major part of industry: approximately 8 per cent. of GNP. It is presently dying on its feet with unemployment levels of 23 per cent.—more than double the national average.
I have outlined the problem, but the debate is about solutions. Of course, I realise the difficulties facing any government in today's stringent conditions, with the need to contain inflation and control public spending. The world economy has, sometimes in the past, come to our aid, but every industrialised country looks to have its own problems. Certainly the USA, Japan and Germany are not immune. We have to take positive steps ourselves to improve our position. Vital to the solution is the restoration of some sort of confidence in ourselves, because there are some positive signs.
It is good to see that there is to he a change of emphasis in government towards industrial growth, and I for one shall not be adverse to economic gurus being replaced by more practical people. I mean no offence to any noble gurus. The recent reductions in interest rates are obviously healthy, with more cuts necessary to give further stimulus. The slide of the pound, though of no benefit to importers, is an opportunity for exporters to expand their businesses; and it is to be hoped that spending on capital projects
1466
will not be cut. We have had some assurance on that point. It would be a tremendous boost, for instance, if the Jubilee Line extension could be given the go-ahead. Those contracts are teed-up and ready to go. We have already spent £140 million on its design. As an investment, it should and would lead to further jobs and prosperity.
Another area for action is the housing market. That will benefit from the reduction in interest rates, but some further support, such as the raising of thresholds for tax relief, might just give the necessary push to help confidence to return.
For the longer term, we need to have an economic strategy so that, whatever the present hardships, people can see a route forwards leading to a stable economy. That strategy should be a framework, and not interventionist. It is not enough to have to rely upon market forces to pull one way or the other. Any publicly funded items such as roads, railways, schools, hospitals and training should be included. I leave out energy as being too controversial a subject.
In all of that, industry should be consulted so that practical policies emerge. The CBI would be the right vehicle for that. At present, service industries are more attractive than manufacturing industries to bright school-leavers. That trend will be reversed only if there is a prospect of stability and growth. There should be more consultation with manufacturers as to how to achieve that.
There are many other factors to be taken into account to achieve sustainable economic recovery—resolution of the GATT talks for one. There are others in the House, far more qualified than I am, to talk about those factors. Many noble Lords have already done so.
Before sitting down, I should like to touch upon two further points which I think are relevant. At a time like this, when jobs are scarce, I notice that directors' pay last year increased by 7.9 per cent.—almost double the rate of inflation. That is not a good example to set further down the line when trying to contain inflation.
My last point is that I am certain that being a part of the EC is essential to our future prosperity. Other speakers have mentioned that subject. There are, of course, objections to loss of sovereignty, to interference in our own affairs and to some of the new laws and regulations; but, overall, as an economic community, it is something we cannot afford to be without.
Lately, the focus of attention has been on Maastricht, and that has diverted attention from our own problems at home. Not only that, a continued wobble on commitment gives others no confidence in us and inhibits inward investment. That point was well put in a letter to The Times that many of your Lordships will have seen on Monday from 27 prominent businessmen. I therefore very much hope that the debate taking place in another place today will remove the current uncertainty from the European debate and allow us to resume our concentration on problems closer to home.

1467
I thank your Lordships for your patience during my speech and for the many kindnesses that have been shown to me in the House.
5.47 p.m.
Lord Benson: My Lords, on behalf of the whole House, I congratulate the noble Lord, Lord Hothfield, on his maiden speech. He comes from a long line of forebears who have dignified this Chamber, and we can rest assured that he will carry forward those traditions with skill and authority. I hope that we shall hear from him on many future occasions.
Public and press comment in the past three months suggests that the economy is a large body that can be moved forwards or backwards merely by changing interest rates. Those are not the facts of life. The economy is an enormous machine with a multitude of different parts: invisibles, exports, imports, unemployment, supplies of energy, the availability of capital, the ability to compete, agriculture, vocational training, taxation and a host of others. Some of those are doing quite well but others are doing badly. Those that are doing badly are holding back our economy below that of our competitor nations. That is why we have been forced to devalue, and unless we take appropriate steps we shall devalue again.
The core of our economy is and has always been manufacturing industry. It is the very foundation upon which all our achievements have been based. In the past 40 years it has diminished alarmingly so that now the industrial base is too low to sustain our economy. Unless we can somehow revivify our manufacturing industry, the outlook for this country is bleak. It will be bleaker still for our children and grandchildren when oil and gas run out.
I should like to give the House three figures: between 1950 and 1970 the number of persons employed in manufacturing industry in this country was between 8 million and 9 million. At one point it even exceeded 9 million. By 1990 the number had fallen to just over 5 million, a fall of 40 per cent.
If those figures do not frighten noble Lords as they frighten me, let me ask the House to consider some other facts. In 1970 our exports of manufactured goods from this country exceeded our imported manufactured goods by £17 billion. By 1990 that surplus had been reduced to a deficit of £12 billion—a swing of £29 billion in one year.
If noble Lords are still impervious to fear and anxiety, let me quote a further set of figures. In 1970 our share of the total exports of the world was 9.1 per cent. By 1991 it had fallen to 6 per cent.—a catastrophic fall of 34 per cent. In that field we now rate below France, Germany, the United States and Japan. We are just above Italy. I beg noble Lords to consider the loss of wealth and wealth-creating activity that those figures disclose.
In recent years no government of this country have formulated an industrial policy which will halt this headlong decline and build for the future. The present crisis is a golden opportunity for the Government to restore their credibility by formulating a real
1468
industrial strategy which will build for the future. I believe it would be welcomed throughout the country and warmly supported.
I suggest that the way ahead is to select the objectives we wish to achieve and then take any steps which are necessary in the public interest to attain them. The two most obvious objectives are: first, to enlarge our industrial base, to stimulate new industries and to revivify those sectors of industry which have faded. The second is to increase productivity by training, substantial new investment, better use of research and development and taxation and other incentives. The Government will need the help of the CBI and the TUC, and I hope that we may also believe that the Opposition parties will at least afford tacit if not spoken approval. This is a national problem. It is not a subject to be bandied about in party politics.
There are of course numerous other measures which are needed for a rounded industrial policy, but time prevents any reference to them in detail tonight. I merely make the comment that in the past two years I have made various suggestions in that regard in this House.
I make one other point which sounds small but which is of overriding importance. It is that we should abolish the use of the word "non-intervention". It is the theme that dominates the Government's present industrial policy. The word can be used and interpreted in any way the speaker chooses. Industry is frightened of intervention, largely because of some imprudent Socialist policies which were attempted immediately after the last war and have long since been abandoned.
However, what is noticeable is that when crisis looms industry is among the first to cry for help from the Government. The Government use the word "non-intervention" to avoid responsibility for guidance and leadership which will revivify our industrial empire. Of course the Government must not engage in industry. They have neither the skill nor the knowledge to do so. But they have the power and responsibility to see that our manufacturing industry succeeds. The Government should think of themselves as the manager of a football club. Please do not think that I am being facetious. The Government must not enter the playing field, but from the sidelines they must provide the stimulus, guidance and leadership which turn defeat into victory.
There is one final point. If any industrial policy is to succeed in this country, the Government will have to import into their ranks, both at the political level and in the Civil Service, high quality personnel who are trained and experienced in industry and in its financial management. At present the resources available are far too few to deal with the formidable barriers that face us in the future.
5.55 p.m.
Lord Cockfield: My Lords, the Government have aspirations, but they do not yet have policies to give effect to those aspirations; or if they do have such policies they have not revealed what they are. The aspirations are entirely admirable, but unless one has policies to give effect to the aspirations they do not

1469
take one anywhere. Because of that, the timing of this debate is singularly appropriate. It gives your Lordships an opportunity to place your collective wisdom at the disposal of the Government.
However, having paid tribute to the timely nature of the debate on the part of the noble Lord, Lord Jenkins of Hillhead, I must join my noble friend Lord Joseph in entirely rejecting the criticisms that he made of what happened in the 1980s. Of course mistakes were made, but equally there were great triumphs. Looking at the record as a whole, the 1980s were a much better decade than were the 1970s.
None of this is really important because we cannot go back and re-write the past. We can learn from the past and occasionally some people do. But even that is of limited value because we are now moving into a world which is totally different from that which existed in the 1960s,1970s and 1980s. The fall of the Berlin Wall three years ago, the decline and fall of the Soviet empire were not just political events, they brought about enormous economic change as well. It is as yet totally unproven whether the lessons of the 1970s and 1980s and the economic theory of those years, will stand us in good stead in the 1990s and into the years of the next century.
I shall not intervene in the interesting dispute between the noble Lords, Lord Peston and Lord Jenkins of Hillhead. All I would say is that it was well worth while listening to all 14 minutes of what the noble Lord, Lord Peston, said because of the jewel of wisdom which appeared at the end—namely, that we could look forward to another four years in office of the present Government. For that, we express great appreciation.
I wish to pick out three subjects to talk about in more detail. The first is the link between devaluation and inflation. Devaluation is an act of national impoverishment. Let us be quite clear and brutal about it. What devaluation means is that we sell our goods and services to foreigners for a lower price. At the same time, we are prepared to pay foreign suppliers more money for the goods and services that we import from them. Therefore, devaluation must reduce the standard of living in the country which devalues. That has always happened and, up to date, there is no reason to suppose that it will not happen. But what is worse is this: if the process stopped with the acceptance of the decline in living standards that devaluation represents, that would be unfortunate but at least it would be the end of the story. However, the world does not work like that because everybody in industry, the trade unions or the professions tries to protect themselves from the effects of the devaluation.
I have quoted the following figure before and I hope I may be forgiven for quoting it again. The first of the great oil price increases in the early 1970s would have put up the cost of living in this country by 4 per cent.; in fact it put it up by 400 per cent. That was the effect of this process under which inflation lives upon itself. We have a brief window of opportunity in the sense that it may be some months, or even a year, before the effects of the devaluation begin to feed through into prices and incomes in this country. That
1470
is why it is important in the end to know what policy the Government have. Their aspiration of growth and stable prices is entirely admirable, but one must know how that aspiration is to be achieved and how we break with the experience of the past as regards this issue. The only remedy that the past has ever suggested is a tight monetary and fiscal policy. I am not trying to differentiate between the two, but it is important to remember that a tight monetary and fiscal policy is not consistent with a high rate of growth. Therefore, there is a real problem here. There are various objectives we would like to serve, but the question is to what extent are those objectives compatible with one another.
I wish to say a few words about investment. That has become almost a theme of the moment but I suggest that what we need in this country is not investment per se but profitable investment. That is absolutely critical. The BBC, almost by accident, revealed the truth on this matter in a comment it made about 12 months ago at the time the Ford Motor Company announced massive redundancies. The BBC said the Ford Motor Company had an output per man of 28 motor cars per annum, Vauxhall an output of 30 motor cars per man per annum and Nissan in Sunderland had an output of 50 motor cars per man per annum, and were expecting in a year or two to raise that output to 60 motor cars per man per annum. That is not primarily because the Japanese are better managers than we are and it is not primarily because the workers in Sunderland are better workers than those in Dagenham, Coventry or Luton. Nissan's higher output is due to the fact that it has the latest and the finest technology and machinery. That means there must be massive investment. That investment must be profit driven.
The fundamental problem in this country is a simple one. We do not have an adequate amount of up-to-date capital equipment to keep all of our people employed at a profitable level of output. It is as simple as that. The problem is a simple one. The diagnosis is straightforward. The remedy rests with the Government and they have my sympathy. However, artificial ways of giving tax reliefs have been tried again and again and again and they always fail again and again and again. I almost came into this field in 1944 with Sir John Anderson who later became the noble Viscount, Lord Waverley. He introduced the first special allowances on plant and machinery. What happens is that the benefit of the allowances ends up in the pockets of the bankers. I have nothing against bankers, particularly having regard to their reduced circumstances in present times, but nevertheless the objective of the allowances was not to relieve the bankers from paying taxation. Perhaps my noble friend on the Front Bench may remember that some of our noble friends introduced special measures to tax the fortuitous profit the banks had made as a result of this business of giving special allowances.
I believe firmly that the key to this matter does not lie in artificial allowances at all but in the encouragement of profitability and a low overall rate of taxation because the driving force of investment is profitability but the sinews of investment come from

1471
retained profits. That is why I agree so heartily with what was said by one of my noble friends in his maiden speech; namely, that one of the tragedies in recent years has been the way that companies in this country, unlike companies in Germany and Japan, have tended to over-distribute their profits and have not therefore retained sufficient funds for the development of their businesses. Those are essentially what I would call matters of culture. They are not matters the Government can legislate on. One cannot legislate that companies should behave responsibly and sensibly. One has to develop a company management and an ethos and an attitude in the country which encourages companies to do this kind of thing.
That brings me immediately, because the answer is precisely the same, to the other great problem that has existed in the British economy ever since 1945. I refer to the inherent tendency for us to pay ourselves, whether in wages, in salaries or in professional earnings, significantly more than either the rate of inflation or the rise in productivity. We are still doing that today. I have every sympathy with the CBI when it says it wants to tell the Government how to run the economy and how to run the Government. However, at the same time some of us might be tempted to tell the CBI that it should also recognise that it, too, has responsibilities in this particular field.
Any attempt to deal with this matter by legislation has proved to be a complete and absolute failure. Unless people behave sensibly and properly, because that is the culture of the country, the only thing that can be done is to take monetary measures. Here I wish to make a purely technical point. I wish to compare the way in which the Bundesbank handles such matters and the way in which we do so. Twelve months ago when the metal workers produced a pay claim which would have resulted in a big rise in the rate of inflation, the Bundesbank promptly made it known that if that claim went through unmodified the Bundesbank would take immediate monetary measures to counteract it. In this country we do not do that. We wait. We say that such pay claims are wrong, that they are excessive and that they should not be made; but we do not do anything. We wait until the effects of those pay claims feed through and then we take monetary action. What then happens? The Government get blamed for the monetary restrictions and the people who are really responsible, having agreed the excessive rises in pay, criticise the Government for raising rates of interest or tightening credit. If the Government had what is technically called a "real time reaction" to these events, that might significantly improve the way that monetary policy operates.
The only final comment I wish to make is not about the Treaty of Maastricht as such. I believe that the importance of the treaty has been greatly exaggerated. Most of the argument about it is misconceived, but let us leave that on one side. The point I want to make is this. The single European market, the 1992 programme, does not depend in any way on the Treaty of Maastricht. It will go ahead. It will be completed, and it will be completed on time, whether or not the
1472
Maastricht Treaty is ratified. I support the Maastricht Treaty. I do not want any misunderstanding on that score. However, equally I consider that it is imperative that trade, industry and finance in this country should realise that the great opportunities opened up by the integrated European market are there and should be taken advantage of. There is nothing in the Maastricht Treaty, or in the future following the Maastricht Treaty, which would prevent this country making the best use of the opportunities which have been opened up.
6.10 p.m.
Lord Holme of Cheltenham: My Lords, the choice by my noble friend Lord Jenkins of Hillhead of economic recovery as the subject for this debate has been amply justified by the positive debate which we have enjoyed so far this afternoon, and not least the notable contributions of the four maiden speakers. They will add greatly to the authority and expertise of the House when we return to this subject, as we often shall. The force and clarity of the contribution of the noble Lord, Lord Cockfield, make him a daunting speaker to follow.
I should like to speak about the problems of British companies and British industry now. In this cloistered calm it is difficult to register the full extent of the problems which face British industry today. The clearing banks will tell you that their casualty wards are full of companies which they are trying to keep alive, and that with every point on interest rates and every fluctuation in the European debate from day to day those companies face the choice between continuing to trade or stopping trading altogether. The potential number of companies in this country which could go into liquidation is on a scale which the banks have not had to face before. Those are not only small companies; they include famous household names. We are in a precarious state and it is our companies which are taking the strain.
In this cloistered calm it is sometimes difficult to detect the noises from outside, but there is a noise now. It is not the noise of Back-Benchers revolting in another place, it is the noise of chickens coming home to roost. We are facing simultaneously the need to resolve a great many unresolved questions about the conduct of the British economy: questions about Europe; the balance of payments; our trading ability in a competitive world; our productivity; and our investment and capital formation in this country. All those questions, which have been deferred and delayed because they are difficult for the democratic political process to deal with, are coming home to roost simultaneously. That is not said in any hypocritical spirit from these Benches. The Government have an unenviable and difficult task because they are having to cope with the results of at least three decades of neglect.
It is notoriously true that in a crisis people tend to panic. Governments are not immune from that. Panic is the last thing that industry needs. There is a danger that the Government, buffeted as they are from pillar to post, harried by their once loyal friends in the press and given a hard time by their own Back-Benchers in

1473
another place, will grasp at whatever attractive phrase or immediate nostrum will get them through the next week. That is not what British industry needs. Industry needs continuity, stability and a firm definition of policy. There is a danger of the Government adopting what statisticians call a random walk—of government policy walking around randomly in no particular direction.
I should like to spend the few minutes which I have to address your Lordships on the questions of what the Government's economic policy should be and what the micro approach to the real economy might he. First, there is a danger that we over-estimate the role of macro-economics. That may be a danger to which all politicians are exposed. The levers of power are very seductive. There is a danger that, just as the Labour Party defines socialism as what the Labour Party does, we define economics as what the Treasury does. However, out there is a real world in which people are making and selling things and trying to do so profitably, as the noble Lord, Lord Cockfield, reminded us. What we really want is economic management by the Government which comes much more from the boiler-room rather than the bridge. Instead of their playing with the levers and purporting to steer the ship, we want enabling government, government which helps the wealth creators to get on with their job.
Even with that qualification of the limits of macro-economic policy, it is right that the Government should have clear aims. I should like to address a theme which several noble Lords have already addressed in the debate. I do not believe that a consumer-led recovery, attractive as that might be in terms of immediate political pay-off, can conceivably be right. We have some hard years ahead of us. We ought to use those years to ensure that we have an investment-led recovery to repair our run-down technology and our capital and to allow us to tool up for a future in which we could be competitive in the world rather than continuing to stagger from pillar to post. Of course an investment-led recovery means deferred gratification. It means that we should not offer, however seductive and however great the pressures, the prospect of an early and easy consumer boom.
I believe that that is important not just in itself but because it could contribute to changing the culture of this country in the direction of long-termism, to which several noble Lords have referred during the debate. It could help to shift the time frame and give people the chance to understand that the problems are of many years making and will not be resolved quickly.
Before I leave the question of investment perhaps I may go so far as to suggest that the Government might consider setting investment targets as their main approach, not just in the public sector but by promulgating investment targets in the public sector encouraging investment by the utilities. The privatised utilities are the greatest potential source of capital investment outside government. On a smaller scale, private industry is also a source of capital investment.
1474
It may well be that investment grants on the lines suggested by the noble Lord, Lord Barnett, could be part of an investment-led, targeted strategy.
I believe that the other principal aim of the Government should be to adhere strongly to the policies of competition which they have developed over the past 13 or 14 years. I am by no means an admirer of this Government, but I believe that one of their achievements has been to get this country to face up more squarely to the need for competition as a basis for healthy economic performance. We need to continue and build on that. I do not believe that the privatised utilities are sufficiently competitive. The Government should do something about that restrictive practices Act they used to tell us about. They should sharpen up their competitive approach.
So we have two pillars—investment and com-petition—as a basis for long-term recovery. However, that can only apply in the context of absolute certainty about our European future. It is impossible to exaggerate the effect on inward investment that we have already experienced over the past six weeks as a result of the Government's wobble on Europe. The wobbling does not come from one party only; it comes from right across the political scene. We cannot afford to wobble. Japanese banks and companies, North American companies and Korean companies will not invest in this country unless it is quite clear that we are committed to a European future. It is for that reason that this debate and the debate in another place today are so important. If a message of uncertainty results we shall be playing with the future of British jobs and not dealing just with a Westminster squabble.
I should like to say a word about what I call the real economy: the world in which people make and sell things. How good it has been to hear during the debate that the superficial and erroneous notion peddled during the past decade that manufacturing was not really important and services were all that mattered is now being disposed of. Manufacturing does matter and is the key to our long-term future. It should go alongside a healthy service sector, but the two must march together. Manufacturing means real things; not just Treasury mandarins playing with computers, but skills, products, markets and adding value as a source of our competitiveness.
We have a choice. Are we to be a high value added economy based on skills and high quality inputs, or do we slowly but inexorably degenerate into a third world economy doing the humble jobs that other more skilled countries will not do? To be a high value economy implies two things. First, there has to be much greater emphasis on quality, to which other noble Lords have referred. Some noble Lords will recall the words of the wonderful hymn by George Herbert:
"Who sweeps a room as for Thy laws Makes that and th' action fine".
In this country we lack a culture in which people want to do things well for their own sake: professional people wanting to be as professional as they can be for its own sake and people making and selling things

1475
wanting to do it as well as it can be done. Therefore we have a rather second-rate economy, with second-rate goods and services.
When we get angry (as we all do) about the balance of payments deficit we should recognise the fundamental truth that people are buying foreign goods because they believe that they are better made and designed and that their functions more adequately reflect what they are looking for when they go out to buy them. It is no good exhorting people to buy British. The answer is to make British goods of higher quality. One may ask what that has got to do with the Government.
I believe that one role of the Government is to identify what somebody referred to earlier as the bright spots; to do some bench-marking (as it is called in industry) and to spread best practice and communicate around the industrial community what is working and how things can be done better so that the concept of total quality management applies to the whole of the British economy and not just to the few companies enlightened enough to apply it themselves. The role of government has to be very much more like that which the President elect of the United States, Governor Clinton, has called active government. I believe the days have gone when we want an invisible hand. The day has come when we need an active, not interfering, government to help industry with infrastructure, education and training, investment in research and development and particularly innovation.
I very much welcome what the Department of Trade and Industry is trying to do in communicating innovation. We need more of it. However, in relation to training perhaps I may ask the Minister in replying to reassure us that training will not be cut back. I realise that he does not want to say very much before the Autumn Statement, but I believe it to be of paramount importance that we continue to invest in the skills of people in this country and that whatever is cut—it may be some current expenditure needs to be cut—training will not be the victim of any random action.
During the American election Vice-President elect Gore expressed the thought that, far from the environment making life difficult for industry, it was a source of opportunity. Germany has found that to be the case. It has a billion pound industry making clean-up, pollution control and other equipment. Government can help. High environmental standards are not the enemy of industrial performance but can actually contribute to it.
6.24 p.m.
Lord Boyd-Carpenter: My Lords, I am sure that not only your Lordships' House but the Government and country should be very grateful to the noble Lord, Lord Jenkins of Hillhead, for inaugurating this debate. It has enabled the immense reserves of experience, knowledge and economic wisdom re-presented in this House to be deployed in an extremely helpful and valuable debate. I am very glad that the noble Lord decided that this subject should be discussed this afternoon. I am particularly glad that he
1476
did not make it a time-limited debate. Having taken part in a number of debates, time limits introduce artificiality into speeches if one is rationed to whatever number of minutes it is. If I may say this without impertinence, the noble Lord showed good sense in not introducing time limits, which are coming to he accepted in your Lordships' House as almost a standard aspect of debates.
Having said that, I very much disagree with a number of things the noble Lord, Lord Jenkins of Hillhead, said in his speech. In particular, I disagree with his suggestion that taxation, particularly direct taxation, should be increased. I can imagine nothing more disastrous or damaging in the present situation than an increase particularly in direct taxation.
Lord Jenkins of Hillhead: My Lords, I am sure the noble Lord will recall I said that I did not see that an increase in taxation was called for at the present time but that if the accounts did not move back into balance on the upswing I would be prepared to use taxation. I thought that direct taxation would then be the preferable way of dealing with the problem.
Lord Boyd-Carpenter: My Lords, I am obliged to the noble Lord for that correction, but I think he must accept he was indicating that in the present situation if things did not improve an increase in direct taxation should be considered.
Lord Jenkins of Hillhead: My Lords, I said completely the reverse. I said I did not see any case for an increase in taxation at the present time. I talked about the position on the upswing perhaps in two years' time.
Lord Boyd-Carpenter: My Lords, the noble Lord must recall (as Hansard will bring it to mind if necessary) that he touched on this subject. I am only too glad to see that he now appears to share my view that an increase in direct taxation in the present situation would be extremely harmful. One welcomes with enthusiasm his conversion to that view.
I was also very interested in the noble Lord's reference to various activities of the Government. With many of those references I wholly agree. I think he was right to suggest that the Government should pursue at this moment a more active policy if the country was to be led out of the present undoubtedly unsatisfactory economic situation. I very much hope that my noble friend Lord Strathclyde will have more to say on that matter when he comes to reply. I realise that his relatively junior position in the Government makes it difficult for him to say these things, but your Lordships' House is entitled to hear them or it may well receive what I hope and believe is the erroneous impression that the Government have no policies in this direction.
Another matter to which I refer is the references to the Chancellor of the Exchequer that have been made not so much by the noble Lord, Lord Jenkins of Hillhead, as by several noble Lords opposite. I believe that we have a very good Chancellor of the Exchequer and that the criticisms directed at him have been made in complete ignorance of the difficulties and dangers of that post at a time of recession. Only those like the

1477
noble Lord, Lord Barnett, who have served in the Treasury, can perhaps fully understand how difficult that situation is and in particular how difficult it is to secure a policy which balances two superficially conflicting considerations.
On the one hand there is the necessity for a degree of austerity which will undoubtedly prevent a return of inflation. It has been one of the great achievements of the Government that inflation has been brought down to the present level from the high levels at which it stood a year or two ago. On the other hand, there is the consideration of what needs to be done to stimulate the economy. I shall not use the horrible phrase "to kick-start the economy" since there is nothing of motor cycling about the management by the Treasury of the economy. It is obvious that most of your Lordships believe that there is a certain amount that should be done in that direction.
I beg noble Lords to consider the difficult problem, for those who have to decide, of holding the balance between those two conflicting considerations. If one goes a trifle too far in favour of expansion, one may bring back inflation and be forced to take restrictive measures once again to check it, which would be disastrous. On the other hand, if not enough is done, one may see the depression, recession or whatever one calls it, continuing for a considerable time. It is an extremely difficult job. I venture to say to the House—I have the happy advantage of knowing that the Chancellor of the Exchequer is my successor as Member of Parliament for Kingston upon Thames—that we are very lucky to have a Chancellor of the Exchequer of such quality, balance and steadiness, who refuses to let himself be rattled or pushed about by extremists.
I turn to other issues that have been raised in the course of the debate, including the vexed subject of the ERM. I take the very daring step of venturing to disagree with my noble friend Lord Cockfield, who, as noble Lords will recall, made a most admirable speech on the question of devaluation. If I understood my noble friend aright, he believed that in all cases to lower the external value of one's currency was a mistake and therefore the ERM had a justification. However, it is all very well to say that if you lower the value of your currency you get less value for what you produce and sell. That argument depends on being able to continue to sell at all. One of the arguments for reducing the value of the currency, if necessary, is that exports become cheaper and therefore one is more likely to sell them or sell more of them.
The corollary is that imports become more expensive and your citizens are therefore discouraged from buying overseas products. I personally look at the ERM in that context, quite apart from the fact that a little time ago it demonstrated its complete unworkability. I believe that one should have a currency which can and does fluctuate in external value in accordance with the way the economy is working. If the economy is working successfully, industry is booming and exports are in full blast, it is very good to see the currency rise in value. But if the
1478
economy is not so strong, sometimes it is advantageous to discourage one's citizens from importing foreign goods.
In any event, whether or not one agrees with that proposition, the ERM was an extraordinary device because it did not tie our currency to any ascertainable and completely definite value. It tied it to a value related to the value of the German mark. To tie your currency, not to a firm figure, which is at least arguable, but to another currency which itself may and will fluctuate over the years seems to me to be a very unbalanced proceeding. Therefore I hope that when my noble friend the Minister comes to reply he will indicate that there is now no question of bringing back the ERM.
I know that those who want to see EMU (European Monetary Union) look upon it as a necessary condition precedent to that. I shall not weary your Lordships by discussing EMU because it is a long way off and many people believe that it may not happen. I feel that people in industry would be reassured if my noble friend the Minister could indicate that the ERM will not be restored and that it is to be left quietly in the waste paper basket.
I should like to leave with your Lordships my own suggestions for the situation. We should keep down public expenditure and be prepared to reduce it in many of the less essential areas. Quite frankly, one of those areas is legal aid; another is undoubtedly the amount of money we are now spending pointlessly and futilely on preparations for war crimes prosecutions. It would be sensible to save the £8 million or £9 million a year being spent on that by putting it into the waste paper basket.
I suggest that it would be desirable to look firmly at the cost of legal aid and in particular civil legal aid. It would be perfectly possible to adopt instead the American arrangement of allowing counsel or solicitors to take briefs on a pay-if-you-win basis. That would resolve any problem of public expenditure.
There are a number of directions in which further economies in public expenditure can be obtained. Having done so, surely we then have the enormous advantage of reducing taxation. There are two aspects of taxation to put to your Lordships. One is that VAT is a very inflationary tax. At 17.5 per cent. our VAT is the highest in Europe. By operating, as it does, not only on goods but also on services it is definitely inflationary, adds to costs and makes us less competitive. The Government should at least examine whether it is necessary to retain VAT at 17.5 per cent.
I return to the point at which I had a happy exchange of views with the noble Lord, Lord Jenkins of Hillhead. There is the question of direct taxation. There is simply no doubt that direct taxation at a high level is a discouragement to enterprise. If one wants people to take enterprising decisions in the hope, certainly, of profits, one must leave them with a feeling that if they are successful, they will be able to retain a reasonably large proportion of those profits. High taxation is the worst kind of discouragement to enterprise of that sort. Moreover, it is an encouragement to people with high potential earnings to go and earn abroad, where they will not be treated

1479
in that way or where they will not at any rate be liable to British taxation. People of great enterprise and drive who go abroad will thus cease to contribute to the British economy.
Having said that, I indeed hope that our Government will give a display of confidence and of courage. There is no reason whatever for depression. We have certain very cheering aspects of our economy as well as certain depressing ones. If the Government are prepared firmly to say that they will take a line of low taxation, of low interference in industry but giving the fullest possible encouragement to industry and those who go into industry, I know of no reason why in a year or two we should not see a very great recovery, when therefore we may all be able to offer our warm congratulations both to the Government and to the Chancellor of the Exchequer.
6.41 p.m.
Lord Desai: My Lords, thanks to the noble Lord, Lord Jenkins of Hillhead, initiating the debate, we have had a good discussion today. We have had four good maiden speeches. However, I hope noble Lords will forgive me if I single out the speech of my noble friend Lord Eatwell. He is a rare personality: he is a scholar and has applied his mind to practical problems. Unlike the noble Lord, Lord Joseph, I am somewhat sorry that the noble Lord, Lord Eatwell, is in this Chamber and not in Downing Street advising a Labour Prime Minister. But we cannot have everything that we wish and I live in hope. Perhaps something will happen soon—if not tonight.
Since I am not making a maiden speech,1 do not have to he uncontroversial. Therefore I shall plunge into controversy immediately. It seems to me astonishing that we did not recognise that our current problems began when the Government wobbled, lost control of their central economic policy and went out of the ERM. The ERM is not unworkable. We did not make it work. That is very different. It always surprises me that when we lose at cricket, it is because the Pakistanis have doctored the cricket ball. It is not our fault; it is someone else's fault. Every other country is able to make the ERM work. Of course there are costs. People should have known that there would be costs. When we entered the ERM, the CBI said that it would be a good discipline. It believed that the discipline would be on the workers, not on itself. Had that body studied the French and Irish experience and the experience of every other country in the ERM, it would have realised that the ERM provides a very tough discipline.
I have been advocating entry into the ERM since 1986 and increasingly so since the terrible economic policy between 1986 and 1989 when we had runaway inflation. I believe that one has to have some framework within which Chancellors of both parties may be made to behave themselves. Unfortunately, the ERM policy was badly managed by the Treasury and the Bank of England. I do not often disagree with the noble Lord, Lord Boyd-Carpenter. However, I cannot understand his praise for the Chancellor. A
1480
Chancellor who cannot handle a recession should not be a Chancellor. It is no excuse to say that he has problems; that is what the job is about.
The Chancellor did not heed the warnings that the divergence indicator of the ecu showed in the middle of August. The Chancellor did the worst thing possible. He came back from his holiday, appeared on the steps of the Treasury, and said,"We shall do whatever is necessary to protect the pound." He did not include raising interest rates. As soon as he failed to say that, the market knew that he did not have the guts to stay the course. He then borrowed 10 billion ecu. That is a clear signal to the market that one expects trouble; and when one expects trouble one will not raise interest rates by even half a percentage point. If one gives such perverse signals, those in the market, who are not stupid—they are not speculators; they are honest and hardworking—understand that if they trust the Chancellor their companies will lose money and therefore they abandon the pound, and quite rightly so.
We went out of the ERM. We did not choose to realign within the ERM. That would have been a good option. Since leaving the ERM, we have not chosen to say anything about rejoining. When we were saying,"Let us realign within the ERM", noble Lords on the opposite Benches used to say,"That is just a weasel word for devaluation. We shall not realign. If we realign inflation will occur." All those people are now saying,"This is not inflation. It is freedom. It is a rebalancing." Obviously, the situation was unbal-anced previously. The Chancellor says that he is now fighting for British interests. If he was not fighting for British interests before, what was he doing?
People have to have a systematic framework for economics. Economics may not be a science, but it is not witchcraft. One cannot pick up odd beliefs one morning and pretend that one has an economic policy. I believe that many of the Government's difficulties emanate from the time when they abandoned the ERM. They did not consider realignment within the ERM. Neither the Government, the Treasury civil servants, the Bank of England nor the Chancellor had any contingency plans. That is scandalous. People should have contingency plans should their best course fail. We have now had six weeks with no policy. Every time we seek a policy, we are told that there is another deadline at which the Chancellor will state a policy. The Prime Minister may appear on the ten o'clock news. The Chancellor attends the Mansion House. Then we are told that the Chancellor will make an Autumn Statement. All those factors do not add up to a coherent policy. We have no coherent policy; and it will be some time before we do.
It has been proudly proclaimed that there is no intention to re-enter the ERM. The Government signed an opt-out clause in the Maastricht Treaty. Therefore I am surprised that noble Lords on the Liberal Democrat Benches, who do not wish to be half in and half out of Europe, as the noble Lord, Lord Rodgers, said, support the Government because the Government are half in and half out of Europe. The Prime Minister recently stated that the preamble to the Maastricht Treaty was not to be believed; it was

1481
Euro-waffle. Why did the Prime Minister sign such a treaty if he did not believe in Euro-waffle? Why did the Prime Minister say that Herr Bangemann was completely wrong about Maastricht and that he, the Prime Minister, was right? How can he make such statements about fellow members of the Community? Ever since the Maastricht Treaty was signed, the Government have not made up their mind about their stance on Europe. They are looking behind their backs because that is where the danger lies. In order to contain the many factions within the Conservative Party, a different vision of Europe is being put before us every day.
To consider that such people are consistently European is nonsense. The debate in another place today is unnecessary. It has nothing to do with Maastricht. It has everything to do with the troubles in the ruling party. We on these Benches have an absolutely straightforward stance on Europe. It was passed by the Labour Party conference. We have a leader who has had a consistent stance on Europe for 20 or more years. We are the party for Europe; and we are the party which should be supported. Support us tonight, my Lords, and you will achieve one factor that is required to start the recovery, as my noble friend Lord Peston stated—the resignation of the Chancellor of the Exchequer and perhaps the Prime Minister too.
Let me now abandon such matters and turn to economic factors. With reference to the ERM, if we wish a sustainable recovery in this country devalua-tion cannot be an answer. We devalued steadily and consistently during the 20 years until 1990 when we joined the ERM. If devaluation could have solved the structural problems of our balance of trade deficit we should have been a richer country by now. Our problems do not lie in short run price manipulation, as my noble friend Lord Eatwell said. They lie in problems of quality, competitiveness, innovation and research and development.
None of those problems will be tackled by devaluation and further devaluation. One can have devaluation by all means. After all, the party opposite has always been known for its dash for growth. We had Mr. Maudling, Mr. Barber and Mr. Lawson. They dashed for growth and fell flat on their faces: the Labour Party had to pick up the pieces. History will repeat itself. We must question a policy of devaluation and monetary laxity. Whatever is said by the party opposite about MO, M4 and asset prices, the Government appear to have decided to opt for monetary looseness and fiscal hardness. I share the belief of many of my noble friends that that is the wrong combination. It will not achieve short run recovery and if the recovery comes it will not be sustainable.
We need a proper framework of monetary stability with a proper exchange rate target. Within that target we can pursue a more sensible fiscal policy. If we were now to pursue an active fiscal policy we could achieve a quick recovery. Furthermore, if the recovery generated employment quickly the PSBR outcome would be better than is being forecast. The
1482
Government's present problem of a high PSBR arise because they have been passive in their exercise of fiscal policy. They have let unemployment rise and the increase in PSBR has been unplanned and passive. If the Government had pursued a policy of employment and had been more active they could have reduced unemployment. A great deal of money has been drained away in paying unemployment benefit and a great deal of money has been lost because people are not employed and paying taxes. I believe that it is possible to pursue an active fiscal policy within a strict monetary framework which would be beneficent to the PSBR rather than the reverse.
As the Chancellor of the Exchequer said in his Mansion House speech, we look forward to a sensible set of budgetary accounts in 1993. I do not know why we have to delay for so long. For a long time we on this side of the House have suggested that we should have a separate capital account and separate revenue account. If that were the case the entire notion of PSBR would be shown to be the absurdity it is.
The name of Keynes has been mentioned many times today. I am glad that I shall be followed by the noble Lord, Lord Skidelsky, who will correct me if I make a mistake. I believe that Keynes would have said that a deficit in the revenue account should be balanced over the cycle because it is possible for the revenue account to go into deficit in a recession. Keynes would not have said that if one has separate capital and revenue accounts the principles for borrowing on the capital account are entirely different from those for borrowing on current account. One must ask oneself whether the particular investment project is yielding an economic rate of return taking into account not only private costs but also social and benefit costs. One must ask: does this particular project yield me a rate of return above the rate at which I can borrow? If the answer is yes, there is no limit on how much one may want to borrow. There may be times when one will borrow a great deal and times when one will borrow little. There can be no dogma about 2 or 3 per cent. The 3 per cent. Maastricht rule is about revenue deficits and not about capital account deficits, and that is correct.
Therefore, before presenting a correct set of accounts the Government should have said—as I hope they will say next week, having one week, which should be long enough, to incorporate my views in the Autumn Statement—that they have certain projects ready on the shelf whose economic return exceeds the long-term rate of interest at which they are to borrow. Therefore, there can be no economic limit to borrowing on the capital account provided that the projects are profitable. That would be a sensible way in which to frame policy rather than being hung up on numbers which are not only irrational but are likely to be proved wrong if the Treasury has anything to do with estimating them.
As many noble Lords have said, today's recession is most peculiar. It is one of the deepest that we have had. When it was only six months to one year old, Ministers said,"Oh, this recession is caused by world-wide factors." All kinds of countries were invoked, including Finland at one stage. I remember it

1483
being said that we had a recession because Finland had a recession. Obviously, there are international influences but our recession started before those in other countries and it is deeper. Noble Lords who said that the US economy is in recession failed to tell us that last year the US economy grew by 2.25 per cent. It has a growth recession and not an absolute loss of output. We have an absolute loss of output, which is a serious matter. The fact that other countries are experiencing recession does not absolve us of our problems; it merely makes our solutions more difficult to find.
The first thing that we must state is that the most important element in the present recession is debt deflation. We must give careful thought to the way we shall solve that. I believe that the way to solve that deflation is not to inflate nor to encourage people to borrow more money. I recommend a mortgage "holiday". There should be a moratorium on paying hack mortgages for one year, as I have previously recommended. That will have the effect of releasing cash which people can spend. They will have to repay the debt and will not be encouraged to borrow more money. Not only will cash be released into the economy but the Government will gain as a result of not paying mortgage interest relief. As soon as a mortgage moratorium is introduced the Government will gain about £7 billion. The rest of the economy will also receive money. There must be an offsetting increase in M4 but that will be a one-off increase. I suggest that for a limited period of one year there should be a mortgage moratorium which includes new buyers. The Government will then be able to tackle deflation without causing serious problems by over burdening the debtors.
Secondly, I suggest that we decommission the Magnox reactors immediately. That will increase the demand for coal and stem the proposed closure of the mines. Although that will cost money it will have to be paid sooner or later when the reactors are decommissioned. We should do so now because it will have an immediate impact on the economy. It is necessary to think of such measures.
Thirdly, as my colleagues, Professor Bean and Professor Layard suggested in this morning's Financial Times, we need a proper framework for pay bargaining. It is no good stating that employers must be more responsible and so forth. Call it what you will—perhaps not an incomes policy but something else—we must have a proper framework for collective bargaining. The Bundesbank has a great reputation as a controller of inflation. It is not the wisdom of the Bundesbank which achieves that but the fact that it is sustained by a proper collective bargaining framework of which it can take advantage. That is why the central bank is so powerful.
I put forward those suggestions to your Lordships. I hope that sooner or later we shall have recovery. If that takes a change of government so be it.
7 p.m.
Lord Skidelsky: My Lords, thanks are due to the noble Lord, Lord Jenkins of Hillhead, for opening a debate on "the measures needed for sustainable
1484
economic recovery". I am puzzled though that the word "sustainable" never crossed his lips in his opening address. That is not intended as a debating point. One of our chief problems has been the quantity of unsustainable recoveries that we have experienced. We have suffered, uniquely I believe, from a surfeit of "yo-yo" economics—boom-bust, stop-go (or go-stop as my noble friend Lord Joseph said). This used to be dignified with the title of "fine-tuning", but less tuning and more steadiness of purpose have served the British economy much better in the past.
I have been privileged to listen to three excellent maiden speeches. Unfortunately I missed the speech of my noble friend Lord Hothfield. I found myself in agreement with much of what was said by the noble Lord, Lord Eatwell, and I congratulate him on a most lucid exposition of the problem. It is what he omitted to say that has always alarmed me about the party he supports.
I reply also to the question put by my noble friend Lord Joseph. Yes, Lord Keynes was a monetarist, in the sense that he believed that the quantity theory of money was probably true in the long run. But he also said that in the long run we are all dead and therefore it was not a good guide to problems in the short run.
Let me return to the question of sustainable growth. I should like to offer a definition. Growth is sustainable if growth today does not prove a hindrance to growth tomorrow or next year. If we now manufacture a great consumer boom, it will not be sustainable; it will only store up problems for a couple of years hence. That is what happened in the 1980s. The difference between output and expenditure in the 1980s was the result of booming consumerism on the back of over-inflated property prices. Mortgage tax reliefs aggravated the problem. That boom was not sustainable.
Sustainable recovery cannot be based on inflation either. I believe that is common ground. I agree that there is a danger in allowing the exchange rates to fall too low. The value of the pound needs to fall to a level which reflects its current attractiveness as a vehicle with which to purchase British goods and services, but no further than that. We must therefore try to re-enter the ERM as soon as recovery is under way and thus put back an anti-inflationary discipline in the context of building up the economy rather than cutting down.
I do not agree with the noble Lord, Lord Desai, regarding the British membership of the ERM. It was not possible for us to remain in the ERM at the central parity of DM 2.95. I take the view that the pound was overvalued at that parity when we entered the ERM and thus the instrument was bound to break in our hands. One of the troubles of systems of fixed but adjustable exchange rates is that they tend to become more rigid over time, and that element of flexibility was not there.
Sustainable growth is also based on trade and diversification. Britain is extremely good at selling financial services and technology, but not so good at manufacturing. Of course, that is a problem of competitiveness. I do not know what to do about that and I do not believe that anyone else really does. We trot out the same old nostrums as we have been

1485
putting forward since 70 or 80 years ago, when the problem started to be diagnosed—more investment in training and so forth. No one can object to that. But it is not a golden road to competitiveness and will only start operating in the long term.
We know that for sustained growth we need specialisation so that we can compete effectively. An essential condition of specialisation is trade. That is why we need the single market. That is why the success of the current GATT negotiations is absolutely critical, not only to the world but also to the recovery of our own economy.
Finally, sustainable growth needs to be politically sustainable. I agree with the noble Earl, Lord Russell, that growth cannot be based on activities which fail to employ 10 per cent. or more of the population. The social disturbances will become too great and the associated transfer payments will place too much strain on the budget. For recovery to get under way we need more investment. That requires pushing forward with public investment to lubricate the supply side of the economy in infrastructure. But we must be careful about that. We must also watch the government debt-to-GDP ratio. I agree with those noble Lords who pointed that out. Prudent finance is needed at this stage of the cycle in order to facilitate the transfer to lower long-term rates of interest.
The name of Lord Keynes was mentioned a number of times and it is important to note that when Britain left the Gold Standard in 1931 with its budget balanced at that time, Keynes did not initially oppose the policy of balancing the budget precisely on those grounds; that is, he thought that prudent finance was an essential prerequisite for lowering long-term interest rates. No one now would believe that the budget has to be balanced at all times. Later on Lord Keynes proposed unbalancing it but at that time, following a financial crisis and a loss of confidence in government, it was thought to be important. Therefore, to secure lower long-term interest rates, we must be prudent. So, while we should push ahead with capital projects, we should not think that we can simply spend our way out of the depression in any crude Keynesian manner.
In my view, noble Lords opposite have been too pessimistic about the effects of interest rate reductions. In the 1930s this country was floated off the depression by cheap money, which started a housing boom. Reduction of interest rates on mortgages, as interest rates come down, will do more than any other single action to revive consumer confidence and spending.
In the light of all those points I welcome the Chancellor's decision to maintain public spending on infrastructure. I welcome his determination to give the private sector a greater role in financing public capital projects. I welcome his determination to bear down on inflation, though I am still awaiting a convincing policy for that. I should like him to consider the possibility of tax relief for investment in equities—something that the Germans do. I also approve of the distinction he proposes to make between capital and current spending in the Government's Budget. The noble Lord, Lord Desai, is quite right; that was
1486
proposed by Keynes 60 years ago. Had it been adopted, much of the discussion regarding the PSBR would have been clearer than it has been. It would be good for business confidence to see the Government's accounts run in a way which makes sense to the business community.
I very much share the scepticism of the noble Lord, Lord Peston, in regard to adding to the current army of forecasters already available to the Government. When will Chancellors of the Exchequer realise that economics is not an exact science? A forecast is only as good as the material which goes into it and that material is constantly changing, often in unexpected ways, so that all forecasts are liable to go wrong except in the short term. It is judgment acting on data which makes for good policy, not blind faith and statistical manipulations. The Governor of the Bank of England at an earlier period used to say that his method was simply to take up all the forecasts and act on the basis of the average forecast. That method was as good as any other. I share the scepticism about that.
My final point is a more sombre one. We have had very little talk this afternoon about pay. But keeping money wages stable as output and prices recover is perhaps the most important requirement of all for sustainable recovery. We have to start thinking again about pay, as the noble Lord, Lord Desai, said. That means thinking about the institutions of wage bargaining and the role of trade unions in the economy. All these factors have to be thought about or we will throw away the fruits of the recovery as it develops, as we have done time and time again.
The most important condition of a sustainable recovery is general agreement on how we should behave as a society in the economic sphere. Sooner or later we will have to start a grand discussion on it. We could call it a discussion on the moral basis of a free economy in a free society. The sooner we do that, the better, and the sooner we shall escape from the trap of yo-yo economics which has beset us ever since the Second World War.
7.11 p.m.
Lord Campbell of Alloway: My Lords, in view of the wide measure of apparent agreement between both noble Lords who preceded me as regards matters of economics, having read part one economics at Cambridge before the war and being a kind of Keynsian, I feel that there is nothing more that I can usefully say on the matter of economics in your Lordships' House. But, as my noble friend Lord Boyd-Carpenter truly said, noble Lords on all sides of the House will be indebted to the noble Lord, Lord Jenkins of Hillhead, irrespective of the measure of agreement with what he said, for introducing this Motion on,
"the measures needed for sustainable economic recovery".
When tabled this Motion assumed the ratification of Maastricht as the prerequisite measure to afford the basic framework within which other measures referred to in the Motion would be taken. So I intend to deal with Maastricht as I regard it as the essential factor in this debate on which so far there has been little discussion save by the noble Lord, Lord Desai.

1487
Ratification was common ground between all political parties until 26th October when the foreign affairs spokesman for Her Majesty's Loyal Opposition suddenly changed tack and said,
"My view is that we should oppose it",
having said in September,
"I am not in favour of defeat of the Bill".
I say at once that the position of noble Lords who oppose ratification in principle such as the noble Lord, Lord Stoddart, is wholly respected. The sincerity of their convictions is not called in question. But this isolationist approach is unrealistic, untenable and not understood. Those who oppose ratification only for extraneous reasons put their political credibility to the hazard, notwithstanding the most disarming advocacy of that much respected Keynsian economist, the noble Lord, Lord Peston.
It has to be said that these treaty obligations, although justiciable, are framed as policy intentions; that since Maastricht a gulf has widened between the Commission Eurocrats, the politicians and the peoples in many member states. It is a gulf which must be bridged, and which shall be bridged, so that the will of the people is accommodated. It comes to this: ratification of Maastricht cannot preclude subsequent negotiations for that is an ongoing process. The text of the treaty after ratification is not immutable as if it were, so to speak, set in a tablet of stone.
Unless the ERM ceases to exist—here I am not trying to be an economist, I have just been reading the treaty and the derogations—when convergence criteria allow, it is in our interests to return to the ERM and to seek no further devaluation within it. As I understand it, that is the position quite simply adopted by the CBI which conforms with our treaty obligations. If I have got it right, it is consistent with the approach of the noble Lord, Lord Barnett.
If we are to foster and maintain recovery, there is no viable alternative to ratification on offer because the volume of our exports could not be absorbed by the EFTA countries, the Commonwealth or anywhere else in the world if diverted from the member states by a Customs barrier. The noble Lord, Lord Benson, in a most interesting and authoritative speech, gave the figures which concern exports and our manufacturing industry's position which serve both as a warning and as a beacon of light for the recovery of those industries.
Indeed, a tribute is also due to my right honourable friend the Prime Minister, who by dint of his own sense of commitment and well prepared and well conducted negotiations obtained important derogations. No one who has read those derogations (I refer to the treaty publication HMSO Cm.1934 presented in May 1992) and understands that citizenship of the union under Article 8 of the treaty in no way abrogates the relationship between our Monarch and her subjects could fail to regard that achievement as other than of fundamental benefit and of crucial consequence.
Indeed, a French banker whom I met the other day and who voted no told me that he would have voted yes if France had sought and obtained those concessions. For the sake of the record, I refer quite
1488
shortly to the Protocol at pages 114 to 116 as specific derogations from the Protocol on transition to the third stage of EMU and to the Protocol at page 117 as derogations from the Social Charter in that context.
Without an alternative market for our exports there is no way that the scourge of unemployment may be redressed; that our standard of living may be maintained; that currency may be stabilised at an acceptable exchange rate; that inward investment in our industries may be sustained and promoted; and that international confidence may be restored.
We are Europeans, albeit perched on an island on the edge of the Continent. But on more than one occasion our insularity has saved the sovereign states of Europe from ruin and subjection. Our history of involvement in the affairs of Europe continues to shape our destiny. How could we foster and sustain recovery if (contrary to the long established traditions of our diplomacy) we were to opt out of Europe and relinquish influence over the negotiations which affect our economic revival? Where would we go for exports to redress the deficit in our balance of trade if we should go it alone? How could the City of London retain its pre-eminence as a financial institution?
If we fail to ratify—and Maastricht is at the root of this debate—the Franco-German-Benelux axis could well renege on the Rome Treaty, divide Europe and adopt an overtly federalist contingency plan. How could we negotiate the sharing of the burden of the cost and consequences of German reunification? The concept of an enlarged Community would inevitably suffer a similar fate to that of the "grand design" of King Henry of Navarre, King of France, and his great Minister, Sully.
As envisaged by the Motion (assuming ratification of Maastricht) irrespective of agreement on GATT, other measures must be taken to reflate the economy, provide employment and restore confidence. A fundamental reappraisal of financial, fiscal, economic and social policies is wholly requisite. I appreciate that it is a question of balancing one against another, but having heard what has been said by the economists in this debate, as I have said before, I am not in a position to offer any further views on how that balance should be cast. Noble Lords may well wish to reserve their position until after the Autumn Statement. In this my noble friend the Minister is in obvious difficulty as to how far he can assist this House, and I am certainly not asking from these Benches for any answer tonight.
In a sense today's debate is premature, but it nonetheless serves a most timely and valuable purpose, as my noble friend Lord Boyd-Carpenter has said. In the wake of the ERM debacle, and it was a debacle—I am not making any personal criticism of anyone; I am just saying that it was a debacle—the ship of state has been seen as if to be wallowing at anchor to weather gale-force recession without motor power in the engine room.
A start has been made. The pit closure decision has been reversed. The idea that monetary compensation (however lavish) for loss of a job affords recompense or serves the community at a time when no other job is available is under review. There will he an objective

1489
reappraisal. A new energy strategy will be laid before Parliament. My right honourable friend the Secretary of State for Employment is seeking to establish a new sense of partnership between government and trade unions, which has been mentioned as important by one noble Lord already, and interest rates have fallen.
But all is not well. There are massive insolvencies in large and small businesses. There are rows upon rows of empty shops wherever one goes; alarming dispossessions; general unease and a l ack of confidence. The building and other trades have sunk below the level of subsistence. Our labour force, particularly in the manufacturing industries—the seedcorn and the hope of recovery—is being scattered to the wind. Export guarantees and bank credits for manufacturers of exports do not match up to those available to our competitors. Due account has not been taken of the domino effect of rising unemployment upon the whole structure of life and commerce in-those stricken communities. Works on the infrastructure have not been commissioned, such as, for example, the Jubilee Line, on which the Government may well be playing cat and mouse with the banks. Nonetheless, this slights the prospect of employment and recovery in the construction industry.
To return to what I see as the fundamentals—the basis upon which this Motion was cast (the assumption which was made): the pre-requisite was that Maastricht should be ratified—failure to ratify could have dire consequences. The measures envisaged by this Motion could be rendered largely ineffective. The spectre of a divided Europe could presage for all the peoples of Europe yet another of those dark ages. It is not open to a Prime Minister of our country who has struck a bargain with other heads of state (a bargain acclaimed by all political parties when it was made) to seek to renegotiate and renege on his deal. On that I am totally behind my right honourable friend the Prime Minister. Not only for that reason, but because it is in the interests of the nation, we must ratify and so remain close to the heart of the peoples of Europe, a heart which beats steadily towards "closer union" without the implant of a Bangemann pacemaker.
7.28 p.m.
The Earl of Haisbury: My Lords, when we were recalled in September I addressed your Lordships on the economy in terms which can be read in Hansard by those so minded. I was gratified when about three weeks ago the content of what I told your Lordships on that occasion appeared as a leading article in the Sunday Times. Set alongside them, the Chancellor's speech at the recent banquet had a distinct family resemblance. A fourth member of the family chimed in this afternoon—the noble Lord, Lord Jenkins of Hillhead, to whom we are all grateful for initiating the debate.
With your Lordships' leave, I should like to pursue the thoughts that I raised, since raised by others, on the equilibrium of the economy, starting with a simple example of something that one can read in Adam Smith. The price of anything in a shop is made up of
1490
three components: wages, bought-outs, and surplus. The price of the bought-outs is also made up of three components: wages, bought-outs and surplus. One can see what happens if one pursues the regress. The price of something in the shops is made up of nothing but wages and surplus. There are only two things that one can do with either of them—one can spend them or one can save them. That gives the conditions for the equilibrium of the economy. Total spendings must be equal to the output of the consumer goods industry at full employment, and total savings must be invested to equal the output of the capital goods industry at full employment. So what we are really troubled about is the disequilibrium of the economy. Why are those conditions not observed?
There are two factors which I think Adam Smith could not have foreseen. One was referred to by the noble Lord, Lord Cockfield—the very high cost and necessity of modern production techniques and their sensitivity to underemployment. Adam Smith could not have foreseen the rapid acceleration of production technology. Nor could he have foreseen the sophistication of our foreign trading and the world's currency circulation, a point referred to by my noble friend Lord Benson. I shall not deal with that point because I do not want to deliver a lecture on economics so much as to participate in your Lordships' debates.
One of the factors we notice as a symptom of this disequilibrium is inflation. But inflation is not the only enemy. Inflation is a consequence and not a cause. In trying to deal with the point I should like to introduce your Lordships to a recently propounded article of faith known as Wheeler's first law, which I read for the first time in a leading article in the New York Times.I quote it to your Lordships because I think it is rather fun. It reads as follows:
"On the malfunctioning of any sufficiently complex system, attack, however apparently intelligent, on a single element or symptom generally leads to a deterioration of the system as a whole".
I am at one on that basis with the noble Lord, Lord Boyd-Carpenter, on having nothing to do with kick starts to the economy.
What I really want to induce is the need for an earthquake at the Treasury and the Bank of England to make a clear discrimination in our national accounts between capital and revenue expenditure. As I have said before, it is wrong to borrow money to pay the housekeeping bills; but there is nothing wrong in borrowing money to build a house provided it is a new house and is an addition to the capital assets of the country.
The construction industry is at a standstill. Last night I attended the inauguration of this year's president of the Institution of Civil Engineers. It is agreed that the construction industry is at a standstill notwithstanding the fact that our housing stock is out of date, that we need new hospitals, new schools, better houses or hostels for the homeless and better provision for the increasingly large army of the elderly, in relation to the average age of the population, who will need attention in their old age. But action will never be taken unless it is foreseen in advance. Here I am at one with the noble Lord, Lord

1491
Desai. Unless one has contingency plans which can be switched into action forthwith it will take far too long to formulate them before something else happens and the economy either recovers or goes into another recession.
I remember addressing your Lordships a number of years ago on the topic that was occupying the House at the time—unemployment among recently graduat-ed young men. I said then that it would not do them any harm to get their hands dirty by doing an honest job and pointed out that there had been 250 years' destruction of environmental facilities and that repairs were overdue. I said that they should be taught to drive a bulldozer in order to take all the slagheaps away and that it would not do them any harm to learn how. However, I made the point that unless the bulldozers were mothballed awaiting such a contingency—based on the fact that it had been admitted all along that our economy was never in equilibrium and was merely going from one position of disequilibrium to another—nothing could be done about it.
There is another point to be made about inflation. Inflation benefits the debtor at the expense of the creditor. By and large the world consists of a very large number of little debtors and a substantially smaller number of large creditors. The big battalions will always be on the side of inflation. There will be no popular opposition to it because everyone imagines that they will beat inflation even if someone else does not. The whole economy has to be made to snowball upwards. If one loads the construction industry, the transformation of unemployment benefit into wages will load the high street, which will load its suppliers, which will load manufacturers and which will load the machine tool industry. The economy will snowball, which is what we all want to see. But for the time being we have to sweat it out, remembering that what we have to make is the right kind of capital investment for the future in the infrastructure of the country. Inflation will then take care of itself.
7.35 p.m.
Lord Mackay of Ardbrecknish: My Lords, there is an up side and a down side to being at the tail end of the batting. The down side is that many of one's best strokes have already been played. Indeed, if I repeat myself a little I am sure noble Lords will understand. The up side is that, with a little luck, one has watched some very stylish batting going on before. That is certainly what I have done sitting on this Bench today.
In particular—it is not something that happens often—I actually found myself able to understand almost all of the speeches of the professional economists that we heard today. Perhaps they ought to go away and have another look at what they are saying, as it may be that they are not allowed to be understood by mere ordinary mortals. The noble Lord, Lord Eatwell, started very well indeed and all the other professional economists seemed to take a leaf out of his book and speak in such a way that we could follow them. At least I did, which is something. I am not sure that I am quite in a position to say that
1492
I now see clearly what the Government ought to do, but certainly I see some of the pitfalls which are around.
When I knew I was going to speak in the debate I looked up an article I had read in a newspaper earlier in the week in which five of the country's leading economists talked of a "pronounced weakness in the economy" and spoke about budget deficits for 1993 which were likely to shoot well above forecast. The advisers were saying that taxes would have to increase—VAT and excise duty—and that government spending would have to be cut. There would be cuts in social welfare, unemployment benefit and holiday entitlement. I read that one of that country's biggest and most prestigious employers had shelved a plan to build a new £0.5 billion factory and instead was planning to trim its workforce over the next few years by some 20,000 employees—11 per cent. of its workforce. The country concerned was not the United Kingdom. The company was Mercedes Benz and the country was Germany.
France has around 3 million unemployed—10.3 per cent. of the workforce, a marginally greater percentage than that in the UK. There one sees a picture not dissimilar to what we have in this country. That, dare I remind noble Lords opposite, is with a socialist government. French interest rates are high—much higher than ours. Even Nissan, the world's number four car manufacturer, reports its first net loss for more than three decades. Its vice-president explains the cause as simultaneous depression in Japan, in the US and in the European communities. We all know about the United States today. The results of the problems in that economy are there for all of us to see with the defeat of President Bush, although I suspect that my noble friends on this side of the House ought to take note of the fact that the high profile part played by the extreme right in the Republican Party probably did not do President Bush's election chances much good either.
All our fellow members of the European Community, of the EEA and of the G7 are facing problems. Therefore it is naive to assume that only we are facing those problems and that by some magic policy we can get ourselves out of them when everyone else is still in them. Some years ago it was fashionable to join the ERM. We were not at that stage in it. I can remember in my previous role mouthing the words "we will it join when the time is right". Well, the promised land that everyone told me was to be attained just by joining the ERM did not actually turn out quite like that. However, I do think that there were sound reasons for joining and that there were, perhaps, sounder reasons for joining rather earlier than we did.
We ought to look back and see what effects the ERM had on our economy. Under the discipline of the ERM inflation fell from 10.9 per cent. to 3.6 per cent.; our interest rates fell by 5 per cent. and we had currency stability. I shall return to that issue later in my remarks. Unfortunately, the storms which gathered around the whole world economy earlier this year overwhelmed even those advantages. I listened with interest to the noble Lord, Lord Barnett. He

1493
posed the question: why did we not realign inside the system? I believe that it was the noble Lord, Lord Skidelsky, who said that one of the problems with a supposedly flexible system is that it ceases to be flexible. Undoubtedly, that portion of the ERM had ceased to exist. The idea that it was only our currency and that if we alone had realigned we would have solved the problem is simply not true. The noble Lord, Lord Desai, suggested that realignment had worked for other countries. I beg leave to differ with him. Italy was first forced to devalue the lira and then found that that was not enough. That would probably have been our nightmare if we had tried to devalue within the system. If that had been insufficient the consequences would have been very serious. Of course, the lira was eventually forced to leave the ERM, the Spanish were obliged to devalue the peseta and to reintroduce exchange controls and the Irish had to increase interest rates markedly and to reintroduce exchange controls. We all know that the French were forced into a vigorous defence of the franc, which pushed up their interest rates. Moreover, I believe I read somewhere that they also had to reintroduce exchange controls. I am not quite sure how all of that matches up with some of the points about economic union and some of the converging factors that are supposed to arise.
I do not think that any of us on the outside should underestimate the problems confronting our Government that day in September—should they keep putting up interest rates, which would be extremely damaging to our economy, or should they in fact suspend our membership of the ERM? I believe that they did absolutely the right thing that day, although it cannot have been easy. I certainly was not impressed then by the Opposition's alternatives. Indeed, on September 14th, the day after the Italians devalued the lira, the Shadow Chancellor of the Exchequer, Gordon Brown, wanted our interest rates to be cut and for us to continue in membership of the ERM. It was not a Conservative who answered him, it was his colleague, Peter Shore, who said:
"What we hear from Labour's Treasury team is a point-blank refusal even to question the exchange rate at the same time as they call for lower interest rates. I do not reveal any new economic law when I say that this is simply nonsense".
So, what should we do? As I explained at the beginning of my speech, I think that I shall be covering much of the same ground that your Lordships have already considered. However, I make no apology for that fact because this is a most important debate on a most important issue. One of the first things that we must continue to try to do in our role as President of the EC is to get the GATT negotiations concluded. I have to say that I do not think the election of President Clinton will help in that respect, but we must keep on trying. I say that because any kind of trade war and any kind of protectionism around the world will be extremely damaging to our economy. Let us make no mistake about it: we are, and have always been, a major trading nation—and also a major producer of manufactured goods.
Too often—and, indeed, we have heard it in today's debate—there is a general philosophy which says,
1494
"We are no longer involved in manufacturing". I took the trouble to look at some statistics. I simply use those in respect of the Scottish economy, in which I am especially interested. In 1990, Scottish manufacturers exported £2.8 billion of goods, the highest ever recorded. That does not actually lie very easily with the suggestion that we no longer have a manufacture base. Since 1979, manufacturing exports in Scotland have increased by 26 per cent. in real terms. That is the same in the United Kingdom as a whole. So some of the Little Englanders here and in another place along the corridor (some of them, it should be said, are Little Scotlanders as well) should ponder our dependence on world trade and on European Community trade.
Here at home I believe, as indeed, do all your Lordships, that it is most important to keep interest rates down. However, I have to say—as the noble Lord, Lord Eatwell, pointed out—that the experience of the United States, where they have very low interest rates, is not all that encouraging to the idea that that, and that alone, might help us out of our problems. But it is an important factor: we must continue to keep interest rates down and preferably get them down a little further.
I do not believe that increasing taxation will be sensible. I am delighted that the noble Lord, Lord Jenkins of Hillhead, clarified his position to my noble friend Lord Boyd-Carpenter. I say that because, like my noble friend, I actually thought that the noble Lord did suggest that there might be tax increases. However, I accept that I must have misheard him. I cannot believe that tax increases would be sensible. It would take money out of people's pockets and leave them with less to spend. In the current climate, that cannot be sensible.
While I fully accept that governments have to control public expenditure, I believe that, inside the global sum that they fix—and I wonder whether the global sum fixed earlier in the summer is quite the right sum still to be targeting; but that is another point—it is important that we clearly identify capital expenditure and attempt not only to shield it but perhaps to expand it as a proportion of total public spending.
The noble Lord, Lord Hothfield, mentioned the Jubilee Line, in which I have some small interest as my son is starting out on his career as a civil engineer. Undoubtedly that line may help to keep in him in interesting work for some time. However, it would also benefit all parts of the country. I believe too that we should encourage private funding. I am delighted to hear that the Government are thinking deeply about such funding in capital projects. I shall mention just one, which is in Scotland. It is the proposed bridge over the sea to Skye which is to be built with private capital. That will be most welcome, despite the fact that the usual people who oppose everything are opposing it.
We must also work to improve the workings of the ERM so that we can rejoin it in reasonable time. I say that because, undoubtedly, currency stability is very important for our manufacturers and exporters. On Monday night I was in the company of two men whom one would probably call "captains of

1495
industry": one is in the manufacturing sector in Scotland and the other is in the service sector. Both of them said that they had not had much difficulty at the 2.95 level and that they were not too worried about the value of it; but what they did need was currency stability. One of them said,"I am pricing goods for sale abroad for the second half of next year right now". The important point about the ERM was that it gave us currency stability and we must not lose sight of that fact. We must attempt to find ways in which we can remove some of the distortions which I suspect were due to the fact that the system was dominated by the German currency and, therefore, we all had to move in line with the needs of the German economy and not necessarily respond to the needs of our own economy or that of the Italians or the Spanish.
Above all, we must stop dithering over Europe. One of the terrific things about the last election was that for the first time in my memory we were no longer fighting across the political divide about our membership of the European Community. I un-derstand—and, to a certain extent, I sympathise with—the opportunist view that the Labour Party has taken this evening in the other place to vote against the Government. However, I am sorry to say that that will be seen outside this country, and in many places in this country where they do not understand the particular rules and manners of the House of Commons, as a vote against Europe. That is bad. The noble Lord, Lord Jenkins, can rightly be proud of the position that the Liberal Democrats have taken. It is especially sad to see some leading and long-time pro-Europeans in tandem with a handful of anti-European Little Englanders in my own party.
What appalls me is the behaviour and the somersault undertaken by some very senior figures in the Government of the 1980s who had the imagination to see the European single market as being of great importance to this country—and, indeed, to the whole continent—and who led us in. They should remember that when we are discussing the position over Maastricht. If the vote in the other place goes against continuing with the Maastricht Bill, we will be seen as semi-detached members of the European Community. That will damage the realisation of the single market, it will damage our position in Europe and it will further damage our economy. Foreign investors are already being told by our competitors,"Don't look to Britain for a stable position inside the Community". We would do the same if we were in their position. The first step for our economy is to back the Maastricht Bill and to get on with implementing it.
7.50 p.m.
Lord Marlesford: My Lords, the Chancellor of the Exchequer is an old friend of mine. He and I cut our political teeth together. Many of us in the House will agree that in the past month or so there seems to have been something of a lacuna—I do not necessarily say vacuum—in the Government's economic policies. I am sure that my right honourable friend would not mind even his best friends telling him that. Equally, I believe that this debate will be valuable to him. I do not expect my noble friend the Minister to give
1496
detailed replies to what those of us who have presumed to speak have had to say, but I hope that he will persuade the Chancellor to spend a little time reading the report of the debate in Hansard.
I happen to believe that we have an extremely good opportunity to get Britain going again quite soon and quite quickly. Before I put forward my ideas, some of which coincide totally with those of others—I hope that may reinforce my ideas—I should like to say a word about what I believe to be the crucial aspect of the background. Britain, along with most of the world, is at present facing a severe deflationary prospect. We can all argue about monetarism and the extent to which the money supply is a cause of inflation. I believe that largely it is. We can perhaps all agree that monetary phenomena are good indicators of what is happening.
The indicator which shows the net contraction of the money supply in most countries is narrow money, and it is primarily the one over which the Government have control. When one finds that narrow money is growing at a lower rate than inflation, then one has a real deflationary pressure. That is the present position in the UK: M1 is rising at about 2 per cent, and inflation is at about 3.6 per cent. In France the position is even worse with M1 declining. In Japan, the situation is only slightly better. In America they are doing much better—over 13 per cent. against 3 per cent. inflation. That is because the Americans are doing their best to get their economy going. I believe they are right to do so.
There is a general deflationary picture in the world. The exception is Germany, as has been said, where the economic scene is different. Unification led to an increase of some 16 per cent. in the money supply. It is now somewhat lower. They have an inflationary problem which has led to great difficulties for us, as we know.
Apart from that, the main problem in the world, as I see it, is the contraction of the credit base. That is due to a whole series of most unwise actions taken by bankers throughout the world for a decade or so. Bankers are like lemmings. First, they all attempted to recycle the petro-currencies. Then, the great idea was to finance the consumer boom that came with deregulation. More recently, the bankers have entered into a series of extremely unwise ! endings against property values. The position is serious. Most of the Scandinavian banks are technically bust. The French banks are in a terrible state. The reason people do not realise that is that they are mostly nationalised. They are therefore a drain on the public coffers rather than a visible hazard to investors and depositors.
I can find very little good to say about our bankers. I can find almost nothing good to say about the Bank of England which has failed to regulate the banks in this country and failed in a great many other ways, one of which I shall discuss in a moment. Where does that leave us? First, I am looking forward with eager anticipation to the Chancellor's Autumn Statement. I am confident that that will be much more than a mere unveiling of the results of the public expenditure round. The Prime Minister has referred to a package of measures, and that is what we need.

1497
The original plan was that the first unified Budget was to be in December 1993. We should now hope for the first unified Budget to be on 12th November 1992. I hope that that will be one of the messages that the Chancellor and the Government will take from the debate. I believe that 12th November 1992 could be a turning point in the history of economic recovery.
Apart from wages—I shall say a word about those in a moment—the inflationary dangers in Britain are minimal at present. I speak as one who is committed to the supremacy of the priority of dealing with inflation. I like the idea of the 1 per cent. to 4 per cent. target. I hope that we can focus on 2 per cent. From that, it follows that interest rates can, and should, be cut considerably and rapidly. That, of course, is the great advantage of having left the ERM. It is an advantage, incidentally, which some of our main competitors, especially the French, do not have. It is always satisfying to score off the French. The Prime Minister said that I per cent. off the interest rate represents an extra £1 billion in companies' cash. That is important. It also filters through quickly to reducing the RPI, provided that it is passed on. The regulators must see that that happens.
I do not believe that we need worry too much about the exchange rate. The 20 per cent. depreciation which has already occurred should, as many speakers have said, give our exporters a considerable advantage. Import prices, with the notable exception of oil, are unlikely to be affected proportionately to the depreciation of our currency, mainly because of the threat of import substitution: exporters to Britain will be forced to cut their margins or lose markets.
The impression I receive from talking to people in the City—I do not know whether other people have gained the same impression—is that stimulation of the economy by cutting interest rates could lead to greater confidence in stirling. So, surprisingly, it may have a reverse effect. We need not be unduly worried by the level of the PSBR at present. A temporary increase in the PSBR is a means of countering the contraction of the credit base to which I have referred.
We have an external account problem. There are two ways of dealing with it. One way is to contract the economy and to reduce imports. That makes Britain smaller, and it is further deflation. Another is to grow our way out of the problem by seizing the advantages to which the lower exchange rate leads. I favour that route.
I must say a word about taxation. I, like other noble Lords, thought that I heard echoes from the noble Lord, Lord Jenkins—we are extremely grateful to him for giving us the opportunity to have this debate—that higher taxation would not be the end of the world. I do not believe that it is an opportune time to increase taxation in any shape or form; certainly not VAT which would go straight through to the RPI and not direct taxation, because at present this country has a good supply side position with a corporation tax rate of 33 per cent. and a top rate of personal tax of 40 per cent.
I should like to see (I am afraid that I cannot agree with my noble friend, Lord Cockfield, on this) the
1498
reintroduction as soon as possible—I hope to see it announced on 12th November—of 100 per cent. capital allowances for a limited period, because we should remember that they have a powerful gearing effect. First, we are not giving a grant but merely giving people the opportunity to set off investment against profit; and, secondly, in so far as it sucks in imports, it is giving some compensation to manufacturers, who need to import goods for investment, for the fact that we have had a depreciation of the currency which would otherwise make them more expensive. I do not, of course, accept the traditional Treasury view that that distorts investment decisions. There are all too few investment decisions being made. As I said, I hope that such action is taken.
I turn to wages. We have the assumption in this country that the cost of living allowances are the norm, as are annual increments. I believe that that has been the basis of an inflationary psychology which is peculiar to Britain. For all kinds of reasons which we do not have time to go into, other countries simply do not have that attitude. I suggest that many people in the past 10 years have been over-compensated recently in terms of income and there is probably need for an adjustment. Here I agree with my noble friend Lord Cockfield, I believe that we need to move rapidly towards performance-related pay. Companies are talking about it but they are doing it too slowly. This is the moment in the economic cycle when it should happen and there is no time to waste.
That should be coupled with a pay freeze in the public sector—again something I should like to see announced on 12th November. It also means a recognition by both employers and union leaders that many costs have reduced, particularly of housing, and, if anything, the current 3.6 per cent. increase in the RPI over-states the position of inflation. It means recognising that for most people increases in wages will mean a reduction in the number of jobs. I suggest that increases in wages now would be deflationary rather than reflationary, the opposite to what people normally assume.
There is room for more imagination in public spending. In general, I go along with the view about concentrating on capital spending, but we need to have more imagination. For example, English Heritage should give grants to the small building companies going bust all over the country in order to restore churches and other buildings in our heritage.
We must, of course, continue with restructuring industry. Obviously, voluntary early retirement is one approach to that. It is worth while and something in which the Government are a partner, by definition, because they take people from the employers' payroll on to their payroll. Provided it leads to expansion in other ways the payroll of the Government—that is, unemployment benefit—will not last for too long.
Of course, there are short-term social costs to this. I am sure we would all agree that the Government's handling of the massive coal mine closure programme was inept and insensitive. They even apologised for it. However, the restructuring of the coalmining industry has been a great success in the country. I recently visited County Durham where in 1951 there were 134

1499
pits employing over 100,000 miners; today there are only two pits employing fewer than 2,000. In general, that restructuring has been very successful. But one realises that against the present deflationary background it is much more difficult.
However, I do not accept the argument put earlier by the noble Lord, Lord Jenkins, that we should use coal because it is a natural asset which is available for use. I should like to declare an interest and give an example of simple economics. I am a director of Eastern Electricity, the biggest of the distribution companies. It is not making a "dash for gas". It is planning to put in 600 megawatts of gas generation, which is only about one-tenth of the total electricity it distributes. But the plant it is putting up at Peterborough is 360 megawatts and it will generate electricity which may be sold at just over 2.5p per kilowatt hour. That is competitive even with the existing coal-fired generation using only marginal costs. It is certainly much more than competitive with anything that could be done using environmentally acceptable methods of burning coal in new power stations. We cannot turn our backs on that kind of restructuring. It has always been painful but every time it has been a great advantage.
On this front perhaps I may say that restructuring as represented by overseas investment in the country has been highly successful. I do not mind if the British motor car industry is managed by Japanese, if they are better at doing it. They seem to have proved in many cases that they are. I am told that Nissan, North-East on Tees-side, is more profitable than Nissan, Japan. That is terrific, let us have more of it.
I conclude by saying that traditionally since the war the managers of the British economy have made one mistake after another. My noble friend Lord Joseph referred to some: the maintenance of the war-time controls for far too long, including such things as exchange controls; the castration of the entrepreneurial economy by high tax rates; the perpetuation of archaic and uneconomic industrial structures, so easy and tempting to do but to be rejected; the maintenance of unreal exchange rates, first through Bretton Woods, for too long. It was a good idea when it started. Then there was subsequently the ERM, again a good idea. But I must come back to my point on the Bank of England: my goodness, what a mess the Bank of England made in advising the Government. The Treasury people are too frightened to talk to the markets and perhaps it is right that they should not, but what a mess the Bank made in advising the Government that they should go for support before they tried interest rates. If they had tried interest rates first, they would have seen that that would not work and they might have saved £2 billion of taxpayers' money.
I believe that we have a tremendous opportunity to get Britain going again in this deflationary period. I hope that my right honourable friend the Chancellor will show us that he can do it on 12th November.
8.5 p.m.
Baroness Seear: My Lords, it seems a long time ago now, but at the beginning of the debate there was something of a spat—if I may use so unparliamentary a word—between my noble friend Lord Jenkins and the noble Lord, Lord Peston. It may surprise noble Lords to know that I was brought up on the principle that a soft answer turneth away wrath. I fully understand that the Labour Party has great difficulty in appreciating the attitude of a party which has never wavered in its determination to support European union since 1957.
Lord Peston: Is that a soft answer?
Baroness Seear: My Lords, at the beginning of the debate my noble friend also asked the noble Earl, Lord Caithness, a question. We understand and fully accept that the noble Earl had to go to an important engagement tonight, but he was asked what were the Government's priorities. The noble Earl gave us a number of desirable objectives which the Government wish to pursue—objectives to which we would all say,"Amen". However, what he did not give is the answer to the question that my noble friend asked. Some of the objectives are not compatible one with the other. What are the Government's priorities and, if one has to be sacrificed to the other, what goes down the drain? I did not receive any clear impression from what the noble Earl said as to what those priorities were. I should be glad if the noble Lord, Lord Strathclyde, in answering would attempt to clarify the point as it was not clear in the reply to my noble friend.
However, what came out in the reply—I am sure that the noble Lord, Lord Strathclyde, will not disagree with this—is that whatever else is important to the Government and whatever else comes in the order of priorities, the control of inflation remains very important indeed. I very much agree with that.
I also agree very much with the noble Lord, Lord Cockfield. He made the point that in a devalued situation we run a real danger of returning to inflation. We all know that in the J curve there is a honeymoon period when it looks as if things will be good in trading terms because the pound has a lower value. But that does not last. It may give us a short breathing space in which, if we are sensible and have the right policies, we may be able to set matters in train which will avoid the worst consequences. But the danger is undoubtedly there.
If the Government really mean that the control of inflation continues to be, as I believe it should be, one of the most important objectives, if not the most important, then they must take into account the danger that there will be a return to inflation. A falling pound, as the noble Lord, Lord Cockfield, made clear, leads to a fall in the standard of living. Unless action is taken against that, we suck in imports and that puts up prices. We are then back into all the horrors of a stop-go situation. We have experienced that situation again and again and again.
The Government's first job in terms of their own priorities is to take the action that is necessary to

1501
ensure that inflation does not return, combining that action, as they intend to do, with an improvement in growth and—presumably this is also a major objective—a fall in the level of unemployment. I believe there is agreement right across the House—my next point will warm the hearts of many of us who have urged this action over the years—that there should be greater attention paid to the needs of manufacturing industry. There is now no disagreement that I can detect across the House about the importance of manufacturing industry. We on these Benches, mild as we are, will not say."We told you so", having now said it.
There are a number of things the Government will have to do. One of the first things—curiously I believe this has not been mentioned today—for the Government to do is to establish an independent central bank. There has been a great deal of criticism of the activities of the Bank but no one has said that what is required is an independent central bank with the mandate to establish stable prices to control inflation. That measure is crying out to be implemented and there is no reason why it should not be implemented.
While the Government are establishing an independent central bank, they could also carry out the following measure. This is a much smaller measure but it is also extremely important in its own way. A noble Lord on the other side of the House mentioned this point. I am afraid I have forgotten his name. Let us also have an independent Central Statistical Office. A statistical office which is responsible to the Treasury is in an extremely weak position—I put it gently—to give the kind of information that ought to be given and on which the Government ought to be able to act. As we all know, garbage in is garbage out. If the wrong figures come from the Central Statistical Office the wrong decisions will be made.
Those noble Lords who, like me, are not uncritical supporters but still supporters of much that is written by Samuel Brittan in the Financial Times will have noticed how often he has pointed out quite gross errors in the statistical information which has been produced. Those errors in the information inevitably lead to gross mistakes being made in government policy. The provision of such information is the last way in which to set about tackling inflation and encouraging growth. Most ridiculous short-term economies have been made in the financing of the statistical office. We need the best and most independent Central Statistical Office that it is possible to have and then the Government might obtain the information they need. Without that information the Government cannot possibly make the right policies.
We also need to have stability. Every industrialist will tell you that what industry needs is to be sure, as far as it possibly can, that there will be stability in the economy and in prices. That is one reason why we need an independent central bank. When one has lead times for investment that spread over eight or 10
1502
years, how can a company make intelligent decisions when it has no idea what will happen to the value of the money it is putting into its investments?
Stability is linked with our position in Europe. It is a major reason why we went into the ERM and it is a major reason why, as soon as possible, we must re-enter the ERM. Floating rates cannot give industry the stability that it requires if it is to do the job that all of us tonight are saying it must do. We must not handicap industry from the beginning by denying it stability. If industry is to do its job we also need to find a way of restricting wage increases and salary increases. An important element in this is the control of inflation because in the past one of the things that has led to excessive pay claims has been the anticipation of inflation. Once people get it into their minds that the value of money will drop, they will bargain in anticipation for high wage increases and as a result of that they make the inflationary situation inevitably worse than it otherwise would be. There is an interaction here. The control of inflation helps to control excessive wage claims and the control of excessive wage claims helps to control inflation.
I am not arguing a return to an old style prices and incomes policy, but on an all-party basis, and in discussion with the unions, we should now talk seriously about how we can handle wages and salaries. I am not talking only about the public sector. It must be obvious to the Government that if they attempt to control public sector pay without doing anything about private sector pay they will run into serious trouble. This is not a matter that can be tackled on a single party basis. Surely at the present time we are moving towards a position where there should be more cross-party discussions about some of these issues which are of the greatest possible national importance.
One good way of starting that process would be somehow or other to curtail the excessively large salary increases paid to people at the top of industry. There are occasionally times when people who are in the international labour markets need to be paid high salaries to retain the handful of people who need to be retained. However, the great majority of the people I am discussing are not involved in the international labour markets. A Government who believe in markets, as we on these Benches believe in markets, should be able to stand up to those people who are not in the international labour markets but who are trying to get comparable pay with those in the international markets. We should be able to discuss that issue of pay along with the future of pay on an all-party basis.
I shall now discuss a much smaller point but one which for small companies is important. I wish to pick up the point which was made in the most interesting maiden speech of the noble Lord, Lord Clark of Kempston. Noble Lords who come from the Commons are rather dubious maidens. Their claim to maidenhood is slightly bogus as they have been in the House of Commons. Nevertheless the noble Lord made an interesting speech. I particularly appreciated a point he made which sounds trivial but in fact is not trivial for people who are running a small business, that is the payment of debts.

1503
Small businesses are being ruined because large businesses and sometimes government departments do not pay their bills on time. Is it really impossible for those companies to be allowed to add interest automatically to their bills if they are not paid on time? Will the Government please consider this issue? It is such a simple issue but much unemployment has arisen through the collapse of small businesses. Not all of those collapses are inevitable. Some of them could be prevented through the prompt payment of bills. Such business collapses contribute enormously to the feeling of depression and lack of confidence as one small business after another goes down. The encouragement of the prompt payment of bills is an obvious way for the Government to help small businesses. I should not have thought it would be difficult to introduce legislation to achieve that.
Why do the Government not look at the uniform business rate? It concerns not only small businesses. Can that not be reduced quickly? Throughout all my remarks I wish to emphasise the importance of doing things swiftly. It is no good telling us that at the end of 1993 things may look better because some useful ideas will have been implemented. People want to feel that action is being taken now. If action were taken on the uniform business rate it would give great impetus to many people who run small and medium sized businesses and who are finding it extremely difficult to make both ends meet. Perhaps there will be something in the Autumn Statement about that. Such a provision in the Autumn Statement would be of great value.
Those are all measures the Government could implement to help industry in its day-to-day struggle, first, for survival and, secondly, for growth and recovery. However, the Government themselves must take action. It is quite clear that what we want is an investment-led recovery. We want a consumer-led recovery like a hole in the head. Let us get the distinction absolutely clear. Nothing could be worse than an attempt at a consumer-led recovery. It would put up debt, bring in imports and increase inflation. We want to discourage that. We want to take the indirect route of an investment-led recovery which, because it brings people back into employment, gives them money to spend.
The Government have to take a lead in that investment-led recovery. There is so much crying out to be done—schemes which are wealth-creating in the longer run, or in some cases in the shorter run. That is genuine investment. Many noble Lords have said this evening that borrowing for investment where there is a good pay-off in the end is acceptable on the part of government, as it is on the part of a company or individual. What is not acceptable is borrowing where there is no increase in wealth as a result and no return.
I would put improvements in the railways very high on the list. There should be improvements in the track and investment in high speed trains linking up with the Channel Tunnel. That would do a number of things. It would speed up the delivery of goods. If it were done properly and with an eye to that objective it would take lorries off the roads. If we could reduce congestion on the roads by improving the railways
1504
that would be the good opposite of a "double whammy", whatever that may be. It would have a double benefit. It would take lorries off the roads. A great deal of money is lost due to the congestion caused by road transport carrying goods which ought to be on the railways. Transferring those goods to the railways would pay off handsomely. Therefore, money should be put quickly into the railways to improve transport.
There should, of course, be money for housing. Investment in housing does not show an immediate return. In strict economic terms it does not show the return on investment that comes from investment on infrastructure, but we need it desperately. The money is there. Surely the Government can now release the money which the local authorities have and make a start on house building. That has been said over and over again. The pay-off in social terms would be tremendous. It would draw people back into employment and would have a great effect on confidence.
I turn now to the question of training. Other noble Lords have mentioned training. Again, the pay-off is long term. I do not pretend that there would be an immediate benefit, but training is essential. Can the noble Lord, Lord Strathclyde, confirm and reassure us that there will not be a cut in the money available for training? There ought to be an increase.
Whatever the recovery, there will not be jobs in this country for the unskilled. I believe that we all want the GATT round to succeed. It is bad news that the GATT round is still stumbling. A conclusion of the GATT round would mean much work going to developing countries. That is right. However, there will be less and less unskilled work in this country. I am absolutely convinced that there are plenty of people who, with the right training opportunities, are capable of filling the jobs that will be needed as soon as the economy picks up again. But they need training.
I should like to suggest a scheme which could be implemented quickly. It is not part of my party's policy; it is my policy, and none the worse for that. School leavers should be employed on the basis of two for each job. At any one time one of them would have time off for training and education. I have worked such a scheme in industry in the past. It works excellently. It may be necessary to subsidise employers for operating the scheme, but one would halve the youth unemployment problem and young people would be trained at the same time. It would be very cheap and much easier than letting them have time off for one or two days a week. Because there are two for each job, they are paired. It is employment combined with training. They might have to accept lower wages, but why not? They would have jobs and they would have training. I urge the Government to consider that scheme; it can work and could be extremely valuable. Money put into training can have short-term benefits in reducing youth unemployment, which is expensive not only in financial terms but also in social terms because youngsters are roaming about with nothing to do and getting into trouble and causing all sorts of problems.

1505
Finally, there is the question of identifying investment which can be implemented immediately. I understand that there are quite a number of schemes which are already prepared, with the plans made and in some cases with the planning permission granted, and which are only waiting for word to be received from the Government for them to go ahead. That is what we need. I return to the point that speed is of the essence. If the Government want to restore confidence, and we all know that lack of confidence is a major part of the problem, they must start now. It is no good leaving action for 18 months. They should ask the local authorities what schemes they have which they could put into operation within three months.
I understand, for example, that the plans for the high speed train to Heathrow are complete and have been approved. I am told that there is even a promise of 80 per cent. private sector collaboration. Cannot that be started straight away? All the preliminary work has been done. The Government should send out to organisations and ask them what plans they have in the top drawer waiting to be pulled out. The work should be started. That would do a great deal for the Government's ratings. Far more important, it would give a great boost to confidence and it would get the country really moving again.
8.26 p.m.
Lord Donoughue: My Lords, this has been a valuable and well-timed debate, with many interesting contributions from noble Lords. In particular, as has been said, we have heard a series of maiden speeches of notable quality. I refer especially to the excellent maiden speech of my noble friend Lord Eatwell. His Cambridge background has understandably drawn comment. Cambridge University is usually seen, certainly by me, as a remote fortress of reaction. Not surprisingly, it is not heavily represented on these Benches, where those great liberal institutions, Oxford, LSE, much of Welsh academe and, above all, the university of life normally illuminate our economic speeches. We shall look forward to more such radical views from the normally dank fens.
Even the severest critics of the Government's economic policy, or their recent absence of economic policy—and there has been no shortage of criticism today—should, in all fairness, acknowledge the scale of the present problems facing the Chancellor. He may have fallen at virtually every fence and the critics may have strong grounds to say "I told you so", but it has been a difficult course. The world economic climate is less helpful to Britain than at any point in my lifetime outside war. With economic activity now turning down in France, Italy, Spain and especially Germany—all crucial markets for our exports—the scenario ahead is no less daunting. We must all acknowledge those difficulties. Against that background we do not expect economic miracles.
We have not enjoyed any economic miracles under this Administration, and we do not expect one now. That would be unreasonable. However, the majority thrust of the debate supports the view that it would
1506
not be unreasonable to expect less spectacularly incompetent economic management than this country has suffered and this House has witnessed—with growing disbelief and indeed humiliation as patriotic Britons—in recent weeks. I should point out that we have devalued against the Irish punt: Murphy jokes are out from now on.
What we have witnessed has not just been failure. All governments, even Labour governments, experience failure. Even the delightful policy lacuna of the noble Lord, Lord Marlesford, has existed before. However, this has been a total shambles. It makes the events of the IMF in 1976 and the winter of discontent of 1979 appear like periods of model crisis management by comparison. That is not just a partisan view from this side of the House; it is the view of everyone to whom I have talked in the City of London.
Nor is it just a question of economic mismanage-ment over only the past few months. The situation goes back several years. The economic financial shambles derives from misjudgments and mismanage-ments certainly dating back to 1986—and some before that time. It derives first from the blind pursuit of the crude doctrine of the free market, as if that was a magic potion to resolve all economic and industrial problems however complex and long standing. It derives from excessive deregulation, especially in the financial sector, which unleashed the credit balloon which has exploded in the faces of the debt-laden British people and the corporate sector. It derives from a narrow belief that the first priority of government should be to cut personal taxation and from the associated hostility to public expenditure and public investment which has left Britain's physical and social infrastructure totally inadequate for the needs and demands of an efficient economy. Above all, as underlined by the noble Lords, Lord Benson and Lord Holme of Cheltenham, there has been damaging neglect of British manufacturing industry. This has left us with such a narrow industrial base that if the Chancellor's new growth policy actually works we shall immediately run into even more horrendous balance of payments deficits. Take those ingredients and mix them together in Great George Street, feed them to the British economy and the inevitable result is the kind of economic mess in which Britain finds itself.
To repeat the question posed by the noble Lord, Lord Jenkins, in this Motion, what economic remedies do the Government present to us to get us out of the fine mess they have got us into? The Prime Minister, with his Chancellor limping behind some days afterwards, announced a wholly new economic policy: the pursuit of growth and the creation of jobs. Along with my noble friends Lord Peston and Lord Barnett, that rather took my breath away when I heard it. Could it be that, having U-turned and abandoned virtually every domestic policy on which it had fought the election only seven months ago, the Prime Minister has turned in desperation to the economic policy advocated in the Labour Party's April election manifesto? That this Government should have growth and the creation of jobs at the centre of its

1507
macro-economic policy is a total contradiction of the orthodoxy which has prevailed during the entire period in office of this administration. The central tenet of Conservative economic strategy—which we have heard often over the past 13 years from the Front Bench opposite—has been that macro-economic policy cannot ensure sustained economic growth and create real jobs. Those can be achieved only by supply side factors and as a consequence of low inflation, macro-economic policy is only about reducing inflation and the rest is for the market.
Therefore, this must constitute the U-turn of all time, but where does it leave us? Do we really know what Government economic policy now is? Do the Government really know what their economic policy is? Was the central core of their policy wrong until three weeks ago? The questions tumble out as they have in this debate. I believe that all of them exemplify why the present economic regime has lost credibility. Does leaving the ERM and having a lower exchange rate have, as the Chancellor insisted only two months ago, inevitable and terrible inflationary consequences? If so, will the Minister tonight and the Chancellor in the Autumn Statement next week quantify those terrible consequences and what is the new policy to deal with them? We have left the ERM and have devalued by a massive 20 per cent. If those consequences do not exist why are the astrologers who forecast them—Ministers and officials—still in office? Is there no such thing as accountability?
I admit it is easy to criticise the Government, given the Laurel and Hardy script that they seem to have been following lately. It is perfectly fair for this House to expect critics to say what should be done as we approach a third year of recession and 3.25 million unemployed. I think one of the qualities of this debate is that noble Lords on all sides have attempted to make suggestions which seem to me to be relevant and valuable. None of us would choose to start from where the Government have placed us.
I think the Government should be warned that to rely simply on cuts in interest rates will not be enough. That may be like pulling on Keynes's piece of string. Cuts in interest rates are desirable but we must have real cuts. We have not had significant cuts in real interest rates so far. Real rates of interest have barely fallen over the past two years. The punishing burden is still at least 7 to 8 per cent. in real terms.
An equally important point concerns the differential impact of cuts in interest rates. Cutting rates involves a transfer of resources—that is, a transfer of liquidity from one social group to another. In the personal sector it means transferring liquidity from depositors to borrowers. Depositors are usually spenders. As many noble Lords or retired parents may know, cuts in interest rates reduce spending power. Borrowers in their present desperate situation do not usually spend all the benefits of cuts but use them to reduce debt. Therefore, cutting rates may not in the short term improve consumer demand and economic activity as much as hoped. It helps the corporate sector and is to be welcomed but it does not necessarily help consumer expenditure very much. If one looks at the United States one sees that a long
1508
period of lower interest rates has produced only the most fragile degree of recovery. I do not wholly accept the apparently total distinction made by the noble Baroness, Lady Seear, between consumer demand and industrial investment. I believe they are intrinsically linked.
My message is that one should not go on playing one-club golf with the single club of lower interest rates now replacing the single club of the ERM discipline. What is needed is a much more comprehensive range of economic and industrial policies. These should include cuts in real interest rates but should also match the complexity of the range of economic problems facing this country.
I pick up a number of themes and suggestions from many noble Lords. In particular, I thought that the speech of the noble Lord, Lord Benson, was very impressive. First, there is a need for an industrial policy to restore British manufacturing industry to health. Many other noble Lords have referred to it. I believe that that policy should include support as advocated by the noble Lords, Lord Barnett and Lord Marlesford, for 100 per cent. capital allowances and investment in construction which has the lowest import content. It means a programme of accelerated investment in Britain's physical infrastructure, especially transport, which should be launched now. It also means an unprecedented programme of investment in education and training, adding value to our human infrastructure rather than paying it to stand idle. Finally, of most immediate urgency the nation needs leadership and credibility from those responsible for managing its economic affairs. I am sure that today many of us feel leaderless, with those in office pulled hither and thither by the winds of events.
My basic conclusion is that no successful economic policy can be built simply on rhetoric about growth—on mere words—nor on any single policy leg, whether it is defending an arbitrary exchange rate or cutting nominal interest rates. A successful policy must match the scale and complexity of the problems in our whole real economy. That is what we should like to hear from the Minister tonight and from the Chancellor next week. I fear, on past experience, that we shall be disappointed but hope, of course, springs eternal.
8.40 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Strathclyde): My Lords, I too join noble Lords in congratulating the noble Lord, Lord Jenkins of Hillhead, for bringing this debate to the House and this particular subject to our attention. Like many noble Lords, I thoroughly enjoyed the debate. I suspect that it has been more lucid and illuminating than the debate taking place in another place.
We have indeed been lucky today. We have had four excellent maiden speakers. I should like to begin by congratulating my noble friend Lord Clark of Kempston, who brings to this House that very special ingredient of political experience. As chairman of the Back Bench Finance Committee from 1979 to 1992, it

1509
is clearly appropriate that he should have made his maiden speech in this particular debate. The noble Lord, Lord Eatwell, brings to us his academic experience and his political experience as the economic adviser to the Leader of the Opposition over the course of the past few years. He too made an interesting and most welcome speech. He will discover that I am not always so kind about speeches from Members of the Opposition. My noble friend Lord Northbrook, a banker, made an excellent start in the House, as did my noble friend Lord Hothfield, who as a civil engineer brings a special and different experience to the House. I am sure that everybody has benefited from the contributions of those noble Lords. We have seen an impressive range of relevant experience.
Whatever one's views on the events that led to the suspension of sterling's ERM membership on 16th September, there can be little doubt that it represented an event of notable importance and will prove to have been, in some respects at least, a turning point in our economic affairs. This debate provides a timely opportunity for us to review the implications of recent developments, the opportunities and dangers that they present and the policies that the Government intend to follow in their wake.
Much has been said about the current state of the economy. I share the very obvious concern felt in this House about the difficulties that continue to be faced by very many individuals, families and businesses. Those difficulties result from a recession that unquestionably has gone on longer than the Government expected would be the case. Even so, I have to say that the signals from the real economy over the course of this year have not justified the extent of the gloom often expressed either in this Chamber or in the media over recent months.
I have no doubt that in resisting that prevailing sense of pessimism and pointing to the more encouraging evidence that has accumulated in recent months, I shall be accused of being an eternal optimist. But I believe it is right to point out that manufacturing output, retail sales, business investment and car production were all showing encouraging trends, at least in the period up to Black Wednesday. Overall, the picture was one of activity being fairly flat during the first half of this year. Unquestionably there have been continued difficulties in the housing market and unemployment has continued to rise. So we have clearly not seen the recovery that the Government hoped for at the time of the budget.
But the continued progress that we have made in reducing inflationary pressures in the economy is now clear. Not only has RPI inflation fallen to less than a third of its peak in the autumn of 1990 and, excluding the effect of mortgage interest payments, to its lowest level for four-and-a-half years but we have also seen both producer output price inflation and average underlying earnings growth at their lowest levels for a generation. Manufacturing unit wage cost growth is
1510
now lower than in either Germany or Japan. All the evidence suggests that considerable downward pressure on wage growth truly exists.
The emphasis that we have placed on low inflation has often been criticised. But in a highly competitive world it is an illusion to believe that we can achieve growth by letting inflation rip and expect that growth to be sustainable.
The noble Lords, Lord Jenkins of Hillhead, Lord Rodgers of Quarry Bank and my noble friend Lord Cockfield, as well as other noble Lords, asked about the clarity of government monetary policy. It was clearly set out in great detail by the Chancellor in his Mansion House speech. Our objectives are for underlying inflation of 1 per cent. to 4 per cent. a year, with a long-term aim of 2 per cent. or less, in line with the very best in Europe. We shall give full weight to the exchange rate in assessing the necessary conditions, as it can directly influence prices and can indicate tightness or looseness of conditions.
The Government will also be guided by domestic indicators. The target for MO growth will be retained. That has proved to have been a good and timely indicator. M4 is harder to interpret, but the Chancellor will set a monitoring range for guidance and we shall look at the relationship between various market rates of interest and asset prices, especially house prices.
The noble Baroness, Lady Seear, asked me about the priorities. I do not believe that there is any inconsistency between the objectives in our current circumstances. The Chancellor has made quite clear that he will not hesitate to raise interest rates if the inflation objectives are threatened. While replying to the noble Baroness perhaps I could just touch on the central bank. We do not feel that the pressures that we have felt over the course of the past few weeks would have been any less if the Bank of England had been independent. An independent bank would have no new tools at its disposal which are not available to the authorities now. Nor is there any reason to suppose that an independent bank would have got inflation down any faster over the past two years. What does matter is that the right policies are pursued and that there is a close and effective working relationship between government and the central bank. That is what I believe we already have in the United Kingdom.
The noble Lord, Lord Jenkins, asked whether low inflation was still a higher priority than the new emphasis on growth. As my noble friend Lord Caithness explained, low inflation is not and never has been seen as simply an end in itself. Our post war experience has shown clearly that growth cannot be sustained if inflation is not also contained. It is therefore important that monetary policy is kept tight enough to prevent an escalation of inflationary pressures.
The Chancellor also made clear that we recognise that monetary policy can be too tight and that, too, can threaten prosperity. I believe that the disinflation-ary pressure already present in our economy does much to justify the relaxation of monetary policy that we have seen since 16th September. Those pressures

1511
mean that the measures taken to bring about a resumption of growth need not in any way imperil the clear inflation objectives that the Chancellor recently laid down.
The noble Lord went on to talk about the declining competitiveness and the continuing structural balance of payments problems, as did the noble Lord, Lord Eatwell, my noble friend Lord Joseph, as well as the noble Lord, Lord Benson. We believe that the lower pound will do a great deal to help our exporters. But the key to competitiveness is the producers' ability to hold down their costs. Exports are at near record levels, despite the weakness of overseas markets. Our share of world trade in manufacturing stabilised during the course of the 1980s following decades of decline and is estimated to have risen more recently. As I said earlier, the growth in unit labour costs is slower than in both Germany and Japan on recent OECD estimates. There is no reason to believe that our trade performance will he a brake on growth.
My assessment of the state of the economy in the run up to 16th September would be that it was weaker than we had hoped for and expected but by no means as weak as some were suggesting. However, there is no doubt that the events leading up to the suspension of sterling's ERM membership and the continuing political uncertainty that followed has caused a severe jolt in confidence; and there is a danger that this fall in confidence could pose a real threat to the prospect for a gathering recovery in activity.
Many of the conditions for that recovery have been in place for some time. I shall not recite them again. However, recent interest rate cuts will help further, and the boost to competitiveness from the lower exchange rate will help exporters and firms competing against imports so long as they keep their costs down and their quality high. What is needed is greater confidence. Consumers need the confidence to spend. Businesses need the confidence to invest. I believe that the policies being followed are those that are needed to restore confidence and to bring about a return of sustainable non-inflationary growth.
Much has been mentioned about the exchange rate and the ERM. I shall not dwell in too much detail on the events which led to our suspension of sterling's ERM membership, which have been dealt with before. However, I shall address the point made by the noble Lord, Lord Peston. He believed that he might have to wait 30 years before he found out what had occurred. I hope that I shall be able to illuminate him now.
The noble Lord suggested that the defeat by the speculators was catastrophic, that central banks were not overwhelmed by an unstoppable tide, but that the Bundesbank must have decided not to provide limitless funds. I am not sure that it is correct to suggest that exceptional conditions did not prevail on Black Wednesday. When President Mitterrand announced that there would be a referendum in France on 20th September the market speculation about a realignment became fixed on a particular date, making the flows in the exchange markets all the more difficult and disruptive as that date became nearer. Despite that disruption, we were able to keep sterling above its ERM floor until the evening of Tuesday 15th
1512
September. As is well known, on that evening the German newspaper Handelsblatt made available a report of an interview it had conducted that day with Dr. Schlesinger, the President of the Bundesbank, apparently indicating that he favoured a more general realignment than the line of devaluation that was agreed on 13th September. Although the Bundesbank disowned the report, it was not until Thursday 17th September, after we had left the ERM, that a fuller version of the interview was then published. The original partial report caused a lot of damage in the highly charged atmosphere prevailing in the week before the French referendum. We fell below our ERM floor in New York. We were on the floor when the European markets opened and our obligation to buy back unlimited quantities of sterling came into force. For a currency as widely traded as sterling, that was a very serious position indeed. The increase to 12 per cent. failed to push sterling off its floor. At 2.15 p.m., 15 per cent. rates were announced. Finally sterling left membership at 7.38 p.m. The Bundesbank fulfilled its obligations under the ERM agreements to provide deutschmarks to the Bank of England through the EMS's very short term finance arrangements. However, to be effective in exchange rate markets whose daily turnover is around 1 trillion dollars—that is, 1 million million dollars—they cannot rely on intervention alone. The markets have to be convinced that the speculations are inaccurate and that the relevant authorities will not countenance devaluation.
Sadly, the impression that the Bundesbank favoured a sterling devaluation was not stamped out, allowing the initial Handelsblatt reporting of its interview with Dr. Schlesinger to trigger the final assault on sterling. I hope that that clarifies the matter for the noble Lord, Lord Peston.
Lord Peston: My Lords, perhaps the noble Lord can clarify two matters. First, I do not believe that that can be right in terms of economic analysis. The funds must not have been available. However, we can debate that on another occasion.
Am I to understand that the Minister's explanation is the Treasury's view of what occurred? Is that the Treasury's account of those events, even though I regard it as economically completely unpersuasive?
Lord Strathclyde: My Lords, I found it rather persuasive. I thought that it was rather well put. Indeed, that is not just the Treasury's view, it is also the government's view of what occurred on Wednesday,16th September.
Lord Barnett: My Lords, as it is a rather important matter, perhaps the noble Lord can clarify one point. Is he saying that the drop in value of the pound was not because of any lack of economic convergence? If so, why have we not gone back into the ERM at the rate that we were in it at the time?
Lord Strathclyde: My Lords, I shall certainly come to that point during the course of the next few minutes. I was explaining to the noble Lord, Lord Peston, the background on our ejection from the ERM which was compounded by false rumours and

1513
by the imminent date of the French referendum. That was also compounded by the fact that there was going to be an uncertain result which of course was then proven.
We did not seek our departure from the ERM. We did everything that we could to prevent it. Now that we are outside the mechanism it is clear that the background against which policies are determined has altered significantly. That was the point raised by the noble Lord, Lord Donoughue. We have also seen a continued weakness in a number of overseas economies.
Many noble Lords asked about our commitment to rejoin the ERM. We will rejoin the ERM but only when we are satisfied that it is in our interest to do so. In particular we need to see, first, that the recent turbulence in the financial markets has come to an end; secondly, that the analysing of developments in capital markets in the European and world market systems has been taken forward; and, thirdly, and most importantly, that the requirements of the UK and German monetary policy come closer in line and that the wide interest rates between Germany and the US have narrowed. We have indicated that we do not think that those conditions are likely to be satisfied in the very near future.
The noble Lord, Lord Desai, felt that we should have realigned within the ERM. But my noble friend Lord Mackay of Ardbrecknish explained why that would not have worked. Sterling devaluation would not have solved anything in those turbulent conditions. The markets would simply have taken our new lower limit as their target. That is exactly what happened to the lira. After a 7 per cent. devaluation on 13th September the lira membership of the ERM had to be suspended on 16th September and their interest rates which were put up at that period have not yet fallen back to the levels before 16th September.
The noble Earl, Lord Russell, referred to industry's need for stability within an exchange rate. I agree with the noble Earl that industry benefits from exchange rate stability as we had while we were in the ERM. Outside the ERM there is no specific target, but that does not mean that the Government do not care about its value. As I said, we will return to the ERM when the conditions are right.
I turn to the point raised by the noble Lord, Lord Jenkins of Hillhead, on inflation caused by the plummeting exchange rates. Indeed, the point was raised by the noble Lord, Lord Donoughue. The value of sterling was taken into account when making the decision to cut interest rates. We also took into account other indicators which clearly showed the abatement of inflationary pressures. The defeat of inflation is still of crucial importance. Interest rates will continue to be set with that in mind. The Government are confident that monetary policy remains tight enough to make progress, with the Government's inflation objective.
Whether all that is for good or ill it offers new opportunities as well as new dangers. It is important that the opportunities should be grasped. The Government have been accused of inconsistency and
1514
of changing course. However, as the Chancellor made clear last week, the aim of a macro-economic policy was never simply to defeat inflation. Low inflation is not just an end in itself; it is the means to sustainable growth and secure employment.
My noble friend Lord Clark asked whether we should legislate on late payers, to impose interest rate payments. The point was taken up by the noble Baroness, Lady Seear. In this year's Budget the Chancellor announced measures to encourage prompt payment but I doubt whether legislation in itself will work. Many small businesses are unlikely to make use of it for fear of losing future business. Matters might be made even worse if bills were in dispute or if the buyer were close to insolvency. I recognise that that is a substantial problem for many small businesses and no doubt one to which we shall return.
The noble Lord, Lord Barnett, and other noble Lords asked about capital allowances. There appeared to be disagreement within the House about whether capital allowances were good. The Government believe that capital allowances distort the workings of the markets and therefore distort decisions. Many noble Lords paid lip-service to market forces but then went on to propose new distortions. The result of capital allowances is a lower quality investment as those projects with lower rates of return become profitable. I am not sure whether that is desirable. My noble friend Lord Cockfield made the point far better than I have, although my noble friend Lord Marlesford might not entirely agree with him.
The need to increase infrastructure spending was mentioned by the noble Lord, Lord Jenkins, and many others. We have made clear our intention to pay particular attention to the implications for industry of individual spending programmes in this year's public expenditure round. The noble Earl, Lord Russell, and the noble Baroness, Lady Seear, asked about the uniform business rate. Research that we have received from industry indicates that its main regard is interest rates. Some 80 per cent. of CBI firms indicated that interest rates are their major concern and not the uniform business rate. The noble Baroness will know that in the 1992 Budget we announced that no business would face an increase in its rates bill for 1992– 93. Businesses moving to lower bills will receive their gains in full in 1993– 94 and receive larger reductions in their 1992– 93 bills than previously announced. That package is worth £480 million in the current year and will be worth £590 million next year.
In an interesting speech my noble friend Lord Boyd-Carpenter said that the United Kingdom has the highest VAT rate in the Community. Research which I inspired after he sat down shows that we have a lower standard rate of VAT than Italy, Belgium or France or, indeed, Greece, Denmark or Ireland.
The noble Lord, Lord Desai, proposed an ingenious scheme—a mortgage holiday. I am not sure what is supposed to happen to the depositors and whether they should also take a holiday. No doubt the clever people in the Treasury will give me a proper reflection of the ideas behind the noble Lord's thinking.

1515
I welcomed the support from my noble friend Lord Skidelsky, in particular his caution against successive debt growth which we might expect were the Government to follow the kind of fiscal expansions suggested by the noble Lord, Lord Desai. The noble Earl, Lord Halsbury, recognised the truism that inflation hurts creditors and benefits debtors. The damage which inflation causes to the value of earnings and the incomes of those on fixed incomes is a good reason for ensuring that it is kept as low as possible.
GATT was mentioned by the noble Baroness, Lady Seear. It is crucial that we reach an agreement. I understand that the two sides are close together. We must hope that during the next few days an agreement is reached.
The change in interest rates on 16th October was a cut. So was the previous change. Apart from Black Wednesday interest rates have been on a steady downward path for the past two years. In late 1990, interest rates stood at 15 per cent. They are now a full seven percentage points lower at 8 per cent. The full effect of that 7 per cent. reduction is to cut more than £9 billion off industry's interest payments and more than £110 per month from the repayment of a typical £30,000 mortgage. It will also boost consumer spending. My noble friend Lord Skidelsky understood the effects of that extremely well, as did my noble friend Lord Marlesford.
Obviously there is a limit to what I can say about public spending and fiscal policy in advance of next week's Autumn Statement. Noble Lords on the Liberal Democrat Benches asked about training and education. I am not in a position to respond to the specific issues which were raised during the debate. However, it is useful to reiterate the point made by the Prime Minister that particular attention will be paid to the implications for industry of individual program-mes when deciding priorities in this year's spending round. That does not mean that difficult decisions will not have to be taken. Firm control of public finances continues to be an important element in our strategy, but I believe that that emphasis will be supported by the great majority of my noble friends.
I am sorry if I have not done justice to all your Lordships' speeches. I thoroughly enjoyed the debate and I believe that it has been most useful. Your Lordships may be sorry that I did not mention the Maastricht Treaty. However, noble Lords who wish to know what the Government's policy is can merely take a walk a few hundred yards to another place.
Perhaps the best way to conclude the debate is to paraphrase what was said by the noble Lord, Lord Holme of Cheltenham, and my noble friends Lord Cockfield and Lord Skidelsky about the morality of the free market. If we really are serious about getting our economy on the right track we must remember pay restraint, responsible behaviour and pride in a job well done.
9.8 p.m.
Lord Jenkins of Hillhead: My Lords, I am never a great believer in a substantial second bite, particularly at this time of night. I therefore confine myself to thanking the 23 noble Lords who have taken part in
1516
the debate and, in particular, I congratulate the four noble Lords who made such striking maiden speeches. I thank also the noble Lord, Lord Strathclyde, for his comprehensive reply, which was couched in a way which did not make us miss the noble Earl, Lord Caithness, at all. It was delivered with such confidence and aplomb that when, towards the end, he referred to "my Prime Minister" it did not seem entirely out of place.
A slight difficulty in that approach was that it made membership of the ERM—our brief and rather inglorious membership—seem as though it was something which we had graciously consented to try for a time but having found the French and the Germans rather monetarily inadequate we decided that we would have to withdraw until they behaved in a better way and produced currencies as strong and grand as our own.
Leaving that aside, I thank the noble Lord for his reply and those noble Lords who have taken part in the debate. I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

Civil Rights (Disabled Persons) Bill [H.L.]
9.10 p.m.
Read a third time.
Clause 6 [Provision of goods and services to qualified person with a disability]:
Lord Monson Lord Monson moved the amendment:
Page 5, line 35, at end insert:
("(4) For the avoidance of doubt, nothing in this section shall render it unlawful for a person or body to decline to provide goods, facilities or services to a person whose behaviour is such as to cause alarm or distress to a majority of customers or employees at the place where such goods, facilities or services are provided.")
The noble Lord said: My Lords, the fact that the Bill is being moved fully two and three-quarters of an hour later than the Government Whips' Office estimated as recently as two days ago is a pity, but as it is clearly a consequence of a large number of people having made a last minute rush to join in a most interesting economic debate, one can hardly complain.
The amendment is a further attempt to deal with one potential problem inherent in the Bill as it stands. In our praiseworthy zeal to make things easier in many spheres of life for the disabled minority, it would surely be wrong to dismiss as being of little or no importance the interests and well-being of the majority on those luckily rare yet inevitable occasions when the two objectives are on a collision course.
The amendment is an attempt to achieve a fair and democratic balance between the well-being of the minority and that of the majority on those unfortunate but rare occasions. I must stress first that the amendment relates to specific individuals and not groups. In other words, a manager or proprietor of premises would not be allowed to refuse a group booking on the grounds that on past precedent one or two of the group may be likely to cause alarm and

1517
distress to a majority of the customers or staff. The booking would have to be accepted, and only when somebody behaved in an anti-social manner persis-tently would they be asked to leave or possibly go into a back room until the rest of the party were ready to leave.
The next safeguard built into the amendment is that the action of the manager or proprietor is limited to events which cause either alarm or distress. The word "alarm" is self-explanatory. It is a better word than "fear", which is a little too melodramatic, though of course they mean much the same thing. The word "distress" is also indicative of a fairly strong emotion. I specifically did not include what might be described as mild unease, mild embarrassment or mild annoyance. Distress is different. It is something that ruins one's entire evening or day.
Let me give some examples. Indecent exposure would trigger both alarm and distress in nearly all women. There may be a few psychiatric nurses who could shrug it off but nearly all women would be alarmed and distressed by such behaviour. It would not alarm men but it would distress a good many of them, particularly if they were accompanied by their wives, girl friends or sisters. Verbal violence both alarms and distresses people, especially when uttered by people who are obviously not in full control of themselves. There is always the expectation at the back of one's mind that verbal violence will lead suddenly to physical violence.
Leaving aside the question of alarm and concentrating on distress, let me return to my Report stage example of a piano recital where the talented but understandably nervous soloist is making her debut. Suppose there are 300 people in the audience of whom 297 are impeccably behaved, but the remaining three are not. The first of those is a young child, much too young to enjoy that kind of music but who has been dragged along by his parent or guardian who is dying to hear the music and can mentally shut his or her ears to the cries of the child.
The second is an adult of sound mind, as lawyers would say, but who is extremely drunk. The third is also an adult, in body at any rate, who is totally sober but who has a mental age of the child I mentioned in my first example. All these are obviously going to create some sort of disturbance during the perfor-mance, thereby causing great distress not only to the audience but most of all to the poor pianist.
As the law stands at present, all three, and naturally those who are accompanying them, could quite legally be requested to leave by the managers of the concert hall before the performance starts. However, were the Bill to be passed unamended only the first two plus those looking after them could legally be asked to leave. That deserves rectification.
There is one final safeguard built into the amendment to ensure fairness and equity. That is the requirement that the,
"behaviour is such as to cause alarm or distress to a majority of customers or employees".
In other words, it would not be good enough if two or three unusually sensitive or squeamish people were
1518
distressed. However, if the majority were greatly distressed, that would indicate that the behaviour was such that it could not reasonably be tolerated. I am reinforced in my belief that that is right by the noble Lord, Lord Ennals: I am sorry that he is not here tonight. He remarked:
"Is it not right that the views of the majority as opposed to the views of the minority should carry".—[Official Report,27/10/92; col.1017.]
Judging by the cheers of most, if by no means all, of his colleagues, the Labour Party in this House broadly takes that view. The noble Lord was referring to the unavoidable clash of views and interests between a minority of habitual smokers whose income is insufficient to allow them to travel by British Rail and who are as a result compelled to travel by long-distance coach—and who are now being forbidden to smoke even right at the rear of the coach on very long journeys—and the majority of those travelling by coach, who are non-smokers.
The noble Lord, Lord Ennals, was fully entitled to take the view that the distress of the smokers—and it is a distress to heavy smokers, which I am not—was outweighed without question by the distress of the non-smokers if they were forced to share a coach and therefore that the views of the latter should prevail.
When we debated this matter at Report stage my noble friend Lady Darcy (de Knayth), who I believed grasped what I was trying to achieve and, I sense, to some extent sympathised with the objective if not the wording of my amendment, suggested that it was unnecessary and that nothing in the Bill would prevent a manager or provider of an establishment from requesting someone to leave if he or she was behaving in the ways I have described. Would that that were so.
I have read the Bill again and again very thoroughly. I would like to believe that she is right but I find it very hard to do so. There are exceptions contained in a code of practice, but the latter does not have the force of law. Moreover, groups are referred to, not specific individuals. Somebody may be theoretically quite all right when in a group but may individually behave uncharacteristically and unacceptably to a majority. I feel that the owner, proprietor or manager of a building might fall foul of the law if he were to ask such a person to leave.
It would be quite inappropriate at Third Reading to press this amendment (which is perhaps technically imperfect for one reason or another) to a Division unless of course the House as a whole or the Government wish me to do so. Failing that I shall certainly beg leave to withdraw it. However, it is vital that the problem is aired so that the other place in Committee is given the full arguments setting out both sides of the case to enable it to consider the problem in great detail. I beg to move.
9.15 p.m.
Lord Renton: My Lords, with respect to the noble Lord, Lord Monson, whose sincerity in this matter is abundantly clear, I do not consider that his amendment is necessary. I am sure that the noble Lord, Lord Henderson of Brompton, agrees with me that an amendment which begins with the words,
"For the avoidance of doubt",

1519
is one which should prima facie be rejected for this reason: the words of a Bill should always be so clear that we do not need subsections for the removal of doubt. In this particular case, I do not consider that we do so, because if we look at Clauses 6 and 7, which are pretty widely drawn, we find that Clause 6(3) reads:
"This section does not apply where compliance with it in relation to a … person with a disability would be impracticable or unsafe".
I do not need to read the rest of that subsection. Then we find that Clause 7(1) states:
"In determining for the purposes of section 6 above the reasonableness of any modification to rules, policies or practices … regard shall be had to whether such actions could be undertaken without undue hardship".
In my opinion, but I am open to challenge, those two provisions, which are already in the Bill, are pretty widely drawn and would cover most of the contingencies which the noble Lord, Lord Monson, has mentioned in support of his amendment. However, there is one contingency which I think that he has overlooked: that the refusal of goods or services to a disabled person is more likely to give rise to behaviour which would cause alarm or distress than if we let the matter be dealt with within the terms of the Bill as it stands. I am afraid that this new subsection would encourage refusal and would therefore cause alarm or distress which might not otherwise be caused. That is yet another reason for not accepting the amendment. I hope that in view of those thoughts your Lordships will decide that the amendment should not be accepted.
Lord Henderson of Brompton: My Lords, the noble Lord, Lord Renton, has spoken most persuasively on this amendment and I agree with what he has said wholeheartedly. Like the noble Lord, I wish to congratulate the noble Lord, Lord Monson, on the very moderate way in which he moved the amendment. I am sure that we understand why he has done so. I endorse what the noble Lord, Lord Renton, said about provisions beginning with the words,
"For the avoidance of doubt".
The amendment might almost be said to be "for the introduction of confusion" for the reasons which the noble Lord, Lord Renton, has already adduced about Clauses 6 and 7. To those reasons I should add subsection (2) of Clause 1 on interpretation, which states:
"A person discriminates against another person on the ground of disability in any circumstances relevant for the purposes of any provision of this Act".
The subsection to be inserted by the noble Lord, Lord Monson, which states in so many words that it is only for the purpose of Clause 6 goes against the implicit meaning of Clause 1(2). It would certainly make for difficulties of interpretation if both the amendment tabled by the noble Lord, Lord Monson, and Clause 1(2) were to rest in the Bill. Therefore, I would add those reasons to those of the noble Lord, Lord Renton, for asking the House not to accept the amendment. I hope that, having made his point as an extension of his remarks on Report, the noble Lord, Lord Monson, will feel able to withdraw his amendment.
Baroness Darcy (de Knayth): My Lords, I echo what my noble friend Lord Henderson of Brompton said about the moderate way in which my noble friend Lord Monson introduced this amendment. I very much hope that my noble friend will not press the amendment and I trust he will be persuaded that it is unnecessary. The noble Lord, Lord Renton, has given such a clear and learned response that my noble friend Lord Monson may already be persuaded, but since I was involved in the discussion of my noble friend's amendment at Report stage perhaps I may also say a word or two to try to reassure him further.
Yesterday I talked to a lawyer who is one of those who drafted the Bill. This was after he had looked at my noble friend's amendment. Yet another reassur-ance lies in the part of Clause 1(1) which is the first whole paragraph on page 2 of the Bill. It refers to the "qualified person with a disability" and the "essential eligibility requirements". The lawyer said that the structure of the legislation and the definition of those entitled to the new rights are designed to restrict the reasons that can be used to exclude or segregate people with disabilities only to those occasions where without such restrictions the service or facility would be totally undermined, which is very much what my noble friend was asking for. Thus what are or are not regarded as the essential eligibility requirements for participation will determine in each case how far a service provider must go to accommodate the needs of persons with disabilities and the consequences which their participation may have for the users of the facilities or programme.
The question of what are the essential eligibility requirements is highly relative and they will be different for different activities. For example, for a concert—my noble friend mentioned a piano recital—an essential eligibility requirement may very well be an ability to keep quiet, whereas as for a football match it would not. These are the kind of points which could very well be addressed in a code of practice because, as I think my noble friend will appreciate, they will perhaps run to several pages and are not appropriate for primary legislation. I very much hope that my noble friend will feel further reassured and will be able to withdraw the amendment.
Lord Ashley of Stoke: My Lords, I have not spoken on this Bill before simply because I was not a Member of this House. However, I should like to make a brief intervention.
I have a special interest in the Bill because I introduced the first anti-discrimination Bill in another place some 10 years ago following the report of the committee on restriction against access for disabled people which was set up by Alfred Morris, the first Minister for Disabled People. I am very keen on this Bill because I know there is widespread discrimination against many disabled people. Every severely disabled person knows that from his daily experience. That statement cannot be challenged. Those who say that they cannot find evidence of discrimination simply do not understand disability. Discrimination is wide-spread. I am keen on the Bill because persuasion and education have failed just as they failed with seat belts. Legislation was required on seat belts just as it is

1521
required on discrimination against disabled people. I am keen on the Bill because disabled people need rights. They should not need to rely on exhortation. For those three reasons I am anxious that the Bill should pass through both this House and another place.
I hope that the House will not be persuaded that it is legitimate to discriminate against someone if his behaviour causes distress. The noble Lord, Lord Monson, put his case with moderation, but as was said by the noble Lord, Lord Renton, that phrase is used by publicans to exclude disabled people from their pubs. It is used by people in seaside resorts to exclude people from those resorts. They say that their customers will be offended by disabled people being in their pub or being in their seaside resort. I hope that that argument will not be accepted. I hope that this evening we shall not hear the phrase "benevolent neutrality". There is no such thing. If one is neutral, one is not benevolent. One is not supporting the Bill. One is therefore hostile to the Bill. I hope that this evening we shall hear only from those who are for or against the Bill.
I wish to conclude by saying that tonight we should speak very clearly and uncompromisingly for new rights for disabled people. That is what the Bill gives to disabled people. We do not want sympathy or exhortation; we want new rights for disabled people. The Bill deserves every support.
9.30 p.m.
Lord Carter: My Lords, when the noble Lord, Lord Monson, moved the amendment he said that he thought it might be technically imperfect. I believe that he is probably correct. I have read it carefully and the words which struck me were,
"alarm or distress to a majority".
He referred to the tricky situation at a concert. I am not sure how we find out what the majority feel. Does he mean a simple majority? Do we have an exhaustive ballot, or do we try proportional representation? Then, of course, it has to be either the customers or the employees. So, presumably, that means a majority of the customers could be happy and the majority of the employees unhappy or vice versa. That point needs to be cleared up if the subsection is to be introduced. The noble Lord then gave the very helpful explanation about "alarm" or "distress". Again, presumably the majority of the customers or the employees could be alarmed without being distressed or distressed without being alarmed. I found that extremely helpful.
When we discussed a similar amendment on Report, the noble Lord was critical about the wording of the Bill. He said:
"How on earth are any two people"
that is, just two people and not the majority
"going to be able to agree on 'undue hardship' or on what would 'unduly prejudice the operation' of a business. The lawyers would have a field day or a series of field days". [Official Report,15/7/92; col.295.]
If the amendment was introduced into the Bill, I am sure that lawyers would certainly have a field day, or a series of them, in deciding what was and what was not a majority and what was "alarm" and what was
1522
"distress". To put it at its kindest, I believe that the amendment is less than helpful. It would lead to considerable confusion. Therefore, I hope that the noble Lord will feel able to withdraw it.
Baroness Lockwood: My Lords, it has been most interesting to hear what noble Lords have said about the amendment moved by the noble Lord, Lord Monson. I agree with all the views expressed; indeed, they have been expressed so well that I do not want to dwell too long on the subject. However, I should like to make two points. First, like the noble Lord, Lord Renton, and others, I believe that the amendment is unnecessary. Following the debate on Report, I too consulted lawyers involved in the area. I am advised that Clause 1(1) would cover the very point that the noble Lord is seeking to make where people may indulge in unsocial behaviour or behaviour which would lead to the disruption of a service or proceedings.
Clause 1(1) says that a,
"'qualified person with a disability' means, in relation to the provision of goods, facilities or services covered by Part III of this Act, a person with a disability who… meets the essential eligibility requirements for the provision of goods, facilities or services".
If a person's behaviour was so disruptive, then I think it could be held that he or she does not qualify under the Bill. That would certainly cover the three points made by the noble Lord, Lord Monson. Indeed, the first point he made about indecent exposure would, I believe, be covered by criminal law as well as by this legislation. The other two points would also come into that category.
My second point is a most important one. I believe that it is very dangerous to insert the amendment in such legislation. I say that because the legislation is intended to give the same rights to disabled people as are enjoyed by other people. To include the words suggested by the noble Lord, Lord Monson, would belittle that right. It would detract from the right that we are giving to disabled people. It would suggest that the providers of goods, facilities or services were the people to determine whether a disabled person qualified, whereas whoever determines whether a disabled person has qualified must be an independent body. Under the terms of the Bill, that would be the county court. The noble Lord said that he would not press the amendment. I hope that in the light of what has been said he will not press it.
Lord Monson: My Lords, I am grateful to everyone who has taken part in this interesting debate. That was the object of the exercise, because I hope that it will be studied in another place when the Bill goes there. No one is more scrupulous about drafting than the noble Lord, Lord Renton, and few people are better qualified in the law. I do not believe that his example of Clause 6(3) is apposite because it refers solely to what is impracticable or unsafe. I do not believe that any of the examples I mentioned fall into that category, although I suppose if a person were extremely violent he might be "unsafe".
The noble Lord hits the target, however, with Clause 7(2) and the phrase "without undue hardship". That is an important point. I am considerably

1523
reassured by that. I am grateful to my noble friend Lady Darcy (de Knayth) for having taken such trouble with her researches. They have been most useful. Clause 1(2) (a) is also reassuring in that discrimination occurs only if someone treats a person with a disability less favourably than he would treat a person who does not have such a disability.
The noble Baroness, Lady Lockwood, rather contradicted herself. She said that the intention of the Bill is that people with disabilities should have the same rights as others, but she appears to be asking for extra rights. Although someone without a disability could be expelled from a concert for making a noise, she seems to be suggesting that someone with a disability should have the additional right of not being expelled from the concert.
Baroness Lockwood: My Lords, perhaps the noble Lord will give way. I am sorry if I did not express myself clearly. I say that in those circumstances a disabled person would be treated in the same way as an able bodied person.
Lord Monson: My Lords, I am grateful to the noble Baroness for giving that explanation. I clearly misunderstood the import of what she was saying. I am grateful to my noble friend Lord Henderson of Brompton who is also scrupulous in the matter of drafting. I did not want to start with the phrase,
"For the avoidance of doubt",
but it seemed a good way of explaining what was intended.
The noble Lord, Lord Carter, disagreed with my use of the word "majority" and poked fun at the way the majority would be ascertained. It is purely common sense. If most people are offended, it is fairly indicative of something not being right. As I pointed out, his noble friend Lord Ennals made just such a use of the word "majority" in his intervention eight days ago. If it is not right for me to use the word, it cannot have been right for him to use it, but let us leave it at that.
What has been interesting is that the debate seems to have shown a slight division among the Bill's supporters. There are those who broadly support my objectives but believe that my method of going about it is unnecessary: I hope that they are right. Then there were one or two noble Lords who did not even support the objectives of the amendment—but there is probably no point going into that now.
I said at the outset that I would certainly beg leave to withdraw the amendment unless there was an indication of support either from the Government or from the House. As that was not forthcoming, I shall withdraw it; but it is right that what we have said tonight should go on the record and be studied in another place when the Bill goes there.
With that, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
9.40 p.m.
Baroness Lockwood: My Lords, I beg to move, That the Bill do now pass.
The Second Reading of the Bill took place on 15th June. It was subsequent to a Second Reading debate
1524
on a similar Bill which took place on 21st February but the Bill fell because of the General Election. However, that is not its whole history. It had been introduced earlier in another place by my right honourable friend Alf Morris and it fell on procedural grounds. But again that is not the whole history. According to Dr. Colin Barnes of Leeds University, one of the few academic researchers in this field, over the past 10 years there have been 10 unsuccessful attempts to introduce anti-discrimination legislation.
The noble Lord, Lord Campbell of Croy, indicated to me that he could not be in his place this evening. Noble Lords will recall that at Second Reading he spoke of the numerous attempts he had made to introduce legislation for the disabled, starting in 1968. I believe I am right in saying that since 1968 all those attempts have had all-party support. This House has followed the same tradition. I am most grateful to all noble Lords who have supported the Bill. Some have already spoken this evening, others could not be present tonight for various reasons. I know that their good wishes are with us this evening and they all regret that they cannot be here. Some, like the noble Earl, Lord Snowdon, have come to the conclusion, reluctantly, that persuasion is not enough; legislation is necessary. I think that that is the conclusion of most of your Lordships.
All the speeches, from whatever part of the House, have been supportive of the Bill, with two exceptions. Tonight for the second time we have heard the noble Lord, Lord Monson. Whatever we may have thought of them, his amendments have at least given us the opportunity to re-examine and check some of the details of the Bill. Unlike the noble Lord, I would not say that among the supporters of the Bill there is a discrepancy.
The second exception has been the Minister who put the Government's position that anti-discrimination legislation in this field is unnecessary and that persuasion is a better route. In support of that, the Government have not opposed but have been neutral in varying degrees throughout the proceedings.
Now that the Bill has reached its final stages in this House, I hope that the Government will reconsider their position before it arrives in another place. There is every reason for them to do so. While accepting that adverse discrimination against the disabled exists, the noble Lord, Lord Henley, stated on numerous occasions that nevertheless it was decreasing. I wonder on what evidence he bases that statement.
All the voluntary organisations working in the field have sent noble Lords masses of cases of discrimina-tion. Those organisations that operate an advice or counselling service are inundated with requests for help. Dr. Colin Barnes investigated the evidence and, in his report entitled Disabled People in Britain and Discrimination: A Case for Anti-Discrimination Legislation, he itemises much of the evidence. His report was published as a book in. December 1991.
Today the Law Society's employment law committee has published its report entitled Disability, Discrimination and Employment. That is an interesting

1525
report. The Law Society makes a number of points among its conclusions. I shall quote three of them. The Law Society states:
"education and voluntary approaches to improving matters are insufficient on their own".
The society further states:
"anti-discrimination legislation, similar to existing laws banning discrimination on grounds of sex and race, could be effective".
It also states:
"The Civil Rights (Disabled Persons) Bill could form the basis for the new law, but the matter is too significant for the Private Member's procedure—a Government Bill is needed".
In its press release on the report, the Law Society also states:
"The Committee believes that this is the first time a group of solicitors, experts in their field, have considered the legal feasibility of an anti-discrimination law to help people with disabilities at work".
That is a not inconsiderable conclusion, coming from the legal profession. It cannot be swept aside as unimportant. I hope the Government will take careful note of that report. I agree with the conclusion of the Law Society that the matter is too significant for the Private Member's procedure and that government support or a government Bill is needed. My right honourable friend in another place, Mr. Alf Morris, also holds that view. In a press release today my right honourable friend welcomed the Law Society's report. He said:
"If the Government is prepared to adopt the civil rights Bill … and help to facilitate its passage through the House of Commons, I shall be more than content. There will be an opportunity for the Government to do this when the Bill returns to the Commons".
I sincerely hope the Government will follow that course. If they were to do so, it would give great heart and encouragement to those people in our community who suffer from a disability of some kind or another. It would also give great heart and encouragement to the organisations which have so gallantly campaigned on behalf of those people. Of course an anti-discrimination Bill of itself would not immediately end discrimination. No one is claiming that. However, it would be the most powerful weapon against discrimination that Parliament could provide. As Dr. Martin Luther King Jnr said—this again is quoted in the Law Society's report—
"Judicial decrees may not change the heart, but they can restrain the heartless".
It is in that spirit that I move that the Bill do now pass.
Moved, That the Bill do now pass.—(Baroness Lockwood.)
Lord Renton: My Lords, I rise to support the Motion that the Bill do now pass. In doing so I think we should congratulate and thank the noble Baroness, Lady Lockwood, for having got the Bill thus far and for the way in which she has played a part in our discussions on it. This is really a Bill of very moderate purpose and of very limited aims. It deals in a practical and reasonable way with only two kinds of discrimination against disabled people: first, discrimination with regard to employment and, secondly, discrimination in the provision of goods, facilities and services.
1526
I find it strange as well as wrong that such forms of discrimination are still not unlawful. I therefore suggest that the Bill is long overdue. Indeed, as the noble Lord, Lord Ashley, said this evening, he made attempts some 10 years ago in another place to put such a Bill on the statute book. It is extraordinary and not very creditable that there has been such opposition, or nonfeasance, ever since then when other attempts have been made. I hope that at last when the Bill reaches another place the Government will at least provide time for its discussion. The Government have power to do so in another place.
Better still, as the noble Baroness suggested, the Government could take on the Bill themselves and make it a Government Bill. After all the thought given to the matter in your Lordships' House I do not believe that many hours of discussion would be necessary in another place. There is plenty of time in this Session for the Bill to receive Royal Assent. I certainly hope that it will do so.
Lord Rochester: My Lords, I am delighted to support the Motion of the noble Baroness, Lady Lockwood, that this Bill should now pass. I join with the noble Lord, Lord Renton, in congratulating her on the admirable way in which she has piloted the Bill through its various stages in this House.
In Committee I welcomed two amendments in particular. One had the effect of bringing the Bill into line with those on race and sex discrimination in obliging an alleged discriminator to show that the failure of a disabled person to comply with a requirement was unjustifiable rather than merely unreasonable. The other amendment made an industrial tribunal rather than a court the forum in which allegedly unjustifiable discrimination in employment matters would be judged. In the light of that amendment the Bill now accords with what is normal practice in the employment field.
I am glad that we have had this further opportunity to demonstrate that the Bill has the support of noble Lords in all parts of the House. I am particularly glad that the noble Lord, Lord Ashley, has been able to contribute to the debate from the wealth of his experience.
Finally, I join with the noble Lord, Lord Renton, in expressing the hope that the Bill will now be given time, preferably by the Government themselves, and will find the support it deserves in another place.
Lord Monson: My Lords, all of us applaud the general objectives of the Bill. Where we differ is on the means to those ends. On the one hand there is the libertarian point of view which prefers education and persuasion, using coercion only rarely, if ever. On the other hand there is the liberal as opposed to the libertarian point of view or, more accurately, the American liberal point of view which has crept across the Atlantic over the past three decades. That has little patience with education and persuasion and leaps swiftly to coercion, in the use of the civil and criminal law. Both points of view are equally respectable and sincerely held. I shall not pursue that point further this evening.

1527
However, there is one aspect of the Bill which makes it quite different from all previous legislation dealing with discrimination, whether it be race, sex or religion in Northern Ireland: namely cost. By abolishing ladies only compartments on trains and ladies only waiting rooms—a silly thing to do, in my opinion, but then I am a libertarian—British Rail actually gained financially from equal opportunities legislation. Race relations and religious discrimination legislation in Northern Ireland was largely neutral in its financial effect upon industry and commerce.
In contrast, apart from encouraging a few minor improvements such as those my noble friend Lady Masham quite rightly pressed for—adjusting the height of telephones, and of knobs and buttons in garages, which is very much needed but does not require a lengthy piece of legislation because any self-respecting owner of a business will happily do it voluntarily if only the problem is pointed out to him—very large financial burdens will be imposed upon industry and commerce by legislation like this. For example, I know of one Labour-controlled council that is insisting that all of a large fleet of fairly newly acquired taxis should be scrapped and replaced by ones capable of carrying wheelchairs, even though perhaps only 1 per cent. of customers may wish to avail themselves of that facility. There is no point in labouring it but I think that is something the other place will want to look at. It probably explains why the Government are taking the libertarian rather than the liberal line on the Bill.
My final point is that titles, words and descriptions should be used with great care. The concept of rights should not be trivialised. Rights are basic and fundamental. Freedom of religion and speech, freedom from arbitrary arrest and freedom to vote in national and local elections is universally acknow-ledged and there is no dispute about it. Admirable though the objectives of this Bill are, they are not rights in the universally-accepted sense, but desirable objectives.
I give an example. Some homosexuals maintain not only that they should be allowed to lead their private lives in dignity and immune from the attentions of the law—a proposition with which I am sure all of us would agree—but that employers should be forced to employ them whether or not they wish to do so and that that is a basic right which should be extended to them. Similarly, are old people who are not physically disabled in the conventional sense but may have great difficulty in getting upstairs going to ask that rights be granted to them so that every public building in the country more than one storey high should be adapted so that a lift is installed and they do not have to walk up one, two or three storeys? If one begins to extend the concept of basic rights to all those things the list is endless.
I do not object to any of the contents of the Bill at this moment but to the Title. I hope that the sponsors will consider altering the Short Title in the other place, which I believe is technically possible, to something like the Disabled Persons (Improved Amenities) Bill for two reasons. First, it would be more accurate, and
1528
secondly, it would help to dampen down any urgent demands to spread legislation of this kind across all sorts of other fields.
10 p.m.
Lord Henderson of Brompton: My Lords, I should also like to congratulate the noble Baroness on bringing the Bill to a successful conclusion in this House. I think she has been the ideal Member of the House to be in charge of the Bill. It goes to another place in good form.
I should explain why I am speaking at Third Reading not previously having taken part in the Bill except for a word on the amendment of the noble Lord, Lord Monson. My inertia was due to the fact that, although I am as keen as anyone that there should be legislation on the statute book against discrimination, I had an idea that it would be profitable to refer the whole subject to a Select Committee of this House or possibly both Houses of Parliament.
At the request of an organisation which is dedicated to the purposes of the Bill—the VOADL, Voluntary Organisations for Anti-Discrimination Legislation—I made an attempt to have the subject referred to a Select Committee in this House. I said to the noble Viscount, Lord Whitelaw, who was then the Leader of the House, that the issue was one which would not go away and that this was perhaps one of the best ways of taking it forward and obtaining some kind of uniformity of view as to the best way of proceeding. For all I know, we might have accommodated the views of the noble Lord, Lord Monson, to his satisfaction if we had proceeded in that way.
Unfortunately, as so often happens in these matters, a much more glamorous proposal was introduced by much more powerful people than myself; namely, the Select Committee on Murder and Life Imprisonment, which took its place. So that event never happened. But it is at the back of my mind. I should like to say that if no time is found for this Bill in another place, either the Bill will be introduced again and again or it might prove a suitable subject for a Select Committee. Then we might even be able to convert the Government to the necessity for a Bill and it could perhaps go through under their aegis.
I have been proved wrong in my view that it was necessary for the Bill to go to a Select Committee because what we have here—the Alf Morris Bill as improved in this House under the noble Baroness, Lady Lockwood—seems to be a viable Bill, which could reasonably be converted into an Act with minimal attention from another place, as the noble Lord, Lord Renton, said. I very much hope that that will be the case and that eventually some measure to implement the ideas of Mr. Jack Ashley (as he then was) over 10 years ago will reach the statute book.
Therefore I am happy to endorse the Bill. As I said, I hope that time will be found in another place. As one looks at the debates on Second Reading, as I recently have, one does not get much hope from the utterance of the Minister. He was so far from being benevolently neutral as the noble Lord, Lord Ashley, said, that he was not even neutral. Indeed, I would say—I do not

1529
think he would contradict it—that he was hostile or almost hostile and gave no hope of any kind of life after the Bill leaves this House.
I always entertain hope. I hope that the Minister may have changed his mind since the Second Reading and will be able to tell the House so. In any case, perhaps he will be so kind as to remind the Prime Minister that he was once the minister for disabled people, at which time he was—as I am sure he still is—very well disposed and sympathetic towards disabled people. I ask him to use his influence to find time for the Bill in another place. Perhaps he will reminisce and be mindful of his role when he was in that junior capacity in an earlier government. I ask him to remember that a Private Member's Bill of this kind which has support from all sides of both Houses should be given time in the other place and not either be talked out or have its neck wrung in one of the many ways which Whips can use to exert their dark arts. With that in mind, and with the absolute assurance that I can give noble Lords that the Bill is not the last that the Government will hear of this subject, which will reappear in future sessions of Parliament, I hope that he will avoid any prolonged agony and will impress on his friends in another place that the Bill should be given a fair hearing there.
Lord Ashley of Stoke: My Lords, I wish to make this brief point. If opponents of the Bill want to place objections against it, they can find a thousand excuses to oppose it. The Bill is only against unjustifiable discrimination. When the committee on restrictions against disabled people met, it used the classical phrase,"We are not advocating blind bus drivers or deaf piano tuners; we are only against unjustifiable discrimination".
When I put forward my Bill in another place, I proposed that "unjustifiable discrimination" should be outlawed. The opponents of the Bill asked how one would define "unjustifiable". That was used as the reason to vote against the Bill. The same thing has occurred in this place. People have asked,"How do you define unjustifiable?". Therefore if one wishes to oppose the Bill one can do so quite easily. It is a matter of will and attitude.
The same arguments against a Bill were put forward in the United States. Year after year they were overcome. The United States Government have accepted a Bill. It is now an Act on the statute book. Such legislation should be an Act on our statute book. I know that the Minister sympathises with the Bill but he has a brief which he has to keep to. However, I hope that he will use his influence to assist with the Bill at the proper time, if not today. I hope that the Bill will be supported.
Baroness Darcy (de Knayth): My Lords, perhaps I may join in congratulating the noble Baroness, Lady Lockwood, on her calm, competent and good-humoured handling of the Bill. As the noble Lord, Lord Henley, said in June, none of us disagrees with the much quoted words of the Minister for Social Security and Disabled People on 31st January, which I shall pré cis vigorously. He stated that there is still
1530
too much unjustified discrimination, which is wrong, stupid and a waste of talent. As the Minister said on 15th June at col.102 of the Official Report:
"We are … sympathetic to the aims of the Bill and the ideas underlying it. Where we differ is on the means by which to achieve some very desirable ends".
The Government favour education and persuasion, as has already been said. They also are now in favour of selective legislation carefully targeted. However, it is well nigh impossible to foresee all the ways in which people may discriminate, be it wilfully or inadvertently. Targeted legislation tends to be a response to a problem or situation which has already arisen. If one has a backdrop of general anti-discrimination legislation, behaviour is guided by the existing law and action can be taken to avoid a situation or to sort out a problem.
I have become increasingly convinced, as have many others, since CORAD reported in 1982, that anti-discrimination law is necessary. As the noble Baroness, Lady Lockwood, said, my noble friend Lord Snowdon now reluctantly believes that legislation is the only answer. The noble Baroness also referred to the report by the Law Society's employment committee which has come out in favour of anti-discrimination legislation.
Many noble Lords have spoken during the passage of the Bill about the strong feelings among organisations and individual people with disabilities that the time has come for positive action. Once again the person who put it best was the Minister for Social Security and Disabled People. We now have a new quotation. On 31st January at cols.1251 to 1252 of the Official Report, Commons, Mr. Nicholas Scott said:
"I have been particularly impressed by the gathering pace during the time I have had my present responsibilities and the determination of disabled people to control their own lives and no longer just quietly to accept what they are told is good for them. They are anxious to say, 'This is what we want. It is your duty to give it to us'."
I urge the Government to listen. The noble Lord, Lord Henley, has on many occasions listened and come back with many positive solutions. I urge the Government to listen to the voice of disabled people to ensure that the Bill is given time and consideration in another place or, as other noble Lords have already suggested, to make it a government Bill.
Lord Carter: My Lords, I too thank my noble friend Lady Lockwood for the way in which she introduced the Bill and for steering it so ably through the House. There is always a temptation at this stage to repeat one's Second Reading speech. I do not propose to do that; I shall be brief.
This is a good Bill which has received substantial support from both inside and outside the House. We improved it in Committee and on Report and we can all agree that the issues have been thoroughly explored. I do not apologise for repeating that since 1982 when my noble friend Lord Ashley first introduced legislation, this is the eleventh attempt to put legislation on the statute book. However, the Government still refuse to accept the need for legislation. The trouble is that the Government will never tell us what they will accept. We believe that the argument for legislation is strong. The noble

1531
Baroness, Lady Darcy (de Knayth), quoted what was said on 15th June by the noble Lord, Lord Henley, at col.102 of Hansard.I too shall quote from that same column. The Minister said:
"At that time I argued that that Bill was not necessary and was not necessarily the right way forward at that time. That is still our view".—(Official Report,15/6/92; col.102.)
The trouble is that Ministers repeat that a Bill is not necessary but they will not tell us what is necessary. The phrase "benevolent neutrality"—whatever that means—has been repeated many times. In fact, we know that the Government are opposed to the Bill and have made it clear that they will not find time for it in another place. We must hope that sufficient Members in another place can change the Government's mind. I forecast that the campaign will not stop. As was said by the noble Lord, Lord Henderson, we will not go away. I am confident that eventually there will be an Act on the statute book.
Perhaps I may repeat only a few words that I used at the end of my Second Reading speech. The first Motion that I moved in your Lordships' House drew attention to the needs and problems of people with disabilities. In the debate I coined the phrase "the disabled divide" to describe the great gulf which exists in expectation and achievement between people with disabilities and those who are able-bodied. If enacted the Bill will go a long way towards bridging that divide.
This is a good Bill. I shall not repeat the arguments, which are unanswerable. Good arguments always win through in the end.
10.15 p.m.
Lord Henley: My Lords, perhaps I may echo the words of the noble Baroness, Lady Darcy (de Knayth), and congratulate the noble Baroness, Lady Lockwood, on her calm, competent and good humoured handling of the Bill through its various stages in this House. Perhaps I may also welcome personally the noble Lord, Lord Ashley, to these debates. I made no apology—nor did my right honourable friend the Minister of State for Social Security and Disabled People—for using the expression "benevolent neutrality". However, I assure the noble Lord that I shall not use it this evening. I also assure the noble Lord, Lord Henderson, that I shall ensure that the matter is brought to the attention of my right honourable friend the Prime Minister, a former distinguished Minister of State for Social Security. I am sure that he will be well aware of his former responsibilities and of the feelings of Members of this House.
It is four months since we last considered the Bill on Report. On that occasion, as on previous occasions, we in the Government said that we shared the aims of the Bill but we did not believe that it represented the right way forward at that time. That view has not changed, nor has the Government's resolve to continue to take appropriate action to reduce and to remove such discrimination. We believe, as do all noble Lords, that prejudice is nearly always caused by ignorance and that that can be fully overcome only by education, information and experience. But we also believe in combating discrimination in particular areas
1532
by introducing practical measures where it is clear that encouragement and persuasion are not working or are working too slowly.
We achieved that with targeted legislation aimed at freeing disabled people from particular restrictions which prevent them leading the life that they would choose. Perhaps I may give one or two examples. We have expanded the requirements to make accessible public buildings which most of us take for granted but which confront wheelchair users with insuperable obstacles. We have introduced a new benefit—the disabled working allowance—to remove the previous rigid distinction in the benefit system between ability and inability to work.
We brought in new regulations designed to improve the working of the orange badge scheme. We required all newly licensed taxis in London to be wheelchair accessible from 1989, and all taxis in the capital by January 2000. Local authorities in 60 or more other areas of the country have followed suit.
Only last Friday,30th October, the Education Bill was introduced in another place. My right honourable friends the Secretaries of State for Education and for the Welsh Office announced, among other proposals, a package designed to improve the education and integration of pupils with special educational needs. The proposals include important new resources for those pupils with new parental rights and appeal procedures, and new requirements for schools. The proposals contained in the Education Bill are examples of good, practical measures we are taking to tackle discrimination—getting to the root of the problem of inequity of treatment.
Lord Renton: My Lords, perhaps my noble friend will allow me to intervene. Of course we rejoice in the examples he is giving, but none of them deals with discrimination in employment or with the provision of goods, facilities and services, as mentioned in the Bill.
Lord Henley: My Lords, this is a debate on Bill do now pass. I was trying to explain that we do not consider that the Bill is the right way forward at this time. However, as in the examples I have just given, certain pieces of targeted legislation can have effects in certain areas. I accept that it may not go as far as my noble friend wishes. However, we do not feel that it is the right time or place for the Bill.
Perhaps I may continue by saying that I am pleased to announce to the House that the Disability Unit, which supports my right honourable friend the Minister of State for Disabled People, is being transferred from the Department of Health to the Department of Social Security and expanded. The unit's new structure and additional personnel will enable it to strengthen its contacts with other departments and other disability organisations and collect more information. The move is a reflection of the importance we attach to the interests of people with disabilities, and we are committed to keeping them high on the agenda.
I conclude by saying that we will continue to build on those achievements; we will take legislative action as and where appropriate and continue to work to improve the awareness and appreciation of the needs

1533
and abilities of people with disabilities. We do not believe that the Bill before us today is the best way to achieve our aims, and with considerable regret we cannot therefore support it. However, I do not seek to oppose the Third Reading of the Bill.
Baroness Lockwood: My Lords, I thank noble Lords for taking part in the debate. I welcome the noble Lord, Lord Monson, at least in so far as he supports the general objectives of the Bill. The hour is late, otherwise I might be tempted even at this stage to take him up on one or two of the points he raised. However, I believe that I have said enough this evening.
I welcome the comments of the Minister regarding the targeted legislation. Of course that is helpful. But, as the noble Lord, Lord Renton, said, that does not cover the same areas as the Bill attempts to cover. It does not extend to disabled people the general rights that are available to the rest of us. However, I welcome the fact that the Minister will bring the Bill to the attention of his right honourable friend in another place and, I hope, of the Prime Minister himself.
1534
Should the Government not take up the Bill as their own or provide time for it, then the noble Lord, Lord Henderson, and my noble friend Lord Carter are absolutely right in saying that the subject will not go away. We shall be back time and again until it becomes an Act of Parliament. But I hope that it will not be necessary for us to come back to it again in this House except in the sense of dealing with a Bill which has come from the other place with the full support of the Government. I hope that your Lordships will accept the Motion that the Bill do now pass.
On Question, Bill passed, and sent to the Commons.

Midland Metro Bill [H.L.]
Reported from the Unopposed Bill Committee, with amendments.

Midland Metro (No.3) Bill
Brought from the Commons; read a first time, and referred to the Examiners.
House adjourned at twenty-one minutes past ten o'clock.