Government Policy: Economic and Social Consequences

HL Deb 24 February 1993 vol 543 cc231-320

3.36 p.m.

Lord Jenkins of Hillhead rose to call attention to the economic and social consequences of the policies of Her Majesty's Government; and to move for Papers.

The noble Lord said: My Lords, we live in rather extraordinary times. Hitherto, since governments became the creations of Parliament rather than the nominees of the Crown, if administrations reached a certain level of incompetence, or even of ill luck, they fell. Now, having achieved a unique series of policy disasters, the one principle which appears to unite those who preside over a demoralised nation is a determination to cling to office at all costs, both collectively and individually.

In our brave new Britain the honourable resignation has become as out of date as a balance of payments surplus or the elevation of service to the community over profit for the individual. Yet the Government are stuffed with Ministers who by the standards of more reputable periods would have felt that their usefulness was exhausted.

Of the Chancellor we need perhaps say nothing. Meanwhile even so proud a Minister as Mr. Heseltine, having completely misjudged his policies on pit closures, is now immobilised by a loss of nerve and merely waits for the Select Committee to tell him what to do. Even so pious a Minister as Mr. Gummer has been rebuked in a way that is crushing of dignity. Shame has been abolished as a political emotion and the result is an appalling decline of political standards and of the respect in which our political institutions and individuals are held. Presiding over this degenerating scene is the Prime Minister who is now entering his 28th month of office. That is already longer than four Prime Ministers this century. Recently I came across a comment made about Goderich by the Duke of Bedford of the day, Lord John Russell's father and the great great grandfather of my noble friend Lord Russell. Gladstone had described Goderich as the man who knew least about finance who was ever head of the Treasury. Bedford's comment was more quietly damning. He simply said that Goderich was a good-natured and good-humoured man but totally unfit to be Prime Minister. At least Goderich lasted only for five months whereas we have the unique combination of a despairing population and an enduring government.

I cannot but feel that it is a considerable criticism of the Official Opposition that a government of such manifest incompetence should be able to get away with no resignations and no great threat of replacement. At last a by-election is pending, the reason for which we all greatly regret. It is in a constituency which is a good mixed cross-section of southern England. It includes some agriculture, with some modern hi-tech industry and a commuter belt, all centred around an expanding town which has absorbed a certain amount of London overspill, the whole suffering heavily from the recession. Yet who would deny that a likely outcome is that the Government will lose their seat and the Official Opposition will lose their deposit? If that were to happen it would be a classic illustration of how ill our present political rigidity fits the needs of the country today.

That is one of the reasons for the appalling Gallup poll published in Monday's Daily Telegraph, which indicated that respect for Parliament has fallen from 54 per cent. to 30 per cent. over the past 10 years. Even respect for the Civil Service, after 14 years of one-party government and perhaps a little too much easy acquiescence in the prevailing ethos, has gone down by 10 points. The final irony is that the only institution for which respect has marginally increased, admittedly from a very low level, has been the trade unions. The Cinderella of the years of the noble Baroness, Lady Thatcher, has not exactly gone to the ball but it has in public esteem dusted a few ashes off its skirt. The final devastating answers to the poll show that only one in five see any hope of the situation improving and 70 per cent. of respondents see Britain's role as either a minor power in Europe or of very little influence outside. Forty-nine per cent. say that they would emigrate if they could.

Therefore, there is no doubt that the public perception of the objective circumstances which have followed from the policies are dismal in the extreme. How far are the Government responsible for the consequences? They are not entirely so, obviously. There are some underlying trends at work which have defeated not only the post-1979 Conservative hegemony but many other governments for a long time past. Yet there are some heavy indictments to be made.

The first is the sedulous peddling of the economic miracle of the 1980s. That was one of the more tawdry and dangerous confidence tricks ever inflicted upon a nation. The noble Lord, Lord Gilmour, is about to deliver a maiden speech, to which we all greatly look forward. This afternoon he may feel a little inhibited by the conventions of your Lordships' House of non-controversiality, even if those are not always observed. I hope that the noble Lord will not be too inhibited. However, if at the end of his speech anyone feels deprived of the full rigour of his analysis I recommend that they read the early chapters of his book Dancing with Dogma in which they will find the most brilliant and devastating analysis of the miracle claimed.

The fact is that there was no miracle. Our underlying competitive position did not improve and many of the seeds of our present misfortunes were then sown. If that were not so our present almost all-pervading troubles would be inexplicable. It is important to strip away the remains of the myth, not for reasons of political polemics, though that would be perfectly justifiable, but because until that hubris—which used to be so perfectly expressed in your Lordships' House by the voice of the noble Lord, Lord Young of Graffham, which like the voice of the turtle, is no longer heard in the land—is buried we shall not face the realities of the situation.

The second count of the indictment is the grave damage which was inflicted upon our manufacturing base in the recession of the early 1980s and which has since been exacerbated and not repaired. As a result we lack the industrial resources to benefit from the forced devaluation of last September. We lack the manufacturing strength to climb round a J-curve. The salient economic features of the past decade have been: first, the frittering away of the oil gush; secondly, the decline of manufacturing; thirdly, a run-down of our public infrastructure; fourthly, a massive shift in relative resources from poor to rich; and fifthly, a vast increase in private indebtedness with everybody up to their ears in debt. That has not been a recipe either for economic success or for social contentment.

The third count of the indictment is that just as the Government and their big sister predecessor propagated the myth that one did not need a manufacturing base provided one had enough oil and financial services, so they have propagated the equally false and still more dangerous doctrine that nobility —or at any rate virility—lies in the search for profit and private wealth while the public service occupations, from teaching and television to the Foreign Office, can be left to the wimps and the wets. The enterprise culture was first beatified and then undermined by a recession which destroyed its weaker votaries.

In my view that was a foolish philosophy for Britain even had the slump not made a mockery of it. It was foolish because everything at which as a nation we have been peculiarly good has been in the public sector: the Civil Service, the BBC, our universities, the Armed Forces, and our great tradition of voluntary public service extending from the magistrates' courts through Royal Commissions to local government when local government still had some real power. Except perhaps for retailing, property development and banking, for a hundred years we have not been particularly good at business. Even in those three sectors there has been a heavy reliance on immigrants and the descendants of immigrants. I therefore believe that a significant part of the collapse of our national self-esteem can be attributed to a misguided attempt to elevate the things at which we are not very good and to decry those in which not all that long ago we were the envy of the world.

The fourth count is the Government's relentless pursuit of dogma even in their otherwise rudderless condition. One of the factors which most disillusioned me with the Government of 1974–79 and which made me relieved to leave them in September 1976, was their pushing through Parliament in that year—a year of a reeling pound, although not reeling so much as it does today—the irrelevancy of ports nationalisation. That now strikes me as a peccadillo compared with inflicting railway and Post Office privatisation upon us. It is a mirror image of the disease which beset the Labour Party at the end of its 50 years as a party of government. Most did not believe in the doctrinaire nonsense but lacked the courage to say no to the few who did.

The fifth and perhaps the worst count on the indictment is the Government's relative indifference to unemployment and to the existence of a large and alienated underclass for which persistent unemployment is a big contributory cause. With only a brief intermission between 1987 and 1990 we have now had very heavy unemployment for 12 years—for much longer than in the 1930s—and even in the intermission unemployment was still substantial. The fact that both the 1983 and the 1992 elections could be won by a government with massive and rising unemployment was bad news for national cohesion when unemployment ceased to be the death knell for governments and became a death knell of opportunity for the most deprived areas of our cities.

I was brought up in one of the most depressed areas of the country in the 1920s and 1930s. The absolute poverty was greater, but in South Wales in those days there was not the deadening hopelessness such as is the lot of many in the inner cities today. There was educational striving. There was local prestige and esteem. There was hope. Those are all qualities which a combination of the Government's educational, social and economic policies have destroyed for a sizeable proportion of our population.

Now, as a culmination of those trends of a decade and more, we have the deadly knot of a recession which will not end, a balance of payments that will not balance, and a public finance deficit which is in the course of spiralling out of control. Even making the fullest possible allowance for changes in the value of money, no previous Government have ever produced anything approaching the lethal combination of 3 million unemployed, a £15 billion balance of payments deficit, and a £45 billion public sector deficit. It would be a unique achievement without the flow of North Sea oil. With it, it is a near miracle—but not the kind about which the noble Baroness, Lady Thatcher, and the noble Lord, Lord Young, used to proclaim.

How can we begin to escape from the vice which we have created for ourselves? There are some vital and difficult, but not impossible, economic feats of statesmanship which need to be performed. First, we need to give confidence that the public sector deficit will be brought under early medium-term control while not hitting on the head any long-delayed green shoots of recovery. The proof of President Clinton's pudding will no doubt be in the eating, but he has at least started baking it. That is better than veering without the slightest strategic vision from one lurch to another. We should not be ashamed to learn a little from across the Atlantic.

Secondly, we must get up investment and, above all, infrastructure investment which is the part over which Government have most control. Even after a massive devaluation, a consumption-led boom will go straight into a further collapse of the balance of payments, and such investment is desperately needed for its own sake.

Thirdly, we must get rid of the anti-tax and, above all, the anti-direct tax dogma. That has done a great deal of harm in the past five years in Germany, in the United States and in Britain. We should certainly be against taxation for its own sake, against vindictive taxation, and against excessive marginal rates. But we should not be against taxation when it can be shown to meet a clear national need. The time for that may not be in this Budget. However, the time will assuredly come if we are to get that public sector deficit under control and to bury the profligacy which has become such a characteristic of Conservative Chancellors.

Fourthly, we should throw what small influence we have left in Europe, as in the wider world, on the side of an international framework for recovery. It is much safer if we can do it together. It will not be easy to achieve but it is well worth trying. Nothing is easy when one has got into the mess which confronts us today. Almost anything would be better than the present weak and whining jumping from improvisation to improvisation which passes for the policy of Her Majesty's Government. I beg to move for Papers.

3.56 p.m.

The Earl of Caithness

My Lords, the Motion before us today promises a debate that will be both interesting and wide ranging, and the opening contribution from the noble Lord, Lord Jenkins of Hillhead, was, as always, interesting. The link between the social and economic effects of policy is clearly a strong one. A sound economy is the only basis on which to build affordable and effective expenditure on social programmes. It is clearly important that such expenditure is well targeted and efficiently managed. But the underlying fact remains that the nation cannot spend money it does not earn, and our economic performance is therefore the vital driving force underpinning all our efforts in the social arena.

Clearly, we have suffered a prolonged recession, and we fully recognise the very real social problems it has caused. But there is an important distinction between discussing the current state of the economy and discussing its underlying health. I do not propose today to discuss in great detail the Government's latest view on immediate economic prospects. The reason is already well known to your Lordships. A new report on the outlook for the economy will be revealed shortly by my right honourable friend the Chancellor of the Exchequer at the time of the Budget. I wish to say a few words on the Budget. It will be on 16th March. Having dwelt on that subject, let me return to the theme of my speech.

We believe that the essential elements for a sustainable recovery are now in place. We have low and falling inflation; the annual change in the retail prices index in the year to January was just 1.7 per cent. That is the lowest rate for 25 years. Retail price inflation has been below the EC average since August 1991 and is now below the average of the G7 countries too. Interest rates have been reduced by 9 percentage points since October 1990 to the lowest level in the EC and their lowest level for 15 years. That will have cut over £1 billion off industry's interest bill. Productivity is at record levels and towards the end of last year was rising at the fastest rate for over five years. Industry's unit labour costs are now rising more slowly than those of Germany and Japan. With the competitive edge of a lower pound, and with costs under control, industry is now well placed to expand.

My right honourable friend the Chancellor of the Exchequer announced in his Autumn Statement a number of measures designed to boost confidence. Those measures have recently been reinforced by a further cut in interest rates and recent indicators suggest that those measures have had some effect. In particular, there has been a marked recovery in business confidence which has been reflected in a number of opinion surveys over recent weeks. We are confident that, taken together, those factors carry the promise of the early resumption of growth we all wish to see.

I should like to concentrate today, however, on the underlying state of our economy and on its prospects over the longer term. I am sure that we can look forward to a lively debate about the implications of the changes that have occurred in our economy since 1979, but most noble Lords will agree that those changes have been fundamental and far reaching.

When we came to power in 1979 our economy was highly regulated, had high levels of public ownership and was afflicted by poor industrial relations and persistently high inflation. In all those areas we have seen fundamental change resulting from government policies that I believe have greatly enhanced the underlying strength of our economy.

We have seen the abolition of exchange controls and extensive financial deregulation that has given people far greater flexibility to order their financial affairs in the way best suited to their circumstances. I would not deny that both borrowers and lenders have faced some difficulties adapting to free capital markets. But I am convinced that that transitional period is now behind us and the long term benefits of greater freedom will become increasingly clear. Financial deregulation has ensured that the City of London has remained the predominant financial centre in Europe. The value of the City to this country is sometimes questioned, but it provides many jobs and makes a great contribution to our balance of payments, a net £4.5 billion in 1991. That Britain has led rather than followed in the move towards deregulation has done much to ensure its future.

We have also moved large sections of the economy from public to private ownership. That has involved some of our leading industrial companies such as British Steel, British Aerospace and Rover. It also included companies involved in the provision of key services such as British Telecom, British Airways and British Gas. It is important to note that, even today at a time of recession, all of the companies I have mentioned are seen as among the most efficient in their respective industries in Europe. British Steel is now widely seen as Europe's most efficient steel producer; BA—whose initials were once used to describe a somewhat unparliamentary term—has been consistently profitable after years of losses in the public sector. That is at a time while European state airlines have made losses. Maybe that is what noble Lords opposite prefer. And, despite the criticism levelled at them both, British Telecom and British Gas have increased efficiency to an extent that has allowed them to make substantial profits while also freezing, and in some cases reducing, their prices to consumers. No one seriously believes that that would have happened had they stayed within the public sector.

In the areas of industrial relations, inflation and poor performance, which came to be seen as key features of the "British disease" in the 1960s and 1970s, there has also been a transformation. Changed attitudes, reinforced by government reforms of industrial relations legislation, have led to a situation in which each of the past two years has set a new record low for the numbers of days lost to strikes in a series going back more than a century. Major new employers such as the Japanese car firms setting up in this country now find that they can count on a flexible and motivated workforce and co-operative unions. That would not have been the case in 1979 and without that change those major investments might well not have been made. Considerable credit is due for the constructive approach to inward investment now taken by the leadership of major unions.

We have also made progress towards losing our long held reputation as a high inflation economy. Under the last Labour Government our inflation rate averaged over 15 per cent. and peaked at nearly 27 per cent. I realise that higher oil prices contributed to that, but the fact remains that that performance was considerably worse than those of our main competitors. In the period since 1979 inflation has averaged 7 per cent., still too high but a considerable improvement. And more recently our inflation rate has been below the EC average for 18 consecutive months and has now fallen to its lowest level for 25 years. I am well aware of concerns that it will rise once more as the economy recovers. I will address that point presently. But it would be churlish for anyone to deny that this Government have not achieved a marked improvement in our inflation performance.

It is sometimes suggested that those developments were at the expense of weakening our industrial base. It is true that manufacturing output declined sharply in the recession of the early 1980s. But I believe that despite that we have seen a real strengthening of our industrial base and that the 1980s will still, in time, be seen as marking a crucial turning point in our industrial performance.

It is widely recognised that years of poor productivity growth, low investment and appalling industrial relations weakened our industrial base enormously over the 1960s and 1970s. The noble Lord, Lord Jenkins, spoke of the situation at the beginning of the 1980s. I believe that by 1979 the very survival of key sectors of our economy such as the motor industry was greatly in doubt. I am sure your Lordships remember that. It is worth noting that between 1972 and 1979 output of cars fell by 44 per cent., and output for export fell even more sharply. And that was during a period when domestic registrations were increasing. There is no doubt that the recession of the early 1980s hurt the motor industry, but it was also a catalyst to long overdue change.

The industrial relations problems that had made our motor industry notorious were finally tackled. The result was an industry that was smaller—output fell by a further 17 per cent. between 1979 and 1982—but also substantially leaner and fitter. That process inevitably involved a substantial fall in the level of employment in the industry, as productivity began to be brought into line with that of our major competitors.

The result, however, has been a renaissance that few would have believed possible in 1979. Output of cars is likely to rise over the rest of the decade to a point where it is expected by leading industry convention such as Professor Rhys of Cardiff Business School to comfortably exceed the record levels of the early 1970s by the end of the decade. And that increase will be accompanied by a substantial increase in car exports, which will make a significant contribution to our balance of trade. If few would have believed that possible in 1979 even fewer would have believed it in the winter of 1981, and that fact has lessons for our thinking today.

The motor industry was not the only one to emerge from the dark days of 1981 with a renewed vigour. The pattern of gradual but inevitable decline that had been followed by many of our largest firms was not the pattern of the 1980s. Firms such as GEC, GKN, TI, and Smiths Industries, have all become world leaders in key manufacturing areas. Let us not forget that in a recent Financial Times survey 11 out of the largest 20 companies in Europe by market capitalisation were wholly or partly British.

I would be the first to acknowledge that there were other industries that did not emerge from the early 1980s recession in that way. For some, that recession marked the end of the line and not a new beginning. But to blame that exclusively on the policies adopted in 1979 is to ignore reality. The demise of those industries resulted largely from the many years of steady but persistent decline that had gone before. Those were the years that tore much of the heart out of our industrial base. I am convinced that we would today have a manufacturing base that would not only be weaker but also smaller if radical steps had not been taken in 1979 to change attitudes and force industry to face up to necessary change.

The refusal of the Government at that time to bail out firms that were no longer viable caused industry to face up to problems that had been left unfaced for far too long. The power of the unions to hold management to ransom was challenged. Unproductive layers of management were themselves shed, and overmanning was greatly reduced. The result, inevitably, was a sharp rise in unemployment. High levels of unemployment, resulting to a significant extent from technological advance in the manufacturing sector, are a problem throughout Europe and to some degree the whole industrialised world. That is a problem to which a solution has yet to be found. But the solution is not, and never was, inefficient working practices and low labour productivity. These may lead to higher employment in the short term, but only at the expense of lower employment later on.

The years that followed the recession of the early 1980s saw very strong employment growth based on rapidly growing output and a transformed productivity performance. Over the 1980s as a whole manufacturing productivity growth in this country was the fastest in the G7 after two decades of being the slowest. I am not sure that it is widely recognised how profound and significant a change that represented. There is every reason to believe that that improved performance can be sustained. Even in the fourth quarter of 1992 manufacturing productivity growth had recovered to almost 6 per cent. That is a far better performance than we achieved at similar points in earlier cycles and suggests that there is the prospect of good productivity growth once the recovery becomes established.

I would also accept that the view held by some people in 1986 that all our problems had been solved was perhaps exaggerated—just as fears in 1981 that recession would prove never ending were, and just as similar fears expressed today will prove so. But they reflected a sense that for the first time in many years Britain was capable of building a better future rather than simply managing decline. With the benefit of hindsight, it is clear that by the summer of 1987, despite statistics recording continued low inflation, rising asset prices, particularly in the housing market, and the effects of financial deregulation, inflationary pressure was stronger than we realised. In the autumn of that year stock markets around the world experienced their worst crash for more than 50 years. In all industrialised countries attention switched from concerns about inflation to fears that the crash heralded the onset of a world depression like that experienced in the 1930s.

Here, as elsewhere, the response was a relaxation of monetary policy—and let us not forget that even greater relaxation was recommended by the party opposite. It later transpired that the effects of the crash were more limited than people feared, and our response left monetary policy too loose. The effects were particularly great in this country where we had enjoyed several years of strong growth, leading to the latent inflationary pressures I have already mentioned. Inflation rose sharply as a result and the Government had to act firmly to bring it back under control. Bringing inflation back down to its current level has involved a contraction of activity that I acknowledge has been prolonged and painful.

But the underlying strength of our economy cannot be judged by the level of output at any single time. It depends on our longer term performance which will ultimately be determined largely by supply side considerations. I do not wish to be drawn into speculation about when exactly the recovery will begin, or what rate of growth we will enjoy this year or next year. But I will say that the supply side improvements that took place during the 1980s remain intact. They have not been destroyed by the recession, only masked by it. When the recovery gets under way they will reassert themselves. I believe that the strong economic performance that that will bring about will allow us to take further the improvement in social provision that has already occurred since 1979. That improvement had already given us a record on social spending of which I believe we can be proud.

Earlier I spoke of the strong link between the social and economic effects of policy. Our effective management of the economy has meant that not only have we been able to maintain social programmes but we are able to continue to improve provision in areas which are important to all sectors of society.

The Government will be providing more than £1 billion extra for health services in England next year. That represents a real terms increase of 3 per cent. over original plans for 1992–93. Under this Government spending on the NHS has reached record levels. Total spending on the NHS in England has risen from £6.5 billion in 1978–79 to a planned £30.5 billion in 1993–94; this represents a real terms increase of over 61 per cent.

Central government's own spending on education in 1993–94 will be £9.5 billion. This represents a 5.8 per cent. increase on the equivalent expenditure in 1992–93. The 1993–94 local authority grant settlement allows for local education authorities in England to spend about £16.9 billion on education. These plans take account of the broad range of pressures facing the education service, the scope for efficiency savings, the Government's policy on public sector pay and what the country can afford.

Expenditure on social security has increased by over 52 per cent. in real terms since 1979. It now represents over one-third of total government spending. The Government plan to spend almost £80 billion in 1993–94 which amounts to over £10 per working day per working person. Expenditure on housing support has almost doubled in real terms since 1979. That has ensured that the benefit incomes of the least well off have been fully protected. Indeed, real terms comparisons show a steady improvement in benefit income for families between 1979 and 1988–89. The Government are maintaining that support. My noble friend Lord Henley announced in this House recently that all the main benefits will be uprated fully in line with prices in April this year at a cost of £2.5 billion.

We are naturally concerned about the level of unemployment. The recent rises in the number of unemployed are disappointing. Our priority is to help unemployed people find jobs. We are determined to do all that we can to ensure all individuals receive the help they need to get back to work as quickly as possible.

The Government are already spending over £2 billion per year on measures to help the unemployed. New measures for 1993–94 will mean almost 1.5 million places will be available on employment and training programmes—an increase of nearly 500,000 on this year. All this amounts to the most comprehensive range of help and advice ever available to unemployed people.

It is worth remembering that in the middle to late 1980s we had a job creation record that the OECD described as being by far the best among the larger EC countries. The key to repeating that performance is a return to sustainable growth. Achieving that is central to the Government's strategy. With low inflation, low interest rates and a lower pound reinforced by the measures in the Autumn Statement, we can look forward to a resumption of growth and to a combination of healthy growth and low inflation in the years ahead.

4.17 p.m.

Lord Richard

My Lords, we should all be grateful to the noble Lord, Lord Jenkins, for initiating the debate today. It is timely, in the sense that it is pre-Budget. He opened the debate with his customary elegance and perception, and he made some pointed remarks about everybody, including the Opposition. I am bound to say to him that having left the Labour Party, at the time, perhaps, of the Party's greatest travail, and having devoted the last 10 years to his diary, it is a bit rich for him now to complain of the performance of the Opposition. If he and his friends had perhaps stayed in the Labour Party, he might now be a little less critical. He must have expected it; he is a highly intelligent and experienced man. He could not expect that we on this side of the House would let him get away with what he said about us without some kind of response.

We listened to the noble Earl replying on behalf of the Government. I listened to him, as I always do, with interest. He could not have seen, because his back was turned, the enthusiasm with which the Benches behind him greeted his remarks. I say only one thing to him. This came from my noble friend the Opposition Chief Whip (and I give him credit for it). As the noble Earl sat down my noble friend turned to me and said: "Tell me, if things are so good, why are they so bad?"

It is not a bad question to ask at the end of 14 years of stewardship by the party opposite. Whatever else the Government can and cannot do at the moment, the one thing that they cannot do is blame this side of the House for the current economic position in which the country now finds itself. They are on their own. They have had the power to do things. They have had the authority to do them. For 14 years they have organised the economy in the ways that they thought the economy should be organised. What is the result?

Looking at the terms of the Motion, I resist the temptation to call attention to the economic and social consequences of the policies of Her Majesty's Government and ask, "What policies?", given the way in which the Government seem only able to respond to events and not to initiate them. This is certainly a subject that could be debated at enormous length. One has only to open a newspaper to see what the Government have done and continue to do to the British economy and, devastatingly, to the people of this country.

The party opposite has laid great emphasis on the role of the Prime Minister in formulating government policy. I understand that we have a new "ism", known as "Majorism". He must be prepared to accept responsibility for the economic and social ills which have befallen this country since he became Chancellor in October 1989. I have recently been studying an interesting document; namely, the Conservative Manifesto at the last general election. The Prime Minister himself, no less, wrote: The Government's duties are clear: to look after those who cannot look after themselves; to protect law abiding people from crime and disorder; to protect the value of our currency, without which all spending pledges are worthless and all savings are at risk". Those are clear pledges, clearly expressed and specific.

What have the Government done to fulfil those pledges? One was "to protect the value of our currency". Last September saw the Government, overwhelmed by events on the foreign exchanges, introduce panic measures in an attempt to shore up sterling by huge interest rate rises. As we know, those attempts were unsuccessful, not because of the wickedness of the Government's friends in City dealing rooms but, quite simply, because no one believed that the British economy was basically a strong one. The green shoots of recovery have not exactly sprouted as we were led to believe they would do. They certainly have not sprouted following Mr. Major's return to power. The light at the end of the tunnel has flickered and been extinguished. The Government's commitment to low inflation has been achieved at the price of a weakened economy.

It is wholly misplaced for the Government now to rejoice at the recent inflation figures, given that there must be few people left to agree with the Chancellor. It is worth remembering his remark that 3 million unemployed is a price worth paying for low inflation. That has been achieved at appalling personal cost to those out of work. It is not difficult to achieve low inflation by running a country's economy into the ground; it is not too hard to get low interest rates at the price of a headlong devaluation of sterling. When he was Chancellor, Mr. Major said: If it is not hurting, it is not working. It is hurting deeply but it does not seem to be working at all. We have the hurt without the work.

Unemployment will cost the Exchequer no less than £27 billion every year so long as it remains at present levels. The Government's forecast for next year's public sector borrowing requirement is £47 billion. A major additional review of public spending is under way. Departments are being asked to cut expenditure by 5 per cent. We are told that the Chancellor may be looking at tax increases in one or both of this year's budgets to finance the government deficit.

The Conservative Government are finally being forced into the open as the party of higher taxation. Conservative governments have pushed up the tax burden, increased national insurance rates and more than doubled VAT. Why will the Chancellor probably have to raise taxes in the Budget? To bail out a failed government which spend so much and do so little that they are of very little real use to those who are worst affected. There may be further increases in VAT, and rumours that it may be put even on the price of food, fuel and other items.

The devaluation of sterling that has already taken place is expected to increase food prices and factory gate prices by significant amounts. Inflation is likely to rise as a direct consequence of the Government's failure to establish a sound economic base.

As Chancellor of the Exchequer and as Prime Minister Mr. Major had a choice. We could have entered the exchange rate mechanism at a level which the pound could have sustained and not one which it struggled for and failed to achieve. He could have increased income tax. He could have placed regulatory restraints on mortgage lending. He could have abolished the poll tax. He did none of those things. Instead he wielded the single sledgehammer—it was a sledgehammer—of high interest rates and an unsustainably high exchange rate. As The Times noted on Monday: The resulting four years of Majorism has crushed all of the jobs, many of the small businesses and most of the spirit of enterprise created during the Thatcher era". That is a fair old assumption, if one believes that such a situation was created during the Thatcher era. If it is believed, there is not much joy in viewing what the Government have done since they took over from that lady.

When their policies failed last autumn, what was used to try to fill the vacuum at the heart of government policy? It was a so-called strategy for growth which simply produced more of the same failure. It has not halted the rise of unemployment or prevented record business failures. Around 1,200 small businesses now fail each week. It has not reduced the massive trade deficit. There has been no real public investment and no attempt to seize the opportunity to make substantial changes to policy, to admit past mistakes and perhaps even try to make amends. Even in the depths of recession when consumer spending is at its lowest, Britain still imports more than it exports. The Government keep telling us that the benefits of sterling devaluation have not yet worked their way through into the figures. How long shall we have to wait? Is not the truth that after 14 years of this Government's mismanagement of the economy, British goods are simply not there to be bought because of the Government's neglect of this country's industrial base?

The problem will persist, and even worsen if there is a recovery and people are prepared to spend again, because so many British manufacturing companies have gone to the wall or drastically reduced their output. The fundamental weakness still remains. Consumer spending is much more likely to be on foreign goods and, as a result, imports will rise again.

Unemployment—the Government's figure is 3 million, but in reality it is 4 million to 4.5 million—is the biggest disaster that the country has to face. The Government managed the economy in order to produce that disaster. It did not happen as a result of some miraculous event which was totally beyond the Government's control. It happened because of the way in which the Government chose to manage the economy over a period of some 14 years. It is an economic disaster, let alone a personal one. Britain cannot afford such levels of unemployment. The Treasury cannot afford it.

Now the Financial Secretary to the Treasury has made a statement about a public spending review. British industry and commerce cannot succeed without confident consumers who will spend their money on British goods. Those who were tempted into the property market cannot now get out of it, cannot afford unemployment and are trapped in increasing debt or have their homes repossessed. Most of all, however, if it is an economic disaster for the Treasury, it is a personal disaster for 3 million or 4 million people and their families.

I despair of the Government when it comes to unemployment, not only because of their lack of any policies to deal with it but because of their lack of a basic appreciation of its effect on ordinary people. I live in the London Borough of Lambeth. It is impossible to live there and not be conscious of the deep personal effect that unemployment has upon people. The Government do not seem able to imagine what it means to exist at benefit levels. Time and again they defend those levels. This afternoon the noble Earl even gloried in them. Perhaps he can envisage cuts or other inroads into them.

A few days ago I saw what I never dreamt of seeing again in my lifetime. I saw a document issued by the Ministry of Agriculture which suggested a sensible eating plan affordable by those on benefit. It suggested that people on benefit could among other things eat five slices of dry bread a day, half a fish finger, one slice of processed cheese every four days and one egg a week. This afternoon I am half tempted to emulate Ernie Bevin's performance before the famous inquiry in the early 1920s, when he produced on a plate what eminent economists had said a docker could subsist on at the wage that he was then being paid. It is shameful. It is absolutely shameful that in this day and age we should be faced with that sort of advice being given to our people in this country, which is a rich country and not a third world country. As I say, I almost despair of the way the Government take no account of this.

Many people on benefit, as is widely agreed, are also in debt—not in debt for luxuries through fecklessness, although I am bound to say that I detect on occasions the old Conservative concept of the "undeserving poor" creeping in in some of the speeches that we listen to—but in debt for necessities: for food, clothing and heating. And still the Government make it harder for people to get back into work, and they refuse to finance debt counselling; they allow the privatised utilities to charge higher levels to poorer customers by metering. How then do this Government —I quote again— look after those who cannot look after themselves"? This terrible financial pressure on families in turn increases family breakdown and inevitably contributes to rising crime and to ill health, creating in turn greater demands on the National Health Service and on the Treasury. The huge costs to the Treasury of high unemployment prevent public spending in other areas and so local authorities have to cut social services and education budgets. Also the Lord Chancellor reduces eligibility for legal aid, and no department is safe from being asked to cut expenditure: at the moment it is all "up for grabs".

I believe deeply that so many of the social ills this country faces can be attributed to the record levels of unemployment, and I believe also that unemployment can itself be attributed to this Government's economic policies. Of course things are not as simple as that, but in essence that is the burden of the attack that we make upon this Government's stewardship of our nation's affairs over the last 14 years. Unemployment, the budget deficit and the trade deficit are the direct and inevitable consequences of the Conservative long-term failure to invest and now this Government seem to be devoid of ideas: certainly they appear not to have any idea about taking action to put people back to work. After 14 years of Conservative Government, Britain's economic problems are so deep seated that they are no longer susceptible to any quick solution.

If we are going to do anything about this matter, the country really must abandon the failed economic policies of the 1980s and the belief that the best government is that which does least, together with the misplaced trust in the market: competition without regulation or indeed the enforcement of standards. The Conservatives mistakenly believed—perhaps they still do, because it is a little unclear at the moment —that all that is necessary for the presence of individual opportunity is the absence of government. If you remove government from the market, inevitably as a result of the innate entrepreneurialism of the great British people and our manufacturing industry, we will get growth. But that did not happen. There were promises that the 1980s free market economics and monetarism would deliver zero inflation and the budget would balance. Your Lordships will no doubt remember the belief that the pound would replace the deutschmark and there would be a British economic miracle: all those objectives have failed.

Over the last 14 years industrial growth here has been slower than in most other industrialised countries. Manufacturing investment has seen little expansion and Britain's trade deficit has worsened more rapidly than that of any other European country. I know that the mess this country is now in is not going to be solved in five minutes. It needs long-term planning and investment and a long-term approach, but the first thing that it needs is a commitment from the Government to develop the full potential of everyone who wants to work. I believe that is the key to future long-term economic success. We should not be competing with the third world on wages; we should be competing with our industrial competitors on quality.

By combining skills training and employment, we could again become one of the skills capitals of the world instead of, as now, having skills 40 per cent. lower than the world's best, according to the CBI. Also we come 21st out of 22 countries in the OECD skills league, with only Greece below us. In tertiary education in Britain, a lower percentage of 16 to 21 year-olds is in college and university than in South Korea, and now even in Taiwan. Investment for each industrial worker in Britain is at half the level of the world's best. The key objective of economic policy must therefore be economic opportunity for all. Investment in the economy and the regeneration of Britain's debilitated industrial base are the essentials.

May I say this about the philosophy with which to approach this question? I think it is now time to reshape the whole terms of the argument as to what type of economy this country needs and what type of economy is right for Britain: whether it should be state led or market led. At best that is a somewhat sterile argument and at worst I think it is damaging. There clearly has to be partnership now between the public and the private sectors—not Conservative dogma of "public bad, private good"—with each sector recognising the strengths of the other and eliminating its weaknesses. Only by such a partnership will we achieve the best and not just basic public services, to transform our social economic fabric.

A strong economy needs a strong society, investment in industry and in the infrastructure, in science and technology, in the social fabric and in skills and, most of all, in individual potential. In my view, it is a government's fundamental duty to ensure that markets work in and not against the public interest. In so doing, they could break this vicious circle of unemployment, waste and decline in which the Government seem to be irretrievably enmeshed. As regards the other duties, as set out in the Conservative manifesto, to look after those who cannot look after themselves, to protect us all against crime and the consequences of poverty and to provide a sound economic base for long-term growth, I think they then will follow.

4.37 p.m.

Baroness O'Cathain

My Lords, the Motion we are debating is concerned with the economic and social consequences of the policies of Her Majesty's Government. I listened very carefully to the noble Lord, Lord Jenkins of Hillhead, whose Motion it is, but could not really ascertain what he felt the economic and social consequences of Government policies were—or is it that everything that occurs which goes wrong in this country is a result of Government policy? I am sure he does not really believe that.

Because very often things change imperceptibly it is very difficult to see consequences within a short time-frame and within the short term. Some of the economic and social deprivation that we witness now is undoubtedly the result of previous Government policies; some are undoubtedly the result of world-wide developments even going back as far as the first oil crisis nearly 20 years ago; but some are the direct result of underlying shifts in the structure of the population, changes in lifestyle, changes in technology and changes in values that are certainly not the result of Government policies, of whichever political complexion such Governments might be.

Today we are all deeply concerned about two very distressing situations: unemployment, which has already been dealt with very briefly, and the apparent breakdown of law and order. Nobody can hide their heads in the sands on these two issues, and I trust nobody would want to. Unemployment is a savage blow to one's self worth: an unemployed person is a person and not a statistic—a person who feels despair, shame and hopelessness. I know: I was once unemployed—and I pray that I never will be again.

But all unemployment is not the direct result of Government policies. Look at what has happened with the banks at the moment. There are serious job losses occurring and they are likely to continue to occur in the whole banking sector. That is certainly not the result of Government policies but is directly related to new technologies and to customer demands for a convenient service. Not everyone can get to a bank to cash a cheque during normal banking hours and so we have ATMs, holes in the wall, where we can get out our cash at any hour of the day or night. That is just one example. Still on the subject of banks, telephone banking has been introduced into this country and all one's financial transactions can be undertaken at any time. It is a 24-hour service and all one needs is a telephone.

Both these developments have led either directly or indirectly to job losses, but both are the inexorable result of the onward march of technology—not government policies. Similarly, the peace dividend has led to job losses. Maybe this is more closely linked to government policy than the banking examples, but do any of us want a return to the dangers and uncertainties of the Cold War?

A final area where job losses have been serious and concerning is British Telecom. Here again, the new technologies have resulted in greater efficiencies of processes and job losses. We should all realise that if British Telecom had not espoused the new technologies our telephone system would probably now be in the hands of overseas companies or indeed languishing from the effects of under-investment and out-of-date equipment.

The noble Lord, Lord Richard, said that one of the reasons for high unemployment is the lack of investment. All the examples I have given of unemployment have been due to investment—investment in new technology. This just underlines the ghastly difficult nature of formulating policies in this somewhat chaotic world.

I have spent a little time talking about unemployment because it is top of mind, but I hope I have made the point that the ghastly unemployment figures are certainly not necessarily all due to government policies. The formulation of policies has got to take into account many given facts that are beyond the control of government; for example, the structure of the population. We have an ageing population. Just 40 years ago some 10.9 per cent. of the population was 65 or over; the figure is now 15.7 per cent., an increase of 44 per cent. in the numbers of elderly people who need above average expenditure in terms of national resources. People are living longer but are also being given that extra lifespan by medical and social policies—the cost of which was almost certainly never anticipated when the welfare state concept was introduced.

Another example is household size. For all sorts of different reasons, among them the relative instability of marriage and the absence of social stigma towards unmarried mothers, there are more and more people either living alone or else in two-person households. Some 60 per cent. of households fall into those categories now compared with 38 per cent. 40 years ago and 46 per cent. just 20 years ago. Neither a these developments is the result of government policies but both have a very big impact on the structure of our society for which government have to formulate policies.

I make these two points in an attempt to reduce the emphasis from destructive criticism and in an attempt to put forward the suggestion that as things have changed so utterly, for whatever reason, the best brains and the most concentration should be directed towards trying to ameliorate a situation which is causing concern to so many people in this country today.

To anticipate the fundamental changes in the structure of the population and the complete reversal of what was generally accepted as the "norm" in household size—just to mention these two areas—would never have been within the competence of any government. But the consequences of such changes have to be provided for by policies by government within limited resources of capital. And, in addition, such policies have to be acceptable to an electorate which demands greater say over the way taxes are spent while at the same time demands that it pays fewer taxes. This conundrum is paralleled in the United States today. It is no easy task. In fact I would go further than that and say that it must be the most difficult task in the country to get it right.

I am aware that there will be a litany of disaster chanted in this Chamber this evening. Let me try and put forward a few good things that have occurred, and of which I have first-hand experience, along with many of your Lordships, having worked in the "real world" rather than being in the rarified atmosphere of politics, the public service or the professions. The noble Earl, Lord Caithness, has already mentioned the motor industry. All he said was so right. I was employed by British Leyland for four years some 20 years ago. The British Leyland industrial relations department issued a daily list of where there were industrial relations disputes; that is, strikes. To my certain knowledge there was only one occasion in that four-year period when the daily sheet had no location on it—that was a Christmas Eve. It was as heartbreaking a document as one could ever see in manufacturing industry, and on many occasions the list extended to two pages. Government policies have changed all that and the almost unbelievable has happened.

All those who foretold the total demise of motor manufacturing in this country have been proved wrong. Both management and unions have got their act together, allied, aided and supported by government policies. The sadness is that en route to the excellent situation we have today there were so many casualties in terms of jobs, shareholders' moneys, the component companies and our British pride. But now there is a thriving motor industry in this country and we should not ignore that fact.

My sources of information on social consequences of policies are two-fold. The first the factual—from the government publication Social Trends, which is a fascinating, utterly readable and jargon-free publication that I have no hesitation in recommending to anyone with even a passing interest in the subject. My second source of information is research conducted in the main in my areas of business interests plus anecdotal evidence which we all seem to gather by the wheelbarrow-load!

I am going to forgo the temptation to allow subjectivity to overwhelm my statements and concentrate on an analysis of the first-mentioned source; namely, Social Trends. Here are some facts that I feel ought to be recognised. Full-time students in higher education increased in the two years from 1988–89 by 16.4 per cent. to a figure of 645,400 and the increase in part-time student numbers has been just as significant. Life expectation is steadily increasing—interestingly enough, the increase is greater for males than for females. I do not know what that tells us!

A steady increase in the sales of unleaded petrol has had a dramatic effect on lead emissions—a reduction of three-quarters between 1975 and 1990. This is a direct result of government policy and has significant economic and social consequences. Increased expenditure on the arts has been little short of dramatic; an increase of some 53 per cent. between 1986–87 and 1991–92. The arts and their support are most important in both the economic and social life of this country.

Government policies concerning tax relief on charitable donations through Gift Aid and the scheme run by the Charities Aid Foundation have encouraged a large increase in our charitable giving. For example, covenants to charity increased from a figure of less than £200,000 in 1979 to nearly £900,000 in 1991. Socially, we seem to be a more caring society. I believe we are.

Sadly, in the section of Social Trends devoted to how people participate in society and the life of the community, Church membership is the most startling statistic—a decline of 16 per cent. in membership of Christian Churches in the five years to 1990. I cannot help but draw a conclusion from this point that if this decline had not happened there might be more people who, in the words of the prayer, might, honour one another and seek the common good". Who knows what effect that might have had on the serious lawlessness that is evident today?

The single most important result of government policies has been the inexorable downward trend in inflation. The evils of high inflation have had to be experienced to be believed. Many of us here in your Lordships' House have little or no experience of the sheer misery of trying to live out one's retirement, constantly worrying about whether those savings and that contributory pension for which one had planned so carefully in years past are going to be adequate to provide the basic necessities of life. Those of us fortunate enough to be in full-time paid employment during the years of rampant inflation could mitigate the effects by tightening our belts a notch or two or, as so often was the case, negotiating for a compensating increase in wages or salary. There were millions not so lucky. The single greatest achievement of this government has been the reduction in inflation, and nobody should ever downgrade or underestimate that achievement.

There is an all-pervasive sense of gloom and despair pervading the media, the talk among the "chattering classes" and almost everywhere one turns just now. I have lost count of the number of people who have quoted the Daily Telegraph poll published on Monday, where the startling conclusion reached was that 49 per cent. of the population wished to emigrate. The noble Lord, Lord Jenkins, mentioned it again today. Let us please not get things totally out of context. The poll was of just over 1,000 people; those people were probably feeling demoralised by the apparently never-ending doom and gloom featured in the newspapers, on TV and on the radio. It also depends upon how the questions were put.

Understandable doom and gloom about unemployment, the breakdown in moral standards and uncertainty about the political stability of erstwhile stable regions are not the sole prerogative of the inhabitants of the United Kingdom. There are very many people like me who have made a conscious choice to live and work in this country; who have had many opportunities to live and work elsewhere but who took the decision that this country is the best in the world. If I had to make that choice all over again the answer would be just the same.

Please let us try to get the nature of our undoubted difficulties into an international perspective and then into national perspective. Let us work to solve the underlying problems, as we in this House can do. The economic and social policies of the Government have had major successes. We must not forget them in this debate.

4.50 p.m.

Lord Grimond

My Lords, I share the previous speaker's doubts about some of the findings of polls. They may indeed be exaggerated. When looking around Britain and remembering that it is one of the richest countries in the world and has suffered or enjoyed the enormous boom in oil, it is difficult to find why we should greatly rejoice in our performance. I find that difficult to understand. I have some sympathy with the findings of the Daily Telegraph poll.

A good government should, in the first place, be a competent government. It should also promote loyalty to the common good, particularly to the poorer people in the country, and be guided by some values. Our Government fail on all those tests. Anyone who looks at events—even of the past few weeks, let alone going back to the poll tax and the proposed closing of the mines—and who considers the handling of Maastricht or the pound must see that it is a highly incompetent Government.

I agree that the incompetence is not confined to the Government. Under the prevailing fashions, for which the Government must take some credit or debit for leading, we have become an incompetent country. The statistics as regards our performance of the past 20 years show that all too clearly. We can, of course, take particular moments and say that output has increased, but most of the moments taken are at rock bottom. The increases in output and so forth are not very large when measured against world standards.

Our pound has fallen in purchasing power over the past 20 years or so by 50 per cent. Our current deficit, expressed as a percentage of our GDP per capita, is the largest in the world of any major nation. Since 1979—that is, during the period of Conservative rule —our manufacturing output has risen by 6 per cent. compared with an average of 34 per cent. in the other OECD countries. What is particularly significant is the output of electricity, which has risen by 32 per cent. against 107 per cent. in Germany and 223 per cent. in France. Our workers have roughly half the power at their elbows which the American workers enjoy and only about three-quarters of that enjoyed by the Germans.

As I said, that wretched performance has been achieved when we had the enormous bonus of North Sea oil. I am sure that future generations will look back in astonishment at the way in which we handle our currency and credit in this age. Today, when unemployment is over 3 million, one bank has declared record profits at a time when we are told that there are very heavy bad debts. How are those profits achieved and what benefit are they to the workers in the economy?

The German representative of the Commerzbank in London said that the commercial culture of the British is antipathetic to industry. I fear that in some ways he may be right, partly as a result of that concentration on quick profits which the banks like. In 1991 British firms spent the smallest amount on research in Europe and the largest amount in distributing dividends. It cannot be right to attach so much importance to short-term success on the Stock Exchange.

The first essential is to admit that our record is poor and that the fault lies with the people who run the country. We constantly hark back to 1978–79. We are told how much better things are, how the unions have been bashed and that one more economy has been set free. But according to all the major statistics, the country has not advanced since 1979. Therefore, it is no good saying that a miracle has taken place. The miracle is a myth, but the people at the top refuse to admit it. They either turn a blind eye to what has been happening or say that it is someone else's fault. However, more frequently than ever it is the same people with the same policies—or lack of them—who say that they will suddenly perform miracles and do what they have totally failed to do although they have been in office for 14 years.

After admitting our failure, the next step is to give up the illusion that we can succeed by public relations. That seems to be the growing tendency of government —to pretend that they are misunderstood and that if only their public relations officers did a better job they would be bound for popularity.

It is essential that the top people are held accountable or that they at least share the troubles which they have brought on the nation as a whole; that is, if they cannot be replaced, which might be better still. Yet the rewards of those people who run the nation have increased. The rich are getting richer and the poor are getting poorer. While we have 3 million unemployed, those who run our affairs are doing quite nicely. The salaries, pensions, allowances and perks of the top people go up. Furthermore, many of them have improved their situations with inflation.

It is time that we gave up indexation of the perks and allowances for top people. The Government are nowhere near abolishing inflation. I would have far more faith in the Government's promises to abolish it —not just to reduce it, as the last speaker said they had done—if they actually suffered from it to a greater extent. I believe that stopping indexation at the top of the scale for allowances and so forth might be a step in that direction.

I said that the Government should also encourage loyalty to the common good. But how can they promote it when those who run the country contract out of the consequences of their mismanagement? Inflation does not affect them; unemployment does not touch them personally. As regards our values, apparently a Treasury official has agreed to advance the Chancellor of the Exchequer about £4,000 to get rid of a tenant whom he, on his own initiative, took into his private house. I cannot imagine what Mr. Attlee would have said about that. I do not believe that the Chancellor of the Exchequer would have lasted very long under Mr. Attlee.

Civil servants used to be brought up to believe in safeguarding public funds and in the principle that under British law those in power are not specially privileged. All that appears to have gone by the board. From where we are standing this state of affairs must lead straight to the situation of 18th century France or one of the least successful South American republics.

If one wants to see how this country is being administered one might consider the almost laboratory case of Orkney, the part of the world where I live. The Orkney local council has spent over £20 million on what is called a short-sea crossing. So far there is no crossing. There is nothing at all as yet; it has all gone down to the bottom of the sea. Then there was the unhappy and disastrous mishandling of the children's case. I do not think that those events were unique. I suspect that they were more obvious because they happened in a small community. However, the point that I wish to make is that no official has resigned, been penalised or even apologised. One could say that it is a matter for the democratically elected councillors, but they cannot help either. They give the answer, "It is a matter for the officials", but the officials give the answer, "We only act according to what we are told and according to custom". The result is that no one has been held responsible for those unfortunate events.

I agree that the poll in the Daily Telegraph last Monday should not be exaggerated, but I hope that the Government have taken some notice of it. It is alarming that there is such a disastrous slump in respect for nearly all our institutions except, as my noble friend said, for the trades unions. However, that is not to be wondered at when one looks at the behaviour of so many of those institutions which appear to put their own interests first and to stand for their own interests rather than for the common good.

The main legacy of the past 12 years or so has been a great growth in bureaucracy and in bureaucratic attitudes. We are always hearing from the Government Benches the wonderful story about freedom being spread throughout the land. That is nonsense. On the contrary, there has been a growth in hypocrisy and bureaucracy unrivalled in our history at all levels and in all sorts of different ways. The niggling nanny state takes it upon itself to lay down regulation upon regulation. Statutes pour out while the main troubles of the country are neglected. I take as an example the Bill that we discussed yesterday. It was very thick, but did it relate to unemployment, the troubles in Eastern Europe or any world matter? Not at all, it dealt with leasehold reform in the West End of London. London Underground is hardly capable of running its own system yet it takes it upon itself, through its public relations officers, to plaster its stations with all sorts of injunctions about how we are to behave—about not eating in trains and not making too much noise. The nanny state literally behaves like a nanny—and not a very competent nanny at that.

I agree that there must be a partnership between the state, the individual and enterprise. But the duty of the state is not to run about the place like a scalded hen, attempting to do everything, but to deal with the major issues and to set the scene within which the individual can make his best efforts. Let the Government stop this flow of orders and get down to running the country better, to showing an example of competence, to clearing out the enormous top-hamper at the top of the country, and to giving more help to the people who are actually doing the job.

It is a scandal that we have invested so little when we face unemployment not only this year but for years to come. Once the Government show that they have some values in mind and some real policy which will last for more than a fortnight, and that that policy is aimed at the public at large, we may indeed pull out of our present rather sad condition and return to being a sane, united, and value-driven country—not a country that is simply at the mercy of whatever winds blow upon it from day to day.

5.4 p.m.

Lord Gilmour of Craigmillar

My Lords, as the noble Lord, Lord Jenkins of Hillhead, said earlier, this Motion is not one that readily lends itself to a totally uncontroversial speech, but I hope that by avoiding attacks upon opposition parties and by abstaining from extravagant praise of the Government I may be able to preserve some reasonable impartiality and keep my remarks within the traditions of your Lordships' House. After all, to shower the Government with acclaim when there are 3 million people unemployed and at a time of widespread poverty would itself possibly be considered controversial, if not eccentric.

Not that I want to be too critical of the Government. Up to September, I was strongly opposed to the Government's policy because I thought that the high exchange rate and the high interest rates that were necessary to keep it in place were having strongly destructive effects. But to be fair, the Government were not alone in their error. Other parties shared it, including most of the press and conventional wisdom.

Things are rather different now. The Government's economic policy—in so far as one knows what it is —has greatly improved, but one's congratulations have to be somewhat subdued by the knowledge that that happy result was achieved largely by inadvertence last Autumn. Not that inadvertence is necessarily a bad thing—it is certainly much better to be dragged along by the tide of events than to be sunk by ideology. The disadvantage of inadvertence is not just that it does not provide a very reliable guide to future policy, but that an involuntary conversion to a sensible policy does not engender the same confidence that would be inspired if it was the result of a coherent strategy in which the Government were seen strongly to believe.

However, I am less worried at the moment by the Government's inadvertence than by the element of intention which seems to be creeping into their policy. This recession is different from all others. It is different from its predecessors not only because it is deeper and longer, but because of our massive balance of payments deficit. That makes conventional reflation out of the question. But the opposite danger is not out of the question, and I am concerned that the Government might take action in the Budget to reduce their huge financial deficit. Of course, at some time the undue relaxation of fiscal policy which took place in the late 1980s and exacerbated the credit boom will have to be rectified. But it must be wrong to raise taxes at the trough of the worst recession since the war. The biggest danger that we face in the short term is that the recession will degenerate into slump. The time to raise taxes will be when domestic demand is clearly excessive—and not until then.

Whatever may be needed to remedy the economic consequences of the Government's policies, the social consequences can be remedied only by conscious and active intention. As the noble Lord, Lord Grimond, said, a key feature of the 1980s was that the rich got richer and the poor got poorer—not just relatively poorer (although there was a vast increase in inequality) but absolutely poorer, as government figures revealed last year. There was a large redistribution of income from the poor to the rich.

Among the principal sufferers were the unemployed who were treated as a tool for bringing down inflation and for keeping it down. I hope that the Government no longer hold that view and that they will accept that reducing unemployment is every bit as important as reducing inflation. I hope also that the unemployed will be treated decently and very much better than they were in the 1980s.

We are promised a crusade against crime—and that is all to the good. But it will be another example of the Government's inadvertence if it is not accompanied by a crusade against the conditions which breed crime. To take just two examples: 25 per cent. of the country's children are being brought up in families living on income support. That is, of course, at any one time, so over a period it is a far higher percentage. Yet, for families with children, income support is not enough to live on. That is not a state of affairs likely to foster great respect for legality. Secondly, during the past decade, poverty among young people has multiplied because of unemployment, repeated cuts in their benefit, the break-up of families and for other reasons. Those who have borne most of the brunt of increased poverty are single people in their late teens and early twenties. Yet the late teens is also the peak age for committing crimes. The Government rightly emphasise that the individual should recognise and take responsibility for his own actions, but surely it follows also that the Government must recognise and take responsibility for their own actions.

For the rest, our main objective must be to rejuvenate, rebuild and revitalise our manufacturing industries upon which the country's prosperity depends otherwise unemployment will remain astronomically high. That rebuilding, as experience in the 1980s showed, cannot be done by market forces alone. The Government have much more to do than just create frameworks and talk up confidence.

The Government's present economic stance seems pretty nearly right. But both the Government and the country are afflicted by a hangover from the excesses of the 1980s. Unfortunately the Government, like many other hangover sufferers, seek alleviation of distressing symptoms by resorting to the concoction that caused the original headache. That process will be known to some of your Lordships as the hair of the dog. Current hairs of the dog are rail privatisation, the abolition of wages councils and an increase in taxes during a recession, if that happens. That merely prolongs the present state—the affliction. It does not produce a cure. What is needed is a new start. I hope that the Government will soon provide one.

5.13 p.m.

Lord Callaghan of Cardiff

My Lords, it is with great pleasure that I say on behalf of all noble Lords how much we appreciated the maiden speech of the noble Lord, Lord Gilmour of Craigmillar. Most of us have heard him on many occasions. It is clear that his hand has not lost its cunning. It was a perfect maiden speech: it was short; it was concise; its sentiments were perfect. And he was able to make his meaning clear without laying it on with a trowel. We all appreciated how he did that. He is a most welcome and powerful reinforcement to the forming of opinion in the House, and we expect him to play his full part in the days that lie ahead.

I am grateful to the noble Lord, Lord Jenkins of Hillhead, for making the speech that he did. I found myself in agreement with a great deal of it. I was not surprised at that. I have followed his writings and his speeches for a long time, and I find myself able to agree with much that he says. He has an unfortunate tendency, presumably the result of his unregenerate past, of always attacking former comrades when he speaks in order to show his objectivity. We forgive him that!

I, too, well remember the circumstances in which he left the Government. I had some part in it. It arose out of a conversation that President Giscard d'Estaing had with me in which he told me of his high opinion of the noble Lord and his devotion to the European Community. He thought that the addition of the noble Lord as a Commissioner would undoubtedly strengthen the European Commission and might give it fresh impetus. He asked whether I would be prepared to nominate him. I talked to Chancellor Schmidt. All three of us agreed that it would be a very good thing. So, with very great regret and rather against my will, I nominated him. I did not wish to stand in the way of strengthening the Community or of the noble Lord putting his talents at its disposal. It was not until this afternoon that I realised that he did not leave us on that account but because we proposed to take the port of Felixstowe into public ownership.

I listened to the noble Baroness, Lady O'Cathain, with great care and interest. She made a much better defence of the Government than the official spokesman who reminded me of that hoary old chestnut of the man in the magistrate's court who was obviously clearly guilty. So the defence lawyers wrote on the brief, "No defence,' attack the prosecuting attorney". That seemed to be the whole essence of the Minister's speech: to go back to 1979 and say how much better things were now than they were then.

The noble Baroness made a number of serious points. They are well worth our attention. I have a high opinion of the noble Baroness. Everything that I have heard about her shows her high ability and the respect in which she is held by those who work with her. I am sure that she has a great deal to contribute. If I found anything missing in her speech, it was the contribution which was later made by the noble Lord, Lord Grimond. Where was there any sense of values in what the noble Baroness had to say? She explained all the difficulties extremely lucidly. She said something about which we should all reflect carefully. But it was the speech of one of these modern young people who believe that everything is to be measured in terms of efficiency and productivity. I did not hear that note from the noble Lord, Lord Grimond.

I should have liked to hear from the noble Baroness —she once had some indirect connection with the Ministry of Agriculture, Fisheries and Food, if I remember correctly—some comment on the absolutely shocking piece of information that my noble friend Lord Richard gave when he told us of the diet of five slices of dry bread—whatever the other things were —that was supposed to constitute a proper diet for someone living on unemployment benefit. I am sure she would never agree with such a thing. But why could she not say so and make that clear?

Baroness O'Cathain

My Lords, I thank the noble Lord for giving way. I too was amazed by the comment made by the noble Lord, Lord Richard, but I have made it a policy not to comment upon something that I have not read. I do not like taking things out of context. I am well aware, through my association with the Ministry of Agriculture, Fisheries and Food, of documents that contain phrases such as, "for example, if". It is sometimes highly dangerous for someone who is given such information, not knowing the source document and not having gone back to it, to comment upon it. I was as appalled as is the noble Lord, Lord Callaghan. I have already made a note to go back to that document.

Lord Callaghan of Cardiff

My Lords, I am grateful to the noble Baroness. She said all that I would have expected her to say, because I would expect her to have that point of view. I shall make a simple comment: I do not mind making a simple comment. If true, that information is shocking. It should never be permitted in this country in 1993. I hope that I carry the whole House with me, and I am glad that my noble friend Lord Richard brought the matter before us.

If our national confidence has been sapped, and if, as I believe, we are draining the country's morale, there is one simple reason: 3 million people out of work and over 1 million out of work for more than 12 months. Remove that and we will restore a great deal of confidence in this country and restore morale.

As the noble Lord, Lord Gilmour, said, the problem is different and more serious than that of previous recessions. The current recession has lasted longer than any since the 1930s. It is deeper than any other and is outside the experience of people who are at work. There is no end in sight. One does not have to look far to see why there is a falling away of national morale. That is particularly so when one bears in mind forecasts that by the end of the century there may be between 2 million and 3 million people still out of work.

Another reason why the recession is having such a lowering impact on the national consciousness is that unlike others no one is exempt. I dare say that many of us have experience of the recession hitting our families or we know someone among our friends and others. In previous recessions particular areas of the country and single industries were hit. The current recession has heralded the onset of general unemployment. All regions, all industries, all ages and manual, clerical, administrative workers, the self-employed and wage earners have been affected. Indeed, the whole country is involved.

Like other noble Lords I remember the 1930s as a young man. I address my comments to younger noble Lords who will not have known that time. I have no doubt that the recession will leave as deep a scar on the national consciousness as was left by that of the 1930s. I can recall the serious impact of that recession and the rigidities which were built up in later years by the trade unions and other organisations. We have already reached the stage where we have created for our successors some difficult times ahead. So the Government must be warned. I do not believe that those who have little or no recollection of the 1930s realise the risks which the country is running or the long-term damage that is being caused to our collective psychology.

I hear Ministers repeat parrot-like phrases such as, "Industry is poised to take advantage of the coming recovery", or, as the noble Earl said today, "Essential elements of national recovery are now in place". At times I feel like spitting because we have heard those phrases so often and for so long that they mean so little. When they were first uttered some years ago I thought, "Yes, that is right. The Government have cleared away a lot of the undergrowth and perhaps we are now ready to take a step forward". But it has not happened and that is the Government's failure. I say to the noble Baroness, Lady O'Cathain, that the Government have a responsibility and they can do something. The noble Baroness must not excuse them for everything.

One part of the Government's strategy worked. They succeeded in closing down many out-of-date factories in which efficiency was lacking. They used a deflationary monetary policy in order to achieve that. That policy half worked but what did not work was their expectation that the market economy, which was the other half of the equation and which in some automatic fashion was supposed to fill the gap that had been created, would be established. It has not been established yet and we see no prospect of that, however poised we may be to take advantage. Even today our industrial base continues to shrivel.

That is why people can see for themselves that government policies do not work. That is why trust in the Government is now markedly low. I agree that it is not high among any of us but the lack of trust has infected other institutions. That is the danger to which the noble Lord, Lord Jenkins of Hillhead, referred. The Government are a bellwether in this area and I fear that the lack of trust in the Government and in their capacity will be hard to overcome.

We find therefore that our industrial base has shrivelled and that although there has been new investment in some areas it has by no means been sufficient to take up the slack that has been created. I echo the noble Lord, Lord Gilmour, in saying that a future large-scale recovery will reveal a huge hole in Britain's manufacturing productive capacity. There will be revealed a hole in our product range and in our ability to supply our domestic customers or our overseas customers. The noble Lord is right in saying that recovery will be followed by a disastrous effect on our balance of trade and balance of payments.

The Government have a cock-eyed view of economic policy. They have persistently and mistakenly believed and asserted that, provided they do their job in bringing down inflation and leave the market alone to pursue its own intelligent self-interest, as night follows day the economy will grow, the balance of trade with other countries will become favourable and new jobs in up-to-date industries will replace those that have been lost. Well, that has not happened. There have been 14 years during which that might have happened. Fourteen years is long enough for an experiment of that nature to be seen and to be carried through before it shows the expected results. We must give the Government credit for low inflation but the beneficial effects have not worked through in growth, re-investment and jobs. The conclusion, which was drawn by my noble friend Lord Richard and other noble Lords, is that the market economy, left to itself, is not enough and is not self regulating.

Perhaps the truth of that is now being realised by Ministers. I know that we are in advance of the Budget when perhaps there will be a revelation of great truth and new light but Ministers look as though they are sitting paralysed, able only to put forward new schemes of retraining. We all agree that that is important but young people will ask: what is the use of retraining when there is no job at the end? Such panaceas may help young people for a few months but I know from my own anecdotal experience that they have no lasting impact. The schemes are unable to end the waste of men and women. The situation is exactly like that of the 1930s with the same poverty of thinking about the way in which we should overcome it.

It is clear what, if our finances were in order, should be done at a time like this. The Government should step into the breach. There are many unmet needs which require only financing and which would begin to increase production and to create jobs; for instance, the railways, transport and housing. They are well-known needs and I shall not detain your Lordships by listing them. If it were later thought necessary to stimulate consumption there are many ways in which that could be done; for instance, by reducing national insurance contributions, by spending on education, and so forth. One must balance one's budget over a period of years. That is the classic way and it is what we thought we were supposed to be doing.

But now the IMF is warning the Government that it should not increase government expenditure. It is said that such remedies are not open to the Government because their deficit is already too high. Revenue is too low—in other words, there is not sufficient production to produce the present revenue at the existing rates of taxation, or taxation rates are not high enough—and expenditure is too high. If the Chancellor were to listen to the IMF he would, in the coming Budget, increase income tax, or VAT, or both. Like other noble Lords who have spoken I trust that he will not do so. It cannot be right to follow such a course at this juncture. It would have the effect of lowering confidence even further and of reducing demand, which is already too low for our productive capacity. Perhaps unemployment would rise even higher than the levels which we know are due to hit us during the coming year.

Let us all face the fact that the Government are in a cul-de-sac. Even if there is a tiny increase in the growth rate in 1993, as I hope there will be, that will have little effect on reducing the army of unemployed. With those restrictions, some of which are of the Government's own making, what is to be done? I shall now utter a clichÉ but it is important: there must be a sense of leadership and the Government must assert some economic priorities which the country must then accept. That must not be limited to a simple continuous assertion that the Government's job is to keep inflation low and look how well they have done. That will not do in 1993. In my view they should state clearly —and it would be a simple act of leadership to state clearly—what is their objective.

In 1944 the Conservative Party of that day and the Labour Party then in government and the Liberal Party all joined in a common assertion written in May 1944 in Cmd Paper No. 6527. They stated their objective. It is time that the Government stated their objectives today. That paper stated: The Government accept as one of their primary aims and responsibilities the maintenance of a high and stable level of employment". If the Government would once say that, at least we should know where we are and what the Government are trying to do. We could understand the difficulties which lie in their way. At least it would not just be the Government saying, "We have got inflation down to 1.7 per cent. Look how well we are doing. Now it is for industry to do the rest". The Government have their responsibilities to every citizen of this country.

Paragraph 41 of the paper stated: The Government are prepared to accept in future the responsibility for taking action at the earliest possible stage to arrest a threatened slump". This is not a recession now; it is a slump. Those of us who know recognise it as a slump. The paper went on: This involves a new approach and a new responsibility for the State". I do not suppose that the noble Earl knows what a sense of thrill went through people in the armed forces when they heard that. Other noble Lords will remember also, as I do, that those people knew that they would not return to what happened after the First World War. That was the reason that the pledge was made; namely, because of the one legged soldiers parading their medals and their wounds on the streets of London and elsewhere. That is why that pledge was made.

At that time in 1944 the war against Germany seemed to be coming to an end but the armed forces were told that they had to go to Japan and the Pacific and that they had to root out the Japanese from every island. We were warned that they would fight in every island. Therefore, that pledge gave us hope for the future.

I remember going home to my people and saying, "Look, this is what the Government are going to do. This is it." It had remarkable reverberations because the Government were showing leadership. I must say to the noble Earl, and I hope that he will believe me, that that had a profound effect upon us. The Government were pledging that we should not return to what had happened in the past. The time has now come for this Government to renew that pledge and to accept their obligations. Their predecessors saw nothing wrong in doing that. That would give fresh hope and inspiration because the nation would know where the Government stand. I believe that it would then be more ready to follow their lead.

I apologise to your Lordships because I have spoken for 20 minutes. Therefore, I shall scrap the rest of my speech because it is obviously far too long. However, perhaps I may be allowed a few more moments.

First, I say to the Government that the German Government and industry have worked out a sensible basis for determining wages policy. Tripartite discussions are held which are extremely successful. I wish that the Government would stop pursuing the unions. The Bill which will be before this House shortly is miserable and pettifogging. It proposes to withdraw public funding of trade union ballots for strikes. What is the value of doing that? How ridiculous to introduce such a Bill. I can hardly conceive what lies behind the Government's thinking.

Finally, the social consequences go much wider than the United Kingdom. They affect the whole of Europe. I wish that I had time to develop that theme and to say what I think should be done on the European front. However, I conclude by pointing out the historical background to the rise of unemployment in the 1920s and 1930s and what happened in Germany as a result. In my view unemployment was the major issue which brought Hitler to power. We can see vestiges of that today. Extremism has reared its head again. The trek of refugees across Europe will cause major problems and damage to our society. International action is needed and I urge that upon the Government. I am sorry that I do not have time to explain what I think should be done. However, that does not relieve the Government of their own responsibility for devising their own measures.

5.36 p.m.

Lord Ezra

My Lords, I am pleased to follow the noble Lord, Lord Callaghan. I only regret that he felt that he could not complete his speech. I hope that on some other occasion he will give us that part of his speech which he did not deliver today. I am delighted also, as the rest of your Lordships will have been, to have had the opportunity of hearing the maiden speech of the noble Lord, Lord Gilmour, who was suitably congratulated by the noble Lord, Lord Callaghan. We all support that congratulation.

My noble friend Lord Jenkins has introduced an important subject at an extremely important time. He did so in a most impactive and wide ranging manner.

At this stage in our debate we are all clear about what are the basic problems that we face. The difficulty is how to solve those problems. The budget deficit has grown to totally unexpected and disturbing levels. It is worth reminding ourselves that at £37 billion it represents 6.25 per cent. of GDP. By comparison, the US budget deficit, about which so much has been written and said, runs at 5.5 per cent. of GDP. If our budget deficit rises to anything like £47 billion next year, that would be approximately 8 per cent. of GDP—a very dangerous level to be reached.

The balance of payments deficit has been referred to, as has the very sad and sobering thought that we ran up such a large deficit at a time of recession—£12 billion last year which is forecast to rise to at least £15 billion and perhaps £20 billion in the current year.

Unemployment is rising. We now have that horrific figure of 3 million. Associated with that, a point to which the noble Lord, Lord Richard, referred, is personal indebtedness. I have had something to do with that because I was concerned with a working party which looked at ways to increase counselling services. In the process, we examined many individual cases. It was disturbing to see the large number of cases of multiple indebtedness and the misery which that causes in households which have got into that situation, very often through no fault of their own. That is an accompaniment to the present economic situation in which we find ourselves.

As many noble Lords have said, those aspects, disturbing in themselves as they are, are a manifestation of a deeper problem. That deeper problem is the inadequacy of our industrial capacity including the physical infrastructure. The point is that that situation has tended to develop over many years but it has accelerated in recent times. During the period from 1979 to 1991 the level of consumption in this country rose by something like 40 per cent. but the level of manufacturing output rose by only 11 per cent. The difference was made up by imports, which doubled in that period. In those few statistics lies, in my opinion, the basic problem which we in Britain face today.

The risk is that if we emerge from the current recession through a renewal of consumer expenditure, we could find ourselves going through the same situation again. That is why I am very concerned that High Street spending seems to be regarded as the key to economic recovery. High Street spending which involves increased imports will certainly only be the key to a very transient recovery leading once again to the difficulties we have had in the past decade.

We must consider other ways of dealing with this matter. I hope that the green shoots will first appear in increased investment in a productive capacity. How can we bring that about? The private sector will not start to invest again unless it feels that the economy is recovering and therefore it is producing goods that people will wish to buy. That is the difficulty. However, there is one way round this. Here I wish to take up a point made by the noble Lord, Lord Callaghan. He referred to the physical infrastructure. He said we could spend a lot more money, very desirably, on our transport system and on houses and buildings. That could lead to recovery if we had the resources to spend on the physical infrastructure. I wish to take up a little of your Lordships' time to indicate some of the measures I believe we should now adopt. I shall discuss the resources later.

There is not the slightest doubt that all of us who use our railway system feel that a great deal could be done to improve it. I believe that the people who run the railways do their best in difficult circumstances. At the least we should have a major programme of track renovation. I heard recently that the railways are having to cut back on some of their proposals because of a lack of resources. We should be going ahead with the Heathrow to Paddington link and with the Halifax to Huddersfield line. We should be accelerating work in connection with the Channel Tunnel. We should be adding to our electrification system. All that is a vitally important part of the physical infrastructure of the country on which we can base recovery and without which we cannot rely on lasting recovery.

The London Underground is another case in point. I note that the noble Lord, Lord Jay, has tabled a Question to ask the Government whether they will consider restoring their previous level of investment. I believe that is essential. The Underground has not received sufficient investment to maintain current levels of service, let alone to replace old rolling stock and to modernise the track. We should also encourage light rail projects wherever they are desirable. We should go even further than the Government's recent proposals with regard to roads, particularly as regards roads that feed off main roads and which come under the remit of local authorities.

An enormous amount could be done in the area of housing. We on these Benches have for years talked about the desirability of an accelerated release of the funds which councils have accumulated through the sale of council houses. Housing associations should be given more resources. Much could be spent on the physical infrastructure of our educational institutions, on school repairs and renovation programmes. We could do much to accelerate schemes to increase energy efficiency to help the environment. We could insulate more homes, particularly those of people on low incomes. I would also include a measure to help the private sector. I believe that the uniform business rate which was introduced at a difficult time—the Government have frozen it for a time—should be reduced over a period of time.

I have worked out what all these desirable measures, which were referred to in broad terms by the noble Lord, Lord Callaghan, would cost. I take account of the fact that one cannot spend money at an excessive rate and that one is limited to having work carried out at the rate at which it can be mobilised. I have the costs worked out in greater detail than I have indicated to your Lordships. I have calculated that to implement the measures I have referred to over a two-year period would cost about £8 billion. Furthermore, I believe that if we did that, it would have a direct impact on employment. Something like 350,000 more jobs would be created as a direct result of the work undertaken. However, far more jobs would be created within the private sector.

How should we raise this £8 billion which in my opinion is the cost of adopting the right measures to set about creating green shoots? The measures I have mentioned constitute the right way to get the economy moving again and to reactivate the construction industry. That is the hardest hit of all our industries. If these measures were undertaken, industry would be reactivated and people would have more money in their pockets. If more people were employed and received wages and salaries, they would increase the Government's tax revenues. We obviously cannot add £8 billion to the PSBR. That is impossible. The only alternative is to add it to tax. Tax to many people constitutes a dirty word. Elections have been lost by the injudicious mention of the word "tax". Let us look at this matter another way. I now believe that if people knew what the extra tax revenues were to be used for, they would feel far happier about paying extra tax.

At the time of the last election the Liberal Democrats propounded the idea of an extra penny of tax to help education. Of all the measures we proposed we found that that measure seemed to attract a large amount of support because people felt education was an important part of their lives. They therefore felt it was right to contribute an extra penny of tax to help education.

When a company needs to find additional resources to carry out essential investment or development, it can do one of two things. It can either approach a bank and increase its indebtedness—many companies now would be loath to do that, and I am not suggesting that UK Limited should do that —or it approaches its shareholders and it makes a rights issue. A company asks its shareholders to contribute more shares so it can add to their wealth as owners of the company through the investment the company will make with the money. I should like to apply the same principle to the proposal of putting more resources into our essential physical infrastructure. I suggest that should be financed at the appropriate time—the next Budget may not be the appropriate time. Perhaps we should leave this measure until the autumn. I suggest that we should call it an investment levy. I propose that it should last for two years and that it should be specifically devoted to the measures I have mentioned. At the end of that period full account should be given to the nation of what had been done with the money.

If we needed to address the question again after that period, we could address it in the same way. However, I would hope that by then the investment levy would have stimulated the economy so that further rights issues of that kind would not be required. I make that suggestion because I have felt for a long time that many of us who believe things are wrong make general statements about how we think things should be put right. I thought that it might be timely to venture to make this proposal, working out the amounts involved, as to how the money should be spent and how it should be raised. I hope that the proposal will receive some consideration.

5.50 p.m.

Lord Skidelsky

My Lords, it is the duty of an Opposition, even in this House, to oppose the Government, and the speeches of the noble Lord, Lord Jenkins of Hillhead, and the noble Lord, Lord Richard, duly blamed the Government for most of our ills. The noble Lord, Lord Jenkins, illuminated our discussions with historical analogies which some felt were apt and others felt were less so. I should like to add one historical footnote. The last time an opinion poll showed so many people wanting to emigrate from Britain was in 1969, when the noble Lord, Lord Jenkins, was Chancellor of the Exchequer. I mention that fact only because I do not believe that one should take single polls too seriously since these things come and go.

The noble Lord, Lord Richard, argued that the Opposition cannot be held responsible for what has happened since 1979. That is partly true and it is a perfectly valid debating point. However, it is also partly wrong because the Government inherited an industrial system in decay, a desperate system of industrial relations and an inflation rate which was out of control. That was inherited from the previous government, who had been in power for the preceding six years. Therefore much of this Government's early period in office was spent trying to control that situation.

Even the noble Lord, Lord Jenkins, would not blame in present circumstances the 10.9 per cent. unemployment in France on the policies of the British Government, nor the fact that in Germany industrial production was down by 7.5 per cent. in the third quarter of 1992 and that in Japan production had fallen by 8.2 per cent. Not even incompetence on the scale attributed to the present Government could be the cause of such widespread malaise. The fact of the matter is that there is a world recession, with Western Europe on the edge of a depression—one from which we are likely to escape more quickly than others as a result of the policies adopted since last autumn.

My noble friend Lord Caithness was not just making a debating point when he spoke of policies for recovery being in place. There was substantial productivity growth in manufacturing in the 1980s, amounting to 4.5 per cent. between 1980 and 1990. That productivity growth was much higher than in the 1970s.

I should like to make one comment in respect of the remarks of the noble Lord, Lord Callaghan, about the 1930s. Of course the 1930s were a ghastly period. There was a high level of unemployment, but something else was happening underneath to which the noble Lord did not refer, namely very high productivity growth. That occurred right through the 1930s and laid the basis for the successful British economic performance in the Second World War. Therefore, it is not just the level of unemployment at any moment in time which counts. It is what is going on in the economy and what improvements are being made to the manufacturing capacity of the economy. In that sense the 1930s were not altogether dissimilar from what was happening in the 1980s.

Unemployment is much too high. No one denies that. Yet again that is not quite what it seems. Many new jobs were created in the 1980s even while unemployment remained at a very high level. Over 2 million new jobs were created and the OECD said that the United Kingdom had by far the best job creation record among the larger EC economies. It sounds like a paradox for there to be many new jobs being created while there is a high level of unemployment as a result of some industries having shed jobs. A restructuring of the British economy was taking place. That restructuring left many casualties and much wreckage in its wake. It was a restructuring which should have occurred more slowly and should have started much earlier. It did not happen earlier because of the policy of subsidising decaying industries in the 1970s. Once that element was removed the whole horror of the industrial legacy of the 1970s was revealed. The result was that high level of unemployment, which took a long time to come down.

I do not deny for a moment that there are some features of our situation which are home grown and do not depend on what is happening in the rest of the world. However, the fact that they are home grown does not always mean that they were caused by the Government. I do not think that anyone would deny that monetary policy was mismanaged in the late 1980s. The depth of the present recession is due to the strength of the inflationary boom of the 1980s.

But were the Government entirely to blame for that? The banking system was far from blameless. I do not believe that many people anticipated what the effects of deregulation would be in the early 1980s. That interfered with all the control aggregates on which the Government relied.

Of course it is easy to be wise after the event, and something has to be done about that. The deregulation of the banking system introduced into our economy and into the world economy the old business and credit cycle generated in the private sector which had largely been absent in the 1950s and 1960s. In the 1970s when one talked of sources of instability those sources were attributed to the Government and to government finance. We now have the re-introduction of a major source of instability through the private sector. That problem has to be addressed.

On the other hand, I do not apply to governments standards of perfection in the conduct of economic policy, although that is very easy to do. The Government made mistakes. They were caught unawares, partly as a result of some of their own actions. However, even the noble Lord, Lord Jenkins, who is probably the one post-war Chancellor who left office with an enhanced reputation, might have found success elusive amid so many squabbling economists —or squabbling priests—and unreliable monetary aggregates as those with which my noble friends Lord Howe and Lord Lawson were faced in the 1980s.

The Government tend to be blamed for everything that goes wrong. Education and training are a very good example. Of course I am in favour of more education and training. The fact that Britain has been under-skilled relative to its competitors has been remarked upon for 100 years. It would have been very odd if the Government had been able to remedy in 10 years a problem which had existed for 100 years. However, training has become an all-encompassing remedy for all of society's insurmountable policy conundrums. Whenever we run out of other remedies we say that we should spend more money on training and education.

In fact, the Government are spending more money on training and retraining. Total annual spending on training and enterprise is about £2.7 billion a year, two-and-a-half times what it was in 1979. But the Government cannot do everything. If people do not want to be trained there is very little that one can do. A report issued only last week showed that there is a very high non-completion rate in training courses and in courses in further education. People do not persevere with them. It may be said that people would complete them if there were jobs at the end of the courses. One of the reasons why there are not jobs at the end of the courses is that people do not complete them. That is one of those vicious circles which is cultural. It is very hard to break and it will certainly not be broken merely by spending money.

A number of noble Lords have referred to macro-economic policy. There was general agreement that broad macro-economic policy is roughly right and is as Keynesian as it can prudently be at this moment. Since September sterling has been devalued by 25.6 per cent. against the yen, by 22.9 per cent. against the dollar and by 14.58 per cent. against the deutschmark. Interest rates have been halved from 12 per cent. to 6 per cent. And there has been a large boost to public investment, in particular in transport and social infrastructure. I do not believe that we can prudently do much more. We are no longer in a Keynesian world; I am disappointed that we are not.

We have to recognise that the Government do not have that definite leverage over output and employment which they had in the 1950s and 1960s. They had such leverage in the 1950s and 1960s because there was no inflation problem. As soon as one has a history of inflation and expectations of inflation, with no one knowing how fast or how far inflation will go, one can no longer forecast the effect on output and employment of additional expenditure, and how that will be divided between output and prices.

Fiscal policy has to be prudent. In 1976, the noble Lord, Lord Callaghan, recognised that when he said that one cannot spend one's way back to full employment and that that option was no longer available to us. He spoke against a background of high inflation for which he was not responsible. It was a factor in the background which affected the Government's calculations.

We have a large public sector deficit. It is estimated that it may grow to as much as 8 per cent. of GNP over the next two or three years, and that we cannot evolve much in the way of fiscal policy. I am disappointed about that; I should like to do so. I hate high levels of unemployment. However, one has to realise the limitation on government policy in the present circumstances. That is part of the legacy of the past 20 years.

In conclusion, I turn to what I believe that we can do in the medium term. Many of the structures which in the past have condemned Britain to high rates of inflation are still in place even though current rates of inflation are very low. Earnings continue to rise ahead of the cost of living. Average gross earnings grew by 4.6 per cent. in the year to 1993. That was higher than the underlying rate of inflation. Measures are now needed to assist the workings of the labour and capital markets—I refer to supply side measures—to reduce the rate of unemployment and to make finance more accessible to small firms.

Many noble Lords have alluded to the 1 million long-term unemployed. It is a tragedy. They are not effective competitors in the labour market and they therefore do not exercise a disinflationary effect on wages. Through a mixture of incentives, employers must be encouraged to take on the long-term unemployed. I refer to changes in national insurance contributions, training and perhaps some form of workfare. Such measures are what I call "ambulance work". There is scope for taking 500,000 people off the register of the long-term unemployed quickly. I earnestly commend the Government to consider such schemes. The real wastage of talent lies with the younger long-term unemployed—people who are out of work for a year with no hope of getting back into jobs. I feel deeply about them. Those are measures that I believe that we can consider.

I urge the Government to take some steps to improve the financial access for small firms to enable successful small firms to become successful medium-sized firms. Why not renew government commitment to the Unlisted Securities Market? That measure proved successful in assisting the business community in the mid-1980s.

We now have some of the conditions for a return to a stable system of exchange rates. If we really wish to use government policy to steady the real economy, we have to have in place a firm anti-inflationary discipline. That was one of the great strengths of the Bretton Woods system. Fiscal policy to steady the economy took place against a background of fixed exchange rates. Until the mid-1960s to late-1960s inflation was not an important factor in the management of our economic life. If we are ever to return to that position, we have to get back to a fixed exchange rate system. The sooner we do that, the better.

Some of the conditions are in place. We now have a low level of inflation. That is exactly the point at which to rejoin a fixed exchange rate system, not when one has a high level of inflation and wishes to use the exchange rate mechanism to bring inflation down. The time to join it is when one's monetary conditions are under control and one can attach oneself to the system as an anti-inflationary discipline. I hope that the Government will consider doing that as soon as possible.

6.6 p.m.

Lord Eatwell

My Lords, I wish to add my voice to the congratulations offered to the noble Lord, Lord Gilmour of Craigmillar for an excellent maiden speech. If his voice had been more often heard in Government over the past years perhaps we would not have needed the debate today; but we do because it is clear that the British economy is in a far weaker condition than at any time since the immediate aftermath of the Second World War. It is clear from the crucial figure which matters. The figure of 3 million unemployed is a measure of that weakness and as a wasted and wasting resource it contributes to that weakness.

I must take issue with the noble Baroness, Lady O'Cathain, who suggested that high levels of unemployment might be associated in some way with technological progress. Her analysis is simply the mirror image of the analysis of the Luddites. Like their analysis, it is also quite wrong. Those countries which enjoy the highest rates of technological progress today have the lowest levels of unemployment. Technological progress and unemployment are inversely related not positively related.

In the Autumn Statement, which the noble Earl, Lord Caithness, commended to the House, the Treasury admits that on its best assumption the level of unemployment in 1996 will be virtually the same as today. That admission makes a mockery of all the Government's protestations of concern about unemployment. It exposes as a cruel sham their pretence that they have anything other than sticking-plaster policies to combat unemployment or, as the noble Lord, Lord Skidelsky, called them, ambulance policies. In fact, the Government's policies are the prime cause of our difficulties today because they have created three great imbalances in our economy which first caused recession and now perpetuate it.

First, Government policy created a severe imbalance between the level of domestic demand and our ability to supply that demand competitively. That imbalance is revealed in the persistent tendency for imports to grow faster than exports, particularly in the case of manufacturers. Not only have the Government done nothing to reverse that trend of deterioration in the performance of our most important export sector, they have even argued that the decline did not matter.

When challenged on that decline, Ministers often point, as did the noble Earl, Lord Caithness, to the fact that over the past decade productivity growth in British manufacturing has been faster than productivity growth in the United States and Germany; and, indeed, faster than the EC average. The noble Lord, Lord Skidelsky, also referred to that point. The Government believed that that was a jolly good thing. What they fail to point out is that that productivity growth has coincided with no growth in output. Indeed, Britain has had a lower growth of manufactured output than the US, Germany or the EC average. The true measure of competitive success or failure is whether British industry has secured or lost markets at home and abroad. The answer is unequivocal: the loss of overseas market share and the enormous loss of market share at home is the precise measure of the total failure of the Government's non-policy for industry.

The second imbalance in the economy which the Government have created is the severe imbalance between consumption and investment, referred to by the noble Lord, Lord Ezra. For many years consumption expenditure in this country amounted to around 6 per cent. of gross domestic product—it was almost an historic constant. Indeed, over the period 1955 to 1979 there was a slight tendency for the share of private consumption in GDP to fall, making room for both higher public consumption and for a higher share of GDP devoted to industrial investment. But since 1979 the share of private consumption has rocketed from 59 per cent. of GDP to 66 per cent. of GDP today. That is a more than 10 per cent. increase in the share of private consumption in GDP—an all-time record.

The irresponsible monetary and fiscal policies of the past decade engulfed the economy in an unsustainable debt-driven consumption boom. The result of that for Britain's families is that they are now burdened by record levels of indebtedness. The result for the economy as a whole was that public and private investment were crowded out by the consumer boom.

The third major imbalance that the Government have inflicted on our economy—perhaps the most damaging imbalance of all —is the imbalance in the conduct of economic policy. The great folly of the past decade has been the abandonment of the use of fiscal policy as a tool of economic policy. The scale of public expenditure and taxation and the composition of expenditure and taxation are both powerful tools for the management of overall demand and for the maintenance of the balance of demand between consumption and investment. Yet the Government have declared that public expenditure was only there to be cut and income taxes could only go down. The economy was to be managed by a single instrument —short-term interest rates—and the rest, as they say, is history.

These, then, are the imbalances in our economy which must be overcome: a trade imbalance which is the product of government-induced industrial decline; a consumption-investment imbalance which is the product of government financial mismanagement; and an economic policy imbalance, which is the product quite simply of government economic incompetence. The only way to overcome the first two of those imbalances is if the recovery from the recession is investment-led. As the noble Lord, Lord Ezra, pointed out, any upturn in consumption would lead to a sharp increase in imports and in due course to a mixture of higher interest rates and higher inflation produced by a falling pound. If we had that consumption-led recovery the result would be that we would end up in a position not dissimilar to that we face today, only worse.

To ensure that the recovery is investment led we must overcome the third imbalance and restore fiscal policy to its rightful role in the policy mix. Interest rate policy will not, by itself, do the job. The fall in interest rates since September produced a 16 per cent. devaluation of the pound and improved the cash flow both of companies and of households which are carrying heavy debt burdens. All those effects are desirable. I am afraid that none, by itself, will be sufficient to secure a recovery.

Anyone who believes that devaluation is likely to produce the necessary turnaround in the long-term deterioration in our trading performance should take a look at the long-term trends of our exports and imports. It is difficult to detect the impact of exchange rate changes in those trends. That is not to say that exchange rates have no effect on trade; it is simply to say that the effects have been overwhelmed by the steady decline in other aspects of industrial competitiveness—quality, design, technical sophistication, labour force skills, and so forth—all of which have been undermined by the low level of investment in this country.

Nor is the fall in interest rates likely to do much for private industrial investment. Again, I agree with the noble Lord, Lord Ezra. When markets are depressed and the prospects of profits poor, even low interest rates will not greatly stimulate private investment. Again, all the historical evidence supports that conclusion. So while the present interest rate policy is not going to do any harm, neither is it going to do enough good. An active fiscal policy is needed too.

Of course, discussions of fiscal policy today—we have heard this in the debate this afternoon—are dominated by fear of a growing PSBR. That fear is entirely misplaced. The current fiscal deficit is not an economic problem; it is an economic necessity. Next year private sector net savings are likely to amount to well over 5 per cent. of GDP as the private sector repairs its balance sheets. If the Government are not running a deficit, if the Government are not absorbing those savings, then the economy will slide into a yet deeper recession, unemployment will rise even faster than it is at present and the savings would run to waste. It is important that we throw off the fallacy of the 1980s that fiscal policy is all about balancing the budget and remember that fiscal policy should be all about balancing the use of the nation's resources.

To that end it is clear that in the current state of the British economy it would be the height of folly either to increase taxes or to cut public expenditure with a view simply to reducing the PSBR. Either step would stifle recovery. Britain desperately needs a high level of investment. In today's depressed markets private investment is unlikely to take the lead, so public investment must do the job. Higher public investment should be geared predominantly to reducing industrial costs and increasing the competitive potential of the tradables sector. That means increasing investment in infrastructure, in research and development and in education and training.

The economy today is so depressed that there is probably scope for increased public investment without any increase in taxation. But should the economy run into capacity constraints, or should there be a damaging surge in consumption, then there is a powerful case for increasing taxation on the highest income groups to fund higher public investment or, indeed, higher investment incentives for the private sector.

The case for increasing taxation on higher income groups does not derive from the fact that the better-off have enjoyed such substantial increases in real income in the 1980s, though that may be reason enough. The reason for targeting the better-off is technical, deriving from some path-breaking academic work done by my noble friend Lord Peston 30 years ago. He then pointed out that any increase in public investment funded by taxes on the better-off will in part reduce excess savings and so result in a net increase in overall demand, even though the expenditure apparently is balanced by tax receipts, and so will boost output in the economy as a whole. The same investment funded by a tax on the poor, who spend every penny they can get, would give no such net boost to the economy. Maintaining or even increasing the PSBR in the short run is the only way the deficit will be reduced in the medium term. That is the paradox we face at the moment. Only increased public investment now will lay the foundations for the sustainable and competitive recovery which will both improve the flow of tax revenues directly and lead to increased private sector spending as households improve their balance sheets.

The difficult task facing any government in the 1990s will be to correct the severe imbalances created in our economy by the Government in the 1980s. Changing the balance of government policy, restoring fiscal policy to its rightful place as a tool of medium-term economic management, is the first and vital step along the difficult path to economic recovery.

6.20 p.m.

Lord Palmer

My Lords, I too am grateful to the noble Lord, Lord Jenkins of Hillhead, for initiating this most timely debate. Today we have heard many fine speeches from all sides of the House, including the excellent maiden speech of the noble Lord, Lord Gilmour of Craigmillar, to whom I should like to offer my most sincere congratulations. I am thrilled that he has taken the name of Craigmillar in his title because I have a little farm which is literally a mile away from Craigmillar. I shall always think of his excellent maiden speech as I pass by.

I do not envy the noble Lord, Lord Henley, who has the task of replying to so many tirades of dissatisfaction with the policy and record of Her Majesty's Government over the past 14 years. But, first, I must apologise most sincerely to your Lordships. Owing to a long-standing family commitment I shall be unable to be present for the winding-up speeches tonight.

I am fortunate enough to live in the country and I intend to limit my comments to the catastrophic effects that the Government's policy (or rather lack of policy) has had on the rural scene.

I too am appalled at the statement made by the noble Lord, Lord Richard, about the directive from the Minister of Agriculture, Fisheries and Food. But scandalous though it is, it emphasises just how serious the situation has become. In the past 14 years, 84,000 jobs have been lost in the farming industry. In Scotland alone, 14,000 jobs have been lost over the past 10 years. Those involved in farming are 2.5 times more likely to commit suicide than the national average. Throughout the United Kingdom farming communities suffer three suicides every week.

Looking at those terrifying statistics, it is important to ask why that has occurred. I shall endeavour to explain. Fourteen years ago bread-making wheat was sold for £169 a tonne; today it is £151. Barley 14 years ago fetched £117; today it is £105. Fourteen years ago milk was 16p a litre and today it is 20p; sheep sold for the same price as today and the situation with cattle tells a similar tale. Today the price of wool is less than it was 40 years ago. Comparing the price of wheat with the price of a loaf of bread, we find something very far amiss. I find it difficult to understand how the price of wheat has gone down while the price of a loaf of bread has doubled.

On the other side of the equation, 14 years ago a 110 HP tractor retailed at £13,000. Today that same tractor would cost £35,000. In other words, for such a tractor 14 years ago a farmer needed to sell 111 tonnes of barley; today the amount required for that same tractor would be 333 tonnes. The cost of producing that tonnage has increased dramatically. Let me give two small examples. Over the past 14 years a general farm worker's wage has risen by a dramatic 177 per cent. The price of fuel has risen by 150 per cent.

By now I hope I have painted a sufficiently gloomy picture of the devastation of the rural economy. But perhaps the most terrifying statistic is that in 1979 the agricultural industry owed slightly less than £1 billion. Today that figure has risen to the horrific sum of £12 billion. Last year's interest payable on that debt amounted to £1 billion. That works out at £28 per annum on every single acre farmed in the United Kingdom. It is also vitally important to realise that against that gigantic debt the value of land has fallen almost exactly by 50 per cent. since the Government came to power.

At this point it is interesting to compare the situation in other countries to see how national aid over and above the CAP contribution varies dramatically. Government expenditure on food and agriculture as a percentage of total government expenditure in the United Kingdom is 0.4 per cent. In Germany and Holland it is 1 per cent. and in France it is 3 per cent. National government expenditure on agriculture as a percentage of agricultural output in the United Kingdom is just 6.8 per cent. In Germany it is nearly three times that figure and in France it is a staggering 29 per cent.

If we relate those figures to people and employment, a matter which has been mentioned so often this evening, the figures are even more shaming. National government expenditure on agriculture per person employed in France is 8,613 ecu; in the United Kingdom it is a pathetic 2,014 ecu. Converted into hectares, sadly the figures read no better. Holland spends 610 ecu, France spends 392 ecu, Germany spends 386 ecu and, needless to say, the United Kingdom bumbles along at the very bottom of the league, with just 83 ecu per hectare. I should like to stress that those figures represent the national aids over and above the CAP funding.

It does not take genius to work out how unfairly this Government treat UK farmers compared with the treatment of other governments within the European Community. I have a neighbour who also farms in France. As a well-disciplined UK farmer, he went along to the French equivalent of his local MAFF to obtain some guidelines on what he should do about set-aside on his French farm. He was met with a huge shrug of the shoulders and asked, "Qu' est-ce que c' est le set aside?"

Does the Minister agree that those figures make a complete mockery of the single market? The Minister in another place is often on record as saying that this Government and this Minister will not let British farming down. Surely it is high time that the Government acted on that promise.

6.27 p.m.

Lord Hooson

My Lords, I feel very tempted to emulate the noble Lord, Lord Palmer, in his discussion on agriculture, which I had certainly not intended to do. However, I entirely agree with his criticisms of the Government on their treatment of agriculture. One of the attractions of the EC when we entered was that it was a managed market. It was supposed to be managed for the whole Community and not, as it were, give opt-out clauses for our country. As I listened to the debate this afternoon and heard people reflect on the way we proceeded in the 1980s, I concluded that the one skill which certainly improved in the 1980s was the skill of public relations. It seems to me to have been used to create the illusion of success which was not there and to plaster over the creeping difficulties of the British economy.

The noble Baroness, Lady O'Cathain, and the noble Lord, Lord Skidelsky, in their defence of the Government, which was rather more effective than the defence made by the noble Earl, seemed to me to ignore the fact that Government has a very important input. Of course we live in a global economy and there is a global depression but it is nothing like the depth of depression that we have in this country. For example, the noble Baroness referred to the increasing number of people over 65 in the population in this country. That was foreseen and predicted over 25 years ago. That has happened also in Germany, Japan and the United States. The proportion of the increase is about the same in all the industrial countries. Therefore when she puts that forward as an excuse for what is happening in this country, I simply do not follow the logic.

Of course one of the worst things that has happened in our political life is that we are so used to the confrontational approach that one feels it necessary to attack the Government wholeheartedly and blame everything on them, or else defend them to the utmost, as the noble Baroness did. I am quite certain that our economy basically has been in decline for about 100 years.

We have always underestimated the great contributions to the capital formations of our country which came from the Empire. It may not be a happy episode for some of our former colonies to look back on, but they supplied in many ways much of the capital that went into the industrial development of this country. It is true that we persisted with old methods and old industries. We probably poured far too much money into them than was wise and we did not compensate on the other side and encourage new industries. Nevertheless, there is an important component which a government always put into the economy of this country, and that is why the Motion is critical of this Government.

It is my view that the Thatcher era in this country and the Reagan era in the United States made an important contribution towards the world depression. Reaganomics were fairly disastrous and in our own country what may be called "Thatcher economics" were equally so. They also left us a far more divided country. Selfishness in general, and individual selfishness, became elevated to the status of virtue and unfairness became the order of the day. I do not happen to agree that it is economists who decide or should determine the wise course for any country. In the end the decisions are political and it is the economic effects of political decisions that we have to bear in mind.

What did we lose during the Thatcher era? It seems to me that we lost heavily on investment in British industry. There was a decline in capacity, which has been referred to already, in our manufacturing industry. Last week the managing director of the private investment branch of one of the largest merchant banks in this country told me something I did not know: that over 30 per cent. of the dividends declared by public companies in this country are now earned from profits abroad. That is a very high proportion. It is not that the money has not been available for investment in this country: it is that our public companies have chosen to invest abroad. Only last week we learnt that RTZ and, I think, Hanson's were buying coal mines in the United States. Just compare that with the state of the coal industry over here.

We must remember that what we suffered from in the 1980s, as we did earlier, was the lack of investment in British industry. Most of the money made during the boom period in the 1980s has not been invested in this country; it has been invested abroad. Why has that happened? That should be the question that we are asking. Is it a lack of confidence in the future of this country? Is it lack of direction? Should there have been greater control? These are all matters that a government should have been addressing.

Secondly, there has been the loss of traditional British skills. It was suggested in a leading article in a Sunday newspaper recently—I think it was the Independent on Sunday—that cheap unskilled labour is now our most significant national resource. Why has that come about? We are one of the oldest industrial countries in the world, with a great pool of skills. There has been great inconsistency in the Government's approach to the problems of support-ing skill in this country. In Wales in recent years the Government have been particularly proud of all the inward investment that we have been able to attract. Of course we are very glad of it. If it were not for the inward investment from the Japanese car companies, the German industrial companies and American companies, we should be in an even worse state now.

But how do we attract them? I have never seen figures of the amount of public subsidy that has been used to attract these companies to this country, but I know from examples in my own area that government agencies have been offering very large sums to induce companies to set up in this country, even companies with a poor financial record in their own country. Yet at the same time the Government have often refused to give help to native industries, and good reputable companies which were going through difficult times, when in fact the skills available to those companies represented a great national asset.

On the one hand, it seems that we are prepared to spend a lot of money attracting foreign capital to our country, and yet we have been unable to support some very good home-based companies at all. One example is the Leyland company at the present time. Is it wise for this country to let that company go to the wall, with the traditional skills that are found in that area? If we are able to put out millions to attract foreign firms to come here, as we have done, should we not be thinking in terms of providing money to preserve skills that are already here?

It seems to me that with old-established industries sometimes—of course one must take an independent judgment on each one separately—it is easier to maintain or develop its skills and modernise it than to introduce and support a new industry. New industries tend to be a bit footloose in my experience. They tend to come for a short time and take all the grants they can get. Then when they find greener pastures elsewhere, away they go. That does not happen with traditional industries.

I entirely agreed with the noble Lord, Lord Eatwell, when he referred to the debt-driven consumption boom. I am afraid that we could get into the same situation again. I also agreed entirely with the noble Lord, Lord Ezra, when he suggested a very practical means of increasing in a modest way, especially in the construction industry, opportunities in this country. I do not think we should leave it to the high street debt-led consumption boom again to try to lift us out of the depression. Of course this must be accompanied by international measures and common market measures to improve our economy because we cannot hope to do it as a single country.

However, it appears to me that we could do a great deal more ourselves than we have been doing. I should like to see much greater investment in industry, education and training for skills which would gradually enable us to get out of our present quagmire. We must get the economy going by means such as those that the noble Lord pointed out. I would go further. I think one of the greatest mistakes made in this country was made when the noble Lord, Lord Lawson, when Chancellor of the Exchequer cut taxes too much. I believe President Clinton is right in saying that it is impossible to tackle the American economy and its problems today without increasing taxation. I am speaking only for myself here, but I do not think that it is possible to improve our situation without increasing taxation—and I do not mean indirect taxation either but direct taxation on those who can afford to pay.

The truth is—I believe it was the noble Lord, Lord Grimond, who referred to this matter, although I am not using his exact words—that the chiefs in our country are very well paid in relation to the Indians. They have been all along—throughout the 1980s and the 1990s. That is true of the leading professions, and I include my own. I remember that when the top rate of tax was reduced at one fell swoop from 60 per cent. to 40 per cent., I did not meet anyone of any party in my profession who did not think that the tax cut had been too great. We would all have been grateful if it had been cut from 60 per cent to 50 per cent. It is now difficult to go back on that. But excessive tax cuts was one of the sources of our difficulties within the country.

If the green shoots that are talked about today as showing some signs of recovery do blossom, then in no time at all we will be in another fiscal crisis. The only way to deal with that is to have a modest increase in taxation early, particularly on those who pay in the higher bands. I would go along with the noble Lord, Lord Ezra, that if it is possible to earmark those increases in taxation specifically for investment it would be all for the good of the country.

6.40 p.m.

Lord Bruce of Donington

My Lords, I should like to add to the congratulations that have already been offered to the noble Lord, Lord Gilmour of Craigmillar. If this afternoon what we have had is a non-controversial speech within the conventions of the House, I am looking forward intensely to when he starts to become even moderately controversial. I hope that we hear from him many times again, and preferably soon.

I want to follow the line of argument that was just enunciated by the noble Lord, Lord Hooson. He pointed out the phenomenon of a very large overseas investment from this country, particularly, if I may add to what he said—no doubt he will agree—to the United States of America. Investment in manufactur-ing industry in this country has remained approximately constant ever since 1979 when it stood at slightly over £11 billion. Last year it stood at about £11 billion after a dip in 1980 to £7.5 billion.

There is general agreement that investment in British manufacturing industry has been far too low. In fact the capacity of manufacturing industry in this country since this Government have been in office has increased by 7 per cent. as against 32 per cent. in the United States and approximately 50 per cent. in Japan. So, on the assumption that was put forward by the noble Earl, Lord Caithness, that all government policy essentially consists of creating the climate within which the nation can become prosperous, on their own say-so the Government must have made an abysmal failure of the job. Quite clearly, they certainly have not encouraged any increased manufacturing investment in this country; rather they have encouraged it to go abroad. So they are indicted themselves.

We have been all through this before. I am slightly older than the noble Lord, Lord Callaghan. Perhaps I may put it more delicately by saying that the noble Lord, Lord Callaghan, is rather younger than I am. But I can still remember the days in the early 1930s when we suffered from what the late Ramsay MacDonald, supported by Mr. Baldwin, called the world depression. The fashionable term is now recession. The terms are said as though they are some external force or affliction—like a plague. There is no hint that the terms "recession" and "depression" essentially mean that the human organisations of society have failed to act in the proper way. It is corporate bodies, governments and private in-dividuals behaving in a certain way that gives rise, as day follows night, to a depression or recession. When there is a recession, as there is now, it is an indictment of those who participate actively in the affairs of a country.

It simply is not true, as the noble Lord, Lord Eatwell, was kind enough to point out, that a technological advance has been the prime cause of unemployment. That is complete rubbish. There was considerable technological advance between the end of the war and the early 1970s and yet unemployment remained at a very low level. We all know what happened and it is good to have the belated admission in rather less controversial terms this afternoon. A large part of the problem lay with the quadrupling of the price of oil in the early 1970s and the massive amounts of petrol money that flooded the world. That was one of the things that disturbed the comparatively smooth functioning of a mixed economy in the United Kingdom.

Those who were in receipt of these greatly increased incomes from the increased price of petrol—princip-ally but not exclusively in the Middle East—deposited them with British banks and with the world banking system. The function of banking is a comparatively simple one. It is to borrow money at one price and to lend it at another. Since that time, particularly over the past couple of years, there have been other additions to bank revenues which are possibly more controversial and subject to some criticism. But the basic function is to borrow money at one price and to lend it out at another. So, having accepted these vast deposits from the Middle East countries in particular, the banks of the Western world had to lend it out. They could not leave money there and pay interest on it without relending it.

There was enormous pressure from the banks of the world, including those of the United Kingdom, to get the developing countries or anyone who would borrow money to borrow it from them at very high rates of interest indeed. It went to South American countries and developing countries. It went all over the world. That very act in itself ultimately built up enormous economic problems for those countries— and since those countries were in trading relationships with ourselves and the rest of the world, troubles for ourselves too—to a point where, instead of participating in constructive trade with our own Commonwealth and other countries, most of the income generated in the countries was devoted to repaying interest and a part principal for sums advanced to them for comparatively useless purposes —mainly the purchase of arms. Where the bankers went offering to lend them money the arms manufacturers were close behind offering their goods in exchange for it. Those are the things that happened, and they injected an element of instability into the world system and indeed into the United Kingdom system which was very difficult indeed to deal with.

Essentially, we are talking about a philosophy, as before the war, of leaving everything to free enterprise. I remember very well in the early 1930s Montagu Norman and all the rest of them saying that free enterprise and market forces would solve all the problems, but they did not. What led to full employment was rearmament in the late 1930s and the fact that we had to control the economy very rigidly during the war itself. We were helped by forms of Lend Lease from the United States.

I very well remember that after the war if unemployment went above 2 per cent. it was reckoned to be extraordinary. I well remember the White Paper to which my noble friend Lord Callaghan referred. In that the Government themselves accepted responsibil-ity. Under the coalition terms at the time, which were supported by my own party as well, we accepted full employment as a principal objective. That has gone.

Where we made the mistake in the years following the early 1970s, particularly on the return of a Conservative Government, was that we thought that the same kinds of solution would apply again. We believed that all we had to do was to leave matters to market forces. Today we have the result. We have not 3 million unemployed, but on the old basis which applied in 1979 until the figures were doctored, we have nearer 4 million unemployed today. That has been the result of adopting purely market forces' policies with no controls and the abolition of exchange control leading in part to the liberty to invest on the lines put forward by the noble Lord, Lord Hooson. That has not worked.

That situation has been accompanied by another and even more important factor. It is a psychological factor in a sense. Concurrently with the readoption of policies which failed in the 1930s and through which I lived, there was a deliberate social policy of advocating that everybody should look after themselves first and that society did not exist. Society was a myth. That was the error.

I am not so pessimistic as the noble Lord, Lord Jenkins, evidently is at the publication in the Daily Telegraph of the disenchantment chart to which he has referred. I am far more cheerful than he is about that. I can remember in the past couple of months the announcement of the pit closures. That so stirred British society that I saw the most surprising kind of demonstration taking place, in Kensington of all places. People of all classes and types, carrying umbrellas, were marching in protest. That shows that there is still a collective conscience in the United Kingdom and unless the Government are very careful indeed, that conscience is going to be aroused again.

I do not want to be unjust to the noble Baroness, Lady O'Cathain, when I say that she seemed to be a little like an accountant. I am one myself, except that I have emancipated myself from that intellectual state to a point where I do not think that I am one of those who knows the cost of everything, but the value of nothing which is the normal attitude of an accountant. Today we are too prone to take that attitude. But we are improving.

Unfortunately, however, there are other trends at work. One cannot have been alive over these many years, particularly since 1979 and perhaps even before then, without believing that those who lead us and the economists who advise us, have become a little less buoyant and optimistic than perhaps their years and youthful vigour would justify. There was a mood in the late 1970s which I noted and regretted. It was that we had run out of solutions to the problems that we faced. That was pardonable of course because of the disturbance following the quadrupling of the price of oil to which I have referred, which put every Western economy into a very difficult position indeed.

I began to notice in the late 1970s in particular, a sense that governments, including the one which I supported, began to wonder where they were going to go next. In other words, they thought they had to go somewhere. That somewhere was of course Europe and the Common Market. It suddenly became fashionable to say that we have got to go somewhere else other than where we are; we have nowhere to go. I raised an eyebrow at that at the time because, personally speaking, I was brought up in the United Kingdom. It has always been slightly apart and divided from the Continent by the Channel. But I never thought that we should move it bodily to any other place. The United Kingdom has been quite all right for me.

There is the idea that somehow we have, physically and spiritually, to transfer ourselves away from our own country into somewhere where we can take shelter. I thought then and I think now that that is a lot of nonsense. We in this country are quite capable —having both the intellectual qualifications and the spiritual drive which exists behind all progress and all civilisation—of extricating ourselves from our own difficulties without seeking shelter in any other place.

Concurrently with that there has been another tendency to believe that since our old brains have obviously failed us in being able to solve the recession, then impersonal forces should be brought to bear on the problem and that we should have some discipline. So we had the exchange rate mechanism that was going to prevent the need for us to think any more. The matter would be settled. We could have fixed but flexible exchange rates. They tend to be more fixed than flexible. On that side of things we need not worry very much as long as the rate is stable, forgetting of course that all countries of the world are at different stages of development and have different social conditions. Therefore there are bound to be variations in the rate of exchange between one country and another. We supplemented that and we are seeking to do so again, by once again thinking that if we can eliminate something from our normal thinking and delegate it to an impersonal force, everything will solve itself.

I am sorry to have to return to the subject although many of your Lordships must have expected it; namely, Maastricht. Here we have the problem in classical terms. There are certain aspects which we find too difficult. So what do we do? We propose to set up a European monetary institute or a European central bank, which is going to determine the main economic parameters within which we operate. At the same time, we give extra powers to the Commission which is composed of no doubt learned—but not entirely learned—bureaucrats, who then proceed to lay down by regulation exactly what we shall do—and not always with the approval of the Council of Ministers. Three-quarters of the regulations that come to this country are sent through on the nod by the Council of Ministers which has not had the time to read them.

There is a sense that we are passing the responsibility outside our own country. How ridiculous that is. Looking at colleagues in your Lordships' House, I see the noble Lord, Lord Skidelsky, and a number of noble Lords on the Liberal Bench, the Cross-Benches and, indeed, on my own Bench. There are some formidable brains here. Have our bankers had such a good history—do they have such a good record—of the faultless administration of policy to be entrusted en masse with the determination of the parameters within which we can determine our own policy? I think that it is folly. In the same way, I think that it is folly that we should allow the Commission in Brussels to take powers which, apparently, we are afraid of exercising ourselves.

I have great faith in our country. There are sufficient ingenuities among the people of the United Kingdom—male and female—who by intelligence, application and, above all, by the transmission of compassion, can bring peace and serenity to our country.

7.1 p.m.

Lord Clark of Kempston

My Lords, I too add my congratulations to those that have been paid to my noble friend Lord Gilmour of Craigmillar on his maiden speech. When we were Members of another place he and I did not always see eye to eye, but I admired his ingenuity in keeping his maiden speech uncontroversial. Indeed, there was much in it with which I could agree.

I was delighted when I saw that we were to have a debate on the economy, but I was rather disappointed by the speech of the noble Lord, Lord Jenkins of Hillhead. He spent far too much time attacking personalities—both on this side, when he referred to my right honourable friends the Prime Minister and the Chancellor of the Exchequer, and when referring to his former colleagues. I thought that that was a shame. He spent some time talking about education, but did not mention that he was a member of a government who introduced comprehensive education into this country thus killing the grammar schools, the basis of our excellent education system.

Although the noble Lord castigated both the Government and the Opposition for their economic policies, and there was criticism of the Government also from the noble Lord, Lord Richard, neither mentioned that despite all the vicissitudes that the Government have experienced we have not had recourse to the International Monetary Fund, as they did: so I do not think that our economy can be as bad as they make out. One thing that worries me, however, is that when influential people run down this country's economy it only gives comfort to our competitors.

Much has been said about manufacturing industry. Everybody knew that in 1979 our manufacturing industry was overmanned and trades-union dominat-ed. I agreed with the noble Baroness, Lady O'Cathain, when she gave us her experience of the Leyland episode. Just think of the amount of taxpayers' money that went into the car industry which eventually collapsed.

Like every other country, the United Kingdom has suffered because of the world recession. The Budget is looming and the Government and the country face an overseas budget deficit. I am delighted that the Government have at last returned to differentiating between revenue expenditure and capital expenditure. Thirty billion pounds of our £37 billion deficit for this year comprises capital projects. That puts a different complexion on our overspending. I do not believe that the Chancellor will have much trouble funding his public sector borrowing requirement, but I should like him to look at capital gains tax. I have been convinced for some time that capital gains tax is a deterrent to the movement of capital. Capital is immobilised because people do not want to pay capital gains tax.

We should look at the background to any debate on the economy. My noble friend the Minister pointed out that the inflation rate, which was over 10 per cent., is now down to 1.7 per cent. That is the lowest in Europe and the lowest that this country has enjoyed since 1967.

Overseas assets have also been referred to. We should remember that some of our overseas assets have been forced upon industrialists. Let us take the United States as an example. It is extremely difficult to break into a market in the United States unless one has a subsidiary there. I know from personal experience that that applies particularly to the boot and shoe industry, where the situation is very difficult. Much of our overseas investment helps our exports because without it we would not be able to enter overseas markets. It shows the strength of the British economy that we have well over £100 billion-worth of assets abroad—not only in the United States, but throughout Europe also.

Inward investment is sometimes criticised. I should have thought that any inward investment in this country must mean that the foreigner who is investing has confidence in our economy. Thirty-three per cent. of all the inward investment in the European Community comes to this country. That is a telling point. Again, 41 per cent. of Japanese inward investment comes to this country. The Japanese are no fools and they would not invest in a country which was on the rocks. Some 36 per cent. of the United States' overseas investment comes to this country. One need only go to Tyne and Wear to see the Nissan factory there or to Derby to see the Toyota factory to realise that there is no question about the amount of inward investment. The projects in those areas are now coming on stream. Indeed, the trade deficit in cars which we have suffered for years since the collapse of Leyland and the rest will be remedied within two to two-and-a-half years by which time those factories will be giving us an export surplus in motors.

The noble Lord, Lord Jenkins, said that the Government view the 3 million unemployed with indifference. That is a travesty of the truth. He did not mention our training assistance and training programmes. However, despite the fact that we are now coming out of the recession and production will start to increase, we must face the fact that large firms will not mop up as much of the unemployment as one might imagine. It will be very difficult for large companies to do that because the advent of automation and robots displaces labour. The Government must reflect on the fact that, with the current high unemployment, now is not the time to reduce the number of servicemen in the forces. We could do that when the unemployment figure has been brought under control.

We must look to and depend on our smaller companies to solve the unemployment problem. Those companies have been helped. As my noble friend the Minister said, the base rate has come down from 15 per cent. to 6 per cent. My right honourable friend the Chancellor has made a move towards insisting that the banks, and the building societies for that matter, pass on base rate reductions to their customers. In many cases that is not being done. In many cases the banks and building societies increase their profit margins. If there is a one point reduction, they give their customers a reduction of only a half point. That is not right. Corporation tax was 52 per cent. and is now 33 per cent. It is the lowest in Europe.

The small business corporation tax is down to 25 per cent. Also, of course, we shall not suffer from the so-called social chapter.

But smaller companies have problems. They are mainly cash flow problems. I know many companies which are profitable but which could go under because of their cash flow problems. In many cases, the banks charge exorbitant rates of interest. A company may have an overdraft of £100,000 and be paying interest at three or four points above base rate. If the company wants to increase that overdraft to £150,000, the chances are that the uplift on the whole of that amount will be six or seven points above base rate. Some companies are paying 22 per cent., 23 per cent. or 24 per cent. interest, and that is wrong. That is one of the factors affecting their cash flow.

Late payers also affect companies' cash flow. Some of the worst late payers are government departments, local authorities and public organisations. A small businessman may have a staff of five, 10 or 15. His cash flow is vital. He needs it to keep in business. The time has come for the Government to consider the imposition of mandatory interest after the terms of credit have expired. If one does not pay one's VAT on time, the Customs and Excise charge 10 per cent. If one has a VAT liability of £100,000, the Customs and Excise want £110,000 if one pays late. Let us imagine that onerous burden on a small company. If we are to help small companies, let us help them in a positive way.

I hope that in his Budget my right honourable friend the Chancellor will again look at capital allowances. He increased them to 40 per cent., and then one has 25 per cent. on the reducing balance. It takes nine to 10 years to get back one's money or to charge it against one's profits. We should have a straight line: 40 per cent. in the first year; 30 per cent. in the second year; and 30 per cent. in the following year. In three years a company will have written off the sum.

We have 3 million people self employed. The number of self-employed people has grown tremen-dously over the past few years, mainly because of redundancies and so forth. There was a good article in the Daily Mail yesterday. I do not know whether your Lordships have read it. It was about the self employed. The simple answer suggested was that if all the self employed took on one person, the unemployment problem would be solved. I accept that that answer is too simple. But the article suggested that considera-tion might be given to allowing the cost of domestic services, child minders and so on, against personal taxation. That could help.

In the City a new organisation has just been set up. I was delighted to hear my noble friend Lord Skidelsky refer to it indirectly. It is called the City Group for Smaller Companies (CISCO). I have a vested interest in that I happen to be its president. It wants to help the smaller companies. There is a strong rumour that the Stock Exchange is to get rid of the unlisted securities market. Let us take access to capital. If the company is big it can have a rights issue. It will be all right. All its shares are quoted in the Financial Times, The Times and other newspapers. If the USM is cancelled the small company's access to capital disappears. That affects some 1,500 com-panies, as I am sure my noble friend will agree.

The City Group for Smaller Companies will try to remedy the lack of understanding of the City's role in the raising of money. Many small companies have no idea of how to go about raising money in the City. My noble friend the Minister referred to that point when he opened the debate. No one denies that there are difficulties in our economy, but pay awards are down, the 20 per cent. to 25 per cent. reduction in the exchange rate helps our exports; and exports are increasing. In the Autumn Statement the Government said that they would curb public expenditure. I was delighted to hear that that does not include capital expenditure, because it would be folly to cut capital expenditure.

I agree with the noble Lord, Lord Callaghan, my noble friend Lord Gilmour and other noble Lords, that this is not the time to be increasing taxation, direct or otherwise. Let us do it when we are a little more affluent. I believe that the Government should look at child benefit. There are many people receiving child benefit who should not do so. It should be taxed. I would rather help people with children who are on low incomes.

There are other arguments about the economy. Retail sales are turning up. The increase has not been dramatic, but it is happening. Production is turning up. Exports are up. Car sales are up. We should stop being gloom-mongers. There is a hard road ahead. No one denies that. But there are clear signs of recovery, and we should stop denigrating our achievements.

7.18 p.m.

Lord Holme of Cheltenham

My Lords, I must start with an apology to the House, in particular to the Minister. I fear that I misjudged the starting time of the debate and the spacious course that it would take. Consequently, I shall have to leave before the winding-up speeches to attend a long-standing engagement.

I take it as axiomatic that in a modern industrial democracy successful and effective economic policy rests upon two pillars. The first pillar is that of fiscal and monetary policy which sets the macro-economic conditions for success. The second pillar is an industrial policy which, at the micro level, makes it possible for industry and commerce to thrive. Those two must go together. My criticism, which I should like to share with your Lordships, is that the first pillar of fiscal and monetary policy has been faultily constructed; and the second pillar, of industrial policy, has been neglected and allowed to crumble. It is therefore not surprising that we do not have an economy in which any of us can take any pride or satisfaction.

I shall turn first to fiscal and monetary policy. The noble Lord, Lord Gilmour, in his brilliant maiden speech which, like other Members of your Lordships' House I greatly enjoyed, as well as being educated by, said that he thought the Government's fiscal and monetary policy had, by inadvertence, arrived at more or less the right place. Other noble Lords appeared disposed to agree with that; that is, those who are critical of what preceded it and those who, by and large, are disposed to defend the Government.

I am afraid that I do not take such a complacent view of where we are today on fiscal and monetary policy. I defy anyone to identify clearly the main thrust of those policies. It is quite obvious that the markets are completely confused, even though some of your Lordships may be clear. For instance, are the Government minimising inflation or maximising growth? Of course, the Government would like to do both but one cannot maximise everything. Which is the subordinate aim and which is the primary aim? Are the targets which matter most those on inflation or the growth projections on which so much depends? Are the Government determined to be a model of fiscal rectitude able, without raising interest rates, to sell the massive volume of gilts which they need to sell to cover our vast deficit?

I wonder whether noble Lords are aware that the projected £50 billion PSBR amounts to the Government of this country borrowing during the coming year £50 per week for every household in Britain? Of course, many gilts will have to be sold by the Government to cover that vast volume of borrowing. Naturally they do not want to raise interest rates, and in that case they must give clear signals of their intentions to the market.

Do we have a Government which wants to be fiscally proper, or do we have a Government of strong nerve gamblers who are willing to risk all on an immediate dash for growth, including even lower interest rates and a further depreciation of the currency? The answers to those questions are not clear, either to the markets or to the general public. Ever since Black Wednesday and that extraordinary departure from the ERM—and I have been amazed by the glib way in which the Government have sought to turn a historic and devastating defeat into some kind of victory for economic policy—there has been no framework for a monetary and fiscal policy which is understood by the market and investors alike.

However embarrassing it may be to the Government, which we know are divided on the matter, will the Minister give a clear statement about the Government's intention to re-enter the ERM at the earliest opportunity? I understand that given today's economic condition in Britain the earliest opportunity may be a matter of years rather than months. However, it is crucial to know whether it is the Government's intention to re-enter the ERM. We know that they have difficulty in answering the question because of embarrassments within the Conservative Party on the European issue. However, we cannot get through the next 12 months without a clear statement of intention. It is one of the only potential sources of stability, to which the noble Lord, Lord Skidelsky, referred.

I hope that it is the Government's intention to re-enter the ERM because it would give an indication of the policies which should be pursued during the intervening years. It would give some scope for the international co-ordination of action, which is indispensable for a medium-sized economy such as ours in an interconnected world. I hope that it is the Government's intention to re-enter because a single currency is a natural extension of a single market. I hope that the Government will make it clear that it is their intention to re-enter because if they do not there is a real danger that the famous train about which we have heard so much will leave the station without us.

I say that not for the usual hackneyed reasons that we have discussed so often. I say that because next month there will be an election in France which the parties of the right are expected to win. Your Lordships will be aware that in France the nationalist right and the European right are two different parties which co-exist within one party as we have in Britain. The two parties have come together in a coalition for the election. They have made it clear that if they win, as is likely, they will press ahead with negotiations with the Germans to try to form an inner core Euro-mark group of some kind. It is impossible to predict what it will be called but there will be an inner core European currency.

We should reflect for a moment on what that means for us. For patriotic and traditional reasons many people will believe that the pound sterling will eventually hold its head up high. But the truth is that we have a world in which there are three major currency blocs; that is the yen, the dollar and a new inner core European currency. Sterling will be a small cork bobbing on a stormy sea. It will always be the first target for speculators. One of the ways of dealing with that is for the British Government to give a clearer lead in regard to their intentions and to fortify the Germans in particular, who are still open to the possibility of a larger European currency grouping. That may not be the case for much longer if the Government party, for reasons of their own embarrassment, continue to turn their back on that possibility.

Of course, that is not the end. As John Maynard Keynes pointed out, there is an issue of confidence and in the end it depends on the animal spirits derived from confidence. Will people invest? Do they believe that things will get better? I hope that I shall not disappoint the noble Lord, Lord Clark, if I become political for one moment. My noble friend Lord Jenkins said that he would not talk about the Chancellor of the Exchequer, but I am bound to do so for just a moment. There is attached to the Chancellor what the markets call a reverse premium. It is difficult to tell what Mr. Lamont is worth. Is he worth 10 cents. against the dollar, 15 pfennigs against the deut-schmark or 100 points in the market? Those are the amounts by which our currency would strengthen and our markets would rise if the Chancellor of the Exchequer were to do what he should in honour have done after Black Wednesday; that is, to resign. There can have been few Chancellors who have had it in their own hands so directly to improve confidence. If the change that will be made were made earlier rather than later that would be widely supported and the Government's position would be strengthened. If the change were made it is important that the ambivalence about Europe, which is apparently necessary to the party opposite but which is fatal to our economic prospects, is at the same time brought to an end.

The noble Earl, Lord Caithness, and other noble Lords have referred to inward investment. That has been one of the success stories of the past 14 years. Indeed, I am tempted to say that the only industrial policy of the Government during the past 14 years has been to attract inward investment. However, I wish to warn your Lordships that complacency on the subject is inappropriate. The figures for the past few months show that inward investment is drying up very fast. The reason for that has nothing to do with the skills of working people, nothing to do with British industrial relations and nothing to do with the incentives offered to workers. The reason that inward investment is beginning to dry up is that the inward investors, in particular the Japanese, are no longer confident that we shall be inside the European Community in a full way.

The other pillar to which I briefly referred and to which I wish to return is the need for industrial policy; an "industrial strategy", if you will. They are two words which, during the Thatcher years, we were not allowed to put together; it was the strategy that dared not speak its name; and yet every other industrial country has some kind of industrial policy or strategy. Other countries do not believe that the invisible hand can wreak miracles.

There are a number of elements to a proper industrial strategy: there is the infrastructure investment, to which my noble friend Lord Ezra referred; and there is the need for a sectoral strategy, particularly on research and development, in those residual areas of manufacturing where we are still strong. I give as examples only, because fortunately there are a few others, pharmaceuticals, speciality chemicals, aerospace, computer software, publishing and in particular English language publishing. There are still areas of strength for this country. Within the limits of what the Government can do, they all deserve the greatest possible focus and help, particularly as regards R&D.

There is the question of refreshing our skills. I am glad that several noble Lords referred to the 1 million long term unemployed. I was struck by some of the ideas which the noble Lord, Lord Skidelsky, put forward. The noble Baroness, Lady O'Cathain, is right; there is structural change. However, it is unforgiveable that 1 million of our fellow citizens are long-term unemployed. That is not just a threat to our consciences but a threat also to our economic future.

At the level of industrial policy there is a need for competition. I have been slightly disconcerted by one or two voices on this side of the House which have appeared to want to throw out the baby of competitiveness and competition and a response to market forces along with the bath water of failed government economic policies. It is essential that we remain competitive and that the object of our policies is to sharpen our competitiveness rather than to discard it.

Finally, on the question of industrial strategy, there is a clear need for Britain, with its historic educational achievements, to be an added value economy and to be a relatively high quality economy. All over the world in major companies a quality revolution is taking place. It is true of some British companies and should be true of more of them. The design, performance, engineering function, delivery and service should be of the highest possible quality. Although I regard it as only a step in the right direction, I believe that, as regards public services, that is what the Government are trying to achieve through the Citizen's Charter. If we are to have an industrial future, it is essential that the culture of this country should be one which supports quality rather than one which, as it has done in the past, supports second best.

The Prime Minister is in Washington and we understand that he is going to talk to the President about free trade. I hope that the President will listen carefully. It would be a disaster for the world if the Uruguay Round of GATT were not completed. I hope that the Americans will be fully responsive to the need to turn their back on protectionist policies and to embrace the policies of free world trade.

However, I hope also that when the Prime Minister is there he might ask Mr. Clinton about his own economic presentation that he has made recently and in turn listen to him, because it is quite clear that in the United States we have new leadership which is pledged to action. It is basing that action on shared sacrifice by everybody in American society and it is based on a clear strategy. I believe—it may be an unfashionable view—that the British people would respond to a similar challenge from the leadership of this country. I fear that the tragedy is that they will not be given such a challenge by the party opposite.

7.35 p.m.

The Earl of Longford

My Lords, in the course of his interesting speech, the noble Lord who has just spoken called on the Chancellor of the Exchequer to resign. I shall not become involved in that personal issue but perhaps I might pass on, through the noble Lord if necessary, a piece of information that came to me when I resigned from the Cabinet a good many years ago. The late Lord Salisbury, the then Leader of the Opposition here, wrote to me to say, "It is never the right time or the right issue, so you will be told, on which to resign but if you do resign you will never regret it". The noble Lord may wish to pass that on to the right honourable gentleman the Chancellor of the Exchequer.

Like other noble Lords I am grateful to the noble Lord, Lord Jenkins of Hillhead, who opened this debate in his usual distinguished fashion. I join in the congratulations to the noble Lord, Lord Gilmour, who trod a very skilful path. He was determined to observe the conventions of the House while making plain his distaste for much of what has occurred under Conservative governments in recent years. I believe that he said—it seemed to be his message—that in the Thatcher years "the rich got richer and the poor got poorer". He seems to have arrived at some kind of satisfaction with the present Government, but I see no reason to suppose that that tendency has been reversed at all. I hope that the noble Lord will consider that point before he further endorses this Government. It goes without saying that in this House we shall always wish to hear from someone like the noble Lord.

I hope that I shall be allowed a few words of personal reminiscence which will bear on what I want to say about the present situation. In 1930–32, as a young innocent fellow just down from university, I worked in the Conservative research department. I meant no harm to anyone. In those days there were no Conservative economists so I was presented as the next best thing. Between 1932 and 1936 I made my way into the Labour Party. It was not one of the most spectacular conversions compared with that of my dear friend the noble Lord, Lord Prentice, who served first in a Labour Government and then in a Conservative Government within quite a short space of time, which was far beyond my powers. In fact, the noble Lord, Lord Jenkins, has played a very distinguished part in three parties in the past few years, which must be almost a record. The noble Lord is well versed in history and I wonder whether he can tell us whether anybody has been a leader of three parties in such a short space of time or any space of time. I shall leave the noble Lord to cope with that when he winds up the debate.

I was looking at the matter this evening from the point of view of an innocent, well-meaning young man with a good degree down from an eminent, ancient university wondering which party to join. What would incline such a person to join the Labour Party? Obviously he will not join the Conservative Party because I think, by common consent, they are the most helpless government in the history of government. I am not saying anything against helpless people. It is not a vice to be helpless. It may be rather pathetic and may arouse compassion. I have met no Conservatives outside this Chamber who have not said something to the same effect, unless they are on the payroll because those people are in a different position.

However, that does not necessarily put everyone against the Conservatives. I met an elderly lady recently—she was not as old as I am because no one is these days—who said to me, "I like this Mr. Major. He obviously has not the slightest idea what to do and yet there he is, as cheerful as anything". What used to be called the duty of cheerfulness is clearly one of the Prime Minister's virtues, and perhaps that appeals to the electorate. Therefore, I shall not discuss the matter as an election agent and argue whether or not he is popular in the country. I believe that we can all agree that he is a well-intentioned man.

Let us suppose that a young man is very idealistic and intelligent. In that case, he would clearly rule out joining the Conservative Party because he could not have any sympathy for its helplessness or the policy of making the poor poorer and the rich richer.

For many years after the war under various governments, both Labour and Conservative, the national income was distributed in a fairly equal fashion. However, since Mrs. Thatcher came to power the national income has been distributed in a less and less equal fashion. In the old days when I was a Conservative—a hundred years ago or whenever it was—that would have been considered a good show. I remember a leading article in The Times that pleased us in the Conservative research department. The article said that unfortunately wealth is like heat. It is only when it is unequally distributed that it performs what the physicists call work; in other words, that is the doctrine of inequality of wealth as against equality of wealth. The Conservative Party achieved a more equal distribution of wealth under the great Conservative leaders such as Mr. Macmillan and Mr. Butler, as they were then.

The young man I have mentioned will be tempted to follow the noble Lord, Lord Jenkins. He must feel that the Chancellor of Oxford University must know something. He would undoubtedly be attracted to the noble Lord on personal grounds. However, he may wonder whether the noble Lord is still on the move and whether there is a danger that the noble Lord might join a fourth party in the next few years. I think, therefore, that he will rule out the prospect of following the noble Lord.

Therefore, the young man is left with the Labour Party. When I decided to join the Labour Party I was convinced that it was the party with the highest Christian ideals in regard to us all being equal in the sight of God. However, I could not make up my mind whether a Labour government would be capable of running the country. The Labour Government of 1929 to 1931 was not a good advertisement for the party. People have said that I decided to join the Labour Party after having attended a fascist meeting. However, that is just a silly legend. I came to the conclusion that the Labour Party would be at least as competent as any alternative. I decided the Labour Party's policies would result in far more social justice than the policies of any other party. However, I cannot think that my young friend would not consider the Labour Party to be a more competent party than the party now in power. I like to think that the Labour Party would rule more efficiently than our present extremely incompetent rulers; but, there again, would that be the case?

Although I believe the Labour Party would be a big improvement on this Government, I do not think it could emerge tomorrow with the kind of policies that we in the Labour Party would hope to see emerge eventually. I have great personal confidence in John Smith, although I have only met him once. He does not need my confidence in him. He is a Christian Socialist. I also have great confidence in his principal colleagues, although I do not know them personally. However, I do not think for one moment that if they were elected tomorrow it would be sufficient for them to say, "We are socialists and everything will turn out all right". A policy must be worked out. That policy must not be one that is based on extending the powers of the state if in doubt. It certainly cannot be a policy based on this dreadful market system that we have discussed at length. The policy must to some extent be a new one. Is that a betrayal of the principles of Beatrice and Sidney Webb; and if so, is it something too horrible to contemplate?

I am a Roman Catholic and I am aware that the Catholic Church never changes; it just develops. It sometimes develops in quite a big way, as occurred at the time of Vatican II. I look forward to a big development in the Labour Party in the next few years under the leadership of Mr. John Smith and his colleagues. If my young friend cannot make up his mind tonight, I am sure he will be able to make it up before very long.

7.44 p.m.

The Earl of Halsbury

My Lords, in years gone by I was a consultant on, among other things, control engineering. I ask your Lordships to excuse me if I use some of my own lingo in discussing the matters before us this evening. By a transient I mean what happens when you tread on a banana skin. By transient response I mean the time it takes to recover from doing so. By a disturbed system I mean that you tread on a banana skin, stagger into a lamppost and fall down a manhole. The transient response between transients is a continuous process. A non-linear system is one in which effects are not proportional to their causes and may occur after a delay in time.

From that point of view an economy is a highly disturbed, non-linear system. It is possible to study it with a computer; and we have three models, all of which give the wrong answers. There is the Bank of England model, the Treasury model and the London School of Economics model. Wynn Godley's model at Cambridge always came up with the right answers, as a result of which he was shut down and his school ceased to exist. The economy is never in equilibrium although it may appear to be from time to time. By equilibrium I mean that the expenditure on consumer goods equals their output at full employment and the expenditure on capital goods at full employment equals the sum available for investment.

Processes like automation do not show up on the flat averages that you get when figures are reported. Automation is a somewhat vague term. It really stands for the advancing front of production engineering. But the sub-cultural effects, on the lines described by my noble friend Lady O'Cathain, get obliterated by this averaging process. The Government and the Opposition hurl average figures at one another intemperately across the table. What I find most discouraging is that neither appears to know the least thing about what they are talking of; nor for that matter do I, save in the most general terms.

Inflation is due to too much money chasing too few goods in an economy at full stretch. Further demand will be met by excessive imports and will depreciate a floating currency, leading to further inflation. Inflation can start anywhere but it always ends as wage inflation, the effects of which go on progressively after their causes have ceased to operate. That is the non-linear factor. That is the phenomenon known as stagflation; rising prices in a stagnating economy, with high unemployment.

The Government's self-congratulation on keeping inflation down is just vain boasting. They have done nothing to achieve that except do nothing. Inflation is tapering off as it would have done anyway in the absence of any transient which set it going again. Meanwhile the system stagnates in a lower key.

Governments, either directly or through local government to whom they make grants, are the grand patrons of infrastructural investment. The motto is: borrow, burrow and build at road intersections; any form of capital investment which will be inherited by posterity, who can pay the interest on the capital invested.

I have said this before. I have written a letter to The Times and it has published it. I repeat myself. We have 250 years of environmental mismanagement to rectify. We have inadequate roads and road junctions. We have out-of-date housing stock, schools, hospitals and prisons. Against that there are 3 million unemployed waiting for jobs, of whom 1 million are long-term unemployed; and the construction industry is at a standstill. Can you beat that? What are we doing about it? I know a young man who started his own business and obtained a wonderful contract to rebuild a large quarter of a substantial city. He has fulfilled the contract and he is awaiting his profits. But he has an empty office block on his hands, on every window of which he has painted "To Let". There are no lessees. What can he do but apply for liquidation? Yet there is a young man in the full flush of his youthful strength, with ideas and talent. What he has built is a great credit to him, but his company is in liquidation. Lists of bankruptcy rates are published in the newspapers and ventilated in Parliament. It all makes no difference.

The noble Lord, Lord Callaghan, asked what is government policy. I can say what government policy ought to be. First, it ought to be the Docklands railway. Why have the Government been dithering for more than a year over it? Why not get on and build it? Then there is my own hobby. I call it my own hobby, but I did not invent it. It is an old project: the 300-foot contour canal. That would be a canal built right round the Pennine chain at the 300-foot level. It would be a wonderful means of communication, although perhaps slightly out of date. It would provide marvellous recreational facilities for fishing and boating. In addition, it could channel water from the water rich North West to the water poor South East. We could not build it all overnight, but the project could be a standby and every time there was a slump we could invest a little more in the 300-foot contour canal, and in 100 years or so time we would have it.

If one asked any economist whether in modern terms it would pay to terrace agricultural land such as one sees in mountainous districts where the hillsides have been terraced, he could prove that it could not possibly do so. But it has been achieved through the patient labour of generations. Why should we not do something like that?

How would the 300-foot contour canal be financed? I would treat that in the same way as money is raised in wartime. What happens when one is at war? One has a war loan. Why should we not have a national recovery loan? I watched Roosevelt do that back in the 1930s. My old friend the noble and learned Lord, Lord Hailsham, said the other day that he had lived through the 1930s and remembered what unemployment was like in those days. I followed him and said that I had lived through the 1930s too, and I watched Roosevelt tackle the problem.

Roosevelt was a Keynesian. If one wants to know what Keynesians could do, one should motor from Birmingham to Wolverhampton and see the squalor caused by 250 years of environmental neglect on either side of the road. Take a look at the dereliction on the south-eastern approaches to Swansea. Go to Mansfield and see the coal tips of the last century all over the landscape. All that it needs is bulldozers and young men trained to use them.

The prerequisite is an earthquake to persuade the Treasury to separate capital expenditure from revenue expenditure. If one could take the whole of the nation's expenditure, through central government via local government, and separate the capital expenditure throughout from the revenue expenditure and then put it against the public sector borrowing rate, what would the economy look like then? Until the accounts are kept in such a way as to identify those figures, there is not the slightest hope of ever floating the kind of loan that I have in mind.

In the sphere of management I first took my seat in a boardroom where round the room was carved in the oak panelling the words "To manage is to foresee". There is no foresight in government circles. In case the Opposition might flatter themselves, if one changed them round there would not be the slightest difference. There would be exactly the same lack of foresight.

I say that in the certain knowledge that Keynesianism works because I have seen it work. I do not know whether I would be a Keynesian in a boom, but in a slump I am. That is what Keynes lived through and that is why he enunciated his theories.

7.54 p.m.

Lord Ogmore

My Lords, having listened to other noble Lords I am very glad that I have notes to which I can refer. I recognise the expertise of noble Lords who can speak without notes. It is an ability which those who do not try to make speeches do not appreciate.

When my father—who was one of those who could speak without notes, and I am envious of him in that respect—was in Parliament he dealt with economics, also in a ministerial capacity. That is not surprising in view of the link between the economy and electoral success. I am no economist in the literal sense and I suppose that I do not have an economist's brain, in the same way as Members of this House sometimes say, when discussing legal matters, that they are not lawyers. However, like them, I hope that one can adopt a commonsense approach to such matters without taking the expert's view.

Taking the commonsense view, I do not see how the Government can justify giving pledges to reduce taxation further when the fabric of the country is in such a sorry state. In the Tory party's enthusiasm to reduce government spending as a whole the vital need for investment in both people and infrastructure seems to have been overlooked. That is surely part of the reason for the present social and economic difficulties.

No taxpayer wants to see the Government throwing money at problems, but with seemingly endless reports of schools, hospitals and railways in need of repair I cannot believe that those areas are suffering only from bad management. There surely must be a real lack of funds.

I believe that it is fair to say that unemployment, poverty and lack of hope among the people leads to a society which does not function in an acceptable manner. I acknowledge the argument that to raise taxes at this time may kill any "green shoots", but we must ask how we got into this position. Surely it would have been common sense to invest in education when government revenue was rising. How is it that the need for a highly trained labour force was apparently overlooked?

I am often told that we are now truly part of a world economy and will become even more enmeshed when the GATT round is completed, which we sincerely hope will be soon. But how are we to be prosperous if we are not trained to a level to compete with the most highly skilled countries? I cannot believe that the Government intend us to compete on wages with the third world countries. I only hope that future governments learn from the mistakes of this period of Tory rule for I am sure that noble Lords on all Benches wish to see a prosperous and harmonious Britain.

7.58 p.m.

Lord Marlesford

My Lords, we are indebted to the noble Lord, Lord Jenkins, for the opportunity for this debate. At the beginning of his speech the noble Lord pointed out that he regretted the demise of the period when unemployment was the death knell of governments. With the greatest respect, historically that is rather inaccurate. If one considers the period we are presumably talking about—the 1930s—in 1931 the Labour Party held only 50 seats. Between 1931 and 1935 there was a large increase in unemployment and the Labour Party won only 150 seats at the election. During the period from 1979 to 1983 there was a considerable rise in unemployment yet the Conservative Government of Mrs. Thatcher were re-elected with a significantly increased majority in 1983.

It is a myth which was very prevalent and which in a sense sustained for a period from 1945 to 1979 a well-intentioned socialist consensus of policies which did Britain no good at all. They were policies of wide public ownership, high taxation, growing trade union power, large numbers of strikes and falls in productivity.

When the noble Lord, Lord Callaghan, referred to the same period, perhaps because of the affection and respect in which we hold him, we found his arguments seductive. However, there is one point which it is important to remember. A myth can influence people even if it is a myth. If we build up with high unemployment a period in which many people feel alienated, there is a real danger to social cohesion in the country. As a party which supports the present Government, we must bear that factor in mind. It is why the Government are deeply concerned about unemployment.

We live in a grim world. I refer first to the outside world. The United States has had low interest rates of 3 per cent. over the past two years. Nonetheless, consumer confidence is ebbing again. Only yesterday the Governor of the Fed, Alan Greenspan, said that he believes that the United States economy may again undershoot. People are already having second thoughts about President Clinton's tax proposals. He also shows an unhealthy inclination towards protectionism.

Some of the methods that he is using to obtain support for protectionism worry me. Noble Lords may have heard the speech which he made this week to the Boeing workers in Seattle. He told them that the reason they were losing their jobs was the unfair competition from the European Airbus. That is total nonsense. The reason that they are losing their jobs is that there has been a huge over-supply of aircraft and airline places in relation to the world recession and as a result of the deregulation of the airlines. It is one thing for a candidate for the presidency of the United States to make such a speech, but for the President himself to do so is demagogic. I am not therefore optimistic about the achievement of a GATT settlement.

I do not agree with the noble Lord, Lord Holme, that the coming defeat of the Socialist Party in March in France is likely to lead easily to a unification of the German and French currencies. The French economy is in a bad way, with high unemployment and high interest rates. The French franc will be under considerable strain. I should not be surprised if a new French government were to take the opportunity to go for some form of radical decoupling from the ERM. It is possible that the Germans will be persuaded to change their own domestic policies. That could make the continued maintenance of alignment between the two currencies possible.

As part of the United States' policy to try to prevent the increased penetration of Japanese exports the American Government have been attempting with some success to push the Japanese yen up. If the value of the yen goes up much further, there is a danger of a Japanese stock market collapse because, as noble Lords know, the present level of the Japanese stock market is largely a result of government rigging.

The outlook in terms of the United Kingdom structure is both good and bad. Perhaps I may take the good part first. There is no doubt that foreign investment has been crucial. Foreign companies now account for about 15 per cent. of all manufacturing jobs and 28 per cent, of net capital expenditure. One thousand German companies have invested about £8 billion in Britain. Rather surprisingly, I noted recently that 50 per cent. of all personal computers sold in the European Community are made in the United Kingdom. Another great advantage lies in our not having the social chapter of Maastricht. Tributes have been paid, inadvertently to some extent, to that aspect by such people as M. Jacques Delors. It certainly helps to make Britain a more attractive place for foreigners to invest in than other countries inside the Community.

The areas in which our manufacturing has faded are a depressing factor. A stock analyst of my acquaintance has recently returned from Germany where he visited 20 German engineering companies in order to see the effect on them of the devaluation of certain ERM currencies. He found that there was no consequent competitive pressure from Britain but there was additional competition from Italy. The simple fact is that Britain cannot export goods that we do not make. It is certainly to be hoped that we are able to expand our productive base. I suspect that much of that expansion will result from foreign investment. The flip side of foreign investment has been considerable overseas investment by British companies and British finance. I do not believe that that matters. I am sufficient of an internationalist to be happy to see capital moving around the world wherever it is felt that it has greatest return.

I refer now to a major problem that faces the Chancellor. The Budget deficit is almost certainly unsustainable. The Government are likely to have to sell about £1 billion worth of gilts a week. That will be hard. It is more than net domestic savings. Therefore a tough fiscal policy is necessary; that is, more tax or less spending. I favour necessary tax increases. Unlike others, I favour indirect tax increases. They are less of a disincentive to effort. VAT is particularly appropriate because it has no disincentive on exports. It channels resources from domestic consumption into exports. Whether the change in VAT should be to broaden its application or to increase the rate I am not sure. I should like to see the vehicle excise duty increased to the level of the mid-1970s when it was at a price equivalent today of £165. An increase from £110 to £165 would produce a net revenue increase to the Chancellor of £1.2 billion but would add only 0.3 per cent. to inflation.

The efforts of my right honourable friend the Chief Secretary to the Treasury to reduce spending will not, I believe, lead to significant savings within the timescale. I am sufficient of a Keynesian to believe that there are areas in which greater ingenuity could be used in the public spending area. I give one small example. English Heritage is responsible for dishing out grants for the restoration of historical buildings, churches and so on. Recently it has had to cut its grants from 75 per cent. to 40 per cent. which means that much of that restoration work will not take place. If English Heritage were to receive increased funding, it would immediately result in widespread additional employment in small construction companies around the country, which could make all the difference between life and death. There would be no import content. It would involve employing more craftsmen in small building companies. That is an area in which I should like to see some ingenuity.

I still believe that the inflation target is crucial. Wages of course are crucial to that target, as is monetary policy. I wish to say a final word on clearing banks and the Bank of England. The clearing banks have shown that they are wildly inefficient. They are now having to cut staff and branch networks. They expanded their balance sheets too rapidly, notably by lending to wobbly businesses such as property companies and crooks such as Mr. Robert Maxwell. They encouraged many small businesses which were unable to differentiate between the desire of the bank to lend to them and the prudence of borrowing, so that those small businesses took on unwise debt. Amazingly, they failed to learn from their own property crisis of the early 1970s, and the bad debts for both the personal and corporate sectors have been disastrous. In 1991 Barclays' bad debts increased by 64 per cent.; the Midland's by 152 per cent. and the National Westminster's by 161 per cent.

I am optimistic that the takeover of the Midland Bank by the Hongkong and Shanghai Bank will be beneficial. The Hongkong and Shanghai Bank is a splendid bank and I have the highest regard for Sir William Purves, its chairman. He has the opportunity of introducing new practices and new standards of clearing banking in this country through the Midland, which will hopefully force the other clearing banks to follow suit.

I favour an independent Bank of England. But I recognise that this is not practical at the moment. I should have liked to see my noble friend Lord Lawson as the Governor of the Bank. I happen to believe that on balance—one must take these things on balance —he was a first-class Chancellor. He was one of the few who had a feel for the economy. He was extremely radical and gave us a tax regime which is now highly competitive in world terms. However, he is not the Governor. As the next best thing I welcome the fact that the present editor of the Economist, Rupert Pennant-Rea—for whom I worked as a lobby correspondent for six of his seven years—has been appointed as Deputy Governor. He is of the highest intellect, integrity and toughness. Those are qualities which have been lacking in the City of London.

If the Bank cannot be independent I should like it to have complete responsibility for monetary policy, but under the guidelines laid down by the democratically elected Government. That is to say, the Chancellor, who is responsible to Parliament, should publicly say what the Government's strategy is and leave the operational decisions on monetary policy to the Bank of England. That would be a great deal better than having three separate groups, Treasury officials, the Chancellor and Ministers and the Bank, all muddling around with monetary policy. As a corollary to that it would be necessary to split away the regulatory function of the Bank of England, which it has not performed well. It is a role which is increasingly important and regulation is a big enough task to be made quite separate from that of the Bank.

I conclude by referring to the interesting question posed by the noble Earl, Lord Longford—he is not in his place—as to which party a bright young graduate who is thinking of going into politics would join. I suggest that he would wish to join the party where the action is, where there is the minimum ideological baggage and where there is an opportunity of exercising influence. That of course would be the Conservative Party.

8.13 p.m.

Lord Ewing of Kirkford

My Lords, I have been privileged this afternoon to sit through the whole of the debate and listen to a number of outstanding speeches. In that regard I pay a warm tribute to the maiden speech of the noble Lord, Lord Gilmour. Perhaps I may reminisce for a moment to say that when he and I were both in the other place there were a number of Members on both sides who, when they spoke in the Budget Debate, filled the Chamber. The noble Lord, Lord Gilmour, was one such Member. I can remember clearly when the noble Lord, Lord Lawson, when Chancellor, reduced income tax. The noble Lord, Lord Gilmour, objected to that reduction and I can remember to this day the phrase that he used: that governments should reduce taxes when they can and increase taxes when they have to.

A number of noble Lords argued today that it is not yet time to increase taxes. It may not be yet, but it is not far off. That is an absolute certainty. When I was listening to the noble Lord, Lord Clark, arguing that there should be no increase in taxation in the coming Budget I was conscious of the fact that in four or five weeks' time I shall be listening to him again, but justifying why there have been increases in taxation in the Budget.

The Government are already committed. The noble Lord who has just spoken asked for an increase in vehicle excise duty. The Government are already publicly committed, both in this House at the Dispatch Box and in the other place, to an increase in vehicle excise duty in the coming Budget. Indeed, when the Chancellor announced the abolition of sales tax—the 5 per cent. that remained—he made it clear in that Statement that he would recover the shortfall. That measure was announced in order to stimulate the sales in the car industry. He made clear in that Statement that he would recover the shortfall in the Budget by increasing vehicle excise duty. When we sifted in this House for a figure the noble Earl, Lord Ferrers, was kind enough to tell us that the increase would take vehicle excise duty to £160.

That is a substantial increase. Those that have been singing the praises of the performance of the car industry today must look forward with some trepidation to the injury that such an increase in vehicle excise duty will do to the productivity in the car industry. I hope that if Ministers on the Front Bench opposite do anything it will be to convey to the Chancellor that whatever he does in his Budget, or whatever he does not do, he must not further damage the industrial base of this country, which has been so badly damaged that it is almost non-existent.

I was interested in the opening speeches. As I listened to the Minister replying to the noble Lord, Lord Jenkins, a famous quote from the great Nye Bevan came back to me. At the outbreak of the Second World War there was a discussion about digging trenches. Nye Bevan said, "If I was digging trenches I would not dig them straight. I would dig them zigzag and I would hope that when the shells fell in the zig, I was in the zag". For every shell that fell in the zig from the noble Lord, Lord Jenkins, the Minister was in the zag. I have never seen a Minister avoid answering a noble Lord's speech in such an elegant way; sidestepping almost every issue.

I am grateful to the noble Lord, Lord Jenkins, for promoting the debate. I was interested also in some of his comments, as my noble friend Lord Callaghan said, about his old comrades. I was interested in the new political philosophy that the fact that there has not been a resignation among Government Ministers, against the background of all the mismanagement, is the fault of the Opposition. It seems that the Opposition are now responsible for imposing ethical standards on Government Ministers! We will take responsibility for many things but I do not believe that even the noble Lord, Lord Jenkins, would expect the Opposition to be responsible for imposing ethical standards on this Government's Ministers.

It may be that I misread the terms of the debate. Only the noble Lord who has just resumed his seat mentioned the social aspects of the effects of the Government's economic policy—the danger to the social cohesion of the country. Perhaps I can come to that in the course of my remarks without detaining the House for too long.

We must look at the facts as they exist and not as we believe they should be. At present this country has the highest level of unemployment—3,030,000 recorded. But we all know that it is much nearer 4 million. We have the highest level of long-term unemployment—1,030,000. Of the total 3,030,000 unemployed, 1,030,000 have been out of work for more than a year. We also have the highest number —over 1 million—of mortgage holders whose mortgage value is greater than the property on which the mortgage was first taken out. Added to that, we have almost the highest crime figures on record.

I do not appear here—or indeed anywhere else—as a moral judge; but we have the highest marriage breakdown rate per head of population that we have had for a great number of years. To add insult to injury—injury to injury may be the best way to put it —we have the highest psychiatric referral rate per head of population since the inception of the National Health Service. I hope that no one will tell me that that is a combination of factors that a government can ignore. No government can ignore such a combination of factors and their effect on the social cohesion of the country. It is a disgrace that nearly 4 million people are unemployed.

The noble Baroness, Lady O'Cathain, will consider that she has had a fair share—perhaps even more than her fair share—of attention against the background of the much better defence of the Government that she made than did the Minister. She was absolutely expert. I expected her and the Minister to change places at any minute. She made an expert defence of what she saw as the Government's position. From her point of view she quite rightly referred to her experience working for British Leyland at a time when industrial relations were quite bad, to put it mildly, and some would say appalling. I do not back off from that. I am a devout trade unionist and do not back away from the situation that prevailed in the winter of 1978 and the early months of 1979. At that time I had the honour to be a junior Minister in the government of my noble friend Lord Callaghan, and I described the winter of discontent as the worst example of man's inhumanity to man that I had seen.

I wonder what the noble Baroness would make of what is going on now. One can give a number of examples of what is happening in the country at the present time. What do the Government intend to do about such situations as the one at Timex, in Dundee, where the chairman and managing director deliberately provoked a strike? They told workers that they would need to accept a pay cut and give up all their fringe benefits. They deliberately provoked a strike and sacked the workers as soon as the strike was called. They also sacked those who did not go on strike. The company is now in the process of seeking to recruit a new workforce at much lower wages than the workforce that was sacked, and with no fringe benefits.

On an international level consider the situation in relation to the Hoover Corporation. It went to Dijon in France and said to the French workers, "Take a cut in wages and give up your fringe benefits. We will close the Cambuslang factory in Glasgow and transfer the work here." Hoover then went to Glasgow and said to the Cambuslang workers, "Take a cut in wages—a deeper cut than your French colleagues—and give up all your fringe benefits. We will close Dijon and bring the Dijon work here." That is what happened.

Take the Government's own position. It was announced that 31 pits would close. There was no consultation. The miners' union had to go to court to obtain legal enforcement because British Coal and the Government had not even gone through the legal procedures required. Management had not even gone through the legal procedures before announcing the closure of 31 pits.

I say to the noble Lord, Lord Jenkins of Hillhead, that the difference between the last Parliament and this Parliament is the Government's majority. Had the Government had a majority of over 100, by this time those pit closures would have been bulldozed through Parliament. As an aside, so also would the ratification of the Maastricht Treaty have been bulldozed through Parliament. Governments with small majorities cannot do what governments with large majorities can do. This Government's problem is that they are having great difficulty coming to terms with the fact that they have a small majority. They are finding it difficult to manage even their own business, let alone the nation's business, in the kind of situation in which they find themselves.

The difference in the structure of unemployment is also interesting. When the next election takes place the difference will be that, whereas in general elections up to the present time only one member of a family has been unemployed—and in some cases of greater hardship perhaps two members—at the next election whole families will be unemployed. That is the way the unemployment figures are moving and will continue to move, certainly throughout the whole of 1993. That will be the difference when we come to the next election.

The noble Baroness made one point with which I agree; namely, the structural change that has taken place in the age make-up of the population of the United Kingdom. What have the Government done about it? It is suggested that people should buy private insurance in order to fund their own pension when they reach retirement age. In this country there is not at present a man over 45 years of age or a woman over 35 years of age who could buy insurance that would provide them with an adequate pension when they reach pensionable age. So the Government have done no preparatory work to cope with the structural change in the age make-up of the United Kingdom.

I turn quickly to the social consequences. Those who predict social unrest in the country because of high levels of unemployment and deprivation will be the victims of their prophecy coming true. The only reason I sound this warning is because the threat is on the horizon. Throughout the length and breadth of the country there is a complete lack of regard for the police force, law and order and an organised society. That used to be so in isolated pockets and it was thought that the problem could be contained, but it is no longer isolated.

Let me repeat to Government Ministers, lest they be tempted to warn those who speak as I do, that one should not make such predictions because that is the way to stir up trouble.

In conclusion, I refer to the words of Martin Luther King. While imprisoned during one of his civil rights campaigns, a dozen or so of his fellow clergymen wrote to him. They pleaded with him to stop disturbing the peace and stop causing tension. Martin Luther King's reply should be placed on the desk of every government Minister: "Peace is achieved not in the absence of tension but through the presence of justice". The problem in this country is that the Government have heaped injustice upon injustice on the people of this nation and that is why we now face this crisis.

8.29 p.m.

Lord Beaumont of Whitley

My Lords, we come to the last bend in this very good"debate. We have heard a number of first rate speeches—some almost unexpectedly good—from Members of the House, which have produced new points and new experiences. What we failed to hear, at least until the last speaker, was much emphasis on the social side. This is a debate about economic and social consequences. I wish to join the noble Lord in speaking about those social effects.

Today, as many of your Lordships are aware, is Ash Wednesday. While of course I speak as a Liberal Democrat and, as is the convention in your Lordships' House, I speak for myself, I also speak once again, as I have before (with permission) on behalf of the Church Action on Poverty, to voice its concern on the matters which arise from this Motion. Lest anyone should imagine that Church Action on Poverty is a bunch of crazy heretics from the Marxist Left, I would remind your Lordships that it was founded by officers of the Board of Social Responsibility throughout the dioceses, who are not noted for extreme radicalism.

The movement started within that wild revolutionary body, the Church of England. Besides myself, the executive body has on it representatives of many of the free Churches and superiors of Roman Catholic Religious houses.

I would remind the House that representatives of Churches are particularly qualified to speak on the social effects because, almost uniquely among those who serve the poor, they live in some of the worst parishes in this land. Teachers and social workers do a fine job but most of them go home in the evenings. The clergy, it is true, probably have decent houses but they are stuck there among the muddle of poverty, squalor and, above all, the crime of the urban priority areas of London, Liverpool, Glasgow and Newcastle. It is those people who have asked me to speak in your Lordships' House on the social and economic consequences of 14 years of rule by this Government.

There is the feeling not only of a failure to support manufacturing industry, but also of efforts having been made, in the attempt to destroy trade unions, that have destroyed manufacturing. There has been the failure to realise that the main industrial powers in the world, Japan and Germany, know that organisation of the economy needs state intervention and support, and that domination of industrial organisation by the stock exchange is not a good idea. Another policy of this Government to which I have to draw your Lordships' attention—it has already been mentioned by other noble Lords although some of them have not deplored it but have praised it—is the opting out of the European effort by encouraging low wages and conditions, thinking that we can win by under-bidding Germany. We will never win prosperity by under-bidding Germany, because we cannot under-bid Korea.

The resulting mess made by these economic policies has left us in a position where we should at least look after the suffering and the casualties. We have a situation where benefits for the unemployed are too low for a healthy diet, where the increase of loans in the administration of the Social Fund leads to indebtedness, driving more and more people into debt, where there is little effort made to avoid the poverty trap, where there is appalling neglect of the welfare of 16 and 17 year-olds, and where there is a shift towards indirect taxation which invariably hits the poor hardest. I was horrified to hear one or two noble Lords come out in favour of that. There has also been complete neglect of low-cost housing over 14 years and even the policy of buying houses has been a disaster which is pushing more and more people towards the poverty area. Any "goodies" that are going, such as mortgage interest tax relief, go to the better off.

What is the result of this? At this stage I should like, if I might, to sum up in the words of the chairman of Church Action on Poverty. I quote: All of these aspects interconnect to hit some sections of the population and some areas with particular severity. Some whole boroughs, for example, and certainly whole neighbourhoods have high rates of unemployment and, where people are in work, they are in unskilled or semi-skilled low-pay jobs with little security. There is no spending power. Therefore there is no incentive for investment, e.g. for retailers or house builders. This in turn prevents employment opportunities increasing. People who are mobile and more skilled leave the area for parts of the country offering better prospects"— or which they think will offer better prospects.

The population that remains is more expensive for the local authority—it may have tipped towards a higher proportion of elderly, young children, lone parents—so that there is a greater call on need for social services, etc. Schools with a high intake of children from deprived backgrounds will be at a disadvantage in terms of test scores and exam results … Ambitious parents will send their children elsewhere, so starting another vicious circle. There are no jobs for young people to go into and therefore some of the more able ones leave. Even training schemes suffer because too few are employer-based ones and motivation suffers when post-training prospects are so poor. Young men become hopeless and are more likely to drift into some form of anti-social behaviour—drug abuse, crime, vandalism, joy-riding. Young women have babies to have a role in life and establish their independence. The social fabric that once aided young people's adjustment through adolescence to adulthood through employment has frayed and lost its structure. Instead of recognising the real structural problems in this sort of situation and having policies which will encourage investment, employment and improved social and physical infrastructure, the reaction from government has too often been one of blame. Blaming the unemployed; local authorities; parents; teachers—and of course the churches for not giving a moral lead! It is of course not all the Government's fault. There are world problems to combat and we all know that. Some politicians are trying hard to find out how to solve those problems and how to come to terms with the inevitable. This Government are pursuing a positively harmful policy and fighting a hopeless rearguard action while failing to aid the wounded.

In the course of the last week I have talked to two very respected commentators, including the deputy editor of a much respected national newspaper. They said to me that they do not expect this Government to last the year. They cannot foretell on what issue or how it will be, but they smell death in the air. If I may close as I began, in an ecclesiastical role, I will say "Amen" to that.

8.38 p.m.

Baroness Seear

My Lords, I suppose it must be agreed that the terms of this debate did encourage a knockabout attack on the Government —I am not of course describing my noble Leader's speech as "knockabout"—and a knockabout response from the Labour Party. That was a very enjoyable and well sustained battle.

Of course it does not really represent the reality of what has been going on and what is affecting us today. The fact of the matter, as everybody knows, is that the decline in this country has gone on for a very long time. It started over a hundred years ago and it has continued, in recent decades at an accelerating rate, under both Conservative and Labour Governments. The speakers from the Labour Front Benches, with justice, have accused the Government of all manner of misdeeds and mistakes but—and I do not wish to dwell on this—we could remind them that inflation did touch 25 per cent. during a Labour Administration, that we had the "winter of discontent" and that we had over decades a declining share of world trade for this country until it got down to under 7 per cent. That has been contributed to by both administrations. For good measure I shall add that if we on these Benches had had the opportunity to be the Government I am sure that we would have contributed to the mess the country is now in. There is no monopoly of stupidity and capacity for making mistakes in any political party. That is fair enough. But what really matters is not so much who is to blame or what particular misdeeds have contributed to the state we are in, but what we can now do about it.

During the course of today's debate a number of valuable proposals have been put forward which at any rate in the shorter run would do something to reduce the evils with which we are confronted—and evils they are. I was very glad that my noble friend Lord Beaumont brought out the social aspect of the problems of this country today to which, perhaps, too little attention has been paid, although I think it has been implicit in a good deal of what has been said. While I would not for one moment say that unemployment is a cause of so many social problems —it is not as simple as that—it is difficult not to believe that it has contributed very considerably to truancy, to crime, to a feeling of despair and to the development of groups of people who feel that they do not belong to society and that as society has done precious little for them they do not see why they should do anything for society. One could go on at length about that. But it has been implicit in what has been said, even if it has not been made as explicit as some speakers would have liked.

Some useful proposals have been put forward. Some of them could be implemented quite quickly and would make a modest contribution towards solving the problems that we encounter. The noble Lord, Lord Clark, talked about the importance of sustaining and assisting small businesses. There is general agreement that a reduction in unemployment could come most easily by strengthening and encouraging small businesses, which are capable of taking on a couple of people here and three people there. Spread throughout the country that could make a considerable contribution. The Government no doubt have that in mind. We should be interested to hear if there is anything that they think can be done—and done quickly.

The uniform business rate is an obvious candidate for dealing with the problem of small businesses that are harassed by the level of rates which they have to pay. And surely—we have made this point a number of times in your Lordships' House—it is possible to do something about the late payment of bills. It is quite monstrous that small businesses, sustaining employment and doing a useful job of wealth creation, income creation and work creation, should be handicapped by the deliberate refusal to pay bills on time. Is it really not possible to introduce an automatic interest charge—and perhaps an accelerating interest charge—if the delay goes on? That would speed up the payment of bills. That is a small and simple thing but it could be a considerable help in a number of cases.

Then of course there are the suggestions which have been made many times in your Lordships' House in previous debates and were made again by, among others, my noble friend Lord Ezra. Surely we could do something about investment in the construction industry. Surely we could pick on those schemes which have planning permission and on which we could go ahead now. That would create jobs quickly. One of the difficulties of trying to get recovery through the construction industry is that in some respects it takes a long time to move from the decision to encourage the construction industry to actual jobs and pay in people's pockets.

There are schemes which could be quickly put into operation. As we have said so often, the obvious one is to release the money held by local authorities and thereby provide local housing. That would have the double benefit of creating jobs and relieving the housing problem which we all agree is one of the most serious social problems and which has a multiplier effect on social problems. Homelessness in itself creates a whole range of other problems. If one can tackle that, one begins to contribute to tackling some of the other problems that are connected with it. We should help the construction industry and give emphasis to those schemes which are already waiting to get going and can therefore contribute jobs quickly.

We could also do something about the railways. Why this obsession with nationalising rather than getting on with improving them? We should get freight off the roads and onto the rails. That would have so many beneficial effects, instead of which we seem to be pouring money into roads. Wherever one goes in this country one is blocked by those red and white creatures—

Noble Lords

Cones!

Baroness Seear

—which are to be found right across the country. Surely that is not the best use of resources. We want freight off the roads. For green reasons it is always beneficial to get two for the price of one. If one improves the railways one relieves the congestion on the roads and one relieves the pollution caused by cars—and goodness knows how much money one could save. If one calculated on a time basis the man hours lost by sitting doing nothing in cars which cannot move, improvements on the railways would surely be a very good investment. In addition, although for the moment I do not want to dwell on it, more money is needed for education and training.

I want to reiterate the proposal put forward by my noble friend Lord Ezra. He has done the sums. He pointed out quite rightly that none of these things can be done without money. What is required is a two-year levy for investment. With the right leadership I believe that people would respond to that. We believe that our proposal during the election last year, to put a penny on taxation to improve education, was very much approved by the electorate. I have to admit that their enthusiasm for it was not reflected in votes in the ballot box, but as one went round one was told repeatedly that they thought that this was a very good scheme. The Treasury detests the idea of any hypothecated taxation, but the general public would respond very differently to the demand for an investment levy if they knew what it was going to be used for. There is a feeling that all the money goes into a bottomless pit or black hole and that no one sees any benefit from it. If they knew that it would be used for real job creation work, which is also work that needs to be done, the response might be very different. Will the Government think again about that?

These are all things which we could and should be getting on with doing. But what has not been mentioned today, although my noble friend Lord Ogmore touched on it, is something which fills me with the deepest apprehension, not least because it is raised so rarely. We are all talking as if a change of government or a change in policy would lead to recovery. I wonder. What this country has not faced up to is that we are now operating in a global economy. There is no going back on that. We have to compete throughout the world—the Asian rim, Japan, America and the Middle East. Supposing China takes off—it is showing all the signs of taking off—what a formidable competitor it will be. We have not begun to think about this, and yet this is where leadership ought to be pointing. We have to prepare ourselves to compete in a global economy. Already the share of world trade of Singapore, Hong Kong and Korea is the same as that of the United Kingdom. Their share is going up. I find that a horrifying figure.

How are we going to compete? This situation is true of all European countries. We talk as though we were competing only in the European Community, but European countries have to compete on this worldwide scale. But our position is worse than that of our fellow members of the European countries. Why? Because we have such a high level of unskilled and untrained people. As regards the unskilled work—except for that which is physically tied to the ground, such as sweeping the floor and so on—a great deal of it is going to the developing countries. It is going to those low-cost countries. British manufacturers and the company I used to work in are now sending many of their component parts to low-cost countries, bringing back those parts for assembly in this country. But the work that used to be done by unskilled people in this country is being done by unskilled people across the globe. That will and must go on.

Why do I say "must"? Because we have to combine with that the other terrifying statistic; namely, the increase in population in the developing and undeveloped countries. To double the population, as is expected, by the year 2300 will not create a pleasant time. I shall not be here, but I believe that the noble Earl, Lord Caithness, might be.

Lord Jenkins of Hillhead

My Lords, he will have grown up by then.

Baroness Seear

My Lords, unless those people can earn a living by trading in this global economy, the problems of migration which we talked about last week will be as nothing compared with the problems which we shall encounter as that population explosion continues. Those other countries will get this work. What will happen to the unskilled people in this country? One can have recovery and the recession disappearing and our unskilled people can be left like flotsam on the seashore unless we do something about it.

Surely what is needed is a mammoth attack on the untrained nature of our labour force. I refuse to believe that people in this country of all ages are not capable of learning new things. Many of them do not believe that they can. But if one can train Germans then one can train the English, the Welsh, the Scots and the Northern Irish. Surely it can be done, but it needs an investment of money—I stress the word "investment"—because if we do not invest and get rid of this huge backlog of the unskilled, the social problems that we see today will be as nothing to the social problems in 10 years' time.

8.53 p.m.

Lord Peston

My Lords, I start by agreeing with one of the more acerbic remarks of the noble Lord, Lord Jenkins of Hillhead. He is quite right in saying that we should certainly have won the election. Indeed, I believe that the electorate itself realises that we should have won the election. But when I reflect on why we did not, relevant to today's debate, is the fact that what was central to our defeat is that we were honest about tax increases and so were the Liberal Democrats. We said that expenditure was necessary and that we would raise taxes to finance it.

We were crucified by the Government supporters —perhaps I should say their erstwhile supporters—in the gutter press. I now say to myself: what will the Government say when, before very long, they raise taxes? In the light of the view that democracy is being brought into disrepute, what will the Government say specifically about that charge and their own activities?

I now turn to the speech of the noble Earl, Lord Caithness. What am I to say about it? I have heard it several times before both from him and from other Ministers. I do not blame him for that, but the invention of the personal computer and its associated word processing software. Essentially what happens is that one brings up the file marked "Economic Debate in the House of Lords". It comes up on the screen. One moves the paragraphs around; as we all know how to do a little, so that they are not in precisely the same order. One brings up to date the statistics and then one comes to your Lordships' House and reads the result out again.

There are two aspects of the noble Earl's speech which I was unhappy about. First, echoing his right honourable friend the Prime Minister, he referred to the rise in unemployment as being disappointing. I believe that such a euphemism does not measure up to the moral response required in the light of the social and economic tragedy represented by large-scale and persistent unemployment.

I also wonder whether the Government, represented by the noble Earl, when they praise low interest rates, the devaluation of sterling and high government expenditure, really appreciate what they are saying. Does the noble Earl not comprehend the intellectual betrayal involved? It is a complete repudiation of everything that he and his right honourable and noble friends have been saying for 15 years.

All the good points have been made and at this late hour—especially given the pangs of hunger—I do not intend to go over all that ground again. I hope that noble Lords will accept my apology. I agree with a great deal of what everyone has said. I am not going to go over those points, saying "I agree with this and that". I desperately look for one or two things which have not been said and come up with the need to remark on the seven wise economists, if that is not a contradiction in terms. They published their report on the economy last week.

Noble Lords will recall that when this group was first announced some time ago, I addressed noble Lords on the subject. I have not changed my view on it. I said then that if HM Treasury is unable to operate with its own economists, of whom it has a great many, it should simply fire them and get some more. It does not need this outside group. Indeed, given their report, I hold to my opinion more strongly than ever before.

What are we to make of a collection of persons whose views on the percentage change in GDP range from 0.2 per cent. to 2 per cent. for 1993 and from 1.4 per cent. to 3.4 per cent. for 1994; and whose views on inflation similarly range from 3.1 per cent. to 4.8 per cent. and from 1 per cent. to 4.9 per cent.? Above all, what is one to make of their views on the current account deficit range from £6 billion to £22 billion? As regards theoretical underpinnings, which are allegedly given by economics itself, other readers of their report may discern them but I cannot. The Chancellor would get better advice from the pools' panel than from this panel of seven economists.

The noble Lord, Lord Marlesford, referred to independence for the Bank of England. I am well aware of the theoretical case in favour. But again, we must look at the reality which in a way he alluded to. When I take note of the people who are appointed to senior places in the Bank, for all its failings in recent times I would still take my chances with the Treasury. That is again reinforced by reading the inflation report in the latest Bank of England Quarterly Bulletin. It is monetarist in the extreme. It would be an insult to the Bourbons if I were to make the usual remark about learning nothing and forgetting nothing.

As regards economic policy, the Government's original view was that all they had to do was to control inflation and everything else would then work itself out correctly. They believed that they could control inflation by controlling the money supply. Those days are not really so long ago when the Government were saying that. The Government then tried a fixed exchange rate system within the ERM. They were driven out of that. The Government now have a policy which is central to what we have to say; and that is the policy of creating large scale, permanent unemployment. The reading of the record of the 1980s and the early 1990s is that unemployment will peak at 3 million plus. That is not the point at issue. When the recession ends unemployment will not fall much below 2.5 million at best. That is the permanent legacy of this government's policies. The Minister said that we should not be churlish about that, but I am afraid that I have to be churlish because the Government have not solved the problem. They have simply produced unemployment. If they wish to keep the inflation rate under control, they will have to keep that level of unemployment permanently.

More generally on policy, we have to ask ourselves which combination is likely to be the more effective: monetary ease and fiscal tightness or fiscal ease and monetary tightness? Originally the idea was the ERM and monetary tightness with fiscal ease. If anything, we now seem to have gone the other way, but we run into the problem of the budget deficit, as we are all aware. I agree with those noble Lords and others who have said that now is not the time to raise taxes. It would be foolhardy to do so. Nonetheless, I cannot believe that this scale of deficit can be maintained indefinitely. I simply cannot see how that can be done. Therefore, the question is not whether to tighten but when. Again, I am sad to say that, if there is one thing of which we are certain with this Chancellor, it is the guarantee that he will get the timing wrong whatever else he does.

Similarly, unlike some noble Lords, I do not believe that we can take a light-hearted view of the current account deficit. The noble Lord, Lord Lawson, whom I agree would make a much better Governor of the Bank of England than many others we could think of, rightly said that if we are an advanced industrialised economy and are running sensible economic policies, we can finance a deficit. However, the converse of that is that if one is pursuing stupid policies and the deficit persists there will come a day when one cannot finance that deficit. That is why we have to take the current account problem seriously, and that is why the warnings that have come endlessly from your Lordships about the importance of manufacturing still need to be heeded.

Ministers provide any excuse possible to say that they are not responsible for our economic difficulties. They blame the foreigners. No doubt President Clinton will in due course be subject to their displeasure and become the villain of the piece. They still blame the trade unions. They are unhappy with the banks and the other financial institutions. They certainly blame the last Labour Government. The noble Lord, Lord Skidelsky, in his new role as apologist for the Tory Party even blames the economics profession. Where will he stop? Where will they stop?

The list is endless, but there are two difficulties with the approach via blame. The first is that when there is some recovery—and even I believe that the economy will eventually improve somewhat—having blamed everybody for the trouble, the Government will not logically be able to claim any credit for themselves. The second difficulty is more serious. If the Government are not to blame, then the economic system is. Given all the needs of our economy, which many noble Lords have mentioned, and given all the needs of the world at large and a labour force which is anxious to work and capable of work, if our economy cannot bring the two together—if it cannot get the workers to the jobs that need doing—there is nothing that is more likely to undermine our way of life. It should not be surprising that so many people have lost faith in the way that we live.

The noble Lord, Lord Jenkins, referred to both the economic and social aspects of these matters. Perhaps I may make one or two brief remarks (rather more philosophical than empirical) on the social consequences of the Government's failed policies. When it is suggested that unemployment causes crime, the response is made—and Ministers make it —that such a proposition is insulting to the unemployed, most of whom do not and would not break the law. But that is surely to miss the point—and here I echo some remarks of the noble Lord, Lord Gilmour. To throw people out of jobs is to create the circumstances in which some of them—but not all—will turn to crime, or their dependants may do so. They may do so out of need, because they have nothing else to do, because of character failings or for many other reasons. The moralists may wish to blame them and to punish them, but what needs to be appreciated is that many of them would not have engaged in criminal activity if they had been in work or, in the case of young people, if their parents had been in work. For some, unemployment is a cause of crime. It is not the only cause, but both common sense and the evidence demonstrate that it is a cause.

On the more general connection between moral values and the economy, I should like to quote my favourite economist, Adam Smith. I should like to draw two remarks to your Lordships' attention. First, in The Wealth of Nations, Adam Smith refers to, the mean rapacity, the monopolising spirit of merchants and manufacturers". In The Theory of Moral Sentiments he issues a guide to us, advising us, to feel much for others and little for ourselves … to restrain our selfish and to indulge our benevolent affections". When large numbers of our people go around blaming everybody else for the moral problems of our society, they might ask what leadership they have been given with respect to correct behaviour.

I near my conclusion by following some of the remarks of the noble Lord, Lord Clark. I strongly agree with much of what he said, especially his remarks on the securities market, to which I hope we shall return on another occasion. However, I was upset when he attacked those who run down the economy of this country. I know that when the last Labour Government were in power he would have been far too fastidious to have run down this country's economy while the rest of us were doing the best that we could, but I must remind him that some of his noble and right honourable friends were doing precisely that.

I have great confidence in the economic, social and moral potential of our country. What stands in the way of realising that potential is this Government. As long as my critical voice can help to shorten the life of the Government, I and my noble friends will continue to speak as we do.

9.8 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)

My Lords, I am somewhat relieved, after all the criticism of the Government, that we have not at least been held responsible for the activities of the cricket team in India over the past few months. No doubt the noble Lord, Lord Jenkins, can refer to that in his wind-up. Perhaps I may add my congratulations to my noble friend Lord Gilmour of Craigmillar on his maiden speech, welcome his uncontroversial maiden speech and say how pleased we are to see him in the House. He is a distinguished former member of the Government and a distinguished former editor of the Spectator. I make that remark purely because it is a magazine for which I still have a certain fondness, despite the fact that only this week it said that making me look like a fool might be a work of supererogation.

Perhaps I may also say to the noble Lord, Lord Jenkins, that he made much, as did others, of opinion polls in terms of estimating the depth of gloom of the public. The noble Lord will remember that it was in fact under a year ago that a lot of people were making much of opinion polls in the run up to the election and the opinion polls were then proved wrong, and I dare say they will be proved wrong again. There is considerable danger in making too much of them.

There have, as always—it is understandable—been many comments and queries and much speculation on the Budget and on likely changes to the tax regime. The noble Lords, Lord Richard and Lord Bruce of Donington, and my noble friends Lord Gilmour and Lord Clark and others have all referred to the Budget and possible changes in taxation. Obviously no noble Lord will expect me to comment in advance of the Budget of my right honourable friend the Chancellor on 16th March. I am sure that he will note all the comments made by noble Lords during the debate.

If I may, I should like, particularly as a Minister in the DSS, to start by concentrating upon the social aspects of the debate. That was something touched upon by many noble Lords, despite what the noble Lord, Lord Beaumont of Whitley, said. For example, I believe it was the fifth count in the indictment of his noble friend Lord Jenkins that we had made inadequate provision for the less well-off and we did not care for the unemployed. The noble Lord, Lord Richard, reminded us—Her Majesty's Government —of our duty to look after those who are less well off.

As I have said on other occasions standing at the Dispatch Box in this House, we spend on social security in this country some £80 billion. As my noble friend Lord Caithness made clear in his opening speech, that amounts to something like £10 a day for every man and woman working in the country to pay for the social security system. That expenditure is up by some 60 per cent. in real terms since 1979. Lest anyone says that all of that is purely recession-led and drawn on by the growth in unemployment, let me make it quite clear that expenditure on such groups as the long-term sick and disabled—no one can argue that they are the result of recession—has virtually tripled since 1979.

There were also claims that the poor were getting poorer and the rich were getting richer. That came in particular from the noble Lord, Lord Grimond, and the noble Earl, Lord Longford.

The Earl of Longford

My Lords, perhaps I may intervene. A former Conservative Cabinet Minister said that very thing. Let us not forget him.

Lord Henley

My Lords, my noble friend Lord Gilmour also referred to it. If I may, I should like to argue that the case is not as simple as all that. The noble Earl will be familiar with the Government's own Households Below Average Income Analysis which was published in July of last year. That showed an overall growth in average disposable income of some 30 per cent. in the period from 1979 to 1988–89. Those gains were not confined to the top half of the income distribution but were widespread. There were far fewer pensioners, for example, in the bottom decile; that is, the bottom 10.

It is true that disposable income after housing costs of the bottom 10 per cent. did show a very small fall. It showed a rise, if one took it, for housing costs. However, that does not show what has happened to a single group of people over the time. What it has done is reflect a change in the composition of that group. First, there are fewer pensioners in that group; secondly, there is the growth during the 1980s of self-employed people reporting, particularly in their first year or two years of being self-employed, negative or very low incomes which would not necessarily reflect their actual living standards. That has confused the picture at the lower end of the income distribution. I should stress that the self-employed form almost a third of the bottom 5 per cent. of incomes.

One must also consider other indicators such as the possession of consumer durables to build up a picture of relative wealth. There has been an increase in the possession of all consumer durables in that bottom 10 per cent. of the population. We now find that some 65 per cent. of the bottom 10 per cent.—up from 40 per cent. —now have central heating. The figure is 68 per cent. for pensioner couples. Some 70 per cent. now have telephones—that is up from 50 per cent.—and some 45 per cent. have cars. To add further confusion to that figure, that group—the bottom decile—spends more than the second decile group.

Lord Eatwell

My Lords, I am somewhat puzzled by the Minister's remarks. Will he help us to gain a picture of the poor getting poorer and the rich getting richer by comparing in change in real income of the lowest decile with the change in real income of the highest decile during the period?

Lord Henley

My Lords, on average and for all deciles we have seen an increase of 30 per cent. I said that if one takes the figures after housing costs there is a slight fall for the bottom decile. If one takes the figure before housing costs there is an increase. There is an argument for taking it one way or another. Obviously there are higher increases for other groups. We are also trying to argue that there is higher expenditure in that lowest decile which seems to indicate that they are not poor. They are, for example, the newly self-employed and those starting off in business who will have expectations of their standard of living far higher than the noble Lord would conventionally think of as that of the poor. That does not give a true picture and I hope the noble Lord will accept that.

I wish to turn briefly to the income of pensioners. We have seen the average total net income of pensioners grow during the years from 1979 to 1988 by an average of 3.3 per cent. per year over and above inflation. That compares with some 3 per cent. between 1974 and 1979. In other words, there was greater growth in every year from 1979 to 1988 than in the whole period from 1974 to 1979. Their income from savings increased by more than 8.6 per cent. per year during that period. The noble Baroness, Lady O'Cathain, will be interested to know that their income from savings fell between 1974 and 1979 when inflation was so high. We now have some 57 per cent. of all pensioners and some 69 per cent. of recently retired pensioners receiving income from occupational pensions.

As regards the economy and in particular the funding of pensions for the future in terms of comparisons between ourselves and our European colleagues, the total value of the United Kingdom occupational pension fund is greater than the occupational pension funds in the rest of the European Community put together. I ask noble Lords to think what that figure means in terms of the funding of pensions and the way in which we will pay for them in the future.

The adequacy of benefits was raised by the noble Lords, Lord Richard and Lord Beaumont. I do not accept their arguments that levels of income support are not great enough to pay for an adequate diet. Obviously it is difficult for some people to manage on the levels of income support. We have never claimed that a life of luxury is available on the levels of income support—but it is perfectly possible to live. One must also remember that income support is funded by general taxation paid by taxpayers, many of whom are on relatively low incomes. Nor do we want the levels of income support to act as an attractive alternative to seeking work or training.

The noble Lords, Lord, Richard and Lord Callaghan, referred to some advice given by MAFF on nutrition. I am not familiar with any MAFF publication which fits the description given by the noble Lord, Lord Richard, and I should be interested to see it. If the noble Lord will make it available to me I shall look at it. I am aware of advice from MAFF indicating that its national food survey shows that the diets of people in all income groups contain adequate levels of most nutrients but rather more fat and less fibre than the latest dietary recommendations—

Lord Richard

My Lords, I was referring to a specific table produced by MAFF on how to live on £10 a week nutritiously. I shall ensure that the Minister receives a copy if he does not have one.

Lord Henley

My Lords, I am grateful. I can send the noble Lord copies of facts and figures from the Department of Social Security which will give the levels of benefit for all the different age groups. He will see that there is available for food considerably more than £10, although we do not divide up levels of income support for specific purposes. However, levels of income support are considerably greater than that.

The noble Lord, Lord Beaumont, objected to the use of loans in the social fund. Again, I simply cannot agree with him. Its predecessor, the single payment, was rocketing out of control in terms of cost in a way that no government could tolerate. Furthermore, the single payments were scattered across the country in an odd manner, which implied unbalanced take up. We believe that loans allow more money to go to more people and it is only fair that those on low incomes who are not eligible for help from the social fund should not be disadvantaged as compared with those who are on income support and therefore eligible for loans.

The noble Lord, Lord Richard, claimed that it was unfortunate—I believe that the word he used was stronger —that some 25 per cent. of children live in families on income support. I am afraid that that quite simply reflects the fact that there are on income support a larger number of lone parents with children; there are some 900,000. That is the result of social changes. I believe that even the noble Lord, Lord Richard, would accept that the number of single parents can hardly be said to be a result of government policies.

I turn now to the question of unemployment and our unemployment strategy. I do not accept the allegations of whole-scale indifference which the noble Lord, Lord Jenkins, seemed to imply. We accept that the figure of 3 million unemployed is deeply worrying. Similarly, the fact that the latest figure for the long-term unemployed has risen to 1 million is also deeply worrying. We accept that the threat of unemployment is holding some people back; but the Government cannot create jobs. Industry and commerce do so through improved competitiveness and by producing the products and services which customers want.

What the Government can do and what is our top priority is to help unemployed people find jobs. The Government are determined to do all they can to ensure that every individual receives the help needed to get back into work as quickly as possible. New measures for 1993–94 will mean almost 1.5 million places on employment and training programmes, an increase of almost 500,000 this year. There is also the normal job placement help offered to all unemployed people by the employment service. My own department also makes available family credit which now helps some 450,000 families get back into work. All that amounts to a comprehensive range of help and advice available to unemployed people.

I should also like to make one brief comment on international comparisons as regards those in employment. If one ignores Luxembourg and Denmark, we have the highest proportion of our working age in employment—some 71 per cent., which is far higher than most of our competitors and much higher than the EC average. Putting comparisons with the 1930s into perspective, one should consider that unemployment is now around 10 per cent. at 3 million. In the 1930s when the unemployment figure reached 3 million that accounted for some 20 per cent. to 25 per cent. of the population. That is a much higher figure and a larger percentage of the workforce out of work.

The noble Lord, Lord Callaghan, talked about the despair among the unemployed that they would never find their way back into employment. In any one day there are some 300,000 vacancies available in the economy. About one-quarter of those who become unemployed leave unemployment within one month; about one-half leave unemployment within three months; and two-thirds leave it within six months. However, I accept what the noble Lord, Lord Callaghan, said about the fact that the figure of 1 million unemployed is somewhat worrying.

My noble friend Lord Skidelsky referred to workfare. We are considering a range of ideas for keeping the unemployed in touch with the world of work. In the year from April the employment service will provide help through 1.5 million opportunities for unemployed people. However, we are not considering workfare as the term is often understood by the media. There are no plans for a single scheme to cover all unemployed people. We aim to provide training and work experience to meet the needs of individuals and the labour market. Since many people are able to get back to work soon after becoming unemployed, it is right to target help on the long-term unemployed.

I should like to say a few words on the subject of crime. We have taken committed and sustained action against crime for more than a decade. Spending on the police—and I believe that this was welcomed by the noble Lord, Lord Jenkins—has increased by 81 per cent. in real terms since 1979. There are now 16,700 more officers and 14,700 more civilian staff. Accepting that there is a particular problem as regards young offenders, we are looking urgently at the possibility of new powers to deal with that small minority of persistent young offenders.

Recorded crime has shown a steady underlying upward trend over the past 40 years. Since 1970 there has been an average annual increase of 5 per cent. There are many possible explanations, not least that increasing affluence has increased the opportunities for crime. Low incomes or unemployment, despite what the noble Lords, Lord Richard and Lord Peston, said, do not cause crime. There are no excuses for lawlessness and hooliganism. It would be Wholly wrong to suggest that people on low incomes are bound to be criminals. There is no single cause of crime.

Lord Peston

My Lords, I am sorry to interrupt the noble Lord but he simply does not understand what I am saying. I am certain that his advisers understand what I am saying. One can perfectly correctly say that unemployment is a cause of crime without saying it is an excuse for crime. The two things are logically different. The noble Lord ought to understand that point. I am not excusing crime, but explaining it when I talk about unemployment.

Lord Henley

My Lords, I was saying there was no single cause of crime.

Lord Peston

So am I!

Lord Henley

My Lords, I am glad the noble Lord has confirmed that. I was trying to argue that unemployment should not be used as an excuse for crime. Crime is committed by individual criminals. That is the only cause of crime. As the noble Lord will know, many people who have problems and disadvantages do not offend. Similarly, I think the noble Lord will recognise from articles he may read in the press from time to time that there are many who have distinct advantages who still go on to commit crimes and turn to crime.

I had not intended to say much about the National Health Service or health generally but I want to reiterate one particular point which the noble Baroness, Lady O'Cathain, made when she cited some particular statistics that bear repeating. As the noble Baroness said, life expectancy between 1979 and 1989–90 has increased from 70.2 to 73 for men and from 76.4 to 78.5 for women. I think that seems to show that the rather shock horror cries from the Jeremiah's that we are all dying and we are all in the most appalling state are not really true. The health of the nation is steadily improving and that is something of which we should be proud.

Lord Eatwell

My Lords, does the noble Lord agree that life expectancy actually fell in 1987 and 1988 and that is the only time, in the lifetime of any Western European government, that life expectancy has fallen, even on a year-on-year basis?

Lord Henley

My Lords, I shall have to write to the noble Lord. I do not actually have the figures for those two years. But if one looks at the matter as a whole from 1979 to 1988–89—I think I mentioned the figures up to 1990—there is a pretty dramatic increase in life expectancy in a matter of 11 years. It increased by three years for men and 2 point something years for women. That is a very large increase over a short period.

I have already outlined the considerable resources being devoted to the alleviation of social problems. As my noble friend Lord Caithness stressed earlier, economic progress, in combination with a continued determination to improve efficiency in the provision of social assistance, is the key to improving further the help we provide to the most needy in society. I also believe that he was right to stress the real supply side improvements that occurred during the 1980s and which will re-emerge once the economy begins to recover.

The Government continue to believe that the only way to generate sustainable growth is to achieve low inflation on a lasting basis. That is why the progress that has been made in reducing inflationary pressures is so important. We now have the lowest retail price inflation for 25 years and the lowest rate of earnings growth for a similar period. Manufacturing unit wage costs were unchanged in the final quarter of 1992 from a year earlier—a better performance than from either Germany or Japan. Producer price inflation in recent months has been the lowest since the late '60s.

Taken together these figures demonstrate the very real progress we have made against inflation. This progress offers the prospects of strong and sustainable growth in the years ahead, and the Government will not throw away this prospect by adopting policies that allow inflation to rise once more. We have put in place an explicit inflation target for the first time and introduced greater openness into the process of evaluating the extent of inflationary pressure in the economy. I believe that these steps will help us to ensure that our achievement in getting inflation down will be a lasting one.

Obviously, there has been a great deal of concern about when economic recovery will begin and this has been reflected in today's debate. The recession has proved to be a good deal more prolonged than the Government expected. Output during 1992 fell only slightly but clearly the return to growth we all hoped for did not take place. I am aware that the further small fall in output was associated with a substantial further rise in unemployment. I and other Ministers realise that that has caused very real hardship to many families and the Government have taken positive action to encourage a resumption of growth.

Following our departure from the ERM the Chancellor was able to reduce interest rates substantially. That was followed by an Autumn Statement containing many measures aimed at helping those sectors most affected by the recession. I believe that those measures have played an important role in bringing about the improvement in business and consumer confidence we have seen since the autumn.

As my noble friend Lord Caithness pointed out, the other ingredients for recovery are now in place: the lowest interest rates for 15 years, the lowest inflation for 25 years; and a lower pound, combined with the best unit wage cost performance we have achieved for several years. Those are the reasons why noble Lords on all sides of the House should believe that, despite earlier false dawns, prospects for recovery are now good. As my noble friend Lord Clark of Kempston said, it can only do us harm when, as he put it, influential people run down their country and its economy. I believe that the policies of this Government have ensured that the prospects for that growth to be sustained in the years ahead are also good.

9.30 p.m.

Lord Jenkins of Hillhead

My Lords, I do not intend to detain the House long at this time of night. We have had a long and worthwhile debate and I thank all noble Lords who have taken part, particularly the two Ministers who participated in our debate. I deliberately said that they had participated in rather than replied to our debate because the latter would be a slight exaggeration. This afternoon, the noble Earl, Lord Caithness, proclaimed such universal truths that he did not feel it necessary to engage with the speech to which he was replying. Tonight the noble Lord, Lord Henley, produced at one stage a positive blizzard of confusing statistics which possibly, when read tomorrow morning, may leave some deposits in the mind.

I thank the noble Lord, Lord Henley, for the compliment which he unwittingly paid me by constantly saying that we were in the best position for 25 years. If he casts his mind back to where 25 years takes us he will realise why I treat that as a compliment.

The noble Lord, Lord Skidelsky, in the course of a spirited reply, said that the figures for those wishing to emigrate were the worst since 1969. I fear that that was a figment of his imagination. According to the Daily Telegraph, a newspaper not altogether unfriendly to the Government and which made much more of the Gallup poll than I made of it in my speech, the poll shows that the number of people wanting to emigrate in 1969—the year chosen by the noble Lord, Lord Skidelsky—was one of the lowest since the war, although it was beginning to rise at that stage.

There is only one other factual point raised on the other side of the House which I should like to take up. The noble Lord, Lord Marlesford, contested on historical grounds my view that the death knell of unemployment defeating governments had been sounded. He said that unemployment had never meant anything of the sort. I contest that. Unemployment did not become a major political issue until after the First World War. I certainly take the view that it was a major factor in the defeat of the Baldwin Government in 1929 and that it effectively destroyed the Labour Government in 1931. The noble Lord is wrong in saying that unemployment then rose between 1931 and 1935. It rose for one year and then fell for three years. The Labour Party gained 100 seats as a result, but not enough. Subsequently, in general elections from 1940 through to the 1970s unemployment ceased to be an issue because there was no serious unemployment. Unemployment may have been a factor adverse to the Labour Party in 1979. Certainly the Conservative Party produced a poster which showed a long dole queue and the slogan, "Labour is not working". By 1983 we had entered the period in which, under my thesis, parties could win elections despite mass unemployment, and that was bad for national cohesion.

Today one or two hard responses were made to my speech, and I make no complaint whatever because I made a few hard points myself. While I threw 10 stones across the Floor of the House for every one which I rolled gently towards my friends above the gangway, I believe that the sensitivity in response has come more from the Labour Benches.

The noble Lord, Lord Callaghan, and I have had a discussion and we have reconciled both our senses of honour and of memory about 1976. I shall not trouble the House with that. The noble Earl, Lord Longford, implied that my changes of nominal party were the equivalent of his sudden move across the political spectrum which I had always considered had something to do with his being knocked unconscious at a political meeting. I am glad to hear that he denies it; it was nothing to do with that. However, his was a complete switch across the political spectrum, whereas, although I may have belonged nominally to three parties, it is my firm view that I have remained exactly where I am and that other people have changed. I have held exactly the same moderately social democratic views for at least the past 25 years. It was the Labour Party which, by the end of the 1970s and in the 1980s, was inviting me, if I wished to stand as a candidate, to be in favour of coming out of Europe without a referendum, destroying NATO, having unilateral disarmament, running before the trade unions, having a massive programme of further unwanted nationalisation and forbidding by law private health care or private education. That was a programme which I believed that any decent Social Democrat could only stand behind wearing dark spectacles and with his dirty mackintosh collar turned up. On the whole I did not propose to do that.

With regard to the move from being a Social Democrat to a Liberal Democrat, that was no greater a change than one river flowing into another. The Social Democrats were a most important tributary of the new party. It was no more of a zig-zag than the move which the River Missouri performs by flowing into the River Mississippi.

I conclude by referring to one point raised by the noble Lord, Lord Ewing. He stated that I surely could not take the view that the Opposition bore any responsibility for the fact that the Government could get away with almost anything without resigning. Frankly, I do. I believe that it is part of our parliamentary process that governments should be slightly frightened of opposition. If the Opposition —I refer to the Opposition in another place—cannot intimidate the collection of nature's junior Ministers who constitute the present Cabinet, then I believe that it is a criticism of the effectiveness of the Opposition. However, let me assure the noble Lord and everyone else that I wish the Opposition well and I am sure that it will be even more effective in the future than it has been in the past. I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.