Manufacturing Industry

HL Deb 05 May 1993 vol 545 cc706-75

3.10 p.m.

Lord Peston rose to call attention to developments in manufacturing industry since 1979; and to move for Papers.

The noble Lord said: My Lords, this is an important subject. I had hoped that the debate would be based on a published document from the DTI. We are aware that officials have prepared what I take to be a definitive statement of what is known about the condition of manufacturing industry and its recent history and a summary of the causes of our present difficulties. But no such statement has appeared in public and the best we have on policy is an interview that Mr. Heseltine gave a couple of weeks ago to the Financial Times. I hope that noble Lords will bear with me, therefore, if I take a minute or two to summarise what I believe are the relevant facts.

If we take the whole period from 1979 to 1992, the growth rate of manufacturing output has been 0.6 per cent. per annum. That is about the same as it was in the previous decade. The growth rate of productivity, however, was about 3.7 per cent. per annum compared with 2.1 per cent. in the previous decade. Noble Lords may say that that does less than justice to manufacturing performance since 1979 was a relatively good year and 1992 was one of recession. If we compare, say, 1981 with 1992, the picture improves. Output grew at 2.1 per cent. per annum and productivity at about 4 per cent. per annum. Overall, productivity in that period grew in total by some 60 per cent. But output grew by only 8 per cent. Mostly what happened was a shake-out of employment. The failure of our economic system is that it did not work in the classical way; namely, the workers shed by some enterprises were not automatically taken up by others, and what government interventions there were also failed.

On the balance of payments, we have been in current account deficit since 1987. I can see no sign of when we shall return to surplus. The accumulated deficit to date from 1987 is some £78 billion sterling, equal to over 13 per cent. of gross domestic product. Perhaps more to the point for today's debate, we have been running trade deficits on semi-manufactured goods and finished manufactured goods since 1982.

I summarise all this in the traditional way of the schoolmaster. The manufacturing sector has improved in some ways but not all, and it could do better. There has not been an economic miracle, but there has been some real advance.

In particular, perhaps I may offer some simple arithmetic. Compared with some of our competitors, our manufacturing productivity is, say, 20 per cent. too low. I might add that, compared with the best of our competitors, we lag behind on productivity by twice that much. To catch up even 20 per cent. we need to grow faster than our competitors for a very long time. On simple arithmetic, we need to increase productivity by 2 per cent. per annum relative to our competitors to catch up in 10 years. But since in many cases they continue to show better long run improvements than we do, that means adding well over 2 per cent. per annum to our long run growth rate. What disturbs me in particular is the way that the Chancellor continues to confuse the short term with the long term. We may be doing a little better than the Germans for the moment, but the question is, will their difficulties last for ever? I doubt it. But, with the Chancellor's attitude, ours will return.

Let me continue with a few words on macroeconomic policy, although that is not my main theme today. Industry needs a stable macro-economic framework. We may disagree—I fully accept that—on the precise details of that framework and how to reach it. But I think we can agree that firms have enough business risks to cope with without faulty public policy adding to them. So I for one stick to my view that a fixed exchange rate environment is most conducive to rational and efficient business activity. I do not argue that point entirely on theoretical grounds but also on practical ones.

If it could be shown that fixed monetary targets were feasible in our sophisticated financial system and did the trick, I would have no doctrinal difficulty in accepting them. The point is that they turn out not to be attainable, even by those who believe in them most; and they do not work when attempts are made to employ them. Therefore, quite separate from our obligations under Maastricht, it is no help to firms to say that sterling will be allowed to float—which means to fall—to accommodate all manufacturing industry price rises. That path guarantees permanent and unstable inflation, and is no help either to a tough stance on productivity. But, I repeat, I could be mistaken. In that, of course, I distinguish myself from my fellow economists, none of whom seems to believe he could ever be mistaken.

My view is that very little in economics is certain. But what is clear to me is that we must have a nominal target of some kind. The proponents of floating rates—this is not a political point because such people exist in all parts of your Lordships' House —must therefore support strict control of the money supply and be prepared for drastic rises in interest rates when inflation expectations rise. Unfortunately, sometimes they seem to suggest—and they were recently aided and abetted by the Chancellor—that there is an easy way out. There is not.

A nominal target is not enough. The Government must also be committed to full capacity working of the economy—to what some of us may prefer to call full employment. I agree—and again this view was taken by the great Lord Keynes—that such a policy cannot be pursued à outrance. If persistently high inflation reoccurs, especially from internal pressures, and I do not rule that out, those who cause it must appreciate the unemployment consequences. The problem is that all too often the inflation is caused by the government themselves. But they do not experience the unemployment consequences. It is a pity that they do not.

I have three other general points to make. First, I shall argue, I hope along with other noble Lords, that manufacturing matters. But I do not wish to be misunderstood. I do not mean that it is all that matters. What is important to the well-being of our country is to produce goods and services that people want. The evidence is overwhelmingly that what they want is certainly goods. In essence what I am saying—I only echo what others have said before me, notably the noble Lord, Lord Aldington, and his committee—is that our manufacturing base is too small. That means that we are in no position to pursue export-led growth to a degree that would restore full employment with a balance of payments surplus. Noble Lords will note that I say "surplus". Debts have to be repaid, and the economy will certainly wish to go on investing abroad in the future.

Secondly, I hasten to add that I am not a pessimist. I do not believe that we are doomed to be the third world country of the European Community, although this Government appear to want to take us that way with their antipathy to the social compact and their emphasis on cheap labour. Indeed, if one wants to talk about self-denigration, this is a good example: when the Government advertise this country in Germany as the cheap labour (i.e. third world) country of the Community. But despite the Government sending the wrong message to our Community partners, I believe that we can get things right.

Thirdly, we must concentrate on the long run. We certainly have short run problems about financing our twin deficits, the balance of payments deficit and the fiscal deficit. In my judgment, they will get worse. On another occasion we can debate what to do about them. But my concern today in introducing this debate is the long run development of the real economy.

Let me now get down to detailed policy, to what many of us call an industrial strategy. For a country such as ours, with ambitions to be rich and to continue to be so, investment must be the key. To start with, that investment must be in manufacturing capacity as ordinarily understood. We need more plant and machinery and businessmen must have the confidence to know that if they take risks they will not be bankrupted by an inept government or an insensitive banking system.

In her admirable attempts to help small businesses—many manufacturing businesses are small—the noble Baroness may wish to tell noble Lords what small businesses have told us about the banks. I cannot resist pointing out that the Bank of England appears to be more concerned about the survival of banks than the survival of firms that make things. My noble friend Lord Eatwell will deal with proposed changes in our institutional arrangements and will indicate how liquid finance needs to be made more accessible to firms which are quite viable over the cycle even though they may have temporary troubles. I, for one, would certainly adjust tax policy so that our firms are able to write off investment on terms at least as favourable as those available to our main competitors.

Secondly, the real competition among the world's big players, so to speak, is based on research and development. Here too, favourable tax treatment is necessary. But public intervention is also required. At the practical level, that is not so much a matter of the public sector doing most of the research; it is about providing a first-class basic research environment and of co-operating between sectors, both public and private. Above all, it is a matter of government policy not sabotaging research-based industries.

Perhaps for a moment I may wear my pharmaceutical hat. I stand second to none in supporting those who wish to protect the National Health Service from excessive drug pricing. I can be as critical of the pharmaceutical industry as anyone. But I do not wish to kill the goose that lays the golden eggs. Pharmaceuticals is one of the few industries that we have which is world class. But that is precisely the risk that the Department of Health now runs because the Treasury takes such a short-term view of the need to save on the drugs budget. There are many other examples of successful industries which government purchasing policies place at risk but I shall stick to just that one.

A high rate of investment in physical capital and successful research and development go together as a strategy of innovation. That is precisely what the Japanese recognise and what lies at the foundation of their economic power. It is necessary for firms which wish to survive and, if possible, to dominate markets to be in the forefront as innovators. Here we are lagging behind. We do so because of our economic environment of short-termism and a government philosophy which, until recently, has seemed to believe that the only way to help firms is not to help them. I am bound to say that at least one advantage of having the present Secretary of State—supported, I know, by the noble Baroness—compared with his predecessor is that he says the right things. But what really matters of course is action.

That leads me to the third arm of my strategy; namely, investment in human beings, otherwise known as investment in human capital. The evidence is now fairly strong—this is an area in which I used to research and, in my judgment, it has always been quite strong—that education and training are the key to first-class economic performance. In that area we have failed in the past and regretfully I have to say—I make this as a non-political point—that we continue to fail. The Government's school reforms, being based on ideology, do little to help. As I pointed out many years ago, we needed a simple core for the national curriculum and not the complex mess that the Government chose. Those chickens have certainly come home to roost. If anything, we seem to be cutting back on training rather than going forward.

The important thing to realise about training is that only first-class training is of value. There seems to be little or no benefit at all from giving people low-level skills. There is considerable benefit to the individual and the economy from imparting high-level skills. That is why the Government's policy on minimum wages and the abolition of wages councils is so ill advised. People may become employable because they are cheap. But the outcome is that we continue as a low wage, low productivity economy—precisely the third world within the European Community.

I should like to say a few words on competition policy. I accept both of Adam Smith's dicta: that competition is a spur to efficiency—that is the one that people like to mention—and that businessmen left to themselves will conspire against the consumer—that is often forgotten. That is why an active competition policy is desirable. But such a policy must recognise economic reality. It must be based on the proposition that the relevant market in many cases (not all) is an international one. A local or national monopolist may possess little market power because of the threat of international competition.

We must not exaggerate. Referring to a recent topic in the news, I should have thought that the market for compact discs fitted into the international category; but that does not prevent prices in the UK exceeding those in the US by more than the cost of transport.

What we observe is market segregation and company imposed restrictions on imports. I hope that the noble Baroness's department and the MMC will act urgently in that case to protect the consumer.

My main point is a different one. It is to suggest that competition legislation should not be used to prevent our own companies getting together for specific purposes, notably in research and development, to meet a foreign threat, especially one from an overseas company with a protected home base and itself possessing massive market power. The United States is recognising that fact. We and the Community must do the same.

Speaking from this Dispatch Box, it is obviously my duty in introducing this debate to be critical of this Government, especially for their attitude to manufacturing and the errors of omission which constituted their policy. Happily it seems that there have been some changes of view, not least by the Prime Minister and by the President of the Board of Trade, who at least carries some conviction. He has been consistently an interventionist, even in the days when it was not fashionable to be so.

In introducing the debate, I hope that I have made clear what form the policy should take and what precise measures are needed. In my judgment most of the argument is non-political, as was shown most clearly by various industrialists who have excoriated the Chancellor and the Prime Minister in the past week or so certainly much more than I would ever want to do. My problem, especially with the Chancellor of the Exchequer, is that he is believed in many different things, but I cannot convince myself when it comes to the economy that he believes anything at all. That is the reason why changes are required, not least in those who are responsible for our affairs.

My Lords, I beg to move for Papers.

3.27 p.m.

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

My Lords, I thank the noble Lord for introducing today's debate and congratulate him on his timing in bringing this subject to your Lordships' House. I shall endeavour not to talk as a school mistress. I hope I shall bring to the debate my experience from 35 years in industry. Perhaps one of the differences between the noble Lord and myself is that, as an economist, he talks about what should be done. I hope that as an economist I talk about what can be done.

As the economy moves out of a recession, I welcome the opportunity to debate once again the changes which have taken place in British manufacturing over the past 14 years. There has been a tremendous improvement in our underlying industrial performance during that time. The terms of the Motion help us to look at that improvement not in the narrow context of recession but, as we should, over the longer term. I was delighted to find that there is much common ground between the noble Lord and myself on some of the major issues.

Let us remind ourselves of what things were like for British manufacturers in 1979. In the 1970s we heard very much less than we do now about efficiency and enterprise. Instead, state-owned industries were heavily subsidised. Overstaffed, feather bedded and risk averse, they simply became a drain on those successful private sector companies which footed the tax bill for the subsidies. I know because I was employed by one where making a decision was something avoided at all possible cost. Public spending was getting out of control; tax rates were high; and employee attitudes were negative. Instead of trying to work with employers to improve conditions for their members, trade unions tried to usurp the managers' role—though I shall quote a managing director of Austin Rover who at one point said that he was glad that the unions were running the company because nobody else was doing so. The result became known throughout the world as "the British disease" —strikes. We lost 29 million working days through stoppages in 1979 alone. We paid a high economic price. Inflation reached 26.9 per cent. in 1975. We lost tremendous ground in world markets. We stayed at the bottom of the Community output and productivity growth leagues.

In 1979 the incoming government knew that Britain had to change to survive, let alone to progress. Change meant taking on big interest groups, making tough decisions and, most important of all, seeing them through resolutely. We were absolutely determined to get the climate for business activity right. So we adopted a strategy which addressed all of the factors affecting our industrial performance. At this point I agree with the noble Lord, Lord Peston, that there is no easy way out and there are no quick fixes.

Some have doubted our commitment to manufacturing, but once again I can assure the House that that is not the case, and I am pleased to hear the message is now through. As my right honourable friend the Prime Minister made clear, manufacturing is not an optional extra but is fundamental to our future prosperity. This country has to create wealth.

In his appearance before the Trade and Industry Select Committee on 27th April, my right honourable friend the President of the Board of Trade reaffirmed our commitment to do everything we can to help British industry win in the increasingly tough world market-place. We should not just be measuring ourselves by Community tables; we must measure ourselves by world tables.

In emphasising the role of manufacturing—here again the noble Lord and I have beliefs in common—we must not forget the enormous and essential contribution which the service industries make to our national wealth. It is suggested that, because we have not produced a White Paper, we have no industrial strategy. On the contrary, we have a very clear strategy and we are busy operating it. We are busy sharing it with those who will show the results.

The strategy is to help business improve its competitiveness. Businesses, not governments, create wealth and improved competitiveness is vital to industrial success. We have given business an economic framework within which it can plan and invest with confidence. The single most important element of that framework is sound economic management that delivers low inflation, low interest rates and low tax rates, but that cannot be the limit of government responsibility. We have a major role to play in ensuring that our companies are able to fight and to win in world markets. We must make certain that those leaving school are fit for the world of work and we must continuously train and retrain. We have involved the business sector in those programmes so that the people we train and retrain are the people they need to employ.

We work, too, with the private sector to provide the infrastructure that is vital to our competitiveness. We have to ensure that government services are provided as efficiently and cost-effectively as possible. Support for business cannot be measured solely in monetary terms. We have promoted more open markets around the world by completing the single market with a commitment to Europe and pressing for a favourable outcome to GATT. We have helped British companies to innovate; 308 of them are collaborating with other European organisations in the Community programme called "Eureka"—one of the outstanding ways of encouraging joint ventures across borders and across sides. We have developed better business advice, allowing companies to react to fast-changing markets both here and overseas. Again, I agree with the noble Lord that international companies have to be of a size which is globally competitive.

I should now like to draw your Lordships' attention to some of the visible results of our policies. I had great difficulty in choosing which figures to share with the House because I am delighted to say that many of the figures are now moving in the right direction.

Since 1981, a similar point in the business cycle, UK manufacturing output has risen by nearly a quarter. Latest figures show manufacturing output in the three months to February was 1.5 per cent. higher than in the same period a year earlier. Total output has been rising for nearly a year. That is a crucial area of importance. Manufacturing investment is up by two-fifths since 1981. The latest figures show manufacturing investment in the fourth quarter of 1992 was up by 5.5 per cent. on the start of the year—absolutely the right direction.

UK manufacturing productivity has grown by nearly three-quarters since 1981. Latest figures show manufacturing productivity in the three months to February was over 7 per cent. higher than a year earlier; indeed, in the 1980s UK productivity grew faster than in all other major industrialised countries after decades at the bottom of that particular league. Output from the pharmaceutical industry has risen by 100 per cent. in real terms between 1979 and 1982. The vehicle industry is producing 300,000 more vehicles a year than it was 10 years ago, with 100,000 fewer people. We must never forget that productivity does not necessarily create jobs and we have to address that issue also. But it is good to see that the United Kingdom is poised to become a net exporter of cars.

Since 1981 the volume of United Kingdom manufactured exports has increased by four-fifths. It has grown faster than in France, Germany, Italy, Japan and the United States. Those results show the achievements of our policies.

I look forward to today's debate. The knowledge and experience in this House will, I hope, mean that we have a positive debate because part of our future success will depend on presentation to our worldwide customers; of convincing them of our improvements, determination, commitment and quality. Our role is as important as that of the highly skilled operator on the line. If inward investment has proved anything, it has proved that there is nothing wrong with the skills of our workforce when well managed.

At the DTI and throughout government we offer our support to industries and I hope that your Lordships will do the same. The noble Lord, Lord Benson, once said that we should behave like a football manager. We agree, and may I suggest that we are playing for the World Cup.

3.38 p.m.

Lord Ezra

My Lords, this is by no means the first time that we have spoken on this subject. Nonetheless, it is highly desirable that we should be speaking on it yet again today and we do so with the able introduction of the noble Lord, Lord Peston, and the supporting remarks—in many respects they were supporting—of the noble Baroness, Lady Denton.

I agree entirely with what the noble Lord, Lord Peston, said. This is not a political issue. It is remarkable that when one looks at the various documents which have been issued by relevant parties and bodies on the question, there is a considerable degree of consensus. Everybody knows what needs to be done; the problem is how we are to set about doing it.

Among the very important documents that have appeared in the past decade, which is the period we are talking about, is the report of the Select Committee on Overseas Trade, chaired by the noble Lord, Lord Aldington, who, I am glad to see, will be speaking in the debate. I had some small share in the setting up of that inquiry because in a debate on an Unstarred Question, which I introduced on 10th November 1983—a debate in which some noble Lords present today participated and to which the noble Lord, Lord Lyell, responded on behalf of the Government—I drew attention to a very important historical development. It was that during the course of that year we were for the first time seeing our balance of trade in manufactured goods moving into a negative position. For decades and decades—indeed, ever since the start of the industrial revolution—we had bought in raw materials, fashioned them, added value to them, exported them and made money in the process. For the first time, that process had been reversed. I thought it right to draw attention to that and to suggest that a much fuller scale inquiry should take place.

The report, for which the noble Lord, Lord Aldington, and his colleagues (I was one of them) were responsible, drew attention to the fact that between 1963 and 1983 exports of manufactured goods exceeded imports to the value of between £1.5 billion and £6.5 billion a year but that a sharp change then occurred and by 1984 a net deficit of some £4 billion had arisen. The non-oil visible deficit in 1990 amounted to some £20 billion; in 1991 to £11.5 billion; and in 1992, in recently published figures, to some £15 billion. So this is a very serious issue indeed.

In the report on overseas trade to which I have referred, a number of long-term proposals were made which, if they had been adopted, could well have avoided the situation in which we have found ourselves in the past three years. I should like to quote from page 83 of the document. It states: Unless the climate is changed so that steps can be taken to enlarge the manufacturing base…as oil revenues diminish the country will experience adverse effects which include: (i) a contraction of manufacturing to the point where the successful continuation of much of manufacturing activity is put at risk; (ii) an irreplaceable loss of GDP; (iii) an adverse balance of payments of such proportions that severely deflationary measures will be needed; (iv) lower tax revenue for public spending on welfare, defence and other areas; (v) higher unemployment, with little prospect of reducing it; and (vi) the economy stagnating and inflation rising". That was a very pessimistic forecast but, unfortunately, some of those features reflect what we have lived through in the past three years.

Lord Bruce of Donington

My Lords, I am most grateful to the noble Lord. Does he also recall that at the time the report of the noble Lord, Lord Aldington, was published it was denounced from authoritative Treasury sources as a Marxist document?

Lord Ezra

So, my Lords, although we are asked to throw our minds back 10 years, what we are really asked to do by the subject of today's debate is to look forward 10 years. The really big issue is how we are going to avoid this happening again, because, regrettably, the stop-go syndrome has not left us. In the past 10 years we have had two ups and downs, so what are we going to do to avoid another one?

Here we come to what various parties have said about the issue. The CBI, for example, estimates that there needs to be an improvement of between 20 and 40 per cent. in our industrial performance, which is identical to the view of the noble Lord, Lord Peston. It indicates that, compared to our main competitors, we have not invested enough, we have not researched enough, we have not innovated enough and we have not trained enough. We have done all those things but we have not done them to the extent that our competitors have. Above all, our industrial capacity, as the noble Lord, Lord Peston, clearly explained, despite massive improvements in. productivity, has substantially declined.

If we compare growth in our manufacturing output between 1979 and 1991 with that of three of our major competitors we see that in the UK growth in manufacturing capacity, as the noble Lord, Lord Peston, indicated—I happen by pure chance to have the same statistics as he quoted—grew by 8 per cent. But in Germany manufacturing capacity grew by 30 per cent.; in the USA, by 33 per cent.; and in Japan, need I say, by 60 per cent. One could go through a long list of Western developed countries which have exceeded our manufacturing growth in that period. That is an indication of the problem facing us.

There are, as the noble Baroness rightly pointed out, signs of recovery. But this is when we should put our thinking caps on, because the big issue facing us is how this recovery will be managed. Will it get out of control, like other recoveries that we have had in recent years? Will it lead to another splurge in spending met by even more imports and eventually by an application of the brake—by stopping things, leading to further disinvestment, further losses of jobs? Now is the time when we should be looking at these matters. Now is the time when we should be coming to conclusions on how we are going to deal with these longed for, long awaited signs of resurgence.

We on this side of the House are not the only ones who are worried. Mr. Peter Morgan, the director general of the Institute of Directors no less, expressed grave concern on these issues at the annual meeting of that institute on 27th April, which some of your Lordships no doubt attended. He said that a radical new approach to economic management is required. That is what we need.

Let us be quite clear. A lot of people have given a lot of attention to this. In this very House, the noble Lord, Lord Benson, to whom the noble Baroness referred, has repeatedly asked for a government statement on industrial strategy. That has been supported across the Floor of the House. It was supported, when recently raised, by the noble Lord, Lord Peyton; it was supported by the noble Viscount, Lord Caldecote; and it was supported by many on this side of the House.

What I find surprising is that the CBI, the Engineering Employers Federation, the Institute of Management, chambers of commerce, the TUC, our two parties—the Labour Party and the Liberal Democrats—have all tried our hand at suggesting how we can get out of these difficulties and how we can lead ourselves into long-term industrial resurgence. Why are the Government so reluctant to come into the frame? Why do not the Government read all these documents—I am sure they do—and then, as befits their role in overlooking the whole economy and policies of the country, come out with a document which summarises, or differs from, or adds to these proposals? Then we could have a real discussion on the subject. As emphasised by the noble Lord, Lord Peston, and myself, there are no politics in this. We all want to get the thing right. What I think those of us who are most concerned are worried about is that we could be leading ourselves eventually into another recession unless we adopt the right policies now to manage the recovery.

I would very much urge that in addition to the long statement, issued in the Financial Times, of the intentions of the President of the Board of Trade to develop better relations with industry, which is highly desirable, the Government should come out—let us say in the Autumn of this year—with a document which introduces all the things that they are now doing and a number of the things that they propose doing and so give us some indication of how they believe that by careful management, the action of government, and through industry and the financial institutions, we can work our way into a situation where we can look for long-term sustained growth in our industrial capacity.

3.50 p.m.

Baroness O'Cathain

My Lords, Sir Joshua Reynolds, the great painter and one of the founders of the Royal Academy, said in a discourse to students at the Royal Academy in 1769: If you have great talents, industry will improve them; if you have but moderate abilities, industry will supply their deficiency". I am sure, of course, that he was using the term "industry" to signify hard work and dedication. But I feel that it would be so appropriate if we could instil that saying (using the word "industry" to signify manufacturing industry) into the minds of all our educationalists and public opinion formers today. We so need to encourage a more positive attitude to industry and to convince the best brains that British industry is, and can always be, just as fulfilling as any other occupation, be it the professions or the public service.

I welcome this debate which gives us an opportunity to be constructive; to range wide over the manufacturing industrial landscape, and to try to determine what are the lessons learned since 1979 which should enable us to build on the strengths and overcome the weaknesses which unfortunately still exist in our manufacturing industry sector.

Nothing is immune from criticism, nor should it be; but although constructive criticism leads to positive action in many cases, destructive criticism leads to antagonism and antagonism is probably the last thing we need in British manufacturing industry at this time. As the Minister said, we must remember that presentation of our success is most important. Our international competitors constantly boast about their successes while we agonise over our failures. But British manufacturing industry is not a failure. It has so many areas of success and I shall refer to some of them in the course of this speech.

I really do welcome this debate because I believe that as we are now crawling out of recession it is an appropriate time to take stock, to refuel and to start off again in a higher gear. Much has been achieved in the past 14 years in terms of restructuring manufacturing industry and it is fitting that some credence should be given to the achievements of all engaged in manufacturing, particularly the trades unions whose attitude towards the problems of manufacturing industry is barely credible to someone who worked in British manufacturing industry from 1966.

Instead of generalisations about progress and lots of statistics, and generalisations about changed attitudes, I am going to quote from particular examples. I believe that the experiences that I will bring to your Lordships' attention are not unique but are mirrored throughout the country.

I have deliberately not concentrated on the motor industry because that industry is always quoted in debates of this sort. I am taking my examples from an unfashionable sector—namely, chemicals—the food sector and, finally, I shall make some observations about the lack of innovation, marketing and customer awareness in a consumer goods manufacturing industry sector.

If any of your Lordships were to stop and ask the ubiquitous man in the street if he thought that a medium sized chemical industry in the North of England had thrived since 1979, his answer (based on the anti-industry propaganda which has been so prevalent in the interim period) would almost certainly be no. The reality is that in the period since 1979 Yorkshire Chemicals' turnover has quadrupled; overseas sales are five times what they were in 1979 and now account for 90 per cent. of total sales. The company still employs almost the same number of people but of course productivity has increased significantly. That is really a great record and naturally begs the question: to what does the company attribute its success? The answers which I received were pure textbook stuff, but textbook stuff applied with one eye constantly on costs and the other on the market-place—determined to give the customer what the customer wants.

The list contains all the elements of what a good business should be doing, including continuing improvements in efficiency in all activities—particularly in production, marketing and distribution—broadening the end use and geographical sales base; technical and product innovation; increasing capital expenditure not only to update and expand production, but, very importantly, to improve quality; and, of course, team work. But finally, Yorkshire Chemicals says that it was changing attitudes, constantly, adopting a truly international "customer focus", that made it the success which it now is.

Mentioning Yorkshire Chemicals' capital spend criteria encourages me to make the point that in the past 14 years we have seen a much more focused and intelligent approach to investment. Of course, the noble Lord, Lord Peston, is right in saying that investment is the key. But many people believe that manufacturing industry has been starved of investment. That does not really square with the examples such as the £700 million research plant being constructed in Stevenage by Glaxo which, I am told, is the largest construction project currently being undertaken in this country after the Channel Tunnel. The noble Lord also mentioned R&D expenditure. He mentioned the pharmaceutical industry, but what he did not mention was the £500 million per annum being spent on R&D by Glaxo.

My second example of a success story is quite different from Yorkshire Chemicals or indeed even Glaxo. It involves the construction of an ultra-modern £30 million plant in Shropshire employing 250 people and producing a product which is now Britain's 26th largest grocery brand. However, its success is something of a condemnation of the old production-driven attitudes which bedevilled the dairy product manufacturing industry for so long.

Müller, a Bavarian dairy company, saw a major opportunity in the UK yoghurt market. It supplied to the market direct from Germany and then, when by dint of excellent marketing and customer satisfaction it had built up a large market share, it decided to invest in this market. The story of that success was detailed in the Financial Times on 22nd April in a very good article by Guy de Jonquiéres. I commend the article to your Lordships. It is an example of what can be achieved and of how a German company was so enthusiastic about investing here and employing excellent British employees to further its success.

The Müller story encapsulates another change that has occurred since 1979; namely, the ability of the workforce to rise to the opportunities created and available by putting the customer first. Too often people believe that it is only in the service industries that there is the necessity to put the customer first. Naturally, they have to, otherwise they will not be in business. But it is imperative that the service sector is backed by the right goods to sell of the right quality, be it the correct dyestuffs as one of the processes leading to textile sales in a departmental store, as does Yorkshire Chemicals, or the right yoghurt in the supermarket.

The more I think about it, the more I realise that the interdependence of manufacturing industry and the service industry is such that we here in your Lordships' House probably do a disservice to industry in general by concentrating on one sector without considering the impact on the other. Marketing has been a common factor in the success of Yorkshire Chemicals and Müller. It is not too far-fetched or too general a statement to say that an analysis of manufacturers who have failed to make similar progress will almost certainly show that they do not put the customer first.

The "table-top" industry—ceramic, porcelain and glassware—appears to an interested customer and retailer to be languishing. Where is the excitement in the china and glass departments? I fear that a great deal of it comes from other European or Japanese companies. The British products on offer have such a sameness about them. Tradition is all very well but, as Yorkshire Chemicals and Müller have found out in the past 14 years, product innovation can run alongside continuing traditional products which are being constantly updated, and attention to the customer results in almost assured progress, despite global recession, unhelpful exchange rates, high interest rates and all the other excuses for non-performance.

I truly believe that we are raising our industrial game to the level of our educational competence. For too long in the post-war period we were wrong to spend such a high proportion of GNP on education and expect the people who benefited from that education to partake in menial, unskilled or semi-skilled tasks. Industry is now much more demanding of brain power than brawn power and if that means replacing human beings by robots in foundries, so much the better.

There is an indelible experience etched on my mind of my first conversation I had with a so-called "blue-collar" worker in the foundry at Longbridge in the 1960's. I am delighted to see my noble friend Lord Stokes in his place who, incidentally, was my boss during that period. Standing there in the almost unbearable heat and noise, this worker told me how proud he was that his granddaughter had just got a job in Longbridge, carrying on the family tradition. But, he said, "She has a job much better than mine, it was really marvellous". She had just been appointed a junior typist and had sick leave benefits and holiday entitlement when she wanted to take it. He was not bitter; he was just pleased that things were looking up and that his granddaughter could have an easier life than him. The pathos of that moment remains with me still. He was worth so much more than me; he was a loyal, hardworking man who had given his life to what he called "The Austin", yet was working in appalling conditions. Thankfully, those days have gone and I know that developments in staff training and development, profit-related pay schemes, identical working hours, pensions, holiday pay and sick pay entitlements for all employees in so many of our industrial companies have made industry a much more agreeable place in which to work.

I only wish that there was a commensurate external enthusiasm for industry. We need to preach the message to the education sector: industry needs the best brains; industry truly is a great career; please encourage young people to think positively about industry. I believe a good start has been made in these past 14 years. We need to increase the momentum, and to that end a debate like this, focusing on the importance of industry can do nothing but good.

4.3 p.m.

Lord Boyd-Carpenter

My Lords, in opening the debate the noble Lord, Lord Peston, said that this was a most important subject. I am sure that all of your Lordships will agree with him. Apart perhaps from questions of peace or war, it is the most important question facing this country and this Government at the moment. I hope that the noble Lord will not feel that I am being impertinent if I say how very impressed I was by his speech which seemed to me to be the best speech that I have heard from that Bench over many years. That is not to say that I agreed with all of it. In some ways, the making of a very had case (and making it seem extremely good) is an example of dialectical skill, for which the noble Lord is well known. In all seriousness, I was impressed by his speech and should like humbly to congratulate him upon it.

Having said that, I should like to refer to one or two aspects of the noble Lord's speech which did not seem wholly to cover the ground. Indeed, the noble Lord himself will recall that he was somewhat selective in the aspects of the economic and industrial situation to which he referred. Naturally, with limited time—although it did not formally apply to him, he courteously accepted it for himself—the noble Lord had to be selective. However, there are other aspects of the situation in the economy today and of the developments taking place in it to which he did not refer.

If I may, I should like to take the noble Lord up on what I understood that he said—I hope that he will contradict me if I have misunderstood him—about favouring fixed exchange rates. I gather that I was right in hearing that. By that, he no doubt meant inter alia that he would favour the restoration of the ERM. With great respect, I think that that is a fallacious and to some extent dangerous point of view. If one has exchange rates that are fixed either to some nominal figure or to some figure based on the exchange rates of other people's currencies, one lacks the flexibility which a free system of exchange rates gives. Putting it, if I may, in the simplest terms: if one's industrial, commercial and economic position is bad and one has a free exchange rate, the exchange value of one's currency goes down. That immediately has two effects, both helpful in the situation. First, it makes one's exports more competitive because they are cheaper in one's cheaper currency and, secondly, it makes imports more expensive and therefore discourages imports which are upsetting one's balance of payments.

It seems to me that the traditional exchange rate system, which operated in such a way that if one's economy was successful, one's currency rose in value while if one's economy was unsuccessful, one's currency went down in value had very great merit. I think that our experience of the ERM bears that out. Although I cannot hope that my noble friend the Minister will say in her reply that we shall never touch the ERM again, which would be my own view, I hope that she will at least indicate that we have no tendency towards it at the moment and no hankering after its restoration.

The noble Lord, Lord Peston, also said that we were a cheap labour community. I think that is a very doubtful proposition. In many ways we have high labour costs. Although the position is very much improving and although industrial relations are excellent and the cost of our labour is not significantly increasing, I should not have said that we were a cheap labour community. If we were, that would, in a way, make us a more attractive area for investment than the noble Lord himself seemed to think that we were.

In the same context, the noble Lord also did not refer to what seems to me one of the most encouraging symptoms affecting our economy. Foreign nations, particularly perhaps the Japanese, can choose where in the world to invest. They can choose economies which seem to them to be going to produce the best results for their investment. It is therefore not without significance that the Japanese, who have no sentimental affection for us, are, from their point of view, investing more in this country than in any other overseas country and are continuing so to do. The noble Lord really must face the fact that, given that that is happening, either the Japanese are foolish and ill-advised—and there is not very much factual support for that theory—or that this is a good country in which to invest because our economy is sound and making progress.

I share the noble Lord's concern about the still heavy deficit on the balance of payments. Of course, no one can see that without some feeling of anxiety. As one who served at the Treasury when the tendency was entirely the other way, I can well understand how anxiety-making is the state of affairs. But the noble Lord must face the fact—as I think your Lordships can happily do so—that for all our difficulties and for all that substantial deficit on the balance of payments, foreign countries with absolute freedom as to where they place their investment find it desirable to place a very large volume of investment in this country. That is enormously advantageous. Japanese enterprise already provides considerable employment in the country. It is helping our economy, both from the balance of payments and the employment point of view. It is certainly something very much to be encouraged.

That leads me to the main point that I should like to leave with your Lordships. I wholly agree with the noble Lord, Lord Peston, that what is needed is high investment and that we should take every step to encourage investment both from overseas companies, to which I have already referred, and, still more, from our own resources. We should ensure that there is high investment here to provide us with first-class, improving and expanding industrial capacity.

However, how is one to do that? One of the ways is to secure that taxation is kept at moderate levels. There is very little doubt that the knowledge that, if you make an investment in a country and it is profitable heavy tax will then be paid on those profits, is a great discouragement to investment. The converse is also true; namely, that if you know that if you make a successful investment you will be able to keep a great deal of it tax free, that is surely the greatest possible encouragement.

That points very directly to how right the Government are to keep down direct taxation. Indeed, I hope that they will apply that lesson to the point of reducing direct taxation. But I also want to indicate my own anxiety about the spread and development of VAT. I think that VAT is a very bad tax. It inflates costs in so far as it is a charge on services and it increases industrial and other costs. I had an experience of the latter only the other day, in a very modest way, as churchwarden of a little church in Hampshire. With much trouble, we raised some money to rebuild part of the church which the diocese said was in a dangerous state. But, having done so, we then found that we had to pay VAT at 17.5 per cent. on the money that we had paid for the work. That is not only socially unjust in its application to places like churches—perhaps particularly so to small country churches—but it is also an indication of the inflation of our costs resulting from VAT. I very much regret the Government's increase in the rate of VAT to 17.5 per cent. and the promise, or threat, of extending VAT to domestic heating. It is a very bad tax.

My noble friend the Minister will say, "What are we to do to finance national expenditure if we do not make such increases?" I would say to her that the lesson of the present situation is that taxation must not be increased in any direction and that, therefore, public expenditure must be reduced. There are directions in which it could be reduced and in a debate on that subject (which no doubt we shall have before long) I shall have certain very definite suggestions to make. I suggest that if we are to put first the recovery of our economy, the building up of industry and investment in industry—upon which, I agree with the noble Lord opposite, so much, indeed, practically everything, depends—then in the coming years we have to restrict government expenditure not only on luxuries and semi-luxuries but also on all sorts of things which many noble Lords would, perhaps, regard as necessities. One example that is frequently referred to in this House is legal aid.

At this stage I shall not digress into the general subject of taxation. However, I shall leave with your Lordships the thought that if it is imperative to encourage investment and get the whole industrial machine modernised, up-to-date and expanding and if it is right—as I think it is—not to incur too heavy a deficit on the balance of payments, it is essential for the Government to restrict public expenditure. Some of your Lordships may think that, as a former Treasury Minister, I have an obsession in that direction. Indeed, one or two noble Lords whose then departmental expenditures I was rather harsh on may well form that view. But I say to your Lordships with all seriousness that one of the keys to the economic recovery which we all want to see is a restraint on public expenditure, a relaxation of taxation and the expansion of investment in industry with the expansion of industry that would follow therefrom. If we follow that course, the recovery, which we are glad to see already starting, will continue and the United Kingdom will, once again, be a highly prosperous, secure and well-managed country.

4.17 p.m.

Lord Kennet

My Lords, I shall spend most of my minutes talking about Japan. I am less expert about that country than a good many of your Lordships, but my not especially frequent visits over nearly four decades have all given me the same impression, which I should like to share.

We will all have seen a recent study—that may sound as if I am moving away from Japan, but I am not; it is the same subject—which showed that firms in this country with engineers in the driving seat, as chairmen or thereabouts, do much better than firms with an accountant there. The President of the Board of Trade himself has approvingly quoted a Japanese friend who said: Accountants should be on tap, not on top. I think it is well known that we have more accountants per head than any other country, and we certainly do put them on top.

As bankers, accountants here are allowed to close down whole industries. In their capacity as receivers, accountants are the nation's undertakers, and they have themselves long been among our main growth industries. No doubt the turnover from receiving in bankruptcy and from debt collecting appears as a plus in the GNP—and a very big one too, I should imagine, with the salaries these people pay themselves when they reach the top of some miserable company, and the platinum handshakes they give each other when they and their companies fail.

In Japan, industrial leaders are proud of the cars and electronic systems that they make and sell and the firms they keep going. In the United States they seem to be proud of their salaries and the number of firms they can sell to each other. We follow the US. I exaggerate, I hope; but I fear not much. We export a lot, but we import more. The more we close down industries and parts of industries on the advice of accountants, the more we shall go on importing.

Japan is interesting because per head it has a low rate of accountants and high rate of technicians compared to this country. Furthermore, it was never hooked on that blind faith which claims that market forces can do no wrong. Japan is, in its new time of financial trouble, coming to rely on Keynesian solutions. The Japanese have always understood the saying that the only free market is one whose freedom is guaranteed by Government.

This country has chosen to become a low-wage outpost of Japanese industry. I listened carefully to the noble Lord, Lord Boyd-Carpenter, who argued that we are not a cheap labour country. However, recent events cannot bear him out. Let us consider the row about Hoover transferring a large sector of its European manufacturing operation from France to Britain explicitly because the wages and labour conditions in this country are more favourable to employers. Let us also consider the dignified debate and the clarity of argument with which another place is pursuing the issue of whether we should undertake the obligations towards employees which will be undertaken in every other Community country under the Maastricht Treaty. It is not the Government's intention that we should be a high wage country, and that is why Japan, the United States and Germany have been investing here. We must see what is happening. They are not going to put their high-tech bits here, are they? It is the low-tech bits which they put here.

We can continue in that way, but we should have been learning from the high-tech, high-wage countries of the world instead of living out some thin, belated, diluted version of the 19th century American dream. Too often we say: if a company does not make a profit, close it down; if it does, sell it off to someone else and use the proceeds on the form of compulsory purchase which we call a contested takeover. Then repeat the process ad infinitum, borrowing as you go, until the balloon bursts.

I do not believe that the President of the Board of Trade or the noble Baroness want us to go further down that road. There are encouraging noises coming from the right honourable gentleman and from behind his closed doors. Furthermore, there are encouraging noises, although not so loud, coming from behind the doors of the new Office of Public Service and Science. Those noises, which are hardly premature, echo what is now the almost universal opinion within manufacturing industry. The CBI expresses that opinion with perhaps unprecedented vigour. It said in a convenient recent statement that the Government must act to change the culture and help to forge better communications within manufacturing industry. They must also provide leadership nationally in manufacturing industry. There must be consistency in policy to enable forward planning, and there must be fewer ministerial changes. I endorse that last statement, but of course only within the framework of one government.

Okay, so we are playing for the World Cup, as the noble Baroness said. But we are not yet even training for that. We are not in the right league. The right league is the high-tech, high innovation, smooth technology transfer league among industrial countries.

I turn to the results of a conference held last December by the Parliamentary and Scientific Committee. Many noble Lords are members and will know that the PSC was founded in 1939. It is an all-party body comprising 188 Members of both Houses of Parliament, 133 scientific and technical institutions, 72 companies and 58 universities. The committee's constitution allows it to advocate policies to government, but it has never done so until now. After its conference last December it sent a message to the Government which stated: Japan's industrial performance, especially in innovation, is better than Britain's", and In Japan subsidies have always been regarded as investments. The committee also stated—and here I come to what I regard as its most important single point, perhaps the most important single point in the difference between Japan and Britain—that, in Japan co-operation and competition among individual companies co-exist. And not by accident. I shall quote the two main reasons for that co-existence, as given in our report. First, MITI [the Ministry of Industry and Trade in Japan] plays a leading part in the formulation of a rolling national economic plan which is collectively updated by government, parliament, education, research, industry and banks". Secondly, MITI orchestrates many collaborative programmes of industrial research. It chooses what projects shall be done this way, chooses the firms to do them, holds the ring as they are done, and decides when the project shall be terminated so that collaboration can give way to competition". The report continued: The whole strategy depends on complex and extremely laborious consensus building among those who take part". In my opinion, that is the main reason for the extraordinary success of Japan in past decades.

Our report also drew attention to many other issues. For instance, it cited the interactive flow of knowledge in general among Japanese firms, research associations, academia and government. From the shop floor itself "blue-collar research" is fed back into the innovation process and into education. Our report stated that much new technology is transferred by seconding the specialists concerned rather than moving information in writing.

I turn to the financial aspect of Japanese success. The report stated: Japanese success could not have been achieved without low interest rates, long return times on investment and a culture which encourages the internal development of companies rather than the mergers and take-overs which tend to distract UK industrial thinking". The rest of the report gave warnings about the future of Britain in terms which many noble Lords have used today. It mentioned cheap labour, short-termism, an eroded base and poor training. Those are all errors to which accountants and the Treasury can give no value. It recommended the adoption of a clear macroeconomic strategy, based on industry and technology; the creation of a pro-technology, pro-industry culture; a swerve towards science and technology in education; life long professional education; more government support for R? policies to help all companies, not just the biggest and best, to innovate; stable interest rates; and government becoming industry's "catalyst, navigator and guardian"—in short, its friend.

I should add that all this was subject to the obvious caveat that it is undesirable, and would in any case be impossible, to transfer Japanese institutions and practices to this country lock, stock and barrel. We must find our own ways of reaching the same communal goals.

We sent our report to the Prime Minister and to other relevant Ministers and we received courteous replies. The noble Lord, Lord Ezra, has just pointed out how the CBI, the Engineering Employers Federation, the Liberal Democratic Party and the Labour Party have worked at solutions. He might have gone further and emphasised that to an amazing extent we all agree on the solutions. It is true that life is easier for us on these Benches: we have no words to eat. I shall not pursue that line of thought. But I hope that the Government are going the way that they seem to be going. Certainly, new policies of the kind that we have all been urging for so long would now receive a universal welcome.

4.30 p.m.

Lord Aldington

My Lords, I listened with great interest to the noble Lord, Lord Kennet, and I am glad that he has reminded us of the Japanese story. He made some wise points as regards how far that can go with us. Nevertheless, as my noble friend Lord Boyd-Carpenter said, the Japanese have invested an enormous amount of money in this country because they have confidence in the general climate in which they work, in the people with which they work and in the standards which we keep.

I join other noble Lords in expressing thanks to the noble Lord, Lord Peston, not only for the Motion but for the valuable speech with which he introduced this important debate. I suggest to the noble Lord and to the House that the very high standard of the speeches which have followed owe a good deal to the example which he set, which was immediately followed by my noble friend Lady Denton.

I was rather proud that the noble Lords, Lord Peston and Lord Ezra, referred to the 1985 Select Committee report on overseas trade. The noble Lord, Lord Bruce, had his usual bit of fun by telling the House that the report was greeted by the government as a Marxist report. It just so happens that I have the Government's formal reply with me, which does not begin quite like that. It begins: The Government welcome the report of the Select Committee as a contribution to discussion". That hardly seems to have anything to do with Marxism.

As the report was made some years ago, it is as well to remind the House of the important points made in it, which are by no means out of date. First, there was the special importance to the British economy, in the long term, of its manufacturing base in a global context. Secondly, competitiveness is the key factor in all its aspects: price, design, the ability to foresee changes in the market, to implement advances in science and technology, and to make and market new products.

The next point which the report made was that the decline in Britain's competitiveness has been gathering pace for more than a century. The national attitude towards manufacturing needed changing sharply and quickly; recovery would take many years. We laid stress on the fact that Britain had many top class manufacturers in world terms which by no means could be described as being in decline. We needed more of those and the good manufacturers needed to expand further. The report pointed out that the new factor in recent years had been the progressive loss of large chunks of the home market, even while export performance was very strong in some areas.

The report emphasised the importance of changes in education, and the need for more training and more effort in civil research and development. We did not use the word "innovation"; I wish we had used it. However, in a masterly report for the Select Committee on Science and Technology my noble friend Lord Caldecote added great strength in more up-to-date terms to what we tried to say.

It is against the background of those thoughts, which are of long-term validity, that I look at the developments in recent years and the position today. I rather agree, in school-masterly terms, that it is rather like the curate's egg: there are some good points and some not good points. However, a good start has been made in a number of aspects: in education, in training, in civil research and development and in securing more investment. It is not often realised that R&D expenditure in industry has increased by 6 per cent. per year between 1981 and 1991. That is good. Exports have done extremely well. They have risen in volume, which is most important, by 65 per cent.

However, the output of manufacturing industry has not done as well. On the other hand, it was pointed out that output per person in manufacturing rose by 53 per cent. in those 10 years but, as my noble friend said—and I much welcomed the figures—it has risen by nearly 75 per cent. since 1979. That is a tremendous success and lays the base for real improvement in our competitiveness.

We should not forget that industrial relations have changed out of all recognition. Through their legislation the Government should be given much credit for that. However, management and the workforce should also be given credit for a most welcome increase in employee participation without any intervention from the Social Chapter.

Management skills have improved and their incentives have strengthened. That is what Martyn Lewis might call good news.

However, there are some not such good points. The deficits have continued. They have grown in some years and are growing now. That is extremely worrying. They have continued because imports are increasing as we do not produce enough manufactured goods in this country. What do I mean by "enough"? By that I mean as many manufactured goods as our people wish to buy. It is a quite simple truth that, so long as we do not produce enough manufactured goods in this country to satisfy demand, there will be a deficit of the balance of trade. That does not mean that we must seek self-sufficiency because there will always be imports and exports, but we must at least match demand. And, as the noble Lord, Lord Peston, said, we must do considerably better than that.

That is quite a task which faces industry and in that industry requires the help of the Government. I estimate that manufacturing output needs to increase by well over 20 per cent. above the normal annual increase in demand to fill the gap between demand and supply. That will take some time. It may mean that over 10 years our output must increase by well over 40 per cent. That is an immense task. It was the size of the task facing our country which made the noble Lord, Lord Ezra, other noble Lords and myself use such stark phrases—one of which he quoted—to remind the nation as well as the House of the task which it faces. That is not because of anything particular that has happened over the past five or 15 years, but because of the steady decline in competitiveness over the century and more.

That task makes me welcome recent statements by the Prime Minister and by the President of the Board of Trade about the importance which they attach to manufacturing. That importance was well confirmed by my noble friend Lord Boyd-Carpenter. It is good that the Government can now give and have given a lead. That leadership must be tested not only by the statements made by Ministers but also by what is happening inside government.

I am glad to see that the Board of Trade has been reorganised to give it the knowledge and understanding of the different sectors of industry. It used to have that but for some reason it disappeared. It has now come back again. That will give it the muscle to help industry to become more competitive and to help new businesses to get started with the know-how learned by others. That seems to me to be a very good start. Export help has been stepped up and I think that was a good step. I hope that special steps will also be taken to encourage, and perhaps persuade and guide, manufacturers and those they supply to recapture lost sectors of the home market. That is a part of the problem which has been slightly misunderstood in public opinion and in government circles.

Much is said about the importance of exports and about the help that is given in that area. The time has come to ensure that attention is concentrated more on the home markets which we have lost. I was glad to read an article in the Financial Times of Monday 26th April which stated that the new organisation appears to be able to provide the machinery under which people who wish to compete more effectively in the home market may be helped to do so. It may also be worth pointing out that manufacturers in the home market face competition from importers who are helped from time to time by other people's export credits and by the measures taken by other governments. We need to study that issue to ensure that we are as competitive as other governments in that regard.

However, those measures are small beer compared with the need for a national will to change. It is more than just a political will. It certainly requires the leadership of the Government. We need to build up as quickly as possible a strong manufacturing base. Many of us who recognise that requirement have asked for an industrial strategy statement from Ministers. The 1985 report made some interesting comments on government strategy towards industry and on government priorities. Those matters are referred to in paragraphs 159 to 160 of the report. We drew on the comments of my noble friend Lord Laing of Dunphail who gave evidence.

I have no doubt my noble friends will make the point that the case for an industrial strategy is a strong one. That does not mean I believe that my right honourable friend the President of the Board of Trade is so weak that he will not get his way inside the Government. However, I share the suspicions of some that the old devil is still hard at work in the Treasury supported by some academic economists. I am fortified in that view after having read two articles in The House Magazine written by two economists who thought nothing of the general theme of this debate; that is, that manufacturing industry is of special importance.

People still write articles stating that the balance of trade does not matter. People still write articles stating that it is the whole economy that matters and that important parts of it, such as manufacturing industry, cannot be separated out for any special attention. I regard that theory as rubbish—I believe the 1985 report supported my view—and everything that has happened since 1985 has proved that such a theory is rubbish. I am glad to note the comments of my right honourable friends the Prime Minister and the President of the Board of Trade on that theory. I do not believe either of them has ever shared that nonsensical view.

As a result of the swift change in government policy that has occurred in recent years, there is some fear that we face a greater degree of intervention than we may like. I believe we need not fear that that will happen or that great subsidies will be introduced. We should take comfort in the fact that the President of the Board of Trade has announced the establishment of a new organisation to help in this area as stated in the Financial Times. I declare my confidence in the ability of my noble friend and her colleagues in the Government to put this matter right.

4.45 p.m.

Lord Hollick

My Lords, the strongest revival seen in manufacturing industry over the past year has unfortunately not been the longed for but still rather patchy and anaemic recovery from the recession but rather its strong recovery as a salient political issue for the Government. This is a welcome development and contrasts starkly with the Government's attitude in the period 1979 to 1992 when manufacturing industry was consigned to a twilight world. We had the spectacle of government Minister followed by government Minister giving us the news that the future lay in the service sector and that in this exciting new world manufacturing was destined to play a diminishing role in our national economy. Other countries could make things and we would consume them. Thanks to the bounties of North Sea oil this pleasant arrangement appeared to some, for a short time, to be a credible way forward.

The Budget of 1981 sought to turn this forecast of the decline of manufacturing industry into a reality by hastening the process along. Large numbers of companies collapsed and a huge amount of capacity and investment in human skills were lost forever. Yes, the companies that survived were stronger and more competitive, but this crude Darwinian approach killed off many companies which could, with government support and the availability of low cost finance, have made a valuable contribution to our economy and in particular to our balance of payments. None of our major competitors approached the problem of industrial and technological change in this way. Many fundamentally sound companies have also fallen victim to the combination of the 1990-92 recession and the Government's fatal decision to enter the ERM at an uncompetitive exchange rate. My noble friend Lord Peston eloquently spelt out the calamitous consequences to our manufacturing industry of, on the one hand, wrong-headed economic policies and, on the other, an absence of industrial policy.

I hope that I am not being overly cynical when I suggest that the Government's recent rediscovery and concern for manufacturing industry is a result of the failure of their economic policies since 1979 and the recognition that the UK is perilously close to the point where we will simply not be able to pay our way in the world unless we can improve significantly the volume and value of the tradable goods we produce.

The Prime Minister announced his support for the cause of manufacturing industry in the press in March. That is to be welcomed. He repudiated the Thatcherite orthodoxy which he claimed to have opposed throughout his period in Mrs. Thatcher's government. The President of the Board of Trade has been less secretive in his support for manufacturing industry. In his political credo Where There's A Will published in 1987, he nailed his colours firmly to the mast. He stated that, an industrial strategy had to be at the top of our political agenda and that government involvement, far from being a matter for shame, is vital to the survival of the British economy". Does this combination of a Prime Minister, possibly with all the zeal of a convert, and a President of the Board of Trade who is a true believer, usher in an era of government partnership with industry and strong support for industry? I believe the signs are promising. Both industrialists and the TUC have noted a change of mood. There now appears to be more contact between the Government and industry and the cause of British industry is being promoted more enthusiastically and more frequently. But words by themselves are insufficient; action is required and action costs money. Here lies the rub, because there is as yet no evidence that the Government are prepared to accord sufficient priority to the regeneration of British industry and commit the substantial funds necessary to the project.

The problem can be measured in a number of ways: our falling share of world trade; the remorseless decline in manufacturing's percentage of GNP; and the growing imbalance—that has been referred to—between manufactured exports and manufactured imports. Our problem now is not only how do we hang on to our current 6 to 7 per cent. of world trade when our share of the world's population is only 1 per cent., but how do we increase it so that manufacturing can provide the engine for future economic growth?

A healthy and growing industrial base is vital to employment creation for although the manufacturing companies themselves are likely, because of labour saving production processes, to employ fewer people, the increased economic activity they promote leads to employment in supporting and ancillary companies.

The UK manufacturing base is, by and large, competitive internationally, and in a number of sectors we are world leaders. However, as has been pointed out, the base is too small when measured against its capacity to meet a rise in domestic demand and to match the growth in imports. Time, money and political will are needed to reverse the decline in manufacturing.

A primary requirement for manufacturing industry, as again has been pointed out by several noble Lords, is a stable macro-economic environment. Uncompetitive exchange rates and wildly fluctuating interest rates are the enemies of the long-term planning which is essential to industrial well-being. The cost of funding long-term investment programmes is a crucial, even decisive, element in the success of any project. Our major competitors have long benefited from low long-term interest rates whereas our companies have either had to pay very high real interest rates or have had to tap the equity market which, because of the much higher rates of dividend in this country, is a very expensive form of financing. If the Government are serious about industrial investment they should consider using tax incentives—which are made so readily available to promote home ownership—to increase the supply and reduce the price of long-term funding for industry.

Export finance is another area of concern. There is increasing anxiety in industry that following the privatisation of ECGD the insurance cover available to exporters may, in the case of many countries, fall well short of the opportunities for the export of manufactured goods to those countries. Can the Minister today confirm that the Government are committed to ensuring that the level of export credit cover available to manufacturers in this country will be sufficient to match those export opportunities and, in particular, to ensure that we are fully competitive with other major manufacturing countries?

In a world of global markets and free capital movements the decision about where to locate a manufacturing plant, whether it is taken by a British company or a foreign company, often comes down to the technological infrastructure. That infrastructure is a combination of the skill base of the workforce and the processes and products which have been developed by that workforce. Therefore, a well trained workforce must lie at the heart of any industrial strategy.

The Government must do all that they can to remove the bias in our education system against industrial training and accord a much higher status to vocational training. The school curriculum should be progressively restructured to achieve that aim, and industry should be invited to play a greater role in higher education decision making to ensure that courses are appropriate to our industrial requirements.

Investment in industrial training in the workplace must be increased. Expenditure on training in the UK lags well behind that of our major competitors. The Government should consider the system that operates in France and elsewhere and introduce a training levy of, say, 0.5 per cent of payroll. Those companies whose training spend is equal to or above that level would be unaffected; those who spend less would be required to make the difference available to fund their local training establishment. That would provide a powerful incentive for companies to increase their expenditure on training and would ensure that there was close co-operation with the local training institution to provide relevant training schemes.

For those of us who are in search of the Government's industrial strategy perhaps one of the most important recent developments has been the preparation by the aviation committee of the DTI of the national strategy technology acquisition plan for aeronautics. The plan, which has been strongly supported by British Aerospace—where I am a director—was presented to the Government early last November. The plan identifies and analyses the main areas of technology in which advances are required to be made in order to enable change and then seeks to prioritise those technologies which are particularly important to maintaining the UK's competitive position. That is an industry in which we are one of the world leaders.

The plan recognises the central role which aerospace plays in our manufacturing sector and seeks to address the very serious problems of financing the technology and developing the new products we need. Such are the lead times in aerospace that today's success is based upon investment which was made in technology in the 1960s and 1970s. With the industry now under severe economic pressure from the long recession, reduced defence budgets and reduced support from the DTI there is a real danger that the current research and development budget will be insufficient. Consequently, the UK may not have a competitive aerospace industry by the end of this decade.

The industry received a further body blow when, under the recently negotiated aerospace chapter of the EC/USA GATT agreement, the UK agreed, with others, to an effective halving of launch aid funding. That puts the UK at a massive disadvantage against its major competition in the United States where the industry enjoys a high level of government support for research and technology. For example, the NASA aerospace programme alone is worth about 1 billion dollars per annum compared with the DTI's civil aircraft research programme of £26 million per annum. Our European competitors also benefit from far more generous support from government. In France, for instance, significant state funding is made available to replenish the share capital of companies after they have sustained substantial development costs.

Many in the aerospace industry believe that investment levels need to be increased significantly over a five year period simply in order to catch up. In practice, economic pressures have forced a reduction in expenditure on research and technology over the past few years. A substantial increase in government support through the DTI will be needed in order to secure industrial competitiveness. In those circumstances, it is essential that the UK Government should ensure that the aerospace industry receives financial and political support broadly equivalent to that given to our major competitors. That should cover both defence—through procurement policies—and support for the civil industry. Industry needs a level playing field and, in particular, we need support for seed corn investments in research and technology.

If they are to make a serious contribution to the large-scale investment needed to support such seed corn investment in the aerospace and other high-tech industries, the Government will have to redefine some of their spending priorities. An industrial strategy made up of words and good intentions will be of little value. The President of the Board of Trade's undertaking to intervene before every meal is worthless if he is unable to secure from the Treasury the necessary funds to support his intervention.

There is a growing feeling that the Government's new-found enthusiasm for manufacturing industry is merely symbolic, a public relations exercise which lacks substance. It now appears likely that the crucial battle for resources between the DTI and the Treasury alluded to by the noble Lord, Lord Aldington—a battle foreshadowed in Michael Heseltine's book of 1987 in which he called for structural changes in the Government to beef up the powers of the DTI—will be won by the Treasury and that the much needed industrial strategy will amount to no more than kind words and some sticking plaster. Will the Minister please tell us today when the Government propose to respond to the national technology plan and whether and how they propose to match the scale of funding available to the aerospace industries of our major competitors?

4.58 pm.

Lord Peyton of Yeovil

My Lords, I do not share for a moment the rather depressing view of the noble Lord, Lord Hollick, that the Government's conviction about the importance of manufacturing industry is merely symbolic. I have no doubt that it is absolutely genuine, but I am sometimes a little worried as to whether the Government know what to do about it and how to translate it into effective action.

I should like to begin by echoing the very eloquent tribute paid to the noble Lord, Lord Peston, by my noble friend Lord Boyd-Carpenter. I am not paying a loose or sloppy compliment when I say that speeches of that tone from Opposition Front Benches, no matter which party sits on those Benches, make a real contribution to progress and can do a great deal to change the attitudes which everyone seems to agree need to be changed. I hope that the speeches which followed that of the noble Lord in the debate have been an adequate reward to him. They followed the tone which he so admirably set.

Not long ago one of my noble friends on the Front Bench announced that a huge balance of payments deficit was likely to be our lot in 1993. What worried me was that it was announced without an atmosphere of accompanying alarm or fear and was received quite calmly in the Chamber. I believe that the loss of the capacity to shock by numbers and statistics is quite frightening. We just turn away from facts as though they do not exist.

I agree with everyone who has said that there is no short, easy way out. However, we are faced with the challenge that we have no great stomach for long-term effort in this country. Over many years we have preferred to go for the short term reward. We have been ready to pay ourselves more for doing less, and for doing it rather less well. We have not kept a close enough eye upon what our competitors have been doing.

I entirely accept the need for general attitudes to change. Perhaps it would not be entirely relevant in passing to comment that not many people reach the Floor of your Lordships' House by the route of manufacturing industry. I have commented previously about the importance of the engineer. It is my belief, heretical in some quarters I am sure, that engineers do more to create wealth than ever accountants do. For the most part accountants simply count what other people have done. They are unable to create for the future. What is the attitude of parents? What are we doing to influence the attitude of parents in the guidance that they give to their children in the choice of careers? I fear that engineering is not high on their list of priorities.

My noble friend on the Front Bench has wide experience in the field of engineering. I am sure that she shares some of my anxieties, although she may not always applaud the way in which I have expressed those worries. Suffice it to say, engineers in our country, as I see it, sit down below the salt, speak when they are spoken to and are seldom much remembered or respected. That attitude has to change if we are to make the progress for which we hope.

I was told by my noble friend recently that there is an official in the Treasury who has an engineering qualification. I do not know whether the person is a man or woman. I was in no condition to probe any further so great was the shock. It is entirely irreverent to say it, but I have often suspected that the nearest one gets to engineering in the Treasury is when someone goes there to look after the plumbing or to maintain the lifts. I am concerned that throughout the realms of government the influence of the engineer is not greatly assisted. I am sure that it should be.

It is very easy to blame governments. It is not part of my message to say that the Government are entirely to blame for the situation in which we find ourselves. Noble Lords have today talked about the need for continuity. It is interesting to note the Government's attitude on continuity. There have been no fewer than nine Secretaries of State for Trade and Industry within a decade. The matter requires some thought. Governments find lecturing a rather more comfortable way of spending their time than listening. Lecturing is comfortable; one does not have to pay too much attention to one's own message and one never knows what uncomfortable message one may receive from others. However, I entirely exclude my noble friend on the Front Bench from any such charge. She gives me the impression of listening. I very much hope that her colleagues listen to her as carefully and attentively as she listens to us.

I cannot resist the temptation to refer to one point with regard to the Government's contribution. Governments are interested in other people's procedures. They are critical of them at times. But they take little or no interest in their own. They are slow to reach any judgment about them. I refer in particular to our legislative procedures. Again and again we have a great pile, a thick volume—I use the most polite language that I can hit upon—of verbal garbage which is then the subject of frequent amendments from those very people who have produced it. I do not seek to remind noble Lords of some of those cumbersome documents which are currently in front of us. However, I believe that if governments are sincere in wishing to move this country forward towards more modern attitudes in industry, they must look at the way in which they conduct their own affairs. They must ask themselves how well fitted the present institutions and organisations of government are to carry the huge additional functions which are put upon them. It is a question which governments allow to go by default.

I am sure that my noble friend will not be altogether surprised, astounded or amazed that I refer to the controversy about industrial strategy. The Government are very clear that they have an industrial strategy. As one of the slower thinkers in the community, I am not so convinced about it. Will my noble friend use her very considerable talents to persuade her colleagues that, even though they may be very clear about their industrial strategy, it would be helpful to people such as myself, who need a little helping hand to understand, if they were to publish that strategy in a clear well put together document.

My noble friend may not be greatly influenced by the thought of making people such as myself feel comfortable. However, I believe that if she were to dwell upon the issue for a moment, she might find attractive the fact that, if an industrial strategy were published by the Government, other departments would be committed to it. Perhaps her own department, the Department of Trade and Industry—it is making great progress at present and earning some laurels for itself—would be immensely helped if it had the commitment of the Treasury, the Department for Education, the new department of science, the Department of the Environment and others. Most of them need first lessons in what manufacturing industry is about because again and again they prove their ignorance of it. I hope that my noble friend will bear in mind the immense benefit which would flow to her and her colleagues if they were able to have the full commitment of other departments to the policies which they are attempting to pursue.

I turn briefly to industry. Sometimes in industrial operations the distinction between success and failure becomes blurred and that performance—good, bad or indifferent—is equally rewarded. That is something which one must regret. I wondered also whether managers give sufficient attention to their own skills in communication and leadership. I marvel at the way in which the technology of communication has improved and with that improvement goes the increase in volume, but the volume is not always well thought out.

Perhaps I may turn briefly to banks and business, and the contribution which our banks make to industry. I wonder whether those eminent in the banking world ever judge themselves against their counterparts in other countries. Looking at the subject from a spectator's point of view, I find it difficult to avoid the conclusion that many people in the City of London find a bruising, costly takeover struggle much more attractive than long-term support for the industries upon which we all depend.

Perhaps I may end on two simple points. First, I wonder how good any of us is at teaching or learning the importance of wealth creation. It is something which no one questions. On the other hand, I wonder how deep into the community goes the acceptance of the need for the creation of wealth. Against that, I am much concerned that there is an absence of fear throughout the Community of the dangers of resorting again and again to the painless measures of just a little bit of devaluation. We do not have to look far back—less than 30 years—to find the German mark at 11.5 to the pound. That is the measure both of the decline we have gone through over the years and of the task we now face.

I repeat what I said before about the contribution of the noble Lord, Lord Peston, and I hope that this kind of debate can at least make some contribution.

5.13 p.m.

Baroness Lockwood

My Lords, it is difficult to follow the noble Lord, Lord Peyton, not least because of his delightful teasing humour. Like other noble Lords, I am very grateful to my noble friend Lord Peston for introducing the debate. As he and others indicated, manufacturing is important. It is crucial to the future success of our industry. Fortunately, that is being recognised by more and more people; even the Prime Minister recognises it. That was not so in the 1980s when we spent most of the decade chasing the myth that the secret to success lay in developing the service sector. That idea was vigorously put forward by the predecessors of the noble Baroness on the Front Bench opposite; I am glad that today she has told us a different story.

The noble Baroness, Lady O'Cathain, said that she thought we sometimes did a disservice to industry by concentrating on manufacturing. I think that what we are trying to do in the House today is to redress the balance'. Of course, both the service and the manufacturing sectors are important. But it is because of neglect in the 1980s that the base of the manufacturing sector has shrunk so low, as noble Lords have indicated, that it is too small to provide for the recovery which is now so urgently needed.

I wish to refer to three ingredients of the problem: first, investment in industry; secondly, the relevance of education and training to industry; and, thirdly, our cultural attitude to industry. I shall say very little about the first, except to remark that it was disappointing to see from the CBI's latest survey that the growing optimism among companies did not extend to investment. According to reports, the CBI warns that manufacturing industry is still cutting investment. This is not good for the future: it is the one area where there should be growth. As my noble friend Lord Peston and the noble Lord, Lord Ezra, indicated, Britain's comparison with other countries is very poor in this respect.

I turn now to my second area of concern: education and training. Let me say at once that there have been considerable moves which are very welcome. The participation rate in higher education has increased. In education for 16 to 17 year-olds, we are seeing a slow improvement. All that is very welcome, although there are still many weaknesses. We still lag behind our major competitors in many respects. Both the CBI and the Engineering Employers' Federation have addressed the problem in recent reports on manufacturing industry. The CBI has also addressed it in a second recent major report on training, Routes for success. Both organisations make the point very strongly, and so does the TUC, that the key to a successful economy is a well-trained and well-educated workforce.

In this House and in the other place, we hear much said by the Government about the necessity for keeping costs down, particularly those for wages and social provisions for employees, in order to retain our competitiveness. Of course, costs are important and need to be controlled in industry, as in every other sphere. But the real answer to our competitiveness lies in the quality of our workforce and the quality of the goods we produce. The UK cannot compete as a low-cost industrial nation. We are not a third world country and we cannot compete with such countries.

Our competitiveness must lie in high quality, high productivity, high technology and high added value. We must train and invest to achieve that.

As your Lordships' Select Committee on the European Communities said in 1990 in its report on vocational training and retraining, training must be regarded as an investment in every respect, and the Treasury as well as the City must be made firmly aware of that and change their policies accordingly. As my noble friend Lord Kennet said, we are not in the right league when it comes to training. The quality of our training must be worthy of the term "investment".

It is disappointing that the initiatives in youth training have not resulted in a better trained force of young workers. The Government, I am afraid, must accept some responsibility for that. They have consistently "cheesepared" on the schemes. This year, in real terms, expenditure is down 14 per cent. on 1990-91, while, according to the Government's own labour force survey, 195,000 16 and 17 year-olds were unemployed during June, July and August last year. It seems occasionally that the Government are more concerned with the statistical exercise of keeping unemployment figures down than with addressing the real problem of seeing that meaningful training is provided with recognisable qualifications of a high standard which equip young people for skilled employment.

The system of NVQs is now coming on stream. That should offer for the first time a genuine opportunity to provide a highly skilled workforce. But it will not happen without effort and investment. The Select Committee advocated the legislative route; namely, that employers should have a statutory duty to ensure that all 16 to 19 year-old employees received training leading to a recognisable qualification. Much of the evidence received by the committee during the inquiry pointed in that direction.

But the Government prefer the voluntary route. So too does the CBI. Its report, Routes for success, goes far beyond anything that the Government have yet accepted. The CBI recommend a universal credit system for all 16 to 19 year-olds, including those in schools, sixth form colleges and FE colleges, as well as those in training and in training with employment. Secondly, it recommends an overarching award with a single framework for all 16 to 19 year-olds whether on NVQs or on the A-level route. Thirdly, it recommends a considerably enhanced system of careers education and guidance.

So far, the voluntary approach has not served us well, as the Youth Aid report very forcefully indicated. But the recommendations of the CBI could take us well beyond the present system and provide us with a trained workforce which could compare with any. To use the jargon, it would produce a world class trained workforce. I hope that the Government will look seriously at those recommendations.

A common framework for A-levels and NVQs is still resisted. Nowhere else in the world is there so sharp a division between the academic and the vocational route, and we are paying dearly for it in the United Kingdom. However, opinion is changing.

Higher education advocates a more broadly based A-level qualification. Many universities, both old and new, already accept students with BTEC and other non-traditional qualifications. What is lacking is the political will to make that fundamental change.

During the committee's inquiry into vocational training and retraining, one of the points made was that the training of adult workers was even more vital than training for young people. It was said that too much attention had been paid to training the young at the expense of those already in the workforce. The committee did not entirely agree with that point, but it did agree that training for those already in the workforce was equally important. Some 80 per cent. of those who will be in the workforce at the turn of the century, are already there now. The majority of them are largely untrained and, if they have skills, those skills have usually been acquired through experience and are therefore not quantifiable and not transferable. The formalisation, topping up and expansion of those skills is essential if we are to compete with the rest of the world. It is particularly important that we attempt that now when, as industry picks up, skills shortages become so apparent.

Both the CBI and the EEF accept that the expectations employers have of their employees have been far too low. We need to alter that. Low expectations, both in schools and in industry, are one of the characteristics of the UK which have helped to depress standards. Adult training is pathetically low in government training schemes and needs to be part of a national training strategy.

It is significant that at a time when the participation rate is rapidly rising in universities, the one area where difficulty is encountered—the noble Lord, Lord Peyton, will not be surprised to hear this—is engineering. Most universities have difficulty in filling all the places. Yet engineering is the key to manufacturing success. That is indicative of the attitude that this country has towards industry.

Cultural attitudes must change. They must change at every level of education and training, both in the curriculum and in careers education. The problem must be addressed; and it must be addressed with government leadership. It is part of the national strategy that is needed for industrial recovery and for manufacturing industry if we are to succeed in the future. I hope that the Government, too, will address that problem.

5.28 p.m.

Lord Selsdon

My Lords, the topic of today's debate, developments in manufacturing industry since 1979, reminds me rather (I do not know why) of one of those specialist subjects chosen for the final of "Mastermind"—a relatively narrow subject, easy to study and probably easy to remember.

As I prepared for my speech today, I asked around as to what I might say. I am afraid to say that my son was the one who gave me the soundest advice of all. He said: "It is such a narrow subject. There is not much to say about it. You ought to make the shortest speech on record".

I do not know why it is, but in listening to this debate my mind has changed a little. I feel that we are witnessing a dynamic change in attitude, whereby it is perhaps no longer "us and them", but "you, we and us". I think such change is due to the leadership of the noble Lord, Lord Peston. If his speech reflects the policy of the Labour Party, then we on these Benches should begin to worry. It was a good speech. It said nothing that did not accord with my own views and, I believe, the views held by all on these Benches. That must be because our views have changed. The Labour Party was the party of the blue collar worker but not of the industrialist. The Conservative Party was the party of the industrialist but not of the accountant. The blue collar worker has long gone. Perhaps it is due to Lord Moulton, my grandfather, speaking of television originally and pointing out that blue shirts looked better than white on television and therefore these days the only people wearing blue shirts are those who expect to appear on television.

I have to begin with the hope that we have seen the death of the economist. The noble Lord, Lord Peston, will recognise the statement—I cannot remember who said it but it was said quite recently—that managing the economy is like driving a car facing backwards and every time you turn the wheel it takes six months for anything to happen.

The Government are reasonably lucky in that they have turned the wheel facing backwards. They were not sure where they would end up and, by surprise, they have ended up in a quite good situation. There is no point in seeking to jog backwards. We must look at where we are today and not ponder how by accident we got there. We should not knock the Treasury too much. I am told that the Treasury has fewer driving licences than any other department and that in general the more intelligent one is, the less inclined one is to drive or own one's own motor car. People have their own theories.

Where are we today? We are in a period where everyone acknowledges that there must be both a monetary and a fiscal policy; but no one wants to define either of them. We are in a period of stability, after a relatively long and interesting shake-out, which frankly was scary for many people for a very long time. We are in a period of political stability. If the speech of the noble Lord, Lord Peston, reflects the policies that the Labour Party would wish to support, manufacturing industry in particular can go ahead and think long-term. It will not have political disruptions at home that will destroy its programme and investment.

There are a number of problems at the moment. There are run-downs of stock and there will probably be the classic supply bottlenecks. But we seem to be recovering more quickly than our industrial competitors in Western Europe. For once, therefore, we are ahead of them. The comparative figures in relation to trade and so on do not mean much to me any more. The noble Lord, Lord Peyton, almost referred to the point because of the exchange rates. I happen to be vice-chairman, under my noble friend Lord Limerick, of the Anglo-Swiss Society. The other day one of my Swiss friends on his birthday reminded me of how, 40 years ago, he had married a very attractive girl from the Yorkshire textile industry. In that time the pound sterling had devalued 90 per cent. against the Swiss franc but he was more than happy because, as he pointed out, his wife had increased by some 40 per cent. over that period. That was roughly all that he could say for the British economy.

I should like to talk about where we are going. Do we have to have an industrial strategy? Should the Government be controlling it or should they step aside? From time to time various theories are produced. A new one has been introduced to me; namely, the Heckscher Olin factor endowment theory. The noble Lord, Lord Peston, will know it well. That seems to me to be quite a good idea because basically it stays with common sense. We should have a policy and a strategy, but Conservative parties do not like industrial strategies, which sound too much like the recommendations put forward by the committee chaired by the noble Lord, Lord Aldington, on which I happen to serve. I would be a little bolder than some others and say that the Conservative Government at that time did not like the report because they thought that it was an attack on their economic policy rather than a statement of where we might be today.

Where we are today is very clear. We have a shrunken manufacturing base. Of that there is no doubt. But it does not cause as much concern as frankly I thought it would do. We are more productive. The potential is there. If we follow the Heckscher Olin theory, we find a number of points to look for.

First, if we are to try to determine a strategy, we need to look for particular areas where there is a relative abundance of technology and labour and where there is adequate capital. Whether that will mean the chemical industry or other industries remains to be seen. It is a question of being selective and perhaps the Government should encourage some form of selectivity without treading on dangerous ground.

The second point to look for concerns areas of scale which can relate to the success of British Airways or any large organisations where there are such economies. Thirdly, we have to look at making absolutely certain that we give the customer what he wants, when he wants it and where he wants it. Within that framework we should look at imperfect competition, as it is called. We should examine those areas where there is not much local competition, those sectors where we are more advanced than anybody else or those parts of the world where we have better relationships.

In considering that maybe from today there will no longer be a division between the service industries and the manufacturing industries but that we shall all be talking of trade, we are looking at our home trade (which is now the EC) and our overseas trade (which I suppose is the non-EC). It has always been the case that our overseas trade has been the main market for our capital goods and manufactures. That has been due in part to the empire and in part to the fact that in those countries people did not make the things that we made. As has been pointed out, we imported raw materials and created added value here at home, and so developed the plant and machinery.

But times have changed. Communication is better. It is more logical to create added value nearer the sources of supply of raw materials than it is to ship raw materials right around the world. It has been adequately pointed out that the decline in some areas of petrochemicals is due to not having feed stocks and other people forcing the closure of petrochemical industries in Europe. But the opportunities are there, if we analyse them and go for them.

I happen to be president of a body called the British Exporters Association and I also chair the Engineering Industries Association, overseas side. We looked together at the situation and asked what were the areas in which the British are very good. Surprisingly enough, in many of those sectors we are best in areas that have been declining, because we still have the technology, an abundance of labour and, surprisingly enough, a shortage of home demand.

I should like to say a few words about mining and in particular the coal mining industry, for which I have gathered some affection. I had not realised that the decline in coal production was such that we would produce only 80 million tonnes a year. Yet I did not know that in long wall mining we have between 60 per cent. and 80 per cent. of the world market and few people can compete with us. In countries such as Iran, where they are looking to produce 3 million tonnes of coal and China where they produced 1.4 million tonnes this year, there are major markets and opportunities in that sector as well as in the minerals sector and plant and machinery overall. In that field we export somewhere around ü400 million a year.

Secondly, there is the textile machinery sector, where over half our sales are exported—some ü250 million a year, creating added value on the ground abroad and providing a surprising amount of British content. The study being undertaken at the moment reinforces the concept that the export of British capital, plant and machinery—that is, manufactures —to create added value in something like the textile industry, and then reimporting the end product creates a higher British content than importing some of the raw materials and making goods over here.

A third area obviously lies in a matter raised in our original report. What happens when North Sea oil runs out? The oil and gas sectors have developed surprisingly well over recent years and we are in the forefront of technology there. It is a sector where there will be adequate capacity of technology and an abundance of labour to provide us with the opportunity of trading abroad.

We want to give the customer what he wants, when he wants it and where he wants it. What he wants is easy. When he wants it at the moment does not necessarily mean quick delivery because many of our industrial competitors who are also our customers are in recession and do not want things now. Where they want it: again, they do not want things in their countries now. I am afraid I am back to the second world and to those countries which genuinely have a demand today for British plant and machinery in vast quantities, if we can somehow find the mechanism to support the financing of that trade. I speak not simply of export credits, but of looking and concentrating—as I believe we are doing at the moment with the new Russian states—upon those areas where our contribution in terms of credit, equipment, know-how and technology will help to create added value, import substitution, the potential for export and therefore the overall development of trade.

We are in an interesting time. I did not believe that we would arrive here. I like to think that we arrived here intentionally; I have to say that I believe it to be by accident or possibly pure fluke. On listening to speeches today, including that of the noble Lord, Lord Peston, I believe that we will have a good chance ahead of us. Therefore I propose, as I have done in many speeches before on trade, that we should give added support to the revitalisation of the Board of Trade. I should like to ask my noble friend on the Front Bench to consider changing her title to that of Parliamentary Secretary to the Board of Trade—an ancient title which my grandfather held and I believe also the noble Lord, Lord Jay, if I recall correctly. Accordingly, I and many of the leading figures in manufacturing industry are proposing in the Autumn to ask the Board of Trade and all its members to join with us at a joint meeting to discuss our future policy.

5.41 p.m.

Lord Benson

My Lords, the theme of this debate has been before this House on many occasions recently and has been the subject of numerous parliamentary Questions. But in recent weeks two things have happened. The first is that the Prime Minister and the President of the Board of Trade have both made it clear that they are committed to manufacturing industry and to enlarging our industrial base. Those pronouncements seem to me a little overdue but they are a good, modest step forward. The second is that a few days ago the President of the Board of Trade made a statement to the press which was published in the Financial Times on 26th April 1993. I believe it was intended to be the DTI's policy for the future. If so, I am bound to say that I found it unsatisfying both in form and substance, for reasons which I will explain.

No enterprise anywhere in the world, large or small, can possibly succeed unless all those engaged in it are clear as to the objectives and the part which they have to play. The concept that a statement in a newspaper can galvanise this country in resuscitating manufacturing industry seems to be out of the question. What is needed is a Green Paper followed by a White Paper, both of which are debated in Parliament so that the whole country knows what it is expected to do. That is the purpose of Parliament. It is an astonishment to a great many people on all sides of this House that the Government are unable or unwilling to exercise the political will to do that. It is disturbing to government supporters and must be meat and drink to the Opposition parties.

In the past year a great many individuals and institutions, who have been skilled in manufacturing over a long term of years and speak with real authority, have suggested various courses to the Government which would increase our manufacturing industry and our industrial base. Few of those have been adopted. The constraints of time prevent me from mentioning them all and I merely take five of them as examples.

The first is the need to give much greater emphasis to education and training in management skills in and for industry. It begins in schools, follows through in universities and then into industry itself. Emphasis is needed on science and technology, on personnel and financial management, but above all on the practical management skills of producing products of the right type and quality which are satisfying to the customer, delivered on time and competitive in price. It will take the Government at least five years to introduce an effective programme of education into this country.

The second point, which is really another aspect of education and training, is that much greater attention needs to be paid to the selection, training and career development of the workforce. Our efficient competitors from overseas who establish plants in this country have adopted these practices for many years. We seem unable or unwilling to follow their lead and example.

The third point concerns partnership sourcing. The task of the Government in that respect is to make partnership sourcing a commonplace in both the public and private sectors. It is a spur to productivity and a stimulus to research and development. The Government are in a particularly strong position in leadership in that respect because they are the buyer of manufactured goods involving billions of pounds every year.

The fourth point is the contribution which the City can make to manufacturing industry—a subject not mentioned in the newspaper article at all. In recent years the contribution of the City has been inadequate. Matters which need examination are short-termism, which is a scourge affecting not only the City but also the Government and the Treasury in particular.

Other points are imprudent and improvident lending by the banks, overpayment of dividends and bad financial management. Again and again damaging takeover bids are based on financial opportunism rather than the needs of shareholders, management, the workforce and the customers. All those factors have contributed to a shortage of liquid funds by manufacturing industry to invest in the new technologies year over year so that we become fully competitive with our competitors overseas.

The fifth point concerns partnership between government and industry—a concept which has been endorsed both by the Prime Minister and the President of the Board of Trade in recent months. The newspaper article to which I referred sees that obligation discharged by the exchanging of posts between the Civil Service and industry for short terms. If the generals in the Army are planning a strategy to defeat the enemy, they do not rely on an exchange of corporals at platoon level. What is needed is something much greater than that; that is, a forum where industry and government can meet to discuss the major problems which are worrying this country and, having made decisions, can see in their respective spheres that they are properly put into force.

So it comes down to this. I believe that if the Government would disclose a bold strategy and firm, strong leadership, the whole country would rise to the occasion. If they will not do so, we shall muddle along as we are at present, among the also-rans. The task of formulating a sound industrial strategy and putting it into force is a five year job. It follows that unless a sound industrial strategy has been formulated by the end of this year there is little prospect of anything effective being put into force in the life of this Government. I beg the Front Bench to bear in mind that, for them, time in that respect is running out.

I conclude, sadly, on a very sombre note. I am delighted to know that the noble Baroness, Lady Denton, is training as a football manager. Indeed, I wrote to her recently and said that her charm and ability would make her irresistible. But if she examines the sporting pages she will find that the life of football managers is very hazardous and that any football manager who is in command of a team which is acknowledged to be between 20 and 40 per cent. behind the required standard may soon be joining the ranks of the unemployed.

5.52 p.m.

Lord Vinson

My Lords, I share the gratitude that we all have to the noble Lord, Lord Peston, for calling this timely debate and, like others, find myself in much agreement with him. Indeed, the unanimity in the Chamber is most encouraging.

There is not a person in the House who is not encouraged also by the first signs of economic upturn, but many of us remain deeply concerned that our incipient balance of trade problems will nip the green shoots in the bud. This problem is at the heart of our relative national economic decline and I should like to return to it and suggest remedies.

Any examination of our balance of trade figures clearly indicates, surprisingly, that it is not our inability to export but rather our propensity to import that lies at the root of the problem. Our export performance is in fact remarkably good. Indeed, we export 40 per cent.—yes, my Lords, 40 per cent.—more per capita than do even the Japanese. Why then have we this propensity to import? We need to analyse the situation to enable us to take wiser decisions for the future.

I would suggest that the pattern has come about as a consequence of the anti-inflationary policy that all governments have been following in this country for nearly 30 years. A central plank of that policy has been to control the economy through interest rates and, above all, to support the pound, but, sadly, to support it at levels that were consistently out of line with its purchasing power parity, with a consequence that it has been consistently overvalued and money—the cost of capital—has been markedly more expensive in real terms than that of our international competitors. I so agree with the noble Lord, Lord Boyd-Carpenter, who touched on this point.

The end result of this is that those industries which are open to international competition—manufacturing industry in particular—have had to compete with imports that were effectively subsidised and to export over a hurdle of a pound often overvalued by at least 10 per cent. and sometimes more. In industry, where profit margins are seldom of this order, it represented a handicap which in my view is one of the contributory reasons for the decline in manufacturing capacity in this country. It explains our propensity to import goods that in many instances we both used to, and indeed could, make here as our competitors have little if any natural advantage.

Yes, I also realise that we had many instances of bad management, badly designed products, bad labour relations and so on, but in spite of this our export performance has been and remains at a remarkably high percentage of our gross national product. What we need to address is the reason that we import so much, and to look for a recovery based on import substitution as well as exports.

Fortunately, the Government's present policies really do address this problem. We now have a pound that is valued realistically, and what is more we have money at a price which industry can afford to borrow in order to re-equip. The scene is thus generally set for us to regain a sensible balance in trade. However, this view is not universally accepted. Some people point to the decline of our manufacturing base and the growth of our service sector as certain proof that we are finished as a manufacturing nation and that we should concentrate on other forms of economic activity. I wonder whether they have analysed sufficiently the causes of this change and seen in fact that the growth of services—that has given us, for example, a highly efficient retail sector that is the envy of the world—was, as much as anything, caused by the equal and opposite effects that were so damaging to manufacturing industry.

Manufacturing, unlike retailing, faced the full consequences of overvaluation and dear money. Retailing, meanwhile, had all the blessings of cash in inflationary times, and its efficient distribution network fitted the promotion of cheap imports like a glove. It is no wonder then that our manufacturing capacity shrank. I believe it is universally accepted that our economic recovery can be sustained only by the production of internationally tradable goods and services. However valuable retailing, tourism and the sale of insurance policies may be, they are unlikely to be internationally tradable enough to fill the current balance of payments gap that is caused principally by the import of manufactured goods.

One also hears other voices suggesting that invisible exports will fill this gap. But here again, it you strip down the figures, you see that only a relatively modest part of our invisible balances are actually earned by the commission on financial transactions. The major flows come from inward capital investment—it is to be hoped, to enhance our manufacturing base—and from dividends and the repatriation of invested capital; capital which in many instances was earned outside the service sector in the first place; capital which, had economic conditions been more favourable, and had it been invested here, might well have done much to strengthen this country's manufacturing base and thus prevented us being in the trading situation that we are in today.

The net benefit of traded invisibles is relatively small. I believe then that it is unrealistic to look to invisibles and to the service sector to solve the problem. They will certainly help but they cannot fill the gap. Inevitably, we are brought back to the importance of manufacturing. It is so encouraging to see a wider acceptance of this view in what for so long has been an industrial country with an anti-industrial culture. But I am concerned whether, even though the Government are now very supportive, this thinking has fully permeated the Treasury.

More people now see that the Government—indeed any government—should take every step they can to strengthen our manufacturing base. Indeed, the prospect of national bankruptcy focuses marvellously the will to do something. However, those reasonably close to government know that the reins of management power in this country are held by the Treasury. Even the Department of Trade and Industry is answerable to it. Alas, through no fault of its own, the Treasury is overwhelmed by the need to raise revenue to try to meet the infinite demands of welfarism from a virtually static economy. Is it surprising that the departmental philosophy is inevitably one which puts the cart of tax collection before the horse of wealth creation? They are priorities which are back to front and inimical to our success as a trading nation.

Manufacturing to so many in the Treasury is just another lobby group. My noble friend Lord Peyton and I have discussed this in the past and I so agree with him. But we cannot go on like this. Too many of our national decisions are taken for the effect that they will have on this year's budget and not for the beneficial effect on the economy in five years' time. What other nation would build a tunnel in one decade and then the infrastructure leading to it in another —certainly not our Victorian forebears?

I believe that we must change the structure and form of government. It is encouraging that that is a clear message from this debate. It must become blindingly obvious to everyone that we plan our affairs very poorly in this country and we need to plan them better. I am not for one moment advocating that we go back to picking winners, but we have to improve the quality of decision-taking and implementation. The trading requirements of our trading nation really must come virtually before everything else. We simply have to reform the thinking and working of the central department of state.

Sadly, I fear that unless we change our style—and this applies to governments of all colours—our national economic decline will continue. More positively, I hope that the appropriate economic committees of the Treasury can have a clearer brief as to the primacy of wealth creation, exports and import substitution as national priorities and be given encouragement to devise policies accordingly.

It is not difficult to envisage the agenda for such a committee—many of the matters have been dealt with already in the House today—but it should weigh every decision against its likely long-term consequences on our international competitiveness and trading position. These things may happen now in an ad hoc way, but one feels that they simply do not get the necessary priority and policy co-ordination that they should have from the centre.

With a sensible and well thought-out strategy, which may indeed take five years or more to think through and implement, this country still has the talent, energy and wit to overcome its economic problems. Meanwhile, it also has a window of economic opportunity and we are looking through it at this moment. If we can keep interest rates down, encourage investment in our manufacturing capacity, do nothing through budgetary changes that will raise the RPI (which is such a sensitive issue when it comes to wage negotiations) and keep the rate of exchange roughly where it is, then we shall surprise ourselves by how effectively recovery may come and how fast import substitution takes place.

I know that we all wish the Government well in directing the nation to seize this chance, and I hope that this timely debate will help them in so doing.

6.3 p.m.

Lord Monkswell

My Lords, this has been a very interesting and useful debate. Two things have emerged, and are emerging, this afternoon. The first is the consensus that manufacturing is of the utmost importance to the British economic scene. The second is the need—I believe it is a cross-party call from all sides of the House—for the Government to come to Parliament with their views on an industrial strategy so that it can be debated. Advice, which I am sure will come from all sides, can then be offered on how that strategy might be improved. I wish to add my voice to those two emerging consensus points of view which I believe are very useful.

When I saw the terms of the debate I thought that this was going to be just another opportunity to have a go at the Tories for their term in office. It is rather more than that. It has been very useful that a number of speakers have gone further back in time and have also obviously looked to the future. That is one of the things I wish to do in my brief remarks. I hope that I shall not go on too long.

In the run up to 1979 we have to look at the perspective. I make these comments not only as an engineer, but as someone who has worked in British manufacturing industry for over 20 years. I hope that I have some little experience which I can bring to the House. During the 1970s it was my experience that although things were difficult (life is never easy) output was expanding, factories were being opened and employment was sustained. It was my experience that management and workforces actively cooperated with each other. They sat down and discussed the problems of the operations and they arrived at decisions on the way forward. It was a unity of purpose and direction that I believe was very beneficial.

Then we came to 1979. It was very interesting to see the effect within industry of the Conservative Party winning the election. Almost overnight the shutters came down. Management stood back from the unions and workforces and said "Right, now it is our job to manage. We are taking back"—that is, the God-given right to make all the decisions—"without reference to you". That was the beginning of the period that we are now debating in the terms of the Motion.

What are the developments in manufacturing since 1979? Put simply, we have seen two major periods of recession, factory closures, the lack of employment of technical and engineering personnel and the emerging balance of trade deficit in manufactured goods. Until very recently we have experienced a total lack of government support. We all remember the statements that were made by a succession of government Ministers saying that manufacturing does not matter; the service industries can take the strain, and the rest of it. That was the situation until recently.

It is only in a very recent and short period that government Ministers have changed their tack. They are now saying that manufacturing is important. As I have said, the emerging consensus is that it is important. That is getting through to the Government. It is all very well for government Ministers to say that manufacturing industry is important, but where is the beef? We have a desperate need for Parliament to have a government Statement of their industrial strategy. It is one thing to say something, but it is important that it should be supported. The Government should be prepared to provide concrete support which can come in a whole range of different ways. It does not need to be money disbursed through the Department of Trade and Industry directly into company coffers. There is a whole range of ways in which manufacturing industry can be supported.

We have now come to a situation where there is, as I have said, an emerging consensus that manufacturing is important. We look at current realities. We are struggling with recession and there is a lack of confidence. It is interesting that this is the third year in succession in which the green shoots of recovery have been reported. It is frightening to think that that is the reality of the length and depth of the recession which we have suffered over the past few years. The Government continually come back in the spring saying that the green shoots are here. Once again we have another record of green shoots being reported. I hope that they are really there now and I hope that we can develop our economy in such a way as to get out of the recession and put back to work the over 3 million people who are unemployed.

In some respects, we are at a cross-roads. We can go on as we have been doing over recent years in a way that I would summarise as being a continuous long-term decline. We can continue to sell off the family silver to pay for an unsustainable standard of living. That period could last for quite some time, but when we run out of things to sell and when the oil runs out, where do we go then? Do we turn round and say that the world owes us a living and that we will demand it through force of arms or whatever?

I hope that we shall not continue along the road that we have been going down for so long and say that we do not really need to do anything. I hope that we can think of a positive future. I hope that we shall think about how we can invest for the longer term; how we can train and educate engineers and technicians rather than accountants and lawyers, and how we can develop sources of cheap long-term capital to invest in the machinery and the equipment that is needed to add value in manufacturing plants. Some stability in economic policy and in exchange rate policy would also help.

However, above all I suggest that we need to put into practice the concept of everyone working together to meet common objectives. We must banish the Thatcherite concept that there is no such thing as society. It is only by working together that we can manufacture things to benefit not only ourselves, but our fellow human beings around the world.

I believe that I am the first person in the debate this afternoon to mention unemployment, but that must be a touchstone—a key indicator—of our success. Reducing unemployment over the next few years—and, I would hope, eradicating it in the longer term—and getting to a stage where we have a positive balance of trade in manufactures are the objectives that we should set ourselves for the longer term.

As I have said, I am glad to share in the emerging consensus about the importance of manufacturing and about the need for a definitive government Statement to Parliament about what their industrial policy is.

6.13 p.m.

Lord Wade of Chorlton

My Lords, first, I must apologise to the noble Lord, Lord Peston, for not being present for his opening speech. Having heard the supportive comments made about it, I am doubly sorry at having missed it. Perhaps I should explain that early this morning I attended the board meeting of a company which is a major manufacturer of wallpaper. During the past two years, through very hard work and efficiency, that company has been able to expand the development of its business right across Europe, the Far East and the United States of America. It is a success.

I then decided to take a train to London. British Rail has had millions and billions of pounds of our money put into it and has been running under government control for many years. But it could not put on a train from Runcorn to London. It was necessary to change trains twice in the course of that relatively short journey. That proves yet again what I have always strongly believed. The further government get away from something, the more likely it is to succeed. I am not therefore one of those who believes that we need a government policy to generate and support manufacturing industry and that that should form the basis of a government strategy.

I do not agree with the noble Lord, Lord Monkswell, that our problems started in 1979. In fact, history shows exactly the opposite. The best time for our manufacturing competitiveness and investment was the period from 1981 to 1988–89. The bad period for British industry was during the 1960s and 1970s when the Government put so much money into it. During that period, many companies were operating which should not have been, supported by government money. When that policy changed to a positive one, many businesses which were not efficient or not being run effectively, but which were operating on government money, rightly went to the wall.

The Government play an enormously important part in all our lives. Everything that we do is influenced in one way or another by what governments propose. They tax us. How industry is taxed has an enormous impact on its success. They decide where our roads go and where they should not go. That has an enormous impact on the success of some industries and on some of us. They control our planning. The impact of either positive or negative planning on manufacturing industry, and particularly on inward investment, is enormous. They educate us all. If they decide that the priorities in education should not be science or technology-based, then the nation as a whole suffers.

I agree wholeheartedly with my noble friend Lord Peyton when he says that the real issue at stake here is not whether my noble friend Lady Denton or my right honourable friend Mr. Michael Heseltine say that they support British industry but whether government departments—all of which, all the time, are producing legislation which affects us, industry and manufacturing—take that same positive view. I would have much more confidence that the Government are doing something if I. heard the Secretary of State for the Environment say that he regarded the creation of wealth and manufacturing industry as priorities than I would if I heard my right honourable friend Michael Heseltine say the same thing. Although he is saying such things now, he never said anything like that when he was Secretary of State for the Environment and carried out many actions that were contrary to the interests of manufacturing industry.

I hope that, among many other things, my noble friend the Minister will pass on to the Government the message from here that what is going to be effective and really make things work is the determination of all sectors of government to produce legislation to support manufacturing industry, not hamper it. Many of the things that noble Lords have discussed in this House have often handicapped manufacturing industry rather than supported it. As part of a non-regulatory department, which is what I hope the Prime Minister now has in the Cabinet Office, I should like the Government also to examine seriously the impact and cost of legislation on industry and how it will ultimately impact on the economy of the country.

A number of my noble friends and other noble Lords have noted the importance of import penetration and its impact upon our level of manufacturing industry. In the late 1950s, the import penetration of manufactured products bought by consumers was about 5 per cent. It has recently been about 35 per cent. But, as the noble Lord, Lord Hollick, said, that has much more to do with the Government's strategy relating to exchange rates and interest rates than with micro-policy, which deals with support at the sharp end of enterprise. The impact of our exchange rate and interest rate policies has had an enormous swing effect upon our manufacturing. Once we run into a downturn on the cycle, consumers stop buying. It is not true that our manufacturing does not have the capacity. The size of the capacity does not matter because if the consumers do not buy, the business will soon go down.

If we are to have a competitive role in world affairs, one of the most important strategies that the Government need to consider for the future is a much more stable interest and exchange rate policy, but one which accepts that this nation has a great propensity to import. As my noble friend Lord Aldington pointed out, we need a policy that gives that adaptability. Otherwise, we shall continually be pushed out competitively by other producers whose imports are much more competitive.

If we are to take our fair share of world trade, we have to have companies of such size and strength in the United Kingdom that they can compete on a world basis. It is a tendency of the Monopolies and Mergers Commission to look nationally at the size of companies rather than globally at company needs. In the dairy industry—one of the areas where I have had the most experience—decisions were recently made which indicate that, rather than looking at the global competitiveness of our country, there was a tendency to look at the national scene. As we grow into Europe, it is imperative that we have manufacturing companies which can compete in that enormous market.

It is interesting to note that a company with which I am associated looked closely at BNFL, which is a major employer in the North West. It employs about 11,000 people. However, it actually has support companies which employ 40,000 people. The size and structure of that major company has an enormous impact upon all the smaller companies that supply it with products. The needs of major growing companies have to be understood by all sectors of government.

There is far greater scope for financial partnerships, but not much has been said in the debate about the source of finance for growing manufacturing businesses. Undoubtedly, small manufacturing businesses run into very considerable difficulties, probably at the third and fifth year of their developing cycle. I believe that there is greater opportunity for industry and those providing finance in banks, in venture capital, to take a much longer-term view of the needs of industry as companies grow. It is just as important for industries to do that for themselves as it is for financiers to do so. As a banker once said to me, "A good entrepreneur will run rings round a banker any day". A good entrepreneur must understand the need to talk closely with his financier so that they may build up the business together in the way described by the noble Lord, Lord Monkswell; namely, working together in order to achieve that aim. I believe that much could be done in that respect and much, possibly, that could be encouraged by government. The importance of that aspect must be considered.

There are two other matters which I believe to be terribly important. The first is quality improvement. I remember, as perhaps do other noble Lords, seeing a cartoon of a stereotype industrialist—big, fat and smoking a cigar—addressing a board meeting and saying, "Gentlemen, the golden days of shoddy goods are over". Undoubtedly, they are. Again, competition from the rest of the world and Europe will ensure that only the best sells. There is a great need for improvement here. The Government are making some positive moves in terms of one-stop shops to encourage quality improvement.

I return again to the point about co-operative activities in industry. Our major companies in the North West, such as ICI, BNFL and Pilkington's, have joined together to form an improvement club consisting of people who have developed excellent techniques within their own companies and who can therefore help smaller companies that need that kind of input. There is no cost involved; it is larger and smaller companies working together to everyone's benefit.

Many speakers have talked about culture. It is the aspect that industrialists mention to me probably more than anything else. It is not what governments do: it is the attitude of society at large to manufacture, industry and wealth creation. It is a leadership that government have to take. All sectors of society have to be shown that if they want to achieve their aspirations, then, first of all, we must create the wealth to do so. Government have to take the responsibility upon themselves to reduce their costs to a minimum to make that wealth available in the most efficient way.

Let us consider for a moment the various debates we have had in this Chamber when we have not been debating manufacturing industry but, for example, we have been debating education, social services or health. Then the idea that someone has to create the wealth before we spend it completely disappears out of the window. On those occasions, no one ever mentions that if we are to have a new hospital somewhere, then we must have so many businesses in the area to make a contribution towards paying for it in the first place.

Surely, we all have a role and responsibility in the matter. It is clear from today's debate that Members on all sides of the House do believe in the importance of manufacturing, wealth creation and the role that Britain has the opportunity to play in Europe in leading the world in many technologies and great businesses. If we really believe that, we cannot just put it as a priority when we have a debate on it; we must ensure that it is a priority in everything we think about and in everything we touch. I hope that the Government, above all, will take that role on board.

6.26 p.m.

Lord Jay

My Lords, it is of course true that there is no mystic economic value in manufacturing compared with services, that manufacturing is not the only major element in a modern economy and that the service sector has been growing in most advanced economies over recent years as a proportion of GDP. But it is also true that a thriving manufacturing industry is crucial to an advanced economy, and particularly the British economy, for several overriding reasons.

First, a far higher proportion of manufacturing output can be traded overseas and internationally. Only about 20 per cent. of services can be so traded. Secondly, and perhaps most important of all, the UK consumer has an almost inexhaustible appetite and demand for manufactured goods, especially consumer durables such as cars. Indeed, it is a mounting influx of imported manufactures which has pushed the UK ever further into a balance of payments deficit over the past 20 years. If we do not produce those things, they are bound to be imported and we get into deficit. Thirdly, we should never employ our whole population on services alone.

In view of the noble Baroness's temporary lapse into the bad habit of rewriting history, I should just add the following. From 1945 to about 1970, despite all the difficulties, UK manufacturing industry was in fact holding its own and we had no trade deficit in manufactures. But since that time, as I see it, British manufacturing industry has suffered a series of damaging shocks, some of which were inflicted by mistaken government policies.

First, by swallowing the common agricultural policy whole and raising food prices dramatically in 1972 (and so raising our labour costs by something like 4 per cent. all round and in the long term) we dealt a considerable blow at our manufacturing industry. That was most clearly visible in the car industry. Some people forget that from 1945 to 1972 our car output grew fairly steadily to a total of just under 2 million cars a year in the latter year. Then, under those influences, by 1980 the figure had fallen back to only 900,000—a drop of about 50 per cent. That fall did not begin until the early 1970s. Today car output is edging back only inch by inch to the 1972 figure, which is due largely to the assistance of Nissan, Honda and Toyota. We should welcome the arrival of those Japanese firms in this country, even though they came here not out of a great love for the British Government or the British economy; they came here largely because Renault, Fiat and Volkswagen make it impossible for them to go to Germany, France or Italy. However, that was fortunate for us.

We should also note the confirmation of the Japanese firms that they intend to remain within this country whether or not we ratify the Maastricht Treaty. They know very well that in any event they will be perfectly free to export to the rest of Western Europe.

The other two most damaging blows inflicted on our manufacturing industry have been the two severe deflations of 1979-81 and 1990-93. In the long term they deprived this country of a considerable slice of our manufacturing industry. Thanks to those mistakes, we developed in 1983 a deficit in trade in manufactures for the first time in our history. Some argued that we could overcome a visible deficit by earning an invisible surplus. Unfortunately, the policies pursued since the 1970s have largely extinguished the invisible surplus too. First, we now hand over about £2 billion net. a year to the EC budget. Secondly, we are year by year increasing the interest bill paid to overseas creditors on behalf of the huge sums borrowed each year since 1987 to cover our current balance of payments deficit, as my noble friend Lord Peston pointed out. With a current deficit averaging £12 billion during those years, the extra interest bill that we must pay overseas runs to a good few billions. A much greater part of those borrowings have not taken the form of what the economists call real capital formation. But I estimate that 80 or 90 per cent. has been portfolio investment here or simply short-term borrowing.

The noble Lord, Lord Lawson, who is not with us today, invented a theory that a current account deficit does not matter. His argument was that an accounting identity exists by which a current deficit must be covered automatically by capital receipts. That sounds fine but all it really means is that, if you spend beyond your income, you must borrow the amount of the excess from a bank or somewhere else or sell some assets. When you reach the point when nobody will lend you anything more, you must cut your spending and your standard of living heavily. We should not put too much trust in that argument, even though it is set out again in the noble Lord's extremely well-looking book about his experiences. We shall not solve our current accounts deficit by simply wishing it away.

What can the Government do in the present circumstances? Though the main job is for industry there is much that an active government can do to encourage investment and growth in manufacturing capacity. But at present the Government are not doing very much. Throughout the years of growth, up to the 1970s, there was in the tax field, for instance, the income tax initial allowance and later the investment allowance which encouraged firms to invest. There was also a system of profit taxation which fell more heavily on distributed profits than on retained profits. That was a further incentive. But all those stimulants were swept away during the Lawson era in the name of simplifying taxation.

In the admirable report of the noble Lord, Lord Aldington, on overseas trade which was published in 1985—described by one Minister as being discredited, whether it was Marxist or not—it was suggested that to assist manufacturing industry: the Government should give more and not less support to bodies such as the Export Credits Guarantee Department and that better use should be made of the National Economic Development Office". Since then the Government have withdrawn from short-term political risk reinsurance in the ECGD and have abolished the National Economic Development Office. Surely that was the nearest thing to a forum for industry and everyone else such as recommended by the noble Lord, Lord Benson. Does the Minister have any better news about the ECGD reinsurance than was given to the House recently?

Meanwhile, it is true that, worthy as some of the supply side incentives may be, they do not work if there is no demand for the product. Firms will not buy new plant or more plant if they cannot sell the product. And the only alternative to management of demand is mismanagement of demand, of which we have had too much during the past 15 years. The worst example of that mismanagement has been the persistent overvaluation of sterling. I find myself in agreement with the noble Lords, Lord Boyd-Carpenter and Lord Vinson. The exchange rate affects every firm which exports and every firm which competes with imports. It is instructive to remember that in the 1950s and much of the 1960s with a competitive exchange rate we achieved sustained growth and full employment for more than 20 years. Overvaluation in 1980 contributed to the intense deflation which did so much harm in 1980-81. Similarly, the fall in the sterling exchange rate in 1985-86 was probably the main cause of the brief recovery in 1987-88, which was attributed by some at the time to the magical skills of the noble Lord, Lord Lawson. That lasted until the recovery faded out about two years later.

After all that experience, joining the ERM in 1990 at a rate of 2.95 deutschmarks, and the high interest rates to sustain that, can now be seen as the worst mistake in our economic policy since 1945. In our two years' membership of the ERM unemployment rose by 1.25 million. Incidentally, the noble Baroness said nothing about the 3 million unemployed in our economy whose productivity has been reduced to zero.

However, liberation from the ERM last September and the achievement of a more competitive exchange rate have given us a real chance for recovery. If we can believe the unemployment figures under this Government, that may be beginning already. A competitive rate not merely helps exporters but restrains excessive imports by making them dearer. That is highly desirable and probably it is the only way left to us of achieving that. If manufacturing industry is to recover, we must seize that opportunity and keep down the exchange rate.

There are recent reports which suggest that the present Chancellor is trying to push the rate up again. I hope that those reports can be denied, and perhaps the Minister will deny them this evening. To push up the rate now would be an act of suicidal folly, and if there is recovery that would almost certainly knock it on the head.

The moral for the longer term future is that if we are really serious in wanting to restore manufacturing investment and output and to rebuild a solvent economy we must avoid uncompetitive exchange rates like poison.

6.40 p.m.

Lord Hacking

My Lords, through all times since, and probably before, the Industrial Revolution, a successful internationally competitive manufacturing base has been and will be central to the process of our wealth creation and should be at the heart of our industrial policy. The impact of our manufacturing industry on our national economy goes well beyond its direct contribution to national output and employment. Manufactured goods underpin our economic activity. Currently they produce 50 per cent. of our consumer purchases, take 60 per cent. of all our investment and provide 70 per cent. of our total exports of goods and services.

Our manufacturing industry is a major purchaser from and supplier to all other industries, particularly the service industry. Changes in the fortunes of our service industry are felt throughout our economy. I do not make those statements to repeat arguments already accepted by your Lordships. I make them because that is the central message which must go out again and again from your Lordships' House and from this important debate, which was so well opened by the noble Lord, Lord Peston, and which has been so well spoken to by all noble Lords who have followed him.

We need also to speak against what the Chancellor of the Exchequer has described as the "self-denigrating myths". We need to speak against them because that message has also not been sufficiently received by educationists, economists, the financial community, the public at large and by government. An example of one of those self-denigrating myths is that all merchandise in our shops comes from foreign sources; for example, toys, electrical goods and motorcycles. But that does not take account of the export of our goods abroad. For example, pharmaceuticals now total £3 billion-worth of exports. It may come as a surprise to some of your Lordships, who notice that the country of origin marked on their television sets and electrical goods is somewhere in the Far East, that we are a net exporter of television sets with an export surplus of £440 million. Another fine example is that Scotland supplies 40 per cent. of desktop computers in the European Community.

There are other myths about our manufacturing industry's decline. Sadly we have seen the empty cotton mills of Lancashire and the deserted steel plants of South Wales. Of course industry has been through a massive and painful change. But what are the real facts? As I have been able to ascertain them, the facts are these. Between 1981 and 1991 productivity increased from 22 per cent. to 58 per cent. although, of course, that meant some loss of employment. In British Leyland in 1979 it took one employee to make six cars whereas now it takes one employee in that same company (now the Rover Group) to make 25 cars. Our share of world exports has increased from 7.6 per cent. in 1985 to 8.7 per cent. in 1991. That is fairly good for a country which has only 1 per cent. of the world's population. I give your Lordships' another fact; namely, in the same period, 1981 to 1991, our R&D has increased by 6 per cent. per annum.

I believe that a large portion of the credit for that success should go to the Government and particularly successive governments since 1979. I speak as a Cross-Bencher for 20 years in your Lordships' House who was not a supporter of the Government during that period. However, as my noble friend Lady Denton said, there has been a great improvement in industrial relations. In 1979 there was that dreadful figure of 29 million lost days which has been reduced in 1991–92 to just over 500,000 lost days. There has been a purging of overmanning and restrictive practices. Inflation has been brought under control, although that was not always so during that period. We have seen the benefits of privatisation. There has been a reduction in corporate tax from 52 per cent. to 33 per cent. and for small companies a reduction in corporate tax from 42 per cent. to 25 per cent. There has also been a significant reduction in personal taxation.

That success is also due to the ability of industry to make change. Let us look at the changes, for example, in the very large manufacturing companies. Let us look specifically at the changes in that very large manufacturing company GKN plc over which Sir David Lees, one of our leading industrialists, now so ably presides. There was a massive reduction in the workforce but there was also a massive increase in the efficiency and viability of that company.

Let us look also at the increase in the numbers of manufacturing companies. In 1980 there were 144,000 while in 1991 there were 171,000. Another success which can be shared between industry and government is the raising of the standard of quality which has not been addressed so far in your Lordships' debate. There are now 14,000 establishments accredited with BS 5750, a substantial increase over the past five years.

There is more to be done. In its first publication entitled, Making it in Britain, the new National Manufacturing Council of the CBI states: The UK has a growing, but as yet insufficient, number of world class manufacturing companies to provide the critical mass necessary for a successful manufacturing-based economy. The challenge is to ensure that UK manufacturing enters the 21st century able to compete with the best in the world". The Government continue to play a very important role in the industrial equation. Among other things, they are responsible for 40 per cent. of GDP. The Government need to provide a sound economy and to encourage relevant education and training. They need to provide a transport infrastructure. They need to be wholly supportive of international trade. Above all, they need to have pro-industry policies.

That is a challenge not only to the Government but also to the financial community and to industry itself. The CBI has set industry a target of a 5 per cent. per annum minimum increase in productivity. I cannot emphasise enough how vital it is that the Government should not introduce anti-industry policies. But there is the problem of the Treasury "boulders" or, as my noble friend Lord Aldington said, the problem of the "old devil still at work" in the Treasury.

Within only the past week in your Lordships' House we have seen evidence of the Treasury not simply failing to be pro-industry but being actively anti-industry. I refer to changes in the tax structure relating to companies working in the North Sea oil industry, which is particularly damaging to smaller companies. My noble friend will remember Question Time a few days ago. Then there is the proposed extension of the selected list scheme. I have a great deal of praise and respect for the Secretary of State for Health. I knew her well before she entered the House of Commons. I believe she is a very good Secretary of State for Health. I believe, and know, she deeply cares about the National Health Service and the welfare of patients. I also know she recognises and appreciates the contribution made by the pharmaceutical industry to the success of her policies.

Indeed I was disturbed early in the morning on Bank Holiday Monday when I heard on the radio the Secretary of State draw attention to the benefits that the pharmaceutical industry provided and the new HID vaccine. She referred to a saving of 700 deaths, 13,000 hospital admissions and to how many children had been saved from handicap from haemophilus influenzae. This is a respiratory disease. When it attacks young infants, it can have devastating results.

I told your Lordships' House on 14th April what impact the selected list scheme will have on the pharmaceutical industry. Without hesitation I repeat it in this debate. Under the best estimates it will cause the pharmaceutical industry a loss of sales of between £250 million and £300 million. It will cause a cutback on investment and production or research and development of £400 million. It will cause the turning away of future foreign investment to a figure that we know not of. It will cause a loss of jobs somewhere in the region of 3,000 people, many of whom are skilled scientists, pharmacists and laboratory technicians. Finally, it will have a very very serious impact on some companies, particularly small companies. That impact extends to 47 per cent. of sales, 64 per cent. of sales, 83 per cent. of sales, and indeed five companies which will be affected to 100 per cent. face extinction.

This industry is one of our prime industries. My noble friend has already told the House about the massive growth in that industry. At the beginning of this debate she said it had increased output by 100 per cent. Its exports have gone up from £750 million in 1980 to £3 billion in 1992. It now has a surplus over imports of £1.3 billion and is the second largest exporter of all our industries. The imposition of the selected list scheme makes no sense. It is very damaging to that very important industry and provides doubtful benefit to the National Health Service and no benefit at all to the National Health Service patients. Above all, the measure is anti-industry at a time when we are trying to get out of the recession. The pharmaceutical industry, notwithstanding its success, is also an industry that is affected by this recession. Will my noble friend therefore look at this problem again with her colleagues and perhaps really find that "old devil" in the Treasury and drive him out? I hope he is not the one and only engineer in the Treasury.

I would like to end my remarks to your Lordships on an uplift. The Department of Trade and Industry, my noble friend's department, is being restructured to be more responsive to the needs of industry. That is not only a management restructure but also an attitude restructure. The CBI has formed the National Manufacturing Council. I have quoted the comments of that council. I shall finish my remarks by quoting from a blue pamphlet. I am now supplied with these blue pamphlets and I have put on a blue shirt to celebrate. The pamphlet is entitled Politics Today. In it Mr. Mark Radcliffe, the deputy director-general of the CBI is quoted as stating: The UK has many natural advantages. English is the universal business language. We have a stable democracy and a Government committed to the free market system. Our economy is poised to resume steady, sustainable growth. We have competitive labour costs and corporation tax rates, low and reducing inflation, good management-employee relations, and a strong skills base. Moreover, UK businesses produce goods to high international standards". All that is now needed is a good partnership with Government.

6.54 p.m.

Lord Lyell

My Lords, all of us are enormously grateful to the noble Lord, Lord Peston, who initiated the debate this afternoon. I offer him my congratulations and also my gratitude for the way in which he introduced this subject. My noble friend Lord Boyd-Carpenter spoke for the whole of your Lordships' House when he referred to the way in which the noble Lord presented this subject.

On noticing that the name of my noble friend Lord Hacking was on the speakers' list I had thought he would make my speech for me. That may cause the noble Lord, Lord Eatwell, considerable apprehension. However, I shall speak for just two minutes. It may not surprise your Lordships that I, too, wish to congratulate the pharmaceutical industry. The noble Lord, Lord Peston, made several flattering references to that industry. My noble friend the Minister also referred to that industry and my noble friend has just mentioned the 100 per cent. increase in productivity that the industry has achieved over 13 years. My noble friend Lord Hacking and I spoke on this subject last week.

I did not speak in the debate on 14th April but on that occasion my noble friend Lord Hacking referred to the selected list scheme. I shall not ask my noble friend on the Front Bench what she thinks of some of the products on that list. The four or five noble Lords who have spoken about this industry would agree—my noble friend Lord Hacking mentioned this—that it has achieved an enormous surplus in overseas trade as well as a huge increase in productivity and employment. The nation, and indeed industry, can take great pride in that achievement.

The pharmaceutical industry is concerned with gene technology and molecular biology. Last week the noble Baroness, Lady Robson of Kiddington, kindly said that I had used scientific terms in the debate despite the fact I am not a scientist. That goes to show how science and technology have changed the face of industry.

Your Lordships will not be surprised to hear of the enormous costs the pharmaceutical industry faces in bringing products to market. Other industries that manufacture motor cars and televisions for example, also face costs but the payback period is of particular relevance to the pharmaceutical industry. I understand that in the United Kingdom the pharmaceutical industry faces a payback of £50 million sterling by the third year of marketing a product. In Switzerland the industry faces a payback of something like 300 million Swiss francs over five years. At current rates of exchange I believe that amounts to around £150 million—my noble friend Lord Selsdon may correct me if I am wrong.

The pharmaceutical industry faces huge risks if a product does not satisfy demand precisely. If all the risks are not combed out, dreadful disasters can occur. I have only to mention thalidomide to bring home to your Lordships the risks that are involved in this sector of industry. In the course of today's fascinating debate my noble friend the Minister made several flattering references to the pharmaceutical industry. Some 16 years ago I occupied, with my noble friend Lord Belstead, the positions now occupied—I should say with considerable distinction—by the noble Lords, Lord Peston and Lord Eatwell. I recall the passage of the Patents Bill 1977. That Bill will be familiar to my noble friend the Minister and to my noble friend Lord Hacking. I understand that to be a patents expert one has to be both a lawyer and a scientist. I am neither but that perhaps goes to show that a mere accountant can be asked to cover the whole of the Patents Bill in your Lordships' House. I and my noble friend Lord Belstead coped with 600 government amendments between Second Reading and Committee stage.

Thanks to the demand for new pharmaceutical products there is great competition in the pharmaceutical industry to bring new products to the market. I say "bring new products to the market" but the products are brought to mankind, not just in this country and in Europe but throughout the world. The costs of developing medicines and compounds and bringing them to the market are horrendous. I am sure that your Lordships and my noble friend the Minister will agree that some element of protection might be required in this industry. I believe the best way to achieve that is through patent protection. I make one plea to my noble friend. Will she please give all possible help to the new supplementary protection certificate which is being introduced to cover products in the European Community as that will afford considerable help to the industry? Already similar protection is available in Japan and the United States. I am sure that my noble friend will take account of those points because my noble friend Lord Hacking and I know that she and her department are very much on side and support that great industry.

In the course of her opening speech my noble friend flitted over one tiny point. She referred to the service industry. I presume that she was aiming at the professions—and I hasten to add, not football managers. My noble friend is far too nice to be one of them. Perhaps she meant lawyers. I should declare a small interest, being an accountant. Your Lordships and the entire profession will be enormously indebted to the noble Lord, Lord Benson, who today, as always, made a notable contribution to the debate.

I have always understood that accountants have one apparent ability; namely, to absorb, digest and to re-present figures and financial information. Any sector of industry, not merely the pharmaceutical industry, requires such information yesterday. That is especially true, in the current climate of competition, of pharmaceutical products. Any financial information is required instantly and it must be accurate. In the course of our debate last week I mentioned the cost of up to one million dollars a day of any delay in the introduction of any major new product which a company and the medical profession worldwide believe is needed. Each day's delay can cost a huge amount. It is to those costs which the talents of accountants, and above all those as distinguished as the noble Lord, Lord Benson, need to be directed.

Information technology is also increasingly used in gene technology and molecular biology, as well as in financial systems. It can allow the management to identify avenues of research which could be fruitful, how much each avenue of research will cost to develop and how quickly the product can be brought to the market, assuming that there is a market. It can also indicate how the financial supporters of the industry can be provided with an adequate reward.

My noble friend mentioned the happy aspect of a football manager. That brings me to the extremely interesting remarks of the noble Baroness, Lady O'Cathain, who spoke of the superb dairy product made by a Bavarian firm called MŰller. Three years ago I paid a short visit to the capital of Baden-WŰrttemberg, Stuttgart. Having done two hard days work with my Swabian friends it was suggested that I might like to relax with what they knew was one of my passions. I watched the prospective champions of Germany—Stuttgart—trot out at the Neckar stadium. They wore remarkable jerseys with the motif of a large red star and the word "SŰdmilch". I was told that that was not referred to as milk of the south: there is a team of that name in Scotland. I thought that it was beautifully advertised. Three days later I returned to my home in Scotland and found a similar motif in the main freezer in a small shop in Northmuir—which is well known to the noble Lord, Lord Mackie of Benshie, and other noble Lords who live in that particular area. I had seen the star product in that freezer advertised prominently in Stuttgart. I assume that it was the same product as was mentioned by the noble Baroness, Lady O'Cathain.

That shows that a superb product, well and imaginatively advertised and instantly available can have remarkable success. What works for a company from Bavaria will also work, as noble Lords have pointed out, for British companies marketing products overseas.

It has been enormous fun and a great privilege to be the tail-end Charlie in this debate. The noble Lord, Lord Eatwell, indicates that he has still to speak, but he is one of the professionals and I am at the end of the list of speakers. It has been an enormous privilege to take part because we have heard notable speeches this evening. I should like to thank the noble Lord, Lord Peston, for introducing the subject so superbly. His speech was worthy of your Lordships' House, and I concur with everything that was said by my noble friend Lord Boyd-Carpenter. Above all, I look forward to hearing what my noble friend has to say, following the speech of the noble Lord, Lord Eatwell.

7.05 p.m.

Lord Eatwell

My Lords, two competing themes have run through the debate. First, from all sides of the House there have been expressions of grave concern that, despite the fact that Britain possesses a number of excellent manufacturing companies, as the noble Baroness, Lady O'Cathain and the noble Lord, Lord Hacking, reminded us, yet taken as a whole, Britain's manufacturing industry is neither efficient enough nor large enough to sustain this country's standard of living in the medium term.

The second theme, from the Government, has been one of complacency. We heard from the noble Baroness, Lady Denton, enough good news to please even Mr. Martyn Lewis. All that needs to be done to secure competitive growth in manufacturing industry is that current policies be maintained, or perhaps merely augmented here and there a little to satisfy the interventionist whims of the President of the Board of Trade.

The complacency expressed by the Government is extraordinary in the light of the failure of their industrial policy over the past 14 years, a failure measured precisely by the growing trade deficit in manufactures. That trade deficit was referred to by the noble Lord, Lord Jay, among others. It might have been hoped that that failure would have led to the most heart-searching reappraisal. We hoped to hear today about the reappraisal which has apparently taken place with respect to Government industrial policy. We heard nothing.

We must recognise that in the past 14 years the Government have achieved what every economist and every economics Minister has been striving for since the war—a rate of productivity growth in manufacturing industry in excess of that of Germany, the US and the EC average. Everybody hoped for that and the Government achieved it. Yet, when the goal so long sought was at last achieved it turned to ashes, for the increase in productivity growth led to no increase in output and was accompanied by a sharp deterioration in the balance of trade in manufactured goods. In terms of the vital bottom line—share of markets at home and abroad—the policy was an unmitigated failure.

That failure was not unpredicted. As the noble Lord, Lord Ezra, my noble friend Lord Jay and other noble Lords mentioned, the 1985 report on overseas trade of the noble Lord, Lord Aldington, warned of the serious consequences for this country should the decline in the size of manufacturing industry be allowed to continue. That report was dismissed by the then Chancellor of the Exchequer, the noble Lord, Lord Lawson, as: a mixture of special pleading dressed up as analysis, and assertion masquerading as evidence". That was, of course, the same Chancellor of the Exchequer who argued that he was, at a loss to understand the selective importance attached by the Opposition and some Tories to the manufacturing sector". Now, of course, those bad old complacent days are over. Now we have a Prime Minister who has told the Independent newspaper that in the 1980s he was, in his words, a member of a "minority" who "passionately believed" in the need for a bigger industrial base. Unfortunately, at the time he was only Chief Secretary to the Treasury, and then he was only Chancellor of the Exchequer. His was a silent minority. His passion for industry was a love that dare not speak its name.

Today we have had the chance to assess the reality behind the Prime Minister's passion. We have had the chance to look for the substance behind the protestations of concern. We have heard today and have read in the press of the new energy which the Government are committing to industry policy. In the Financial Times last Monday, as many noble Lords have mentioned, the President of the Board of Trade outlined his new six-point plan for industry. The first point refers to competitiveness: DTI officials will "travel the world" in search of information on how to compete. The second refers to deregulation: a war on unwanted paper. The third refers to sectoral divisions, whose job is to make DTI officials informed and knowledgeable. The fourth refers to spreading information on innovation. The fifth point refers to exports: DTI officials will spread information on export opportunities. The sixth point refers to one stop shops—noble Lords have guessed it—providing information for small businesses. There it is. The DTI is to become a ministry in which officials run around the world dispensing news. It will not be a Department of Trade and Industry but a department of travel and information.

Is that it? Am I being unfair? Will all that information be enough to regenerate British industry? Having carefully examined the policy pronouncements of the President of the Board of Trade, having read of all the energy, enthusiasm and commitment, I can only repeat the immortal question of an earlier president, President Ronald Reagan—it was echoed by my noble friend Lord Monkswell—"Where's the beef?". The answer comes from the DTI, "Sorry, the beefs off but we can send you some information on cattle breeding".

The problem with that so-called strategy is not that it is not well-meaning, or that it does not point in the right direction; it does. The problem is, as the noble Lord, Lord Benson, made clear, that it simply fails to measure up to the task in hand. It fails to face up to the point made by the noble Lord, Lord Prior, who told the Select Committee on Employment in another place in March that, Manufacturing industry is no longer there and therefore we —he was referring to GEC— have to source a lot of our components from other countries". In the comment of the noble Lord, Lord Prior, there is a recognition that the economic position of the UK today is unprecedented. Never in modern times has this country faced a situation in which unemployment is due quite simply, as the noble Lords, Lord Aldington and Lord Vinson, pointed out, to our inability to produce the goods that people want to buy. Never in modern times have we faced the prospect of growing international indebtedness in the depths of recession. Never in modern times have we had to face a situation in which British investment per worker is half that of Germany and America and one-third that of Japan. Unless we can at least double investment per worker, so reaching European levels, Britain simply will not be able to compete in the world economy. Never has it been so urgent for us to face up to the fundamental problem of economic backwardness which the DTI's infamous unpublished but much quoted report clearly identified.

Facing up to a problem of that scale requires a sense of history because tackling backwardness in a highly competitive world has been done before. It was done in the 19th century by Germany, desperate to catch up with the dominant industrial strength of Great Britain. It was done by post-war Japan, a country which produced in 1955 just 50,000 badly designed, badly made motor cars costing twice as much as the British model. Today it is being done by Korea, Taiwan and Singapore. They are overcoming backwardness. Through all those examples, scattered in time and culture, there runs a common policy pattern on which their success was founded, some of which was referred to, in the case of Japan, by my noble friend Lord Kennet.

What is that pattern? It is, first, a major financial reform which channels invertible funds toward manufacturing industry. It is, secondly, a corporate reform to match the financial reform as part of the investment drive. Thirdly, it involves a commitment to improving the quality of the labour force. Fourthly, it is an almost desperate desire to acquire the latest fruits of science and technology. Fifthly, it includes steps to involve the labour force in the process of modernisation, ranging from Bismarck's introduction of unemployment insurance to Japanese lifetime employment security. Sixthly, it involves a clear commitment to industrial success by an ambitious government working in partnership with industry. Those have all been the consistent ingredients of industrial success.

Just looking at that list gives a clear measure of the inadequacies of the Government's policies. We have had a financial reform but it was a reform which has done nothing but harm to industrial investment. That was a point touched upon by the noble Lord, Lord Peyton. In the early 1980s we were promised that deregulation of finance would increase the availability of capital to industry and lower the cost of capital. But the result of deregulation has been a boom in lending to just about everything other than industry and a steady increase in the real cost of capital.

On top of that, deregulated financial markets have steadily forced up the dividend ratios of British companies to levels twice as high as our major competitors. As the CBI has said, There is a risk that companies will seriously deplete their capital resources…Companies should not allow themselves to pay out an excessive level of dividend which weakens their balance sheet or causes them to abandon the capital spending required to secure their long term competitive position". Unfortunately the CBI does not tell companies how they should resist the pressures of the financial markets.

Mr. Heseltine's brave new world contains not a word about finance for investment. That mould involve taking on the powerful interests in the financial sector which are so important to the Tory Party. He simply would not dare. There has been no attempt at corporate reform. There has been no attempt at building corporate links with all the stakeholders in a company—the workers, the customers or the community at large. There has been no attempt to reform corporate governance. That is forbidden territory. There has been no attempt to develop a real, national policy for improving the quality of the labour force. The training levy was abolished when it should have been reformed. The TECs were denied the powers of the German chambers of commerce and were seriously underfunded. In this long, deep recession, expenditure on training has been cut, as my noble friend Lady Lockwood pointed out.

After 14 years of this Government, only one-third of our workers have a vocational or professional qualification compared with three-quarters in Germany. The gap is particularly serious in engineering where Germany and France continue to produce twice as many qualified people. Yet real expenditure on off-the-job vocational education and training has fallen within the last five years.

On science and technology, the Government's lack of commitment is clear to anyone working in a university. After 14 years in which R&D spending as a share of GDP has steadily fallen, it was revealed today that Mr. William Waldegrave is to abolish an expert advisory committee of scientists because it has proved too outspoken for its own good.

As for involving the workforce in the drive for industrial success, this Government are determined to do the opposite. Workers are to be seen and not heard. In the drive to create a cheap, downmarket labour force—and the noble Lord, Lord Boyd-Carpenter, should realise that that is the Government's line, not that of my noble friends—this ideology-driven Government remove workers' rights and securities at work, casualises the labour force, abolish the wages councils, resist the Social Chapter, and now, in the Trade Union Reform and Employment Rights Bill, their ideological folly has led them to abolish the legal foundation of the single union agreement, an important component, as Japanese companies have shown, of a modern industrial relations policy.

If we are to succeed, this country will have to undergo radical changes. Many of the costs of those changes will have to be borne by the working people of this country. Yet this Government do everything to prevent those people feeling that they are a part of that process.

The final component of successful industrialisation, successful attacks on backwardness, requires a government with ambition and commitment to industry, as the noble Lord, Lord Wade of Chorlton, suggested. If there is one thing that the Government clearly lack it is ambition for Britain. Let me give a couple of examples. We have heard much today of the need to enhance skills to compete in the global economy. The Government have acted. They have set national targets for improvements in education and training. They have, for example, set a target that 50 per cent. of the workforce will achieve qualifications equivalent to the standard for entry to higher education by the year 2000. What a tremendous target! The problem is that that compares with the target set by France of 75 per cent. and that set by South Korea of 80 per cent. The Government's target is one which they know in advance will fail.

In the Red Book, the Government set out their projections and ambitions for growth of GDP for the next five years. The average growth rate that this ambitious Government aim for is 2.5 per cent. per year over the next five years, less than the growth rate required to maintain the level of employment at what it is today. It will make no fundamental attack on the level of unemployment.

This is a Government so lacking in ambition that they are setting targets for training which will result in competitive failure and targets for growth which will result in the continued waste of 3 million unemployed. This is a Government who have settled for genteel economic decline, a Government who are at ease with unemployment. Until we have a Government in this country who are prepared to face up to the real needs of manufacturing industry, are prepared to grasp the nettles of financial and corporate reform, are prepared to regard education and training as the commanding heights of the economy, and unless we have a Government who will grasp the opportunities which modern science offers and, most of all, a Government who will be ambitious for Britain, then manufacturing industry in this country will continue to decline.

That kind of programme is a fair summary of the papers published in the past few weeks by my honourable friends Mr. Robin Cook and Mr. Gordon Brown. It will be helpful if, as the noble Lords, Lord Ezra, Lord Aldington, Lord Peyton and Lord Benson, have all requested, the Government were themselves to publish a coherent policy statement. That would launch a national debate, which is urgently needed. May I urge the Government to accept the challenge and take their case to the country? It is what our manufacturing industry deserves; it is what the country deserves.

7.21 p.m.

Baroness Denton of Wakefield

My Lords, by leave of your Lordships, I welcome the opportunity to respond to a most fascinating, valuable, and enjoyable debate. I wish to express gratitude to the noble Lord, Lord Peston, for making the debate possible today and to noble Lords who have contributed in such great depth.

There was a consensus of views and I am delighted to reassure the noble Lord, Lord Peyton, that I listen to all the experience in the House; I would not dare do otherwise. In my opening speech I said that there was too much good news for me to be able to make a full selection. Perhaps I may say that there were too many good views in the debate for me to be able to respond to every single one. I hope that noble Lords will forgive me if I do not cover absolutely every point. We are extremely lucky that so many noble Lords should take the trouble to give us the fruits of their considerable experience.

However, at this stage I should like to say that in referring to Labour's industrial strategy document, the head of the policy unit of the Institute of Directors said that this was looking to the past, not to the future. I fear that I have that impression about the speeches of the noble Lords, Lord Monkswell and Lord Eatwell. I feel that the latter perhaps misjudged the temperature of the House on this occasion because most speakers felt that the issue was too important to be quite so political.

I set out the Government's industrial strategy in my opening remarks. There is obviously a failure to reach some noble Lords, but I stress again that the Department of Trade and Industry believes in meeting people and talking, learning, listening and building with the people with whom it is involved, not simply circulating paper.

The noble Baroness, Lady O'Cathain, and my noble friend Lord Selsdon, stressed how important it is for the future of industry in this country that it should be customer driven. The Department of Trade and Industry is also customer driven. I am always pleased to listen to and learn from the noble Lord, Lord Benson, but I was disappointed that he felt that by making statements to the Financial Times my right honourable friend the President of the Board of Trade did not contribute in that area. It is our customers who are out there and they must understand what we are doing. I believe that that was a valuable input.

I should like now to look at specific elements of our strategy—privatisation, small firms and tax changes. In the most radical change in the United Kingdom's economic and industrial structure since 1945 we have returned 46 major businesses and more than 930,000 jobs to the private sector. These important sectors of the economy are now exposed to commercial reality —as my noble friend Lord Wade suggested—with a path to improving performance. There have been striking improvements in productivity which have been passed on to consumers as lower prices and rising standards of service. Those industries are also winning business for Britain, right around the world.

My noble friend Lord Wade and the noble Lord, Lord Peston, suggested, and I confirm, that it is important for international companies to be globally competitive; size must be maintained. British Gas has won large contracts in India, Argentina, Indonesia, Tunisia and Germany. Since Rolls-Royce was privatised in 1987, the company's share of the civil engineering market has risen from 10 per cent. to 22 per cent.—a competitive market, if ever there was one—and over 70 per cent. of output is now exported.

British Telecom has won contracts in New South Wales and has a flourishing arrangement with Samsung of Korea in the fiercely competitive Far Eastern market. The water companies are making great progress in overseas markets, such as Turkey, Australia and Argentina.

In 1978–79, the nationalised industries received subsidies of £2.2 billion at today's prices. By contrast, in 1990–91 privatised companies provided £3 billion to the Exchequer. That happened over a period when the noble Lord, Lord Monkswell, tells us that the shutters were down and we were doing nothing. Perhaps he also failed to notice that Ministers no longer make horticultural statements, they deliver performance figures.

I wish now to turn to a different scale, which I do with much pleasure as Minister with responsibility for small firms, to point out the great contribution that the sector is making to the recovery and renewed growth in the country. Small firms are not simple; they are innovative, creative, flexible, close to the customer and an important part of the economy. Ninety-five per cent. of firms in manufacturing have fewer than 100 employees and account for one-third of manufacturing employment. They are the future for job creation in this country. Despite continuing difficulties for all businesses, small firms have shown themselves resilient. Some 400,000 new businesses were started in 1992, 12 per cent. of them in manufacturing. The rate of start-up in new small firms has already increased this year.

The noble Baroness, Lady O'Cathain, mentioned the success of Yorkshire Chemicals. I would also point out another company that I visited recently in that part of the world, Holliday Dyes and Chemicals Ltd, which is bringing a chemical manufacturing company to the market in what is not the easiest climate. There are success stories.

To help small business we must offer world class support services£as indeed must the banks. It has been mentioned by several noble Lords, and it is important, that the relationships between small firms and banks continue to improve. I believe that efforts are being made. I was delighted to see that at least two banks are piloting late night opening, which is ideal for small businesses. But I believe that we should be aiming at transparency of agreements and a better understanding of the rates of charges. Whatever innovation we bring—and we have several schemes which provide funding for small businesses —the banks must continue to be the main source of such funding.

It is important that the banks provide the level of assistance necessary and that we provide the information. In the explosion of small business in the 1980s, a new generation of business persons came to the fore. They are brilliant at the job they do, be it road haulage, retail, photography, or welding and spraying, but they had no experience of managing; not even the experience of discussing the family company over the breakfast table. For that purpose we plan to establish a network of one-stop shops offering a wide range of guidance to the smaller and growing companies. The policy of the Department of Trade and Industry is that while ensuring a climate for start-ups, we keep and grow the companies that we have. One-stop shops will remove the confusion that presently faces businesses which seek help. It will also weld together the organisations which offer that help: the Chambers of Commerce, training and enterprise councils, local authorities, enterprise agencies and other bodies. The first six pilot one-stop shops were recently announced and we shall very quickly Dave a national network.

The Treasury has been mentioned by the majority of noble Lords who spoke today. I believe that it has played a considerable part in the growth that we can see. We have lowered tax rates substantially for businesses and individuals. We cut corporation tax from 52 per cent. in 1984 to 33 per cent. now—the lowest rate in the European Community or the Group of Seven. Companies are now left with more of their own money to invest according to their priorities. We reduced the basic rate of income tax from 33 per cent. to 25 per cent. We reduced nine higher rates of tax ranging from 40 per cent. to 83 per cent. to a single higher rate of 40 per cent.

My noble friend Lord Boyd-Carpenter raised the issue of the ERM. I can reassure him that we shall not rejoin the ERM before certain conditions are met. Those include the end of market turbulence and not before the German and United Kingdom monetary policies come closer. The message that government have heard from industry is one of a requirement for stability. Industry cannot plan and grow without stability. We recognise that message well. In the last Budget the Chancellor reduced the advance corporation tax rate on dividends to ease the problems of surplus ACT, and increased export credit cover over the next three years by £1,300 million, which was additional to the £700 million added in the Autumn Statement. Overall, the Budget reduced burdens on business by £1 billion.

Much mention has been made of the improvement in productivity. That is from companies responding dynamically to increased competition and technological progress. I agree wholeheartedly, of course, that we have far to go. But we have achieved much and we should pay credit to the companies which are now leading. We have world class companies in this country.

Improving productivity does not mean that total employment has to fall. Many successful businesses shed staff in the 1980s but overall employment still increased strongly. Several noble Lords have mentioned the problems consequent on a policy exercised by many companies of fast mergers and acquisitions. But now we see many firms removing and divesting services which were less efficient in-house and creating opportunities for small firms again to grow and build. Britain has been more successful in job creation than most other European countries. Between 1979 and 1990 the workforce in employment grew by 1.4 million, the fastest rate for at least 30 years. But I assure noble Lords that the problems of the current unemployment figures are well faced and I shall come to those later. I recognise that individually they create great difficulties.

One of the major ingredients of the success of growth has been in the self-employment area. In the 1970s the number of self-employed hardly changed, but since 1979 their number has increased by a million. I am pleased to say that 46 per cent. of the UK labour force are women. The role of women in manufacturing is bound to become increasingly important, as women are forecast to make up 86 per cent. of the growth in the labour force by the year 2001. There is a guarantee for improvement. Perhaps I may stress that sustained employment growth depends on a flexible labour market.

I now turn to inward investment. As my noble friend Lord Boyd-Carpenter pointed out, the climate here has become more and more attractive for successful overseas companies. I have yet to meet the overseas executive who protests at being sent to the United Kingdom. They come here in large numbers. In 1991 the United Kingdom accounted for 36 per cent. of the stock of US investment and 40 per cent. of Japanese investment in the European Community. I believe that the noble Lord, Lord Jay, was less than fair when he said that they simply came because the French and Germans kept them out. Certainly the Belgians tried to make them welcome, and the investment continues, while the French and Germans have suddenly woken up to the opportunities that we take in.

Inward investment helps to re-invigorate key sectors such as vehicles, office equipment and chemicals. It brings to Britain the latest technology and the best international practice, which can be copied. I am delighted to say to the noble Lord, Lord Kennet, that it already brings some research and development. Some of the work—not large quantities, but some of the Nissan work—is in that area. But I agree with him that while it is important that we should have a constant awareness of the achievements of that country, we should not be frightened of it. I have often wondered about the logic behind Ford's naming of their policy "After Japan". There is no reason why we should not run alongside once we have achieved the increase in skills level. It offers tough competition for our own companies to measure up to, but inward investment is associated with thousands of jobs; jobs which would otherwise go elsewhere in Europe.

I am pleased to say that I had the pleasure of visiting MŰller, the company mentioned by the noble Baroness, Lady O'Cathain. The benefit to the community that that plant had brought into the area was obvious. While Michael Porter talks about the "competitive edge of nations", I believe it is important that we should start looking at the competitive edge of communities, of how working together—local authorities, industry, employers and employees, educationalists and higher education institutions—can change the whole picture to the benefit of the whole community.

Training and enterprise councils are key partners in our industrial strategy. Under contracts agreed with the DTI, training and enterprise councils will provide small and medium-sized firms with comprehensive support services. I am pleased to reassure the noble Baroness, Lady Lockwood, that there is a great consciousness of the need for retraining and adult training, and a recognition that skills are something which we should continue to hone through the whole of people's working lives as well as giving them the opportunity to change their skills.

I turn to exports. Again there is success in that area. We now export a quarter of what we produce. We export more per head than do the Japanese. The noble Lord, Lord Jay, said that we are working towards building the same number of cars as in the 1970s. I point out that the difference now is that we sell them. People overseas want to buy our cars. Despite the European recession, United Kingdom export volumes, excluding oil and erratics, are at an all-time record. Our volume of non-EC trade in the first quarter of this year was 12 per cent. higher than a year ago.

There are many policies available to help manufacturers and not just advice—introductions to overseas markets, opportunities to visit and support in those markets and opportunities for support from our councils. Last year the President of the Board of Trade launched his initiative to second to the DTI 100 men and women from British companies to help promote exports. The first of them are already in post. They are not sitting behind desks, swamped by paper; they are out in the markets that they know, investigating the opportunities for British companies and bringing back that information. There is a series of major market campaigns aimed at three of our largest export markets: Europe, North America and Japan—"Business in Europe", "North America Now" and "Priority Japan". There is every evidence that they will show substantial success.

Despite the record-breaking achievements of our exporters that I have mentioned, we recognise that it is fatal to rest on our laurels. As the noble Lord, Lord Eatwell, pointed out, overseas firms face the same pressure to win as we do. There is no such thing as a secure market. It is always necessary to seek new ones. Both products and consumer demand are fast changing. Jobs can be won by companies which take a strategic approach to exporting as a way of securing a wide sales base and an increased market share at home and abroad. Too often in the past companies have seen exporting as a kind of add-on to the home market.

Many noble Lords raised the issue of import substitution. The best way to bring about import substitution is to ensure that United Kingdom industry is competitive in all respects and across a range of sectors—to help British firms beat the competition, not protect them from it. It is not part of the Government's role to force people to buy goods against their better judgment. However. I hope that all customers—individuals, retail and other business customers—will always consider whether there are United Kingdom suppliers of the goods that they wish to buy. Perhaps I may suggest that your Lordships' support of British manufacturing can, or indeed cannot, be measured in our car park outside.

I hope that British business will work with its suppliers to see whether those suppliers can fill the gaps so that it can purchase goods from British sources. I believe that now is the time for major companies to run a "Match it" campaign to find out whether British suppliers can indeed match it. For many years my department, along with the CBI, have been backing the Partnership Sourcing Initiative aimed at strengthening the relationship between British purchasers of goods and their suppliers.

Another part of my portfolio is design. To succeed in the world market place, British companies must produce world class goods. Good design and effective management of the design process are essential elements in achieving excellence. British design talent is universally recognised as world class. Many British companies use British designers but there is far to go. The benefits of design are not as widely recognised by industry as we would wish them to be. Therefore, we feel that it is important to raise the awareness of design, through the work of both the Design Council and the "Managing into the '90s" programme. We have also ensured that design is part of an engineering degree. I believe it was Brian Redhead who said: designers wear flowered ties; engineers wear woollen pullovers; and when people are wearing woollen pullovers with flowered ties we shall begin to see the effect in our production. In the past 10 years my department has spent some £120 million in promoting the application of design to industry. We shall begin to feel satisfied when it becomes as integral to production as has quality.

I mention briefly the deregulation initiative to which the Prime Minister has given fresh impetus. At the Department of Trade and Industry we have set up seven task forces comprising people from the business world to review all 3,500 regulations in a systematic way. This is not an instant quick fix media opportunity initiative. It is "work through the paperwork and come up with the answers". The aim will be to simplify regulations and indeed abolish them wherever possible. Perhaps I could point out that the career of my honourable friend Mr. Hamilton rather improves with every piece of bureaucracy that he abolishes. He will welcome input on those on which he can focus.

Some noble Lords called for increased capital allowances to stimulate investment as well as the temporary increases that were announced in the Autumn Statement. They were designed to bring forward investment and, by boosting business confidence, encourage the recovery. To go further and introduce large, general increases in capital allowances would be counter-productive. It would distort investment decisions and could lead to lower quality investment.

The messages I take from your Lordships today and from those who looked forward are that we must keep control of public spending to ensure the stability that industry wants. My noble friend Lord Boyd-Carpenter raised the matter of VAT and gave notice that he would return to it. It is a policy of the Government to switch the burden of tax from direct, which discouraged effort and enterprise, to indirect taxation.

The noble Lord, Lord Kennet, confirmed that the best form of technology transfer is in someone's brain. If we can ensure that the skills are spread as widely as possible we can increase technology transfer. I was pleased to hear from the noble Lord that the message for stability also applied to Ministers at the DTI.

Funding for industry must be long-term and in particular in small firms I am looking for it to be fixed rate in many instances. I suggest that industry has a role to play here in its own pension fund management. That is one of the first areas.

The noble Lord, Lord Benson, suggested that the Financial Times did not touch on the issues of the absolutely key relationship between the City and industry. I am sure he will appreciate that that is one of the difficulties of departmental briefs. I agree with the message that I have heard time and again today; namely, that it is the role and responsibility of the Department of Trade and Industry to ensure that the needs of industry are heard and attended to by all other departments.

Perhaps I might give my noble friend Lord Peyton an easier night's sleep. I am afraid that the engineer in the Treasury which gives him so much concern was moved to the Treasury when Financial Services was moved from the Department of Trade and Industry. So we still have some way to go.

There were several references to the work of the report produced under the guidance of my noble friend Lord Aldington. His contribution to today's debate was indeed welcome. Much was learned from that report, as from the subsequent report under the chairmanship of my noble friend Lord Caldecote. If ever there were a market opportunity, it is that those two reports should be best sellers. Industry would much benefit by that.

The noble Lord, Lord Ezra, referred to the statement made by Peter Morgan of the Institute of Directors. In that address Peter Morgan also said that the UK can come back and win, and that would be the policy that we would follow.

As I said earlier, I sympathise deeply with those who have suffered most during the recession, particularly those who are without work at the moment. But even now the United Kingdom has a higher proportion of its adult population in work than almost any other European Community country and unemployment has fallen for two months in a row.

There are other clear signs of the resumption of growth. Survey after survey—not by government but by those people involved in industry—report the signs of a resurgence of confidence. The latest CBI industrial trend survey shows business confidence at its highest level for 10 years; retail sales in the first quarter of 1993 were 3.5 per cent. higher than a year earlier; average earnings growth is the lowest for at least 25 years. This year's inflation figures too have been the lowest for more than 25 years. Interest rates have fallen by nine percentage points since their peak in Autumn 1990 and are now the lowest in the European Community. We have a fiercely competitive exchange rate.

I stress that the last thing that the Government or the Department of Trade and Industry are, is complacent. There is much work to do. We are at the beginning of instituting that work and some of it is already beginning to bear fruit. Our companies are operating with full support from an administration committed to low inflation, lower tax rates, wider competition and deregulation. If I disappoint your Lordships by doing it rather than printing it, then I apologise. British business now has clear advantages in competing throughout the world. As I said in my opening remarks, it is for companies to be competitive; it is for companies to go out and win; it is for us to support them; and together I believe we are ensuring that Britain is once more moving ahead.

Lord Hacking

My Lords, before my noble friend sits down I did ask a specific question concerning the pharmaceutical industry of which I gave her notice. If she is unable to reply now, perhaps she will write to me.

Baroness Denton of Wakefield

My Lords, I apologise. I was conscious of the time. I was grateful to my noble friend Lord Hacking for giving me notice. As he mentioned in his speech, the Department of Health and not the Department of Trade and Industry is responsible for the sponsoring of the pharmaceutical industry. However, no decisions have yet been taken. The advisory committee is consulting manufacturers of products which may be affected and manufacturers will have a full opportunity to make representations or to offer price reductions. Perhaps I can stress that the Government have no wish whatever to inflict needless damage on the industry's competitiveness or its research base. It is one of our stars.

Lord Peston

My Lords, I hope that I shall not be accused of being my normal snobbish self when I say that such people wandering around with floral ties and pullovers make me feel quite sick. Other than that, I feel that the debate has measured up to the high standard I expected from your Lordships. I am grateful to all noble Lords who took part.

I was extremely impressed with the range of agreement in your Lordships' House. Also, where we disagreed I felt that there was still a meeting of minds. It was clear why we disagreed, and that I always find helpful. I can assure the House that I shall not go over all the ground again. There will be other opportunities when I can argue with those who said things that I could not accept.

As your Lordships know, I am a perpetual student and I learnt a great deal today. In the next few months noble Lords will understand that better when I recycle their best ideas as though they were my own. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.