Address in Reply to Her Majesty's Most Gracious Speech

HL Deb 25 November 1993 vol 550 cc350-420

Debate resumed on the Motion moved on Thursday last by Viscount Montgomery of Alamein—namely, That a humble Address be presented to Her Majesty as follows: Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament.

3.31 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Strathclyde)

My Lords, I am delighted to open this important debate this afternoon, particularly since it deals with economic and industrial affairs. I am particularly pleased with the list of speakers who are due to perform this afternoon, many of whom will bring their distinguished experience of industry to bear. Others have no direct experience of industry but feel that they have a part to play in this debate.

I am very pleased by the inclusion of our two maiden speakers this afternoon—the noble Lord, Lord Dahrendorf, and the noble Baroness, Lady Dean of Thornton-le-Fylde—who will bring their great wisdom to bear in this debate. I know that that wisdom will be tempered by the fact that this debate takes place against a background of economic stability—low inflation, low interest rates, falling unemployment and a competitive exchange rate—which demonstrates the Government's commitment to industry and our desire to create the right environment for business to flourish; that is all business, both manufacturing and services. In a modern economy the two are inextricably linked. One cannot exist without the other.

Our policies towards industry can be summed up in one word —competitiveness. Without a competitive industrial base we cannot generate the rising living standards we all desire and help the poor, the elderly and the needy. The importance of competitiveness is gaining wide acceptance within the United Kingdom. We must also convey that message to our European partners. The temptation to turn inward and to reduce even further the flexibility of the European economies—with well-meaning but misguided legislation of the kind supported by the Labour Party—must be resisted.

Improving competitiveness is primarily a matter for industry itself, as the CBI recognises. The Government also have an important role to play in many other areas. The most important contribution government can make to competitiveness is creating a stable economic environment in which effort and enterprise are rewarded.

Low inflation is not an optional extra, it is the essential pre-requisite for a successful and expanding economy. Headline inflation has been below 2 per cent. for 10 consecutive months, the best performance since 1960. It has been below the Community average for the past two years and in December last year fell below the G7 average for the first time in 10 years.

Our success in reducing inflation has enabled us progressively to lower interest rates. Interest rates in the United Kingdom, further reduced this week, are now the lowest for 16 years and the lowest in the European Community. British industry is also benefiting from a more competitive exchange rate, although we must not allow this to substitute for continued tight control over costs. We have the lowest main rates of corporation tax in both the EC and the G7.

The benefits of those policies are clear for all to see. The first is rising output. GDP is up nearly 2 per cent. on a year ago. Over the past year industrial output has risen in the UK but fallen in Germany, Japan, France and Italy.

The second is rising exports. Non-EC export volumes are up 14 per cent. on a year ago. We are succeeding in some of the most demanding markets in the world. So far this year we have doubled the value of our exports to China and increased our exports to South Korea by nearly a third and to Japan by a fifth.

The third benefit is falling unemployment. It is down by 137,000 since the start of the year and falling at an earlier stage in the recovery than in the past. The best news of all is that these strong signs of growth are being accompanied, not by steadily rising inflationary pressures as in the past, but by their total absence. We are not simply achieving growth; we are achieving long-term sustainable growth.

However, important as they are, there is much more to competitiveness than low inflation and low interest rates. Time businesses waste wrestling with unnecessary red tape is time that could be spent creating profits and jobs. We are determined not to impede the creation of wealth. That is why we are placing such a strong emphasis on deregulation.

The Government's deregulation initiative is aimed at attacking unnecessary burdens on business, not, as the scaremongers would have you believe, removing essential health and safety requirements or consumer protection legislation. It is an attempt to eliminate those regulations whose costs to business are out of all proportion to the benefits, if any, which they bring. It is not always because those regulations were bad when they were adopted, but because changing circumstances mean that their day has passed.

This comprehensive review of legislation is well under way. Much can and will be done through secondary legislation and administrative action. However, some changes require primary legislation. The Deregulation Bill announced in the gracious Speech will provide a means of achieving these.

The Government can only help business if they are aware of business's changing needs, of its strengths and weaknesses and the opportunities and threats it faces. This requires a thorough and on-going dialogue between government and industry. That dialogue is taking place through the DTI's sector divisions and our programme of industrial secondments to give civil servants and business people a greater appreciation of each others' concerns.

Competitiveness is a dynamic process. The search for competitiveness is never finished. Business must always be willing to innovate and to respond to the changing needs of the global market.

Innovation is not just about investment in research and development. It is about applying ideas, whether old or new, in novel ways to meet new challenges. Innovation must become part of the culture of every business in this country.

The Government are playing their part in that process. The White Paper on science, engineering and technology stressed the role of wealth creation and the importance of a strong partnership between industry, academia and government. We are improving the climate for innovation and spreading best practice, with programmes such as "Managing in the 90s". We are encouraging better relations between companies, investors and financial institutions. We are also bringing to the attention of companies proven techniques most relevant to their businesses.

We are putting greater emphasis on the exploitation of technology. More of our resources will be focused on helping companies gain access to and use technology, whether from within the United Kingdom or from overseas. We are promoting schemes to help businesses develop innovative ideas. These schemes include SPUR, which gives support for products under research, and SMART, the small firms merit award for research and technology.

It is those small firms which are making a large and growing contribution to the economy. The small firms sector was an important generator of jobs in the 1980s. We are firmly committed to the continued growth of the sector. To damage small firms is to drain the lifeblood of the economy.

Small firms will be greatly helped by the creation of business links. These will bring together local organisations, including chambers of commerce, TECs, local authorities and enterprise agencies, in partnership to deliver high quality, easily accessible, integrated services at a local level. The first business links are already operational and a national network will be established as soon as possible.

Naturally, small firms also benefit greatly from deregulation. But the Government are also committed to more direct assistance targeted at improving access to finance., information, professional advice and training.

A range of practical help and assistance is available under the umbrella of the Enterprise Initiative. This includes financial assistance designed to encourage small firms to improve their efficiency through greater use of outside expertise. It is vital, given small firms' record of job creation, that we ensure that onerous employment regulations, such as those contained in the social chapter, are kept to an absolute minimum.

We are a major trading nation. We export more per head than Japan. It is therefore important that a successful conclusion to the Uruguay Round remains the Government's highest priority. That will bring enormous benefits to both the United Kingdom and the world as a whole. It will boost business confidence and yield major gains in the longer term from lower tariffs, better multilateral disciplines and the extension of GATT rules to new areas such as services, intellectual property and investment.

The OECD has estimated that a successful GATT deal would raise world income by 270 billion dollars. This is almost certainly an underestimate once the dynamic longer term effects of liberalised trade are taken fully into account. That is why the Government continue to press hard both within the Community and elsewhere for all the parties to the negotiations to make the final effort needed to achieve a solution.

We therefore warmly welcome the vote by Congress in favour of the North American Free Trade Agreement. We have consistently stated our belief that free trade agreements, like NAFTA, will contribute to the liberalisation of world trade. We fully expect NAFTA to create substantial economic opportunities in the North American region and will be working to ensure that United Kingdom companies are well positioned to participate in the benefits of this growth.

We are seeking to increase the opportunities available to Britain's exporters in many other ways. Export services are available to all sectors of industry and commerce. The package of support comprises a wide range of services to match the stages through which successful exporters go in developing their businesses. Following consultation with industry, we are piloting a range of new services in selected markets to assist UK exporters to visit overseas markets to follow up opportunities where those have been identified. The new services build on the wide range of marketing and promotional. services that we already provide.

A high quality transport network is an essential factor in the functioning of a modern developed economy. Industry relies on transport to carry goods and people and to link business with the marketplace. Government support for the infrastructure is now at its highest level in real terms in over 20 years. Capital spending on maintenance has trebled in real terms since 1978. The current national roads programme will add almost 3,000 miles of new or improved roads to the national network.

But infrastructure provision is not just a matter for government. The private sector also has a key role to play in providing finance and the management skills and ideas to deliver projects efficiently. The benefits of public/private partnership can already be seen in such projects as the M.25 bridge between Dartford and Thurrock, the Jubilee Line extension and the Heathrow express rail link. The private finance initiative will therefore play a key role in improving both the quality and the quantity of the nation's capital stock.

No speech on the subject of industrial and economic affairs would be complete without referring to education and training. Those are the keys to the long-term competitiveness of the United Kingdom. In the increasingly global world marketplace, people and their skills are our greatest asset. We cannot hope to be successful without a quality labour force at every level.

The national curriculum has laid the foundation for ensuring that school-leavers are equipped with the core skills needed by business. We are raising the levels of literacy and numeracy, and intend to see that standards are uniformly and consistently applied in all our schools. We have published details of school performance.

We are committed to ensuring that the views of business are fully taken into account in our education policy. We have established the training and enterprise councils and endorsed the national education and training targets. The number of young people in higher education continues to rise and the national system of vocational qualifications (NVQs) is beginning to take root.

The world is becoming increasingly competitive. Our businesses face new challenges and opportunities every day. The Government are committed to helping our industries fight and win in the world marketplace. As the Prime Minister has said, All our policies—not just our economic policy—need to be focused on the future strength of the British economy". I have laid out for your Lordships today the programme which the Government intend vigorously to pursue: a programme which involves removing obstacles to success where it is possible to do so and providing active support for business where that is the appropriate course to take. Only by focusing all our efforts in both government and business on increasing the competitiveness of British industry can we expect to win in the global markets in which we compete and deliver the prosperity for which we all hope. That demonstrates that the Government's policies for industry are working. It is on that basis that I look forward to the remainder of the debate. I hope that it will play a part in the dialogue that is taking place to improve the performance and competitiveness of British industry.

3.48 p.m.

Lord Peston

My Lords, I shall devote much of my speech to economic and industrial policy. However, my first duty is to thank the Minister for his short introduction to those parts of the legislative programme in the gracious Speech which correspond to our interests today. I regret to say that my comments will take a little longer. They will include one area of omission; but I shall then discuss what is included in the gracious Speech.

Before coming to the substance of my speech, it is my pleasant duty to say how much I look forward to the contributions from our maiden speakers. I have known the noble Baroness, Lady Dean, since early days when she was appointed to the Price Commission on which she served with such distinction under the leadership of my noble friend Lord Williams of Elvel. I know that she will have much of interest to say today and subsequently.

It is also with particular pride that I look forward to the speech of the noble Lord, Lord Dahrendorf. I speak as an alumnus and former member of the staff of the London School of Economics. I am aware of his enormous distinction as director of that institution and in the academic world in general, and the contributions that he has made to the analysis of policy matters. I have heard it said that there are too many of us here from "the school". I know that the noble Lord will demonstrate that nothing could be further from the truth.

One omission from the Minister's speech is any reference to competition policy. I am particularly concerned about the Monopolies Commission. More than one of its recent reports has been eccentric to say the least. But its most recent report on perfumes can only be described as barmy. I do not have to remind noble Lords that as Adam Smith told us, industry exists for the consumer, not the other way round. In the case of the Monopolies Commission Report, that dictum seems to have escaped the commission. Indeed, the report seems to open a gateway to undermine one of the more valuable contributions of an earlier Tory Government, the abolition of retail price maintenance. I am sure that I am not the only Member of this House who notices that all kinds of products, usually durable consumer goods such as cameras, have the same price in all retail outlets. I do not for one moment believe that that is the one market price resulting from perfect competition. It is rather the rigged price which suits the manufacturer and complacent retailers.

In that connection, I am amused to see the contradictory reactions of one of our more prominent retailers to competition. He dutifully wrote to the papers a couple of weeks ago attacking the worker protection that the European socialist leaders, including my right honourable friend Mr. John Smith, said that they were in favour of, on the grounds that it would weaken the competitive position of British industry. But the moment that that particular retailer discovered that he would be subject to the best form of competition; namely, price reductions by a more enterprising competitor, he threatened to use his market power to try to cut off that competitor's source of supply. It appears that protection for workers is a bad thing; protection for industrialists and retailers with high margins is good. I hope that the Minister's department will tell that particular contributor to his party's funds that such predatory behaviour is illegal as well as damaging to the consumer.

While I am on the subject of management, did other noble Lords, including the Minister, notice a rather important speech reported in yesterday's Times in which it was said: we have a rather too fulsome opinion of our own performance … In particular, the rest of Europe did not think our managers were particularly hard-working or that our companies were focused on the market place". The report states that the same person said that, It was unacceptable that UK productivity was 25 per cent behind its main European rivals and even further behind the United States. A recent survey had identified only 2 per cent of British firms as world class, while 42 per cent were contenders for such status". That is after 14 years of business-oriented Tory Government. Those remarks were not made by a socialist—at least, I do not believe he is a socialist.

I welcome the trade marks Bill. I am delighted to hear that it will start its passage in this House. It is entirely non-political and it is a matter in which the expertise of this House will be shown to its best advantage. We shall subject the Bill to expert scrutiny, but the sooner it reaches the statute book the better. It cannot be said too often how much the economic future of our country depends on activities leading to the creation of intellectual property and how vital it is that the ownership of such property is protected by law. The scale of illegal copying and the passing off of such material through the world is truly breathtaking. We cannot afford to take a complacent attitude.

I wish that I could be equally welcoming to the proposed deregulation Bill. I cannot comment upon it until it appears, and I should like to know, perhaps from the Leader of the House when he speaks, whether he can give us any indication of when we can have sight of the Bill. I agree, of course, that there are many regulations which may have been valuable in the past but which, when examined again, turn out to be doing no good at all or are even doing harm. We must search out those regulations and remove them from the statute book. But equally, there are many other regulations of great importance. Some protect workers; many protect consumers; and others protect firms, not least those subject to unfair competitive practices. We can all think of examples of obsolete regulations—for example, those to do with the licensing hours, and in my judgment the Sunday trading laws. It is an anomaly of our governmental arrangements that Sunday trading, which is entirely a matter of economics and industry, is dealt with by the Home Office, a department uniquely unqualified in those areas. This is, therefore, my only chance to say how glad I will be to see such laws go.

But having said that, if the dominant criterion of deregulation is to help firms which claim that they are so inefficient that they cannot give their workers decent working conditions and treat them as human beings, then I for one will oppose it as vigorously as possible. Let me also say that I have heard a rumour (it is only a rumour) that the essence of the Bill is one gigantic Henry VIII clause which will enable ministers to repeal, by order, primary legislation without full parliamentary scrutiny. If that is so, it will be the duty of this House to amend the Bill to take out such offensive clauses. The Prime Minister has said that he is in favour of "back to basics". There is nothing more basic than parliamentary democracy. If this House has any justification at all, and we know that that is a debatable question, it is to reject an overweening Government's attempts to by-pass Parliament. This is a classic example.

Before making some remarks on economic policy, and following the noble Lord the Minister on that, I must also take a moment to congratulate the two noble Lords who proposed and seconded the loyal Address. They did the job with real distinction. Perhaps I may say in particular how important were the remarks of the noble Viscount, Lord Montgomery. It is not merely because of the special position that I hold in this House that I say that his implication on the contribution of the food industry to the economic welfare of this country is too little appreciated. I know that the noble Viscount will never let your Lordships forget that, and nor shall I.

On economic policy, I will not make the mistake of criticising the Budget before I know what is in it. I shall have plenty of opportunities to do that later in the year. Instead, I wish to make some general remarks on economic policy. Let us start by looking at inflation. The published figure shows clearly that the rate of rise of prices is low—I am almost inclined to say unbelievably so, but I shall not labour the point. The Bank of England continues to emphasise that inflation is not finally conquered. My own judgment accords with that of the noble Lord. There is no obvious inflation outburst on the immediate horizon.

Pursuing the statistical theme, because of changes in the system of data gathering, it is hard to have any belief in the export and import figures at all. The Government can take solace from the fact that it looks as if the current account is improving. If I were them, I would not be too optimistic. If the gross domestic product figures are correct, it is hard to make them fit with any improvement in the balance of payments. In addition, the unemployment figures show a small decline. They, too, do not seem to fit with what has happened to gross domestic product. What does all that mean for policy? If we take the figures at their face value—which is what I understand the noble Lord was doing—and are optimistic, it is obvious what the policy stance should be; namely, to be much less timid than the Chancellor, and reduce interest rates much more drastically than he has done. Although against most currencies sterling looks quite competitive, it could still be allowed to fall further. Perhaps I may say parenthetically on this theme that, oddly enough, the Treasury argument that was put forward last year, that the deutschmark/sterling rate that we tried to maintain in the ERM was the correct one on competitive grounds, remains true on the latest available calculations. More generally, given the uncertain outlook, while the unified Budget is to be welcomed, in some ways we would have been better off to have had the Budget in April this time, rather than now. We could then have more confidence that the recovery is really under way and could then introduce the tax increases that are necessary to finance the Government's fiscal policy. But that is not going to happen.

On fiscal policy, the likely expansion of gross domestic product would help to reduce that part of the fiscal deficit which is cyclical. One difficulty in trying to say how much of the deficit is cyclical is that the Government refuse to have an unemployment target. That difficulty does not arise for me. I believe that full employment in the Keynesian sense is attainable; and a target of about 1 million unemployed—near what the last Labour Government left—is certainly attainable. In that case, some £20 billion would come off the fiscal deficit by sensible expansionary policies. On the structural deficit, clearly tax rates are too low, and the Government are having to face up to the false prospectus that they put before the nation in order to win the general election. In essence, they raised public expenditure to buy votes, and pretended that that would not have to be paid for. The tragedy is that it still seems to be the Government's intention to place those tax burdens on those least able to afford them.

But what if the Government do not believe their own rhetoric and base policy on a less optimistic scenario? In some ways it would be wise—I am wearing my pessimistic economics hat—to do so. The outlook in the European market is poor and might be getting worse. It should never be forgotten that in economic and trade terms Europe matters most to us. If our markets abroad are not good, monetary easing here could be dangerous and less likely to be effective. What is required is a co-ordinated fiscal and monetary stance on the part of all the governments of the European Union. I note with despair how far away that is and, despite the benefits that it would bring us, how unco-operative our Government have been.

Frankly, given the Prime Minister's recent article in the Economist, I sometimes come near to believing that your Lordships wasted all the time that we devoted to Maastricht and that the anti-marketeers could conceivably be right—I only say could conceivably be right, but I shudder at that. Whether we are talking about Bosnia, GATT or economic policy, there is little to be proud of in the European Union's recent activities. I say that with deep sadness.

Let me say a few words about a long-term strategy for unemployment. That enables me to pay tribute to the National Commission on Education, chaired by the noble Lord, Lord Walton of Detchant, and responded to so negatively and deplorably by Mr. Patten. Indeed, I was quite horrified at the complacency shown today by the noble Lord, Lord Strathclyde, when he spoke about education. I do not think that such complacency is characteristic of him. The Government's record is not good. Certainly, given the needs of the nation, the projected education legislation mentioned in the gracious Speech is simply a waste of time.

The Walton Report contains many good ideas. I wish to comment solely on education and training and their connection with economic performance. I accept its statement: "Our vision for education and training in the United Kingdom is ambitious"—that is the vision of the report—"but it is the minimum necessary for any reasonable set of economic and social goals that the nation should set itself". How right that is.

The connection between education and economic achievement is complicated. But it is clear—to some extent I again echo the words of the noble Lord—that the days of widespread employment for unskilled labour have gone, as have the good times for employment of inflexible labour. Only a workforce that is highly skilled and can change its skills when needed can compete in the international markets of the future. If we are to become again a high real wage economy, it must be done by continued investment in what economists call human capital; namely, education and training.

Businessmen write to the papers supporting their Tory friends and saying that they want cheap labour. But nowadays industrial processes are so easily copied by the emerging nations that our labour can never be cheap enough. The way forward is exactly the reverse: expensive labour, but labour that is highly trained and (again I echo the words of the noble Lord) working in innovative and science based enterprises. The business-men to whom I refer would be better off running their own concerns and not dabbling in matters of economics that they do not understand or writing letters to the newspapers. Equally, the Secretary of State for Education should not tell us that we are so poor that we cannot afford the education and training that we need. Quite the contrary, we shall be poor if we do not afford the education and training that we need.

My conclusion is simple. The nation has been brought to a dangerous economic and industrial condition as a result of the failure of government policy. It is not the people who have failed; it is the Government that have failed. That is largely the result of misplaced ideology and prejudice. The sins have been compounded by Tory leaders who see no higher goal and have no other values than the re-election of their party. They have failed the nation. The tragedy is that they continue to do so.

4.5 p.m.

Lord Jenkins of Hillhead

My Lords, a somewhat thin Queen's Speech has managed to sustain itself to become five plump, even if not very extensively reported, days of debate in your Lordships' House, which have included several very interesting maiden speeches. Perhaps I shall be forgiven if I mention particularly those of the noble Lords, Lord Tugendhat and Lord Lester of Herne Hill, who both worked closely with me in various capacities; the noble Lord, Lord Lester, in the Home Office and the noble Lord, Lord Tugendhat, as a Commissioner during my presidency of the European Commission. Both noble Lords made notable maiden speeches of unusual interest, combining a challenging originality of thought with emollience of manner suitable to maiden speeches. Today, we greatly look forward to the maiden speeches of the noble Baroness, Lady Dean and my noble friend, Lord Dahrendorf.

Today's debate is directed towards the economy, although particularly in this final and summing-up day, it does not exclude dealing to some extent with the Government's overall view of the Session. Five days before a Budget, particularly one which has invited so much advance attention as has this one, is not the most constructive time to talk about what is or is not in it. However, I should like to offer a word of sympathy to the Chancellor, although it is perhaps one of his strengths as a politician that he does not appear to invite or to need sympathy. Nonetheless, there is a certain awesomeness in finding oneself in a position in which the whole future of the Government—let alone that of the economy, which is a rather minor matter by our current political values—is said to depend upon the Chancellor's skill on Budget Day. I had something of the same experience in 1968, although I believe that then The Times threw in the future of political democracy for good value as well. The word of cautionary advice that I give to the Chancellor from that experience is that it is possible to produce a well-received Budget, even though it is a harsh one, and then be disappointed at how slow the economy is to respond to it.

We all hope that the economy is at last showing real if hesitant signs of pick-up. If so, it is a time of real opportunity for trying to get the recovery on the right lines and correct some of the faults which have for so long hobbled our performance. The best hope of doing so lies in ensuring that as the pick-up comes along we are spared the triumphalism, complacency and dogmatism which have been the hallmarks of this Government right back to 1979 whenever disaster was not actually knocking at the door. It may be a vain hope, because I cannot entirely exclude the noble Lord, Lord Strathclyde, from allowing certain notes of complacency and indeed triumphalism to creep into his speech this afternoon.

We have already heard it proclaimed quite recently—I believe in this House—that our productivity is now the highest in Europe. That is absolute nonsense. It is still one of the lowest in the countries of the OECD. It is the case that, owing partly to our being somewhat out of step with our neighbours in the timing of the trade cycle, our productivity has recently been increasing faster than others and a small but welcome reduction in the gap is consequently being made.

But the essential gap remains and I noted with interest that the noble Lord, Lord Peston, also mentioned it in his speech. Mr. Heseltine brutally but courageously pointed it out in a speech on Monday night; and we are all very glad to see him vigorously back in action. However, this morning I could not help but reflect that it is a sad commentary on the tone of parliamentary discussion that he chose to make his serious speech on Monday night outside Parliament while reserving his inconsequential knockabout for the Chamber of the other place yesterday afternoon. As for Mr. Howard's speech on Tuesday, as a contribution to the august authority of the Home Secretary's office it simply beggared description.

In relation to the direction of the pick-up, it is clearly desirable that the Budget should encourage it to be export and investment led. That is a platitude, one could almost say, but sometimes platitudes contain many truths. It is not clear what is the export trend at the present time. There have been some disturbing indications that the benefits of devaluation—that brilliant economic coup that the Government planned so skilfully—have been taken out more in improved profit margins than in increased volume. To the extent that that is true—perhaps to a large extent —it is part of the wretched short-termism of British industry in which long-term market share, so assiduously sought by some of our competitors, is sacrificed by us to this year's or next year's profit figures.

Investment levels in the private sector are also much too low, with a virtual freeze on public sector projects, except for adding lanes to motorways—perhaps necessary as a precaution against the effects of rail privatisation. The virtual freeze on public sector projects is becoming not merely bad social and economical planning, but something close to national humiliation. A small but highly visible example is the restoration of the Albert Memorial. There has now to be launched a public appeal in order to complete its restoration. There may be mixed views about the Albert Memorial, but there is no doubt that it has been a prominent symbol of high Victorianism and was created at a time when London was the admired capital of the greatest country in the world; and now this Government cannot afford to repair it.

I see that in Paris, apart from the great public works recently accomplished, several major, mainly late 19th century buildings, have suddenly come into a state of disrepair—the Grand Palais and the Opera Garnier. I can guarantee that the Grand Palais will not remain immobilised in scaffolding for a decade or more and nor will the hat be sent round in order to try to pay for it. It is a sad tale of the contrasts between our two cities.

With regard to dogmatism, its destructive grip seems to get even tighter on this poor, sad Government. Now it is the Trevelyan-Northcote tradition in the higher Civil Service, already a little frail after nearly 15 years of one-party government, which is endangered. It has been one of the glories of Britain for the 140 years since it was promulgated and 122 years since it was effectively implemented. But like many other policies it stems, in my view, from a fundamental flaw at the core of the Government's thinking that has been enabled to gain far too wide a currency. That flawed view is that so-called "business values" need to be imported into every aspect of our national life. They do not. They are often unsuited to many forms of public service. One example is the Sheehy Report, from which the Government are now in full retreat. The prime mistake was that Sheehy was the wrong person to undertake the task. He knew how to run a tobacco company but not a public service. However, the error lies deeper than that. It lies in the belief that we should increasingly turn our public institutions into pale imitations of our business companies. That ignores an important consideration.

For nearly 100 years we in this country have had outstandingly famous public service institutions and an indifferent business performance, with the possible exception of large-scale retailing and merchant banking, though most of the most successful merchant bankers came here from other countries in any event. By contrast, we have been or are famed for the quality of our public service broadcasting and television; for the efficiency of our Army, and other services; for our universities, of which at least two are the most renowned on this side of the Atlantic, and for our impartial higher Civil Service.

What do we do? We undermine our public broadcasting services; we shrink our Army; we harry our universities with half-baked Education Bill after Education Bill, and now we try to dilute our policy-advising Civil Service which, certainly until recently, had extremely high standards not only of probity but also of intellectual quality, independence and dedicated hard work. It is the philosophy of the madhouse. We take our best institutions and try to imbue them with the ethos of our indifferent ones.

It will be said that the fuss about undermining standards and independence is misplaced. But I was horrified to read this week that the most distinguished head of the Civil Service was reported as saying to the Commons Select Committee on the Civil Service that the new system would make it easier to retire early those Permanent Secretaries who could not get on with their Ministers. Some compatibility is reasonably desirable, but the idea that getting on well with or even admiring the ministerial performance of Mr. Howard, Mr. Lilley and Mr. Patten is a necessary qualification for not being retired early is preposterous. Edward Bridges, Frank Lee or Evelyn Sharp would indeed turn in their graves.

I found the gracious Speech rather lowering. Generally I believe that the economic sky may be lifting a little. I wish, without great confidence, that the Government may exploit this opportunity more constructively, less dogmatically, and perhaps even a little more humbly than has previously been the case.

4.18 p.m.

Lord Boyd-Carpenter

My Lords, I have listened to the noble Lord, Lord Jenkins of Hillhead, both in another place and in this House over a great many years and I have always found his speeches highly entertaining, if somewhat fictional in many aspects. But I thought—I hope he will allow me to say this—that it was unjustifiable for him to charge the Government in general and my noble friend Lord Strathclyde in particular with complacency.

If it is said to be complacency simply to invite attention to the good features of our policy, to the features where the economy is improving as a result of government policy, then it would be a justifiable comment. But most of us would not call that complacency; most of us would call it an understanding of the facts. I thought that my noble friend's speech was far from being complacent; it was very realistic and extremely helpful. He was absolutely right to draw attention to some of the good features of the economy at the moment—the fall in unemployment, the fall in rates of interest and the improvement in exports. It was surely right to invite all those matters to your Lordships' attention. No one is foolish enough to think that we are out of the woods yet and my noble friend did not suggest that. But to ignore the improvements that have been taking place in the past few months is utterly unrealistic. I am sorry that the noble Lord, Lord Jenkins of Hillhead, marred an otherwise excellent speech by taking that line.

If I were on the Episcopal Bench and bound to take a text for my speech, I would take a sentence from the gracious Speech. The following words have not been referred to either in this debate or on earlier days: My Government will reduce the share of national income taken by the public sector". That is an extremely important statement. It casts an interesting light on the likely make-up of the Budget which we will hear on Tuesday. I very much hope that it is borne out, because, if we are to steer the national economy into a position where we have real prosperity, it is necessary to take less and less into the public sector and ensure that more and more of the national wealth that is produced is in the private sector. I was glad to see those words in the gracious Speech and frankly rather surprised that neither the press outside nor (more surprisingly) any of your Lordships here has appeared to pay any attention to them.

Lord Peston

My Lords, perhaps I may be permitted to interrupt the noble Lord for one moment. I am sure that he is aware that in almost every year that the Government have been in power the ratio of government expenditure to GDP has been higher than under the last Labour Government. At this very time it is higher than it was under the last Labour Government. The Government are criticised for cutting public expenditure, but what is interesting is that they never do.

Lord Boyd-Carpenter

My Lords, I am much obliged to the noble Lord. He has underlined exactly what I am trying to say. This statement in the gracious Speech appears to contemplate a policy which modifies what has been done over recent years. The noble Lord is always extremely clear and lucid. I know that he is trying to be helpful, and I thank him for his great help in making fully clear a point which I am making with perhaps less clarity.

However, it is necessary to continue to exercise great restraint in public spending. Almost every day in this House and another place there are arguments in favour of further public expenditure, mostly concerned with wholly admirable objects: education, health, the arts and many other matters. But the fact remains that unless we can reduce the share of public wealth which is taken by the state, and thereby increase the share that remains in the hands of industry and the citizen, we shall not get the full recovery that we wish to see.

I would like to suggest one or two areas in which it is desirable further to restrain and control public expenditure. I am conscious of the fact that any public economy is almost certainly publicly unpopular, but equally I ask your Lordships to accept, with your very great experience of public affairs, that unless action is taken on this line the power to sustain all the good things that the national economy supports will be diminished.

I take, for instance, legal aid, the cost of which is still rising. I do not know how many of your Lordships heard the excellent speech the other day of my noble friend Lord Alexander of Weedon in which he indicated that it would be possible, by adopting a system that had been successfully adopted in other countries, for the civil side of legal aid very quickly to eliminate public expenditure in that direction. I hope that when my noble friend replies he will indicate that at least Her Majesty's Government are looking at it. If not, I feel that the only step required to be taken is simply to reduce the legal aid provision.

I also refer to the Channel Tunnel link, which I am glad to see has been postponed. I wonder whether the sensible thing may be to scrub it altogether and accept the fact that the speed of traffic through the tunnel is not necessarily of great national importance. If any of your Lordships, or any citizen, wished to get to and from the Continent in a hurry he would go by air anyhow from Heathrow and Gatwick. To spend hundreds of millions of pounds on a new railway line that will go through and damage some of the most beautiful country in the South East of England at least merits reconsideration.

Lord McIntosh of Haringey

My Lords, I wonder whether the noble Lord will permit me to intervene. The noble Lord talks as if the Channel Tunnel link is designed merely to shave minutes off the journey time for passengers. Does he not recognise that the basic argument for the Channel Tunnel rail link is concerned with through routes for freight?

Lord Boyd-Carpenter

My Lords, of course it is. But freight can be carried on the present track. The point of the new link is to increase speed. There is no doubt that traffic can be handled, though more slowly, by the present railway structure. If the noble Lord has studied this matter he will appreciate that the purpose of the link is simply to accelerate traffic coming through the tunnel. I suggest—he will probably accept this—that that is unnecessary, and it is not worth several hundred million pounds and damage to some very beautiful countryside.

There are other areas of the economy where expenditure is also rising. I am sorry to see that the European Commission's demand this year goes up by £80 million. That is a substantial amount to add to our contribution, particularly when it is remembered that the European Commission is spending £900 million a year on the production of tobacco. Your Lordships know well from the many arguments which have been had that tobacco is a harmful product. To spend such a large amount of public money on the production of a poisonous substance such as tobacco, while at the same time issuing pamphlets urging people not to use it, seems to be an area where a drastic reduction can be made. I go further and say that it is unnecessary to spend anything at all on the support of the tobacco industry. Though there may be a need to phase out the growing of that product over a year or two in Greece, Spain and Italy to some extent, this is an area which calls for resolution and for the European Commission to show that it has leadership and courage and that when something is right it is prepared to do it and not be frightened of the political repercussions.

If time permitted a good many aspects of this matter could be attacked. However, I ask your Lordships to bear in mind the contrast between the state of our economy and that of Europe. The fact is that the poor state of the European economy is one of our handicaps. After all, between 50 and 60 per cent. of our exports go to Europe, and the fact that Europe is now in a state of depression, with 18 million unemployed, makes our own position, though so much better than theirs, nonetheless more difficult than it need be. We wish to see our European partners become better off.

One can see one explanation for it in figures that have recently been published. In the past 10 years European labour costs have gone up by 50 per cent.; labour costs in the United States have gone up by about 10 per cent.; and Japanese labour costs have not gone up at all. There is a very clear lesson to be learnt from that. The position therefore is that Her Majesty's Government have to ensure that costs are kept down and that, in the words of the gracious Speech, more and more of our resources are left in private hands.

It is for that reason that I must stand firm. I protest against the proposal to impose VAT on domestic fuel. VAT is a very bad tax. It is directly inflationary. It inflates all costs, particularly when it is charged on productive labour. To impose it on domestic fuel is a very unfortunate thing to do. Certainly, the weather we have been experiencing over the past few days confirms that domestic fuel is a matter of life and death for a very large number particularly of disabled and elderly people. Therefore, I venture to say that I find it disappointing that a government who I support should be apparently—we must await the Budget before we form a final view—contemplating this unfortunate step. I would much prefer more emphasis on economy in expenditure.

I quite accept—and I am sure your Lordships accept—that there must be an improvement on our balance of payments. Of course there must be; of course we must get expenditure and income much more into line. But there are two ways of doing it, and it seems to me that the right way to do it is by a reduction in public expenditure. Your Lordships may think that that is the understandable reaction of a former Chief Secretary to the Treasury. It is true that if one is in that office one sees something of the high rate of spending and of the pressures for spending which develop. But it is very important indeed that we should get expenditure down and that we should not increase taxation. In that way we can secure the recovery in our national economy, signs of which we are already seeing.

I suppose that the noble Lord, Lord Jenkins of Hillhead, will accuse me of complacency when I say that it seems that we really are improving the position and that we are not very far off going to a position of good working of the economy, good trade and prosperity. I know that that is what all of your Lordships on both sides of the House will wish to see and I believe that we shall see it if the policies of the Government are pursued with the same determination and courage as they have been pursued so far.

4.33 p.m.

Baroness Dean of Thornton-le-Fylde

My Lords, I have been met with the greatest kindness and consideration since I arrived in your Lordships' House. I realise that that is usually said on these occasions, but that also happens to be the truth. I should sincerely like to thank your Lordships, the Officers of the House and the staff for the welcome and assistance they have given me.

Members of this House come from all walks of life. They bring every kind of experience to it and have a reputation for listening to each other, and sometimes where the arguments have strength in them, of being prepared to vote for the opposing view. Indeed, if it is not too presumptuous of a newcomer like myself to say it, I feel that that is why your Lordships' House appears to work so well. Real debate can take place. Compromise and consensus are refreshing experiences yet sadly are rare in today's world where the attitude of "Devil take the hindmost" and the "me now" society too often prevails.

I am advised that maiden speeches should not be controversial. That is a rather new experience for me having worked in the controversial area of labour relations for over 30 years. The most controversial term in my union career was having been involved in 1986 in the newspaper dispute with News International—a brutalising experience for everyone involved and one which I hope will never ever be repeated in this country. But that dispute did not represent and never has represented industrial relations in Britain—no more than Fleet Street ever did. Yes, the world of labour relations is controversial, but that does not prevent agreements being concluded in the vast majority of industry; agreements for the good of both the employees and companies. I never forgot, and never will forget, how lucky I was to be part of manufacturing industry, which contrary to much of public opinion is invigorating, interesting, innovative and creative as well as being wealth creating for the community.

I represented trade union members working in the printing and paper industries which collectively provide employment for 440,000 people in Britain today. These important industries are highly trade union organised and, for the most part—the national press perhaps being the exception —have an excellent record of labour relations. Printing and paper in Britain can claim to be among the first ever manufacturing industries, each being over 500 years old. My former union, SOGAT, is over 200 years old. Printing is the fifth largest manufacturing industry in the UK and has a net trade surplus with the rest of the world. It will be my experience of working in industry, with the people I have proudly represented and with the many decent: employers and companies, which will very much influence my views and contributions in debate in your Lordships' House when industry and employment matters are discussed.

It was not the provisions for deregulation in industry which improved industrial relations, no more than the over-regulation we have seen on the activities of trade unions. Indeed, it might just be the case that if the trade unions had not been so undermined by the almost yearly legislation enacted against them the Maxwell pension scandal would not have happened.

The many hundreds of thousands of people unemployed through no fault of their own will understandably feel that there is nothing in the gracious Speech which will give them hope for the future and nothing which will give them the dignity of being able to provide for themselves and their families. Unemployment, even on government statistics, has risen by some 34 per cent. since 1988. Against that increase in the numbers of unemployed, who could blame them for being disillusioned? And especially when they read press reports that unemployment benefit may well be cut to a maximum of six months' payment. I hope that there is no truth in that rumour.

One of the most distressing aspects of my work as a trade union official was that of the industrial injuries and illness sustained by my members. It was equally distressing for the many thousands of responsible employers who cared for the work environment they provided for their employees. The Health and Safety at Work etc. Act 1974 has proved to be a great support in gradually improving standards, reducing accidents and protecting employees. The very real improvements reported only this week by the Health and Safety Executive showing that the number of fatalities at work is down for the third year running to 430 is encouraging. I suggest that 430 fatal accidents at work is still too many.

Despite these improvements, the latest Government statistics reveal some 1.6 million accidents at work each year at a cost of 30 million lost working days. The cost to industry is estimated at between £4,000 million and £9,000 million, or 5 per cent. to 10 per cent. of gross trading profits. That is much more, may I say, than was ever lost in days through strike action in this country.

I believe that we would all agree that any civilised society wants to protect the well-being of its people at work and needs to protect them. The Health and Safety at Work etc. Act has been changed from time to time and there is a specific provision that any changes must not reduce the standards which are currently provided for in the Act. It is that underpinning of standards which appears now to be possibly at risk. Those who might wish to dilute the protection in the Act for employees should be reminded that health and safety protection is not a burden on industry but is a basic responsibility of the employers to their workers.

It seems, too, that the European Union proposals for regular eye tests for those spending long periods at the screen of a computer may be targeted on the advice of businessmen. I cannot but help wonder how many businessmen have sat at a computer keyboard for hour after hour, as many of my members have, or who have experienced a blinding headache resulting from light glare, or who have any idea just how crippling repetitive strain injury is. I can assure your Lordships that RSI is a real, modern-day industrial illness; that it is not in the imagination and neither is it due to too much knitting as some have tried to suggest.

My former union, SOGAT, won substantial compensation in the courts for working people who were rendered totally incapable of continuing to earn their living because their hands or arms were incapacitated with RSI. It is interesting that this week the Health and Safety Executive has confirmed that RSI does exist and that it is on the increase. It is for those reasons that employees will be perplexed—and feel betrayed too—if there is any reduction in the standards and protection now provided through the Health and Safety at Work etc. Act. I feel that those views will be shared by this House.

In the very short time I have been in this House it has become clear to me that there is no shortage of important and interesting topics and issues to be debated. I very much look forward to participating in the proceedings of the House. It is my intention to listen to those with opposing points of view with tolerance and good manners. I hope too that, in the spirit of consensus and compromise, agreement and understanding will on occasion prevail—qualities which I like to think that the British people will insist are brought back into the way we work at all levels in public life in this great country of ours.

4.43 p.m.

Lord Elis-Thomas

My Lords, it is a particular privilege for me, as someone who entered this House just over one year ago, to be the first to congratulate the noble Baroness, Lady Dean of Thornton-le-Fylde, on her maiden speech. We all know of her as an effective trade union official at, as she mentioned, a very difficult time for the union which she represented. I was pleased to know of her work then. I like to think that in her maiden speech she has already indicated to the House the way in which she expects to bring her own experience to bear on our proceedings here. I am certain that that will be of major benefit to us all. I congratulate her warmly.

Since he is speaking after me, perhaps I may also welcome the noble Lord, Lord Dahrendorf, and anticipate his contribution. May I say how pleasant it is to have a person of European intellectual standing as a Member of this House on the Liberal Benches.

This is the final day of debate on the gracious Speech. I intend to follow the approach taken by a number of noble Lords already in taking an overview of the issues although concentrating my remarks on industrial and economic policy. I commend to the House the importance of an integrated approach to policy and its implementation, linking economic, industrial and environmental policy and education and training and linking that with the importance of the role of the public authorities at all levels; whether at the level of the European Union, the member state government, regional governments where they exist—of course, that does not include the United Kingdom at the moment—and at levels of local government. I am not selecting one level as being lower than another.

All levels of government and all activities of public authorities are equally important to an effective partnership. That is perhaps the most depressing aspect of the debate about economic and industrial policy we have heard in the United Kingdom in the past 15 years. That is to try to undermine and belittle the role of public authorities in innovation and partnership; to continually attack public expenditure and state activity as if it were somehow inherently contrary to that of entrepreneurial and enterprising activities.

Of course, no one from any of these Benches would argue for an inefficient public sector, but one would certainly argue for the importance of the role of partnership in the public sector. The irony is, of course, that even those government departments in Whitehall which have been severely critical of the approaches of public enterprise have, when they have come to the Welsh Office, for example—or where their Ministers revert to the Welsh Office or arrive there—certainly have had to adopt policies which are indeed more of a consensual nature and partnership between the public and private sector than the rhetoric of Whitehall. I suspect that that is also the experience of the present Secretary of State for Wales.

When one looks at the activities of public and private enterprise there are certain aspects of the economy which are of key importance in terms of public planning. None is more important than the issue of environmental activity. I welcome the commitment in the gracious Speech at last to introduce an environmental agency. I understand the arguments why that agency is to be structured on an England and Wales basis, but I obviously look forward to seeing the Bill itself and how the arrangements for a devolved structure for Wales (which exists within the National Rivers Authority) are to be set up within the structure of a proposed environmental agency.

That environmental agency will be mainly charged with pollution control, among other aspects of the work of the present National Rivers Authority. But that is only one aspect of environmental policy. We need to integrate far more effectively our approach to economic and environmental policies if we are to pursue the objective of sustainable development. The Government still seem to take the view that competitiveness in industry exists on its own account; that it is not related to environmental standards or indeed to the standards of social provision both for consumers and those who are employed in the productive and service industries.

I wish that they could get away from the rather simplistic view of economic activity and realise that sustainable economic development and environmental protection, as well as effective social legislation and protection of the workforce, are all parts of a current modern economic activity. The integration of environmental policy with economic policy is central to the activity of any effective government at whatever level. I only wish that the Government would see far more clearly that when they are talking about enterprising competitiveness they also need to speak of environmental quality, the needs of consumers and of the rights and obligations for employees in industry.

Although we are talking today mainly about manufacturing and service industrial activity, there are certain aspects of economic activity which perhaps highlight the inter-relation between the environment and the economy in a more dramatic way than others. I refer particularly to the tourism sector and not only because of its relative importance to that part of the country in which I live, which is next to the European historic site of Caernarvon Castle. Noble Lords can rest assured that I am not trying to acquire the castle as my invented ancestral seat, but just to make the point that tourism is a major economic activity in that town and in the whole western part of Wales.

Tourism brings immediate benefits but it also brings disbenefits in that where there are substantial increases in the number of tourists—the projections of international studies indicate that there are to be substantial increases over the next 10 years, depending on the general rate of economic performance—those increases bring pressure on fragile environments, whether they are historic sites, mountain areas or coastal zones. Those environmental pressures of additional tourists are also economic pressures, and so it is very important that we look at sustainable forms of tourism, effectively managed, so that they bring benefits to regions while minimising the disbenefits. Therefore, again in that area, when we are looking for expansion in the number of job opportunities in the tourism industry we need also to look at the environmental constraints in order that the tourism is "green" and balanced.

That leads me to another aspect of integration that needs to be emphasised and I am very pleased that it has been already covered by most speakers in this debate: that is, the integration between education and training and economic activity. "An educated and participating democracy" was a ringing phrase of my late friend Raymond Williams, and it is a phrase which I certainly stick to. However, I think we need to add to it and emphasise that it is only through having an educated and participating democracy that we can have an effective and competitive economy, even in the terms set out by Government Ministers. If we are to have, as the noble Lord, Lord Peston, said so clearly in his opening speech from the Labour Benches, an effective level of economic competitiveness we need to have that capability for the continual training and retraining of our workforce and for reskilling our population.

In that context, I welcome the publication the other week of the consultative document by the Training, Education and Enterprise Division of the Welsh Office. That document sets out frameworks for consultation to improve the standards of the educational system and the skilling of the population within Wales. I draw attention, in particular, to the need for higher education institutions to do more to encourage graduate entry into small and medium-sized businesses, of which we have such a large share within the Welsh economy. It also stresses the need for higher educational institutions to help develop skills within community enterprise with regard to the possibility of development in that sector.

As we look at the present levels which have been achieved, it is important to note that of the targets set out for education and training a couple of years ago by the CBI and the Government, Wales is lagging behind quite seriously in the target of the percentage of young people reaching NVQ2 —that is, 80 per cent. to be reached by 1997—and in the other target of NVQ3 for all young people who can benefit and in the target of lifetime education. We have suffered in the past in Welsh education from perpetuating a belief in our own myth, as it were, that we were still able to maintain standards traditionally associated with the upwardly mobile sections of our grammar school tradition. We need to look again at the ways in which we can have a far more effectively integrated approach to training and education, and I commend the Welsh Office document for having started on that road and planning that provision at the national level within Wales.

I want briefly to touch on one other aspect of the Queen's Speech which relates to my attempt at an integrated approach. That is the question of the levels of effectiveness of public authorities. I mentioned the importance of a partnership between public authorities, private enterprise and other sectors within the economic and environmental fields and the delivery of public services. This question of levels of government of course applies to all levels. The Government seem to believe that subsidiarity, as a doctrine, begins and ends on the White Cliffs of Dover. In fact, subsidiarity applies at all levels of government, if it applies at all. So when we look at the relationship between this House and the other place, and Whitehall and local government and the absent tier of regional government in the United Kingdom, we need to understand that the decisions made by this House and the other place about local government have to be decisions which are taken sensitively, as relating to the views of the local population. If a public authority is to be effective in the areas of enterprise, culture and all the other services, it must have not only the confidence of but also the affiliation and the identity link with its local population. Continual changes of local government are not helpful in establishing either efficiency or indeed affiliation by the public to its elected authority.

I fear that the next stage of local government reorganisation in Wales, promised in the Queen's Speech, will lead to yet further disaffection from the structures of government. Although I have always been a strong supporter of unitary authorities, I believe that unitary authority in Welsh local government must be related to an elected national authority if it is to be effective. I did not expect the Government to legislate for that, but I think the time will come when either a Conservative Government or an incoming Labour Government will have to legislate for a level of regional or national government for Wales within the United Kingdom to meet the needs of democracy and so that people like myself, who work in a non-departmental public body, will be made directly accountable.

It is also important that the level of local government which is now being proposed should be properly scrutinised and analysed as we take the legislation through this House. I do not apologise for referring very briefly to the area of Merioneth, which I represented in the other place for 18 years, because in the Government's proposals the area of Merioneth is not to have its own unitary authority. I understand the arguments about the scale and the size of population, but I do not understand why these arguments need to apply when the Government are looking at enabling local authorities which are no longer, for the most part, direct deliverers of services.

Indeed, if one takes the Government's own deregulation Bill alongside its local government Bill I do not think there is much sense in abolishing, or not providing, a level of authority for an area like Merioneth, when the very services that would be provided by that authority could well be deregulated or put on an agency basis. Therefore, the old arguments about economies of scale and territory for local government units can, in my view, no longer apply, given the Government's own logic. We need a greater degree of flexibility. It appears to me, although I would never advocate it as a principle, that Wales should follow England or Scotland. There is a greater degree of flexibility in the approach of the Government to local government in those countries than there is in my home country of Wales. Obviously we will come to that later in our debates, but the point is linked to my view of economic and industrial activity as a partnership. If we are to have an effective partnership involving local authorities, then the population of a local authority area must be an active part of its community.

Finally, may I say that I regret that the Queen's Speech does not take us on a new road to greater policy integration or to a greater understanding of the relative importance of the public and private sectors in a modern economy; but, given the ideological background of the Government over the last 15 years, that would be a surprise. When the Prime Minister talks, as he does, of going back to basics, I think it is important that he should also consider that basics are not things which should be returned to. Basics are things which are with us and which are basic to our public life. Basics exist in the future as well as in the past. What I regret about this Government's attitude is that it seems to be re-inventing a selective past while missing out the basics of the future.

4.58 p.m.

Lord Dahrendorf

My Lords, your Lordships' House is courteous and supportive to newcomers, and no one appreciates that more than someone who is a newcomer not just to your House but to this country —a British citizen by choice. Britain is, in the words of a recent author, a civic country, to which one belongs by shared rights and values of citizenship and not primarily, as in ethnic countries, by blood and origin. Ethnic countries are often uneasy and sometimes warlike places, whereas civic countries tend to be open and civilised. I am grateful to have become a part of this tradition, and hope to repay the civility of the welcome by doing what is required of a good citizen.

We are debating today the country's economic future. In doing so we must look beyond one Parliament even if the occasion is Her Majesty's gracious Speech for this Session. In the light of such longer-term concerns, perhaps I may add a footnote—no more—on the vexing issue of unemployment. It is vexing for many reasons. While we are all pleased that the latest figures show a reduction in the number of people claiming benefits of 49,000 in October and an average reduction of 14,000 during the past six months, it would take 57 months like October and nearly 17 years like the average of the past six months to reach zero unemployment. No one expects that to happen.

If recent American experience is anything to go by, we may well be in for a period of economic recovery in which, nevertheless, relatively few jobs are filled or created. The spectre of "jobless growth" is real. That is notably the case in manufacturing. Sometimes the present period of "restructuring" reminds one of what happened in agriculture many decades ago: higher output with fewer workers. During the past 10 years employment in manufacturing has fallen by nearly 25 per cent. while industrial output has risen by almost 15 per cent. More significantly still, the Financial Times reported on 1st November that "Britain's 1,000 largest companies shed about 1.5 million workers in the year to March 1993". The Department of Employment summarised in its October Report that "employment over the year to June 1993 fell by 523,000". In other words, there are fewer jobs altogether.

How do we make sense of that and what do we do about it? I remember an occasion when the late Earl of Stockton, then Harold Macmillan, said in his inimitable way, "I don't known why people get so excited about unemployment. When I was a young MP they all wanted to work less rather than more". The noble Earl was never just facetious or frivolous. After all, when a book entitled Theory of the Leisure Class was published 80 years ago, being unemployed—or at any rate, not having to work—was a privilege and not a punishment. We may well have to rethink the place of work in our lives. But clearly this is not good enough here and now. So how do we find jobs if not for all then for more?

Ever since Maynard Keynes and President Roosevelt's Tennessee Valley Authority, one proposal has been larger infrastructure projects, public or private. I had a closer look at two of them; the Channel Tunnel and the £800 million construction project by a private company, Glaxo Pharmaceuticals, in Stevenage. Both teach the same lesson and it is simple. The Stevenage project employed 3,000 people in the peak period, which incidentally was roughly the number of British employees on the Channel Tunnel project during the past year. They were all skilled people who had to be specially trained for their tasks, which required a lengthy run-up period. Indeed, project managers had to be imported from North America. Of course, all those employed had limited-term contracts.

There is a case for infrastructure projects, and in that respect I emphatically agree with my noble friend Lord Jenkins of Hillhead. We also need better facilities for training for those who plan and direct them as well as for those "at the coal face". In that respect I agree with the noble Lord, Lord Peston. But even 10 £1 billion projects would make hardly a dent in unemployment figures.

What about those who do not benefit from big projects? There is much discussion these days about labour market flexibility. There also used to be frequent references to the American "jobs miracle". But the other side of the American experience is often overlooked in Europe. It is true that with lower wages and lesser non-wage labour cost tens and perhaps hundreds of thousands of new jobs could be created. But the result would be that we would also create what in America are called the "working poor". Employed people who do not earn enough to sustain themselves let alone their families are the American equivalent of Europe's long-term unemployed; and where unemployment benefits are generous, Europe's unemployed are better off than America's working poor.

I am certainly not arguing that we should make unemployment attractive. Indeed, if I am arguing any particular point it is that the solution of the employment problem today is not simple and it would benefit all if neither Government nor Opposition felt compelled to promise simple solutions. Social well-being has come to be an even more complicated proposition today than it was at the time of one of my distinguished predecessors as Director of the London School of Economics, Lord Beveridge.

But perhaps your Lordships will allow me to conclude with the thought that if we want to go down the flexibility route to more employment it will have its cost. We will have to think of ways of supplementing the incomes of those who have accepted low-paid employment. Professor James Meade, the economics Nobel laureate, is but one of many who suggest in this context basic income guarantees, or a "citizens' income", and a system of taxation which includes what is sometimes called a negative income tax, in order to enable every citizen to live a decent life. But that is a subject for another day and for someone who is no longer a maiden in the midsts of such rich and varied experience.

5.8 p.m.

Lord Sanderson of Bowden

My Lords, it falls to me on behalf of the whole House to congratulate the noble Lord, Lord Dahrendorf, on a most interesting maiden speech. We look forward to hearing him on many occasions. We are grateful to him for his thoughtful speech on unemployment and the problems in that area which are so difficult to resolve. I say also to the noble Baroness, Lady Dean, that she made a splendid maiden speech.

I wish to concentrate on four practical matters relating to manufacturing industry and perhaps move away from the more high-flown debate on economic policy to the more practical points which are relevant to certain industries of which I have some knowledge. Perhaps I may tell my noble friends on the Front Bench that I have a message for my right honourable friend the Minister of Agriculture, Fisheries and Food. declare an interest because I am about to take over as chairman of one of the dairy companies which next year will launch themselves into the private sector. They will be private-sector companies. It will be a difficult, tough and fraught period for those companies. My message is: please, please do not put off vesting day beyond 1st April 1994, for delay in that area will cause uncertainty and confusion, which we certainly do not wish to see.

I have not heard much in the way of compliments for the Government in this afternoon's debate so far, but I have a compliment for them. The VAT decisions which were made in the Budget last spring in relation to the bloodstock industry of this country have saved that industry from decimation. I can quote from the Racing Post, which said: We should be sure to congratulate the Government for its foresight in granting a concession that saved the day". I believe that a government who listen to an industry so vital to this country deserve to be congratulated, even though in some other areas they may not receive such congratulations.

I move on quickly to one particular matter that concerns me in relation to the seedcorn small businesses which are involved in exporting. There is a real danger that in looking at public expenditure the wrong things may be cut. There is one area in which I believe cuts could be extremely damaging; that is, the help given to small industries to show and to trade abroad. Two matters need to be looked at in that regard. My noble friend the Minister responsible for small businesses will understand when I tell him that I do not like the three-times rule. He knows what I mean even if some of your Lordships do not. I believe that that is a matter at which the Minister's department should look, which was also the recommendation of the Trade and Industry Committee of another place when it reported on 28th April this year.

Secondly, it should be realised that more and more business is being done at trade fairs. Therefore, I believe that it is necessary for the Department of Trade and Industry to look well ahead so that we do not have a short time-scale, with decisions taken over too short a period. If one is to compete in exporting countries like Japan and so on, it is necessary to plan well ahead so that a small business can decide whether it will gain the necessary support to be able to show its wares in those countries. Again, it must be necessary to avoid uncertainty; and clear information given well ahead must be the order of the day. I do not believe that this Government have covered themselves in glory in that regard in the past year or so.

Finally, I make no apology for returning to a subject on which I spoke in your Lordships' House some time ago. I said at the time in relation to the business expansion scheme that it should be modified and not crucified. I firmly believe that to be the case. I believe also that the principles of the party of which I enjoy being a member mean that, if we talk about getting back to basics, it is important that individuals should help small businesses. The strong should help the starters.

I agree that the business expansion scheme, which is disappearing this year, has been flouted. The original purpose, so ably brought forward by my noble and learned friend Lord Howe of Aberavon, has gone up some alleyways which I am sure he did not intend it to go. But what is absolutely certain is that the best help for small businesses and people starting out in business is to have individuals who, perhaps with fiscal incentives, will be able to assist them to succeed. It should not be left to banks and loan-back schemes, and certainly it should not be left to hand-outs from her Majesty's Government in the form of grants. Those businesses should not be left to try to fend for themselves in the tough world which they enter.

I do not expect an answer from my noble friend the Leader of the House who is to reply to the debate. But I say to him that if the small business sector is to succeed, some son or daughter of BES should be devised. I do not require an answer from my noble friend today, but on St. Andrew's Day I shall look for an answer.

5.15 p.m.

Lord Barnett

My Lords, I apologise in advance because I may not be in my place at the end of the debate. Perhaps I may add my congratulations to the two maiden speakers. My noble friend Lady Dean was a member of the general advisory council to the BBC. We welcomed the advice that she gave us there, as I am sure we shall in your Lordships' House, as we can judge from her excellent maiden speech. The same goes for the noble Lord, Lord Dahrendorf, whose intellectual prowess has gone before him. The point he made about the spectres of jobless growth is a matter to which I wish to return. That is certainly a major problem which we face in this country, and indeed in many other countries in Europe.

I am sorry that the noble Lord, Lord Strathclyde, has left the Chamber. He gave us the same form of words which the noble Earl, Lord Caithness, gave in a previous debate; namely, that all is now set for sustainable growth. I see that the noble Lord the Leader of the House nods in agreement. I am sorry to see him doing that. I thought that he would disagree because it is precisely because the public can see that that is not the case, that they are as cynical as they are about what is happening in this country today. I wish to say a few words about that later.

The noble Lord, Lord Sanderson of Bowden, said that he had not heard many compliments for the Government. I begin by giving the Government some credit for clearing out much of the dead wood in publicly-owned industry, improving industrial relations and bringing down inflation. That is certainly to the Government's credit and I do not seek to do other than to give them credit for that. Whether the rate of inflation would be under control if the Government were to go for the level of economic growth which I personally—and I imagine many others—would wish to see, is an entirely different matter which I beg leave to doubt.

Having given the Government credit in some areas, it must be said also that the market economy has hardly solved our basic problems. Many of them remain. I could not help thinking that the noble Lord, Lord Strathclyde, had written his speech before the Secretary of State for Trade and Industry had made his remarks on Monday night.

Lord Jay

He obviously had not.

Lord Barnett

My Lords, as my noble friend Lord Jay says, he clearly could not have done. My noble friend Lord Peston referred to some of the remarks which Michael Heseltine made; for example, the fact that we are 25 per cent. behind Europe in terms of productivity and even more behind the United States. Therefore, although manufacturing productivity has certainly grown, that is hardly surprising because it started from such a low level. It would be astonishing if it had not grown; but it has still not grown by anything like the degree required.

The other important point which Mr. Heseltine made was when he said that trade in manufactured goods had declined remorselessly, stabilising at only 6 per cent. compared with 33 per cent. in 1914. I wish to say a few words about that in a moment because it relates to whether we can sustain economic growth at the levels that we all wish to see. We are told that this year the economy is likely to grow at something slightly in excess of 1.5 per cent. I welcome that. We are coming out of a recession. In 1994–95, it may be something in excess of 2.5 per cent. I certainly hope it will, but a lot will depend on other factors, including what is in the Chancellor's speech next Tuesday.

Again, I wish I could be as certain as the Minister that all that can be sustained. I have in mind in particular looking at the financial position; namely, a budget deficit of £50 billion in 1993–94. We were told a long time ago that it will be balanced in the medium term. I should be grateful if the noble Lord the Leader of the House would give us a definition of "medium term" because in the last Financial Statement and Budget Report we saw that it would be £35 billion in 1996–97. I do not know whether "medium term" means the end of the century or whenever. Frankly, I am not too worried about that, especially in the current economic circumstances.

What is much worse than the PSBR is the external deficit. That is the really crucial and serious problem. It was £6.5 billion in 1991; £12 billion in 1992; and the forecast was that it would be £17.5 billion this year. Judging from recent figures, it may be a little less but I should not like to guarantee it. But even if it is a little less, they are not exactly helpful figures to give us sustainable economic growth. If we go back to really useful levels of economic growth to start to bring down the levels of unemployment, what will happen during that period when we have those external deficits during a recession?

It is incredible that the Government now think that we have everything in place to achieve a sustainable level of growth and all the improvements in the economy about which we have heard. Of course, I am delighted to see any fall in unemployment. The falls that we have seen in the past few months are worth seeing. I hope that they will continue. However, as I said, we need high levels of growth to bring unemployment down substantially. Again, one is bound to ask: what will happen to the external deficit?

It seems to me that, next Tuesday, the Chancellor of the Exchequer will be between what might be called a rock and a hard place. He is faced with a situation where he can increase tax and cut public expenditure as the noble Lord, Lord Boyd-Carpenter, is asking him to do. However, I fear that he will be a little disappointed; the best that he will do is to go back to the figure of which he, or rather his predecessor, first thought. But if he increases taxation further, what happens to next year's growth? If he does not do so, he will then be left with the huge public sector borrowing requirement which is certainly not balanced, as I say, in the medium term.

Therefore, what on earth will the Chancellor of the Exchequer do, and what should he do? Like the noble Lord, Lord Dahrendorf, I have made it clear that I do not claim a simple miracle cure. That is not surprising, because there is no such thing. As my first point, I would advise the Government to stop boasting that all is now in place for a sustainable recovery when clearly it is not. We shall not solve the kind of problems to which Michael Heseltine referred in that speech on Monday night in the short term. If we are to bring unemployment down on a sustainable basis, it will take a long time to put those problems right.

Speaking for myself, I would not seek to cut the public sector borrowing requirement for 1995 next Tuesday. I would live with the March forecast of £44 billion. In any event, it will be lower next year as a percentage of GDP; that is, assuming that we get some growth, and it looks as though we will. But that will not be achieved if we reduce growth by increasing taxation further. We must remember that from next April there is already £6.75 billion in the pipeline for the higher taxation. As we all know, that is not the VAT on fuel because that is only £950 million. All the rest will be largely felt in workers' pay packets next year.

I would have what might be called a net "do nothing" Budget on Tuesday. I do not know what effect that would have on the economy: but I have said no net tax increases and public expenditure cuts. However, I would increase taxes in one major area in order to pay for increased public expenditure which is desperately needed to increase public investment and investment in training and education. If we do not do that, we shall never get ourselves out of the mess that we are now in. I would be willing to see us increase taxation to pay for the latter.

However, that is not to say that we shall need that increased taxation permanently; but we shall need it in the short term. I do not think that we can say that we shall not need it. In the medium and longer term, we may be able to avoid any increase in taxation. But we shall certainly need some increase to pay for those extra areas of public expenditure that I personally should like to see. I propose to leave those areas of taxation which I would increase to my Budget speech. In actual fact, I am giving some indication of them in a speech which will be broadcast on BBC 2 Television on Sunday night.

The other area of real benefit to industry which might be slightly more controversial is exchange rate stability. Maiden speeches, as has been said, are supposed to be non-controversial. However, 10 years ago I made my maiden speech in your Lordships' House in which I strongly recommended that we should join the exchange rate mechanism. The exchange rate was somewhat different then from what it was when we actually joined. In my view, it should not be seen as a short cut to a single currency—out of which we have, in any event, opted; and, if I may say so, unnecessarily. I say that because we are not likely to see convergence of the various economies within Europe that would allow for a single currency in the short term. I would certainly join the exchange rate mechanism. I do not see the exchange rate mechanism as being the inflexible and written in stone measure that some people saw when the Government were forced out of it. I should have preferred another way of doing it. However, as I said, I would certainly want us to join the ERM as soon as possible.

Finally, if bringing down employment is to be our highest priority—and it is certainly mine—then higher growth is essential. Incidentally, I would not dismiss work sharing so easily and lightly as many have, provided that it is agreed between employers and employees. Indeed, it would be very foolish to dismiss it quite so lightly. During the last economic debate, the noble Lord, Lord Skidelsky, mentioned "ambulance" expenditure which would improve employment in the short term. I very much agree with that idea, and I would spend some money on it.

However, in the main, I would ignore any advice from the Bank of England about restraining the ability of the Chancellor of the Exchequer to manage the economy, especially as regards interest rates. I would cut interest rates by a further 1 per cent. I assume that the half-per-cent. cut was a political cut because the Chancellor of the Exchequer did not fancy making only a half-per-cent. cut in his Budget speech. But, apart from anything else, I should like to make it crystal clear (as I did in a recent letter to a well-known newspaper) that I would not give the Bank of England independence at any time. An independent bank is not what I want to see. I believe that a bank should be responsible to an accountable government who, in turn, are accountable to Parliament.

When one controls interest rates, one controls very much more than just interest rates and inflation; indeed, such control has a major impact on the economy as a whole. I am glad to see that some noble Lords opposite seem to be agreeing with me. As I said, none of what I propose would be a miracle cure. But, in my view, it would give us a better chance of achieving the objectives that both the Government and myself have in mind as regards present policies.

5.28 p.m.

Lord Laing of Dunphail

My Lords, notwithstanding some of the optimistic statements that have been made in the debate, the fact remains that our industrial base continues to decline and we have a serious deficit in our overseas trade in manufactures. The situation has been debated in your Lordships' House several times in recent years, but sadly the Government appear to ignore the advice that they should take if the decline that has been with us for two or three generations is to be arrested.

In the public debate leading up to the Budget, we have heard a great deal about the need to bolster the NHS and have a credible defence capability. Do we really think that we can afford either if our industrial base continues to decline? If we are to reverse the trend and reduce unemployment, there must be a vision in government, in industry and in the country at large that together we can compete and win against those countries presently winning at our expense, especially those in the Pacific rim. It is time to discard the very short-term outlook of jam today which we presently demand and lift our eyes to a wider horizon.

Perhaps I may give your Lordships two examples of short-termism which should chill the blood. In the years 1985 to 1992 our gross national product grew by 15 per cent. while consumer spending rose by 23 per cent. Personal consumption now represents more than 62 per cent. of total activity in our economy. In 1976 it was 54 per cent. and it has grown rapidly ever since. Secondly, between 1987 and 1993 company earnings increased by 35 per cent. while dividends increased by 100 per cent. That can only be madness, and those whom the gods wish to destroy they first make mad.

I believe that unemployment now lies at the heart of our problem. Unless great statesmanship is shown, short-term and therefore damaging policies will almost inevitably follow. The European initiative of a 35-hour, four-day week is an example of a short-term palliative which must bring joy to the hearts of the Pacific rim countries. Labour is a commodity and if we need confirmation of that very unpalatable fact it can be found by looking in almost any UK store at the number of products made in the Pacific rim. An increase in national wealth and a sustained reduction in unemployment will come only from exports, primarily to economies growing faster than those in Europe, mainly in the Pacific rim.

The answer does not lie with government only. We all have a part to play. I should like to set out some important initiatives which I believe would help.

First, our research and development is one third of the international average. To help create a climate in which to carry out the necessary investment, capital allowances of a generous nature should be reinstated. We shall not achieve the capital expenditure level necessary if industry is encouraged—forced by the institutions might be a better phrase—to pay out too much in dividends. The balance of power between industry and the City would be partially restored if everyone, including pension funds, were to pay capital gains tax on short-term gains but none on long-term gains, say, after five years. The exemption of pension funds from paying capital gains tax encourages them to deal, leading to short-termism.

Secondly, education must be geared more to the needs of industry. While government must have a part to play, more companies should take an interest in schools and make careers in industry more acceptable to those top-class graduates who presently seem to think exclusively in terms of the City.

Finally, and most importantly, there is a need for a measure to tackle the immediate unemployment problem. I identify a great deal with what my noble friend Lord Dahrendorf said. Unemployment at present levels is not only a waste of a precious resource; it helps to create a serious crime problem. What we need is not a shorter working week, which is likely to increase unit labour costs, but a shorter working life. Companies faced—as mine was over the many years I was there—with reducing their workforce look first to early retirement. To make an immediate and meaningful dent in the present unacceptable level of unemployment I believe that we should devise an imaginative, special offer, early retirement scheme. The aim would be to retire, say, half a million unskilled people—I would like to say men but that may get me into trouble—aged about 60, with long service and in an occupational pension scheme at the pension level they would have received at 65. The Government would play their full part on condition that a young person was taken on from the unemployment pool.

While that may look expensive at first sight, in my view nothing is more expensive, and degrading, than unemployed youth, as the crime statistics indicate. Is it not absurd to keep people aged 60 in work who would be happy to retire given the proper conditions and deny those who would like to work?

Time is running out. Unless energetic action is taken to arrest the decline of our manufacturing sector we shall continue our downward drift.

5.35 p.m.

Lord Benson

My Lords, I should like to examine our economy not as it is today, but as it will be in the future.

Our economy is primarily dependent on our manufacturing and industrial skills. One hundred years ago we provided 50 per cent. of the total trade of the world. That figure is now down to about 6 per cent. Our industrial base and the relative outturn of our manufacturing industries has been steadily declining for a great many years. We have very few natural resources, except oil and gas, and their probable life is short.

Merely for emphasis, I shall give three instances from industry, chosen more or less at random. The figures are in constant pounds, expressed in millions, and show the decline in outturn between 1950 and 1990: railway equipment, down from 2,400 to 1,000; shipbuilding and repair, down from 4,700 to 2,800; iron and steel production, down from 12,300 to 8,600. In 50 years' time, industrially and financially, we shall be an impoverished nation, and our influence in world affairs will not amount to much. It is indeed disturbing to see the fall in our prestige which unhappily takes place year by year.

There is nothing in the gracious Speech, and there has been nothing in its several predecessors, which explains that situation to the public or proposes any remedies. The reasons for the decline are two wars, which have led to exhaustion and complacency; strong, invigorating leadership by competing nations; and the fact that in the past 10 to 15 years many third world industrial countries which had only third world industrial status have raised themselves up to first world industrial status. We have been unable to match the upsurge of other nations.

There has been another reason. Ever since 1945 we have had a series of governments with short-term, conflicting and doctrinaire policies. Our economy is bleeding from our own self-inflicted wounds.

It is quite easy to stem the tide. We have great leadership in manufacturing industry, administration, banking and finance, research, technology and personnel management. At present it is disjointed and unco-ordinated. Massive rethinking of government policy will be necessary. The situation will have to be explained to the nation. It will have to appreciate the long-term tasks which lie ahead.

The structure of our education system must be overhauled in order to provide proper training and education for the workforce. Our industrial companies, not just the few at the top but all of them, must be directed by people with professional management skills and not by amateurs with no or few qualifications. We must convince the country of the need for much greater productivity; and we must educate the public on how that can be achieved.

There must be greater expenditure on research and development with the results more skilfully directed. We must set up new industries to meet the changing demands of this country and abroad and to recapture some of the industry that we have lost. Many of the products that we import from abroad must be produced in this country at competitive prices.

With those aims in view, every sector of industry needs examination, sector by sector, to see what changes and improvements can be made. Partnership sourcing should be commonplace. Better financial management is necessary to ensure that ample funds are available which are used year by year in new investment by industry in the new technologies. Our transport infrastructure needs overhauling. There must be a true partnership between government and industry and not the empty mouthings which have been uttered over the past two years.

Many of those initiatives rest on the Government's shoulders, but the remainder rest on the shoulders of industry. However, the Government—and it is the only authority which can do so—can provide the leadership and co-ordination which will set them in place. They can state the needs and set the objectives. They can inspire and encourage. With their huge volume of purchasing power they can put many of the policies into action automatically. They can provide taxation and other incentives. They can use the weapons of propaganda and publicity to great advantage.

However, unless the Government of the day have the courage to introduce those policies and remedies, our grandchildren will succeed to a weak and impoverished nation with nothing to sustain them but the empty memories of the past. It is we, in this Chamber, and others in another place who carry the responsibility for that dreadful heritage. What is the Government's answer?

5.43 p.m.

Lord Boardman

My Lords, I was tempted to follow the comments in some of the speeches in today's debate on unemployment. I refer in particular to the fascinating speech of the noble Lord, Lord Dahrendorf. But I shall not do so. I shall confine my remarks to one aspect only because I believe it is so important. I refer to monetary policy. The noble Lord, Lord Barnett, made reference to the independence of the Bank of England, to which I shall also refer.

The subject of fiscal policy appears in the gracious Speech. It quite rightly states: Fiscal policy will be set to bring the budget deficit back towards balance over the medium term". That must be right. However, we shall hear more about that over the next few days. There is no reference in the gracious Speech, again quite rightly, to monetary policy. I say "quite rightly" because interest rates and exchange rates, despite the significant effect that they have on economic policy, are not matters which require the consent of Parliament. They are variables for which no parliamentary initiative is needed to adjust them. They are indeed in the control of government. But that is the issue: government control over monetary policy. The question that is canvassed in speeches by economists and in press articles is whether there should be an independent Bank of England which should take over the control of monetary policy. Many urge that.

I urge that fiscal policy (taxation, and factors which go with that) and monetary policy (interest rates and the control of the monetary supply, with exchange rates which flow from it), again an essential part of economic policy, cannot be considered in isolation. Neither policy can be properly or fully considered without full attention to the other. Press articles and economists' contributions over recent weeks predicting what the Budget should or will contain inevitably refer to taxation and interest rates as one combined part of that economic package. The current theme is that, if taxes are to increase, interest rates should be brought down. To what extent that theme is amended by the recent announcement on interest rates I cannot say.

Interest rates, and interest rate policy, are in the control of government. In his excellent opening speech my noble friend Lord Strathclyde claimed credit for the Government on their achievements in bringing down interest rates to the present low level. He is quite right. Government policy was aimed at that purpose; and it has been achieved. There is a general theme that in a fiscal and monetary policy one cannot have one without the other. I am almost tempted to quote the ballad about love and marriage and a horse and carriage—one cannot have one without the other. But I suppose that that ballad is outdated and is no longer applicable.

Lord Graham of Edmonton

Shame!

Lord Boardman

I agree with the noble Lord. It is a shame in both cases. The same people who in the press project that one must bring interest rates down or put taxes up and have one economic policy have often been writing powerful leading articles the previous week on the need for the Bank of England to be independent: that there should be no government control over monetary policy and it should not be subject to the domination of government, which the writers say has affected that policy. They cannot have it both ways. They cannot say, on the one hand, that if you alter the tax system you must vary the interest rate, and in the next breath state that fixing the interest rate and monetary policy has nothing to do with the Government, that government must not control it and that it must not be the responsibility of the Chancellor of the Exchequer.

The parallel is of two cooks, one of whom is responsible for producing the pudding and putting it on the table, while the other, over whom there is no control, can add, take away or decide what to do with certain essential ingredients which have to go into the pudding. It is an impossible situation.

To date, and for long past, the Chancellor of the Exchequer has had the overall responsibility for economic policy. That means a fiscal as well as a monetary policy. Of course he takes advice from the Governor of the Bank of England. As I know from experience when I have been present on certain occasions, that advice can be very forceful indeed. It is up to the Chancellor; he can accept or reject it. But it is the Chancellor of the Exchequer, not the Governor of the Bank of England, who stands or falls, as indeed may the Government of which he is a Member, on the acceptance or rejection of that advice. The Governor of the Bank of England is not democratically elected. He can be sacked; he can resign. If the issue is of such importance that he believes that resignation is the appropriate course to take because if his advice is rejected the consequences for the economy of the country are so grave, it would be his duty to resign. The threat to the Chancellor of the resignation of the Governor of the Bank of England must be a very, very powerful deterrent in rejecting his advice.

There are powerful voices on both sides of the argument. For the independence of the Bank of England, there is at least one former governor and certainly one Permanent Secretary to the Treasury. I am glad to hear that the noble Lord, Lord Barnett, is an opponent of the independence of the Bank of England. The noble Lord and I understand the matter from our experience, an experience which the noble Lord shared for much longer than I did as Chief Secretary to the Treasury; and we are certainly at one on this matter.

A very distinguished former deputy governor spoke forcefully against the independence of the Bank of England. We have two former Chancellors who, after resignation, said that they favoured the independence of the Bank of England, but who both appeared when they were in office to be enjoying the control of monetary policy; and indeed they exercised that power.

The noble Lord, Lord Roll of Ipsden, who was in his place (I told the noble Lord that I might make a reference to him) has chaired a powerful committee of very distinguished members favouring independence. It is qualified by a reference to a parliamentary committee which would not exactly sit in judgment but would be involved in the process of accountability of that independent Bank of England. I have visions of a Chancellor of the Exchequer trying to prepare a Budget with a parliamentary committee and the Governor of the Bank of England all sitting round in a circle to decide what should happen. The buck-passing that would subsequently go on, and the "boo-to-you" from the Chancellor to the governor and vice versa, would make it quite an impossible situation.

Those who favour independence may quote the US Federal Reserve, or the Bundesbank in the case of Germany, or, as more recently, New Zealand's central bank. Time does not permit me to try to distinguish those, though I will happily try to do so on some other occasion. I believe that very distinct circumstances apply and can be applied to say that those systems are not right for us.

I make two final points. First, there is a temptation for critics of the Government to say that the present system allows government to reduce interest rates in order to win votes. That may or may not be a fair criticism. But I remind noble Lords that for every one borrower there are six savers. However much industry and commerce may plead for interest rates to be brought down, there are certainly individuals who are living on building society and other savings who complain bitterly when interest rates fall (I see certain noble Lords nodding in agreement on that point) and say how hard it is for them to live on their savings income, which has been so harshly hit by the achievements of government.

The plea that I make to my noble friend the Leader of the House is that, because of the importance of this subject and the uncertainty that remains given the very powerful voices on both sides, I hope that there will be a full debate in this House. We have in this House all the living former Governors of the Bank of England. We have here all the living former Chancellors of the Exchequer bar one, who happens to be the Prime Minister. We have a wealth of experience. The subject justifies considerable debate, and I hope that my noble friend will consider that possibility in due course.

5.54 p.m.

Lord Jay

My Lords, on the issue of a possibly independent Bank of England, I am very happy to agree most warmly with the noble Lord, Lord Boardman. We have heard a great deal in recent weeks about the £50 billion budget deficit which is leading the Government to threaten higher taxes and cuts in expenditure in almost every area from defence to social spending. We have heard very little, however, about why that deficit has arisen.

The immediate cause of the deficit is not some sudden increase in welfare spending, other than that on unemployment. It is partly the result of the huge loss of revenue due to the tax reliefs given away in the Budgets of 1988 and 1989 by the noble Lord, Lord Lawson, which is now coming home to roost. The peak of a boom period is the very worst time to give away huge amounts of revenue. It causes a very awkward dilemma in the subsequent recession. The noble Lord, Lord Lawson, admits in his excellent, and indeed candid, book that he gave away £6¼ billion in tax reliefs, incidentally to people who needed them least, which in today's money values would amount to something like £8 billion.

On top of that, the Exchequer is losing £4 billion a year in mortgage tax relief, which could easily be cut by 50 per cent. Those two sources of revenue alone would give £10 billion towards closing the gap. Most of the rest of the deficit is due to the doubling of the number of unemployed caused by our two disastrous years in the exchange rate mechanism. It can be reduced only by substantial reduction in the numbers of unemployed, and not by more deflationary measures which, whatever else they do, will simply prevent recovery. It was plainly the liberation from the ERM and the fall in the exchange rate after September 1992 that started the recovery, which began three months after the fall in the rate. The failure of the Government adequately to reduce interest rates since then has prevented unemployment falling below the figure of 10 per cent., a figure which stands now, even following the recent reduction. I applaud the half per cent. reduction in interest rates. But it is quite inadequate to the situation.

From a more general point of view, the present deflated and depressed state of the UK economy and many of the western European economies is not due to a mysterious recession visited upon us by providence, as used to be thought about 19th century depressions; I believe that it is due to the mistaken policies of the past 25 years.

The figures are rather fascinating if one looks at them in that light. In the United Kingdom, from 1945 to 1970 we enjoyed a balance of payments surplus in most years, a Budget that was generally balanced, and unemployment that scarcely ever exceeded 3 per cent. Indeed, in the 25 years from 1946 to 1970, UK real GDP rose by an average of 2.8 per cent. per year. From 1970 to 1991, it rose by only 1.9 per cent. a year. It follows, on the basis of simple arithmetic, that if the rate of real growth from 1972 until now had been what it was from 1946 to 1970, our real GDP today would be 18 per cent. higher, or £125 billion a year. Incidentally, tax revenue would have been about £50 billion higher at the same rates of tax.

Why has not merely the UK but most of western Europe, sunk into this quagmire of slow growth and waste of capacity since the 1970s so that, incidentally, the great 1993 European single market with its promised (or propagandised) paradise of prosperity has become almost an economic backwater, with 18 million unemployed in the EC, 4 million unemployed in Germany alone, and even extremism breaking out in Italy? There is no need to look for mysterious economic forces. The fault lies not in our stars but in ourselves that are in this mess at the present time, and it goes wider than the UK.

In recent years we have allowed what I regard as an excessive obsession with money values and the value of money, with constant incantations about the perils of inflation, to blind us to the economic realities of production, living standards and employment. Quite frankly, the central bankers are more prone to that disease than almost anyone else. They never cease to warn us about the dangers of inflation and tell us that interest rates will hardly ever be reduced. Our new governor of the Bank at present is not, I am afraid, immune to the infection.

Yet to hold back the full use of capacity and real output for the sake of some particular value of money, miscalled an inflation target, is surely an economic absurdity. The object of economic policy is to produce goods and services that people want, not to juggle with particular money values. Of course the price level must be kept from getting out of hand. But that is certainly not the problem now in the United Kingdom.

But there is a choice. It is no good denying it. There is a choice between rising price levels or rising unemployment, for the reason that, if there is no income policy and pay rates are rising faster than output, one is caught in a real dilemma. Increased demand will inevitably raise prices and failure to increase demand will inevitably raise unemployment. It is no good deceiving ourselves that that dilemma does not exist.

Most of the talk from which we have been suffering lately about the vastly exaggerated burden of welfare payments in the UK and western Europe is, I believe, little more than an attempt to run away from those rather awful basic truths. Therefore the first need, as I see it, is to return to a more balanced target of full use of capacity—let us say a 3 per cent. unemployment target, not more than that—to manage demand accordingly, and to accept whatever inevitable rise in price levels is bound to follow.

What does that mean for UK policy in 1993 and 1994? Even Mr. Sam Brittan, I am glad to say, says that the UK now needs a tightening of policy like it needs a hole in the head. I suggest that the first necessity is a more adequate cut in interest rates if we are to achieve genuine growth. It was barely 30 years ago that the governor of the Bank of England told us that 5½ per cent. was a crisis rate. For those who believe in Victorian values, it is perhaps worth recalling that the Victorian cyclical depressions never started to recover with a bank rate higher than 2 per cent. or 3 per cent. at most.

Certainly a major cut in spending or rise in taxation at present would only check consumer demand, though I believe that later on a rise in taxes will be necessary. If a modest further rise in taxes were thought desirable now, I should prefer, first, recovery of some of the £4 billion a year given away in mortgage tax relief. On the indirect tax front, if we must have something, we should not have an increase in VAT, which is a viciously regressive tax; we should have some rise in the petrol and diesel duties which the ever expanding volume of traffic on our roads, lorries and cars, could easily accept. Our motorways are not a depressed industry at the present time.

Most vital of all, if the recovery from recession is to be genuine, the sterling exchange rate must be allowed to move freely to competitive levels. Indeed probably the best solution proposed, on balance, between the European and Far Eastern economies at the moment would be an adjustment of the exchange rate there. That would cause less trouble than anything else. It would be a far better solution than cuts in welfare expenditure or even a 35 hour week.

The guiding light for the UK at the present time must be to avoid fixed exchange rates like the plague. I believe that with lower interest rates and a competitive exchange rate a real recovery in the UK economy and a genuine fall in unemployment are perfectly possible, but not otherwise.

6.6 p.m.

Lord Skidelsky

My Lords, I should like to offer my congratulations to two excellent maiden speakers, the noble Baroness, Lady Dean, speaking from her great experience of industrial relations, and the noble Lord, Lord Dahrendorf, speaking from his great knowledge and practical experience of international affairs. I certainly agree with the noble Lord that unemployment is a very vexing problem and its solution is not easy. That is a matter to which I shall return.

I also very much enjoyed the powerful speech of the noble Lord, Lord Jenkins of Hillhead, though I was amused by his call for humility. I am less an admirer of the higher Civil Service than he is. I feel that its record over the post-war period has not been particularly thrilling. It has been accused of being out of touch and remote and certainly its mistakes go largely undetected. I welcome the proposals for opening it up to competition and greater scrutiny.

Like the noble Lord, I also very much regret the decline in the public service spirit to which he referred. But we also have to understand what damaged it. I have long believed that the greatest damage to the public service ethos in this country was inflicted by the inflation of the 1970s. It was an inflation which soured so much of industrial relations. Quite frankly, I was amazed when the noble Lord, Lord Jay, said that we must be ready to pay any inflation cost that might be required to reduce the level of unemployment. I do not understand how anyone can say that after what we have been through in the past 20 years.

I must confess that I find the short section on economic policy in the gracious Speech rather thin. The Government pledge themselves to: continue with firm financial policies designed to support continuing economic growth and rising employment, based on permanently low inflation". That is fine so far as it goes. Everyone favours firm financial policies, permanently low inflation, economic growth and rising employment. The question is how we achieve all those desirable things and get them all together. The analysis implied by that sentence in the gracious Speech is a little old in feeling because it ignores the fact that today unemployment, and not inflation, is the overriding problem facing the western European economies. In the 1980s it was widely believed that if governments concentrated on conquering inflation, improving business incentives and deregulating markets, something like full employment would return sooner or later.

It is a sombre fact that the reduction of inflation and the market reforms of the 1980s did not produce anything like full employment. In the 14 years since 1979, unemployment has fluctuated between 6 per cent. and 12 per cent. on the Government's own figures. When it fell to 6 per cent. in 1990, it was accompanied by an inflation rate of 10 per cent.—a clearly unsustainable position. What we learnt in that decade was that the costs of disinflationary policy are not temporary; they are permanent. A shock to demand can damage supply. That means that unemployment does not just go away; something must be done about it. When the new Chancellor, Kenneth Clarke, said in his Mansion House speech on 15th June of this year that, Low inflation cannot be the sole end of economic policy", he seemed to be signalling a rethink of basic priorities which is not reflected in the Queen's Speech.

The same policies, pursued in Europe, produced roughly the same results. Today's unemployment rate in the European Community approaches 12 per cent.; Spain and Ireland have over 20 per cent. out of work. The OECD estimates that 40 million people will be out of work next year in its 24 member countries. Of course, no more than in Britain are those figures just the effects of the anti-inflationary policies pursued in the 1980s. Western Europe is finding it increasingly difficult to compete against the United States and East Asia. Its share of world trade has been falling. A great deal of our unemployment is now structural, not cyclical. Whatever the cause, we have today depression levels of involuntary idleness which challenge us to new thought and new effort.

In this grim situation Britain finds herself relatively favourably placed. And here I part company from noble Lords opposite. I believe that the Government deserve full credit for unblocking the hardened arteries of the British economy they inherited in 1979. We are a more competitive, more flexible economy than we were, and that is why we are escaping sooner and faster from the depression than our EC partners. Forty per cent. of the EC' s inward investment comes to Britain; and 40 per cent. of Japan's and 36 per cent. of the United States'. We now have one of the lowest unemployment rates in the EC, and it is falling. Current GDP growth is 2 per cent; we are growing faster than any other major EC country this year, and we are expected to next year. Most of the growth is output growth and not price growth. The cost and inflation background remain very favourable. Our inflation rate at 1.4 per cent. is now half the EC average.

Noble Lords opposite will say that the one success the Government have had is in turning Britain into a low wage economy—noble Lords have said that in the course of the debate. But low wage economies have a habit of turning quite quickly into high wage economies if the business environment is right. Our most successful competitors were all low wage economies a few years back, and no one today can say that the East Asians live off a bowl of rice a day. High wages have to be earned by producing goods of a quality and price that people want to buy. That has been the Government's main message since 1979 and it is the right message. Against the background of the subsidy culture of the 1970s, it took a great deal of political courage to go on insisting on this point and trying to do something about it.

The other major countries of the EC must now face up to the problem. Of course time will tell. There is nothing as fallible as an economic forecast. But I believe that we are in a good position to escape from the Eurosclerosis which afflicts many of them. One important pointer is that less than 30 per cent. of our unemployed have been out of work for a year or more compared with an average of 50 per cent. in the rest of the EC. That 50 per cent. of long-term unemployment is the most vivid index of Eurosclerosis, as it now exists.

Nevertheless, aggregate demand in Britain is too low and we need to increase it to ensure a strong recovery. We must recognise that we no longer live in a Keynesian world in which we can jump-start economies by a massive fiscal boost. Financial crowding out is a reality in the world in which we live. Also those who call for a big increase in public spending forget that there has already been a large fiscal boost. In a recent paper published by the Social Market Foundation, Mr. Bill Robinson—who advised the last Chancellor of the Exchequer—calculated that, of the estimated £50 billion budget deficit, about half is accounted for by discretionary changes in spending and taxation plans in 1989–90, including the cost of servicing that part of the debt attributable to them. The stock of national debt has increased by over £100 billion over the past three years and is rising at an unprecedented rate in peacetime.

That fiscal background largely explains why real interest rates remain so catastrophically high for this stage of the business cycle, despite the reduction in nominal interest rates which has been so welcome. The most important requirement for strong recovery—here I completely agree with what the noble Lords, Lord Peston and Lord Jay, said—is a reduction in real interest rates. But that cannot be done so long as gilts can only be sold at 7.5 per cent. I do not believe that the problem can be circumvented by what is called underfunding—borrowing from the banking system. Savers have had too much experience of governments inflating away their debts in the past. The Chancellor therefore cannot afford to take too many risks with the Budget. By convention we must not discuss the Budget—but why not? All the decisions have already been made.

If the Chancellor is inclined to boldness on the revenue raising side, I would urge him to consider abolishing tax relief on mortgage interest payments. That would raise around £3 billion. The noble Lord, Lord Jay, suggested that it may be £4 billion; it is between £3 billion and £4 billion at current interest rates. The real value of mortgage interest relief has shrunk greatly in recent years and is little more than £400 a year on average—equivalent to a 1.5 per cent. fall in interest rates. The abolition of that tax privilege, long urged by most economists, would also improve the supply side of the economy. We do not need more investment in home ownership; we need it in the small businesses to which my noble friend the Minister referred and in rented accommodation. Therefore let us put the era of tax-subsidised home ownership behind us.

We also need an active labour market policy to get the long-term unemployed back into training and jobs and to supply the skills industry needs. We need to get away from the old idea that industry provides jobs and governments provide income support for those without jobs, and there is nothing between those two alternatives. We must start thinking about how income support for the unemployed can be used as a route back to work. It costs the Exchequer on average £134 a week to maintain a married unemployed person with two young children. How much better it would be if those payments for idleness were converted into training or job vouchers for all those who have been unemployed for, say, six months or possibly a year. It would not only be a way of rebuilding supply in the economy but, in so far as it produced a net increase in jobs, it would also expand demand and boost tax revenues without costing the Exchequer an extra penny.

Workstart, announced by Norman Lamont, was a beginning on which we must build. Of course there are problems in a scheme of that kind and they must be faced. I accept that. But the idea of turning unemployment benefit into re-employment funding is not a revolutionary one; it is becoming increasingly accepted throughout the western world.

I should like to end by quoting from a remarkable speech delivered by President Clinton in Seattle a few days ago: So many of our systems, economic and social, are organised for conditions that no longer exist. The unemployment benefit system … was created at a time when the average length of unemployment was shorter than it is today, and when the average unemployed person, when recalled to work, went back to his or her former employer. That is fine for a static economy. It doesn't work for a dynamic economy where the average 18 year-old must change jobs seven times in a lifetime, where the average unemployed person is unemployed for longer, and where most people don't get called back to the same job. The unemployed system, in short, is now an unfair tax on employers because it doesn't function, and a rip-off for employees because it doesn't help them". To regain prosperity we need to go beyond the prospectus in the Queen's Speech. Speaking from this side of the House, I hope that the Chancellor and the Ministers concerned with industry, employment and education will have the boldness and vision to do so.

6.21 p.m.

Lord Rodgers of Quarry Bank

My Lords, as we move towards the end of this four-day debate perhaps I am not the only Member of the House who is not quite sure what the annual ritual of the debate on the Queen's Speech is all about. Today it has been redeemed by two excellent speeches: the first from the noble Baroness, Lady Dean of Thornton-le-Fylde, from whom I hope we will hear frequently on the question of industrial relations, and the second from my noble friend Lord Dahrendorf, who I hope will develop not only his thoughts about the question of the unemployed, particularly the unemployed in a period of growth, but also some of his earlier sentiments about the citizen state.

It was the Prime Minister in another place who made clear the most important issue that faced government. It is extremely difficult to disagree with him. He was referring to Northern Ireland, but we did not need a Queen's Speech to tell us that. It is the first priority and perhaps the only issue on which this House can unanimously wish him well. I would be the last person to seek to give any advice on that matter, except to say that I hope that he will be bold and single-minded, but not expect to carry everyone with him in the final outcome.

The second important issue is the economy. Today's debate is overshadowed by next week's Budget. It is the Budget that matters, not what the noble Lord, Lord Skidelsky, referred to as the rather thin references to the economy in the Queen's Speech.

Close students of the format and balance of the Queen's Speech may have seen that last year 14 column inches were devoted broadly to international affairs and 16 to home affairs. This year, Ministers have stretched international affairs and related matters to 18 inches and home affairs have contracted to 10. I wish that that meant less legislation; I wish even more that it meant better legislation, but I fear that it means abandoning an interest in many areas of great and continuing social concern. For example, there is nothing in the Queen's Speech on housing, despite the scandal of the homeless and the gross under-provision of decent homes at rents that people can afford. I was pleased that my noble friend Baroness Hamwee referred to this matter yesterday. Ten or 15 years ago it would have been inconceivable for housing not to be on the agenda of the government of the day. I very much regret that it is not in the Queen's Speech this year.

Every Queen's Speech represents a high degree of continuity. Nowadays, when it does not represent such continuity, we are told well in advance what the Government intend to do in the parliamentary Session ahead. That usually happens at the party conference. This year was no exception. In order to be impartial as between parties, perhaps I may say that I do not believe that any party conference shows the party at its best. I am particularly glad not to have been sentenced to a large part of the week with the Conservatives either at Brighton or Blackpool. But this year was particularly disgraceful. It achieved a level of political rhetoric of the worst kind to which Cabinet Ministers should never revert. In the coming months we shall see some of the consequences of such irresponsibility. I hope that some senior Ministers who were silently ashamed—I look to the Leader of the House, the noble Lord Lord Wakeham, because I put him in that category—will speak out when the moment comes and dissociate themselves from some of the cheap populist sentiments expressed a month ago.

I am glad that the Chancellor of the Exchequer and the President of the Board of Trade have made some rumblings at least on Europe. There is no prospect of influence in the world, to which the first half of the speech referred, if we are to remain half in and half out of Europe complaining about our partners, saying that they are always wrong and we are always right, and abusing them. There is no chance of achieving the economic objective in the second half of the speech of growth without inflation—that traditional but illusory achievement—if we behave as if membership of the European Community is all an unfortunate mistake rather than an opportunity that successive governments have failed to grasp. Nostalgia and isolationism are the enemies of any credible future for Britain. Unless that is recognised all the sentiments in the Queen's Speech are irrelevant.

I have referred briefly to one kind of ministerial behaviour. I refer to a different one that disturbs me, that is the role acquired by Mr. Michael Portillo as Chief Secretary to the Treasury. I believe that the office of the Chief Secretary was created in about 1961. For a number of years chief secretaries were in and out of the Cabinet, though mostly in. It is an important office. In my years in government it was filled, first, by the noble Lord, Lord Diamond—who was here earlier today—and later by the noble Lord, Lord Barnett. Although they were not always popular with departmental Ministers, they were trusted by them because they saw their role as honest brokers trying to find an accommodation between the needs of the Treasury and the needs of departmental Ministers representing departmental policy. I believe that on ideological matters —what we sometimes misleadingly refer to as Left-Right issues—they were seen to be neutral. Their strength came from the balance that they could achieve between the proper responsibilities of departmental Ministers and the role of the Treasury.

But Mr. Portillo seems to play by very different rules. He is seen to be and sees himself as a candidate for No. 10. He is a standard-bearer of the Right and appears to be happy in the company of those who believe in punishing single mothers, privatising the health service, locking up more and more people in prison and demoralising the teachers, believing that to be the right road for Britain (to use the title of a famous Conservative manifesto).

It may be said that this is a matter for the Prime Minister, as indeed it is. But I believe that when we look at the Government's intentions and the need to preserve this balance it is a matter of concern that the Chief Secretary should be so openly committed to and partisan on matters where he has a special responsibility for public expenditure. It is the task of cabinet in any government to make policy; it is the task of departmental Ministers to find a way of carrying it through. There is a also a role for the Chancellor. But I believe that it would be very dangerous if chief secretaries were to seize for themselves the role acquired by Mr. Portillo. I leave aside the quite different matter of whether it is desirable for the Government or country to have two Treasury Ministers in the Cabinet, perhaps pursuing in a rather loud and discordant way different courses from time to time.

I turn to the deregulation Bill. When I saw the reference to it in the Queen's Speech I hoped to be able to say that if, as the Prime Minister suggested, it swept away excessive red tape it would be something that we should welcome. However, the more I hear about the Bill and the more I fail to hear what it may contain, the more worried I become. It is of course a great surprise that after 14 years of government, during which businessmen have been swarming over Whitehall like angry wasps in summer, only now is it suddenly discovered that government has not been able to function at all because of red tape. That might be an explanation. If indeed the Government are apologising for their failures because in the past they have not identified these regulations, so be it. But that is not their tone. In my view their object in bringing forward this deregulation Bill was to find a centre to the legislative programme, something they could put into the Queen's Speech which might cause them a great deal less trouble than the Railways Bill but nevertheless would win them some credit in the end.

That I do not believe to be the case. The President of the Board of Trade, in another place yesterday, referring to the deregulation Bill said: Even then, primary legislation can stand in the way of reform".—[Official Report, Commons, 24/11/93; col. 472.] That is a very curious and perhaps rather ominous phrase. Primary legislation can stand in the way of reform; parliamentary scrutiny can stand in the way of reform; Parliament can stand in the way of reform. What does this mean—that parliamentary legislation is to be superseded without reference to Parliament by the acts of Ministers? If it means that, it would be intolerable. Whereas we can support any attempt to remove regulations which are irrelevant or archaic, it would be a very dangerous arrogance of power to pass to Ministers responsibilities which are properly those of Parliament.

We must nevertheless await the Bill and I, for one, am prepared to judge it on its merits. Perhaps we shall find ourselves thanking the noble Lord, Lord Sainsbury of Preston Candover, for all he and the task forces have done. They have produced a report which I understand has gone to No.10. But I would ask two questions of the Leader of the House. If indeed it is the case that a report was sent to No. 10 two or three weeks ago, will he confirm that it consists of four sets of proposals: those agreed by departments; those still being debated by departments; those already rejected by departments; and those needing further work? But more important, if that report is available to No. 10 today and is to be the basis of the Bill, why cannot it be available to Members of both Houses today; and if it is a document too clumsy for such a purpose, why cannot it be put in the Library now?

There is a further curious aspect of this story. If it is the case that the Prime Minister had the report two or three weeks ago and we are to have the Bill in January—we all know that it takes a very long time for Ministers to reach collective decisions on policy; we know how long it takes for the parliamentary draftsmen to do their work—how can a Bill be published in January which is based on a report only available in October? It would be a miracle if one stems genuinely from another. I hope that we shall be told later this evening the answer to this extraordinary conundrum.

I have had some interest in recent years in aspects of the construction industry. I am delighted that the Government have seen wisdom and have dropped their proposal to end the statutory registration of architects. They had second thoughts in the face of an outcry that it was against the public interest so to do. Indeed, they will find a further and perhaps louder outcry if it proves against the public interest to change the regulations which are to be included in the Bill. But I would say only this. Although I am sure that those in the construction industry and other business people will be delighted by the removal of regulations which serve no further purpose, I do not believe that this is the most important issue for the construction industry in the period ahead.

I hope it is true—there seems now to be at least a degree of unanimity about this—that the green shoots which were detected in October last year are slowly coming above the ground. But I have to say that there is no evidence at all of sustained recovery in the construction industry. If I were to ask those men and women who are mostly concerned with it, many of whom have suffered grievously in their business and employment over the past two or three years, they would far rather welcome convincing evidence of growth than bother about the changes in regulations, however important they may be. There would be no single act more dangerous on economic grounds—with reference to the construction industry—or damaging on social grounds than a decision by the Chancellor of the Exchequer to be announced next week that he is cutting support for the Housing Corporation. That would be deplorable both in the light of the social need and of the fact that it would cut off the prospects for growth to which I have referred. I wish the Government a better parliamentary Session than the last one. It is not misplaced generosity; it could not possibly be worse.

6.36 p.m.

Viscount Caldecote

My Lords, I fully support the points made by my noble friend Lord Laing about manufacturing industry but I should like to make a few other comments. I shall not repeat any arguments for supporting the importance of manufacturing industry—we have debated it many times and they are well known, although in the past only grudgingly accepted—but I want to draw attention to a major and welcome shift in government attitude. I am not ashamed of that for it is good to change when one sees that past policies have not been entirely satisfactory.

The gracious Speech commits the Government, to promote enterprise and improve the supply performance of the economy". That reflects comments made over the past months by the Prime Minister and the Chancellor of the Exchequer. I agree, too, with my noble friend Lord Strathclyde when he emphasises the contribution of competitiveness, provided he understands that that is just a means to an end of the ultimate objective of greater output. I am not quite so happy with the significance of figures which he quoted for improvement in productivity, welcome though they are, because they improved from a very low base indeed.

There is now clear evidence that the Government accept the vital importance of manufacturing industry. On Tuesday of this week the President of the Board of Trade, addressing the Institute of Directors, said: Our productivity improved a lot in the last decade. But we are still about 25 per cent. behind our major European competitors and more behind the US. That's not acceptable. Our share of world trade in manufactures has declined remorselessly. In 1914 it stood at 33 per cent. By 1950 it had dropped to 25 per cent. and by 1967 to 10 per cent. It has now stabilised, but at just 6 per cent.—about half that of Germany". A big contributory factor to that dismal story has been inadequate investment in innovation. The noble Lord, Lord Peston, referred to the speech of my right honourable friend the President of the Board of Trade in somewhat critical vein.

Lord Peston

No.

Viscount Caldecote

I welcomed it because he was criticised for having changed policy.

Lord Peston

I was welcoming it—very much so.

Viscount Caldecote

My Lords, that is good. We agree. The points that my right honourable friend was making were further underlined in a most interesting speech from Mr. Kent, associate director of the Bank of England. He said: Manufacturing clearly matters to our economic welfare … while the competitiveness of our manufacturing sector is rightly the main focus of attention, the actual capacity of the UK manufacturing sector and the extent of our presence in world markets is also important. We cannot keep losing capacity and capabilities under the recessionary hammer … Modern manufacturing capabilities, once abandoned, cannot be easily revived". That is a welcome comment by a major senior banker and it too represents a change of outlook which is very welcome indeed. So it is indeed a happy day for me, for we see the first step in solving a problem, which is to recognise it and to accept that it exists. It has now been made clear at the highest level that that has now been done. Happily too, this new outlook is fully reflected by the chairman of the CBI's National Manufacturing Council, who wrote in his foreword to the CBI's recent paper Making it in Britain: Attitudes towards manufacturing are starting to change. At last we are getting away from the sterile debate about whether we actually need a strong manufacturing base. We can now concentrate on those issues that have to be tackled if we are to increase the size of our manufacturing sector and make it internationally competitive". Now our task is to implement this welcome change in policy.

As I said earlier, we should be in no way ashamed of having made a change in our strategy for industry. Indeed, sometimes it has been said that we should not have a strategy at all. But we did have a strategy throughout the 1980s. One of its great pillars was that we should have a leaner and fitter industry. Unfortunately, going with that was the principle of "The devil take the hindmost", and he did—with grave damage to our industrial base which must now be repaired.

The main responsibility for doing that is with industry. Where industry is failing—and, as the President of the Board of Trade has made clear, too much of it is—the Government cannot just sit on the touch-line encouraging industry to perform better but disclaiming responsibility for losing the game. They must get into the thick of it and give active support, providing sticks and carrots where necessary. That involves action over a very wide field, and I cannot cover the whole of that field today.

However, I would like to make a few comments. In 1991 the Select Committee on Science and Technology of your Lordships' House issued a report, Innovation in Manufacturing Industry. Innovation was broadly defined as including far more than technological change. In that sense it is the key to improved competitiveness and greater output. Although the Government welcomed that report most warmly, at that time not one significant recommendation of the committee was accepted. But probably the most important recommendation was: Government Ministers must be heard to proclaim the central position of manufacturing to our national prosperity". It is really encouraging that that has now happened so the way is clear to implement more of those recommendations. I hope that my noble friend the Leader of the House, who is to reply, will be able to assure us that that report will be reconsidered in the new circumstances and with a more open mind.

We must tackle head on the problem of short-termism, as my noble friend Lord Laing has said, because of its damaging effect on investment, which is the basis of our recovery. For too long we have had excessive consumption and too little investment. We must support the small and medium-sized enterprises more effectively for they are the centres of future growth. I hope that the Budget will include a revised business expansion scheme, targeted more closely to manufacturing industry, to help the provision of capital for those companies.

The Government must take a new look at their procurement policies in support of British industry. The cheapest is not necessarily always the best for Britain. Similarly, although market forces must be the driving force, unfettered they may not always give the best results. We must recognise too that implementing new policies will cost money. But we must regard investment in these policies to improve the output of manufacturing industry as a national investment for the future and not as a cost to be minimised.

I have purposely not quoted a lot of figures about manufacturing industry because we have often heard them before. They are all available in DTI and CBI publications. But I wish to mention one because it is at the root of our problem. The percentage of GDP devoted to research and development has been steadily falling. I could not get more recent figures, but in 1988 the UK level was about two-thirds of that of Japan and well below that of Germany and the United States. In that and in many other ways we have fallen far behind our competitors. So industry and government must now go forward in a partnership to achieve greater output from manufacturing industry, stimulated by the President of the Board of Trade' s challenge and in the knowledge that at long last the task ahead is clearly recognised by government and industry alike.

6.45 p.m.

Lord Wade of Chorlton

My Lords, it has been a great privilege this afternoon to listen to the splendid speeches from leaders, ex-Ministers, ex-members of the Treasury, leading members of business and leading economists. I am not in that category. I have come up through small businesses. The businesses with which I am involved now range from those with a £1 million turnover to £200 million. But it is my belief that it is those very businesses which will produce the extra employment and wealth for the future. In the North-West of England I am very well aware that all our major companies are getting rid of people. There is not one that does not have a plan to go back to its core business and to make investment into labour-saving activities.

Only a few weeks ago I was asked to present the prizes at the Robotic Association dinner. The prize was for a leading university which produced the best, forward-thinking possibility for robotics based on known technology. The winner was a team from Cambridge. It produced a viable plan for the production of a robot which, when put into an environment where it did not know where it was, could find out and work out how to act in that environment. When one looks at the potential of that kind of technology, then the chances of producing greater employment for our established and highly financed businesses is nil. So it is in the small and medium-sized enterprises that our future employment, investment and wealth creation is going to come.

When I look at what is happening in the North-West of England, where I know more about industry than in any other part of the country, I am enormously encouraged by the great technology which is now available within small businesses which can bring great wealth for the future. It is the added value end of business that is going to produce our export opportunities. I believe that the potential and development of technology through the financiers who are investing money into the development of such technology, will provide possibly one of the great opportunities which we have. I welcome the Government's science and technology policy, which I believe is going to take a great step to encourage further growth in that area.

Another aspect I should like to refer to in the gracious Speech is that it says: [The] Government … will continue to put forward the case for European countries [who wish] to join the European Community I believe that, whenever possible, we should open further contacts with central and eastern Europe when one looks at what has taken place with NAFTA and the whole of the Americas who are going to come together as one trading organisation. The increasing wealth in the Pacific rim countries has already been referred to and how they are to trade more closely together. Even with the advent of GATT which has been mentioned with great confidence—I hope that it comes to pass—the future of our marketeers and producers is going to be very much within Europe. If we can create within central and eastern Europe a much greater demand from their consumers for the kinds of products which our manufacturers can produce, that could be the very engine that Europe needs to create wealth for the future. But at the moment these countries are extremely poor. We have already seen what it costs to bring East Germany into Europe. That has been an enormous cost on everyone within Europe.

The cost of opening up the markets of central and eastern Europe could be very very great. However, I believe that now is the time we have to tackle that problem. The longer we leave it, the greater will be the cost when we do it, and clearly there is now every possibility for increasing trade between those countries and ourselves so that we can start and develop wealth there.

When I look at that argument—and I believe strongly that the Government will support it, and indeed already Government have made it clear that they do support closer trade and bilateral arrangements with central and eastern Europe—the industry which will suffer most is food and agriculture, because those are the products they are most likely to sell competitively in our marketplaces. They can now produce these products much more cheaply than we can. I think it is more than likely that the worst impact of that process will be felt in the countries in Europe which are closer to central and eastern Europe so that, in this sense, Britain would probably be the least affected. But, even so, we shall be affected and already, as a result of the CAP and other changes, our rural economy is being very seriously hit and will be even harder hit as that trade develops. I think that we underestimate the importance of the rural economy to the wealth of the country. We are too inclined to think of our rural economy and our rural areas as an environmental and social problem, and not as an opportunity for wealth creation. I think that we need to look much more closely at those areas and their importance, because the new technology is going to give great opportunities to create much more wealth in them.

I read in a publication from the Department of the Environment that investigation had shown that of the new company start-ups, those that were started in the rural areas showed a higher percentage of them as being successful, and in addition a greater number of the successful ones went on to become larger businesses. So the lack of opportunity to create more wealth is not because of the lack of market demand or the working environment that would create wealth in the country areas, but rather the restrictions that are put on to investments in the rural areas by planning controls, the lack of proper roads and structures and the lack of so much which is necessary for the development of those industries. I hope therefore that this is an area we shall all understand and one which we shall all support when these matters come before this House, instead of being inclined to look, as we are sometimes, at the downside rather than the upside of the opportunities within the rural communities.

The gracious Speech refers, as has already been mentioned by many noble Lords, to the fact that the Government will reduce the share of national income taken by the public sector—and, by God! I hope they do, because the enormous increase in the share is quite nonsensical. I shall give your Lordships just one example. I hope your Lordships will excuse my mentioning the Department of the Environment again but I believe that this department is that part of Government which does more to discourage the development of wealth than to help it. In 1980 I see that department employed 11,000 people. The figure went down in 1985 to 6,000; in 1990 it was still 6,000; and now it is back up to 8,000 again. I note that the administrative costs—this is a department of administration, I would stress—in 1987–88 were £135 million, and in 1992–93 it is said to be £237 million. This is at a period of time when there is not a business in the country that has not reduced its costs by 15 or 20 per cent.—otherwise it would not have survived —and at a time when what the Department of the Environment does is not in any way related to unemployment or other costs. It merely exists to administer environmental rules and regulations which, by their very nature, make it more difficult for those of us who are trying to produce some wealth in the economy. So I hope that the Government will take note of that very carefully.

One of the issues which I feel has come out in the various speeches that we have listened to is that of how far we need to cater for risk in society. I am very supportive of the proposals that we should have a deregulation Bill. It is quite clear from all aspects of business that I am involved in that we are unnecessarily hampered by the growth of restrictions against the development of entrepreneurial flair and by the unnecessary rules and regulations that are now imposed throughout the whole of industry.

On the other hand, I can see the need for Government to impose rules and regulations if they believe that the most important aspect of society is the elimination of risk. There are far too many groups in society now who believe that the elimination of risk of any kind is the one thing that governments must do. Yet we all know from experience that it is the very expression of risk, the very confidence with which you are prepared to accept risk that is often the very entrepreneurial spirit that creates employment and investment in the first place. I think that society has to come to terms with this in possibly a larger way than we have so far cared to think about.

I see that the noble Baroness, Lady Dean, is now with us, and I should like to congratulate her on her maiden speech. The noble Baroness also referred to the aspect that we must not do anything about regulations which might increase the risk. The noble Lord, Lord Dahrendorf, in a splendid maiden speech, referred to the problems of further employment. Yet I think that the economists would agree that the demand for employment is infinite. It is only when restrictions are put upon employment that people have to make other arrangements, and they do. So there will come a moment when we have to balance more effectively the risks that people are prepared to take and the rewards which they look for out of society.

I cannot help but draw your Lordships' attention to the fact that many speakers have referred to the costs of VAT on fuel. Although various suggestions have been put forward, I believe that the reason why we are to have VAT on fuel is as a result of the Rio Convention, because of the Government having to comply with further CO₂ regulations. I should like to give your Lordships some information on that. If we look at the contribution to global man-made CO₂ emissions, in 1985 practically the whole of those emissions were produced by developed countries and the United States of America. If we look at what the emissions will be in 2060 —and we take very, very sensible projections on the value and the use of new technology, and how people will make great controls and we do everything possible to try to reduce them—even so, by the middle of the next century the total amount of man-made CO₂ emissions will increase 20 times. And that will entirely come from the less-developed countries; no matter how many laws we produce in this country, they will not have any impact whatsoever. So we have put ourselves in the ridiculous position of all the time putting rules and regulations on ourselves which we think will reduce our risks both as individuals and as societies, and yet at the same time having no power whatsoever to stop whatever it is that anybody else is doing. All we do in practice is to decrease our competitive opportunities and make ourselves less likely to be able to develop markets in other parts of the world.

I should like to leave your Lordships with that message. On the one hand, I greatly support the proposals the Government have made in the gracious Speech, that they lay out what can present much greater opportunity for this country to take the foremost lead in making wealth creation its first activity. We have been inclined—and are still—to take the view that we need social and environmental controls in order to improve them. In fact, those controls on social and environmental improvements are actually the very things that prevent the wealth creation that will be needed to make those improved social and environmental conditions possible. Until we realise that—not just in Government but in society as a whole—and at every stage make a point of encouraging the development of wealth, we shall never be able to provide the very benefits that we all want to see throughout the whole world.

I hope that through the Queen's Speech and through these proposals the Government will drive that message home and that we in this House will support them.

7 p.m.

Lord Vinson

My Lords, as we approach the Budget I should like to make two specific points in this debate. The first is that, contrary to fashionable opinion, I hope that the Government will not fret too much about borrowing at this point in the economic cycle. The second relates to the retail prices index and its malign effect on inflation and economic policy generally.

I am sure that the Government can draw comfort from the fact that they are not alone in their economic problems. World-wide democracies are under great tensions as the fulfilliable demands for ever widening welfarism come up against the inescapable reality of inadequate resources which are simply not there to meet ever rising expectations. The consequent problem is a huge rise in public sector deficits for which I believe the only long-term solution is the simple maxim, less government. If noble Lords opposite were ever lucky or unlucky enough to be in power they would face the same realities.

I am, however, concerned that we may be fighting today's economic battles with yesterday's strategies. The universal cry is for the Government massively to cut the deficit now and to follow the economic policies which are reported to have done us so well in 1981. It is the hair shirt theory. Hair shirts should be worn with caution, they can damage your health.

We now have a very robust Chancellor and a man who knows his own mind. While listening to the conflicting evidence of his seven wise men, I am sure that he will ultimately be guided by the logic of his own convictions. I hope so, because for many years I have been fortunate enough to be a trustee of a leading economic institute. If it has taught me one thing it is that none of us, and no economist in particular, has all the answers. The circumstances that favour the theories that explain yesterday's problems seldom fit tomorrow's.

I have become increasingly convinced that economics if it is a science at all is more a logical science than a numerical one and it is for this reason that I think all of us, and the Chancellor in particular, must resist the temptation to be persuaded by purely numerical arguments that are in practice often calculated on the basis of wholly erroneous and often misleading figures.

Your Lordships will recall the "fine tuning" of the Macmillan era and the constant application of the brakes at that time because the statistics indicated that the economy was running into trouble due to an apparent balance of payments deficit. There is nothing new about this problem, except that 25 years on research shows that in reality at that time the country was in fact enjoying a very favourable balance of trade but that statistics had missed out a huge chunk of the invisibles that would have put the matter right. So while the Government thought that they were doing good at the time, they were in fact doing grave harm by giving the economy the wrong medicine. I just pray that history will not repeat itself.

The Government are under great pressure from everyone to balance the books. We are told that we are all monetarists now and indeed there is much wisdom in attempting to run a fiscally balanced economy. But this should be done with particular caution until the supply side catches up.

The good Lord above designed the world to go around the sun in 365 days and by convention we have chosen this to dictate our accounting period. But if in practice the world went around the sun in 1,000 days, that, from the point of view of running the economy, would be an infinitely better period over which to attempt to balance the national accounts. I say that because even though the economy is improving it is still very fragile. I believe that the UK today needs a tightening of policy at this moment like it needs a hole in the head; and the same applies to every other country in Europe when Europe matters so much to us.

Logic dictates that the last thing on earth one should do with a patient suffering from hypothermia is to make him colder still. Logic, I believe, dictates that when the economy is cold you should heat it up, and when it is hot you should cool it down. This is not the moment to take the heat out of the economy while the recovery remains so very fragile. Fortunately, this view is reinforced not only by logic but by the fact that the nominal GDP—gross domestic product—is substantially lower than it should be and if we need the comfort of numerical indicators this is certainly one that we should not ignore. The situation is very different indeed from the early 1980s and thus demands different treatment.

I am a Thatcherite and your Lordships may find it odd that these remarks come from me. I recognise that the option of deficit financing is out of fashion. The thesis is tarred with the brush of Keynesianism. But every economist has his time and Keynes at his time was perfectly aware where his policies would lead. It was attempting to practise this art 40 years on with a far more sophisticated labour force, watching the RPI like a hawk, that led us all into such inflationary trouble and consequently discredited his theories.

Like most economists, however, he was neither all right nor all wrong. Logic dictates that the theory of contracyclical investment—putting heat into the economy when it needs it —must have merit. Today, with a huge under-utilised capacity in the UK economy and 2.75 million unemployed, deficit financing is not inflationary. Properly spent in the right areas it could be beneficial in boosting the supply side.

Indeed, it is an excellent time to borrow. When the Government borrow at 6 per cent. rather than 12 per cent. it means that they can borrow precisely twice as much money for precisely the same interest cost. In fact, historically the Government's debt levels are not out of line. The world is currently awash with funds looking for a good home and such borrowing would not crowd out the industrial sector, which concurrently can also borrow very cheaply on the equity market.

Some economists argue that all forms of government expenditure are beneficial to the economy; that money spent on unemployment benefit has the same effect as that spent on infrastructure. Frankly, I believe this to be rubbish. There are some forms of activity that are prime movers in terms of creating jobs, and the construction and building industry are the great dynamos of economic activity. Lower interest rates for housing and increased government expenditure on infrastructure would together ripple out into the economy, lowering unemployment, on the one hand, and leaving real tangible assets, on the other. They are assets that could support the economy and make it richer for the future. The noble Lord, Lord Dahrendorf, in his excellent maiden speech, spoke of employment created by infrastructure work. But he quoted only the on-site labour that such expenditure creates. He missed out in my view the more important off-site labour that is created. At this point in the economic cycle it would be madness to cut back on the infrastructure development that this country so desperately needs and which at this stage only the Government can provide.

I am sure Mr. Ryrie who wrote the Treasury rules did so with good intent. However, it is difficult to see how in an economy, money borrowed from an institution by the Government and subsequently spent on roads or railways is wrong, and yet the same money spent by the same institutions to fund roads or railways is right. The call on the economy is identical, it is merely the convention with which the matter is accounted that causes the confusion.

I realise, of course, that the Government are addressing the problem of public sector financing. But I hope that they will not meanwhile be shy to return to the concept of ear-marked funding which would have precisely the same call on the economy as private sector infrastructure financing, provided that the money is spent efficiently.

So the burden of my first message today is that at this stage in the economic cycle, deficit financing—borrowing for ear-marked purposes for the infrastructure development that we so desperately need—would be positively beneficial. That is the last area where there should be cuts although the temptation for the Treasury will be to cut there because it is one of its few discretionary expenditures.

Common sense dictates what logic demands; that at the current level of nominal GDP it would be perfectly safe for the Government to accelerate contracyclical infrastructure development and to borrow to do so at this point in the cycle without fear of inflation. I urge them so to do.

My second point is the sensitivity of wage bargaining to the retail prices index. In fact, 1.8 per cent. of the forthcoming rises in the RPI will be due to value added taxes already in the pipeline. So if inflation were to creep up to the headline rate of 4 per cent. over the coming year, nearly half of that would be due to the self-inflicted wounds of tax increases. It is nothing to do with demand and nothing to do with the money supply. But it will trigger a whole new level of wage negotiations which, in practice, will be almost impossible to resist as the negotiators will hold all the moral chips. Around we shall go again on the inflationary spiral, up will go interest rates, up will go mortgage costs, up will go the RPI and yet again, those responsible for managing the economy will have crippled it.

Why do we get ourselves and why have we in the past got ourselves into this mess? It is partly due to the fact that the high priests of monetarism maintain that it does not matter what you do to wages and taxes, inflation will never take off if the money supply is controlled. I fear that that is a deep over-simplification and a very damaging analysis which is wholly divorced from the real world.

Already one hears the siren voice of the governor of the Bank of England saying that interest rates will have to rise less next year if inflation rises. Yet he must know more than anyone that the underlying rate of inflation will probably hardly have moved.

We are all in thrall to the RPI, but it is indeed a malign index because it reflects indirect tax increases and the cost of money through mortgage rates. Yet, at the same time, it perversely leaves out the big swings and gains in the cost of living caused by changes in direct taxation. But the consequence of clinging to that damaging index means that governments constantly undermine their own economic policies.

I am aware that work is being done to create a more realistic index that measures inflation without taxation. I hope that the Government will face the criticisms and have the courage to re-base the index at an early date. If they do not, economic policy will continue to chase its own tail in an inflationary spiral.

Those are my two points: re-base the RPI and do not fret about borrowing now. The world is awash with money at low interest rates. It is the ideal time to borrow. It is not the ideal time to try to balance the books. That time will, should and must come when the GDP is back at a level at which it should be and when we have substantially less than 2.75 million unemployed. Now is not the time for fiscal tightening on infrastructure expenditure. Therefore, I urge the Government not to fight today's battles with yesterday's economic strategies. I am sure that our present Chancellor is a man who will back his own judgment, and I hope that this will encourage him so to do.

7.12 p.m.

Lord Ezra

My Lords, as is usual in debates on major issues in your Lordships' House, there have been a number of important speeches enlivened by two very distinguished maiden speeches. There have been so many important issues raised that in coming to the end of the debate there is a wide choice of subjects that one might well choose to develop.

I should like to home in on a point raised right at the beginning of the debate by the noble Lord, Lord Strathclyde, when he said that one of the Government's major objectives is to achieve sustainable growth. That question of sustainable growth has been taken up by a number of other noble Lords who have spoken. Indeed, some have queried what it precisely meant and how the Government intend to achieve that desirable objective. The noble Lord, Lord Barnett, was one of them, and the noble Lord, Lord Skidelsky, referred to that also. I believe that it is absolutely crucial. It is extremely satisfactory that the Government have put sustainable growth at the head of their list of economic priorities, but what is uncertain is how they will set about achieving it.

When one looks back—and it is always desirable to look back before one looks forward—successive governments' ability to achieve sustainable growth has certainly not been very noticeable in the whole of the post-war period. There has been a succession of booms and slumps and stop and go, not least in the past 15 years. That was a point made by the noble Lord, Lord Benson, in a most important contribution to our debate.

Therefore, I believe that we must consider what must be done and what are the conditions under which we should work towards that sustainable growth. I should like to take up a point made by the noble Lord, Lord Wade. He reminded us of what is happening in the United States at present with the recent agreement on the NAFTA arrangements which will create a much wider free trade area in North America and then, perhaps even more important, the APEC meeting in Seattle. It is now being said that, while hearts in America are still in Europe—and they are very down to earth people—their heads are looking more and more towards Asia.

We must recognise that the world is now possibly going to be divided into three major trading blocs but, it is hoped, if we are successful with GATT, all knitted together in one huge enlarged trading bloc. That has always been regarded as a desirable objective by successive British Governments but it creates problems. How are we to be able to compete effectively in that enlarged trading bloc, with enormous growth rates in the Far East, with the growth rates which we hope will be re-established in the single market and with the developments in North America?

That really comes back to the old vexed question of investment to which many of your Lordships referred. We have lagged in capital formation in this country compared with our major competitors. Over the past 20 years there has been an increasing proportion of economic output spent on consumption and a reduced proportion on investment. That trend has continued in the recent past. If one compares the first six months of 1992 with the first six months of 1993, consumption has gone up by 1.7 per cent. while investment has gone up by only 0.6 per cent.

The Chancellor of the Exchequer said in one of his early speeches, in, I believe, Birmingham, that he was wholly behind more investment in the private sector. I shall turn to the public sector in a moment. But how is that to be achieved? I believe that private investment is now subject to a hostile fiscal environment. If you are running a business and you incur current expenditure—the wages of a secretary or the purchase of a pencil and paper—you can write all that off immediately against tax. If you do that highly desirable thing called investment, you get only 25 per cent. at a time against tax.

In the Autumn Statement, in order to boost investment, the Government increased that to 40 per cent.; but that has now disappeared. That applied only until 31st October and it is now back to 25 per cent. If investment is crucial in the new global environment in which we must compete, then nothing less than 100 per cent. investment allowance should obtain. Obviously we cannot go there immediately but we should go there by stages. I hope that the first step which the Chancellor takes is to restore the 15 per cent. which lapsed on 31st October and make it clear that, with that, he is taking the first step in a policy towards granting 100 per cent. investment allowances.

That is not the only measure needed to get investment moving, but if there is a tax system which is discriminatory against investment, that will obviously hold it back. This is the very time at which we should move forward. My noble friend Lord Jenkins referred to that situation.

As regards the public sector, the noble Lord, Lord Boyd-Carpenter, said that he wanted public expenditure to be cut back. That is fine, but he made no distinction between revenue expenditure and capital formation. The Government said some time ago, although they have not repeated it recently, that in the new-style Budget a distinction would be made between public revenue expenditure and public capital expenditure. I hope that the noble Lord the Leader of the House will be able to confirm that that is indeed still the Government's intention. I believe that we need to look extremely carefully at the distinction between those two. Of course revenue expenditure should be kept to the minimum necessary to do the essential tasks but capital formation is a different matter. For example, capital formation applied to the transport system is crucial.

Why did we have the confusion and disturbance on the London Underground yesterday? As far as one can tell from first reports, it was because the electric cable system is now very aged; in fact, it is 70 years old or more. Well, some of us are quite young at the age of 70, but the electric cable system of the London Underground seems to be about to reach the end of its tether. That appears to be a result of the lack of crucial investment in the vital infrastructure. We must look very carefully at what we are doing as regards investment, both in the public and the private sector.

I turn now to the crucial question to which many speakers referred: namely, investment in people. We suffer from a major unemployment problem. My noble friend Lord Dahrendorf raised many crucial issues in that respect. He talked about the problem of jobless growth. We must try to overcome that problem. I believe that the noble Lord, Lord Vinson, gave us one possible answer to the way in which we can overcome that problem to some degree. While the advance in technology in a particular sector will probably lead to reduced manpower requirements, the way in which that technology develops must be provided by someone else. I found that in my experience in the mining industry. We were aiming all the time to reduce the number of people working on the coal face so that we could increase our underground productivity. But we achieved that aim as a result of machinery and equipment that others developed. So there was a degree of redeployment of the resources of labour and of skills. I believe that we must look at that aspect of the new global competitive age into which we are moving. We must talk about training people to acquire the new diversity of skills which will lead to such benefits—that is, benefits not only of productivity improvement but benefits of diversity of employment.

In his opening speech the noble Lord, Lord Strathclyde, said that there ought to be an intensified debate among the Government, industry and—as I believe he said—academia on such issues. I agree with him. However, we should be looking at it in the new situation. It is not a question of continuing existing policies. To use a phrase of the noble Lord, Lord Vinson, we do not want to fight the next economic war with the weapons of the last war. We must devise new weapons for the new situation.

One could say that the same sort of thing should apply to research and development. I recently visited an important university in Yorkshire and while there I talked to the vice-chancellor. The firm with which I am connected is trying to help the university to develop its research into energy efficiency—a subject with which I am involved. I asked him about the prospects for his university. He said that it was doing quite well and that it had raised quite a lot of money from the private sector. He said that it was carrying out a number of projects which were of great interest. However, I asked the vice-chancellor what impact that had on the balance of research being carried out in the university as between short and medium-term projects on the one hand and, on the other, basic research for which we fundamentally depend on universities. He said that there was no doubt that it was impacting adversely on the amount of time and effort that they were putting into fundamental research.

We must look at the matter most carefully. Again, perhaps I may quote from my experience in the coalmining industry. In the heyday, and when it was a unified industry, we had two of the most important research establishments in our sector in the world: one was for mining research and the other for coal research. I do not know what will happen to them under privatisation, though no doubt we shall be debating the issue. However, what I do know is that a similar establishment run by the Electricity Council has now disappeared. Long-term research is no longer being conducted in the electricity industry, as was the case at one time. I presume that electricity companies now obtain such expertise from elsewhere as and when it is needed and expenditure is concentrated on shorter-term developments.

We need to see all this in the context of the single market; that is, in the European context, to which the noble Lord, Lord Wade, referred. I say that because in this increasingly competitive and global atmosphere we shall not only have to mobilise our own resources; we shall also have to work very closely with our partners in the European Community. There are a number of areas in which we will probably only be able to face up to the new competition by working together.

What I have been trying to suggest is that, while the objective of sustainable growth is fine, we need to work out what we mean by it. We need to work out the actions that need to be taken to achieve it and we need to recognise that its achievement will be more difficult in the future than it might have been in the past—and we did not achieve it in the past. That is the kind of thinking that I should like to see reflected in the Budget speech of the Chancellor of the Exchequer next week. I should like to feel that he is looking at the long term and that he will say, "I have these short term problems to deal with, but the solutions that I am bringing to the short-term problems are totally consistent with our long-term objectives". If he says that, then I believe we shall have moved a long way forward.

7.27 p.m.

Lord Richard

My Lords, we have had an interesting and, in some ways, a debate worth remarking for two main reasons. First, because of the two maiden speeches that we heard. It is, of course, the custom in this House that, when maiden speeches have been made, people get up and say what splendid speeches they were. I am bound to say that rarely have I been able to perform that task with such sincerity as I do tonight. Both maiden speeches were distinguished and encouraging so far as concerns the future. My noble friend Lady Dean spoke from her long and deep experience of industrial relations, especially in the print industry. On that subject, as on others, we greatly look forward to hearing from her again. If I may say so, the noble Lord, Lord Dahrendorf, spoke in perhaps a more cerebral way than any other contributor to the debate. I found his argument most interesting. I am sure that we shall hear from him again; indeed, I hope that in the future he will develop the points that he half developed this afternoon.

The second reason why I believe that the debate has been somewhat unusual is that almost every speaker—that is, at least every speaker that I heard; and I apologise for having had to leave the Chamber at one stage—especially those on the other side of the House, gave some support to the Government, but none of them that I heard gave wholehearted support to them. That applies to the noble Lord, Lord Boyd-Carpenter, who, if I may say so, is known in the House for his loyalty to the Conservative Party and to the Government. Even he criticised what seems to be the main revenue-raising plank of the Government's policy; namely, the imposition of VAT on fuel.

In my view, the noble Lord, Lord Vinson, gave a fascinating speech. He created a new economic animal which seemed to me to be a Thatcherite Keynesian. He started off by saying that he was a Thatcherite; but while the first half of his speech called for deficit financing, the second half was an attack on monetarism. I welcome the emergence of this new economic animal and I hope that we hear more from it. If the noble Lord wishes to keep the label that he attached to himself at the beginning of his speech, so be it: substance is more important than the name. We also heard from the noble Lord, Lord Laing, and I heard the latter part of the speech of the noble Lord, Lord Skidelsky. Again, there seemed to be a vein of dissatisfaction running through almost all of the speeches that we heard in relation to the way in which the Government are seeking to handle our economic affairs.

In this debate we have inevitably ranged widely across the field of the economy and industrial affairs. We have, rightly, been reminded at times that there is much to be proud of in the British record of skill and enterprise. Of course there is. We have heard many different prescriptions for the cure for our undoubtedly ailing industry and economy. My noble friend Lord Peston, who opened the debate, accused the noble Lord, Lord Strathclyde of being complacent. He did verge on complacency. He teetered on the edge of self-satisfaction in so far as concerns government policy. We were told that all would be well, that green shoots were popping up nicely and that in due course they would flower. We are told now by the Government that things are getting better. It is just as well: they could not get much worse. Of course we all hope that Britain is now on the road to recovery, but we cannot assume that everything will now be fine.

I believe, too, that we need to look a little more closely at what we mean by recovery. What are we aiming for? What are the Government doing to ensure that Britain does not quickly fall again into further deficit and into recession?

It is inevitable that one looks back over the past 14 years. After all, this was supposed to be a government that came into office in 1979 determined to put Britain on to the road to prosperity. What has happened, particularly since 1989? After 14 years—and we must not forget that, and this party will not allow people to forget it—unemployment remains at over 3 million with over 1 million people having been out of work for more than a year. It may have fallen in recent months, and we all welcome that, but it is still higher than it was a year ago. It is still well over 1 million more than it was when Mr. Major became our Prime Minister. Those are not just statistics. We must never forget that those figures have a very real meaning for many of the people of this country. Those of us who are fortunate enough to be in work do not experience at first hand the evil of unemployment. None of us can have any real notion of the exhaustion which stems from the poverty which goes hand in hand with long-term joblessness.

Investment in Britain as a share of national income is at its lowest level for 40 years. The level of investment in British manufacturing is at half the level per worker of investment in Germany and the United States of America. Despite what we heard from the noble Lord, Lord Strathclyde, in opening the debate, UK skills levels are now more than 40 per cent. below the world's best. Britain has fallen to 20th out of 22 in the OECD's skills league. Manufacturing investment has fallen by 24 per cent. during this recession. I can go on. More than 150,000 businesses have failed over the past four years. Engineering employment has fallen by more than 400,000. We are the only one of the G7 major industrial nations where output is lower now than it was in 1990. That is nothing to be complacent about.

It is true that inflation is down, but at what cost? I remind the Government that they seem to have forgotten that it is possible to have low inflation and a growing economy. The last time inflation was at its present level was in 1967. Then we had a Labour Government. The economy was growing at 2.2 per cent., we had a manufacturing trade surplus and unemployment was less than 350,000. If those are the basics we are told to go back to I am happy to lead the charge. If the Government could produce statistics like that now, my goodness, they would be proclaiming it as a great success of economic management over the past 14 years.

Finally, there are the twin symptoms of the failure of Conservative economic policy: the trade deficit and the budget deficit. The trade deficit is the worst ever experienced at this stage of the economic cycle. There is record import penetration and if the recovery comes that will get worse as consumers spend money on imported manufactured goods. The PSBR, running at more than £l billion a week, is the highest ever general government financial deficit, despite the massive privatisation receipts generated in the 1990s.

Who is responsible for the present condition of this country? The Government think that they know and they tell us, but it is not always the same target. The Secretary of State for Wales and the Housing Minister blame the length of local authority housing waiting lists on single mothers. I cannot resist quoting the Home Secretary's view to the House, because when I read it I found it so incredible that I felt that it deserved a wider audience. Mr. Howard apparently blames the record 124 per cent. rise in crime since 1979 on the absent fathers who were away fighting for their country during the Second World War. That applies to people of my age, in their 50s and early 60s. We are the people whose fathers were away fighting during the last war. I asked those who had sent me the quotation to check it. Sure enough, it was reported that: Mr. Howard, who was born in 1941, has said he believes that those children, who became parents in the sixties, grew up with their respect for authority and sense of discipline impaired by the absence of their fathers. This in turn has led to less discipline in schools and homes now". That was so fatuous a claim that Professor Norman Stone, who the House will know is not noted as being a supporter of liberal causes and the Labour Party, was moved to say that it was reasonable that the Home Secretary should float ideas and that, he is an intelligent man and will be thinking things through, or trying to". He then went on to say that the theory that absent fathers were to blame for a moral decline was not tenable. Countries that were not involved in the Second World War, such as Switzerland, had similar experiences to Britain from the 1960s on. He added: I think he would have to work very hard to prove that one". My Lords, really! Why stop at the Second World War? What about all the grandfathers who were away in the First World War? Was there a rise in crime in 1919? It is fantasy land. The only significance of that argument is that it is advanced seriously by a senior Minister of the Crown to explain some of the social ills and unrest that face this country today.

The Secretary of State for Social Security blames the rise in spending on benefits for the poor on foreigners. That was a disgraceful speech and it is high time the Conservative Party disowned it. The Prime Minister, the Chancellor of the Exchequer and the President of the Board of Trade blame the rest of the world for the four year recession from which we are now, we hope, emerging.

I seem to remember a Tom Lehrer song from my university days, the chorus of which went: The black folks blame the white folks, and the white folks blame the black folks". If I remember rightly, the punch line was, "Everybody blames the Jews". One of the main charges against the Government is their capacity to blame something, somebody, some institution, some event other than themselves.

On the other hand, the truth seemed finally to dawn on the Prime Minister at one stage. In a Damascus Road experience of almost staggering proportions the Prime Minister said of his own Government in an interview to the Los Angeles Times this summer: We have been here [in office] for 14 years. There is no one else one can blame for anything that has gone wrong". I asked myself whether that was the repentance that comes before the forgiveness. Then we had the Conservative Party Conference, and all my theological hopes of the Government were finally dashed.

After 14 years what are we left with? We are left with the big idea: "Back, back," the Government cry to their troops and to the country. We are apparently to go back to the 1950s, to the days when (some would say) workers, women and ethnic minorities knew their place and when a clip round the ear from P.C. George Dixon was sufficient to set delinquent young people on the straight and narrow road back to honesty. We are to go back to those basics.

It is easy to be humorous at the Government's expense on this issue. However, perhaps we should rather admire their honesty. However one looks at it the call of "back to basics" is an admission by the Government that what they have been doing for the past 14 years is wrong. Finally, almost in extremis, they accept that Government policy and nothing but Government policy has brought us to our present state. We cannot run the country on the basis of an attempt to recover Britain's lost innocence, if Britain ever had the innocence to lose which the Prime Minister and Government spokesmen now seem to be picturing. Each age has its own problems which it is the responsibility of government to resolve. Other than the failure of government, there is no reason why the 1990s should not be good in their own right. We have to accept where we are now and start from here.

The healing of our society—that is what is needed—has to begin with economic recovery and a new industrial revolution. By "recovery" I do not mean limping along weighed down by the burden of huge deficits only slightly smaller than those we have at present. Recovery must not mean recovery by, and wealth for, only the few people at the top of the heap. It must not mean putting up with a level of unemployment only slightly below the 3 million we now have.

What measures are contained in the gracious Speech? The centrepiece of the Government's policy for business—I do not think that one can dignify it with the description "industrial policy"—is the deregulation Bill. The final detail of the Bill is not clear. Perhaps the Government do not themselves know exactly what the Bill will provide. However, as the noble Lord, Lord Rodgers of Quarry Bank, pointed out, it seems likely that powers will be given to Ministers to repeal secondary legislation, and perhaps even primary legislation, which totally bypasses parliamentary scrutiny. I have to say that I would find that intolerable. I do not believe that this House would find it generally acceptable.

Of course some rules and regulations are irrelevant and outdated. But why have consumers and employees not been consulted as to which of those rules and regulations remain necessary? I make the point because it is true. Why is it mainly big business and donors to Conservative Party funds who have been represented on the deregulation task forces? It is supposed to be a Bill to help small businesses. The noble Lord, Lord Wade, expressed that hope. But what input has small business had? I say firmly to the Government that the deregulation Bill must not be used to remove safety standards for employees and consumers or we shall return not just to the 1950s but to the 19th century.

What is the other measure in the gracious Speech for the Department of Trade and Industry? It is a Bill to privatise the British coal industry. The irrelevance of that to Britain's economic problems at present—we have discussed those problems today—is massive. One of the aspects that makes me the most angry is the irrelevance of what is in the Queen's Speech to the industrial problems that this country faces. If one marries up what is in the Speech with an analysis of our economic and industrial position, I am bound to say that such a Bill becomes a pathetic irrelevance.

Finally, perhaps I may say a few words about the Government's economic policy generally. It seems to be more of the same. A reduction in the share of national income taken by the public sector is promised, much to the joy of the noble Lord, Lord Boyd-Carpenter, except for the crucial VAT tax on fuel. The average family will pay £8.50 per week more in tax from April next year. While the bottom 10 per cent. pay more in tax now than in 1979, the top 1 per cent. of earners has received £8.7 billion in tax cuts. The gap between the highest and the lowest paid is now greater than at any time since 1886. When that figure was presented to me, I found it hard to believe. I had the figure checked; it is true. That is a staggering proposition. All the Government's attempts to redistribute wealth seem to pass it from those at the bottom to those at the top.

What should we be doing instead? It has emerged firmly from the debate that the British economy requires a major shift from short-term consumption towards long-term investment in people, ideas and infrastructure. Public investment must become a catalyst for wealth creation; but wealth has to be shared and shared equitably. I believe that only when a greater degree of economic justice is achieved will Britain socially be a nation more at ease with itself.

I firmly believe too that the crucial ingredient for flexibility in the modern economy is the skills that the workforce possesses. That too emerged from the debate. We must put an end to the waste of those skills by hugely increasing provision of training and retraining to create a highly educated and sophisticated workforce. It means that effort, money and time have to be put into such training over the next few years in the recognition that it is a long-term process which will take time for the full benefits to be seen.

But, above all, public and private sectors should be working in partnership, not by the absence of government or by the creeping privatisation of public sector responsibilities, but by the input of an active government co-ordinating and expediting projects. Creating jobs by increasing investment from the public and private sectors will help to resolve many of the problems which are finally leading the Government to go back to basics. People, and most importantly young people, might see themselves as having a future. Education might begin again to have a value of its own, not simply leading to the dead end of the dole queue or, as one unemployed graduate recently put it, to, the abattoir of self-esteem that is long-term unemployment". I do not need to talk about the social and medical effects of unemployment. I believe that most people agree that health standards would improve and crime would reduce if a major cause of ill health and at least a contributory factor in criminal behaviour—I refer to poverty caused by unemployment—were removed.

Britain is not fated to be in the economic and industrial second division unless the Government continue their shortsighted and short-term policies. It is time for the Government to acknowledge that they have failed this country and its people. The people of this country have paid too high a price for Conservative economic incompetence and failure to invest. The Prime Minister at least seems to have owned up. He accepts that there is no one else one can blame for anything that has gone wrong; that it is his fault and the fault of his Government. Now it is time to make amends. But there is little in this Queen's Speech which encourages me to believe that the Government are even thinking along those lines.

7.46 p.m.

The Lord Privy Seal (Lord Wakeham)

My Lords, over the past four days of debate we have heard a number of notable speeches. I should like to add my congratulations in particular to the noble Lord, Lord Dahrendorf, for his maiden speech. It was an interesting speech. Much of what he said goes to the heart of what concerns most of us: on how, over a fairly lengthy period, we shall find enough jobs in the world for the population. Over the last economic cycle, 1979–90, the workforce in employment in this country grew by 1.5 million. Employment will grow again as soon as the economy recovers. It is a wide subject well worthy of a much longer discussion than the noble Lord had time for when making his most interesting maiden speech.

Perhaps I may also congratulate the noble Baroness, Lady Dean of Thornton-le-Fylde, on her maiden speech. She spoke from long experience, and I know that the House will look forward to hearing her many times. I assure her that we have no plans to sacrifice the high standards of health and safety protection which are already in place. On the contrary, it is vitally important to provide proper levels of protection. Indeed, we aim by judicious reform to ensure protection for employees while at the same time reducing burdens on business. I shall return to that in a moment.

I add my congratulations to the seven other maiden speakers in the debate. Perhaps I may be allowed to offer a special note of welcome to my old friend the noble Lord, Lord Dixon-Smith, on his speech. I know that noble Lords look forward to the contributions in our debates from all those who made their maiden speeches in the debate.

If I am to reply to the many interesting speeches that we have heard today, I shall have to reply fairly quickly. It is customary on the last day of debate on the humble Address to concentrate on the economy. Indeed, I made my maiden speech to this House in the same closing debate last year. The speech is not exactly the same of course; but I shall start by referring to some of the points that I made then and commenting upon them. In that speech I spoke of significant supply-side reforms which the Government had undertaken. I spoke of an economy poised for recovery. I also talked then of the recent renaissance in business confidence and improved order books. Eighteen months ago I could only point to the earliest signs of increased output. But I predicted that those more optimistic signs should soon be translated into higher activity.

It is interesting therefore to look at the position then and the position now. Output is up almost 2 per cent. since last year; manufacturing output is up 1.6 per cent.; retail sales are up 4 per cent.; unemployment is down by 137,000 since January this year; exports are at record levels; and industrial relations are excellent.

Those advances in the real economy have followed steadily falling interest rates. Interest rates are now at their lowest level since 1977, and are the lowest in the EC. Reductions in the base rates since October 1990 have saved business almost £12 billion in interest payments.

Yet inflation remains low. It has been under 2 per cent. for 10 consecutive months, the longest period of such consistently low inflation since 1960. And despite the strong signs of recovery inflation is predicted to stay low. The Bank of England's most recent Inflation Report predicts that underlying inflation will remain within its target range of 1 to 4 per cent. Those very substantial rewards have all followed from the foundations to which I referred last year.

The noble Lords, Lord Peston and Lord Jenkins, suggested that there was perhaps a note of untoward complacency in the speech of my noble friend Lord Strathclyde. They contrasted it with the two speeches, both of which I have here, by my right honourable friend Mr. Heseltine in the House of Commons and at the Institute of Directors. My noble friend Lord Caldecote gave me the impression that he had read all of the speech. My right honourable friend Michael Heseltine certainly referred to the difficulties that were still there. But he also spoke very much about improvements that had occurred over recent years.

We cannot be complacent. A productivity gap still exists. We are still less productive than either Germany or Japan, and we are still some considerable way behind the United States. Closing the gap will require both government and business to look to the future, and it will require more flexibility than either the public or private sector has been used to. Competitiveness is not something that can be achieved and then taken for granted. Improving competitiveness is a continuing process, and we must constantly ask ourselves if what we are doing is the best and the most appropriate way of achieving our aims. We must always be ready to adapt to change.

I hope that I shall not embarrass the noble Lord, Lord Peston, but it is interesting to note in passing that the noble Lord did what I gather none of his colleagues in another place would do; namely, to commit the Labour Party to a target of 1 million unemployed. I gather that his colleagues in another place have been very careful not to do that.

I noticed also that the noble Lord felt able to criticise the deregulation Bill without having seen it, but at the same time he wisely said that he would not criticise the Budget until he had seen that. The noble Lord, Lord Rodgers, asked questions about the deregulation Bill. All noble Lords who are interested in that very important piece of legislation would do best to wait until they see the Bill when it comes forward. I fear that the reality will not be quite so dramatic and exciting as some noble Lords have suggested.

I was sorry to hear the noble Lord, Lord Jenkins, (as it seemed to me) running down the achievements of British business in the City of London. I remind the noble Lord that it is the wealth creators in the private sector who pay for the public services of which we are all so proud. The noble Lord's analysis did not seem to me consistent with, for example, the level of public sector asset creation over the year 1992–93 of some £30 billion, and also a recognition of the way in which the Government are opening up imaginative, new ways of getting private sector finance involved in public sector projects, which I believe to be a very important development.

My noble friend Lord Boyd-Carpenter, as usual in a clear and penetrating speech, reminded us of the need to bear down on public expenditure. It is not for me to anticipate in any way what my right honourable friend will say in his Budget Statement next week. As noble Lords know, it will be the first Budget to bring together public expenditure plans and the Chancellor's revenue proposals on one occasion. I can say to my noble friend that the task that we were set in regard to public expenditure was as tough a task as I have known over many years of involvement in assisting in these exercises. I anticipate that my noble friend will not be totally displeased with our efforts when they are revealed.

It is always a pleasure to hear the noble Lord, Lord Elis-Thomas. I have heard his speeches over many years now. Sometimes I agree with him, and sometimes I disagree. The noble Lord may be slightly surprised to know that I agree with quite a lot of what he said in his speech this evening. Environmental improvement cannot be divorced from industrial and economic growth. Partnership between public and private sectors—perhaps I may refer to what I said a moment ago about public sector projects being financed through private finance initiative—for infrastructure projects is a good way in which to encourage greater co-operation in those areas.

As the noble Lord, Lord Richard, said, a number of my noble friends were not entirely complimentary about every aspect of government policy. But I would certainly not put my noble friend Lord Sanderson in that category. I congratulate him on his new job, about which he told us, and thank him for what he said about the economic situation. I listened carefully to his comments on what he would like to see in the Budget. Obviously again I cannot comment on that. I agree that it is important to recognise the need for a long-term approach to exporting. That is why DTI activity has been refocused and specific plans for trade promotion activity in each of the top 80 export markets have been drawn up.

My noble friend Lord Laing, the noble Lord, Lord Benson, my noble friend Lord Caldecote and the noble Lord the Leader of the Opposition talked about Britain's lack of success in the manufacturing sector over a considerable length of time. I had decided that I would not quote any figures until I heard the noble Lord, Lord Richard, quoting figures. It is necessary to put a certain balance into the argument. I would put the central point of the argument this way. I would agree that Britain's economic performance since the war has been generally pretty disappointing. I think that that is a reasonable premise which I could share.

However, any serious analysis of the figures will indicate that since the early 1980s Britain's performance has been substantially better than in the periods for a long time before then. For example, since 1981 the volume of UK manufactured exports has grown faster than in France, Germany, Italy or Japan. Our trade share stabilised in the early 1980s after years of decline. The UK grew faster than Germany, France or Italy in the 1980s and in the previous two decades we had the slowest growth rate in either the EC or the G7 countries. As far as concerns the productivity growth of major industrial countries, we were bottom of the league in the 1960s and 1970s but the highest in the 1980s, and so on.

There are many figures to show that we have had a very disappointing performance, if one considers the position since the war. But I believe that there has been a significant improvement since 1980 and that is set to continue. Indeed, the substance of the charge made, not for the first time, by the noble Lord, Lord Benson, who speaks with vast experience and is always listened to with great interest, was that the Government had no policy for industry. Frankly, I am not prepared to accept that that charge can be sustained. It may not be the policy that he entirely wants; but to say that we have no policy is not true.

The Government have placed the concerns of industry right at the heart of all their policies and they continue to do so. They have given industry the confidence to invest by delivering low inflation, low interest rates and the lowest rates of corporation tax in the EC or G7 countries. They have helped our companies to win world markets by supporting exports—for example, by making available credit cover for exporters targeting difficult markets. They have promoted innovation and increased opportunities for private sector involvement in the financing of public sector infrastructure programmes. Those are the right policies for this country. I do not believe that the right solution is a sector by sector investigation getting to a plan drawn up by the centre as the way forward.

I believe that a private enterprise solution is the right way forward. I believe that it is the role of the Government to create the right infrastructure for that private sector to be able to thrive. Certainly since 1980 the record shows that we are moving very much in the right direction.

I welcome the contribution to the debate on an independent central bank made by my noble friend Lord Boardman. I share his concern about the need for accountability to Parliament on monetary matters. He had powerful support from the noble Lord, Lord Barnett, who apologised because he had to leave the debate early. To have two former chief secretaries speaking as one across the Floor of your Lordships' House is important.

But the policies pursued are more important than the institutional arrangements. The Government have set out clear targets and a clear framework for their policy. There are inflation targets of 1 per cent. to 4 per cent. Monthly monetary reports are published. The Bank is invited to publish quarterly inflation reports and has started to publicise reasons for every interest rate change. We have given the Bank greater discretion over the precise timing of interest rate changes. Those are important issues. My noble friend Lord Boardman asked whether we could have a debate on the subject and I believe that it would certainly be worthy of one. But I would not like to be committed to promising him a debate on the subject in the immediate future. Your Lordships have a number of other matters to deal with.

I listened with interest to the noble Lord, Lord Jay. I tried to remember when I first heard him speak. It may surprise him to learn that I first heard him speak at a Fabian Society summer school when I was a schoolboy in the late 1940s. I believe that it was the late Tony Crosland who said to me after his lecture that everyone was very fond of the noble Lord but he was of a rather gloomy disposition. I must say, a great chunk of a lifetime after that, I am not sure that he has changed very much. But I grant him consistency and I was delighted to hear his contribution to our debate. I very much agreed with my noble friend Lord Skidelsky, when he said that he found the disregard of inflation shown by the noble Lord, Lord Jay, to be somewhat breathtaking. It was interesting however to hear him.

I was delighted to hear the endorsement given to our policies on labour market flexibility by my noble friend Lord Skidelsky. Without such flexibility the consequent productivity gains that we have enjoyed and the tremendous amount of inward investment to which he referred would certainly not have been forthcoming in this country in recent years.

My old friend, the noble Lord, Lord Rodgers, regretted that there was no housing Bill mentioned in the gracious Speech. I was slightly surprised that he did not mention the massive housing Bill that we dealt with in the last Parliament. The Leasehold Reform, Housing and Urban Development Bill dealt with many aspects cif housing policy. We cannot necessarily have a massive housing Bill every year. I believe that that one was a particularly good Bill and its benefits have not yet fully worked through.

I was pleased to hear my noble friend Lord Caldecote's remarks on the way in which the Government viewed the Select Committee on innovation in manufacturing industry of which he was a distinguished member—in fact I believe he was the chairman—and the fact that the Government have responded positively to its important report. A number of the measures that he and his colleagues reported have been taken on board by the Government. Obviously there were also matters of a fiscal nature referred to in that report and it would not be appropriate for me to comment on those today.

I was very pleased to hear towards the end of the debate the speeches of my noble friends Lord Wade and Lord Vinson. Like a number of other noble Lords who have spoken, they both have the great distinction that they have had great experience at the sharp end of industry and particularly with smaller businesses. It is no fault of theirs that the smaller businesses with which they were connected became bigger rather than smaller businesses after a fairly reasonable period of time. Obviously I cannot comment on the Budget points that they made. But I thought that my noble friend Lord Wade's call for greater trade with eastern Europe could only be welcomed. The transition of those economies to market-based economies will offer tremendous trading opportunity for British firms as well as raising the living standards of their citizens.

The noble Lord, Lord Ezra, tempted me on to Budgetary issues again, but I must resist that temptation. I say only (this is not to reveal anything about the Budget even if I knew it) that when I was a Treasury Minister in 1981, what worried me particularly—I refer to his point on capital investment for industry—was that at that time there were £40 billion worth (the figure is ingrained in me) of unutilised capital allowances that had been claimed by industry. In other words, there were £40 billion worth of capital investment that had been spent by British companies who were not profitable enough to be able to claim on their capital investment.

Therefore, I agree with the noble Lord: fiscal investments are an important part in obtaining the right climate for investments. But they are not the only part. This is not the time, but I could make the point in regard to the coal industry as to whether or not we actually received a proper return for some of the substantial capital investments that we made.

Britain is moving ahead; the economy has been growing for 18 months. Inflation is well under control and base rates are at their lowest level for 16 years. Of course, the recovery has been held back by the continued weakness of the European economy. However, when the European recovery comes, British business will be well placed to take advantage of the opportunities which will be on offer. In turn, British businesses must be prepared to anticipate new challenges and to open new markets.

The Government have an important role to play. Often that role will simply be to get out of the way; to reduce the burden of government on business, or try to prevent others from obstructing industry's progress. But in areas such as education reform, infrastructure and the private sector finance initiative, this Government intend to play their part to the full.

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