Job Creation in a Technological Age

HL Deb 22 June 1994 vol 556 cc273-363

3.6 p.m.

Viscount Caldecote rose to call attention to the problems of job creation in a technological age; and to move for Papers.

The noble Viscount said: My Lords, I beg to move the Motion standing in my name on the Order Paper.

I am glad that the two Motions on the Order Paper today are being debated together, for that enables me to concentrate on the home front, leaving the noble Lord, Lord Hunt, to cover the wider canvas of Europe.

Speaking in May, the Chancellor of the Exchequer reiterated his determination to maintain low inflation so as to preserve jobs. He also said that unemployment must be the main preoccupation of economic policy-makers in the 1990s. A previous Chancellor said, rather rashly perhaps, that high unemployment is a price worth paying for low inflation.

Those comments imply a paradox: high inflation destroys jobs and must be avoided at any cost; part of that cost is high unemployment. Therefore, it appears that whether we have high or low inflation, job creation will be inadequate.

The solution is to achieve the maximum rate of growth consistent with low inflation—the only base on which sustainable prosperity can be built. Therefore, the Government's achievement in controlling inflation to well below 4 per cent. must be applauded.

In the period 1983 to 1993 the average growth rate of real GDP was 2.3 per cent. per annum, but unemployment rose slightly during that period to 2.9 million in 1993. So it is clear that we need to do much better in terms of GDP growth if we are to rely on that for job creation.

It has been estimated that a steady growth rate of 3 per cent. per annum of real GDP would have a long-term positive effect on job creation. However, it must be a sustainable rate, otherwise we shall have the boom and bust scenario against which the Chancellor has rightly set his face. It is a huge task, probably unachievable, to maintain that level of GDP growth without inflation, even if it is desirable from the point of view of preserving the environment and controlling the use of non-renewable resources. So we must look more widely for ways of increasing job opportunities.

The question I wish to address today is whether we are doing enough to ensure that the present distress of high unemployment will in time bring the reward of creating the jobs that we need. Is it really a case of réculerpour mieux sauter? It probably is but we have a high fence to jump and we must plan how to get over it —for in today's conditions of rapid technological change, a rise in GDP, as I have indicated, will not necessarily lead to an acceptable level of job creation. Nevertheless, as we begin to come out of recession, more jobs are being created and unemployment has started to fall. That has encouraged a widely held belief that, as the economy grows, the necessary number of jobs will automatically be created, which will reduce unemployment to an acceptable level of, say, under 1 million. But is that a realistic view, or is it excessively complacent?

The fact is that in all but a few service sectors such as education, tourism and the arts, technological progress results in increasing productivity. Let me give some examples. As yet there are not many factories in the UK operating 24 hours a day, with computers controlling robots, monitored by only a few maintenance staff; but they are coming. In the financial sector, too, institutions have invested heavily in computer-based systems with the objective of increasing productivity. Banks have closed many branches and your friendly bank manager seems likely to be replaced by automated decision-making. In London ½ million jobs have been lost in the past five years which will be hard to replace.

Shopping, too, is moving away from a relatively labour-intensive activity to greatly increased turnover per employee in large supermarkets and in expanding self service over a wide area. In distribution generally, where containers long ago increased productivity in the docks by a factor of 10, we are now seeing a similar trend in wholesale warehouses brought about by automatic guided vehicles under computer control.

In transport the same trends are discernible: one-man buses, one-driver trains, even driverless trains, and bigger and bigger lorries.

In electronic communications successful competition has brought down costs by shedding jobs and, happily, has improved service through more efficient working.

In services provided by central and local government every effort is being made to achieve savings through productivity increases, some would say not always without detriment to the service provided.

So not only is it in manufacturing that output per employee is increasing but also in many service industries too. There is no sign of an end to such developments. Progress of technology cannot be halted: our objective must be to harness technology to our needs and not allow it to become our master.

Where do we go from here to provide opportunities for everyone to live satisfying lives through creative activity of some kind? It would be a waste of time to go into detail on the unemployment situation today: the human misery which youth and long-term unemployment brings is all too evident, particularly in relatively small communities where more than 50 per cent. may be unemployed.

Suffice to accept that it is a serious problem and that everything possible should be done to create more jobs, while accepting that competitiveness is absolutely essential, for without it customers will go elsewhere and more businesses will fail.

An urgent requirement is a much higher standard of training in the workforce at all levels, for the number of low skilled jobs will steadily decrease, and even for them relevant training is needed. Her Majesty's Government are already taking urgent action to achieve that, but the outcome will take many years to become effective and time is not on our side. So we must seek to create more jobs in the shorter term.

First, I believe that we should encourage a new outlook in business. Increasing shareholder value is outmoded as the sole objective. Wider considerations must prevail through a partnership of all the stakeholders, which includes customers, suppliers, employees and the national interest, as well as shareholders. The principle underlying the statement that "What is good for General Motors is good for the USA" is outmoded today. A better concept is that "What is good for Britain is good for business".

Research at the Harvard Business School on companies' achievements during 1977 to 1988 indicated clearly that those which valued all the stakeholders' interests did substantially better than those which put only shareholders first. Mr. Morita, chairman of the great Sony electronic company, has said, A company that reinvests in itself instead of concentrating on profits alone, will in the long run return more to its shareholders". So if we take job creation seriously we should recognise that the objective of improved competitiveness must always be to increase turnover, both directly and through suppliers, rather than to maximise the short-term return to shareholders.

Greater investment is the key, in particular in new products and services to capture an expanding share of world markets. Although inward investment has already contributed significantly to job creation, it is unhealthy for us to be excessively dependent on external decision-making. I welcome the investigation being made by the Financial Secretary to the Treasury on business taxation and the financing of medium-sized growth companies with the aim of improving investment. I hope that one of his conclusions will be that national insurance contributions should be abolished and the revenue found in other ways, for this is a direct tax on investment in people and a clear disincentive to employing more, especially young, people.

He should also look sympathetically at changes in company taxation which will favour retention of profits for investment rather than distribution—for the proportion of profits paid out in dividends is three times higher in the UK than for our principal competitors. However much the financial institutions protest their support of investment, the fact is that UK manufacturing investment relative to world output has steadily declined over the past 15 years, the 1994 figure being half that of 1970. That cannot be good for competitiveness and job opportunities bearing in mind the powerful and growing competition from South-East Asia and elsewhere.

In many of our competitors selective government support to encourage growth in industry is greater than here. That is due mainly to the ruling dogma in the UK that such support —I do not mean interference—is always counter-productive. But the success of such organisations as the Scottish and Welsh Development Agencies, contributing some £½ million per annum in support of job creation, and the high cost, nearly £10,000 per annum for each unemployed person, should surely lead us at least to question that dogma.

Here it is relevant that our labour costs per hour are three times greater than those in South-East Asia but similar to Japan's and 60 per cent. of those in Germany. Despite that, overall unemployment in those countries is much lower than in the UK; and in Germany the percentage of youth unemployment is one third of ours. The principal reasons for those variations are clearly a different level of investment in innovation required to capture a larger share of world markets.

Small and medium-sized enterprises have a big role to play in job creation, for investment in small companies is almost always for growth and job creation. Privately owned medium-sized enterprises can pursue a more flexible employment policy in hard times because they are free of external pressures on profitability and share price. Compared, for example, with Germany, we have far fewer of this type of company, which we should seek to encourage.

But it is unrealistic to assume that greater investment alone, important though it is, can and will create all the job opportunities we need. It can easily result in making richer those who share in the fruits of investment at the expense of those in more labour intensive jobs or in none.

So there is a case for job sharing and part-time working. There are already many in part-time employment who are satisfied with the resulting relatively low pay. Developments in electronic data transmission are making part-time home working increasingly practicable, and it should be encouraged. The difficulty of job sharing is that it involves pay sharing. But we should look carefully at, for instance, facilitating early retirement, at a shorter working week, at rates of pay which will not reduce competitiveness and at ways of reducing regular overtime working at all levels. All of these will involve some personal sacrifices, but if we take job creation seriously, that is inevitable.

I heard recently of a private company employing 1,200 people which had negotiated reduced working hours with the trade unions to avoid laying off staff. That is a most constructive attitude which should be applauded and adopted more widely.

Trade unions can also contribute in other ways. At present they seem to me to concentrate too much on improving pay and conditions of those in work rather than maximising job creation. Would it not be sensible to give the unemployed a bigger say on their executive committees to promote a better balance?

I should also like to see trade union pressure on management to increase investment so as to stimulate job creation in the longer term, and I welcome the conference on "Towards Full Employment" which is to be held in July, sponsored by the Trades Union Congress and the Employment Policy Institute. All this and more will be greatly helped by seeking a consensus throughout a company and the wider use of effective works councils and staff associations.

These are just some of the ways of stimulating job creation in this age of rapidly advancing technology. No doubt some people will think they are excessively idealistic, impracticable or ineffective. But I believe that we would all agree on the urgent need to create more jobs and that the current level of unemployment is not acceptable. So I look forward to hearing many other constructive ideas during the debate.

Through its policy of a flexible labour market and the many DTI schemes aimed at improving competitiveness, Her Majesty's Government are already making a useful contribution. But much more needs to be done. Perhaps I have painted too bleak a picture of the prospects of job creation. But we cannot predict the future with any certainty, except that the problem of maintaining an acceptable level of unemployment, combined with low inflation, will always be with us. So is it not wise to err on the side of caution and plan to create more jobs in every way? To be forewarned and forearmed is better than saying "Too little too late" in the years to come. I beg to move for Papers.

3.23 p.m.

Lord Hunt of Tan worth

My Lords, in following that important and interesting speech by the noble Viscount, Lord Caldecote, about job creation in the United Kingdom, it is my privilege to present to the House a report by the European Communities Committee, prepared by Sub-Committee A, which takes the subject a little wider.

The starting point for our inquiry into growth, competitiveness and employment in the European Community was the Commission's White Paper of last December which was not a proposal for legislation but much more of a discussion document. It was endorsed by the European Council in Brussels as "a reference point for future work". The action plan then approved by the council is due to be reviewed at the Corfu meeting this weekend. So this debate is very timely.

We spent nearly five months studying the subject in some depth and I therefore begin by thanking all those who helped us. They included, of course, government departments, institutions, academics and other experts in this country. In Brussels we saw Commissioners Christophersen and Prag and three directors-general from other directorates, as well as UNICE, the ETUC and other witnesses. We owe a big "thank you" to them all.

We also owe a special debt to our specialist adviser, Mr. Paul Richards, whose knowledge, clarity and analysis of the complicated data with which we were confronted was quite invaluable. Once again, we were very fortunate to have the great organisational and drafting skills of our clerk, Mr. Tom Mohan. Our report was unanimous and I should like to thank all my colleagues both for their individual contributions and also for their tolerance of the chair.

We believe that despite welcome evidence of cyclical recovery, unemployment remains the most important social problem at the present time. I think that it is vital to try to understand the causes before thinking about remedies. But given the problem of time and our status as a European Committee, we limited the scope of our inquiry in two ways. First, we have investigated in some detail the causes of unemployment in the Community as a whole and why it is so much higher than in the United States and Japan. But we recognise, of course, that the nature of the problem varies significantly from one member state to another. It is worth emphasising that we have not conducted an inquiry into unemployment specifically in the United Kingdom. Nor have we considered wider questions about the social consequences of unemployment and the pattern of life and work in society.

Secondly, in our recommendations we have concentrated on what needs to be done and what can be done about unemployment at Community level, as distinct from what needs to be done by member states. But having said that, I think that we were all struck during our inquiry by the extent to which it is national rather than Community action that is called for.

In the light of the evidence that we have taken, we think that the problem of structural unemployment is, if anything, even more serious than the White Paper suggested. By "structural unemployment", I mean the rate of unemployment averaged out over the business cycle. We refer to structural unemployment rather than technological unemployment because although new technology destroys old jobs it also creates new ones, as the noble Viscount has already stressed. But a common view is that at present at least half of the unemployment in the Community of nearly 19 million is structural. So one is possibly looking at a continuing relic of something like 10 million.

The level of structural unemployment has also been increasing for a long time both in absolute terms and relative to the United States and Japan. For example, real GDP has grown by around 80 per cent. over the past 25 years in both the United States and in the Community. But over the same period employment in the United States has increased by around 40 per cent., whereas employment in the Community has increased by only 10 per cent.

We believe that the Community has much to learn from American and Japanese experience, though the extent to which it is feasible or desirable for the Community to treat the United States or Japan as a model is, of course, limited.

The problem of structural unemployment in the Community can to some extent be attributed to lack of growth and loss of competitiveness. But we have to face the paradox that while competitiveness is essential to growth, neither the lack of growth nor the loss of competitiveness on their own is sufficient to explain the comparatively high level of structural unemployment. In our view the causes are complex and related to each other. There are three main ones.

The first is that growth has been inadequate. It has been inadequate in the sense that the potential rate of growth in the Community—that is, the rate at which the Community can grow over many years without overheating—has fallen from 4.5 per cent. per annum in real terms 25 years ago to just over 2 per cent. now. But a real rate of growth of 2 per cent. (which is what it is) is needed just to maintain the current level of employment in the Community and 2.5 per cent. is needed to prevent unemployment from rising, taking account of the increase in the working population.

Investment has been inadequate to support a higher rate of growth—inadequate not so much in quantitative terms, because investment in the Community is higher than it is in the United States, but in qualitative terms. Investment in education and training is particularly important; and, of course, the high level of real interest rates in the Community, which have been used as an instrument of policy to break inflationary expectations, has undoubtedly, however necessary, had the effect of reducing the real rate of growth.

Secondly, the Community has lost international competitiveness. We define competitiveness in terms of quality as well as cost, and measure it in terms of the Community's share of world markets as well as a place in which companies choose to invest. We are clear that competitiveness relates to the economy as a whole, and not just to the companies that trade within it. For example, the high cost and low efficiency of Europe's ageing infrastructure has been a major drag on competitiveness. Associated with the loss of competitiveness, the Community has lost its technological edge. Innovations take longer in the Community to develop into marketable products than they do in the United States or Japan. We were frequently told that businesses in the Community are good at inventing processes but not so good at manufacturing products.

Thirdly, labour markets in the Community do not work efficiently in a number of ways. They are still too heavily regulated and there is insufficient job mobility across the Community. A common view that was expressed to us in evidence is that over-regulation of the labour market deters employers from taking on new employees and leads to excessive rigidity in real wages, making the labour market in the Community slower to adjust than in the United States. Unit labour costs in the Community have risen much faster in recent years than they have in the United States, though not as fast as they have in Japan after allowing for changes in exchange rates. Non-wage labour costs now represent 44 per cent. of total labour costs in the Community as a whole (though less in the United Kingdom) compared to 28 per cent. in the United States and 24 per cent. in Japan.

Finally, the employment intensity of growth in the Community is too low. In other words, the rate of growth required before there is an increase in employment is too high. Output in the Community has to grow by 2 per cent. per annum before there is an increase in employment, whereas in the United States it has to grow by less than 1 per cent.

So much for causes. The proposals that are put forward in the White Paper attracted considerable support in the evidence that we received. They should have a significant potential effect on employment in the long term, although in the short term they will create few new jobs.

I turn to the matter of growth. The White. Paper puts less emphasis on growth than it does on competitiveness and employment. We believe, however, that the cyclical recovery from recession should be the immediate recovery, and that that recovery must be capable of being sustained. The main focus of the White Paper is on tackling the substantial level of structural unemployment which will remain once the economy has recovered. Those two objectives have completely different timescales.

We also considered to what extent the Maastricht convergence criteria are consistent with tackling structural unemployment. We conclude that it is important for the member states to achieve the convergence criteria in the medium term, but that they should not be strictly applied until the Community has recovered from recession. That is irrespective of whether member states proceed to the third stage of economic and monetary union—an issue which, I should emphasise, was outside the scope of our inquiry.

The next question is: what balance should be struck between measures designed to improve competitiveness and measures targeted specifically at creating jobs? We agree that restoring the Community's competitiveness is a necessary condition for sustained growth. But restoring competitiveness will not solve the Community's structural unemployment problem. We think that the priority ought to be to develop a strategy both for competitiveness and for employment. Although the two are related, they are not the same. The Community must become more competitive in a way that encourages job creation as well as jobless expansion. This is partly a matter of improving productivity: in other words, doing what is already being done more efficiently. But it is also a matter of encouraging innovation: in other words, branching out into new activities as well.

We considered in evidence a number of measures designed both to improve competitiveness and to create employment. The Commission, for example, is convinced that non-wage labour costs in the Community represent a tax on jobs which should be reduced— although it accepts that there are significant variations between member states and there is no agreement between them on how any such reduction should be financed.

A number of our witnesses also proposed that rigidities in the labour market should be removed so that the economies of member states can sustain a higher level of growth without increasing inflation. There is general agreement that lifelong education and vocation-al training should be encouraged in order to match skills, so far as is possible, to changing technological needs, even though it is not always clear in advance what sort of new jobs there will be.

Some more controversial ideas were also put to us: for example, that benefits in the form of recruitment subsidies should be paid to employers who take on the long-term unemployed and that people in the Community who can afford it should be encouraged to make greater provision for their own welfare if they have not already done so.

Ultimately, all these matters are for individual member states. But we believe that the Commission has a role—one which the White Paper sought to fulfil—as a catalyst for the exchange of ideas; as an advocate of best practice; as a monitor, for example, of the effect of regulations on employment; and as an umpire to prevent mutually destructive deregulation between member states.

Apart from the measures that need to be taken by member states we consider that measures are needed at Community level in four main areas. First, the single market must be completed quickly and (even more important) enforced equally in all member states. Public procurement in particular remains an outstanding issue. Secondly, we welcome the Commission's proposals for trans-European networks in transport and energy as a way of improving competitiveness in the long term. But they should not be regarded as an adjunct to employment policy, and their contribution to relieving unemployment during the construction period, while useful, will be very limited. In addition, the meaning of private finance and the means of Community support for trans-European networks need to be clarified; and a way must be found of cutting project lead times. Thirdly, information highways raise issues which are Community-wide. We agree that the Community has a role in setting common standards for them. Fourthly, we also believe that the Community has a role in encouraging innovation; for example, by encouraging "clusters" of companies and universities to pool their research.

Unemployment in the Community is part of a very much wider problem which is also being discussed in other international groups. Since we reported, an OECD study on unemployment has been published. The focus of the OECD study is on action at national level. It covers a wider geographical area than our report but the analysis and prescriptions are broadly the same. Even when the OECD says that worries about a new area of jobless growth appear unfounded, it refers in particular to recent experience in the United States rather than in the Community.

We received the Government's response to our report earlier this week and the committee has not had an opportunity to consider it. However, I was glad to see that it seemed generally favourable to our report. Nevertheless, there was one point on which there may have been a misunderstanding, which I should like to clarify. The Government: challenge the committee's call for macro-economic policy to be directed at promoting cyclical recovery". That is not quite what the committee said. It said that recovery should be the immediate priority but that was in the context of the Commission's White Paper, which put less emphasis on growth than on competitiveness and employment despite the fact that achieving sustainable recovery is an immediate problem whereas structural unemployment is a long-term one. The committee wanted to redress the balance a little. But we agreed that the convergence criteria ought to be met in the medium term.

The issues raised in the Commission's White Paper will not go away. The level of structural unemployment is extremely worrying and, if anything, more serious than the White Paper suggests. It is a matter of considerable concern and I am very glad that your Lordships' House is debating it today.

3.41 p.m.

Lord Strathclyde

My Lords, I congratulate my noble friend Lord Caldecote on providing the House with an opportunity to debate the challenges and opportunities that technology provides for job creation. Many noble Lords have the benefit of detailed knowledge and experience of these issues; and all of us benefit from the work of the Select Committee on the European Communities and its sub-committees. In this case we all owe a debt to Sub-Committee A, under the distinguished chairmanship of the noble Lord, Lord Hunt of Tanworth.

I know that my noble friend Lord Henley hopes to be able to respond to the detailed analysis and comments in the debate. Rather, therefore, than follow the details of the two eloquent speeches we have already heard, with your Lordships' agreement, I should like to set the debate in a wider context. We are debating together two Motions which at first glance appear to cover very different issues. But they share a common thread. They are about how we should adapt and change in the light of the economic developments that surround us. They are about how we can create a better quality of life for all. In a word, they are all about competitiveness.

The importance of competitiveness is something which none of us can ignore. Learned articles are written about its finer shades of meaning. I should explain therefore precisely what the Government mean by competitiveness. For a firm it is the ability to produce the right goods and services of the right quality, at the right price, at the right time. It means meeting customers' needs more efficiently and more effectively than do other firms. Indeed, it is the concept which underpins all commercial activity. For a nation, the Government agree with the OECD that competitiveness is, the degree to which [the nation] can, under free and fair market conditions, produce goods and services which meet the test of international markets while simultaneously maintaining and expanding the real incomes of its people over the long term". The essential message of competitiveness is that we have to earn our way. We can do so only by winning business in world markets. That is something that we simply have to do. Indeed, if we are not competitive, there will be serious constraints on what we can achieve as a nation.

So where does the United Kingdom stand in terms of competitiveness? Are we moving forward? Or are we slipping back into mediocrity? The United Kingdom's relative industrial decline over the past 100 years or so is no great secret. Of course, in absolute terms, we are better off now than we were 100 years ago. But our relative standing has declined. However, over the past 15 years or so, that decline has been arrested. The figures speak for themselves. During the 1980s, manufacturing productivity in the United Kingdom grew faster than in any of our major competitors. In the same decade, the United Kingdom's volume share of world trade in manufactures stabilised after years of decline. It was the first decade since the war in which the UK economy grew faster than the economies of France, Germany and Italy.

More recently, GDP has been growing for eight quarters and is now back to pre-recession levels. Unemployment has fallen by over 300,000 since its peak 18 months ago. Over the past year, manufacturing output has risen by 2.3 per cent. and industrial production by 4.4 per cent. And, so importantly, that has been achieved while keeping inflation under control. Indeed, over the past year or so figures for inflation have generally been lower than expected, and growth has been better than expected. My noble friend Lord Caldecote explained how important that was for long-term growth.

Manufacturing investment, as a proportion of manufacturing output, was higher in the 1980s than in the 1970s. The growth in business investment in the 1980s was faster than in any other major industrialised country except Japan. Since 1979 investment in plant and machinery is nearly 50 per cent. higher, and over the last economic cycle, from 1981 to 1992, manufacturing investment increased by nearly one fifth and business investment by over a half. That does not mean that we can now sit back and relax. As my noble friend explained, we do not want boom and bust. We must plan for the long term; for steady growth with low inflation. That is now firmly in our grasp.

There have been great changes in the world economy. The pace of technological development is astonishing. My noble friend Lord Caldecote drew attention to the challenges which that brings. The market place is increasingly a global one. The competition faced by our companies has grown immeasurably stronger: the Asian tigers have emerged and are roaring ever louder. But here lies our opportunity. Indeed, last year the United Kingdom increased its exports to the dynamic markets of Asia and the Pacific Rim by 30 per cent. over the previous year. That in itself is a tremendous achievement.

There are changes closer to home. The Iron Curtain has been swept aside. The first tentative steps have been taken towards establishing market economies in the countries of eastern Europe. As those markets develop, they will themselves give rise to new opportunities, and to challenges. The extension of the single market to most EFTA countries and the establishment of the North American free trade zone is changing the business environment yet again.

Looking ahead, there is: no telling what further changes will occur and how even faster technological change may alter the way in which we do business or change the requirements for remaining competitive. But one thing is certain: change is here to stay. That creates a huge challenge for this country. However, it would be futile to suggest we resist change. We could not even if we wished to. There is no hiding place in today's global market place; we should not be afraid of it. Change, particularly in the use of high technology, robotics and so on, rids people of the need to do tedious jobs.

There may be those who would prefer to resist the changes that technology can bring. No doubt we shall hear from them during the course of the debate: those who, over 250 years ago, would have argued against the flying shuttle, which did so much for the textile industry; those who, 180 years ago, would have joined the Luddites in condemning new machines; and those who, 80 years ago, would have seen a great future for the horse-drawn carriage as a staple means of transport. Change can be uncomfortable. But to keep one's head in the sand becomes increasingly uncomfortable. The key to the future is to exploit change; to seize the unparalleled opportunities; and to use technology to create new jobs and whole new industries.

I hope that there is one debate we can all put behind us; that is, whether it is manufacturing or services that really matter for the future. I can assure the House that the Government are clear that a competitive manufacturing sector is essential for our long-term prosperity. Manufacturing accounts for around one-fifth of our GDP and employment—a similar proportion to that in France and above that in Canada and the United States. The importance of manufacturing does not derive simply from its share of output and employment, nor because it supplies around half our consumer purchases. Rather, it is the key tradable sector. It contributes roughly threequarters of our exports.

Manufacturing has also traditionally been the main source of productivity growth in the UK and in most other advanced countries. But recent developments in information technology mean that productivity in many service sector industries can now be expected to grow quickly. Of course, a pound of value added in services is worth exactly the same as a pound of value added in manufacturing. Furthermore, manufacturing and ser-vices are increasingly interlinked. Manufacturing is a significant customer of the service sector. Manufacturing's own competitiveness depends on an efficient service sector. In addition, manufactured goods often have value added to them through the delivery of services at the same time. Indeed, just last week it was suggested in the other place that there could come a time when PCs would come free when one purchased the software they used.

The truth about manufacturing and services is simple. They both matter. Or rather, competitive manufacturing and competitive services both matter. For it is businesses, not governments, that create wealth. The primary responsibility for competitiveness therefore rests with the private sector. But of course the Government have a part to play.

The White Paper on growth, competitiveness and employment referred to on the Order Paper is the production of the European Commission. But it has not gone unnoticed in this House that we too produced a White Paper on competitiveness which seeks to set out the challenges that we face in the UK, the role of the private sector, and the role of government. It makes clear that improving competitiveness requires action across a very broad front—transport, education, training, industry and fiscal policies. Indeed, such is the importance of the issue that we should leave no nook or cranny unexplored in the search for improvements.

My noble friend Lord Caldecote is right when he says that companies must increasingly look at the needs of all stakeholders, customers, consumers, employees and bankers as well as shareholders. But that will not come from imposition by central government. That is the route of fossilisation and disaster. In this country we are blessed with a highly sophisticated financial community. British industry should reap the advantage of having that on its doorstep. The role of small and medium enterprises in this country cannot be over-exaggerated. Small firms are particularly important. But we still have a culture which too often is represented as being anti-entrepreneurial. All those subjects are dealt with in our own White Paper.

My noble friend Lord Caldecote rightly drew attention to the challenges that new technology can bring. The noble Lord, Lord Hunt of Tanworth, helpfully drew attention to the European dimension. I hope that, for my part, I leave the House in no doubt of this Government's commitment to taking action to improve the competitiveness of our country.

3.55 p.m.

Lord Eatwell

My Lords, we are all grateful to the noble Viscount, Lord Caldecote, for introducing this debate with a most constructive and perceptive speech. We are grateful also to the noble Lord, Lord Hunt of Tanworth, and his committee for its valuable report on Growth, Competitiveness and Employment in the European Community which contains a wealth of important information on the topic of this debate. We should be grateful also to the noble Lord, Lord Strathclyde, for his interesting speech.

Unemployment is the economic and social curse of the 1990s. It is an economic waste, morally and personally degrading, socially destructive and divisive. The high and rising rate of unemployment in the European Union is a cause not just for concern but for alarm. Of course the number of people in Britain receiving unemployment benefit has been falling over the past few months. While that is certainly better than the figures rising, it is only a partial cause for satisfaction—for something very strange is happening to the British unemployment figures.

Since it reached a peak in December 1992, the number of unemployed receiving benefit, as the noble Lord, Lord Strathclyde, pointed out, fell by 310,000. But while unemployment has gone down, employment has not gone up. In fact, all forms of employment, including self-employment, have gone down by 58,000. That means that 368,000 people are not employed and they are not unemployed either; they have just disappeared.

The mystery deepens if we examine the position of male workers. Since 1979 more than 1 million men between the ages of 25 and 54—the so-called peak active age—have disappeared; they are not employed and they are not unemployed. Today one in four of all men of prime working age in Britain have disappeared from the labour market; they are economically inactive. That is the highest figure in any major industrial country, exceeded in the European Union only by Ireland. What is happening? Perhaps the noble Lord, Lord Henley, will tell us. One in four men of peak working age being idle may be what this Government mean by a "flexible labour market".

Unemployment, growth and competitiveness have been the subject of a number of important reports and speeches over the past few weeks, in addition to the European Commission White Paper which is the main subject of the report of the noble Lord, Lord Hunt. Some of them have been referred to already. They include the recent important lecture by the Chancellor of the Exchequer; the preliminary report by the Secretary-General of the OECD on its forthcoming jobs study; the White Paper presented by the President of the Board of Trade referred to by the noble Lord, Lord Strathclyde; the pamphlet, How we can conquer unemployment, published by my honourable friend Dr. Gordon Brown; and the policy document, Winning for Britain: Labour's strategy for industrial success, written by my honourable friend Mr. Robin Cook. Taking this deluge of reports, pamphlets and papers together, a number of common themes emerge. It is on those themes—the intellectual bedrock of policy formation —that I wish to focus my remarks.

First, a common theme is that tackling unemployment is back where it belongs—firmly at the top of the political agenda. As the noble Viscount, Lord Caldecote, said earlier, it was genuinely heartening to find the Chancellor of the Exchequer saying last month that, Unemployment must … be the main preoccupation of economic policy makers in the 1990s". That is a most welcome change from his predecessor's doctrine that "Rising unemployment" is a "price… well worth paying".

Secondly, there is general agreement, though the Chancellor of the Exchequer is a little ambivalent, that an effective employment policy in Britain must be part of a co-ordinated employment policy in the European Union as a whole. When, as today, one in five of all jobs in Britain is directly dependent on demand elsewhere in the Union, when production is increasingly integrated across member states and when firms, if not governments, plan their operations on a European scale, that must be right.

Thirdly, there is also general agreement that a vital component of an effective employment policy is the ability to adapt to the demands of technological change, creating an environment in which innovation is an opportunity, not a threat.

Fourthly, everyone, including the Chancellor of the Exchequer, agrees that the high levels of unemployment in the Community have not been created either by an acceleration in the pace of technological change or, to any significant extent, by competition from the newly industrialising countries of the third world. In fact, the overall rate of technological change, as measured by the rate of labour productivity growth, is everywhere significantly lower today than it was in the 1960s; and as far as third world competition is concerned, while the share of third world manufactures in total demand is growing rapidly, from 1 per cent. in 1968 to 4 per cent. last year, it is still far too small to be the explanation of the massive growth in unemployment suffered in the G7 and European Union over the past decade.

So, as the OECD report concludes: In practice, most of the competition in OECD countries comes not from low-wage countries, but from the OECD countries themselves…Globalisation … fosters economic growth and development… With this growth and development comes the wholesale destruction of many jobs—around one in 10 each year —together with the creation of a similar number of new ones". This is the fundamental problem, the problem that everyone agrees needs to be solved. Change necessarily involves the destruction of jobs and, at the same time, the creation of jobs. How do we ensure that instead of the creation of a "similar number" of new jobs, actually more jobs are created than are destroyed?

It is at this point that harmony ends and disagreements appear in the various documents to which I have referred, for the final message which emerges so clearly from all these documents is that woven through the welter of analysis and proposals are two quite different policy themes, two quite different intellectual and practical approaches to the problems of employment and competitiveness. On the one hand, as far as the Chancellor and the President of the Board of Trade are concerned, the approach in Britain and in Europe should be, deregulation, structural reform and … flexible labour markets". Their approach is a continuation, that is, of the programme of laissez-faire reform initiated by the noble Baroness, Lady Thatcher.

On the other hand, as far as my honourable friends Dr. Brown and Mr. Cook are concerned, the approach in Britain and in Europe should involve a commitment to investment in capacity, to investment in education and skills and to the development of the new technologies —that commitment to be secured by creating a new long-term relationship between industry and finance, by an egalitarian society with a secure structure of employment rights and by investment in that technological infrastructure which, despite our remark-able inventiveness, Britain notably lacks.

These quite different approaches lead to very different policy prescriptions. The Government's approach is very much influenced by the experience of the American economy, where in recent years, as the noble Lord, Lord Hunt, told us and as his report illustrates, job creation has been significantly higher and unemployment significantly lower than in the European Union. The Chancellor of the Exchequer characterises the American model in these terms: There are few regulations or controls. Wage bargaining is highly decentralised. Trade unions are weak. Standards of social protection are low". The result, he argues, is that: The United States has a less regulated labour market them European countries and enjoys much lower levels of unemployment". But the Government's analysis of the American economy is misguided and their enthusiasm for the American model is misplaced. In any economy in which social security provision for the unemployed is low or even non-existent, recorded unemployment will be low. Unemployment in Mexico, for example, is today 2.8 per cent., less than half the American rate. Why instead of the American model does not the noble Lord, Lord Henley, adopt the Mexican model? Perhaps he will tell us what the Government have to learn from Mexico's employment policy.

It is obvious why unemployment is low when social security is low. When there is nothing else to live on, people find a way of scraping by on very low incomes —running errands, shining shoes, delivering pizzas, or, in Britain, selling The Big Issue in the Strand. As has been recognised since the 1930s, people scraping by in this manner are in fact a special category of the unemployed; they are what is called disguised unemployed. If there were a higher level of activity in the economy they would get real jobs in which their productive capacities could be fully utilised. But, stuck in disguised unemployment, their capacities are woefully under-utilised.

The OECD report clearly identifies the fallacy in the Chancellor's enthusiasm for the American model: The appearance of widespread unemployment in Europe … on the one hand, and of poor quality jobs as well as unemployment in the United States on the other, have thus both stemmed from the same root cause: the failure to adapt to change". It is actually easy to distinguish between real jobs and disguised unemployment. When people are taking real jobs in a dynamic economy their productivity grows as they adapt to the demands of technological change. In disguised unemployment there is no productivity growth. That is why for the past 20 years American productivity growth has been less than half the rate of productivity growth in Europe. Indeed, the rate of productivity growth in the American services has for the past 20 years been nil. This is not a model of adapting to change. It is the absence of change.

The Labour Party's approach is quite different from the Chancellor's. Dr. Brown's pamphlet spells out in detail an employment policy which embraces change, with a commitment to enhanced competitiveness and real jobs. His approach is built on the recognition that Britain's ability to sustain any level of employment, let alone full employment, has been systematically undermined for many, many years by a lack of investment. That lack of investment cannot be attributed solely to the policies of the past decade. It goes back much further than that. Low investment is endemic in the institutional structure of Britain's economy. What is needed, and what is proposed by my honourable friends, is a fundamental and far-reaching institutional reform designed to ensure that the most successful financial sector in the world operates in the interest of British industry and not at the expense of British industry; designed to ensure that Britain's workforce is educated and trained to the high levels demanded by modern technologies; and designed to ensure that the remarkable inventiveness of the British is channelled into high technology production, founded on the latest technological infrastructure.

The differences between these two approaches—the approach of the Government and the approach of the Labour Party—should now be clear. The Government's approach is essentially static. It is about given markets in given circumstances. Any inhibition to the operation of markets, especially labour markets and financial markets, is automatically labelled as damaging to economic efficiency and likely to prevent the market clearing. Labour's approach is essentially dynamic. It is a search for the most efficient means of accumulation, the most efficient means of incorporating technological change into the economy and the most efficient means of developing the skills of the labour force.

Starting from these two quite different positions, the same objectives produce quite different policies. Everyone, for example, is in favour of more "flexible" labour markets. Now it may be true, as the US Secretary of Employment has recently remarked, that: The concept of 'the flexible labour market' has in the past few years gone from novelty to banality, without ever passing through coherence along the way". But despite Mr. Reich's doubts, "flexibility" is still the shibboleth of Labour market policy.

For the Government, applying their static approach, flexibility means stripping away workers' employment rights, reducing collective bargaining to a bare minimum and increasing inequality. The Chancellor describes the widening gap between the highest paid and the lowest paid as "inevitable and probably desirable". For the Labour Party, applying its dynamic approach, flexibility means a highly-skilled labour force, adaptable and secure, with the confidence that it can respond to the changing demands of technology. It includes the recognition that the highest rates of labour productivity growth are enjoyed by those countries with more equal distributions of income, not less equal, as the Chancellor seems to think. The social chapter is an excellent example of the high standards between employers and employed which are an important component of a dynamic approach but dismissed as a market impediment in the static approach.

The Government may complain that they do try to encourage investment and growth. Of course they do. But their entire static laissez-faire philosophy is incompatible with their goal. For example, the President of the Board of Trade's interventionist instincts do not fit well with the Government's laissez-faire framework. That is why his White Paper is an American doughnut of a document—shiny frosting on the surface, stodgy inside, and with a hole in the middle where a coherent policy should be.

Lord Harmar-Nicholls

My Lords, the noble Lord is announcing the Opposition's policy, which is important. When he speaks about real employment and hidden unemployment, is he suggesting that the hidden unemployment in the jobs which he outlined should not be mentioned? If real jobs are not available, does the noble Lord applaud, or is he appalled at, what he calls the hidden unemployment alternative?

Lord Eatwell

My Lords, I am in favour of the position taken on that by the noble Lord, Lord Lawson, who commented on Tuesday that this process involves levels of pay for the least skilled that a fundamentally wealthy society would rightly consider too low to be acceptable.

A constructive approach to change must be built on a policy of high quality investment. That policy is essentially about building the institutional framework which fosters change in today's high technology world. Let me be quite clear: Labour is not opposed to all deregulation and it is not in favour of all regulation. Labour is in favour of the balance of competition and regulation which encourages long-term investment, which is the source of high technology innovation and high technology quality—the only true foundations of long-term competitiveness.

Those are the foundations of the dynamic market economy which my honourable friend Mr. Tony Blair has argued is the true basis of future prosperity and of full employment. He is absolutely right.

4.11 p.m.

Lord Dahrendorf

My Lords, it is not for me perhaps to praise the report by the Select Committee on the European Communities since I was a member of that committee and of the sub-committee involved in working out the report. However, I did learn a number of lessons which may be of some relevance to our debate. I wish to underline two, one of which has perhaps been mentioned sufficiently already. I refer to the jobless growth.

Clearly, in a global market place, however imperfect it may still be, competitiveness is not just a condition of growth but of economic survival. Clearly, therefore, the conditions for competitiveness have to be created. At the same time I, for one, left the committee with a very strong sense, after all the evidence we heard, that competitiveness, even if it includes innovation as well as increases in productivity, will not by itself help us much in combating unemployment. Some jobs will be created; a lot of jobs will disappear. And the unemployment problem will remain with us. The statement by the committee that competitiveness and employment are two problems which have to be tackled but which are difficult to tackle through one set of policies is one conclusion I have drawn.

The other conclusion, not so far mentioned, is that there are enormous differences, not just between European countries and the Asian tigers but within Europe. I give as an example the statement in the report, mentioned by the noble Lord, Lord Hunt, that the indirect, non-wage costs of labour, as a proportion of total labour costs in the Community, are too high. The noble Lord, Lord Hunt, fairly pointed out that non-wage labour costs as a percentage of total labour costs in the European Union are 44.4 per cent. But if ever there was a meaningless average it is that one. Indeed, European Community figures are often fairly meaningless because they provide averages between widely divergent situations.

If one examines the figures in detail one discovers that, as a proportion of total labour costs, non-wage labour costs are close to 50 per cent. or even above in Italy, France and Germany and 30 per cent. in this country. That is a massive difference which needs analysis. In my view it points to the fact that there may be different and various methods of achieving competitiveness. The difference is so profound that it needs explanation, probably in terms of quite divergent economic cultures—the role of shareholdings and the stock market, the type of pension system which prevails and therefore the interests of ordinary citizens in the yield of companies directly rather than indirectly by way of taxation on non-wage labour costs. They are differences which, I am convinced, will not go away although I suspect that, partly as a result of the increasing pressures of the world market and partly as a result of the European Community, Britain and continental countries may move a little closer—but only a little. Vast differences will remain. That explains perhaps why it is hard to devise common social policies for the Community of 12. Members have different experiences and different approaches.

Those differences raise the big question with which we are concerned this afternoon: what do we do? In other words, what is the right answer, considering the limited effects of competitiveness on employment and the specific economic culture of the United Kingdom, to the worrying problem of unemployment?

I listened with great interest to the noble Viscount, Lord Caldecote. His speech was so packed with important ideas that it was difficult to take them all in at one hearing. I look forward to reading his remarks in Hansard. The noble Viscount made many relevant points with which I certainly associate myself.

I add two footnotes to what needs to be done if we are to cope with the vexing problem of lasting unemployment in a competitive world. We have to get clear in our minds and in our political actions where the line should be drawn between the competitive domain of our lives and what I call the public domain. In my view the simple application of the values of the competitive sphere to the public domain is erroneous and has consequences for employment and in other respects which are not conducive to increasing the well-being of the nation.

The public domain includes educational institutions where competitiveness may work the other way. A deteriorating staff-student ratio in universities makes, from a certain point onwards, British universities less competitive with those of other countries than was the case when there was a better and more sensible relationship between the number of teachers and the number of those taught. I take that example from my own experience: it would be easy to quote examples from other areas. We may reach, following calm and careful reflection, different conclusions from those that derive from the automatic application of the language, values and actions of the strictly competitive sector.

The other footnote I would add to the important points made by the noble Viscount, Lord Caldecote, and others has to do with the notion of people's employability. I doubt whether we are going into a world in which the overwhelming majority of people will have steady jobs and careers throughout their working lives. One of the main features of the decades ahead will be that people will have to be able to change and to adjust. They will have; to be able to change from full-time to part-time work and to make adjustments which are sometimes painful, sometimes desirable, but for which many are not prepared at this stage.

I feel that preparing people for this more complex and difficult world is a key issue, within which the most difficult and important single problem will be getting young people, and young men especially, into the labour market in the first instance. The question is how to avoid a situation in which a growing number of young men have never been part of the labour market and for whom employability has never become part of their mental make-up, habits, attitudes or way of life.

That raises the issue of incentives. Above all, however, it raises questions about training and the relationship between vocational training and the job opportunities connected with it. We need an interlinking of vocational training and job opportunities. The problem is more severe for young men at this stage than for young women who seem to find it easier to adjust to a world requiring greater flexibility. The problem is that unless young men have at least one experience of a job opportunity at an early stage, all attempts to make them employable for life are likely to be that much more difficult.

The Select Committee on the European Communities was discussing a report issued by the European Communities. Nevertheless, many of us who served on the committee have come to the conclusion that although, so far as competitiveness is concerned, the Communities and the Union have an important role to play, when it comes to unemployment, most things,, if not all, have to be done at home. It is not good enough simply to have a nice conversation with others who have similar problems. Action begins here.

4.22 p.m.

Lord Boardman

My Lords, I start by thanking my noble friend Lord Caldecote for tabling this Motion and for admirably launching our debate. I found myself in agreement with most of what he said with perhaps one reservation, which I may get an opportunity to mention later.

I thank also the noble Lord, Lord Hunt, for the skill and style with which he chaired sub-committee A of our Select Committee, which produced the report that we are debating this afternoon. His speech touched on many of the issues which concerned us. In order to save the time of the House, and because the noble Lord summed them up in his normal skilful way, I shall not repeat them.

The issues before us are considerable. The European White Paper considered growth, competitiveness and employment. As the noble Lord, Lord Dahrendorf, said, competitiveness and employment are separate issues. One does not lead to the other. Reading the European White Paper one might imagine that if you have growth you have competitiveness and employment. That is not the case. In fact, the reverse is more true. The more that competitiveness is increased—that means using all the technological advances—the more that you add to unemployment. That is a separate problem.

However, there is really no choice. Our economic history shows that for far too long many of our industries have hung on to old practices and over-large workforces rather than face the pain and the social consequences of unemployment that come from modernisation. As a result, many of our industries, such as coal and steel, and many others both private and public, have suffered severely. It is only in recent years that the painful bullet has been bitten and we have started to have labour forces of a size that will make us really competitive.

However, that has also meant that we have a serious problem with our rate of unemployment. That problem is being tackled, but much more needs to be done. The noble Lord, Lord Strathclyde, referred earlier to what was being achieved. I find it fascinating and encouraging to know that our rate of growth over the past 10 years has been in excess of that of Germany. Although it is encouraging to know that, we still have to tackle the unemployment problem.

We are faced with world competition from the USA, the European Community, Japan and the Pacific Rim. China is coming on strongly. We are facing competition from countries where labour costs are far lower than ours, where skills and technological aids are available and where research has advanced at an enormous pace. So, we face great challenges. We have a great task ahead of us if we are to hold our market share, let alone increase it. The question is how to do it. I find myself supporting the European Community where it has a role and can help us in this. However, I believe that in finding gainful and proper employment without interfering with our competitiveness we are very much on our own. I agree with the noble Lord, Lord Dahrendorf, on that. We must approach the issue from the national point of view. We cannot go along at the pace of the slowest of the 12 or be restricted in the way that the European Community would seek to restrict us.

We need to examine various aspects. I turn first to research and development. I am glad to know that during the recent years of recession we have increased our expenditure on R&D. That is encouraging, but much more needs to be done. I turn now to innovation. This country has had some great success stories, such as Pharmaceuticals. Our aeronautical industry is also a world leader, and there are many others. However, we still do not have enough such companies. Innovation is essential and we must do more. The Government have a responsibility to create the right climate.

The Government also have a responsibility in terms of their taxation policy. In that connection, I refer to what my noble friend Lord Caldecote said. He suggested that taxation should be more severe on the distribution of dividends than on retentions. I understand his argument. It has been used by many with his experience. However, I believe that it is wrong. I believe that taxing the distribution of dividends on the same basis as retentions enables the recipients to decide whether to leave them in that company or to deploy them in a new company, thus widening the field of investment and research and development. However, I shall not delay your Lordships on that point at this stage. Overall, business taxation within the United Kingdom as a percentage of GDP is better than it is in the USA, the countries of the European Community, and Japan. To the extent of taxation, therefore, the Government are helping to create the climate that industry wants.

Good industrial relations are essential. Fortunately, we have had a very happy period in terms of industrial relations recently and great credit for that must be given to the Government, employers, unions and employees. Productivity is at an all-time high. That is very encouraging. Inflation is low. A great deal has also been done in terms of education and training, with the setting up of, for example, the training and enterprise councils, the lifetime learning schemes and the establishment of the further education funding councils.

My noble friend Lord Strathclyde referred to the Government's White Paper. White Papers are no longer so flimsy that they can be put into your pocket; a suitcase is needed in which to carry them. But the White Paper is full of good stuff and I strongly commend all who are interested in the problems of industry, business and commerce to read it. Many lessons can be gained from it. There are many achievements of which we can be proud but there are many areas in which we must do better. But the White Paper is a valuable guide.

I return to the question of Europe. It is a massive market for us, taking over 50 per cent. of our exports. The single market provides many opportunities. Great credit should go to my noble friend Lord Cockfield who brought that about, and I am delighted to see him here today. The single market opens up enormous opportunities and we must make the most of them. The single market must be made to work and there are still things to be done to make it work. We must do all that we can to achieve that.

Europe has moved towards opening its markets in a way that we want it to do; but I contrast that with the way in which it is tending to restrict the supply side and productivity. It wishes to impose conditions and restrictions to make production less easy for us, and to impose obligations on us with regard to our methods of production, industrial relations, and so on, which I find unpalatable. As my noble friend Lord Caldecote said, we need a flexible labour market.

I am sorry to see that the noble Lord, Lord Eatwell, is not in his place. He said that he did not understand what we mean by a flexible labour market. Much of that was touched upon by the noble Lord, Lord Dahrendorf. But we mean that it must be made easier for people to move about, to move home, and so on. I had hoped the noble Lord would understand that point. He seemed to be rather fixed upon the Mexican model. I should be intrigued to know what he means by that. If he wishes to impose on the workforce of the United Kingdom labour conditions which are based on the Mexican model, then I believe that he should spell that out. The Labour Party should put that in its next manifesto and should see what support that receives. I doubt whether the noble Lord has studied what has happened in Mexico. He referred to greater equality but in Mexico there is an enormous disparity between extreme wealth and extreme poverty. I am sure that the noble Lord will have an opportunity to justify that at a future date.

In this country we need to retain responsibility for matters which are contained in the social chapter; for example, health and safety, hours of work and so on. It is not for the European Community to dictate to us about those matters. It must not make us move at the pace of the slowest. We wish to move at a pace that we can generate in this vital country of ours. We are not operating behind a ringfence where everything must be sold in Europe and nobody else can come into it. We are operating in a world market and we must equal the best in that world.

I turn now to the subject of unemployment, which is central to today's debate. I do not propose to bandy statistics with the noble Lord, Lord Eatwell. I shall look at what he said and no doubt my noble friend Lord Henley will wish to comment on some of the figures referred to. There are two areas of difficulty. The first is the problem of the young. A great deal is being done to provide training so that young people can obtain work. It is extremely important that everything possible should be done so that the young obtain employment. They must be given opportunities and training. Nothing can be more soul-destroying for them than to find that there is no job awaiting them at the end of their training. I hope that we are moving in the right direction in that regard.

Problems are also created by older employees. For example, an older person may find it more difficult, and take longer, to learn how to work a computer with speed and efficiency. However, the White Paper on competitiveness refers to steps that are being taken in that area. There are lifetime learning schemes and other projects designed to help those people to find useful employment.

Industry has an extremely important role to play in that respect. It is not sufficient to think only of next year's staffing levels. Industry must look much further ahead. I know that when I was chairman of a company we endeavoured to look ahead 15 years. We did not make detailed plans, but we tried to contemplate what would be happening, for example, in the year 2000 or whenever it might be. We had to consider whether we should still need penpushers or whether we should need young people to be trained on computers and in technology. Obviously we could make nothing more than an inaccurate estimate, but we tried to anticipate trends before they arose so that we did not suddenly find that we had employed many young people for whom there would be no prospects in three or four years' time. Alternatively, we tried to make sure that we had not left ourselves in the position in which we had insufficient numbers of young people to train. I believe that industry needs to take a long-term approach, however inaccurate the assessments may be.

Today very few people have jobs which they can be sure will still exist in 10 or 15 years' time. I was thinking about that at lunch today. I cannot see that window cleaning of a domestic building will be taken over easily by some new technology; and I cannot see hairdressing being done by a robot or a computer. Those are the safe jobs, but many others can be mechanised or taken over by technology and we must view that with some caution.

This debate has raised key issues which will be with us for a long time. I know that neither my noble friend Lord Caldecote nor the Select Committee under the chairmanship of the noble Lord, Lord Hunt, produced the answers to our problems. But they have outlined what are the problems. They have put some ideas on the table on which we have all reflected. But those problems will be with us for a long time in the future.

4.37 p.m.

Lord Bruce of Donington

My Lords, the report of Sub-Committee A of your Lordships' European Communities Committee was triggered off by the report from the European Commission, Growth, Competitiveness and Employment in the European Community. I pay my tribute to the noble Lord, Lord Hunt of Tanworth, for the prodigious task that he undertook and which he successfully completed in going through and calling evidence upon what I think is generally admitted to be a fairly tortuous document. At the same time, I thank and indeed congratulate the noble Viscount, Lord Caldecote, on the extremely interesting and constructive contribution that he was able to make this afternoon on the subject of unemployment.

I was extremely glad that my noble friend Lord Eatwell restored the whole matter to its correct perspective by saying that the dominant issue is the whole question of unemployment rather than that of competitiveness itself. I look forward to the Minister's reply to the arguments advanced by my noble friend.

I wish to discuss the matter this afternoon within the context of the European Community itself, to which I have devoted over 20 years of study and which has remained a constant preoccupation for me. I am rather puzzled as to how the situation in Europe has arisen at all. We were told originally, and have been told consistently, that the main purpose of the Community —aside from its enormous contribution to the preservation of world peace and peace in Europe—was the prospect of increased prosperity in Europe among the member states; increased opportunities; far greater security for its population; and a progressively rising standard of life.

I must say that I have become somewhat disappointed in the matter. As the evidence brought: before the Committee has shown, and which to some extent was reinforced even more pessimistically by the findings of the OECD, the following situation has arisen. After 20 years of the progressive extension of the single market—and, as we know from the noble Lord, Lord Cockfield, in his most recent and admirable publication, The European Union, the single market has now been completed—one would have expected a different situation from that which was unfolded to the Select Committee but which, I suppose, has been common knowledge for some time.

Unemployment in the European Community is now running at about 20 million. It is predicted that in the not too distant future it might rise to about 23 million. Job creation—and I am using the Commission's own figures —taking the years 1960 to 1973 as 100 is running at 102 compared with 130 in Japan. Growth has declined to 2 per cent. per annum and a sustained rate of 2.5 per cent. is needed just to prevent unemployment from rising. The EC's share of world exports has declined from 24 per cent. to 18 per cent. over the past 20 years and within the EC itself, despite the transfer of funds that has taken place as regards the regional and social funds and so on (which are shortly to be reinforced by cohesion funds), the gap between the richer and poorer countries of Europe still remains.

That is not exactly an encouraging picture. We have been told, and were told again today, that all we really need in Europe is the freeing up of the single market (which has now largely been done), the establishment of even playing fields —whatever that magnificent term may mean—and everything will be all right. However, that has gone on for a long time. Not only has the position not improved—and I am talking about Europe as a whole—but it has actually deteriorated. The whole thing does not square somehow.

The Government say that their own position has improved considerably. In reviewing the report that we produced the Government observed: Building on the policies that have proved successful over the last fifteen years"— I am bound to add a little "ha, ha!" to that— the Government aims to create the conditions in which individual enterprises improve their competitiveness and structural unemployment is reduced". But, once again, that does not entirely tally with the very authoritative views of the noble Lord, Lord Cockfield, who, as noble Lords know, is an expert in such matters. In the same publication to which I referred the noble Lord says that, when the Community was founded we had the highest per capita income in Western Europe: today we are poorer than any of the original members of the Community". That does not sound like a shattering testimonial on the success of the operation. As noble Lords know, I am all for co-operation in Europe among member states and I am all for freeing up trade in so far as that can be done, but I am bound to say that the result is not frightfully impressive. At a later stage I shall invite the House to come to some conclusions as to the situation and offer a few solutions in that respect.

However, there is another factor about which there has been what I can only describe as a conspiracy of silence and to which the noble Lord, Lord Henley, will undoubtedly reply in due course. I am absolutely certain about it. I refer to the deteriorating balance of payments situation in the United Kingdom which does not seem to have been mentioned in the Government's vindication of their policies within Europe.

I do not want to spread undue alarm and despondency among a Stock Exchange which has already appeared to be a little rocky over the past three or four days; and, indeed, would not have touched on the matter in the national interest had it not been referred to in today's Financial Times. However, I am bound to say that it does not sound like a very great testimonial of success. In their response to the White Paper and to the report, the Government claimed that our total visible deficit in 1992 was £13 billion, of which nearly £10 billion was with other EC countries, and that in 1993 the visible trade deficit was, again, £13 billion, with the deficit with the European Community countries standing at £9 billion. Moreover, by the results so far this year, it looks very much as if we shall be running once again at a total trade deficit of £12 billion, with no less than £4 billion from the EC.

I do not want to cavil too much about such matters. However, they do not seem to add up to all the profound success about which we have heard. I do not know what the Minister will have to say, but it does not seem very successful to me. The noble Lord, Lord Strathclyde, referred to our record exports, but he did not seem to recall the fact that during the same period our import bill has increased enormously; nor did he confess to the House the reason for it. Having destroyed, or having been instrumental in destroying, so much of our productive capacity in the 1980s the Government have so decimated British industry that even when demand returns British firms are incapable of meeting it. Hence imports are sucked in.

Although I do not wish to be alarmist, I am bound to put it to the noble Lord that I can recall a time when a deficit of £300 million, let alone £3 billion, was reckoned to be very serious business. I should have thought that the optimism shown by the Government in the matter—and I am all for optimism; indeed, it is a very good thing to have—ought to be tempered by some apprehension as to what may happen unless very drastic steps are taken. Quite clearly, government policies have not been correct. Clearly they have been an abysmal failure in many respects. But, equally so, the Community's institutions have not played a conspicuous part in furthering the interests of the British economy or, indeed, that of Europe as a whole.

So what really has to be done? It is already admitted —the noble Viscount, Lord Caldecote, pointed this out, as indeed did my noble friend Lord Eatwell—that there is a lack of investment in British industry. There is a lack of investment not only in manufacturing industry and in the service industries but, more particularly, in small businesses. One of the ways in which growth can be put back into the economy is precisely by this investment. However, we must of course bear in mind that most investment on any scale takes about two years to materialise after the plans have first been drafted.

But the Government have given no hint at all that they have even grasped the importance of these very necessary factors on the supply side, to which my noble friend Lord Eatwell referred, let alone that they have considered implementing them. Instead of that, the Government have gone over the familiar ground which for the past half century I have heard so many times and which has now become so repetitive. I am talking of labour flexibility. All the Government really want to do is to cut wages as far as they possibly can and achieve competitiveness in that way. That is the real reason behind their demands for flexibility. What, of course, they have completely forgotten—

Lord Strathclyde

My Lords, the noble Lord, Lord Bruce, is being uncharacteristically tedious on this point. Can he not explain to the House why it is that in this country unemployment is falling while in other countries within the European Community that are still in recession unemployment is still increasing?

Lord Bruce of Donington

My Lords, my noble friend Lord Eatwell has already explained the unemployment particulars to the embarrassment of the noble Lord. But may I remind the noble Lord that on his department's fiddled figures unemployment is still double what it was when his party took up office; so I am afraid that horse will not run. No, we have to start once again, as always, from the bottom. We have to go back to the citizens themselves in their localities and we must go back to giving more power to local authorities. We must go back to involving more and more people at the roots of production within their localities. Those are the things we must do.

We must remember that when we try to cut other people's incomes we are at the same time cutting consumer demand. The Government wish to cut consumer demand because they know that through their own inefficiency that will merely lead to a worse adverse balance of payments and a demand for imports. No, these things will not run in the way that they are being put forward by the Government at the present time. But what will work is a sensible look at the unemployment situation as a whole and the adoption of real, actual means of reducing it rather than pretending that it does not exist.

4.53 p.m.

Lord Roll of Ipsden

My Lords, I, too, wish to thank the two speakers who introduced the debate. I wish to thank: the noble Viscount, Lord Caldecote, particularly because in the terms of his Motion and in his speech he put the emphasis where I think it properly belongs; namely, on the creation of jobs—that is to say, on the remedying of the unemployment situation.

I thank the noble Lord, Lord Hunt, for the way in which he introduced the report of the European Communities Select Committee, and particularly the report produced by Sub-Committee A of which he was chairman. I had the pleasure and privilege of participating in the work of that committee, and I pay special tribute to the patience, kindness, good sense and absolute consummate skill with which he led the committee through an extremely difficult subject. We started in perhaps somewhat lighthearted style but quickly discovered that the ramifications of the subject were wide and that finding the right points of emphasis and the right points to bring home to the House was by no means an easy matter. In so far as we have succeeded at all is very much due to the chairmanship of the noble Lord, Lord Hunt.

Perhaps the most important distinction among the various contributions made to the debate, and indeed of the original report of the Commission, the Select Committee's comments on that report and the Government's White Paper has been one of emphasis. The Commission started out by talking about competitiveness, growth, and only in the last resort, employment. The Select Committee report, I believe rightly and properly, redressed that balance. Noble Lords will see in the conclusions of the committee's report that the emphasis is firmly placed on unemployment as the primary problem of our society, of our economy, and of our country, as indeed it is of Europe and, as the committee's report rightly points out, of the industrialised world as a whole.

Unemployment in the OECD area—that is to say in the whole of the really industrialised and advanced world—now stands at about 36 million. That is 9 per cent. of the workforce. Moreover in Europe it has increased in the past four or five years by 50 per cent. Contrary to the situation in the United States, to which one or two speakers have already referred, half of that unemployment is long term—that is to say, it is a year or more in duration. Between 15 and 30 per cent. of the unemployment over the area as a whole is youth unemployment. I am sure everyone here will agree that the figures are extremely disturbing.

Contrary to the emphasis on employment and unemployment, we find that the White Paper of the Commission—I should say straightaway that it is no epoch-making work, and indeed, but for the excellent comment of the Select Committee, the paper might well be quickly forgotten—emphasises very much what is called structural unemployment and competitiveness. I agree very much with the noble Lord, Lord Dahrendorf, and also, I think, with the noble Lord, Lord Boardman, that competitiveness and unemployment are only distantly related, if related at all. For practical purposes, it is better to ignore that particular relationship. However, I would go even further. We have to be extremely careful not to be mesmerised by some of the words which economists, as part of their daily lives, handle with the greatest of ease. Competitiveness is often used as a synonym for what I would term simply efficiency and economic performance. Competitiveness carries with it a certain penumbra of reaction to other people's action. Moreover I think it is responsible for creating a certain amount of mass panic and mass hysteria in regard to emerging markets.

From time to time we have heard people express a certain amount of panic as regards my next point. But I am happy to say that today the noble Lords, Lord Strathclyde and Lord Eatwell, and other speakers have specifically argued against the proposition that we will face competition from the emerging markets such as those in Eastern Europe where low wages are paid, from China, which is expanding at a terrific rate, or from the tigers of South-East Asia and so on. I am happy to say no one has expressed that panic today. I was delighted to hear the noble Lords, Lord Strathclyde and Lord Eatwell, explode that particular fallacy. In fact those markets have already shown, and will increasingly show, that they are excellent outlets for our exports provided we can supply them. That is entirely up to us.

The whole of history has shown the Luddite arguments to be not correct and that, provided we can put our own house in order, we have nothing to fear. I give an example to the House which is rarely mentioned but with which I happen to be familiar—there are many noble Lords here who are familiar with the operations of the Square Mile—and that is the financial services industry. I wonder whether any noble Lord here would claim that the real fear of competition comes from Manila, Bangkok, Kuala Lumpur, or even from Hong Kong, Singapore, Milan or Paris. No, my Lords, the real competition comes from New York—the most highly developed financial market. That is certainly not a market which is deprived of high salaries and wages. Far from it. It does not compete with us on those grounds.

While I am on the subject, perhaps I may supplement what the noble Lord, Lord Dahrendorf, said about the question of wage costs and indirect labour costs. There is a widespread myth about these matters, as about so many others in this area. To some extent that was referred to by the noble Lord, Lord Hunt. If one is looking at direct wage costs, indirect labour costs, and the total (as unit labour costs by unit of product), and one wishes to use those figures for the purpose of understanding and explaining why there are differences in economic performance and how far they can be related to the differences in those wage costs, it is no use looking at the average for the Community. As the noble Lord, Lord Hunt, pointed out, and as the noble Lord, Lord Dahrendorf, indicated in greater detail, these differ tremendously from one country of the Community to another.

I have some figures, in Deutschmarks, for the most recent years for which figures are available. The total direct and indirect labour costs in this country are only a little more than half those in Germany. Nobody can say that Germany is competing with us on the basis of low labour costs. The total is one-third less than that of Italy; it is 20 per cent. less than that of France; and it is even slightly below that of Spain. That is a myth which could be quite easily exploded and should not obscure the debate on this subject.

Flexibility of labour markets is another matter on which we have heard so much and on which the Commission White Paper places so much emphasis. Of course the market is an extremely variable social and economic instrument. If we have markets, naturally we want those markets to work as efficiently as possible, with the minimum of friction, bringing supply and demand together as quickly as possible. But to concentrate on flexible labour markets as the only means of curing what, for the sake of convenience, we call structural unemployment—although nobody really knows how to distinguish that from any other type of unemployment—goes against the facts of the situation.

Here again, if we look at Germany and, outside Europe, at Japan, for example, both those countries have far more rigid labour markets than we have. Furthermore, if we look at the increase in unemployment in Europe in the past four or five years—which I said earlier was 50 per cent.—it is unrealistic to suppose that that is in some way or other due to a sudden upsurge in rigidity in labour markets over four years. That simply cannot be the case.

Therefore, we must be extremely careful not to fall into the trap of identifying structural unemployment with rigidity of labour markets and cyclical unemployment with macro-economic policies, which sometimes are restrictionist as they have been in the past five years as a response to over lax policies in a previous period which have to be corrected but which perhaps have been over corrected.

I suggest that we have to be extremely careful with these economic concepts. They ought to have "handle with care" written all over them, and should be preceded by a very powerful health warning.

I cannot help but recall what happened with the exchange rate mechanism as an example of what is so easily said and leads to misunderstanding. We had entered the exchange rate mechanism at an exchange rate which, by all accounts, we had not discussed with anybody else and which proved to be far too high. However, right up to the moment when we were forced off the exchange rate mechanism we were told that it was the most marvellous thing, that it provided stability and was the basis for economic prosperity. The day after we left the exchange rate mechanism we were told that at last we now had a fiercely competitive exchange rate. If one goes back and forth within 24 hours in that way it is no wonder that the public are completely confused.

Perhaps I may say that that is not the monopoly of any single party. I am old enough to remember 11th September 1933 when Philip Snowden, the "Iron Chancellor", went on the radio and told us that thanks to the energetic actions of the Government and the Bank of England the menace that had been overhanging our fate for weeks—namely, that we might be forced off the gold standard—had been averted and that terrible catastrophe had not happened. Nine days later we came off the gold standard and we were on a floating exchange rate at the beginning of the war. This is an inanity which we could save ourselves in the future.

I turn finally to the question of our own conduct in these matters. With due acknowledgment to Hamlet, I invite your Lordships to Look here, upon this picture, and on this". I have with me two White Papers. One is unmistakably so, although, having just had its 50th birthday and having been printed on wartime paper, it has gone slightly yellow. The other, printed exactly 50 years later, is the recent White Paper to which the noble Lord, Lord Strathclyde, referred. It is an excellent document with many excellent things in it. The earlier White Paper cost 6d when it was published which, I am reliably informed, would today be the equivalent of £1. Her Majesty's Government are charging £15.40 for the recent White Paper. The price of the document is 15 times the inflation rate.

Physically, the current White Paper is a much more elegant document. It does not quite come up to the promotion of holiday homes in the Caribbean; but, on the whole, it is a very handsomely produced paper. It has some very good things in it on the flexibility of labour markets and the almost ritual advocacy of more education and training, which of course nobody would be against any more than they would be against motherhood or sliced bread. Unfortunately, the document tells us very little about how we come out of the recession. Rather like the White Paper of the European Commission, to which the noble Lord, Lord Hunt, referred, it takes the view that once we are out of the recession, then all these structural and long-term measures can be used to reduce structural unemployment and to avoid it.

I find that regrettable. I am sorry that the one point in the committee's report which the Government have decided to challenge is precisely the point of giving priority to getting out of the recession. I understand the fears of rekindling inflation and all the rest of it. However, in many people's minds the 50 year-old document, which is largely the intellectual product of Keynes and Beveridge—both in their day Members of this House—is regarded as the bible of dirigisme and the command economy and an invitation to unbridled inflation and lax financial policy. It is nothing of the sort. If there were more time, I would give your Lordships a number of quotations from the document, particularly on the need for wage restraint, the need to ensure stable prices and wages if employment policy is to work, and so on and so forth.

I know that the authors of that document, particularly Keynes, are not as highly regarded nowadays and their memory cherished as it should be. I hope that the noble Lord, Lord Skidelsky, who is to speak later in the debate and who is the distinguished biographer of Keynes, will redress the balance. For my part, when I read the 1944 White Paper, I can only hope that the White Paper which the Government have now produced 50 years later will have something like the seminal influence of the earlier White Paper. For my part, as regards Keynes, I have often been tempted, paraphrasing Wordsworth on Milton, to say: "Maynard! thou shouldst be living at this hour. England hath need of thee".

5.9 p.m.

Lord Clark of Kempston

My Lords, like all other noble Lords, I should like to add my grateful thanks to my noble friend Lord Caldecote and the noble Lord, Lord Hunt, for giving us the opportunity to discuss the matter. Since I have been a Member of your Lordships' House I have wondered why as a debating Chamber we do not spend more time debating this kind of issue. I appreciate that your Lordships' House can do nothing on finance. On the other hand, there is a wealth of experience in this House which would be of immense value to those in another place with regard to our present and future finance. In that regard, I am doubly grateful to my noble friend Lord Caldecote for initiating the debate.

One factor that we have to avoid is the creation of false jobs. In our economic history there has been the creation of false jobs. But if a false job is created, the cost eventually falls on the taxpayer and consequently the economy falls. As has been said, in the past 18 months unemployment has fallen by some 310,000. That has been achieved because of the background created by the Government. Inflation has fallen. That in turn helps future planning, which is good for the economy. Interest rates are down. That again helps investment and future investments. Manufacturing production has been increasing over the year. It is a good sign, although I accept that it is not the end of the road.

We should not overlook the enormous advantage that the economy gains from our invisible earnings—a point referred to indirectly by the noble Lord, Lord Roll— running at a rate of just under £19 billion a year. That indeed helps our economy. Our exports outside the European Community have been increasing by some 15 per cent. One might say that that is not enough. Again, it is not the end of the road, but it is a good indicator.

In many cases technology in the first instance saves labour. However, if one reads the report of the European Communities Committee, one sees that technology eventually leads to growth. One way—it is a long-term way—in which the Government can get unemployment down is to look to small businesses such as the one-man band, the five-man band, the 50-man band, and so on. We must look to small businesses. I remind noble Lords that since 1979 the number of small businesses has increased by 600,000. That in itself must have produced 1.2 million employed people. If we could persuade the 600,000 small businesses, if they were productive, each to take on five more people we would see a magnificent drop in our unemployment figures.

The Government have helped small businesses. That has been referred to by my noble friend Lord Boardman. The reduction in corporation tax from 52 per cent. to 33 per cent. is good. For small businesses the top rate has come down from 40 per cent. to 25 per cent. The limit for a small business has been increased to £300,000. As has been said, our company tax is the lowest in the European Union and indeed in the Group of Seven. However, we must remember that, while it is good that corporation tax should come down, one has to make a profit before one benefits from that reduction.

The result of technology has been referred to. It increases production in many cases. One has only to look at the car industry. Today one production worker in the car industry produces the equivalent of 34 cars in a year. In 1991 he produced only 10.4 cars. In Germany he produces about 30.8. That is one concrete example where technology and good management in the car industry have brought about increased production. It is expected that the car industry will be a net exporter in 18 months to two years.

Much of the speech of the noble Lord, Lord Dahrendorf, dealt with competition. I agree with what he said. One has only to look at the nationalised industries which disguised much unemployment because of overmanning. In that sense competition creates unemployment. On the other hand, unless we are competitive, producing the product at a price at which we can sell it, we shall have unemployment. We have to gain new markets; and we can gain new markets only if we are competitive. In this country our unit cost of production is very low. It has risen 0.2 per cent. in the past year.

I must refer to the myth of the social chapter. Our competitors accept this fact. The Germans have said it; the French have even said it. The social chapter is bound to increase the unit cost of production across our economy. How can anyone say, "We must get unemployment down", when we make employment even more expensive? The chances are that unemployment will rise; I am sure that it will. The same remarks apply to the minimum wage. The minimum wage would be disastrous for this country.

Perhaps I may refer to the reform of the trade unions. Your Lordships know that records relating to strikes started in 1891. We now have the lowest number of strikes in this country since that date purely because of our trade union reform. That is one of the reasons why we have such a huge amount of inward investment. We gain inward investment from Japan, Germany and the USA. One of the reasons for their inward investment in this country is that our corporation tax is the lowest in the European Union. Our unit labour costs are down. One factor upon which we should insist—it affects our competitive and employment position in the long run —is that our European partners do not pay subsidies, hidden or otherwise, to some of their industries because such subsidies give them a competitive edge in whatever they produce—steel, motor cars or whatever else.

I understand that the Government are considering workfare—for want of a better word. Many of us cannot understand why there are many vacancies not being filled. If there was some form of workfare, there would be encouragement for some unemployed people to take up such vacancies, albeit temporarily.

Technical education has been referred to. This country leads Europe in technology teaching in our schools. Some 99 per cent. of children have some technology teaching. That is a good thing.

I refer to city technology colleges and further education. The amount that we spend on further education has risen dramatically. Next year it will be just under £3 billion. At the moment my right honourable friend the Chief Secretary to the Treasury is engaged in controlling public expenditure and getting ready for the Autumn Budget.

If one looks at the reports which come from the CBI, the Institute of Directors and the chambers of commerce, they are all optimistic. They do not suggest that all our troubles are over, but they are optimistic. As regards small businesses, there could be a large expansion if their cash flow position could be improved. To my personal knowledge, many small businesses could expand but cannot because they cannot get their money in, such is their cash flow position. At Question Time today my noble friend said that government departments had instructions to accelerate payments to small businesses within credit terms. That should also apply to local authorities because it is not right to have to wait a year before one finds out whether the Ministry of Agriculture has paid out to farmers whatever they were due or whether the Department of Health has paid its suppliers. I am not a lawyer, but legal aid payments are well behind and I am sure that noble Lords who are solicitors and barristers will bear me out on that.

Another thing that the Government must do for small businesses is something on which they have made a start. It is to be ruthless with the various regulations to which small businesses are subjected. In many cases, with a small one-man-band business, the employer will have only one man working, but he has forms to fill in. He may have only his wife to help him, and he may have to waste time filling in unnecessary forms. That is a point which we should examine.

However, all is not doom and gloom. We do our economy no good in always professing doom and gloom. No government can manufacture jobs. All they can do is to create the economic climate in which businessmen can flourish and prosper. I am certain that this Government are doing just that.

5.22 p.m.

Baroness Dean of Thornton-le-Fylde

My Lords, I wish to thank the noble Viscount, Lord Caldecote, for the debate today. It is timely, as is the report which the noble Lord, Lord Hunt, is presenting to us. It is timely because I suggest that unemployment is the most serious problem with which we have to grapple in Britain. It is not just a case of people being out of work. It is the social scars which it inflicts on our society, with juvenile crime and the pressure on families with low pay, as well as the spiralling welfare costs.

If we went back 10 or 15 years, many Members of this House would not directly have known someone who was unemployed; we may not have felt unemployment in the midst of our own families. Looking round the Chamber today at Peers on all sides and thinking of the people listening, I am sure that every single one of us must know someone within our own families or the inner circle of our friends who has been affected by unemployment. All too often it is young people. So the debate is timely.

It is also timely because of the conference in Corfu this weekend. The 7th Report comes from the European Commission's White Paper of last year. It is one of the documents from the Commission which has, unusually, attracted to itself a tremendous degree of support from differing political views. I regret, of course, that the Government do not accept all the views in the report.

Paragraph 108 in Part 3 of the report gives the opinion of the committee that competitiveness is essential to growth; but the committee did not believe that lack of growth or loss of competitiveness on their own were sufficient to explain the high level of unemployment. How true that is. I strongly support that view.

The White Paper says that member states should not deregulate their labour markets but reregulate them to prevent a competitive downward spiral. The noble Viscount rightly picked up the crucial role that investment has to play in any kind of economic success in a company, whether small or large. That investment must include investment in people, in their abilities, their training for new skills and ongoing continual life education in the vocational requirements that we have both as individuals and as a society. I would go so far as to suggest that as individuals in the wealth creating process we have a right to be trained in skills, not just having to depend upon whether the employer decides to provide it.

The successful companies in Britain are not all small companies. Many are public, and they are longstanding companies, highly successful not just in UK terms but in world competitive terms. They spend much of their income on training, but in Britain we have a pretty poor record on training. That has been so through the decades. It is not just related to the present day.

I have reached a certain point in my notes. I suppose that we have all been in this situation. We may have been to meetings and decided what we will say, but at some point we tear up our notes because of something a previous speaker has said. For reasons of which we may all be aware, the noble Lord, Lord Clark, mentioned the social chapter, the minimum wage and the reform of trade unions. Some of those are bogeymen which belong way back in the past. They are views which, frankly, have no relevance to what we have in Britain today.

Let us take the social chapter. Germany has far higher wage costs than Britain—80 per cent. more in many instances —yet they compete with us substantially better than many other countries. The social chapter has been a way of maintaining minimum standards in Europe, yet we are still outside it. Whether there is acceptance of the Social Charter as a policy or we accept it step by step, Britain will take on board the Social Charter because any kind of civilised community will have to do that. The successful countries are those which have good employment policies and good wage standards. You cannot get highly skilled workers if you pay them very low wages. They will not stay with you. They will go to the competition.

On the minimum wage, let us look at our experience in this country. We have not had a minimum wage as such. What we had was the wages councils, which covered 2½ million already low-paid people. The noble Lord, Lord Strathclyde, hoped that the debate would not separate into arguments about manufacturing. The people covered by the minimum wage were those in the service sector, many of them earning between £2.50 and £3.70 per hour, which was not a prince's ransom to work for. What happened? The Government said that the minimum wage had to be abolished to maintain competition, to create jobs. There is no evidence that the elimination of the wages councils has created employment. But there is evidence that in the run-up to the abolition of the councils, something like 7,000 companies reduced the already low wages of their workers who were covered by the wages councils.

Let us look at the reform of trade unions. This is an old hobby-horse and at some point Members opposite will have to say: "We really can't take this one out again". It is nonsense. Trade unions are voluntary organisations of which individual workers are members. If the trade unions have so much power, why do we have so much unemployment in Britain? The Government shamefully took away those rights from workers in this country. Removing them did not create a situation in which the Government have now delivered a good economy and high employment. We have more poverty: 40 per cent. of all workers in Britain receive welfare benefits. That is some credit to the Government when they talk about the reform of trade unions! Let us deal with the situation that we are in today.

This has been a first-class debate. Any unemployed person in Britain who listened to it would be encouraged by the concern that has been expressed within this Chamber. But to talk about "Luddite attitudes" is to trivialise the debate. The very people who bring change about and make it work are the workers themselves. They are part of the wealth creation process. It is not the achievement of management alone. If I learnt anything in industry it was that successful companies were those that respected their workforce, trained them well and worked as a team with their workforce.

It is said that change is uncomfortable. I used to believe —and perhaps it is appropriate today—that people who said to me that change was uncomfortable were usually those who were not affected by it. They did not understand just how profound an effect some of the most brutal changes in industrial life have had. As a result of the elimination of workers' rights we now have a situation in Britain in which wages can be cut without any kind of consultation—and it happens. We have a situation in which workers can be called in to a management office and be told: "We know you work 40 hours a week. Sorry, we don't need you to do that any more. From next week it's 30 hours a week" As a result, those people are in the poverty trap. Within this whole area of the rights of employees, quite frankly, the pendulum has swung to the extreme. There is no way that we shall have a successful economy, with everybody pulling in the same direction—which is what we have to bring about—if we have lots of people who are unemployed and also those in work feel alienated and are stigmatised by being told that their wages are too high and that they have to be dropped if the firm is to compete.

We talk about cutting wages in order to compete. Quite rightly, the instance of Malaysia was mentioned. A couple of weeks ago I looked at some pay comparisons in the shoe component industry. In China, the average hourly rate is 50 cents an hour; in the USA it is five dollars. I have to ask: how low do we go in terms of wages before we say that we can compete? Competition is not just about wages. It is about the total unit cost: quality of management; energy policy; quality of transport policy. All those aspects go towards making a competitive nation.

Let us look again very briefly at investment. I believe that it is at the core of what we are talking about. I do not just mean investment in capital and equipment but also investment in people. If we compare wage rate with wage rate we should compare dividends. In Germany and Japan companies pay out on average something like 35 per cent. of profits in dividends. In the USA it is about 53 per cent. In Britain companies are under pressure, because of the financial markets, to pay out something like 70 per cent. in dividends. Would it not help with job creation, through investment in skills and equipment, to say that that is not right and that we should plough more of that money back into the companies?

I suggest that the workforce in Britain is not opposed to change, as has been implied. The workforce in Britain wants change. It is ready for change. It needs change. And that change must be brought about through looking at the whole situation. There are no magic answers. We all know that. There are no simple answers. We need to reverse our record on training. We need training in skills for all: men and women, part-time and full-time workers, whether they are in casual employment or not. We need to develop an ethos of social partnership. I know that to some people that may sound repugnant. But social partnership is, in other words, what is applied in very successful companies in Britain today. It is not good enough continually to browbeat. We need to recognise the problem, as this debate is doing today. We need to recognise that it is a national problem; that it applies to all of us; and that it is not subject to political dogma or anything else. I suggest that the levels of unemployment and the lack of job creation go to the core of our society, not just in economic, industrial and commercial terms, but in social terms as well.

5.35 p.m.

Lord Skidelsky

My Lords, I add my congratulations to my noble friend Lord Caldecote for the way in which he introduced this debate. We have already heard a number of very notable speeches—not a word of which, I fear, will be reported in the national press. Not least among those speeches was that of the noble Lord, Lord Roll. The noble Lord held up a copy of the employment White Paper of 1944 to remind us of the hopes that that document aroused in the generation that came victorious out of war.

The noble Lord will remember that in that White Paper two conditions were stated for maintaining a high and stable level of employment. One of them was moderation in wage bargaining, and the second was mobility of labour. Alas, it is possible to get into the position where Keynesian policy, as the noble Lord, Lord Roll, and others have understood it for many years, becomes unusable. I believe that we have got into that position. We had got into it by the middle of the 1970s. When I think of Keynes—which is quite often, as I have not yet finished writing about him—I find myself thinking less and less of what he said in 1930 or 1936, or indeed in 1920, and more and more of what a mind as flexible and nimble as his would be thinking today.

I want to defend a great deal of what the Government have been doing, and it seems to me that the best form of defence is attack. Perhaps I may first take up the interesting point that was raised by the noble Lord, Lord Eatwell.

The noble Lord said that what he called disguised unemployment in the United States, and actual unemployment in Europe, were both symptoms of the same thing; namely, a failure to adapt to change—

Lord Eatwell

Perhaps I may—

Lord Skidelsky

Perhaps I may continue with this argument; I think that I have got it right. There is much more to be said about this issue of disguised unemployment than the noble Lord said.

There is a story about a British economist who went to see an American economist. (Perhaps the British economist was the noble Lord, Lord Eatwell.) He said to the American economist: "This is a terrible country. My taxi driver is an unemployed accountant". The American economist said: "Well, if he's driving a taxi, I would call him a taxi driver". There is a very important difference in those two attitudes. The American view is summed up in the phrase "flexibility of labour". It seems to me that it is incredibly condescending to call jobs in pizza parlours non-jobs, unreal jobs or disguised unemployment. Masses of people all over the world must long for jobs in pizza parlours—especially in Russia, where they have been stuck in jobs that have produced unwanted output for decade after decade. The noble Lord's attitude to disguised unemployment betrays a very deep feeling, which is found not only in the Labour Party, that the only real jobs are manufacturing jobs and that services do not provide real jobs. I find that attitude completely wrong.

I wish the Labour Party well in its dynamic policy for a dynamic society, about which the noble Lord, Lord Eatwell, spoke. I was interested to read in The Times today that Mrs. Beckett spent most of last week calling for trade union laws to be swept away and supporting secondary picketing. I look forward to many more dynamic policies of that kind. But it demonstrates that one cannot take completely on trust what the noble Baroness, Lady Dean, said about the completely revised Labour Party attitude to trade unions. There are forces within the party which want to bring back the unions to the position that they occupied in the 1970s, when they helped to produce the stagnant society that we had at that time. So we cannot ignore that problem.

The noble Lord, Lord Bruce of Donington, called for more investment. We all agree. Everyone agrees that there should be more investment. But we have also learnt from the experience of the past 20 or 30 years that investment can be wasted. Investment that is politically allocated can be wasted investment. Locking resources into unprofitable enterprises which can be supported only by subsidy is wasted investment. It has happened all over the world. It was the essence of the way in which the Soviet economy worked. In the 1970s bits of it operated in the public sector in this country and in much of Europe.

That takes us back to the problem of European unemployment, which is the subject of today's debate. It is a depressing fact that unemployment has been rising in Europe ever since the 1970s. It first began to rise in the 1970s and rose much higher during the recession in the 1980s, and it never fell below 8 per cent. It is now over 11 per cent. The interesting contrast, to which other noble Lords have pointed, has been between Europe, the United States and Japan. In 1975 unemployment in Europe was 4.1 per cent; in America it was 8.2 per cent; and in Japan it was 1.8 per cent. That reflected a ranking which had more or less existed since the 1950s. In the 1960s as well, Europe and Japan were fast growing, whereas the United States was slow growing. By 1985 unemployment in the European Community was 10.9 per cent., whereas in the United States it was 7.1 per cent. and in Japan it remained down at 2.6 per cent. Today, Europe's unemployment is 11.2 per cent., the United States' unemployment is 6.5 per cent. and Japan's unemployment is 2.8 per cent.

There has been a complete reversal of pattern over that period of 20 years. We see the same thing in real growth rates. Over the period 1982 to 1993, Japan remains at the top with 3.8 per cent. but now America is growing slightly faster than Europe—at 2.4 per cent. compared with 2.2 per cent.—over the 1980s. As has been pointed out, the relationship between growth and employment is very different in the two societies. America has created 20 million new jobs since 1982 whereas the EC has created just over 2 million. America has had growth with jobs; Europe has had growth without jobs. That is reflected in long-term unemployment. The difference is amazing. In 1991 there were 50 per cent. out of work for over a year in the EC compared with 6.3 per cent. in America. What does that mean? It simply means that inflows into the labour market and outflows from it are much lower in Europe than in the United States and Japan.

The United Kingdom's performance is intermediate between the two. It approximates more closely to the European than to the American norm. Since 1982 the growth in our real incomes has been slightly higher than the EC average. Our unemployment rate has been identical. We have been better at creating new jobs. That is reflected in our lower percentage of long-term unemployed—between 25 per cent. and 30 per cent. compared with 40 per cent. to 50 per cent. in the EC.

It is too early to say that that amounts to an economic miracle. But if that record is taken against the background of the two or three previous decades when Britain was steadily losing ground in relative terms against every other country of a similar kind, clear evidence emerges that our relative economic decline has been halted and may even have been reversed. That is one indisputable economic achievement of Conservative Governments in an international situation which has been much more difficult for all countries than it was during the golden age of the 1950s and 1960s.

There is no general agreement on how to return to fuller or higher employment. But some agreement is emerging on two points. First, there is general agreement that the high levels of European unemployment are not a transitional problem. They are not the result, however painful, of disinflationary policies. The evidence for that is that America too went into a savage recession in the early 1980s, just like Europe, but American job creation since then has been much better than Europe's. So we accept that it is a structural problem and a structural problem is created, on the one hand, by subsidies to unviable enterprises and, on the other hand, by regulations and labour market rigidities which prevent new jobs being created. There is general agreement on that according to many of the reports that have been cited this afternoon.

There is also general agreement on another point; namely, that national authorities cannot buck the market, by which I mean the global financial market. That is the main practical argument against using short-term counter-cyclical policy to increase employment. As the noble Lord, Lord Lawson, remarked in a speech a couple of days ago, to which I shall return later because I think that the noble Lord, Lord Eatwell, misrepresented his argument, Recent events in [the bond market] have demonstrated all too clearly the power of global financial markets to impose their will on any national government that is suspected … of financial imprudence or weakness of resolve in the battle against inflation". Some people say that we must try to get international control over international finance by setting up international institutions or regimes or by co-ordinating policies. Some of the arguments for European monetary union go along those lines. I believe that that is very much the view of the noble Lord, Lord Desai. But apart from the practicability of those grand designs, we must not suppose that those who want to clip the wings of international finance are at the same time in favour of reinstating discretionary macro-economic management. One has only to look at the Maastricht Treaty to realise that that is not the intention.

In other words, there is no intellectual or political basis for a revival of Keynesian policy of the old type. It was sunk by inflation. That is the fact that we have to live with. I yield to no one in my admiration of Keynes, but it is no use invoking his name now on behalf of things that cannot be done.

We come to the third area of agreement: the only way to raise employment is through what is called supply side policy—what the Delors Report calls "structural policy". The recent OECD report, to which reference has been made, refers to a range of such policies, going all the way from deregulating markets to active government help to get the unemployed back to work.

This Government rightly welcomed large parts of the OECD report because Britain has gone further down the path of deregulation than the EC as a whole. That is reflected in the better recent macro-economic performance of this country. Indeed, though the Delors White Paper pays lip service to deregulation, its main emphasis is on micro-economic planning of one kind or another for increased employment in line with the socialist beliefs of the Commission's president.

Am I being completely heretical in thinking that we have more to learn at present from America and Japan than from Europe? We can learn from America about labour market flexibility and from Japan about flexible work practices within firms. We should be wary of locking ourselves irretrievably into the stagnant, over-regulated enterprise which is what the EC is at the moment. It does not seem to me that that is where our future inevitably lies. An immense struggle is going on in the EC between free trade and protectionism. We should be on the side of the free traders, but we must recognise that we may not win that battle and then a decision will have to be made.

Let me turn to my final point. My noble friend Lord Lawson made a speech a couple of days ago from which both I and the noble Lord, Lord Eatwell, quoted. In that speech he praised the American achievement in job creation in the 1980s. He did not say that our unemployment was preferable to the lower-wage job creation that has been going on in the United States. He recognised that the market-clearing wage rates for unskilled workers in this country or in Europe may be too low to give workers a living wage and he said that an employment-increasing policy may require non-wage income support for the lowest paid workers. That is exactly what Professor James Meade has been urging; it is exactly what Sir Samuel Brittan has said; that is, if we want to make fuller employment via lower wages or wider wage dispersals socially acceptable, we must find some non-wage means of support.

I agree with the noble Baroness, Lady Dean, that there are no magic or easy answers. But we have started on the right course and it is that course that we need to follow.

5.53 p.m.

Lord Monkswell

My Lords, in the past few minutes the debate has been enlivened by some interesting contributions. Perhaps I can say in passing that the noble Lord, Lord Skidelsky, certainly is being heretical when he talks in terms of us learning from the Americans and the Japanese. I believe that the British people would favour the European model of society compared with that of either the Americans or the Japanese. When we consider the horrendous number of people that are shot and the drug culture that exists in large parts of America, I am not sure that we would like to emulate that society. When we look at the situation in Japan we see that the inefficiencies of the domestic distribution market industries are horrific compared with the distribution industries in Europe or this country, and I am not sure that the British people would like to experience that. It demonstrates that we should be looking at a much wider and deeper picture than just employment.

The debate symbolises not only the difficulties of deliberations in this House, but also the attractions. One of the difficulties is that when a number of grey-haired old men talk on a subject, there is a risk that they will be innately conservative and short-sighted about it. But given the age and experience in this House, we also have the advantage of the historical dimension. I should like to concentrate my remarks on the possibility that we may learn from history.

The debate is about the difference between monetarism and Keynesianism—though I suspect a rather different Keynesianism than the one visualised by the noble Lord, Lord Skidelsky; fundamentally the difference between money and people. That is where I see the fault lines of this debate. For those who think of money as being the most important aspect, people also become a problem. The fact that one must pay them means that one loses money and the less one can pay them, the more money one can keep for oneself. Effectively, it encourages a devaluation of people, whereas, if we think of people as being valuable and important, as an asset and not a liability, unemployment becomes an example of wasted assets.

I was glad that my noble friend Lord Eatwell introduced into the debate the information that I intended to impart. I do not need to go into it in as much detail. We should think of unemployment not just as reflected in the figures that the Government produce of those that are unemployed and receiving benefits; we should look at the wider definition of those that are not effectively in productive activity. If we look at that as a definition, we can see that instead of an unemployment rate of between 10 and 15 per cent., the unemployment rate is nearer 25 per cent. The realisation that mat is the real figure shows the tremendous problems with which we are faced.

Lord Henley

My Lords, the noble Lord says that we only have one count of unemployment and that that is based on those claiming benefits of one form or another. I can assure the noble Lord that he is mistaken. There are two counts of unemployment; one is produced quarterly—the labour force survey—and does exactly what the noble Lord feels should be done. I can assure the noble Lord that the figures it produces are broadly comparable with what comes out once a month on a count.

Lord Monkswell

My Lords, I obviously did not explain myself well enough for the Government to understand. I suspect that the Government will not understand no matter how one explains the situation. They seem to be almost completely blinkered to seeing the situation in any other way than through their own preconceived notions.

Going back to the historical context, I should like to touch on two periods of British history where our society underwent immense technical change. I want to demonstrate that in both those periods high levels of employment were sustained but in slightly different regimes.

However, there was one common thread which I hope to draw out for your Lordships. I refer, first, to the experience of this country during the Industrial Revolution. It will be accepted that that was a period of immense technological change, with the advent of textile machinery and later on the advent of steam engines, railways and so on. Instead of creating a vast reservoir of almost permanent mass unemployment, that experience increased employment. The number of people employed in the British economy rose steadily —in fact, in some cases, in leaps and bounds. One of the features of that period was massive investment. We can still see the products of that investment today. We can see the railway infrastructure that was built in the last century. We can see the railway stations, the town halls, the schools and the hospitals that were built in that period of massive investment. One of the factors which appertained in that period was that the profits made were invested back into the country. They were not squandered on what I would call conspicuous consumption.

The next period I want to mention is from approximately 1940 —although perhaps starting a little earlier—to 1975. The noble Lord, Lord Skidelsky, mentioned the mid-1970s. I am sure there is fairly general agreement that that was a break-point not only for the British economy but for the whole of the industrialised world. In the 25 or 30 years up to 1975 we had once again a period of immense technological change. During the period we had virtually full employment.

Perhaps I may touch on some of the changes that occurred. In the run-up to that period millions of people were employed in agriculture. With the introduction of new technology—tractors, combine harvesters and new methods of farming—the number of people employed in agriculture fell by millions. In coal-mining there was the same kind of investment in new machinery and technology and millions of people who were employed in coal-mining ceased to be employed. On the railways there was massive investment in new technology, with the change from steam to electric propulsion. At the same time we saw the introduction into mass markets of aircraft, motor cars, radios, televisions, washing machines, refrigerators and telephones. There was an immense explosion of new technology. However, during the period there was virtually no unemployment. Unemployment was so low as to be deemed virtually not there.

One of the keys of that period was investment: investment in the nationalised industries: the mines, the railways, the airlines and electricity and gas generation. There was not so good investment in shipbuilding and steel production because those were not nationalised. Housing, education and health services also received massive public investment. In the main, investment in the production of aircraft, motor cars, radios, televisions and so on was private investment. The expanding markets for those products provided the finance.

What has happened over the past 10 or 15 years? We have seen new technology continue to come on stream, if I may put it like that. We have seen massive changes in information systems and in the whole area of bio-technology, the understanding of genes and so on. However, the product of the past 10 or 15 years has been mass unemployment right around the industrialised world. Perhaps I may suggest that part of the reason for that mass unemployment is that, while profits have been generated, they have not been invested. One of the symptoms of our society during that period was conspicuous consumption. People earning large telephone number salaries spent their money on more expensive motor cars and on more expensive wine. It was a champagne society. Unfortunately, some of them spent large amounts of money on snorting cocaine. There was virtually no investment by those people who earned those large sums of money and therefore there was nothing to show for it. At the same time there was no hope for the rising number of people who were unemployed or sinking into poverty. The shift in wealth and income from the poor to the rich has effectively impoverished us all. There have not been the products of investment that one might have hoped for.

What can we do about that situation? First, we can get our facts right. As I have mentioned, the noble Lord, Lord Eatwell, flagged up the fact that the unemployment rate is now 25 per cent. rather than between 10 and 15 per cent. We have a much larger reservoir of people who could be productive and who could provide goods and services for society. Secondly, we should value people as assets and resources, not liabilities. Part of the way we can value people is to shift the proportion of income and wealth towards the poorer members of our society and ensure that there is a more equitable distribution. Thirdly, we should identify the needs of individuals, families, communities and society at large. We face an ecological problem of world dimensions. We need to recognise the needs of society. Then we should devise policies that help to meet the needs of those individuals, those families, those communities and the wider society with the resources we have at our disposal. Let us value those millions of people who are currently unemployed and unvalued, and let us help them to help all of us.

As I said, we need to go through those processes as a nation, bearing in mind that one of the elements of this debate is the European dimension. I take the point which the noble Lord, Lord Bruce of Donington, made in that when one looks at the statistics, it does not appear that the development and apparent progress of the European Union has benefited us or the other members of the European Community at all. Unemployment and balance of payments difficulties have grown, and so on. One might argue that that is not very surprising given that the resources available for the European Community to command amount to between only 1 per cent. and 2 per cent. of the gross national product of the European Union.

One of the ways in which we could provide more resources for the European Union to benefit the people of Europe is to enable it to borrow money and to expend it on investment that would benefit the whole of the Community. That is one of the key things which could be done at European level.

I have gone on far too long. I shall not give a prescription of what we could do at a national and local level; but in my remarks I have set down some of the factors which we need to take into account, and some of mechanisms which we need to employ, in order to make progress and to deal with the problem of the devaluation of people in our society. There is a need to change our philosophy and way of looking at things. We need to value people more than we value money.

6.11 pm.

Lord Renfrew of Kaimsthorn

My Lords, sitting on your Lordships' sub-committee I became increasingly concerned—even more than I was before—at the intractability of the figures relating to unemployment in Europe and in Britain. I too am very grateful to my noble friend Lord Caldecote for introducing this subject —with very appropriate emphasis on technology—and to the noble Lord, Lord Hunt, for introducing the report and for chairing the committee's investigations so effectively. I would like to echo his thanks to those who gave time to testify before the committee and also to those who helped us, particularly the specialist adviser, Mr. Paul Richards.

The United Kingdom unemployment figure may be somewhat less than the European Community average and it certainly does not rival that of Spain. But it is of concern when we look to the. future because it is clear that the problem is not going to go away. It is very difficult to balance what is cyclical or secular and what is structural. There has been some discussion about that already this evening. It is widely agreed that about half the unemployment in the European Community at the moment is structural and therefore will not disappear simply with the economic upturn in which this country is leading the way in relation to the European Community.

The noble Lord, Lord Hunt, drew attention to the figures. I would like to emphasise the point that employment intensity of growth in the economy in Europe is of the order of 2 per cent. As noble Lords will be aware, that means that the economy has to grow by more than 2 per cent. before we are going to employ more people and reduce unemployment. Perhaps I may quote from paragraph 20 of our report: The Commission regards the present 'potential rate of growth' (that is, the rate at which the Community can grow for many years without overheating) as just over 2 per cent. This has fallen over the past 25 years from 4.5 per cent. per annum. However, the rate of growth required to prevent unemployment from rising is 2.5 per cent. per annum". That point has been touched on and it is central to our discussion. The commission estimates that the potential rate at which the Community can grow for many years without overheating is 2 per cent., and that was not contradicted before our committee. It was alluded to by many witnesses. Yet at the same time there is a consensus that the rate of growth required to prevent unemployment from rising is 2.5 per cent. per annum.

No doubt, as the economy takes an upturn in this country—and we hope very soon after in Europe as a whole—there will be some reduction in unemployment. That will be in cyclical unemployment. The point which is very clear is that if these figures are correct (and they were not disputed) structural unemployment is not going to be reduced. We have been speaking about growth and we are certainly in a situation where we can expect sustained growth in the economy. I very much support the observations made by my noble friend the Minister in his contribution to the debate.

The first point I wish to emphasise is a nettle which I do not believe is sufficiently well grasped; namely, that if these figures are right—they are not simply pulled from some little subsection of the report; they were central to the discussion—we cannot expect in the ordinary course of events (unless the growth potential for Britain and Europe is increased substantially) to have a significant or rapid reduction in structural unemployment.

Then how are we to raise the potential growth rate? One or two noble Lords have emphasised, rightly, the classical response of increased investment. The investment ratio within the European Community has fallen by 5 per cent., from 24 per cent. to 19 per cent. of GDP, in recent years. It must surely be the case that in this country and in Europe as a whole it is crucial to increase investment, although no doubt, as my noble friend Lord Skidelsky implied, it has to be productive investment which is going to be of some use.

The Government responded to the European Community White Paper in their own paper dealing with competition and employment, The UK Approach. I do not know whether it is a White Paper. As the noble Lord, Lord Roll, implied, it is very difficult to be clear these days what is a White Paper. But it is certainly a government paper with much of value in it. But there is very little reference to capital investment. It rightly stresses investment in skills, which I am sure is something we would all agree with.

I believe that nobody so far in this debate has mentioned the role of technology in the national curriculum, which is an innovation of recent years. It is very much to be welcomed. I am sure that the Government are on course for investment in skills. But in response to the European White Paper they did not place much emphasis on investment in capital and so forth. Such a reference might be valuable.

We are facing what I believe to be the paradox of our time, which a number of noble Lords have emphasised, including the noble Lord, Lord Dahrendorf, and my noble friend Lord Boardman. It is the paradox that productivity can be the enemy of employment and the friend of unemployment. When there is improved technology and if it is labour saving, it increases productivity because productivity is partly labour saving. One kind of productivity is purely labour saving. It enhances competitiveness, on which noble Lords on both sides of the House have laid emphasis this evening. Competitiveness certainly leads to growth. In some cases growth may lead to jobs. That is perhaps the hope which has led to an overemphasis on competitiveness in this debate, as one or two noble Lords have already indicated.

It is clear that productivity can be the enemy of high employment. Productivity is clearly a good thing, as is competitiveness. I fully support the observations of my noble friend the Minister when he stresses the effective steps which the Government are taking to enhance competitiveness. We must have economic growth because we must have prosperity. If we have prosperity, we can have a high national average income, but that in itself does not tell us very much about unemployment.

If I may venture a criticism of the speech of the noble Lord, Lord Eatwell, to which I listened with great interest and profit, I felt that he was not able to make very many suggestions about how unemployment might be reduced. In fact, I did not hear many such suggestions from my noble friend the Minister, who gave much attention to how to improve productivity, competitive-ness, growth and prosperity. Those are all good things but, as other noble Lords have indicated, they do not tell us very much about the unemployment problem.

The solution must be that when introducing technology we ensure that we do not introduce technology only to do more effectively that which we already do—that is, to increase productivity. That may lead to prosperity, but it does not in any way create new jobs. We also have to create different kinds of jobs. In this debate there has not been as much emphasis on innovation as I had hoped. I am referring to fundamental and original research. The European Community White Paper makes constructive suggestions about the areas in which new jobs can be established. I refer to the notion of transport and information highways, expansion in the leisure industry, developing biotechnology and the application of green policies. All those things may genuinely create new jobs rather than simply increase productivity, but I should have liked more emphasis on fundamental research. I should like to see both Opposition and Government policy statements giving more emphasis to the role that fundamental research and the research councils ultimately have in creating jobs.

We should ask ourselves why Europe will be effective in the next century. It is not because we shall be hugely competitive in terms of jobs. We have already heard that there will be cheap labour in other parts of the world and we are certainly not seeking to compete with the Chinese labour situation now or in the future. Europe's long-term assets do not include high labour competitiveness, but high literacy and the great tradition which gave us the scientific revolution, the Industrial Revolution, the computer revolution (along with friends in the United States) and now our contribution to the information revolution. Other areas are also playing a part in that revolution such as the Pacific Rim countries, but much innovation in terms of ideas is still coming from Europe. We have to ensure that that continues if Europe is to have any kind of success.

I realise that it would be tactful for me to stop in a moment and I shall do so, but first I should like to read from the memorandum by the Policy Studies Institute which is found on page 110 of the evidence to our report. Talking about long-term changes, the institute stated: The second change is a shift in the balance of the economy towards high intellectual content manufacturing, commerce and what can be termed intellectual endeavour. These are activities in which the leading member states have a competitive advantage, although they may still be weak relative to competitors in the US. The structural changes are analogous to those that took place in the late 18th and 19th century. At that time there was a shift away from economies based on agriculture and towards economies based on manufacturing industry. In much of Europe these changes have continued into the 20th century. We are now experiencing changes that are of similar magnitude". We are undergoing a revolution that is akin to the industrial and agricultural revolutions. It is up to us to ensure that we lead in the field of intellectual endeavour.

If I had more time I would embark on one more theme and consider the issue of unemployment. We should perhaps be questioning—some have already done this—how desirable it is for us all to be working a full working week. How long is the ideal working week? Is it 48, 30 or 24 hours? Is it always fun? On the other hand, one has a work ethic and achieves a certain respectability in the world from undertaking work. But what about part-time work? What about voluntary work?

If I had the opportunity to make another speech in this debate, it would be to ask the question; what are we going to do in a world in which full employment is no longer possible? The figures to which I drew your Lordships' attention at the beginning of my speech indicate that full employment is no longer possible. It is no use just banging on about competitiveness. That does not address the issue of unemployment. One way of addressing the issue of unemployment is to analyse it in a more thoughtful way than we have done and to ask; what are we going to do in a world in which it is simply not possible for all people to be fully employed in the traditional manner? That is a question that we shall have to think about further.

6.25 p.m.

Lord Ezra

My Lords, the noble Lord, Lord Roll, in his impressive and stimulating speech used a phrase which he corrected. In a way, I am sorry that he corrected it because the phrase that he used first was to ask how we can come out of the "recovery". I think that how we come out of recovery is almost more important than how we come out of recession, which is how the noble Lord corrected himself.

I believe that the recurrent severity of the various trade cycles in recent times has been largely responsible for the problems that we confront today. Of course, we can never get away from trade cycles. Even the Roman farmers complained about trade cycles and there were major trade crises in both Elizabethan and Victorian times. However, we happen to have suffered from them very severely recently. I was glad to note that in his Mansion House speech the Chancellor referred specifically to that and said that it would be the aim of government policy to try to avoid such recurrent crises —at any rate in their recent severity.

As the noble Lord, Lord Eatwell, pointed out, there has been a plethora of reports on this subject. If one tried to bring to the House all those reports—I was tempted —one would not be able to carry them. I have brought only three with me and it was pretty hard work. It has taken me a lot of time to try to distil from those reports, which deal with various aspects of the crucial problem of growth, competition and employment, something simple, straightforward and concise to be able to say on this occasion. Other noble Lords have tried to make their own distillations and I shall give your Lordships mine.

I should like to start with the point that the noble Lord, Lord Renfrew, has just made. He said—I am sure that we all accept this—that the technological revolution through which we are now going is historic in nature. The role of the computer in changing our industrial and economic life is equivalent to the impact: of the steam engine, the internal combustion engine and the electric motor.

Despite what people may think about the nationalised industries, the Coal Board was fairly far-seeing and we were among the first to introduce computers for payroll purposes. In those days, they were massive machines and many people were needed to handle them. They were located in special rooms in which the temperature had to be regulated. Progressively, computers have been used for more and more purposes, but the computer has now moved right to the heart of our industrial processes. The most staggering and impressive news that I read recently was the announcement of Boeing's new commercial aircraft, the 777, which is said to be the first to be designed entirely on a computer. That is quite a revolution. We are living through extraordinary times. That is one distillation of the background against which we have to tackle the problems. There is no way of stopping the technological advance.

However, that must be seen also in the context of the other major development, which is the opening up of the markets. We have seen the moves to create the internal single market which the country has fully supported. I believe that that is the one aspect of the Community's development on which there is common accord. We have also seen the success of the Uruguay Round and the opening up of world markets, the instantaneous ways in which vast sums of money can be moved around the world, and the much more effective and freer way in which goods and people can move around the world. That is the second big development—revolution almost—with which we have to grapple.

Let us consider what has happened to Western Europe. The noble Lord, Lord Skidelsky, dealt with this. Western Europe enjoyed its greatest postwar period in the 1960s. One country after another had its economic miracle. Had that period lasted a couple of years longer I think that even Britain would have had an economic miracle. One saw economic miracles in Germany, Italy and so on. Europe seemed to know no limits to the extent of its growth. Suddenly all of that was shattered by the oil shocks of the 1970s. Those oil shocks reversed whole processes. They irremediably changed Bretton Woods. Following the 1974 crisis, all currencies began to float. It started inflationary movements and recession and unemployment began to go up. All of the ills that we are now suffering started at that time. Unfortunately, Western Europe has not really recovered from those shocks. We faltered then and to some degree we are still faltering.

Many noble Lords have spoken about the different ways in which our main competitors, namely the United States and Japan, have developed. The conundrum posed by the report that we are now considering, in particular by the Motion put down by the noble Viscount, Lord Caldecote, is: as the most dramatic social impact of that combination of circumstances has been the very high level of unemployment, whether cyclical or structural, will the further development of technology make the position worse or not? Inevitably we are involved in this great surge of technological development. What will be the effect on the already high level of unemployment?

I shall try to take a reasonably optimistic view. I believe that I stand with the OECD report on this matter. On page 31 of that report it is said that, historically the income-generating effects of new technologies have proved more powerful than the labour-displacing effects. Technological progress has been accompanied not only by higher output and productivity but also by higher overall employment". However, the report goes on to say that, the transition from old to new technologies is a demanding process". The question to which we are inevitably led is how to cope most effectively with that process, bearing in mind that on the one hand we have to achieve a cutting edge on the technology and maintain our competitiveness and, on the other hand, as we are all agreed in this House, the social problem of high unemployment has to be dealt with. I have tried to view that in the context of the policies that the Government are at present pursuing and some of the policies that I would like to see them pursue. I am at one with my noble friend Lord Dahrendorf that this is a problem that each country has to solve for itself but with the Commission comparing experiences and stimulating wherever it can. However, the real effort has to come from the countries themselves.

Let us consider the Government's policies that are relevant to this issue. First, the Government have set themselves the task of containing inflation. I am sure that we all subscribe to that. I am very pleased to see that the Bank of England is playing a progressively more independent role. I believe that the Chancellor was right when he claimed as one of the successes of his period of office that he had opened up the dialogue with the Bank and that we could see for ourselves what the Governor and the Chancellor said at their meetings. I hope that that process will be extended. There is much to be said for having an independent body to care for the rate of inflation as that is so crucial. Therefore, I agree with that part of the Government's policies.

I turn to the second aspect of their policies, the containment of public spending. Of course, public spending must not get out of control. When I come to the question of investment I will submit that there is a part of public spending that is not being sufficiently attended to at the moment.

I hope I am being fair in saying that the third plank —no doubt the noble Lord will correct me later if I am wrong—is deregulation. The Government have set their minds on removing as many of the impediments to trade and industry as possible. But I believe that they have formed the view that if they contain inflation, restrict public spending and deregulate, and therefore create an open market, the rest can look after itself. I have doubts about that. I believe that policy has to be taken further than that.

A number of noble Lords, including the noble Viscount, Lord Caldecote, and the noble Lords, Lord Eatwell, Lord Monkswell and Lord Renfrew, have raised the question of investment, which I believe to be absolutely crucial. At the beginning of this debate the noble Lord, Lord Strathclyde, pointed out that there had been substantial increases in investment in recent years in the British economy, particularly in industry. No doubt that is true. But the fact is that in absolute terms we lag behind, as pointed out by the noble Viscount, Lord Caldecote.

In addition to the three planks of government policy, which I support, I should like to have a fourth plank: a positive attitude to investment. I believe that that is the only way in which we can effectively prepare ourselves for the continuing surge forward of technological development, the continuing openness of the markets and therefore the continuing need, if we wish to have any impact on unemployment, to have a lead in an increasing number of sectors. The way to do that is to undertake carefully considered investment, which itself has to be divided into four parts.

First, there is the built infrastructure. I am dismayed at the lack of investment that has been put into the national assets of this country, particularly the transport assets. I have repeatedly asked Questions about London Underground, which is a crucial element to enable people who work in the city to move in and out of London. Yet investment has fallen behind what the Government even three years ago agreed was necessary. In my opinion, that is not a sensible policy. However vital may be the need for overall control of public expenditure, one should not cut out the essential maintenance of vital assets. I believe that that matter needs to be reviewed.

As far as industrial investment in the private sector is concerned, here too a lot can be done to stimulate more investment. For a long time I have felt that the tax system in relation to investment was discriminatory. Why should one get only 25 per cent. of formative investment? Why should one not get 100 per cent.? Why should that not be regarded as a perfectly legitimate, and indeed very desirable, commercial expenditure? It seems to me quite wrong that the running costs of a business—for example, the costs of office equipment—should rate 100 per cent. against tax and yet the vital investment which makes those running costs a necessity is not sufficiently encouraged. That needs to be looked at very seriously.

We must consider the position of small firms. They can have a dramatic effect on the employment and future of a country if they can be provided with the resources that they need and are not damaged, for example, by the whole question of late payments. There was a Question about that today and I asked a Question about it last week. Late payments are an extremely costly burden on small businesses. It may be argued that legislation may not be the answer, and there are strong arguments against it. But I am chairman of a medium-sized company and I know that I should tell my people to pay their bills more promptly to avoid running the risk of having to pay interest. I should expect the same in return. That would have a positive impact. We must look at those matters.

Research and development is the third area. The point has been made well by the noble Lord, Lord Renfrew, about basic research, but I should like to refer to industrial research. The Government produce extremely interesting R&D scoreboards. The latest was issued on 17th June. That compared the proportion of investment of major companies in this country with a number of other leading countries as between expenditure on research and on dividends. I know that that is a controversial issue which the Government have raised and it has attracted a certain amount of dispute among their own supporters. Nevertheless, the figures are very striking.

The Government's figures show that in the United Kingdom—the 20 largest firms which invest in R&D in the UK—the proportion of sales put into research is 2.29 per cent. compared with dividends of 3.09 per cent. That relationship exists in no other country. For example, in France the R&D figure is 4.8 per cent. and the dividend figure—that is, the percentage paid out in dividends as a proportion of sales—is 0.66 per cent. In Germany the figure for R&D is 6.8 per cent. and for dividends the figure is 0.74 per cent. It seems that we are the only country in the major league which not only puts so little into R&D but which also pays out proportionately so much more in dividends. That means that those funds are not available for investment.

Finally, there is the question of investment in training, about which much has been said and, indeed, much is contained in the Government's recently published report. I agree with what my noble friend Lord Dahrendorf said about the need for employability, especially to take account of the rapidly changing technological background against which we have to work.

I have tried to distil from that substantial amount of very important literature on the subject which has emerged since the end of last year what my thoughts are. I believe that the technological age in which we live cannot be changed in any way. We must accept it. The only answer to it is to accept: the challenge and try to get as many leading edges as we can. We are in a much more global and competitive situation. The way to deal with that is to supplement present government policies with a much firmer policy on investment.

6.44 p.m.

Lord Wade of Chorlton

My Lords, first, I thank my noble friend Lord Caldecote and the noble Lord, Lord Hunt, for allowing us to debate this very important issue. It seems that to many noble Lords it is not quite such an important or exciting issue as the matter that we discussed on Monday. But, in my view, it is a far more important subject to the benefit of every person in the country.

I am one of those who believe that the only possible answer to creating more employment is growth, further economic activity and the creation of wealth. I agree with many noble Lords who have said that growth in itself may not produce further employment, but employment will certainly not be produced without more growth. Therefore, that is the key priority if we are to solve many of the problems which have been outlined so clearly by noble Lords this afternoon.

I am of the view that companies employ people when they will make a profit from them. We are quite clearly in a situation where the market value of less skilled people is less than the minimum wages that we feel it appropriate to pay them. Therefore, we must create more wealth in order to pay them. The people who create wealth are entrepreneurs. They are prepared to take risks and have the enthusiasm necessary to create new businesses. We need to support that group of people.

As many noble Lords have said, it is very easy to propose short-term palliatives to try to solve the problem. But at the end of the day, business will be created only when people work hard to do that and when people decide that they wish to create wealth. You will not become a rich man if you do not want to become a rich man. The nation will not become a rich nation, employ a lot of people and create a standard of living, which noble Lords on all sides of the House have said we must achieve, unless that is what it wants to do. It is important that we should appreciate how the nation as a whole must decide whether it wishes to solve our unemployment problems and create the economic activity necessary to do that.

Long-term growth is not possible without continuous technological progress. Every incidence of growth in economies has always, at some stage, been started by new technologies that have made it possible. But there is nearly always a time lag between the development of a technology and the wealth creation which gets through to the mass of the population. That time lag can be as long as tens of years. Therefore, we must appreciate that we must do nothing to impede the progress of a new technology in one decade which will prevent it becoming a major wealth creator to benefit all the population in the years ahead.

Any activity by governments, groups or individuals which works against the development and growth of new technology could prevent the creation of thousands of jobs, not in the short term but in the many years ahead. Because of that time lag we do not always appreciate that many new technologies will need massive changes in the structures of society, the economy and attitudes before they will bring great benefits to the general population.

Many economists talk about the "QWERTY" principle where we are tied by our traditional ways of doing things that do not allow us to embrace the wider aspects of new technology which allow it to flourish. One can see what technology has done. The noble Lord, Lord Ezra, mentioned it. Technology has brought enormous benefit to the aircraft industry. We are now able to make aircraft which we never dreamt would be possible. We have technology to enable us to have extremely efficient airports. They can create enormous wealth by helping people to move around the world. But what will be the benefit of such technology if nobody wishes to live next door to an airport or if every time we wish to utilise that benefit and wealth-creating opportunity, the vast majority of people wish to stop it happening?

I read in the newspaper today that the inquiry has begun into the new road around Birmingham. That road is absolutely essential if there is to be continuous employment within that very important industrial area. Certain bodies have begun to protest and said that they will do everything to prevent the development of that new infrastructure. Society must come to terms with what it wants. Does it want a no-growth, no-employment and difficult society in which people cannot get jobs and all the problems that go with that, or does it want a society where there is wealth, opportunities and growth? If it wants the latter, it must put up with what that means; namely, the growth in technologies and infrastructure which go with it.

The idea held by some people that world growth will be held back by the anti-growth policy of many in Europe is a nonsense. One need only look at what will happen in the undeveloped countries, which will grow like mad in the next few years. The latest edition of the Economist refers to the growth in energy consumption in developing countries between the years 2000 and 2010, which will be greater than today's consumption in Western Europe. That is an increase in energy use, so let us just imagine what that means in terms of the economic growth that will accompany it. It also says that by the year 2020 world energy demand will be double today's levels and that energy use will be 60 per cent. in what we see as the developing world and only 30 per cent. in OECD countries. That is clearly where all the economic activity will take place. That will happen whatever we try to do to hold back growth in this country.

It is important to remember in the context of the debate that factors which prevent growth, and the employment that goes with it, are things which we do rather than those which we do not do. How many times do we debate in this House issues which will ultimately prevent someone's job, someone's new business or someone's opportunity from happening. It is incumbent upon all of us to ensure all the time that we do not put in action measures which will prevent growth and employment.

I should like to give your Lordships some thoughts on how we might improve the situation. We need 100 per cent. support for entrepreneurs. Wealth creation and growth productivity must be at the top of everyone's agenda. New technology takes time and we must not do things to prevent it half-way through its development. As many noble Lords have said, it is most important to note that new technology needs special skills. Short, specialist retraining courses are a must. I welcome the moves, about which many noble Lords will be aware, at John Moore's University in Liverpool which is now specialising in short, video, highly specialised courses which can retrain people quickly and effectively into new ideas. I believe that the demands for unskilled people will be in construction, environmental improvements, leisure and tourism. It is most important that we should give those industries the opportunity to move forward.

My noble friend Lord Renfrew mentioned the whole aspect of research and the new technologies which are coming forward. That is a matter which we have studied in the North West just recently to see how we can better exploit the research and technology which is being developed in the universities. So far as we are concerned, every university has its own technology exploitation unit which, as all agree, have not been terribly effective. Such units have not been able to attract the skills that are needed to really drive the technology forward and the people who really understand the market place; neither have they been able to give confidence to the research worker that they will gain the commercial returns on their development which they feel that they justify.

I believe the better approach would be for us to develop a single North West exploitation unit. It could be well funded and take in research from all the universities within the area. Moreover, it could advise on the exploitation, the commercialisation and the licensing and also be able to put back the resources into the universities over a period of years. I am very pleased to say that, so far, five of the universities in the North West have supported and given great encouragement to that idea to the extent that I now feel that we are in the process of putting together a business plan. It is to be hoped that government and various other sources will support such a plan; indeed, I already know many venture capital organisations do support it.

The latter is a positive way forward which could apply to many areas of the country. If it works—and I hope that the North West will be able to make it work —it could well become an example of what can be done for other areas of the country. However, as the report of the noble Lord, Lord Hunt, shows, there is clearly a gap between the research that is taking place in the universities and the time-lag that exists to get that technology into an active working place and exploited to produce wealth and jobs for the country. The North West is trying to solve the problem by centralising it and bringing in greater abilities to deal with it.

I feel strongly that the Government, especially through their initiative with the DTI, have seen the way ahead and the importance of making wealth creation and the development of jobs the top priority of every sector of society. From that initiative one hopes that that department will be able to persuade all the other parts of government to take the same view. I feel confident that, as the noble Lord, Lord Ezra, said, the period of enormous technological change through which we are passing will not just bring short-term wealth but will lay the foundation for a society which can create tremendous opportunities during the next century.

6.55 p.m.

Lord Desai

My Lords, listening to the debate, a statement by Karl Marx when he was very young comes to my mind: Philosophers have only interpreted the world … the task, however, is to change it". We have heard an excellent set of analyses. We all understand the problems. They have been most adequately described. Therefore, intervening rather late in the debate, I shall not repeat too much analysis. I shall try to speak more about solutions.

What is clear from the many documents on the subject—I must tell the noble Lord, Lord Ezra, that I have brought them all with me—is that they are somewhat short of solutions. I shall try to outline what I consider to be the direction in which such solutions may lie. I shall first point out the aspects upon which we are all agreed.

We agree that globalisation of financial markets and an international division of labour have taken place. Therefore, the sort of policies upon which we used to rely —what I used to call Keynesianism in one country —are dead. You cannot be Keynesian in one country any more; or if you can it will not fully solve the problem. I shall deal later with just how far one can go with such policies.

However, one may be able to do something at the European Community level with Keynesian policies. Part of the White Paper issued by the European Commission, especially the policies on trans-European networks and infrastructural investment, is basically what we were trying to do in the 1940s projected at a European level. While in principle I like that, I do not believe that it has very much chance of success. Keynesian policies need a strong state; in other words, one which commands consensus. Like it or not—I must say this because my noble friend Lord Brace will remind me of it if I do not—the European Community does not command that sort of consensus and does not have the sort of central machinery to take; up a problem of infrastructural investment and implement it. Whether we like it or not is neither here nor there: it will not happen. We have already seen that the plans to borrow several billions of ecus from one or another investment bank have been brought to nought because the various members of ECOFIN have told the president of the Commission where to get off.

Keynesian policies at a European level, even if they were feasible, will therefore not happen. We must face seriously the sort of solution proposed by the noble Lord, Lord Dahrendorf; in other words, we must think globally but act locally. We must have local and national solutions to the unemployment problem.

It has been said that unemployment is structural, cyclical and so on. Obviously, Keynesian policies might reduce cyclical unemployment. But what is going on at present? Well, we are coming out of recession and, as we got into the recession earlier than other European economies, we are coming out of it earlier. There is no great miracle involved. In the recovery, weak as it is, there is some decline in unemployment; bur. there will be limits to that decline. As we know, in the past 15 years, come boom or bust and with or without trade union regulation or whatever, unemployment has stayed at 1 million or 1.5 million higher than what it was in the bad old 1970s.

The reasons are obviously structural and not cyclical. Reducing cyclical unemployment will get you a little way, but it will not get you far. So what will we do? The excellent report that the committee of the noble; Lord, Lord Hunt, has prepared contains on page 72 an analysis of what is referred to as "jobless growth". I admit with some pride that I was associated with the UN human development report last year which took as the theme of its front page the growth of joblessness. The report referred to the experience of different countries as regards growth in income and growth in employment. It showed the great contrast that exists as regards employment and growth in European countries, Japan and the USA. Many noble Lords have referred to that.

I shall come to non-wage costs in a moment. While many things have been said, it has not been made clear that the rate of investment as a proportion of GNP in Japan is very different from that of any European country or even of America. Roughly 30 per cent. of GNP is invested by the Japanese. That is why, although growth does not necessarily create jobs—in fact, a lot of growth destroys jobs—if a sufficiently high rate of growth is created, a country may achieve productivity growth as well as employment growth.

I do not believe it is realistic to say that an economy which is used to investing around 15 to 18 per cent. of its GDP—that is our experience—will start to invest 30 per cent. of its GDP in a hurry. However, we must really think about the fact—this, again, is not a partisan point —that historically the UK economy has been an over-consuming economy. Over the past 40 years our budget deficits and our trade deficits reveal that we have over-consumed by up to 4 to 5 per cent. of our income.

We can look at the matter another way. If we consider private consumption and government consumption and remove those two elements, we shall be surprised to see that there is not even as much as 10 per cent. of GNP left. I have no time to go into detail. I merely say that by and large we over-consume. Until we re-think our consumption habits—in the Keynesian days over-consumption was encouraged because Keynesian policy decreed that stable consumption created jobs—things will not change. But the world is different now. World economies now demand investment. It is believed by world economists that there is no shortage of demand for products as countries can sell their products abroad. However, one must be able to sell, and that requires technological change, growth, productivity, innovation and so on.

We must completely re-think our national economic policies. The problem of over-consumption will not go away. I do not believe in this business of non-wage costs. I do not say that because the average hides a lot of dispersion around the mean—most averages do so —but because what is counted as non-wage costs depends upon what parts of public expenditure are financed in an overall framework. For example, chapter nine of the Commission's White Paper explains that in some countries health care may be financed by what we call national insurance contributions whereas in other countries it may be financed by income tax or by a sales tax. That will lead to very different non-wage costs in member states, although the overall tax burden may be the same. Therefore, I do not think one should pay too much attention to deviations in non-wage costs. Although those deviations may be large, as regards overall tax burdens the position of the UK is similar to that of Germany. There is not much in it. It is sad that non-wage costs have become a big issue because it is really a matter of how a country finances its public expenditure. In my opinion such costs do not shed much light on the subject.

The real question is: what is to be done about all this? I believe it is important to make a distinction between what I call the tradeable sector and the non-tradeable sector. In the tradeable sector, be it manufacturing or services, we must insist on the highest rate of productivity growth and on the highest reduction in unit labour costs. I do not mean low wages. The highest reduction in unit labour costs is where competitiveness and wealth creation lie. Unfortunately, wealth creation is not the same as job creation. We must realise that we shall always need a dynamic manufacturing and tradeable services sector which will grow rapidly and which will generate income. It will have to grow rapidly because that is the nature of the game. If we do not have productivity growth, we will have unemployment because basically we will not be able to sell abroad.

As noble Lords know, the manufacturing sector as a contributor of employment has been shrinking and more people have been entering the service industries. But even in the financial services sector, a company has to be highly productive and highly efficient to be able to compete in other markets. The dilemma of public policy will, I think, be as follows. One will have a rapidly growing, very dynamic sector of tradeable goods which will not generate employment. Employment will be generated elsewhere in the economy in the non-tradeable sector. The question is: how does one make the people who make all the money in the tradeable sector partly transfer their wages to finance the non-tradeable sector? Of course, if the non-tradeable sector were commercial and all its services were available, the price of the non-tradeable goods would go up and people would have to pay more for child care, transport, or dustbin collection, for example. However, that is not the way it happens. We need a combination of market and non-market policies. We have to think through the whole question of the provision of jobs in the non-tradeable sector at local authority and central authority level as well as in the private sector.

A number of noble Lords have mentioned the dilemma of having either high wages for those in employment or the combination of a market wage and non-wage basic income support. We must either go for non-wage basic income support plus a market wage so that the combination gives everyone a living income —not a living wage—or we will have to subsidise jobs in the non-tradeable sector. There is no third solution. One either pays people a wage which is a living wage or one gives them a living income.

Some schemes for job creation were presented in evidence to the committee. A number were similar to workfare or suggested giving unemployed people vouchers to enable them to pay employers to employ them. That, in a sense, subsidises job creation. I do not want to favour one policy above another but I would point out that a variety of policies are available which ultimately involve some part of the public revenue being used as a subsidy to create jobs. That will perhaps elicit jobs from the private sector and the people who gain the jobs, having had job experience, will find other jobs later on. I am afraid that all this will cost money. But we will spend money in any case either through paying unemployment benefit or through creating jobs for the unemployed so that they no longer receive unemployment benefit.

What is more important, I believe, than the amount of taxation levied is a change in the logic of taxation. The noble Lord, Lord Ezra, referred to that. What I mean is that along with the Keynesian policy of encouraging consumption we have also adopted a policy which taxes employment and taxes profits. It does not tax consumption, including the consumption of energy. Therefore we are taxing the wrong things. We are not taxing those items with which we are profligate and which we ought to save; we are taxing the things we desperately need more of. We need to make more use of labour and capital, but we are taxing capital and labour while not taxing consumption and the use of energy. I believe that that would be perfectly logical, although it would take me a long time to explain, and I always get into trouble when I talk about taxation. I believe that we need a shift in the way in which we think about employment—away from taxes on labour and on profits to taxes on consumption and energy.

I recognise that I have over-run my time, but I should like to make this point. I believe there is a great deal of scope for job sharing. When people speak of job sharing they do not mean lower income. That is very important. People would love to work for 10 per cent. or 20 per cent. fewer hours, but they do not want 20 per cent. less income. Therefore, any scheme for job creation backed by job sharing has to go around the same loop I described earlier. Somebody will have to be paid more money for doing less work, and if they are more productive that may finance jobs elsewhere. Otherwise, it is not commercially feasible.

Lastly, in the private tradeable sector we have to go ruthlessly in pursuit of productive growth and profitability. In the non-tradeable sector we have to find imaginative ways of creating jobs. That is where jobs will be created, not in the other sector. We have to combine both. One or the other by itself will not be enough.

7.11p.m.

Viscount Chelmsford

My Lords, this has been a great debate for the economists. I should like to speak from a different viewpoint.

I took the words "growth, competitiveness and employment" and, to borrow the phrase of the noble Lord, Lord Ezra, I distilled them in my own way, which is from a business background. Of all the various reports that have been published, with my background perhaps it is not surprising that the one which appeared most significant to me was the report which appeared as Appendix 5 of the Select Committee report. That is the European Round Table of Industrialists' message to the Commission in Brussels called Beating the Crisis.

I like the report not least because it starts with a very simple message. It states that Europe is a high cost, low growth economy. It is not adapting fast enough. It is losing competitive advantage, and as a result too many people are out of work. The report moves on and calls for full settlement of the Uruguay trade talks. It says that special interest groups can no longer hold the global economy to ransom and calls for a substantial increase in investment. In fact, it calls for the fourth plank mentioned by the noble Lord, Lord Ezra.

The ERT states that competitiveness means that Europe must reduce costs, cut regulations and raise quality. Government must set the framework. Stable conditions are required and less regulation, because uncertainty is the enemy of investment. There must be less waste and less distortion as a result of state aid and monopolies. Industry must achieve the task of every company: raise quality, cut costs and break into new markets. The report states that small and medium enterprises (SMEs) have the greatest potential for job creation.

I turned to the Commission's White Paper, where I found the statement that it is necessary to underpin the dynamism of SMEs. I therefore started to look rather carefully at small and medium enterprises. The Commission says that companies with fewer than 500 employees account for 70 per cent. of Community employment and also 70 per cent. of Community turnover. Amazingly, companies with fewer than 10 employees still account for 29 per cent. of Community employment.

The Commission report adds that SMEs have a high rate of failure and that it appears to be increasing. The Commission goes on to recommend new financial facilities, co-operation between firms (presumably between SMEs) and improvements in management quality.

I then moved on to the recently released Bangemann Report. Here I found that: The 12 million SMEs are rightly regarded as the backbone of the European economy. They do, however, need to manage both information and managerial resources better". The report does not explain how that is to be achieved. It is interesting that in opening the debate my noble friend Lord Caldecote flagged SMEs as a significant means of achieving job creation.

The DTI paper, Competitiveness: Helping Business to Win, offers help to SMEs under the heading of "Finance for Business". It states that the DTI offers measures to encourage the supply of capital. It talks about the small firms loan guarantee scheme, reduced audit and accounting requirements for SMEs and codes of banking practice. It states that the Government will provide stable macro-economic environmental conditions in which markets can work more efficiently. As others have said, elsewhere there is much on education and training but no specific comment on SMEs and their management practices.

I then thought what might be done in order to increase job creation through SMEs. They have a problem. It is a lack of management resources. They do not become involved in association-type activities and the lecture circuit in the same way as larger companies with more resources are able to. Therefore, they are not involved in the process of adding value. If the UK is to grow through its SMEs, I suggest there ate three approaches by which we can help them to add value. I am talking here about existing technology which they do not possess, not about new technology resulting from R&D.

First, there is the top-down approach. I believe that we should focus much more on the chairmen and chief executives of SMEs. Our stage one message to them should be that their company can add value through technology. Technology is now profit centre driven, and where there is a financial director in their profit centre there should be an information technology director. Where there is a financial controller in their profit centre, they should have an information technology manager. I read recently of the experience in the USA and Canada. It is interesting that they found that if they go to a business leader and say, "Your competitors are really into electronic data interchange", a glazed look comes over the man's eyes and he passes the matter to his IT staff as fast as he can. If they say to him, "Your competitors are really into electronic commerce", he becomes excited, stays interested and becomes involved. Therefore, how we approach the matter is important.

That is merely stage one of the top-down approach. Many companies have already reached that stage, particularly here in London and the City where most companies are well and truly organised in terms of technology. However, many of those companies have not yet caught up with the fact that there is a second stage. Technology changes the boundaries of where one competes and where one shares services. There is further added value to be gained in the electronic market by sharing services with those with whom one trades and, surprisingly, in many cases with those with whom one competes. Out-sourcing and the use of bureaux are ways in which costs can be cut by sharing services. In general, SMEs do not understand that. In some areas they have not even discovered yet that they are players within the market place, let alone that they can enter the market and, by using technological means, improve it.

If the first approach is top down, the second is obviously bottom up. Every SME has a fax. Most have mobile phones. Many are starting to use Internet for electronic mail. Why? They are easy to use. They are sexy. There is an element of one-upmanship. That has happened despite management, not because of it. Because of early critical mass, they are of great use. The task for those who seek to try to get UK small and medium enterprises to grow is to find more products with such characteristics. However, the problem for them is that computer communications is structured, regulated and ponderous. In his report, Bangemann calls for the making of standards to be speeded up. If he is successful, perhaps more SMEs will use IT in the manner in which they ought.

Finally, the third method of moving SMEs is the industrial way. As regards the superstores, and in certain areas of the banking world, suppliers cannot trade with them unless using their electronic system. That concentrates the hearts and minds and brings people into the modern technical age. Incidentally, all those who do that are substantially better off as a result.

So there are three ways to achieve growth in the UK in that 70 per cent. of the economy sector called the SMEs: to brainwash those in charge; to give those at the sharp end new tools that they can use; and to get industry and commerce to drive the markets. Perhaps organisations such as that to which my noble friend Lady Wade has referred may be the place in which we should seek to move those methods forward.

7.20 p.m.

Lord Laing of Dunphail

My Lords, unemployment at an unacceptably high level is facing the whole of Europe, and I suspect, as my noble friend Lord Renfrew said, that in the short term it will prove impossible to bring it down to a level with which we could feel reasonably comfortable. But there are practical measures which can and should be taken to improve the situation. I shall suggest two in a few moments.

The background to any measures must be to ensure that inflation is kept within government guidelines, that interest rates are kept as low as possible consistent with that objective and that productivity and innovation are accepted as the key to fuller employment. Although our productivity has been improving, we have so much ground to make up that wise investment in R&D must double. That inevitably will mean in the short run that dividends will be affected. We have been living beyond our means. In order to double our R&D, tax incentives —further tax incentives —may be necessary.

It is important, too, that the Government, management and unions redouble their efforts to ensure that people understand that they can price themselves into jobs or out of jobs—that we have no divine right to our standard of living. So if we are to have more employment we must strive to become the low-cost producer of the products the world wants.

Let me now put forward two ideas, one of which would ameliorate the problem—I believe that it is unacceptable at present—and the other create more jobs. There is a trade-off between unemployment and early retirement. As I said in your Lordships' House on 25th November last year, I believe that an imaginative special offer early retirement scheme should be devised. The aim would be to retire, say, ½ million unskilled people aged about 60 with long service and in occupational pension schemes at the pension level they would have received at 65. The Government would play their full part provided that a young person were taken on from the unemployment pool.

Can it be sensible to keep people in work at 60 or over who would like to retire, while denying work to youngsters who want to work? To those who suggest that that remedy is too expensive I reply that nothing is more expensive and degrading than unemployed youth. Most crime involves young unemployed people, not those in their 60s. If unemployment is seen as our most serious problem, crime comes a close second.

If we are serious about reducing unemployment, consideration should be given to making private employment tax deductible for clearly defined groups, starting perhaps with home help to enable mothers to go out to work. That net could be widened with advantage, especially in rural areas.

In a nutshell, more jobs will not be created if we are not competitive. That means that our unit labour costs must be competitive with the best in the world. That will not be achieved by a shorter working week, but could be achieved by a shorter working life, coupled with increased R&D expenditure, leading to an increased share of world trade, in particular in the countries of the Pacific Rim.

7.25 p.m.

Lord Thomson of Monifieth

My Lords, like other members of Sub-committee A, I join in thanking the clerk and the special adviser who brilliantly organised and summarised the flood of material which came our way. Perhaps I may say to the noble Lord, Lord Hunt of Tanworth, that it was a great advantage in dealing with such a complex and sensitive subject to have a former secretary to the Cabinet presiding over us with such Olympian calm and fairness.

As a new member of the sub-committee, I found listening to the expert evidence a sobering experience. I belong to that immediate post-war generation of politicians who were brought into politics partly by revulsion at the mass unemployment of the 'thirties and who came to take too much for granted, I am afraid, the levels of full employment in the 'fifties. The noble Lord, Lord Roll, spoke of those times. As a non-economist, I was inclined to feel complacently that Beveridge and Keynes had provided us with the keys to a lasting high level of jobs and welfare.

I emerged from the proceedings of Sub-committee A with the clear conclusion that today any politician who makes a glib slogan of the restoration of full employment, or who is unwise enough to attach his name to numerical targets of job provision, is heading straight for the disillusion of disappointed expectations.

The noble Lord, Lord Hunt, referred to the basic conclusion of the report which stated: Unemployment is the most important social problem facing us at the present time". The problem of structural unemployment in the Community is more serious than anything that the White Paper suggested.

Noble Lords who have spoken have sought to suggest realistically what we can do against that rather bleak background at both the European Union and national level. If there are no short cuts, what is the longer route to a more civilised situation? The dilemma was put starkly by the noble Lord, Lord Renfrew, in his reference to the figures for the relationship between the rate of growth and the provision of extra employment. I thought that the Government's reply to our report and the speech of the noble Lord, Lord Strathclyde, was a little thin with regard to the challenge of unemployment. The noble Lord concentrated, perhaps wisely, on the Government's case on competitiveness. That is of crucial importance but it is not the answer to the unemployment problem. I do not wish to become engaged in the endless battle of statistics. However, although we all welcome the current reduction of the overall figures of unemployment by about 300,000, the background still remains very sombre indeed.

The most striking figures from the Commission's White Paper were for the period 1970–1992, a period which covers successive governments of both parties in this country. They indicated that whereas during that period output in the United Kingdom had grown by 51 per cent., the number of jobs had grown by only 3 per cent. The dilemma is set out very fairly and clearly in the sub-committee's report. Paragraph 65 on page 22 states: The evidence suggests that Member States in the Community face a choice between more job creation (especially in the form of low-paid jobs), less social protection and a lower level of productivity, on the one hand, and less job creation, more social protection and a higher level of productivity, on the other hand. Finding the right balance will not be easy". Is there some right balance, a middle way between these stark choices? Although there are undoubtedly lessons to be learnt from Japan and the United States, experience shows that national cultural habits do not transplant easily. The USA has undoubtedly a better record than Europe in job creation, but the working poor concept in the United States is not an attractive one to the European social ethos.

On the other hand, I am bound to say—and here I agree with what the noble Lord, Lord Desai, implied and other noble Lords said—I find it equally distasteful, perhaps even more distasteful, that present European practices appear to impose, particularly upon young people, the prospect of a dependency culture of living permanently on the dole, social benefits and perhaps spinning off into drugs and youthful crime.

I conclude from that idea that we must apply ourselves seriously to looking, for example, at changing patterns for job-related social security benefits. That has a constructive contribution to make, though no doubt a modest one. Searching for some practical remedy that would mitigate the situation, I liked the Dutch experience that supported a 30 per cent. increase in employment, due to a shift to part-time work. Perhaps we may copy something like that.

I also much agree that there should be further exploration of the ideas of Professor Layard, which are mentioned at paragraph 96, of recruitment subsidies for taking on the young, long-term unemployed. Professor Meade has also recently been putting forward similar ideas.

On a wider, longer-term pan-European scale, the federal trust proposals that are mentioned in our report for a funded rather than a pay-as-you-go pension scheme throughout the Community would contribute: both to jobs and to higher levels of Community investment. Although it may be a rather visionary concept, it is worth looking at further.

Both the White Paper and our report agree that the main focus for effort must be at the national level, as my noble friend Lord Dahrendorf said. Despite that, there is a community role to be played, as was described clearly by the noble Lord, Lord Hunt, in his summary of the report. I shall not repeat what others have said about the kind of framework that the European Union must provide in terms of the exchange of ideas, the advocacy of best practice and so on. But the focus has been particularly on issues about flexibility at the European Union level.

First, as our report indicates, there is a need for a flexible approach over the convergence criteria for economic and monetary union. In accepting that, one should not forget the point that was made in our report about the importance of maintaining exchange rate stability in order to keep uncertainty about job-creating investment decision-making down to a minimum.

Secondly, much attention has been given to the need for flexibility in the labour market within the European Union. This is an issue on which the Government are inclined to concentrate, triumphantly describing their opt out from the social chapter under the Maastricht Treaty arrangements.

The Commission's White Paper is as convinced as the Government and most of us that non-wage labour costs in the Community represent a tax on jobs which should be reduced. The Commission's White Paper is as convinced as Her Majesty's Government and most of us that international competitiveness is of vital importance. The social chapter relates only to a small part of those issues.

There is, in fact, widespread agreement on the need for reforms, I would say for radical reforms in the social policies related to job provision, both in the member states and at the community level. The real aim, the real question, is: what is the best way to bring about this reform? There are more civilised and less civilised ways to reduce non-wage labour costs. There are more civilised and less civilised mechanisms for bringing that about. I was rather struck by the fact that both the noble Viscount, Lord Caldecote, who introduced the debate in an interesting speech, and the noble Baroness, Lady Dean, seemed from rather opposite poles to come to a considerable measure of agreement about the need for what is known in Community jargon as the social partners engaging in constructive dialogue with each other. For my part, I think that the European Union concept of social partners and dialogue, of trying to reach an agreed consensus, is a civilised one and it is well worth trying to apply it so far as one can.

I add the proviso that there must be included in one way or another the interests of the silent partner, the young long-term unemployed in the dialogue. There is always the danger that consensus becomes fudge rather than decision. But compromise is different from fudge and sensible compromise is better than a rather sterile confrontation or the application of the rootless and sometimes jobless logic of the unregulated market.

In any case, I say to the Government Front Bench that the best way to influence wise decisions in the European Union —to which we are treaty bound—is from the inside. If we want to make practical progress in reducing structural unemployment in a European Union facing global competition, as the noble Lord, Lord Dahrendorf, said, no doubt the main effort must be at the national level. But it will have to be done in a Community framework because of the globalisation of the world economy. If I were the Government, in these circumstances I would begin quietly to underplay the social chapter and concentrate on getting to the heart of the decision making on matters where the goals are largely agreed. The Maastricht social chapter, in my judgment, adds little that is not negotiable to the social provisions of the original treaty to which successive British governments have solemnly adhered. However, the tasks of reducing structural unemployment in practical ways demand the maximum social and political stability and cohesion, both at the national level and at the community level.

7.38 p.m.

Lord Vinson

My Lords, the noble Viscount, Lord Caldecote, and the noble Lord, Lord Hunt of Tanworth, are to be congratulated on introducing this timely debate. There can be nothing worse for the self-esteem of any person than the inability to get a job. For every scrounger on the dole, there are 10 times as many good citizens longing to be employed. Unemployment is the central problem of our time. But paradoxically there is no shortage of work to be done. One glance at our decaying towns, poor infrastructure, overcrowded gaols —the legacy of years of under-investment—indicates that there is a mountain of employment potential.

What then prevents the supply of labour and the need for it from coming together? What difficulties in particular affect the sophisticated labour markets of Europe? Is high unemployment the inevitable outcome of technological change, an inescapable by-product of the welfare state that brings with it the moral hazard of the poverty trap? I do not believe that unemployment is unavoidable; I believe that society must look at some of the fundamental causes of unemployment and attempt to tackle those rather than the symptoms, however long the framework.

The whole structure of our present taxation and employment laws and the philosophy behind them are in practice certain to perpetuate unemployment. There is no easy answer, and there are some very big issues here. Albeit inadequately, I should like to try to highlight some of them.

If there were more time, I should like to address the whole problem of running a country with a consistently over-valued exchange rate where the deficit of £10 billion a year, if spent in this country, could create a million jobs. If there were more time, I should like to address, as have other noble Lords, the woeful problem of our education system and the debilitating way in which it introduces specialisation at far too early an age, thus greatly limiting the job prospects and employability of so many of our citizens.

In particular I should like to talk about the cost of labour and the way in which society, through government, raises the price of labour and thus reduces the demand for it. It was well said that if you increase the price of butter you get a butter mountain. If you artificially increase the price of labour you get a labour mountain. There is no commodity on earth for which, if the price is raised, demand does not fall. If you accept that simple premise—it is a premise often used by Chancellors when they deliberately raise the tax on tobacco or alcohol in order to cut consumption—then why does nobody address the problem that is created by putting taxes on labour which must inevitably reduce its consumption?

Time is money; and the natural barter between people of their time is reflected in the price of their labour under normal, undistorted conditions. In our sophisticated society we pile on additional taxes such as VAT at 17.5 per cent. and national insurance contributions of, say, another 10 per cent., and where individuals, as opposed to businesses—this point was raised by the noble Lord, Lord Laing,—buy labour out of taxed income we tax it at a further 25 per cent. or more. All in all, we weight the cost of labour by 30 per cent. to 50 per cent. above its normal value. Is it surprising, then, that there is a mismatch between supply and demand? Unwittingly, we create unemployment through employment taxes.

Likewise, in this country we have a very high and regressive level of income tax. It is far higher than was ever intended when income tax was first introduced. A very large component of that tax is the cost of welfare and unemployment benefits. And because tax now starts so low down the scale, it is in itself a cause of the poverty trap. It is ironic that welfare payments that are designed to mitigate the hardship of unemployment are one of the causes of it. I do not know how much the work the Treasury does on the detrimental effect of employment and income tax on job development. This is an area worthy of a great deal of further study.

That brings me to the problem that the unemployed have when attempting to re-enter the labour market and get off the dole. These are real problems. If there were no welfare payments—and I am not suggesting this for a moment—an unemployed person would seek any employment and would often re-enter the labour market via some part-time route. By, let us say, moving crates for a supermarket on a Saturday morning, he would show himself to be a handy worker and would soon find himself on the permanent payroll.

There is a tendency in official statistics to regard all jobs as full-time jobs—and indeed, for its own good reasons, the trade union movement is disparaging of part-time jobs. But in the real world, not all jobs are full-time jobs. Indeed, much human activity only needs an extra pair of hands on certain days of the week and to meet peaks in demand.

In practice, there is an enormous market in part-time jobs, but society does its best to frustrate re-entry into the labour market by the unemployed through this route by erecting bureaucratic barriers that effectively lock people into the poverty trap. It is not surprising that many firms, when seeking part-timers, take on the elderly. There is nothing wrong with that. But they are, of course, cheaper to employ because they have an alternative income and no national insurance contribution is payable on their wage. In turn, they have a tax disregard on their earnings. So in practice we make it easier for those of our citizens who are effectively on basic income—the elderly—to get jobs priority over those who are on the dole. In theory, of course, an unemployed person can take on a part-time job. But the hassle of de-registering and then re-registering as unemployed drives him either to moonlight or to turn down the job in the first place. And who can blame him?

The point I particularly want to make is that those who are responsible for welfare payments should look again at the rigidities that prevent re-entry into the labour market by the part-time route. It is my belief that that would open up an enormous number of jobs to those who genuinely need them.

The Government are right at every turn to prevent the introduction of further rigidities that would inhibit the free interchange of labour. One has only to look at the unemployment records of Spain and France and compare them to those of other economies such as Hong Kong, which has absorbed 1 million refugees and has a stable society, virtually no unemployment and a standard of living that is well on the way to overtaking ours. But, of course, it has the minimum number of rigidities in its labour market. America's "easy hire, easy fire" policies give that country a huge capacity to generate jobs. Yes, I accept that some of those jobs are low paid. But at the end of the day it is better for people to have low pay than it is to have no pay. It is better to be gainfully employed than it is to be unemployed. It is better to start on the ladder of employment than to make no start at all. It is better than to be locked into an even lower level of social benefits while awaiting the nirvana of high wages for all, as proposed by some Members on the opposite Bench.

That brings me to my second point; namely, that the road to unemployment is indeed paved with good intentions. Rules that are designed to give job security almost inevitably give job insecurity to those who are unlucky enough not to have a job. Perhaps I may illustrate that point. If an organisation finds difficulty in firing an inadequate worker, it would also have second thoughts about hiring a potentially inadequate worker. Every time it hires a person it takes on an obligation to pay that person when he is sick, or possibly to start paying a worker who goes on maternity leave, or to hold the job over while the person is away. It has to reckon whether those costs are absorbable. One person extra in a firm that employs 100 people is 1 per cent. of the payroll. One person extra in a firm that employs two people is 50 per cent. of the payroll. Small businesses increasingly think twice about taking on additional staff. More is the pity, because it is small firms that generate jobs. If society destroys the "easy come, easy go" interchange of labour by over-regulation, it will destroy jobs.

That brings me to the question of the minimum wage. Every academic study indicates that if the minimum wage is anything above a very minimum level, it destroys jobs rather than creates them. In practice, we have a minimum wage. It is called unemployment benefit. That is the safety net and fallback position that any society quite properly has created for the unemployed.

Perhaps I may give two perverse examples of the minimum wage. A few years ago Sweden tried to introduce the minimum wage for baby-sitters. Once one has a minimum wage, one can be subject to the full rigours of the law. A parent can be sued for under-paying a baby-sitter. The consequence was that hardly any young married couples in Sweden could afford to go out for the evening. It was a daft law with daft consequences.

Equally seriously, the whole area of outworking was destroyed. As noble Lords will know, outworking is a system whereby work is taken to people in their homes —traditionally glove making, knitting, and so on. People who are homebound can earn some money; the costs of transport and travel fall on the employer in taking work to the outworker; and the outworker, who is often homebound, does not incur such costs. If the outworker's wages were raised to the same level as those that have by law to be paid to an inworker, then there is no economic advantage to the company in having outworkers in the first place. By the natural order of things, outworkers are paid less than inworkers. If that balance is destroyed, so too are the jobs that go with it.

Outworking is often the only form of employment available to many women who are homebound, and to the disabled. A minimum wage, far from enhancing their position, would destroy their job. As a consequence, America, in particular, which has a minimum wage, has found that it has to keep it very low, to the point at which the minimum wage is more of a token than a reality. The introduction of a minimum wage in this country at anything like the level suggested would destroy hundreds of thousands of jobs and prove another example of how the road to unemployment is paved with good intentions. I repeat that we have a minimum wage: it is unemployment benefit. I believe that that is the only safeguard with which government should concern themselves. As I mentioned earlier, it is the poverty trap that we should examine with a view to finding a way round the appalling moral hazards that the current arrangements introduce.

Finally, there is the matter of training. Training should start at school with children being given the broadest possible education. But post-education training is often advocated as a universal panacea for getting people back to work. Indeed, it will get some people back to work. But it is not possible to turn everybody into a computer programmer or a welder. The skill of many people lies in manual work and many of them are only capable—thanks to our educational system—of doing manual work in all its various forms. But there is nothing wrong with the skill of manual work. Our infrastructure is in collapse and it is largely manual work that will put it right.

Frankly, as a nation we need to spend less on holidays and more on shoring up our basic economic framework. We must resolve the problem of how to fund public works, be it through public money alone or a mixture of public and private funding. Either way, such expenditure would create hundreds of thousands of jobs—the kind of manual jobs that many people are quite capable of doing with the minimum of training. Meanwhile there is a huge under-utilisation of capacity in that sector.

In conclusion, I believe that there are a number of self-imposed barriers to employment which it is within the capabilities of our nation state to do something about, with or without the sanction of Brussels. We can make certain that the exchange rate is kept at a sensible purchasing power parity, thus keeping our economic activity competitive on the world stage; we can re-address the whole problem of the taxation of labour, recognising that the higher it is taxed, the less it will be consumed; we can look at the rigidities that prevent re-entry into the labour market by the part-time route; we can forget about the minimum wage, which would do much more harm than good; and we must not get carried away with bogus training. We should help to create the kind of jobs that can absorb the kind of labour that is currently unemployed. We must stop regarding infrastructure expenditure as a sin and, as the money has to come from somewhere, we should re-address the balance between personal expenditure and national capital expenditure, as the noble Lord, Lord Desai, said.

I believe that if those areas at least were tackled with imagination and political courage, over half a decade we could substantially reduce the incipient unemployment that is so damaging not only to our economy but to those who have to suffer it.

7.54 p.m.

Lord Haskel

My Lords, I too am most grateful to the noble Viscount, Lord Caldecote, and the noble Lord, Lord Hunt, for giving us this opportunity to discuss job creation in a technological age. Much recent discussion about job creation has been based on the impact of competition. I should like to examine how we can use technology for job creation.

As many noble Lords have implied, the answer is in one word: investment—investment in equipment, in people, in new products and in infrastructure. The noble Lord, Lord Strathclyde, spoke about Luddites and flying shuttles. I spent all my working life in the textile industry. In that industry we learned that technology both creates and destroys jobs. Although there have been many innovative new products, much of the industry's production is still the traditional clothing and furnishings that we have known for many years. What has changed is the way in which those products are made. Technology has done away with much of the old repetitive work and thereby destroyed many jobs. The traditional products, made with new technology, in most cases are cheaper, better made and of greater variety than before. That has increased their consumption. In that way, technology has increased the skilled jobs. But the investment is high.

In a modern plant in my industry it probably now costs £100,000 to create a job. At Nissan in Sunderland, the figure has been quoted at £160,000 per job. The noble Lord, Lord Ezra, spoke of a need for the Government to encourage that investment. I shall not repeat what he said. Sadly, many of the jobs in making those products have gone abroad, not only to the low-cost labour countries but to countries such as the USA and Germany, where they have been willing to make the investment and thereby reduce unit labour costs to a far greater extent than we have. With new technology considerably reducing the labour cost element we can win those jobs back if we are willing to make the investment not only in equipment but also in people.

To achieve that goal, the investment needed in people is not just teaching craft skills to NVQ levels. That is not enough for modern industry. To use modern equipment and achieve the necessary high productivity with low unit costs needed to justify the investment, employees need to be basically better educated so that they can work unsupervised, be flexible, solve their own problems, be computer literate and have the analytical and diagnostic skills which used to be the prerogative of management.

Such training in today's technological age means a considerable investment for a company. With the shift of employment toward higher skilled, better educated people has gone the increasing unemployment of the less skilled and the less educated. The implication of that to these Benches is that people must be given every opportunity to make themselves more employable for the technological age, as the noble Lord, Lord Dahrendorf, pointed out. Labour's plans were spelt out last Thursday at a conference about the university for industry, which itself would use new technology. The new CBI document Thinking Ahead agrees. Chapter 1 of that document identifies a lean workforce with flexible, highly skilled employees, who are constantly updating their competencies as one of the characteristics of the successful UK company.

In a technological age investment in plant and investment in people are intimately linked because the technical expertise of the workforce depends on the availability of capital investments on which to learn and gain experience. Common sense tells us, and research has shown, that investment in equipment is much more important for growth than is investment in buildings. Each extra percentage point invested in equipment raises the GDP by 0.3 percentage points compared with a mere 0.02 percentage points for other investment. We have to make proper investments and not invest in useless speculations. I believe that the noble Lord, Lord Skidelsky, also made that point.

Those arguments apply with equal force to the new jobs from the new products and services which technology has created. Design services, such as computer-aided design, and marketing services, such as electronic point-of-sale data, will create skilled jobs, albeit only for those with the requisite skills and education. But the returns demanded from the financial sector for that investment are high because there is little security. An attitude of lending against a company's expertise and likely prospects of success rather than against its security needs to be developed much more if we are to create jobs in a technological age.

The last area of investment is the infrastructure. Technology has speeded up industry enormously and made customers and suppliers increasingly interdependent. To ensure the success and reliability of this interdependence we need an effective transport system for moving our goods and an effective electrical highway for providing data and information services. As other noble Lords pointed out, that is especially important now that we are competing in a single market in Europe. Without that investment we shall be at a serious disadvantage in the European single market and the omission could render ineffective all the other investments that we make. Labour's plans for this were fully explained at a conference in February concerning private investment for public infrastructure.

As my noble friend Lord Desai pointed out, currently we seem to be measuring our success of job creation in terms of consumption. Surely in this technicological age we should be measuring it in terms of investment. Until we make that investment, our consumption will be of goods and services produced by others who have already made the investment. We know the equipment exists, the market exists, and the finance exists. What does not exist is a reservoir of people with the skills needed for modern industry. If industry is serious about job creation in a technicological age, then we need to put those elements together and invest in our people.

8.1 p.m.

Lord Butterworth

My Lords, I add my congratulations to my noble friend Lord Caldecote and the noble Lord, Lord Hunt, especially the noble Lord, Lord Hunt, because I am a member of his sub-committee. We should be thankful to the OECD report in that it makes quite clear that imports from developing countries have not had an adverse effect either upon our employment or wages. It is quite clear that the unemployment we are discussing tonight is essentially a disease of developed countries.

We heard that in Europe around 20 million people are unemployed—a figure which is expected to rise. I take the point made by the noble Lord, Lord Thomson, that if we are to be successful in the Community, we must work from the inside. We must work to convince our colleagues in Europe that it is unacceptable that the European Union can enjoy its present economic standards only with 20 million people remaining unemployed without reasonable hope of work. We haw a duty to ask whether the Union is prepared to give first priority to tackling its unemployment problems.

We know that interest rates in Europe have come down. It is interesting that the Commission's annual economic report for 1994, which was only recently published, admits that European short-term interest rates are still generally too high. There is always a danger that the Union's ideological commitment to monetary and economic union may exceed its concern about its unemployed. In 1996 an important inter-governmental conference will take place in Europe. It will raise this problem in a crucial way. There is a danger that those in Europe who wish to bring about a single currency and economic and monetary union— which are the Maastricht aims contained in the Maastricht Treaty—may seek to put those aims ahead of employment. It must be part of our policy to try to moderate the time at which the single currency and economic and monetary union will be achieved.

We have heard a lot this afternoon about jobless growth. There are two kinds of growth—growth with jobs and growth without jobs. I shall introduce yet another report which I believe I am right in saying has not been mentioned this afternoon. Taking a leaf out of the book of the noble Lord, Lord Roll, I shall flourish it. Your Lordships can see what a splendid looking book it is. It is The Forward Look of Government-funded Science, Engineering and Technology. It is published by the Office of Science and Technology. It is significant in view of what has been said because, if we are concerned with the problem of jobless growth, it means that in what we support there must be an element of selectivity; we must go for those areas where growth will also support jobs.

The report is to be produced annually. The hope is that it will provide the United Kingdom with its first systematic assessment of market and technological opportunities and priorities. In short, it is intended to be: an instrument which will be increasingly important in determining what industrial areas should be supported and it will help in influencing the whole content of our training programme.

The White Paper made several attempts to identify sensitive areas and, as has been mentioned on a number of occasions today, one of those was the infrastructure and especially information highways. Just as the industrial revolution required transport—roads, rail and canals—so the information revolution will require an information highway. Enormous amounts will need to be invested; it could be very productive of jobs. Incidentally, the United Kingdom stands particularly to gain because the international basic language for IT is English. Japan and the United States have invested enormous sums of money in this field. Europe lags behind. Its share of the worldwide FT business is around 10 per cent., whereas if we had regard to the European GNP and population we would expect our involvement to be around 25 per cent. The difference between 10 per cent. and 25 per cent. is somewhere between 1 million and 2 million jobs. That is for the basic infrastructure and does not take account of all the gadgets and other bits and pieces which people will be tempted to use because of the existence of the information highways.

There are many lessons to be learnt from this example. I shall conclude by giving just one. The needs of different industries are so diverse that if we are to have growth of the right kind we must have selectivity. Agencies such as the Forward Look must identify those areas of future industrial activity likely to produce more jobs and this identification must be followed by new kinds of selective government support and collaboration.

8.11 p.m.

Lord Elibank

My Lords, I begin by offering my congratulations to the noble Lord, Lord Hunt, and to his committee on a report which I found not only interesting but educative as it produced facts, figures and ideas with which I had previously been unfamiliar. But one cannot conceal from one's self the fact that it is basically a gloomy report. It shows the statistics which relate to Europe in a very sombre light: 5 million new jobs to be created just to keep unemployment at its current level; a growth rate sunk to 2 per cent. which must go up to at least 2.5 per cent. and preferably higher if we are to raise the level of employment; a fall in investment from 25 per cent. to 19 per cent. where again a level of at least 25 per cent. is necessary; our high non-wage costs— double those of our competitors. I take the point of the noble Lord, Lord Dahrendorf, that an average conceals considerable differences between individual countries, but it is nonetheless an average of a continent and I think can be fairly compared with the position in Japan and the United States.

One of the problems of this overall position of gentle decline is that it is very difficult to bring home to our citizens what is happening when the standard of living which they enjoy is still very good in relation to the rest of the world. I suspect that most of the citizens of Europe see no sort of crisis in the general standard of living apart from the number unemployed which can hit them pretty hard. But for the rest the standard is good. So how do we bring home to the millions of our fellow Union citizens that there is, if not a crisis, at least a real problem to be grappled with and that an attempt must be made to solve it?

The report deals with a number of different suggestions and steps that might be taken. In view of the late hour I shall attempt to deal with only one or two of them. One concerns the importance of SMEs—small and medium-sized enterprises —which employ 70 per cent. of the workforce. One has only to look at this problem from the other side, from the side of the large enterprises and corporations, and to open one's newspaper on any day to see that they are laying off employees not in ones and twos but in hundreds. That is the only way they can maintain their competitiveness in the face of competition from Japan, the United States and elsewhere.

The hope for further employment must rest with the SMEs. It is up to us and up to the Commission to give them every encouragement. That will start with as favourable a tax regime as possible, including the issue of insurance, and also a lessening of the bureaucratic burden on them from the Commission and from their national governments. It is quite easy for a large firm with an administrative department, a legal department and an accounts department to cope fairly readily with the flow of paper that comes pouring in and with its interpretation. It is very difficult for the small firm to do the same without moving valuable managerial ability from the production line to the office.

Another point the report takes up is that of trans-European networks. Those are in energy, telecommunications and infrastructure. In themselves they are not likely to increase employment but they are likely to increase competitiveness and the efficiency of the internal market. The energy network and the telecommunications network can probably be managed fairly well by private industry but infrastructure is something in which national governments must get involved. It is heartening to see that the Christophersen Commission is looking at around 20 major projects within Europe and seeking to advance them. It is having considerable difficulty in finding the necessary finance at the present time.

Much has been made of the issue of flexibility of wages. There surely must be a happy line between complete freedom for the employee to deal with his employer on a one-to-one basis and grinding down the faces of the poor, which has been held up to us as the consequence of undue flexibility. Between the two it must be possible to maintain a flexible workforce both in this country and in Europe while still offering a modest measure of protection to the weaker members of our society.

Lastly under this heading is improvement in skills. There is a ringing phrase in the report, which, unhappily, I cannot remember, about the need for our adult workforce to maintain its technological skills by further education throughout the working life of the employee. That is absolutely essential and critical if we are to maintain any kind of standard of living and any kind of standard of growth and production within the European continent. My only fear is that one cannot have a technologically efficient workforce unless the basics of education are first established. One fears somewhat for the primary and secondary levels of education when one sees alarming reports in this country, which I am sure can be equalled elsewhere, of children coming out of school unable to do the simplest arithmetical calculations. Even those who can do this are often helpless without an electronic calculator in their hands. The aspiration for a technologically advanced workforce is excellent and indispensable but it must be based on a solid educational foundation.

By way of postscript I should like to take up a point which was mentioned by the noble Lord, Lord Dahrendorf, and my noble friend Lord Renfrew. I refer to the nature of unemployment. We tell each other often enough that it is the greatest scourge of modern society. That is based on the fact that for many centuries a man owed his self-respect to his ability to provide for his family; and to the extent that he could not do that, he was a defeated man who despised himself and who was often despised by his fellow citizens. I think that is beginning to change. Other institutions change. I can well remember 30 or 40 years ago that any breakdown in marriage was considered the greatest scourge of society at that time. Marriage has changed dramatically in the. past 30 or 40 years. One in three marriages breaks down. There have been tremendous advances in biology and genetics. The next century is going to hold a way of life for society quite unlike anything we have experienced in the past. The same may well be true of employment. We cannot continue to look on unemployment as a scourge of society. We have to begin thinking of how we can change our outlook on work.

I believe that this point has already been made in the debate; namely, that we have a workforce of, shall we say, x million workers, but we have work only for x minus y million people at any one time. There is never going to be full employment again as defined by the nine-to-five job for 48 weeks in the year. So we ought to be looking at how we can share the cake which is going to be available. That can be done in a variety of ways. There is shared work, part-time work, shorter hours, shorter weeks, early retirement and so forth. It would be far more profitable for us to direct our gaze towards the next century when the pattern of work is going to be very different and to spend slightly less time bemoaning the social crisis which is on our hands today.

8.20 p.m.

Baroness Seear

My Lords, if this debate has done nothing else it has changed the focus of the discussion about full employment. There can be no question but that everyone believes that full employment would be a good thing if we could get it. The argument and discussion has to be, as it has been today, about what measures we have to take and in what ways we try to achieve full employment. If we can hold the discussion there, in this Chamber and outside, I believe that it will be a great deal more fruitful than slogans about full employment as a political objective.

It is quite clear that the contribution of the European Community to our problems of full employment is limited. There has been agreement on all sides of the House that most of the action has to be taken at national, regional and local levels. There is a good deal of evidence that quite a lot of job creation can take place if it is sensibly investigated and co-ordinated at regional level. We should be looking more closely at that than we have done so far. I have heard little comment about that during the debate.

It is true, as has been said, that competitiveness is part of the problem, but only part of it. Much as we wish to see an increase in competitiveness, that is not going to be the full solution to the problem of full employment in this country. I confess that I have not read it, but the OECD report suggests that little of the problem of unemployment in this country is connected with imports from the low-cost, low-wage countries. If the OECD says that, then I suppose to some extent one has to accept it. I used to work in the shoe trade and in that regard there are some industries in this country which certainly are suffering from the import of goods from low-cost countries. With respect to the eminent people who have questioned that, I doubt whether it is easy to write that off as has been the tendency.

Whether we are suffering from the effects on our trade of imports from low-cost countries, there can be no doubt that we should be looking at the employment question as regards the global economy into which we are gradually moving. Surely that cannot be denied. To what extent that global economy has so far extended I leave on one side, but it is going to present us with considerable competition and also with considerable opportunities. We are surely aware that the competition is not only in the unskilled work but also in the higher levels of skilled work and that involving and requiring technical knowledge. The countries from which that competition is coming are raising their levels of work: performance. They have high and rising levels of education and skills. I refer to Japan, the Pacific Rim and China. Surely they must be competitors whom we have to take very seriously in future. But while they are competitors they are also the providers of opportunities because they are growing markets.

I now wish to raise a point which I do not believe has been raised during the discussion. I have heard a number of noble Lords imply that the world is running out of work which needs to be done. Considering that half the world is hungry and that a very high percentage of it is illiterate, that is an extraordinary conclusion at which to arrive. If so much of the world is in the state that it is —and we all know that to be true—it cannot be that there is no work to be done. I fully recognise the difficulties which the countries with high standards of living face in attempting to meet those needs. That is unquestionable. But the needs are there and the work needs to be done by somebody. That surely cannot be denied. We need to keep that in the forefront of our minds when we are discussing the future of employment. We must deal with the situation in terms of a global economy.

I do not take the line taken by some speakers that work is going to run out. I ask the pardon of noble Lords if I repeat this, but it has not been raised ealier today: not only are there enormous unmet needs in the world as a whole, but they are going to become greater. The world population is going to double between now and the year 2030 and 95 per cent. of that growth will occur in the developing countries where: the needs are already extensive. With that increase in population they will become a great deal more extensive. To discuss unemployment without taking that factor into account is a little myopic.

There has been general agreement that if we are to improve our position we have to tackle it through investment of various kinds. I do not want to elaborate on that because there is no disagreement about it, except to say that the amount of investment required is, I suspect, a very great deal more than most people envisage. We are woefully behind in a number of areas. I was most interested in the speech of the noble Lord, Lord Haskel, who spoke of the textile industry. He gave us impressive figures of what it costs in terms of investment to employ one extra person. The textile industry is not exceptional in that. It is the normal experience of improving productivity and taking advantage of the technical developments and the growth in technology which are part of today's debate. The amount of money needed to make the investment which is necessary if we are to keep pace with our competitors, let alone catch up on them, is going to be very great.

Where is it to come from? It is all very well to say that we need to invest; but we have to invest without increasing inflation. We cannot invest just by turning on the printing presses. Investment of the kind we need requires acceptance that there has to be "deferment of gratification" as the phrase goes. We have to proceed very carefully as regards current consumption if we are to have in future the investment which we need. That investment has to take a number of forms. My noble friend Lord Ezra spoke, as others have done, about the excessive amount paid out in dividends in relation to the amount invested in industry. That means that the shareholders have to forgo the short-term benefits of immediate payout in order to have the long-term gains. Industry needs more taxation encouragement through changes in taxation to help small and medium-sized organisations. They should be given every encouragement to plough their profits back into the business to increase their level of productivity. But that means going without some current consumption.

Not only do we need improvements in terms of technical developments, but there is also another large area of investment about which other noble Lords have spoken and to which I want to give particular attention. That will not surprise your Lordships because I have done it before and shall do so again. I refer to the need for much better investment in people and in education and training. I believe that all noble Lords agree on this so one might ask, "Why say it again?". But let us consider how far we have to go. Again, I think that the debate has under-estimated the size of the problem.

Your Lordships will remember how far behind we are in comparison with our competitors in the rest of Europe. At the end of the 1970s, 40 per cent. of our youngsters who left school at the compulsory school-leaving age went either into a job with no training or into unemployment. The comparable proportion in France was 19 per cent., and 9 per cent. in Germany. That was 15 years ago. Those people are now the adult labour force in this country. It is a grossly under-trained and under-educated labour force. That occurred under all governments. I dare say that if we had had a Liberal Government, it would have happened under us, but we cannot be responsible because we were not the Government. Be that as it may, it is a wicked neglect. If you can train 91 per cent. of young Germans, you can train 91 per cent. of young Britons. But we did not do it. Catching up on that backlog will involve a very great deal of investment.

We talk about high quality jobs with high pay. Of course. Who would not want a world full of high quality jobs with high pay? But given that backlog of under-educated and under-trained people, how on earth are we going to project them into high quality, highly paid jobs? That is the problem that we are up against.

Perhaps I may once again make a suggestion that I have put forward previously in your Lordships' House. My noble friend Lord Dahrendorf referred particularly to the appalling waste of youngsters who never enter the labour market and to the damage that that does both to them as people and to society as a whole. Unemployment in middle age or later is sad enough; but by that age people have acquired habits of work and have been part of the labour force. We must not forget that the great majority of those who become unemployed get other jobs within a relatively short period.

The position is quite different for the school leaver who never gets a job. Why cannot we do what has been done and worked extremely well elsewhere? I suggest that companies take on two youngsters for each job. Each youngster should spend half the day working and the other half in training and education. That would bring youngsters into employment while requiring them to be trained and to have additional education. I stress "additional education" because the modern economy requires people who can not only learn things and show competence in their immediate job, but who are sufficiently well educated to be able to learn again and to understand the changes that they will encounter repeatedly throughout their working lives. That requires a good understanding and a good basic education. But that is what the great majority of our young people simply do not have. That suggestion could be carried out. The cost could be shared between the employers and the education authorities which means, sooner or later, the taxpayer. I believe that such a scheme could be applied also to the long-term unemployed who could be given training in the same way.

It is important that we get our young people into the labour market and into the work habit. It is important that, through a process such as I have described, we give them not only an opportunity, but a requirement, to learn, to improve their education and to gain better skills. When I was chairman of our area Manpower board at the beginning of the youth training scheme, the employers with whom we worked complained again and again that they had to spend a great deal of their time doing what should have happened in school. They could not begin the training until the educational gaps had been filled. That is the level from which we are working. That is where the money has to go if we are to be able to get over the appalling disease of youth unemployment with all the social consequences that flow from it.

Given that that is the labour force that we have, we are not going to be able to get many of those people into the high level jobs that we want them to have. So what are they going to do? Here we come up against the question of wage levels and the minimum wage. I do not believe in a minimum wage, but I do believe that we cannot have people working for a slum level of earnings unless we do something to supplement it. My own view is that at the lower levels of the employment scale, we have to look at what is involved. That means lower wages than a great many people would willingly sanction. In my view, that has to be supplemented with something along the lines of a citizen's income so that we have a minimum income, not a minimum wage. That would meet the social objections to low pay while making it possible for people to gain employment who have no skills to offer and who are not of very great value to an employer.

People will say, "Ah, but you are supplementing the exploitative employer who pays low wages". But what is exploitation? It is paying someone less than their share of the wealth that they have created. Exploitation can happen in all sorts of ways. You can be highly paid but still be exploited because somebody else is taking the share that you have contributed. You can be lowly paid and not exploited because you have not made a greater contribution to the total wealth of the undertaking than the money that you are taking out. We have to think hard about the question of exploitation. We must recognise that it will be necessary to allow pay to drop for some. But, for decency's sake, we have to supplement their income from the wealth of the rest of us who, in conscience, do not want to see standards drop too low.

8.37 p.m.

Baroness Turner of Camden

My Lords, it is entirely appropriate that the two Motions are being debated together since they impact upon each other. Moreover, we have had a most interesting debate as a result of combining them. I should like to join other noble Lords in thanking the noble Viscount, Lord Caldecote, and the noble Lord, Lord Hunt, for the way in which they introduced this most interesting debate.

I regard this report of the Select Committee as one of the most interesting and challenging that has come before your Lordships' House. It comes before us at a time when there is concern throughout the European Union at the very high levels of unemployment and the problems that are seemingly intractable. I am sure that all noble Lords will agree with the first paragraph of the committee's conclusions. It is so important that I should like to put it on the record. It states: High unemployment not only takes its toll on individuals, particularly young people and the long-term unemployed. It also involves damage to families and communities, a substantial loss of output for the economy, a heavy burden on public expenditure, and a threat to the cohesion of society as a whole. In our view, unemployment is the most important social problem facing us at the present time". That encapsulates what our debate is all about.

We are all aware—every noble Lord who has spoken seems to be aware—of the destructive and divisive effects of unemployment on society as a whole. On account of the high cost, the loss of tax from people who could be employed and the cost of benefits for those who cannot find employment, governments, including our own, are now constantly looking at ways of cutting other social costs. So we have had a whole series of Bills in this House designed quite specifically to cut social costs. Moreover, the Government justify a large amount of their attempted deregulation as removing burdens on business in order that it should become more competitive. A number of these issues are dealt with at length in the report of the committee.

The committee gave detailed consideration to the Commission White Paper relating to growth, competitiveness and employment, to which reference has been made throughout the debate. That is also a fascinating document. It would appear that the Select Committee found itself in substantial agreement with a lot of the analysis. There seems to have been agreement that then: is a difference between cyclical and structural unemployment; in other words, it distinguishes between the short-term and long-term problem. But the report makes the point that structural unemployment has been increasing in the Community over a long period. The noble Lord, Lord Hunt, underlined that in his; contribution to the debate this afternoon. The White Paper states that this can be attributed in some degree to a lack of growth and loss of competitiveness. The point is also made that these factors do not: on their own explain the continuing high level of unemployment. It is interesting that lack of investment is seen as a major reason. That has also been cited by a number of noble Lords this afternoon.

Before I prepared for this debate I read again the report of the Engineering Employers' Federation, Action for Growth and Competitiveness. It says, as it has been saying for some time: To obtain a lasting economic recovery with more jobs and rising living standards, there must be a large increase in investment, especially investment in UK manufacturing. If investment is not greatly increased the productive capacity of the UK economy will be unable to support even today's levels of employment and income. The recovery would stop and the UK would face further decline and recession". It makes another point which I believe has some relevance and importance: The UK is an industrial nation with an anti-industrial culture. This bias has to be removed if we are to survive … How can it be possible for a nation to have a strategy for its spending activities such as defence, health and education without one for the creation of wealth? In case it is thought strange that I, a former trade union official, should quote extensively from an employers' document, I should say that it is my understanding that those sentiments are supported by the unions in the industry.

Quite obviously, the report of the Select Committee drew attention to the problems of unemployment within the Community since that was its remit. Nevertheless, there was an acceptance of the fact that each member state had to seek its own solutions, although areas were identified in which it was thought that the Community could play an important role. These are set out in some detail on page 35 of the report.

However, some of the issues identified in the White Paper do not seem to apply to the United Kingdom and raise questions about this country's overall policies. It appears that, of all EU member states, the United Kingdom has one of the least regulated labour markets, the lowest unit labour costs and the least employment protection. Indeed, the Government boast in their propaganda aimed at possible external investors of the low wage and social costs in Britain. Furthermore, they proudly declare that it is not necessary in the United Kingdom to recognise trade unions. That unregulated stance does not appear to have done much to reduce unemployment in the United Kingdom.

The Government boast that they have created jobs, but close examination reveals that a large number of them are part-time, many undertaken by women for very low wages. I am certainly not against part-time jobs. But the trouble with such jobs is that they are often very low paid and have no employment rights at all.

Moreover, the Government have changed the way in which unemployment statistics are recorded so many times that they are now widely disbelieved. In many areas there are very high levels of male unemployment, long-term unemployment and —very seriously—young male unemployment. It is the latter group which is allegedly responsible for much of the social problems that have arisen in the past decade. They are problems that have led to the introduction by the Government of the kind of legislation that your Lordships' House has been considering recently such as the Criminal Justice and Public Order Bill. That is another of the hidden costs of unemployment.

Nor would it appear that comparisons with the United States are helpful. There may have been job creation but the jobs have often been badly paid and of poor quality. As for Japan, that country has less unemployment and greater productivity and growth, but its tradition and culture are very different. It has a commitment to lifetime employment and relatively low participation by women in the workforce, although that is changing. What is of interest is the high level of Japanese investment, particularly in R&D. When I was in Japan several years ago I was struck by the way in which the financial services and manufacturing sectors worked together, with banks in particular lending at low interest rates and over long periods.

I have participated in recent debates in your Lordships' House when the Government have introduced measures that are clearly designed to cut public expenditure costs but in fact simply pass those costs on to employers: for example, the Statutory Sick Pay Bill (now an Act) and the measure to deal with statutory maternity pay. Furthermore, the Government have recently introduced insurance premium tax. Since all employers must quite rightly be covered by employers' liability, that measure is undoubtedly a tax on employment. Surely all of these are burdens on business. Yet a number of changes made in industrial law, most of which remove rights from trade unions and their members, are presented as removing burdens on business. One cannot help feeling that there is an ideological motivation at work here. The Government clearly feel that employees with grievances should put up and shut up and not do the obvious thing, which is to join with others similarly affected via the trade union movement.

One of the features of the White Paper, and particularly the Green Paper on European Social Policy presented by Mr. Flynn, is the assumption that co-operation with the social partners—the trade unions —is a good thing. In a section dealing with the reinforcement of the social dialogue Mr. Flynn emphasises the role of the social partners in the process of European construction, even if the process of social dialogue has been "slow to mature", as he puts it. He has said that in so far as the representative organisations of employers and trade unions speak for memberships throughout the Union, to involve them in the social dialogue is an important element of democratisation. I notice that in their evidence to the Select Committee the TUC representatives made rather similar points.

It is against this background that I wonder why the Government insisted on opting out of the social chapter. Ministers constantly reiterate—we have heard it again this evening from the Government Benches—that this has been done to avoid burdens on business. They treat it as though it were an enormous triumph for United Kingdom diplomacy, that they are standing up for Britain and so on. To listen to them anyone would think that acceptance of the social chapter involved enormous social costs. It does not mean anything of the kind.

The social chapter simply sets out a series of objectives: the promotion of employment; the improvement of living and working conditions; the development of proper social protection; a dialogue between management and labour and so on. One would have thought that all of those would be entirely desirable but not very specific. There is a commitment to the health and safety of workers and to equality between men and women with regard to labour market opportunities, the latter obligation being one dating back to the original Treaty of Rome. There is a commitment to the provision of information to and consultation with workers, but nothing about wages, recognition of unions, collective bargaining or other such issues.

It is a very modest agenda, but by opting out the Government have signalled that they want no part of the social dialogue. In practice, the other 11 member states which have signed up will proceed within the framework of the chapter and United Kingdom employers, particularly multinationals, will find themselves affected whether or not they want to be. The United Kingdom Government will have had no input.

In the meantime, the Government have abolished wages councils—the last remaining minimum wage protection in this country—and have done so with the usual plea that minimum standards are a burden on business. But there is absolutely no evidence that abolition has resulted in more jobs. On the contrary, the Low Pay Unit has demonstrated that already low rates have in many instances been lowered still further. Indeed, there was no evidence that the existence of wages councils, which go back to 1911, meant a reduction in jobs throughout that period either. In other words, the abolition of wages councils has allowed unscrupulous employers to pay as little as they can get away with and the market gives no protection to the poor and the vulnerable.

Nor is there any very striking evidence in the report or the White Paper that the existence of minimum standards in other EU countries is a major cause of unemployment. No, the indications are as already stated: lack of investment, high interest rates and a mismatch of skills with requirements.

This is a very large subject and it is not possible to do justice to it and the issues raised by the noble Viscount's Motion in the time available. However, I would say in regard to the problems which he identified that the questions of employment and the onward march of new technology have been identified before, and from within the trade union movement. As long ago as 1978 two colleagues of mine, Clive Jenkins and Barry Sheerman, produced a book called The Collapse of Work in which they argued strongly for a change in attitudes to working hours and working lives. They urged that traditional patterns would have to change. It seems that we are a very long way from achieving much in that direction. The UK Government recently opted out of the EU directive on working time and have secured an extension of time before anything needs to be done in this country.

Nor will all our problems be solved by education, although it can go some way to assist. Certainly the concept of lifetime education is something that we should all support. However, arising from all that material, it seems that, while there are no easy solutions —and I emphasise that—either in the UK or at European level, there is an agreement that growth and improved competitiveness are essential if unemployment is to be reduced and that one of the requirements for achieving that is a better trained and skilled workforce and one which is adaptable.

In the meantime, there would appear to be two schools of thought. The first is that espoused by the Government: that social provision must be cut back; that private is better than public, whether in the provision of pensions or anything else; that trade unions should be actively discouraged and the social chapter opposed; and that anything in the nature of employee rights, including wage protection, must be abandoned. That is what I call the bargain basement concept. It is self-defeating. There is no way in which we or other EU countries can compete with China and other newly emerging countries in the low-wage stakes.

Then there is the alternative, some of which emerges from the White and Green Papers to which we have referred and which was dealt with earlier by my noble friend Lord Eatwell. We should adopt a strategy for full employment and should attempt to do so in concert with our European neighbours while accepting that each member state should endeavour to work out its own solutions. We can actively encourage manufacturing industry through incentives for investment, both public and private. And, incidentally, we can give some help, more help than has been given hitherto, to small businesses, because I agree with everything said this afternoon about the employment-creating potential of small firms and the need to ensure that they receive much more support.

We can seek to involve workforces through the kind of dialogues recommended and seek to establish procedures for consultation. We can invest more in training and retraining and we can provide a reasonable framework for good industrial relations by removing much of the restrictive anti-union legislation which now disfigures our statute book, most of which is contrary to ILO conventions and our international commitments.

We can accept the social chapter and seek to work with our partners in the EU in line with the social objectives outlined in the White and Green Papers. We can turn away from the socially divisive and destructive policies of the past decade which have brought great prosperity, even wealth, to a few people but unemployment, degradation and despair to too many of our fellow citizens.

We can make a fresh start but not, I fear, with the present Government. I commend the committee on an excellent report.

8.55 p.m.

Lord Henley

My Lords, many hours ago my noble friend Lord Strathclyde said that I would respond to the detailed analysis and comments raised in the debate. I have to say—and I believe that I see some agreement from the two Opposition Front Benches—that the sheer range and extent of suggestions, both good and possibly less good, is such that it makes it somewhat difficult for me to do that. However, I shall certainly take note of all the suggestions that have been made, but I apologise in advance for not being able to respond to every point in detail, whether it be on taxation, national insurance, balance of trade, early retirement, liberalisation of world trade, or whatever it may be.

Having said that, I join with other noble Lords in congratulating the two noble Lords who have initiated the debate. I believe that few subjects could be more important than those highlighted in the two Motions before us. Job creation is at the very heart of the debate within the European Community on growth, competitiveness and employment.

Within our own lifetime, we have seen dramatic changes. We have seen changes in technology, as has been pointed out, changes in structure in the world economy and above all, changes in ideas. It is a little more than 15 years ago that the first of the Conservative Governments led by my noble friend Lady Thatcher was elected. It is very easy to forget now how profound was the revolution in ideas initiated by that election. It is a revolution that affected not just the United Kingdom; but the ideas put into place over the past 15 years by my right honourable friend the present Prime Minister and by my noble friend Lady Thatcher are now in place across the world. Privatisation, competition and deregulation were radical ideas in 1979; but they have now permeated the thinking of governments across the world. Above all, the European Community itself is now beginning to recognise the need for Europe to regain its lost competitiveness.

Much remains to be done. Old attitudes die hard, particularly in the party opposite. But progress is being made. Last December the Brussels European Council agreed a common framework. Much of what it proposed is welcome: measures to improve training and education; measures to reduce the costs of taking on extra employees; measures to keep unemployed people in touch with the world of work; and, above all, measures to help to reduce the very high levels of unemployment among Europe's young people. Those ideas will be taken further by the heads of government in their discussions in Corfu later this week.

I believe that no one in this debate underestimates the challenge that is being faced. As has been made repeatedly clear, nearly 20 million citizens of the European Union are unemployed. That is around 11 per cent. of the workforce. Obviously we are affected in this country; but we are the only major European Union country where unemployment is now below 10 per cent. and falling. The proportion of long-term unemployed —and I believe that most of us would agree that long-term unemployment is one of the most important matters—on the latest comparable figures is again the lowest of any country in the European Union.

Having said that, an unemployment level of 9.4 per cent., as it is in this country, is still far too high. I very much welcome the further fall of 20,000 announced last week but we shall not be satisfied until it has fallen very much further, as I am confident it will do.

The noble Lord, Lord Eatwell, quite rightly raised the question not of unemployment but of employment. The noble Lord claimed that employment had not risen at all when unemployment had gone down. I assure the noble Lord that that is simply not the case. The labour force survey suggested that employment has grown by about 150,000 during the past year while the figure for the workforce in employment, the second count of employment, is still somewhat less but is still up. I accept, as the noble Lord said, that employment does not appear to have grown as rapidly as unemployment has been falling but fewer people are looking for work at the moment, primarily because the working age population is barely growing and the numbers staying on in education have grown substantially over the past few years. We believe that those demographic factors mean that there is much more scope for an increase in employment to feed through into reductions in unemployment.

The noble Lord also quoted some very interesting figures on the level of employment and on what he described as "disguised unemployment". He challenged me to give the Government's response. As is so often the case with statistics given by the noble Lords opposite, I am afraid that I do not recognise that description. The noble Lord claimed that the proportion of our male population in work was relatively small. On the contrary, the proportion of men of working age— that is, between the ages of 16 and 64 —in work is higher, at some 78 per cent., in the United Kingdom than all the other EC countries, with the exception of Portugal and Denmark.

Moreover, if we also include women—and I imagine that the noble Lord would think it quite right to do so —the proportion at 70 per cent. is higher than all but one of our EC partners and a full 10 per cent. higher than in France. I simply cannot accept the noble Lord's claim that we are lagging behind our European partners in that respect.

I return to the figures on unemployment. I should like to draw the attention of the House to one particular point which my noble friends Lord Caldecote and Lord Boardman, and other speakers, rightly stressed. I refer to youth unemployment. In Europe as a whole we have youth unemployment at little over 20 per cent.—at 20.6 per cent. That means that one in five young people in Europe are unemployed. However, again, in the United Kingdom, we have one of the better figures. I accept that 15 per cent. is still far too high, but it is well below the figures of some of our European Union partners, such as France with 24 per cent., where they have a national statutory minimum wage, or Spain with 38 per cent. where, again, they have a statutory minimum wage.

That, briefly, is the size of the challenge. We live in Europe where one in 10 adults are out of work, and, far worse, where one in five young people are approaching their adult lives blighted by unemployment. I see that the noble Lord, Lord Monkswell, wishes to intervene. I give way.

Lord Monkswell

My Lords, I am much obliged. The Minister just quoted a figure of one in 10 adults as being unemployed. However, from the figures that he gave earlier, that figure would seem to be nearer 25 per cent.; that is, one in four. The Minister quoted a figure of 74 per cent. of males between the ages of 16 and 64 as being in employment. By my calculations, that means that 25 per cent. of them, and not 10 per cent., are unemployed.

Lord Henley

My Lords, I am afraid that the noble Lord is wrong. The figures I quoted were 78 per cent. of men in work and 70 per cent. of both sexes. The noble Lord must accept that not all of those between 78 per cent. and 100 per cent. are necessarily unemployed. I am sure that the noble Lord would accept that there are many people in education and that there are many others who are incapable of work, many of whom are women. Indeed, there are many women who are looking after a family. I stick by the figures that I gave.

Against the background of my earlier remarks, we warmly welcome the report produced by the Select Committee under the supervision of the noble Lord, Lord Hunt, on growth, competitiveness and employment. The committee's report is entirely correct to emphasise the structural causes of unemployment in the European Community. The underlying level of unemployment in the Community has risen in each economic cycle over the past 20 years from less than 2.5 per cent. in the late 1960s to more than 10 per cent. at present.

The experience of the Community's main competitors has been very different. In successive economic cycles, unemployment has not risen to anything like the same extent in North America or in Japan. Moreover, unlike the Community, North America and Japan have experienced significant job growth over the past two decades. I simply do not accept the implication of the noble Lord, Lord Eatwell, that they are not real jobs. However, that point was well dealt with by my noble friend Lord Skidelsky.

The causes of structural unemployment in the Community are, as the fourth of the report's conclusions indicate, complex and interrelated. The Government very much agree with the emphasis in the committee's report on the labour market factors which have created the problem. However, as has been made clear from the memorandum that we published to the report, the Government are committed to the effective implementation of the conclusions of the Brussels European Council on the White Paper.

Of course, as the committee's report indicates, there can be no quick fix. As the conclusions of the Brussels European Council make clear, it is for individual member states to take appropriate action in the light of their own particular circumstances. Again, that was something that the noble Lord, Lord Dahrendorf, underlined. That is why the Brussels European Council endorsed three key objectives to combat unemployment. First, a stable economic framework; secondly, a Community that is internationally competitive and open to international trade; and, thirdly, reforms in the labour market. I certainly recommend that other European Union countries should consider, like the United Kingdom, reducing the non-wage labour costs as we have. However, whether we can go quite as far as my noble friend Lord Caldecote suggested in abolishing national insurance contributions is something on which I would rather not comment at present. Nevertheless, I shall certainly pass on the suggestion to my right honourable friend the Chancellor of the Exchequer.

I certainly endorse the remarks made by the noble Lord, Lord Dahrendorf. On our non-wage labour costs, we have a figure far lower than our European Union partners. I should also like to underline what my noble friend Lord Clark said about the level of strikes in the country. In place of strife, there are now an estimated 0.6 million working days lost through industrial action in 1993. In fact, that figure is one-twentieth of the 1970s average of 12.9 million.

The Government will continue their policy of making the labour market even more efficient. We believe that the fruits of that policy are now clear. Unemployment has now been falling for over a year and earlier and faster than any of the pundits ever expected. Perhaps I may also say that we very much welcome the policy report of the OECD's employment-unemployment study referred to by the noble Lord, Lord Hunt, and other speakers. The quality of analysis contained in the report is impressive, as is the case with so much else of the work of the OECD. It makes a significant contribution to the international discussion of unemployment and employment. The conclusions of the report reinforce the conclusions that emerged from the European Union and from the Group of Seven: high unemployment is not inevitable, but it demonstrates the need for structural reforms particularly within labour markets; OECD economies need to adapt more rapidly to change than they have done in the past; attempts to erect protectionist barriers or to burden the labour market with unnecessary regulations are counter-productive; and responsibility must lie with individuals and companies as well as with government.

Those conclusions echo those of last December's European Council and the G7 Jobs Conference in Detroit. They are also fully in line with what the United Kingdom has sought to do over the past 15 years. Virtually all the main recommendations have already been enacted by this Government. I shall not burden the House with a line-by-line analysis. However, I should like to pick up just one or two of the key recommendations.

A balance exists between the rights of those in work and the need for people out of work to get the new jobs. Of course people in work have rights, and no one, whatever the noble Baroness might have said, advocates total deregulation of the labour market, and certainly we in this Government do not But employment protection rights must not be at the expense of unemployed people who do not have the jobs and none of the benefits—paid holidays, pension entitlements, and so forth—which go with the jobs.

Some employment rights are quite simply not negotiable. I believe we are fortunate in this country in having one of the best health and safety records in the world. I can give an assurance to the noble Baroness that we shall keep it that way. We have no intention of taking up the suggestion of the noble Lord, Lord Eatwell, of aping Mexico, or wherever. We have one of the most: comprehensive—possibly the most comprehensive— social security safety net systems in the whole of Europe. Nor does a desire for a flexible, deregulated labour market mean that—as the noble Lord tried to suggest—we wish to squeeze pay levels to unreal levels. I believe the noble Lord, Lord Bruce, seemed to imply that. I can give an assurance to the noble Lord, Lord Bruce, that he will find that the take-home pay of broadly comparable industrial workers in the United Kingdom or in Germany is much the same. What is very different is that the actual costs to the employer of paying those people are much much less in this country, and that is why over 40 per cent. of the inward investment to the European Union comes to this country.

Lord Bruce of Donington

My Lords, I am most grateful to the noble Lord for giving way. Is that why title United Kingdom is boasting that the labour costs are far lower here than they are in Europe?

Lord Henley

My Lords, I would be delighted to boast that our labour costs are lower. What I was saying is that the take-home wage of individuals is not lower. It is far better that the labour costs should be lower and that is the point that everyone—like the noble Lord, Lord Dahrendorf—has been trying to make that we have much lower non-wage labour costs and we shall continue to try and keep them lower.

Lord Eatwell

My Lords, will the noble Lord give way?

Lord Henley

For the last time!

Lord Eatwell

My Lords, it is the first time I have stood up. Will the noble Lord tell us whether he disagrees with his right honourable friend the Chancellor of the Exchequer who in his lecture on 4th May said that a greater, gap between the highest paid and the lowest paid was both, inevitable and … desirable"?

Lord Henley

My Lords,—of course I agree with everything my right honourable friend says. What I was talking about, and what I was trying to make clear, was that the difference in take-home pay between an industrial worker in this country and an industrial worker in Germany was broadly the same. What is different to the employer—and that is why the inward investment is coming to this country—is that it costs far less to employ that employee here than it costs in Germany, France or wherever.

I do believe, though, that we have to strike the right balance on employment protection. I am certainly pleased that the European Union institutions are beginning to recognise that the unemployed too have rights, and those rights include not being denied a job because unnecessary and costly legislation deters employers from recruiting additional staff.

My noble friend Lord Skidelsky talked about non-wage ways of supplementing income, and this was something touched on by the noble Lord, Lord Desai, and I think, to some extent, touched on by the noble Baroness, Lady Seear, if I followed her correctly. What I should like to do is to point out that there is just such a system in this country—and that is in the form of family credit—which was explicitly mentioned in the OECD report. Noble Lords may think that the policy is not necessarily extensive enough, but I certainly hope that my noble friend Lord Skidelsky would accept that it is one of the features of the United Kingdom's supply side approach where the benefit system is increasingly aimed at going with the grain of the market.

If I may, I should like to turn to the impact of technology, which is the subject of the debate of the noble Viscount, Lord Caldecote. Obviously, as the noble Viscount put it, the impact of new technology can destroy jobs. But as my noble friend stressed, and as the OECD were first to point out—I quote from the report, history has shown that when technological progress accelerates, so do growth, living standards and employment". I believe that is something that I can agree with, and I believe the noble Lord, Lord Eatwell, agrees with, even if we fail to agree on a great many other matters. After a comprehensive review of the evidence in a range of countries, the OECD concluded that technological change was not a major or even an important cause of today's unemployment. Technology was also one of the central issues considered by the Group of Seven countries at their conference in Detroit. I can hardly do better than to quote from the conclusions of the conference as summarised by the United States Treasury Secretary, Lloyd Bentsen: These rapid advances in technology we are seeing, where computer chip speed seems to double every week, will make us more productive. Using technology in innovative ways, and spreading it throughout our economy, will multiply the benefits of that technology. And that will create more jobs. Moreover, history teaches us that jobs created by technology gains are better paying jobs … We must get that message across. And we must make certain our citizens are trained to keep up so they can tap the potential available to them … Everyone would agree with the sentiments expressed by the United States Treasury Secretary. He ended by stressing the importance of training, which again is something which a number of noble Lords stressed, including lastly, but by no means least, the noble Baroness, Lady Seear.

It is for that reason that last month my right honourable friend the Secretary of State for Employment announced a package of new vocational education and training measures as part of the White Paper referred to by my noble friend at the beginning of the debate. My right honourable friend announced accelerated modern apprenticeships for 18 to 19 year-olds which will produce 30,000 extra young skilled and qualified technicians, supervisors and craftsmen each year. That is in addition to the 40,000 qualified young people to be produced each year by the original modern apprenticeship scheme.

We shall provide better careers guidance for young people. We shall fund a training boost for small firms to update the managerial, supervisory and technical skills of 24,000 key employees.

Only last week my department launched the new small firms training loan scheme to encourage small firms to consider doing yet more in the field of training. I am grateful for the comments of my noble friend Lord Clark on the importance of small firms in job creation.

As my right honourable friend the Secretary of State for Education also announced, there will be a wide range of measures to raise standards and widen choice in the vocational element of education in our schools, including a new general diploma for 16 to 18 year-olds enabling young people to combine academic and vocational qualifications in a single package of guaranteed quality.

Technology is constantly advancing and will continue to do so. It is not a painless process. Some believe that it is destroying jobs and contributing to higher levels of unemployment. I do not accept that. Nor, I believe, did most of the speakers this afternoon. There are many potential benefits from technology for the wealth of nations and for jobs. However, to exploit these fully we need to adjust quickly to the changes that technology brings. People need to be increasingly flexible and adaptable about where they work and how they work, and to replenish constantly the range of skills and abilities they use at work.

I believe that we are well placed to take advantage of the opportunities for wealth creation and more jobs that new technology will continue to bring. The United Kingdom has the basic framework of policies in place. The Group of Seven, the OECD and, increasingly, the European Union, endorse our approach. The proof of its effectiveness is clear. Unemployment has fallen by more than 300,000 since economic recovery got under way. The proportion of our working age population in the workforce is among the highest in Europe, as I made clear earlier. Inflation is at the lowest level for a generation. One in four employers expect to step up recruitment this summer. We have sound economic policies and the most flexible labour market in Europe. We are poised for sustained non-inflationary growth, and we are determined to achieve it.

9.16 p.m.

Viscount Caldecote

My Lords, we have had a most interesting and constructive, if rather long, debate. I thank all those who have contributed.

The debate has shown that there is widespread agreement that job creation leading to lower unemployment must have the highest priority. It has also shown that low inflation and competitiveness are necessary conditions for job creation but are not themselves sufficient. I hope that we can return to the subject in perhaps a year's time when we are further out of the recession. I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.