Address in Reply to Her Majesty's Most Gracious Speech

HL Deb 24 November 1994 vol 559 cc401-70

5.37 p.m.

Debate resumed.

Lord Nickson

My Lords, I rise to my feet for the first time in your Lordships' House with feelings of privilege and occasion which I comfort myself will have been shared at one time or another by all your Lordships. I am indeed grateful for this opportunity to speak so early from these Benches on the gracious Speech, following my noble friend Lord Ferrers. He started the cricketing analogies. The first test in Brisbane starts in just under six hours' time so perhaps I may continue them. I have sat for some time in the pavilion, as it were, waiting with my pads on to go to the wicket and I am quite glad to be here now.

I am very pleased to be able to speak for the first time on industry. I have spent 40 years of my life in various industries, the past 20 with a foot, or sometimes not much more than a toe, in the public sector as well. I was disappointed to miss the opportunity to speak in the important debate in June in your Lordships' House on job creation and technology which was introduced by my noble friend Lord Caldecote and the noble Lord, Lord Hunt of Tanworth. I read it in Hansard with agreement and a great admiration for the clarity of the views expressed.

I flirted with the idea of speaking, if the opportunity occurred, on other subjects. I thought that I might talk about the single European market and some of its implications. However, I felt that that would be unwise for a maiden speaker at the present time. I also thought that I might speak about the environment; but, if so, I would have taken the opportunity to do so yesterday. Similarly, I thought that I might talk about top pay and escalation of top pay in the private sector. But I thought that that would be too delicate a subject for a maiden speech. Moreover, as chairman of the Senior Salaries Review Body, I would also have had to abide by the Addison Rules.

Having run away from all those subjects, I hope that noble Lords will bear with me if I speak on a subject that I probably know best, even if it is equally well known to all your Lordships and if what I have to say is somewhat threadbare. However, unlike the radio programme "Just a Minute", I believe that it bears repetition because it is fundamentally and absolutely important.

There has been a spate of White Papers, reports and initiatives in recent months on industry—especially manufacturing industry—on science and technology, on competitiveness, which so vitally affects both our economy, and, most significantly, on employment. I shall not catalogue them because noble Lords will be familiar with them. They come from the Government, Committees of your Lordships' House, from the Trade and Industry Select Committee of another place and from the Confederation of British Industry, to name just a few.

Each of the latter is individually important; but, collectively, they spearhead a tide of informed opinion that brings to the forefront of our national agenda—and, it is to be hoped, to the consciousness of public opinion—the single most important topic for the future prosperity of our people: wealth creation, or—to pick up a phrase that my noble friend used—our ability to earn this country's living in the world.

For too many decades attitudes to industry, and especially to manufacturing industry, have been somewhat negative. For too long people who perhaps should have known better have peddled the notion that manufacturing did not matter and that Britain could survive as some sort of upmarket service station. That is nonsense and noble Lords know it. Manufacturing industry plays a great role in our economic activity. It is responsible for 70 per cent. of the exports of goods and services. It is responsible for about 50 per cent. of consumer expenditure and it employs over 4 million people. There are at least another 4 million employed by the service industries that are dependent upon and supply that manufacturing industry. Yet, the Victorian image of dark satanic mills—that is, grubby, noisy, confrontational, boring, unglamorous and relatively poorly paid—persists.

The attitudes of the professions—perhaps, most significantly, the teaching profession—and that of parents seeking a career for their children, sometimes seem to reflect those views. "Don't, Mrs. Worthington, put your son or daughter on the factory floor". The City, law, medicine, science, the public service (both civil and military) the Church, accountancy and politics have all been the preferred career choices of our best brains and of our best graduates for some time. Your Lordships' Benches testify to that fact very eloquently.

The desire to be of service in all those ways is both admirable and absolutely necessary. Noble Lords must not think for one single moment that I am denigrating any of those great and essential callings. My point is very simple. All of us have spent, and still do every day, too much time talking about how to divide the national cake instead of how to increase its size. We all know that the National Health Service, education, the environment, local government, defence, the Civil Service, the police, the judiciary and even politicians in the Houses of Parliament must all be paid for out of the earnings of UK plc, the wealth creating sector.

I turn now to the introductory speech made by my noble friend Lord Ferrers. Of course, I completely agree with him about the need for competitiveness. I very much welcome the continued, sustained recovery and the reduction in the trade deficit. I also welcome the increase in employment. Above all, I welcome the continued low inflation rate. UK industry is more competitive than at any time in the recent past, even if our productivity is still 20 per cent. to 40 per cent. below that of our competition.

Perhaps I may turn for a moment to the first Starred Question on the Order Paper today. I was most struck by what was said. It is true that we need a level playing field. It is also true that some other governments in Europe are less fastidious than our own in ensuring that European legislation is complied with. If I may use the slightly colourful words of the Director-General of the CBI when I was its president, "We won't win at cricket if the other side is playing karate".

I am absolutely delighted by the new strategic alliance between the DTI and industry. I am delighted that the Government's attitude is so publicly positive to industry and that, to quote from ministerial statements, industrial competitiveness has been put at the very heart of Government policy right across Whitehall. And that is where it will remain". In the Business Links that were announced, and in all such matters, that is very important. Indeed, I believe that it is more important than government throwing money at the problem. Attitudes are most important. Partnerships are also important at local level. In Scotland, the Scottish Development Agency and Scottish Enterprise—though, perhaps, noble Lords will say that I would say this anyway having been responsible for both those bodies—have been successful. But why? It was because we had partnership. We had partnership with the private sector as the engine for entrepreneurial growth, but we also had partnership with local government and local authorities. That is absolutely vital. One needs that because those in the public sector have to be the active facilitators for the private sector to develop.

I was very pleased to hear my noble and learned friend Lord Fraser of Carmyllie say, when referring, I believe, to Section 171A of the Local Government etc. (Scotland) Act, that local government would have a continuing role to play in economic development under the new legislation. That is important. I believe that we have seen success as regards partnerships in the way that my noble and learned friend outlined.

I should like to conclude where the noble Lord, Lord Eatwell, left off and concentrate on investment. I believe that we have been extremely successful on inward investment. Certainly, we are quite proud of what has happened in Scotland. My noble friend quoted the figures that I had intended to use for the United States and Japan over the past decade. But I believe that our record on investment as a nation against that of our competitors has been less good. I may not agree with the noble Lord's recipes for it—and perhaps he would not expect me to do so totally—but I do agree with his diagnosis.

I should like to concentrate on one final matter. Technology is globally transportable. Europe's wage rates can never compete with the NICS in the Far East, far less with India and China. So where must we go for success? We must invest. We must invest in innovation, in product design and development and in skills. Since the war, the Japanese estimate that 50 per cent. of all the most important inventions in the world have been British. We file more patent applications every year than our competitors, yet the Germans and the Japanese seem more successful than we are in turning the twinkle in a researcher's eye into world-class products that sell.

We have excellent businessmen who know what will sell and who know how to market; but, somehow, they do not meet in the middle. We need to close the research push/demand pull gap and we can do that, I would suggest, in three ways. First, I hope that the Government will continue to address this matter, as they are doing, very actively. Secondly, I believe we need a continuum, and a better dialogue at national level and local level between higher education and industry to ensure that they meet on a more regular basis.

Thirdly, and lastly, I believe that our great institutions who own 75 per cent. of British industry might direct some of the spotlight that they focus on short-term performance, and which they have turned on corporate governance lately, towards ensuring that long-term investment is sustained, even through economic downturns and even at the expense of lower dividend distributions in order to ensure that investment is maintained. I have said all I want to say. I would only just add that wealth creation and the need to earn this country's living is once again at the top of the agenda, and long may it remain so.

5.51 p.m.

Lord Kingsdown

My Lords, it is an honour to be able to follow the noble Lord, Lord Nickson, after such an excellent maiden speech and to congratulate him on behalf of the whole House. The noble Lord, as we have seen, is a man of wide experience in industry, commerce and in many other important national and voluntary activities and organisations. As we have also seen, he adds eloquence and wit to this wealth of experience. I am sure that the House will hope to see and hear him frequently.

I wish to continue perhaps with his theme—that of wealth creation—but to concentrate particularly on the influence of low inflation on our economic life and our wealth creation. As the noble Earl, Lord Ferrers, told us earlier on, the rate of inflation in the United Kingdom now is the lowest for 27 years and the prospects look better than they have ever been within the adult memory of most of the population. I see this as something to be welcomed and as one of this Government's great achievements. They have set themselves stringent inflation targets and they are hitting them. The new openness flowing from the Bank of England quarterly inflation report and published minutes of the monthly meetings between the Chancellor and the Governor, has done much to strengthen the credibility of our monetary policy in the eyes of the public and above all in the eyes of the markets. Yet I think it is interesting to contemplate how widely all this is approved or recognised as welcome by people at large.

Clearly, it is pleasing that basic prices are not going up but I am not sure how many people believe it, so deep is the cynicism about inflation in this country, no doubt on account of continuous experience. I fancy there are still people with savings who would like to see their deposits once again earning double digit interest rates but who overlook that their present real rate of return may now be better than it was at those high nominal rates. There will also be house owners who would clearly like to see a rise in house prices, albeit nominal, to escape from negative equity. I have to say that I have great sympathy with them, although I believe that a stable market in house prices is a very important element in a stable economy.

I know of some industrialists who have pleaded with me that surely a little inflation has never done any harm and that price rises, perhaps modest but regular, are a great help in running a business. The repayment of debt in devalued currency is not such a harsh experience as true real repayment. Exports are easier, surely, when sterling is not held at a level to check inflation. Finally, can it really be right that in the name of low inflation so many people should be out of work?

It is when the plaintive tone reaches that question that the advocate, indeed the implementor, of stable monetary policy is confronted with his greatest challenge and his most serious argument. It is this problem that I wish to address as best I can. It may be ambitious of me, I acknowledge, because I believe it to be the major policy issue currently facing developed countries, and it is likely to remain so for the rest of the decade. It is from this issue that the greatest pressure will come on economic, financial and monetary policy makers.

If, very generally, inflation was the problem of the '70s and the '80s, the comparable problem of the early '90s has been and is the level of Government deficits. This is now being addressed, at least in our country. Yet for so many countries these deficits are connected with the level of unemployment and the cost of benefit payments that flow from it. I know that we can hope to see, and indeed do see, some respite here as economies once again resume growth. If so, why not be more vigorous in pushing economic growth? Why not indeed? But past experience suggests that it is at this point that we have to be very careful.

The rate of unemployment in the United Kingdom has increased markedly and steadily over the past 30 years. In the '60s the unemployment rate averaged 2¾ per cent.; in the '70s it was 3¼ per cent. and in the '80s it was 9 per cent., and this is where the rate currently stands, although mercifully it is falling. We need not torment ourselves that this experience is a problem specific to the United Kingdom, indeed our record is better than many of our European partners. In the European Union, unemployment has almost quadrupled in the past 20 years from 2.7 per cent. to 10.7 per cent., while in that period the rate in the OECD countries has more than doubled from 3.5 per cent. to 7.8 per cent. In the United States the increase has been considerably smaller—from 4.8 per cent. to 6.7 per cent.

We need also to bear in mind that the experience of unemployment is unevenly spread across a population. For many, the spells of unemployment are long. Of those unemployed in Europe, almost half have been unemployed for a year or more; that is, are long-term unemployed. The comparable figure in the United Kingdom is 35 per cent. and that in the United States for long-term unemployed is 7.2 per cent. That is a sharp contrast and I will return to this difference later.

We need to try to understand this phenomenon of high, even growing unemployment. What might constitute a cure? Policy makers across the developed world are addressing themselves to this matter at the Detroit jobs summit, through an OECD study, a European Union White Paper and follow-up work to it for ECOFIN. We have here in the United Kingdom a process of policy reforms that has been continuing since the '70s. I think for policy makers a necessary distinction is the degree to which unemployment is cyclical against that which is structural; and the difference crudely is that part of unemployment, the structural part, which is not reversed by a subsequent economic upturn. The structural part has attracted the idea of "the natural rate of unemployment", the rate of unemployment which follows when inflation is stable. This concept is much embedded in the literature on unemployment and has inspired much work and disputation among learned economists. I hope I shall not offend them too much if I simply say that the value of the concept is to emphasise that attempts to reduce unemployment below its natural rate by monetary or macro-economic means are unstable and probably ineffective in the medium and long term and potentially explosive for inflation.

Fluctuations in unemployment round the natural rate in response to aggregate demand can be seen as cyclical only: fluctuations, and above all reductions, in structural unemployment are the result of movements in the natural rate itself—changes in labour market institutions, demographic effects, advances in technology, growth in international trade, and so on.

No doubt issue can be taken over that distinction between cyclical and structural unemployment, and above all over estimates of what the natural rate either is or could be. However, there is one painful conclusion to be observed from the United Kingdom experience. There was a time when many people took the view—and some things that I have heard suggest that the view lingers on—that unemployment is essentially the result of inadequate demand and that it could be reduced by pursuing expansionary fiscal and monetary policies. It could indeed, up to a point and for a time. However, what has emerged in past years in practice, clearly in our country but not uniquely, is that there were limits to that approach. Those limits were repeatedly exceeded, inducing growth beyond capacity constraints which spilled over into higher and accelerating inflation with the inevitable ultimate tightening of policy and its concomitant short-term rise in unemployment.

However, the problem seems to have gone deeper than merely the ups and downs of each cycle. The ups and downs over time did cumulative damage. The top of the ups and the bottom of the downs were each lower with each cycle, resulting in lower average growth, employment and rate of investment and finally a lower potential rate of growth over the medium and long term. In other words, a cyclical process cumulatively produces a structural result.

Can we separate out the cyclical component of unemployment and deal with that as a start? The answer is in the affirmative to the extent that we can flatten out the ups and downs of the cycle. I doubt if we can ever eliminate the economic cycle itself, but sound macro-economic policy over a sustained period can go a long way towards that flattening.

Here it is appropriate to emphasise that stable money and low inflation are not simply totem poles, a source of professional self-satisfaction for finance Ministers or central bankers, an objective in themselves, but only essential ingredients of the real objective of economic policy, a means to the end of sustainable economic growth with all that that contributes to sustainable employment, low government deficits and rising prosperity.

What about the deeper problem of structural unemployment? Here the experience in the United States can tell us something. I said earlier that the figure for US long-term unemployment is 7.2 per cent. of the unemployed in contrast with the UK figure of 35 per cent. and that for Europe of nearly 50 per cent. The explanation for that sharp difference appears to be crudely that, while the prospects of losing your job in the United States are higher than in Europe, the chances of finding another one quickly are also much higher. The US labour market is the freest and most mobile in the world. The figures that I have just given are a consequence of that. There may be social elements in that which are not likeable, but we need at least to understand the phenomenon. By contrast, in Europe you have a better chance of holding on to your job, partly because employment protection is greater, but, if you have the misfortune to lose the job, your chances of finding another one quickly are more remote.

I believe that, as we move more and more from the concept of a job for life, whatever the colour of your collar—blue or white—to the need for skills for life in various jobs during a working career, we shall have to be prepared for a pattern of change and mobility more akin to that obtaining now in the United States. That preparation will involve increasing policy concentration on education, training, retraining, anything to improve qualifications and skills, greater mobility, housing policies to facilitate that mobility—all those moves with which we are familiar but where progress still needs to be made in both policy and its implementation.

Where progress has been made, and well made, is in that other field of monetary stability and the essential contribution that that makes. Let us hold on to that with conviction without failing to put our backs behind the structural changes which are still necessary and still incomplete.

6.5 p.m.

Lord Gladwin of Clee

My Lords, in addressing your Lordships' House for the first time I should like to speak about what I believe, from a lifetime of service in the trade union movement, to be one of the keys to our future economic success. I refer to the skills needed in what I venture to call the productive economy. I wish also to say how grateful I am for the kindness and consideration that has been shown to me by your Lordships, by Officers of the House and by many members of the staff.

This House is a cosmopolitan community with Members from richly varied backgrounds. As your Lordships may be aware, I come from a career working with the trade union which today is called the GMB but which for most of my time was known as the General and Municipal Workers Union.

I realise that the part played by trade unions in our society has been, and perhaps still is, a matter of some controversy. For instance, some economists have described trade unions as having no more than a fugitive role, an imperfection in the labour market. Whatever theory may say, in practice the fugitives have survived. However, the environment in which they operate today is more challenging than it has been for decades. The world of work is more insecure for everyone nowadays. Global markets have exposed British business to a colder competitive climate. Keeping up with the competition now means much more than matching their prices. Increasingly today product quality and standards of service decide whether customers are prepared to pay premium prices and whether businesses survive.

Last year in this House my noble friend Lord Haskel drew attention to the way in which worldwide competition was increasing the pressure on people at work. He summed up the situation by saying that nowadays our industry has to produce extraordinary results with ordinary people. I agree completely with that summary and with all that it implies about the education and training that working people need to do a good job.

In the debate on the Address in this House in 1962 Lord Williamson, a former GMB general secretary, warned that the commitment of Her Majesty's Government to a high and stable level of employment was threatened by the low level of training in British industry. Unfortunately that warning had a Cassandra-like quality. No one took it seriously, but it became disastrously true.

What was true of the 1960s is even more true of the 1990s. British industry is being held back, not by burdensome and bureaucratic regulations as some would have us believe. It is being stifled by skill shortages. The commanding heights of modern economies lie in the education and skills of their workforce, but too little is being done in this country by either side of industry or by the Government to scale those heights. Trade unions must accept their share of responsibility.

A survey by the Advisory, Conciliation and Arbitration Service (ACAS) showed that at the beginning of the 1990s trade unions only negotiated about training in two out of every 10 workplaces where they had membership. Unions have traditionally put pay at the top of their bargaining priorities. It is clear to me today that they need to broaden their bargaining agenda and shift the emphasis from pay to prospects. Bargaining has to be about building skills as well as about paying bills.

I have the honour to be chairman of Ruskin College, Oxford, which helped the Transport and General Workers Union and the Ford Motor Company to negotiate a bold scheme for the education and personal development of Ford workers. I have also had a limited involvement with the Rover Group where a similar scheme has been introduced. I believe that the Rover example is particularly interesting because, as I am sure many noble Lords will recall, the company was beset with major industrial relations problems in the 1970s and early 1980s. Now it is a successful manufacturer and recently announced the creation of nearly 1,500 new jobs.

With the co-operation and commitment of the trade unions, the company has transformed the method of production. All employees are encouraged to participate in, and contribute to, continuously improving processes and performance. But I am afraid that trade unions are having a much tougher time negotiating training agreements with indigenous small and medium-sized firms, the very sector of the economy from where the new jobs should come. That is a problem we need to address—and address urgently.

It is understandable that attention tends to be focused on education and training for young people entering the workforce for the first time. But we must remember that over 80 per cent. of the people who will be at work in the year 2000 are already working today. It is essential that their skills are improved.

Perhaps I may take as an example my own trade union. We are endeavouring to negotiate the right to one week's training per year every year for all employees. That is a start. The union is trying to take the CBI at its word when it calls for lifetime learning by British workers. It is trying to give effect to Article 15 of the European Social Charter which provides for lifetime training rights for all workers.

Learning, education and training must not stop when people start work. But the figures show that the less training you have had today, the less you are likely to get in the future. That represents a massive denial of opportunity to women, young people and members of black and ethnic minority groups.

In some circumstances the market system can and does work. But when it comes to skills and training something extra is needed to prompt employers into action. The CBI estimates that nearly two-thirds of United Kingdom employers invest less than 2 per cent. of payroll costs in training, whereas three-quarters of French employers invest more than that figure. Perhaps we should follow the practice in, for example, Germany, France, Japan and Singapore where employers are encouraged, and in some cases required, to invest a minimum percentage of their payroll costs in training.

The skills gap will not close of its own accord. Already a CBI survey shows that 10 per cent. of manufacturing firms report that a shortage of skilled labour is the factor most likely to limit their output. That is confirmed in a more recent survey published last week covering over 900 companies in the West Midlands. Nearly 30 per cent. of them report that it is more difficult now to recruit the labour they need than at any time since the winter of 1990 and that skill shortage is, a reflection of the reduced emphasis upon training during the recent recessionary period". I believe that there is considerable support in industry for a national training strategy which would replace the present market-driven voluntary system. Such a strategy would include measures to ensure that all employers contributed fairly to the training of their own workforce. It would limit poaching and encourage training in transferable skills.

I fully appreciate the work being carried out by the training and enterprise councils and the National Council for Vocational Qualifications. But more is needed if we are to achieve sustained economic growth.

I see the position quite simply. The stark choice facing workers in modern economies is this. They can either sell their skills or work for low wages, or not work at all. I want Britain's employers to invest in their workers; to exploit their potential, to tap their talents, and to develop their capacity. The alternative is for Britain to slide down-market into a low skill, low wage economy, a future which I am sure no one in your Lordships' House would look forward to with anything other than dismay.

6.16 p.m.

Lord Tugendhat

My Lords, the noble Lord, Lord Jenkins of Hillhead, said earlier that the debate had been notable for the high quality of the maiden speeches. Today we have seen that quality still further enhanced with two notable contributions from the noble Lord, Lord Gladwin of Clee, and my noble friend Lord Nickson. The noble Lord, Lord Gladwin, comes to us with a lifetime of experience in industry—certainly in the trade union movement to which he referred —but also with great knowledge of the Post Office, the fishing industry and his experience at Ruskin College. He has demonstrated in the most eloquent possible way today his ability to transmit that experience and wisdom in a manner that will command the attention and influence the views of people in all parts of the House and not only on his own Benches.

The noble Lord, Lord Kingsdown, has already congratulated my noble friend Lord Nickson. Therefore, there is little more for me to say other than that in view of his reference to the opening of the first test match in Brisbane in less than six hours' time, I only hope that the English team do half as well as he did today.

Before I come to the substance of my speech, I must make one further point. It is to say how grateful I am for the opportunity to speak in this debate. I am, sadly, unable to stay until the end owing to a previous long-standing engagement. I therefore crave the indulgence of the House for my absence subsequently, especially of my noble friend who will wind up and of those who will wind up from the Opposition Front Benches.

I turn to the substance of my speech. The Government are under such sustained attack, in some respects more particularly from their own supporters, that it is difficult for one to realise that the economy is probably—indeed certainly—in better shape than at any time since most of us can remember. The rate of growth is nearly 4 per cent. The underlying rate of inflation is at 2 per cent., a level last seen in the early 1960s. The growth is export led. The balance of payments is improving rapidly, according to some independent experts, at perhaps an annual rate of £6 billion a year since 1992. Unemployment is falling; and even manufacturing industry, about which so much concern has rightly been expressed in recent years, is recovering.

One could go on. Of course I recognise that the devaluation of 16th September 1992, to which the noble Lord, Lord Eatwell, drew attention, is perhaps the crucial factor on which this recovery has been based. But I believe that he was less than fair when he then appeared to attribute the remainder of the success to the fall that occurred some time ago—it is being reversed now—in commodity prices. We need to look at other factors as well. In particular, it is just, at this time in the early 1990s, to examine the impact that structural reforms carried out in the 1980s have had, or are having, in terms of flexible labour markets, more internal competition and more inward investment. Like most structural reforms, those that took place in the 1980s have taken time to bear fruit but they are doing so now in the 1990s. It is also right to remember the substantial reduction in the level of inflation that took place while we were members of the European exchange rate mechanism.

Finally, it is crucial to pay tribute to the tight fiscal and monetary policies that have been pursued since the devaluation, which have enabled the inflationary impact that normally follows a devaluation to be restrained and which have brought it down still further, reduced the public sector deficit and nurtured growth in the economy.

Of course, we have been helped—and it would be churlish to deny it—by the recovery in the United States and this year in continental Europe. But it is also fair to point out that this is the second year running in which the economy has greatly out-performed the forecasts and greatly out-performed expectations. That would not have been possible without the measures that I have listed. I therefore pay tribute not just to the present Chancellor for what has been done since the devaluation, but also to his predecessor, Mr. Norman Lamont, to whom the noble Lord, Lord Jenkins, paid a somewhat oblique compliment, I felt, in the course of his remarks.

There is one further point I also wish to make. That is the importance of the reforms initiated by Mr. Lamont when he was Chancellor and continued by Mr. Clarke, to enhance the role of the Bank of England in the formation of monetary policy and to make that formulation more transparent. Both those measures—the enhancement of the role and making it more transparent—have done much to improve the quality of policy making and the confidence reposed in it in this country and abroad.

What now? For God's sake, don't blow it. Having come as far as we have, the words of the noble Lord, Lord Kingsdown, speaking with all the authority of a former Governor of the Bank of England, ought to weigh heavily in the Government's ears. The Chancellor must keep his pledge on no premature tax cuts. If necessary—by which I mean if conditions demand it—the Governor must be prepared to recommend higher interest rates and, as he has already done, do so before rather than after the event. The willingness of the Governor to recommend, of the Chancellor to accept and for the decision to go ahead before rather than after inflationary pressures have begun to build up has had a beneficial effect on the way in which the United Kingdom economy is viewed. I hope that the Chancellor will continue to pay heed to the Bank of England's advice in these matters.

It is also important, I believe, to remind ourselves that it is not enough for the British rate of inflation simply to be better than we have been accustomed to in this country. Four per cent., the top end of the Government's range, may be much better than we have been accustomed to, but it is by no means good enough by international standards. We need to be not just below 2½ per cent. but significantly so. In that connection, it is perhaps worth pointing out that the French rate of inflation at present is 1.6 per cent. or 1.7 per cent.

I shall give four reasons why it is important that the rate of inflation in this country should be low not just by our historic experience but also by the standards of our competitors and partners. The first is that our past record means that markets are much more suspicious of us in relation to inflation than they are of many others. Therefore, our Government's funding carries an interest rate premium that others do not have to carry and that we must get rid of.

Secondly—and this is a point which was eloquently made by my noble friend Lord Nickson—we must encourage as high a level of industrial investment as possible and as sensible an allocation of resources. That will be greatly aided by a low rate of inflation. Thirdly, we need to maintain competitiveness with our competitors abroad and especially with the newer ones who are becoming increasingly important in world export markets. As my noble friends Lord Nickson and Lord Ferrers pointed out, the British share in manufacturing exports has recently been increasing but the going will become tougher and it is important that we should operate from a sound domestic base.

Finally under that heading, we need to keep inflation low because our population is ageing. That means that people need to maintain the value of their savings in order to be able to provide for themselves, otherwise the cost to the public purse will be even greater than would normally be the case.

Before concluding I wish to make one further point. In economic terms we are living in revolutionary times. The market economy has expanded to embrace the whole world. Huge technological changes are taking place in every aspect of business life. The result is great upheavals in people's lives. That creates enormous opportunities for some; for those with the appropriate skills, the appropriate training and the adaptability that is needed. But it is also a cause of great anxiety to others. Those for whom it is a cause of great anxiety are to be found in all sectors and at all levels of our society.

As the noble Lord, Lord Kingsdown, indicated, the changes have already meant and will continue to mean that we shall see far-reaching changes in the traditional patterns of career and work. Periods of full-time employment will be punctuated by unemployment, part-time work and self-employment. Those experiences will be common across the whole of our society. For many people, part-time work and self-employment may well become the norm. Involuntary early retirements will also continue.

I believe, therefore, that the Government need to bear that in mind and to cushion rather than to penalise those who lose out from these developments. In a nutshell, we must certainly continue to encourage dynamism and change; but dynamism and change and a faster rate of economic growth, with a low rate of inflation, will not benefit all the people all the time. Those who lose out temporarily or permanently still have rights as individuals and as citizens. Therefore, I urge the Government, in framing their tax and benefit policies and their public expenditure proposals, to take those factors, too, into account. If we think only of dynamism and change rather than of balancing those with people's need for security, there will be a backlash which could bring all the economic success which we have achieved to a juddering halt.

6.28 p.m.

Lord Cooke of Islandreagh

My Lords, I rise with some trepidation following the four powerful speeches we have just heard on economic affairs. I shall not attempt to emulate them. We have also been fortunate to hear two particularly important maiden speeches, each covering quite different matters. The noble Lord, Lord Nickson, spoke on wealth creation and the noble Lord, Lord Gladwin, on training—quite different subjects, but complementary. They come together. I agree with all that the two noble Lords said.

I must ask the forgiveness of the House, particularly that of the noble Viscount, Lord Cranborne, for having to leave early. The two long Statements have delayed proceedings and in the morning I have to attend a meeting in Dublin which will deal with one of the two matters on which I shall speak. Both require urgent attention.

I am concerned that the gracious Speech does not mention the sea or anything related to it, despite the fact that Britain is an island nation. The Channel Tunnel will make some difference in that we are no longer totally dependent on sea-borne heavy goods. But it will not change the basic facts. Approximately 95 per cent. of the goods imported and exported from this country travel by sea; by volume, only 18 per cent. of those goods are carried in British-flagged ships. One consequence is that a large number of unsafe or improperly crewed ships are trading in our waters. The report of the noble and learned Lord, Lord Donaldson, Safer Ships and Cleaner Seas deals with one aspect of that problem and the consequence of it.

The fact is that the British merchant marine is in steady decline. It now stands at only 3.4 million tonnes dead weight, compared with 36 million tonnes in 1981. The British shipbuilding industry is also in crisis. The formerly large British manufacturing industry for marine equipment is also contracting.

The reason for the crisis both in ship owning and ship building is basically the same. British owners and builders are playing uphill on a steeply inclined playing field. I know that it is the Government's wish to level that playing field. But, if that is ever possible, it will take years, by which time we may no longer have British-owned ships or British shipbuilders. This is not the place to go into the complex details of those industries which were fully debated in this House on 28th April 1993. The Government have since taken some action but not nearly enough even to maintain the status quo. To assist the ship owners, I hope that the Chancellor will shortly finalise details for roll-over relief, which he has proposed, and extend the three years that has been suggested to at least five years. I hope also that the Chancellor will override Treasury resistance and give British owners of British-flagged ships the right to 100 per cent. capital allowances. That could be dealt with in two or three sentences in the Chancellor's speech next Tuesday and would give some encouragement to owners and managers of British-flagged ships.

Things are made more difficult for United Kingdom shipbuilders and manufacturers of marine equipment by the substantial assistance given to shipbuilders in other yards in Europe and to a more serious extent in South Korea. Against South Korea, the playing field for our shipbuilders is almost vertical.

South Korean yards have been taking orders for Capesize vessels at around 41 million dollars, which equates approximately to the material cost alone of such ships in the United Kingdom. A recent study has shown Harland and Wolff to be achieving the lowest cost among European builders but even Harland and Wolff s price is between 18 and 26 per cent. more expensive than that of South Korea for this size of ship. It is not surprising therefore that the order book at the end of June for South Korea stood at over 10 million tonnes while the figure for the UK was only one half of 1 million tonnes. The price difference is not wholly due to subsidy. South Korean yards are able to use differences in exchange rates which are very favourable to them. That opportunity is not open to non-South Koreans.

I have had some interest in shipbuilding, being connected with Harland and Wolff for many years. But I know that I speak for all UK shipbuilders who face the same problems. I urge the Department of Trade and Industry to engage in close consultation with British shipbuilders and British manufacturers of marine equipment to identify the problems and to facilitate rapidly the ability of UK manufacturers to compete on equal terms with foreign countries. There is no time to be lost. To me it is quite unthinkable that the UK may soon not have a stake in shipping or that the UK should no longer be able to build ships.

I wish to turn to the economy, but just one aspect of it; namely, investment in manufacturing industry, which was mentioned by the noble Lord, Lord Nickson. It is clear that investment by manufacturing industry is not adequate. That has come through in various reports and is the case despite recent surveys showing that UK manufacturers have fewer companies of so-called "world class" standard than have our competitors elsewhere. There are several reasons why investment is still inadequate, one being the lack of medium-term confidence together with other things that cannot be changed quickly. But there is one reason that stands out.

In the past few years advances in computer software and associated hardware have progressed and have now been applied successfully to a variety of machine types used by small and medium-sized companies. That has increased their productivity very considerably. Unfortunately, to take advantage of that progress it is seldom sufficient to buy one machine. It usually means that a whole new system must be installed, perhaps with a different lay-out. In practical terms that means that in order to make a real advance a lot of money must be spent very quickly—very often much more than can be covered by cash flow in the companies involved. Generally speaking, small and medium-sized companies are not over-anxious to put themselves in the hands of their bankers. There is enough evidence of what happened to some companies which did that shortly before the last recession.

There is a relatively simple way of partly overcoming the difficulty. Again, the Chancellor can do it in a sentence on Tuesday. He must give manufacturing companies that wish to make substantial investment the right to 100 per cent. capital allowances. Very often, payment of corporation tax will be delayed by only one year and, as companies become more profitable due to the new investment, the Chancellor's eventual tax take will be larger.

I must declare an interest as the chairman of a small to medium-sized manufacturing company which has recently completed a substantial investment of the nature I have described—with, I must acknowledge, assistance from the Northern Ireland industrial development board. The investment has been completed. The company is working well and is now acknowledged to be world class. I have been through the accounts and, putting aside the financial assistance received, if we had been able to reduce corporation tax during the period of investment by using 100 per cent. capital allowances the effect on cash flow would have been equivalent to 20 per cent. financial assistance with capital expenditure. That illustrates perhaps what a powerful tool 100 per cent. capital allowances can be.

I was pleased to hear the paragraph on Northern Ireland at the end of the gracious Speech. It is everyone's hope that steady progress will be made towards real peace. I wish most sincerely to congratulate the Prime Minister on the way he has handled the Northern Ireland situation and the progress towards peace in recent months. If he and the Secretary of State continue in the same manner, with thought and care for the real interests of all the people in the Province, we shall all be more than grateful. There is general satisfaction. I am particularly pleased that the Prime Minister is to visit on 13th–14th December to chair an international investment conference. It is important that the money that is being offered from various sources is controlled and well directed. The Northern Ireland economy is ready to advance, and we all look forward to the projects that will come from that conference.

6.39 p.m.

Lord Haskel

My Lords, I, too, should like to welcome the maiden speech of the noble Lord, Lord Nickson. In what the noble Lord had to say, I recognised a kindred spirit. I, too, came to this House after a lifetime in manufacturing industry. I sympathise with a lot of what he said, and I believe he will agree with a lot of what I have to say. I should also like to welcome the maiden speech of my noble friend Lord Gladwin. I agree entirely with him on how we should deal with competition, especially as he was generous enough to quote words from my maiden speech. I hope that the Government will listen to what he has to say about employment, training and skills and have the good sense to act on it.

In the gracious Speech and in the Minister's opening remarks, there was reference to investment and competitiveness, improved working of the labour market, increased competition in the gas industry and steps to promote enterprise. I should like to look at those four aspects of industrial policy: investment and competitiveness; improved working of the labour market; competition; and enterprise.

Let me first look at investment. As a country, we are not yet paying our way. We shall achieve that only through growth. Both my noble friend Lord Eatwell and the noble Lord, Lord Nickson, explained that that growth must be in our manufacturing sector. The Minister reminded us that during the past year there was a review of competitiveness with a view to encouraging that growth. Where are the proposals from that review to help industry perform better? My noble friend Lord Eatwell reminded us that during last year we were also promised a review about short-termism in investment and the pressures on our companies to pay higher dividends than our competitors. Where is that important work? Perhaps the Minister can tell us.

What we are told is that there is economic recovery. But, as others have pointed out, investment is not recovery. We are all worried about why firms are not investing in response to recovery, especially as we have such a successful financial sector. After all, there is a limit to the amount of restructuring that industry can do. Mr. John Maples seems to have a point when he observes that what the Government are saying is completely at odds with the experience of Tory supporters. The truth is that what the Government are saying about the economy is at odds with everybody's experience.

The answer is that there is a new responsibility for government; namely, to work in partnership with the private sector. Public and private investment are needed to stimulate each other. The noble Lord, Lord Nickson, told us about that. An advanced economy such as ours cannot for long raise its underlying growth without vigorous public and private investment. Properly chosen investment in improving the skills and health of the workforce and the quality of the infrastructure produces high returns, often higher than those from private investment in land and buildings. That is the job of government.

The highest return is from investment in equipment and new technology. That is the job of the private sector. However, Treasury rules are used as an excuse for the Government not stepping in to maximise commitment in those areas which promote growth through a more active public policy. That is why today the Shadow Chancellor has proposed a public-private finance task force, which will go much further toward that objective than previously. He has also proposed a corporate tax review to encourage investment.

The factors determining growth are not beyond the influence of government. I found it a little odd and confusing that there was no mention in the gracious Speech of that very important aspect of our national competitiveness, broad-band communication, and then, a week later, a Command paper on that very topic was presented to Parliament. The noble Earl spoke of this matter with great enthusiasm and not a little perplexity. I hope that the Minister will give us an opportunity to debate this matter in your Lordships' House.

The second aspect is the improved working of the labour market. Again, the noble Earl the Minister spoke about it with great enthusiasm. Perhaps this will mark a U-turn and the Government will abandon the ridiculous notion that low wages and the opt-out from the social chapter are the main factors in our competitiveness. That has been disproved time and again in recent months. Only two weeks ago, the Engineering Employers' Federation reported in a survey that 43 per cent. of its respondents thought that the opt-out of the social chapter was entirely irrelevant in running their businesses. This month the Mackenzie Global Institute in Washington reported that it is government barriers to competition rather than labour market rigidities that explain why recent employment creation has been lower in the European Union than in the US and Japan.

I shall come to those government barriers to competition later. Meanwhile, I urge the Minister to note that the Mackenzie study says that, while many employers complained about inflexibility, the evidence showed that when companies were forced to react to changes in the market place they were able to overcome those barriers. I quote: The transaction costs of hiring and firing play a relatively minor role compared to total labour costs". That only adds to the argument that, if the Government wish to improve the working of the labour market, the way to do it is to educate and train the workforce so that those people become desirable and valued employees and not just a low skill, casualised workforce which is easily hired and fired. The opt-out of the social chapter only encourages such casualisation and protects those companies that are poorly managed, have low investment and rely on the state to top up low wages with benefits. The Government are still out of touch on this issue. In the real world, minimum standards and the social chapter contribute towards competitiveness. They are not obstacles.

I hope that improving the working of the labour market, mentioned in the gracious Speech, will not only incorporate the social chapter but will also apply to the entire labour market from shop floor to boardroom, and include the scandal of excessive executive pay and share options. Share options should be available to all employees under the worker share option schemes. In modern industrial Britain it is as important for employees at all levels to think and act like owners as it is for directors. That is how firms encourage innovation and build innovation into their businesses. In the end, that is how we shall compete.

That brings me to my third point: competition. The Minister spoke of competition as the key to the Government's trade and industry policy. Yet the Government are split over the most important strategic factor to encourage that competition: a properly working single market within the European Union. Professor Hobsbawm recently observed that the organisations and people which have flourished during the past 20 years are those that operate effectively across international boundaries. Creating transnational bodies that have some form of democratic accountability is our biggest challenge. Sadly, there was nothing in the gracious Speech about that. Perhaps that is yet another example of the needs of the party opposite taking priority over the needs of the country.

Meanwhile, the Government take a relaxed attitude towards competition at home. Since 1988 the Government have admitted on several occasions that UK competition legislation requires substantial strengthening in order to combat price fixing and informal restrictive practices by employers. Successive Directors General of Fair Trading have publicly expressed the urgent need to increase their powers of investigation. In January 1994 the DTI and the Office of Fair Trading paper on deregulation of competition law admitted that the Government are conscious of the strong criticism levelled at them. It is strange that a government claiming to regard competition as the key to its trade and industry policy should have nothing specific about it in the gracious Speech. Perhaps the Minister can explain that.

The other side of the coin from competition is enterprise. In the gracious Speech we were told that the Government will continue to promote enterprise. The Minister said that he believes that enterprise should produce lower prices, better service, improved quality and more choice. I believe that also. But again Mr. John Maples points out that what the Government are saying is completely at odds with what their supporters experience. Their experience is that enterprise is something which is good for shareholders and managers but expensive for consumers.

The noble Lord says that privatisation reacts to what the consumers want. That is not our experience. Consumers of such important items as gas, water, electricity and probably now railways, have a completely different opinion. In those privatised and regulated industries it is the interests of shareholders and managers that come first, even before privatisation. Managers are persuaded by the prospect of higher salaries, higher pension contributions and the necessary share options to agree to privatisation in the first place. The assets are undervalued and sold cheaply at the expense of the consumer. The regulator is then obliged to ensure that for several years the management achieve or improve on the profit forecasts, cash flow figures and other promises made in the privatisation prospectus. In that way managers have an easy regime of relating their prices to the RPI, whereas in the real competitive world they would be faced with many other risks and pressures. That is why—again as Mr. John Maples said—privatisation has not been popular and small businessmen in particular feel let down. So much for the noble Earl's euphoria over privatisation and small businesses.

In those circumstances the customer can only look to the regulator because the Government have passed over to the regulators huge powers to make fundamental decisions on such matters as price, profitability and company structure—and that across a sector of our economy which represents 20 per cent. of our gross national product. Not even in the heady days of nationalisation was such commercial power vested in Government appointees. No wonder privatisation is not popular with consumers.

We all want industry to perform better. That is how we will create more jobs. In spite of what the Government say in relation to recovery, people still fear unemployment. They are sceptical because they do not have more money in their pockets. The perceptive Mr. Maples tells us that the reason is that real take-home pay is falling this year; it will fall again in 1995 and again in 1996. I hope that the Government will heed the arguments I put forward today. The mixture will be more effective and will encourage the growth necessary for our country to pay its way.

6.53 p.m.

Lord Boyd-Carpenter

My Lords, this is the last evening on which we are debating the reply to the gracious Speech with which Her Majesty opened the present Session. So far we have had an extremely interesting discussion with an authoritative expression of the trade union attitude in the speech of the noble Lord, Lord Gladwin of Clee, and an equally impressive speech by my noble friend Lord Nickson on the employers' angle in industry. We have seen a good example of the wide body of expertise in a whole variety of directions which is to be found in your Lordships' House and which enables our discussions to be participated in by people who really know what they are talking about.

The gracious Speech and the address in reply contain some important words. For example: My Government will continue with firm financial policies designed to support continuing economic growth and rising employment, based on permanently low inflation". Those are important words, as are those which immediately follow: Fiscal policy will continue to be set to bring the budget deficit back towards balance over the medium term. My Government will reduce the share of national income taken by the public sector".—[Official Report, 16/11/94; col. 3.] That is an extremely important statement and my first question is whether the proposals now before us fall in with that undertaking. There are proposals for increased taxation. There are the small but irritating taxes on air passenger flights and on insurance. But much more important is the major build-up of tax which contributes to legal aid. That is an important economic aspect. Despite the efforts—very real and sincere—of the noble and learned Lord the Lord Chancellor, the cost of legal aid has been allowed to rise steadily year after year. In the current year it rises from approximately £1,200 million to £1,300 million. That is a substantial amount. When my noble friend replies, perhaps he can say whether the Government are satisfied with that or whether they are prepared to tackle taxation being levied in order to finance such an enormous payment for legal aid.

There are some possibilities for modification. Why is it necessary to give legal aid at all in civil cases? Why is it not possible, in lieu of that, to do as they do in the United States and simply say that lawyers may arrange for payment by results? Why is it necessary for people of great wealth to be given legal aid? There have been a number of cases—Mr. Nadir, Mr. Jawed Hashim and others—where people of considerable wealth have been allowed large sums by way of legal aid. We must ask why that is permitted. Indeed, it is an open question—and the mention of those gentlemen prompt it—as to why, if legal aid is to be given at all, even in criminal cases, it should be given to people who are not citizens of this country? Many of those people come to this country and get into trouble, but they come from countries that do not grant comparable facilities to British citizens who get into trouble in their countries.

Those are all real and serious questions. They involve substantial expenditure. I come therefore to what seems to me to be the central point of the debate; that is, if we are to secure (as I hope we are) a continuance of the economic recovery which the Government's policies have so far contributed towards bringing about—a situation in which there is stability; in which prices have risen little; in which inflation is small—it is essential that we should not make matters more difficult by increases in taxation. Increases in taxation are being effected now, no doubt because of the increased expenditure.

A considerable increase of VAT is proposed next year, particularly on domestic fuel. I regard VAT as, on the whole, a bad tax in principle. It is quite plainly inflationary. It adds directly to the price of commodities and there is no difficulty in concealing it. To increase it, as is proposed, as from next April from the present onerous 8 per cent. to a figure of 17.5 per cent. is a very serious decision to take. It would undoubtedly cause hardship, particularly to elderly people who feel the cold and require fuel, especially in the winter. I know it is proposed that it should not come into force until April but it is presumably intended to run through into the following winter, so that is a factor to be taken into account.

The tax is extremely unpopular. I very much hope that when my noble friend the Leader of the House replies he will indicate that the Government are giving some further thought to this matter. It would be a great mistake, at the time when public opinion is having to decide on the Government's future, deliberately to inflict a desperately unpopular proposal of this kind which it is not possible to justify on its merits. Why, if one requires fuel to keep warm, should one be charged tax of 17.5 per cent. on what one is paying for it? I do beg of my noble friend, as I beg of the Government, to think twice. It is bad enough to have installed the 8 per cent. increase, but to install the proposed figure would be extremely hard.

The gracious Speech also contains an interesting sentence: Legislation will be introduced to equalise the State pension age between men and women and to improve security, equality and choice in non-state pensions".—[Col. 3.] It is about 35 years ago, when I was the Minister in charge of social security, that the question was raised of the rather curious situation in which the retirement pension was paid to men and women at different ages and why indeed women, who have an expectation of life generally of three or four years more than that of men, should become entitled to the retirement pension five years before their male contemporaries. I had to consider, as Minister, whether we could tackle this problem. It was obviously an extremely sensitive and difficult one. I came to the conclusion that it would be impossible to handle unless one had agreement between the parties so that the change could be spread over a number of years and not suddenly confront the ladies with a big increase in the age at which they would become entitled to a retirement pension.

I shall be extremely interested to hear from my noble friend the Minister what the intentions are. I assume that it is not intended that the change should be made quickly. Indeed, the gracious Speech does not even indicate whether the change will be to alter the age for women or for men or to produce a compromise between the two. I suspect that it is proposed to raise the ladies' pension age of entitlement, but presumably that cannot be done quickly. It cannot be done when a lady is at the point of retirement—suddenly to be told that for some years she will not receive her pension after all. It has to be phased in. It was that problem of phasing in which deterred me, when I was the Minister, from going forward with what was quite obviously a sensible reform.

There is no justification whatever in principle why women, whose expectation of life is longer than that of men, should draw their retirement pension five years earlier. On the other hand, suddenly to withdraw from people the expectation of the right to draw one's pension is a very serious matter indeed. The fact that the Government have put this matter in the gracious Speech indicates that they are very bravely seeking to tackle it. But I wonder whether we could be told—and told very soon because there is great anxiety about this outside among future pensioners—what the Government's intentions are, particularly with respect to phasing in.

The central problem to which we all have to address ourselves is making sure that the economy works. The Government are to be congratulated on the improvement which has taken place. Despite the gallant efforts of the noble Lord, Lord Eatwell, to denigrate it, the economy has very considerably improved and there are very wholesome aspects of it: the stability of prices, the virtual departure of inflation and the improvement—the considerable improvement—in the unemployment figures. This result of the Government's policy is going forward at this moment, despite the efforts of the noble Lord opposite in criticising it. But if it is to continue it is essential not only that a certain measure of stability should be maintained but that taxation should not be increased. If taxation is not to be increased, then it is necessary—because there is the question of the balance of payments—for expenditure to be restrained.

I have suggested one direction—legal aid—in which it could well be restrained and where at the moment it is still rising. And although I know that this is a highly sensitive issue, the question of our contribution to the European Community simply will not go away. I do not understand why the European Community needs to increase the amounts that it exacts from its members. One would have thought that with three, and perhaps four, new members joining the European Union there should be a surplus, enabling a reduction to take place. The fact that that has not happened, the fact that we now have this demand for more money, suggests that there is a great deal of extravagance in the European Community. I suggest that it is the duty of the British Government to the British people to attack that with very considerable firmness. Since we have to raise another £150 million in the coming year, rising by several times in the years ahead, this will make it just that bit more difficult to maintain reasonably low levels of taxation and therefore opportunities for industrial expansion which will result from that.

We are at a most interesting moment in the economy of this country. I believe that we are coming through—indeed, that we have come through—some of the worst of our problems of recent years. I believe that we can continue with this recovery, but only if the Government remain determined to restrain, and indeed prevent, increases in taxation and for that purpose, therefore, to restrain the demands for expenditure. I would welcome any statement that my noble friend the Minister is able to make on this issue. I know that he realises how anxious people are outside this House in the City, in industry, in business generally, and the ordinary citizen, as to the future. Such reassurance as can be given tonight will be of great value and will be a very happy termination to what has been a most successful debate.

7.10 p.m.

Lord Bruce of Donington

My Lords, it is always a very great pleasure to follow the noble Lord, Lord Boyd-Carpenter, in economic debates of this kind. At the outset I should like to associate myself with his remarks about the imposition of a 17.5 per cent. rate of VAT which I believe is quite monstrous. At the same time I am aware of the expenditure constraints on the Government at present. Quite clearly, it is in the best interests of the nation as a whole that such expenditure as the Government believe it right to make is made with the object of securing the greatest possible value for money; that there should be as little waste as possible; the maximum amount of efficiency in financial administration, and so on.

In that connection later I propose to follow the noble Lord's remarks concerning the new own resources decision that has to be made on the limitation of the amount of funds to be provided to the European Community. As time passes, our own affairs, as I shall seek to show, are increasingly bound up with the financial decisions which are made in Brussels as well as those which are made here in support or otherwise of what is decided in Brussels.

Before dealing with that aspect of the matter I must deal with the supposition that has frequently been expressed, although in pleasant and elegant terms, by the Benches opposite about the prosperity and prospects of this country. According to the noble Earl, Lord Ferrers, the economy is now soundly based, inflation is well down and we have the best prospects for 20 or 30 years. It is customary—and it takes very strong people to do otherwise—to look at it from one's own point of view, position in society, standard of living, one's own personal prospects and matters of that nature. It is perhaps as well that the deputy chairman of the Conservative Party should remind those of us who may have forgotten that: There is a feeling of powerlessness and insecurity about jobs, housing, health service, business, family value, crime etc and no vision of where we are heading". He continues, the reality is now that the rich are getting richer on the backs of the rest, who are getting poorer". Those are the remarks of the deputy chairman of the Conservative Party addressed to the Prime Minister and his close associates. It differs from the version that we heard from the noble Earl, Lord Ferrers, this afternoon. It is of course the harsh reality that the living standards of at least one-third of the British population are below those which the Council of Europe has determined to be the poverty level. In point of fact, it is true that the bottom one-tenth of our population has suffered from deprivation since the Government came into office and that in real terms their living conditions and the funds available to them have declined by about 10 per cent. At the same time the fortunes of those in the upper section of our community have improved by something like 60 per cent. in money terms. Those are the realities.

When we talk about economic affairs—with all due respect to my noble friend Lord Eatwell who is a professional economist—we are talking in terms of political economics. A really vibrant society which is at ease with itself is a vital requirement for the continuous advancement of the living standards of all its people. One cannot expect an economy to function properly if it is based on the deliberate creation or the conscious tolerance of an underclass who increasingly cannot share in the personal serenity which is given to so many of us—perhaps to the remaining half or three-quarters of the population. The underclass live in appalling conditions. They live in houses which are unfit for human habitation. They live without any perspective enabling them to hold any kind of constructive view of the society in which they live. When they are not sleeping in doorways they are crowded into hovels.

One cannot speak of an expanding economy, one which is prospering or which is sound, if conditions of that kind are present, unless there exists some essence of solidarity between all the income ranges in this country and unless people can reach some fundamental agreement and confidence, not necessarily expressed in terms of income or wealth equality, but through a sense of belonging to a nation or a community. Those factors lie at the root of any economy which can even approach calling itself sound, mildly prosperous or stable.

What bothers me is that the Government seem to talk with two voices. We have one voice in the deputy chairman who obviously has contact with the people. The Government's definitions of the various types of expenditure on which they embark make the mind boggle. At present, in order to achieve financial stability, as they call it, or sound finance, as the noble Lord, Lord Boyd-Carpenter, would call it, we have some most extraordinary expenditures. I shall not go into all of them, but they include the literally billions of pounds which are contributed to the European Community. The figures show that over the past 15 years, after accounting for all abatements, all receipts, we have spent some £18 billion net on Europe. As the noble Lord, Lord Hooson, reminded us in the debate the other day, the overwhelming mass of our trade is with Europe. Therefore there is a pay-off.

What the noble Lord did not talk about, and what no one ever talks about, is the composition of that trade, because during that same 15 years we have accumulated a trade deficit of some £73 billion with the rest of the European Community. So we have been paid £18 billion net in order, apparently, to secure a trade deficit of £73 billion. That does not sound to be good business or value for money.

I am not saying for one moment that we should not make a contribution to the European Community. There are in many ways sufficient benefits in terms of mobility, the opportunity to get to know one another in Europe and to trade with Europe, perhaps to justify a modest contribution which apparently other countries do not have to make. But we must subject that expenditure to the normal value for money criteria which we would adopt in respect of other expenditures. I raise the point with a degree of emphasis, because the Chancellor of the Exchequer took the unusual course of circulating a letter to Members of another place setting out his reasons for advocating that we support the new limits that were set up and agreed at Edinburgh. Even he apparently made some mistakes. After accusing those of us who queried the figures of being idiots, he admitted that he had made an error of £700 million, which is not all that frightfully good. I suggest therefore that we should take a more critical view of that matter.

Do Her Majesty's Government ever express any dissent over such matters upon which they are prepared to stand? We had the case of the Italian and Spanish Governments exceeding their quotas. They were fined some £3.3 billion between them. The Italians threatened that they would not pass the budget unless that fine was reduced. What harm would it have done us, as net contributors, if the budget was not passed? Why not call their bluff, instead of making that ridiculous statement which he must regret—to which I will return later when we discuss the Bill which may or may not come before us—and pretending that it was wiser to settle out of court, and say, "Look how much we have gained!"?

Exactly the same consideration arose in connection with the European Parliament. The European Parliament invested heavily in a new building in Brussels capable of accommodating the newly increased representation. It spent some millions in doing so. Ah, ah! The French wanted a new parliament in Strasbourg, so what did they do? They too tried a bit of blackmail. They threatened that unless the Parliament was built in Strasbourg, and the contract was signed in Strasbourg—incidentally without competitive tendering—they would not agree and would veto the newly increased representation to the European Parliament of ourselves—we only had one or two more Members—and more particularly Germany which was to have 14. They stood on it. They declined to pass the agreement.

The European Parliament became party to that as well, because its Members also did not agree. The bureau met, without notifying its members, and passed the matter, quite illegally of course. But who bothers about illegality? We live in a Community in which the British try to obey the law, as a matter of course because we tend to do that here, and France, Italy and Spain obey it when it suits them. We let them get away with it. Now why? It puzzles me considerably that a government who have to say, "We cannot spend another £5 million on the health service; we cannot afford to have anything other than cash limits for home care; we cannot afford to build more new classrooms or provide new books because we do not have the money", should go through all these contortions, court all this unpopularity in so doing, and agree supinely with those states which seek to take advantage of us, with, incidentally the apparent silent assent of the president of the Commission who is usually more voluble than reticent on such matters.

Why is that? Why does it happen? I ask the Government to address themselves to that question. This expenditure which, incidentally, in the next six years will involve a further £18 billion of taxpayers' money—I should like to emphasise that point, because all expenditure of which the Government do not approve or which has to be dragged out of them, is taxpayers' money—is said of course to be a trivial percentage of the total GDP of Europe. The next six years—£18 billion! That is as much as in the past 15 years. How will the Government defend that?

We all try to be reasonable. I know that there is nothing sinister about it so far as concerns individual Ministers, but sometimes I wonder—my wonderment does not extend only to the Government but to other organisations of Parliament as well—whether they have given up thinking for themselves and have left it all to their advisers and researchers. That is not entirely unprecedented. I hope for the life of all in this country that it will soon stop.

7.28 p.m.

The Viscount of Oxfuird

My Lords, following the noble Lord, Lord Bruce of Donington, is rather like being an ab initio pilot behind the wing commander in charge of the Red Arrows—a lot of ground is covered; there is much colour; and there is a slight feeling of dizziness, certainly for myself.

I should like to join other noble Lords who have complimented our two maiden speakers. I follow very much the line of my noble friend Lord Boyd-Carpenter in saying how much their professionalism has added, and will add, to the gravitas of our deliberations in the House. I must admit that the noble Lord, Lord Gladwin, touched a chord when he referred to his involvement with training, particularly that of the Ford Motor Company. I was once employed by the Ford Motor Company. It has the most excellent training facilities. The ones I know are at Dagenham. They are superb. They cover the full range of the company's employment. I hope that my noble friend Lord Nickson will come here from Scotland as frequently as possible. His deliberations will be warmly welcomed. In particular, he has had the opportunity of being at an altar that I know a little about—but that is for another occasion.

I wanted to make a short contribution to this debate because I believe that Her Majesty's most gracious Speech has come in for rather more criticism in your Lordships' House and in the British media than it deserves. Perhaps it can be likened to the jug of water that rests on the Table in your Lordships' House. There are those who would describe it as half empty and there are others like myself for whom it is half full.

In the past 15 years we have seen in the field of industrial and economic affairs in this country some remarkable changes and, more importantly, a reversal of some of the worrying trends that have bedevilled our country since the end of the Second World War. Of course, it is convenient and popular to forget some of the achievements of the present Government in the early 1980s because that seems a long time ago and perhaps today it is not fashionable. In reversing the errors of decades, we are effectively pushing an increasingly heavy snowball up a hill and I believe that we should not yield to the siren voices of criticism, no matter how eminent their source. The benefits that we are seeking are difficult to achieve and will take time. We must "keep on keeping on".

As has been recalled already, the most gracious Speech included a commitment to: continue to promote enterprise, to improve the working of the labour market, and to strengthen the supply performance of the economy". Today some of your Lordships have not been slow to criticise the Government in some areas of their performance. But the other side of the coin is that they have created an environment of low interest rates, low inflation and good industrial relations. They are exactly what is needed to get on with the job of building Britain's competitive infrastructure.

In many essential areas—and I think of education and training, a respect for the engineering profession, a dedication to quality, the encouragement of inward investment, support for GATT and a belief in the work ethic —an environment has been created that has enabled our people to turn back the clock on some of the mistakes for which we have all been responsible in the past 50 years.

Speaking in another place in 1974, Mr. Tony Benn said: In developing an industrial strategy for the period ahead, we have the benefit of much experience. Almost everything has been tried at least once". I do not often agree with Mr. Benn but in that I do. We can certainly learn a lot about our future industrial strategy by studying and avoiding the mistakes of the past.

In the field of education and training, there is clear evidence that we have learnt from the errors of the past. We are beginning to reap the investment by both government and industry in effective industrial training and the requirements of industry have begun to filter through to our teachers in the classroom. Here I would commend the work of my noble friend Lord Caldecote and Mr. Peter Gummer in their support for the effective charity, Understanding Industry. It has done much to increase in the classroom the awareness and appreciation of the importance of industry. Let us consider that in 1991 30 per cent. of those leaving school declared that they wanted to go into the media while only 7 per cent. wanted to go into industry. We have ground to make up. It is in the mind. This charity and many others are addressing the problem.

Within the engineering profession there is evidence that the fragmentation of the past is being overcome. The current initiative, led by Sir John Fairclough, to achieve a greater coalescence within the engineering profession by radically restructuring the Engineering Council must be applauded. This must help to improve our competitiveness as an engineering nation when compared with, say, Germany, France or Japan—nations where the profession of engineering earns the highest respect.

In the field of quality management and that of total quality, progress is also being made. It is extremely heartening to know that recent independent consumer research in the United States of America places Rover and Jaguar in a most favourable light when compared with Mercedes or BMW. Indeed, this evidence of recommitment to the old values of craftsmanship and quality within the British workforce and management has enabled this country to attract the levels of inward investment which are such a contributory factor in pulling down so positively our national level of unemployment. The facts are incontrovertible, certainly to those who read the statistics, and even the press cannot resist the good news. This country has received 40 per cent. of all European inward investment. The UK now attracts more inward investment than any other country in the OECD, including the United States. Beware the Social Chapter! It would rob us of jobs. Let us tread with caution.

While dealing with industrial and economic affairs, it is important not to lose sight of the significance of the Uruguay Round of the GATT negotiations concluded in Marrakesh this year, in which the Government and the British EC Commissioner, Sir Leon Brittan, played such a strong part. This round should provide a substantial boost to world trade and hence to international prosperity, so we dare not be behind in the field of competitiveness. It brings new opportunities for our exporters, expands the choice for our consumers and acts as a spur to economic efficiency worldwide.

Competitiveness and productivity are ruthlessly linked. We are seeing a re-emergence at all levels of the work ethic. This is evident in the recent strong growth in our national productivity which is producing a dramatic fall in our unit labour costs. They are important; they are part of productivity.

Since 1959 I have spent most of my time marketing British industrial equipment abroad and, from the practical point of view, I welcome all these changes. Our exporters have a golden opportunity to go abroad with their heads held high and to sell the products made in this country. It is my belief that during the next year we shall see an even greater improvement in our balance of payments position than is currently being forecast by the Treasury.

My contacts with my international friends—some of whom are in Russia, China, India, Singapore and parts of the Far East—underline my belief in our economy. Their response has been stronger than has been evident today in some quarters of your Lordships' House. They are a considerable distance away from this Chamber.

It was in 1769 that Sir Joshua Reynolds made an address to the students of the Royal Academy in which he said: If you have great talents, industry will improve them: If you have but moderate abilities, industry will supply their deficiency". As a nation, Britain has proved over and over again that its people are possessed of great talents. I believe that, thanks to the environment created by our Government, we are set fair to capitalise on the many new opportunities that are available to us, to prosper and to win.

7.40 p.m.

Baroness O'Cathain

My Lords, in the gracious Speech the lines that gave me most comfort have already been picked out by the noble Lord, Lord Boyd-Carpenter. They are: My Government will continue with firm financial policies designed to support continuing economic growth and rising employment, based on permanently low inflation". Continuing growth, rising employment and permanently low inflation are surely the aims of all of us who are concerned about the economic situation in the UK. If those aims are achieved, all will then follow: as the noble Earl, Lord Ferrers, said, greater wealth creation which, of course, is essential to fund education and health and social services, so ably described in the marvellous maiden speech of the noble Lord, Lord Nickson; increased competitiveness in international markets whose management of inflation is probably not as good as ours; and, above all, a re-establishment of confidence in ourselves as a successful nation which is respected overseas.

The confidence factor is so very important. The all too human reaction to a constant diet of bad news, destructively critical comment, point scoring by opportunists and a complete absence of any acknowledgement that some things are good or improving is to believe that all is bad and then to be sucked down into a spiralling demise of confidence. Belief in one's country and oneself is important.

At present the sad reality is that there is a massive "feel bad factor" which frankly belies the economic reality of the United Kingdom. Why is that? No, I am not going to lay it at the feet of the press nor, indeed, at the feet of government. In my view it is due to a great extent to economists.

Economics has always been called the dismal science, which is a trifle unfair. I speak as a one-time economist, and I suppose once an economist, always an economist. I guess that for a few years past, economists have probably produced a preponderance of dismal forecasts and analyses. But even when matters improve on the economic front, the good news does not seem to be covered or, if it is, it scarcely impinges on a population that does not seem to understand.

Why does the population not understand? It is because, if one of my theories is correct, the language in which the news is conveyed is couched in such turgid terms as to be unintelligible. Last week I collected an armful of statistics from the Printed Paper Office. Reading them—and I am an economist—was a complete switch-off, despite the fact that they contained good news. If only time were spent translating the statistics into something more meaningful in non-economic jargon we should be much better off. Not for nothing is the word "waffle" an acronym for Wordy Arguments Flow From Long-Winded Economists. Economists should find a more understandable way of explaining that, for example, in the three months ended August 1994, compared with the same three months in 1993, the balance of trade showed a reduction in the deficit of some 30 per cent. They should also be able to explain why that matters.

It says in the statistics that excluding "oil and erratics" —nice economic jargon—the deficit also decreased from £;4.1 billion to £3.6 billion. In turn, that masks a 10 per cent. increase in exports. Those are all in the right direction and they all matter. Another example is that GDP at market prices in 1993 is 14.4 per cent. up on the same figure for 1990 and, even more important, 6.1 percentage points up on 1992. Volume statistics, which for a long time were below the 1990 figures because of the recession, increased in the fourth quarter of 1993 and are growing stronger all the time. Economists should explain why that matters.

Employment matters. It is referred to in the gracious Speech. The percentage of unemployment, the unemployment rate, in October 1993 was 10.1 per cent. The latest provisional figure for October 1994 is 8.9 per cent. That is still too high, but at least it is going in the right direction.

I could go on but in the interests of time I had probably better not. However, I should point out that more overtime is being worked and that therefore there are higher total earnings. Higher productivity is being achieved and the public sector borrowing requirement in the first seven months of 1994–95 financial year at £19.2 billion is a lot less than the £26.4 billion for the same period the previous year. All of that definitely matters. It is good news. Of course, there is bad news as well.

All of that contributes to growth and a reduction in unemployment. It is the result of government policy. But probably the greatest cause for congratulation of the Government is the way in which inflation has been brought under control. It is such a long time since the period of double digit inflation in this country—even inflation of 20 per cent. plus—that we probably do not remember it. Those of us who do remember it may have been in employment and it did not really matter too much because we had inflation-linked wage increases.

But I remember it. I remember the enormous burden of worry which my father, who was a retired civil servant, had at the end of his days. He was not on an index-linked pension. He had saved all his life. He had taken a very cautious approach, even to his expenditure, but at the end of his life his savings were almost worthless because of rampant inflation.

If a recent article by Anatole Kaletsky in The Times is to be believed, it could be that those days have gone forever. But we cannot be complacent and I welcome the firm commitment in the gracious Speech to maintaining permanently low inflation.

I do not wish to fall into the waffle trap but I should like to make one suggestion before I sit down. If there could be a common ground of agreement, however narrow, that all politicians acknowledged that there are very positive trends in our economy, that in turn could be transmitted to the population at large and lead to a genuine "feel good factor". I suggest that that may be a task for the seven wise men appointed to the Treasury.

A noble Lord

Six.

Baroness O'Cathain

My Lords, yes, it is six. My noble friend is quite right. Could they agree a sort of "state of the nation" statement? They would be regarded as apolitical and therefore, being realistic, more believable by the population at large. It could even be that the next step would be to restore faith in politicians when they were seen to be doing a good job, because a good job is being done. Let us all agree. Inflation is low, which is a great achievement; unemployment is falling; our competitiveness is increasing; and there are many, many great success stories in British industry. I think it is worth a try.

7.49 p.m.

Lord Skidelsky

My Lords, I add my congratulations to those of other noble Lords on the two excellent and informed maiden speeches that we have had this evening. I also endorse what my noble friend Lord Tugendhat and others have said about the excellent recovery that we have seen in the British economy over the past couple of years. That is partly due to the reforms of the 1980s.

I could say a great deal about education and training. I am afraid that it has become one of those great black boxes into which many hopes are poured after the speaker has run out of concrete ideas about what to do. Of course, no one can be against education and training, but I deny that we know how to improve that department dramatically and pouring money into that particular box is no guarantee of improved output.

The noble Lord, Lord Eatwell, based his speech on our poor investment performance over a long period. However, perhaps I may point out one fact; namely, that since 1980 UK investment has grown faster than that of the United States and that of our major European competitors. That is in stark contrast to the 1970s when Britain was firmly at the bottom of the G7 investment growth league. There has been a dramatic improvement.

I should like to take up and further develop a number of interesting points made by my noble friend Lord Boyd-Carpenter in reference to two phrases in the Queen's Speech: to bring the budget deficit back towards balance over the medium term [and] … reduce the share of national income taken by the public sector".—[Official Report, 16/11/94; col. 3.] Both will test the resolve of the Chancellor of the Exchequer. The second also opens up a crucial divide between noble Lords on both sides of the House. We stand for reducing the role of the state in national life, while many noble Lords opposite stand for increasing it. I believe that that will be one of the main political battlefields over the coming years.

We moved a great deal during the 1980s. No one believes any longer in the state as owner. All over the world, most notably in the former communist countries, the state has been divesting itself of that function. That process was started in this country in the early 1980s. Even the Labour Party has finally caught up with privatization—better late than never.

The same can be said of the state as planner. The days of national plans are over. We all accept that, for most purposes, the best planning system is the market. That has been another major change in the political economy over the past 15 or 16 years. But the state as spender is still alive and well. Perhaps I may give your Lordships some figures which are purely illustrative. Before the First World War, the typical Western state spent under 10 per cent. of the national income. Between the wars it was about 25 per cent. In the 1950s and early 1960s it was about 30 per cent., and by 1975 it was over 45 per cent. Since then, the rise has been stopped but not reversed. Today, the British Government spend just under 45 per cent. of GDP. I submit that that figure is much too high and that it needs to come down dramatically.

We can argue about what a safe percentage is; that is, safe in terms of the liberty of the individual and the efficiency and productivity of the economy. Of course, people will differ about that, but there seems to be a safe limit. In 1945, Colin Clark suggested that it was 25 per cent. I would settle for 30 per cent. which is roughly the share spent by governments in the 1950s and early 1960s, a period known as the "golden age" of the post-war economy. Undoubtedly, the deterioration of economic performance after that was associated with the rise of public spending as a share of national income, though that is a correlation. I leave open the causal link.

I return now to the budget. The government aim to balance the budget over the cycle. I applaud that aim. I believe that that is an excellent fiscal rule. Experience has taught us that fiscal policy needs to be governed by rules: it cannot simply be left either to the calculations of economists or those of politicians. If the state runs budget deficits through good and bad times, it loses all ability to exercise any stabilising influence on the business cycle. The state can flatten the ups and downs of the cycle, as the noble Lord, Lord Kingsdown, said in his speech, but in order to do so it must conduct a prudent and credible fiscal policy. If a rising debt-GDP ratio results, it will eventually drive up interest rates or taxes and crowd out private spending. The state would then lose its ability to be a macro-economic stabiliser. That is what happened during the past 15 years as a result of the excesses of the 1970s.

However, balancing the budget should not be the main object of fiscal policy. It should certainly not be the long-run aim. That should be to balance the budget at the lowest possible level of taxes and spending, consistent with the necessary duties of a modern state in a wealthy market economy. How does one get from here to there? Recovery will certainly help. Ann Widdicombe told the House of Commons on Tuesday that unemployment was costing the Exchequer £14 billion a year, or close to 2 per cent. of GDP.

Reducing unemployment will undoubtedly reduce public spending and increase public revenue, thus enabling taxes to be cut. We should do everything that we can to expedite that result. In fact, it is already happening. Unemployment is already falling. I should like the Chancellor of the Exchequer to take up on a larger scale the ideas of Dennis Snower that the long-term jobless be allowed to transfer their unemployment benefits to employers who are willing to hire them. I know that the Labour Party has come out in support of that proposal. The first steps in that direction were taken by Mr. Norman Lamont. I should like to know the results of that scheme. It has been running for two years now on a pilot basis. Can my noble friend the Minister tell the House whether there has been any conclusion from the operation of that pilot scheme as to whether it could be extended? I believe that it could be usefully extended.

But the growth of the economy on its own will not do the job of reducing the share of the public sector in the national income. My noble friend Lord Lawson managed to get taxes and spending down to 39 per cent. in 1990, but that was at the height of an unsustainable economic boom. A sustainable reduction in the tax burden requires a permanent reduction in the agenda of the state. That is the bottom line. We need to open up a wide-ranging debate on the justification of state spending and whether it needs to continue at its present level in a modern, developed economy.

We need to ask ourselves whether we can redefine the responsibilities between the individual and the state. We need to ask: are the functions which have been assumed by the state in respect of social security, medical care, retirement pensions, and so on, appropriate in increasingly wealthy societies? Of course, there is a host of small-scale cut-backs that one can make across the board which may add up to a fair amount. For example, large cuts in the defence budget, which has expanded to 8 per cent. of GDP, would be reasonable over the medium term. Cuts could be made in the cost of the running of government. One could also apply what has been called the "circumcision principle" —that is, cut 10 per cent. off everything.

However, that is all small beer compared to the big issue of entitlement spending. Spending on entitlements—non-means tested cash benefits and services—comes to £120 billion, or 18 per cent. of GDP. I refer to the basic state pensions, child benefits, one-parent benefits, state education and health and personal social services.

If we are serious about reducing the share of national income taken by the state, long-term public expenditure policy needs to be informed, I suggest, by three main principles. First, there should be no new open-ended commitments. As my noble friend Lord Boyd-Carpenter pointed out, the fastest, growing component of public spending since 1979 has been legal aid. Other fast-growing components include invalidity benefits, mobility allowances, attendance allowances and one-parent benefits. What these have in common is that there is a commitment to provide money to people who satisfy certain conditions. It sounds cheap when you start such a scheme, but claimants tend to rise dramatically over time; partly because behaviour changes in order to qualify for the benefits being offered and the only way of dealing with that is through cash limits on these entitlements.

The second principle is to eliminate commitment creep—the tendency for pledges to be reinterpreted increasingly generously over time. We need to think far harder about separating the basics, which must remain free, from the add-ons that we might ask the better off to pay. The third principle is that of course some benefits should be means tested. The most obvious candidates are the state pension and child benefit. Huge savings can be made by concentrating these on those with low incomes. The principle, after all, is exactly the same as that of the progressive income tax; the better off pay more to the state and get less out of it. May I say to the noble Lord, Lord Bruce of Donington, that the best way to get rid of the poverty, which he most eloquently and rightly deplored, is to target help on those most in need. That has been denied by our system of universal benefit.

Unless radical measures are taken to contain and reverse the growth in public spending the Government will find themselves presiding over an increasing tax burden. This is not good for the economy and it is not what they promised to do at the last general election. It is not what they want to do but it is what they will have to do unless they have the courage to open the debate on spending entitlements and the conviction to win the argument.

8.2 p.m.

Lord Barnett

My Lords, before the noble Lord, Lord Tugendhat, goes, I should tell him that I propose to disagree with bankers both present and past. However, I start by saying that I shall not quote the deputy chairman of the Conservative Party, if that is any help to your Lordships. What I propose to do is to disagree with just about everyone else in your Lordships' House who has spoken today.

I thought it would have been nice if the debate had begun with the noble Earl, Lord Ferrers, admitting that just occasionally something had not been quite right in the 1980s, as the noble Lord, Lord Skidelsky, was willing to agree. Indeed it is always a pleasure to follow him because whether or not one agrees with him—I certainly did not agree with everything he said—he makes a serious and important speech, as he did today.

I am sorry that the noble Earl put every aspect of our country's success today down to increased competitiveness which came out of privatisation. That is what he seemed to be saying. I am bound to say that that is somewhat of an exaggeration, to put it mildly. For my part I am prepared to admit that the previous Labour Government did occasionally get it wrong and that I as Chief Secretary to the Treasury from 1974 to 1979—that seems years ago and it is, it is 15 years ago—did occasionally get some matters wrong as regards the economy. But one cannot just gloss over the past 15 years and say that privatisation has dealt with everything and everything will be all right now.

At least the noble Lord, Lord Tugendhat, conceded, as did my noble friend Lord Eatwell, that we owe much of our present success to what used to be called Black Wednesday and the devaluation. It should, of course, be called Wonderful Wednesday. I personally accept that none of what has happened now would have been possible without that devaluation. But I can agree with the Chancellor and with the noble Earl that the outlook we have now, depending on how we use it from here on, is the best we have seen for years. We have high growth, low inflation, falling unemployment—however, I will discuss briefly later how it is not falling anything like fast enough—rising exports and rising investment, and interest rates are at the lowest they have been for many years. It is what the Chancellor called his dream scenario. I see the noble Minister agrees with that.

Noble Lords

Golden scenario!

Lord Barnett

My Lords, he called it a dream scenario. He hoped it was a dream scenario. I take it from that that everything in the garden is lovely, when of course that is far from being the case. Despite the fall in unemployment, which I very much welcome, unemployment is still around 2½ million. No one could welcome an economy where there are 2½ million unemployed. Even then the statistics, to put it mildly, are misleading because the figures are almost certainly higher. That is especially true for the statistics as regards men. That is very sad. The highest level of unemployment arises among men. One cannot just give them lectures about how they should take account of the general economic situation and the fact that it may always be like that, and that they should take part-time jobs, more training and the rest, and all will be all right for them and their families. Frankly, if I were unemployed, I should feel a little upset at being lectured in that way.

However, let me refer to other statistics on unemployment and the "feelbad" factor which clearly stems from the lack of security in employment. I do not think there can be much doubt about that. I would say to the noble Baroness, Lady O'Cathain, that economists are not my favourite class of people but nor are they enemies of mine. Many of them are good friends. To blame all of the "feelbad" factor on economists is a bit rich. I certainly would not go along with that myself.

I now turn to investment, which is a crucial area. Although it is growing, as the Chancellor of the Exchequer and the noble Lord, Lord Skidelsky, have pointed out, I think he would accept it is still far too low to enable us to sustain the level of growth which we desperately need if we are to reduce that high level of unemployment. There are figures which indicate that many companies are looking for pay-back periods of as little as two to three years on capital investment. I am sure the noble Lord, Lord Skidelsky, has seen that. If they are waiting for two to three years for pay-back, it is not surprising that they cannot see a return and therefore they do not invest. I find that very sad indeed. It is therefore not just the quantity of investment that we are not getting, but also the quality of investment. That requires, as has been said by many speakers in your Lordships' House, and as was mentioned in an excellent maiden speech by my noble friend Lord Gladwin, investment in skills, training and education. That is vital if we are to obtain the kind of real capital investment we need and, what is more, to deal with the actual shrinkage of our manufacturing base compared with that of many of our leading competitors abroad.

Then, I am bound to ask, as many on the Opposition Benches would ask, what would a Labour government do to deal with these huge problems as well as dealing with the resources that are desperately needed for the National Health Service and social services? Some answers to these points were given yesterday by my good friend the Shadow Chancellor. However, it is no use saying that all those resources will come from higher growth and from dealing with tax avoidance. We shall not obtain much from higher growth in the early years, even if we get the higher growth. Indeed we shall not get it ever unless we are prepared to face up to the consequences of what will happen when we try to achieve that higher level of growth.

As regards stopping tax avoidance, all I can say is that I wish my right honourable friend luck. However, I am bound to tell him that my experience is that those who avoid tax and their advisers are likely to be more fleet of foot than the Shadow Chancellor, or even the Inland Revenue. Therefore, although he will obtain some extra tax, it will be nothing like enough to meet the demands on resources that he will have to face, especially if we are to deal with the huge problem of unemployment.

I am sorry that the noble Lord, Lord Kingsdown, is not in the Chamber. He referred to the cyclical, structural and natural levels of unemployment. If I were one of those unemployed, I would not care very much whether I was structural, cyclical or natural; I would just be very unhappy about being unemployed. I would want to know what was being done about it. For a former Governor of the Bank of England to tell someone that his unemployment is cyclical, structural or natural will not help him very much.

I know, of course, why the Shadow Chancellor talks of tax avoidance rather than what is really needed, tax increases. He is understandably concerned about a repeat of the accusations made during the last general election of "tax and spend". I know that he will be able to throw back in the face of the present Chancellor and Government the fact that, no matter how much tax they cut in 1995 and 1996, the tax increases will still have been higher than those tax cuts, especially if the Chancellor aims for a balanced Budget—or nearly a balanced Budget, as the noble Lord, Lord Skidelsky, put it.

Some of the tax increases which we have seen in the past 15 years, and particularly in the past few years, have been described as taxation by stealth. The way that has been done has been very clever indeed. It has hardly been noticed. No government in history has managed such taxation by stealth. The noble Lord, Lord Jenkins, did not manage it, in his clever way. Mortgage tax relief has been cut; personal allowances have been cut by reducing the amount of tax allowed on those allowances; even tax on dividends has effectively been cut for the higher paid. All that has been achieved by sleight of hand, almost without being seen. There have been all those tax increases, not to mention the VAT which we were told we were not going to have.

If I were going to be Chancellor I would rather accept the challenge of saying how I would finance a Labour programme than win power and then do nothing with it. We must look for radical solutions, and I hope that the Shadow Chancellor will do so in due course.

First, there is the question of growth to pay for the many demands on resources to which I have referred. We already see the constraints, with growth at 3.5 per cent. or nearly 4 per cent. The constraints are clear, and are due to the productive capacity in this country. If he goes for higher levels of growth—and the Shadow Chancellor cannot increase those overnight because he will not be able to increase the productive capacity—he will need higher investment. However, the benefits of that higher investment will take time to come through. In any event, how does one persuade manufacturing companies to invest when they are not doing so now? That is a crucial question. He can, and in my view should, do that by means of some tax incentives, but that will also take time.

The Shadow Chancellor should invest directly in the public sector, I hope in partnership with the private sector. That must be a sensible way to move forward. The noble Lord, Lord Nickson, in his excellent maiden speech, made something of that point. But even that will take time to come to fruition.

A Shadow Chancellor can invest directly in training and education, and I hope that he will. Again, to some extent, he can do that by incentives to the private sector. But once again, all of that will take time.

Therefore, in the early years, when there will be a desperate need for more resources, what is he to do? There are two ways in which he can help immediately and directly. Instead of raising tax by stealth, as the present Chancellor has done, he can say openly and honestly that he will increase tax to some extent in order to finance the extra resources he will have to find if he is to do anything at all. If he does not say that he will not be able to do it. Secondly, I make no bones about it. He should go for higher growth, even if initially that means a slightly higher rate of inflation.

Those two measures, together with other incentives to which I want to refer briefly, are vital if we are to have a hope of dealing with the terrible levels of unemployment. They remain terrible, at 2.5 million, although I welcome what has been done so far.

What else can we do? The Chancellor's own six wise men have made recommendations. It is worth mentioning what they said. A significant caucus of them said that the main requirement for a lasting reduction in unemployment is a period of moderate and balanced growth. The Chancellor will no doubt claim that he has achieved that. However, all six of them favour changes that would reduce the cost to employers of taking on people on low wages. Policy options include a negative income tax, subsidies to low-paid employment and welfare benefits to provide a basic income guarantee. I do not necessarily agree with all of those recommendations, but the point made by the noble Lord, Lord Skidelsky, was a good one, and I hope that it will be taken up by the Chancellor next week. I certainly hope that it would be taken up by a Labour Government.

Those changes were also recommended by the CBI itself, which also supports radical action. Howard Davies, the present Director General, said 10 days ago that: It would be disastrous at this stage to embark on the old cycle of interest rate increases and exchange rate appreciation". The Chancellor said last week that he will not merely follow United States interest rates upwards. I hope that that is true, but I will believe it when I do not see it. We have seen what has been happening in the past few days, and I would be surprised if he did not follow them.

I want to say to Eddie George, the Governor of the Bank of England, and to my right honourable friend the Shadow Chancellor that if we are not to embark on that old cycle it is crucial that we take the power out of the hands of the Governor of the Bank of England. At the moment we have, effectively, an independent central bank. The power has been given to the Governor of the Bank of England effectively, because, if the Chancellor does not agree with him and it becomes publicly known that he does not agree with him, that would be disastrous. Therefore, we have effectively., an independent central bank, whose sole concern is inflation.

Inflation is crucial, but there are also other, wider issues with which a Labour Government would have to concern itself. The most important of all is that of unemployment. That must be at the top of the list. The Labour Chancellor will not be able to do much about it if he simply follows the present policy. Indeed, neither will the present Government.

8.16 p.m.

Lord Eden of Winton

My Lords, recently we were all delicately reminded that it was not necessary for every speaker in the debate to make reference to the maiden speeches. But after two maiden speeches of such quality I cannot let this opportunity pass without saying how privileged I feel to be taking part in a debate to which they have brought such distinction.

Like my noble friend Lord Nickson and others, I was greatly heartened by the opening speech of my noble friend Lord Ferrers. He catalogued the good news, for which the Government deserve full credit and which in all fairness should be widely reported by the media.

My noble friend was right also to warn against standing still. We must continue efforts to strengthen our industrial base and to build on current success. A pointer as to how to achieve some of that has been given by the Chancellor of the Exchequer and others.

Earlier this month the Chancellor of the Exchequer, at the CBI conference, made an important speech, at least half of which was devoted to the need for investment and to the role of private finance in achieving that. He spoke eloquently about the prospect of encouraging private finance in investment projects in the public sector—what has come to be called the private finance initiative (PFI). He said: I am determined to push the PFI right across the public sector … private finance is increasingly going to become the main source of growth in investment projects in the public service". He went on to give examples of hundreds of millions of pounds' worth of projects already approved and under way in transport, housing, prisons, hospitals, urban development, information technology and elsewhere. He also made reference to the £42 million Royal Armouries project in Leeds. The new Royal Armoury Museum complex now under construction at Clarence Dock close to the centre of Leeds is the first major PFI arts project under the auspices of the Department of National Heritage. As I was chairman of the Royal Armouries for eight years until 1st October, when I handed over to my noble friend Lord Younger of Prestwick, I hope that I may share some of the experiences and reflections relating to an example of PH in practice. I hope noble Lords will not feel that it is too narrow a point because in my view some of the lessons learned have wider application.

At the start of the process, the Royal Armouries Board of Trustees and full time armouries staff, most ably led by the Master of the Armouries, Guy Wilson, felt like pioneers seeking out new territory—a feeling, I suspect, at that time shared by officials in the department. Fortunately we were soon able to enlist the assistance of Schroders, financial advisers. Their understanding and creative flair helped us to devise a credible financial structure for the venture.

Leeds, of course, was enthusiastic. Both the development corporation and the city had perceived the extent to which the establishment of a major national museum and leisure attraction close to the city centre would be a catalyst for economic growth and for the regeneration of the whole Clarence Dock area. The development corporation offered £5 million towards the capital cost of the project. The city came forward with £3.5 million. The Government, with the support of the then chief Secretary—he is now happily the Secretary of State for National Heritage—committed £20 million to be spread over a number of years. That public sector finance, firmly capped as it is, was authorised only after an exhausting analysis had confirmed the financial and social benefits to the public sector that would flow from the development. It was a condition that private sector investment should be secured in the form of a joint venture with the Government.

The benefits of that are real and substantial. The new museum will become an important contributor to the economy of Leeds and beyond. The estimated £35 million input into the construction industry will support up to 300 jobs. The employment of 150 to 200 staff will contribute about £5 million to the Leed's economy. There will ultimately be at least 850 to 1,000 new permanent jobs in the area. There will be the annual spend of the anticipated 1 million visitors to the museum injecting about £10 million to £15 million into the local economy, with hundreds more jobs arising from that.

Already a number of improvements have been taking place: the adjacent road network has been enhanced; the facilities of the Aire and Calder Canal have been substantially upgraded; and soon, I hope, urgent action will be taken to end the pollution in that river. The rates and taxes will be payable by the new company and the museum. Education is to be a prime feature of the museum—a key objective. Displays will bring history to life through the medium of the artefacts and will form an integral part of the national curriculum. There will be an information centre interpreting current events.

This will be the first time that a major national museum, will have moved its world renowned collection to establish a unique cultural focus in the north of England. Through the joint management and shared skills of the private sector and the Royal Armouries, a much higher proportion of the collection than ever before will be made available to the public, international as well as national, for its enjoyment, information and education. The extensive and continuous promotion—PR and travelling exhibitions—will trumpet the name of Leeds. Altogether it is a good investment for Leeds and for its business community.

By making that move, space is being released within the Tower of London to allow for further improvements in the way in which the display is presented. It has already resulted in an imaginative and visitor-sensitive new display of Crown Jewels. The Royal Armouries will be able to show to better advantage prime items from its collection, in new presentations in the White Tower. There will be proper restaurant and refreshment facilities in the Tower which are long overdue. All those factors will bring in more paying visitors, many from overseas, giving them better value for money.

Therefore the benefits for the public sector are substantial. Yet, rightly, the responsibility for the construction of the museum and its commercial operation, with all the attendant risks, rests with the newly created private sector company, Royal Armouries (International) plc (RAI). It required all the considerable powers of persuasion and the perseverance of Sir James Glover, the chairman of RAI, to secure the required private sector investment. The consortium of private sector investors, led by 3i and the Bank of Scotland are together contributing £14 million. It was not easy to find the lead investor. It was not a case of making a selection between competing claimants. The Government are, of course, right to stress the importance of competition in public procurement. That is underlined in their guidance note to departments. Competition is right in principle. But in practice it needs to be sensibly applied, taking special circumstances into account. There are instances where it might not be appropriate, and where its employment will be unnecessarily burdensome and counter productive. The PFI has to operate in two directions. At times it will be selecting among competing bids for participation; but at other times it must seek and invite participants.

In the case of any PFI initiative, in particular one originating with the public sector, where competition is most crucial is at the very beginning in the selection of a merchant bank or other financial adviser. Once that expertise is available, a preliminary financing structure can be prepared from which to seek the involvement of a lead investor. When the lead investor has been identified, agreement can be reached on an outline financial framework appropriate to the project and acceptable to both the public and private sector.

I wish to make it clear that private sector influence must not become simply an add-on extra to an elaborate structure devised and conceived wholly within a government department. Top quality private sector management needs to be involved from the outset.

It is important that government departments do not underestimate the degree to which the private sector will need to have allayed its suspicions of the public sector. Potential private sector investors have to be convinced that the public sector's financial commitment to the project is irrevocable and unconditional. The private sector focus will rightly be on the viability of the subsequent revenue stream which will have to be robust enough to cover the financing and start-up costs and to deliver a fully commercial rate of return to the investors. Only then will investors accept the responsibility and the risks inherent in the project.

However, it then becomes the responsibility of the public sector to help ensure that the project comes to fruition. Admittedly, control will have passed to the private sector, a condition which in itself will require a change of attitude and approach on the part of departmental officials. Some simply cannot resist the temptation to intervene on an almost daily basis. The requirement for reports, submissions and explanations can add enormously and unproductively to management's workload. That applies as much in the case of museums as to any other enterprise. Of course, the public sector will continue to be identified with the project and will have a job to do. For example, without the very substantial efforts of departmental officials, the new Royal Armouries would never have emerged off the drawing board. Perhaps I may refer, too, to the stalwart support which came from Ministers, most notably and magnificently from my noble friend Lady Blatch.

However, in the public eye and in reality it is not one sponsoring department that is involved in the issues; the commitment to the project is made in the name of the Government as a whole. It is the Government as a whole who rightly take credit for helping it to come about. In the case of the Royal Armouries project at Leeds, during long hours of critical negotiations we had the extraordinary spectacle of one part of the public sector fighting tooth and claw for its own particular narrowly perceived interest, with near fatal consequences for the major investment project which the Government as a whole wanted. Yet the Government were apparently unable or unwilling to do anything about it.

So there must be a single central source of direction. All arms of the Government should somehow discover ways of working effectively together. Since the private sector is being encouraged to come into partnership with the public sector, it has the right to expect that the public sector will co-ordinate its efforts and deploy all its resources to promote the venture and help it to succeed. They should bring the same enthusiasm for investment of that kind as they invariably do for inward investment from abroad.

I have one further point to make. It is important to recognise that it takes time to put together a big and complex financing project. In the first place, careful and detailed project analysis and feasibility studies are essential; independent reports have to be commissioned; specialist agencies have to be engaged and each step has to allow for open competitive tendering. This is all necessary even to arrive at the position where prospective financial advisers can be adequately briefed.

Where, then, the project is initiated within the public sector, the government division responsible must recognise that time, manpower and extra skills are all needed at the very beginning. That means money. Departments, including the Treasury, must be prepared to prime the pump. If spending controls are too rigidly applied, there is the danger that the project will either be inadequately researched or be stillborn.

The volume of work involved can be enormous, especially in a major start-up scheme, which is what in effect the Royal Armouries project in Leeds can be said to be. At the final countdown, after four years of study, research, gestation and preparation, there were six weeks of intensive marathon negotiations involving 14 sets of lawyers representing some 20 organisations. At completion, there were more than 100 legal documents to be signed, every word of which had been subjected to the closest analysis and debate. Those were all necessary to achieve, among other essentials, proper security of tenure for the private sector, to identify the separate responsibilities of both partners in the enterprise and to preserve the statutory position of the Royal Armouries and the independence of its board of trustees.

As the PFI is now becoming more widespread and more accepted as a means of achieving new investment in public sector projects, government departments will need to develop their own core of expertise. With the support of the Private Finance Panel Executive and with the backing of the Treasury's private finance unit they should be ready to move quickly and imaginatively. Their role should not be that of the passive monitor, nor that of the policeman scrutinising public expenditure—necessary though that latter function undoubtedly is. In relation to the PH, they need to be more positive. They should be prepared to promote, guide and influence the development of schemes suitable for partnership between public and private finance. That will bring immense benefit to this country. I think that my noble friend and the Government are to be congratulated on introducing and supporting the concept of the PFI.

8.34 p.m.

Lord Harris of High Cross

My Lords, in a debate on the Motion to give thanks for the gracious Speech, I should at least start on an amiable note. It is not difficult to express great pleasure and satisfaction at the larger number of speeches we have heard, not least the two notably impressive maiden speeches.

As another Cambridge man, I must confess to sharp disappointment with the speech of the noble Lord, Lord Eatwell. When I heard him condemn the Queen's Speech as lacking in new ideas, my mind raced back to the time when the Labour Government were in office and we had such new ideas as the national plan, the National Enterprise Board, incomes policies, and the selective employment tax. We had a succession of new ideas which the noble Lord might think best forgotten, like some of the other schemes. I prefer the old ideas like enterprise, incentive and freedom of choice. I do not think that the Government should make any apology for working those quite hard.

The noble Lord, Lord Eatwell, seemed hypnotised by macro-totals of investment. They worried him a great deal. We had a different view from the noble Lord, Lord Skidelsky, which I rather favour. In any event, to say that investment was higher in 1979, if that were true in aggregate terms, would tell us nothing of the merits of that policy compared with the present policy. The essence of investment is the quality of it, not its quantity. We can now look back and say that a great deal of investment in 1979 was being sunk in failing industries—motor cars, docks, coal mines, the steel industry and all that.

The noble Lord, Lord Barnett, took up a point I have heard frequently from people whom I respect both on the Labour side and in business. It is that our entrepreneurs tend to look for shorter pay-off periods for their investments. They look to get their money back in two, three or four years, whereas the Germans and notably the Japanese are more patient and work to five, 10 or even longer time horizons.

I believe, or at least strongly hope, that this deficiency is perhaps the consequence of the much more marked financial instability we have suffered in this country where inflation has undermined longer-term planning leading to fevered expectations of future consequences among businessmen who think that they should get their money back as quickly as possible. For my part, I strongly applaud the Government's dogged commitment to stable monetary policies against inflation. I prefer them a great deal to the monetary excess that we had in the latter part of the 1980s.

Perhaps from the Cross-Benches I may redress the balance on the Tory record. I think it has received too little acknowledgement, not least from the Opposition Benches, who have been among the main beneficiaries of its historic achievement. I phrase that in terms of the signal triumph since 1979 in purging the socialist virus from our economy and polity. That is rather strong language, but if noble Lords ponder it they will realise that in the past 15 years or so we have had nothing less than an historic overthrow of the prolonged post-war "Butskellite" consensus, in which I myself at one time had some belief—that myth of the state's superior competence compared with competitive markets.

Despite some backsliding, the heirs to Thatcherism have not entirely given up, to judge by the Queen's Speech. Thus I can commend strongly only one sentence which reads: My Government will reduce the share of national income taken by the public sector". That sounds quite promising, but it rather prompts the question: what has been their record? What has happened in the recent past? The best source of statistics for this purpose is provided by the time series of the Annual Blue Books for the years 1979 to 1993. I have extracted a great deal of statistical detail, but I shall oblige noble Lords by summarising and distilling it in the following precise conclusion.

Over the period of 14 years from 1979 to 1993, government spending has continued to rise in real terms. But, as a proportion of a faster rising national income, government spending fell marginally from 47.5 per cent., on my calculation, in 1979 to 45.5 per cent. That is a modest reduction. It is highly unimpressive if we recall the large savings by the Exchequer on subsidies to nationalised industries and proceeds from privatisation.

Anyway, what should we say about a situation where approaching half of the nation's annual production is commandeered by politicians? It is certainly a long way from M. Jacques Delors' latest fevered jibe against the Prime Minister that his economy is based upon "an excess of laissez-faire". Yet last month, one of my favourite bishops and a near namesake, the right reverend Prelate the Bishop of Oxford—to whom I addressed a warning, and have his permission to speak in his absence—wrote an astonishing article in The Times. The headline read: Praise be to taxes, the sign of a truly civilised society". He declared: Taxes are a good thing and paying them is a spiritual matter". Even supposing that taxes make bishops feel better, what generalisation can we make about the effect of taxes on the real economy?

My starting point is that, with very few theoretical exceptions set out in the text books, all taxes in varying degrees damage economic welfare. I would, if there were time, challenge anyone to think of a really good tax—let us say, one that yields significant revenue; that positively benefits the economy; that is easy to collect; and that is so acceptable to the victims that they do not try to dodge it or shift the incidence on to someone else.

Lord Richard

Tobacco?

Lord Harris of High Cross

My Lords, I did not want to get drawn into the matter of tobacco as chairman of FOREST. I must tell noble Lords that when a tax is imposed directly to reduce consumption, one consequence may be an increase in smuggling. As noble Lords may know, there is now a big development in smuggling, which hits domestic production and employment and even to some degree, marginally, tax revenue.

In brief, my assertion is that all taxes on incomes inevitably tend to blunt incentives, thereby damaging employment, savings and investment. That is a very moderate statement, a very moderate form of judgment. High income tax inevitably encourages avoidance and evasion, thereby reducing the yield from the tax.

Taxes on low incomes inevitably reduce the gap between net earnings (take-home pay) and social benefits. Therefore inevitably, at the margin at any rate, they encourage voluntary unemployment and the black economy.

The truth is that we cannot know the full tally of the damage which this mountainous ragbag of taxation produces. So taxes on the present scale should not make the right reverend Prelate the Bishop of Oxford feel more spiritual. Indeed, some of us might rather join in Milton Friedman's prayer, which is to thank heavens we do not get all of the government that we are made to pay for.

The right reverend Prelate justified his eulogy of high taxation with the well-worn arguments about the old, the sick and the young, followed by a far-fetched analogy with "the way the early Church looked after the poor". Leaving aside the rather important distinction between coercive taxes and voluntary giving, how much of the £260 billion that was spent last year by party politicians (and much more this year by the way) is remotely concerned with the right reverend Prelate's welfare agenda of poverty? The noble Lord, Lord Skidelsky, gave us some figures to the effect that something like £120 billion of the £260 billion was devoted to entitlements of one kind or another. But the noble Lord acknowledged that that co-exists with a situation which the noble Lord, Lord Bruce, paraded where large numbers of really urgent cases for assistance are neglected and left unsatisfied because we have a preference for—it has been an ideological preference on the Labour side, at any rate until recently—universal rather than selective benefits.

The truth is, despite the words of the noble Lord, Lord Bruce, that this century has seen a transformation in average standards of living. If half their incomes were not confiscated by taxes, most families could pay their own way in welfare, with the added boon of choice in pensions, schools, health care, housing and so on. Instead, we have seen a massive shift of spending power over half the economy away from individual preference to an unholy mixture of criteria.

The original motive was very splendid. It was to help those who could not help themselves. But, if I may say so after watching closely the party-political battle over the past 50 years, since 1945 the dominant motive has increasingly become nothing more elevated than what I now call short-term scavenging for votes to win elections, as was practised most blatantly and disgracefully by the Labour Party in 1974 and by the Tory Party in 1992.

I conclude with a positive proposal. This stealthy collectivisation of incomes would never have been possible without the war-time trick of picking private pockets through pay-as-you-earn taxation. Therefore, to concentrate minds, and also perhaps to concentrate government spending in the long run, I commend strongly to Her Majesty's Government—and even to the reborn Labour Party—a last major act of denationalisation: nothing short of the re-privatisation of incomes. Let us follow the American example of self-assessment and put an end to deduction of earnings at source. If Chancellors had to collect income tax direct from citizens, we could expect a livelier debate on the scale and purposes of state spending and state taxing. One result, I confidently predict, would be a principled pruning of the proper agenda of government action for the 21st century.

8.47 p.m.

Viscount Hood

My Lords, investment has been an ingredient to which almost all speakers have referred. I should like to touch upon a circumstance which affects investment; namely, the capital gains tax.

Before 1962, there was no capital gains tax. There was a tax on dealing short-term, but long-term capital gains were tax free. The capital gains tax was imposed by Selwyn-Lloyd in the 1962 Budget and lasted for the next 20 years, usually at a rate of 30 per cent. The system was then materially changed by my noble friend Lord Lawson in 1982. Here, important changes were made. As many noble Lords will recall, income tax and capital gains tax were joined or equalled, the capital gains tax being superimposed upon income so that, even with a relatively small capital transaction, the 40 per cent. top rate applies.

The March 31st 1982 market price was allowed as an option to cost in calculating the liability for tax. Indexation on retail price index was applied, whether on the March 31st market value or cost; and an annual exemption of £5,800 applies. The problem arises from the fact that the markets of the world have risen a good deal more than indexation. It follows from that that the great mass of investment capital is greatly in excess of the index value.

I take as an example the figures for four companies which would be included in a small or large investment programme: Shell, the Pm, BATs and Unilever. In the case of Shell and the Pm, to sell an investment and invest in new industry or whatever would cost more than a quarter of the value of one's holding. In the case of BATs and Unilever, that figure rises to nearly one third. It follows that there is a hold-up of capital wishing to invest—and we all agree that investment is necessary. One would have to recover the loss of capital of those very large proportions in the tax paid before any benefit could arise on the new investment. The effect is clearly to freeze great masses of capital. I hear continually of investments that are "frozen in". That is a very common term now.

That situation cannot be good. Quite apart from the effect on new investment, it means that in effect great masses of capital are not managed at all. I refer particularly to our very large foreign investment portfolio, where no doubt the capital gains are as great as they would be in the companies that I have mentioned. Surely it would be for the good of this country if they were properly managed. The level of tax, which is high, probably leads to export of capital, tax shelters and such. Those things are legal. They follow the financial need.

I believe that it would be wise to return to something in the nature of what existed before 1962. For instance, there should certainly be a tax on short-term profits, which could be taxed, as they were at that time, as a part of income at whatever rates apply. Beyond a certain date—perhaps five years—the capital gain should be free. I have no doubt that that would release vast amounts of capital. It would lead to better management. I hazard saying that there would be a significant repatriation of funds which are legally held abroad. Apart from any other reason, a tax shelter is very expensive to operate and it would be advantageous to repatriate funds here.

I do not expect my noble friend the Minister to comment on my tax suggestions at this delicate time. I should like to hope that in time the Government will give consideration to those factors.

8.54 p.m.

Lord Monkswell

My Lords, this evening's debate has been fascinating. It is interesting to note that only about three or four of the 20 speakers so far have been supportive of the Government. Even they were critical in some respects. I wonder whether that is because of the remarks which the noble Earl, Lord Ferrers, made at the beginning of the debate, when he described privatisation as a success.

I wonder whether we are entitled to ask: a success for whom? Looking at the privatisation of British Telecom, what happened there? Thousands upon thousands of British Telecom workers have been made redundant. Looking at the privatisation of the water industry, what happened there? The bills for water for everyone in the country have escalated since privatisation. Looking at the privatisation of the electricity industry, what happened there? We have seen the destruction of our coal mining industry. Looking at the privatisation of the gas industry, what do we see there? We see that British Gas are to institute a charging régime which will penalise the poorest domestic users of gas.

Lord Cochrane of Cults

My Lords, perhaps I may ask the noble Lord whether he believes that those reductions in employment have resulted in higher prices and a worse service to the consumers. If he does, perhaps he could explain why.

Lord Monkswell

My Lords, I was endeavouring to identify who had benefited from privatisation and for whom privatisation had been a success. Having gone through a range of aspects of privatisation, I have come to the conclusion that the only element of success that is common throughout the whole privatisation scene is the situation of senior management and boards of directors. The common theme is that, for those people, privatisation has been a personal financial success. All the senior members of those privatised companies have seen their personal pay packets rocket. The latest example is the managing director of British Gas who has received a 75 per cent. pay increase.

Surely we are entitled to know the Government's criterion of success. It would seem to me to be totally at variance with the perception of the British people of the criterion of success. It is interesting that, as I said, out of 18 contributors so far only four have spoken in support of the Government, and three of those had some reservations about government policy. I believe that that is a reflection of the Government's criterion of success.

I was tempted to make those remarks by the opening speech of the noble Earl, Lord Ferrers. In hoping for a positive future for the industrial and economic life of our country, I wonder whether we might take a different view and consider a different way of doing things. Perhaps I may take as my theme that taken by the right honourable Tony Blair in his speech to the Labour Party Conference this year; namely, co-operation. It is interesting to reflect that the British workers who are the best organised are also the best educated and trained. Let me give the examples of the medical profession, the legal profession and teachers. Those British workers are very effectively organised, some in professional associations, some in learned bodies and some in trade unions. But the common element is that they are well organised.

As a result of that organisation and working together they have ensured that they are well educated and trained. Maybe the rest of British industry can learn from that. I would not say that where we allow our workers to organise, but rather that where we encourage them to be organised we see benefit for our economy because such organisation encourages personal and community investment in education and training.

It sometimes annoys me to hear nationalisation being pilloried. One noble Lord in this debate today actually revelled in the fact that, having been a Member of Parliament when the railway industry was first nationalised, he is now seeing its denationalisation. But we tend to forget that in every case of nationalisation a massive transformation has taken place by public investment in those industries, which has been for the benefit of the country as a whole. There have been massive changes in working conditions that were welcomed, agreed and accommodated by trade unions and the workforce generally.

In the railway industry we saw the transformation from steam to diesel electric and now electric. In the coal industry we saw a transformation from where the pick and shovel were the tools of the trade to where sophisticated, intensive mining machinery is employed. We forget that in the process of change the workers in those industries had to be retrained and re-educated. They accepted, welcomed and encouraged that because they saw that it was to their advantage. I hope that before too long those that hold responsible positions in government and in industry will recognise that this country will benefit far more by co-operation than by insisting on conflict, which is debilitating to us all.

9.2 p.m.

Lord Pearson of Rannoch

My Lords, I shall address my brief remarks and questions to two passages in the gracious Speech. The first is that the Government, will seek to ensure that the principle of subsidiarity is applied to European legislation". Secondly, Legislation will be introduced to give force to the changes in the European Community's system of own resources, following the agreement at the Edinburgh European Council". Noble Lords will remember that throughout our debates last year on the Maastricht Treaty, those of us who had read the treaty and who therefore opposed its ratification were constantly assured by the Government that its Article 3b, or the "subsidiarity" clause, was to be our glowing shield against any further loss of our sovereignty to Brussels. Many of us doubted the Government's assurances because, on reading the treaty, we had discovered that some 110 new areas of our national life were to be ceded by it to qualified majority vote in Brussels. In the context of this debate, therefore, we feared that we would be outvoted on directives which would damage our industrial and economic prospects. Indeed, of the 110 new areas to which I referred, most can be said to be potentially damaging to our industrial or economic well being.

I was interested to hear the remarks of my noble friend at the start of the debate and I do not wish to detract from anything he said when I remind him that it is upon the small businesses that red tape and regulation fall most heavily.

During our debate on the Maastricht Treaty we were of course given two further assurances; first, that with the completion of the single market the flood of directives coming our way was about to dry up into a mere trickle, and, secondly, that our opt-out from the social chapter would avoid the more economically damaging directives. Perhaps, therefore, I may take the opportunity to touch base on those issues with my noble friends on the Front Bench by asking a few questions.

To start with, so that we may form an opinion on the value of our opt-out from the social chapter, will my noble friend be so good as to tell us the directives which have been issued or are being considered by Brussels under the heading of health and safety at work and on which we could therefore be outvoted by a qualified majority? I am not suggesting that our opt-out is entirely without value. A number of other directives are being considered under the social chapter out of which we can, in theory, opt. Indeed, my right honourable friend Mr. Portillo has wisely declined to bestow the benefits of the parental leave directive upon us. We also technically opted out of the works councils directive, though many of our international companies who trade in Europe are being dragged into it.

Other choice morsels under the social chapter include directives to reverse the burden of proof in sex discrimination cases, and to interfere in employers' and employees' freedom to negotiate contractual terms for part-time and temporary workers. It remains to be seen whether the next inter-governmental conference in 1996 will allow us to continue to avoid such follies. Let us hope so.

Next, I should inform my noble friend that the flood of directives and regulations from Brussels appears to continue unabated, much of it in pursuit of the single market, which we were told was complete two years ago. For instance, in the three weeks between 1st November and today, 26 draft regulations and decisions and 11 proposals or communications have been deposited in your Lordships' House, which your Lordships' Select Committee does not propose to scrutinise. Assuming that this has been a fairly typical three weeks—and I believe that to be the case—it indicates that there are still annually some 442 draft regulations and decisions and 187 proposals and communications which we do not scrutinise. I admit that some of them are comparatively trivial, but no doubt there are many which we might like to look at if we had the machinery to do so. Of course, we do our best to scrutinise the more important initiatives. Indeed, there are 63 of those with our five sub-committees. If my noble friend or any other noble Lord thinks I am exaggerating, then I respectfully suggest they acquire a copy of our Progress of Scrutiny document from the Printed Paper Office and read it carefully for themselves.

As to how subsidiarity is working, can I ask my noble friend to give any concrete examples of how it has actually borne fruit since we ratified the Maastricht Treaty? I am aware that my right honourable friend the Prime Minister secured agreement at the Corfu Council some six months ago that 25 per cent. of all Community legislation was to be repealed. Can my noble friend say what progress is being made with this excellent initiative? Can he also say whether the Commission and our partners in Europe therefore regard the doctrine of the occupied field, whereby the Community never gives up any powers it has acquired, as dead? So much for my questions on subsidiarity.

There is much that I could say about the proposal to throw yet more millions of pounds down the fraudulent European sink. But, given the lateness of the hour and the delicacy of the matter in the other place, I shall refrain from doing so. Can I, however, ask my noble friend to understand that, for many of us, our deep distrust of the European monster grows considerably deeper when the Government do not even seem to know how many millions of pounds we are being asked to throw away, or when? It is the sort of incident which makes some of us more determined than ever that an objective cost benefit analysis of our membership of the European Union, as it now exists, should be carried out by reputable people before the 1996 intergovernmental conference.

The Government, of course, say that such a cost benefit analysis cannot be done; or so they said in answer to a Written Question from the noble Lord, Lord Stoddart of Swindon, on 10th October this year. On the same day they told me that data on the cost of our compliance with European water directives had not been collected. However, as I mentioned in our debate on fraud against the Community on 31st October, when pressed by your Lordships' Select Committee, the Government reluctantly revealed that we have so far spent some £9,000 million on the two European water directives, most of it, in my view, wasted. I would say to the noble Lord who preceded me, who alas is no longer in his place, that most of the extra cost of water of which he complained is perhaps more properly laid at the door of the European Community than at that, strictly, of Her Majesty's Government.

So can I ask my noble friend whether he really believes that a realistic cost benefit analysis of our membership of the European Union truly cannot be compiled; and if that is his position, why not? Or is it just that the Government would rather not know the answer? I look forward with interest to hearing his reply.

9.10 p.m.

Lord Dahrendorf

My Lords, when the economic news is good, we have reason to be grateful to all who have played a part in making it so. Output is rising, unemployment is falling, inflation is low and stable, so let us be thankful to employees and employers, consumers and producers, the Bank of England and the Government. However, a time of good news is not one to sit back and say that all is well and the market will put right those things that are not.

In Russia, a bitter joke is told these days. Under socialism, people used to say, it took five people to replace a broken light bulb: one to get the new bulb from the store, one to fetch the ladder, one to hold it, one to climb up and actually change bulbs, and one to throw the old bulb into the rubbish. How many people does it take under capitalism? The answer is: none, because the market will do it all by itself. Well, it does not. That is why a time of good economic news is also one to introduce necessary reforms.

There are two issues above all which require action. One is to get people back to work. The gracious Speech mentions several measures to this end, and they are welcome. The workings of the labour market need to be improved and those who seek jobs need to be supported. In this regard a great deal can be done that does not require legislation. I shall mention three points. First, some jobs—perhaps many—will not carry wages which make them attractive to anyone. By themselves, they do not allow a decent standard of living. Subsidising employers does not help. Indeed, it may crowd out better-paid workers. At this point, I for one do not agree with the Snower-Layard proposals. Topping up the incomes of those who accept such employment makes more sense, or there may be an argument for introducing viable basic income guarantees through a negative income tax. The example of the tax credit system introduced by the Mexican Finance Minister, Dr. Pedro Aspe Armella, is worth examining.

Secondly, the quandary of many jobs left undone and at the same time many people—notably young people—looking for meaningful things to do, somehow has to be resolved. One way among others is a form of community service by all—a tax on people's time as it were—rather than on their earnings. We are fortunate in this country in being able to build on a strong voluntary tradition; indeed, public support for an extended voluntary service may well be the right way forward.

Thirdly, the hard core of those who have grown accustomed to living outside the labour market, but not outside the benefit system, poses special problems. I do not believe that these can be resolved by workfare; that is, by making benefits dependent on work. Perhaps the existing underclass problem cannot be resolved at all. It is all the more important to do everything in our power to prevent the recruitment of another generation to a condition of economic and social exclusion. This is where vocational training linked to jobs and thus at least to an initial experience of the labour market, is crucial.

The other issue of reform to which I wish to draw the attention of your Lordships' House may seem less immediate but is, if anything, more important. It is that of investment. Once again the market by itself, strong and beneficent though its invisible hand may be, will not do it. We need a massive shift from the distribution of the profits of our often highly competitive businesses to investment in the medium and long term if wealth is to be more than a bubble; if it is to create well-being rather than the brief excitement of GNP figures.

Shareholders are fine, although they have long ceased to be representative of the public at large. Aunt Agatha, alas, has given way to institutions which represent numerous interests of aunts, uncles and even of my own college, St. Anthony's. There is nothing wrong with these institutions, but their interests must not be the only driving force of investment decisions or their absence. I was very pleased to listen to the eminent maiden speech by the noble Lord, Lord Nickson, on this subject. Stakeholders are as important as shareholders, if not more important.

I have the pleasure of chairing a commission set up by my right honourable friend Mr. Paddy Ashdown which looks at "wealth creation and social cohesion in a free society". Its members include independent experts as well as some associated with parties on this side of your Lordships' House. Our common concern, which actually has little if anything to do with party, is that the shareholder economy has got to be turned into a stakeholder economy. Shareholders are most certainly also stakeholders; they have a legitimate interest in an adequate return. But there are those who cannot sell their stake as shareholders can—employees, suppliers, financial institutions and local communities. The key question is how we create attitudes which encourage investment in the interest of all stakeholders rather than the distribution of yields in the interests of just one group among them. New attitudes need a new institutional framework to support them.

For this is what a fundamental shift in our policy for the British economy should be about: to move from short-term pain or gain to sustained and sustainable wealth, from a shareholder to a stakeholder economy. To bring about the shift, some hard questions will have to be answered. What changes in the domestic practices of justly renowned financial institutions are needed? Is there a general problem of the relations between banks and business or is this an issue concerning the access of small and medium-sized companies to finance? Will the links do the trick? Are current structures of corporate governance adequate? How should company decisions reflect the interest of employees and of the broader community?

It would not be difficult to go on raising such questions, but the main point that I want to offer for consideration is simple. Important reforms take place when conditions are improving. It is a mistake to believe that people accept sustainable changes when they are standing with their backs to the wall. This is therefore a favourable time for changes in basic economic attitudes and policies. The theme of such changes has to be to convert often brilliant, short-term successes of companies, and of the economy generally, into a lasting pattern of wealth creation while at the same time paying attention to the strength of civil society and the commitment to liberty. With many others, I look forward to a future Queen's Speech which states such objectives and spells out some of the means to achieve them.

9.22 p.m.

Lord Cochrane of Cults

My Lords, as 22nd speaker on the fourth day of this debate it is somewhat intimidating for me, not a lawyer, an economist, a large-scale or, indeed, much of a manufacturer, to address your Lordships. I see that it is now 22 minutes past nine, and I shall attempt to be brief. In the gracious Speech many proposals and ideas were listed. It is disappointing, after so many years of successful and vital government by the Conservative Party, on whose Benches I am pleased to sit, to discover that the gracious Speech was described variously as "dull", "unadventurous", or even "worthless".

The noble Lord, Lord Richard, pleased me greatly with his choice of simile when he described the gracious Speech as all blue but sometimes mouldy. I shall attempt in due course to show him that all of it was blue and none of it was mouldy. I hope that I will not take up so much time that your Lordships will feel that I too have made a mouldy speech.

It is always difficult to follow an economist such as the noble Lord, Lord Dahrendorf. I listened with great pleasure to his excellent speech. He is right: we must improve investment and education to prevent the further creation of an underclass—something which, I think, when I was a young boy was always seen as having a ladder out of the slums. In many cases, through faults in the education system, we may have taken out a great many of the rungs in that ladder. That is something which should be addressed as a matter of the greatest importance.

I am glad that the noble Lord thinks that the private sector is an essential part of the fabric of society. He makes the valid point that stakeholders in it cannot always sell their stake, but I hope that under this Government, and in the future, they will not want to do so.

It is difficult to deal in any sense with all the subjects that have been raised. I teased my noble friend on the Front Bench and told him that if he wanted to finish his dinner I could go on for an hour but that I should be a bit pushed, and I hope that I will not have to. My noble friend for many years Lord Ferrers made a speech in which he painted a glowing picture of all the Government's successes and of all the good things which are to come. From my experience over a number of years in industry, agriculture and voluntary organisations, I think—in American terms—that he has delivered a True Bill, assuming that we are the Grand Jury, which I am sure we are.

My noble friend said that the Government must not interfere too much. They have created a privatisation revolution that has spread throughout much of the developed and less-developed world. For that our former and present Prime Ministers can take great credit. They have done a tremendous job.

Noble Lords may remember that I introduced the Bill with perhaps the most boring title for many years. I am glad to say that it is now an Act and that there is to be further gas market competition based on that Act and on the Bill soon to be presented.

My noble friend also said that deregulation is helpful particularly to small businesses because they do not have the management power to wrestle with the intricacies of complicated and sometimes seemingly absurd rules. He described them correctly—I know because I am a small businessman—as the engine room of the future.

I entirely agree with his remarks about the clearing banks attracting a great deal of suspicion. On one occasion, my bank manager telephoned me and said that he would like a further guarantee. I said, "I am terribly sorry. I have the most frightful attack of flu and I cannot give you a guarantee in the terms that you want without a board meeting". He asked sharply, "When is that?", and I said, "I haven't fixed a date yet. Who knows, I might die of flu before you have it!". The subject was dropped. One must be tough and in doing so one gains experience.

That is where the idea of Business Links, announced by my noble friend, can be most valuable. It will advise those who are setting up in business which card they can reasonably play against the opposition, whether it he local government, the planning department, the bank or anyone else. It may even be some environmental busybody. It is good to know that we have an outstanding record for exports and growth. It is the best in the EC.

Your Lordships will be pleased to know that, following the announcement about Railtrack, I have dumped a whole section of my speech dealing with the problems facing the railways. I am hoping for better times there, and I am sure that they are coming.

My noble friend remarked that the computer had the same effect on industry, and so forth, as did the arrival of the steam engine. Let us not forget that the steam engine supplanted the horse, wind and water power—or just not doing it at all.

I turn to communications. Perhaps by some ill fortune I and other noble Lords may at any moment be on the television screens in perhaps a couple of hundred houses and therefore we know the speed of communication. Indeed, the world has shrunk.

I wish to comment on the marvellous maiden speech of my noble friend Lord Nickson. I agree that manufacturing is important and that Britain should not become the service area for the motorways of the world. I am sure that he will agree that valuable services can be supplied for the public and for their good. I intend to touch on one of those services. Some of your Lordships will know that for many years I have been engaged in the tourist industry. I must declare an interest in that a family company of which I have had the honour to be chairman for many years is engaged in the provision of holidays and holiday accommodation.

The tourism industry is probably the largest in the world. It employs an immense number of people, is very labour intensive and therefore should be welcomed as a valuable addition to the labour market. It also has a great advantage in that, unlike many industries, it provides happiness and enjoyment. That is what it is there for. If customers are not happy they do not come. The industry is extensive and covers all the civilised world. I understand that one can go on a package tour to the Antarctic, though I have not yet felt the urge to do so. However, it is also an industry subject to rapid change of fashion or interest and that causes considerable problems in the provision of capital.

In this country for many, many years we were net importers of tourism. That has now changed and we are paying out more from our balance of payments for people to go to the Costa this, that or the other, than comes in from people who wish to go to splendid resorts such as the place where I live, St. Andrews, or to London, Stratford, York or Aberystwyth. With long distance travel by air, that tendency will continue. The Channel Tunnel, which has just opened, makes cross-Channel trips even more attractive, particularly as you can apparently fill a transit van with beer provided you say that you are going to drink it yourself.

The UK is a wonderful country. We have had stable government for many years. We have many historic ruins. The country is compact. It is not very far to travel from anywhere to anywhere unless you are on the M.25. It is orderly, you are not particularly likely to be mugged, murdered or poisoned. Our tourist industry makes a great effort to present what is available in a good style.

It is perhaps as well to remember that in less developed countries if extremists want to overthrow the government, the first thing they do is start to shoot the tourists. I read today in The Times that Egypt has decided to increase its budget to encourage foreign tourists by no less than 14 times—not twice, or four times, but 14 times. I have a particular interest in that country because my mother is buried in Cairo and I have always wanted to go there, but have never had the opportunity.

We must attract more tourists. They can be either indigenous or foreign. I believe that the Government are slightly mistaken in attempting to promote almost exclusively the idea of attracting tourists from foreign countries, preferably the high spending Japanese, Americans or South Americans. Who knows? But it is typical of the EC that something like 80 per cent. of all tourists within the EC visit only their own countries. That percentage has been slowly declining in this country due to the attractions of foreign package holidays.

I am sorry to say to my noble friend that that is partly due to the fact that the Government neglect the home market in allocating expenditure; that is, money to be spent by the tourist boards.

Another extremely important factor is that in this country VAT is payable at the rate of 17.5 per cent. on almost any holiday which you chose to take. If you go abroad for a comparable holiday with no travel included—if you rent the premises; for example, a gite in France—the rate is 5.5 or 6 per cent.; that is, one third. In this country we are charging a VAT rate which is three times higher. We must remember that the individual is the ultimate payer of VAT. Businesses can usually reclaim it.

Another factor is that the calculation of VAT on package tours, according to information which I have from an extremely trustworthy and good source, is charged, in effect, only on the profit element of overheads. Overheads can usually be reckoned to be one-third. One reads in the newspapers about major package tour companies making a pound, thirty bob or, on a good day, two quid on each individual holiday. Well, 17.5 per cent. of two quid is 35p. If someone comes to my caravan park—and I tend to charge them about 11 quid a night for a touring caravan—I am sure that anyone can work out 17.5 per cent. of 11 quid. I shall not attempt to do so at this hour of the night, but I should point out that it is a great deal more than 35 pence.

Again, my noble friend spoke in impassioned or, perhaps I should say, eloquent terms, of the importance of a level playing field. But the effect of the high-rated VAT is to impose the equivalent of a very large tariff or barrier to trade on the indigenous holiday industry. If we want to improve employment and investment prospects in that industry, in which I have been happy to work for many years, then, in accordance with my noble friend's announced policy, I hope that he will see his way to levelling the playing field—or, perhaps, in order to avoid the cliche, I should say ensuring that everyone plays fair.

9.35 p.m.

Lord Ezra

My Lords, we are coming to the end of this impressive debate. We have had a wide range of views expressed about many aspects of the economy, exemplified, for example, by the speech just made by the noble Lord, Lord Cochrane of Cults, on tourism. We have also had very thoughtful contributions from two maiden speakers and a number of other noble Lords. I should like to add to that list the speech recently delivered by my noble friend Lord Dahrendorf. I hope that the Government will derive a measure of benefit from all that has been said. I hope that it will not simply lie in Hansard but will be carefully dissected and circulated among Ministers so that many of the ideas proposed today can eventually be incorporated in government policy.

We are in a recovery situation following on a serious downturn. Of the many themes that were developed today, perhaps the main theme was: is this just another cyclical improvement to be followed in due course by a further sharp recession? I believe that many of the comments were addressed to that fundamental issue. I became a little perturbed when, in his introductory speech, the noble Earl, Lord Ferrers, told us that our economy was moving ahead faster than any other European country. I recall the noble Lord, Lord Young of Graffham, saying that, in almost the same words, in the late 1980s. But, within a year or so, the economy had overheated, corrective action was taken and we were in recession. Let us hope that that will not happen this time. I do not believe that we ought to take any chances in that respect.

Obviously we cannot avoid being involved in trade cycles. They affect all countries as we become much more global. What I think was most interesting and constructive today was the number of noble Lords who talked in their speeches about ways in which the cycles can be flattened. The fact is that the recession from which we have recently emerged was probably the sharpest that we have had since the war. Therefore, it is eminently desirable that, the next time we become involved in a global downturn—and, as I said, we cannot avoid being involved to some degree—we do not suffer to the same extent.

Much has been made of the Government's action on inflation. There is not the slightest doubt that that has so far proved to be successful. I, for one, am very pleased, although I know that this view is not generally shared by some others, that that has been achieved by close co-operation with the Bank of England, which is now playing a major role in partnership with the Government in achieving that result.

However, the real test of containing inflation will come when inflation starts rising elsewhere, because for the moment, as was rightly pointed out, our European partners are all keeping inflation reasonably under control. In fact, the example of France was given, where they have now achieved an inflation rate of 1.6 per cent. So the test will come when this changes. Will we be able to hold our inflation at low levels when it is creeping up elsewhere? We have much to do to prepare for that possible eventuality.

Of course dealing with inflation is just one side of the coin. If we want to have non-inflationary growth, something else has to be done to stimulate the growth. We can have, for example, a very low inflationary situation and have no growth at all and suffer in consequence. Therefore, containing inflation cannot be an end in itself; it must be a means, in combination with other measures, to achieve the required objective.

Many have referred to investment. We have been given varied statistics to show that investment has been falling, or investment has been increasing, or investment has not been changing very much. What I think most people agree on is that the long-term trend of investment in this country has compared unfavourably with most of our major competitors. It compares very unfavourably indeed with the emerging Far Eastern countries, whose rate of investment over the past two decades has been nearly double ours, and their rates of growth correspondingly large. Therefore it seems clear that the stimulus of investment is something to which we must attach as much importance as we do to the containment of inflation.

An illustration of the problems we have as a result of lack of sufficient investment in the past is that there is evidence that a number of firms in certain sectors are reaching capacity limits. Again there is much argument about this. However, the result of past cuts in capacity and present increases in demand have nonetheless created certain difficult areas. A survey carried out by Trade Indemnity, the credit management group, which was reported in the Financial Times on 22nd November—so it is very recent—showed that 42 per cent. of the firms in the sample taken in the third quarter were operating near optimum capacity and 7 per cent. said they were already overstretched.

We are, I believe, at a fairly early stage of recovery. These recovery cycles last, fortunately, a number of years. If we are already touching capacity in certain sectors and in the number of firms that I have indicated—if the sample is a valid one—this is a matter for grave concern. We are, as has rightly been pointed out, doing much better on our trade balance. That is excellent but, if we start running out of capacity and if we cannot produce the goods that the increased demand requires, that positive situation will soon turn the other way.

Of course, as we know, the lack of investment is not only in the industrial sector but is also in the built infrastructure in the public sector. I should like to give two examples of ways in which I think that investment in the infrastructure in the public sector has not been handled as effectively as it should have been. There could well be many other examples. I choose the example of the London Underground on which I have recently been corresponding with the noble Viscount, Lord Goschen. The London Underground some time ago put forward a plan relating to its core activity—not to any new lines—which requires some £700 million of investment per annum. The Government accepted that plan and in the expenditure estimates in 1991 said they would go ahead with it. The Underground generates about £150 million out of its own operations and therefore the plan required a grant of £550 million if it was to succeed. In the first year that was more or less achieved. Subsequently, I regret to say, there have been progressive cuts until at present the grant has been reduced to £350 million.

As a result the Underground system will continue to suffer from failures of track, signals and earthworks. Indeed, at the station which I use, which happens to be Sloane Square, there is a girder which has not been seen to for the past century or so which is in danger of collapse. If that happens, the whole of that line will be put out of action. Leaving such dire possibilities aside, there are frequent speed restrictions to avoid danger. With another £200 million, the situation could be put right. London Underground, which is doing a remarkably good job in my opinion, could do very much better and we could be served more effectively by that vital service.

Another area to which I should like to draw attention is the Post Office. The Government have decided, because of differences of opinion within their own ranks, that they will not go ahead with privatisation, which was their preferred option. In the consultative document which they issued, they indicated that one other option was to relax the financial controls if the Post Office was to remain in the public sector. We ought to be told whether the Government will pursue that option or will leave the Post Office under its present constraints, which make it impossible for it to compete elsewhere.

One aspect of those constraints is the operation of the external financing limits. The Post Office recently made a profit of £280 million, but under the external financing limits it had to pay £220 million back to the Treasury. That is equivalent to a tax on profit of 80 per cent. The rest of us who run companies have to pay between 25 and 30 per cent. Why cannot the same rule apply to the Post Office?

Those are areas of investment in the public sector which raise questions as to whether the right judgments are being applied. As has repeatedly been said in the debate, it is not the quantity of investment that matters but its quality. Is the right quality of investment being applied within the public sector? We are justified in asking that question.

The private sector also needs to be stimulated. The two sectors have been brought together by the private finance initiative, an initiative which I applaud. It is a very desirable one. I believe that it is in line with Labour Party thinking, and certainly it is in line with the thinking on these Benches. However, we have to make sure that it works effectively. The noble Lord, Lord Eden, gave a good illustration of its operation.

I too have been involved in that area. I am concerned with a company which saves energy consumption, installing new boiler plant. We are at the smaller end of the investment programme, but I regret to say that we have found that it takes a very long time to negotiate deals. There is a vast amount of administrative procedure to be gone through. There is also the issue of risk sharing. It seems to us from one or two examples that we are being asked to take the bulk of the risk and we receive very little increased benefit as a result of doing so. Therefore, while it is desirable, the scheme needs to be looked at again. I was heartened by the fact that in a recent speech the Chancellor said that he was determined that it should be developed further.

I believe that there is also a need for direct incentives for investment in the private sector. Much has been made of the need to stimulate small firms. The CBI and the Engineering Employers' Federation have come out with a modest proposal, which has been put to the Chancellor and which I hope he will accept, that the first £200,000 of investment in plant and machinery should gain a 100 per cent. allowance against tax. Clearly, that would be mainly of interest to small firms.

The other form of investment which has been referred to repeatedly today is investment in people. We had the remarkable maiden speech of the noble Lord, Lord Gladwin of Clee, who has so much experience in that area. There is a real problem about our lack of investment in skills. In a recent initiative taken in the construction industry, Sir Clifford Chetwood, a leading member of that industry and formerly chairman of Wimpey's, said that in the UK there was virtually no formal qualification for at least half the workers in the construction industry. In Germany they all have qualifications. It is a major indictment of our lack of interest in providing sufficient instruction in skills. I am told by certain builders that they are already short of bricklayers even though the construction industry has not swept into major recovery. At great expense they are having to bus bricklayers from one site to another—and that is at a time when we have two and a half million people unemployed. That is a matter for serious reflection.

In conclusion, we have had a most important debate today at a crucial time. As my noble friend Lord Dahrendorf rightly said, the time to introduce major structural change in the economy is when the economy is beginning to go right. Making major structural changes when matters are in disarray and in difficulty is almost impossible. There would be enormous resistance.

This has been a timely debate. Many positive suggestions have been made. I very much hope that, in summing up, the noble Viscount the Lord Privy Seal will tell us that the Government can accept many of the propositions put forward.

9.52 p.m.

Lord Richard

My Lords, this is an opportunity, I suppose, to discuss the debate that we have had today, and to say something on the debates on the Queen's Speech as a whole.

Perhaps I may start by saying one or two things about the debate today. In many ways it has been an interesting and fascinating debate for those of us who have sat through a fair part of it. In that context, we are grateful to the noble Lord, Lord Pearson of Rannoch, who dropped in and listened in the course of the day, and made his speech. He had been spotted a little earlier sitting on the steps of the Throne. However, we are glad to know that in the four hours' interval between his being spotted and actually making his speech, he was obviously in rude and good health.

Lord Pearson of Rannoch

My Lords, perhaps the noble Lord would like some explanation. I apologise to the House that I did have to leave during my noble friend's introductory remarks to go to the Select Committee on European Communities, where I felt I should be present, at least for the first item on the agenda. There then also was a meeting in the Moses Room which many of us were encouraged to go to. I do apologise that I was absent for some of the rest of the debate.

Noble Lords

No, no!

Lord Pearson of Rannoch

My Lords, I thought I was being criticised. If I am not being criticised, I have nothing more to say.

Lord Richard

My Lords, this is not the kind of point that I would usually make a great deal of; and I do not. However, I am bound to say to the noble Lord that a situation in which he appears for five minutes sitting on the steps of the Throne at the very beginning of the speech, and then disappears—

Lord Pearson of Rannoch

My Lords, this is not true.

Noble Lords

Order!

Lord Richard

My Lords, the noble Lord then breezes back in and makes a speech—a fairly predictable one, if I may say so. I do not believe, with respect, that that is in accordance with the best traditions of the House. He has choices the same as the rest of us. Quite clearly he should not have come in and made the speech that he did.

Perhaps I may say one or two things about some other speakers in the debate. I am glad that the noble Lord, Lord Harris of High Cross, is present. I always enjoy listening to the noble Lord. He reinforces my tendency to sit on this side of the House as opposed to the noble Lord's side of the House. After two minutes of listening to the noble Lord, Lord Harris, I know where my loyalties and affections are and indeed should be.

We had an interesting duo. The noble Lord, Lord Harris of High Cross, wanted to abolish PAYE. The noble Viscount, Lord Hood, wanted to abolish capital gains tax. Both speeches were notable contributions to our debate.

The noble Baroness, Lady O'Cathain, blamed it all on economists. It was interesting because I looked up the noble Baroness's history in that terrible book that we have in front of us called Dod. I shall not embarrass her by reading it out but there is a long string of companies to which she was attached as a qualified economist. I have often heard of people repenting of their past misdeeds, but it is somewhat rare to have a renunciation quite so comprehensive and all-embracing as that of the noble Baroness, Lady O'Cathain.

The most notable features of today's debate were the two maiden speeches: first, the noble Lord, Lord Nickson, and then my noble friend Lord Gladwin. Interposed between those two speeches was that of the noble Lord, Lord Kingsdown. Listening to the three, what struck me was the amount of agreement between the industrialist, the trade unionist and the central banker on the analysis of the situation, particularly regarding the labour market and the nature of work. I should like to say a word on that in a moment.

Secondly, to a fair extent at any rate there was agreement as to what might be done about it. Both maiden speeches were remarkable, in the real sense of the word. They were memorable. I do not wish to embarrass the noble Lord, Lord Nickson, but after he sat down my noble friend Lord Eatwell turned to me and said: "I agreed with almost all of that. Why is he on that side of the House?" I shall not ask him to answer that, but his was a speech made from deep experience and I greatly enjoyed it. I hope he will make similar speeches often in the future and that we shall be able to agree with them just as much. My noble friend Lord Gladwin spoke from massive experience of the trade union movement and industry.

I thought it was interesting that the noble Lord, Lord Nickson, my noble friend Lord Gladwin and the noble Lord, Lord Kingsdown, clearly agreed that the nature of work has changed. The one thing that people can no longer expect to do is obtain a qualification at the age of 20 or 21 and then pursue the field in which they have qualified for perhaps 40 years until they retire full of honours and with a gold watch. It will not happen in the future and I think everyone agrees about that.

We must have a workforce now which is adaptable, flexible and capable of changing. It may well be that people will do two, three or perhaps more jobs in the course of their working life. Therefore, the type of education they receive in their early years must be such that it is capable of being adapted to various occupations as they come along. That was one of the main points that emerged from the speeches to which I have just referred.

One of the other themes in the debate today was investment. The noble Lord, Lord Skidelsky, made quite optimistic noises about the level of investment regarding the recent past. I think it is worth giving the figures which I have in front of me to the House. Investment is still 8 per cent. below the level before the recession. If one looks at investment as a percentage of GDP between 1980 and 1990—the whole decade during which the Government were in office—we find that it is the worst record of any country in the G7. That is the legacy we have. If noble Lords would like the figures, I can give them. The United States and the United Kingdom come sixth and seventh on the list with an investment as a percentage of GDP of 17.6. The United States achieved a growth rate of 2.2 per cent. and the United Kingdom unfortunately only achieved a growth rate of 1.7 per cent. That is the background against which a large part of the economic debate now has to take place. I shall have certain political points to make in a moment, but leaving those aside for this part of what I have to say, however one looks at it certain things must be done. First, the manufacturing base of the country must be restored, one way or another. Secondly, our workforce must be better trained, better equipped to deal with the new conditions we shall have to meet. The country lacks social cohesion at the moment. The cracks are beginning to appear and deepen. It is no good the Government coming along and saying, "Oh well, the way in which we deal with that is to cut public expenditure". The fact is that for many people in this country society is now less fair, more difficult and poorer. They now have a poorer life and standard of living than they had when this Government came to power in 1979. You have to deal with that. You cannot just push it to one side and pretend that if we get the investment and the training right, there will be some sort of "trickle down" effect and everybody will be happy thereafter. That is not going to happen. Positive steps have to be taken by the Government to try to deal with the unfairnesses that exist.

We have now nearly reached the end of our debate on the gracious Speech as a whole. We have heard views from all sides of the House on the nature of the Government's legislative programme in the Session ahead. Much has been said; there are in this House many experts in many fields, and we have benefited from their expertise. But these matters—jobs; safety on the streets and in people's homes; the opportunity that their children have; the time that they have to wait for a hospital appointment—touch ordinary people very closely indeed.

The point that struck me most when listening to government spokesmen in this debate is the quite extraordinary gap that must exist, if they are right, between what they say is happening and how it is perceived by the rest of the populace. Indeed, today we have been told on a number of occasions how well the country is doing and how prosperous we are all becoming. The old dichotomy between reality on the one hand and perception on the other is here, and in a somewhat extreme form.

It is perhaps time that the voice of the people who are most affected by government policy was heard. What story would middle-income people—perhaps those who have in the past supported this Government—tell now if we asked them their views on the state of the nation? They would surely identify a feeling of powerlessness; of insecurity about jobs and housing; about the health service; business; family values; and crime. They would surely say—would they not?—that there is no vision of where the Government are heading. What would they say about the recent news of a 75 per cent. pay-rise for the chairman of a privatised utility, while at the same time the London division of the National Association of Citizens Advice Bureaux—I put this at the other side of the balance because it seems to me to be important—finds that wages have now fallen as low as £1 an hour in some catering jobs since the abolition of the Wages Council? What on earth are ordinary people in this country to make of that? I wonder what the reaction would be. With respect, it is no answer to say that world-class companies like British Gas operate in the global market place and have to pay accordingly (whatever "accordingly" may be). The basic boardroom increase in salary in the UK is 7.4 per cent., not 75 per cent. Most people have to content themselves with increases at the rate of inflation or less. That 7.4 per cent. in the boardroom of British companies is in itself ahead of foreign-owned enterprises, where the figure is 5.2 per cent. The going rate of increase for British directors is twice that of their foreign counterparts when extras such as stock bonuses are included. What is important about that increase for the chairman and chief executive of British Gas is that we have not heard one word of condemnation of it from the Government. Their spokesmen come along in the Queen's Speech debate and elsewhere and tell us how well we are all doing, and how much fairer and better society is becoming. I have not heard a word of condemnation. With great respect, I should have thought that that is something that the noble Viscount the Leader of the House could do when he responds to this debate as a whole.

If we asked a group of ordinary people what they thought of all this, might they not feel that, although in the 1980s the Conservatives seemed perhaps to promote a classless society of opportunity, the reality now is that the rich are getting richer on the backs of the rest of us, who are getting poorer. I should have thought that that would be a fairly common reaction.

Surely there is some hope for the Government—is there? —on the issues that they have made their own. What about privatisation? It is supposed to place power over public utilities in the hands of the person in the street. What do we hear about that? The fact is that privatisation has not been popular. Small businesses in particular feel let down. Again, is that perhaps due to a perception of unfairness? Perhaps it has something to do with increases in disconnections from essential services, soaring water rates or the enrichment of managers who claim higher salaries, bonuses and stock options while thousands of people have lost their jobs. State monopolies, whose motivation was to provide at least a public service or to try to do so, have now been turned into private monopolies. Ordinary people and small businesses have not shared in that privatisation lottery prize.

One could go on. Noble Lords will have realised that the quotes I have been giving are not mine. They come from the vice-chairman of the Conservative Party in the document that was published last Monday. Let me give one more so that noble Lords can get the full flavour of the analysis made by the vice-chairman of the Conservative Party of where the party opposite now stands: Very few people think we are out of recession. While the Conservatives trumpet the recovery, the voters do not think the recession has ended. They still fear unemployment. They have no more money in their pockets because of tax increases. Real take-home pay is falling this year and will fall again in 1995–96. We will have had four or even five years of recovery with no rise in living standards. People feel that employees now have little or no protection against employers and that they need more". The truth is that this is a Government which has run out of ideas. Even those who supported them in the past recognise their failure and the poverty of their attempts to cover it up. But perhaps we should allow Mr. Maples and his ordinary voters to have the final word. He said: What the Conservatives are saying is at odds with voters' experience which leads them to conclude that the Conservatives are out of touch, lying or that they do not care". That seems to me to sum it up pretty well.

10.7 p.m.

Viscount Cranborne

My Lords, this has been a most interesting debate. Before I come to some of the specific questions raised, I should like to offer my congratulations to two particularly notable maiden speakers. I know that sometimes such compliments take on a rather ritual flavour. All noble Lords who listened to the contributions of my noble friend Lord Nickson and the noble Lord, Lord Gladwin of Clee, will agree that ritual plaudits of the kind that are sometimes delivered in the wake of maiden speeches are wholly inappropriate. In the short time that I have spent in your Lordships' House, I have seldom heard two maiden speeches delivered with such authority which have added so much to the quality of our debate. I know that I speak for the whole House when I say that we greatly look forward to the contributions of both noble Lords during the course of the months and years to come.

I shall try to pick up a number of points made in a long debate. However, I hope that noble Lords, and in particular my noble friend Lord Pearson of Rannoch, will forgive me if, because of the lateness of the hour, some of the points made are answered by letter rather than during the course of these remarks. I say to my noble friend Lord Boyd-Carpenter and to the noble Lord, Lord Bruce of Donington, that VAT rates are clearly matters for my right honourable friend. Despite the remarks of the noble Lord, Lord Jenkins of Hillhead, I can only point out to both noble Lords that they will not have very long to wait before they find out what my right honourable friend will deliver for us in that respect.

My noble friend Lord Ferrers set out in his opening remarks the remarkably favourable economic situation in which the country now finds itself. I am sorry that the noble Lord, Lord Richard, could not bring himself even to give one small acknowledgement of the justice of what my noble friend said. I do not intend to repeat his remarks. It is far too late and he said it better than I could. However, I feel that it is important to stress that the Government's object is to promote sustained economic growth with lower inflation. I noted particularly the remarks of the noble Lord, Lord Kingsdown, when he spoke with such authority on the matter, as well as the words of the noble Baroness, Lady O'Cathain.

This is a prerequisite for the achievement of higher living standards for the British people. It is also a prerequisite for looking after those who need help and for enabling the Government to finance their other expenditure. With the greatest respect to the Opposition—and with the honourable exception, if I may say so, of the noble Lord, Lord Haskel, but, sadly again, not with the honourable exception of the noble Lord, Lord Richard—I sometimes feel that the Labour Party's rhetoric suggests that there is no connection between the two; that hospitals, schools, teachers and training can be magicked into existence without creating the wealth to pay for them. I particularly listened to the remarks of my noble friend Lord Nickson on that subject.

Today, the first of those objectives is well within our grasp. My noble friend Lord Tugendhat made that perfectly clear. The economy is growing; it has been growing for two-and-a-half years and output has risen to a record high —over 4 per cent.—in the past 12 months. This recovery has not been financed by a housing boom and consumer credit. What we are now seeing is something different. Although consumer spending has been rising, this is a recovery increasingly based on low inflation and led by exports, as many noble Lords remarked—up by 12 per cent. in volume in the past 12 months. I was delighted again, particularly in view of the remarks made later by the noble Lord, Lord Richard, to see that my noble friend Lord Nickson pointed out that 70 per cent. of those exports come from the manufacturing sector.

We have entered that virtuous circle the key to which has eluded governments of all complexions since the war. We see evidence in many places and perhaps, above all, in falling unemployment—455,000 below its peak. However, as many noble Lords remarked, that is far too high. Nevertheless, the remarkable record on strikes and a much improved balance of payments will begin to make a further impact on what we have begun to achieve.

In short, for the first time it looks as though we have a chance of breaking out of the boom and bust cycle of the past four decades. I listened with particular care to the remarks of the noble Lord, Lord Ezra, and a number of other noble Lords who referred to the difficulty of that particular phenomenon. I deliberately put this cautiously. I believe that the noble Lord, Lord Ezra, is right. It could so easily be blown away in an inflationary spiral. That was reason enough for my right honourable friend to raise interest rates by 0.5 per cent. when he did, as so rightly noted by my noble friend Lord Tugendhat.

It is the habit of politicians, particularly when in office, to claim credit for things that go right. Some even try and blame others when things go wrong. For instance, I seem to remember many years ago in my youth the rather insultingly named "gnomes of Zurich" coming in for a good lot of stick in that respect. Perhaps rather surprisingly therefore, I am not this evening going to try to take all the credit for this encouraging state of affairs on behalf of Her Majesty's Government—but I am going to take a good deal, and rightly so, as my noble friend Lord Boyd-Carpenter kindly acknowledged. After all, we are witnessing a world-wide recovery and a substantial expansion in world trade, which has undoubtedly helped to boost our exports. Nevertheless, underlying export volumes to the European Union have risen by 17 per cent. in the past 12 months, as the noble Lord, Lord Dahrendorf, pointed out, although the market has only grown by 5 per cent. That is perhaps the difference between 1994 and the situation the noble Lord, Lord Jenkins of Hillhead, left to my noble friend Lord Barber at the Treasury following what, by any standards if I may say so, was a most distinguished tenure, even though it may have proved a contributory factor to his party losing the election in 1970.

However, without this Government's reforms and determination to control inflation and public spending, we would never have been able to take advantage of the opportunities on offer. How right again was my noble friend Lord Tugendhat to draw attention to that. After all, the world economy has boomed more than once since 1945. The United Kingdom has benefited, it is true, from good times like that, but until now it has always lagged behind its main competitors. It is only fair to ask what has changed. It is equally fair to say—I say this to the noble Lord, Lord Haskel—that we are now in a position to compete strongly again in the cut-throat markets of the world. I was very pleased to hear the word "competition" on the noble Lord's lips, particularly from someone of his extraordinary technical knowledge on these matters.

We are entitled to ask why this has arisen. What has changed? The answer, to any dispassionate observer, is clear. There has been a sustained programme of reform by governments led by my noble friend Lady Thatcher and by my right honourable friend the Prime Minister. As my noble friend Lord Ferrers pointed out, all kinds of things can be attributed to these initiatives. The deregulation initiative is beginning to bear fruit. Nearly 900 regulations are already earmarked for repeal or reform. Indeed, at the very time that the noble Lord, Lord Haskel, was speaking on deregulation and allied matters, the deregulation procedure Motion was being debated in another place. We have denationalised swathes of British industry, we have transformed the country's strike record, and we have the lowest non-wage labour costs of any of the major countries in the European Union. In spite of what noble Lords have said, that is indeed an incentive for people to come and invest here. I shall have a word to say about investment in a moment.

We have secured in that respect an opt-out from restrictive social measures which will help to preserve the United Kingdom's flexible employment condition. We have reformed our education and training to improve the quality of our workforce. As the noble Lord, Lord Richard, said, the nature of work has changed. So perhaps education and training are as important as anything we have had to discuss today. The noble Lord and I can at least agree on that. However, I think he was less than fair to the Government. We have, after all, given a high priority to education and training. As he himself said, and as other noble Lords have pointed out, education does not stop when one leaves school. The noble Lords, Lord Ezra and Lord Gladwin, drew our attention to that very fact. We are extremely keen to encourage life-time learning and training among the workforce. The responsibility is shared by industry, and rightly so, for industry must involve itself in education. Employers must have the opportunity to influence the curriculum. That is why we have worked so hard to foster education and business links.

I do not want to weary the House for too long at this late hour, but we are beginning to see results. For instance, some 73 per cent. of 16 year-olds are opting to stay in full-time education. It is not nearly enough. The great majority of the rest, nevertheless, are opting to continue with part-time education or training courses. There are now more than 80 TECs in the country and 15 city technology colleges. We are promoting co-operation between colleges of further education and TECs, with a new £300 million package set out in the competitiveness White Paper, which will help provide both the young and adults with the skills that they need.

There has been a great deal of bandying of figures about skill shortages and about investment. I could produce a set of figures which would tend to contradict many of the figures produced by the noble Lord, Lord Richard. I would only do so if he insisted that I should. I would merely say that, on skill shortages, the latest CBI survey reported that they are a far more minor constraint on output than they were at a similar stage in the last recovery from recession. Only 10 per cent. of manufacturers cited it as a constraint. I would merely point out that in a similar survey, conducted in April 1978, the figure was as high as 20 per cent.

I cannot let the question of investment go by without referring to the remarks made by my noble friend Lord Eden in a remarkable and detailed speech about public and private investment projects. I wholly agree with my noble friend's support for the greater partnership between the public and private sectors. Since the launch of the private finance initiative in November 1992, I can confirm to him that £500 million will have been invested by the end of the current financial year across projects in fields ranging from health to transport to information technology. Private finance is set to become the main source of growth in investment projects in the public sector. I was delighted to hear that there was support for this initiative from all sides of the House this evening.

I have tried to correct a little some of the knocking copy which we have heard from noble Lords in parts of the House this evening. But I would like to underline that, unless these things had happened and unless my noble friend Lady Thatcher, the Prime Minister and their governments had acted as they did, the genius of the British people would have continued to languish as it has done for most of the past four decades, stifled by bureaucracy, drift and discord.

Of course the noble Lords, Lord Barnett and Lord Dahrendorf, were right. There is still much to be done. As somebody observed this evening, productivity is still far too low compared to that of many of our competitors, although I have to observe that it is beginning to improve fast. The measures which were announced in the gracious Speech will, I suspect, make a substantial contribution to the continuing process of reform both on the supply side of the economy and in the social security system. The gracious Speech included the gas competition Bill and that is a good example of a measure which will bring competition to the whole of the gas market.

I cannot help asking myself how these changes have been brought about. In particular, the noble Lord, Lord Eatwell, talked of discredited policies. I seem to remember that at one time he was a distinguished co-editor of a volume known as Palgrave's Dictionary of Economics. I do not know whether the noble Lord can confirm that. It was interesting when a noble kinsman of mine whom I believe to have been partly responsible for publishing that particular volume, described the noble Lord's product as "the last gasp of neo-Marxism". I therefore could not help wondering whether the charges of inconsistency coming from the noble Lord in his opening speech were not in the category of "It takes one to know one".

When our reforms were introduced, were they introduced to universal acclaim from the Opposition, at least in principle, with the political argument being confined to the ways and means? Not a bit of it. The Opposition denounced every single government measure that has contributed to the transformation of our prospects; any measure of any importance as described by my noble friend Lord Ferrers or myself. There was deregulation, denationalisation, industrial relations legislation, education reforms, our opt-out from the Social Chapter, our war against high taxation—a war, as I am sure the noble Lord, Lord Richard, would like to point out as I say it, that is still to be won—our battle against high government spending and even joining the European Community. As we have heard during questions following today's Statement on Railtrack, they are still at it. They are the Bourbons of the nationalised industries. I shall have to send them a white cockade because, like the Bourbons, they have clearly neither forgotten anything nor learnt anything. It will no doubt make a nice change substituting that for the red one which they have worn until now.

All these things and many more the Labour Party has opposed root and branch. In the light of all that, I believe that the call of the noble Lord, Lord Eatwell, for a stable, long-term policy seems all the more remarkable. Indeed, consistency is not always a strong point with the Labour Party. It is not always as strong a point as it clearly is over Railtrack. In some areas they are beginning to see their errors. There was yet another U-turn—on school league tables—this week, which I was happy to see, as indeed were all my noble friends.

I was pleased, as I said, that the noble Lord, Lord Haskel, saw fit to praise the virtues of competition—the bedrock, as my noble friend Lord Ferrers pointed out, of much of our own policy. I heard, despite the attack of the noble Lord, Lord Richard, no promises to renationalise. There were no promises to leave the Community. On Europe, the Opposition have changed their views to such a degree that they want, with the honourable exception of the noble Lord, Lord Bruce of Donington, to sign up to all the things that have ensured that Europe created only 6 million jobs between 1970 and 1992, whereas, over the same period, as the noble Lord, Lord Kingsdown, pointed out, 40 million were created in the USA.

That is the kind of vacillation that will not deliver the economic performance that this country needs. It is the sustained long distance running which has delivered the reforms of the past 15 years, and which will continue to do so in a world that is changing and one where flexibility and skills will deliver prosperity more effectively than will bureaucracy and big government.

Lord Graham of Edmonton

He believes it!

Viscount Cranborne

My Lords, I do indeed believe it, as the noble Lord, Lord Graham, points out from a sedentary position. The Opposition seem to find it difficult to decide whether this Session's legislative programme is a lion or a mouse, unlike my noble friend Lord Oxfuird, who thought that it was a jug. I would say only that there is a simple test that we could apply to see who is right. If it is a mouse, our labours during the coming Session will be short, and we shall get to bed—delightful prospect—by eight and pack our buckets and spades no doubt by the beginning of June. If it is a lion, we shall still be here by mid-July. It is in the hands of noble Lords opposite, but I have to say that were I a betting man my money would not be on the mouse, and I would therefore have to invite the noble Lord, Lord Richard, to reconsider his position when the time comes. I therefore look forward to a constructive and lively Session.

Indeed, the noble Lord, Lord Richard, made a speech on the Motion for the Adjournment last week that I much enjoyed. He paid elegant compliments to my noble friends who had proposed and seconded the humble Address and poked, as indeed is only his right, a little gentle fun at Her Majesty's Government. He even took advantage of the status of my noble friend Lord Wade as a cheesemaster to accuse the Government's policies of being blue and mouldy. The noble Lord might care to reflect before he retires to his bed that, as a cheese matures, discriminating consumers appreciate its greater quality. I have to say to him that this cheese is indeed maturing nicely. Those who are eating it will increasingly appreciate its quality.

Lord Richard

It is smelling a bit.

Viscount Cranborne

My Lords, why should they throw it away in favour of an alternative which is vaguely imitative in parts and wholly ersatz and bland everywhere?

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

House adjourned at twenty-eight minutes past ten o'clock.