Income and Wealth: Rowntree Report

HL Deb 01 March 1995 vol 561 cc1485-556

3.19 p.m.

Lord Eatwell rose to call attention to the Rowntree Report on Income and Wealth and the effect of inequality on Britain's economic and industrial strength; and to move for Papers.

The noble Lord said: My Lords, the publication of the inquiry into income and wealth by the Joseph Rowntree Foundation marks an important and, indeed, chastening moment in the social and political life of our country, for this deeply disturbing report demonstrates beyond all reasonable doubt that over the past 16 years there has been an extraordinarily sharp increase in inequality in Britain. The increase has been so sharp that the real incomes of 20 per cent. to 30 per cent. of the people in this country have actually fallen, or at best failed to rise, even though the economy as a whole has grown by over 30 per cent. That large minority of the British population has not benefited from the economic growth of the past 15 years. Instead, they have been left behind, left out, marginalised, and typically concentrated in decaying areas in which economic and social problems have proliferated.

It is worth quoting the report at length. It states: a substantial proportion of the population is unable to afford the goods which the majority…regards as basic necessities…many of those dependent on state benefits —particularly for long periods—are unable to make ends meet, or are doing so by accumulating ever higher levels of debt and arrears. If such low incomes were a temporary phenomenon, there might be less cause for concern, but there is disturbing evidence that lengths of time with low incomes, for instance because of lack of work, are becoming longer. Low levels of income are disturbingly correlated with poor health and high mortality".

The report argues, quite rightly, that the rapid increase in inequality is something which concerns us all. It states: Regardless of any moral arguments or feelings of altruism, everyone shares an interest in the cohesiveness of society. As the gaps between rich and poor grow, the problems of the marginalised groups which are being left behind rebound on the more comfortable majority…unless something is done to reintegrate these groups, all of society will end up by suffering the consequences. The very richest may be able to build walls around their suburbs, but most people cannot. It is only necessary to look across the Atlantic to the USA to see the consequences of an impoverished minority for the quality of life of the majority".

I have quoted these sections of the report at length to stress the fact that, while it demonstrates that inequality has increased unambiguously throughout society, with income differentials among the employed and the non-employed widening, the report's principal concern is with the living standards and life opportunities of the poorest. I stress this point because, when the report was debated in another place a fortnight ago, there were quite disreputable attempts to discredit its findings as "the politics of envy". Nothing could be further from the truth.

The Rowntree Report contains an enormous quantity of carefully presented statistical argument which it is impossible even to summarise adequately in a single speech. I am sure that noble Lords will range widely over the information in the course of the debate this afternoon. But two characteristics of the changes in UK income distribution are worth emphasising. First, the rapid growth in inequality over the past 16 years more than reverses the gentle trend towards equality which has been evident since the Second World War. The overall result is far greater inequality than at any time in the past 50 years. Secondly, growing inequality in the 1980s was not an international phenomenon. Although inequality grew in many countries, in others inequality was reduced. Inequality increased in Britain faster than in any other advanced country except New Zealand. The absolute increase in the standard measure of inequality in Britain was more than double the largest increase anywhere else in the advanced world.

Before turning to the reasons why inequality has increased, it is worth considering for a moment the important misconceptions and criticisms of the report that were made, most notably by Mr. Peter Lilley, when it was debated in another place. It is worth noting that Mr. Lilley failed to make clear in his speech that virtually all the statistical material contained within the report was derived from official government publications and used a methodology proposed by government statisticians. Indeed, Volume 2, which contains the details of the analysis, was made available to Mr. Lilley's department prior to publication and was checked by his officials. It should also be noted that the conclusions of the study are the agreed views of the entire inquiry group, including Mr. Michael Bett, the deputy chairman of British Telecom, and Mr. Howard Davies, the director-general of the CBI.

Unable to refute these basic statistical findings, Ministers in another place attempted to obscure them by making a series of quite irrelevant points. For example, it was stated on several occasions by Mr. Lilley that average incomes increased in the 1980s. They did—but that is irrelevant to the issue of inequality. Let us suppose for example, that the entire growth of the British economy since the Industrial Revolution had accrued to the family of the noble Lord, Lord Mackay of Ardbrecknish, alone, leaving the rest of the entire population of Britain living in grinding 18th century misery. The average growth of the British economy would have been exactly the same; but the distribution of income would have been quite different. So I hope that we hear nothing today about the performance of averages, whether it be the average income of production workers, pensioners or any other average. They are quite simply irrelevant.

Another attempted smokescreen was the argument that, since the poorest groups in society have acquired a number of consumer durables such as washing machines or televisions, they cannot possibly be as badly off as the statistics suggest. That argument is also bogus. It so happens that the prices of consumer durables have fallen sharply relative to other consumer goods over the past 20 years or so. People have accordingly bought more of them and fewer other goods. These effects are already incorporated in the price index which is used to measure the real incomes of the poorest groups. They are already taken account of. To pick out one item of expenditure from the rest is a totally misleading exercise.

Yet another smokescreen was Mr. Lilley's argument that society is mobile, and the membership of the poorest groups is not constant. That was as true 16 years ago as it is today. As the report makes clear, mobility out of the poorest groups in society is today less than it used to be.

Finally, in this litany of half-baked excuses, there has been a lot of cant about whether inequality is absolute or relative. As we have already seen, the point is largely irrelevant, because much of the focus of the Rowntree Report is on the fall in absolute real incomes of the very poorest groups. But it is worth a moment's consideration.

Let us consider the relevant example of transport. In the 1950s, when there were few private cars, there was an abundance of cheap public transport which those on above average and below average incomes could use and would use. Today, most can afford a car. Public transport is limited and expensive. That severely reduces the living standards of the relatively poor, who are forced either to buy a car that they cannot really afford or not to travel at all. Relative poverty is, in these important respects, absolute poverty. Therefore, I hope that we shall hear none of those bogus excuses from the Government Benches this afternoon. Indeed, I hope the Minister realises that the Government's search for excuses in this matter is thoroughly offensive to the British people. I hope that the Minister will accept the findings of the report and tell us what practical steps are proposed to reduce the massive increase in inequality which has occurred during this Government's time in office.

The report makes clear that there are a variety of factors which have contributed to the growth in inequality, some of which are the direct outcome of government policy. Others, of which the links are less direct, on careful examination, are the Government's responsibility too.

First, higher unemployment and a number of demographic and social factors mean that more people have become dependent on state benefits. Since the Government have chosen to link benefits to prices and not to earnings, the gap has widened between those on benefit and those with earned incomes. Secondly, changes that the Government have made to the tax system have robbed taxation of its earlier automatic tendency to reduce inequality. Instead, the burden of taxation has shifted from higher income groups to lower and middle income groups. Also, differences in earned incomes have grown rapidly. Since 1978, hourly real wages for the lowest paid men hardly changed at all, while top wage earners have enjoyed real increases of about 50 per cent. For households that increasing inequality of earned incomes has been reinforced by the trend towards work-rich, two-earner households and at the same time towards more work-poor, no-earner households. Moreover, the changes that the Government are introducing into the pension system, moving from the pay-as-you-go state pension to funded private pensions, will result in the growing inequalities of earned income being translated in later years to growing inequalities of pension income.

Given that so much of the increase in inequality has been the direct outcome of government policy, the crucial question which the Government must answer is why they allow that to happen. What justification is there for it? For example, has the increase in misery and deprivation brought with it superior economic performance? The question we need to confront is whether inequality is efficient.

It is well known that greater inequality brings in its wake deterioration in health. Across the advanced countries the more unequal a country may be, the lower will be its life expectancy, the higher will be the mortality and the worse will be its general standards of health. Inequality makes us sick and inequality kills. It is also well known that greater inequality is associated with rising crime. That is hardly surprising when inequality marginalises whole communities, destroying their stake in society.

Ill health and rising crime impose heavy economic burdens on our society. In that sense inequality is clearly inefficient. But I want to concentrate this afternoon on the more narrow economic issue of the impact of the increasing inequality among wage rates and earned incomes. Is that efficient? In this case, is increasing inequality simply the outcome of the logic of efficient market forces? The Chancellor of the Exchequer clearly thinks it is. In his Mais lecture entitled "The Changing World of Work in the 1990s", delivered on 4th May last year, Kenneth Clarke argued that the widening of pay differentials in the 1980s was, "inevitable and probably desirable". Moreover, he stated that no one knows how far the gap between the highest paid and the lowest paid will continue to widen.

In his lecture the Chancellor made clear that the increasing inequality is the result of government policy, and he is proud of it. Wage bargaining is more flexible and decentralised so that pay is now increasingly market-determined, he declares. Market mechanisms are the key. To give him his due, the Chancellor also argued that market-determined inequality should be alleviated by a strong welfare state. He argued that the urban underclass is a major plague in American society. It is thanks to our welfare state that an underclass on that giant scale has not yet developed in Britain.

Surely the Chancellor's position is now hardly sustainable, given that the Rowntree Report revealed the truth of what is really going on. Indeed, the Chancellor's advocacy of the need for a comprehensive welfare state is disingenuous. There is a key contradiction in his argument. As he makes clear, the American labour market is the model for the deregulated flexible market he wants to create in Britain. But the high levels of employment in the United States derive exactly from the absence of any comprehensive social support. When, as is the case in many US states, there is little or no unemployment benefit, there will be no unemployment. It is as simple as that. People must scrape by somehow and, far from boosting economic efficiency, the American case is extremely inefficient.

Productivity growth in the United States in the 1980s was the lowest in the western world. Indeed, productivity growth in the American services industry has, for the past 20 years, been zero—hardly a model of economic efficiency. The American culmination of social deprivation, crime, falling health standards and negligible productivity growth shows us exactly what could happen here if the Government's policies continue in their current direction. The urban underclass is an essential component of American employment policy—the policy which the Chancellor wishes to pursue.

It is not only in America that Kenneth Clarke's core proposition that increasing inequality is inevitable and probably desirable is revealed to be false. A recent Columbia University study of growth in 65 countries over the period 1960 to 1985 reached the unambiguous conclusion that countries where income is more equally distributed also grow faster. That finding was supported by the World Bank in its 1991 world development report. The World Bank argues that there is no evidence that income inequality leads to higher growth. If anything, it seems that inequality is associated with lower growth.

The Chancellor has got it spectacularly wrong. Far from increasing inequality being "probably desirable", it is associated with lower growth of output and productivity. Inequality is inefficient. A careful examination of what has happened in this country reveals some of the reasons for this. An important element in growing inequality in earned incomes has been the collapse in full-time employment for men as huge sections of British manufacturing industry have been allowed to decline—a conscious policy of Mrs Thatcher's Government, it should be remembered.

If the reaction to the competitive pressures associated with the fall in manufacturing employment is to allow inequality to increase, a self-reinforcing spiral of inequality and inefficiency is put in place. First, increased impoverishment of parents is associated with the deteriorating educational achievements of their children. As government figures reveal, of today's British workers whose parents were unskilled manual workers, 60 per cent. have no educational qualification at all and only 3 per cent. have a degree; whereas of those whose parents were professionals, only 7 per cent. have no qualification at all and 32 per cent. have a university degree. That waste of talent is handed down from generation to generation and as inequality increases, so the waste increases also.

Secondly, as inequality increases and wages fall, there is a powerful disincentive for employers to invest in new technologies or in the skills of their labour force. If they try, they will simply be undercut by those who fail to invest and who secure competitive advantage through the use of cheap labour. Low wages are a means of keeping inefficient employers in business and penalising the efforts of employers who would seek to compete upmarket.

Thirdly, as the stock of skills is in increasingly short supply, inflationary pressures in the labour market increase and those inflationary pressures can only be contained by higher levels of unemployment, increasing inequality yet further. On the supply side therefore, and on the demand side, inequality and inefficiency reinforce one another in a deadly downward spiral. As the inefficiency grows, the competitive strength of the nation declines, jobs are lost and the potential for inflation increases. That process is neither inevitable nor desirable.

The cycle of deprivation, loss of skills and increasing inequality can only be broken if action is taken at every point in the chain. A direct attack on poverty itself is necessary to reintegrate the large marginalised group back into society, and that needs to be combined with high quality education and training. Too often services for the poor are poor services. At the same time, every incentive must be given to employers to invest in high quality training and in the latest techniques.

I have focused on one aspect of the growth of inequality in our country—the growing inequality among earned incomes. I did that not just because there happens to be a particularly clear statement of government policy by the Chancellor of the Exchequer, but also because it is an area in which the Government's policy is so obviously wrong. By reinforcing inequality, they are reinforcing inefficiency.

The Rowntree Report contains a large number of broad, mutually reinforcing proposals for addressing the problem of inequality in all areas and from wherever it may come. A more comprehensive analysis along exactly the same lines is provided by the outstanding study entitled Social Justice produced by the independent Social Justice Commission established by the late John Smith. In both cases what is provided is a long-term strategy for tackling the inequality and inefficiency which are blighting our economy and our society. As both reports made clear, there is no quick fix; there is no simple, costed programme on offer. Those who call for such quick fixes either do not understand the scale of the problem in our country or are deliberately trying to obscure it.

The Rowntree Report concludes: At present too much public spending is directed at paying the costs of failure rather than in promoting futuresuccess… Public spending appears to have got into a trap, where short-term savings have had long-term costs, in turn creating pressure for later short-term savings, in a continuing spiral".

We must escape that trap. We need a new, comprehensive approach to tackling inequality, which is the source of inefficiency, and inefficiency, which is the source of inequality. The great Conservative economic and social experiment of the past 16 years has been an appalling failure with terrible consequences for millions of people in this country. That failed economic and social philosophy must not be allowed to blight our children's future, too. My Lords, I beg to move for Papers.

3.40 p.m.

Lord Jenkin of Roding

My Lords, I am sure that the whole House will be grateful to the noble Lord, Lord Eatwell, for giving us the opportunity to put the Rowntree Report under a more critical examination than he and a number of his right honourable and honourable friends in another place have chosen to do. The noble Lord seems to have accepted the entire argument hook line and sinker with no sort of recognition of some of the flaws and failings in the methodology of the Rowntree Report. Not surprisingly, that has led to some pretty strange conclusions.

As we have limited time, I shall not attempt to follow the noble Lord in all his arguments. My examination of the report has led me to agree with a recent writer on the subject who described it as being "deeply flawed". Those are not my words but those of Daniel Finklestein of the Social Market Foundation. That is an organisation which both the Labour and Liberal Democrat party have been very pleased to quote when producing arguments in their favour.

I argue that the report is deeply flawed for three very clear and specific reasons. The noble Lord, Lord Eatwell, made the point that of course the figures are based, as so often they are, on government statistics. But on what government statistics? The first point that one notices is that in attempting to develop arguments about inequality and poverty, all the figures in the report leave wholly out of account any of the benefits in kind which are enjoyed by the population. By that I mean the benefits of a free health service, a free education service, free school meals for the poorest, housing and travel subsidies and all the rest.

I am very interested to note that the noble Lord, Lord Diamond, has put down his name to speak later in the debate. There have been many times when he and I have found ourselves opposite each other in another place when he has sought to persuade the House that one cannot look at prosperity and wealth simply in terms of income; one has to take account of the benefits of public service. Since that is one of the principal instruments of redistribution of wealth, it is a pretty damaging blow at the thesis of the Rowntree Report which says nothing about it at all.

As the whole House will recognise, the percentage of the final household income represented by the benefits in kind I have been describing, varies enormously. Of the lowest income households, the poorest 20 per cent., the figure is close to 50 per cent. of the value of their household "income". The actual figure is 48.3 per cent. There is a net value per household of about £3,610. For the top 20 per cent., the percentage is only 6 per cent. of their "income", the actual value is smaller in being just over £2,000 per household.

The report, which was intended to be about poverty and inequality, has ignored this crucial element in the standard of living of families which is the biggest single source of the increased standard of living of families in recent years. The noble Lord will know that as regards health, education and all the other public services, expenditure has soared to the benefit of the poorest families in many cases. That is the first fatal flaw in the Rowntree Report.

The noble Lord did at least touch on the argument that the Rowntree Report concerns only income. It does not seem to take any account of what are the visible factors this year in the standard of living of the poorest families in the land. He went so far as to say that the arguments based on what people actually spend their money on is bogus. The noble Lord will recognise that that cannot be right. When one looks at the Government publication Social Trends, one finds some quite remarkable figures as to what has happened to spending at all levels on some of these desirable products which people now have in their households.

Taking the Social Trends figures at random, in 1972 42 per cent. of households had a telephone. Ninety per cent. of households had a telephone in 1993 and I expect the figure is now higher. Many housewives regard a washing machine as an absolute necessity as part of the standard of living. In 1972 the figure was 66 per cent. and in 1993 it was 88 per cent. The figure for households with a deep freeze or a fridge freezer used to be below 50 per cent. in 1981. It is now nearly 90 per cent.

I see the noble Lord grin; but the fact of the matter is that those are the products on which people are spending their money. That applies not just to the top 80 per cent. of the population, but goes right down to the very poorest families in the land. The noble Lord did not say very much about poverty; he talked about inequality. In some cases he seemed to regard inequality as the source of poor health and poor education; it is not, it is poverty. If the noble Lord had directed more of his remarks towards poverty, perhaps there might have been a greater readiness to follow him on that. Fatal flaw number two therefore is that the report takes absolutely no account of the actual spending of the poorest families. The Rowntree Report paints a very partial and misleading picture.

The third fatal flaw is that the report states—and this we welcome—that it is its aim to reduce dependency. When I was Secretary of State for Social Services, the question of the growing dependency of people on benefits of all kinds was a source of considerable anxiety. The desire to reduce it is something which we would all applaud. But when one looks at the report's recommendations, one can see that there is a whole range of measures which are liable to increase dependency.

What was remarkable about the noble Lord's speech from the Dispatch Box and therefore speaking on behalf of his party, is that there was absolutely no indication whatever as to whether his party is going to do any of the things which are recommended by the Rowntree Report. I shall give him a list of the things which I hope he will not do because they would be immensely damaging. He said he wants to increase benefits faster than prices, and that is what the report said. There has been no real attempt by the Labour Party to seek to reverse the legislation which I introduced which broke the link with earnings otherwise we would have been bankrupt by paying pensions at the higher of earnings and prices.

There is also a recommendation for a relaxation of the 21-hour rule which enables people to undertake training and education part-time while looking for work. That would increase Government expenditure on benefits. The Rowntree Group appears to favour the retention of unemployment benefit entitlement for 12 months rather than the Government proposal of six months. It would be very costly and a further disincentive to return to work. They want a maintenance disregard for single parents on income support. Again, that would increase Government spending and reduce work incentives by reducing the clear water between income out of work and in work.

The report says that the housing benefit tapers should be lowered, but this too could only be achieved at huge expense. What is notable about the speech we have heard is that none of these concrete proposals was referred to by the noble Lord at all. He preferred to devote most of his speech to abusing my right honourable friends in another place.

So, I do not attach all that amount of weight to the Rowntree Report. I think perhaps that the Labour Front Bench might be a little cautious when having regard to the source of much of the statistical work. That is the only name on the outside of the statistical supplement; namely, Mr. John Hills who is credited by the Guardian of having invented Labour's tax bombshell in 1992, which perhaps helped us to win the election. Again, last year he was advocating increased spending on social security by 5 per cent. I fear that the Rowntree report is not only flawed but tainted.

However, it has some very important points to make and there are important points to make about it. One of them is this. A speech which the noble Lord did not mention was one made by my right honourable friend Peter Lilley in Belfast last November: the Northern Ireland CPC speech. That was described by his honourable friend Mr. Frank Field, secretary of the Social Security Select Committee in another place, as the most important contribution to social thinking for a decade. What Mr. Lilley talked about there—and I paid tribute to his speech—was the dispersion of earnings power. I should like to quote one or two passages from that speech because they are very relevant to the subject that we are debating today. He said: Rising productivity generates rising earnings. For most of this century that growth of earnings was spread fairly evenly across the whole working population. If anything, the earnings of those in lower paid occupations tended to rise a bit more rapidly than the average. So earnings differentials diminished. But over the last couple of decades, although average earnings have grown strongly, the differentials have widened. The earnings of the less well off have tended to rise less rapidly than those in jobs earning average or above average rates of pay. In general, those with skills have outstripped those without skills. The earning power of brawn has fallen behind that of brain". It seems to me that in these circumstances that is something of which we all need to take account. And of course the report has some useful things to say about the need to get people back into work, the need to improve work training and also the need to improve education. But I have to say that the noble Lord, Lord Eatwell, when he got involved with inequality and inefficiency actually stood the argument on its head, because we have it on the authority of the OECD that if you have an inflexible labour system such as one has in a number of continental countries, which seek to underpin labour by means of such things as the social chapter, what you have is unemployment rising much faster, whereas if you have more a flexible employment scene where there is greater room for differentials, unemployment rises much more slowly. It is a fact that jobs have been created in this country faster than in almost every other country in the European Union because we have had a more flexible labour force. As the OECD said, In most countries where relative wage rates have been inflexible (the United States, Canada and Australia) both the relative employment and unemployment rates of the unskilled changed little during the 1980s. In comparatively inflexible Europe, on the other hand, both employment and unemployment rates deteriorated". My Lords, my time is up. I do not attach a great deal of importance to the report because I think its argumentation is flawed. There are many things which can be done and indeed which the Government are doing which will raise the standards of living of the poorest. That is what we want to do, and it seems to me that to concentrate on poverty is a great deal more important than to concentrate on inequality.

3.53 p.m.

Earl Russell

My Lords, I should like to congratulate the noble Lord, Lord Eatwell, for introducing this debate and for doing so on St. David's Day, thereby drawing attention to the fact that there is an international as well as a regional dimension to economic inequality in Britain. That is something which we on these Benches would like to do something about. I should also like to congratulate the authors of a very distinguished report. I hope I am not being immodest in doing so, since the report says everything that I have been saying in the House for the past four years. But that in fact is because I have been paying attention to the distinguished series of reports from the Social Security Advisory Committee under the chairmanship of Sir Peter Barclay, chairman of the committee which produced the report.

The noble Lord, Lord Jenkin of Roding, was, I think, extremely unwise to be so critical of the report. He is not paying attention to the fact that this report represents what is now a firmly set consensus among the academic community and among all those who know anything about this subject, save only for the party opposite. Whether that is in fact an exception is a question I will leave open.

The noble Lord, Lord Jenkin of Roding, criticised the report for not dealing more with the question of benefits in kind, a free national health service and so forth. I have made something of a study of that. When I went to America in 1979 and when I returned in 1984 I naturally wanted to know in real terms what the difference in salary was going to mean. In 1979 I calculated that the welfare state meant that the British salary was actually worth 20 per cent. more than its paper figure. In 1984 I reached the conclusion that the real figure was rather nearer 10 per cent. I put a great deal of calculation into that, with which I will not bore the House now.

It seems to me that the noble Lord's example tends rather in the opposite direction from the one he would have wished. This is an economic debate, and I congratulate the noble Lord, Lord Eatwell, on that also. It tends logically to divide into two halves. One is the effect on general economic performance of inequality; and the other is the effect on economic performance of an economy with a very long tail—if I may so put it, an economy which does not bat below No. 7. Any social security spokesman is obviously going to be tempted to talk about the second, which is why I will for a while resist temptation and begin with the first.

The notion of efficiency, though it is unfashionable to say so, does in fact involve some concern with how the job is done. Recently I had occasion to employ a breakdown service. I was chatting to the driver of the breakdown service and asked how long he was on duty. I discovered that he worked a regular shift of 20 hours. I do not think that is efficient. If I were proposing to take a job which kept me at the wheel all that long, I am sure that at home I would be told about it in no uncertain terms.

If we look at the Hidden report on the Clapham Common train disaster, one of the key facts was the extraordinary length of time that the electrician who made the key mistake had been on duty. I heard of a person who was required to be at work for 18 hours, without a break to go to the lavatory. That is not what I think of as efficient, in economic or any other terms. Mr. Alistair Burt, in his Glasgow speech just over a year ago, drew attention to the effect of these very long hours on family life and on the increasing and expensive tendency to family breakdown. That was a speech which I think calls for a great deal more thought on all sides of the House.

The noble Lord, Lord Jenkin of Roding, made great play with washing machines. He may not have noticed, but there are now many households which cannot support themselves unless the woman goes out to work. Since there are many men in this country who still need education on the subject of washing, it is very often impossible for the household to support itself without such a machine, and in many more cases than was true in 1979.

The noble Lord was also rather unwise to rely without comment on the arguments of the OECD about rigidity in the labour market. He may not yet have read a report published last Wednesday by the ILO on World Employment in 1995. It will interest the noble Lord, Lord Eatwell, since it quotes him in his academic capacity with considerable approval. That report argues the case which I think deserves attention on both sides of the House; namely, that the Government's diagnosis of the labour market was in essentials right in 1979 but has not been right for some 10 years or so.

That report argues that it is now not rigidities in the labour market which keep unemployment up; it is deficiency of demand and the fact that our increased competitiveness does not give us the advantage that it should because the demand is not there to sustain it. To take a sadly topical example, it is at least a tenable hypothesis that the failure of Pentos may have something to do with the very substantial weakening of demand in the student market, on which both Ryman and Dillons relied heavily. Without the demand, a business simply cannot be kept going.

I have no doubt that a Conservative Peer will invoke the phrase "trickle-down". There is a lot to be said for childish games, but it is a great pity that whoever invented the phrase "trickle-down" did not spend more time playing with sandcastles as a child. I used to experiment with trickle-down and sandcastles. It was always clear that a great deal of water never reached the bottom; it soaked away into the sand. A great deal more of it ran away somewhere else. One of the disadvantages of trickle-down in a global economy is that the trickle-down is extremely likely to be outside this country and to add further to balance-of-payments problems which we could do without.

To turn for a while to the other half—to the economy not batting below No. 7—there is a very big problem here. I listened to the Minister last Monday arguing that the weight of the social security budget was a great drain on our competitiveness. I understand that argument and I do not dispute it, but this year's up-rating statement illustrates the realisation in the Department of Social Security—and, indeed, even in the Treasury—that the alternatives are worse. People do not voluntarily starve. The noble Lord, Lord Eatwell, mentioned people in the United States building walls around their suburbs. I remember reading a column by Russell Baker describing a visit to Beverly Hills where, at the edge of every lawn, was a notice saying, "Do not enter. Armed response". We do not want to get to that point in this country.

If one looks at a place like Carlton Ward, Kilburn—the ward next to my own—where last year 37 per cent. of the adult population was dependent on means-tested benefits, one can see why those who live there might regard drug dealing and muggings as the path of opportunity. That is not in any of our interests and, when it comes to prison and policing bills, it is very expensive indeed.

The noble Lord, Lord Eatwell, was right to mention health. Tuberculosis is now back on our streets, as Crisis has drawn to our attention many times. TB is a very expensive illness. It is not economically efficient.

I shall not dwell at length on top salaries. The Minister may be wondering what he can say about that, but I advise him not to follow the example of other members of his party and simply to say "envy". That statement may be true, but I hope that no noble Lord opposite thinks that we are going to abolish envy. We should not wantonly give in to it, but we must accept that in the real world envy exists and we should not wantonly provoke it. Paying people salaries so large that, if they are earning them, I do not see how they can possibly find the time to spend them is unnecessarily provoking.

I hope that the noble Lord, Lord Jenkin, will not rebuke me for not going into greater detail about the remedies, but I have already argued for almost every remedy that is mentioned in the report—and the noble Lord has argued against me. He knows that I am ready to argue the detail until the cows come home—but they will be coming home very soon now.

We need to consider the bottlenecks that make it difficult for people to come off benefits. I know that the Chancellor of the Exchequer is already doing that and I congratulate him on it. However, I think that we should look further at an income support disregard. What I said to the Minister last Monday about the up-rating of capital limits and the possible use of a Motion to Resolve on the next statement applies to income support disregards also. It also applies to childcare. I shall not develop that now, but the alternative route through the Child Support Act has not been a great success. That point applies also to housing repairs about which I should like to say a lot, but cannot. It also applies to the real holes in the safety net, to 16 and 17 year-olds and to the Social Fund.

It cannot be economically efficient to let people fall through the safety net so that they become unemployable for life. That is making society carry too large a tail. It cannot be good for education to have 25 per cent. of this country's children dependent on income support. If I have one criticism of the report, it is that you cannot rely on education alone without putting people in a position such that they can afford to take advantage of it. But that is only one criticism in a great deal of approval.

4.6 p.m.

The Lord Bishop of Bristol

My Lords, I should like to add my thanks to the noble Lord, Lord Eatwell, for providing us with this opportunity to debate a very important subject and for the information and analysis that he has shared with the House.

The Rowntree Report is by no means all bad news. Most families are substantially better off now than they were in the late 1970s. That may not necessarily bring happiness, but in general it brings more comfort and opportunities. Many people have worked hard and honestly to achieve that general increase in wealth and it would be wrong for them to feel that they have not achieved anything. Moreover, most pensioners are appreciably better off than their counterparts 20 years ago and although we cannot be complacent, that, too, is a social improvement and an achievement.

It would be wrong to encourage further fatalism and despondency on the basis that however hard we try, we are no nearer a good and decent society. We need not fatalism but hope—and, I hope, commitment also. Part of that is to recognise that in many ways, thanks to the efforts of so many people, there are unprecedented opportunities and choices from which all our people could—I stress the word "could"—benefit if only we do not give up on the idea of a just society.

I join the noble Earl, Lord Russell, in expressing gratitude to the Joseph Rowntree Foundation and to Sir Peter Barclay's working party. The report is a fitting embodiment of the Rowntree tradition, whereby successful wealth creation is pursued not as an end in itself, but as a means of service to one's fellow human beings. The Rowntrees, I gather, built their fortune not on narrow individualism, but on the moral ideal of service. For the Rowntrees, society was as depicted in the Biblical tradition: a collaborative moral project under God; not just a conglomeration of competing individuals.

But there is bad news—and that is why we cannot rest easily. First, I refer to the key finding that the poorest 20 to 30 per cent. have failed to benefit from the economic growth since the late 1970s and that we have indeed become a more unequal society. Page 35 of volume 1 of the report contains information about the care of children. According to the statistics given by the International Year of the Family fact sheet No. 2, 3.9 million children are poor—that is, one in three of our families receive less than half the average income of this country. That is a figure of which all of us must be ashamed.

Secondly, I should like to share with your Lordships a picture of the city in which I live. When I first arrived in Bristol nearly 10 years ago, there were no beggars on the streets. There are now. They are all, in general terms, those seeking work, a home or food. The homelessness figures have increased. I believe that a just society cannot tolerate those figures. That matters because it weakens social cohesion. It matters because it undermines the human solidarity which should bind us together in a well-ordered society.

I was glad that the noble Earl, Lord Russell, reminded us that today is St. David's Day. It is also Ash Wednesday, which may well be an appropriate day for this debate. In many churches throughout the country, these words were read earlier this morning from the Prophet Isiah: The kind of fasting I want is this. Share your food with the hungry and open your homes to the homeless. Give clothes to those who have nothing to wear and do not refuse to help your relatives". And that is the minimum requirement of a community in which we would wish to live.

A substantial minority of our people are left feeling that they are not valued as part of the whole. They do not participate in society's benefits and opportunities, and that damages their self-esteem and dignity. Amid the many successes of the past 20 years, that is a major failure.

I shall quote from A.H. Halsey of the Guardian—and, yes, I know that it was in 1987, but I believe it to be true today— A pattern has emerged of an unequal society, as between a majority in secure attachment to a still prosperous country and a minority in marginal economic and social conditions. Moreover, the casualties of inequality tend to be concentrated, in the most acute form, in the larger metropolitan areas of northern Britain and in inner London, and in particular in wards and estates. The churches have long borne witness to those realities, not least in the report Faith in the City, in the work of the Church Urban Fund, and in the pastoral commitment of so many churches in areas long since abandoned by banks, building societies, most shops and other services. There may well be more consumer durables bought; but you have to go a long way to buy them in many of the estates about which we are talking.

In general, the call of the Rowntree Report for a continuing, multi-dimensional onslaught on inequality, deprivation and social exclusion echoes what many Church leaders have put forward over the years as one essential dimension of working for a more just and equal society.

Let me make three points about the response that is needed. Technocratic solutions will not be enough. It will involve moral decisions, too—as it did for Rowntree—a bringing together of individual responsibility and social responsibility, one for another.

Self-restraint and hard choices will be involved. I was delighted that the noble Earl, Lord Russell, also played with sandcastles; wealth does not trickle down as we are invited to believe it does —and the cost is there to be seen by all.

Let me quote what the most reverend Primate the Archbishop of Canterbury said in a speech last year. It is appropriate to our debate today. One-eyed individualism and the privatisation of morality exact a high price in personal and public dimensions of life alike. It is not just about economics, it is about a moral society which believes in a just and equal community. Secondly, we need to encourage the concept of participation, and that may well be the key. Nobody really wants to be a passive dependant. Perhaps we can go back to the care of families and the place of children in our society. Many single parents wish to be economically viable for their family unit; but they are incapable of doing that because the right kind of child care is not available. Social benefits need to be provided in kind, and the right structures put in place, so that all our people can be enabled and encouraged to take care of themselves. Dependency is not a good thing, but we need to put in place the structures which will allow people to join in and make their contributions.

The Church Urban Fund is based on putting local people in charge of their own plans for self-improvement and helping others. Safety nets are no substitute for real opportunities and fair incentives to play a part in advancing the common good. I realise that that is easier said than done, but it is an important principle. We need to concentrate on participation.

Let me give one example. In the south side of Bristol, in the estate of Hartcliffe—where not very long ago there were major riots—there is partnership between the local community, the Church Urban Fund and business in the community. They know very well that to do good enables wealth to be created. Not the other way around—create wealth in order to do good—but do good in order to create wealth. That partnership and participation is a basis for the way in which this country needs to move forward.

Lastly, to moderate inequality is not necessarily to impair economic growth. As the commentator Will Hutton has argued, the World Bank has produced impressive statistics showing that lower inequality throughout the Third World is one of the most important determinants of growth. The more an economy can integrate all of its people into national development, the greater their skills, the larger their incomes, the more rapidly economic growth takes place. We have not heard much about East Asia—the most dynamically growing part of the world—but that is one of the least unequal areas. We should not carry a large section of the community as poor and unskilled—a social and economic burden that holds us back.

Perhaps I may return to Ash Wednesday. We have heard about the politics of envy. Envy is a sin. But there is one greater sin, and that is providing people with occasion to sin. That is the crux of the debate today. Your Lordships' House prays daily for the uniting and knitting together of the hearts of all persons under saints, in love and charity towards one another. Love and charity mean a just and equal society.

4.17 p.m.

Lord Ennals

My Lords, I am glad of the opportunity to follow the right reverend Prelate the Bishop of Bristol in his assessment of the report that we are debating. I went along with what he had to say in many respects.

I felt very sad that the noble Lord, Lord Jenkin of Roding, not only sought to rubbish the Rowntree Report, its facts and figures, its conclusions and recommendations, but also to say that it was tainted. No doubt he will take some other opportunity to explain what is tainted by this report and this working party. I have looked at those who have participated in it—I am proud to know some of them, but not most—and certainly in no sense are they a political group of people but they are very broadly representative of the caring spectrum of experience.

I suppose it was inevitable that the noble Lord's response to Rowntree would remind me of his response to the Black Report in 1980, which was also carried out by a very distinguished team. It drew on the facts available and made a series of assessments and recommendations, which he, as the then Secretary of State, rubbished in rather the same way as he has today. I will say no more, but I am sad about that.

I want to thank and congratulate the Rowntree Foundation and its chairman, Sir Peter Barclay, whose contribution to social work in the United Kingdom is indeed a substantial one. The report should provide a very firm basis on which to build social policy in this country, based on fairness and equality. It sits very comfortably with the report of the Social Justice Commission, which no doubt at some time we will have the opportunity of debating.

In his introduction to the report, the chairman, Sir Peter Barclay, describes a picture of a dramatic social and economic change in Britain over the 1980s, the scale and consequences of which are probably not yet fully appreciated by policy makers or the population at large. I fear that he may be right, the policy makers have not recognised just what is happening in terms of inequality of opportunity, and hardship based on that inequality, in Britain today. I hope that we shall receive a response from the Minister which is different from that we had from his noble friend.

The report reaches some devastating conclusions. It makes comparisons with inequitable trends in other countries, particularly the OECD countries and some Commonwealth countries. They include many of our competitors. As was said by my noble friend Lord Eatwell—he explained that he would be out of the Chamber for a short time, and I want in his absence to congratulate him on his speech—if one looks at page 14 one can see just where Britain stands in relation to countries such as Norway, Australia, Sweden, the Netherlands, Japan, the United States, Belgium, and so forth, in terms of the extent of the inequality which exists now in British society.

On page 14 there are three conclusions from which I should like to quote. The first describes: The speed with which inequality increased in the United Kingdom between 1977 and 1990". It continues: Since 1979 the lowest income groups have not benefited from economic growth. We should remind ourselves that there has been some economic growth. Of course better standards of living are to be found in Britain. If one takes an average, of course our living standards are higher than they were two decades, or even one decade, ago. It would be extraordinary were that not to be the case. The third conclusion is: Since 1977 the proportion of the population with less than half the average income has more than trebled. As a result, the proportion of the population with low incomes relative to the average has risen". The House will not be surprised at my interest in the subject. It was as Secretary of State that in 1977 I asked Sir Douglas Black and a distinguished team to produce a report. I did so because I was concerned then (18 years ago) at the inequalities which continued to exist in our society and upon which I even then thought we needed to concentrate. One of the tragic things is that the situation has since become significantly worse. If one looks at health, which was one of the factors, we see that the situation has worsened in many respects.

I shall give one or two examples. The baby of an unskilled manual worker is one and a half times more likely to die in the first year as the baby of a professional or a manager; the poorest children are twice as likely to die from a respiratory disease as a child from social class I. In some of the poorest parts of Britain, death rates are now as high as they were 40 years ago. In many ways, statistics upon which we can base the inequalities in health are becoming worse in some respects than they were 40 years ago. The mortality ratio in the 10 per cent. most deprived electoral wards in the north of Britain is almost double that in the 10 per cent. least deprived. My last example is of unemployed men. They are 10 to 15 times more likely to attempt suicide than others.

The picture is a disturbing one. Looking at the different categories, according to the latest figures, one sees that one in four people (including children) in the UK were living in poverty in 1991–92 compared with under one in 10 in 1979. Children are even more likely to be in poverty. Nearly one in three, as has already been said, were living in poverty in 1991–92 compared to one in 10 in 1979. If we look at the number of people (including children) living in poverty, we can see that there has been a dramatic increase. Including children, in 1979 we were looking at 5 million; in 1991–92, we were looking at nearly 14 million. That is a dramatic increase. If we look at children in particular, we are looking at an increase from 1.4 million to 4.1 million. Again, that is a dramatic increase.

There were more children than pensioners living in poverty in 1991–92: 4.1 million children lived in poverty compared with 3.2 million pensioners. It is fair to recognise that the extent of inequality has varied in different sections of the community. Pensioners have not suffered as much as lone parents (six in 10 were in poverty); or single pensioners (4 in 10 were in poverty); and couples with children perhaps suffered most. They formed the largest group in poverty; 37 per cent. fell into that group. Pensioner couples—I am grateful for this, because I am part of a pensioner couple—have perhaps suffered less inequality than single pensioners, couples with children, couples without children, and lone parents. It is a disturbing situation. It will be interesting to see how the Government react to it.

On the other side, it may be asked why we have not put forward a set of proposals. Well we are asking the Government what are their proposals. We can have a further debate on our proposals. The late John Smith set up the commission which has already produced its report. So, for heavens sake, we have done more than the party opposite. I should be interested to hear whether the Minister replies in the same way as did Peter Lilley, who was referred to by my noble friend Lord Eatwell, or, for that matter, the noble Lord, Lord Jenkin of Roding.

On Monday, my noble friend Lord Molloy tabled a Question asking the Government what they were doing to decrease poverty. I hesitated, but not for long, to intervene. I said that I was surprised by the Question, because I should not have expected the Government to have taken action to decrease the disparity in wealth between the rich and the poor, because that is part of their motivation. If they are to be converted on the road to Jerusalem, I shall certainly welcome that. I admire the report which we are debating but I am extremely pessimistic about the response that we shall be given by the Government.

4.30 p.m.

Baroness Elles

My Lords, I do not entirely follow the way of thinking of the noble Lord, Lord Ennals, although we may all find ourselves on the same road to Jerusalem, and I suspect I know who will get there first.

This debate on the Rowntree Foundation's recent inquiry into income and wealth is to be warmly welcomed. I applaud the fact that the noble Lord, Lord Eatwell, has introduced the matter. It raises important economic and industrial issues, but it also gives us the opportunity to refute some of the conclusions and recommendations contained in the report.

I should be grateful if, when the noble Lord, Lord Peston, winds up on behalf of the Opposition, he will state whether the recommendations contained in the report are part of Opposition policy and whether those which involve public expenditure, so widely, it seems, encouraged by the report, will also form part of eventual Opposition policy.

I do not find fault in all the recommendations as did my noble friend Lord Jenkin of Roding, because the Government have already initiated some of the work incentive measures listed in them. I welcome that.

It is generally accepted that there is a dispersion of earning power. My right honourable friend Peter Lilley mentioned that specifically in his very important speech in Belfast in November 1994. He underlined that it is a phenomenon applicable to western industrialised countries as a whole. It is not confined to the United Kingdom.

Different countries are seeking solutions through different measures. It is doubtful whether the word "poverty" can be assumed to apply to anyone with income in the bottom one-fifth of income distribution; that is, to those whose incomes are less than half the national average. To my mind, that is an abuse of the word "poverty" and, considered in the context of international statistics, is grossly misleading. To use the same terminology to describe millions of people existing in many parts of the globe—for example, India, South America and large parts of Africa —and the 20 per cent. living below the so-called poverty line in this country, even if they live on unattractive or run-down housing estates, must give a completely false impression of the wealth and social conscience of this country, including the social conscience of all noble Lords who work towards the relief of poverty.

Nick Adkin, in his interesting article in Social Trends 1994, points out that although that 20 per cent. represents 11.2 million of the United Kingdom population, it should not be assumed that all the people in the bottom quintile are poor or on low incomes. Such a definition would mean that 20 per cent., and only 20 per cent., of the population would always be poor or on low income. Selection is necessarily arbitrary. He adds also that income of groups such as the self-employed has not proved as helpful as wished. I shall not name all the categories listed in the report but farmers and accountants are included in that category. That gives leave to question the sense of the exercise and makes it more difficult to identify the truly financially disadvantaged.

There are dangers in averages, the tool of the statistician —the man who says that if you have your feet in the fridge and your head in the gas oven, you are averagely comfortable. That is of little help to the policy maker and to those determined to raise the standard of living for all while living in a society—common to all contemporary, industrialised societies—based on high wages, high-level skills and high productivity, but with declining opportunities for unskilled manual labour. As the average line rises, so will the number of relatively poor.

It must be made clear that, sadly, there are truly poor in our society. Most of us in this House have been made aware of tragic situations which are incidental to individuals rather than to any recognisable, identifiable group. Perhaps fortunately, that is often at one time in a person's life. Many examples come to mind—a wife who is suddenly deserted; ill health, especially where someone is living alone; a physical accident, or death of a partner. A whole gamut of tragedies can hit people regardless of age or origin and can reduce that person to genuine destitution.

However, if statistics are anything to go by, the majority of the 20 per cent. have a very different lifestyle. To maintain, as the inquiry does on pages 6 and 46, that it is unsatisfactory that a large part of the population is not sharing at all in rising living standards is frankly nonsense. Some figures set out in Social Trends 1979 and in 1995 show the real difference. It is shown in particular by the charts which cover disposable income and consumer durables. My noble friend Lord Jenkin of Roding mentioned consumer durables and various answers cover that particular argument. But it is difficult to argue against the fact that in 1979, of the disposable income of pensioners—I take the lowest level, the poorest of that particular sector —food accounted for 35 per cent. and housing 16 per cent., leaving 49 per cent. of net income to spend on other factors such as alcohol, tobacco, travel, services and so on. But by 1993, which is the latest figure, food accounts for 20 per cent. of disposable income and housing accounts for 13.4 per cent., which makes a maximum of 33.4 per cent. That leaves 66.6 per cent. net. That 66.6 per cent. is in the hands of that particular pensioner to be spent as he chooses. I accept that there are other items of expenditure but that is clearly evidence that it is not only the wealthier who have benefited from increased economic growth.

But while the rich are getting richer, I have not found real evidence to show that the poor are getting poorer, other than in relative but not material terms. So far as I am aware there is no recognition in the report that without a wealth creating society it would not be possible to transfer nearly £80 billion or just under half of total national expenditure this year to those who are in need. There is no recognition, except in general terms, concerning benefits.

My noble friend Lord Jenkin referred to education, health and so on. Of course, I accept that those services may not always be adequate. They are run by human beings. But they cannot be left out of the calculation. Equality as such is not a desirable objective. As Disraeli said over 150 years ago, There is the equality which levels and destroys as well as the equality which elevates and creates". It is the quality of opportunity which has to be guaranteed and the effective targeting of those sectors and individuals in our society who genuinely suffer financial disadvantages and who are the weakest economic sector of our society.

One obvious sector is the unemployed. I welcome the recent statistic given by the Government that a further half million have come out of that sad statistic. The Government have introduced policies such as the jobseeker's allowance and the work start programme, about which I have no doubt my noble friend will wish to speak.

Much is focused on training and education but I agree with those noble Lords who have said that, in isolation, they are not sufficient. Throwing money at a problem does not always produce solutions. But there are steps which can be taken. I started an organisation called Target in the Thames Valley in 1986 under the European Community's programme. I declare an interest, although I am an entirely voluntary chairman. We receive funding from the European Community. It links industrialists, including small businesses, with training providers, to ensure that the training courses provided correspond with the identified skills needed by companies in the area. That encourages young people to attend training courses, because they know that they will be able to obtain employment. A raft of activities includes programmes for women returners. They mainly identify the need for confidence building and opportunities available. There are training courses for self employment, and work experience is arranged for collegers and young students both in the area and on the Continent.

It may be of interest that unemployment in the area of Berkshire in January was 5.4 per cent., whereas elsewhere in the United Kingdom it was about 8.8 per cent., or just under 9 per cent. Identification of genuine need in a complex society when some people's needs are far greater according to their education, tradition, training and so on is not easy. But recognising, certain areas to be targeted, as the Secretary of State has done, is an encouraging sign.

I wish to mention three matters which should be more closely looked at and given wider encouragement. They are opportunities for more tax-free savings so that people will be able to meet crisis more easily; tax incentives for married couples, not to encourage marriage necessarily—although I would no doubt be accused of being political correct—but as a sign from the Government that their policy is to encourage stable family life for the benefit of children; and further and greater efforts by employers to ensure that women's wages rise to a level where they do not remain permanently disadvantaged in terms of their earning capacity and are reflected also in the level of their occupational pensions.

Several noble Lords mentioned the question of envy. I believe that there is more than one sin in the Epistles. Indeed, there is envy on the one hand and greed on the other. Undoubtedly, both combined have a detrimental effect on the fabric of society. Therefore, in order to maintain a peaceful and stable society the issue of growing disparity in earnings must be addressed. Whatever else the inquiry has done, it has given us an opportunity to identify such a serious problem.

4.41 p.m.

Baroness David

My Lords, one of the striking facts mentioned in the report was that, during what the Government claim to be a period of economic success, more people have become dependent on state benefits. The reasons for this, according to the report, are: Higher unemployment and economic inactivity (like early retirement and invalidity) and demographic factors such as lone parents". No doubt the Government will say that it is all the people's own fault: people are choosing to become unemployed and to retire early because of the benefits available. This is also the cause of marital breakdown, they say, and similar social problems and is not the concern of the Government. Is that the Minister's view? It is not mine and not that of most people who have looked at the problem.

People are unemployed because they have been fired and cannot find new jobs, or, when they are young, they cannot find a first job at all. Retirement is also, in many cases, a version of premature unemployment. There is little or no correlation between marital breakdown and the benefit system. The hoary old myth that young people become lone parents because of the availability of benefits is precisely that. Indeed, if any of that were true, the trend should be the opposite of what it is. The report shows the relative and, in some cases, the absolute decline in benefits. Why then has unemployment remained so high and the social problems referred to so persistent?

The report says: There have been polar shifts towards double-income families, where both parents work but are able to spend less time with their children". Do the Government have an explanation as to why that is so? Do they think that it is desirable?

Will the Minister admit that most people do wish to support themselves and accept state support faute de mieux? They hate being a burden, but the system makes them so. I guess many of us here today have relations who have been forced to go on to benefits and know how reluctant they are to take that first step and to apply. I may say that the time between applying and receiving any cash should be shorter. The young unemployed, I know, are longing for work. The benefit that they receive does not lead to an exactly comfortable lifestyle.

The report has a number of suggestions for encouraging and helping those forced on to benefit to make it easier to return to work. That is not made easy at the moment. At present, too much public spending is directed at paying the costs of failure, rather than in promoting future success. Public spending seems to have got into a trap, where short-term savings have had long-term costs, in turn creating pressure for later short-term savings in a continuous spiral. Are the Government convinced by some of the proposals for helping people back to work and in the early stages of being in work when extra money is sorely needed? I shall mention some of those proposals. The noble Lord, Lord Jenkin, criticised my noble friend for not doing so; but I shall.

There should be disregard of child maintenance in income support. The Enterprise Allowance concept should be extended to benefits, to allow continued payments of benefit for a short time after a person finds employment; employment on trial (where benefit is not lost if a person leaves a job after a short trial period) should be made better known; lump sums should be available for back-to-work grants; income support disregard should be £10, not £5, and it should be able to accumulate—for instance, up to £60 over a six-week period—to allow lump sums and not disqualify occasional casual work. Legitimate childcare costs and working expenses should be allowed as a deduction in assessing earnings for the disregard; free school meals should be restored for family credit recipients; the taper for housing benefit and family credit should be lower to reduce marginal tax rates. All these may involve short-term costs, but surely will result in long-term gains in getting more people back into employment and—it is to be hoped—making them happier.

Above all, the importance of raising education and training standards in Britain cannot be put too strongly. While people are on benefit, it must surely make sense for them to occupy themselves productively. The report states clearly: For those out of work and on benefit:—The rule generally limiting participation in education to no more than 21 hours per week should be relaxed". Therefore, it is a pity that the Government have moved policy in exactly the opposite direction to reduce the number of permitted hours and to make the whole business of education for the unemployed most difficult. The training guarantee should be honoured; if not, there is a clear case for widening benefit entitlement for 16 and 17 year-olds.

The report says: We are concerned by the position of children being brought up in low-income families, particularly those in neighbourhoods where most families are poor. Whilst parents have the primary responsibility of their children's welfare, the community as a whole has a vital role in supporting them to carry out that task". Do the Government agree with that? If they do not, I can see a very gloomy future for this country.

This year sees the 150th anniversary of the publication of a novel by a distinguished leader of the Tory Party. Sybil describes the condition of early Victorian Britain and the two nations into which its peoples were divided. During the 1960s and 1970s we experienced what Eric Hobsbawm calls "a Golden Age" when, for a brief moment, we seemed to be moving towards a more unified and fairer society. We have heard from my noble friend Lord Eatwell about the economic gulf that now separates the richest and the poorest in our society. My particular concern is with the social and human consequences of this increasing divide and the frustrated dreams and ambition of those who can never hope to share the security and lifestyle of the often undeserving rich. That applies especially in relation to the young.

During the past 15 years, recorded violent crime in this country has doubled. A recent report from the Employment Policy Institute (by Dr. John Wells of Cambridge University), shows that Britain's departure from full employment and the emergence of mass unemployment since the mid-1970s have coincided with a strong rising trend in recorded crime. The report notes that the inner-city riots and disorder during the recessions of the 1980s and the 1990s were accompanied by "spiralling unemployment" and that a, society with such large numbers of children in poverty runs the risk of massive criminal delinquency". Unemployment, moreover, does not affect all sectors of our society equally—unemployment among young black males in London was recently shown by the Labour Force survey to be 62 per cent., and overall, the unemployment figure for blacks, (10 per cent.) was more than double that for whites (4 per cent.). As the Rowntree Report observes, the incomes of certain ethnic minority groups are well below the national average and a large proportion of their populations live in areas ranked highly by indicators of deprivation…Certain parts of the country seem locked in a spiral of decline…notably with the problems of Inner London growing substantially We have only to look across the Atlantic to the United States to see the awful prospect of what may lie ahead for our cities. As in Washington, New York and Los Angeles, there will be increasing ghettoisation of the poor in crime-ridden, drug-sodden and bleak inner-city areas whilst the rich retreat to affluent suburbs or the countryside. That is, of course, a potent recipe for social unrest, as in the recent Los Angeles riots, and for increasing crime and drug taking.

It is unfortunate that, at a time when our society's bonds are already weakened, we have a Home Secretary who deals in stereotypes and short-term populist tactics to address problems that need complex and long-term solutions. Those who commit crimes are not very different from other human beings and are unlikely to respond to the simplistic Skinnerian models of reward and punishment currently favoured by the Home Office that work well with rats and pigeons but not with humans.

I should like to end with two sentences from Disraeli's Sybil or The Two Nations: In an age of political infidelity, of mean passions, and petty thoughts, I would have impressed upon the rising race not to despair, but to seek in a right understanding of the history of their country and in the energies of heroic youth, the elements of national welfare…From the state of Parties it now would draw public thought to the state of the People whom those Parties for two centuries have governed. The comprehension and the cure of this greater theme depend upon the same agencies as the first: it is the past alone that can explain the present, and it is youth that alone can mould the remedial future".

4.51 p.m.

Lord Griffiths of Fforestfach

My Lords, it is a great pleasure to follow the noble Baroness. Not only was her speech eloquent; it showed a mastery of the issues raised by the report and it was unusually literary. The sentiment she expressed about one nation is one with which I hope everyone in this House would agree.

Like other participants in the debate I thank the noble Lord, Lord Eatwell, for providing the opportunity to discuss this very important subject. When preparing my speech I jotted down that it would be quite wrong to use an occasion such as this to make party political points. However, as I listened to the remarks of the noble Lord, Lord Eatwell, I was provoked to the limits. I shall nevertheless try to exercise self-discipline and not make this a political issue.

However, I should like to make one point. I have not had the opportunity of reading Daniel Finkelstein, but as someone who was at least trained as an economist I find a number of aspects of the report somewhat flawed: for example, the emphasis on inequality and not poverty as such, the measurement of the problem of inequality using snapshots at points in time rather than lifetime earnings and the Gini co-efficient, the cursory treatment of the distribution of wealth, and knowing exactly how much confidence one can have in the official data on households below average income. I was therefore somewhat surprised by the confidence shown by the noble Lord when he introduced the report. I almost felt that he had more confidence in the report than the report had in itself.

Page 113 of volume 2, which is the penultimate page of the report, deals with the question of how one measures inequality. It states that, one might want to look at income differences not in a single year [as the report does] but over complete lifetimes…In the 'snapshot' the poorest tenth have annual incomes which are only just over a fifth of the average, but the 'lifetime poorest' tenth have lifetime incomes which are more than half the average. Lifetime incomes are much more equally distributed than annual incomes: depending on the measure, the inequality observed on an annual basis is reduced by between a third and a half". As I recollect, dealing with statistics on income and wealth distribution is not the same as measuring output from steelworks. It is very tricky. Therefore, a degree of caution is needed in relation to the methodology of the report.

Secondly, the noble Lord stated categorically that what was happening in the UK in terms of increasing inequality was not an international phenomenon. As he spoke, and as my blood pressure rose, I turned to figure 37 in volume 2 where there are three pictures. In the graph of countries with rising inequality, Britain is shown alongside Australia, the Netherlands, New Zealand, Norway and Sweden. Countries with slowly rising inequality are the US, France, Japan, West Germany and Belgium. I note, incidentally, that although they have slowly rising inequality three of them start from a position of higher inequality than we do. There are other countries with falling inequality. Therefore, it is misleading to suggest that somehow the UK is alone in the trend towards greater inequality, even though the extent of the movement may be much greater here.

It would be wrong to dismiss the report on those grounds. That is why I felt that it would be wrong to use an occasion such as this to try to defend the record of the past 15 years. The report is important not because of its emphasis on inequality but because it puts its finger on something disturbing in our society. As we were reminded by the right reverend Prelate, the report Faith in the City on the significance of underprivileged areas in this country jarred us all. Similarly, the Rowntree Report draws attention to those people, including young people and children, who have not benefited from the growing prosperity of the past 15 years, or who have benefited only to a limited extent.

I should like to address three issues raised by the report which should be of concern to the House. They deal with the causes of the problems with which the report confronts us.

First, as the noble Lord, Lord Eatwell, and also the noble Baroness, Lady Elles, said, there is a growth in the differential of earnings between those in the labour market with substantial skills and those with few skills. The Institute for Fiscal Studies, which studied the position in the UK between 1960 and 1990, concluded that wage inequality has risen at an unprecedented rate since the late 1970s. I do not believe that that is a direct result of government policy. The institute says that between 1966 and 1972 the dispersion was flat; that between 1972 and 1977 it was compressed; but that since 1977 the lowest percentage of the earnings distribution has shown zero growth, the median has risen by just under 30 per cent., and the top part of the distribution has shown growth of 45 to 50 per cent. That is not a British phenomenon. It is a trend which is taking place throughout the whole of the industrialised world. To the extent that governments try to stop the trend and try to compress wages, unemployment rises.

The cause or causes are open to debate, but most people emphasise two facts, which again are global. One is associated with trade and investment, and particularly with the emergence of Asia as the most dynamic region in the world economy with its huge labour market, much of which has limited skills. The second is the extraordinary revolution in technology we are living through, particularly associated with telecommunications, computing, information technology and the media.

Having travelled to China many times in the past two-and-a-half years, and also having taken the opportunity to visit schools, it seems to me that that is a trend which it is not easy to reverse. I also doubt whether parents or the education profession in this country have come to terms with it. Asian economies still face barriers to trade in the West. As those barriers are reduced, so we can expect higher imports from those countries, particularly of goods produced with low wages. Countries such as China, with 1.2 billion people, are committed to moving to a more market-oriented economy, and once again we shall face increasing competition. Nearly all the leading companies in this country, western Europe and the US are making investment in Asia a priority, if not the priority, of their business development. Our workforce therefore desperately needs greater skills if it is to avoid being paid a world wage rate for unskilled labour which will be set by the Asian economies.

My fear is that the report does not go far enough. The better the skills, the greater the remuneration. I envisage the divergence between very skilled people and unskilled people increasing rather than decreasing, therefore exacerbating the problem. Because of that, I believe that education deserves emphasis today. I fully accept the point a number of people have made about education in a more general context. However, I am still not happy about one specific area of education. I am happy about a number of the reforms introduced in the 1980s, in particular city technology colleges and technology colleges in general, and the greater variety of schools through the grant-maintained system. Those must surely be steps in the right direction. But vocational education leaves me with doubts, as it did when I was chairman of the School Examinations and Assessment Council, and confirms the magnificent work done by the National Institute of Economic and Social Research. The quality of vocational education in this country lags behind our competitors in Europe.

The second issue I wish to raise—it is raised in the report—regards unemployment. We have now experienced high unemployment for approximately 25 years; we are in danger of treating it as given. It is clearly a major factor driving poverty. And, as the report points out, and as has been pointed out today, it has serious long-term consequences quite apart from the wasted resources.

It is because of the seriousness of unemployment that the Government have introduced policies specifically targeted at getting people back to work. The report discusses a number of measures ranging from improved childcare provision to more flexibility in working hours, subsidies to employers, and so on. However, there is one glaring omission in the report. The chairman's introduction states that the terms of reference were to consider evidence on matters relating to living standards, income and personal wealth and to make recommendations regarding public policy which bear on living standards. The extraordinary omission was the creation of wealth itself. Surely wealth creation is by far the most enduring form of job creation, far more powerful in the longer term than job creation programmes.

A growing economy provides opportunities for people of all income levels to improve themselves. Unemployment fell during the latter part of the 1980s until there occurred that totally unnecessary cycle of inflation and severe recession. At present unemployment is falling again. I do not know whether that is considered a trickle-down effect but it seems to me that it is an important factor. We should support measures to improve and sustain our growth.

5.5 p.m.

Lord Desai

My Lords, it is a pleasure to follow the noble Lord, Lord Griffiths of Fforestfach. Let me start on a rather serious note. I am sorry that the noble Lord, Lord Jenkin of Roding, is not in his place. However, the noble Lord, a former Secretary of State for Social Services, sought to denigrate the Rowntree Report, especially the second volume, by stating that my colleague John Hills (who is associated with it) is somehow a troublemaker. I want absolutely to deplore that. John Hills is meticulous. He cannot defend himself against such attacks. His scholarship is not in doubt. The sources on which he relies are absolutely impeccable. I would take on anyone on the opposite side in or out of government who challenges his competence in the matter. Let it not be said that he was the man who planted a tax bombshell. He may have planted it, but the people who exploded that tax bombshell are in power now. We only propose tax increases. The Government implement them and their tax proposals were much more severe than John Hills could possibly have imagined. Therefore let us not hear any more about tax bombshells. Let us not have any further unfair attacks on a man who cannot defend himself.

The Rowntree Report is a careful and scholarly document. The point was made about whether or not direct benefits were included. At the back of volume 2 there is a careful consideration of the effect of introducing direct benefits into the calculations. As the noble Lord, Lord Griffiths, pointed out, lifetime incomes are also considered. It has been said that if data on lifetime incomes were available they would be used. They were not available and therefore the report carefully carries out a simulation experiment and seeks to guess the effect. It quite honestly states that if life cycle incomes were available one would not find a great amount of equality but less inequality. It is not that the results in the report are somehow flawed by methodology; they are not flawed. If one reads both volumes carefully, and—dare I say it?—understands what is stated, every aspect is well covered. If people wish to defend the record of the present Government, they should find a better method than by attacking the report.

I wish to take up various points. First, it has been stated that the report deals with inequality and not poverty. I am untouched by the sentiment of those on the opposite Benches about poverty. I have not heard it for all these years; and suddenly, when inequality is debated, those noble Lords like poverty. Had we been attacking poverty they would have liked inequality.

What does the report say about it? I shall refer to volume 2. Its author is my colleague, John Hills. Page 31 indicates that in the bottom two deciles—and that is the area of poverty—there has been no increase in income after allowing for housing costs. Indeed, with regard to the bottom decile one can hardly see the faint green line. There is a slight deterioration both ways. Therefore poverty has actually increased. Regarding inequality, the bottom decile has been affected. Who are in the bottom decile? Obviously many unemployed people, old people, single parents and children. First, it is said those groups are transient; they come and go. Careful research indicates that many single parents and old people are not transient. When children are in poverty it takes them ages to get above poverty. I do not believe that one should use the transient argument too frequently.

Let that go. It has been suggested that average incomes have risen in this country. The truth is that they have not risen fast because the growth record of the past 15 years is appalling—there is no other word for it—compared with any previous 15 years. The noble Lord, Lord Griffiths, spoke about wealth creation but there has not been enough, I am sorry to say. If we compare the growth in income and the growth in wealth over the 15 years before 1979 with that over the 15 years after 1979, there is no serious statistical dispute; the growth has been lower. There may have been some diminution in unemployment over the past two years, about which the Government are excited. I remember that when I first came here all the problems were due to our competitors causing the recession in this country. When things go badly it is the fault of foreigners and when they go well it is all to our credit.

Unemployment in this country has not been lower in a single year since 1979 compared with when Labour left office. Despite all the miracles of productivity, lean growth and the marvellous things about which we shall hear, unemployment has not been lower in a single year. What is more, we are talking about doctored unemployment figures, not even the real ones.

Perhaps I may read some rather nice remarks about statistics of unemployment written by an impeccable authority who had to deal with them. I will give the author later: Faster than I can digest them great wadges of documentation are whumped into my 'In' tray. The subject matter is turgid: a mass of 'schemes' whose purpose, plainly, is not so much to bring relief to those out of work as to devise excuses for removing them from the Register. Among my other responsibilities are 'statistics', so it will be me who has to tell the House each month what is the 'jobless' total. The Enterprise Allowance Scheme, the Job Release Scheme, the Community Scheme. Convoluted and obscure even at their inception, they have since been so picked over and 'modified' by civil servants as to be incomprehensible. I ought to welcome these devices, and must try and master their intricacies. But my head is bursting. I understand Nabokov's analogy of a traveller in a foreign city, whose language he does not speak, attempting in the middle of a power strike, in the late evening, to find his hotel. So said Alan Clark. That is the attitude on the unemployed, thinking of them as statistics to be got rid of. Various benefits have been announced, but probably 1 million people have been taken off the unemployment register and hidden somewhere. Is it any wonder that we have a growth in poverty?

Late in the past 16 years there is some decline in unemployment, but it is not enough to compensate for the sluggish growth that we have had for 16 years. The growth has been marred by two of the most severe recessions since records began in this country. So it is not as if we have had fantastic growth and the poor people who did not have enough skill and education—entirely through their own fault—have been left behind, and I actually dare to show the Government up as bad. It is not like that at all. It is that the country has had a low rate of investment and growth because policies which have been followed by the Government have, without fail, been inconsistently bad. The Government have adopted monetarism, Keynesianism and various other policies but they have not succeeded in achieving the trend rate of growth that was achieved in the 15 years before they came into office.

The noble Lord, Lord Griffiths, talked eloquently and rightly about globalisation and how we face the challenge of the skill revolution. He said that we ought to do more about education. However, being skilled or unskilled is not a matter of birth; unskilled people can be made skilled. It is not a matter of saying, "Those poor unskilled people! What should we do about them?" If they are unskilled, we can do something about it through education. What we should not do is to cut the education budget. If the Government are not going to pay teachers enough money then they should not say, "Oh, the poor unskilled workers! What should we do about them?"

Subjects like education have been deprived of funds. I work in higher education and I can tell noble Lords that despite the growth in the number of people in higher education, the per capita amount of money per student has been cut so badly that many teachers in higher education are unable to do their job properly. The noble Earl, Lord Russell, has been saying that to us for a long time. Education has not only been starved of funds but has been so badly politically manipulated over the past 15 years that we no longer have the first class education system that we used to have. Let us hear more about what the Government will finally do about education. Are they serious about education and skills?

On our side, my right honourable friend Mr. Gordon Brown has for many years been setting out our policies for enriching education, skills, research and development and on how we shall change policies so that British firms become more investment-oriented and less dividend-oriented. We need a cultural revolution in the City. It is not the other side who will do it; it is we who will do it. I can only hope that events in another place this evening and perhaps tomorrow will hasten the day when we get the opportunity to solve the problems of the country.

5.17 p.m.

The Lord Bishop of Oxford

My Lords, G.K. Chesterton once remarked that the English working man was less interested in the equality of human beings than he was in the inequality of race horses. What he is also interested in, however, as are your Lordships, is the availability of the basic elements of a decent life. All of us here know the absolute necessity of adequate education, good job opportunities, health care and housing. So my concern now is not so much with the gap which has opened up between the rich and the poor—important though that is—which has been dealt with so thoroughly by the noble Lord, Lord Eatwell; and I too am grateful to him for the opportunity to engage in this debate. My concern is above all what might be done to support those who are now losing out so badly—the bottom 10 per cent. so frequently mentioned in the Rowntree Report.

We live in a world increasingly dominated by market forces. The market, as Reinhold Niebuhr once put it, in words later echoed by Sir Winston Churchill, is the worst possible system in the world—except for all the others. It needs to be put like that because no human mechanism or institution is perfect. One of the great Christian insights into political thinking is that because we are all flawed, tending to pursue our own interests at the expense of others; and, to use old-fashioned language on this Ash Wednesday, because of sin (it is structural sin that is revealed in the Rowntree Report) some are bound to be pushed to the margins. The market as operated by human beings of unequal power and unequal wealth is not a purely neutral device. It does not benefit everyone equally, as the Rowntree figures show so starkly. Therefore, the market needs to be set within a wider and, above all, ethical and political framework which takes that into account. That is a point which I could demonstrate by a number of quotations from some of the most fervent advocates of a free market, including the writings of the noble Lord, Lord Griffiths of Fforestfach. In a world in which, as a result of market forces, there will be continuing high unemployment—at the moment it stands at 2.6 million people, of whom 850,000 are below the age of 25—there will be a continuing need for support of many kinds. If we say yes to the market and its mechanisms, as I would want, as the least inefficient means of increasing national wealth (which is desperately important), then no less fervently we must say yes to the need for compensatory action by government on behalf of those who, through no fault of their own, still stand at the foot of the ladder, unable to climb on.

The noble Lord, Lord Jenkin of Roding, complained that the report had not taken into account benefits in kind. He maintained that on them expenditure had, in his words, soared. But let us simply consider the point that is made by Rowntree on housing. The report says that the reduction in subsidies to local authorities and the housing associations has gone too far. It has indeed. General government expenditure on housing fell from £13.3 billion in 1979 to £5.3 billion in 1994. In the past two years, housing association funding has been cut by £635 million. As a result, in the year commencing 1st April, the number of public rented housing starts will be the lowest for 50 years. There is no evidence here of expenditure "soaring", or of real commitment to those most in need.

I could not agree more with the noble Lord, Lord Griffiths, about the need for education, particularly vocational education, if we are genuinely committed to a flourishing, wealthy society. But, as the noble Lord, Lord Desai, pointed out, it is no good having that commitment unless we are prepared to put some money into education.

The housing association movement is one of the great successes of the post-war period. It brings together local initiative, knowledge and energy, local authority expertise and government policy and resources, in a creative partnership. The result has so often been new housing, on a secure basis, in which the inhabitants can take proper pride. But the housing need is still acute. Last year, 130,000 families were accepted as homeless and at least the same number were refused. It has been estimated that over 1 million people are either homeless or have to live in sub-standard, over-crowded or totally inadequate accommodation.

The noble Baroness, Lady Elles, quoted Disraeli's words about the importance of equality of opportunity. It was nearly 65 years ago when R.H. Tawney wrote his classic work on the subject of equality. There he wrote words which have not lost their force and which need to be heard again today in relation to our market-orientated society and the uncomfortable figures revealed by the Rowntree Report. Tawney wrote: Equality of opportunity is fictitious without equality in the circumstances under which men have to develop and exercise their capacities". Those circumstances certainly include adequate housing. I believe that the Government can and should respond to the Rowntree Report in the area of housing need, first, by restoring the £635 million cuts in housing associations' allocations; and, secondly, by the release of local authorities' capital receipts in order to enable them to make their contribution to meeting that great need.

Not all can be winners. Perhaps some degree of inequality in wealth is inevitable in the world in which we live. But all of us have exactly the same need for education, job opportunities, health, and, as I have tried to emphasise, decent housing.

5.23 p.m.

Lord Merlyn-Rees

My Lords, it is a privilege to follow the right reverend Prelate. I usually listen to him at 10 minutes to eight in the morning on a regular basis. I am particularly pleased that he mentioned housing. That is still a most important issue in many parts of the country—not in all parts as it was in the years from 1946 to 1948, but in some areas. The right reverend Prelate reminded the House of the quotation from Tawney on equality. That enables me to say at the beginning that it would be a very interesting subject for a debate. However, a different aspect of equality is the subject of this debate.

I learnt early in my life that there were people who—what is the right way of putting it?—were more unequal than I was; but that their position did not depend on their ability. There are blockages in our social system that prevent everybody from breaking through in the way in which they ought perhaps to be able to. I congratulate my noble friend Lord Eatwell on instigating the debate.

What we say in this debate today is not likely to have the slightest effect. Nobody seems to listen to the debates that we have in this House. They are not reported in the press or the other media to any great extent. We talk to ourselves, more is the pity. I have learnt in two or three years that in this place there is a wide spectrum of experience that is not available everywhere. My brief remarks are based on my own experience (not over a lifetime by a long chalk) of poverty before the war. I have never forgotten it, and perhaps it influences me too much. I also had 30 years' experience in an inner-city part of Leeds which another right reverend Prelate still knows very well. There, before I left three years ago, I remember visiting a primary school in one part of the city and the head teacher telling me, "We ate beginning to have to feed some young children breakfast because, like many years ago, they do not get a proper breakfast at home". That was in one part only; it does not apply to everybody, but that is what I was told.

I should like to concentrate on one part of the Motion; namely, the part that refers to, the effect of inequality on Britain's economic and industrial strength". It was good to see that the Rowntree Foundation had published a report. Again it relates to my past. As a young man, I was brought up on the Rowntree Report on York —one report being published in 1901, before I was born. One was a classical work in the 1930s, and further reports were published, I believe, in 1936 and 1951. The reports are in the tradition of Booth's Life and Labour of the People in London, and Mayhew. There were other reports on Liverpool, Southampton and South Wales. Perhaps I figured as a statistic in a previous report.

I am made constantly aware in my old constituency and in my own family life today, where poverty is a million miles off the menu, that much has changed since the days when those reports were written. There is a danger of someone like me living in the past and trying to come up with solutions to problems that are no longer with us, or which show themselves in a different way. There is de-industrialisation. I have on my wall at home an aerial photograph of my constituency eight years ago. Compared with 10 years before that, it is like Hamburg in 1945. The engineering works and the clothing factories have gone. Britain is no longer the workshop of the world. That has happened not just in the lifetime of this Government; it began earlier. There has been a decline in manufacturing wage earners.

At polling time, I used to address political meetings at lunch-time attended by men in overalls who came straight from the lathe. You cannot do that now. People wear white jackets in places—they can hardly be called factories—where they distribute goods that are made in Japan. It is a different world. You cannot run an election in the way in which it used to be run. You cannot reach people. We did not have full employment until 1942. There were three years of war before we had it. I agree with the remarks of the noble Lord, Lord Desai. That is the key to much of what we are discussing today. Unemployment has been high again in recent years. It has improved in recent months, but it is still far too high.

Another factor is that, unlike in the past, Britain is among the poorest countries in the European Union. When I hear that stated, it sticks in my political gullet. I repeat, we are among the poorest in the European Union measured by GDP —no wonder we have Rowntree Reports.

There are other reports, such as Social Trends. Of all the findings mentioned, which means that I do not need to go through them again, it is interesting that it was the Tory Deputy Chairman who said, The reality is now that the rich are getting richer on the backs of the rest, who are getting poorer". He was making a political point. Was he wrong? He said it behind closed doors so he was not worried what the media would make of it. That is what he said and there is an element of truth about it. I have seen the facts and figures, no doubt to be qualified by statistical analysis or said to contain weaknesses and so forth. I do not know. All I know is that there is a problem, as there was a problem in the 1930s. And the major problem is that of unemployment.

We talk in this House of inequalities and list recommendations in relation to different forms of payments such as "transfer payments" as I had to learn to call them at one time. There are 6 million people in this country receiving transfer payments. I am one of them. I collect a war pension. We could cut out people like me—my payment is not given to me because I need it, but because the community says I should receive it, as my father did before me from another war. A community that does not generate income by work for 4 million people—I refer not only to those who are unemployed of course—should cut back on such payments. There is something wrong in such a community. We see it in the United States and in France; I do not know about Germany because I do not go there very often.

Most of the recommendations in the report only ameliorate the situation. What can we do now to deal with it? I do not know. I listen to the economists. At one time I was a kind of economist. They say "There is this; there is that. There are problems that if we expand the economy too much we are being too Keynesian. If we take too much notice of savings being greater than investment it will affect the price levels. Unless we have tight control of price levels we will go back to 1988". I understand all that, but there is a problem in relation to unemployment.

Perhaps we would do better—this is not conventional wisdom, if it is wisdom—if we had three managed currencies; the yen, the dollar and the ERM. There may be some sense in that. It may well be that there should be more regulation of the European banking system, not just the banking system in this country. We are being very insular in our talk about the European Union, as though we can stand alone, and I am as sceptical as anyone else about Brussels in general.

In 1940—not in 1920 and 1930—few people were interested in the underclasses. The war brought about a realisation that there were people who were poor, when poor children were evacuated to middle-class houses. People said "We didn't know people lived like that. We must do something about it", and we should be thinking of what we can do now. There should be a more even distribution of wealth. I could afford to pay more taxation. We must consider the training aspect. A great deal of discussion takes place in regard to training and I know that this Government, for the past 15 years, have tried, as did the government before. But it is no good training people if there are no jobs at the end of it. It is no good offering training only to unskilled people; there is a need to train people with far higher aspirations. The noble Lord, Lord Griffiths of Fforestfach, talked of the difference between us and the Pacific Rim. He is certainly correct. If we are among the five poorest in Europe, we shall fast reach the pitch where we are even lower than that.

Unemployment is the key to the whole of the report. We concern ourselves with other matters in relation to the fairer distribution of income, payments being made to the unemployed in different ways—job-seeking allowances, old age pensions and so forth. I understand all of that. But I learnt from experience that the great transformation in my life was when my father obtained a job. That is what matters—when the income comes along. I remember my mother paying back the poor relief that we received from The Guardians (that takes me back because they ended in 1929). She paid back every penny because she did not want to be beholden to them. I have never forgotten that. Unemployment and the cure for it cannot be beyond our capabilities. It was not when it was a national phenomenon —heaven only knows that in South Wales there were international aspects of that because of the nature of the coal industry.

I am glad that the report was published. We should read the Social Trends report, and there are others. The more we think about it, the more chance there is of doing something about it. But if I was sceptical at the beginning, I shall be sceptical at the end. In the 1920s and the 1930s those who had a job were not worried about those that did not have a job. In the RAF we called it, "I care not for thee, Jack; I am fire-proof'. That is the situation at the moment. I am not sure that we care very much in this House, though we are all good, decent types and we say "Of course we do; we are sorry for them". Everybody was sorry in the 1920s and 1930s, and they did nothing about it except arrange for transfer of labour from one place to another.

It is an excellent report; perhaps statistically flawed, I would not know—I did not listen all that carefully to my statistics lectures at the London School of Economics. But I know there is something wrong, and I know it from spending 30 years as a Member of Parliament for an inner city constituency that nobody visits.

5.36 p.m.

Lord Skidelsky

My Lords, I welcome the debate. I am glad to be able to take part in it and only regret that I shall not be able to stay to the end owing to a prior engagement.

The Rowntree Trust has a great tradition of social investigation and we should take its findings seriously. However, we should not treat them as gospel. There has been some tendency, especially in the opening remarks of the noble Lord, Lord Eatwell, to treat the report with more confidence than it showed itself, as one noble Lord aptly remarked. The authority of the signatories, the quantity and complication of the statistics, can easily blind the unwary to omissions, hidden assumptions and questionable methodologies. I want to concentrate on one methodology which was mentioned earlier. My noble friend Lord Jenkin of Roding pointed out that the report did not consider, in its calculation of income trends over the past 15 years, benefits in kind. That assertion is correct, and the logic of omitting them was not supported by anyone on either side of the House. I hope therefore that the noble Lord, Lord Peston, when he makes his final speech, will address that point.

The report purports to show that during the period of Conservative Government since 1979 inequality has grown significantly; the rich have been getting richer and the poor poorer. That finding is based on the measurement of net incomes. For Britain's poorest people income is fundamentally made up of state cash benefits—family credit, income support, housing benefit and the state pension. For the poorest one-fifth of British households, state cash benefits amount to 70 per cent. of total gross income. The Rowntree Inquiry's conclusion that the poorest people have failed to see their incomes rise at anywhere near the same rate as Britain's wealthiest people is merely a platitude. Since the decision was taken to link the rate of increase in cash benefits to prices, rather than to earnings, it was inevitable that over the years an income gap would emerge between those who are predominantly dependent on benefits and those who are not. As it was intended, that has been taken by the press as the main conclusion of the report. But it follows absolutely inevitably from the decision to de-link cash benefits from earnings.

We may regret that; but let us suppose that we were to re-establish the link for state pensions. In 10 years we would be spending as much on the state pension as we now spend on the National Health Service. Is that the kind of expenditure that the Opposition are willing to contemplate with all its tax implications? Are they willing to restore the link between state cash benefits and earnings? If not, logically the Opposition have to accept that the gap which the Rowntree Trust has highlighted will continue to grow.

The measure of how well-off people are should surely include more than simply cash income. Britain's welfare state is built on benefits in kind as well as benefits in cash. The provision of public service is free at the point of use. In the 1970s the Labour Party used to talk about the social wage. We have not heard that phrase today. An increasing social wage was proclaimed as the great quid pro quo for restraint on the growth of cash incomes. In fact, a rising social wage was put forward as the key to social cohesion. But the social wage has been rising in the 1980s and the early 1990s precisely for that group which is most disadvantaged. Yet the Rowntree Report entirely omits the social wage—the benefits in kind—in evaluating how the poor in Britain are faring.

These benefits in kind include housing subsidy, travel subsidies, free school meals and milk—and, most significantly, state education and the National Health Service. Consumption of these benefits in kind is, as the Institute for Fiscal Studies has noted, substantially redistributive. I believe I understood the noble Earl rightly that he calculated benefits in kind were about 10 per cent. of average income. But that is not the point of course; it is the proportion of benefits in kind in the income of the lowest 20 per cent. which is relevant for this particular inquiry. The Central Statistical Office estimates that in 1993 these services were worth £3,600 to the poorest one-fifth of households which is 48.3 per cent. of their net income. It is not 10 per cent. nor indeed the 6 per cent. of the net income of the richest 20 per cent.

Earl Russell

My Lords, can the noble Lord tell me which of the benefits in kind he mentioned are more generous now than they were in 1979?

Lord Skidelsky

My Lords, certainly. Real spending on the National Health Service and state education has increased very substantially since the 1970s. A greater share of those benefits has been going to the poorest 20 per cent. of the population. It is not surprising that the Rowntree Report found that Britain's poorest were growing poorer when it omitted from its calculations 48.3 per cent. of their final household income. If these services do not matter for that sort of calculation, why are we redistributing so much money through these benefits? If, as is surely the case, they do matter to the standard of living of this section of the population, what reason can the Rowntree Report have for not taking them into account?

The explanation offered by the report for excluding benefits in kind from the calculation was referred to briefly by the noble Lord, Lord Desai. He said that it was tucked away at the end of Volume 2 of the report, which is a very good device for not attracting attention to anything you say. The explanation offered by the report was that the benefits were based on need and therefore somehow they should not be included in the calculation. But cash benefits are just as much based on need. Indeed, that is the reason for the entire system of redistributive benefits, whether in cash or in kind.

If benefits in kind were abolished and £3,610 were given to the poorest one-fifth of the population directly in cash, say, through weighted vouchers instead of via the National Health Service, education and other subsidies, the Rowntree Report would find that part of the population that much richer when in reality it would be no better off than before.

When the value of these benefits in kind is taken into account, it emerges that because of their redistributive nature and the increasing real resources devoted to them, Britain's poorest citizens have been growing better off both relatively and absolutely since 1979. That is QED so far as I am concerned with that particular argument in the report. I am not denying that the report is very valuable in many other ways, but the particular argument that the poorest 20 per cent. have been getting either poorer or have not been benefiting at all through the growth of the economy during that period, cannot be seriously sustained.

In the final few moments of my speech, perhaps I may turn to some of the wider issues. Some of the points have been made before but they are worth repeating. It is a mistake to assume that we would have had less inequality had we had fuller employment over this period. Greater wage dispersal has been the result of the technological revolution which has brought to an end the era of a mass production economy —"Fordism" as it is sometimes called—which required standardised labour. Howard Davies, writing in the Financial Times on 10th February said, Global competition and technological change have increased the incomes of skilled workers. But the UK force is less highly skilled than those of its main competitors". Nature's short-term remedy for that situation is greater wage dispersal. Of course, one can compress incomes through an incomes policy, minimum wage legislation, and so on; but the result will simply be higher unemployment, as my noble friend Lord Griffiths pointed out.

It is frequently claimed, even by capitalism's supporters, that there is no trickle down effect. I am always amazed when that claim is made. As an historian, how can the noble Earl, Lord Russell, explain the continuous growth in the real incomes of all sections of a continually expanding world population since the Industrial Revolution without the existence of a very powerful trickle down effect continually at work? At various times there may be increases in inequality, but the tendency of the system is to produce both higher incomes and greater equality over time than anything known before the emergence of capitalism as a world system. That trickle down effect was at work before the existence of trade unions, social legislation and other things. That should be the premise on how we think of the development of our system in future.

Noble Lords have referred to the World Bank report which says that greater equality is good for growth. Of course that is so when one is thinking about the less developed countries. But there is no comparison at all between the spread of income in this country and the gross inequalities in Latin America, Brazil, Peru, Sub-Saharan Africa and so on, which hold back growth. There is nothing in this country with its huge middle class that is remotely comparable with that situation; so it is a sham to use that kind of argument, which is perfectly valid for very poor countries, in relation to our own situation.

I want to end by saying that certainly we should consider very seriously what this report says. But let us at least start the argument about what we should do about unemployment, and so on, from the right premise—that is, that trickle down works and that this proposition is validated by a fair consideration of the facts and figures of the past 15 years.

5.50 p.m.

Lord Haskel

My Lords, from the mid-1960s to 1979 we could keep track of inequality in income and wealth through a Royal Commission. In 1979 the Government abolished it; so all we have now is the Rowntree Report. I am most grateful to my noble friend Lord Eatwell for introducing the debate. The report details today's inequality. I shall add nothing to what other noble Lords have said except to say that this rising inequality has not helped Britain achieve a better economic performance. As the report says, the trend towards greater inequality of incomes has not produced a faster rate of growth than in previous periods when the gap between rich and poor was smaller.

The report looks at how this rising inequality is reflected in the distribution of wealth. Table 5.23 in the 1995 edition of Social Trends tells us that if dwellings are excluded the most wealthy 10 per cent. now own two-thirds of all the marketable wealth of this country. Much of our debate has concentrated on the poorest 10 per cent. in this country. I would like to examine the lessons that the top 10 per cent. should learn from the report. Should they be quietly satisfied that they have done rather well? Or does this report tell them something important?

Unfortunately, our greater accumulation of wealth has not been matched by a faster rate of growth, so there has been a transfer of wealth from the poorer section of society to the richer. I am not satisfied with this. Nor apparently is Mr. John Maples, who, as my noble friend Lord Merlyn-Rees reminded us, is the Tory party deputy chairman. He said: The reality is now that the rich are getting richer on the backs of the rest who are getting poorer". Perhaps he, and certainly I, would want to see us all getting richer together. Sadly, Mr. Maples does not tell us how to deal with the situation because the Tory free market dogma does not work in this case. As the report says: Left to themselves, market forces will not deliver levels of education, training and investment in human capital which are optimal for the economy and society". It is the 10 per cent. élite then, and not market forces, who must be the ones to influence events which will deliver the education, training and investment. It is in their own interests to do so, for two reasons. First, few of us want to live in a society, so aptly described by my noble friend Lord Eatwell, which is so divided that many families and individuals have no stake in future prosperity. The prospect of protecting ourselves from this minority with excessive security and all that that means in lack of freedom of movement both for ourselves and for our children is totally unacceptable.

Secondly, the World Bank report and experience has shown that the higher the share of income taken by the top 10 per cent. or 20 per cent., the slower the economy grows. A greater share for the poor, and particularly the middle income groups, is associated with faster growth. Countries where income is more equally distributed grow faster and everybody gets richer. That is what we want to achieve.

The practical solution, as the noble Lord, Lord Griffiths, told us, lies in managing our assets so that we get people back to work. What are these assets? Going back to Social Trends, Chart 5.22 tells us that if we exclude dwellings the top 10 per cent. have most of their assets in stocks, shares, unit trusts, life assurance and pension funds. We have to take an active interest in the management of these assets. Whether we manage them ourselves at work or whether they are managed for us by investment managers, we have to make our long-term wishes known. I have made this point to the Minister during proceedings on the Pensions Bill. I am sorry that he is not in his place, because although he disagreed with me about mandatory voting then, it looks as if he may be becoming a little isolated. His right honourable friend the Prime Minister yesterday seemed to be moving towards some sort of legal obligation. I make no apology for again calling on investors to vote their shares in exactly the same way that I called upon pension fund trustees to do. The Cadbury Committee recommendations apply as much to the 10 per cent élite as they do to pension fund beneficiaries.

We are reminded every day of the importance of good corporate governance in improving Britain's prosperity; yet much as the United Kingdom Government would like to see more longer-term investment, neither business nor government believe the other is willing to make long-term commitments. We, the ultimate owners of the companies, must break the cycle by taking an active interest. By taking an active interest, I mean that we should turn up to company meetings and ask the questions posed in the Rowntree Report. The report sees childcare provision as a key to getting single parents back to work. What is our company doing about that?

The report favours extending the Government's current experiment with subsidies to employers over hiring people out of work for two years. Is our company taking advantage of this? The report talks about future international competitiveness depending on investment in human and physical capital. Is our company doing this? What is our company doing about training and introducing information technology into the business? We should not be afraid to ask these questions; they are the very points raised in the Government's own White Paper on the competitiveness of British industry. The social needs of the Rowntree Report coincide exactly with our industrial and commercial needs in the report on competitiveness.

The only justification for being a passive owner has been the trickle down effect, about which many noble Lords have spoken. The argument over whether this has or has not occurred is totally irrelevant. I reject the idea as being feudal and out of date. The notion that crumbs from the rich man's table are the means of feeding the poor is degrading to both the poor and to the rich man. In a modern society surely the task of the rich man at the table is to make his assets work for the benefit of the nation as a whole. Most of us want to live in a fair society and many of us care about the poor, but compassion alone will not create wealth.

Are we then, the 10 per cent. élite, happy with the fund managers who, in the last recession, rather than encouraging companies to maintain their investments for the long term, demanded and got higher dividends? Indeed, the Government encouraged the process by offering lower effective tax rates on dividends to pension funds than on money reinvested in the business. This was done in our name. Are we satisfied with this?

We have to get the balance right between profit and long-term interest. We, the 10 per cent. élite, have to make sure that our rewards are deserved and reasonable; otherwise we may be faced with the politics of envy. I hope that the Minister, in his reply, will call on those who have benefited from this inequality, many of whom must be his supporters, to welcome the report. I hope that he will urge them to use the assets they have accumulated to help reduce inequality by creating long-term work. If we, the 10 per cent. élite, are ambitious for our vested interests only, we shall end up with a society of which we do not wish to be a part. So we must be ambitious for all our people. On these Benches, that is what we mean by social justice.

6 p.m.

Lord Rea

My Lords, the House will not be surprised that I shall not be joining in the battle between the five professors or former professors of economics who are taking part in this debate nor with the one professor of history, but that I shall be talking about health and its relationship to wealth.

I shall attempt to justify two propositions: the first is that social inequality and relative poverty are related to increases in ill-health and decreases in lifespan or, put more succinctly, to increased morbidity and mortality. The second is that that increased morbidity and mortality has a deleterious effect on the economy.

There is now a large body of scientific evidence to back both of those propositions—so much so that they can now be regarded as research-based truths rather than hypotheses. The best known evidence comes from the report on inequalities in health which was published in 1980 by the working group that was set up by my noble friend Lord Ennals, who described it in his speech. That working group was chaired by Sir Douglas Black, hence its usual title, the Black Report, which has nothing to do with its contents (although some people might have thought so).

Further evidence has been built up over the past 15 years showing that, as my noble friend said, although health has improved generally, the gap between rich and poor in health terms has increased in parallel with the increasing disparity in incomes, which is so graphically (in both senses) demonstrated by the Rowntree Report.

Nearly all causes of ill-health and death have a social gradient, with the poor being the worst off. The two main exceptions are skin cancer, which is related to excessive exposure to the sun in white races, and breast cancer, which has a relationship with alcohol consumption and late first pregnancies. Both are more common in better-off people. It is now clear that the major task of public health medicine is to convince governments that the best way of improving the health of nations is to bring about conditions which will raise the health status of the less educated and less well-off people to that of those who are better off and better educated. Departments of health cannot do that alone; almost every department of state needs to play a part.

There is a steady gradient in health across the whole social spectrum—it is not restricted simply to the poor. That has been shown most clearly by Professor Michael Marmot of UCL in his longitudinal study of 11,000 civil servants, the second Whitehall study. He has found that there is a threefold rise in mortality between the top administrative grades and the lowest grade doing the most menial tasks. The same applies to spells of sickness absence, with the lowest grade taking four times as many spells of time off work as the highest grade. That gradient persists even after allowance has been made for the known risk factors such as smoking and lack of exercise which are more common among those in the lowest groups.

A small study that I am carrying out on an inner-city practice population—it has not yet been published, although I hope that it will be by the end of the year—reflects those findings, but in the general population. Drug costs and other measures of morbidity follow the same pattern.

I should like briefly to mention the work of Dr. Richard Wilkinson, who is based at the Trafford Research Centre at Sussex University, a centre named after the late much respected Tony Trafford, who was a popular Member of your Lordships' House, sitting on the Government Benches. Dr. Wilkinson has discovered that among developed nations it is not the average income, or GDP, which determines the country's average expectation of life, but the distribution of income within the country that matters. Interestingly, he found that it is the share received by the lowest two-thirds of the population that matters, rather than that of the very lowest 10 per cent.

Perhaps I did not need to use scientific papers to prove the point that health and income are related. Many would accept it as fairly obvious. But the Government sometimes seem to need to have uncomfortable facts demonstrated beyond reasonable doubt before taking them seriously, although even then action is slow to materialise. In The Health of the Nation White Paper, this, the major public health problem in the world, receives scarcely a mention. Of course, I am pleased that the Department of Health has set up a working group under Dr. Jeremy Metters, the Deputy Chief Medical Officer, to look at what the National Health Service could do to deal with health inequalities, but the wider implications (which require high level interdepartmental action) have not been faced.

The need for such high-level strategic co-operation between ministries and departments was recommended by both the Black Report of 14 and a half years ago and the Canterbury Report of 1984 on the prevention of coronary heart disease, but for many years little was done. The Health of the Nation White Paper and the activities emanating from it are very welcome, but far more needs to be done.

I have not left quite as much time as I wanted to discuss my second proposition: that bad health is bad for the economy. It is harmful for three reasons. First, increased illness costs the health service more. Poorer people with less good health make more demands on GPs, nurses and hospitals, and their drug costs are higher. I could go into details and give examples of research that has shown that, but I do not think that there is sufficient time. Secondly, there are higher social security costs because the higher morbidity of poorer people results in greater claims for sickness absence, as I described earlier. Thirdly, a sick workforce is a less efficient workforce—quite apart from the disruption of production that is caused by frequent sickness absences.

Finally, it is worth looking at the role of education in relation to both health and wealth. Developed countries—in fact, all countries—need a skilled workforce to run high-tech industries. Several noble Lords have referred to the skills revolution. There is a strong link between health and education. It is not only that educated people can usually obtain better paid jobs, but the jobs are usually more intellectually stimulating and in better surroundings. Better educated people usually make more decisions themselves in their work and are more likely to be in control than to be controlled. Professor Marmot suggests that that is a key factor in the relationship between job status and overall health.

Prescriptions and remedies are clearly stated in the excellent report. Among the most important are those relating to increasing employment opportunities. Another very important prescription, which both the report and a number of noble Lords have put forward to help to solve the present economic divide, is increasing educational training and retraining opportunities at all levels from nursery school upwards. We need the same prescription to improve the nation's health.

I should like to end by echoing the conclusion of Robert Reich in his book The Work of Nations, which is quoted in the Rowntree Report. He stated: Each nation's primary asset is no longer its stock of raw materials or physical assets, but predominantly its stock of human capital—the skills and insights of its citizens".

6.10 p.m.

The Viscount of Oxfuird

My Lords, we are grateful to the noble Lord, Lord Eatwell, and I hope that derives comfort from the level of erudition applied to the debate. There is no doubt that people of considerable experience have risen to the occasion and given their thoughts pro or con the report. I hope that the press will take a sincere and dignified look at what has been said today on all sides of the House.

There are one or two points that worry me about the Rowntree Report. I would not like them to be omitted by default. It is acknowledged that we must be vigilant. We must be vigilant in examining trends in living standards, income and personal wealth, and take steps to deal with any that are adverse. In that sense, I warmly welcome the objectives set out in the introduction to volume 1 of the report. There are, however, some aspects of the evidence laid out in the report that worry me profoundly, as they have other noble Lords.

In their haste to draw the most sensational possible conclusions, the authors of the report have been extremely selective in their handling of data. The report seemingly moves at will from a base comparative year of 1979 to 1977 when such a change will support the thrust of the report's conclusion. As Samuel Brittan pointed out in the Financial Times on 16th February: Students of the subject have long been aware that such snapshots are highly misleading. My noble friend Lord Jenkin of Roding referred to the writing of Daniel Finkelstein in the European edition of the Wall Street Journal in which he pointed out the issue of benefits. My noble friend Lord Skidelsky dealt with that, and I shall go no further than remind your Lordships that, at the end of the day, the figure for the poorest 20 per cent. of households in 1993 amounted to £300 a month plus. That is, if I may say so, a fairly fundamental omission.

My right honourable friend the Prime Minister has stated that the Government have a responsibility to reduce inequality—and I certainly acknowledge that—but it is wholly impractical to assume that some form of inequality will not always exist.

I was glancing through the books in a friend's library at the weekend. My eye alighted on a volume entitled Soviet Communism—A New Civilisation written in 1935 by Beatrice and Sydney Webb. How often have we been bemused into a sense of false security or beguiled by a seemingly simple solution of the well-meaning prophets of the Left? It is clear, 60 years later, that Soviet communism did not succeed in eliminating inequalities in Russian society. In fact, the reality of the situation was well parodied in George Orwell's Animal Farm. As I read through the Rowntree Report, and some of the press comments it produced I have to admit to a sense of déjà vu.

So what action can we take to reduce inequalities in our society? The Government had gone some way towards implementing some of the report's more sensible conclusions before it was published. I refer to work incentive methods, including the childcare disregard and the back to work bonus, which the Government announced in the recent Budget.

To go further, we should look at the fields of education and training. My right honourable friend the Secretary of State for Social Security, speaking in another place—this has been mentioned already but it is worth repeating—rightly highlighted that the earning power of brawn has not kept pace with that of brain. Over the past few years technology advances have made the skilled more productive while increased competition from the lower unit cost labour markets of the Pacific Rim have eaten away at the relative productivity of our manual and semi-skilled workers. This trend can only be addressed by more relevant and more flexible training, by redoubling our efforts in the vital field of vocational training and by urging businesses to pay more attention to their own training policies—as was mentioned by the noble Lord, Lord Haskel—including training for part-time workers. The key to business success in the future will be a flexible labour force geared to a flexible labour market.

Throughout my industrial career I have travelled widely and have seen for myself the great inequalities between rich and poor. In India—where the noble Lord, Lord Desai, has some experience—a visit to Calcutta in 1975 was a singularly salutory experience. It naturally worries me to see beggars on our streets and at our railway stations, but I assure you that this bears no comparison to third world poverty.

Many of those asking for change at underground stations are in the same category as Sir Arthur Conan Doyle's beggar in the Sherlock Holmes story who commuted home every night to a comfortable suburban lifestyle. I do not say all; just some. Many are the unfortunate product of the mistakes made with our educational system in the 60s and 70s, young people somehow brainwashed into losing the will to work.

Speaking in 1964 about the situation in the United States, President Lyndon Baines Johnson said: For the first time in our history it is possible to conquer poverty. I am sure that in a theoretical sense he may have been right. I still saw beggars on the streets of New York when I was there last year. I have also seen beggars on the streets of Brussels and, more rarely, in Geneva and Zurich.

The conquest of poverty is more about creating an environment of enterprise, of generating the will to succeed and of training to get the right skills in the right place at the right time than it is about providing state handouts. I have to admit that none of us in the world, and in particular in the United Kingdom—not even the learned authors of the Rowntree Report—has all the answers.

As one starts to read the Rowntree Report, it is easy to miss one of the early statements—widely picked up by the press and mentioned today by the noble Lord, Lord Eatwell—saying that the speed of the rich/poor differential is greater in the United Kingdom than in any other industrial country with the exception of New Zealand. Having held a New Zealand passport for 12 years, I took some exception to that. So the other day I got in touch with the High Commissioner. The response was electric. There was a 22-page fax awaiting me on my return home. I say that only to make the point about using such a large league table in that way. If we are going to make such comparisons we must balance the books with reality. My noble friend Lord Skidelsky can confirm that the march forward in New Zealand in recent years has been dramatic.

New Zealand and Britain have led the way in economic reform which has, in effect, created the speed of the divide. The important point is that New Zealand farmers, whose contribution to their GDP is nearly 5 per cent. greater than in the UK, have accepted voluntarily the removal of subsidies. What would the Rowntree Report look like if there were no Brussels-sponsored CAP? We must show compassion, but we must be realistic, just as we must be realistic in drawing too hasty conclusions from Rowntree.

My final point concerns our seemingly black economy. I suspect that it is no coincidence that a large number of Rowntree's bottom 10 per cent. are self employed. The figures can be found in the report; we need not mention them here. Like the Secretary of State for Social Security speaking in another place, I quote one significant paragraph from the second volume of the report: households reporting zero or negative incomes in 1990–91 also reported expenditure above the average for all households … the suspicion is that some may habitually misreport income to the authorities, disguising comfortable life styles". I rest my case.

We must work to reduce inequalities; we must show compassion; but we should not be over-impressed by the quality or the conclusions of the report.

6.20 p.m.

Lord Diamond

My Lords, I always like to start a speech by finding such common ground as I can, and so far as concerns the noble Viscount's speech, the only thing I can say to him is that I share his admiration for New Zealand, where a large part of my family lives on South Island. If I did not have to live here, I should be happy to live there. As to the rest of his speech, I am afraid that I cannot go with him one inch.

I want first to thank my noble friend Lord Eatwell, and to congratulate him, not just on today's excellent speech, but on yesterday's, which I was privileged to hear. To make one good speech may be one-off; but to make two good speeches on two day's running, shows promise. My congratulations must be a little muted, because he said virtually everything that I wanted to say. I shall repeat just some of what he said, because the noble Lord, Lord Jenkin of Roding, repeated the irrelevancies of the speeches made in the other place. No doubt he was duly briefed, and loyally kept to his brief, in trying to pretend that we were not talking about inequality, which is comparing one thing with another. So long as one's definitions are the same at both ends of the comparison, it matters not one whit so long as one compares like with like. I hope that the noble Lord will be good enough to listen to what I have to say as I was delighted to listen to what he had to say.

The reports published over the past 20 years, including government publications such as Economic Trends and Social Trends, ministerial Answers to Questions—I have here one to me—the nine reports of the Royal Commission, the present Rowntree Report and several others, all tell the same story. I have not heard from anyone on the other side of the House a single assertion that there is an authoritative report anywhere which pretends, or tries to drive to the conclusion, that inequality in incomes in our society has not increased since 1979.

The same story is told in all those reports, and the story is that in the early years of this century, the gap in incomes between the top and the bottom was very marked indeed. The policies pursued by every government since then, irrespective of party, were such that the gap narrowed gradually. Decade after decade, the trend was clear and consistent. But in the early 1980s, the trend was seen to falter, and then to go into reverse. For the following 10 years, the gap grew so that we are now back to where we were over 40 years ago. The progress made in those years towards a more cohesive and stable society has been lost as a result of the policies pursued by the present Government.

That position has not arisen by accident. It has come about deliberately. Let us look for a moment at the three main levers available to a government if they wish to make progress towards a fairer society. The first is income tax —a progressive tax which rests, as we all know, on the simple proposition that the broader shoulders are best able to carry the heavier burdens; but year after year since the early 1980s, new income tax provisions have been introduced which have had the effect of favouring those with the highest incomes. I shall give the figures shortly, although there is no need to because everyone in the House will know, if they have taken the trouble to compare rates of tax at the end of that decade with rates of tax at the beginning of that decade, the effect that they have had on their own bank accounts.

Secondly, I must look at indirect taxes such as VAT—a tax the very opposite to a progressive tax where the burden falls equally on the giant as on the weakling. So the Government reduced the progressive effects of income tax and increased substantially the tax which falls disproportionately on the poor.

If any further evidence were needed of the Government's deliberate intention to increase the gap in final incomes, we have only to look at the poll tax—well-to-do householders living in highly rated houses were favoured with an enormous reduction in their rates bill while millions of those who were badly off found themselves faced for the first time with large charges. As is well known, the overall burden of taxation was not reduced in that period so that the benefit to one section—those at the top—could only be at the cost to others, including those at the bottom.

The figures are illuminating. The top 1 per cent. has received tax cuts since 1979 of £75 billion; the bottom 10 per cent. has suffered an extra tax burden of £3 a week. In addition to using the tax system as a means of income redistribution in reverse, the Government turned their attention to social security benefits. Since the early 1980s, as we know, benefit levels have been linked to prices rather than wages. That has had the effect of denying to the poorest section of the community a share in all the modern improvements which their neighbours have come to regard as necessities. So in those and other ways the Government have legislated deliberately for greater inequality in final incomes. The figures show that not only has the gap widened but there has been an absolute fall in the living standards of the poorest. I regard that as deplorable. If I were asked to suggest the best single indicator of the level of civilisation of a society, unhesitatingly I would answer that it would be the way that society treated its poor.

The results of the Government's policies are to be seen inevitably in fields other than the financial one, as referred to by my noble friend, and in the greater alienation of large numbers in our society, with the consequent increase in crime and lawlessness, the gap in the incidence of illness and the gap in the expectation of life itself, of which we have had such valuable confirmation.

The Government's justification has always been that in implementing these measures they will benefit the economy as a whole in which all will share. That has never been more than an unjustifiable assertion. Nevertheless, let us test it by relating it to the facts. In addition to the long-term trend towards greater equality in incomes, there is another well-known long-term trend. Since World War II the economy has, with negligible exceptions, grown at an average annual rate of a little over two-and-a-half per cent. What happened to each of these trends after the present Government took office? The equality trend changed course and became a trend towards greater inequality. Growth in the economy, far from accelerating in the way it was claimed, slowed down to a figure of a little over one-and-a-half per cent. compared with the trend of two-and-a-half per cent. established over all those years. What went with greater inequality in our society was slower growth in the economy. There was an improvement at the top and a deterioration at the bottom. The much vaunted trickle-down effect was nowhere to be seen. A huge but not impossible task faces the next government.

I should like to suggest two matters for consideration by my Front Bench. Unless one takes a series of positive steps to move towards greater equality, the situation will automatically get worse. The dynamics of decline are such that even if one follows neutral policies, the gap will widen. Not surprisingly, the well-educated and well-connected will prove more than a match for the poorly-educated, with no friends in the right places, however level the playing field may he. A simple policy of equality of opportunity will be quite inadequate. In addition to the inbuilt tendency for the gap in incomes to widen, there is a tendency for those at the lowest income levels to remain there, or thereabouts, even through the generations. They may move from the lowest level to the next one but, with rare exceptions, no further than that. Often they will drop back as the years go by. That is not surprising, but it should not be overlooked in policy-making.

In short, fairness and stability in our society and the physical and financial wellbeing of its members, all point in the same direction. There is a need for long-term policies to restore the century-old trend to greater equality and a fairer and more prosperous society. Future Labour Ministers should have ringing in their ears the advice which those of us plebeian enough to use the Underground from time to time know so well: "Mind the gap!".

6.35 p.m.

The Earl of Longford

My Lords, I am very happy to precede the noble Earl, Lord Clanwilliam. My old Oxford friend and much admired Hugh Gaitskell would have been particularly pleased to find the noble Lord, Lord Diamond, back in the fold and speaking so effectively along Socialist lines. He would have welcomed him like the father welcomed the prodigal son, with a fatted calf and all the rest of it. Whether or not the noble Lord confessed to any sins or claimed that he had remained the same and we had all changed, what he said was very effective.

I have one vivid memory of the ancestor of the noble Earl, Lord Clanwilliam. He was chairman of the Carlton Club and I was a young Conservative who was about to desert the party and the club. I went to see the eminent man, who said, "Have a glass of port, my dear boy." I blurted out, "I'm awfully sorry, but I want to leave the club." He said, "What on earth for? No one has ever done it before." I said, "I have written a book." He replied, "If all the fellows here who had written damn silly books resigned, we would not have a member left." With that, I had to find an alternative way out.

I listened with great admiration and envy to the fine speech of my noble friend Lord Eatwell and the speeches of others who have spoken with highly relevant knowledge. In these latter days I certainly do not dare put myself forward as an authority on economic matters. At one time I hoped to be a professional economist. I entertained the dream of becoming one day somebody like my noble friend Lord Eatwell, or in fantasy, a professor like my noble friend Lord Peston. However, neither of them had been born at the time. Those dreams were shattered by an interview with J. M. Keynes. I was introduced to him as a likely recruit to his research team at Cambridge. He had peculiar gimlet-like eyes which bored into me. He leant across the table and said, "In Cambridge we claim to be possibly 10 or 50 years ahead of the rest of the world. I cannot see into your mind." I had the terrible feeling that he could see into it all too clearly and appreciated exactly how unequal I would be to the task. He asked, "Would you be able to keep up?" He left me in no doubt about his view and my answer. As a result, I crept back to Oxford and proceeded to teach politics, which was a much softer option.

I realise that in these days, when serious-minded people come to decide whether or not to vote Labour, if they are not already committed, they ask themselves the relevant questions which have been discussed this afternoon with such learning. Will Labour do a better economic job than the others? For me, that has always been a very significant question, though not a decisive one. When I worked in the Conservative research department between 1930 and 1932 I was familiar with all the arguments now used in favour of inequality. I remember a leading article in The Times which said that unfortunately wealth was like heat; it was only when it was unequally distributed that it performed what physicists called work. The trickle-down effect is simply a modern version of that. I suppose that the argument about "fat cats" is the same kind of thing. We need fat cats if we are to have plump kittens. Those were the arguments which I propounded more or less cheerfully in those days.

At the same time, I was working, curiously enough, for the Workers' Educational Association. There I acquired very different ideas: for example, that the Labour ideal was a much nobler one. The question was: could one convince oneself that Labour, if returned to power, would do sufficiently well economically to produce something to which one could give one's life?

The Labour Party's record in government at that time had not been very happy. It had twice been in office but, as we used to say, not in power. On neither occasion was it very successful. For four years I thought about all that. I came under the irresistible influence of my wife, and in 1936 I joined the Labour Party. I have been a member of that party for longer than anyone on the Front Bench. How I saw it then is how I see it now. The divisions within the Labour Party are moral divisions. One cannot ignore practical questions but, for me, the decisive issue is moral.

I was once asked by George VI, when I was a Lord in Waiting, why I had joined the Labour Party. I felt that it was impertinent to give the true answer, which was that all human beings are of equal and infinite worth. I stood there bowing and said instead, "I am on the side of the underdog." Having founded the Duke of York's camps, he was entitled to add, "So am I." Being on the side of the underdog is part of it. But the fact that all human beings are of equal and infinite worth applies to criminals and to Mr. Michael Howard, the Home Secretary. At least, I try to remember that it applies to him. That is a fundamental, moral reason.

I am a Socialist because I am a Christian. I say that again now with even stronger conviction. But I must make two major qualifications. First, I look around this House—I am rather short-sighted and cannot see everybody very well —when it is full and I can see many better Christians than myself in all parts of it. That is one aspect of the matter. Religion does not decide one's party politics. Inevitably, other factors come into the decision.

The present Leader of this House is a representative of the most famous Christian family in this country. Five of his predecessors have been Leaders of the House, so there is plenty of Christianity there, as elsewhere. I recall that Lord Salisbury, who is commemorated in the Corridor, said of Gladstone, the great Liberal, when he died, "He has kept alive the soul in England. He was a great Christian man". I do not say that if one is a Christian, one necessarily joins one party or the other. I merely explain how it has worked out in my life.

As my noble friend Lord McIntosh reminded me the other day, there is a strong Christian tradition in the Labour Party. But there are other strong traditions. My noble friend Lord McIntosh represents one such tradition very bravely and effectively. I remember introducing Lady Wootton, who was a dedicated humanist, and waiting while the Clerks hunted for the alternative form of the oath. It was a great honour to sponsor such a tremendous humanist. Moreover, outside my family and the clergy no one had more influence on me than Victor Gollancz. He was a great, noble Jew, although, in later days, he called himself a Judaeo-Christian. Therefore, I wish noble Lords to be aware of all those considerations when I say that I am a Socialist because I am a Christian. I am speaking about one man's faith. No one should speak for anyone except himself on such a fundamental matter.

In the last resort, I shall go to my grave believing that the Labour Party would make far more just and humane the distribution of wealth in this country. On that, at least, the Labour Party will always be united.

6.45 p.m.

The Earl of Clanwilliam

My Lords, I thank the noble Earl, Lord Longford, for his kind remarks about my uncle. The noble Earl referred to bringing back to the fold the noble Lord, Lord Diamond. Perhaps my uncle would wish also that the noble Earl, Lord Longford, would return to the fold of the Carlton club and the Conservative Party.

The noble Earl said that all men are equal and indeed they are. But inequality is another matter. That is inescapable as the noble Lord, Lord Eatwell, to whom we are extremely grateful for introducing the debate, said. He suggested to my noble friend on the Front Bench that at one stage in his life, he might own all the wealth in the world. That makes the point that inequality exists and has existed throughout the ages.

The solution to the problem lies in reducing poverty. The Rowntree solutions are somewhat inflammatory. It is disturbing that the Rowntree Report found that 20 per cent. to 30 per cent. of the population failed to benefit from economic growth in the 1980s and that the factors which led to that inequality were themselves contributors to overall economic growth. The report concludes that a balancing act is needed to decide how to compensate losers while maintaining economic growth. I ask your Lordships to note the word "compensate". The report refers to income transfers. Is that a form of further taxation? It refers also to support for education and training. We are all in favour of education and training, but does that not mean more taxation?

In the 1980s we were living with the educational legacies of the 1960s, when the perception of personal integrity had been denigrated. The noble Lord, Lord Merlyn-Rees, told us that his mother's dedication to honour and integrity was entire and intact. I believe that such honour and integrity were lost in the 1960s. But in the meantime the Government have been overcoming the educational problems caused by poor teachers, and improperly politically-motivated teachers to boot.

The report refers to changes in the relative distribution of wealth and income and, in particular, income which is the index of poverty. It says that changes have not allowed the rich to subvent the poor and makes recommendations as to how to achieve that in relation to the trickle-down effect. As my noble friend Lord Skidelsky pointed out, the trickle-down effect is constant. It happens all the time and it goes with the cyclical change in economic growth.

Falling relative incomes cause problems regardless of whether they reach an absolute standard. But we must ask what is that absolute standard and where poverty starts. Is it to be 50 per cent. of the average wage? Are we to say that those earning £7,000 per annum are poor? Is that not an insult to the poor in Africa and Asia? How can we, in all morality, complain that 50 per cent. of the average wage is poverty? That is ridiculous.

As my noble friends Lord Jenkin of Roding, Lord Griffiths and Lord Skidelsky said, social security payments have not been counted in the report. It calls for investment from every sector of the economy. That is easy to say, but does that mean that there will be a minimum wage which, at one stage, the report advocates? On this side of the House, we know that the argument in favour of the minimum wage is ridiculous and mistaken. It imposes an additional charge on the economy and creates rising unemployment.

The report talks about payment grants. There may be something in that because when one sees on television the crowded rooms of the unfortunate people who are living in extreme poverty, one cannot fail to see also the television sets, the VCRs, the microwaves and stereos and, as my noble friend Lord Jenkin said, the famous washing machine. All those items are purchased on HP at an APR of 30 per cent. per annum. Over three years the taxpayer has paid twice over for those items. It seems to me that if we wish to reduce poverty, it is a mistake for the taxpayer to pay twice over for those items at an interest rate of 30 per cent. per annum.

Housing is one of the great factors in the development of inequality. We are living with the legacy of the 1960s housing schemes where the poor were concentrated together and poverty became endemic. As has been clearly said—and, indeed, as is stated in the report—poor housing creates family problems such as divorce, lone parenting, poor parenting (which I believe is, perhaps, a euphemism for children being badly brought up), low standards in personal life, youth unemployment and crime and vandalism. I believe that the cure is improved housing and the creation of a mixture of tenure, as the report suggests, in an estate using different income groups such as present-day rural village life presents. That creates a population with a range of occupations and skills.

I believe that there is a reference on page 39 of the report to what I interpret as "domestic help". I must declare an interest in that respect. I can claim to be a pretty good butler, excellent in the cellar, not a bad footman and certainly one of the best scullery boys in Wiltshire. However, the village is being destroyed by shopping centres and supermarkets. London is one of those examples where there is inherent in the city village enclaves; for example, Fulham is well known as North Sussex to some of us. We need to revive society, not to throw money at it as the report suggests.

I cannot conclude without saying a few words to my noble friend on the Front Bench in respect of pensions. The creation of wealth is the vital activity in removing inequality. The production of wealth by the population can only be done through savings and through proper pension arrangements. That pension plans should be started at the earliest possible moment is a plea that I make to my noble friend on the Front Bench. The report is important. It needs great study, but it is to be welcomed. However, I suggest that there are some flaws in it.

7.2 p.m.

Lord Sefton of Garston

My Lords, in thanking my noble friend Lord Eatwell for introducing the debate, I should also like to couple that with my thanks and express my pleasure at the article which he wrote in the Evening Standard a few days ago. In that article, my noble friend said: The economic constitution has as much, if not more, influence on the freedom and happiness of the people as does the political one". I should like to deal with that point during the 10 or 12 minutes that I have at my disposal. I do not believe that it is necessary for anyone to start dealing with the Rowntree Report. The consequences of the gap widening in our society with regard to equality were amply demonstrated by the noble Lord, Lord Diamond. No one can quarrel with that analysis. It is good. But, if I wanted more confirmation, all I would have to do is to look at the fact that the European Parliament has now decided that Liverpool is on a par with the poorest places in the whole of Europe. Indeed, some people have even suggested that it is perhaps worse off and more deprived than some places in the Pacific Rim—and I am not talking about Hong Kong or the other places. So I would need no further confirmation about the inequalities that exist in our society.

However, there is another inequality that springs from the economic circumstances. How is it that a man earning £450,000 a year can say that the question of his salary has nothing to do with ordinary people? It has a tremendous effect on ordinary people. He claims that the only people who should be told about it are the shareholders. But who are those shareholders in this so-called "democracy" of ours? They are people who have achieved their position of authority purely because of the possession of money.

Tonight I feel somewhat sad because it has just dawned upon me how old I am. There is a phrase called déjà vu—if I have pronounced that wrong it is because I am ill educated and cannot speak French—in other words, I have been here before. Who at my age has not? How many reports were there in the 1920s about equality? How many reports were there about deprived areas in the country? Moreover, what was the factor that started that cycle of deprivation for some people and prosperity for others? I suppose that one could say that it was the Great War when it fostered all the technology that began to build the technological revolution that we have today. That is a fair guess—although some people might go back further than that and may even go back to the Boer War. I shall not touch on any of that. It is said that we won the war in 1918. But who is "we"? It certainly was not the miners in 1924 and 1925; it certainly was not the Jarrow marchers; it certainly was not those deprived people of whom the Prince of Wales said that something must be done; and it was not the people who were the subjects of other reports similar to the Rowntree Report. I pay tribute to them. We owe a debt to those people who produced the Rowntree Report, and other reports, upon the social life of this nation. They are the conscience of the nation.

When one looks at it very closely, one has to ask: why were there such areas of deprivation? It was because the free market had full rein. Those concerned were determined to get what they wanted, and that was their philosophy. What lessons have we learnt from that? Well, I believe that we are about to see a transformation in the political guidance of the country. During the war when ordinary working people and other people were needed to win the war, we got rid of the inequality. People began to believe that we were one nation and that, in fact, all our interests were the same.

The war came and went with the consequent loss of all those lives. Then came peace and a transformation had taken place. The transformation was that the concept of one nation was beginning to be felt. I believe that the last defender of that concept was Mr. Heath. So, for a few years, the inequalities were not so pronounced, although there was still unemployment of 750,000 or 1 million. However, then came 1979, and what happened? The year 1979 was the high watermark for free enterprise and capitalism. They were to be freed; and, being freed, they would release everyone else from poverty. That was the theme. But, as has been pointed out in today's debate, what a failure it was! All it did was accentuate the divisions in our society.

However, the situation became worse. It took on a new note. Those people who had previously operated in local government and who had done so as a voluntary service with, in most cases, payment of expenses only, those who had contributed efforts to electricity, gas, water, sewerage and all the other supplies which are so necessary for decent communal life and so necessary to ordinary people, were suddenly thrown into a new world. But what was that world? It was that money counts—"efficiency" is the word. So, we privatised. As one well-respected Member of this Chamber said, we sold the silver. However, we were not only selling the silver; we were also selling the only possibility that people have to get a decent standard of life. We were selling employment. On the basis of wholesale redundancies, some of these elevated people in the privatised utilities suddenly became efficiency experts. Never mind that they had to scrap 250,000 jobs and put people on the scrapheap. That did not matter, the company was becoming efficient.

The unemployment which in 1979 the Tories said they would get rid of began to mount. It is still there. The Tories say it is hovering around the 2.5 million mark. It is not: it is hovering around the 4 million mark. When one counts those unemployed people and their dependants, within our society there is a growing threat to the stability of our political and social system. I make no bones about it: that threat exists. One has only to look at the demonstrations that have taken place over the export of live animals. Imagine what will happen when those people who are being deprived of a decent standard of life in this country suddenly decide that it is time that they enjoyed some of the prosperity, not all of it but a decent standard of life. When they decide that that is worth demonstrating about, believe me, the demonstrations that have taken place over the transport of live animals will be nothing.

Your Lordships may think that that is an exaggeration. What about the case of the chairman responsible for a health trust that was criticised by this very Parliament for the system, which he had organised, which allowed a lady to go for eight months without being told that she had breast cancer? I wonder what she and people who are interested in her case think about the justice of the situation when the person in charge of that health trust went home with a £200,000 pension while that lady was left to go home and worry the very soul out of her, and her family was left to worry, about the fact that she had not been told.

What about the man from British Telecom who thinks it a big joke to compare himself with a junior doctor in a hospital? That is the kind of mentality that is bred by the current attitudes. People know that, and sooner or later they will not stand for it. I shall be on their side, and I hope a lot of people will be on their side. Society is moving towards breakdown unless we do something about it.

I want to deal with one other point, whether this free enterprise of ours is patriotic. I remember somebody who was once a director of the Bank of England—I am getting old. Famous words were ascribed to him. It was at a time of financial difficulty, and I am not a financial expert. He said that he knew that it was not good for the British economy to sell sterling, but it was good business. He did it. That was a measure of his patriotism.

Three years ago I raised a Question as to whether British Aerospace should be prevented from selling off some of our industry. I mentioned in particular the manufacture of the 125 jet. That was a successful jet which was making £500 million profit. There was nothing wrong with it. But British Aerospace had a little problem and decided to "flog" it. It was sold to Raytheon. Raytheon said that they had a manufacturing base at Broughton in Cheshire. They built the jet there for 18 months, but 500 jobs have now been exported to the United States of America. Rover is another example. The list is endless. What is going to happen when we arrive at a situation when, as is in the pipeline, some of those privatised utilities are owned by foreigners.

Our new Labour Government, which will come into existence, may talk about regulating the economy. They may talk as much as they like about the whole of private enterprise, never mind the privatised utilities, and the long-standing pattern in free enterprise whereby the amount of money paid to executives is well above anything paid to others. The rules of the game are to get as much as one can. The new government will not be able to regulate that: they will have to control it.

7.5 p.m.

Lord Monkswell

My Lords, this has been a fascinating debate. There have been some big hitters. I refer particularly to the contributions of the noble Lord, Lord Merlyn-Rees, and the noble Lord, Lord Sefton of Garston. We all owe a debt to the noble Lord, Lord Eatwell, for introducing the debate so well.

I was concerned by the contribution of the noble Lord, Lord Jenkin of Roding—which set the tone for the contributions from the Government Benches—which suggested that the report was flawed. Somebody referred to taking snapshots. One of the interesting aspects of the report is the way in which a number of snapshots run together to show a moving picture. We must recognise that there is a difference between the basic statistics and factual information that should be the basis for our decisions and the way we interpret those figures and the decisions we arrive at as a result.

The report we are debating today, the Rowntree Report on Income and Wealth, has provided us with the statistical, factual information that has not been available to us up until now. Up until now we have had to take on board the Government's view that their way of running the economy was the best one in the sense that it increased wealth and growth and that everyone benefited from that. The report has highlighted the fact that the incomes of the bottom 10 per cent. to 20 per cent. of our population have not increased over the past 20 years, but the incomes of the top 10 per cent. of the population have increased significantly more than inflation.

I would have hoped that the facts presented to us in the report would be accepted. How we interpret those facts and the decisions that we arrive at as a result of that interpretation are open to debate and question. However, it is unfortunate that basic facts which are presented to Parliament are denigrated and ridiculed and it is suggested that they are not accurate.

The statistics show the moving picture which has been provided by taking snapshots. They show that people on lower incomes have not benefited over the past 30 years and the theory of trickle down has not worked in practice. It is interesting to reflect on the fact that the report identifies the period from, I think, 1977. We can legitimately ask: why did the situation change then? We have to look back to the mid-1970s and realise that the whole of the Western world was dislocated by the massive increases in oil prices engendered by OPEC. We must recognise the destabilising effect that that increase had on world economies.

As a response to that destabilisation there was—dare I say it?—an unfortunate reversion to old style economic thinking referred to as monetarism. That pervaded not just the Conservative Party but also the Labour Party and was prevalent around the world. The Labour Government in this country attempted to ameliorate the difficulties which faced the economy. However, after 1979, as many noble Lords have pointed out, instead of seeking to ameliorate the difficulties, the Conservative Government made them worse. The noble Lord, Lord Jenkin of Roding, seemed pleased with himself for having been the one who broke the link between average earnings and pensions and unemployment benefit. We have to recognise that the statistics in the Rowntree Report effectively indicate that that was one of the factors which made the situation worse.

As an engineer I look at facts, figures and statistics. In this House we have a tremendous advantage through the amazing knowledge that some Members bring to bear regarding the historic dimension. The noble Lord, Lord Merlyn-Rees, encapsulated the problems that we face by comparing the situation on unemployment that we face today with that faced by the country in the 1930s. As an engineer it is interesting to reflect on what has happened in engineering production firms. What are the comparisons between now and the 1930s? There were similar disparities between income and wealth, in particular in the 1920s. With regard to the production of motor cars, a number of leading motor manufacturers produced motor cars with large V-12 engines, appealing to the upper end of the market. A number of rich people wanted the very best and they were provided for. However, that period in motor development lasted for only a few years. The crash then came and those wealthy people could not afford the big cars. They could not afford to put in the petrol to keep them running. It is interesting to note that exactly similar events have occurred over the past few years. All the leading prestigious manufacturers of motor cars have produced V-12 engines over the past 10 years. I refer to Jaguar, BMW, Mercedes Benz and some of the prestigious American manufacturers too. I speak in a European context.

When considering the differences between income and wealth, we must look at the way in which people with excessive incomes spend their money, and at the result for poor people of not having money to spend. I have spoken of the expensive, prestigious motor cars that in some respects are a blot on our landscape because of excessive consumption of petrol and the attendant pollution problems. That is one problem relating to the high income end.

Regarding the lower end of the income scale, let us consider young people with inadequate incomes. What do they do? They buy run-down motor cars. They cannot afford to maintain them so they are run inefficiently and pollute the environment. The chances are that they cannot afford the tax, the MOT or the insurance, and inevitably they will fall foul of the law. Large numbers of those young people are sent to prison. That is an added cost to the Exchequer and to our society.

These factors have a knock-on effect on the economic and industrial strength of the country. That is the key to what we are talking about. I have referred to motor cars. However, one can use that practical experience in a range of other areas. One can see that rich people over-consume on housing. They may have a second or third house abroad which does nothing for the economy of this country. The poor people do not have enough money to maintain their houses. Therefore the housing stock of poor people deteriorates.

Perhaps I may refer to what noble Lords opposite have suggested is a problem: that the report does not take into account benefits in kind—education, health and others. The costs of those benefits in kind have increased for poor people. Education is not completely free because parents have to buy books. Prescription charges have gone up. However, one of the interesting aspects relates to wealth. Before this Government came into power, we were all shareholders in the large, nationalised utilities. But those have been sold off and the poor people are no longer shareholders in those privatised utilities. Therefore, they have effectively lost wealth. I hope that the Government will recognise that the report contains important statistics which we need to bear in mind when developing policies for the future. I suspect that the Government will not respond satisfactorily to the report. I am sure that a Labour Government will do so, and will ensure that our country makes progress.

7.18 p.m.

Lord Beaumont of Whitley

My Lords, we have had a most interesting debate and very good speeches. I select in particular the speeches of the noble Lords, Lord Haskel and Lord Sefton of Garston, and that of the right reverend Prelate the Bishop of Bristol. We have had some not-so-good speeches. We have had one or two good speeches from noble Lords who had to leave before the end of the debate. I believe that that should not happen. Your Lordships are of a mind that there should be a very good reason for that; no doubt there was. However, I should like to suggest Beaumont's law. The more important you consider your speech, the more important it is that you stay until the end to hear people answer it. If you have airy nothings to say that is fine. You can slip away. If not, you ought to stay whatever happens.

I wish to concentrate on the undesirability of extreme poverty and extreme riches. I personally have experienced both poverty and riches and have no doubt that both are undesirable, although one is considerably pleasanter than the other. My experience tends to protect me against the usual small arms fire which has not been absent from the debate and which implies either that one does not know what one is talking about or that one is consumed by envy.

In deploring poverty, I am clearly in tune with the majority of your Lordships' House, although some noble Lords on the Benches opposite would claim, and have claimed, that since there is no such thing as absolute poverty in this country there is really nothing to deplore. However, we need to hammer on about poverty which seems to have passed out of mainstream political debate in this country, although one would not think so from today's proceedings. I define poverty in the same way as Adam Smith (surely acceptable to the party opposite) defined necessities. He said: By them, I understand not only the commodities which are indispensably necessary for the support of life, but whatever a custom of the country renders it indecent for creditable people, even in the lowest order, to be without". I was present yesterday evening as a member of the executive of the family service units of Lambeth and Southwark. We were discussing our plans and the budget available for the next year to help abused children, refugees and battered wives, almost all of whom live in extreme poverty. The FSU executive committee was wondering what on earth it would do with an income which would be reduced, first, by the saving of funds of the local authorities on which it depends and, secondly, by the difficulty of going to charities when a major charity has just gone bust. The charity went broke through gambling. It was not simply that the man absconded; the firm had been quite happy to receive income from his gambling last year when it made a profit. It was only when he started making a loss that he became the villain of the piece.

The party opposite, with some honourable exceptions, has never been much interested in the topic of poverty. The Labour Party has an honourable record. But the main reason I never sought to join it was that it seemed to me that the basic contradictions in the party—those which drove colleagues like my noble friends Lady Williams and Lord Jenkins out of it—would prevent the party ever being able to do anything about it.

The Labour Party has more or less got rid of those contradictions, but at the same time the baby appears to have been thrown out with the bathwater. With the exception of some speeches, I no longer detect the burning zeal for the abolition of poverty which I used to admire. A fair question is being asked of the Labour Front Bench which I request them to answer this evening: which of the recommendations of the report will they themselves put into operation?

I have always thought it honourable in this cause to be on the radical wing of my own party, the party of Beveridge. However, since I am being rude about others, I may say that I am not proud of my party's refusal to continue with a policy of citizen's income for which my noble friend Lady Seear fought so hard and for which the noble Lord, Lord Desai, has been a major protagonist. No more do I admire the inability of the Borne Commission's report to do more than toy with the subject.

As to riches, I find myself in a small minority in deploring them. Without making comparisons, I am always heartened by the teachings of Jesus of Nazareth. While not paying a great deal of attention, according to the Gospels, to poverty, he paid a great deal, not at all complimentary, to riches. On poverty, his most prominent pronouncements were that "the poor are always with us" and that they are "blessed", a saying which, given the arguments used by theologians over the years, we cannot really use as the basis for very much. He also said that the poor will have the Gospel preached to them. About riches and rich people, almost all his references are pejorative—in which, of course, he stands in the great tradition of the Jewish prophets and the Jewish religion.

I am likely to get more of a hearing from noble Lords if I concentrate on the evils of major inequality in society, to which the Motion calls attention. The Government, in a rather oblique way, added their own welcome comment on the subject in the Prime Minister's remarks yesterday about high salaries.

The Motion is careful to limit its reference to the effects on our economic performance, but I argue that you cannot separate social performance from those effects, as did the noble Lord who inaugurated the debate, to whom we are extremely grateful. A nation at odds with itself, as a country with wide disparities of wealth is, will not, in the long or medium term, be an economic success, and probably not in the short term either.

In a democracy it is important that the governed be in social touch with the governors. The dustman thinks that all politicians are crooks and that members of the Cabinet are the crookedest of all. If noble Lords doubt that statement, they have not been canvassing recently. I know that all politicians are not crooks, partly because I know members of the Cabinet who are not crooks. It is impossible for all dustmen to know members of the Cabinet, but society needs to be so reticulated that MPs, councillors and their electors form a web of personal connections, recognising each other's worth, even when they dissent violently from each other's opinions. Major disparities of wealth, accompanied by policies of segregation, either of the rich or the poor, make great gashes in that web. It is sad that the middle classes have entirely deserted the ghettos. It is true that the only profession who still live in the ghettos are the clergy. Social workers do a wonderful job, but they move out in the evenings.

There are some who say that we must have these extremes if we are to be internationally competitive. I believe that they are probably wrong, even in terms of the present economic order. In terms of the future economic order, to which all the governments of the world, including our own, are committed—that of the sustainable economy—they must be wrong.

The implications of the sustainable economy clearly involve an immense decrease in international and national inequality. Of course, there are major conceptual and practical difficulties in the way of equality, but as Tony Crosland so rightly pointed out, in the tradition of Karl Popper, that is no reason not to try to diminish inequality. I suggest that a differential within a nation of family incomes after tax of something like 5:1 is a target at which to aim. Every party and almost every person in this House would subscribe to the aim of a coherent society at peace with itself. Let us turn our words into action and realise what are the necessary steps to achieve that and then let us take them.

7.28 p.m.

Lord Peston

My Lords, my time is limited and I must not take any from the Minister. Therefore, I can only cover some of the points raised in this afternoon's extremely interesting debate. If I fail to deal with all the errors made by noble Lords opposite—and there were many—I ask them not to be insulted. If I neglect any, perhaps they will approach me privately later, when I shall be perfectly happy to explain where they went wrong!

The central question, which was emphasised by many noble Lords but certainly by my noble friend Lord Desai and the noble Lord, Lord Diamond, is: has there been any sort of economic miracle, and has the increase in equality been beneficial to the country at large, albeit at the expense of the poor?

As the noble Lord, Lord Diamond, pointed out, under this Government GDP has grown at about 1.75 per cent. per annum, which is less than the long-run trend in growth of the UK economy of 2½ per cent. per annum. Manufacturing productivity has certainly risen, but manufacturing output has not risen to anything like the same extent. Essentially, firms have shed labour. The market mechanism has failed in that most of the workers who have been shed have failed to find employment elsewhere. They are unemployed or prematurely retired.

Unemployment was at 1.3 million when this Government came to power. It has not fallen below 1.6 million since then, and for the most part has been above 2 million. Indeed, it is a measure of the Government's acceptance of failure that they boast that a fall below 2.5 million is a triumph. The inflation rate has fallen. But that is not surprising. If you are willing to weaken the labour market and allow unemployment to rise and stay high, there is no difficulty in controlling inflation. But even then, the alleged success is less than impressive. With unemployment above 2 million, there is already talk about rising inflation and the need to tighten policy; i.e. a new rise in unemployment in due course.

That is one reason why the Rowntree Report is so valuable. It brings out what noble Lords have said: much of the problem of poverty is connected with lack of jobs for workers who want to work, which is exacerbated by low pay in some of the jobs that are there. Low pay is precisely what the Government advocate—people must price themselves into work. It is also connected with the fact that the Government oppose worker protection and a minimum wage. In this connection, I must quote the greatest of all economists. He said: Our merchants frequently complain of the high wages of British labour as the cause of their manufactures being undersold in foreign markets"— that is an argument that I have heard several times this afternoon— but they are silent about the high profits of stock. They complain of the extravagant gain of other people; but they say nothing of their own. The high profits of British stock, however, may contribute towards raising the price of British manufactures in many cases as much, and in some perhaps more than the high wages of British labour". That was said by Adam Smith, an economist often supported by noble Lords opposite but never read.

May I say how delighted I am that the Prime Minister has stopped shilly-shallying and has recognised how appalled most people are at the greed of the heads of the former public corporations. Now that the Prime Minister has spoken, I hope that we shall hear no more from noble Lords opposite about "the politics of envy". In the old days, the Right-Wing press used to refer to trades unionists as having their snouts in the trough; but these people have immersed their whole bodies in it. They have shown how moderate the trade unions were, even at the height of their powers, in their demands for more pay.

The public are happy to see high rewards corresponding to merit and economic efficiency. But what we have seen recently is quite different—especially bearing in mind that most of the people involved have little obvious merit above the average. What I think ordinary people find most distasteful is less the greed and, as noble Lords have pointed out, more the attempt to justify it. It is one thing to take the money if you can get it, and if someone is fool enough to give it to you. But it is quite another to make comparisons with those who lay down their lives for their fellow human beings and serve the community.

I happen to know some of the people about whom we are talking. When I have met them, they have seemed to me to be decent, ordinary human beings. One can only reflect sadly on the corrupting influence of large sums of money when we look at the events of recent weeks.

I turn to philosophical principle. I advocate the Rawlsian proposition which is implicit in much that has been said; namely, that we should justify a policy initiative according to how it affects the poorest in the community. The simplest way to put this is to ignore relative incomes for the moment and to say that policy is good if it makes the poor better off and bad if it makes the poor worse off. In a world of uncertainty, perhaps we ought to say—Rowntree alludes to this—that a policy is good if it has the potential to make the poorest better off; and, as a minimum, that a policy which neither makes the poor better off nor has the possibility of doing so, is bad. That is precisely what has happened in the lifetime of this Government.

My noble friend Lord Longford raised the question of morality. He and I may differ on the underlying basis of morality, but what has appalled me during this debate is that not a word of ethics or morality has been uttered by noble Lords opposite. I have sat through many education debates in which noble Lords opposite have argued for, and voted for, compulsory religious education of a predominantly Christian character. Why have they not expressed such beliefs in connection with the subject of today's debate? If they were teaching a religious education class, how would they reply to a young person who queried the morality of a society in which those who have most are getting more still, and those who have least are getting least in addition? I give way to the noble Earl.

The Earl of Clanwilliam

My Lords, did not the report say that it was not dealing with morality but with facts? The report has nothing to do with morality at all; it says so.

Lord Peston

My Lords, the noble Earl may think that it has nothing to do with morality. I am simply telling him that I think it has.

The Earl of Clanwilliam

I did not say that it has nothing to do with morality; the report says that.

Lord Peston

My Lords, the noble Earl, if he wishes, can take the view that this has nothing to do with morality. If that is the line that he wishes to take, I shall not argue with him—particularly as he has taken a whole minute of my time, which has also to do with fairness. I happen to believe that there is a moral issue here.

I turn briefly to the "benefits in kind" problem. I do not believe that the problem is hard to explain. We are discussing a dynamic phenomenon. We are asking what has happened to incomes over time, relative or absolute incomes. Rowntree has certainly shown that, measured in the ordinary way, the position in regard to relative incomes has deteriorated. As the noble Lord, Lord Diamond, pointed out —this is enormously important—every other single study has shown it. That is worth bearing in mind.

The important point, as a matter of technical economics, is of course that the poor received benefits in kind at the start of the period we are considering. They also receive benefits in kind at the end of the period. But for benefits in kind to reverse the figures demonstrated by Rowntree, it is necessary for them (this is an arithmetic point) to have risen significantly more quickly than GDP in real terms—real terms being correctly measured, I might add. But they have not, and that is the point. I am sorry to be giving a lecture in elementary economics to one or two noble Lords, but they have mistaken the difference between statics and dynamics. Education in volume terms, which is the way in which we used to publish the figures, has risen by only 12 per cent. Health, again in volume terms, in the way we used to measure the figures and not the way the Secretary of State prefers, has also risen by hardly more than 25 per cent. since this Government came to power. That is not remotely sufficient to reverse the argument. What it says is that if we could do the calculation properly about benefits in kind, the position would look worse rather than better.

In that connection, I particularly address the noble Lord, Lord Jenkin of Roding and ask: why does he not use his common sense? Let us take that example. When we look at the schools with the leaking roofs, the schools that are short of teachers, and those which Her Majesty's inspectors say are not performing as well as they should, where are those schools? Who goes to them? The children of the poorest in our society, the ones who have suffered most, go to them. The notion that benefits in kind would offset this is simply absurd.

I say to my former pupil and good friend, the noble Lord, Lord Griffiths, that he is quite right to emphasise that a better study would be a lifetime income study. As he knows, 30 years ago I must have been one of the first people in this country ever to do a lifetime income study. The technical point is correct. Some of the present poor are temporarily poor, and some of the present rich are transitorily rich. That is perfectly right. Therefore, if we could measure lifetime incomes, we should see a smaller variance than measuring incomes at a point in time. But we should still see an enormous variance—unless the noble Lord, Lord Griffiths, believes, as I do not think he does, that today's poor will be tomorrow's rich, and today's rich will be tomorrow's poor. In other words, I agree with the noble Lord on the elementary technical economics; but that does not help the argument very much.

I come finally to the noble Baroness, Lady Elles. I apologise for missing the first minute of her speech because I was outside the Chamber. My remarks relate also to the noble Lord, Lord Beaumont of Whitley, whose speech I found immensely interesting. The noble Baroness asked about Labour Party policy. I was delighted to hear that question. I am bored out of my mind by the way in which the Government continually kick the ball into their own goal. Noble Lords did it again this afternoon. Let me try therefore to score a goal or two directly from our side.

The report makes many recommendations. Noble Lords opposite, including the Government, would do well to consider them rather than seek to undermine the report by impugning the integrity of one of its main authors, as my noble friend Lord Desai pointed out.

Let me make a few points on policy. First, and central to this argument, is that we shall restore full employment. Full employment is a pot of gold. Noble Lords opposite constantly stand up—the noble Lord, Lord Mackay of Ardbrecknish, does it always to my great pleasure—and say that they are keeping a list of my commitments. I can say that if we get back to where we were in 1979, the GDP will be much higher. More to the point, the enormous waste on social security benefits will simply disappear.

In that connection a fact well worth considering is that the total average revenue taken by the Treasury in the decade up to the period that this Government came to power was 39 per cent. to the nearest whole number. Today it is still 39 per cent. to the nearest whole number. The greatest public relations success of modern times is that the party opposite have managed to convince the public that it is a tax-cutting party. Nothing could be further from the truth.

First, we shall restore full employment. Perhaps the Minister will say whether the Government are opposed to that. It may take five years, but that five years may start tomorrow. Secondly, we shall re-establish—echoing what many of my noble friends said—a sound system of education and training. In particular, we shall do nothing to stop people from pursuing such courses of education and training.

Thirdly, again following the Rowntree Report—I hope that the Government will not say that they are opposed to this—we shall give the highest priority to childcare provision. Fourthly, we shall change income support and similar benefits, so that they are not a disincentive to work, but become an incentive. I hope that the Government are not opposed to that. Lastly—this is the central point about policy—whatever the level of taxation (and until my right honourable friend gives his first Budget, I cannot predict what that will be), we shall make sure that in that Budget the burden borne by the poorest will decline and the burden borne by the richest will certainly not decline. Perhaps again the Minister will tell us what he thinks of that.

I apologise to your Lordships. I do not like to go beyond the assigned time. There are other topics with which I should have liked to deal, but there will be other days.

7.44 p.m.

Lord Mackay of Ardbrecknish

My Lords, as I expected, the noble Lord, Lord Peston, got nearer to fleshing out the bones of what he hopes will be a future Labour Government policy than anybody else this afternoon who speaks remotely for the new Labour Party. The attacks on privatised industries come from those who hark back to the days of Socialism and nationalisation. The one thing I believe I understand about the new Labour Party is that it is not committed to renationalisation of any of the privatised companies.

The noble Lord, Lord Peston, made a statement in relation to restoring full employment. We all want to see a reduction in the rate of unemployment, and I shall come to that in a moment. But I ask myself: if full employment was as easy to bring about as it is to say it, why did the last Labour Government—as did all governments since the 1950s and 1960s—watch unemployment grow? Noble Lords may dissent from that. But the last time they dissented I checked the facts and they show a rising trend in unemployment over the past 20 or 30 years. If it were easy to bring about, why have none of our colleagues in the European Community, including those governed by Socialists over the past 10 or 15 years, not found the magic wand? Later in my speech I shall come to the problem of unemployment and what we are doing to address it.

The noble Lord, Lord Eatwell, did not give us much in the way of commitments. In fact, it was not until the 19th minute of his 20-minute speech that he spoke of what may be done. Even then it was all broad generalities, some of which most of us would agree with. I am not sure that I heard a specific commitment to all that is written in the Social Justice Commission report. I shall check that. If I did, I shall be interested to see how the party opposite responds when we come back to the Pensions Bill and the provisions regarding retirement at 65. That is one of the recommendations of the Social Justice Commission. I have a small feeling that it was not being supported a week or so ago in the Committee stage of the Bill.

The noble Earl, Lord Russell, with whom I sometimes agree, at least indicated his support for some specific policies and for the extra spending that would go with them. However, I hope that nobody will accuse me of trying to brush under the carpet or rubbish, or any of the other things of which I have been accused almost in advance, any of these matters. These are serious issues. But it is well worth putting one or two points on the record. To be fair to one or two noble Lords opposite, they agreed with the propositions I shall make, though they hastily started to qualify them.

The vast majority of people in our country are better off than they were in 1979. The average household disposable income has risen by 36 per cent. Those rises are not confined to a few top earners. Average income has risen for all family types. Indeed, far from falling behind other countries, the living standards of ordinary British people have been catching up. The latest OECD figures reported in last month's Employment Gazette confirmed that when it stated, Estimated take home pay for a married couple [with two children] on an average production worker's earnings is higher in the UK than in all other EC countries except Luxembourg, Belgium and the former West Germany". Overall, the 1980s saw a much more rapid growth in income of people under pension age than in the 1960s and 1970s. Of course, there will always be a bottom decile. I was not sure whether one or two noble Lords were equating poverty with the bottom decile. I caution them against that. I am sorry to tell them, not as an economist—I have no qualifications—but as a mathematician that the bottom decile is always with us. Therefore if we define the bottom decile as poverty, then whatever we do we will not get away from the fact that that bottom decile is going to be in poverty. But of course it is a group of people who are the least well off. It is not a constant group. During the course of our lives, we shall all slide up and down the income scale of the Gini coefficient as our circumstances change—when we marry; when we have children to support; when the children leave home; when we have two incomes coming in; and when we retire and have to live on a fixed income.

So it is not the case that there is a fixed group of people who are always left behind by the rest of society. Indeed, my noble friend Lord Griffiths drew attention to the appendix in Volume 2 and the piece about time periods. It is addressing the question on inequality of incomes over a longer period than the snapshot it took in 1991 which of course does not include the decline in unemployment which there has been since December 1992. But over a longer period such as a year, incomes will look less unequal. A year or two later some of those who have been in the poorest 10 per cent. may have escaped from it and others may have joined it. Taking the two years together, income is more likely to be more equally distributed than in either year looked at separately. The new British Household Panel Survey confirms that people move around the distribution. About one-quarter of those re-interviewed in 1992 had moved more than one place up or down the income distribution (and that is divided into deciles) since 1990 including 29 per cent. originally in the poorest decile. So a combined distribution for the two years would look less unequal than for a single year. As regards lifetime incomes, the survey goes on to say that they are much more equally distributed than annual incomes. Depending on the measure the inequality observed on an annual basis is reduced by between one-third and one-half.

Lord Peston

My Lords, why did the noble Lord leave out the second part of the sentence?

Lord Mackay of Ardbrecknish

My Lords, I am coming back to that.

Lord Peston

My Lords, that is the central issue.

Lord Mackay of Ardbrecknish

My Lords, I wondered whether the noble Lord had reached that page and was reading it with me. I am glad to see that the noble Lord, Lord Peston, was paying sufficient attention.

Some groups which traditionally have been looked at as poor have significantly moved out of the bottom decile. For the very simple reason that the decile is always there, some groups move out of it and some move in. That is the point I wish to address in a second or two.

I now want to look at one of the groups which has moved out. I refer to pensioners. Fewer pensioners are dependent on benefit; but those who are have seen their benefit income rise. The number of pensioners for whom benefit is their only source of income has dropped from 21 per cent. to 17 per cent. Almost nine out of 10 pensioners now have an income on top of social security benefits; namely, 88 per cent. of those recently retired and 85 per cent. of all pensioners. Almost eight out of 10 have income from investment and savings, which is up from six out of 10 in 1979; and that is worth on average £43 a week. Six out of 10–65 per cent. of those recently retired and 60 per cent. of all pensioners—have an income from an occupational pension which is up from five out of 10 in 1979 and is worth on average £70 a week. Nearly half of all pensioners own their own homes, and a very great majority own them outright. Nearly all have access to the majority of common consumer durables such as telephones, central heating and the like. We have actively encouraged people to take responsibility for their own provision, offering flexibility and choice. Harking back to the Pensions Bill debate, Volume 1 of the report says on page 51: The system should give clear encouragement to all income groups to accumulate private or occupational pension rights". We have also protected poorer pensioners by providing extra help since 1988 worth over £1.2 billion a year.

Just in case noble Lords opposite do not believe me, I should like to quote my friend—I call him "my friend" because he is my friend although he is on the other side of the House in the other place—and that is Mr. Donald Dewar, the honourable Member for Garscaddon. He said: There is undoubtedly evidence, which I welcome, that retired people are on average now enjoying many more resources and a higher quality of life. That is largely because of the maturing of state earnings-related pension schemes and occupational schemes and … approved [personal] schemes".—[Official Report, Commons, 8/7/94; col. 606.] I return to the point which I believe I have made twice that the bottom decile is always going to be with us, that the pensioners have moved out and some other people have moved in. By and large, the people who have moved in are the unemployed. That is obviously something which we have to look at very seriously. Before I turn to that, we have to look—and my noble friend Lord Jenkin of Roding drew this matter to the attention of the House—at all the indications of living standards before we come to the sort of pessimistic conclusions that the party opposite would like to draw. Living standards are in fact higher than the position of the unemployed in the bottom decile would suggest and certainly better than the position as described during most of this debate.

If we look at the expenditure of the group in the bottom decile as a whole, we find that they spend more than the group immediately above them. Consumer goods which were a luxury only a few years ago, are widely held. Half of the group in the bottom 10 per cent. now have cars. The number of those having central heating has almost doubled since 1979. Three-quarters have a telephone compared to fewer than half in 1979; and well over half have video recorders; and a fifth have home computers.

I am not complaining about that because I welcome it. But that is a little at variance with the picture which some noble Lords opposite wish to paint. It is interesting to note that of the 750,000 of the 5.7 million who reported nil or negative incomes, half of them spent more than the average for the population as a whole. That illustrates that the statistics on which this debate and a great deal of this report are based are not as straightforward as perhaps noble Lords opposite and the authors would like to pretend.

I return to a point made in the intervention made by the noble Lord, Lord Peston; namely, that changes in the labour market have had a major influence on the distribution of incomes. Therefore, we have taken measures—which I shall come to—to address the adverse effect of those changes. There is one issue which I believe we should all applaud. I was interested to note that not much was made of it. I refer to the increase in women's employment. It is clear from Figure 28 in Volume 2 that women's participation in the labour market has increased strongly for each decile except for the bottom decile where the increase has been much less marked. That has shown through to the increased role the woman's wage has played in the family income.

Page 50 of Volume 2 of the report points out that for couples aged between 24 and 55 years, the 1979–81 male earnings were nearly 75 per cent. of the gross family income. By 1991 that was under 60 per cent. while the average female share rose to one-fifth. Women working full time in 1991 brought in an average of 42 per cent. of the family income. Increased female labour force participation tended to widen the overall distribution. Again, as regards that increase, the rise also contributed to the way in which the incomes of couples of working age, particularly those without children, moved ahead of other groups like single pensioners or lone parents. That is an example of the growth in inequality between different groups. There is a problem buried here—

Baroness Jeger

My Lords, perhaps I may interrupt the noble Lord for a moment. As an old woman in my 80th year, I ask the Minister to look at the reality. He has talked about a sixth of a number of people getting more of this or that. Will he tell me what I am getting a sixth of in my 80th year? Are women, especially widows, any better off than they were 100 years ago?

Lord Mackay of Ardbrecknish

My Lords, I am not going down that road. The idea that people are not better off than they were 100 years ago is not plausible. Indeed, the idea that they are not better off than they were 30 years to 50 years ago is not plausible, either.

I was coming to the main problem. I was surprised that not much was made of it. I refer to the rise of two-income families which I believe the noble Lord, Lord Eatwell, mentioned in his speech. I refer to the difference between the work-rich and work-poor households. The report itself says that in 1990 the same number of individuals of working age did not work as in 1975, but twice the number of households had no income from work. Over the same period the proportion of two-adult households where both worked rose from 51 per cent. to 60 per cent., but the proportion with no earners increased from 3 per cent. to 11 per cent. That is a very serious part of the problem identified by the Rowntree Report.

So clearly, that group in particular is affected and clearly it is unemployment and changes in the labour market which are key factors. Surely we all agree that the most effective way of raising living standards and the prospects for unemployed people of working age is by helping them to return to work. In Chapter 3, Volume 1, the report makes a number of policy suggestions. Noble Lords will not be surprised that some of them, but not all, accord with the Government's own policy initiatives. Indeed, there are some on which we have been working for a number of years. For example, in 1992 we reduced the number of hours required to qualify for family credit from 24 hours a week to 16 hours a week. Now we have 200,000 families receiving family credit in that band of hours. Many of them had previously received income support.

In 1993 we introduced the Family Credit Helpline so that people could have easy access to information about how family credit and other benefits could help them to be better off in work. Last year we removed one of the major stumbling blocks preventing families returning to work through our help with childcare costs in the in-work benefits, and I am grateful to the report for welcoming this decision.

We also announced at the tail-end of last year a further raft of reforms in the Budget. From July 1995 the £10 premium in family credit will make full-time work more attractive for those working 30 hours or more a week. We are at one with the report when it highlights in volume 1, page 48, the transitional period between benefit and work as a source of risk for the claimant. It says: Those moving off income support into work may be entitled to in-work benefits like family credit or continued help from housing benefit. The calculation and payment of all in-work benefits should be speeded up as much as possible to reduce the potential gap in time in payments from the two systems. From April 1996, to remove uncertainty at the point of moving into work, people who take a job after six months' unemployment will be able to keep their housing benefit at their existing full rate for an extra four weeks. Also, local authorities will be encouraged to arrange any continuing in-work housing benefit award within this period. We also aim to speed up the payment of family credit so that people in work will get this extra help more quickly. We are starting this process from April 1995, and from April 1996 we expect almost all new claims for family credit to be arranged within five working days. From October 1996 the tax-free back-to-work bonus of up to £1,000 will be a considerable help in smoothing a family's income flow on taking up work.

The report speaks of encouragement to employers to take on more unemployed people and we have announced ways to help in that direction. From April 1996 employers will have a one-year holiday from the employer's national insurance contribution for every person they take on who has been out of work for the previous two years. This April, employers' contributions will be cut by 0.6 per cent. for all employees earning under £205 a week.

The report acknowledges the importance of family credit in Volume 1, page 44(b) and we are indeed introducing this radical innovation in social policy. It begins by approving family credit for families with children and says that these could be extended, for instance, with the equivalent of family credit for childless couples and single people without children. Indeed, we know that family credit has been successful in helping families with children return to work and stay in work. Now we are going to test whether the same principle will work for couples and single people without children who constitute the majority of the long-term unemployed. From October next year we shall be setting up a substantial pilot study in eight locations of an in-work benefit for this group, which will run for three years. We shall be publishing a consultation document in the spring of this year about how that pilot scheme is going to proceed.

All the initiatives I have mentioned do not come cost free. My right honourable friend the Chancellor and my right honourable friend Peter Lilley have announced these incentives and they have also announced that they will cost together some £700 million, which because of the other prudent housekeeping we have undertaken in the social security budget we are able to fund. We believe that will help and when it all comes on-stream something like 750,000 people will benefit in the course of a year.

Turning from these measures concerning employment and unemployment to one of the very closely related aspects also drawn, quite rightly, to our attention in the report, I shall speak now about training and education. I found the analysis of the importance of education and training very interesting, and in particular its role in improving employment opportunities and increasing income dispersal. The report itself says in volume 2, page 44: Between a third and half of the growth in earnings dispersion over the 1980s can be explained by higher wage premiums commanded for greater levels of experience and/or educational qualifications … Qualification premiums increased particularly for young (16–30) workers. The widening in qualification differentials came despite a substantial increase in the supply of qualified workers, suggesting that demand for them was increasing even faster. Those findings led directly to the recommendations in Volume 1, chapter 3, best expressed by the phrase: it is imperative that we upgrade our skills as a nation and take maximum advantage of new technology". We have introduced policies which will ensure that people are able to take advantage of opportunities available to them through education and training. The reform in education through the national curriculum and an emphasis on vocational skills offers greater choice to parents and better education for children. There are more young people than ever staying on in education and training—about 90 per cent. of 16 year-olds and three-quarters of 17 year-olds. One in three people are now benefiting from higher education, compared to one in eight when the party opposite left Office. Support for training measures has been doubled, even after inflation is taken into account, since 1979. This is precisely what the Rowntree Report recommends. It particularly directs our attention at the groups of youngsters giving most concern when they enter—or perhaps do not enter, which is the worrying point—the labour market. We have taken account of the research by the National Institute for Economic and Social Research quoted at page 40 of Volume 1: that the quality of much of our non-élite education also lags behind our competitor countries. Tackling that comes from increasing standards through the national curriculum, monitoring these standards through sensible testing, especially in the earlier years of school, of the basic skills of reading, writing and arithmetic and, later in school, providing a framework of educational training and qualifications, designed to help this group in particular to acquire practical and marketable skills that they will need if they are going to enter this new labour market. GCSEs and GCEs deal with general education, NVQs provide job-related training and GNVQs provide broad vocational training. All these things are absolutely essential if we are going to see the workforce in our country gain the skills and the training to face up to the challenges of a new world—the challenges of new technology and the challenges of the Pacific Rim and places like that.

I have covered in the main many of the points raised, although perhaps not all. I want now to turn—

Lord Peston

My Lords, perhaps I may interrupt the noble Lord, with an apology, because he is being immensely constructive, particularly about vocational training. Is he going to deal with the point made by my noble friend Lady David about the 21-hour rule, where the Government are very much at odds with the report, and not in a way which makes any sense? Is the noble Lord going to say anything about that?

Lord Mackay of Ardbrecknish

My Lords, I had not intended to say anything about that because I suspect we shall come to it at other times in the future. The fact is that the 21-hour rule has been changed to take account of quite considerable changes in further education, where the same methods of devising courses are no longer used. The rule, as I recall, is now going to be 16 hours of guided learning. That is still a very significant amount of part-time education. I come back to a point I have made previously from the Dispatch Box: when we come to the jobseeker's allowance or to some unemployed person looking to find work, we have to be clear in our own minds about the difference between being available for work, looking for work and receiving as much education as possible at the same time, and being involved in full-time education, when the other parts of the system ought to come in.

However, if I may now turn quickly to housing, which has been raised by several of your Lordships, can I say that as one goes around the United Kingdom one sees that a great deal of money has been spent on attempting to improve the housing conditions which people now find themselves in, often as a result of houses built a bit like the building in Marsham Street, as we discussed earlier today, in the 1960s and 1970s. I blame nobody for that. People wanted to do it and they thought that was the quickest way to do it. But it has proved, in rather too short a time, to be flawed. A lot of public resources are going into public housing operations towards the provision of better houses through the housing associations, for example. Here we have made available to them £1.5 billion this year, which will make something like 60,000 extra homes available. Indeed, in real terms the Housing Corporation has had nearly 40 per cent. more to spend over the past five years.

Of course, we shall not be able to do any of the things that we want to do if our economy does not grow and if we do not answer the questions and the challenges that come from elsewhere in the world. However, if we do do that, we can provide greater wealth through the tax system but without distorting the tax system. To answer the noble Lord, Lord Diamond, it is interesting that the report states that the tax system had much the same impact on reducing inequality in 1992 as it had in 1977, so the income tax changes, whereby the punitive top rates of taxation have been removed —the noble Lord clearly does not approve of that—have not, in the words of the Joseph Rowntree Foundation, had any impact on reducing inequality. Indeed, the top 10 per cent. of taxpayers now pay more into the Government's coffers than they did in 1979 when their tax rates were much more punitive.

I shall conclude by looking at the economy as a whole. The productivity of our economy has been markedly better in this decade than in the previous two decades. In the decades 1960–70 and 1970–80 we were at the bottom of the G7 league in terms of manufacturing productivity; in the decade 1980–90 we are at the top. We need to continue that and to ensure that our output continues to rise by an average of nearly 30 per cent., with productivity increasing and exports doubling.

We need also to continue to attract inward investment, such as that given to the NEC project which my right honourable friend the Prime Minister visited in Livingston in Scotland last Friday. We have received £0.5 billion in inward investment. Thanks to our membership of the Common Market and to the improvements that this Government have made, we are bringing into this country people who invest and who manufacture. I am not a huge expert on motor cars, but I gather that we may shortly be a net exporter of motor cars. Surely that is something that we can all applaud. We are also hugely involved in the electronics business and export all around the world.

Those are things that we should cheer about, and if we can improve on them, build on what we have already done, educate the workforce better and make sure that people can take the opportunities that are presented to them, we shall see all of our people enjoy increasing prosperity in the next decade.

8.12 p.m.

Lord Eatwell

My Lords, I thank all noble Lords who have participated in the debate. I am grateful for the great care with which all have approached this important topic. However, in expressing those thanks, I should say that I was a little saddened that the debate was somewhat disfigured by the rather unpleasant attack on the academic integrity of John Hills by the noble Lord, Lord Jenkin of Roding. Indeed, the emptiness of the noble Lord's position was illustrated regularly by noble Lords on all sides of the House who, when trying to find appropriate qualifications as to the substance of the report, found them by quoting arguments and qualifications that were presented in the appendix to volume 2 of the report which was written by John Hills.

I must confess that I was also a little saddened by the fact that the party opposite seemed to be almost entirely consumed by a desire to obscure, ignore, or otherwise deny the conclusions of the report. In an otherwise very constructive contribution, the Minister continued that trend. I commented 6346in my introduction on a number of the errors that were made by Mr. Lilley in the debate two weeks ago in another place. We have now heard the Minister give us a little lecture on deciles without pointing out that the measure of inequality in the report is not based on deciles —another smokescreen. The Minister referred to the fact that some people with zero income were reported as having a high level of expenditure, but he left out the fact that the report discusses the impact of the growth in inequality while leaving out the self-employed, exactly the group with that peculiar income and expenditure combination.

The Minister also quoted a statement on tax which he did not seem to understand. As the report points out, if the tax system had been left as it was to do the job of redistribution, the level of inequality today would not be the same. The point is that discretionary changes in the tax system have weakened the ability of the tax system to perform a redistributive role as real incomes rise. Therefore, it performs the same role at high levels of average income now as it did at lower levels of income 20 years ago.

The Minister also made a great to-do about the issue of lifetime earnings. He quoted one of John Hill's sentences which begins: A combined distribution for the two years would look less unequal than that for a single year", but he did not quote the rest of the sentence, which continues: but none the less nearly three-quarters of those in the poorest tenth were still there two years later: for them, poverty is not transitory". If the Government feel that the report is wrong, misguided or limited, why will they not produce a report of their own? Why will they not produce a report which deals with the problems of what are called "transition matrices in lifetime earnings"? Why will the Government not deal with the issue of benefits in kind? Where is the Government's report which we can study, criticise and analyse to the same level and standard as that which has been applied to the Rowntree Report?

Finally, I was saddened that the Minister in his 28-minute speech did not turn once to the topic of the debate, which was the relationship between equity and efficiency. He chose not to confront that question at all—nor did he answer the considerable arguments that have been advanced by your Lordships this afternoon that inequality is inefficient.

Despite being a little terse and critical at the end of this long debate, I thank again all noble Lords who have taken part in it and I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.