§ 3.4 p.m.
§ Lord Prior rose to call attention to the state of the economy, including levels of exports and unemployment; developments in industrial relations; and the challenges arising from technological development and world competition; and to move for Papers.
§ The noble Lord said: My Lords, some of my noble friends have said to me that they were surprised that I had put down such an anodyne Motion. However, I can assure them that it was the Clerks at the Table who made me change my Motion to an anodyne one. I understand that it is the practice of the House on Wednesdays not to have in any way controversial Motions. That may make for a better understanding within the House, but it does not necessarily make for a better debate. However, I do not intend to be vastly controversial in my remarks, although I dare say that I may stray a little into controversy along the way.
§ I wish to examine the state of our economy and start by saying that I believe that the economy is in better shape now than at any time in the past 50 years, with the possible exception of two short periods in 1959–60 and perhaps 1968–69, when the noble Lord, Lord Jenkins of Hillhead, was Chancellor of the Exchequer.
§ Yet, as we all know to our cost—particularly on this side of the House—the feel-good factor is markedly absent at the moment. Paradoxically, I believe that the economy may well continue to strengthen just as long as the feel-good factor is absent. Low wage increases, static or declining house prices and so-called negative equity do not make people happy, nor do poor retail sales. Neither, I suspect, does a low level of inflation help. I remember Mr. Harold Macmillan, as he then was, on one occasion making a remark to me when I happened to discuss with him the subject of the economy and inflation. He said: "There's an awful lot of talk about low inflation, but the rich like inflation because they can always sell a picture; the poor like inflation because they have more pound notes in their pockets". Then he looked sharply at a particularly important member of the Conservative Party and said: "It's only retired colonels who don't like inflation". I have a feeling that that accounts in part for the lack of feel-good factors in the economy.
§ I wish to start by considering our trade position and the balance of payments which at the moment are extraordinarily satisfactory. I cannot remember a time when we were growing so rapidly when the balance of payments was not deteriorating sharply. Yet here we have a situation where exports are strong and imports much less strong. Undoubtedly, devaluation in September 1992 was the correct course and the benefits have been self-evident. However, unlike a number of other occasions, the fruits of devaluation have not been thrown away. If the Government have to accept the blame for clinging to the European monetary system, or, more reasonably, entering it at the wrong exchange rate, they are also entitled to claim the credit for the manner in which the economy has responded since. The 1621 Government have taken hard decisions on increasing tax and holding public expenditure. The budget deficit has been reduced without plunging the economy back into recession, as many critics predicted a year or so ago. It is vital that we should now continue on that course.
§ Of course, we would all like to see tax cuts and perhaps more public expenditure on our favourite items such as education and health. But that should not be at the expense of the better balanced economy that we now have. I would go so far as to say that I do not believe that cheap popularity, or even electoral popularity, can be won now simply by unjustified tax reductions. But the facts of real prosperity will take time to show through.
§ The economy has undergone massive changes in the past 16 years. In the early 1980s, and since that time, there has been a vast improvement in industrial relations. That has been helped by legislation which we almost take for granted nowadays. There appears to be general agreement that little more than minor changes are now required. Legislation has not prevented legitimate and reasonable trade union activity; and I am impressed by most of the new generation of trade union leaders whose attitude seems to me to be very sensible and robust.
§ Privatisation is broadly recognised as a great success story. Much of it is now copied around the world. Apart from the more obvious benefits, it has altered the balance of bargaining power and the ability of strong trade unions in the past to hold the country to ransom—as we all knew to our cost in governments of the 1950s, 1960s and 1970s. This recognition of a common interest between the ineptly named two sides of industry has removed a major wage-push inflation factor which caused us so many problems in those years and led to so much strife into the bargain.
§ I mentioned that privatisation has been copied around the world. Others, including the fast emerging countries of the Middle East, East and South-East Asia and South America, recognise that investment and infrastructure projects, which are so desperately needed, can come about only with the help of private sector finance. The cost may in the short run be higher: levels of private sector finance interest are higher than state interventions and private sector finance has to be remunerated properly. But the state's limited resources often mean a delay of many years in modernisation, with the resultant increased costs. Others seem to have grasped this message rather more quickly than have Treasury officials here, even though there is much greater understanding hem on that point than there was a few years ago.
§ I remember well that in the early days of the Conservative Government, then led by the noble Baroness, Lady Thatcher, there was a hole where the Queen Elizabeth centre now stands. The question was whether there would ever be sufficient money to build the conference centre that was so badly needed. The Treasury said that it had no money for the project; but the Coal Board pension fund had plenty of money. However, the Coal Board pension fund wanted a higher rate of interest than the Government or the Treasury 1622 thought was reasonable, and they kept saying, "We shall be able to do this at a cheaper cost than borrowing from the Coal Board pension fund; but of course we can't do it now". So the project waited and waited, and the hole was there for years and years before anything happened. In the end, of course, the Treasury found the money. But the cost of waiting on so many infrastructure projects is far greater than the extra cost of allowing the private sector to get on with them straight away. It has taken years for the Treasury to come to this understanding, which frankly other countries have arrived at very much more quickly than we have.
§ Overseas, the growth of "build, operate and transfer" schemes has given British industry great opportunities and can carry export led growth forward for many years. Here I should perhaps declare my interest as chairman of GEC, since what I am about to say is very relevant to its particular deeds. We all know that the growth in world trade will, and must, come from the developing world. The estimate is that 75 per cent. in the increase in world trade over the next 20 years will come from those countries. Britain is in an enormously powerful position to take advantage of this boom. Our vast pension fund assets available for profitable investment, the financial centre of the City of London and our expertise in high-tech infrastructure projects combine together to form a formidable package. Once these investments are made, the spares, the extensions and the need to use similar equipment can help to ensure a continuing demand for our goods for many years. The use of the English language, the good relations which on the whole exist between Britain and the developing world and the still important ties between the Commonwealth and the Monarchy give us a golden opportunity. Some further redirection of Foreign Office resources could help with trade—although I pay tribute to the vastly improved service and enthusiasm displayed by embassies around the world.
§ I noticed a long article in the Daily Mail today on the subject of waste in the Foreign Office. I believe that it is entirely the wrong target. I have nothing, and find nothing, but praise among exporters for the work that the Foreign Office does. It has changed over quite a bit of its manpower from some of the more plushy embassies of Europe and the western world and has put its people into the developing world, where they will do much more good. That process may have to go a little further, but it is far better than it was before. I can speak volumes for the vast majority of ambassadors now who regard their task of helping British industry as perhaps their number one priority. The availability of credit through ECGD is much enhanced and rates are much more competitive, although in some markets there is still room for improvement.
§ There is the vexed question of the aid and trade provision, which has taken up so much parliamentary time in the past year or so. It works out at only some £100 million a year. We are vastly behind our competitors in this regard. They spend far more than we do. A country such as France would probably spend more than £100 million on helping Indonesia in one year, whereas Britain's total spending for the whole world is no more than £100 million.1623
§ Support from Ministers, and particularly the DTI, has been first-class. It has to be realised that east of Suez you are still very largely dealing with governments. This is where Ministers have an extremely important part to play. The more ministerial visits that are made, the better it is for our industry and our exports. I pay particular tribute to Mr. Richard Needham, who as trade Minister has done an excellent job for British industry.
§ This is not the time for a lengthy discussion of the importance for our trade of the European Union. However, it is ridiculous of people to talk about withdrawal, as the Small Business Conference did last weekend. Nothing could be more damaging to our trade than withdrawal from the European Union. Over 50 per cent. of our trade is with the European Union; 40 per cent. of our manufactured exports are foreign-owned and targeted at Europe. If we abandon the Union, it would certainly abandon us. The Government are right to keep down social costs, which, unchecked, would undermine our competitive position; and they are right to postpone any decision about monetary union. It would be more than silly to make a decision now, and equally silly that we go on leading with our chin in the way that some people would wish us to do. The opportunity for independent national action in an international trade is now very limited. We are part of a global economy and have to adjust national policies to take advantage of it.
§ No economic debate would be relevant if it did not address the problem of unemployment. No one needs reminding of the social pressures, the misery and distress that are caused by levels of unemployment which 25 years ago would have been regarded as totally unacceptable and politically impossible. I made my maiden speech in the other place over 36 years ago on the Local Employment Bill. At that time, the Local Employment Bill defined areas of high unemployment as those with 4 per cent. or more unemployed. Today, we should regard a figure of 4 per cent. unemployed as a more than satisfactory state of affairs and a great achievement if it were to happen.
§ So what is happening? To compete with the rest of the world we have had to adopt their new techniques. That has weeded out millions of jobs. Old labour-intensive, large material users of labour and expensive industry have been replaced by modern technology. That progress and change are bound to continue. A leading article in The Times on Saturday wondered whether the process of weeding out had not gone too far. But if we do not weed out, I am afraid that we shall just become less competitive; and if we become less competitive, we lose whole industries and all the jobs that go with them. So we have to go on weeding out wherever we can.
§ Sadly, there is now a growing gap between those with high skills and those with none. Our best and only hope is to be a country of high skills and high prosperity, producing added value products. That is the only way to bring wealth sufficient to employ at reasonable rates people in jobs where little or no skill is required, particularly in the provision of some of the services.1624
§ In manufacturing industry, the teeming, unskilled workforces of the East are bound to win most of the unskilled, repetitive work. Recently in Japan I was told by a Japanese businessman that he could and did employ 140 people in Indonesia for the same cost as employing one man to do the same job in Japan. We can aid our process toward fuller employment, but only if we are realistic in what we are seeking to achieve and realise the very long-term nature of our objectives. In other words, the change to more employment cannot be done quickly. It will take time. The swift decline in manufacturing industry over the past 20 years may have been halted, but it will take years of greater productive investment and government encouragement to improve the trend and, we hope, lead to more employment.
§ The Government have achieved important advances in expanding higher education. But there are serious problems in our schools, particularly the woeful shortage of good science and maths teachers. Frankly, that will only be put right by recognising that it requires much more encouragement and higher pay for them and that not all teachers can be paid and treated the same. Differential pay may be an awkward subject for the educational establishment to grasp but it has to come and come quickly. It also means a wider syllabus at A-level to include at least one science-related subject which all pupils should take; and a foreign language would also be useful.
§ If a change is now required in our culture, which has for too long been against industry, a change is equally required in education. We have to give higher priority to education. As parents we must think more about education. How many people do we know who quite glibly take their children out of school for a fortnight's holiday during the term? We cannot. afford to accept that. The thirst for education in some of the developing countries is staggering and emotionally it is very moving to see the sacrifices being made. They could catch up with us, and some are doing so quite rapidly. That is the only way that we shall increase our general wealth. The old remedy of buying our way out of unemployment is no longer available to us.
§ Certainly in the economy generally there is no room for complacency. But equally there is no reason to be apologetic. The Prime Minister has shown considerable courage and understanding of industry's problems, as well as great personal resilience. He does not deserve the treatment meted out by much of the press, which has been very unfair. I am frequently asked by people overseas who have admiration for the genius of our people and the manner in which we conduct our affairs why we devote more space to our private indiscretions than to our public accomplishments. It appears to be fashionable to rubbish the Government. But, just as an over-sycophantic press could see no wrong in the performance of the 1980s, so it appears to see no right now. It is time that we put the record straight, and perhaps this House is the best, and in some cases the only, place capable of doing so.1625
§ My Lords, I beg to move for Papers.
§ 3.25 p.m.
§ Lord Peston
My Lords, we are all indebted to the noble Lord, Lord Prior, for introducing a debate on this immensely important subject. The noble Lord used the word "non-controversial". As noble Lords know, I am never controversial, and I shall have no difficulty whatsoever in following that course.
There is an interesting philosophical question: when did history begin? To some extent, the noble Lord, Lord Prior, and certainly some of his noble and honourable friends, appear to believe that history began in 1994 or thereabouts. I believe that, so far as this Government are concerned, it began in 1979. The fact that the out-turn for 1994–95 looks reasonably good is to be welcomed. But even the most incompetent government, choosing policies at random, could be expected to get things right one year in 16.
Let me turn to more serious matters. In preparing my speech, I felt that the most useful contribution that I could make to your Lordships' deliberations would be to review the performance of this Government and offer a kind of balance sheet of successes and failures. I must say to those noble Lords who have not yet left the Chamber that this will be a classic case of the economist's, "on the one hand, this; and, on the other hand, that".
I shall start with an achievement. Over the lifetime of this Government, the inflation rate has been about 5 per cent. per annum compared with over 13 per cent. in the previous decade. Average inflation measured in wage terms has fallen from 14 per cent. to half of that. One must add that in both cases the position today is better than the Government's own average. That is on the plus side.
I turn next to an obvious failure, to which the noble Lord, Lord Prior, alluded. In the same period, percentage unemployment has averaged between 6 per cent. and 12 per cent., whereas in the previous decade the range was between 2 per cent. and 5 per cent. Under this Government, in no year has unemployment fallen as low as its worst figure in the previous 10 years. One does not have to be a genius to work out that there is a connection between the two.
The abandonment of full employment as a target is connected with focusing on inflation as the main evil. Improvement in the one has been paid for by worsening in the other. The rate of exchange has meant around 1 percentage point more of unemployment for each one percentage point less in inflation.
There is one consequence of the improved inflation rate, which I hope the Minister will comment on when he replies. I must warn him that I have four or five other such questions. In the 1970s, the real rate of interest measured with respect to short or long-term government paper was usually negative. It was certainly bad for those who lent to the Government. In the 1980s and 1990s it has been positive, with the long rate, for example, being typically between 4 per cent. and 6 per cent. Economic analysis tells us that that is not a 1626 sustainable rate in the long run if gross domestic product grows at only 2 per cent. Either inflation will rise significantly or we shall head back into a serious slump. I should like to know if the Government have any views on the current level of real long-term rates of interest.
Perhaps, after a brief word on the unemployment numbers, the Government may claim to have found some more jobs out there. Despite their record on manipulating the unemployment figures, I should like to believe them. But, even accepting their figures, total employment hardly differs from that in 1979. The number of employees has gone down and the point holds, of course, a fortiori, for full-time employees. Beyond that, manufacturing employment has been falling steadily at an average annual rate of around 2.75 per cent.
Employment failure takes me on to another success. There can be no doubt that the rate of rise of manufacturing productivity at 4.2 per cent. per annum is double what it was in the previous decade. Since there has been little rise in manufacturing output, almost all the rise in productivity is due to a shake-out of workers. The noble Lord, Lord Prior, used the less than felicitous expression of "weeding out"; I do not care to use that expression.
We must look at the failure of manufacturing output to rise, the corresponding deterioration in the manufacturing balance of trade and moving to deficit for the first time in modern history, which gives the lie to the view that we have caught up with our competitors. If we had so caught up, output would be higher, the manufacturing balance of trade would be positive and there would be an investment boom in manufacturing.
On whole economy productivity the position is even more puzzling. It has risen at around 2 per cent. per annum, which is the same as in the previous decade. It is puzzling because management talk of the benefits of deregulation, of destroying the power of the trade unions and that their representatives approve of this Government. Yet overall present-day managerial performance is no better than their predecessors operating allegedly in a much harsher environment. All that has changed is that they now have the nerve to pay themselves quadruple and many more times the salaries that they thought they could get away with in the old days.
Noble Lords become upset when I am nasty about the Institute of Directors and the CBI. I would be a good deal less nasty if those bodies were less slavishly devoted to this Government and examined the real picture in a slightly more objective way. I referred to the international picture; what is remarkable is the stability of the growth of export volume. The growth rate has been around 3.33 per cent. per annum for the past 25 years. That suggests a powerful underlying force at work, though I do not have the faintest idea what it is. All the usual stuff about competitiveness in its various forms accounts for little of what has happened. However, just to intervene again with a positive word, what is worth noting is that our share of world trade in manufactures, having fallen continuously for many years, now seems to have stabilised. To be set against that, import volume also has the same chronic tendency 1627 to rise and to rise faster than exports. Indeed, under this Government the rate of rise of imports seems to have accelerated. The balance of payments on the current account was in surplus during the first years of this Government. It went into deficit in 1986 having been deteriorating since 1981, and has remained in deficit ever since.
Perhaps I can say a word about the outcome figures for 1994, which again the Chancellor of the Exchequer was crowing about last week. As I understand it, the improvement is overwhelmingly due to the behaviour of invisibles. Here too I must admit to being puzzled. Given the scale of the current deficits that we were experiencing until recently, I would have expected a net deterioration in the capital account to follow. Presumably one thing that may have occurred is that we are better at overseas investing than foreigners are at investing here—that is at least a possibility. Is that something that the Treasury believes? A much more persuasive possibility is that since our overseas assets are denominated in foreign currency terms, we have reaped the benefit of sterling devaluation. Is that the Treasury's view?
Reference to the exchange rate causes me to emphasise the scale of devaluation under this Government. If we merely look at the sterling index rather than at individual exchange rates, we note that the average value of sterling has fallen by 25 per cent. since this Government came to power. It is worth remarking that while 9 per cent. of that occurred as a result of our leaving the exchange rate mechanism of the European monetary system, most occurred before then. Perhaps the Minister can tell us when he replies—echoing something mentioned by the noble Lord, Lord Prior—how much of the present recovery is to be attributed to the post-ERM devaluation.
I turn to the public finances, and here too we have some puzzles. It is certainly true that the ratio of total government revenues to GDP has been falling since 1982. But throughout the 1980s it was actually above the level left by the last Labour Government. The reason is the great increase in tax between 1979 and 1982. What is even more amusing is that the ratio of government expenditure to GDP rose between 1979 and 1984, and it was not until 1988 that it fell again below the level left by the last Labour Government. More to the point, from 1989 to 1993 it went beyond a level reached by only two years of the last Labour Government. To add to the nonsense of that, much of it is not on goods and services, but is on transfer payments. Nonetheless, for a Government whose rhetoric is anti-public sector, the reality is bizarre.
One can go further. Tax cuts and public expenditure increases over the life of this Government have left the public finances in a parlous condition. The budget has been in deficit in all but two years, and profligacy after 1989 led to even larger deficits. It is of great interest to note that the ratio of the deficit to GDP in 1993 was actually larger than in the IMF crisis year of 1976. How this Government ever dared to claim that they believed in sound finance is beyond me. The fact that the City supports them tells us much more about the sort of people who work in our financial institutions than about 1628 economic reality. What is surprising, given that, is that we do not have more scandals than Barings, Lloyd's and BCCI—or perhaps we do and do not know about them.
I have not been able recently to join in your Lordships' deliberations on the economic aspects of the European Union. But I am aware that likely developments to do with such things as a single currency exercised some noble Lords, including many of my noble friends, because of the alleged effects on our economic sovereignty. The most important decision which had that kind of effect had nothing whatever to do with the European Union. It was a decision I agree with, taken by a former Chancellor of the Exchequer who is a Member of your Lordships' House—I refer to the abolition of exchange controls introduced by Sir Geoffrey Howe (as he then was). That was the decision that limited our ability to pursue an independent monetary policy and, to some extent, an independent fiscal policy more so than Maastricht has or is likely to do. It is the case in our country today that decisions on interest rates can no longer be taken independently of decisions in other major countries for that reason and not for European Union reasons. That is so even if we paid no attention to the value of our currency, which I hope will never happen.
It must be appreciated that in a modem world even the most powerful nation is restricted in its scope for independent economic policy making, and certainly a small country such as ours—but one with an important and sophisticated financial system—is so restricted.
My last comment concerns competition from the so-called Pacific Rim countries of which China will soon be of overwhelming importance. I state in terms, and our own history tells us, that we cannot compete with such countries in the long run by wage cuts and the erosion of our social system. The noble Lord's right honourable friend Mr. Portillo could not be more ignorant of economic history and economics when he takes that view. Our future lies in a highly trained, highly productive, highly paid labour force led by first-class management in an entrepreneurial environment. The case against the Government for most of their history is that they failed to recognise that. I accept that they are doing so now, but rather late in the day. Are the Government true believers in a mixed economy or are they adopting our language and our approach because their own has been demonstrated to have failed and because the electorate clearly want a change? I really believe that that is so.
§ 3.37 p.m.
§ Lord Ezra
My Lords, like the noble Lord, Lord Peston, I express appreciation to the noble Lord, Lord Prior, for introducing the debate in the way he did. I have had the honour of knowing him over many years at a time when he held high office in government and also during the present period when he holds equally high office in business. I can think of no one who can give a wiser, more statesmanlike view of the economy than he did today. I agreed with a number of his comments.
1629 The noble Lord is right. As we all agree, the economy is now improving. Last year there was a growth of about 4 per cent.; this year it is still growing at a rate higher than the average of 2.5 per cent. However, within the economy as a whole there are a variety of developments. I recently received reports covering two separate sectors. One read as follows:This latest survey dispels recent doubts about the strength of recovery. Output and new orders continue to increase strongly, in both UK and export markets".The other, which I received just about the same time, said":Business confidence has plummeted to a point where only 5 per cent. of respondents are feeling more confident about their future".Those are two totally different views on the economy. The first report, from the March quarterly survey of the Engineering Employers' Federation, shows the buoyancy of the engineering industry at present. The second, from the February monthly snapshot survey of the National Council of Building Material Producers, demonstrates the uncertainty in the building industry. So there are plusses and minuses within the overall economy.
The noble Lord, Lord Prior—the point was also mentioned by the noble Lord, Lord Peston—referred to recent export performance. There is not the slightest doubt, when one takes the overall balance into account, that the revised figures for 1994 and those so far for this year are positive. However, it is important to look into the figures. As the noble Lord, Lord Peston, pointed out, the greatest part of the improvement notified in the revised figures for last year was investment income from abroad; that is, proceeds from British firms investing abroad. I have no objection to British firms investing abroad, although we might express the wish that they invest a little more at home. Much of the addition also came from improved earnings by the oil industry. We did very well in the North Sea where remarkable technological growth continues and deeper areas are being extracted.
However, when one looks at the non-oil visible exports, the position is somewhat different. Although there has been a substantial increase in exports in that sector, there has been an equally substantial increase in imports—something from which we have suffered for years. Moreover, the net improvement in that area between the two was only £1 billion and, over the year as a whole, we still showed a deficit of £14 billion on our non-oil visible trade account. Some in your Lordships' House participated in the review conducted by the noble Lord, Lord Aldington, in 1985 when we drew attention to that phenomenon. Up to 1983, we showed a net benefit on our manufactured goods exports. We have lost that since, and the deficiency is still at a high level. I merely mention that fact to show that examination of the figures indicates that there is still a long way to go.
On the subject of exports, I fully endorse the remarks made by the noble Lord, Lord Prior, about the help we receive from our embassies abroad. Indeed, I am appalled at the way they are being attacked at present. For many years I was involved in promoting our exports 1630 at the BOTB. We received first-class service in those days—I am sure that it has become even better since—from those overseas posts. I hope that their efforts will in no way be diminished in the face of the press vendetta being organised against them.
The Government clearly have two major aims in economic policy: one is to contain inflation; the other is to reduce the public sector borrowing requirement. Those are two very laudable and desirable aims in which the Government are achieving a degree of success. But, as I believe most of us would agree, they are not enough in themselves to cover all aspects of economic policy. Indeed, they are not enough in themselves to bring about sustainable growth of a non-inflationary nature.
I shall single out but two other areas where I believe we need to concentrate snore attention even than we are doing at present. The first is unemployment, to which the noble Lord, Lord Prior, referred, and the other is investment. There are many others but, in the limited time available, I shall refer to those. There is no doubt that unemployment is now a dominant economic and social problem, not only in the UK but in Europe as a whole. It is worth noting that the European level of unemployment is higher than it is in the United States and in Japan. What has happened here seems to have created more unemployment than in those countries. That is a matter worth studying.
Unemployment is not only an economic and social problem in broad terms. What is beginning to emerge and is very worrying is the mismatch of skills. Many firms—I happen to be chairman of one—are finding it difficult to recruit people with the skills we require, while, at the same time, there is a very high level of unemployment. I believe that even more effort needs to be made to get that match right. Until we do so, we shall be bedevilled, on the one hand, by a shortage of skills and, on the other, by a surfeit of unemployed people.
The CBI produced a report last year on this subject which I thought excellent. It suggested that three things should be done: first, that there should be more training and guidance; secondly, that there should be more effective job-search arrangements; and, thirdly, that the benefit system should be made more flexible to stimulate the long-term unemployed to take up work. I am glad to note that the Government have followed the last suggestion with their jobseeker's allowance.
On investment, we are still undoubtedly lagging behind other countries. There is not only a need for more stimulus for private investment, especially for smaller firms. I am sorry that the Government missed the opportunity for doing something about it in the last Budget. There is also a crying need for more infrastructure investment. The public sector capital formation, now identified in the Red Book, is actually planned to fall progressively over the next three years. For 1995–96 it will fall in real terms by 6.7 per cent.; for 1996–97 it will fall by 2.9 per cent.; and for 1997–98, the figure will be down by 3.4 per cent. That will happen at a time when there is a growing need for increased investment in the infrastructure, particularly the transport infrastructure.
1631 The Government have stated that the Private Finance Initiative is meant to be in addition to government investment. The figures do not suggest that. I find somewhat surprising, when looking through the Red Book, that the proceeds of the National Lottery are now regarded as public sector investment. I find that very odd; indeed, the Treasury is adept at inventing rules as it goes along. However, for anyone who wishes to look into the matter, the facts will be found on page 127 of the Red Book. I do not know how such proceeds can conceivably be included in public sector investment. It is neither money raised by taxation nor by public debt.
If one takes out the benefits of the proceeds of the lottery, the fall in public investment in 1995-96 will be 10 per cent. That is not the sort of trend we should be seeing. Perhaps I may point out to your Lordships that the amount of public investment compared with total government expenditure is minimal—£22 billion of public investment compared with over £300 billion of total expenditure. We are just not investing sufficiently in the future so far as concerns the public sector.
The Government are reported to be contemplating cuts in direct taxation in the next Budget or the one after that. No doubt they will announce their intentions in due course. But it could at least be asked, when more is needed to deal with longer-term unemployment and the mismatch in the labour market, when more is needed to improve the essential infrastructure, and when more is needed to stimulate investment, especially in manufacturing, whether November 1995, or 1996, is the right time to reduce taxes rather than put more resources into those vital areas. It would be a matter of choosing between short and long-term objectives.
§ 3.50 p.m.
§ The Lord Bishop of Worcester
My Lords, I am grateful to the noble Lord, Lord Prior, for this wide-ranging debate. I shall look forward and listen with great attention to the maiden speech of the noble Baroness, Lady Hogg. I want to make one point in this debate; namely, that structural unemployment and—perhaps I may put it this way—the future of work are such important topics and human issues that they should be addressed by the best minds of all parties, along with people from business, industry, the unions and possibly religious leaders. Even if there were a change of government, what I call structural unemployment, as opposed to cyclical unemployment, would not necessarily be removed. Therefore, I do not believe that the issue can be made into a political football. I quite agree that we cannot ignore the global market and overseas competition. Mere moralising from these Benches is not enough.
However, we have to admit that the second industrial revolution through which we are living has produced, as a by-product, a loss of jobs. Sometimes they were jobs which were drudgery and soul-destroying, although not always. The Wyre Forest in my diocese of Worcester had 50 foresters in the 1960s and it now has five. That is because machinery can cut the trees and drill the post holes. One could go on.
1632 I have no desire to be a prophet of doom. In the West Midlands, which is also part of the diocese of Worcester, and indeed in the Metropolitan Borough of Dudley, there is greater confidence in local businesses, especially those which have tapped into the European and indeed the international market. However, according to figures which were given to me on Monday, in the West Midlands 22 people are chasing each job vacancy. Males between 18 and 29 years of age make up 37.8 per cent. of the unemployed figure. Those under 24 years of age comprise 29 per cent. of the unemployed. There is a net loss of job opportunities even when and as the population is rising. Banks, for example, tend not to be taking on young school-leavers.
Again, good things are being done by, for example, the Prince's Youth Business Trust which looks for opportunities in the self-employed area. But it is very glad if it can place two young people in the self-employed area. That is the tip of the iceberg. But, on the other hand, Pensnett College has had 100 per cent. success in placing its leavers in jobs, which is good news. Nevertheless, we need a long-term strategy which can sustain that.
Flexibility is one solution, but it is not wholly successful except with those who already have jobs. Flexibility, job-sharing and so on cannot give confidence to those who have a mortgage or have to pay to provide for a pension. Flexibility must go along with a matching security for people.
I return to the matter of the long-term unemployed. They are often the very people who cannot be employed in a technological society and, what is more, those least able to handle the leisure which is forced upon them. Furthermore, to enjoy the leisure society one needs to have a substantial income to buy into it. If a significant proportion of people in the nation are permanently without work, and if a higher percentage of those are from the ethnic minorities—in Birmingham the highest proportion of unemployment is in Sparkbrook, which speaks for itself—that will breed either apathy, on the one hand, or anger, on the other, which could erupt into violence and crime. We should not then have the cohesive society that we all desire.
One cannot have a cohesive society unless the people are happy. One cannot have a cohesive society unless the people can be proud of their nation. That is what we should all aim at. It is obvious how people gain their place, purpose, status and identity in society when one looks, for example, at the surnames which have come down to us through the years —Carpenter, Smith, Wright and Tyler. People are identified by the work they do and they find their place in society through being able to participate in its prosperity.
It seems to me that it is the duty of government, of whatever party, to see that the issue of the future of work is addressed, and addressed very quickly. It will not do to leave it until that longed for day in the future when we have the prosperity which we are looking for. We need it now. It may be achieved by allowing labour-intensive work still to be done in certain quarters. I fully agree that training is all important, but training for jobs which do not actually exist will just promote despair and frustration. What is certainly required is that 1633 an adequate proportion of new wealth, which we all seek, is invested in the long-term future. It must not just flow into private consumption. Therefore, within this wide-ranging debate I plead that unemployment and the future of work be not neglected.
§ 3.59 p.m.
§ Baroness Hogg
My Lords, I do hope that in being allowed to speak so early in this debate I am not usurping my noble kinsman. Had this been the Consolidated Fund Bill now, I should not have dared to open my mouth. Noble Lords may well feel that one of us is quite enough, so I promise not to try your Lordships' patience too far.
The remarks of the noble Lord, Lord Peston, reminded me that it was, I believe, Harry Truman who complained that all his experts held forth, "on the one hand, but then on the other hand". He prayed for a one-handed economist. George Bernard Shaw could have told him that, even if he had laid all his economists end to end, they still would not have reached a conclusion for him. I hope that on another occasion I may be able to take up some of the points made by the noble Lord, Lord Peston, but on this occasion perhaps I might just offer your Lordships one conclusion of my own.
I believe that the recent combination of economic circumstances is in fact the most benign we have seen for a generation. Perhaps I may give just a few figures, and I promise your Lordships that they will be only a very few. Output is now well above its previous peak. Unemployment is down 600,000 in two years. In these circumstances, one might have expected trouble with our trade balance or with inflation, or with both. In fact, last year we achieved an impressive treble: growth of nearly 4 per cent., a current account broadly in balance and underlying inflation at a 30-year low.
Credit for that is due first and last to the enterprise and innovation of British business. But credit is also due to the policies of the 1980s and—perhaps less often recognised because we are closer to them—to the further distinct achievements of the 1990s, on which I hope I may be permitted to say a word or two.
The key change, I believe, is that not until the 1990s did the fight against inflation fully penetrate our economic behaviour. In the 1980s, even when inflation fell below 3 per cent., as it did briefly, average earnings never rose by less than 7.5 per cent. Today, earnings are rising at only 3.5 per cent.—that is less than half as fast.
Perhaps now we should turn to the other side of the labour market coin. Unemployment rose relentlessly in the 1970s, and in the 1980s it continued to rise for five years after the recovery had started. But in the 1990s, unemployment peaked at a lower level and began to fall within a year of the start of the recovery, and has continued to fall since. Of course, many factors have contributed: innovation, labour market reform and even demography. But a change in our inflation psychology is the vital element. As we have found often enough in 1634 our history, and as my noble friend Lord Prior reminded us, without that, neither the exchange rate nor fiscal policy offers a short cut to job creation.
Today we are seeing a renaissance in manufacturing, after decades of decline. Not until 1988 did manufacturing output match its previous peak, back in 1974. But the recession of the 1990s was much less deep than that of the early 1980s; recovery was therefore quicker, and our exports of finished manufactures rose a spectacular 17 per cent. during last year.
Some of our national pessimism, we are told, reflects the fact that more people feel that their jobs are vulnerable to change. In a competitive world, governments cannot wipe out all that anxiety. But they can eliminate the insecurity that is caused by inflation, which magnifies boom and bust, destroying savings and jobs. I hope that I may be permitted to remind your Lordships that my right honourable friend the Prime Minister has fought with courage and commitment against that fundamental source of instability and insecurity in our economy. As a result, we can have greater confidence in our economic future; greater certainty that we can enjoy the benefits of growth and that they will not turn to ashes in our mouths. I believe that that view will come to be more widely shared in the months ahead.
§ 4.2 p.m.
§ Lord Desai
My Lords, although I hesitate to come between father and daughter, it is my privilege to congratulate the noble Baroness, Lady Hogg, on her excellent maiden speech. She comes to this House with impeccable credentials as an economist. She was one of our most distinguished economic journalists. She has worked in the media—not the BBC, I hasten to add—and has occupied a position at the heart of decision-making in the Prime Minister's Office. Although brief, the speech of the noble Baroness showed her mastery of detail and her ability to analyse a problem to its heart. I hope that she will give your Lordships' House the pleasure of her knowledge and expertise many times in the future.
As for me, I am afraid that my noble friend Lord Peston said most of what I wanted to say, so I shall have to take a slightly different tack. I agree with the noble Baroness that the present combination of low inflation and the high growth in both output and exports is unique and welcome. Two factors have contributed to that. Although my noble friend Lord Bruce of Donington will not agree, it was our brief entry into and life within the exchange rate mechanism which dealt a blow to inflationary expectations which was so severe that I believe that people have adjusted themselves permanently to the idea of low inflation. That is an extremely painful thing to have to do. As the noble Lord, Lord Prior, pointed out, low inflation is not to everybody's liking.
Indeed, I can only welcome the absence of what we call the "feel-good factor". The last time that we had a feel-good factor was in 1987–88 and we paid dearly for it in the severe recession later. Therefore, let us pray that the feel-good factor does not return because, as I 1635 shall hope to point out in this brief speech, both the British economy and the world economy have changed so fundamentally that we shall not be able to enjoy the economic booms and busts that we used to have. If we were to try to have them again, that would cause severe damage to our competitive prospects.
Therefore, I repeat that I welcome the combination of circumstances, of which one factor was the ERM. Another factor for which credit has to be paid is that, having run up a rather large PSBR in preparation for the election in 1992, bold and hard decisions were taken to increase the tax burden. When he was Chancellor of the Exchequer, Norman Lamont decided substantially to increase the tax burden to bring the deficit under control. That will not help the Government—but that is their problem, not mine—but I believe that the decision to return to a low PSBR, which had been promised for many years but which had not been achieved, was a bold decision—and it has been kept to. I hope that that continues to be the case because, like the noble Lord, Lord Prior, I hope that the temptation to cut taxes is not grasped.
Although we have low inflation now, the credibility of the British Chancellor of the Exchequer in the world's financial markets is not yet established. Looking at the interest rates on gilts, the UK pays 1 percentage point more in long-dated gilts than comparable countries such as Germany and the United States. That shows that we are not yet trusted by the markets to stick to the financial discipline that we claim to be following. Looking at indexed gilt prices, the market thinks that the underlying inflation rate, to which this economy is addicted, is at present 5 per cent. not 2.5 per cent. There is a long, hard slog ahead. Whichever party is in power—I hope that it is mine—we shall have to stick to strict financial discipline to establish the credibility of the UK's policy-making, because that is how we should be thinking—long term. To opt for tax cuts and quick fixes is to think in a short-term fashion —and we have suffered from that for long enough.
As I have said, I welcome the nice combination of circumstances, and I hope that we stick to the policy. I hope that we tackle the problems that we face with the UK economy. As has already been pointed out, those problems also arise because of globalisation and the rapidity of technological progress. As the right reverend Prelate pointed out, one consequence of that is the persistence of high structural unemployment. The right reverend Prelate is right to say that that is the most serious problem that we face. We must think carefully about it.
It is obvious that, if our manufacturing industry is to stay competitive and to retain its share of GDP and of world markets, productivity will have to grow so fast that there is not much hope of creating extra jobs in manufacturing. Yes, there will perhaps be a few more jobs, but I do not believe that the manufacturing sector will be a large source of extra employment. Manufacturing employment last peaked in 1966, and I do not think that we shall see anything like that level again.
1636 The problem is that once one takes out the tradable sector, manufacturing and competitive financial services—both of which will have to be not labour-absorbing but output-creating—we are in an economy in which wealth creation and job creation are for the first time two separate activities. That poses a great dilemma. The sectors which will grow and create income and wealth will not create jobs. Jobs will be created somewhere else. I believe that that will be in what we call the "non-tradable sectors" such as the public services or the private service sector. It is a hard thing to say, but by their very nature those are jobs in which productivity is not high and cannot grow rapidly.
Therefore, job creation will present us with the severe problem of earnings inequality. We will have to have supplementary policies to take account of earnings inequality and match them with some fiscal policy or we will have to live with the tensions that earnings inequality will create. That is the dilemma that we will have to face—and quite soon. Whichever way we do it—whether we create jobs in the non-tradeable sector, which will cost us money (whether it be the private or the public sector), or maintain jobs in the manufacturing sector, which will also cost a lot of money—it will also cost money to train our labour force for the jobs which will come in order to save it from obsolescence.
All that means that the demand for savings and investment in the economy will be substantially higher than we have experienced before. In the 1980s, there was an unwelcome and remarkable splurge in consumption. As it is, today the economy consumes far too much and saves far too little. We have to have policies which will permanently raise the savings rate, attract capital from abroad, and persuade capital to stay at home, as far as is possible, in a market friendly way. Our need for investment will be large, both in terms of training and fixed capital.
If we are to do all that, it means—I return to where I started—that the feel-good feeling that we had—the feeling of living off our capital assets, which we did profligately for a long time—will have to come to a stop. We will have to live within our means and save substantial amounts of money so as to be able to manage the economy properly. We cannot go on paying real rates of interest, the size of which my noble friend Lord Peston pointed out. If we are to get real interest rates down, we will need a sensible, long-term fiscal strategy and a strategy to raise savings and investment in the economy which will bring lasting prosperity. The task is urgent, and I hope that someone undertakes it quite soon.
§ 4.12 p.m.
§ Lord Boyd-Carpenter
My Lords, those who regulate our procedure have laid it down that when congratulations are being offered in respect of a maiden speech, they should be offered only by the noble Lord who immediately follows the maiden speaker, and, perhaps, by the Minister. Nonetheless, I hope that in the agreeable personal circumstances in which I find myself today, I may be permitted to break that rule and to say how much I enjoyed the speech of the noble Baroness, Lady Hogg, and how impressed I was with the clarity 1637 of her economic thinking. I would add, in confirmation, how much I appreciated the very generous tribute paid to her by the noble Lord, Lord Desai, which I thought was proper and reflected great credit upon both her and the noble Lord.
The difficulty with the debate is that most of us are kept to a short speech. Therefore, although the occasion is valuable and one appreciates the action of my noble friend Lord Prior in moving the Motion, it is not a substitute for a full-dress economic debate on, for example, the Consolidated Fund Bill. I say that because my noble friend the Minister of State for Social Security tried to fob off attempts the other day to obtain a proper debate on the Consolidated Fund Bill by drawing attention to the fact that your Lordships would be discussing the country's economy today. I hope that your Lordships will not allow yourselves to be fobbed off with that type of excuse in the future.
There is very little time in which to say much, but I should like to comment on an admirable article which appeared in The Times towards the end of last week. It summed up the economic position with great accuracy. The article was entitled, "UK enjoys best trade figures in nine years". It stated:The biggest surprise came on the current account, where a combination of booming exports and high invisible earnings from services such as banking, tourism, insurance and investment income from abroad cut Britain's current account deficit to only £168 million for the year".The article pointed out that in the previous year the deficit was in billions. That is an indication that the Government's economic policy, although one can criticise details of it, as I do on occasion, is working. The economy is improving. One notices that particularly in the contrast between what is happening in our economy and what is happening in all the countries of the European Union. We are doing better than they are. That indicates that the policies now being pursued are right and should be followed up firmly and with determination. It does not mean—I hasten to say this at once—that we should do no more.
We need to take the policies further. In particular, we need to pursue a policy of low taxation, of restraint in wage levels, and of encouraging initiative in all directions, because we still have—there is no avoiding this—the problem of a high unemployment. It is true that it is falling satisfactorily. It has fallen by some 600,000 over the past year or so; it is encouraging that that is so. But it is still too high. Unemployment is a particularly noxious state of affairs—harmful to individuals and to the general well-being of the country.
How are we to cope with that? Only by being increasingly competitive in our trade, not just with the European Community but in the world market. We need to be highly competitive and to be able to export all over the world. It is gratifying—your Lordships are entitled to some feeling of satisfaction over this—that so many countries, such as Japan, when looking for investment in this part of the world, choose to invest predominantly in this country rather than in any of the other countries of the European Community.
1638 It is interesting that those who have no particular sentimental feeling towards this country but who are concerned to have an investment that will be useful, productive and profitable to them decide that this country is the right place in which to invest. We want to justify their confidence. We can do so if we continue with the type of policies we have been pursuing over the past year or so.
I notice that no one from the Labour Benches so far today has advocated the restoration of wages councils or other artificial methods of stepping up wage levels. It is extremely important that those ideas should be dropped, and that even the threat of them should not be brandished before us. They would quickly destroy our competitive position, increase unemployment, and be extremely damaging to the economy. They are important issues upon which I shall be pleased to hear my noble friend the Minister comment.
There is a particular line of policy that I wish to press further. I believe that VAT is a bad tax. It is directly inflationary because it adds a specific amount to the cost of every product that it bites on. That is most damaging. The Government made a considerable mistake when they sought to increase VAT on, for example, domestic fuel. Although the tax has respectable European parentage, it appears to operate against the efficient working of an economy. I shall be interested to hear whether the Government intend to forbear any further increases in VAT.
I hope that my noble friend will be able to indicate that the Government realise that restraint in taxation is essential to a continuance of the process we are beginning to enjoy. Low taxes are an attraction to investment from other countries, a stimulus to enterprise, and a good encouragement to able, hard working, intelligent people to stay here and work rather than go to other countries where taxation is lower because they wish to retain a larger proportion of their considerable earnings. Some people have been induced to do that; it is an important point to bear in mind.
All such factors point to the desirability of lower taxation. One must face the fact that that calls for restraint in government expenditure. From time to time, some of us have pointed to areas in which government expenditure can and should he reduced, thus enabling taxation to be reduced. As time is short I shall refer to only one. It is legal aid. The cost of legal aid is roaring upwards despite the most gallant efforts of the noble and learned Lord the Lord Chancellor to check it.
No doubt legal aid is a desirable assistance to people in certain situations. However, such a rapid increase cannot be justified. It cannot be right that taxpayers should be made to finance the litigation, in particular the civil litigation, of people of considerable wealth. Recently we have heard of a number of such people, not of British background, receiving large sums by way of legal aid to enable them to fight long and complicated actions in the British courts. I hope that we put a stop to that, thereby securing a substantial reduction in public expenditure and enabling taxation to be reduced.
If my noble friend the Minister indicates that the Government will carry on along the lines they have followed so successfully and that they will move further 1639 in those directions a great majority of Members of your Lordships' House and of the electorate will be very happy.
§ 4.24 p.m.
§ Lord Chalfont
My Lords, it is particularly appropriate that we should be discussing these matters in your Lordships' House today. At a conference in the Queen Elizabeth II Conference Centre many people of great eminence are discussing at length the future of Britain. If press reports are to be believed, the conference is being chaired by a BBC journalist from the "Today" programme, thereby, one hopes, ensuring strict impartiality.
The Motion tabled by the noble Lord, Lord Prior, contains the phrase,challenges arising from technological development".I wish to concentrate on that during the few moments at my disposal.
The noble Lord said that progress and change in technical development is bound to continue. He spoke properly of the need for a high skill economy in this country. However, I have to say that in my opinion there is a very real danger that this country, the cradle of the great industrial revolution of the 19th century, may be left behind in the new technological revolution which is already gathering momentum and which will transform the industrial world of the 21st century.
Already, the "information super highway" has become part of the common vocabulary. Unfortunately, so far few people seem to be fully aware of the profound changes it will bring about in our lives. That may be due in part to the fact that technological change seems to spawn a large number of bewildering acronyms; for instance, CALS for continuous acquisition and lifecycle support. As president of the UK CALS Industry Council, I know that there are a few small communities of experts in government, in particular in the Ministry of Defence, and in some of the high-tech industries who are familiar with those concepts. However, for most people they bring on a numbing sense of boredom and incomprehension.
Yet behind the technical jargon some astonishing developments are taking place. Many are to do with what is arguably the single most effective instrument of wealth and power; that is, information. Already the United States Vice-President, Al Gore, has begun to speak of the dangers to democracy of the growing gap between the "information rich" and the "information poor". The United States is rapidly developing a national information infrastructure which will provide across the United States a massive network of computers, databases and consumer electronics—personal computers, television sets and so forth—which, within the foreseeable future, will put vast amounts of information at everyone's fingertips. It will change forever the way in which people live, work and relate to each other.
At the heart of the revolution lies another acronym; that is, EDI or electronic data interchange, In its simplest form, it is the transmission of structured information by means of common electronic standards. 1640 That is no less than a move towards electronic commerce, a world in which most if not all significant business and economic activity will operate in an environment dominated by information technology.
This is the new industrial revolution. Unlike the 19th century model, it will call for new dimensions of political leadership and vision. The first industrial revolution was relatively gradual in its commercial and sociological impact. The information revolution is of such a radical nature and of so accelerating a pace that it is not too extreme to say that the challenge of the 21st century will be for humanity to adapt to that technological change.
The management of such a change is a political challenge of the highest order. It is no longer merely a matter of applying a series of remedies and improvements to existing methods and cultures. It has become a matter of questioning and possibly discarding many of the assumptions on which we have hitherto conducted our businesses, industries, economies and the greater part of our lives. Furthermore—this goes back to something which the noble Lord, Lord Prior, mentioned in his admirable opening speech and is my main reason for introducing the subject—all this is becoming an essential instrument of international commerce. It is not too extreme to say—I say it from my experience of visits to the United States and Japan—that in the 21st century it will be difficult, if not impossible, for any country in the world to engage in serious technological commerce with the United States, Japan or any of the other advanced industrial societies unless they understand the principles of the new technological revolution. That will be of special importance in the export market for information systems, which is enormous. As the noble Lord, Lord Prior, mentioned, the importance of the third world can scarcely be over-estimated in that context. Perhaps I may take one example. In India, with a population today of 900 million, probably rising to well over a billion in the first quarter of the next century, the percentage of the population using information technology is likely to rise from 2 per cent. to 10 per cent. in the same time-frame. If my mathematics have not entirely deserted me, that means that some 80 million people will come on to the minor roads leading to the information super highway in the first part of the next century.
Much of this is, of course, outside the scope of government. It will be a matter for industrial and business management and ultimately for the millions of individuals who will have to make their own decisions about how to adopt and utilise the new technologies. As I mentioned, there is a very real danger that a new business and cultural elite will emerge composed of computer-literate people with access to the new information networks and the ability to exploit them. Already in informed and intelligent debate in the United States, there are apocalyptic warnings of the social perils of the emergence of a new information underclass. The right reverend Prelate the Bishop of Worcester has told me that "underclass" is not a politically correct phrase to use, but whatever the words chosen, it is an imperative obligation of civilised political leadership to ensure that 1641 that dangerous schism is not allowed to happen. The information society must be the inheritance of all mankind. It is a matter of concern that that kind of understanding of the political and social implications of the new industrial revolution does not seem yet to have spread to this side of the Atlantic.
It has been said that, in politics as in industrial management, there are two categories of executive—the doorkeeper and the pathfinder. The instinctive reaction of the doorkeeper is to regard fundamental change as a threat. He sees it as his sacred duty to preserve the status quo. To be a pathfinder requires something more. It requires a readiness to take risks in embracing fundamental change. There is an urgent need now for a pathfinder approach in this country. There are signs that that is happening on a modest scale. At a recent conference in London, organised by the Parliamentary Information Technology Committee, the Minister for Trade and Technology at the Department of Trade and Industry underlined the great opportunities provided by technological developments. He emphasised the importance of the Government both as a user of information technology and as a leader in the emergence of the information society; but he made the significant admission that he was the first Minister, and, indeed, the only Minister, to be equipped to deal with electronic mail—or E mail—a communications tool which has been common in industry for almost a decade and which is regarded as normal practice in the United States and Japan. That is not exactly a shining example of a nation committed to a vision of the information society of the future.
As I am in my eleventh minute, perhaps I may conclude by asking the Minister whether he will comment on one aspect which seems to me quite significant. We read many stories in the press about hospitals which have to ring up 14 other hospitals to find emergency beds. Will the Minister tell the House why there is not a national computer database from which any hospital, merely by pressing a button, could find out how many beds are available and where they are? That has been in existence in other advanced countries for some considerable time.
I return to my immediate concern—the management of the change which is consequent on a great technological explosion. We have to accept that ever-accelerating technological change is becoming a normal feature of our lives and that it will require a fundamental reassessment of our whole cultural approach—covering organisation, administration and industrial relations—in every dimension of our national and international life. Above all, it will require imaginative and flexible leadership at every level of government, industry and society itself.
§ 4.36 p.m.
§ Lord Laing of Dunphail
My Lords, the Government are to be congratulated warmly on the present state of the economy. Without wishing to detract from that statement in any way—indeed, the figures published last week were quite excellent—we should be wise to remember that we have been here before with an 1642 economy growing satisfactorily, inflation under control, unemployment coming down, productivity improving and even an export-led recovery.
But looking back over three decades, the benefits achieved after much pain and anguish have been squandered time and time again for one reason or another so that we continue to fall behind our major international competitors through lack of investment in every part of our economy—in people, in infrastructure, in technology and, I think, in the discipline of our society.
I wish to make a few remarks on that scenario, and first of all, on monetary policy, which is the principal instrument for the control of inflation, together with tight controls over government spending. Having had the privilege to sit on the Court of the Bank of England for 18 years, I know how difficult it is to gauge the state of the economy at any one time and to decide whether what is happening is a trend or an aberration. The sad fact is that all too often, inflation has been let out of the box into which it had been firmly placed.
We are extremely fortunate that the present Governor has been involved with monetary policy for many years. His understanding of the situation is second to none and the Chancellor and the Governor are to be congratulated on publishing the minutes of their meetings because that ensures that whatever decision is arrived at, the debate is in the public domain. I believe that publishing the minutes will be a restraining influence on liberalising the money supply unwisely and will almost certainly lead to interest rates being controlled within a narrower band to the advantage of us all.
I turn now to manufacturing industry and investment. To put my remarks into context, perhaps I may give your Lordships some figures for manufacturing investment as a percentage of GDP. For the seven years 1985–1992, in the UK we invested 2.6 per cent.; Japan invested 6.6 per cent.; Germany invested 4 per cent.; and France invested 3.1 per cent. For the same years, our GNP grew by 15 per cent. while consumer spending rose by 23 per cent., and in 1992 had reached 62 per cent. of total activity, rising from 54 per cent. in 1976. While company earnings increased by 35 per cent., dividends increased by 100 per cent. Figures like those should concentrate the mind and chill the blood, but all too often we seem to take comfort from improvements in our investment and productivity performance without relating them to what is happening in our major competing countries.
We simply have to get over the message that we must consume less and invest more. That must be backed by a fiscal policy designed to raise the national savings rate and a return to a system of investment allowances would also be beneficial. Of course the solution does not lie only with government. Industry itself is far from blameless, and also the interaction with the City. Short-termism presents a continuing problem.
I read in a leader in the FT recently that the purpose of companies' boards was to maximise returns to their shareholders. That is all very well, but if it is achieved at the expense of training, at the expense of research and development, and at the expense of investment levels, it is seriously damaging to our future. Failure to invest 1643 sufficiently in these areas is to a large extent responsible for our dismal manufacturing performance. Government have a part to play here too by ensuring that our education system produces a generation equipped to take on, and ultimately to beat, their opposite numbers anywhere in the world.
If investment in manufacturing industry is to reach its full potential, we need a high level of leadership in industry. Leaders must lead and lead by example. I wish to quote from Viscount Slim. He said,Leadership is of the spirit, compounded of personality and vision; its practice is an art. Management is of the mind, more a matter of accurate calculation, of statistics, of methods, of timetables and routine; its practice is a science. Managers are necessary: leaders are essential".I ask your Lordships' indulgence for a moment to talk about my experience in manufacturing industry. I was chief executive and/or chairman of my company, United Biscuits, for 35 years. Before that, I worked in one or other of our factories for 14 years. I believed then, as I believe now, that there is no substitute for hands-on experience of a manufacturing base in whatever industry.
During the 1980s we employed some 40,000 people, and I used to speak to 20,000 of them a year in groups of 300 or less, on all sites and on all shifts, believing that the person who called the shots should be seen and heard in person and be available to answer questions. During those talks, I might suggest a safe and sensible increase in pay for the following year. What credibility would I have had if, after whatever percentage figure I had suggested, I had taken a salary increase of double or triple that, plus stock option opportunities? Can noble Lords imagine how we would feel if we were factory floor workers and we felt compelled nowadays to accept increases of 2, 3 or 4 per cent., and our bosses took 50 or 100 per cent.? Need I say more? "Pass the port; the men have got their groundsheets." While it is meant to he an amusing phrase, it has a nasty ring about it today. A disillusioned workforce is unlikely to get the maximum return out of investment
If we abrogate leadership and become just plain greedy, we put our future in peril. Money is of course not the root of all evil but the love of money is, and that is the road too many seem to be following. Legislation is not the answer. What we require is common sense and ethical and moral leadership to replace a trend which seems to me to have become all too prevalent
We are up against many great nations but let me refer to just two—Japan and Germany. The Japanese and the Germans are not supermen and superwomen. How is it then that they have become so much more efficient than we are? The answer lies partly in their stock exchange systems. Many fewer companies in these two countries are subject to the whims of their stock exchanges and therefore can take, and do take, a much longer term view. Further, particularly in Japan, their system of education and of management and communication seems to me to be much more effective than ours
Everything I have talked about has a bearing on unemployment—the biggest problem facing the western world. Our unemployment level is currently at 8.4 per cent. That figure is bad enough, but what is worse is 1644 that over 15 per cent. of all young people of working age are unemployed. While unemployment will of course go up and down from time to time, the long-term trend—not only in this country but in Europe as a whole—is likely to rise, bringing with it serious financial and social problems. If rising unemployment is inevitable, and I rather suspect that it is, more attention should be paid to the length of working life. Is it not absurd to keep people aged 60 or over in work who, with suitable financial arrangements, would like to retire, but to deny work to school-leavers who want jobs
Nothing is likely to be more damaging for our society than unemployed youth. That is such a waste of a precious resource and it leads as well to serious and unnecessary crime. If the youth of the country were gainfully employed, I believe the crime level would fall substantially. Those of us who are 60 and over no longer rape and pillage—if we ever did—but we can still play a useful role in society, even if retired. I suggest that more thought is given to an imaginative "special offer" early retirement programme for mainly unskilled workers to put young people into jobs. The means of achieving this may initially look expensive, but nothing will be more expensive than if 15 or even 10 per cent. of our young people are without jobs. That would be a real tragedy for our country and would lead to a continuation of an unacceptably high level of crime. The answers to the opportunities I have outlined lie in our own hands. In a western world which increasingly looks short-term, let us look longer term.
§ 4.46 p.m.
§ Lord Carr of Hadley
My Lords, to save repetition, I wish to say how much I agree with so much of what my noble friend Lord Laing has just said. In particular, I agree with him about the need to tackle perhaps the manner in which rather than always the amount which senior leaders in industry are paid. I have always been brought up to believe that maximum opportunity tends to be matched with maximum risk. One of the things that seems to me to be wrong at the moment is that people at the top who get the maximum reward also get the maximum security. I shall not pursue that today, but I believe it is important.
I also agree with my noble friend as regards the importance of leadership in industry if we are to get our human relations into a constructive state. Like him, although in a considerably smaller company, I used, year after year, to go to different parts of factories at different shifts trying to explain in great detail to anyone who wanted to know—I was encouraged to find that, year by year, more and more people wanted to know about these things—what exactly the company was doing, and why, and what its hopes and fears were. I know that this works and I know that it pays efficiency dividends.
There is one point on which I do not agree with my noble friend, and that is in his remark that we have been here before. I do not believe that we have been here before. I know that under present procedures I must not congratulate my noble friend Lady Hogg on her maiden speech, but she made that point well. I do not believe I have ever been in this economic situation before. I do 1645 not think we have ever had quite the same combination of a decent level of growth being export-led rather than home-consumption-led, coupled with inflation that is under control, unemployment that is falling and employment that is rising, and our goods and services being so competitive in world markets. I believe that we have what in my lifetime is a unique opportunity. That is what I wish to speak about.
The more one progresses down the list of speakers in a debate such as this, the more boring it becomes for those who are still waiting to speak to hear about economic theories and policies and so forth. Therefore I wish to talk more about what I call the general political background and atmosphere which I believe are important for success. So much of the public comment on our economic position over the past few years has been obsessed with this business of waiting for the feel-good factor. I am tired of waiting for Godot and of waiting for the feel-good factor. If it came, I for one would be immensely worried because I believe that the sort of feel-good factor people are talking about is the sort of feeling one gets when one is enjoying a good dinner without regard to how one will feel the following morning.
The feel-good factor is sometimes applied to house prices. Some people say that house prices will act as a touchstone for the feel-good factor to arrive. I would be very frightened if that were the case. I was brought up to believe that the important aspect as regards property was to have price stability. I believe that that is immensely socially important. I know there are some unlucky people who, either through need or misjudgment, bought property at the tail end of the previous disastrous boom. But I believe that for society as a whole stability of property prices is of immense social and economic importance. If house prices started rising, I strongly suspect that all other prices would also rise. I do not believe that we want a property boom in this country. I appreciate the problems of the construction industry, but there are other, more constructive solutions for the industry than another property boom followed by the inevitable bust.
What makes me feel good—and I believe that it is part of the Government's job to bring it home to the country as a whole that it too should feel good—is that we are in the unique position of having established a launching pad from which we can go forward with a strong, well-guided economic expansion instead of boom and bust.
We have not reached that position by accident. We have done so as the result of a long, hard grind; a long, hard pounding as the Duke of Wellington said in another context. Unpopular policies have been pursued persistently and we are now seeing the reward, or at least the potential reward. I urge the Government to go forward from here and make it their major task of political leadership to persuade the country that we are in a good position, and then show that they are determined to exploit this opportunity and be seen to be doing so. That is an important task of political leadership. The fact that it may have what many people would regard as a surprising effect on the outcome of 1646 the next general election is beside the point for the moment but not without interest to me. We have the opportunity to do that. We need to ensure that people are made to feel good, for the right reasons and on a long-lasting basis.
In my remaining few minutes I want to outline in headline form some of the main components of the policy required for that strong, determined economic advance which I believe we can achieve and for which we have built the platform. First, I turn abroad. I urge the Government to give a high profile priority to expanding the single European market. The days of huge factories employing many thousands of people in mass production may be at an end, but access to huge markets is far from at an end. We belong to one of the biggest markets in the world, the European market. It is potentially even larger. At present we are the country in Europe with the most competitive edge in tackling and benefiting from that market. Therefore, I say to the Government, be strong and positive. We should expand and be seen to expand. We should go hell for leather within Europe. Let us be positive within Europe. Our objective should be to expand the single market which we have played a part in creating.
I believe that that would also bring political benefits, because I do not believe that as yet the country recognises the advantages. People are being made more and more aware by some of my Euro-sceptic friends of some of the dangers of the common market and European unity. Let us demonstrate the benefits so that both are visible. Everything has a plus and a minus. That is true of Europe. The benefits of the single market for this country are potentially immense if we have a Government who lead us in that direction. That could lead towards unity.
I do not think only of my own party. After all, it is true that most of my Euro-sceptic friends in my party supported Mrs. Thatcher, as she then was, when she was Prime Minister in signing the solemn declaration of, I believe, 1987 and introducing the Single European Act in, I think, 1989. They supported entering that single European market. I do not believe that they want to go back on that. It is the single market that we want to exploit. Let other matters such as whether we want a single currency or central institutions for fiscal policy and banking be decided by the market. Those are a means to an end; they are not the ends.
I believe that a single market requires some sharing of sovereignty, exchange rate policy and so on, but only for a purpose. Those are not ends in themselves. If that is better understood in the country, we might defuse some of the damaging disagreements. They are damaging not only to my party but to the prosperity of the country as a whole. I urge the Government to press for that.
Internally, let us look hard at the need to enlarge our manufacturing base, which was emphasised by my noble friend who has just spoken. I believe that one of the mistakes of the early 1980s was to underestimate the importance not only of the efficiency of our manufacturing base but the scale of that manufacturing base. We shall not take advantage of the single market unless we tackle the problems of under-investment in 1647 plant, machinery, education and training and the short-termism to which my noble friend has often referred. There is no single answer. When I was young, in industry we talked about ploughing back profits not distributing them. We have to reintroduce a positive atmosphere.
There is so much one could say. In my remaining minute I wish to refer to the words of the right reverend Prelate the Bishop of Worcester about employment. I became involved in politics because I was at school in Westminster during the days of unemployment and I saw the hunger marchers. We cannot have a good society without it. However, there are immense structural difficulties. One has to train people in skills. I believe that if we can produce skills through training and create wealth we shall find that there is no shortage of jobs. There is a shortage of wealth to pay for those jobs which consume wealth rather than make it. I believe that there is an answer, but it is a long way down the road. It is a difficult problem which society will have great trouble in tackling.
§ 4.57 p.m.
§ Lord Sefton of Garston
My Lords, I would not want in any way to exacerbate the differences between the noble Lord, Lord Laing, and the noble Lord who has just spoken. The noble Lord, Lord Laing, was taken to task by the noble Lord, Lord Cart of Hadley, for saying that we had not been here before; the noble Lord, Lord Carr, said that we had. I have been here before.
Looking round this House I begin to realise that, as a certain gentleman in South Africa said, at 80 you should not he messing around with politics. I am getting too old. I was born in 1915. In 1927 I began training in the building industry. Seven years later I finished my time. I can remember clearly what happened. At that stage in the development of so-called civilisation free enterprise had its way. It controlled everything. Somewhere in New York, on Wall Street, something went wrong, just as something went wrong in Hong Kong and Singapore not so long ago. The whole edifice collapsed. Along with millions of others, I was the recipient of the consequences of that collapse of private enterprise. I shall never forget it. I have been here before.
I do not want to talk about the details of our economy. I shall leave that to people who are much more learned than I am. But when somebody mentions the economy, and this debate is centred on the economy, I wonder what economy they are talking about. I am certain in my own mind that they are not talking about those 4 million people who are suffering the consequences of unemployment or the fear that they will suffer unemployment. I do not know how many people suffer from negative equity—that technical term for when people have bought a house which they now cannot afford. They are not talking about them. In this property owning democracy that we are supposed to have created those are not the people who are being referred to, because they would not listen. All that those who suffer from negative equity wish to know is how they will be able to move: if, of necessity, they have to move to obtain another job, how on earth will they get rid of the house that they have?
1648 They are not talking about 380,000 members of the populace who exist on f 1.50 an hour. Those workers do not listen to talk about the economy. Neither are they talking about the 1,140,000 who exist on £2.50 an hour. The noble Lord, Lord Boyd-Carpenter, said that no one on the Labour side had spoken about restoring wages councils. I shall disappoint the noble Lord; I shall not mention wages councils either. But it is about time that someone found some system to stop the fat cats getting fatter in the City of London while other people are being starved on £1.50 or £2.50 an hour. If we talk about wages councils, yes, we want some control over income, but that control needs to be at the top end rather than the lower end. Those workers already suffer enough. I shall satisfy the noble Lord by saying, yes, I am in favour of wages councils when our society appears to depend on driving people down until others can make their millions. That is the kind of society that we have.
The issue today is whether people are right to think that the market can solve all our problems. But can it? We heard the noble Lord, Lord Laing, talk about investment overseas. We heard the noble Lord, Lord Prior, talk about money coming in from investment overseas. Some of our industry invests overseas. British Aerospace bought bargains from the Government and got into trouble; its balance sheet was not big enough to satisfy the investors. It wanted to pay more to the investors. So what did it do? It was common sense to the company: it sold off the corporate jets branch of its undertaking to the United States of America and romped in with £500 million. It was not satisfied with that and decided then to sell off Rover cars, regardless of the fact that Rover cars had become efficient—which it had. The jet aerospace factory was making money. But we should note that those people in industry are supposed to have the interests of the nation at heart.
Is it not ironic that the game which was invented in this country—it uses all the modem purchase of property in London as marks in a game—is now owned by the United States of America? Is that what is called investing money abroad; or is it just a means by which private enterprise, the market, satisfies itself in regard to dividend? Those people are not fit even to contemplate helping this country out of its difficulty.
The noble Lord, Lord Laing, once wrote to me, I had put down a Question asking what the Government would do to prevent the sale of the corporate aircraft division and Rover cars to foreigners. The Government's reply was, "We shall focus fiercely on the preservation of that industry". They focused fiercely. It did not do any good, of course. That industry has gone; but the Government focused fiercely. Is that not a wonderful thing? Yet some people on the Benches opposite suggest that what we need to do to tackle the economic problems is to get together, to be positive and to have a strategy. Let us see what strategy the Government have.
One of the main elements in our society is the railway system. I attended a meeting which had been postponed for a month either because the Minister could not come or the details were not available—I do not know. I asked this question: when Railtrack was sold off, who would be responsible for determining the future of our railway 1649 system. Would we have a strategy? The Minister did not understand the question; I had to repeat it. Everyone else in the room had understood the question, but the Minister either did not want to know or did not know the answer. I summed up by saying, "That means in fact that there will be no one responsible for the strategy of our railway system".
The railway system is the lifeline which determines our industrial efforts. It determined that Ford motor cars came to Merseyside in order to tackle the unemployment problem in Merseyside. The railway line between Dagenham and Speke is a continuous extension of the production lines in both factories. That was the use made of railways. Yet here we are without a strategy for railways. Here we are selling off all our assets.
I wish that I had longer in which to speak. During the debate I have learnt further about the attitudes of noble Lords. I think that the speech of the noble Lord, Lord Laing, should be sent to the leader of every industrial concern in this country. There were some factors in it which should make those people think—but they think only in pounds, shillings and pence. If you cut some of their veins, the stuff that came out would tinkle as it hit the floor. They cannot think beyond the question: where is the money coming from?
Let us therefore consider what we shall do with our economy. Let us take energy. If ever there was an element which required good husbandry—to be used efficiently, to be conserved and at the same time used to help our industry develop and become a world force—it is the energy that we own. And what have we done? We should ask ourselves this question. If noble Lords on the other side of the Chamber cannot answer it, they had better start thinking, because they are responsible. The newly formed gas organisation immediately began laying hundreds of miles of gas mains throughout the country. It was of no consideration to that industry that it was laying gas mains which competed with the electricity industry in Wales. It was not concerned about the long-term strategy for the use of energy. All that it knew was the more gas used, the bigger its profit.
The electricity industry is doing the same; and the situation gets worse. Manweb is the distributor of electricity in North Wales. When I walk into Mold in North Wales, what do I see? I see Norweb competing in the heartland of Manweb. Is that a common sense way to deal with our energy resources and needs? Of course, it is not.
Some noble Lords will say, "He's one of those old Labour men, one of those old people who believe in nationalisation". I do not. But let me say this. I believe in common ownership, because it is only by relating common ownership to our needs and purposes as a nation that we shall get anywhere. To rely on the market means relying on nothing.
I conclude as I began. In the 1920s I suffered the consequences of a free enterprise society where the devil takes the hindmost. In 1979, Thatcher restored that system of enterprise, and control over our energy and our nation went. This Chamber and another place are useless appendages if they believe that they can control our economy. They cannot. Private enterprise will. I 1650 make this forecast, and I apologise to the right reverend Prelate for using the word "underclass". Private enterprise has established an underclass of privation and despair here as well as throughout the United States and Russia. When people begin to realise the consequences of private ownership, they will reap the wind and we shall have an awful time. But the people suffering will not take it lightly this time, and I will be on their side. If that means that I shall be classified as a socialist or someone who believes in the public weal, then I will take it, and I do not care what any political party says about it.
§ 5.10 p.m.
§ Lord Sanderson of Bowden
My Lords, we are grateful to my noble friend Lord Prior for bringing forward the debate at this time. When I read articles by financial commentators these days, I am reminded of the words of Gilbert which go something like this:Oh don't the days seem lank and long, When all goes right and nothing goes wrong And isn't your life extremely flat, With nothing whatever to grumble at!It is true that there is now a real danger of our nation talking ourselves down, selling ourselves short and blaming everyone else—particularly the Government and faceless bureaucrats—for ills which are probably not of their making. I suppose we should ask ourselves: "Are we doing well economically or not?" It is a little like asking a friend: "How's your wife?", to which the answer is: "Compared with whom?"
Even some of the Government's fiercest critics at the moment have to concede that consistent low inflation for a period of about 18 months, manufacturing productivity increasing 4.5 per cent. on the year, export volumes increasing 13.5 per cent. and unit labour costs broadly flat, must, by anyone's measure, be good news.
I wish to say a word about small businesses and their situation. They are the seed corn of the economy, and we recognise that 96 per cent. of the United Kingdom's 2.7 million firms employ fewer than 20 people. In the depths of the recession from 1989 to 1991, firms employing fewer than 20 people created 350,000 jobs. That is quite a remarkable achievement when private sector employment was falling at the time. Of course there are failures but there are also successes. I believe that the Chancellor of the Exchequer, particularly in the last Budget, breathed new life into the ailing Business Expansion Scheme by bringing forward the Enterprise Investment Scheme. A simplified version of it and the Venture Capital Trust Scheme will bring long-term rewards, but they will take time to establish themselves.
Looking back at the introduction of the Business Expansion Scheme, I implore my noble friend on the Front Bench and his colleagues not to let bureaucracy stifle the EIS and the VCTS, as it did the BES. It is important, particularly for manufacturing industry, to ensure that capital from individuals goes back into the higher risk areas of small and medium sized firms. The only way to do that is as the Government have done: to give direct tax incentives to encourage that build-up and not leave it to the dishing out of grants or loans from the state. If individuals are given a direct interest in a 1651 firm—as I know only too well—they will continue to have a real interest and they will not mind taking the risk. We hope that they will get a reward.
I am also pleased to see and welcome the measures contained in the White Paper on competitiveness. They require government departments and public bodies to publish details of payment policy, performance and complaints procedures, so as to promote prompt payment. Big industry, big departments, big public bodies can be cruel to small firms and that must be stamped on wherever possible.
Small and medium sized firms which are engaged in export—and there are many—need support in ensuring that they can offer their goods to the developing markets, particularly the Far East. I know from my own personal experience of embassies how well they are adapting to modern days and how well they do in helping industry to sell its goods. Without selling, industry will fail. I also believe that the Government must not give up on their task of helping small and medium sized firms to go to those markets. Support is well worth while and money of that kind is well spent and can bear fruit in the future.
What would I grumble at if I were running a small business? First, I would have real anger at those who forget that we need a strong home market—by that, I mean the whole of Europe—to succeed. By all means hold fast to our nation state approach to Europe, but let those who criticise the European Union beware that they are sapping the confidence of many people in business through out the land. Opting out of Europe is not a choice.
Secondly, on a subject which has already been touched on this afternoon—share options—there must be a recognition among the management of privatised utilities which operate under powers of regulation that share option schemes or deferred incentives are focused on real enhancement of value in the company. They should, by fiscal measures, if necessary, be restrained.
Thirdly, if non-executive directors are to function properly and independently—as is their duty, despite recent European legislation allowing options for part-time board members—it is necessary that we in this country at any rate set our faces firmly against such practices as options for non-executive directors. They cannot be independent, they cannot be members of a remuneration committee, if they have a vested interest.
Above all, I think that the small businessman would say: "Let those of us who are involved in United Kingdom industry and who welcome the gradual improvement out of recession that we now see, tell armchair critics to realise that we could make faster progress if they could give a vote of confidence in the United Kingdom's recovery, rather than the opposite".
Unemployment has been mentioned this afternoon. It is a very important subject which demands a debate on its own, but it is not a United Kingdom problem only, it is also a European problem. If we look at some of our European partners, we can compare reasonably favourably with them, but that is no answer. We must go on and do better than we have already done.
1652 In conclusion, progress can only be made if the Government stick to their low inflation, low taxation policy and resist the temptation—however politically attractive—to loosen the strings.
§ 5.18 p.m.
§ Lord Astor of Hever
My Lords, I should like to focus briefly on the motor sport industry—a subject which is hardly ever addressed in your Lordships' House, but which is uniquely important to Britain. It is an example of what can be achieved when the Government provide the economic environment for it to flourish, We are now the world's acknowledged leader in motor sport innovation, a growth industry that last year generated more than £1 billion for Britain. Over £650 million of that was accounted for by foreign earnings. Fifty thousand people are now employed within British motor sport in small companies as well as many major corporations. Three times that number enjoy part-time employment. Yet these achievements remain largely unrecognised.
Ninety per cent. of the Indy cars that roar around America's leading circuits, and which brought Nigel Mansell the 1993 championship, are built in this country, including their Chevrolet and Mercedes engines. The Vickers subsidiary at Cosworth provided engines for five out of the nine teams in the 1994 Formula One season, holding 36 per cent. of the grid. Its Ford Zetec-R car engine powered Michael Schumacher to the world drivers' championship. This year it is supplying six teams.
All the major Formula One teams are based here in this country: Williams; Benetton; Mclaren; Jordan; Arrows; Pacific, and so on. These Formula One teams alone bring over £200 million-worth of overseas sponsorship money into Great Britain each year. Some of the world's most successful industrial corporations turn to Britain to run and build their competition cars, including Toyota, Nissan, Honda, Porsche, Ford and Yamaha. Lotus is in the forefront of composite material technology. Even that proud Italian institution, Ferrari, has moved its design and development office here; and another Formula One Italian team, Forti Corse, has just announced plans to open a research and development department in Britain, tapping into the engineering talent in motor racing's established "Silicon Valley" to the south and west of London, where there has been an explosion in specialist independent research and development houses.
The British touring car championship is an institution of which we should be proud, and has extensive television exposure overseas, including, for the first time this year, in the United States. Spectator numbers in this country have doubled in three years and British circuits are becoming overcrowded. Like football stadiums, they will need updating but expect no financial assistance from Her Majesty's Government.
Rallying is also increasing in popularity. Many British rallies use Forestry Commission roads. They contribute £750,000 per year to the commission. The RAC would like to use on a temporary and paid-up basis some of the under-used defence property. They have 1653 taken the matter up with the Ministry of Defence, and I very much hope this can be a useful source of income for it in the future.
There is concern in the industry at the increasing likelihood, nationally and internationally, of a ban on tobacco sponsorship. My own view is that the industry will have no trouble attracting non-tobacco sponsors and is well served by the Motorsport Industry Association, which works hard to promote the industry to other British industries as a viable marketing tool.
Environmentally, racing cars are being made much quieter each year. Unleaded petrol is mandatory at major British events, and the amount used is insignificant. A jumbo jet flying to Australia and back uses more fuel than the whole of British motor sport in a year.
I hope that Her Majesty's Government will help to promote the industry to universities, colleges and schools in order to attract high-calibre young people to the business and technical sector of the industry. Unlike many other sports, motor sport receives not a penny in government grant. I am sure that my noble friend the Minister will be happy to know that I make no request for money or special favours. This industry is moved by intense competition and it expects no government assistance.
I mention the motor sport industry as an example of what is being achieved under this Government. I very much hope that Her Majesty's Government can ride on its success and continue to help promote the export sales opportunity of an industry that is a credit to this country.
My noble friend Lord Prior mentioned the "feel-good factor". Last weekend, millions of Britons watching television felt good at seeing all four cars, and three out of four drivers from Britain, in the front two rows of the Brazilian Grand Prix.
§ 5.25 p.m.
Lord Bruce of Donington
My Lords, the Motion we are discussing, put down by the noble Lord, Lord Prior, is essentially a Conservative Motion on a Conservative afternoon. It was received—with one exception, to which I may return later—with unalloyed enthusiasm by Members opposite.
Sometimes I wondered whether I was living in the real world at all. We heard from most noble Lords (bar one) that the economic condition of the country has never been sounder. I wonder where your Lordships have been these past 16 years since the Conservative Party took office—16 years of undisputed power, undisputed majorities, nothing that Parliament could deny them on a vote, sustained mainly in financial terms by the finance capital of the United Kingdom, corporate finance, and to quite a large extent, by corporate manufacturing and service industries.
The Government have had everything, every power they wanted. Nobody could deny them it. More than that, they succeeded in their legislative programme of disarming anything they thought might be the slightest hindrance to the plans they had for the country. They speedily attacked the trade unions and took most of their powers away, leaving them virtually without real power. 1654 They have had everything—plus £100 billion worth of North Sea oil. And where have they got us? According to Members opposite we have never had such a sound state in the country. Everything is moving properly, steady as she goes.
Let us consider some of the matters that have an impact on the economy. Leaving aside the fact that at least one-third of the people in this country live below the poverty level and about 60 per cent. are distinctly disadvantaged in relation to the top 40 per cent—among whom 5 per cent. control the works—what really constitutes the economy of this country? The economy comprises the whole of its people: their activities, hopes and aspirations; their life span and their health; their working time; their ideas; their purposes; their aims—perhaps even their dreams. All these things are part of the overall economy of the country.
Let us take the issue of unemployment. I well remember the halcyon days of 1979 when unemployment stood at 1,295,000. That was bad enough. It was apparently attractive enough to be blazoned over the posters of the Conservative Party in the statement, "Labour isn't working". Unemployment has come down to nowhere near that level yet. The current figure, after all the fiddling—and if anybody wants any idea of the fiddling, they should read Alan Clark's diaries—stands at 2½; million, but on the basis of the old count, as distinct from the new figures. The real figure is some 3,400,000, if calculated on the same basis as the figures for 1979.
There are members of the Conservative Party who are unemployed. There is no question about that. The leaders enjoy a degree of leisure which among the lower orders is regarded as laziness. Unemployment for some of them, well heeled though they are, is deemed a virtue. I was amazed and a little angered by the way in which the noble Lord, Lord Prior, referred to the process by which the unemployment figures had been achieved. He spoke of "weeding out". I could hardly believe my ears. Weeding out? He did not say it once; he said it three times. That, he said, was the process by which labour forces were reduced and people were discharged onto the scrapheap of unemployment. That reminds me of the days before the war, under a very similar regime, when notices outside the factories read "Hands wanted"—not the brains, just the hands. The way in which that disastrous process is regarded by some Members opposite—I do not say all Members because I have some very good friends over there—as casually "weeding out" is deeply offensive to most people. Indeed, I am sure, within the context of the remarks made by the right reverend Prelate, the Bishop of Worcester, it is repugnant to him also.
So that is their view of unemployment. But unemployment is not merely a matter of modern information technology and modern techniques displacing labour itself. That is rubbish. People do not wear computers on their heads to keep out the water. People do not consume computer tapes in substitution for a square meal. Information technology may facilitate the whole process of manufacture and distribution. It does nothing to solve the basic problems of life nor help to solve the problems of the homeless. Incidentally, a 1655 reinvigoration of the housing programme—it needs it after all these years—would, at a stroke, employ much more direct ordinary labour, help to relieve unemployment, and give a new sense of purpose and direction to people. It would also produce more houses. Those who tell me that there is not the intellect within the United Kingdom to match the needs of people through other people's labour—thus employing them and reducing unemployment—and that them is a problem beyond all solution in this modern age are talking out of the back of their heads. They know that it can be done.
Another advantage the Government claim is in overseas trade and the balance of payments. I do not know whether they read the figures which they themselves publish. There was a news release issued a few days ago about the balance of payments. It showed that far from the improvement being due to any surge in exports or limitation of imports, the greater part of it (some f I 1 billion) was due to investment income from overseas. It also showed that in the year 1994 there was still a visible trade deficit of over £10 billion. Those facts may not be fully realised.
That brings me to the whole matter of investment. British finance capital invests roughly three times as much overseas as it does in the United Kingdom. The noble Earl, Lord Ferrers, in reply to my question the other day, boasted that we attracted so much overseas investment, particularly from Japan. He claimed that as a triumph. He might have meditated on why, in those circumstances, the main part of British corporate investment—direct investment, not portfolio—goes overseas to America and other countries. It does not go to our own country. We have to take account of that fact.
I would like to have continued in that vein, but am prevented from doing so by the remarks that fell from the lips of the noble Lord, Lord Laing of Dunphail. I should like to think that the sentiments he uttered today in his observations upon leadership and management and in his general approach to the whole subject of manufacturing industry and the future of our country as an economic entity —with which sentiments I heartily agree—would pervade the whole of the Benches opposite. I am sorry to embarrass the noble Lord by supporting him. Nevertheless, he spoke as one of the true voices of England across even the political divide.
Let nobody in the country think that anyone on this side of the House wishes to talk down our country. On the contrary, we believe in our country. Speaking personally, I believe in our country and even its administration more than I believe in the bureaucrats in Brussels.
§ 5.37 p.m.
§ Lord Nickson
My Lords, there have been two fairly punchy speeches from the Benches opposite. I speak as a businessman, not as a politician and not as an economist. I also speak as a disciple and admirer of my noble friend who sits on my right. I have followed his career and tried to emulate him in various ways in the past.
1656 When I had the opportunity to speak for the first time in your Lordships' House, which was too long ago, I was given to understand that the noble Lord, Lord Eatwell, turned to the noble Lord, Lord Richard, as I sat down and said, "I agree with everything that he said. Why isn't he sitting on our Benches?" Perhaps later today the noble Lord may not think in quite the same terms.
I am delighted to be able to speak on the Motion introduced by my noble friend Lord Prior. I remember, though I doubt that he does, a day in 1979 when, as the newly appointed Secretary of State for Employment, he came to Glasgow to visit the CBI—I had just been appointed a very inexperienced chairman—and to visit the STUC, following his normal practice of speaking to both sides. Two years later he was kind enough to speak at my farewell dinner just after he heard that he was going as Secretary of State to Northern Ireland.
We have talked about investment and the long payback that comes from investment in infrastructure, industry and so on. In my view, some of the credit for the great progress that has been made in so many fields of British industry since 1979—not least in industrial relations—should go to the investments made by the noble Lord and the policies that he started to lay down so long ago. He might feel that that also has reference to the recent developments in Northern Ireland.
I should like to make three points. I shall pick up first the point made by the noble Lord, Lord Peston, who asked, "Where does history start?" The noble Lord, Lord Bruce of Donington, referred to 1979 as a convenient starting date. The noble Lord, Lord Sefton of Garston, went back further, into the 1920s. I want to start history in a slightly different place; namely, the 1970s. I should like to contrast many of the situations that exist today in relation to British industry with that sad decade of the 1970s.
I was a young manager in the printing industry through the 1950s and 1960s at a time when inflation averaged around 3 per cent. a year; we hardly knew what it meant. The 1970s were the saddest and most difficult decade of my life in business. We do not want to depress ourselves too much, but in terms of what has been said and the prospects that now confront us, it is reasonable to contrast that miserable decade with today. It was a decade of constant industrial strife. My noble friend Lord Prior referred to two sides of industry. Today I like to think that there are still two sides to industry; us and our competitors in other countries and in other companies, but not in most cases within British industry, which is what it meant then.
As we all remember, we saw the three-day week, the constant strikes, the conflict and the violence and hate which we deplore and now see only on the football terraces. I believe that the progress made in industrial relations through not only industrial relations law but also far better co-operation and understanding between unions and management across the country is a huge stride forward since those days of the 1970s. The 1970s brought double-digit inflation; they brought the great problem of the start of the North Sea oil revenue and the petro-pound with a high exchange rate.
1657 What did all that mean to management in the 1970s? It meant that one was almost ashamed to go abroad to sell British products because we were seen as the sick man of Europe. It was a case of apologising for quality, for broken delivery dates and an inability to satisfy one's customers. It is a different scene today. We are at least as competitive—as has been said many times—as other countries within Europe. I agree with all that was said in regard to extending the common market in relation to a free trade area, the area in which we have to compete. I am concerned that the great European market in which we all exist, through policies that may be regulatory and impose additional costs, grows too slowly and is inhibited from competing in the global markets in which we operate against the Asian tigers and those who have much faster growth rates than ourselves.
I believe that we are in a much better situation than we were in the 1970s. We heard the good news. We are no longer the sick man of Europe. We can compete. We can look with confidence over the next five years to low inflation that is under control; to a growth that is at a sustainable level; to exports and an export recovery that has been a record—the latest CBI trends disclose the highest optimism since 1977. We have positive demand and shall go on winning more business in overseas markets. Our level of days lost through strikes has never been lower. We have co-operation and a combined enthusiasm between trades unionists and managers for investment in training; for the need for long-term investment; for the need to invest in people, in their skills, technology, health and safety and equal opportunities.
I shall turn for a moment to Scotland, where I come from, and give the House more good news. Exports from Scotland, at £32,000 per employee, are better per employee than exports from the United Kingdom or Japan. As a percentage of gross domestic product exports are higher in Scotland than the rest of the UK, Germany, France, Japan and the United States. Inward investment has been criticised. It has been flowing in at two inward-investment projects a week—95 projects last year. Why? It is because of the sense of business excellence, a highly trained and willing workforce, low corporation tax and a competitive environment.
Scotland currently produces 11 per cent. of the semi-conductors in Europe; 35 per cent. of personal computers; 50 per cent. of automated telling machines and 60 per cent. of workstations, all with only 1.5 per cent. of the population. Why do the Japanese—for example, NEC, (we heard from the noble Lord, Lord Chalfont, about the need for technology)—invest £530 million employing 400 employees? It is because of the high technological skills in Scotland that will take us forward. The same applies to Motorola: £50 million in East Kilbride just after assuming Digital. Our own company, Scottish Power and Hydroelectric, is about to invest £40 million. Scottish Power says that it will be burning 5 million tonnes of coal by the year 2000—twice the level of coal being burnt at the moment. I could go on. But I believe that there is more good news. In terms of technology, technology transfer from the 12 1658 Scottish universities is at a high level and we are world class in optoelectronics, parallel computing, genetics, virology, cancer research and offshore production.
I take a completely different view from those on the Benches opposite regarding the current state of the economy and the prospects for British business in the next few years. I should like to hear, particularly from the noble Lord, Lord Eatwell, when he comes to speak—we have heard a great deal of criticism of the Government, and the management of the economy—what those on the Benches opposite will do about interest rates. What rate of sustainable growth will they look for? How will they maintain the economy successfully? If their policy is very different: I should like to hear what it is.
I conclude in my last minute on one final note. The question of pay at senior levels was referred to. I believe that today I finish officially as chairman of the Top Salaries Review Body. I deplore, like other of my noble friends, the excessive pay rises that have occurred in private industry and particularly the private utilities. The growing gap between pay in the private and public sectors is a real problem. I hope that at some convenient date we can have a debate in this House on that subject and that I shall be able to contribute to it.
§ 5.48 p.m.
The Earl of Clanwilliam
My Lords, your Lordships will be wondering why I should speak in this debate on the economy when, as is well known, I am not an economist, I am not an industrialist and, indeed, I am not a politician—I have never been elected by anybody. However, one small aspect of the economy is of vital importance and should be debated much more deeply; that is, the establishment in the minds of the population of a philosophy of savings.
The personal wealth of its citizens is undoubtedly one of the most important factors in estimating the strength of the economy of any country. I have no regrets, therefore, about bringing this matter forward for your Lordships' attention. I owe that ethic to my noble friend Lord Vinson, who said in a recent paper that such a philosophy was and is standard in those countries where the retired population are self-sufficient. Indeed, it was standard thinking in this country in days past and forgotten, since when there has arisen a tendency for society to expect the Government to take a great deal of responsibility for its ills and its future.
Indeed, one might say that the ethos of thrift began to be eroded by the entry of the Beveridge proposals. However, before noble Lords opposite—that is, if they arc going to do so—get angry, perhaps I may hasten to say that I do not believe for a moment that those proposals had such an effect or were intended to have such an effect. Beveridge's scheme of things included thrift and personal self-help, which in those far off days were, of necessity, a consideration in our daily lives.
Nevertheless, we now have the phrase "dependency culture", which has entered the language and which speaks for itself. That has been accepted by the leader of the party opposite, who has clearly declared himself in his clarion call to support the basic tenets of the party 1659 which I support. I shall be interested to hear how he intends to put that into practice, but that is another point. The situation points to the need for a savings culture to be introduced among the population.
Despite the well recognised fact of the demographic time bomb which will occur in the next century, it is clear that there is still no convinced savings/pension philosophy on the part of the individual. Short of the odd 3 million to 5 million people who have personal pensions only, the other 20 million who are employed expect either their company and/or the state to provide for them in retirement.
We had a debate on pensions recently in which the prevention of fraud and the general democratisation of pensions was the major factor; indeed, it will be clear that anyone possessing all three provisions debated—that is, state pension, SERPS and the occupational personal pensions—will be extremely fortunate and will be anticipating with confidence the enjoyment of the fruits of his prescience and thrift. Would, indeed, that I was not one of those 20 million dependants.
This Government has been most inventive and successful in promoting the savings process which we have encouraged, if somewhat piecemeal, with PEPs, TESSAs and contracting out of SERPS. In addition, there are National Savings, insurance trusts, investment bonds and building societies which all represent very large figures. As the noble Lord, Lord Prior, said, the occupational pension funds in the City today amount to some £500 billion, while unit trusts and other savings amount to another £100 billion, the assets of the building societies in this country add up to £280 billion and the housing stock is worth £1,150 billion. Of course, that does not include the value of private estates and art collections. Some of those figures are subsumed in the £3,000 billion invested in the Stock Exchange. Therefore, we can hardly be considered to be on our uppers as a nation. Those figures show the scope for personal saving.
My point is that personal long term savings are needed to take the load off the taxpayer who is providing the state pension and off the employer whose pension provisions make a large hole in his profit and loss account. Moreover, that has a knock on effect on the funds available for capital investment and, as has been mentioned by many speakers, the latter is a vital requirement for the promotion of the economy of this country.
In that connection, perhaps I may continue to bore your Lordships on the subject of pensions. Occupational pensions only relate to some 10 million employees out of the 23 million who are employed in this country. Therefore, taking into account the self-employed, there is still at least half of the working population who will be reliant on two elements: the state and SERPS. By definition, they will not be self-sufficient.
My noble friend Lord Lawson introduced PEPs, which have been extremely successful. Indeed, anyone who managed to save the maximum amount of untaxed income for 40 years would be an extremely fortunate person. Any couple who entered into PEPs at the 1660 original level could have collected £100,000 in their pockets during the short space of time that the PEPs scheme has been operating.
That is the rub. Young couples have other priorities and are some years away from their earnings peak. Therefore, they cannot afford to save at such levels. That clearly illustrates the dilemma. While relatively small sums invested over 40 years will provide, say, one half or two-thirds from final salary, if someone has only 25 years to fund his or her pension, it becomes practically impossible unless one is extremely rich.
Can my noble friend the Minister tell us whether we can have further discussions on such a vital matter in the future? Of course, I recognise that now is not the time to bring forward specific proposals.
§ 5.55 p.m.
§ Lord Cooke of Islandreagh
My Lords, I have found today's debate most interesting. It has also been very interesting to note how such different views of the same situation can be held on different sides of the House. However, that all adds to the interest. My opening remarks are very similar to those of the noble Lord, Lord Prior. But I shall not omit them because I believe it to be important that they should be said; indeed, they cannot be said often enough.
In my view, there is more hope for the economy today than there has been since the end of the last war because the Government have set out to reduce inflation and to hold it down. I wish to commend the Government for the determination which they have shown.
I do not understand why there is talk of the feel good factor. It suggests that people will spend as if there is no tomorrow, such as happened in previous booms with resulting high inflation and consequent deep recession. Surely, we all have had enough of boom and recession. There is now the possibility that we can develop the economy slowly and steadily at a pace where manufacturing output will match demand and so contain inflation. That rate of development may only be about 4 per cent. per year. But, positively, we do not want people to feel good and start spending in a reckless manner. I believe that we are on course for slow, steady development and that it can continue if the Government will hold their nerve and refuse to budge for electoral reasons.
Unfortunately, confidence is not yet sufficient. We have become so used to boom and slump that it will take time for managements to feel that they can progress with long-term investment plans, investing in people or in technology rather than hoard cash against the next recession.
Investment by smaller companies has been slow. To stimulate that investment by small and medium-sized enterprises—SMEs as they are known—the CBI and other organisations have pressed for 100 per cent. depreciation on the first £200,000 of capital investment. The cost of that to government is delay in tax revenue; it is not a loss. I hope that the Government will accept that as being a sensible and prudent way to stimulate investment.
1661 I should like to draw attention to one sector of industry which cannot compete internationally. I refer to UK merchant shipbuilders. They are unable to compete not because they are now inefficient—indeed, they have become efficient—but because shipowners receive assistance to place orders in other countries which they do not receive in the UK. There is no use saying that other countries must stop giving such aid. They are determined to do so and will do so. The UK is the only country in Europe which does not understand the leverage—or "levverage" as the Americans call it—which can be obtained with quite moderate financial assistance. With such assistance, not only can shipbuilders prosper and employ more people, but the British marine equipment suppliers will prosper. They are numerous and important.
During the past year the Government have moved part way to assist. Approval has now been given to accepting up to 60 per cent. of ship value as security against first mortgage. That compares with 80 per cent. or 90 per cent. obtainable in other European countries; but at least it is an improvement on the previous 30 per cent.
Roll-over relief has now been approved for three years; but five years is really what is necessary. I hope that that can be incorporated in the next Finance Bill. It is an important matter, but costs very little. The Government have so far not agreed to roll-over relief being available to different companies within the same group. That is to ignore the reality of company structure where a holding company may have several operating companies. The Government have recently increased the credit period for soft loans from 81½ to 12 years. But the stumbling block of depreciation taxation remains and 100 per cent. capital allowances are needed by shipowners who are short of cash.
Much progress has been made, but the talks between the Department of Trade and Industry, shipbuilders, ship suppliers and the Chamber of Shipping have been in progress for three years. It cannot have taken that long to ascertain the facts and to see what should be done. The problem is that this matter is time-related. Shipbuilders in the United Kingdom are not in a good way of business. Harland and Wolff, in Belfast, is the only builder in the United Kingdom able to build large ships, but has very few orders. At present, ship tonnage on order in the United Kingdom is the lowest in Europe. The tonnage on order in Italy and Spain is approximately three times that of the UK: in Germany and Denmark it is four times. I simply do not understand why the Government cannot act more quickly and attend to matters such as these because it is important.
The noble Lord, Lord Prior, spoke at some length on labour relations. I can certainly confirm that there have been quite enormous changes in the past 20 years which have changed the whole climate of industry and manufacturing. I should like to acknowledge that during his time as Secretary of State for Northern Ireland, he did his utmost to assist that changing climate in the larger companies in Northern Ireland, including Harland and Wolff, Short's and others. Perhaps I may say that 1662 Short's is now doing very well. It has managed to change its industrial relations and work practices quite dramatically since the noble Lord's time.
I wish to refer for a few moments to the economy and manufacturing industry in Northern Ireland. In many ways we have been fortunate. The manufacturing industry in Northern Ireland came through the recession better than the rest of Great Britain. Manufacturing output in the period 1989 to 1994 increased by 9.4 per cent. compared with a decrease of 0.2 per cent. in the UK as a whole. During the past year the recovery has been felt in Northern Ireland with a growth in manufacturing output of 4.5 per cent., almost as much as that in the rest of the UK. Inward investment has continued in the past few years and that interest has certainly increased since the terrorists called off their murderous attacks on the community. The Prime Minister recently sponsored an international conference, and his interest will bear fruit and is appreciated.
The manufacturing climate has improved in Northern Ireland. Companies have worked hard to develop their marketing, to pay more attention to training and to improve quality. Eleven thousand companies in Northern Ireland have achieved the international quality standard, IS09000; more relatively than anywhere else in Europe. The work done by marketing and training agencies is showing results. That satisfactory state has been achieved during our troubles and all concerned—the Government, private enterprise and trade unions—are to be commended for working closely together.
Tourism is looking up and promises increasing employment throughout the Province, although I urge that expansion and developments are carried out in a way that is sustainable and in the interest of the Province as a whole.
Our farmers have had a relatively good year with increased income from improved market prices. Agriculture remains by far our largest single industry and is therefore very important. Now is an opportunity to rebuild fixed investment in farms and in the countryside generally. There was recently developed a Special Programme for Agricultural and Rural Development—SPARD—which received a very strong response. But unfortunately it was over-subscribed and has closed down due to a shortage of money. It would be a great pity if momentum was lost here, and I urge the Government to look at increased funding for that programme from other sources, perhaps from some of the money which is coming from the European Union.
Although any report on the Northern Ireland economy must be a good one, we are not complacent. We must try harder; and that is what is happening. As an indication that we are interested in international competitiveness, a party of businessmen from Northern Ireland is at present in Japan and the Far East. The party is led by our Minister of economic development, the noble Baroness, Lady Denton, who has been leading the way for that party.
An example of private sector initiative in Northern Ireland is a group called the Northern Ireland Growth Challenge. That is a group of people, all from industry, chaired by Roy McNulty, the president of Short's, which 1663 is looking at ways in which the economy of Northern Ireland can be improved. It will be interesting to see how the Government look on the report very shortly.
My time is up. I should just like to mention that our most serious problem is long-term employment. We shall have to deal with that because we have a higher percentage of unemployed and out of work people for more than one year than any other part of the United Kingdom. That is a problem which everyone concerned will have to tackle shortly.
§ 6.8 p.m.
§ Lord Selsdon
My Lords, I am very grateful to my noble friend Lord Prior for putting down, as he described it, an amended "anodyne Motion". It caused me some concern when I thought that I might have the temerity to speak because I could not think of anything to say that had not already been said again and again. So when I was in a rather beat-up country with nothing else to read, I went through many of the old economic debates which have taken place in the 30 years that I have been in your Lordships' House. I skimmed through them. I really believe that everything that has been said has already been said again and again, often extremely constructively, by Members of your Lordships' House. I never bother to read economic debates in another place because I do not believe that anything constructive was ever said by anyone about anything there. But that is a personal opinion.
I therefore asked myself, if so many constructive things are said in your Lordships' House about what should be done about the economy, why was everything so wrong for so long? I concluded that governments always did the right thing, but always in the wrong way at the wrong time. I reminded myself too, as I believe Edmund Burke said,You can never plan the future by the past".Therefore, looking back over the past 30 years and arguing about socialist methods and capitalist methods is useless. It is better perhaps to go back and listen or read only of the dead, because the past 30 years or so are best forgotten as we made a complete muck up of everything.
Then suddenly the rallying cry goes out, "Things are good: we won a battle!" But it is an open plain and no one can see where the high ground is. No one knows what battle has been won or lost. People use the phrase, the "feel-good factor". It is interesting that we are, to the surprise of everybody except some of us, in quite a good economic position.
The first of the two issues to which I should like to refer is inflation, of which many of us had never heard and which we did not think was particularly important. We knew of the Rentenmark. Those of us who deal with certain countries will remind ourselves that yesterday the rate of inflation in the Ukraine was 9.1 per cent. in one day. Inflation is not important as long as we have stability. Exchange rates are not important as long as we have stability. If we have no stability, we end up with boom and bust, and crisis. The noble Lord, Lord Peston, said that exchange rates are probably too high and that you cannot have an exchange rate that is too far above 1664 the rate of inflation because, if you do not have the growth, you will ultimately cause yourself problems. We can say the same thing about currencies and talk about whether the pound is too low or too high. Actually, today it is higher against the dollar than was the case not so long ago. It is pretty low against the Swiss Franc. As we are a trading nation which imports and exports, the worry at the moment is the cost of raw materials.
The real worry to me is the erosion of the past—not of invisibles or the quick-fix of trading, but the wanton destruction of our productive capacity over time. I go back to a report in which I enjoyed being involved. Along with the noble Lord, Lord Ezra, I served on the Aldington Committee which considered whether it was a good idea to manufacture and what we should do when North Sea oil ran out. We all thought that it was a good idea to manufacture. Indeed, I started my business life in manufacturing—in the asbestos industry. I always seem to be in the wrong industry at the wrong time. When I first became a Member of your Lordships' House, someone said to me, "You're not joining another declining industry!". I have learnt an enormous amount in your Lordships' House. The noble Lord, Lord Ezra, will remember Sam Brittan describing us as "geriatric, baked bean eating Peers". There is a lot of sense in this House, but can we do without it? I think that we could perhaps survive better, like the Italians, if we could do without government.
What has happened? We have had an export boom. For years those of us on the British Overseas Trade Board and various government advisory boards tried hard to encourage the Government to believe that exports were important. No government ever did. Indeed, I do not believe that even this Government have devoted resources to exports. They thought that exports just happened. The role of government is not to export; it is to create the climate which allows those who trade to trade. The Government have done that—whether by accident or design is a matter for historians, and history can only be written when the last member of government is dead.
It is interesting that we all have the Napoleonic complex and believe that we really were a nation of shopkeepers—with apologies to many of my noble friends—and that our economy depended on what happened in the high street. But we have wiped out the high street and put building societies there. All the comer shops disappeared. It was not shopkeeping that mattered. We then thought that it was the service industries that mattered. As somebody once said, "If we do not make anything, what do we service—other people's manufacturers?". A shake-up took place. The sudden little boom and encouragement of many years ago was followed by the sharpest increase in interest rates. That led to many new businesses being wiped out. It was harmful. It led to the destruction of capital values. It led to fear that people's assets were being wiped out. I was one of those who took the advice of my noble friend Lord Laing and thought that you should spend 25 years being trained, 25 years working for a bureaucracy and then, when you were 50, you should spend another 1665 25 years doing whatever you could as long as it was constructive, I happened to be 50 at the wrong time—and it was a destructive period.
However, we learnt one thing. We learnt what inflation was and what it was not. As has been said today, we all liked inflation a bit. It made us feel better. We could never think net. The United Kingdom is one of the few countries where people can tell you how much they are paid each year, but they do not know how much they receive net. Most people do not think net. But inflation is a net factor.
It is clever of the Government to do something that they probably did not intend. I refer to creating fear. Those on fixed incomes were fearful when interest rates went down because they had deposits. They had not understood that costs were not rising. That will take time. Perhaps it is good to have that fear because people are not spending. People with negative equity in their property or people who saw a reduction in the value of their assets also began to have a fear. In real terms, because of the increase in taxation—or rather, the net impact of taxation—disposable incomes went down. And that, combined with fear, meant a lack of propensity to spend.
In the meantime, those who found that they were up against it with no real government support—taxation on small businesses was high—had to get on and do something about it. I like to number myself among them, but humbly. We found that we were competitive again—not necessarily by going out to sell but because people around the world knew that we were competitive again and came to see us. I should declare an interest because I am the president of the British Exporters Association—unpaid, I must add. Even we are surprised at the remarkable success of our exports. It is due to the stability which has been created by the Government and to constantly low inflation, with a relatively stable exchange rate.
The position was further encouraged by the ability of many governments—this Government can take a lot of credit for this—to push the Uruguay Round and liberalise trade worldwide so that we now have relatively few trade barriers. There are still a few political trade barriers, which I am sure the skills of the Foreign Office can overcome, with countries such as Iran, Iraq, Libya and other big markets but, in general, there are no trade barriers. What does that mean? If one believes the forecasts that come out of the great institutions, it means (to everybody's surprise) that there will be substantial growth in world trade. In order for the United Kingdom to be able to maintain its current position of, say, 5 per cent. of world trade with a higher proportion of invisibles, we shall have to sell abroad a further £90 billion-worth of goods in the next five years. That is simply to maintain our position. It is possible.
However, the difficulty is that many of our exporting engineering businesses are now working at full capacity. They did not follow the old-fashioned rule that when things are really bad, you should invest because things will always get better at some point. That is why we are short of capacity. It is being made up to some extent by foreign investment in the manufacturing sector. It is 1666 genuine investment. Here again I must declare an interest because I happen to be on the board of an Italian company that bought a business over here which has done extremely well and is growing strongly. I am also involved with a German company that has done the same over time. Both are expanding their businesses over here. I have a feeling that the British are better at doing things in other people's countries while other people are better at doing certain things in our country.
Things are potentially very good. My concern is the concentration of productive resources in the great battalions. Even if the great battalions have great leaders, such as my noble friend Lord Laing and others—I should point out that many of those who sit on the third or fourth Bench back seem to come from Scotland, where we have a different culture—those big battalions still have problems with resources from time to time. They are subject constantly to the whims of stock exchanges and others worldwide. From time to time they ignore remuneration committees. I happen to serve on such a committee and I feel strongly about what has happened in the past six months.
As I have said, the potential is there, but what has happened? Perhaps I can remember my Byron:Society is now one polished horde, Formed of two mighty tribes, the Bores and the Bored".I believe that we have got bored with economic matters. I think that it would be a good idea to go back to regarding accountants, lawyers, the Treasury, politicians and civil servants as bores. If things are allowed to remain stable, I believe that we shall have a stable base for growth. But that growth and that initiative can come only from the non-government sector.
§ 6.19 p.m.
§ Lord Marlesford
My Lords, I was rather glad when the noble Lord, Lord Peston, started his speech by saying that we should be looking back to when this Government came to power in 1979. I do not think there is very much that I can add to the long list of successes there have been, which have been so well put forward by my noble friends and by noble Lords opposite. What I thought that I would do with the few minutes that I have is to talk about what I see to be the causes of the success since 1979; the risks to it, or, in the words of the Motion of my noble friend Lord Prior, "the challenges" to it; and, thirdly and perhaps presumptuously—I hope unnecessarily—I should like to rehearse some of the temptations to which another government might be subjected in the future.
First, the causes: the first cause of the success is that in 1979, I think for the first time, at any rate since the war, a government were elected who believed in capitalism and the motive forces and strengths that capitalism could unleash for economic growth. All governments since the war had been uneasy about that. They did not have the confidence. They did not believe fully in what capitalism could do.
Secondly, there is inflation. As we have heard repeatedly, inflation was a top priority. It was never taken from the top of the political priorities. The phrase once used was, "Inflation will be the judge and jury of 1667 this Government". I happen to believe that the Government—at the present time in particular—have been extremely politically courageous, because it takes political courage to do things that do not necessarily produce a political dividend. That is rather the situation at the moment: the Government have taken the steps, but they are not getting a political dividend. I should like to hope that those steps were taken because they were seen to be the rights steps and were taken out of altruism rather than for any of the old electoral reasons of trying to manipulate the economy.
Thirdly, the control of the trade unions: there have been one or two remarks in the past from the other side of the House about the trade unions. I do not believe that anyone in this country believes that the loss of power of the trade unions has been other than a good thing. It is no longer possible—I doubt whether it will be again for a very long while—for union leaders to treat their members like Gadarene swine. People will just not follow that sort of advice.
Then there has been the liberation of managements and capital by privatisation. To supply capital for industries which need it from investors is a great deal better than supplying it from taxpayers. If it is supplied from taxpayers, there is never enough of it, and then we do not have the investment in the industries concerned. The simple fact is that privatisation has been a colossal success, and that is one of the fundamental reasons why it has. I do not believe anyone can deny that the obvious examples of companies such as British Airways and British Telecom have been anything but a colossal success. The dynamic forces of entrepreneurial management have been released. The companies have been allowed to go to the market to get the capital which they were unable to get, understandably, from the Treasury.
Fifthly, we have in the past 16 years also faced up to the needs for structural adjustments to the economy and the use that industry was making of employment. We have only to look at the staggering figures for the number of people who are now not employed on the railways; now not employed digging coal out of the coal mines; now not employed in a whole host of industries from agriculture right the way through. Considering those figures, the rate of unemployment is remarkably low. I want to return to the subject of unemployment in a moment.
Sixthly, and this is very important—I do not believe that it has been mentioned today—in the context of Europe, by far the most important development since the Treaty of Rome has been the completion of the single market. That has given this country a considerable advantage. Not least, it has of course encouraged a great deal of overseas capital to come into this country. I do not mind if an industry is bought by foreigners. I do not object to that, provided the jobs remain in this country. We have only to look at the electronics industry, the motor car industry and a number of other industries where foreign capital is creating jobs, wealth and well-being for this country.
What are the risks? There is probably still some risk of the re-emergence of inflation. The point made by the noble Lord, Lord Desai, about the price of bonds was 1668 an important and good one. One of the reasons why I regret the departure of Rupert Pennant-Rea from the Bank of England is that I believe that he was an immensely powerful force, reinforcing the governor's determination to control inflation as a top priority in terms of economic management. There is at the moment, as I believe the noble Lord, Lord Desai, was indicating, an imbalance between bonds and equities. The return on bonds is so attractive that people are understandably reluctant to invest in equities. That reflects a lack of real confidence yet in this country that inflation has gone for ever.
One can understand that. We had colossal rates of inflation in the 1970s. We should remember how traumatically the Germans reacted after unification to worries about inflation. Their traumatic experience of inflation took place 70 years ago. So it is not surprising that we who had very high rates of inflation only 20 years ago should still remember them and not be totally convinced.
Secondly, there is a danger of a lack of competitiveness in Europe. Part of that is caused by artificial exchange rates. If we look at purchasing power parity, we will see that the Deutschmark is currently overvalued by some 50 per cent. against the American dollar; about 45 per cent. against the pound; 48 per cent. against the peseta; and over 60 per cent. against the lira. Either the Deutschmark/dollar differential will change or there will be an implosion in Europe. Something has to take the strain. The strain comes either from exchange rate changes or from unemployment. That is why I believe that exchange rate changes are much the better way. If there were to be an implosion, that would result in demands for trade barriers, which we all wish to avoid.
Thirdly, I believe that there is a real danger of the Social Chapter approach leading to less competitiveness in Europe, causing a severe and serious disadvantage to southern Europe.
There is another risk which is much longer term. It is that there will be, sooner or later—I think within the next decade—a tremendous flow of manufactured goods from China and some other countries in that part of the world as the result of the enormous investment in those countries. We in Britain at the moment have benefited greatly from overseas investment here, because Britain is seen as an attractive place in which to operate. The result of the investment in China and elsewhere will have a considerable impact. It could, in the longer term, put in question the whole GATT philosophy.
Finally, there is structural unemployment in Britain. By that I do not mean structural unemployment in industrial terms. I mean in geographical terms. I find that monthly green House of Commons publication which analyses unemployment by constituency a fascinating document. It splits levels of unemployment into 650 different packages. It is interesting that of the 25 constituencies with the highest rate of unemployment, no fewer than 15 are in London or the London area. The others are in places such as Sheffield, Manchester and Liverpool. The real unemployment that we now have is geographical rather than structural in industrial terms. Although the way in which jobs have 1669 been created is truly remarkable, I deeply fear geographical pockets of high unemployment. A permanently unemployed minority may not be of great electoral importance to any party, but it is a great social danger. Anyone who read the Economist before Christmas will have seen the terrifying description of the gangs in America and what can happen if one has an alienated minority. My solution is to have some form of national service—not just military—which at least gives people a role.
Finally, there is what has been referred to a number of times: anti-social behaviour by a few people at the top of British industry. That is a deep worry. I remind your Lordships what happened when Rachman got going and the damage that that did to the whole rented sector. We do not want that happening in the future.
I shall quickly say what I believe might be the temptations to a government of another complexion. First, there will be the temptation to preserve rather than to create jobs. Secondly, there will be the temptation to trade off employment and inflation. Mr. John Prescott frequently says that he believes that higher inflation is a price well worth paying for lower unemployment. Thirdly, there will be the danger of increasing public spending beyond what can be afforded. Fourthly, there may still be the temptation to give unions a greater say in management. Fifthly, the social chapter and minimum wages would be catastrophic. Sixthly, I fear that there will be the temptation—I hope that it will be resisted but I am not confident about that—to use taxation as a means of redistributing wealth rather than collecting revenue.
Perhaps in 20 seconds I may quote from a paper recently sent to my noble and learned friend Lord Howe, who asked for the views of a large number of companies about the role of Britain in Europe. He asked whether Britain was an attractive place in which to invest. This reply comes from Mitsubishi, a company which I advise but I had absolutely nothing to do with its response to my noble and learned friend. I wish to give Mitsubishi's reasons for finding Britain an attractive country. The first is the English language. The second is the quality and flexibility of labour—that labour regulations are less onerous and the willingness of labour to work overtime and to learn new skills and so forth is greater than in other countries in Europe. The third is that employer/employee relationships tend to be more relaxed and are again facilitated by the use of English. The fourth is that the quality of local components has greatly improved in the UK. The fifth is that central and local government tend to be very welcoming. The sixth is that the quality of life for Japanese staff and their families is considered excellent. Finally, London's pre-eminent position as a financial centre will not be seriously threatened by other European cities. My Lords, I apologise for taking too long.
§ 6.32 p.m.
§ Lord Haskel
My Lords, I too congratulate the noble Lord, Lord Prior, on introducing the debate. Unfortunately, the picture that he paints of the economy is incomplete. That is because the real world of work 1670 often bears little relation to the world of economists and accountants. That was implied by the right reverend Prelate the Bishop of Worcester.
In painting a picture of the economy, the noble Lord, Lord Prior, forgot a very important and old-fashioned element of business leadership which people overlook at their peril. He forgot about MBWA. What is MBWA? It stands for management by walking about. Its purpose is to confirm that the picture drawn by accountants and economists is reflected in the real world of business. The noble Lords, Lord Laing and Lord Can, remembered the importance of that. Unfortunately, their right honourable friend Mr. Clarke, the Chancellor of the Exchequer, did not. Had he done so, he would not have believed the Treasury economists who told him that there was an expanding steel plant in Consett and a nappy factory on the same site. From this side of the House your Lordships will get the complete picture because we understand that the economy needs vision as well as figures.
If noble Lords had done some MBWA recently, what would the picture look like? Perhaps I may draw it. They would find a massive sense of insecurity at all levels. They would find people working longer hours with more demands being made on their personal qualities of loyalty, honesty and integrity. They would find people having to develop better personal skills in technology, communications and education and they would find more sacrifices being made in terms of family life.
Much of that pressure and insecurity results from the necessary drive to become more competitive. In that drive to become more competitive, many full-time jobs have become part-time; many long-term jobs have become short-term contracts; and more people than ever have known a period of unemployment. That is true at all levels of industry; that is, directors, managers and workers. Indeed, in the drive for competitiveness, whole swathes of middle management have gone and that is why all the extra demands are being made on those who remain.
The way in which the Government measure the economy contributes to that sense of insecurity and unreality. They measure the growth in output but ignore the stagnation in take-home pay. In 1994, the economy grew by 3.9 per cent. but disposable income grew by 1.2 per cent. It is to be hoped that the increased cash retained by companies will be used for investment. However, the indications are that they are paying it out in dividends.
The division of this increase in disposable income has been very one-sided. Many noble Lords have pointed out that the pay of directors has risen dramatically while the pay of managers and others has hardly moved. In most industrial companies a director used to receive about four times the pay of a junior manager. Directors now receive between eight and 10 times the pay of junior managers while everybody works much harder. Perhaps the Minister will explain why high wages in the boardroom equals high productivity and why low wages on the factory floor equals high productivity.
1671 Talent needs to be rewarded in a company at whatever level it is demonstrated. That ethos exists in our best companies because they know that without it their competitiveness will wither away and that all the effort will have been for nothing. The objective is not to reduce wages to the level of those in China; the objective is to reduce unit costs to the level of those in Germany and the USA. The noble Lord, Lord Boyd-Carpenter—I am sorry to see that he is not in the Chamber—observed how the continued deregulation of the employment market has helped to create jobs. Many of those jobs have been in low wage sectors of the economy and deregulation has done little to improve the performance of industry and wealth creation.
Noble Lords have spoken about exports and the importance of the new markets in Asia and eastern Europe. It is a combination of increased productivity and a weaker pound that is helping our exports, and of course that is to be welcomed. But it has to be sustained and the task is enormous. The recent CBI, Ernst & Young report states that the increased competitiveness of newly industrialised countries means that UK manufacturers can no longer rely on retaining the manufacture of high technology, high added-value products, and expect developing countries to take on low technology manufacturing. The report states:UK businesses must recognise that their fastest growing potential markets are also the biggest long-term threat to the manufacturing base".If we are to sustain and improve our competitive position, the Government should not make the mistake of interfering in industry in the wrong places. Instead of being dogmatic about the social chapter, which virtually everyone in industry agrees contains sensible aspirations—and they are only aspirations—perhaps the Government should encourage shareholders to become more active. In order to maintain our competitiveness boards need to be challenged by shareholders and not just rubber stamped by them. Seventy-five per cent. of the shareholders are institutions which remain remote because they seek higher rewards with little risk. The institutions should be encouraged by the Government to wake up to the fact that their active participation in finding the right balance between enterprise and control is healthy and profitable for companies.
Another discovery that noble Lords would make if they practised management by walking about is why, with more than 2 million unemployed, it is so difficult to replace staff. The noble Lord, Lord Ezra, spoke about that. The reason is that there are no longer any simple jobs. Increased competitiveness means that jobs become more complex, needing better educated people to fill them. The noble Lord, Lord Prior, spoke about education in competitor countries catching up with us. Sadly, the truth is that many of those countries have overtaken us. That is why nowadays directors have to treat employees as stakeholders in order to build up their positive attitude to work, which is essential to improve competitiveness
The old adversarial relationship backed up by over 2 million unemployed no longer works. In the same way that companies are building up partnerships with their customers and suppliers in order to cut costs and 1672 become more competitive, the same principle applies to people at work. The noble Lord, Lord Laing, reminded us that leadership in management means bringing out the best in both people and in the enterprise. Nowadays, everybody in industry has to think as an owner
Thankfully, we have some wonderful companies in this country which are run in a modem and enlightened manner. The noble Lord, Lord Laing, told us about his company and I agreed with much of what he said. But perhaps I may give him a friendly warning. If he persists in his views, he is in danger, as was his right honourable friend Stephen Dorrell, when he was Financial Secretary to the Treasury, of receiving a letter from the noble Lord, Lord Hanson, accusing him of thinking like a socialist
But it is wrong to assume that the company of the noble Lord, Lord Laing, represents the norm. It is sobering to note that in 1993 just 12 companies accounted for 25 per cent. of our exports. The task is to bring all companies up to those standards. Best practice must be the norm in all our companies
I welcome the efforts being made by the DTI to raise standards. But that is often spoiled by the greed and opportunism, apparently condoned by the Government, of many companies, particularly the recently privatised utilities. In many cases, the need to set high benchmarks and put something back in the pot is forgotten. That is the message for management by walking about
Noble Lords opposite may interpret what I have said as the politics of envy. I wish they were right. But the rejection of social values, the lowering of standards and the excesses have gone too far. As a result, the politics of envy have become the politics of social justice
§ 6.42 p.m.
§ Lord Harding of Petherton
My Lords, I do not believe that the noble Lord, Lord Haskel, is talking about the politics of envy. He is talking about the politics of gloom. As the Chancellor of the Exchequer said and as several noble Lords have said in this debate, we have the best economic outlook for 40 or 50 years. I just hope that we do not throw it all away.
With a general election due in two years' time, the temptation for politicians to vie with each other to promise benefits which jeopardise those prospects are very great. The cry from some members of my own party for tax cuts but with no corresponding proposals for cuts in government expenditure is extremely dangerous. The Labour Party has not yet given details of how it would tackle the economy. However, it has implied that it favours high spending on health and education, to mention just two items of government expenditure. Its criticism of government policy always seems to conclude with the expression "under-funded". The expectations to which that party gives rise are even more dangerous.
I join with other noble Lords in thanking my noble friend Lord Prior for initiating this important debate. I agree with almost everything that he said. I should like to make a few remarks about the government deficit, or PSBR, and also about taxation and the welfare state.
1673 Some people seem to think that governments can beat the economic cycle. I have not yet read a satisfactory explanation of the economic cycle but there is no doubt that it will continue and that no government has yet beaten it. It appears perfectly proper for a government to cut taxes or increase public expenditure when the economy is on the upswing of a cycle. Both have been done by governments in previous cycles. But, come the inevitable downswing, a price has to be paid.
Everything seems possible when the economy is at the top of the cycle. Tax receipts are up and expenditure on unemployment and social security payments is down. When the downturn comes, as it must, the reverse happens and a low government deficit or a surplus is turned into a large deficit. Therefore, in my view it is imperative that politicians should address those problems. Nobody has yet predicted accurately when the up-swings and down-swings will occur. Nor have economists and statisticians been able to say how deep or long each recession will be. The last recession was certainly the longest, if not the deepest, since the war. I do not remember anybody predicting that.
There is talk now by economists of a soft landing for the American economy. By that, they mean that the next recession should not be so deep. However, they cannot say for certain that that will happen. The great majority of economists will be the first to admit that the ability to predict such matters is extremely limited.
However, there is no doubt that there will be a recession—mild or deep, long or short. The Government must keep finances on a tight rein while times are good so that the deficit is sustainable in the bad times. The deficit is bound to rise in times of recession and desirable tax cuts and/or increases in public expenditure in good times must be sustainable when times are bad.
By what I have said, I do not mean that taxes can never be reduced or desirable expenditure increased. I mean that, when such matters are considered by politicians, government finances over the whole of an economic cycle should be taken into account. That has not always happened in this country in the past. I believe that my right honourable friends the Prime Minister and the Chancellor of the Exchequer recognise that. They have both stated that they are always looking at the long-term health and prosperity of the country. I very much hope that that virtuous aim will continue.
I believe that there is a strong case for reducing income tax on lower incomes. Income tax at lower levels is a strong disincentive to extra work effort, and, indeed, for some people it is a disincentive to work at all. Reductions should take place gradually and should be balanced by equal reductions in public expenditure. The all-pervading welfare state, built up over many years, is in some instances also detrimental to people working instead of being dependent on the state. There must be an adequate safety net for those who cannot obtain work or who are unable to work due to age, disability or bringing up children on their own. However, too many people who should not be are dependent on the state. The Government have made a start in the right direction. Among other measures, disability payments will be paid in the future only to 1674 those who are unable to work because of their disability. However, a great deal should be done over the range of welfare and social service payments. More help should be given to those who really need it. It should not be spread as widely as it is now.
That raises very awkward political choices. I recognise that people do not like paying taxes which do not benefit themselves or their families. As in lowering income taxes, measures to alter welfare and social security payments should be taken gradually. They have be shown to be fair and equitable. That is no easy task. I do not advocate the methods employed by Mr. Newt Gingrich in the United States.
Above all, whatever tax and spending measures the Government introduce in the next two budgets before the general election, I very much hope that they will continue to look to the long-term health and prosperity of the country and not to short-term political popularity.
§ 6.49 p.m.
§ Lord Lyell
My Lords, earlier this afternoon my noble friend Lord Nickson referred to a company called NEC. I should love to carry the logo on my chest for reasons which would be familiar to the noble Lord, Lord Sefton, if he were in his place. Instead, today, I have TEC, which could be tail-end Charlie as I am the last of the Back Bench speakers. That is a position of great advantage since I have had the opportunity to listen to an outstanding debate, initiated by my noble friend Lord Prior. My noble friend Lord Selsdon, who in his Wykehamist days was Malcolm McEacharn Mitchell-Thomson, the great racquets player, referred to the fact that if one looks along, it is the Bench of Scots right the way along. It is the Scottish grit in industry that inspires me to add one or two comments to the great debate we are having. Does it cross your Lordships' minds that one particular UK industry is among the four world leaders in its field? That is, first, because of geography—we are in Europe—secondly, because of our language, which is English, and, thirdly, because of the industry's innovations in education. I shall mention five aspects of that industry.
First, we have heard a great deal—above all, from my noble friend who initiated the debate—on research and development. The industry I am talking about accounts for 33 per cent. of all industrial research and development in the United Kingdom. Secondly, 18 per cent. of its gross output is devoted to research in industry. Thirdly, four out of seven of the highest proportions of income spent on research and development by United Kingdom companies occur in this sector. Fourthly, as regards exports, £3.65 billion worth of goods were exported in 1993 by this industry. That is the latest date for which figures are available. I believe my noble friend Lord Nickson referred to a figure of £32,000 worth of exports per employee in Scotland. The particular industry I am discussing exports £45,000 worth of goods per employee. Fifthly, it has a favourable trade balance—in our favour—of nearly £1.75 billion.
1675 We have discussed everything from the politics of envy to great economic concepts, but the industry I wish to talk about is not often mentioned in such debates. I refer to the pharmaceutical, or, if you like, the medical industry. This industry, perhaps like the motor racing industry, referred to by my noble friend Lord Astor, has to cope with enormous risks. The end product will usually be experienced by men and women. However, there are other production and financial risks involved in the pharmaceutical industry.
The figures I am about to mention give some idea of the scale of the compounds which make it onto the market from the production chain. Of the one or two in 10,000 compounds that come onto the market one in seven will prove a commercial success. The sale of those products will cover all the costs that have been incurred.
The lead time for the products can run from 10 to 12 years. This industry at least is an example of manufacturers having to put on long-sighted spectacles to look into the future. Also, the cost of developing a significant modem medicine with a worldwide application can amount to up to £200 million.
Six out of 20 of the 1994 world best selling medicines were developed here in the United Kingdom. That fact is worthy of enormous praise. Why is that the case? Is it because of our science base? I say that with humility as I do not have one 0-level in science. I am, however, instructed in science every time I attend debates in your Lordships' House. Is that industry successful because it has good links with the United Kingdom universities and medical schools, as we heard last week from the noble Lord, Lord Walton of Detchant, or is it because of the links between companies and the regulatory authorities which in this industry are of crucial importance?
Is the industry successful because the regulatory framework—which is necessary in this industry—is particularly efficient in the United Kingdom? There is a body known as the EMEA, which I believe stands for the European medicines evaluation agency. That body is based in the United Kingdom. Is the industry successful because of the Medicines Control Agency in the United Kingdom? A young German pharmaceutical expert told me last night that the agency will license products as being safe for human use in one-third of the time that it takes the equivalent agency in Germany or in France to do so. He did not mention Japan, which I may discuss if I have time. That is an outstanding example of co-operation in this sector of industry.
Is the success of the industry also due to the excellent state of patent law? That will be of particular interest to my noble friend Lord Selsdon who, I believe, referred to accountants, lawyers and perhaps scientists as being bores. I fall into that category. However, 18 years ago what roused my interest and imagination in this sector of industry was having to cope with the Patents Bill. We started discussing the Bill in January and finished in July. I understand that the Bill made a significant contribution to patent law and to the protection of intellectual property in the United Kingdom.
1676 The industry I am discussing is typical of what can be achieved in the United Kingdom. Is its success due to the investment, finance and funding which are available in London? Is its success due to the fact that the financial sector in London, let alone in Edinburgh or in Glasgow—I look with deference to my noble friend—is able to encourage longer term investment in the industry? One might think that medicines and pills constitute a relatively simple aspect of science. However, the industry is not standing still. It is exploding in two, or even three, dimensions. Thirty per cent. of European biotechnology companies are situated in the United Kingdom, and a good few of them are in Scotland.
A report by Arthur Andersen suggests that turnover in biotechnology has doubled in the United Kingdom in four years. Ernst & Young produced a report covering Europe which suggests that by the year 2000 the market for biotechnology will have multiplied up to 15 times. It is obviously starting from a fairly low base but the report estimates—I am talking about staid, boring, stolid, even Scottish firms of accountants—that this process may create up to 2 million new jobs in Europe; that is, in the 15 member states and perhaps in Switzerland too. It is up to the industry and all of us to ensure that a good proportion of those jobs come to the United Kingdom and stay here.
Is the success of the industry due to the fact that the United Kingdom is an excellent export base? In that regard one needs to consider Japanese companies. I have considered three Japanese motor companies—Nissan, Toyota and Honda —which have come to the United Kingdom and have had outstanding success. That point was made earlier in the debate. NEC is a major investor in Livingston in Scotland. I believe that this success story is due in no small respect to the constant drive to encourage inward investment. I thank my noble friend Lord Ferrers, who is to reply to the debate, for all the efforts that his department is making in that regard. I also congratulate the right honourable Member who represents Chippenham—the Earl of Kilmorey—who is so well known to my noble friend Lord Prior, for all he is doing to encourage inward investment and trade.
I mentioned Japan. Just before I entered your Lordships' House today I was told that the majority of new medical pharmaceutical patents registered last year were registered by Japanese scientists and Japanese companies. That has not been the case hitherto, They are catching up in an area where United Kingdom medicine and United Kingdom industry are pre-eminent. I look forward to hearing what my noble friend will say as regards what the Government and the Department of Trade and Industry can do to assist us in maintaining our lead.
I thank my noble friend Lord Prior for giving us the opportunity to discuss the economy and industry and the great success of United Kingdom Limited. My noble friend has lost none of his trenchancy of 19 years ago when he came to Scotland. He was not exactly the colour that he is now! That was thanks to a traumatic journey from Glasgow where he had been working with my noble friend Lord Laing. Eleven years ago my noble friend, as Secretary of State for Northern Ireland, gave 1677 me excellent tuition on how to co-ordinate government, and on what the Department of Trade and Industry can do to promote the economy and to foster success. I thank my noble friend for initiating the debate and I look forward to hearing what my noble friend Lord Ferrers has to say.
§ 6.59 p.m.
§ Baroness Seear
My Lords, I too should like to thank the noble Lord, Lord Prior, for giving us the opportunity to discuss this very important subject today and for demonstrating something of the more acceptable face of Conservatism. I could not but feel how different things might have been, politically and economically, if the noble Lord had stayed in his distinguished position in the Cabinet, or indeed if he had occupied an even more distinguished position. What a loss it has been in other ways too—although your Lordships' House has gained from the presence of the noble Lord, Lord Prior.
The noble Lord set the tone for the debate. It could have been acrimonious and extremely controversial. Of course he raised controversial points, but he also made it possible to have a degree of consensus across the House, which on a subject of this kind is of the greatest importance. The noble Lord, Lord Peston, followed the lead in his own inimitable style. He talked about "on the one hand" and "on the other hand" until I was not quite sure whether he was left-handed or right-handed, or both. At least he showed that he was not in a confrontational mood.
The noble Lord, Lord Prior, emphasised a point on which I believe we can all agree. He said that this country has suffered for far too long from short-termism (I hate these cliché phrases but in the time allowed it is probably the best phrase to use) rather than adopting a long-term view. Translated, that means that we should put far more into investment and far less into current consumption.
Putting far less into current consumption means some very unpopular choices. It means that dividends should be less high in the interests of retaining profits. The good old companies with which many of us have been associated in one way or another were built up through the reinvestment of profits in their own businesses. There are, of course, also many other approaches. The high value placed on investment as distinct from consumption is an attitude we urgently need to recapture. I doubt whether there will be any disagreement on either side of the House about that.
Of course, people have to accept limits on the extent to which their living standards can rise. But surely, given a good explanation, people can understand that investment will provide a more secure future for themselves while they are working and in retirement and for their children. That is something which is devoutly to be wished. It would be far better than a quick buck now which can only lead to a much less satisfactory situation later.
There was another note which the noble Lord struck so typically, as I remember from the days when he was deeply involved in industrial relations. He had studied 1678 the industrial relations scene with great assiduity. He stressed the need for partnership. Here again, he met with agreement on all sides of the House. There is a need for partnership between the private sector and the public sector, partnership in investment and partnership throughout places of work.
Over the years the Conservative Government have taken great credit for the undermining of the trade union movement. I recognise that there was a need for changes in the trade union movement. I believe that there are people on the Front Bench of the Labour Party who, although they would not say so outright, agree. Some changes were necessary. But, as I am sure the noble Lord, Lord Prior, agrees, one cannot have that partnership and the rebuilding that we need in British industry unless there is collaboration between employers and people working at all levels throughout the organisation. I am not sure what the new Labour Party means, but on these Benches we welcome the new trade unionism under John Monks. I suspect that the noble Lord, Lord Prior, supports the new trade unionism. I see him nodding. I thought that he was asleep, but he heard me, and he nodded his approval of the new trade unionism.
By striking those two notes, the noble Lord made it possible to have a far more co-operative debate than might otherwise have been the case. Probably most of us would agree with the noble Lord, Lord Desai—I was about to say my noble friend—when he said let us hear no more about the "feel-good factor". The "feel-good factor" is another of those revolting "sound bites" with which we are all expected to live. They do the greatest possible damage to consideration of political issues in this country. If we could ban "sound bites" for good we would get on a great deal better.
All speakers in today's debate recognise that we are up against severe challenges. The three I wish to pick out as of the greatest importance are the challenge of the global economy, the challenge of the new technology and the challenge of unemployment. They are interrelated. One cannot separate one from the other. They are challenges, but they are also opportunities.
I turn first to the challenge of the global economy. The countries of the Pacific Rim are growing at a tremendous rate. China hardly bears thinking about. It is very difficult to get one's mind round the changes that are taking place in the huge landmass which is China, with its millions of people. They arc people with old traditions and great skills and with a capacity for hard work and sacrifice. They will be extremely difficult competitors. But there will also be enormous markets. We have to see China as a market as well as a challenge.
The same applies to new technology. Of course new technology is shattering a great many old jobs, but it is creating a great many new jobs. It is creating new jobs in a way which can rescue communities throughout the United Kingdom. A few months ago I had the opportunity to attend a conference in Berlin on the technological superhighway. At that conference there were trade unionists from the more remote parts of Scotland. They said that if only we could get the superhighway working we could salvage communities in the Western Isles and the Highlands, where work is 1679 declining and has been disappearing over a long period. The new technology makes it possible to take work to those areas in a quite different way. We have to embrace that new technology with both hands. I must say, I am thankful that I am beyond the age when I have to embrace it, because I find it totally incomprehensible. However, I accept that that is the way ahead for the future. We have to brace ourselves and train ourselves to adopt it.
Finally, there is the question of unemployment. We all know that it is a hideous cancer in the body politic. Somehow or other we have to cut it out. We must not pretend that it will be in the least easy. We have neglected for far too long the activities which are essential to having the full employment that we all want to see. Of course we agree with what has been said from the Labour Front Bench today, will be said again before the debate is over and will certainly be repeated in the future. We too want a high skill, high wage labour force. However, wanting it is one thing, achieving it is altogether another. We have neglected the development of our labour force for so long that it will not be easy to achieve.
I have previously reminded your Lordships that at the end of the 1970s, before the much maligned Youth Training Scheme—although it had many weaknesses—came into being, and after the Labour Party had had many years to do something about the problem, 40 per cent. of our school leavers went either into unemployment or a job with no training. The comparable figure in France was 19 per cent. and in Germany it was 9 per cent. That 40 per cent. now forms the bulk of our labour force. That was 16 years ago, so those people are now in their 30s. All that talent has been wasted. If one can train 91 per cent. of young Germans, one can train 91 per cent. of young Britons. We did not do so and it will be a long haul before we can make up that deficiency.
We do not help the situation by pretending that we can wave a wand and have a high wage, high skill economy overnight. We cannot. It will take a very long time, a great deal of effort and a large amount of money to achieve that. Everyone is talking about the investment that we need; I do not need to emphasise it. We need investment in infrastructure and in industry but, above all, in people. I would put nothing so high as the need to invest in people. Such investment may require sacrifices—by not putting money into other areas—in order to put the great deal of money needed into education and training. Education is as important, if not more important, than training. We have to be able to be flexible. No job lasts for a lifetime, or even a decade, without learning some new skill with which to perform it. The only people who can change and have the flexibility to meet the needs of the modern economy are those who have received a good, basic education on which to build. That is what we have not given them.
We all know where we wish to go. We want this high skill, high wage economy. But we have to he honest in recognising that we are a long way from it. The Labour Party will do itself and no one else any favour if it pretends that it can achieve that aim by good wishes and waving a wand. It is not impossible to put across to the 1680 country that we need investment and that we have to spend money on it. If one wants a decent society, one has to pay for it. That means that we cannot just gain easy political advantage by tax cuts. I do not say that we have to put taxes up, but we may have to. I believe that you can sell that to the British public if you tell them why you are doing it.
§ 7.12 p.m.
§ Lord Eatwell
My Lords, we are all grateful to the noble Lord, Lord Prior, for introducing an interesting debate. It has enabled your Lordships' House to enjoy an excellent maiden speech by the noble Baroness, Lady Hogg. An intellect as sharp as hers is a real asset to your Lordships' House. I am sure that we all look forward to hearing more from her in the future.
Three questions have dominated our debate. The first relates to what is actually happening to the British economy. Has there been some sea change in the past two or three years which distinguishes today's economic performance from the dismal record of the 12 years which preceded it, in which the trend rate of growth was no higher than the rate of growth attained in the difficult decade of the 1970s, to which the noble Lords, Lord Nickson and Lord Marlesford, referred in such colourful terms? Are the optimists today making the trivial error of confusing performance in a cyclical upswing with a long-term trend?
The second question relates to whether there has been a change in economic policy so that any change in economic performance, if there has been change, could be credited to the Government. After 12 years of boom and bust, during which economic policy swung from the savage stagflation of 1980 to 1982, which saw the demise of a fifth of Britain's manufacturing industry, to the consumer boom of 1986 to 1989, which saw the accumulation of unprecedented external and fiscal deficits and precipitated the second great Tory recession of 1990 to 1992, is there today a new idea? What are the new policies, and can we place confidence in them?
The third question has surfaced in a rather oblique manner. The noble Lord, Lord Prior, referred to the paradoxically benign effect of the absence of the feel-good factor and concerns about the globalisation of the world economy. He made anxious references to the impact of new technologies. In all those references there has been the implicit question: what should be the long-term objectives of economic policy in Britain today?
Let me deal with the first question. What is actually happening? There is increase in output. That is most welcome, but it is unremarkable. Last year the British economy grew by a little under 4 per cent. That is not bad for a recovery year but not particularly good in the context of periods of recovery. There has been a fall in those drawing unemployment benefit. That is most welcome to the extent that it represents a fall in unemployment. But, again, the fall has been unremarkable compared with earlier recoveries.
The key question is this. Can the fall in unemployment be sustained? Does the Minister agree, for example, with Professor Alan Budd, the 1681 Government's Chief Economic Adviser, who argued to the Treasury Select Committee in another place that unemployment cannot fall below 8 per cent. without an upsurge in inflationary pressure? That view of the Government's Chief Economic Adviser was echoed in a speech last November by the Governor of the Bank of England, who assured the markets that any fall in unemployment below what he defined to be the structural limit of 8 per cent. would be answered by sharp increases in interest rates. Since the Treasury seems to agree with the Bank of England, it would be helpful to know whether the noble Lord agrees that unemployment cannot fall below 8 per cent. without an upsurge in inflation.
Of course, the great difference in the current recovery is that the increase in output and the fall in unemployment have been led primarily by growing exports. That is entirely to be welcomed. It should not be overstated, however. Exports grew by 8 per cent. in 1994. That was slightly less than average export growth in the European Union as a whole and about the same as export growth in the United States. Interestingly enough, it was also about the same as export growth in Western Germany, even though the West German currency has been sharply revalued against other currencies in the G7. In other words, our share of world exports has stayed about the same, as my noble friend Lord Peston pointed out.
Nonetheless, an economic recovery pulled along primarily by exports, with domestic consumption growing more slowly than total output, is a welcome phenomenon. The Achilles' heel of the entire process—it has been rather neglected in the debate today—is the very low level of investment. There has been an upturn in manufacturing investment in the final half of the year; and that is very welcome. But that still leaves manufacturing investment at a level 20 per cent. below the fourth quarter of 1989. That is what is happening. There is a reduction in unemployment and an upturn led most desirably by increases in exports.
The second question relates to what extent that combination of events is attributable to the policies of Her Majesty's Government. On policy, I suppose that three positions are possible. The first is that the policy is a seamless web and has not changed since 1979. That is difficult to believe. It is difficult to believe that somehow a decade of under-investment in capacity and in people, with falling R&D and decaying infrastructure, would suddenly produce that upsurge in economic performance. Indeed, the noble Lord, Lord Prior, told the Select Committee on Employment in another place just two years ago that so much of manufacturing has disappeared that everything now has to be sourced from abroad. The second possibility is that Conservative economic policy is just a broken watch which in the past two years just happens to have been telling the right time. The third is that there have been some significant policy shifts in the past three years and that those shifts are the key to improved economic performance.
There is surely some truth in that third explanation, because economic policy over the past few years has undergone important changes, and even though a 1682 disturbing amount of policy seems to be the same old negative stuff which brought about the last two recessions, it is worth examining the new elements to see whether they contain something hopeful for the future.
First, there has been the policy—perhaps the accident—of devaluing the pound. Noble Lords should be wary of arguing that that has brought us greater competitiveness in export markets. As recent figures have shown, UK export prices in foreign currencies have not fallen. Instead, exporters have taken advantage of devaluation to raise prices in terms of sterling, to increase sharply their sterling profits and to repair their tattered balance sheets. That is perhaps one of the explanations of our failure to increase our share of world trade. Devaluation has helped to keep import growth down. However, towards the end of the year imports have started to show their old threatening resilience. Devaluation has enormously helped the balance of payments overall since it has produced a substantial improvement in the sterling value of overseas invisible earnings, which in terms of foreign currency have stayed just the same. The devaluation has improved their sterling value.
Policy change number one has been devaluation. Policy change number two has been a sharp increase in taxation. That increase has been an important component in determining the shape of the recovery. It is one of the reasons why consumption has not grown as fast as GDP and we have not had a repeat of the consumption booms of the 1980s. The increase in taxation has been the price that the British people have had to pay to correct the excess of the 1980s when the share of consumption in GDP rose to historically unprecedented levels.
The third element of policy which has changed has been the insecurity, negative equity and general gloom in the housing market which have also been important elements in keeping consumption growth down. The housing market was a major force behind the 1980s consumer boom. Let us give credit where it is due: the failure of the housing market to recover has been due to the Government's increase in taxation of home-owners, as mortgage interest tax relief has been cut, and to taxes imposed on insurance and heating.
It is not really an element of policy, but the fourth component of the recovery has been the fall in world commodity prices, which fell by 2.3 per cent. in 1992 and 9.4 per cent. in 1993. That drew the inflationary sting out of the devaluation. That element has, however, turned around in 1994, with commodity prices rising rather sharply.
That has been the policy mix—devaluation, increased taxation, insecurity in the housing market and falling world commodity prices—which has brought about the "success". Perhaps the Minister will tell us whether the policy will continue. Will the Government devalue further? Will taxes go up further? Is insecurity to be maintained in the housing market?
That brings me to my third question. What should be the objectives of economic policy? As several noble Lords have commented, we live in an era of rapid economic change in which the structure and content of 1683 production, patterns of trade and patterns of employment are being transformed within the context of an increasingly global economy. It is dealing with that problem which should be the central concern of economic policy today—the concern but not the objective.
The objective of economic policy should be the prosperity, comfort and well-being of the British people. There can be no doubt that the Government's economic policies have led to a serious deterioration in the comfort and well-being of the British people. People today are more insecure, more fearful of their economic future than at any time since the war. That insecurity is the direct outcome of one of the Government's core policies—a policy which, as the Government see it, increases the flexibility of the labour market. That policy is the means by which the Government have deliberately sought to reduce security of employment. Unemployment, as the former Chancellor of the Exchequer said,is a price well worth paying".The Government have deliberately sought to cut the wages of the lowest paid by abolishing the wages councils. They have presided over the biggest increase in inequality ever suffered in this country in modern times. All that has been in the name of flexibility and competitiveness.
The tragedy of the labour market policy is that it will not work. In the global economy of mobile capital, mobile production and therefore mobile jobs, our only fundamental national assets are the skills and talents of our people. If they are to be truly flexible in their response to the challenges of the global economy, as the noble Baroness, Lady Seear, pointed out, our people must be very well educated and capable of adapting to new challenges and learning new skills. They must be confident and keen to take risks.
It is not the kind of labour force which is created by insecurity and inequality, which are the keynotes of the Government's labour market policy. A truly flexible, self-confident labour force will be created in an economy in which investment in high quality education, training and re-training are available to all. In industry there must be a culture of investment and of commitment to compete on the basis of having the superior technology, the best R&D, the most advanced design.
That commitment must be fostered by a government who also take a long-term view and who stimulate investment in a high quality infrastructure without which private industry cannot operate effectively. It is that long-term commitment which is notably missing in the Government's industrial policy. They are more concerned with privatising British Rail than building a new high speed link through the Channel Tunnel, not only to London but to all the major industrial centres in this country.
Nothing could be more depressing than the statement by the President of the Board of Trade that the privatisation of the Post Office is the most important objective of his entire political career—not the growth of a manufacturing industry which could take on the industrial strength of Germany or Japan; not the 1684 encouragement of investment in high technology which could place Britain at the forefront of modern information technology; not the encouragement of high quality research and design, which are the basis of competitive success today. It is none of those things. For the President of the Board of Trade, the privatisation of the Post Office is the main objective.
That sentiment is an indication of the central failing of the Government's economic policy which suggests that the current favourable combination of macro-economic circumstances will be frittered away. That sentiment of the President of the Board of Trade defines the fundamental difference between the economic philosophy and the economic policies of the current Government and the economic philosophy and the policies of the government which the Labour Party will form at some time in the next two years.
§ 7.26 p.m.
My Lords, the House will be grateful to my noble friend Lord Prior for introducing this important debate. It has been notable for many things, the most important of which was the maiden speech of my noble friend Lady Hogg. It was knowledgeable, professional, understandable and brief; it was also from an economist. That is a remarkable attribute. I suspect it must have been daunting for her not only to have to address your Lordships but also to address her noble kinsman. In less parliamentary circles, one would call him her father. Doubtless she has had plenty of experience and example.
There have been many important speeches and I shall resist trying to answer the rather trivial party political remarks made by the noble Lord, Lord Eatwell, at the end of his speech. He referred to my right honourable friend the President of the Board of Trade but I believe that beyond anyone else in the Department of Trade and Industry my right honourable friend has done well for British exports and British business during his tenure of office.
I was also grateful to my noble friend Lord Nickson for an interesting speech in which he drew attention to many points. I thought that the speech by my noble friend Lord Prior was a big one, full of understanding and experience. He made some trenchant points and concluded by saying that it was time to put the record straight. He said that this House was perhaps the best and only place capable of doing so. He was right. He set an example which your Lordships have followed. As the noble Baroness, Lady Seear, said, he did that in a remarkably uncontroversial way, despite the contribution of the noble Lord, Lord Eatwell. It is a subject which could have drawn some controversy and it is correct to say, as the noble Baroness did, that the problem is far from easy. All any government can do—and it does not matter whether it is this Government or the one which the noble Lord, Lord Eatwell, conjures up in his imagination and dreams—is to do the best they can in the circumstances in which they find themselves. That is never easy.
1685 Vast changes are taking place in the world around us. Changes are an inescapable part of life and living. They may be uncomfortable, but they provide huge opportunities. I was interested in the speech of the noble Lord, Lord Chalfont, which was characteristically unusual and far-seeing. The noble Lord referred to the new technological revolution and those horrible acronyms that I, too, loathe, which, he said, numbed people. He said that people do not realise how much the new technological revolution will change their lives, whether they like it or not. He is quite correct.
Changes in the way in which we work—even in the way in which we think about work—are being forced upon us. Long-held beliefs and certainties are being challenged each day by new technologies and by competition from different parts of the globe. We often—and it is only natural—struggle to hang on to what we know, because that is where our experience lies. But one should never forget that the qualities which in others we call obstinacy and stubbornness, when found in ourselves, we call knowledge and experience.
There is nothing new in having to change. Technological advance and trade have always been the engines of prosperity. Who would have imagined 50 years ago, in the age of the Spitfire, that flights into space would in the future hardly be newsworthy; that the entire Encyclopaedia Britannica could fit on to a single microchip; or that you would be able to put a document in a machine, press a button, and it would appear almost instantaneously at the other end of the world? These are hugely exciting times.
The worst thing a government—or a business for that matter—can do in the face of changes like this is to try to dig in to preserve the practices of the present; to slow down the introduction of new technology; or to stifle new competitive forces by resorting to subsidies, protectionist barriers or overbearing regulation. What we have to do is to lock into the forces of change, to take advantage of them and ensure that our businesses are able to adapt to change.
I remember somebody once saying of industry, "Don't worry about making your products redundant, because if you don't, somebody else will". Innovation—the successful exploitation of new ideas—is crucial to the future success of this country. We always think that big firms determine the success of the country. But so do small firms. Of the nearly 3 million firms which trade in the United Kingdom today, 96 per cent. employ fewer than 20 people. They are a vital source of new ideas, new products and, most importantly, new jobs.
I was glad that my noble friend Lord Sanderson referred to the fact that it was small businesses that created 350,000 jobs, and were doing so when private sector employment was in fact falling. I do not expect that the noble Lord, Lord Sefton of Garston, would have liked that, but it is a fact. I am sure that a lot of small businesses are involved in the motor racing industry, to which my noble friend Lord Astor of Hever referred. I am glad that he drew our attention to it.
It is in order to help such people that we are setting up Business Links, to provide a network throughout the country where a businessman can go to a single place 1686 in order to get help and advice on setting up a business; on how to design; on how to export; or on which consultant he should seek.
Britain is first and foremost a trading nation. That is why it is so important that British business should succeed. My noble friend Lord Selsdon said that we are having an export boom. My noble friend is right. We now export more per head than does either Japan or the United States. Our exports are becoming increasingly high-tech. Between 1970 and 1992, the share of high technology industries in our total manufacturing exports rose from 17 per cent. to 31 per cent.—higher than in Germany, France or Italy.
For the first time in 10 years the current account—as a number of noble Lords said—was almost balanced. That compares with a deficit of nearly £12,000 million in 1993. What is more, the current account is on an improving trend, with the second half of 1994 showing a surplus of £2,000 million. I agree with the noble Lord, Lord Desai. There can be no quick fixes. What one has to do is try to get constant interest rates and constant stability, and thereby constant growth and success.
I would rather not. The debate is time limited and the noble Lord did overshoot his own time—
§ Lord Eatwell
My Lords, I shall be very quick. The noble Earl just commented on the improvements in the balance of payments. Will he confirm that the trend of the balance of trade, and also of the balance of trade in services, is adverse at the moment?
My Lords, the point that I was trying to make—which seems to be quite hard to get into the noble Lord's head, because he does not seem to like facts—is that the current account is almost balanced, and that is a very unusual state of affairs.
We hear a lot about the apparent threat which is posed by the rapidly growing economies of South-East Asia. I do not take that view. The progress has certainly been startling. China has managed to double its real income per head in 10 years. Thailand took only eight. These growing markets mean growing markets for our exports. I am not very good at statistics, but I remember the United Nations saying in 1960 that there were 3,000 million people in the world, and that by the year 2000 that would have doubled to 6,000 million. That is only five years away, and it looks as though we are likely to overshoot the prediction.
Despite the difficulties of feeding this huge increase in population, these people, as their standards rise—and they are rising—are becoming consumers and customers. According to the International Monetary Fund, the South-East Asian export market tripled in size in the 10 years between 1982 and 1993. United Kingdom exports to the region grew even faster, outpacing both German and French exports. The value of United Kingdom exports to the Philippines grew by over 150 per cent; by over 200 per cent. to Singapore; by over 300 per cent. to South Korea; and by nearly 450 per cent. to Thailand.
1687 My noble friend Lord Prior said that these were opportunities to take part in infrastructure projects. He is right. I gather that, in the Far East, one trillion dollars is to be spent on infrastructure. If noble Lords are not quite certain what one trillion dollars is, it is 1,000 billion dollars. That is quite an amount. One merely has to think of the opportunities that are there for the taking. I agree with the noble Lord, Lord Peston: China will become a very important and growing market.
But our success is not confined to the Far Eastern markets. I agree with my noble friend Lord Carr of Hadley. The3re are so many opportunities in Europe as well. In the three months to November we sold more than £1,000 million of computer hardware to the rest of the European Community, which was an increase of nearly 50 per cent. on a year earlier. Over the same period we sold over £600 million-worth of medical equipment and pharmaceuticals—which will please my noble friend Lord Lyell—to the rest of the European Community. That was an increase of 26 per cent. on a year earlier. All that is good news. But many more United Kingdom firms could be doing more to export. The Institute of Exports estimates that only around 100,000 of the nearly 3 million United Kingdom companies are exporting.
The Government have a part to play in all this. I am glad that my noble friend Lord Prior said that it was important for Ministers to go abroad. Last year government Ministers from 14 departments undertook trade missions to over 50 countries, often accompanied by business people, in order to encourage British business to participate in those parts of the world.
I was grateful, too, for the appreciation that was expressed by my noble friends Lord Prior and Lord Sanderson, and by others, for the work that is being done in embassies abroad. There has been a tremendous change over the past five years or so to make them much more commercially orientated. And I agree that opting out of Europe is not an option.
Our success is increasingly being recognised across the world. Among other things, due to our not signing up to the Social Chapter, non-wage labour costs in the United Kingdom are among the lowest both in the G7 countries and in the European Community. That is why we are seeing French and German companies investing in the United Kingdom. I agree with my noble friend Lord Nickson that it is because the United Kingdom is providing a better climate for them than that which they have on the Continent.
Of all the stock of investment from Japan into Europe, 40 per cent. has come to the United Kingdom. Why? Because, as my noble friends Lord Boyd-Carpenter and Lord Marlesford said, in the eyes of the Japanese we are the best European country in which to invest. Of all the stock of investment from the United States into Europe, 43 per cent. has come to the United Kingdom. Why?—because in their eyes we are the best country in Europe in which to invest.
Recently, Deutsche Bank decided to move its international business from Frankfurt to the City of London. Why? Because in its eyes the City of London is the epicentre of financial activity in the world.
1688 Only two weeks ago Toyota announced a £200 million investment in Derbyshire, which is expected to create 1,000 new jobs. That follows the announcement last October of a £400 million investment by Samsung in the north east. I hope that that does not distress the noble Lord, Lord Bruce of Donington, too much. But this will. The past president of the European Commission, M. Delors, said recently, "Britain is a paradise for investors". We should all take great pride in that.
I know that the noble Lord, Lord Bruce, does not like investment overseas. He seems to feel that it is a waste of our money if we invest overseas. Let me tell him that our outward investment from the United Kingdom was £20,000 million in 1994 but our fixed investment in the United Kingdom was £100,000 million. That is five times as much.
What prominence in the media is given to the remarkable standing that we enjoy throughout the world? It seems to take fourth place to the denigration of people and institutions which appears to be the current stock in trade and the cause of anxiety to my noble friend Lord Boyd-Carpenter. Yet it is good news, and we ought to be proud of it. There is every reason to be proud of it.
I was glad that the noble Lord, Lord Cooke of Islandreagh, referred to Northern Ireland. Let us have a look at that. For the first time in 25 years Northern Ireland is free of fighting. That is an astonishing achievement. What has happened? The Northern Ireland Tourist Board's offices throughout the world have been overwhelmed with queries: 20,000 in December alone. In the year to November 1994, the Industrial Development Board for Northern Ireland landed seven major new inward investment projects estimated at over £250 million and producing up to 1,600 jobs. Unemployment is now at a 13-year low and employment at an all-time high. That is an astonishing achievement. Let us hope that the quest for peace continues and is successful.
We should take more pride in our country, especially when there is so much to be proud of. I agree with my noble friend Lord Carr of Hadley that Her Majesty's Government should make people feel good and feel proud. I simply say that I am doing my best. I agree with my noble friend Lord Sanderson that it is so much better if you get a vote of confidence in United Kingdom industry when it is doing so well. He is so right.
Recession scythes through people and businesses in a devastating and indiscriminate manner. We have been through a bad time. So have others. But we are out of the recession, even though the feel good factor, as my noble friend Lord Prior said, seems so elusive to many; and he went on to explain why that was so. The noble Baroness, Lady Seear, does not like the expression "feel good factor". Nor do I. She does not like the word "soundbite". Nor do I. But, strangely, although it was quite unnecessary for her to use the word, she nevertheless did so. That just shows the way we get used to using things we do not like. I do not know exactly what it means.
1689 It is neither technological advance nor trade which causes unemployment. It is the failure to foresee what will happen in the future and the inability to adapt in advance to change which lead to jobs being lost. Adapting is not always easy. That is why a flexible labour market is so important.
The Organisation for Economic Co-operation and Development says that the United Kingdom now has one of the most flexible labour markets within the OECD. Our determination to modernise industrial relations has had, as my noble friend Lord Prior said, spectacular results. The noble Lord, Lord Bruce of Donington, complained that the trade unions had been denuded of their powers. In contrast, my noble friend Lord Nickson reminded us of the days of shame, which are no longer with us. But we must remember that less than half the workforce now has its pay determined by collective bargaining. The number of days lost to industrial disputes in 1994 was less than 1 per cent. of what it was in 1979. That is the lowest level since records began over 100 years ago.
The fact is—the noble Lord, Lord Eatwell, does not seem to realise it—that jobs are created by demand and industry reacting to, and even creating, demand, not by governments. All the public works we want to see can only come if we can afford them and make our economy and business successful.
The noble Lord, Lord Sefton of Garston, if I may say so, made a bizarre speech, peculiar to himself. He showed that some members of the Labour Party have not moved an inch in the last 50 years and that he is one of them. He complained about the abolition of the wages councils. So did the noble Lord, Lord Eatwell. But those people whose wages were governed by wages councils in 1993 and who did not change jobs enjoyed an average wage increase of 6.7 per cent. in 1994. How's that for doing away with a wages council which is supposed to ruin the lives and standards of living of people at the lowest end of the scale?
One merely has to look at what privatisation has done to the economy and the companies concerned. Britain led the way. Other countries have followed. In 1979, nationalised industries cost the taxpayer £50 million per week. Privatised industries now return £50 million per week to the Exchequer through taxes on the profits they have earned. In 1979 it took 13 man-hours to produce a tonne of steel. Now it takes less than four hours. British Steel is now the world's fourth largest producer of steel and is among the top 10 United Kingdom exporters. How's that for success?
Those are great success stories. They are the great success stories for British industry. The success of the economy would become all too clear if only we could lift the veil of the razzmatazz of public argument.
The noble Lord, Lord Ezra, my noble friend Lord Laing and the noble Baroness, Lady Seear, were worried by unemployment. That anxiety is prevalent among everyone. They were right to introduce the issue. The right reverend Prelate the Bishop of Worcester drew our attention among other things to the help of the Prince's Youth Business Trust. He wanted prosperity now rather than in the future. That is an understandable aim. But 1690 the only way we can do that is to ensure that our economy and our businesses are successful. I have tried to show that, although there is much to be done, a lot has been done. I agree with the right reverend Prelate that if we had less unemployment, we would have less crime too. I am certain of that.
Since 1992, unemployment has fallen by over 600,000. That means that roughly 1,000 people a day have been taken off the unemployment register. In the past year, unemployment has fallen faster than in any other major European Community country, with the result that our unemployment rate is well below the European Community average. We now have the highest proportion of the population of working age actually in work of any major European Community country. They are not just part-time jobs—a point that worried the noble Lord, Lord Haskel. Last year nearly three-quarters of the jobs created were full-time jobs.
A flexible labour force, vital though it is, is not enough. I agree with my noble friends Lord Prior and Lord Laing and the noble Baroness, Lady Seear. There is no doubt that education and training will be the key to our future success. We have an astonishing inbuilt advantage. There are now about 350 million native English-speaking people in the world. English is now the official or semi-official language in 70 countries. By the year 2000, which is only five years away, it is estimated that 1,000 million people abroad will be learning English. Teaching English is already earning us £500 million a year.
High skills and high productivity are needed if we are to compete in an increasingly high technology world. They are not the only ways in which we can ensure that we remain competitive. They are also the route to high wages. It is not just the quality of the investment which is so important but the use to which that investment is put. That depends on the skills of the workforce and the way in which firms organise their investment. I agree with the noble Lord, Lord Peston, when he said that the future lies in a highly skilled, highly efficient and highly paid workforce.
I believe that we live in exciting times. Who would have believed, 10 or 15 years ago, that we would see the collapse of the Berlin Wall? Who would have believed that we would see the collapse of communism? We witnessed all of that. Of course those developments bring problems, but they also bring opportunities. Who would have thought that we would see the Far East, India and China blossom as they have. Then there is the astonishing part that IT—I apologise to the noble Baroness, I mean technology—can play, as the noble Lord, Lord Chalfont, said.
These are enormously exciting times. I am certain that with the record of our industry and the success of which it is capable, as it has shown within the past 12 months particularly, we stand a good chance of doing well in the future and of capturing some of those markets, of which there will be an enormous amount and where there will be great demand.
§ 7.50 p.m.
§ Lord Prior
My Lords, I congratulate my noble friend for the robust and skilful manner in which he 1691 summed up our debate. I thank all those who took part and I welcome especially my noble friend Lady Hogg. On this occasion I felt that everyone meant it when they said that she should have spoken longer and that we hope to hear her on many other occasions. That is generally said about every maiden speaker, and there is generally not a word of truth in it. But in this case there was. We welcome her appearance here today.
It has been an interesting debate. We heard the true voice of socialism. We heard the true voice of conservatism also, and it is just as well in this House that we should occasionally do so. In those circumstances, thanking everyone for taking part, I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.