HL Deb 22 November 1995 vol 567 cc327-408

4.33 p.m.

Debate resumed.

Lord Harris of High Cross

My Lords, there being unhappily no engaging maidens to divert us as on previous days in this debate, it falls to me to resume the debate on the gracious Speech.

Before turning to the hopes for growth and rising employment in the gracious Speech, I want to follow the example of the noble Lord, Lord Jenkins, as amiably as possible with some peace offerings to both sides of the House, to both the Tory and Labour Parties. Unfortunately, my compliments do not extend to the Liberal Democrats, except to the witty, pointed and even too brief speech of the noble Lord, Lord Jenkins. However, I cannot offer any compliments on his wholly illiberal defence of high taxation.

To the Opposition I offer totally genuine and sincere congratulations on their recent promising progress towards acknowledging the economic potency of competitive markets, splendidly expressed today by my old friend and adversary the noble Lord, Lord Peston. It seems to me that Mr. Blair and his friends have signed the pledge against collective worship in public at the shrine of primitive statism. Though the Tories fear the result of that remarkable conversion, I welcome "new Labour" as a convert to what its leader, in candid moments, openly celebrates as the "dynamic market economy". At least until the general election we shall hear no more talk of punitive taxation; no restoration of trade union power; no disinterring of nationalised dinosaurs; no indiscriminate subsidisation; no more scoffing about monetary policy against inflation and, I am glad to say, less of the fatal conceit that apparatchiks at the centre know better than dispersed initiative and consumer choice.

It would be lacking in the objectivity expected from the Cross-Benches not to extend equal congratulations to the new Conservative Party—new, that is, since 1979. Why else would Labour suddenly change its spots and even its carnivorous nature if not for the courageous example of the noble Baroness, Lady Thatcher, in demonstrating that old Labour was unelectable?

In the spirit of emerging consensus, I shall start with a carefully worded proposition that follows well the speech of the noble and learned Lord, Lord Fraser of Carmyllie. Despite solid gains in domestic productivity and international competitiveness which he outlined, there remain serious grounds for dissatisfaction with the performance of our economy, not least in the stubborn persistence of high, long-term unemployment. In order to carry Labour's education further forward, I chose a text from a Left-wing source that it would generally admire much more than I have done or currently do. My mystery voice was reported recently as urging, government spending cuts, lower taxes and a partial dismantling of the welfare state, as the only way Britain can compete with the dynamic economies of East Asia".

I start therefore, as economists often do—and the noble Lord, Lord Peston, occasionally—with the latest Blue Book on UK national accounts for the period 1984–1994. During that decade net national income more than doubled from almost £300 billion to over £600 billion. Allowing for inflation, real net national income rose over that decade by a useful but fairly modest 30 per cent. During the same period total government expenditure almost doubled from around £150 billion to £290 billion. Again allowing for inflation, spending rose by almost 20 per cent. National income up by 30 per cent. and government spending by 20 per cent. means that both the Government and the Opposition are correct when they say variously that government spending has risen and that it has fallen. It has risen in absolute terms, but it has fallen as a proportion of a more rapidly increasing national income.

The first question I should like to ask both Front Benches is how we explain that, with the Government disposing of almost half the national income, Labour still finds it possible to convey a picture of a country seething with discontent. Not only Labour: is anyone satisfied with the so-called welfare state which takes 60 per cent. of our large national budget? We have discontent among suppliers—doctors, nurses and so forth—and discontent among the customers of the welfare state in schools, hospitals and so forth. At times the entire public sector seems like a workhouse that is full of Olivers always asking for more. But it already takes 60 per cent. of the budget and the budget takes almost one half of the national income.

The second question is this: would anybody seriously claim that taxpayers get as good value from the half of their income spent by government as they get from spending the other half for themselves? Noble Lords should reflect on the material progress which has transformed ordinary life in the post-war years. It has given people better homes and gardens and most of them have motor cars, television sets, videos, microwaves and foreign holidays. How little of that is thanks to government and how wondrously the market has satisfied our changing and developing preferences!

My third question goes to the heart of the economies of the west and not just of the United Kingdom. Does anyone really believe that economies carrying such a burden of government are likely to perform particularly well in a rapidly changing world? That suggests a whole crop of further questions. Is there any conceivable way of raising that kind of money in taxation without severely damaging efficiency and wealth creation? Does anyone know of a "good" tax? I personally favour a shift from income tax to VAT as being less damaging and less distortionary to the economy. However, as a declared chairman of FOREST and a frequent smoker, the penal tax on tobacco has now reached the stage where it encourages smuggling from the Continent of hand-rolling tobacco to the sacrifice, at the last count, of £580 million to the Exchequer. The sale of cigarette paper is going through the roof and that of hand-rolling tobacco is going through the floor. That situation has been achieved by these absurd penal taxes.

No one any longer doubts that high income tax discourages enterprise and encourages avoidance. The tax on low incomes increases the attraction of social benefits and dependency, and is a cause of what Lord Keynes himself called "voluntary unemployment". Above all, whatever the initial impact of a tax, its incidence is ultimately upon the productive powers of the economy. In short, I am arguing that high taxes not only depress taxpayers, but they also depress growth and employment, which are the targets sought by the gracious Speech.

The truth is that while Mr. Blair and his colleagues are struggling bravely to liberate their party from the last vestiges of collectivism, the new radical agenda is moving on. To meet the unprecedented transformation that we are seeing in technology and foreign trade, we have urgently to devise new programmes for reducing government spending from nearly one half to nearer one quarter of the national income. I was encouraged during the vacation to read the stimulating and uplifting text of the noble Lord, Lord Skidelsky, The World After Communism. He pitches tax as a proportion of income at 30 per cent., but then he is on the Conservative Benches and from these Benches I am advancing to 25 per cent.

Social benefits now cost almost £100 billion a year. Frank Field has bravely picked up the banner of selectivity in welfare, first raised in the 1960s by the Institute of Economic Affairs with which I then had some connection. In those days we incurred the ire and odium of people like Richard Titmuss and the old-fashioned paternalists of all parties. With rising incomes and increasing private provision, as Mr. Blair has said, I would add that success in targeted anti-poverty policy will come to be measured not by how much we can spend on welfare, but how little we need to rely on damaging, destructive and distortionary taxes.

Labour has recently taken to accusing the Conservatives of lurching to the right. Let me now reveal my "mystery voice" from the left which I quoted earlier as calling for lower taxes and the partial dismantling of the welfare state. Who was this monster? It was none other than that champion wet, Christopher Patten. He was speaking here about his experiences in Hong Kong, where he boasted that the top income tax rate of 15 per cent. is paid by only 2 per cent. of its prosperous workers.

In conclusion, I urge Tories to keep lurching towards Mr. Patten's vision of Britain as a low-taxed rival to the Asia tigers. It should be low-taxed rather than low-waged. I agree with the noble Lord, Lord Peston. The alternative to looking east is not to stand still, but to risk our economy, with the rest of Europe sliding west.

4.45 p.m.

Lord Prior

My Lords, I suppose it is appropriate that I should be called to speak between the noble Lord, Lord Peston, and my old friend, the noble Lord, Lord Harris of High Cross. I suppose that I would find myself somewhere in the middle. Having said that, I find myself at least responding to the questions that the noble Lord has just asked. I believe that they require an answer. I was delighted to see the speech of Mr. Christopher Patten, although I am not certain that all his experiences in Hong Kong have redounded to the benefit of this country, but that is a subject for another day.

As regards the speech of the noble Lord, Lord Peston, he was a little selective in his choice of some of his statistics and also in some of the periods which he took for them. I felt that if ever by any mischance he found himself sitting on the Government Benches—perhaps on the Government Front Bench—I would have some delight in quoting back to him in later years quite a bit of his speech. It was a good, robust opposition speech, but it did not have much reality in relation to the problems that the Government face and perhaps his party may one day have to face.

I find the economy in pretty good shape. I welcome this debate in particular, coming as it does before the Budget. I believe that one of the improvements in having it in November or early December is that it gives noble Lords and the other place the chance of proper debate before the Budget takes place as we have the Queen's Speech in front of it. I believe that the Chancellor has done a very good job extremely well over the past three years. We have had steady growth, a steady fall in unemployment—although a great deal still remains to be done—and reasonably low inflation. We have had no housing boom and people now buy houses in which to live rather than as a hedge against inflation or as a means of getting a bigger mortgage in a year or two to spend money on other things. We have had no retail boom. Most retailers may not like the slack trade at the moment, but they do not want to go back to the boom and bust of previous years.

My advice to the Chancellor—not that I anticipate that he will accept it—is not to throw away the good work that he has done over the past three years. We do not want any irresponsible tax cuts. I follow entirely what the noble Lord, Lord Jenkins, had to say on this subject. I say to him that we should perhaps take a leaf out of his book on William Gladstone, which I believe is one of the great biographies that I have seen and read. Mr. Gladstone introduced his Budget of 1853 after Mr. Disraeli had had a rather unfortunate experience. Mr. Gladstone had said that he was very much against income tax, but he found himself having to defend it. At the same time he suggested that if it kept stable for three years, after that time he would start to reduce it by 1 per cent. at a time. That is a graduation practice that might well be followed by the Chancellor in his Budget next week.

I think that the politics of it point to behaving with great sense and without recklessness. There should not be any binge because that would undoubtedly be followed by bust later on. Perhaps I may suggest to the noble Lord, Lord Peston, that we can leave that to his party because every day now we hear some new initiative from the Labour Party about reducing taxation or promises not to put it up. Those words are always accompanied by promises of increased expenditure on practically every facet of government policy. We are told that all that can be safely accomplished by stepping up the rate of growth and that if we return to a growth rate of 4 per cent., we shall have no problems. My mind immediately goes straight back to the ill-fated national plan of 1965 which was introduced by the late George Brown. That led to total disaster. This time round it would not take a quarter of the time to lead to disaster that it took last time because world markets are much more difficult now than they were 30 years ago. Furthermore, our lurches from booms to bust over the past 30 years have made our economy much more vulnerable than at that time.

That is all that I want to say about the economy, but I should like to turn now to the trade sector. I declare an interest as chairman of GEC. I should like to commend particularly the vigour and work of our foreign missions and embassies which I believe are now doing an exceptionally fine job throughout the world. About five years ago I was critical in this House of the Government's attitude towards exporters and manufacturing industry and of their failure to give British industry the drive and example that it needs. I believe that there has been a transformation over the past few years. I find the officials at the Foreign Office helpful, well informed and the envy of a good many other countries. In fact, I think that I saw something that I should not have seen the other day from an American source, describing the various aids and forms of help that various countries give their exporters compared to that given by the American Government. The report on Britain showed that our foreign service and the efforts made by our embassy and Government were considered by the Americans to be the best in the world. It was nice to read that from an American source.

However, the path to trade is never easy and I should like to take the House for a few moments through a problem that I have recently encountered. About a month ago I spent a week or so in the Middle East, including Saudi Arabia. I found there anger and intense resentment that we should be permitting a Saudi national bearing a Yemeni passport and using a false name to obtain a visa, to come here and then to abuse the privilege of his temporary residence by running a hostile campaign against a state with whom for many years we have had the most friendly and cordial relations and with whom we do a great deal of trade, particularly in high technology, thus involving the sort of jobs which the noble Lord, Lord Peston, says that we should support.

I am not arguing the relative merits of the asylum policy as evidenced in the Queen's Speech, but our approach to political asylum is based on the 1951 United Nations Convention on the Status of Refugees which has been in general incorporated into British law. It is in need of revision. Furthermore, it seems to me that the ever-increasing speed of communications will lead to greater opportunities to abuse a system which was established before the days of the fax and the satellite, which were never dreamed of by the drafters of the convention. Under current legislation it is not an offence to conspire in the UK to commit a terrorist act in another country. Surely that cannot be right, and surely it should be made clear that we will not tolerate incitement against a friendly power by those seeking asylum.

I should like to quote from an article in this week's Economist, commenting on the bombing of one of the national guard's headquarters in Riyadh just over a week ago. A shiver went down my spine when I read the headline because only two weeks previously I was visiting GEC employees working there, and I thought for a moment that two or three of the people to whom I had spoken had been murdered. So I have strong feelings on this subject. An article in the Economist stated: The Committee for the Defence of Legitimate Rights, which conducts anti-regime propaganda from London, insists that it is calling for change by political means alone. But it has been stirring up feeling against the American presence in Saudi Arabia—large and conspicuous since the Gulf war—and does not condemn the young and impatient who may seek other ways: 'We say it is not effective, but we cannot say it is a crime'",

The Economist then stated: That is dangerous and provocative stuff".

Indeed, it is extremely dangerous and provocative stuff that there should ever be an incitement to violence and terrorism which could affect a very friendly nation such as Saudi Arabia where, as I have already said, we have considerable trade interests.

Therefore, I urge the Government in their own interests to look carefully at the legislation and to heed the warning that I am giving this afternoon; otherwise there could be serious consequences for our trade. Having said that, my general advice to the Government is to act with prudence and honour and political rewards will follow.

4.58 p.m.

Lord Barnett

My Lords, of the last two speakers, I normally find myself agreeing more with the noble Lord, Lord Prior, than with the noble Lord, Lord Harris of High Cross. However, on this occasion I was rather surprised by at least one point raised by the noble Lord, Lord Prior. He said that people are now buying houses in which to live rather than invest. My understanding and information from the house builders and estate agents to whom I talk is that they are not doing that at all. Indeed, that is one of the problems at the moment.

As the noble Lord, Lord Harris of High Cross, probably knows, I usually disagree with him on economic matters and I do not agree now with his total support for Mr. Blair and Mr. Brown, as I shall make clear a little later. Indeed, I disagree with my right honourable friends and I hope to explain why.

It was fascinating to listen to the noble and learned Lord, Lord Fraser of Carmyllie, who opened the debate. According to him, everything is so wonderful. I could not help wondering why we need a Budget next week. It is all going very well. Indeed, the noble Lord, Lord Prior, said virtually the same thing: we do not need a Budget, we have it now. The economy is running marvellously. The Minister hardly referred to anything about the economy in the Queen's Speech. So perhaps I may be forgiven if I repeat some of the somewhat meaningless and contradictory words in the Queen's Speech: My Government will continue with firm financial policies designed to support economic growth and rising employment, based on permanently low inflation. Fiscal policy will continue to be set to bring the public sector borrowing requirement back towards balance over the medium term. The share of national income taken by the public sector will be reduced".

With great respect to the Government, it just ain't possible to do all that at the same time. That is the real problem of the Queen's Speech. You need to be something of a magician to carry that out in the first year. There may be one or two magicians in the Government—I suppose that is possible—but I find it hard to believe that the whole lot of them are magicians. There is no indication that they will be able to carry out all those policies next year.

Economic growth this year, we know as a fact, is declining. Unemployment has been falling, happily, as we have been told, although this month there was a small increase. So we are told that it is a statistical aberration. Indeed we are always told it is a statistical aberration when something is wrong. When it goes right every month, that is not a statistical aberration, it is accurate. Nevertheless, unemployment has generally been falling. On the other hand, this year the public sector borrowing requirement will clearly be much higher than that forecast by the Chancellor in last year's Budget, and in his Red Book. I shall return to that point later. I say that that is the case despite this month's aberration on the borrowing requirement. It will clearly be out of line with what was forecast.

The share of income taken in public expenditure is higher than when I left it as Chief Secretary to the Treasury in 1979. I would not complain about that if I could see real improvement in public services, but I cannot see anything of the kind. We now know what lies ahead. We know from the Prime Minister's Guildhall speech, and from what the Chancellor said at the Conservative Party conference that: The share of national income taken by the public sector will be reduced".

As I say, that is what they have both said, because, they say, it would not improve the economy unless they did that.

There is no need for us to look too far. We know what it is all really about. It is about the Chancellor improving his reputation with Conservative Back Benchers. That is what he is concerned about, and I understand that. He does not want to be blamed too much when they lose the general election. He may have some other job in mind at that stage. So I understand that. But the plain fact is that, by cutting personal tax in an attempt to win that general election, first, he will not achieve it, because people have already seen through that argument, and he will not get a feel-good factor from it.

In addition to cutting taxes, I am afraid that the Chancellor will bring the public sector borrowing requirement back towards balance in the medium term, as we are told. We understand that his own advisers have told him that he should not seek to do that. I must say that I agree with his advisers. He should not have sought to do that. He has no need to. He is also, it seems, wrong about inflation. This year, despite this month's statistical aberration, inflation has been going up. I must say that the Government are doing very well on statistical aberrations at the moment.

Unless the Government change their policy somewhat fundamentally, it looks likely that next year inflation will be 3.5 per cent. rather than 2.5 per cent. He could of course reset his PSBR and his inflation targets in the Budget next week, but judging from the Queen's Speech that seems unlikely, although he has left himself some room for manoeuvre by being just a little bit ambiguous on both those fronts to allow more to be done, but he cannot have growth at the same time.

So what exactly does the Chancellor have in mind? I hope that he will in fact meet his economic growth targets and his employment targets, but he may exceed his inflation target and his PSBR targets. He and we and the country could live with that, because that is much more important when, on his own figures, unemployment will still be over 2 million.

Against such a background, the Chancellor may achieve his target of a £3 billion or £5 billion cut in public expenditure. Indeed, he could achieve even more if he cuts the contingency reserve, which last year had £3 billion in it. It would mean that there would be nothing left for his Ministers to spend by way of contingencies. So he could spend even more than that, and, as a percentage of £700 billion of GDP, it is not much more than petty cash, as my noble friend Lord Peston would tell us, although he did not tell us today.

Even if that were to be pursued, as seems all too likely, the net result would be higher personal consumption. That is what we would get. Admittedly it would be from very low levels, but it would be offset largely by cuts in public sector investment—capital expenditure—which is the easiest way to cut public expenditure, as I found to my cost in those five years. It is the easiest way to do it, and that is the way that I fear he will do it, but that would hardly help his inflation target or his PSBR target. As I have indicated, it will do little for unemployment. The only thing that might just stop him is if the City made it crystal clear to him, as I hope that it will, that if he went that far—I was glad to see the noble Lord, Lord Prior, not from the City but from industry, telling him not to go too far—interest rates would go up rather than down.

As it is, just when we need more investment, we are likely to have less. We have already had indications that the manufacturing sector is slowing down. There has been a foreshadowing of a slow-down in growth there. Our main export markets to Europe have been slowing down. Thus it seems likely that growth next year will be higher than this year—that is not too surprising because it has been pretty low—but it will be based largely on higher personal consumption. We may be able to get through next year, but I fear that a future Labour Government would be faced with the difficulty of hitting the usual constraints again. Certainly the Chancellor will be hoping that he is no longer there when he meets those constraints, as he most certainly would.

It is all very sad, for it seems that we still cannot sustain more than 3 per cent. growth without running into those constraints of higher inflation and higher PSBR. What I find especially sad is that the Labour Party does not have an answer either, although I welcome one or two of the proposals, such as the one-year capital allowances, which should help investment, and the proposed help for youth unemployment. Those are good proposals but are not sufficient to solve this perennial problem.

I know only too well that there is no simple answer. I want to see higher public expenditure on, for example, education, health, training, social services, and so forth, but I am only too conscious of the impossibility of paying for it without higher growth and, as my noble friend Lord Peston said, higher growth in productivity, rather than higher taxes. Certainly in the long term we must hope to achieve that, but in the short term I would finance some of that expenditure from slightly higher borrowing, which we can well afford, thus giving the economy the kick-start it really needs. I understand why my right honourable friends are not prepared to say that. I can say it but they cannot. It is what I would do but, as is obvious, I am not speaking for them.

Such a provision would be better than the current or even lower levels of public expenditure that we are likely—indeed, certain—to get in next week's Budget. I understand that the Chancellor of the Exchequer will tell us about public expenditure cuts. My suggestion is that it would be far better for a Labour Government not to accept the Government's levels of public expenditure but to increase them. The result would not mean the lower levels of economic growth, as we are told by the Government. The plain fact is that if one compares our levels of public expenditure as a percentage of GDP with other western countries between 1979 and 1995, we have been on average, under this Government, at about 42 per cent. of GDP. Germany, Italy, Austria, Denmark and Belgium have, on average, had higher levels of economic growth.

We are constantly told by the Government—indeed, we were told by the Minister in opening the debate—that everything is marvellous; as regards economic growth, inflation and so forth, everything is wonderful. The Government have managed that with a higher level of public expenditure as a percentage of GDP than other countries. How did they achieve that miracle? I am sure that the noble Viscount the Leader of the House will be able to tell us. He is smiling, so obviously he has an answer in his brief.

The plain fact is that the Government have managed it not through any miracle but with higher levels of public expenditure. However, I believe that the crucial question should be: what is our main objective in running the economy? What should be the main objective of a Labour Government? Certainly, it is not tax cuts. I could accept, eventually, a lower tax rate of 10 pence in the pound in order most to help lower paid families and to provide incentives. But as was said by my noble friend Lord Peston, we need growth in productivity to pay for the decent levels of public services that are required in a civilised society. That and low unemployment should be the top priority of a Labour Government. Certainly, it would be for me. But I fear that next week's Budget will be going for tax cuts, certainly not for the lowest paid. I hope that they will be condemned.

5.12 p.m.

Lord Boyd-Carpenter

My Lords, we are on the last lap of the debate on the gracious Speech. I wish to begin by reminding your Lordships that this debate was prefaced by probably the best speeches of a mover and seconder of the humble Address that it has been my experience to hear during a number of years in your Lordships' House. We were given an extremely good start by two splendid speakers, and I wish to put that on record.

Secondly, I wish to remind your Lordships that we shall be dealing, as we have been told, with questions of finance. In that regard, I was intrigued when I glanced at the Consolidated Fund Bill, which is now before us. I do not know how many of your Lordships recall the terminology used in that Bill. It states: We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom in Parliament assembled, towards making good the supply which we have cheerfully granted to Your Majesty in this Session of Parliament",

and so forth. That touch—that these vast sums of money are voted cheerfully by your Lordships' House—has a certain attraction. I am not sure that many of your Lordships appreciate the cheerfulness of it. For example, the admirable speech of the noble Lord, Lord Barnett, did not seem fully to appreciate the cheerful character of that provision.

We are dealing with finance at a moment of great importance and great difficulty. It is very difficult to know what the Government ought to do by way of taxation. However, I say at once that I wholly disagree with the noble Lord, Lord Harris of High Cross, who suggested that increases could easily be made in VAT as a means of dealing with the matter. I do not share his enthusiasm for VAT. Surely it is a directly inflationary tax; it adds something to the price of every article to which it is applied. If anything fulfils the definition of inflation, surely it is that.

As your Lordships know, VAT has been applied freely in recent months and years. I shall not weary the House by repeating the ridiculous imposition of VAT on church bells, save to point out that if one is trying to find a really silly piece of taxation that is a good example. It has caused a lot of hardship to those who run small country parishes. VAT puts up prices everywhere. It now falls on insurance and air travel. In every direction in which one looks, VAT is increasing prices and therefore having a directly inflationary effect. I hope that any changes in taxation which the Government see fit to make will include a reduction in this very damaging tax. One puts an additional charge on necessities of one kind or another and can then say that one is apparently seeking to deal with inflation. In fact, one is simply creating inflation.

As your Lordships know, the need is to cut expenditure. There are considerable directions in which expenditure can still be usefully cut. I suggest that one is our substantial contribution to Europe in order to subsidise tobacco production there. No doubt my noble friend will be able to give the House the figure but I know that we contribute a substantial annual sum to the subsidy which goes mainly to Spain and Italy in order to finance the production of tobacco. If one takes the view, as officially the Government and many noble Lords do, that the smoking of tobacco is injurious to health, it is ridiculous that we should increase our tax burden in order to subsidise its production. I know that it will be said that those countries cannot grow anything else. Well, if they cannot grow anything else, they had better stop growing altogether! To say that a damaging poison must be produced in a country because it can find no other product to produce is a ridiculous argument which need take up no further time of the House.

There is other expenditure that can be cut. I approach the question of legal aid with caution and diffidence, but the cost of legal aid has risen steadily year after year. The noble and learned Lord the Lord Chancellor gave the figure for the current year as £1,400 million, which is an enormous sum and much larger than was the amount a few years ago. Why is it necessary steadily to increase the cost of legal aid in the circumstances of today? Does that not suggest that there is a lack of control over that expenditure?

There are other areas in which there is very considerable expenditure. There is the VAT on insurance premiums. And yet one would have thought that it was good government policy to encourage people to take up policies of insurance.

And then there is the VAT on air travel, about which I feel very strongly. Some of your Lordships may recall that some years ago I was responsible for our Civil Aviation Authority. It is a source of great pleasure to me, and I am sure many noble Lords, that British civil aviation has spread and developed and become competitive with other airlines all over the world. But to impose VAT on the fares which people pay in order to fly in British civil aircraft seems a very mistaken policy indeed.

Therefore, deeply though I respect—as always—the views of the noble Lord, Lord Barnet, his indication of a preference for VAT is one which I rather emphatically would reject.

Another area of expenditure which we have discussed recently—it is very substantial—is that for asylum seekers. The extremely slow method used to sort them out and deciding, as has to be decided in the case of many of them, that they should return to the place from which they came, apparently produces, according to a Government statement, an annual cost by way of benefits of one sort or another of £200 million a year. Again, why is that necessary? I suggest that the Government require to take a tougher line on public expenditure generally in order to be able to not increase but to reduce taxation.

The high levels of taxation—and they are still high—which we have in this country are a handicap to our competitive effort. They make our products more expensive and less saleable. The more that we can reduce our government spending and the levels of taxation that consequently follow from that, the more competitive British industry can be. I hope that the Government will not be discouraged by some of the remarks that have been made in your Lordships' House this afternoon and on other occasions from steady efforts to reduce expenditure and therefore, consequently, to reduce taxation. If they do that, they will have served this country very well and I have little doubt that this country will be grateful to them and that we may again have the pleasure of a Conservative Government.

5.22 p.m.

The Earl of Caithness

My Lords, I follow straight on from my noble friend Lord Boyd-Carpenter because sadly, the noble Baroness, Lady Castle, has scratched her name from the list. I understand that that is because she is suffering from flu. I am sure that we all wish the noble Baroness a speedy recovery and hope to see her back in the Chamber quickly.

I listened with interest to what the noble Lord, Lord Jenkins of Hillhead, had to say about the improvement of the Government Front Bench. Without a doubt it has improved substantially in the past 18 months just as, indeed, the Labour Front Bench has improved substantially since 1981. Perhaps it is all just a question of timing and when one leaves the Front Bench.

In the gracious Speech, Her Majesty said that her Government will continue with firm financial policies based on permanently low inflation. That is to be welcomed because inflation has been such a destroyer and it is totally dishonest. Inflation leads to a dishonest monetary system and we have suffered from that over the past 30 years or so.

I was very interested in what the noble Lord, Lord Barnett, and my noble friend Lord Prior said. My noble friend Lord Prior said that we must not go back to the boom or bust era that has plagued us for the past 30 years. The noble Lord, Lord Barnett, said how difficult it is to square the circle between achieving steady growth over 3 per cent. and then not having high inflation. I felt that they should have both gone on to analyse why we have that situation. When I had the honour to be Paymaster General in the Treasury, I was always concerned as regards the extremely good efforts which governments of both persuasions have made to control the economy. Neither wanted to see high inflation. When the noble Lord, Lord Barnett, was Chief Secretary, he did not want the problems which he encountered. And we did not want the problems which we encountered in the 1980s when everything seemed set fair. Yet we have had three massive collapses in asset values. We had the property collapse in 1974, which I remember well; we had the problem with shares in 1987; and we had the collapse of the property market again in 1989.

In spite of the very best endeavours of whichever government were in power, it was not possible to prevent those events occurring. We have now another good, healthy economic situation just as we had in the mic1-1980s. I just do not want this Government to lose the opportunity to take us forward again on a steady path.

Therefore, I have looked at the problem carefully and I have found somebody who I believe has actually put his finger on why we have these problems. We have them because the whole system under which we operate is totally wrong. We operate on a debt-based system. That did not come about through choice. We did not vote on it. It was an incremental result of the closing of the gold window in 1971 by President Nixon. Since then, the whole debt-based system has led to the sort of disasters we faced in the 1970s and 1980s and are likely to face again unless we move away from that system.

As the noble Lord, Lord Barnett, said, at present the economy is slowing. The backlog of orders for businesses is beginning to reduce and that is a slightly worrying sign. People are insecure in their jobs and in their homes. They are frightened of what the future may hold. That is not an easy situation for any government to handle.

What is the solution that most economists put forward? They say that we should lower interest rates. I was at one time a firm believer in the interest rate mechanism as the lever to control the economy. I must say to my noble friend on the Front Bench, Lord Cranborne, that I no longer believe that. It plays a part but it is by no means the only lever. It has brought such misery and distress. In effect, what has it done? The lowering of interest rates has encouraged people to borrow more and it has encouraged those who are not in debt to borrow for the first time. When interest rates are raised, everybody is penalised. When they come down, the urge to borrow is increased. That increases the debt which each of us as individuals and the country have to bear. That, in turn, slows down the whole economy of the country and is extremely detrimental.

Therefore, I disagree with those economists who say that we should lower interest rates. I say to the Government, "Please do not lower interest rates and do not fiddle with the housing market." I am back in property and the housing market again, as I was before I went into government. I hope that the Government will not interfere with that. There are various problems in the housing sector—negative equity and so on—but the Government should not interfere with it because it will sort itself out, although it will take time.

When one considers the role of government one sees what a small player the Government are now in the whole financial market. It is worth looking back at figures from the Bank of England. In 1971, when President Nixon closed the gold window, the money stock in the United Kingdom stood at £31 billion of which £3.5 billion was government minted notes and coins and the balance of £27.5 billion was in deposits. That had existed for many years. We had run the largest empire in the world with less than that; we had been a reserve currency for most countries in the world with figures that were less than that; and we had been a very successful nation with figures less than that.

What has happened since the closing of the gold window? In the intervening 24 years to September 1995 the government minted an additional £19 billion, bringing the total notes and coins to £22.5 billion. A simple piece of mathematics will show that the total money stock—the M4—should now be in the order of £50 billion. It is not. In September 1995, M4 stood at £608 billion. Of that £608 billion, £585.5 billion was in deposits. The banking sector and finance sector had created £558 billion in deposits in 24 years. No government authority or government approval was involved; indeed, there was nothing that the Government could do about it. That has increased the handicap that a government of any persuasion will have to face under this debt-based monetary system.

I believe that one of the problems is the level of reserve requirement. It used to be 20 per cent., but it is now rather less than 1 per cent. As a result, the level of domestic debt has increased by more than 20 times in 24 years. We now have a total of deposits and capital on loan of over £700 billion. How long can we tolerate that situation? How long can any economy sustain that level of debt? How long can any government operate the right type of policies, which this Government wish to operate, with that sort of handicap?

I strongly believe that we should have low inflation. I should also like to see steady growth. I do not like the boom and busts. But my fear is that unless this Government, or the next government of whatever persuasion, take an urgent and radical look at the system the banking and finance sectors operate in this country, they will be operating with two hands tied behind their backs. I do not blame the banks. That is the system under which they operate. The more successful they are—and British banks are very successful—the more they run this country into a debt that we are handing on to our children. That is not something they will thank us for.

5.33 p.m.

Lord McCarthy

My Lords, I hope that the House will forgive me if I do not follow the previous speaker as regards the content of his speech. I was interested to hear that it is all the fault of Richard Nixon because he closed the window. I am most receptive to that kind of argument, but instead I want to do something which I hope is in order. I do not want to discuss so much the gracious Speech because what I wish to discuss is not mentioned in it. However, I take it that we can raise with the Government matters that are not mentioned because, after all, at the end of the gracious Speech it states: Other measures, including other measures of law reform, will be laid before you".

The other measure that I should like the Government to tell us that they propose to do something about concerns unemployment and, in particular, long-term unemployment. If one reads the gracious Speech, one will find that there is nothing about that in it; indeed, the word "unemployment" is not mentioned.

The noble and learned Lord, Lord Fraser of Carmyllie, said a great deal in his opening remarks about forms of competitiveness and about competition. However, the only mention that he made of unemployment was to refer to a fact that the figure had gone down by some 700,000 since it peaked in 1993. That comes out at about 28,000 a month and means that, in another year, the figure will be down to 2 million and, if it continued for a further three years, it would be down to 1 million. So it is not very useful to tell us that it has gone down by that amount since the peak in 1993.

Yesterday the Minister of State for Education and Employment in this House spoke in the debate. He is also responsible for education. Although his speech ranged widely and included agriculture and rural areas, he did not mention employment and certainly not long-term employment. Indeed, in my estimate, the last time that the Government in this House—and I cannot speak about the other place—discussed the question of unemployment, especially long-term unemployment, was in answer to a Question tabled on 24th October by my noble friend Lord Dormand. My noble friend asked the Minister about long-term unemployment and what he was doing about it. The Minister replied (at col. 962 of Hansard) that it was a matter of great importance and that it was a "key priority". But, again, no concrete proposal or additional measures which would, perhaps, increase the rate of decline in unemployment were advanced.

It is about that that I want to ask the Government. In the next parliamentary Session what do they propose to do about unemployment and, in particular, long-term unemployment? We know that the Minister said on 24th October that the Government were providing 1.5 million job opportunities. I do not know whether that it is the total number of placings made in the Jobcentres. I do not know whether that is adding up all the interviews and making them 1.5 million attempts to get people back into work. I am not talking about that; I am talking about positive measures.

Let us take, for example, the one positive measure in which the Government are involved; namely, the training and enterprise programme. A recent edition of what used to be the Ministry of Labour's Gazette but what is now called Labour Trends tells us that 350,000 places have been allocated this year in the programme. That compares very badly with the activities of the training and enterprise programme at the last point in the previous cycle—round about 10 years ago, in 1984—when the programme was producing 661,000 places. It is not just that the number of places is in decline; it is the content of that decline. I say that because the Government have more or less maintained the number of places on the youth programme. That programme has only been cut by about 20 per cent., but if one looks at adult provision as regards the years 1984 and 1994, it will be seen that there has been a 75 per cent. reduction in adult provision on the training and enterprise programme. In other words, the latter programme is now a youth programme. Nothing really is done in the training and enterprise programme for adults who are out of work. My question is: why not?

Are the Government saying that adult unemployment is to be solved by the upswing of the cycle, if and when it arises? Is the argument that we can leave adult unemployment—and, in particular, long-term unemployment—to improvement in the general competitiveness of the economy and the general level of demand for labour? If the Government believe that, they really have gone back on every argument of previous governments in the early 1980s, with its later recession, and certainly of the Labour governments of the 1970s. No serious economist really believes that the problem of long-term unemployment can be solved by the upswing of the cycle. We are talking about people who find it increasingly difficult to obtain any kind of employment. Only carefully designed, special measures have any chance whatever of taking such workers out of the unemployment trap.

The Government should think seriously about the matter. Indeed, when the Chancellor of the Exchequer thinks about it seriously he says and does things which indicate that he is beginning to understand that one cannot expect significantly to improve the problem of long-term unemployment by waiting for the upswing of the cycle. In the 1983 and 1984 Budgets the Chancellor floated a small number of measures which were designed to improve the level of positive job creation.

My next question to the Government is as follows. In 1984, in his Budget speech, the Chancellor made five tiny suggestions. I want to know what has happened to those suggestions and how far they have improved the position of the long-term unemployed. For example, he reprieved the community action programme. How many people among the long-term unemployed did that put back into work? He introduced a small extension of the three week work trial programme. He made further minute cuts in National Insurance payments for employers, as he said that that would help to put people back into work.

He announced two measures in which I am particularly interested and I would like the Government to comment on them. We cannot know the consequences of one of those measures and we ought to know the consequences of the other. He promised us full employers National Insurance rebate—a system of fully discounting the National Insurance rebate—for an employer who employed those on the register who had been unemployed for two years and over—the long-term unemployed. The problem is that this programme is due to start in April 1996. Could we not advance that programme a little? Is that programme still being thought about, modelled and monitored? Where is that programme which was announced in the previous Budget? Finally, he put another 5,000 workers into the work START programme.

I am sure that every Member of the House here today knows the Work START programme backwards but, in case there are one or two who do not, let me say that the Work START programme promised £60 a week for six months to any employer who took on a member of the long-term unemployed who had been out of a job for two years. We have had a pilot of the START programme for two years. I am not asking the Government, and certainly not the Minister here tonight, to prejudge any announcement which the Chancellor might make tomorrow about the future of the START programme, but he could tell us something about how it is getting on. He could tell us whether the Government consider that it has been a worthwhile exercise. As I have said, there has been a pilot scheme for two years.

Many people believe that the START programme, which the Government had stumbled on and then fumbled with all this time, could represent a major improvement in the employment conditions of the long-term unemployed. It has the attraction—if one is looking for it—of being a nil cost solution because £60 a week given to the employer to take someone off the unemployment register is slightly less than it costs to keep that person on the register and on benefit for a year. The average cost of the average person on the benefit register, whether that is unemployment benefit or supplementary social benefit, is £3,200 a year. Therefore, one makes a little. It offers the possible prospect of a nil cost solution. Instead of giving the money to the worker, one gives it to the employer and the person comes off the register.

Some people, and indeed some professors who should know better—including Professor Snower, for example, of Queen Mary College—think the Government could put 1.5 million people into work with this wonderful programme. I do not suggest that. I think that that is just a piece of econometric trash. Nevertheless, he said that it would represent a 20 per cent. reduction in marginal labour costs; that it would put 1.5 million people into work; and that we would reach an unemployment rate of somewhere between 3 per cent. and 4 per cent. That would be a miracle but the scheme is worth trying and anyway the Government have been fiddling about with it for two years.

The main defect of such a programme—I wish to say a few words about this before I finish—is our old problem of dead weight. If one hands out the money that one gave to the worker on the dole to the employer, after a while the employer would develop a system which he calls "churning". That is a fancy name which means that he gets the money for taking on the people he would have taken on anyway. That has been the record of similar programmes in the past.

I have two points to make about that. First, we never sought to monitor these programmes effectively previously and when the programmes operated in the public sector they had much less dead weight than they had in the private sector. I leave that with the Government. Secondly, if we are really trying to get people into work who have been out of work for two years, we should not be terrified by a certain amount of dead weight. If the employer is being forced by the subsidy—and if the subsidy is nil cost or very close to nil cost—to select workers he would not normally select (employers would not normally select people who have been on the unemployment register for two years for all kinds of reasons) and yet we reduce long-term unemployment significantly faster than we reduce total unemployment, that would not be a bad thing. Be that as it may, I have asked a series of questions. I hope that the Government will be able to answer some of them, and I hope that despite the fact that there is nothing in the gracious Speech about unemployment, the Government have some policies.

5.46 p.m.

Viscount Astor

My Lords, I believe that industry in this country is now in a better position to take advantage of the opportunities for growth that now exist than most of our competitors in Europe. This is of course due to the sound economic and fiscal policies that this Government have maintained during their time in office. We now have economic growth with low inflation and an ability to compete not only in Europe but in the important markets opening up in eastern Europe and in the rest of the world. Therefore I welcome the proposals in the gracious Speech to improve competitiveness, remove burdens on business and in particular to improve the progress of deregulation. I am afraid that "progress" is perhaps an optimistic description because it has been painfully slow progress. However, before looking at the reasons for that, I give a warm welcome to the forthcoming Broadcasting Bill.

The broadcasting industry needs this Bill. It is one of our most important industries, contributing no less than £3.5 billion to our economy. It accounts for no less than £1 billion of our exports, and we have an export surplus of £200 million. The world broadcasting market is expected to grow by 70 per cent. over the next 10 years. Our broadcasting industry is profitable and produces quality programmes that are admired worldwide. However, the industry needs to grow to compete with the vast empires that have been created in Europe and in America. For too long we have tried to separate artificially different sections of the media. New technology and changes in consumer behaviour have made our old rules and regulations redundant. What is more worrying is that these rules have provided a barrier to growth and new investment. In particular they have blocked British companies and have allowed those with new technology, who are often based outside this country, an almost free run, unfettered by regulation, to create new, near monopolies.

As the law stands, if one owns newspapers one cannot own television. If one owns television, one cannot own satellite. If one owns local radio, one cannot have a share of local newspapers. We must treat the media industry, whether it be newspapers, television, cable, satellite, radio, or any combination of any or all of those, in the same way as any other industry. The barriers between parts of the industry do not make sense. Newspapers are now providing news on demand on one's personal computer, telephone companies are looking at ways of providing video on demand on one's television. What should we call these services? Are they television, telephony, or computing? I believe we must have proper competition law that covers the industry as a whole, and that includes encryption services which are the access point for those wanting to use cable or satellite services.

That competition law must also include the BBC, which now has a large commercial business in addition to its public sector broadcasting role. With regard to the BBC, I hope that the Government will privatise the BBC's transmission business and that in order to raise the maximum revenue possible they will allow an open bidding contest. There could be substantial savings in transmission costs for both the ITV companies and the BBC. The sale of its transmission business will give the BBC the funds needed to invest in digital terrestrial transmission.

The past year has been an interesting time in the broadcasting world. Satellite now has a firm foothold, and cable is operating in many cities. BT wants to change the rules halfway and join in the game, encouraged by the party opposite. So does Michael Grade at Channel 4, and many of your Lordships will remember being lobbied vigorously on the subject of the Channel 4 funding formula.

I urge the Government to think very carefully and seriously before amending in isolation any one part of the financial arrangements set out in the Broadcasting Act 1990. Channel 4 may well pay some £ 60 million to the ITV companies this year, but the ITV companies themselves will pay £ 370 million to the Treasury.

Perhaps I may explain briefly why I believe that this is such an important issue. The financial and formula arrangements in the 1990 Act, however imperfect they may be, were carefully weaved together. Many hours of debate took place in your Lordships' House. As a result of the Act financial projections were made. The investment required was then raised and, finally, bids put forward based on the Act.

Although the new Bill, which has yet to be published, deals primarily with the ownership and licensing of digital services, pressure will again be exerted on your Lordships' House and the Government to change the current arrangements. It must be resisted because, if we are to encourage investment in new digital technology, which will involve hundreds of millions of pounds, there must be confidence that a viable return for investors is possible. If Parliament changes the rules on which bids for franchises were based it would be the equivalent of changing the prospectus after flotation. That is not allowed in the City, nor should it happen elsewhere. It would unfairly diminish the value of current shareholdings. What can discourage future investment more than that?

Independent television is a great success story in this country. We share the English language with the Americans; it is time that we started to share some of their prodigious export successes. I believe that the Government reforms will give broadcasters every opportunity to do just that.

Any industry, if it is to grow, must adapt to the changing world. We must allow mergers that are in the public interest. They allow cost cutting which provides the revenue for new investment.

I return to the subject of deregulation. As I said earlier, progress has been painfully slow. I am afraid that some of the regulations that have been made redundant are so minor as to be almost irrelevant. We have not managed yet to cut the red tape. Therefore, I am delighted that the Deputy Prime Minister is to lead the initiative to speed up the process. He has been in the DTI, so he should know where to find some of the prime candidates. Government departments cling to their regulations like drowning men cling to a liferaft.

We often hear the excuse that regulations were forced on us by Brussels. In many cases that is simply not true. The bizarre rules seem to be entirely home grown. To be fair, sometimes they are made in response to some vague EC directive from Brussels that no other country seems to have bothered with, let alone read. However, most of the regulations are invented in Whitehall, and often pursued with great vigour by government departments, local government and quangos. Small businesses feel under threat. They feel that they are attacked with a vengeance not seen since the Inquisition.

Even seemingly simple regulations are often interpreted and enforced in unreasonable ways. If, for example, local traders go to their local magistrates' court and are able to win their case their problems have just begun. Local councils instantly go to appeal, and therefore threaten the trader with the possibility of huge costs being imposed if the judgment goes the other way at the next stage. What business can afford to take that kind of risk? Even the largest balk at the cost.

I hope that the Government will also look closely at quangos. I believe that there are too many and that there is room for rationalisation. Conservative principles are about devolving power to the individual; too often we have merely devolved power to the quango.

I dislike the culture of "quangockery" that has invaded and taken over our lives. Some have no right of appeal against their decisions. Some constantly reinvent their reasons for existence. They often pass increased costs via higher charges to the consumer. These are expensive organisations. The Government must ensure that the taxpayer gets value for money.

I hope that deregulation will be put into top gear. It is not about removing protection from the public; it is about removing barriers that prevent industry from being successful. I know that Ministers take the problem seriously and I look forward to speedier progress.

The Labour Party, if it is ever elected, plans to introduce the Social Chapter, so successfully excluded from the Maastricht Treaty by my right honourable friend the Prime Minister. They also plan to introduce a minimum wage, although they do not know how much it will be. The noble Lord, Lord Peston, did not manage to cast even the tiniest amount of light on that issue. Both those actions would destroy the advantages that this country has obtained, advantages which the Labour Party would instantly throw away. Businessmen I have met in Europe recently wish that their own governments had not signed the social chapter. They find that it is making competition with the growing manufacturing countries, particularly in the Far East, impossible.

I also found no great enthusiasm for a single currency. We do not necessarily need it. Different countries have different economic needs and conditions vary, as do public spending, taxes and interest rate policies. It is a bogus argument to say that we cannot remain at the heart of Europe without automatically agreeing to a single currency. If the time ever becomes right it will be obvious, but that is certainly not in the near future.

It has become fashionable in your Lordships' House to declare one's interests, so I shall declare two. The first is that since July I have again become involved in commerce—the alternative to becoming one of the students of the noble Lord, Lord Peston. At least it is better than that. The second interest I have to declare is that I intend to do all that I can to ensure that the party opposite never has a chance to govern. I have been on the Opposition Bench. I know what it is like, and I do not intend to return. After all, noble Lords opposite have got used to their places, and who am I to disrupt them'? Let them remain in their familiar surroundings for a long time to come, in their favourite places.

5.57 p.m.

Lord Donoughue

My Lords, as always, I am happy to follow the noble Viscount, Lord Astor. Indeed, with my colleagues I shall follow him on to the Government Benches opposite before too long.

Like the noble Viscount, I shall also speak mainly on broadcasting, although the whole national heritage sector, with which I am concerned, has considerable economic as well as cultural significance which is often underestimated. That sector employs 3 million people in the arts, sport, media and tourism, and the latter two sectors are forecast to be among the highest European growth sectors. Therefore, that sector matters.

I shall not deal today with the arts and sport, which were not mentioned in the gracious Speech, except to say that we shall be watching closely to see when the very specific promises made by the Prime Minister and Ministers in both Houses on the question of lottery distribution and additionality in public expenditure are broken. I warn that if and when direct grants to the arts and sport are cut and replaced by lottery distributions there will be very strong grounds for bitter complaint.

My main focus today is on broadcasting, which, as the noble Viscount, Lord Astor, rightly pointed out, is one of the most dynamically growing sectors in the British economy. In the next few weeks we expect in this House both the BBC's new Charter and Agreement and the new broadcasting Bill, which we sincerely hope will be better conceived than the disastrous 1990 Act.

We shall scrutinise the BBC Charter and Agreement closely, seeking to ensure that they offer to Britain's and indeed the world's greatest public service broadcasting asset the financial and editorial freedoms necessary for it to survive and expand in the future competitive world of global multi-media. We also hope that that is balanced. We hope that the Charter and Agreement have an explicit list of the conditions and objectives which the BBC must meet to retain the support of licence fee payers—for example, on impartiality, accuracy, taste and decency, a continuing commitment to educational broadcasting and patronage of the arts, and continuing full coverage of parliamentary proceedings.

We also wonder whether there are ways to make the governors of the BBC—I see they are in the news again—more fully and separately accountable, possibly to Parliament itself. We need, and they need, to ask to whom they are responsible and for what.

There are strong rumours of the privatisation of the BBC transmitters although it was not specifically mentioned in the gracious Speech. We on this side would look very critically at that, seeking to ensure that the BBC is not put to any disadvantage by the sale of its transmitters and especially that it should not be squeezed on monopoly prices. However, I accept that there is a problem in the current situation regarding how the BBC funds digital terrestrial television transmission investment and how it could, under present rules, compete for third party business.

The Broadcasting Bill is of enormous potential significance—more so from the national point of view than any other piece of legislation in the Queen's Speech. It will effectively draw the landscape for British broadcasting in the rocketing multi-media and interactive world of the 21st century. It will contain provisions for cross-media ownership. The Government have floated their views already. We broadly welcome them. We reserve our position on the detailed points system, and so forth, but the proposal appears, commendably, to offer support to our basic objectives; diversity of view, plurality of ownership, and avoiding excessive dominance by one owner.

We are concerned at the potential erosion of the regional dimension and the enormous powers for the proposed new regulator. We are especially concerned that increased cross-media ownership will result in less choice of information and ideas. It would be a pity if the bias and sensationalism of much of our printed press further infected television. We accept the need for greater freedom to be allowed to newspapers and broadcasters in an area where the separate sectors are converging because of technology. However, we wonder whether it would be better to allow newspapers and broadcasters owning other media sectors to be limited in their expansion to new media outlets, so expanding choice.

The question of digital terrestrial television is more complex, more speculative and more technical, so I understand that many eyes glaze over. However, it is of enormous importance. Digitalisation is the technological future of broadcasting. It offers more channels and better picture definition. Our terrestrial broadcasters—the BBC, ITV, Channels 4 and 5—will remain significant providers to the public for many years to come. We wish to support that continuance. But technically they must become digital to compete with the remarkable strides that are being made in satellite and cable broadcasting. Having said that it must occur, it is not clear when the switch will take place, who will invest in that speculative future, and how. At present there are no digital TV sets or black boxes. There are no broadcasts. There is no audience. Future profitability is therefore uncertain because the multiplying channels with digital technology will inevitably fracture audiences and slice advertising revenues into a greater number of segments. One consequence is that pay television will be more suited to digital technology than is advertising.

The Government are right to have grasped the nettle now; I commend them on that. We on this side have not until now had an opportunity to respond because the consultative document was rushed out in the Recess. However, I shall offer a few brief reactions now.

First, we support a future cut-off date for switching from analogue to digital because that is the only way that one can guarantee to an investor the prospect at some point of a major audience for digital television. We do not accept the need to divide the proposed digital multiplexes between operators and broadcasters who sub-lease from the operators. That is too complex. It would also prevent the BBC from owning a multiplex. We see no reason why it should not. We see no reason why ITV, perhaps in conjunction with Channel 4, should not own one or two. The licences should be to both operators and broadcasters.

I believe, too, that the existing terrestrial broadcasters who are being reserved guaranteed space on the multiplexes should have full multiplexes and not parts of them as proposed in the government paper. They need sufficient band width to accommodate all developments in the practical future—for instance, high definition television. Under the Government's proposals for only 6 megabits, one of the reserved people, the BBC, could not have high definition television which requires 9 megabits of band width. I believe that those broadcasters should be given sufficient band width. They should be given the full multiplex. It is right that they should have that because a multiplex requires common editorial management. There will be continuing questions of choice among many broadcasters within that multiplex regarding who gets how much space. That decision should be taken by a single overall provider. That is enough technical jargon for my lifetime.

Noble Lords


Lord Donoughue

I do not know any more! It is important that there must be common technical standards and common interface equipment. That will make possible the economies of scale that are necessary for lower prices and make it possible for our industries to export abroad with common standards.

There must also be fair and full access for broadcasters so that they face no access barriers of the kind which exist at present in some parts of cable television. There must be fair access for viewers to all broadcasting services via a single set-top box. Receiving equipment must carry terrestrial as well as satellite broadcasts. Otherwise, if one has receiving equipment which may be controlled by someone from satellite which—surprise, surprise—cannot receive terrestrial digital television, then the terrestrial broadcasters will be at a disadvantage. We must ensure that that does not happen, so that aspect requires tight regulation. In my view, it would be better done by ITC rather than Oftel, as proposed in the paper, simply because ITC has a more immediate concern for the broadcasting principles at stake.

We are attracted—anyway I am—by the ITC's proposed draft code for conditional access systems. We need strong regulation to ensure fair competition among the multiplex operators, especially among the conditional access systems, the so-called "gateways", and also among the navigation systems, those processes that describe where one can go on the system. Of course, that provides many opportunities to give preference to those who come first and there must be free access there. That is why we sympathise with the ITC's draft code.

We are always concerned on this side that there is insufficient quality criterion in the Government's proposals in the broadcasting sector. In the proposals to allocate the digital multiplexes, there is no criterion for quality whatever—just a requirement for speed of investment and variety of service. We feel that quality should always be there as a criterion. The situation is even worse than under the 1990 Act which had that marginal quality threshold. I believe that the ITC should be allowed, in allocating the multiplexes, to make quality assessments, as it recently did—very courageously, in my view—on the Channel 5 allocation.

On a separate but critical aspect I must mention the question of the televising of great national sporting events. We thought that the 1990 Act had solved that, but it did not. It could be possible for all great sporting events to be on satellite soon. We do not wish that, so we will look at ways of securing the basic principle of national access.

Overall, in the new Bill we need a delicate balance between freedom and regulation. Broadcasting is a major and dynamically growing sector, therefore it needs encouragement for rapid investment. We need entrepreneurs to invest in sufficient digital multiplexes to launch a full range of broadcast services. The licensing arrangements must not be so onerous and so pernickety as to deter them. That sometimes needs a loose rein. We should also remember that, as in 1990, one cannot legislate in rigid detail for such a fast moving and fast changing industry.

However—and here I dissent from the noble Viscount, Lord Astor—broadcasting is not just a normal commercial operation. It contains a large public service element; it has a powerful capacity to inform, to influence and to educate. It can use that power, as our press often demonstrates, for bad as well as for good. Therefore, we must have public regulation in the democratic public interest. We must have sufficient regulation and accountability to ensure that our broadcasting contains quality, accuracy and diversity of ownership and of editorial. It must operate under conditions of common access and fair competition.

6.13 p.m.

Lord Cooke of Islandreagh

My Lords, this afternoon we have the opportunity to discuss industry and the economy in this debate on the Queen's Speech. I shall not attempt to compete with the technical jargon—his own description—of the noble Lord, Lord Donoughue. I wish to concentrate quite simply on manufacturing industry because I believe that we now have a window of opportunity of which we should take advantage in the, perhaps, short time that it will be open.

There can be few things more important to the nation than a large and vibrant manufacturing industry. It is essential to support the myriad of service activities which are today connected with manufacturing and which provide so much employment. Manufacture and trade are now international, they are mobile and will move to wherever they judge is the best place. The United Kingdom, I believe, has some advantage when firms come to place themselves and recent announcements indicate that. It is something we must develop, while we have an advantage, because other countries will make an effort and will catch up if we do not move further.

I believe that it has now been realised that trade in an enclosed European Union is not the answer to all our needs. In fact, we would be greatly handicapped if the Prime Minister had not had the foresight to opt out of the social chapter when Maastricht was being negotiated. It would be difficult to over-emphasise the importance of remaining out of the social chapter. Most European countries are now at a great disadvantage and I single out Germany, where a half-trained person costs £ 20 an hour compared with £ 6 or £ 7 in the United Kingdom. There are multinationals now manufacturing in Germany which are trying to get out because of the very high labour costs. We have had one or two of those companies coming to Northern Ireland looking for a better place to which to move.

I think it should be understood, though, that few employers regard the opt-out of the social chapter with minimum wage requirements as merely an excuse to pay low wages. Most employers do pay good money to well trained, productive people. To have to pay a large minimum wage to someone young and inexperienced is ridiculous; it simply means that fewer people will be employed.

We now have multinational manufacturing companies looking to see how they should position themselves. What should we be doing to make the most of this opportunity? Government have a great part to play and the Minister introducing the debate this afternoon mentioned a good many proposals, but more can be done. Government, of course, have a part to play, but beyond that almost everyone can contribute.

Perhaps of first importance is to strive for a culture change where people generally understand and look up to manufacturing industry. There is work to be done in education. Again, a culture change is needed because all too often students are mistakenly advised to aspire to the arts or teaching and feel that it is very much a second best when they have to look elsewhere. Engineers can make a wider contribution to manufacturing companies, as they do on the continent, particularly in Germany. I am glad to note that Mr. Eggar, Minister of State for Industry and Energy, has drawn together six action groups under the banner of Action for Engineers. All this is good, but I urge that government and industry work together to make faster progress.

I wish to turn to Northern Ireland, which is my particular interest, and I must declare an interest, as I have an involvement in manufacturing industry in Northern Ireland. In the past few years we have done quite well with the development of manufacturing industry. The Department of Economic Development is to be commended for its work and that of its agencies. The Industrial Development Board and the local employment development unit have made good efforts and have successfully attracted new companies to Northern Ireland. They have come, despite all our troubles, and are doing well. Generally, they find our labour force keen and adaptable and it is encouraging that some have deepened their roots and supported the manufacture of sub-components in Northern Ireland. But in Northern Ireland we really are on the rim of Europe with another sea to be crossed, both inwards and outwards. We are at a disadvantage, so to put ourselves on the level we must do better, better than you do here on the mainland and that is our challenge.

I am grateful to the Minister introducing the debate for the figures which he gave for the improvement in manufacturing in Northern Ireland. It saved me repeating them here. But perhaps there are other figures. Our unemployment is down to 11½ per cent. Relatively, that is good; but it is entirely unsatisfactory. For the European Union as a whole, unemployment in Northern Ireland ranks 158th out of 174 European regions. That is very bad news. Our long-term unemployed account for 57 per cent. of the total unemployed in Northern Ireland versus the UK average of 38 per cent. Overall, we still have an undue dependence on the public sector for employment.

I am pleased to be able to inform the House that a private sector initiative was founded by CBI Northern Ireland two years ago. It is called the Northern Ireland Growth Challenge. Under the chairmanship of the president of Short's, it has developed to comprise a 24-person steering committee and 10 active study teams. Involved are over 100 businesses, institutions, local councils, community groups and government organisations. This challenge recognises that the drive and momentum for change must come from within Northern Ireland. Radical change requires radical action. There is a determination to improve our management skills, marketing skills, and so on. Major targets include 5 per cent. GDP growth per annum by 1998, the creation of 60,000 new net jobs by the year 2000, and so on.

In order to make it possible to achieve these targets, it will be necessary to have the wholehearted co-operation of government on a long-term basis and from the community as a whole. I earnestly hope that that can be achieved.

It might be thought that our political and other problems might counterbalance this initiative. They need not do so. The noble Viscount, Lord Brookeborough, put into perspective our headline problems of the moment in his contribution in the debate on the gracious Speech on Monday.

It is necessary for government to put the Northern Ireland economy first, year in and year out without deviation, and commit government to work in parallel with the Northern Ireland Growth Challenge or whatever may develop from it. The noble Baroness, Lady Denton, who has responsibility for Northern Ireland's economy, has done her best in that direction. There is no need to persuade her. But the task must embrace all government agencies. It is vital that this objective be the overall government commitment for the next five to 10 years. Political problems must not be allowed to divert attention from the economy.

It is not enough merely to seek new industries. We must develop our indigenous industries and endeavour to build up clusters of sub-contracting firms which can support major manufacturers and make it obvious that they should come to Northern Ireland. The Northern Ireland Growth Challenge is right on track with its objectives and it has set high targets. I hope that government in Northern Ireland will encourage its work and give it every support.

Unfortunately, we have some disadvantages, and these must be tackled and removed. Probably the most important is the increasing cost of electrical power in Northern Ireland compared with that in Great Britain. I have spoken about this matter before, but it needs repeating until the problem is faced up to. It has been calculated that this year, on average, electricity to industry in Northern Ireland is costing 13 per cent. more than in Great Britain. In the case of my own company, we pay 29 per cent. more per unit in County Antrim than we do for our plant in Newcastle-upon-Tyne. There are several much larger companies paying 30 per cent. or more to their disadvantage in Northern Ireland.

Power costs are coming down in Great Britain. In Northern Ireland they will go up at a higher rate than inflation if the present electricity structure remains in place. If present trends continue on both sides of the water, the cost of electricity in Northern Ireland in the year 2000 will be 60 per cent. or more higher than in Great Britain. The regulator will be reviewing Northern Ireland electricity costs in the light of their improving efficiency and this may reduce the disadvantage to around 40 per cent. or 45 per cent. But that prospect is quite unacceptable. For one thing it will make it even more difficult to attract industry from abroad.

The director-general of OFFER has suggested that competition could be introduced in Northern Ireland with a pool pricing system. It is suggested that such a pricing system would be good because it would introduce competition. But in reality there is very little scope for competition owing to the contracts that are in place. It is questionable whether such a system could work in a small regional unit. It would be very costly to introduce and administer. Those of us involved are now coming to believe that the introduction of a pool pricing system, although nominally competitive, could not bring reductions and might even increase costs. A new director-general of OFFER has just been appointed. It is very much to be hoped that when he has had a chance to look into the position he, too, will reject pool pricing as a sensible way forward. In addition to the prospect of vastly increasing charges, the present uncertainty about future tariff structure makes it difficult for industry to plan ahead. Without a tariff structure it is not possible to calculate possible advantages in load management or load shedding, or the development of combined heat and power. A decision about tariff structure is urgently needed.

The noble Baroness, Lady Denton, announced that the Government will make £ 60 million available to help Northern Ireland Electricity customers as an offset to the nuclear levy in Great Britain which is shortly to be abolished. This subvention is most welcome. Unfortunately, however, this apparently large sum is but a fraction of the real penalty that we shall suffer in Northern Ireland. We cannot blame Northern Ireland Electricity, although it sends out the bills. It has done much to reduce its costs in the past couple of years and is subject to the regulator, who will review its performance shortly. We can expect its efficiency and costs to become similar to those of regional electricity companies in Great Britain.

The real cost drivers, which lie with the independent generators, must be tackled. In Northern Ireland the consumer will pay directly for the cost of converting the Ballylumford power station to gas. Incidentally, that cost will be very high because of the fixed contracts that are in place and the cost of desulphurisation equipment in Kilroot power station. In Great Britain, all such costs are taken account of by the generators in calculating their best price. However, the really large cost driver is the price that the power procurement business, a company within Northern Ireland Electricity, has to pay for power ex generators. That is 20 per cent. or 30 per cent. higher than in Great Britain and is rising.

The reason is that long-term contracts, until the year 2010 and beyond, were negotiated with the companies purchasing the generating stations. These contracts were negotiated by officials who apparently had little or no experience of negotiating or understanding the consequences of long-term contracts. The consequences certainly cannot have been worked through. As a result, the generators can hardly find banks big enough to hold their profits. I am a member of an industrial users' action group which is perhaps only now realising what lies ahead in terms of electrical power costs. It is time for the Government to face up to these problems and the penalty which they will impose on industry as well as domestic consumers in Northern Ireland.

The Northern Ireland Affairs Committee today published a report on Northern Ireland Electricity. I have not had an opportunity to study it thoroughly but I am pleased to note several relevant recommendations which are not at variance with what I have said. However, they do not appear to have emphasised sufficiently the root cause of our problems which are the long-term contracts with the independent generators over which the Regulator has no control. This disaster is not characteristic of the Government and Ministers must find it embarrassing. Can the noble Viscount, Lord Cranbome, the Minister who will reply, say how soon a statement can be expected, with information on how this very serious handicap to industry and consumers generally in Northern Ireland can be removed?

6.31 p.m.

Lord Wade of Chorlton

My Lords, it was my intention to use the opportunity of the Queen's Speech to tell noble Lords a little about some of the activities in north-west England. First, I should like to declare an interest in that I live there. I suppose that if the economy in that part of the world improves, a little of the benefit might brush off on to me. My grandfather always gave me very sound advice. He said, "If you want to make some money, it would be sensible to go where there is some." The more that there is in the North West, the better we all might be.

I have other interests to declare. I am chairman of NIMTECH, a non-profitmaking organisation charged with the responsibility of improving the GDP of the North West through the use of innovative technology. I am also a director of Inward, which is an organisation responsible for encouraging inward investment into north-west England; and I am a director of one or two other companies.

One of the major activities that has taken place recently is that Merseyside has been designated an Objective 1 area for EU funding. Parts of Greater Manchester, Cheshire and South Lancashire have been delegated as Objective 2 regions. The impact is that into Merseyside there will be put some £ 670 million of EU funds. That will represent 40 per cent. of the total investment and will be matched by 60 per cent. local investment. It will make nearly £ 1.3 billion. That investment will take place over a six-year period. Greater Manchester, South Lancashire and north-west Cheshire will receive a total of £ 272 million of EU funding, which will represent 50 per cent. of investment. Other investment will come locally.

One can imagine that the decision to make those funds available to those two regions has caused quite a lot of argument and discussion on how it should be divided and to where the money should go. Certainly those of us who have had any influence—the Government have been extremely positive about this view—feel that that money should, as much as possible, become investment in industry itself and not be spent on necessary local government projects. It should be invested by companies. That means that the organisations themselves have to find the other resources. In itself that has made many people look very closely at their investment criteria and the return that that money will bring. Overall, there is no doubt that that very considerable investment in the region, which will be well in excess of £ 2 billion over the next few years, will create many jobs and many new business opportunities. It will encourage much further investment into the area.

My organisation, NIMTECH, which, as I said, is a non-profitmaking organisation which hopes to develop innovative technology in the region, has developed a number of projects under the various schemes. Some of them will be extremely interesting. We have been able to obtain 50 per cent. funding for a project that will establish 12 centres around the world in various developing areas. It will enable north-west companies to link directly with those centres using modern methods of communication. Nationals will be working in those countries for the benefit of north-west technology companies. That will give great opportunities to companies which otherwise would not have the resources to have representation in areas such as India, Malaysia and elsewhere. Brazil particularly has already been very effective in this area.

Another project that we have set up, again under the aegis of Objectives 1 and 2, will put onto special information technology systems which will go onto the information super-highway information on 6,000 companies in the North West. That will then be available on a world-wide basis to anybody linking into the super-highway. It will also involve sending out to 2,000 consulates and technology agencies throughout the world information on those 6,000 companies. So anybody can look up immediately the company which might be interested in their products and obtain information on the background of the company, its resources and so on. That can give a big boost to many of our organisations in the North West.

We are setting up an organisation called Merseyside Host, which will bring the benefits of telematics—a combination of computers and telecommunications—so that eventually one can plug one's telephone communication into the back of one's television set and be able to link the two together. Again, that will give an opportunity to buyers around the world to draw immediately onto their computers or television sets on their desks information on a whole range of companies from the north west of England and particularly those in the Merseyside area. There is a particular project which will help to develop new ideas, particularly in the area of innovative technology. Individuals and companies who want to get their ideas into the marketplace will have assistance to do that.

As noble Lords will be aware, the north west of England has eight major universities with 150,000 students and 8,000 academics. Perhaps one can imagine the impact of 8,000 academics when one realises the enormous impact of the far smaller number in this House. We have a number of projects working with the universities now. My experience of the universities in the North West is that they responded wonderfully to the new environment which the Government established; namely, to find new ways of using their own services from which to make money, to work with industry much more effectively and to use the technological and wonderful ideas that come from universities to get more quickly into the commercial area.

Again, we have started a project—I am chairman of it—at Manchester University called Campus Ventures Ltd., through which we have made available Brunswick House at Manchester University. That was where the first computer was built. That building has now been made available for new start-up businesses. A person who has an innovative technological idea and wants to commercialise it can have facilities in Brunswick House free of charge for six months. If the idea looks as though it will develop and will be commercially acceptable, although he will still have to pay for the facilities, he will receive support from Business Ideas, and have accountancy and administrative support as well as academic support from within the university. In fact he can draw on people with similar knowledge and learn of improvements perhaps to add to their own innovative technology. There are already a number of people there who are working very well at this project and that will be another successful way forward. Those are some examples of projects that we are now putting together as a result of some of the initiatives from the EU.

I should like to refer to one or two other matters. UNIDO (the United Nations Industrial Development Organisation) has its office in Vienna. It has never had an office in the United Kingdom. It has been very supportive of many industries in other countries of Europe. Over the past few years it has stimulated new major initiatives of up to about 2,000 million dollars. We have now negotiated an arrangement whereby we shall open a UNIDO office in our offices in the North West. I am due to sign the contract in Vienna next Friday. It will mean that this opportunity will be open to many more companies throughout the United Kingdom. It is to be hoped that that will give us an opportunity to learn quickly about major world contracts, particularly in developing countries, for which our companies can bid and with which they can become involved.

A number of noble Lords mentioned unemployment and the fact that our level of growth needs to be higher than it is if we are to deal with the various pressures that each government tries to bring together. It is of concern to many people, as the noble Lord opposite said earlier, that we cannot achieve the 4 per cent. level of growth necessary and that every time we try to do so, other factors prevent us. One wonders, in fact, how much we prevent progress rather than encourage it. Wealth creation is the most important aspect that government and society can pursue. Yet many activities are held back through unnecessary controls and regulations imposed not only by governments, but often also by society.

The noble Lord, Lord McCarthy, referred to unemployment and the difficulties of providing employment opportunities. In Dumplington outside Manchester a development which would employ between 4,000 and 5,000 people took 13 years to obtain planning permission before it could go ahead. There was nothing special about the site; most of it was neglected and barren land anyway.

We have just received the recommendations and planning guidance of the North West. It is much more concerned with protection and preservation than with the creation of jobs, business and investment. We received the report on Cheshire. I am familiar with that, but no doubt other counties are exactly the same. It looks at its structure plan for the next 20 years. We do not even know what will happen next year, but Cheshire is laying down its planning limitations for the next 20 years. Once again it is entirely concerned with protection and preservation and does not mention the importance of competition; how we will deal with more competition from abroad; how we will maintain our wealth creation and how we will maintain more jobs.

One of the fastest growing computer servicing companies in Greater Manchester is based in India. It services computers via satellite. Most modern technological installations are now made in such a way that they can be serviced and maintained by satellite without the intervention of human beings. When one considers the implications of that situation, the fact that many structure plans do not take note of it is completely negligent. Society—not just the Government—must come to terms with its priorities. Does it exist to protect and preserve, or to provide jobs, opportunities and wealth for the future? I believe it is the latter that should be our number one priority.

6.43 p.m.

Lord Bruce of Donington

My Lords, the gracious Speech of last Wednesday was the 20th to which I have had the privilege of listening. This time, when I listened to part of it, one paragraph had a certain resonant quality; I felt that I had heard it before. I decided therefore to check on it and found that in the gracious Speech delivered on 15th May 1979 the following words appeared: My Government will give priority in economic policy to controlling inflation through the pursuit of firm monetary and fiscal policies. By reducing the burden of direct taxation and restricting the claims of the public sector on the nation's resources they will start to restore incentives, encourage efficiency and create a climate in which commerce and industry can flourish. In this way they will lay a secure basis for investment, productivity and increased employment in all parts of the United Kingdom".—[Official Report, 15/5/79; col. 6.]

In the recent gracious Speech one finds the corresponding paragraph that called the matter to mind, where it said, My Government will continue with firm financial policies designed to support economic growth and rising employment, based on permanently low inflation".—[Official Report, 15/11/95; col. 3.]

What has happened during the past 16 years? What happened to all those firm policies laid down 16 years ago? For 16 years the Government have had completely uninterrupted power; nobody to challenge them; large majorities. They succeeded in hobbling the trade union movement to a point where opposition is virtually nil, and yet what have they done?

For the purposes of greater accuracy, I felt that one could make one or two comparisons between the state of affairs in 1979 and 1995. Most economists, including the noble Lord, Lord Skidelsky—I am glad to see that he is speaking today—will agree that the balance of trade is an important aspect of our economic fortunes. I find that when the Government took office in 1979 there was a trade surplus in visibles and invisibles taken together of £ 700 million. At the end of last month there was a deficit of £ 7 billion. That does not sound to me like encouraging economic progress.

All members of the population are part of the nation's economy—or should be—yet one finds that the poorer 10 per cent. of the population have become poorer in those 16 years while the richer section have become richer. I do not call that progress in ordinary terms. It may be progress for the guests at the Lord Mayor's dinner; it may be progress for those who are fortunate enough to hold large financial interests in the City or in large public utilities; but it is not progress for the United Kingdom as a whole.

The worst aspect is the unemployment situation. My noble friend Lord Barnett was a little generous to the Government on that account. Registered unemployment in 1979 when the Government took office was 1,295,700. At the latest count those unemployed and claiming benefit amounted to 2,212,336. That means that unemployment is nearly 1 million higher now than then. Looking at the economy as a whole, that does not sound to me like progress.

But that is not the end of the story. The method of counting has changed and many other changes have been made. I had the opportunity of examining the Report of the Working Party on the Measurement of Unemployment in the UK, recently published by the Royal Statistical Society. It makes rather depressing reading for anyone interested in the facts. On its calculations, reproduced in Table 1 on page 13, unemployment changes because of the changes in the basis of claiming. One must remember that "unemployment" means unemployed and claiming benefit. By reason of a periodical change to the rules, unemployment on that basis should be 1.5 million more than it is now. The noble Lord should not wince before the lash falls.

I am not taking that figure; I am taking what is possibly a more reasonable figure and less prone to speculation. I am taking the figure based on the Labour Force Survey made every three months by the Department of Employment, recently deceased for some reason or other. That puts the total figure at 1 million more than it is now. The unemployment figure should be increased by another million. Therefore, although on the official count the figure has gone up by 916,000 the actual figure has gone up by over 2 million based on the Department of Employment's own figures published in the Labour Force Survey.

That does not sound entirely promising. It cannot have been promising from the Government's point of view either because every now and then they make an aside that reveals their true state of mind. Noble Lords will recall the famous observation by the Prime Minister no less that "If it is not hurting, it is not working". That does not sound a favourable verdict on the actions of the Government. There is another by the former Chancellor of the Exchequer, Mr. Lamont, who made the observation that unemployment is a price well worth paying. That does not sound like a competent government, but as though they are becoming a little apologetic. There is the latest comment by the President of the Board of Trade. He said, "Job insecurity is a state of mind". That was said by Mr. Lang only a week or so ago. These are not competent observations by any government.

By selective figures based on certain dates and times, the Government can produce figures which satisfy them, but they cannot really satisfy anybody at all. They are not competent about them. One hears from time to time how the Government's policies have been so successful and how they are the foundation of success today. I repeat: the country does not believe that. People living in the stockbroker belt and those who receive very large salaries in positions of responsibility, are the only people who can find anything to say in favour of them at all.

I believe that unemployment, and the way in which the Government have dealt with it, is one of the fundamental weaknesses in our whole situation. We have thousands of people who are willing and able to work. We have a situation in which all the materials are already available to be assembled, yet for some reason or other it is not possible to do so. That flies in the face of all logic and normal reason. I was very glad to hear today the reaffirmation by my noble friend, Lord Peston, of the principles set out by Lord Keynes before the war, which no doubt will be reinforced by the noble Lord, Lord Skidelsky—that is to say, that investment is the main factor.

The Government and my noble friends have said (and we all know perfectly well) that the education of the workforce itself is one of the vital factors in enabling full employment eventually to take place on a practical basis. One knows that. Education and further training, both technical and otherwise, is necessary. But how does one provide the jobs for which the workforce is being trained? It is all very well to train people to do things and to have wonderful schemes. My own party as well as the Government have produced some for education and for getting the unemployed into what is called "pre-work situations". That is all very well, and I applaud it. But who is going to ensure that there are jobs available following training? That is a matter of fundamental economic policy and investment.

From time to time we hear glowing tales from noble Lords opposite—and I applaud them—about foreign countries and investors who are investing in the United Kingdom. However, one thing is quite clear, and the figures bear this out: British financial firms do not do that. In fact, the sums invested abroad by British financial interests are double those which are invested by other countries in our own. Therefore, there has to be some way in which more investment takes place. There should be technological investment accompanied by the state investing in individuals by providing them with greater educational facilities. The two go together.

So far, the proposals for making investment in the country by British financial interests have rested on persuasion. It has all been tried before. Mr. Edward Heath (as he then was) tried it. We all know about it and I can turn up the speech if necessary. In 1972 he said to representatives of finance capital in the City and generally, "I have given you every tax inducement and every concession by rates and allowances, and so on, and still you will not invest". We have exactly the same problem here today, but within the context of a system of no exchange controls and of complete freedom for British financial interests to make investments wherever they like in the world. They are being made in the United States and in the states of the Pacific Rim. They are not being made here.

Let us say, for example, that my noble friend is sitting on the Government Front Bench in a few weeks' time—and I sincerely hope that he will be—as a Member of a Labour Government. Let us say that he offers inducements to financiers to invest in the United Kingdom. He offers more capital allowances, special rates of tax, if necessary, and special concessions and subsidies. What happens if they do not respond? What is one left with then? The noble Lords, Lord Peston, Lord Skidelsky and Lord Desai, know that the only way of providing necessary investment in the United Kingdom for manufacturing industry is by the state itself becoming an investor. The noble Lord, Lord Skidelsky, and I will give him chapter and verse on Keynes in the matter. That is the only way in which it can be done.

What are we doing in the meantime? We are offering verbal inducements, whether at City lunches or elsewhere, for co-operation with private capital, for the raising of finance and for all proper schemes that can be carried out either separately or jointly. In short, we are trying to persuade, but at the same time we are trying to discipline. There is always a tendency to discipline. I think that it is a pity that we should direct our disciplines towards the disadvantaged, the disentitled and the distressed rather than where they should really be directed. I sincerely hope that will be done in the passage of time.

In the meantime, the economy of the United Kingdom remains firmly in the hands of capital. Capital in the United Kingdom has more powers and has taken more powers in the past 15 years than were ever accorded to it by its own enclosures under the Inclosure Acts of previous years when capital seized the land. Until the country wakes up to that, there can be very little hope.

Meanwhile, I say this to your Lordships: there are three factors to take into account in the economy: poverty, property and democracy. As my late friend Aneurin Bevan said—his words still ring true down the ages:

"Either poverty will use democracy to limit the powers of property, or property, in fear of poverty, will destroy democracy".

7.2 p.m.

Lord Skidelsky

My Lords, I was very impressed by the diligence of the noble Lord, Lord Peston, in unearthing a 1929 quotation from Keynes calling for a budget deficit to reduce unemployment. What the noble Lord did not say was that that proposal was made against the background of a balanced budget, not a continuous budget deficit; that it was made against the background of falling prices, not rising prices; that it was made against the background of a fixed exchange rate, not against the background of a depreciating currency; and that it was made to deal with an unemployment problem which was very different from that which prevails today. If being a Keynesian is simply to echo the master's words without any regard at all for the context or circumstances in which they were uttered, I am not a Keynesian and I venture to suggest that Keynes would not have been either. Keynes had the capacity for learning from what was happening, which some people signally lack—

Lord Peston


Lord Skidelsky

No, it is not disgraceful and I am not going to give way. I am not going to give way to the noble Lord's arrogance and attitude of infallibility taken towards anyone who disagrees with him. That is it.

Lord Peston

My Lords—

Noble Lords

Order, order!

Lord Skidelsky

My Lords, I turn now to the noble Lord, Lord Bruce of Donington. I fear that I always disappoint him when I speak. Wherever the noble Lord sees disaster, I see progress. I have seen progress in the British economy over the past 15 or 16 years. We have a motorcar industry which is now thriving whereas it was practically defunct in 1979. We even have a new motorbicycle industry which has just started up. I wish Triumph the best of success. However, I fear that the noble Lord will be disappointed in yet one other respect: he will see more evidence of progress in the economy than he sees in volume 3 of my life of Keynes.

I should like to extend a very warm welcome to the financial strategy announced in the Queen's Speech. I am delighted to know that it is to be the intellectual basis of the Chancellor's Budget strategy. Three objectives are stated: to achieve a permanently low inflation rate; to bring the Government's accounts into balance, and to reduce the share of national income taken by the public sector. I support particularly the last of those objectives—not least because I think that it will make it easier to achieve the first two. Speaking at the Lord Mayor's banquet on Monday, the Prime Minister said that public spending should fall below 40 per cent. of national income. I am very pleased that all Ministers are starting to say that, because it sounds as though they mean it. I believe that we should consciously aim lower—at much nearer 30 per cent. than 40 per cent., but I would not be discontented if we were able to meet half way.

The Prime Minister's more modest objective will still be formidably difficult to achieve. This is not the time or the place to suggest how we should achieve it, although I have my own ideas on the subject. I should like to put forward an economic and philosophical case for trying to get public spending down, and to do so as clearly and as briefly as possible.

There are four main reasons. First, I think that at our present levels of public spending we have a permanent borrowing problem. The Government's Budget deficit is still about 4 per cent. to 5 per cent. of gross domestic product. Since 1991, despite the increases in taxes, public debt has been rising about twice as fast as national income. Instead of rolling back the state, we have been increasing our deficit spending. Of course, I recognise that it is right that the budget deficit should rise in recessions, but about half of the deficit in the 1990s—I think that that is a reasonable estimate—has been structural rather than cyclical, the carryover of past deficits as well as non-cyclical increases in spending. I doubt whether the Budget has been properly balanced since 1968–70 when the noble Lord, Lord Jenkins of Hillhead, managed to do it. I am sorry that he is not in his place.

Our governments spend more than they take in taxes on a permanent, not temporary, basis. Continuous deficits incurred to finance consumption and capital works that do not yield the cash revenue to service the debt carry the risk of inflation, which means that the Government's creditors demand a higher rate of interest to compensate them for the risk of being paid back in devalued pounds. That is normal. Our long-term interest rates are over 2 per cent. higher than those in Germany or the United States. If we want to bring them down, we need to have a credible deficit reduction strategy. I submit that the only credible deficit reduction strategy is to try to reduce public spending as a share of national income.

However, I should like to go further, which brings me to my second reason for getting public spending down. We have to do it in order to stimulate economic growth. I think that it is intuitively plausible that high public spending ratios slow down economic growth. The empirical evidence for that is quite persuasive. The governments of the fastest growing regions of east Asia spend only about 20 per cent. of their national income. They do that even after they have "caught up" with us, as Hong Kong and Singapore virtually have done.

I do not think that we need to compare ourselves with societies that are very different from ourselves in order to reach similar conclusions. Let us compare ourselves with our own past. Since the mid-1960s, public spending in the European Union has increased by well over 10 percentage points of national income, taxes have gone up and growth rates have come down. Our peak post-war performance—I am referring to this country as well as to other European countries—came when governments were spending little over 30 per cent. of national income. So my figure of 30 per cent. is not simply plucked out of the air. It is the figure that we spent when we were at the peak of our post-war success. Were we so much more uncivilised then than we are today to justify the state spending so much more of our money? I do not believe that for a moment.

People often argue that the increase in public spending has been as a result of a worsening economic situation. I do not believe that to be true, because one can show that it started when we were still growing relatively quickly and when unemployment was negligible. The increase in public spending started in the 1960s and was designed to increase economic growth which was already reasonably satisfactory. It was not designed to compensate for worsening economic conditions. The fastest growing components of public spending today do not have a direct connection with growing unemployment. For example, legal aid is one of the fastest growing parts of public spending. What connection has that with unemployment? Invalidity benefits, one-parent families, and so forth are mostly part and parcel of the "entitlements explosion" that started in the 1960s and are not a response to a worsening economic performance.

My third reason for wanting to get down government spending is that I believe that levels of government spending which are too high reduce welfare, they do not increase welfare. Growth in national income, which is obviously driven by public spending, is growth in areas which reflect the choices of bureaucrats, not the preferences of households. The extreme example of that was, of course, the Soviet Union which for years trumpeted huge growth rates, based almost entirely on the growth of its military-industrial complex.

Mr. Douglas McWilliams made a very valid point in the Financial Times of 8th November when he wrote that if public spending aims to be an investment in a more prosperous and pleasant society, the return on that investment should be measured by the performance of the market sector alone. There are problems with using real GDP growth as a proxy for welfare.

My last reason is probably the most important of all. I want to reduce public spending in order to increase individual liberty. The greater the amount of resources taken and allocated by local government, the less freedom of choice ordinary people have in the spending of their own money. Basically, I want to reduce the size of the state in order to increase liberty. That does not mean—it is a caricature to suggest this of those who argue the case—a return to the nightwatchman state of the 19th century. Governments who spend less are better able to do things which governments need to do, such as providing decent infrastructure, and even to stabilise economies when economies need stabilising—tasks which are now crowded out by expenditures which are not needed in a privately wealthy economy.

I should like to end by reinforcing one point that has been mentioned by other speakers this evening. I believe that tax cuts should be a consequence of reduced public spending, not a way of winning votes. Therefore I would not favour tax cuts, except as part of a credible medium-term fiscal strategy for reducing the growth of public spending. I believe that to be the Chancellor's view. He has stated that many times and I hope that he will stick to it.

The effect of cutting taxes without cutting spending is to increase borrowing. In present conditions that will push up interest rates. Interest rates are already too high. We need a budgetary policy which produces lower interest rates, not higher ones.

Since 1979, we have made impressive strides in destroying the appeal of what I would call "production socialism". No one believes any longer in the state as owner, but the Government as spender are still alive, are still well and are still growing. The harder part of the task still remains. It is to push back "entitlements socialism"—a many-headed monster that grows and still consumes much too much of our estate. So I would commend that as the next task for a re-elected Conservative Government.

Lord Richard

My Lords, before the noble Lord sits down, I wonder whether he and the House will allow me to refer to the incident involving himself and my noble friend Lord Peston which took place at the beginning of the noble Lord's speech. I have to say to him that he should have given way. In my view, there is no question but that when one noble Lord makes a personal attack upon another noble Lord, which it clearly was, he should have given way when my noble friend tried to respond. It was a display of personal animosity and petulance by him towards my noble friend which frankly I do not believe accorded with the traditions of the House. He has not been here very long, and nor have I been here very long. I would only say to him that if he continues to behave like that, then he will find it more difficult to be listened to with respect.

Lord Skidelsky

My Lords, perhaps I may reply to that. I did not intend my remarks about the noble Lord, Lord Peston, to be a personal attack.

Lord Barnett

They were.

Lord Skidelsky

My Lords, if that is how they were taken, I unreservedly withdraw them. I believe that I was entirely within my rights to say that he had misinterpreted that remark by Lord Keynes. I did not think that any purpose was to be served by becoming involved in a debate about what Keynes really meant in 1929. Those debates have filled thousands of pages of learned journals and they are inconclusive.

7.16 p.m.

Viscount Chandos

My Lords, it is a tribute to the creative endeavour and imagination of the 30-odd speakers today that a substantial debate can be derived from what my noble friend Lord Richard described as an anorexically thin gracious Speech. There have been penetrating but fair critiques, not least by my noble friend Lord Peston, of the disparity between the Government's record and the unexceptionable statements of economic intentions contained in the gracious Speech. My purchases to date of lottery tickets have not so far produced a jackpot win, so I do not feel that my luck will change sufficiently to forecast accurately the measures in next week's Budget Statement. I shall therefore leave any comments on the Government's current economic policies until the debate to be initiated next Wednesday by my noble friend Lord Desai.

In the light of that, and the long list of speakers tonight, I should like to speak very briefly on two subjects in specific areas, directly or indirectly alluded to in the gracious speech. So modest are the measures proposed in the last full Session of this Parliament, that the skills of a keyhole microsurgeon are needed—aided by the steady nerves and hands advocated by the noble Lord, Lord Jenkins of Hillhead—to identify and isolate some specific subjects to debate. This truly is a "Marie Celeste" of governments, drifting in thick fog with only a ghostly presence on the bridge.

Calling on another literary source, Sir Arthur Conan Doyle might have called the gracious Speech, The Case of the Bill that isn't and of the Bill that (perhaps) needn't be. In the measures proposed in the gracious Speech there is one glaring omission which demonstrates vividly the credibility gap for the Government as they table platitudes about their commitment to the markets, competition and competitiveness. This week, in the annual Wincott lecture, Sir Bryan Carsberg set out his compelling case for careful reform and consolidation of competition regulation in the UK, thereby making even clearer the frustrations which lay behind his resignation a year ago as Director General of the Office of Fair Trading. The inexplicable failure of the Government to honour their past commitments to address that subject can only lend weight to the picture painted by the noble Lord, Lord Jenkins, of a twilight era of an insincere Administration.

In the area of restrictive agreements, a 1989 White Paper made a commitment to reform procedures, and this was repeated in the Conservative Party's 1992 general election manifesto. Since then, the House of Commons Trade and Industry Select Committee this year reaffirmed its support for changes in this area. Yet once more the Government have chosen not to propose legislation in this Session. The modest and inadequate measures foreshadowed by the President of the Board of Trade in another place on Monday go nowhere towards addressing even the limited area of restrictive agreements, let alone the other issues outstanding—and so well set out by Sir Brian—such as the case for a unitary authority to replace the duplicative complexity of the Office of Fair Trading, the Monopolies and Mergers Commission and the Restrictive Practices Court in addition to the different sectorial regulators; the case for restricting ministerial discretion, if only to the limit of that which applies to the regulation of utilities; and for the case for a simplification and rationalisation of the four main and countless peripheral acts covering competition policy.

This is not an omission of some obscure technical legislation which is of relevance only to a few companies and specialist professionals. The most rigorous and stringent enforcement of competition policy lies at the heart of a competitive market economy and that in turn is central to the very objective declared in the gracious Speech: to support economic growth and rising employment, based on permanently low inflation".

It is only competition which can bear down relentlessly and automatically on price inflation and thereby create both permanently low inflation and enhanced international competitiveness.

This latest breach of faith by the Government is, I am afraid, only the last in a long line of instances where the Government's bark is far more vociferous than their bite is tenacious. I am reminded of the disparaging dismissal from the American West: "Big Hat… No Cattle".

I am confident that when the much discussed exchange of Benches occurs and the new government take office, not only will the existing competition laws and regulations be more rigorously and consistently enforced but a new framework of greater simplicity and effectiveness will in due course be introduced.

The Bill which perhaps, or in theory, need not be is the Broadcasting Bill, since without denying the special factors applying to the area of media there are undoubted attractions in seeing the regulation of that industry incorporated in a properly structured and effectively enforced competition regime. As my noble friend Lord Donoughue pointed out, the technological and other developments in the broadcasting and other media are so fast moving that a degree of flexibility is highly desirable but more difficult to achieve within specific legislation rather than within overall competition law.

In practice, however, the complex legacy of the Broadcasting Act 1990 and other legislation and the very failure of the Government, to which I have already referred, to create a consistent and stringent competition environment leads me in the end to support and therefore welcome the prospective new Broadcasting Bill if it incorporates broadly the measures outlined in this year's White Paper. I should declare that I have a number of business interests both as an adviser and as a principal in the broadcasting and media industry which I can detail on a future occasion. I took the reminder of my noble friend Lord Peston of Adam Smith's low view of businessmen as an additional spur to examine my views on the deregulation of media ownership from a public interest perspective. But I am unshaken in my belief, like that of my noble friend Lord Donoughue, that there will be substantial benefits in both economic and cultural terms from further controlled deregulation in this sector. I look forward to the early introduction of the Bill in your Lordships' House.

But that, however welcome, is all that there is to look forward to from the gracious Speech and from the Government Benches opposite. That is apart, of course, from their final departure for a period of well earned contemplation in opposition which, notwithstanding the protestations of the noble Viscount, Lord Astor, I anticipate with renewed hope and confidence.

7.25 p.m.

Lord Tugendhat

My Lords, inevitably, this debate, falling when it does, is somewhat overshadowed by the forthcoming Budget. Therefore, unlike the noble Viscount Lord Chandos, I should like to begin my speech with a few short references to the Budget and then move on to other matters of perhaps more enduring interest.

As regards the Budget, it is right to warn the Chancellor, as have several speakers on this side of the House and on the Cross Benches, that there are many in the markets and elsewhere who are perhaps more fearful of what he might be tempted to do in response to pressure from his own Back-Benchers anxious to close the gap in the polls than about what an incoming Labour Government might do. Therefore, I urge the Chancellor—I am sure that he needs no urging from me—to pay heed to what my noble friends Lord Prior and Lord Skidelsky said in their speeches. My view certainly is that the economy has performed well during the past 12 months in absolute terms, certainly in historic terms, and also relative to other economies in countries somewhat similar to our own.

Despite some recent setbacks and bad news—news is rarely consistently good all the time—the outlook for the coming year is encouraging. Most likely, whether in terms of economic growth, inflation, or even in the continued reduction in unemployment, the performance of the economy in the calendar year 1996 will compare very favourably with that which we were used to for most years until quite recently.

I urge the Chancellor not to put at risk what has been gained and to be cautious in what he does. I accept of course that within that context he will be making cuts in income tax. There is room for some modest reductions. However, I hope that he will not go for headline-catching reductions in the basic rate. I hope rather that he will concentrate on getting as many as possible of those on low incomes out of the tax net altogether through raising allowances. I hope too that he will find ways of widening the 20 per cent. band to provide maximum help for those on lower incomes who will still be paying tax.

After those brief exhortations to the Chancellor about the forthcoming Budget I wish to turn to a longer-term issue. It may be bring me into conflict—I hope not—with the noble Lord, Lord Harris of High Cross, and perhaps even with my noble friend Lord Skidelsky. I hope that the Government and the Conservative Party will not be led astray by those siren voices who are suggesting that we should regard the levels of public expenditure prevailing in the economies of the Pacific Rim countries as relevant guidelines to what we should be doing in this country.

Of course, we should study the economies of the Pacific Rim countries and we should try to learn from them. I certainly regard as an enduring achievement of this Conservative Government their success in attracting so much direct investment into this country from Japan, South Korea and most recently Taiwan. I value that investment for what the companies concerned can teach us about management and the application of new techniques as much as for what they have done for the balance of payments. But I think that it would be very unwise to become too carried away by the Pacific Rim successes.

The present assumptions being made in some quarters about the future, about the 21st century, and about the Asian century remind me of the late 1950s and early 1960s when many, including those who detested communism, assumed that the USSR would economically outstrip the West. Certainly, very cogent words on that subject appear in the book written by my noble friend Lord Skidelsky—The World After Communism—which I too read in the holidays.

Of course, the Asian tigers are very different from the old USSR but those who think they have found the answer to everything may care to glance at the experience of Japan. I visit that country regularly and I admire greatly its achievements. But whether one looks at its society, its manufacturing or, above all, its banks, one can now see problems on a very grand scale. So let us not forget that progress is rarely continuously onward and upward. Let us also remember how very different the Pacific Rim societies are from our own in so many respects other than the proportion of GDP which they devote to public expenditure.

In the first place, of course, the intrusiveness and sheer authoritarianism of government often provide a substitute for what is done in this part of the world by public expenditure. Secondly, family structures, in terms both of mutual support and as units of economic activity, are very different from what they are in western Europe and especially in northern Europe. Thirdly, the demographic situation of those societies is completely different from ours. At present, they have a much higher proportion of young people than is the case in this part of the world. Their forms of social discipline are very different from ours. And finally, perhaps above all, their attitude to the acquisition and application of knowledge is very different to that which prevails in this part of the world.

Therefore, for all those reasons, I believe that the comparisons which are being made in some quarters of the Conservative Party between ourselves and the Pacific Rim countries are unwise and the lessons are difficult to draw. I hope that in framing our policies we shall be more influenced by our own circumstances and the experience of societies similar to our own than those of the Pacific Rim. By "societies similar to our own" I mean of course the member states of the European Union but also Switzerland and the United States. If one takes that broad band of countries, one sees a wide range in the proportion of GDP that is accounted for by public expenditure.

By that standard, too, I think that the Government's record in transferring the provision of goods and services from the public to the private sector is already good. I think that it could be carried further. In particular, I believe that there is a greater role than has hitherto been realised in the provision of pensions and healthcare. I must declare an interest as the chairman of Abbey National, a major provider of financial services of a variety of different sorts. But, on the basis of that experience, I should like to point out in particular to the Government the very worrying situation which is developing in relation to long-term care.

At present, it is a source of immense worry and sometimes real anguish both for those who have to go into long-term care but also for their families. A lifetime's savings can be used up in a very short time at the end of a person's life. Indeed, in a sense as a result of the £ 8,000 rule, those who have saved up diligently throughout a lifetime and who have tried to prepare for difficulties at the end of their lives in some ways are treated worse than those who have lived merely for the day and who have not put money aside to see them through their old age. In that regard, I believe that there is a very real role for the private sector and for government if the Government could provide the proper tax incentives and structures.

In my view, the Government should be guided by three main considerations. First, individuals should be encouraged to start making provision as early as possible in life, just as for pensions. Secondly, a scheme should be launched as soon as possible because of the huge increase in the demand for long-term care which will arise in the next century. Thirdly, guidelines need to be agreed for determining the extent of the insurance companies' liabilities on the one hand, and thus the level of premiums, and on the other hand, the obligations which will remain with the state over and above those which private provision can meet.

The Government have a very good record in transferring responsibilities and the provision of a number of services from the public to the private sector. There is more that can be done. But it behoves us to remember that whatever happens the role of public expenditure will remain substantial in our society. Not everyone can look after themselves. Economic and technological change, social upheavals and sheer human frailties will see to that. Job uncertainty and unemployment will remain features of all western economies for as far ahead as I can see. Therefore, huge sums will continue to be required for public expenditure on health, social security and education as well as law and order and the basic infrastructure on which the private sector depends.

By all means let us do all we can to ensure that public expenditure is not excessive. By all means let us look at the examples of other countries with circumstances similar to our own. But the Conservative Party would be wise to devote at least as much attention to trying to make public expenditure as effective as possible rather than trying to diminish it as much as possible.

7.37 p.m.

Lord Haskel

My Lords, my noble friend Lord Peston spoke very forcefully about the importance of raising productivity and right on cue, the noble Viscount, Lord Astor, told us that the social chapter and the minimum wage would stand in the way of that. I am sorry that the noble Viscount is not in his place because, usually, he is very thoughtful in his remarks on industry. But when it comes to the social chapter and the minimum wage, he and many noble Lords opposite seem to lose their objectivity. They exaggerate the financial costs, if any, and ignore the benefits in terms of social cohesion and the quality of life.

Perhaps I may try to put some balance into this debate and look at the matters in an even-handed way. I have yet to meet an employer who does not agree with the 12 principles which are outlined in the social chapter. Those principles relate to such matters as free movement in the community, health and safety, consultation, equal rights for men and women and the protection of children. They are not a set of rules with the force of law. But each firm may interpret the principles in its own way so that businesses do not have to carry out inefficient and costly practices. The need to remain competitive would soon stop that.

The need to be competitive is paramount. In spite of what the continental friends of the noble Viscount, Lord Astor, say, it is clear to me, as an employer, that successful, world-class companies do not focus only on their own financial criteria but also on people, relationships and technology. As business becomes more competitive, not only do you have to retain good people, but you have to get them to work with greater commitment, skill and determination in order to perform to the much higher standards which are now demanded.

The latter involves obligations both ways: the obligation of the employee to perform better so that the firm can be competitive and the obligation of the employer to be fair. That is the basis of the social chapter. It is not a threat to good companies; nor is the minimum wage. Most business people I meet recognise the social justice of having a floor under wages. Without it, you have the social security system subsidising those businesses which have low investment and which pay poor wages. That is neither efficient nor is it fair.

Of course, much depends on the level at which the minimum wage is fixed and a Labour government are committed to fixing the level only after full consultation with business. Compare that with the abolition of the wages councils. We were promised by the Government that employment would increase in those industries where the wages councils were abolished. That has not happened. In fact, there has been a fall in employment. Nor will jobs be lost because of the introduction of a minimum wage.

However, those matters, while important, cannot make a difference between economic success and failure. The fact remains that, in competitiveness, Britain ranks way below those countries with a minimum wage which have signed the social chapter. To be exact, we are 23rd in the productivity league table. I agree with the Minister and my noble friend Lord Bruce. What makes a difference is investment: the quality of investment and the amount of investment.

I have in mind investment in technology, in infrastructure, in research, in skills, in education, in new markets and in new products. I salute noble Lords opposite who encouraged this country to change by exposing us to international competition. They certainly forced many companies to change their out-of-date methods and technologies and eliminate many restrictive practices. Sadly, that is no longer enough. As a result, as the Minister told us, not only have we been declining in the league table of productivity, but also in the tables of income, investment and employment growth. Never mind that we are below Germany, Japan and the United States, but now even Italy invests 19 per cent. more of its gross national product than we do. In those circumstances, can we really call ourselves the enterprise capital of Europe? We have to be realistic, and the task of government is to reverse those trends.

I am not alone in calling for the Government to reverse those trends by encouraging more investment. The CBI has said that one of its primary concerns is the relatively poor historic investment record, which has not improved significantly in this recovery".

The British Chambers of Commerce have called on the Government to provide the right environment for sustained capital investment. The Institute of Management and the Engineering Employers' Federation, have all called for this.

I think that those organisations will share my disappointment that the gracious Speech did not specifically mention encouraging investment, especially as we are currently experiencing the slowest growth in investment in any post-war recovery. I hope that the Chancellor of the Exchequer will put that right with a Budget that encourages investment instead of consumption.

How can we encourage that investment? Certainly, low inflation and a smooth economic cycle are essential to create confidence. But active encouragement is also required. Perhaps I may suggest four ways in which that can be done. First, we should have a modern competition policy. My noble friend Lord Chandos reminded us of the importance of the latter and, at long last, the President of the Board of Trade announced on Monday that he was coming round to that point of view. As my noble friend said, competitiveness overseas depends on greater competition here.

Is competition really served by the merger of privatised water and electricity utilities, before there is proper competition in either of those businesses? We have some wonderful, world-class firms, but also weak performers in certain sectors. A proper competition policy will either force those companies to be more competitive, or force them out of business. Staggering on in a sheltered market only diminishes our performance in that area of business.

Secondly, we need to get away from the old ideas of adversarial relationships. The relationship as regards employees, shareholders and management needs to be one of co-operation. The public and private sectors must also work together. I welcome the partnership between government and industry to introduce best practice. I believe that that is a very important initiative on the part of the Government. I also welcome the private finance initiative. However, to make the latter work much more flexibility will have to be built into it.

Thirdly, we must modernise our welfare state. Instead of just providing a safety net, it has to become a means of providing pathways from welfare to work. Instead of being a poverty trap, welfare can encourage and enable people to find employment and gain skills. That will encourage investment by reducing the skills' bottleneck. The proposal of the shadow Chancellor of the Exchequer to cut the starting rate of tax to 10 per cent. is an integral part of our welfare-to-work proposals. The noble Lord, Lord Tugendhat, intimated that he, possibly, agreed with that proposal.

Fourthly, we need a fair tax system that rewards hard work and encourages long-term investment, as opposed to rewarding short-term speculation. Most of us would agree that there should be a difference between taxing the profits from a business built up over many years and providing useful products and services, as opposed to profits made from short-term, speculative financial activities.

However, there is an immediate problem of sluggish growth. That is why the shadow Chancellor of the Exchequer recently proposed that, in next week's Budget, the Chancellor of the Exchequer should double the first year tax allowance for new investment from 25 per cent. to 50 per cent. for a limited period of 12 months.

The quality of investment is as important as the quantity. I have heard it said that the low ratio of investment to industrial output in Britain indicates that we have a higher quality of investment. That is nonsense. Those of us working in industry know that much of our current industrial output is attributable to exports due to the effect of devaluation, particularly since we left the ERM.

The Minister told us about our success in exporting, but I am afraid that the noble and learned Lord was being selective. He did not tell us that our importers are doing better than our exporters. The August trade figures published earlier this month showed a further worsening of our annual trade deficit to £ 11.4 billion. Only yesterday, the trade figures for non-EC trade showed a £ 1.2 billion deficit—the worst figure in that series on record.

The situation cannot continue. So it is to be hoped that some of last month's surge in imports was in capital goods which will eventually help to improve our performance. But the brutal fact is that, although exports have risen in recent years, as world trade in general has risen, the volume of imports into this country has risen faster.

My noble friend Lord Bruce of Donington also reminded us that the same principle applies with inward investment. According to my noble friend, for every £ 100 which comes in, British companies invest £ 200 overseas. My figures show the latter as being £ 160. We should be a little concerned that that inward investment is substituting investment by UK companies in Britain. It is not in addition to investment by British companies in this country as it should be; it is instead of.

Prior to the gracious Speech we were told that one of its purposes was to "smoke out" Labour's true commitments; to set an electoral trap. I am not afraid of being smoked out. My commitment is to the success of British industry. It is not a matter of party politics; it is the public interest which should motivate the gracious Speech. It is a matter of supporting those policies which are in the best interests of all of us with a stake in British business.

7.50 p.m.

Lord Vinson

My Lords, I happen to think that the Government are to be much congratulated on the progressive fall in unemployment; indeed a steady continuation of their present policies will ensure this drops well below the 2 million mark and keeps going down. But, of course, central to these policies is the importance of having a lightly regulated economy and a flexible labour market. I wish to speak to that.

It is common ground on all sides of the House that we want to see unemployment figures as low as is humanly possible. I do not doubt the good will and intention of those on the opposite Benches, like the noble Lord, Lord Haskel, but I am convinced that, in the unfortunate event of their returning to power, if they instituted the labour and other regulations they have advocated in many a debate in this House over the past few years, the consequence would be a massive rise in unemployment.

With rare exceptions they do not realise the malign consequences of what they seek. Many of them are by background so trade union oriented and so conditioned to promote the interests of those in work that they fail to see that these can often be entirely damaging to those out of work. Excessive job protection measures inevitably lead to job destruction. I wish to illustrate that by telling noble Lords of one of the most momentous events in my life, apart from marriage. I took the decision to increase the workforce of my business by 100 per cent. overnight. I moved from a business employing myself to a business employing someone else and with that step I became an employer. One has to do that to know how vulnerable one feels when one risks all in this way.

In the United Kingdom there are approximately 3.5 million self-employed people. It has often been said that if only half of them employed one other person, unemployment would be virtually banished. This past year a quarter of a million new businesses were formed and over the same period 195,000 businesses closed down. That is a failure rate equivalent to some 80 per cent. of the new starts, so anything that can be done to improve the survival rate of small businesses would improve employment. The reason so many businesses fail is not hard to find. They are often forced to their knees by over-regulation. The sheer complexity of running a business today is not so bad when one has others to whom to delegate; it is a nightmare when one is virtually on one's own.

I illustrate that with the imaginary tale of Mr. Jones, an electronics engineer. As a hobby he developed a promising device which he took to a potential customer. The customer liked it and told him that he would buy from him. Mr. Jones therefore left his job and became self-employed. His wife also left her job in order to help him. They set up in a back room of their house. Living on their savings was not easy but through hard work and good fortune they obtained repeat orders. Mr. Jones had started down the classic route of the entrepreneur, the job creator.

It was then that they took the monumental decision to increase their labour force by 100 per cent.—by one person—and their payroll costs by 100 per cent. which reflected that one person. In so doing they became an employer. It was here that their troubles began. They came to terms with the complexities of PAYE, National Insurance and VAT when one day their new employee announced that she was pregnant. As the exemption limit had recently been changed by the newly elected socialist government, the responsibility for paying her now fell on them. That was a further call on their precious capital.

They replaced the employee by a part-time worker, realising that in turn she would have to be dismissed when the original employee returned from maternity leave. But, sadly, the part-timer proved to be unreliable and they were forced to dismiss her. The law had recently been changed giving part-time workers the same rights as full-time staff. She took an action against them for unfair dismissal. All her costs were paid by her trade union while the Joneses had to fund their own defence. Whilst this was going on their neighbour reported their activities to the planning inspector. He arrived and, acting within his rights, he ordered them to cease trading from home shortly or face prosecution. They were beginning to get deeply embroiled in officialdom on all fronts.

They then advertised at some cost for a new temporary employee and, after interviews, they appointed a candidate who happened to be black. One of the unsuccessful white candidates then brought an action against them for discrimination, supported by the Commission for Racial Equality. Here again, the Joneses had to conduct and pay for their own defence. They were now spending more time on the administration of their business than they were on the manufacture of their product—their livelihood.

An acquaintance of theirs was severely handicapped but they offered him the job at a lower wage than normal because, due to his disability, his output was slow. Little did they know that within days this would lead to an official visit from an agent working under the auspices of the new minimum wage regulations who warned them that they would be severely fined unless they increased his wage to the full rate. Their costs of production increased significantly as a consequence. The agent also advised them that as the new socialist government, honouring a promise they had made in the House of Lords in 1995, had removed the small company exemption, they would in future have to make any new premises accessible to the disabled at a cost of about £ 2,000 which would fall on them. That was a further blow to their ever diminishing capital.

At this point the entrepreneur's wife became pregnant but because she was not an employee as such she was not entitled to maternity pay, yet they were still paying it to an employee who was not working for them. They then hired an additional person who, after expensive training, did the job admirably. However, one month later, their original employee returned from maternity leave and asked for her job back. Although they felt great reluctance, to accommodate this they had to dismiss her wholly satisfactory substitute. After a week the re-engaged employee left.

Our hero is in desperation. He has no time to run his business; he is disappearing under a mountain of regulations and costs; his wife is out of action unassisted by the state and yet he has been paying for the pregnancy of another's wife and subsidising a disabled neighbour. He faces litigants with unlimited legal aid whilst he has no prospect of recovering his costs.

Lord Graham of Edmonton

My Lords, is the noble Lord giving us facts, or is it fancy? If he is giving us facts, would he care to produce them?

Lord Vinson

My Lords, I am just about to reach that point. I am trying to illustrate precisely what would happen if the very measures that have been advocated on the noble Lord's side of the House were introduced.

As a final throw—this is one of the many true facts—Mr. Jones decides to let out his spare bedroom and take in a lodger, but within a week the fire officer calls and tells him that his furniture does not comply with the 1990s fire regulations. Whilst it is allowable for use by guests, it is illegal for lodgers. That is happening today. Mr. Jones is worried sick. His basic business has suffered deeply and he can hardly sleep at night. He goes bankrupt. It is almost with joyous relief that he goes to register for unemployment benefit only to be told that as a self-employed person he is not entitled to it. That is happening today.

One month later after rigorous assessment he is allowed to go on social security. Miraculously he is entitled to housing benefit and income support totalling £ 200 a week. That is substantially more than he and his wife had been struggling on for the past six months. Our entrepreneur, killed off by the complexities of state regulation, embraces the state for ultimate survival. These things are happening, can happen and will happen. This is a salutary tale, part fabricated but part true.

Noble Lords


Lord Vinson

My Lords, noble Lords may laugh but that is precisely the consequence of the type of legislation that those on the opposite side of the House wish to introduce. It is the consequence of minimum wage legislation and the consequence of removing—as they have said they intend to remove—the ceiling on the exemption for small businesses under the disability Act. This will impinge on the very sources of job creation, and that is why it is so important to discuss the proposals. I realise that perhaps I am like a mole talking to the eagles who only discuss higher things, but this illustrates how the economy of this country actually operates.

All I can say is thank God for the guts of the small businessman, who, despite the EC and other regulations, is responsible for the growth sector of the economy. But his position is very fragile. Few realise how important the small business sector is. Most large firms are down-sizing. New employment is coming mainly from small firms, and most firms are small firms. If their failure rate could be reduced by 50,000 a year, within a decade we would have created hundreds of thousands of new jobs without a penny of government subsidy.

It is worth repeating that the vast majority of businesses are, by any definition, small, and firms employing fewer than nine people make up 94 per cent. of all businesses in this country. Small firms employ over 10 million people—well over half the total of non-government employment—and the figure is rising. That is why this matter is so desperately important.

There are two primary causes of unemployment in the United Kingdom today. One is over-regulation, and the other is the excessive taxation of labour, thereby raising its cost. If one raises the price of anything people use less of it. Any socialist government would, exacerbate both maladies.

As has been said earlier today, one has only to look at the deregulated economies of America and of Hong Kong, for example, although they are not totally comparable. Their standard of living, by the normal indices, will shortly surpass ours. One has only to see how less-regulated economies create jobs. That is what we should share in common.

Unemployment is to some degree a national self-inflicted wound. Here, society has made formal what should essentially be less formal—the process of buying and selling one's labour. In so doing we have frustrated the natural workings of the exchange of labour and thereby the creation of jobs. We should learn from the workings of the informal economy, which is only black because society deems it so.

One also needs to look, by contrast, to France and Spain, with unemployment levels in excess of 11 per cent. and 22 per cent. respectively, to see what happens to small businesses and the creation of jobs in an over-regulated economy. I remind the noble Lord, Lord Barnett, whose speech I much admired, that in fact employment growth in continental Europe in the past decade has been in the public sector. There has been virtually no overall new employment created in the private sector at all. That is what so many of those on the opposite Benches, unknowing of the consequences, seek to achieve. They do not do so deliberately, but they should remember the cautionary tale of Gulliver's Travels: No single thread held him down but a thousand made him immobile".

The road to the dole queue is paved with good intentions. The price of excessive job protection is job destruction. It is for that reason that the Government are to be supported and applauded for their policies aimed to create flexible labour markets and a less regulated economy to the overall benefit of the nation.

8.3 p.m.

Viscount Caldecote

My Lords, in opening the debate my noble and learned friend Lord Fraser gave a faithful and encouraging report of the achievements of this Government in the economic field. However, he recognised, as we all do, that much more needs to be done.

I also enjoyed the speech of the noble Lord, Lord Bruce. It was all good Donington humour. Of course, he was pulling our legs because he knows as well as we do that there have been enormous achievements and improvements since 1979. I share his diagnosis of inadequate investment, but I wholeheartedly reject his prescription of a return to nationalisation. I fear that that is not "new Labour" and he may be in trouble with Mr. Blair.

The gracious Speech contains several references to promoting economic growth and increasing employment through reduced taxes, low inflation and many other good objectives. However, I very much regret that there is no reference to the importance of investment to meet identified market needs for that is the basis for achieving all the good intentions mentioned elsewhere in the gracious Speech.

Tax reductions are enjoyable and encourage enterprise but past experience indicates that lower taxes do not always lead to increased investment. Individuals tend to consume more and companies to distribute more, leading to increased consumption rather than investment. British companies still continue to distribute a far higher proportion of their gross profits than most of our competitors, and the tax system is biased slightly in that direction. That should be corrected.

Low inflation is also a necessary condition to stimulate enterprise and investment. Lower interest rates are also highly desirable because they lower the hurdle rate of return when investment decisions are being made and so encourage investment. As other noble Lords have pointed out, we have had low inflation for some time but investment still lags behind our competitors. That is important because the analysis of OECD figures shows a clear relationship between GDP growth and investment as a proportion of GDP. We are way down at the bottom of the league.

As a result of inadequate investment, every time growth accelerates inflationary pressures increase because demand from the rising amount of money in circulation outstrips our ability to supply goods and services in the UK for that money to buy. Although our productivity has improved markedly over the past 10 years, import penetration—imports expressed as a percentage of the total home and export demand—is still very high. It is between 30 per cent. and 70 per cent. in many important industries. That means that there is still a huge home market demand unsatisfied by domestic manufacture.

Why do we import so much of our requirements? The main factor is the lack of competitive products through failure to invest adequately in product innovation. We are all too prone to talk only of investment in capital. Investment in product development and innovation is at least equally important, and in many cases more important, if we are to satisfy more of the needs of the home market, provide more jobs and improve our balance of payments.

The time to invest in plant and equipment and in product development and, equally important, in training is during times of recession in order to be ready for the next upturn in demand. If one invests only when the going is good one is only ready to use the new plant when recession returns. In too many industries investment is as badly timed as it is inadequate. Successful companies surmount those difficulties, but there are too few, and we urgently need greater incentives to counter-cyclical investment.

I hope that the Budget will make a start in addressing those problems and that the Chancellor will at least give greater first-year capital allowances for investment in plant and equipment. I do not follow the noble Lord, Lord Haskel, in wishing those to be for one year only. That simply distorts the market and may even encourage unsatisfactory and wasteful investment. I hope that they will be permanent and will gradually increase to 100 per cent. That would be a valuable incentive to profitable companies, but more needs to be done for companies recovering from the recession and those striving to enter new markets.

The Government should certainly not try to pick winners. They have tried to do that in the past and it has been a failure. We should look critically at the money being spent on DTI initiatives such as Technology Foresight and Link programmes. Admirable though those are, the resources allocated to them will only be good value if they lead directly to new competitive products and services to meet more home as well as export demand. Might it not be sensible to divert some of those funds to the more direct support of winners picked not by Government but by industry, through co-operative programmes of risk and reward sharing? That is particularly apposite to the regeneration of run-down industries and in cases where high risk is associated with major benefits to the national economy. An example is capital goods. If we divert some consumption to investment, we want that investment to be made in the UK rather than outside it, as has so often happened in the past, drawing in imports of plant and equipment because they are not available in the UK.

Two arguments are often used to downgrade the importance of achieving a positive balance in our overseas trade. First, any deficit can readily be balanced by capital flows. Surely that is simply one way of selling the family silver to pay for current overspending and must be damaging to the economy in the long run. Secondly, it is said that inward investment, which we have been very successful in attracting, is an entirely satisfactory way of balancing the books. In the short term, that is true, but I do not believe that we want to see more and more of British industry owned overseas, with the profits going overseas. Nor does that contribute to national pride and confidence.

This question is also posed. If foreign companies find investment here so attractive, why are British investors so reluctant to make similar investments even when the expertise is available in this country? I believe that the answer is the old bogy of short-termism which we have still to tackle and beat.

Higher investment within the UK is the key to economic prosperity, more jobs, sustainable development, and our ability to provide full support to education, the arts, health, overseas aid, child care, housing and all the other things for which we should like to make better provision but cannot now afford. We must not let short term advantages or narrow dogmatism stand in the way of greater investment.

8.12 p.m.

Lord Monkswell

My Lords, I wish to say a few words about the illusion and reality of industrial performance and economic affairs and to speak about the visibility that we need to ensure through Parliament.

I had thought that this would be what might be described as a two-sided debate, with the speakers on this side of the Chamber speaking about the realities of life and those on the other side speaking about their illusion which is the figment of the Tory Government's propaganda machine. I am immensely relieved to have just listened to an important speech from the noble Viscount, Lord Caldecote. He threw some light from the other side of this Chamber on this important subject.

In talking about the distance between illusion and reality, I need only refer to the two opening speeches in the debate. The noble and learned Lord, Lord Fraser of Carmyllie, spoke of low inflation, privatisation, reduction in business taxes, flexible labour markets and rising exports. However, it fell to the noble Lord, Lord Peston, to point out that we have mass unemployment, low investment, profligate consumption, poverty wages and imports higher than exports and rising.

I was interested to hear some of the contributions in the debate. The speech by my noble friend Lord Bruce of Donington was one of the most stirring performances that we have heard in this House for a long time. It almost moved me to start singing "The red flag", but perhaps that is not necessary given that we have such glorious red Benches in this House. I was a little concerned about the contribution by the noble Lord, Lord Wade of Chorlton. He highlighted the situation regarding the development of Dumplington Circle. He pointed out that that development had been held up for several years, and that it would provide a good number of jobs. However, he did not tell the House that the development of Dumplington Circle in the way that he described would have caused immense loss of jobs in the centre of the conurbation of Manchester and created a number of environmental problems, apart from tearing the heart out of the city. That was the other side of the equation. It is interesting that even Government Ministers now appreciate the problems of massive out of town shopping developments.

The noble Lord, Lord Skidelsky, spoke of the fast growing economies of the Pacific Rim countries. He pointed out that their public expenditure was a lesser proportion of gross domestic product than that of this country. He suggested that that was a reason for their fast economic growth. I watched a television programme recently on Singapore—as we are told, the jewel in the Pacific Rim crown, if one may put it that way. However, while the share of the gross domestic product consumed by public expenditure directly may be fairly small, there are two factors in the equation. The first involves the direction of their economy through the housing market. On the one hand it demands high standards of housing but also requires rent commensurate with the development. That is effectively forced upon the population. The second involves the very high savings demanded by the Government of their population. Although the Government do not actually spend the money generated in the economy, they direct how that money will be spent or saved. To highlight one element of the economic affairs of the country is not necessarily the right way to make sensible comparisons and judgments between different national economies.

I had hesitated to become involved in that argument. Perhaps I am safe because neither of the two protagonists in the economists' battle which raged earlier in the House are present. I am not an economist. It struck me that it might be useful to give the House a couple of examples of how the way in which the Government run the economy works in an anti-social way. In considering tax cuts—the noble Viscount, Lord Caldecote, referred to them as giving rise to profligate consumption—perhaps I may cite an example. A young man in the City earns a great deal of money. He is not heavily taxed. What does he do with his money? He buys a BMW or a Porsche and goes on foreign holidays. What is the effect on our economy of that individual's action? It upsets our balance of payments. It takes money out of our economy and puts it into competitor economies. When a large number of people do that, the effect is very adverse.

I give another example from my own experience. BT rang recently saying, "Because you are a high user of phone services, we are prepared to give you a discount on your bill". I said, "Hold on a moment. If you are going to give me a discount, you will still want your corporate profits to be as high as they have been historically since privatisation. So what will happen?" They could not quite answer that, and I suggested that what would happen in practice is that the charges for those people who use their phones less often would increase. It is a natural balance. If the charges for frequent phone users go down, the prices for infrequent phone users must go up. Who uses phones infrequently? It tends to be people on low incomes, pensioners living on the state pension.

I found the idea that my family and I, who are comparatively well off, should pay less and pensioners who have seen an erosion of their state pensions should pay more rather anti-social. I refused to be involved in that scheme, but how many other people did not make that connection and accepted the discount?

We need to recognise that sometimes the systems and procedures, the ways of working that we set up which are allowed to go ahead in our society, create anti-social effects. Some people have talked about privatisation as being the panacea. It is interesting to see the effect of nationalisation. One of its key effects was to ensure an investment in modernisation in those industries. Unfortunately, we can see that, for example, the privatisation of the water industry has not led to higher investment but to high dividends to shareholders and high pay for directors of those industries.

I had not planned to speak for as long as this, but perhaps I may touch finally on what I would describe as "parliamentary visibility". I admit that my contribution so far has been partisan, but now I hope that I speak not as a Member of these Benches but as a Member of the House. In the gracious Speech there is the sentence: In Scotland, legislation will be introduced to reform education and training".

It has not been easy to find out what that legislation is about. There is no reference to it at the Printed Paper Office. It raises a problem because there have been attempts by the Front Benches, the usual channels, to take business off the Floor of the House. I understand it because no one likes late night sittings. The pressure of business on the House makes it sensible to suggest that we take business off the Floor. We did so last year with the Children (Scotland) Bill. A number of procedural problems arose and I suggest that there is also a political problem in the way in which the Leader of the House suggested that we might tackle Scottish legislation that started in this House this year.

I wish to say a few words on procedural problems. First, when the Committee stages were listed in the Minutes of Proceedings and the Notice of Business, they were listed at the back of the document. Those of us who tend not to take a great deal of interest in Select Committee affairs but take an interest in business on the Floor of the House tend to look at the beginning of the document to find out what is going on. That business was not listed in the early part of the minutes, so it was not easy to find out when the Committee was sitting.

The other problem is with reporting procedures. The Children (Scotland) Bill was recorded by Hansard but the proceedings were not printed in the daily report of Hansard. Thus those people who would normally obtain the daily record to find out what had been said the previous day in the House did not have the opportunity of reading those debates. I hope that if we have similar procedures in the future, Hansard could ensure that the daily record includes all the business of the House.

Finally, I wish to say a quick word about the suggestion that a Scottish Bill which starts in this House might be taken in a committee in Scotland. One of the difficulties with that is that, to enable everyone to be involved, it would have to be a Committee of the Whole House. Bearing in mind that proceedings would take place some distance away from the House, it would be logical to have the meeting on a day when the House was not sitting. I know that I have trespassed in terms of time. I apologise to the House for that and conclude my remarks.

8.25 p.m.

Baroness Rawlings

My Lords, this is the last evening on which we are debating the gracious Speech with which Her Majesty opened the present Session. I rise with some trepidation, having heard so many powerful speeches on economic affairs and several impressive maiden speeches. As this is approximately the 107th speech, I shall try to be brief.

I would like to concentrate on just one short sentence in the gracious Speech that was not mentioned by any of the noble Lords who spoke in reply on the first day, but which was spoken to by several noble Lords today. I hate to challenge the noble Lord, Lord Richard, who is such an experienced and witty politician. Unfortunately, he is not here but I cannot let his critical questions on the gracious Speech of our Government pass unchallenged. I quote: Where is the vision to inspire the nation as we approach the 21st century? Where is the declaration by the Government of their wishes for the good governance of Britain for the remainder of this decade?

Perhaps if he had listened a little more carefully he would have heard, if I may remind him, just one short sentence: [My Government] … will introduce a Bill to extend choice and competition in broadcasting by providing for new digital services and easing restrictions on media ownership".

Surely, encouraging the new digital terrestrial process is really looking into the 21st century. I would agree with my noble friend Lord Astor and the noble Viscount, Lord Chandos, in supporting the Government's forthcoming Broadcasting Bill. This is the most exciting future piece of legislation imaginable. It is so complex that no one really knows how it will all develop, but one thing we do know is that it will involve billions and billions of pounds and will have an enormous amount of influence in the world and on all our lives.

The implications of digital technology may soon change the face of broadcasting in this country. It is estimated that we shall have at least 18 television channels with the potential of covering a range from 60 per cent. to 90 per cent. of the UK population. This is the future, the 21st century where the influence on our lives will be through the digital system and no longer the wavelengths as we know them in the analogue form.

I spent three weeks in East Anglia fighting the 1970 general election. It was impossible to receive the national popular radio station. However, some of your Lordships may remember that Radio Caroline was beaming loud and clear illegally off the coast. It fully supported the Conservative Party because we had in our manifesto that we would legalise the independent radio stations. I was convinced that we could win the Ipswich seat where I was helping, with my noble friend Lord Belstead. We did so by 13 votes. I tell this story to illustrate the power and influence that the information transmitted on those wavelengths had on the people in the area during that election campaign.

The new digital system is the great new future and a world away from when, in 1979, I fought to save the BBC World Service from cuts of £ 4 million on its £ 40 million budget. One reason why this was so vital was that we were about to attend the WARC world conference for the re-allocation of wavelengths. It was vital that we kept our share of the pie, as in those days the Soviets were pitching to get extra wavelengths via Africa which was under-allocated and could ill-afford them. That is in the past.

My noble friend Lord Carrington was Foreign Secretary at the time. Instead of having the budget cut, he succeeded in having extra money allocated. The BBC World Service now has a budget of £ 179 million. Considering all the wonderful work that it does and the enormous respect that it has all over the world, that is not extravagant. I hope that it is not in for any cuts this year.

We should not forget that the new digital system covers the wireless as well as television. With digital audio broadcasting (DAB) there will be room for at least 12 national services. That will obviously affect the present regulations, as they were based on the concept of "rare resource" within the radio spectrum. The advent of satellite and cable has dramatically changed all that in the past few years. The potential of digital will remove this "rare resource" situation. This is an area where fair legislation will be of great importance, as will a stable climate for our successful stations to continue to develop and serve the public.

Now we have a Conservative Government tackling an even greater and far more complicated advancement. We all welcome the commitment to reform the current media ownership rules. We have in Britain a media industry which is highly respected internationally and regularly watched and listened to abroad, with the added asset of the English language.

Across Europe, there is a patchwork of different restrictions. The single market has not succeeded here in this complex web of restrictions and regulations. In Spain, no one can own more than 25 per cent. of a television company. In France, no one can own more than 49 per cent. of a terrestrial channel. In Germany, the media are regulated by 15 regional state authorities. Yet in Italy, apparently, you can own two entire commercial channels. Denmark requires a majority of board members of private television companies to live in the area of the licence. In Belgium, at least 51 per cent. of the capital of a Flemish commercial TV licence must be owned by the publishers of Flemish language print media. Imagine the complications if we had similar laws here!

As a result, the European market prevents Europe-based companies from establishing the size necessary to compete with their US counterparts. In the US, where the same cross-media laws apply from New York to San Francisco, a media company can grow to a significant size, enabling it to be in an extra strong position to compete world-wide while taking only a small share of the total market.

The goal for policy makers should not necessarily be harmonisation across Europe. It is the global market that we should aim at, through progressive liberalisation both in Britain and throughout the European Union. Restrictions should hopefully be removed and replaced with the appropriate machinery of competition law, as was mentioned by my noble friend and learned Lord Fraser of Carmyllie.

I was delighted that my noble friend Lord Inglewood did so well at the Culture Council meeting in Brussels on Monday. He was fighting and protecting our interests on several matters; but especially relevant here is the Television Without Frontiers directive from 1989 that caused us so many problems. The Minister secured an agreement that there should be no strengthening of the current Articles 4 and 5 on quotas and that a contact committee should be established, along with a review after five years. These are sensible developments.

I am sure that the aim of the Government's new White Paper will be to help broadcasting expand, not to harm it; to strengthen it, not to weaken it; to reward it, not to punish it; to encourage it, not to threaten it; to stimulate it, not to censor it.

Finally, today's world, despite the fall of communism, is still full of turmoil and instability, with many worldwide social and economic problems. As well as the challenge of the new emerging superpowers, combined with relentless pressure on the Atlantic Alliance, the broadcasting media possess the most powerful voice in the world. They have a responsibility to uphold and protect the public interest. But what do we mean by "the public interest"—rightly mentioned by the noble Lord, Lord Donoughue? Some say that the public interest is merely what interests the public. I disagree. To me the public interest means an inescapable duty to make that voice ring with intelligence and leadership.

In relatively few years this exciting industry has grown from a novelty into an instrument of overwhelming impact on people world-wide. Ours has been called the jet age, the atomic age, the space age. It is also the broadcasting age, with its digital future. International television is expanding so fast: today we accept easily that we receive live on our screens Pavarotti singing at a gala in New York, coverage of the dreadful war in Bosnia, or the funeral of Prime Minister Rabin in Israel. Our world has shrunk. Just as history will decide whether the leaders of today's world employed the atom to destroy the world, or to rebuild it for mankind's benefit, so will history decide whether today's broadcasters employed their powerful voice to enrich the people or to debase them.

The power of instantaneous sight and sound is without precedent in mankind's history. It is an awesome power. It has limitless capabilities for good—and for evil. And it carries awesome responsibilities. Many noble Lords will remember President Kennedy's stirring inaugural address, in which he said: And so, my fellow Americans: ask not what your country can do for you—ask what you can do for your country".

As we await the Government's paper announced in the gracious Speech, we might ask the Minister to reflect on the question: what can broadcasting do for our country?

8.37 p.m.

Viscount Chelmsford

My Lords, we have heard a number of references today to wealth creation, to the need to improve the country's balance of payments, and to the fact that only 3½ per cent. of UK firms are exporters. Clearly, we need to increase our living standards at this time—a time when fierce global competition will otherwise ensure that such standards fall. I wish to focus briefly on just one of the many opportunities that are available now to commerce, industry and government. I refer to the modern use of electronic networks.

Parts of our market in the UK have already successfully adopted the techniques that I am flagging. So my message is anything but revolutionary. I personally carried out my first pilot project as far back as 1973, seeking cost reductions between my own company and a leading US client. By altering simple tasks, such as who had to enter the information, when it must be entered and how long the other party had to disagree with it, we were able to cut mismatches in our respective accounts ledgers within some eight weeks, from 25 per cent. to a ½ per cent. The ensuing cost reduction that arose from that was permanent.

Electronic networks speed process between customer and supplier. Because they require users to operate in a standard way, they also bring discipline to such process. Modern technology offers two great cost-cutting and efficiency producing benefits for those who embrace it properly. The first is one that most companies have already experienced. Information technology allows them to enter once information which, when I started in the 1950s, had to be manually copied into several different ledgers. The primary benefits of this change are less need for clerical work, greater accuracy, and thus less need for the best employees to be used to sort out the muddle, and less need to send corrections to those involved in the trading transaction.

There was a period in the 1970s when my own company grew its profits over eight years from £ 8 million to £ 23 million, with a head count that grew by only three people overall. What were we doing? We were dropping jobs due to primary benefits from information technology and adding jobs due to growth. The two cancelled each other out. That is a marvellous position to be in, if you can do it. Yet the message is so poorly advertised that some businesses still refuse to have computers. I personally know a local GP who will not have one anywhere around his surgery. I am not getting at GPs. Happily, I know many GPs who use computers to improve their own and their patients' interests.

I now want to focus on the secondary benefits which come from the use of market networks. We all know how productive the major retail stores have become through clever use of electronic networks between themselves and their suppliers. Most of us know how bar codes on items of food both add up the cost as the shopper goes through the cash desk and advise the store on the levels of reserves available in the shop.

That ability to know the level of stocks led to two massive culture changes. First, there was the idea that stores could safely hold much less in reserve when they knew their stock levels with accuracy. Later, there was the second culture change with the determination that keeping stock levels well maintained would become the suppliers' business and not their own. The now famous just-in-time philosophy evolved to improve profits and only to improve profits.

I used that well-known example to show that networking with those with whom one trades produces a second set of benefits. Those benefits arise from the mindset change, the culture change which arises once trading by electronic network begins. Many changes are possible. It is not just the just-in-time type changes. For example, white goods manufacturers, or some of them, became so demoralised a few years ago about the inefficiency in their high street agents that they paid for and handed over to a third party organiser an electronic networking system which has since reduced waiting time for repairs, improved warranty processing and helped the shops themselves to achieve efficient internal accounts. The manufacturers who banded together and came together to do that instead of being in competition have had significant sales since then. They count the cost well worthwhile.

Incidentally, most of the shops which were concerned with that scheme fall under the Government's definition of SMEs—small and medium-sized enterprises. The Government rightly put a lot of effort into persuading SMEs to modernise.

But a major characteristic of the SME is its lack of senior people who have the time to take advantage of the opportunities that are offered. There was a recent European Commission communication on SMEs. It puts forward a massive six point plan which advocates an infrastructure and a cost base that I personally feel no SME will have either the time, personnel or money to support. It is said to have nation state ministerial support.

I suggest that a one point plan would have a far greater chance of SME support and that pump-priming market places to build electronic networks would be the single most effective method of growing SMEs. Electronic networks are very good news for SMEs. Few people seem to realise that. The SME joins the network because there is no other way to trade. In doing so, it receives a low cost entry into that network as the development costs have already been paid by the large company network users.

Joining the network brings a standardisation process to the SME and a discipline which few SMEs would otherwise obtain. Companies which spend less time on process have more time to spend on customer care. Companies which have re-thought how best to run their businesses using an electronic network have engaged in what is today misleadingly called business process re-engineering.

To recapitulate: information and communication technology can be used twice to improve profits—first, by improving process within the company; and, secondly, by external improvements through electronic trading. Our leading corporates already make excellent use of that. Others still need to do so. Our trade will be improved if we as a nation complete the change significantly ahead of competitor nations.

I hope that I have demonstrated from my own experience in the 1970s that the change is evolutionary and not revolutionary. I hope that it will be recognised as just one of many ways in which the United Kingdom can hope to improve profitability. It is one way, certainly, but a basic way in which everyone has to go sooner or later. There is no reason why they should not grasp the nettle now and do it sooner.

8.45 p.m.

Lord Desai

My Lords, I am perhaps the last Back-Bench speaker and, if the arithmetic of the noble Baroness, Lady Rawlings, is correct, I am the 109th speaker in this marathon debate on the gracious Speech. I shall be brief. I shall not speak on the Budget, partly because I gave my advice to the Chancellor in print in the New Statesman a fortnight ago. I am sure that by now he has read it. I shall mark his score card next Wednesday when on behalf of us all I shall have the privilege of opening the debate on the economic situation. It remains for me to talk about some of the issues which have arisen from the gracious Speech: low inflation; sound public finance; growth; and, of course, unemployment.

Without making a fetish of inflation as such, we welcome the fact that a low inflation rate has been achieved since our exit from the ERM. However, we have to remember that, while inflation is low from the point of view of British historical data—the lowest that we have had—it is not low compared with that of our competitors. The Bank of England's Inflation Report for November 1995 said that our inflation, has been higher than in the United Kingdom's major competitors. Between October 1992 and September 1995, consumer price inflation in the six largest economies excluding the United Kingdom averaged 2.4 per cent".

Ours was 2.8 per cent. Those are small differences. I do not want to make too much of them. It is clear that the low inflation we are experiencing—not just in the United Kingdom but in all the major economies—has less to do with domestic monetary or fiscal policies and more to do with the fundamental change in the supply conditions of tradable manufactured goods owing to globalisation. We must realise that what has happened is a major shift in the supply of manufactured products.

Therefore, the low inflation that we have achieved is common to all the countries and the minor differences are perhaps due to the quality of the fiscal or monetary policy. The fact that low inflation is the result of high productivity growth is a burden as well as a boon. It means that we have to maintain a high rate of productivity growth in our manufacturing. Any growth that we may achieve by higher investment inasmuch as it comes from higher productivity growth will not lead to job creation. Let us be absolutely clear. We want to achieve steady growth but it will not necessarily lead to job creation unless separate and deliberate policies are undertaken which are job creating policies.

We shall have to maintain low inflation. There is no choice. It will determine our competitiveness in world markets. Indeed, the size of our manufacturing sector can be maintained at its present level only if we continue to have productivity growth which more or less matches the rate of growth of manufacturing output. So manufacturing will not be a source of job creation—job preservation, yes; but job creation, no. Moreover, it will take a lot of investment in manufacturing to preserve the jobs we do have. Those are the imperatives of globalisation which we must remember.

I shall return to the subject of job creation in a moment. Let me first mention just one other matter; namely, the state of public finances. We have had a rather good debate about the proper size of government we should have. The noble Lords, Lord Harris of High Cross and Lord Skidelsky, debated that matter. My position is that, firstly, size does not matter so long as one balances the budget over the cycle. The first important point is the balance of the cycle. If we make a fetish of tax cuts and since we cannot reduce expenditure very much—despite all the protestations of the past 16 years, expenditure has not reduced very much—we shall have a PSBR requirement problem. There is not that infinite Laffer curve so that we go on cutting taxes and that gives us higher revenue. If we want to maintain our ratio of public expenditure to GDP at 40 per cent., we must do two things. First, there must be no frivolous tax cuts; and, secondly, we must maintain the economy at a trend rate of growth and not plunge it into recession.

As we know from our experience of the late 1980s and early 1990s, it was a boom and bust economy which brought us back to the high rate of debt to GDP ratio and the high PSBR from which we are presently suffering. As I have said before in this Chamber, we must not have any "feel good" factor. That is bad for us, bad for the economy, and bad for the government who try to encourage it. If we are sincere about a stable fiscal policy there must be no short-term tax cuts. Other noble Lords have already mentioned that point, so I need not labour it.

I would not hang my hat on a specific percentage of government expenditure to GDP ratio. It depends on many different factors. The noble Lord, Lord Tugendhat—I am sorry that he is not in his place—made a good speech in which he pointed out how a variety of factors (demographic, cultural and so forth) make a great difference as between countries in regard to the ratio of public expenditure to GDP. Not only that, we could easily transfer some of the financing of the health service on to an employee-employer contribution tax or a voluntary tax which would make a difference to the numbers but not necessarily to take-home pay.

Taxes may be cut publicly or privately and perhaps the noble Lord, Lord Harris, would prefer contributions to be private rather than public. However, at the end of the day it will not make much difference, in the short term, to take-home pay. If we can maintain the economy at a good trend rate of growth and not produce booms and busts, on a good day we will probably manage a 40 per cent. GDP. Even that would be good, whether or not we can actually reduce it.

As Mr. Andrew Dilnot, of the Institute of Fiscal Studies, pointed out, there has been a lot of shadow boxing this season when Ministers claim to be cutting public expenditure and doing horrible things to the spending round. But what is the truth? In real terms spending has increased every year for the past 16 years. The only time real spending was cut in the post-war period of the UK economy was when my noble friend Lord Healey was Chancellor. It was cut by 7 per cent. and was a traumatic experience. I am sorry, I should include my noble friend Lord Barnett. I apologise for not giving him proper recognition for a hard task well carried out. Apart from that, there is not much scope. As the population grows older and people demand a better quality of life, in democratic politics it must be delivered. That is obviously something we must remember.

I wish to make one more point before I sit down. I was surprised that international aspects were kept out of today's debate. I mentioned globalisation. I can only say that we must create jobs in the non-trading sectors—the public and perhaps the private sectors. They will not be easy to create but must be created because manufacturing will not provide jobs.

Surprisingly, too, nobody mentioned either the single currency or the single market. Again, I know why noble Lords opposite have a problem about mentioning Europe; but the problem of a single currency will not go away. Even if we do not join it, it will play a significant part in the British economy. The debate needs to be concerned with what the effect will be of a single currency which we do not join. If that single currency is run on the deflationary principles of the Bundesbank, it will have a deflationary effect on the British economy. The choice then will be a hard one; whether to depreciate our currency or tag on to a leading currency which will be mainly deflationary. Those problems will be difficult; they will not go away. However, by the same token we shall have many more opportunities to talk about them.

8.55 p.m.

Lord Harding of Petherton

My Lords, I shall interest the noble Lord, Lord Desai, by speaking on the single currency. I do not know whether or not he will agree with me. Also I should like to mention unemployment; I do not intend to connect the two.

Before we look at our relations within the European Union, we must recognise that Britain is only a medium-sized economic power today. Most British people realise that. However, sometimes encouraged by politicians and the media we seem to hark back to our position in the latter half of the 19th century when we were the leading industrial nation in the world. That leads to unrealistic expectations and faulty analysis as to what our government should be doing.

It follows from our position as a medium-sized economic nation that we must work closely with our nearest neighbours and major trading partners on the continent of Europe. In practice that means taking a full and active part as a member of the European Union. It is no good saying that we would prefer Europe to be merely a free trade area. We did not join such an organisation when we signed up for the Common Market, as it was, 20 years ago. What was political rhetoric at the time may have misled a lot of people that we did. It is true that we joined primarily for economic reasons; but the Common Market was set up before we joined mainly for political reasons. We must make the best of what the European Union now is. That means taking as full a part as possible and trying to influence its development to our own and Europe's best advantage. That is what being at the heart of Europe means to me.

However, that must not exclude our strong ties of language and culture and also of business and financial organisation with the United States. That is visible all the time in the Stock Exchange indices and the exchange rates of the two countries. More often than not the FTSE follows the Dow Jones Index and the pound sterling is very much affected by the fortunes of the dollar.

The United States still gives the lead to the world in industrial progress, invention and enterprise. We must not believe that America is finished and on a downward path; it is not true. We ignore at our peril the trade and investment ties which we have with the United States. Neither must we ignore our historical economic ties with the Commonwealth countries and those in the Far East. The Far Eastern tigers—Japan and now China—offer us the potential to use our expertise in financial management and a fast growing market for the export of our manufactured goods.

I believe that our continued membership of the European Union is vital to us economically. Not only are the other members close to us, but also a large proportion of our trade is done with them. That does not mean that we must slavishly follow everything that the Commission and other member countries propose, which the parties opposite appear to be inclined to do. We may have to appear isolated on some issues if that is the only way to avoid being drawn into arrangements which might be disastrous for this country.

Of course, here I refer to the debates on the single currency, the minimum wage and also the social chapter. As regards the latter two subjects I may be repeating what my noble friend Lord Astor said. I heard only a few of his remarks as I entered the Chamber, having left it for a little while.

Taking the single currency first, my right honourable friend the Prime Minister set out the difficulties and problems which have to be faced by European Union leaders in his Guildhall speech the other evening. It looks very unlikely, whatever some European Union leaders may say, that even a few countries will form a single currency in the next five years; even then, I have my doubts. However, the momentum and the rhetoric are there and a few core countries may form one in about five years' time. This core must include France otherwise the whole purpose of the European Union, as seen by France and Germany, will be nullified.

If that happens we have to think very carefully of what we would do. A scenario can be envisaged in which the United Kingdom currency would be decimated if we did not join. This would mean high rates of interest for us indefinitely. It is therefore essential that my right honourable friend the Prime Minister stands firm on not ruling out joining a single currency and keeps our options open.

As regards the minimum wage, I am utterly opposed to adopting it because of its effects on unemployment, especially among the young. The noble Lord, Lord Cooke of Islandreagh, who has direct experience of industry, made that abundantly clear in his speech. I turn to the social chapter. I recognise that large companies operating above a certain level on the Continent have to abide by the rules of having works councils etc. now and maybe other measures shortly. There is nothing that we can do about it. These companies, used to operating within other countries in Europe, can probably manage these measures without damage to themselves. Smaller companies and those who have not operated in this kind of environment, could be badly damaged. I am therefore very much against forcing all companies to do that by law. It is most important that managements consult their workers and take them into their confidence, but not by compulsion.

I now wish to talk about unemployment. I have already mentioned it in connection with the minimum wage. Unemployment in this country, as everyone agrees, is far too high although not so high as in many other countries in the European Union. I believe that the main measures to bring it down are two-fold. The first is education and training. I do not know the figures, but manual and unskilled jobs have vanished everywhere in Britain as elsewhere in the industrial countries. They are becoming fewer all the time. Most of the jobs which are now available and which will be required in the future, are for those people who have had a proper education. I mean by that not only people being able to read and write and add up—although there are too many who leave school without being able to do those things—but being able to write reasonable English and understand the basics of maths, science, history, geography etc. Obviously, many others will want a good deal more from education for the better jobs. We do not do too badly in educating the bright children although a great many still do not realise their full potential. It is with the not-so-bright and the dim, or merely those who could do better, but who are bored and turned off by school, that we have been so bad in the past 30 years.

I do not want to knock teachers: a great many of them do an excellent job. They need praise and not criticism. But the substantial minority who are bad must be made to leave the profession. At the moment it seems almost impossible to sack them. I may well be wrong on this, but it seems to me that the reason why a school in London has to be closed is because it is impossible to get rid of the bad teachers in any other way. I shall not talk any more about education as we are discussing industrial and economic affairs today. However, the standard of education in the country is vital to our economic performance and in order to reduce unemployment.

The second measure is to sort out our tax and benefit system, which deters people from working. The Government made a start in the right direction in the last Session of Parliament. The job seekers and the invalidity benefit measures will help, but much more needs to be done. I hope that in the coming Budget and social security announcements we shall see some progress.

I hope that I have not detained your Lordships too long at this late hour. I shall end by praising the Government who have been the subject of so much unwarranted criticism from all quarters over economic matters. As others of my noble friends have said, they have done extremely well to provide the basis for long-term, non-inflationary growth. We must build on this success to have a thriving economy, which we have at the moment, but with much lower unemployment.

9.6 p.m.

Baroness Seear

My Lords, at this time of night the last thing the House wants is a long speech from someone who is winding up. Perhaps I may start by saying how much I agree with the noble Baroness, Lady Rawlings, in her support and applause for the World Service. In previous times we have had to fight hard battles to support the grants to the World Service and it is very encouraging to know that it is thriving and is at last recognised as it should be. If other broadcasters would learn from it how to keep opinion and fact separate a great deal would be improved in the broadcasting that we get at the present time. A few seminars from representatives of the World Service would do a power of good.

I am not going to be tempted by the noble Lord, Lord Harding, to go into questions about the single market, much as I would like to, in support of what he said. We talk about loss of sovereignty over the single market and the single currency. We lost control of sovereignty when the noble and learned Lord, Lord Howe, got rid of all currency controls. At that moment it became possible to move money around the globe at an increasing speed. That was a bigger sacrifice of sovereignty than anything that can come from a single currency.

I should also point out what is likely to happen if we do not adopt the single currency when other countries in the European Union do. The large trading companies will use the single currency because it will be so much easier and cheaper for them to do so. They will no doubt keep pounds for home use, but will use the single currency when trading across the European Union. Once again we shall be dragged along. We shall be dragged into the single currency but without having been involved when it was first introduced and without having had any influence on it. We shall be dragged in by our own industrialists whom we think that we are supporting (in some extraordinary way) by not joining at the right time. But enough of that.

Listening to the speeches today from both Front Benches, I felt that there was a marked and distinct degree of complacency on both sides. Of course, there are things that the Government have done which the Government Front Bench naturally and justifiably want to boast about this evening. Inflation is much lower than it has been. As the noble Lord, Lord Desai, pointed out, it has fallen remarkably and, although unemployment is much too high still, it too is falling. Those are successes. Certainly, the great successes of the increase in productivity and the recovery in manufacturing industry are unquestionably gains and advantages.

However, there are an awful lot of things about which the Government have not been able to give a satisfactory account. A great many noble Lords have spoken about unemployment. I agree that unemployment here is less severe than in some European countries and that it has been falling but, as I have said, it is still far too high, and what the Government have done about it up until now does not get us very far.

We hear all the time about the lack of a feel-good factor. I am not very fond of the phrase, but that is the phrase that is used to describe the sense of uncertainty and doubt which is a very great handicap to the Government themselves. We have now reached a point when so many people do not believe good news even when they hear it.

The lack of the feel-good factor might not relate to national policy as much as one might think. The noble Earl, Lord Caithness, interestingly referred to the subject of debt. The citizens advice bureaux say that more of their cases relate to debt than to any other problem. If one considers personal debt—let alone debt at company or national level—and the degree to which it is endemic at present together with job insecurity, one realises that it is not surprising that there is not a feel-good factor. After all, the feel-good factor is primarily what you feel about your own personal circumstances. The reasons for the absence of the feel-good factor need to be examined and dealt with. It is not easy. People get into debt for a whole variety of reasons and job insecurity is a reflection of the turbulent changes in the labour market. They are real problems and the failure to deal with them underlies a great deal of the doubt, uncertainty and unpopularity attaching to the present Government.

We must always remember that most of the time people are not thinking about national policies, but about what will happen to their own pay packet, their ability to pay their bills and to meet their mortgage. We heard very little about that from the Government Front Bench. Very little was said to answer the questions that people raise in their own minds a great deal of the time.

When the noble Lord, Lord Peston, spoke from the Labour Front Bench I felt, as I have felt so often recently when hearing speeches from the Labour Front Bench, that the Labour Party really believed that everything would be all right if everything was as it used to be. The Opposition imply that things are wrong simply because the Tory Government have changed everything. I have a very long memory—I am a very old woman—and I do not remember that times were so very good when the Labour Party was in power—indeed not. Furthermore, I do not think that the Opposition can be complacent about the reasons for the present unemployment. If more had been done to deal with education and training when the Labour Government were in power, we would not be in the plight that we are in today. The Opposition now talk a great deal about training, but what did they do when they had the opportunity to do something about it? Very little indeed. Their one great achievement in the area of education and training was the development of the Open University and we pay them great credit for that, but for the rest they have a deplorable record.

In 1979 when the Labour Government left office, 40 per cent. of the youngsters leaving our schools went into either unemployment or a job with no training. So, the Labour Party has no real reason to think that its record is such that we would now have a high level of employment if it was in power. It has a great deal to do if it is to create the kind of society which I know that it wants to create in which people can have more highly skilled and highly paid jobs.

The phrase, "Of course, we all want to see everybody in highly paid, highly skilled jobs", is used again and again. When a great many people come out of schools unable adequately to read or add up, how on earth are we going to get them into highly paid, highly skilled jobs? I was in Scotland—yes, in Scotland with all its boasting about its educational achievements—the other day. I was told by a teacher in a secondary school there that she was getting youngsters coming from the primary schools who did not know that one had to start a sentence with a capital letter and finish it with a full stop. Given that the English language is one of our great assets—I notice the noble and learned Lord, Lord Fraser, looking deeply nationalistic at me—if in Scotland they do not know about capital letters and full stops, I am bound to ask (to make my peace with the noble and learned Lord) I wonder what happens in England.

There is a very long way to go. The noble Lord, Lord McCarthy, spoke about small encouragements or sweeteners to get employers to take on people. I must say that the deadweight argument is a powerful one. I do not believe that that is the way in which we will get rid of unemployment. We will only get rid of unemployment when we have the training and education, and the courage and confidence for people to acquire new skills and to change and adapt as changes in the labour market require them so to do.

It is curious how little reference has been made during the debate to the whole issue of the global economy and the extent to which we are up against extremely tough competition throughout the world. The Asian rim countries are very serious competitors indeed. I quite agree that we cannot imitate them. We do not want to imitate them. They are competitors, but there are also opportunities if we can adjust our processes in this country sufficiently to meet the challenges and opportunities.

Only a fortnight ago I was at a conference in Rome. I sat next to a Chinese from Singapore. He took his engineering degree at Imperial College and his PhD at Cambridge. We seem to know all about how to provide people with the necessary equipment. He then went back to Singapore where he was training people and organising teleworking not just in Singapore but it seemed to be pretty well throughout the whole of the east Asian rim. They are moving at an enormous pace. They are catching up very fast. As we know, the average income and standard of living in Singapore are now higher than in this country. We must be there. We must be moving at that rate. There are opportunities there, but are we ready for them?

I heard nothing in the gracious Speech or in the speech from the Government Front Bench which recognised the challenges or the opportunities. It was as if we were concerned only with what went on in this country, marginally with what went on in the EU, and hardly at all with what is going on across the globe. The opportunities exist if we can prepare people properly for them, and if we can take a long-term view. All the discussions today in politics generally are based on short-term considerations. I sometimes think that the horizons stretch all the way from Wednesday evening until Monday morning in some political discussions to which I listen, and not just in your Lordships' House.

We are moving into the 21st century. It has great dangers. It has great possibilities. We need to recognise the need—everyone says that, but we are not doing it—for investment, and that means that we cannot have tax cuts if that cuts back on investment. Investment in people—yes, we all agree with that—but it is no good talking as though investment in people will give us a skilled labour force in the year after next. Investment in nursery schools today—we are all in favour of it in my party, and we want nursery schools for every three or four-year old—will not pay off for 15 years. Those three-year olds will be in their late teens before we get a pay off from that investment.

We want other investment too. We want investment in the infrastructure, and the encouragement of investment in industry itself by, as the noble Viscount, Lord Caldecote, said, being far more cautious about the amount we pay out in dividends and in wages. After all, we have just had the famous Ford claims. They have come along yet again. We all know that Fords have always been the leaders in pay demands. If that starts again, and if we have high dividend payments and high wage increases, our chance of meeting the challenges and seizing the opportunities offered by the global economy will go down the drain.

9.20 p.m.

Lord Richard

My Lords, I am delighted to reply to the debate. I believe that I am the 112th speaker. Perhaps I may first comment on the speech to which we have just listened. The noble Baroness, Lady Seear, attacked both Front Benches for complacency. At least the Front Benchers who opened for the Government and the Opposition spoke about economics. They did not treat us to a tour d'horizon with great elegance, which was perhaps not quite what the noble Baroness had in mind.

Secondly, the noble Baroness gave us one of her penetrating analyses of government policies during the past 30 years. It is difficult to reciprocate. We have to go back to 1911 which was the last time that a solely Liberal Government was elected. But there it is—we are used to hearing the noble Baroness, and I always enjoy listening to her.

It has been an interesting debate in many other ways, too. It has been notable for its three maiden speakers; the noble Earl, Lord Sandwich, and the noble Lords, Lord Carew and Lord Cuckney. They all made significant maiden speeches, but if I could single out one it would be that of the noble Earl, Lord Sandwich, who is not present tonight. He spoke with great experience and his was a remarkable performance for someone making his first speech in this House. I was most pleased to hear him.

The debate on the gracious Speech has ranged widely over a whole raft of Government policies. However, I have been struck by how few contributions, particularly in today's debate, have related to specific items in the gracious Speech. The reason for that is perfectly clear; it is the almost total irrelevance of much of the Speech to the real problems that face the country. Where are the policies set out in the Speech designed to bring about a fall in the unemployment figures? Where are the policies designed to increase investment in our infrastructure or our manufacturing industry? Where in the Speech is set out the Government's proposals to deal with the trading deficit? There is not a word.

On 15th November my right honourable friend the Leader of the Opposition in another place said: Let us look at the problems that we face. There are scandals in the privatised utilities; there is nothing in the Queen's Speech about that. One in seven 21-year-olds is unable to read properly and one in five cannot count. There is drug abuse and violent crime. One in three people is on welfare benefits under this Government. The national health service is under strain and has been turned into a two-tier system. Public transport is crumbling and pollution is rising. Does the Queen's Speech address any of those questions? It is utterly irrelevant to the problems of Britain and shows no real recognition of the state of Britain today.—[Official Report, Commons, 15/11/95; col. 14.]

Perhaps I may add to that litany. Where is there anything in the Queen's Speech on the machinery of government; on our constitutional structures; or the relationship between Scotland, Wales and the rest of the United Kingdom? There is not a word. The gracious Speech manages even to avoid using the word "Wales", a factor which, I may tell the noble Viscount the Leader of the House, has not passed unnoticed in the Principality. The Speech was so thin that I congratulate noble Lords in keeping the debate going for four days. That was accomplished by talking about almost anything except the Speech itself. It is a trivial and openly political document, as Dr. Mawhinney revealed last week. It has all the vision of a slow worm.

Today's debate has concentrated on the economy. Naturally, from the Government—from the noble and learned Lord, Lord Fraser of Carmyllie—we were given a rosy picture of a thriving, thrusting, bustling Britain; its economy in order; its public finances under control; and the engine of the economy geared up and steamed up ready to go. A bright future is ahead of us. Would it were true.

Perhaps I may give the House one or two facts as opposed to some of the rhetoric that we have heard from the other side today. It would not be a bad idea if, from time to time, those on the Benches opposite opened their minds sufficiently to allow one or two facts to enter. In 1979, this country was thirteenth in the world prosperity league. In 1995, we are eighteenth. Since 1979, Britain's average growth rate has been 1.7 per cent. That is in 15 years of Conservative rule. That percentage is lower than that of any other country in the G7 or the European Union. Since 1979, Britain has suffered the deepest and longest recession since the war and there are still well over 2 million unemployed.

I ask Members opposite to note that there have been no fewer than 21 Conservative tax rises since the last general election. These are government figures and not mine. A typical family is now paying £ 800 per year more tax. The Chancellor has admitted that the Conservatives' tax rises are equivalent to a 7p increase in the basic rate of income tax. A typical family now pays 35.6 per cent. of its gross income to the Exchequer. In 1979, it paid 32.2 per cent. That is the legacy of 15 years of Conservative administration.

It is the unfairness of the present position which I find particularly distressing. While income tax has been reduced, particularly for the rich, VAT, indirect taxes and national insurance contributions have all risen, hitting the poor hardest. As a result, the poor now pay more tax as a percentage of their income than the rich. Again, let us look at the figures. In 1979, when this Government came to power, the poorest one-fifth of households in this country paid less tax than the richest one-fifth. The actual figures were 31 per cent. for the poor compared with 38 per cent. for the rich. By 1992, which are the most recent figures that we have, that tax burden had shifted. In 1992, the poorest one-fifth paid 39 per cent. of their income in tax compared with 34 per cent. for the richest one-fifth. I ask noble Lords to note those figures: in 1979, 31 per cent. paid by the poorest and 38 per cent. by the rich; in 1992, 39 per cent. paid by the poorest and 34 per cent. paid by the rich.

Whatever else the Government have achieved, they have not achieved fairness in our tax system. VAT on fuel bears four times harder on the poorest one-third of households than on the richest. Therefore, despite the seductive ways this afternoon of the noble and learned Lord, Lord Fraser of Carmyllie, all in the garden is not rosy; on the contrary, it is hardly blush pink.

However, this evening I wish to say a few words about an issue which is not mentioned in the Queen's Speech but which in my view should have been. Since the Government came to power in 1979, it is an issue on which we have had no word from them as to their views. We would have been prepared to listen and indeed to participate in any discussions on the issue. But there has been nothing; there has been silence. I refer to reform of your Lordships' House. The Chief Whip may not like it but, with great respect, constitutional issues, and in particular that issue, could and, in our view, should have been dealt with in the gracious Speech.

I become very irritated with the proposition that since this House works well, it should now be left alone. There is that absurd Americanism which one now hears so often: "If it ain't broke, don't fix it". The fact is that it is broke and it needs fixing.

Perhaps I may give the House some figures. If one looks at the composition of this House at present, there are 476 Peers who ascribe themselves as Conservative. Of those, 142 are life Peers and 334 are hereditary Peers. The Labour Party has 110 Peers, 99 of whom are life Peers and 11 of whom are hereditary Peers. The Liberal Democrats have a total of 52 Peers, of whom 29 are life Peers and 23 are hereditary Peers. The Cross-Benches have 289 Peers, 112 of whom are life Peers and 177 are hereditary Peers. The fact is that your Lordships' House functions at present in an overtly biased and unbalanced way in favour of the Conservative Party, relying as it does on the votes of the hereditary peerage.

Again, perhaps I may give the House some figures in that respect. I believe that it is important for them to be put on record. In the 15 years from 1979 to 1994—that is, the 15 years of Conservative administration—this House defeated the Government on average 10 to 12 times a year. During the last Labour Government of 1974 to 1979, the House defeated the Government on average between 70 and 80 times a year. As an example, during the Session of 1988 to 1989 the Government won 172 Divisions in this House. There were 12 government defeats and in two Divisions there was no quorum. If the votes of the hereditary Peers were excluded from that list in 1988–89, far from winning 172 Divisions, the Government would have lost 153. They would have won 20 and there would have been no quorum in 13 of them.

Therefore, while noble Lords opposite may wish to pretend that the situation is other than it is and that this House behaves with impeccable independence and judgment, I am afraid that the facts establish beyond any peradventure that this House is dominated by hereditary Peers who owe allegiance to the Conservative Party. I shall give your Lordships just one more figure and then I promise that I shall produce no more figures tonight.

Noble Lords

Keep going!

Lord Richard

My Lords, in the 19 years of Conservative Government between 1970 and 1994—that is, the four years of Mr. Heath's government and the 15 years between 1979 and 1994—there were in total 2,870 Divisions in the House of Lords of which the Government won 85 per cent. In the five years of Labour Government between 1974 and 1979, there were 427 Divisions in this House of which the then Government won 20 per cent. It may be coincidence, but it seems to me that those figures establish beyond doubt, first, the allegiance of the hereditary Peers on the Benches opposite; secondly, the way in which they can be used to vote in order to defeat a Labour Government; and thirdly—and, I suppose, understandably—the reason why we have heard nothing whatever about the issue in the 16 years since this Government came in in 1979.

I should point out to the House that all those figures exclude those Peers by succession who never appear. I do not quite know how many of them there are, so to speak, in the woodwork—if I may use that somewhat indelicate phrase—but the ones who are there and do not come to the House are not, I imagine, natural supporters of the Labour Party. They form a sort of static reserve which the party opposite could no doubt call upon if they so wished. I have to say to the House with all the seriousness that I can that it is not a situation which, when it comes into government, my party will be prepared to tolerate.

I am not introducing the first Queen's Speech of a future Labour government; of course, I am not. However, I believe that it would be helpful to the House to know that the abolition of the right of Peers by succession to sit and vote in this House is a measure to which an incoming Labour government is pledged. I am sorry if it offends Members opposite—although, actually, I am not too sorry—but I fear that history is about to catch up with your Lordships' House.

Had the gracious Speech had anything to say about parliamentary or constitutional reform, we would of course have listened to it with interest and participated in any discussion that there might have been. Had it had anything to say about the reform of your Lordships' House in the past 16 years, we would have listened to it and participated in any discussion that there might have been. But nothing has been said about it; there has been no discussion in the past 16 years because, very simply, the Government clearly do not want to alter a situation in which they have an enormous preferential position. The fact that that has not happened merely shows, yet again, that neither in terms of the real problems facing the British people nor in terms of making Parliament work better and being seen to work better have the Government lived up to their responsibilities. They are tired and have been there too long. It is time that they went.

9.35 p.m.

The Lord Privy Seal (Viscount Cranborne)

My Lords, in spite, if I may say so, of the tone of the speech of the noble Lord, Lord Richard, this has been a most useful and interesting debate, distinguished, as so often in this place—in spite of its obvious manifest failings, as stated by the noble Lord, Lord Richard—by strong opinions underpinned by deep knowledge and experience.

I was particularly grateful to the noble Lord, Lord Jenkins of Hillhead, for his what I might perhaps term characteristically valetudinarian remarks in which he paid a generous tribute both to the Government Front Bench in this House and to your Lordships' House in general. He was also particularly polite about me. It is not, I hasten to add, mere false modesty which makes me protest as strongly as I can that he flatters me merely in order the better to damn the Government as a whole.

Rather than playing on a sticky wicket in Northampton—I am not quite clear why the noble Lord chose to make derogatory remarks about what I understand to be an admirable town in the Midlands—I was playing on a batsman's pitch at Lords. However, if I attempted to answer every point made by every noble Lord who has spoken tonight, particularly the half dozen or so expert economists from both sides of the House to whom we have listened with great pleasure, I should detain your Lordships even deeper into the watches of the night than we are at the moment. Therefore, I think the House will forgive me if I try to answer only some of the points made and content myself with answering the others by letter.

I would say to my noble friend Lord Boyd-Carpenter and indeed to the noble Lord, Lord Desai, whose speeches, as always, I listen to with the greatest of attention, interest and, if I may say so, profit, that as regards the details of next week's Budget, the noble Lords will understand, better than anyone else, that I cannot at this stage possibly comment.

My noble and learned friend Lord Fraser set out extremely clearly in his opening remarks this afternoon the thrust of the Government's economic strategy since 1979. I know that the noble Lord, Lord Peston, was pretty complimentary about this country's performance between 1964 and 1979 in what I found a most interesting speech. I hope he will not think I am being patronising in saying so. However, let us not be mealy mouthed about it. By 1979 this country, with all its proud history, had become an economic and political basket case. Those of us who love our country and want to feel proud of it—that includes every Member of your Lordships' House—and who, like myself, have spent much of their lives abroad, felt ashamed at the sniggers mention of the United Kingdom occasioned among foreigners. Those sniggers, by 1979, were richly deserved.

By then, after nearly a century of relative economic decline under governments of all political stamps, we had become a sort of demoralised Ruritania. I do not need to bore your Lordships with an analysis of how that was brought about. However, I suspect weak government and over mighty subjects in a corporatist and socialist consensus would loom large in any such analysis.

As my noble and learned friend Lord Fraser said in opening this debate, one cannot reverse such a decline in an afternoon. However, as he also said, in 16 years we have made more than a start. My noble and learned friend reminded us by way of example that British industry was, hardly surprisingly, more productive than German industry in the 1940s, but that by 1979—30 years later—German industry was 50 per cent. more productive than British industry. After 16½ years of Conservative government that lead has fallen to only 10 per cent. We are not there yet but we have made substantial progress. I am particularly grateful to the noble Lord, Lord Peston, for acknowledging that achievement, particularly in view of what the noble Lord, Lord Desai, said on the importance of productivity growth.

Of course my noble and learned friend was also quite right to remind us of what has happened to our country's economy both since 1979 and during the steady recovery from the recession of the past three years. I shall, with your Lordships' permission, return briefly to this later. But, if only in one sense, this evening I am perhaps a Maoist. I dwell on the past merely to serve the present but, quite rightly, it is the future that concerns the electorate today.

So we must remind ourselves of the features that will characterise the successful economies of the 21st century, and the noble Baroness, Lady Seear, did so with her usual grace and eloquence. My noble friend Lady Rawlings and my noble friend Lord Wade acknowledged that those economies will increasingly be knowledge based. As they pointed out, communications and innovation will therefore run like a golden thread through everything that they produce, both tangible and intangible. Research by producers will become increasingly important as the time gap between concept and application narrows. Labour forces will become more flexible, as will working hours, and perhaps the dividing line between work and leisure will become fuzzier.

The noble Baroness, Lady Seear, talked about the need to grasp the opportunities worldwide in order to make sure that our domestic performance improves. That is already happening. I saw a particular instance of that only yesterday when, at a particularly enjoyable occasion at my local University of Hertfordshire, I was much struck at the degree-giving ceremony by the very large number of people from the Far East and southern Europe who came to St. Albans Abbey to take their degree. I suspect that that is the kind of thing that the noble Lady was talking about in her speech this evening.

I believe that the world will reflect the developments that I have tried, all too briefly, to describe. I believe that trade protectionism will not only become undesirable but impractical. Nationalised industries will go the way of the dinosaur, killed by their inherent contradiction, the contradiction that the state cannot serve the consumer as well as the private sector can. In parenthesis, it does so even less well in a rapidly changing market because of its own irredeemable leaden footedness in management of that kind.

Your Lordships will be well aware that assertions of that kind are nothing new. They have become almost a cliché of today's political and economic discourse. That does not mean that they are not accurate. Indeed, I believe that they are accurate. If they are accurate they dictate the kind of policies that will yield the best chance of economic success for our nation—policies based on free trade, a low level of government interference in industry and commerce, and on individual freedom and choice.

As the noble Lord, Lord Harris, my noble friend Lord Boyd-Carpenter, and my noble friend Lord Skidelsky, in a remarkable speech, emphasised, those matters are made possible by low taxation and low government spending. I shall plead lack of time as my excuse for not indulging in a fencing match with the noble Lord, Lord Desai, on his strictures about the relative unimportance of a low level of government expenditure as a proportion of GNP.

My noble friends Lord Astor and Lord Wade added the need for deregulation. I hope that their ambitions in that regard will to some extent be satisfied, as the pace at which deregulation orders are brought forward in your Lordships' House will accelerate from now on.

I believe that if those realities dictate our economic policies, they also dictate our policies in other fields. There is one field in particular which seems to me to matter more than a little to this country. It is often claimed by those who describe so graphically the nature of this rapidly changing world of ours that one of the effects of this technologically driven world will be the demise of the nation state. I believe such predictions to be inaccurate and such an eventuality to be profoundly undesirable. While it is true that a smaller world will make frontiers more porous and international co-operation imperative, it will also give power to international organisations. In practical terms I cannot see any entity capable of controlling those organisations except the nation states that created them. Quite apart from anything else, nation states already enjoy one inestimable advantage: they already exist, and as such they are the building blocks of our present attempts to build a coherent and peaceful system of international relations.

There is also another reason why the nation state's continued healthy existence matters in a changing world. That, again, is a point on which the noble Baroness, Lady Seear, touched, but perhaps in a different context. As the noble Baroness said, times of rapid change are very unsettling. Jobs become insecure. Social organisation changes fast. Man who is, after all, a conservative beast becomes bewildered and unsure. He no longer knows where he belongs. I believe that the nation state can provide that reassurance and continuity. For that reason it is of supreme importance today at least as much as it ever has been.

The nation state matters in this changing world so long as it is characterised by two essential but paradoxical features: evolution and continuity. Noble Lords might consider those as Tory principles. Since 1979 we have prepared the way for this country to compete in the 21st century. I have to say to the noble Lord, Lord Barnett, that I do not think that such preparation has much to do with magic. It is more to do with hard slog and determination. The framework has been the quest for permanently low inflation, as my noble friend Lord Caithness pointed out in what I thought a most remarkable speech, sound public finances, and addressing the question of debt.

Since we set a target for underlying inflation of 1 per cent. to 4 per cent., the underlying inflation rate has averaged 2.6 per cent. That is too high, as a number of noble Lords observed; nevertheless, it is better than the 1980s when it averaged 7.5 per cent., the 1970s when it averaged 13 per cent., and indeed the 1960s when it averaged, I am told, 3.5 per cent.

Regarding public finances, we shall achieve our objective—the objective, I understand, of the noble Lord, Lord Desai—of a broad balance in the medium term. Of course we shall achieve that. But to do so we have to do more than keep close control over public expenditure although that is axiomatic in our approach. We have to break out from the sterile view that public services can be provided only by public sector finances. It is for that reason that the private finance initiative and challenge funding are so important. I believe that they will play an increasingly important part not only because they are new sources of finance but because the pedestrian sterility which so often goes with public funding for services can by that means yield to a more imaginatively provided service, more swiftly responsive to changing circumstances and so giving better service to those who need it.

The noble Lord, Lord Bruce of Donington, in a perverse way, rather helpfully pointed out the consistency of the Government's approach over the past 16 years. That stable framework, together with our supply side reforms, is actually beginning to pay dividends. My noble friend Lord Prior went so far as to say that the economy is in pretty good shape. And he, as chairman of one of our leading industrial companies, is in a good position to know.

The noble Lord, Lord Richard, asks for facts. The noble Lord, Lord Bruce, and the noble Lord, Lord Peston, rather daringly as it turned out in view of the remarks of my noble friend Lord Skidelsky, interpreted Keynes in the context of investment. I agree with what they said about the connection between investment and productivity. If they will forgive me, it seems perhaps self evident. However, I have to point out that investment is rising and that the CBI—a body much reported on today—says that investment in pensions so far this year is at the highest level for six years. I hope that the noble Lord, Lord Cooke of Islandreagh, will have noted that only yesterday we heard that manufacturing investment had risen by over 12 per cent. on a year ago and that manufacturing investment in plant and machinery had risen by over 18 per cent. Therefore I say to the noble Lord, Lord Barnett—I suspect that he is a little sceptical about historical figures—that if he wants to look at the trend I refer him to the London Business School which expects double digit increases of that kind to continue for the next two years.

Exports too have risen by over 24 per cent. in volume terms since the beginning of the recovery. Indeed, they have risen 6.5 per cent. in the past 12 months. I was particularly grateful to my noble friend Lord Prior for the tribute he paid to the efforts of the Foreign and Commonwealth Office in that regard. I wholly subscribe to what he said. The improvement has been extraordinarily marked and I hope that his remarks will not go unnoticed in King Charles Street.

For the first time since the early 1960s, unemployment peaked at a lower level in the last recession than in the one that preceded it. The noble Lord, Lord McCarthy, accused the Government of not talking about unemployment. I hope that I shall be able to make up for the deficiency in a small way this evening. I have to say to him that the same is true of long-term unemployment as short-term unemployment. Our unemployment rate is now well below the European Union average. Indeed, in the last cycle over 2 million jobs were created, twice the rate of France and Italy. At present, for the first time for decades, the United Kingdom enjoys not only a higher percentage of its population in work than it has traditionally enjoyed, compared with our European neighbours, but also a lower rate of unemployment than Germany itself. Nevertheless, as the noble Baroness, Lady Seear, said, unemployment is still too high, We all agree with that. I merely contend that we are going about reducing it in the right way.

With all that—our increasingly well educated workforce and our by now magnificent industrial relations record—is it surprising that we attract more inward investment from the USA and Japan than France and Germany combined? Or that we have grown substantially faster than the G7 average over the past two years? The noble Lord, Lord Barnett, accused us of growing more slowly than countries with high spending governments. After all, as a former Chief Secretary he is better able than I am to diagnose figures. However, since 1981 we have grown faster than Italy, France and Germany.

We are doing many other things. We are running a balance of payments surplus with Asia as a whole, including a surplus with the much-vaunted newly industrialised Asian tigers. The noble Lord, Lord Richard, asked for facts; that is a cross-section. Since we are talking about the noble Lord, I must confess to some puzzlement when I contemplate his party's reaction to all this evidence. On the one hand they seem to say—or at least it is what they mean—as the noble Lord, Lord Harris of High Cross, pointed out, that Tory policies work. Mr. Gordon Brown and Mr. Blair—unlike the noble Lord, Lord Bruce of Donington, whom I exempt from this stricture—seem now to accept that low taxes are desirable, that 10 per cent. is a desirable goal. They—if not their supporters, and I suspect certainly not the noble Lord, Lord Bruce—seem not to want even to tax the rich very highly. They seem at last also to accept that the state should spend a lower proportion of the national output and they seem to recognise the importance of the private sector. Superficially they seem to accept that Toryism as a whole makes an economy work. They have even accepted the importance of using the welfare system to encourage the unemployed into work. Unlike a number of noble Lords, what they do not appear to have noticed is that the jobseeker's allowance, which they opposed, is designed to do just that.

The trouble is that they do not quite understand why Toryism works. They may approve of lower taxes in the private sector—or at least some seem to. But they still wish to introduce policies that will raise taxes and kill private enterprise. They do not understand that competition produces competitiveness.

There are a number of examples which I could give and I shall not weary the House at this late hour with examples of nationalisation. However, I wish to draw the Opposition's attention to two matters: the social chapter and the minimum wage. I could not help noticing that at the CBI conference the leader of the Labour Party in another place made the following rather remarkable statement: The social chapter is not detailed legislation. It is a set of principles. The real fear is that by being part of it we may in future agree to the import of inefficient practices to Britain. A Labour Government will not pursue such a course. Each piece of legislation will be judged on its merits. I have no intention whatever of agreeing to anything and everything that emerges from the European Union".

I call that statement remarkable for that is what it is. It is remarkable for the apparent ignorance, which I am sure is not genuine, that it displays of the nature of the social chapter and Mr. Blair's contention that some of its provisions would, if adopted, "import inefficient practices into Britain".

I am sure Mr. Blair realises that he cannot, as he implied to the CBI, shop à la carte once he has signed up to the social chapter. Whether or not he is concerned about the works council directive, parental leave, part-time and temporary workers, he would have to subject himself to QMV. It is true of course that unanimity is required in certain areas, but they are very clearly specified, as the noble Lord, Lord Richard, with his greater European experience, will know.

What makes this even more extraordinary is that Mr. Blair, not content with explaining his wish to the CBI to veto those parts of the social chapter legislation of which he disapproves even though he may not be able to do so, said to this year's TUC Conference, We will become part of the European chapter".

He certainly failed to qualify that undertaking to that audience.

What makes the case of Mr. Blair and the social chapter even more curious is that, at the same time, he calls for an extension of QMV—at least, he did so in Bonn on 30th May this year, when he called for its extension, in the area of social, environmental, industrial and regional policy.".

Perhaps Ms Diane Abbott knew what she was talking about when she told the "Today" programme on Monday: Labour can say anything it likes so long as it gets elected".

What about the minimum wage? The Labour Party are apparently all in favour of it. They carefully do not say how much it will be. Perhaps that is because they know that it will cost jobs, particularly among those whom they, and we, want to encourage into work; namely, the young unemployed. Under pressure, Mr. Dewar admitted as much in another place on 10th July this year, as did both his Leader and deputy leader. Mr. Blair tried to hide it in what I can only call Ed Ball speak, when he told the Independent on 27th June 1991: Econometric models indicate a potential job impact".

Mr. Prescott was perhaps typically rather more forthright to Mr. Brian Walden on 24th May 1992 when he said: I knew the consequences were that there'd be some shake-out. Any silly fool knew that".

If any silly fool knew that a minimum wage would cost jobs, what should one call someone who, knowing that, still wished to introduce one?

The truth is that the social chapter has been tried in continental Europe, which does not enjoy the Tory negotiated opt-outs to which the noble Lord, Lord Cooke, referred. And what are the results? Our current rate of youth unemployment is less than half that of France and Spain, two countries which are signed up to both the social chapter and the minimum wage. The Labour Party may be long on rhetoric, but in the end it is perfectly clear that, when it comes to the detail, the Labour Party cannot be relied on to get it right.

Nowhere is that more apparent than in what the Labour Party propose for our nation state. I have already explained to the House why I feel that in the modern world nation states are important. The Labour Party pays lip-service to our country while advocating policies that will undermine its ability to protect its citizens and constitutional reform that will destroy the Union. By advocating a massive extension of QMV, they are undermining the Europe of nations which should be our goal and advocating a Europe that might have been attractive to the intellectual fashions of the 1960s. They are doing so at a time when, as the proceedings of the Majorca unofficial summit showed a few weeks ago, our European partners are beginning to see the force of our point of view and are moving away from some of their more corporatist stances. If noble Lords will perhaps forgive me for a brief reference to my own family history, this extraordinary procedure on the part of the Opposition reminds me of nothing so much as an ancestor of mine who became a Roman Catholic on the eve of the 1688 revolution.

In view of all this, I can therefore readily understand why the noble Lord, Lord Richard, preferred to talk about the reform of this House rather than the economy. In his place perhaps I might have taken refuge in the sort of rhetoric that he chose this evening.

The noble Lord was also understandably reticent about his own party's policies. He did not say very much about them at all. He and the noble Lord, Lord Jenkins of Hillhead, concentrated their fire on the Government and this Session's legislative programme.

Both he and the noble Viscount Lord Chandos, called the programme "thin" and used a number of other words which carry the same meaning. I noted that the noble Lord, Lord Donoughue, in his extremely useful views on the Broadcasting Bill, hardly squared with that view. Indeed, I must say that I too, rather like the noble Lord, Lord Donoughue, and indeed my noble friend Lady Rawlings, find it hard to agree with the noble Lord, Lord Richard.

Suffice it to say that many of the Bills will prove controversial in your Lordships' House, even though the Government consider them to be necessary. If the programme is as thin as all that, let us see whether the noble Lord, Lord Richard, is as right in his diagnosis as he turned out to be in making a similar diagnosis at this same moment last year. The fact is that the programme announced in the gracious Speech continues the supply side reforms of the past 16 years. They were ignored by the noble Lord, Lord Barnett, during the course of his speech but they were well exemplified by my noble friend Lord Astor when he too pointed out the importance of the Broadcasting Bill. Those reforms have had an objective, which is to increase the prosperity of our country. Together with the rest of the programme, they will increase the cohesion and security of our society, about which all sides of the House are increasingly worried.

In short, I believe that the programme brings closer to achievement the twin objectives of this Government: prosperity for the 21st century and stability for the nation. I commend the programme to the House and look forward to debating it in the months to come.

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