Address in Reply to her Majesty's Most Gracious Speech

HL Deb 30 October 1996 vol 575 cc326-430

3.28 p.m.

Debate resumed on the Motion moved on Wednesday last by Lord Gray of Contin—namely, That an humble Address be presented to Her Majesty as follows:

"Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament".

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)

My Lords, I am delighted to open this debate on the last day of the debate on the humble Address, which is to be focused particularly, I understand, on industry and economic affairs. I am particularly glad to do so. In looking to see which noble Lords propose to contribute to this debate, I notice that in particular the noble Lord, Lord Healey, is in his place and may wish to contribute. I am sure that he will wish to celebrate with us the 20th anniversary of freedom from the last intervention and direction we had in a foreign fashion concerning our economy.

Our Government's objective, as my right honourable friend the President of the Board of Trade has said many times, is to set enterprise free. We are pursuing three clear priorities to achieve that; namely, promoting competition, championing free trade and sharpening the focus of the Government's relationship with business. As a result of our privatisation and liberalisation initiatives, competition is present to a greater degree than ever before. There is, for example, already strong competition in the United Kingdom in telecommunications and supplying larger users of gas and electricity. We are working towards opening the household energy market fully to competition in 1998. No one should be in any doubt that we shall press to hold to that target.

In the past year we have introduced competition into the supply of domestic gas. A pilot in the south-west of England has already delivered price cuts of some 20 per cent. to customers. We see no reason why they should enjoy that benefit exclusively and we want to extend it to the whole country. Indeed, it will be an advantage significantly greater than the 3 per cent. reduction in VAT which I understand that Mr. Gordon Brown now offers as a tax bribe.

The state-owned sector of industry has been reduced by about two-thirds since 1979. In the 1994–95 tax year, £2.6 billion in taxes was contributed by privatised companies which paid only £37 million in 1979—a 70-fold increase. I refer your Lordships to the OECD's recent report which praised our privatisation programme, saying: since privatisation, most of the utilities have achieved substantial improvements in productivity and consumers have benefited from large reductions in real prices as well as improved quality of services. Better performance, lower prices, better service—and the price reductions have indeed been remarkable—for example, BT's telecoms prices have fallen by 40 per cent. in real terms since 1984.

With the private finance initiative, the UK is once again in the forefront of public sector reform. The Government are moving from provider to purchaser of public services. The initiative is picking up speed, with ever more projects being set up. Indeed, earlier this month the Exchequer published a list showing that some £7,000 million-worth of deals are already agreed. That is the capital value. Earlier this month my right honourable friend the Chancellor of the Exchequer announced measures to streamline the processes involved so that the PFI will offer even more opportunities for business. The Minister responsible for local government, Mr. David Curry, has introduced major new flexibility into the way in which capital finance regulations apply to projects proposed by local authorities.

I know that my noble friend Lord Weir wishes to address your Lordships on this issue and we certainly take the CBI's point that we do not want to reinvent the wheel on every contract that is let under the initiative. That point has been taken on board and that is why something like two dozen or more standard conditions have now been set out, together with guidelines stating what might be applicable where there are transfers of investments in PFI projects.

However, we are not looking only at what we do at home, but at what we do in the world. As a traditional trading nation, free trade is particularly vital to the UK. With only 1 per cent. of the world's population, the United Kingdom is the world's fifth largest trading nation. We export more per head than either the United States or Japan. Our exports of goods and services represent around a third of our national income.

We thus have very good reason to press ahead with efforts to remove remaining barriers to trade. The President of the Board of Trade has outlined his vision of Britain at the forefront of the drive to further trade liberalisation, just as we were at the forefront of the drive to establish the European single market, in which my noble friend Lord Cockfield played such a prominent part.

The President of the Board of Trade has advocated a three-stage approach. First, the ministerial meeting of the World Trade Organisation, which will take place in December this year in Singapore, should agree a comprehensive work programme of further trade liberalisation. We have identified a number of key areas including standards and technical regulations, government procurement, tariffs, and customs procedures. We shall also be pressing for an agreement to eliminate tariffs in the information technology sector, and for completion of negotiations outstanding from the Uruguay Round for the liberalisation of trade in services, in particular telecommunications services. Secondly, a new round of multilateral negotiations within the World Trade Organisation should be launched before the end of this decade to be concluded early in the next century. Thirdly, countries should commit themselves to the target of achieving global free trade by 2020. We believe these steps will increase the level of absolute trade and help to raise living standards. A 2020 vision for the achievement of global free trade is meaningful, realistic and challenging. We are not simply interested in the grand gesture of that vision; we have a commitment to undertake the painstaking, detailed work that will be necessary if it is to be achieved.

In championing competition and free trade, we are also determined to sharpen the focus of our support to help business help itself. In each of the past three years the Government have published a White Paper on competitiveness which has benchmarked our competitive position. In the DTI, our key themes have been encouraging greater interaction between the science base and industry, deregulation, small firms, and partnership between government and business. On science, we launched the Technology Foresight exercise. The Foresight Challenge is giving this real muscle. We have awarded £30 million to the successful entrants, which is attracting more than twice as much investment from the private sector. In information technology, we set up the Information Society Initiative and we shall shortly be launching a major new initiative to increase general public awareness of the everyday benefits and uses of the new technologies and to facilitate access to them.

To set enterprise free the Government have also worked to free business of unnecessary restrictions and red tape. We have now amended or repealed over 750 pieces of burdensome legislation. That has resulted in businesses being saved millions of pounds annually.

However, beyond the elimination of those burdensome pieces of legislation, any business will tell you that the way in which regulations are enforced can be just as important as what they say. That is why we are introducing new rights for business: a right to clear explanations of enforcement action, an opportunity for business to put its point of view before any enforcement action takes place, and a right of appeal. In March we completed the most thorough consultation exercise ever with the small business sector through a series of 12 conferences across the country.

As I have said, that was the most complete and the most thorough of consultation exercises, but I notice that Mrs. Margaret Beckett in her foreword to Vision for Growth makes exactly the same claim. She said: This document represents the latest stage in one of the most comprehensive consultations with business and industry which has ever been undertaken by any political party in this country". I have no doubt that the Labour Party consulted the CBI in Scotland, but when the CBI in Scotland had the temerity to say that it did not believe that the devolution proposals for Scotland would do anything for business, it got its knuckles rapped. I have no doubt that the Labour Party also communicated with and consulted the CBI in the rest of the United Kingdom. Its manifesto, published in July, stated: Business opposes a minimum wage which would undermine flexibility and is a poor way to tackle poverty". On the Social Chapter, the CBI said that Britain's opt-out should remain and the Social Chapter was a vehicle by which greater rigidity and cost should be imposed. The CBI should have learned from its colleagues in Scotland because it too got its knuckles rapped for its temerity in suggesting that it did not know the way in which jobs and businesses would prosper in the United Kingdom.

Earlier in the month my right honourable friend the President of the Board of Trade announced a radical new approach to, and simplification of, the Government's support services for business. To sharpen the customer focus of those services, we will delegate design and delivery away from Whitehall to business-led partnerships, such as Business Links and trade associations. To that end, the President launched two new Challenge competitions offering funding for the most imaginative and customer-focused projects to help smaller firms. He also announced a major streamlining of centrally organised business support schemes. Before we began we had something like 140 such schemes. They have now been reduced in number to 25. We are committed to involving business and business support organisations much more in the development of that restricted number of schemes.

Business Links will play a key role in the new arrangements for business support. Following the discussion we had on this matter last year, I am pleased to be able to report that Business Links now covers about 99 per cent. of England's SMEs. It has been very successful. Something like 8,200 businesses use Business Links every week. Business told us that it wanted simpler, more accessible and better tailored support. Our approach delivers just that. It could not contrast more sharply with that set out in the document to which I have referred.

Not only are we debating the humble Address but there is an amendment in the name of the noble Lord, Lord Peston. Part of that amendment is an expression of regret at the failure of Her Majesty's Government to preserve the country's reputation abroad. I say to my noble and learned friend Lord Howe of Aberavon that he should plead guilty to that charge. When he took over as Chancellor of the Exchequer in 1979 Britain had only one reputation abroad: as the sick man of Europe. I invite my noble and learned friend to plead guilty to that charge in view of the massive adjustment to that reputation that has occurred. Both the IMF and the OECD have recently reported on our macro-economic performance. Both forecast that the UK will grow faster than any other major EU economy this year and next. The OECD has referred to our good employment record compared with many continental European countries and said that, policy in the last three years has provided a sound foundation for sustained economic recovery". The IMF has said that the United Kingdom's recent economic performance has been enviable". I do not believe that we have done anything but significantly improve the reputation of our country abroad, and those quotations prove it. The economy is now in its fifth year of sustained growth and has enjoyed the strongest, longest and steadiest recovery of any major EU country. Underlying inflation has been below 4 per cent. for four years, which is the best inflation performance for almost half a century. Unemployment has fallen by over 900,000 since the start of the labour market recovery, and the rate of unemployment is the lowest in any major EU country. The growth in manufacturing productivity has been the highest in any EU country since 1980. I could go on. Mortgage rates are at their lowest level for 30 years. The number of working days lost has gone from an average of 12.9 million a year to 0.4 million in 1995. I believe I have said enough to show that we have the most favourable macro-economic conditions for a generation. That is our reputation abroad—so much so that Mr. Jan Timmer, president of Philips, has said that Britain is, quite simply, the most competitive country in Europe". The Opposition may refuse to be convinced in spite of those unsolicited testimonials from Europe. In particular, they have tried to talk down our investment record. Contrary to popular opinion, business investment in the UK compares well with that of our major competitors. Since 1979 business investment has risen by a third, and that is a higher proportion of GDP than in France, Germany, Italy and the United States. What is more, overseas investors recognise our achievements in the most practical way. Traditionally, the UK is one of the world's leading recipients of overseas investment. We are the number one location for Japanese, US and Korean investment in the European Union. Not only has that created and safeguarded approximately 8,000 jobs but it has developed and modernised our industrial base, increased output, introduced new products and processes and brought in new technology and management processes.

Last year I focused particularly on the massive inward investment by Siemens in Tyneside. Since then that record has been broken not once but three times: first, by Chunghwa in Lanarkshire; secondly, by the Korean company LG which has announced its intention to locate a £1.6 billion high-tech manufacturing plant near Newport in South Wales; and, thirdly and most recently, by Hyundai, another Korean company, which has announced Europe's largest ever inward investment of £2.4 billion in a semi-conductor project in Fife that will create 2,000 new jobs. I hope that some of those who talked about the demise of Ravenscraig and Rosyth will feel a black burning shame in the morale-sapping gloom with which they predicted the future for both places. Both Lanarkshire and South Fife are well on course to have the most modern parts of the economy in the United Kingdom. It did them no good as they sought to recover to be told that they had no prospects of ever being successful.

We are now doing extremely well. One of our competitive advantages is the high level of social costs in other countries compared with our own. In the United Kingdom, for every £100 spent on wages an employer has to spend an extra £18 for non-wage costs. The same employer would have to add £32 in Germany, £34 in Spain, £41 in France and £44 in Italy. No wonder Chunghwa, LG, Hyundai and others wish to locate in the United Kingdom. I do not have to search for further quotations but merely look to inward investment as the best verdict on our reputation abroad.

The Government are creating in the United Kingdom the enterprise centre of Europe. The UK was indeed once the sick man of Europe but is now the most competitive country in Europe. We have nothing whatever to be ashamed of in the way that we have conducted the economy. Indeed, what has been said by others accurately reflects where we stand in the world. What is contained in the amendment is a complete misdescription of all that has been achieved in the past 17 years.

3.46 p.m.

Lord Peston rose to move, as an amendment to the above Motion, at the end of the Address to insert ("but regret the failure of Your Majesty's Government to manage the nation's affairs in a manner which preserves social cohesion and integrity within the United Kingdom and the country's reputation abroad.")

The noble Lord said: My Lords, in thanking the noble and learned Lord for introducing this part of the debate, I begin by drawing your Lordships' attention to the exact wording of the amendment. I emphasise that I do not regard this as a Motion of no confidence. That does not mean that I have any confidence in the Government, but I do not believe that it is right on virtually any occasion for your Lordships to debate a matter of confidence. It is much more a matter for the other place. I believe that the Minister has put his finger on it. The amendment is an expression of regret concerning the conduct of the nation's affairs by Her Majesty's Government, which implies that they ought to do better. It goes further than that—this ought to encourage noble Lords opposite—because it implies that in the past few months they could have done better. Whether or not they will is another matter.

Before I get down to the main business, one of my pleasant duties is to welcome my noble friend Lord Currie to today's deliberations. I helped to introduce him yesterday and today he makes his maiden speech. He is an economist of outstanding merit. I can say that with great confidence since I gave him his first academic post at Queen Mary College. I should like to comment on the astonishing quality of the speakers in today's debate: three chancellors of the exchequer; three commissioners; two chief secretaries; one financial secretary; and (above all) three professors of economics. They have one thing in common: all of them are life Peers. I should like to reiterate by way of an apology the introductory remarks of my noble friend Lord Williams of Elvel. There are so many topics to be covered today that I shall be able to choose only a few of them. I am afraid that what I have to say will be disjointed and I shall jump from topic to topic. It is impossible to put the whole matter together.

I advert immediately to a pledge in the gracious Speech to double living standards in the next 25 years. Whether this is meant to refer to real personal disposable income or, more correctly, to real national income, it represents a target significantly better than the Government's actual record since it came to power. The relevant comparison between 1979 and 1995 is a 2.4 per cent. annual growth in personal disposable income, and 2.1 per cent. for GDP, but that target implies a growth rate of 2.8 per cent. for the next 25 years. It almost looks as if the Treasury, which is unwilling to discuss the serious economic problems confronting our country, but which was desperate to put something in the Queen's Speech, looked on its shelf of forgotten pledges and dusted that one down. Looking around, some noble Lords will be old enough to remember the last time that promise was made.

Forgotten pledges or not, one of the important points is that the present incumbents will be long gone when the eventual pledge is put to the test. Of course another view is that, with the expected change of government, this gracious Speech merely anticipates the likely achievements of my honourable friend the Shadow Chancellor of the Exchequer. He is much more likely to achieve something like that than his predecessors.

Perhaps I may also draw noble Lords' attention to the fact that nowhere in the gracious Speech, having talked about that growth figure, is there a word about giving any priority to those in most need in our community when it comes to distributing the fruits of growth. No doubt we shall have a debate on the economy following the Budget. I do not want to anticipate what noble Lords will say then, but there is a matter that I must emphasise today. If we look at the Government's record, the most astonishing part of it is that since 1979 this Government's accumulated financial deficit amounts to £260 billion£260 billion of expenditure in excess of revenue. Total government debt interest has risen from £8.8 billion in 1979 to £25.8 billion today.

The gracious Speech refers to the target of budget balance in the medium term, but not now. All I can say today is that the present fiscal position is not sustainable. I do not believe that the present Chancellor will be allowed to do anything about that this side of a general election, but someone, some day, will have to face fiscal reality.

Of course, I could go further and suggest that fiscal prudence—Gladstonian principles if one likes—implies that the years of profligacy (of deficit) should not be followed by budget balance; they need really to be followed by budget surplus in order to reduce the national debt in ways other than by massive inflation.

On public expenditure, I have no doubt that my right honourable friend the Shadow Chancellor is right to stress that pledges cannot be made ahead of a serious assessment of the fiscal position, and that resources used in one place will be at the expense of those used elsewhere, either in the public sector or the private sector. But that is not to make this Government's mistake that resources do not matter. I would be willing to believe that if noble Lords opposite would explain to me why resources do matter in private medicine that they buy for themselves and private schools to which they send their children or attended themselves. When they accept long waiting lists for treatment, leaking roofs, shortage of textbooks and large class sizes in schools to which their children go, I will accept that these things do not matter in the state system.

While I am on the subject of education, perhaps I may ask noble Lords opposite whether they were at their party conference and listened to their right honourable friend the Prime Minister on the subject of education. I heard him. I was quite frankly astonished. I went immediately to my favourite reading, Dod's Parliamentary Companion. Over half of all Tory hereditary Peers went to one public school, and another six public schools account for pretty well all the rest. Clearly, the Prime Minister did not know that, and no matter how many great state schools we have, and we do, none of them appears to have been good enough for noble Lords opposite or, I suppose, for their children. When we talk about integrity and cohesion in our society, that is what we have in mind.

In his fascinating speech yesterday, the noble Earl, Lord Ferrers, talked about the hereditaries as an endangered species. He was certainly right about that. The Prime Minister was adding insult to injury. It is all very well for nasty state schoolboys like me to rough up the public school boys on the other side, but the Prime Minister should be much more sensitive.

In this general area there is another remark which I wish to make which I think in this case will be met with general agreement. I wish to praise the British winners of the Nobel Prize in this centenary year. In both cases the prize is richly deserved. Professor Merilees is a distinguished economist. His contributions have been first class, if technically rather difficult. It is not for me to push the significance of economics per se but it is a remarkable tribute to the strength of the subject in our country that we have won the prize some half a dozen times.

But that is nothing compared to the extraordinary achievements in chemistry. Sir Harry Kroto, a distinguished member of the Royal Society of Chemistry, is the latest in a long line of quite brilliant contributors to that subject. Indeed I speak with pride. We have one Nobel Prize winner who I am afraid is not in his seat at the moment: the noble Lord, Lord Porter, also won the Nobel Prize. He won it 29 years ago. I have to say that despite vulgar voices to the contrary that we occasionally hear, I remain convinced that if we are to have a successful future at all a science base, especially in higher education, is an essential ingredient.

I suppose the most extraordinary expression in the gracious Speech is: My Government will continue with firm financial policies".

"Continue" means, having started, will carry on the same way. When have the Government pursued firm financial policies? Possibly for a year or two in the mid to late 1980s. Other than that, profligacy with a view to electoral advantage has been the watchword. I fear that they have learnt nothing and will continue to fritter away the nation's precious assets.

While we are on the subject of consistency, it is difficult to find any set of principles that marry up the contributions of the three Chancellors of the Exchequer, the noble and learned Lord, Lord Howe, who I am delighted to see in his place, the noble Lord, Lord Lawson, and Mr. Clarke, except possibly pragmatism. I have read the quite excellent volumes of memoirs of the first two. They seem to have little in common with each other, let alone with the current incumbent of the post (whose memoirs I look forward to reading next year) and they are all disconnected from that other great work of recollection—the memoirs of the noble Baroness, Lady Thatcher.

What we have been privileged to observe over this period is the rise and fall of monetarism in all its forms, and the complete intellectual triumph of what I will call sophisticated Keynesianism, by which I mean the economic doctrine in which Keynes himself believed.

I exaggerate slightly, because EMU, as narrowly formulated, is monetarist in conception, but it is apparent that in reality were EMU actually to take place it would have to be accompanied by joint or co-ordinated macro-economic policy by the individual members of the Union.

One word that is missing from the gracious Speech is "employment". One phrase that is missing is "full employment". Speaking as a voice from yesteryear, neither the word nor the phrase troubles me. I remain convinced that the full employment objective is a correct one for economic policy and is attainable. I believe, a fortiori, that many of our problems of excessive public expenditure and too low a flow of tax revenue derive from the persistence of unemployment. And above all, since I stand second to no one in insisting that people should and actually do want to fend for themselves (self help is the old phrase) there is a duty of government to create an economic climate in which jobs are available and workers are trained to a level of productivity that enables them to take those jobs and to be paid a decent wage. I do not say that all the social and moral problems that dominate current debates are caused by failures on the side of industry and the economy, but I do believe that unemployment is one of the causes.

I hope that noble Lords will allow me to digress briefly to make two technical points, one of which is acutely embarrassing. The first is to reiterate what I have noted before. Certainly the inflation rate has come down, but interest rates have fallen less, so that real interest rates remain high—too high in my judgment. If the economy is to move on to a higher sustainable growth rate, real interest rates need to fall. I wrote that last week. I assume that the Chancellor was out to annoy his noble friend Lord Tebbit with today's announcement of raising interest rates. He clearly did not have me in mind. But I felt on grounds of honesty that your Lordships would rather I said what I originally wrote than weaselled and pretended that nothing has happened. I believe that interest rates are too high.

My own researches, for what they are worth, suggest that the economy is in a position where we may safely set much more optimistic employment targets. I do not suggest that the full employment rate of between 1.5 per cent. and 2.5 per cent. which existed in the 1960s is attainable, but I am coming to the view that a target nearer 4 per cent. is worth talking about. Perhaps in reply the Minister will inform us of his current advice on that highly contentious topic.

I noted the remark in the gracious Speech about deregulation and regulations, and the Minister commented on that. I wonder whether during the lifetime of the Government business overall is less regulated. The Minister referred more to the quality rather than the quantity but I wonder about that matter. The Government talk about the regulations that they remove, but what about the new regulations that they impose? What evidence is there about the net position? Noble Lords will recall that when we debated the Deregulation and Contracting Out Bill the noble Lord, Lord Rodgers of Quarry Bank, made the most sensible suggestion that there should be an annual debate on deregulation based either on some legislative proposal or on a White Paper. I still believe that that is a good idea and I commend it to your Lordships as one that we are especially well placed to debate.

The topic which dominates the media today is the struggle for the moral high ground. We are told that the leaders of all our political parties are jostling for position and why it may turn out to be a dangerous peak. I do not usually trouble your Lordships with my views on such matters—not because I regard them as unimportant, but because I find them extremely difficult. I prefer to leave them to those Members of your Lordships' House who find them simple and can speak on moral matters forthrightly and with no doubts whatever. That is my usual position.

However, in the light of the gracious Speech and the amendment standing in my name, I am moved to make a few remarks. My chief remark is that, merely because in our debates on the economy in all its forms we do not usually mention ethical questions, it does not follow that industry, trade and finance are morally free zones. Quite the contrary; ethical principles depend for their validity on universality. Therefore, those who ill-treat their fellows as employees by offering low pay and insecure working conditions cannot expect absolution on the grounds that business is business.

That is also true of the firms which in their advertising or in the small print of their terms of sale mislead consumers. Caveat emptor is good advice; but it is not a moral principle. The point of course holds for insider trading and related financial malpractice. There is more to morality than not being found out and not being proved guilty in a court of law. In that connection, can we be told how the help line of the Secretary of State for Social Security is working with respect to employers? It is widely believed that many employers connive at benefit fraud by telling their employees that they must supplement their low hourly wages by making fraudulent claims. Can we be told something about that?

One part of Government policy which I wish strongly to support is its desire to help rural communities by making life a little easier for local enterprises, notably shops. That must be right. But I must add that I am a trifle cynical of those who shed crocodile tears for their village shop while at the same time doing the bulk of their shopping at the hypermarket on the main road. If one wants the local shop to survive for both convenience and the desirability of the survival of the local community there is a price to be paid. Good intentions do not pay wages; actual purchases do.

Perhaps I may refer to the high speed rail link, with which your Lordships will be dealing tomorrow. I hope that I shall not be accused of naive patriotism when I mention how upset I become when I travel on the excellent Eurostar service as it chunters slowly through Kent only to display its full potential in France. Therefore, I strongly support the Bill and I strongly support the link. But I must add that I hope that when it comes to the purchase of land—I can make my comments totally objectively because I have no interest to declare—the landowners will be dealt with fairly. Bearing in mind Crichel Down, I hope that only minimum necessary land required to build the link will be purchased and no more. The promoters of the Bill should not be in a position to make profits from land speculation incidental to their real activity. How confident are the Government that the high speed rail link can be financed? What will be the true scale of public-sector support, both explicit and implicit?

My last rag-bag topic relates to the National Lottery which, I gather, is to have a second draw mid week. Presumably the company have pressed for that because it seeks to increase its turnover and its already excessive profits. I suppose that the Government acquiesce because it is a useful source of taxation in the ordinary sense and a form of hypothecated taxation to fund so-called good causes. I say "so-called" because in my judgment much of the money is being misspent, but I can save my grumpy views on that for another day. All I wish to argue is that little of real net value is created by the lottery. Many other activities—some in betting and gaming but, more importantly, in charities—will be hard hit by the second draw. I wonder whether the Government have thought the matter through and will in due course allow us to have some appropriate detailed statistical information on the new development.

As I come to my concluding remarks, I refer again to the interesting speech of the noble Earl, Lord Ferrers, yesterday. He reminded us of the world population explosion. Our own country, the population of which is hardly growing at all, appears tiny in that context. But tiny is not the same as insignificant. Thus, although the remarks made by the noble Earl yesterday were potentially depressing, especially when we contemplate the world which our children and grandchildren are entering, I refuse to be depressed. My reason is that, despite our problems, despite our hostile environment and despite our political agreements (they are not to be underestimated), what we have not lost is our native genius. By that I do not mean triumph in adversity—the Dunkirk spirit and all that. What our fathers and grandfathers did was marvellous, but we should never have been in that position in the first place. My view is that we have a nation crying out for new bearings and great leadership.

There is tremendous capacity for good in all our people, and I emphasise the word "all". Three million people unemployed and unable to contribute productively is not tolerable. Many men and women retired earlier than they would have wished and, again on ageist grounds, not being allowed to contribute is not tolerable. Many young people not being able to start out in life as workers is not tolerable.

Twenty years ago that was common ground between all of us and it must become common ground again. Our first priority must be to end that defeatism, especially on employment. A second is to end the defeatism which says that we can be competitive only by paying low wages and continually devaluing sterling rather than raising productivity. Third and finally, we must end the defeatism that says we are so poor that we cannot give those in need a decent life. We on this side are not defeatist. I hope that what I have said today will have persuaded noble Lords opposite that they need not be defeatist either. I beg to move.

Moved, That as an amendment to the above motion, at the end of the Address to insert ("but regret the failure of Your Majesty's Government to manage the nation's affairs in a manner which preserves social cohesion and integrity within the United Kingdom and the country's reputation abroad.").—(Lord Peston.)

4.8 p.m.

Lord Ezra

My Lords, as the noble Lord, Lord Peston, indicated in his wide-ranging speech, the issues of economic policy will again come before us when we move towards the Budget. Nevertheless, this is an occasion when appropriately we can raise some major issues of economic policy which we can discuss more fully on a later occasion when we are more aware of the Government's intentions.

The noble and learned Lord, Lord Fraser of Carmyllie, in the latter part of his speech rose to oratorical heights in referring to the Government's great economic achievements. I see his colleagues nodding in support. But of course, that is par for the course. I can remember on every one of these occasions for the past 14 or so years in which I have had the honour and privilege to be in your Lordships' House, that whoever occupied the eminent position of the noble and learned Lord, Lord Fraser, has said almost the same thing, no matter what has happened thereafter. They have said that government policies have been absolutely correct and they intended to continue to pursue them.

We are told, and no doubt the noble Viscount, the Leader of the House, will tell us when he winds up the debate, that the Government have achieved a situation in which we have a growing economy with low inflation; we have reducing unemployment; we have increased consumer spending, increasing house prices and everything is going positively. We are told that the Government will continue the mixture as before and when the time comes, and the Chancellor is willing, they will reduce taxes. That seems to be the message.

Let us, however, look at one or two issues which are hidden behind that very positive statement. The fact that the Chancellor has chosen the present time to increase interest rates suggests that he too is becoming rather worried about the way in which the economy is going and is taking a small step to try to restrain it.

The first issue which we should bear in mind is that it is potentially dangerous that we should be basing growth in the economy on increasing consumption and rising house prices. Obviously, from the point of view of creating a feel-good factor, those are very desirable achievements. But from the point of view of a sustained economy, I doubt it. Indeed, in advance of all recent elections, we have lived through a situation in which consumer spending has been stimulated. Certainly on at least one such occasion in living memory, it was stimulated so much that it led to one of the worst subsequent recessions which we have endured since the war. Therefore, that must be watched with great care.

One cannot help being concerned with the difference between what is happening here, with growth being fuelled by consumer spending, and what is happening in the United States where for three years running there have been record levels of investment. There is not the slightest doubt that the way in which the economy of the United States is being stimulated, no doubt also in advance of the election, is a much sounder basis than what is occurring here.

In spite of what the noble and learned Lord, Lord Fraser, said, the fact is that our level of investment generally in the private sector has been lagging behind that of our competitors. It may have increased at a higher rate in recent years, but it is lagging behind and in the case of the manufacturing industry, investment actually fell last year, far from rising at the dizzy rates which the Minister mentioned.

I heard the economic director of the CBI at lunchtime today commenting on the action taken by the Chancellor and expressing some slight surprise because she said that manufacturing activity, while it had recovered somewhat in Britain, was still fairly sluggish. Therefore, we have a situation in which this growth, which we all want to see, is based on the stimulus of consumer spending rather than on the more virtuous aspect of high investment.

It is not only the private sector but also the public sector in which investment has fallen substantially. One has only to look at the Red Book to see the way in which the Government have already slashed, and intend further to slash, public investment. In the period 1992–93 and 1998–99, public capital investment will have fallen by 25 per cent. on the Government's own figures.

The private finance initiative, to which the noble and learned Lord referred, was, I should remind your Lordships, introduced originally to increase the amount of investment in the public sector. It has now been used exclusively to replace the reductions which the Government are introducing and the extent to which public investment has fallen far exceeds the amount to which the PFI has come in to redress the balance.

The noble and learned Lord referred to the fact that £7 billion is reported to have been committed over a number of years. The Treasury's original estimate, when it introduced its savage cuts in public investment, was double that; it was £14 billion. I remind your Lordships that of the £7 billion, £3 billion is for the cross-Channel rail link to which the noble Lord, Lord Peston, referred. Surely that is quite exceptional and a one-off. We cannot expect cross-Channel rail links to be invested in every year ahead. Therefore, we have about £4 billion of continuing investment as a result of the PFI in order to compensate for a much greater amount of reduction in the publicly funded investment.

The noble and learned Lord, Lord Fraser, referred to the fact that there have been many problems with the PFI. It has been administered in an excessively bureaucratic manner; there have been long delays; tendering has been very costly; and it has had a seriously harmful effect on companies' balance sheets because they have had to raise the money to put into those projects. As the noble and learned Lord rightly said, that was addressed at a major conference convened by the Chancellor on 22nd October. All those issues were aired and debated openly and the Chancellor gave an assurance that they would be put right. We shall have to see. At least some action has been taken.

I turn to the question of unemployment and in particular, employment. While unemployment continues to fall—and that is highly desirable—there are still 2 million unemployed, which everyone agrees is far too high, and 900,000 of those 2 million are long-term unemployed; that is, unemployed for a year or more.

What is a particularly puzzling aspect of the present situation is that the employment figures are rising at a substantially lower rate than the unemployment figures are falling. Therefore, we must ask how that difference is to be explained. I have read a number of articles on the subject and the view which is gradually being formed is that there is an explanation in the process of what is now known as "down-sizing". That word is a rather regrettable import from the United States. Hardly a day passes when a firm does not announce that it is to reduce its labour force by substantial numbers, that it is going to down-size, in order to improve its efficiency.

The people who are down-sized are generally the older people. I am afraid that in that context, "older"— and this may surprise some of your Lordships—means people of the age of 40 and above. It is those relatively older people who are being down-sized.

The impression is that those down-sized older people are not going onto the unemployment register. They are deciding that that is it; it is very difficult to get another job; and they will retire at that relatively early age. Therefore, that goes some way towards explaining the figures. If that is true, it is very unsettling. We have a whole range of people there with excellent experience who are anxious to work but are being put off looking for jobs and not getting onto the unemployment register. Therefore, there is that apparent anomaly. That is a serious problem which I hope the noble Viscount the Leader of the House will address when he speaks to us later.

Perhaps the most serious aspect of the general economic and financial situation of the country is what is happening to the PSBR, to which reference has already been made. Although taxes were substantially raised in the early years of this Government, tax revenues, much to the surprise of the Treasury, have substantially fallen. That applies particularly to VAT. That, among others, is the reason why, despite all the forecasts that the Treasury made about the level of the PSBR, in the end that level has been much higher than it indicated.

While talking about tax revenues, I should point out that at present about £18 billion less is being obtained from taxes than was estimated by the Treasury in November 1994. For 1997–98 the Treasury expects the PSBR to be of the order of £23 billion which in fact has to be compared with the £5 billion which it anticipated in 1994. Nevertheless, the Treasury has now decided that it will be £23 billion. However, looking carefully at what the CBI has written on the subject, it appears that the confederation thinks that that is optimistic and that we could well end up with a PSBR next year roughly at this year's level; namely, some £28 billion. If that is what an objective assessment leads one to suppose, it means that when we come to this Budget the Chancellor of the Exchequer will have exceedingly little room for manoeuvre. It will be surprising if he can do very much, if anything, at that time. One of the things that the Government might do is to say, "Let's not have a Budget; let's leave things as they are. They are going extremely well anyway, what's the point of tinkering with it?" They may say that in the knowledge that if they did have a Budget they would be able to do very little in any event. That is a suggestion that I make without attempting in any way to lead the Government into doing things that they do not want to do.

Looking further ahead to the situation after the election, whatever Government are then in power will have to face up to the fact that, as is usual in such post-election situations, they will have to introduce a number of restrictive measures. That has been widely forecast by economists. This was referred to by the noble Lord, Lord Peston, and I could also pray in aid the economists of Natwest, with whom the noble Lord, Lord Boardman, was closely connected, who have been saying for some time that the expectation is that restrictive policies will be pursued after the election and that such action would in fact damp down the level of growth. A number of measures would then have to be introduced, by whatever government is in power, to get the economy on the right path.

If we were not facing election year, I believe that the Chancellor of the Exchequer, having given us a very small foretaste of what he is tempted to do to correct the economy, would be taking much stricter measures. In fact he will not be able to do so for obvious reasons. That could come later. We face a period of difficulty. If we are to retain and keep on achieving the basic objective to which we all subscribe of having growth with low inflation and having more people at work, then great care must be taken as to how the levers of economic power are exerted.

I return to the point that I made at the beginning of my remarks. It is particularly unfortunate that, once again, we have growth in the economy fuelled by increased consumer spending. How much better it would have been if we could have said—and, indeed, if the noble and learned Lord, Lord Fraser of Carmyllie, could have said—that we take pride in the fact that the basic reason for the growth in Britain is the very high level of investment, both public and private. Unfortunately that was something he was unable to say. We must hope that some future government will achieve that aim.

4.23 p.m.

Lord Craig of Radley

My Lords, much has been made in recent years about improving our ability to spot wealth creating technologies which can be exploited to the benefit of our country. We have seen the successful launch of government-led initiatives such as Realising our Potential; the technology foresight panels; and, more recently, the Information Society Initiative for small businesses.

I had hoped that there might have been some reference to the way ahead for the Information Society in the gracious Speech. Information technology is going to have a major impact on the future and on how government is organised and managed. A chance to give those issues greater visibility may have been missed because other topics demanded too much space in the gracious Speech. I hope that it will not be missed out next time.

Sixty-seven years ago, a world-beating technology was hit upon by a young Englishman, scarcely into his twenties. His ideas were immediately, and widely, judged by his elders and betters to be impracticable, and no more than a foolish young man's dream, even though the theory of what he was proposing seemed sound enough. It was only that young man's persistence, his prolonged and utter determination to demonstrate the practical results of his ideas which won through. Against enormous indifference and an almost total lack of financial and other backing, he eventually succeeded. Many others would have given up and accepted defeat. He did not. In 1930 he patented his ideas, but for the next six years there was no industrial or government interest in the patent and no financial support for further research or development.

When the patent came up for review in 1935, that young man was unable to find even the £5 needed to renew it. By then others began to see sense in his ideas, and after further trials and tribulations the ideas were turned into reality. The reality was the jet engine; the young man was Frank Whittle. Sir Frank died last August, aged 89. It is fitting to pay tribute to his unique technical achievement, and to his determination.

That determination was not confined solely to his invention but almost more to becoming a member of the Royal Air Force, a service which he greatly admired and loved throughout his life. There will not be a Member of your Lordships' House who has not been propelled through the air by a jet engine. Some of us have been fortunate enough to be at the controls of aircraft powered by jets. What a unique technological achievement, one of the most far-reaching of this century, from which so much of mankind has benefited and will continue to benefit. But it was realised through the unique combination of inventive genius and determination. Today's inventors need the same degree of determination if they are to succeed and if the country is to benefit from their discoveries. Determination as much as technology foresight panels is required for success.

During one of the celebratory dinners marking Sir Frank's 80th birthday, I was sitting next to him. In the course of a fascinating and wide-ranging discussion I asked him whether he thought that there was another invention in the offing which could match in the 21st century the worldwide impact of his own development of the jet engine. I asked him, "What should a young inventor, aspiring to succeed today as you, Sir Frank, did half a century ago, be working on?". With almost no hesitation he said that he thought that it would be in the field of telepathy. He described what he meant by talking about the movement of a flock of starlings or a shoal of fish which change direction without any apparent follow-my-leader or other signal. All turn as one and move off in a new direction. His idea was that there was something, he called it telepathy, which allowed the birds or the fish to communicate or react in this unique way. It was something which one day mankind would master for its own use.

If Sir Frank was right to suggest that the next most remarkable breakthrough is going to be in the field of communication, I rather fear that the technology of telecommunication is in danger of outstripping our ability to master it and make it our servant. We need even more visible leads than we have at present and better explanations as to how the technology is going to help us all. Some proposals are contained in the latest report of the Science and Technology Select Committee on the information society. We await the Government's formal response to that report. However, I understand that the Government intend to produce a Green Paper next month which I hope will address some of the ideas contained in that report.

What is already clear is that there are technologies around that will have profound effects on the ways in which government and citizens interact. The concept of separate departmental responsibilities as the tidy and bureaucratic way of allocating and managing activities of direct interest to the citizen may well prove to be awkward and cumbersome for the individual as we move into the electronic age. I chaired a Select Committee on the decommissioning of oil and gas installations and I found it interesting that we were dealing with one government department, the DTI, as the lead department for government. The relevant Act was of course overseen by them, but they were co-ordinating the views of a raft of other departments, ranging from defence, the environment and the Foreign Office to transport, MAFF, the Scottish Office and of course the Treasury. Therefore the DTI was in effect providing a form of one stop shop to handle our inquiries. Contrast that with the way that we were provided with evidence for the Information Society Report. We were confronted by a whole range of government departments and agencies, each giving evidence covering its own particular and at times insular interests and involvement with IT. In all we took evidence from no fewer than 10 of them. John Citizen in front of his PC will soon be pressing government for more one stop shops to meet his particular needs.

Unlike the other place, the inquiries of some Select Committees in your Lordships' House do not track the activities and responsibilities of single government departments. I think that that is entirely right. However, I believe that there will be major changes in the way that government do their business with the citizen as the latter becomes more and more plugged into the electronic age. Over 6,000 individuals used their PCs to access the Select Committee report on the Information Society in the first fortnight after its publication on the Internet. Incidentally that was the first report of either House to be made available to the public electronically.

Government must be seen to be embracing this new technology openly and to be giving it visibility and impetus throughout the government service. I hope that the noble Viscount will be able to confirm that the Green Paper to be produced next month will be published on the Internet. No doubt there will be hurdles to cross because of ignorance, because familiar practices must be changed and adapted and because departmental responsibilities must be remodelled. Strong leadership and widespread dissemination of what is afoot will be called for. Even the organisation of government at the highest level of Cabinet and Cabinet Committees may be swept up in the changes.

There is a good book on the subject with an appropriate title: Unpredictable Certainty. The information revolution is that certainty. It is going to impact on all that we do and make and invent; on how we educate and on how we provide medical care; how we pay for goods and services; how government collect taxes, and much more. It is already proving to be transdepartmental. I hope that when the noble Viscount replies to the debate he will have a moment to say how he sees government responding—as I believe that they must—to this 21st century parallel with the impact of a Whittle jet engine.

I find it difficult in the debates on the gracious Speech to identify the appropriate day on which to raise some of these issues. None of the groupings set aside for each day of the debate quite fits. However, I hope that the overarching value to wealth creation which the information age is leading us towards falls as naturally into the topic of industry and economic affairs as any other—if not, I crave your Lordships' indulgence. I was in any case tempted to raise these issues today when the noble Viscount the Lord Privy Seal, who is chairman of the Ministerial Committee on Information Technology, is responding for the Government.

4.35 p.m.

Lord Howe of Aberavon

My Lords, one of the attractive features of your Lordships' House to which one gradually becomes accustomed is the way in which in a debate such as this a speaker of the distinction of the noble and gallant Lord, Lord Craig of Radley, is able to judge sensitively how to manage the rules of order of the House, if any, and to raise a topic as fascinating as he has done from which we have all learnt a great deal. I join him—as everyone would—in paying tribute to the memory of Sir Frank Whittle. However, I was interested in the noble and gallant Lord's confident description of his own ability to handle the controls of a jet engine. I am sure I speak for many others in the House when I say that such a prospect would absolutely terrify me.

However, one must acknowledge that the task of handling the controls of a jet engine is a great deal easier than was the task of at least half a dozen Members of the House—three of whom are present at the moment—of controlling the economy when they were Chancellors of the Exchequer. I see that the noble Lord, Lord Healey, nods his head enthusiastically. The noble Lord had a trying time during his tenure of that Office. I recollect that his last three budgets were introduced under an increasingly bizarre degree of surveillance. I believe that in 1977 it was that of Mr. Witteveen from the International Monetary Fund; in 1978 it was that of Mr. Pardoe, the Member for North Cornwall in the Lib/Lab Pact; and in 1979 the noble Lord was compelled to introduce a budget in consultation with myself when a general election had just been declared.

However, I must try to avoid invidious comparisons of that kind and return to the path that lies ahead; namely, the last major political set piece before the election, the Budget which the Chancellor of the Exchequer will introduce in a few weeks from now. I agree entirely, and not surprisingly, with the view expressed by my noble and learned friend Lord Fraser of the present state of the economy. However, rather than cite his judgment I wish to refer to that of the Governor of the Bank of England who said quite simply, Average annual retail price inflation has fallen from around 12¾ per cent. in the 1970s to 7 per cent. in the 1980s to 4½per cent. in the 1990s and to 2¾; per cent. over the last four years". He said that we were in, our fifth successive year of relatively steady growth—at a rate above that of most of our G7 partners…Unemployment has fallen consistently over the past three years to the lowest…in any of the larger European economies…Accompanied…by more stable as well as lower nominal interest rates, and by much more stable effective exchange rates". Therefore the fundamentals remain extremely good. I am reluctant to endorse that by accepting my noble and learned friend's invitation to plead guilty to any charge. He will understand that I have a professional reluctance to plead guilty to a charge, even at his invitation. However, I prefer to put it another way and acknowledge the success of Her Majesty's Government in transforming the reputation of the country as it was bequeathed to us some 17 years ago. Congratulations for that of course go to many Members of the present Administration but particularly to the present Chancellor of the Exchequer. The noble Lord, Lord Peston, was glad to claim credit for his recent introduction to this House; but I take a little credit for the fact that the first office of any kind held by the present Chancellor of the Exchequer was as my Parliamentary Private Secretary exactly a quarter of a century ago. It has taken him a long time to reach his present post.

I listened with interest to the speech of the noble Lord, Lord Ezra. It had a dismal tone about it. I was surprised by his reluctance to acknowledge that the real success of the economy—of course there are many things yet to be done—is due to three factors achieved by this Administration and its predecessors over the past couple of decades. The first factor is the liberalisation of the labour market and the almost complete disappearance of strikes in the private sector. Secondly, we have shaped an enterprise-friendly tax system. In that regard just one figure gives an interesting insight. In 1978–79, the share of taxation paid by the top 1 per cent. of income earners in this country was 11 per cent. Last year, it had risen to 17 per cent. The share paid by the top 5 per cent. was 24 per cent.; last year it had risen to 34 per cent. It is that fruitful generation of tax revenue which the Labour Party still threatens, at least in the mind of Mr. Gordon Brown, to reverse. Thirdly, those features, together have created a hugely hospitable environment for inward investment, as my noble friend says. We can rightly see that Britain is perceived by the world outside as the enterprise centre of Europe.

The question now is: what should the Chancellor best do to preserve that? It requires above all that he should take no risks either with inflation or with the macro-economic balance. I am glad that the noble Lord, Lord Peston, has spent some of his time reading the memoirs of myself and my colleagues. I have to say that what he seems to have learnt from them shows that he still has some way to go on the learning curve. It is very sad to hear a professor of such economic distinction lapsing into the habit of dismissing monetarism as though it were a factor that had come and gone. No economic minister in the world fails to give it a position of prime importance in his economic management. Look at China, India, or even Russia, where the noble Lord will find one of his professorial colleagues from the London School of Economics advising Russian economic managers on the importance of monetary policy.

Of course one has to have an effective monetary policy; and alongside that there has to be effective management of the public sector fiscal deficit, borrowing requirement or whatever you call it. Even if Maastricht had never been invented or discovered, those would have been essential requirements for sensible economic management. That is why I welcome the decision announced today to raise interest rates by the figure identified. There has been developing in recent weeks and in almost every quarter of the market-place, near unanimity on the need for that. It is best expressed by someone whom noble Lords may be surprised to hear I admire, Timothy Congdon, of Lombard Street. We do not agree with each other about the role of monetary mechanisms in the international sense, but he has always been a very shrewd assessor of the state of monetary policy in the national economy. That is why I welcome the interest rate increase announced today.

However, that is not an alternative to fiscal prudence. The noble Lord, Lord Ezra, was entirely right to mention the need for that, as was the noble Lord, Lord Peston. It is not the case that the public debt in total for general government financial liabilities has throughout the past 17 years been going in the wrong direction. In 1979, as a percentage of nominal GDP, it was some 38 per cent.; 11 years later it had come down to 19 per cent. It is, however, right to observe, and with some anxiety, the fact that it has since been going in the wrong direction. The fact is that the forecasts of the likely out-turn in the current year range between some £25 billion and £30 billion. That is about twice as high as the expectations of two years ago. It certainly means that the Chancellor should take very serious account of that. The figure last month, £3.4 billion, was at least £1 billion more than expectations. Whatever one may say, and however much one may like to present a glossy view, in the fifth year of sustained growth those figures are too high. The Chancellor must take account of that fact, as I am sure he will.

He will be under pressure, as Chancellors so often are, from those with greater interest in opinion polls than in economic performance. But to them, too, I say: do not forget the extent to which the economy is now delivering the feel-good factor, which the pollsters regard as so important. I ask them: do they not have confidence in their own case? We have only to look at what has happened to unemployment: down, as I said, by 900,000 from its peak; and last month's fall was the largest for two years. That is good news. It is news to feel good about. They have only to look at their own posters. Rising living standards for the average family are up by £700 per annum since 1992. That is good news. It should be used as a foundation for economic wisdom. Taxation is not as low as in the United States, where the figure as a percentage of GDP is only 31 per cent. But our figure here of 38.4 per cent. is much lower than the 45 per cent. that is characteristic of European economies. So let the party managers as well as the Treasury Ministers count their blessings. Let them feel good, as they are entitled to do. Let them feel good, as they are also entitled to do, by feeling right, too. That makes you feel really good.

The strategic judgment is clear. The present combination of monetary and fiscal conditions is as politically benign as can reasonably be expected. Better than that, it is helping to rebuild the reputation of this Government for competent management of the economy, once one of the strongest cards of our party. If that is to be maintained, restraint on the fiscal front is equally necessary. The Chancellor has to accept that insight, and he will do so, no doubt, with the full support of the First Lord of the Treasury.

In a notable speech to the party conference, the Chancellor said: We have to follow one Tory golden rule. We only cut taxes when we can afford to, and when it is good for the economy". He should not be beguiled by the misguided competition being offered by the Shadow Chancellor, bidding for ever-lower starting rates of taxation.

But that is more than enough "small print". Let me, rather impertinently, revert to my own shadowy past. My central message to the Chancellor, and even more to his colleagues, is that if he wants to go on feeling good and, above all, feeling good tomorrow, he must go on feeling right today.

I recall with some immodesty the press comment on my pre-election budget in 1983. That charitable organ of public opinion, the Daily Express, said: The empty budget box". That graphic organ of public opinion, the Sun—in those days still being kind to the Conservative Government—said that, Like a stripper in the bible-belt, Sir Geoffrey has gone as far as he could go". And in the Daily Mail—and this is the real wisdom—Patrick Sargent said that it was, An electioneering Budget of the modern sort … meant not to tickle us in our pocket but in our sense of virtue". I hope the Chancellor might feel encouraged, as well as fortified, by the severity of my advice.

4.47 p.m.

Lord Currie of Marylebone

My Lords, I had not expected to address the House so soon after the gracious welcome given to me yesterday. However, my noble friend Lord Peston advised me that to speak in this part of the debate on the gracious Speech dealing with economics was too good an opportunity to miss. My noble friend did not tell me that the speakers in the debate would be so distinguished. Had he done so, I might have had second thoughts. I feel extra trepidation given the fact that I believe I should be both brief and non-controversial—which is rather difficult for a business school academic such as myself. I shall have to bite my lip about one or two matters on which I should like to comment arising from what has been said and what may come later. In addition, I cannot pace up and down, as I normally do; and I lack the security blanket to which I am accustomed, namely that of the overhead transparency.

I am reminded of another debut that I made not very far from here, in the Purcell Room. It was not, I hasten to add, the sort of debut that one normally associates with that place. I was faced with a full house of executives from the construction industry. That was a number of years ago, when I headed the forecasting team at the London Business School and was still headstrong enough to think that one could predict the twists and turns of the British economy. That day my computerised crystal ball was especially gloomy, so I did not expect to be invited back. I was sorely tempted to take out my rather neglected clarinet and play a few tunes. I thought it was the only opportunity I should have to play in that wonderful recital room. I regret now that I did not, as my forecasts were almost certainly as error-prone as the music might have been. It is worth adding that most of the authoritative forecasters, the OECD, the IMF and others quoted in the debate today, rarely achieve a more than passable melody in their forecasting record.

Noble Lords will be relieved to hear that I have no such temptation today, since I should hate to lose the valued friends that I already have and those I hope to make. I hope in time to contribute regularly to the debates in this House in my three main areas of interest; namely, the economy and economic policy, education (especially higher education and management education) and constitutional reform. Today I should like to focus on the first of these.

I was born immediately after the war. My generation has seen the UK economy slip from a position of pre-eminence to 18th in the prosperity league, largely because we have had a growth rate of around 2 per cent. over the long term in the British economy over those decades. One has to be very careful in looking at the economy to ignore the froth of the ups and downs of the cycle. The underlying trend has not changed greatly. As a result, we have slipped down the prosperity league and are now behind most of the countries in Europe that we would wish to compare ourselves with, and in addition a couple of Asian Pacific economies. Although the slippage may have slowed a little, we are nonetheless in per capita income levels well below those countries we should like to compare ourselves with.

Things do not necessarily feel so bad. Many of us enjoy comfortable, and rising, living standards. However, that is unfortunately not the case for all. One of the reasons for that is that in the league table for per capita consumption, as opposed to that for per capita income, we are rather higher, around ninth or tenth. That is because we as a nation save rather little, and that bodes ill for the future.

This decline does matter. Without a strong economic performance it is hard to provide the services that we all value and need—healthcare, education, social care, the arts, a good built and natural environment and so on, as well as to address the problems of poverty and social justice that concern us, to provide a society of real opportunity for all, not just the few. This position can feed on itself. I notice that most of the aspiring business executives whom I have the fortune to teach at London Business School come from the more dynamic parts of the world and that many of the British look elsewhere to further their careers. It is important that we reverse that trend, and of course we can do so.

When I started my career as an economist, I thought that the primary responsibility for creating a dynamic and vibrant economy lay with government policy. I now put a slightly different emphasis on that as a result of the close contact I have had with business. Economic performance depends on both business and government, a partnership in which high quality companies work within an effective framework of rules laid down by government. Unfortunately, we have got neither element of that partnership right.

It is true that the UK has some first-rate companies that match the performance of any in the world, but we also have a long tail of bad performers. The extraordinary thing is that, the further down that tail you go, the more complacent those companies become. When asked how they are doing against their competitors, it is the best who pay heed and the worst who are the most complacent. If we could reduce that tail, we would transform the British economy. To do that requires effective management and management education—management not just to ensure short-term efficiency but also to manage the innovation and development of new products for customers and open up new markets.

In emphasising the role of management, I do not suggest that government policy does not matter; it does. Government need to create the right framework within which business can operate. That is not the same thing as simply letting market forces rip. Market forces can easily operate against the public good if not framed within the right policy context. What is needed is the right framework of rules. I would identify six elements that we need to get right.

First, we need a stable macro-economic context for business. I shall not say more about that lest I stray into the controversial issues we were debating earlier.

Secondly, we need to enhance the education and skills of our whole population. Sustained investment in general education is one of the few things that explains differences in growth performance around the world. That is corroborated by East Asian experience. The World Bank found that investment in education for all, not just the elite, was the key explanation for the East Asian miracle of combining rapid growth with equity.

Thirdly, we need to enhance the quality of our management, not just at the top but throughout business.

Fourthly, we need a proper framework for competition and mergers policy to prevent anti-competitive behaviour and the abuse of dominant power. Without such a framework, competition can have adverse effects. This is an area where the current policy framework is deficient.

Fifthly, we need a framework for regulating those parts of the utility sectors where market forces cannot operate effectively but which are so important for other parts of the economy. We need a system that combines efficiency with openness, fairness and accountability.

Finally, we need policies that give effective help to the more disadvantaged sections of our society.

If this set of remarks came from one of my students, I think I would scribble the word "Superficial" at the bottom. I borrow their standard defence: lack of time. Despite the lack of detail and qualification, I hope your Lordships will agree with my basic argument that future prosperity depends on a well-educated labour force and effective management, operating within a sound framework of rules laid down by government. We have not got that right but I am sure that we can do so over the next five years. For that reason, I am optimistic about this country's economic future into the next century.

4.56 p.m.

Lord Boyd-Carpenter

My Lords, I feel that I am fortunate in following immediately on the speech of the noble Lord, Lord Currie of Marylebone, which we have all listened to with very great interest indeed, not least because it was a remarkable speech, particularly so for a maiden speech in this House. It will have been obvious to all your Lordships that this House acquired yesterday a Member of great knowledge and experience in economic matters who will be able to contribute frequently to our discussions. Indeed, he indicated his intention to do so.

I should like to say to the noble Lord how much we appreciated his speech, how much we welcome him to this House and how glad we are that this House has received so effective a reinforcement. The debates in your Lordships' House on economic matters have always been of significance. I make no comparisons with another place, where I was for a good many years; but this House has particular authority in dealing with complex, important public matters. In particular, it has a capacity for discussing economic problems with authority, balance and moderation.

On behalf of all your Lordships I should like to welcome enormously the presence of the noble Lord. We particularly welcome one very unusual aspect. As I recall, the noble Lord took his seat yesterday and has therefore made his maiden speech within 24 hours of becoming a Member of this House. That is perhaps unique. I am sure it has been enormously to the benefit of this House. Perhaps I may say once again how glad I am to have the opportunity of expressing our gratitude and appreciation for a remarkable performance by a very distinguished man.

I shall not go through the career of the noble Lord. Everybody knows that he holds a Chair in economics and that enables him to have contacts with economic thinking and ideas and to address us not only based on his personal background but also as a contact with economic thinking generally.

The debate has now got under way and I should like to comment on only one or two matters on which I happen to have particular views. It seems to me very important that we should seek to maintain the level of taxation at no higher level than it is at the moment. I appreciate that that is a difficulty which faces all Chancellors of the Exchequer as they deal with the Budget. It is essential that, on the one hand, expenditure should not be authorised which will not be met from the Budget and by proper budgetary principles; and, equally, that expenditure must be restrained within reasonable limits. There is always a temptation. Ministers—as a former departmental minister myself, I know it—always have ideas and ambitions for good developments which will nonetheless involve further expenditure. The great problem for the Chancellor of the Exchequer, as my noble friend who sits behind me knows only too well, is how to restrain his colleagues from pushing good expenditure projects to an extent that results in a bad high level of expenditure and therefore inevitably in an excessive level of taxation.

I hope that your Lordships' House takes the view that we cannot possibly meet all the perfectly good causes which seek support from government finance. I suggest that we must exercise sufficient restraint to enable the level of taxation to be kept moderate. If we do not, and if taxation is allowed to rise and go on rising, it is the biggest discouragement to initiative and also, as we have seen in years past, a considerable factor in making people of ability and productive capacity go abroad to exercise those qualities in countries where taxation may seem to them to be a little less oppressive. Therefore, I shall say a few words about one or two areas of expenditure on which there is undoubtedly controversy and for which, if there were no such limiting factor as I tried to describe, there would undoubtedly be a strong case.

First, let me mention the very considerable expenditure that we now undertake on legal aid. Millions are sometimes provided in individual cases. Legal aid has become enormously expensive. It involves retaining members of the Bar of the highest distinction and the legal aid organisation—I say this with regret in the absence of the noble and learned Lord the Lord Chancellor—has become lavish in retaining counsel of the highest ability and most expensive character. Consequently, expenditure on legal aid, as successive questions to the Lord Chancellor have brought out, has risen steadily over the years and is still rising.

I suggest that, although it may be good to provide people who are accused of offences with able advocates to support them, nonetheless there must be a limit to it. On the whole, it is probably better to pay only moderately for the provision of legal aid, which in most cases is quite sufficient. I have been a member of the Bar long enough to recall the days when a guinea could be obtained simply for the asking. The aid could be obtained by anybody who was charged with an offence and could produce one guinea—I am speaking of before the war. It could enable an accused man to pick out in the court in front of him any individual barrister and retain his services. It was quite amusing to watch when someone asked for legal aid in that sense to observe how the more experienced and valuable counsel made a rapid rush for the exits. But it was quite a good provision and on the whole accused people received a very good guinea's worth.

I do not suggest that we should revert to that system. But I do suggest that legal aid is an expenditure which is perfectly good and helpful up to a point but is not entitled to the high priority which would justify it being extended upwards. In my submission, it is absolutely essential that taxation and therefore expenditure should be restrained to only a moderate level.

The same applies to a number of other questions. We are now undertaking big expenditure on the building of prisons and I wonder whether that is necessary. I wonder whether, as a result of the activities of our courts and, of course, the criminal classes, it is necessary to build extremely expensive additional prisons. Why is it not possible to take over abandoned army camps, install moderate security arrangements and put convicted people into them? They may not be very comfortable and they may not meet the progressive ideas of some people with regard to dealing with crime. But I try again to make the point to your Lordships that there is a limit to the amount by which we can increase expenditure and the amount to which it is therefore right to increase taxation. Therefore, although there are certain areas—I have referred to two of them and there are others—where there is always a case for additional expenditure, that case should be allowed to wait at any rate until times are easier.

Finally, I find the amendment rather curious. Obviously, there has been a search on the Benches opposite for grounds for attacking the economic policy of the Government. But it is not true that the standing of this country or its relations internally are subject to justifiable criticism. On the contrary, the prestige of this country today is probably higher than it has been for a long time. The prestige of this country is evidenced not only by the number of would-be immigrants who desire to come in, but still more—as has already been observed—by the considerable investment made in this country by foreign businesses which has considerably helped our economic position.

It is therefore an indication of the barrenness of Opposition policies that, in drafting an amendment to the Motion on the Queen's Speech, it has not been possible to include any practical suggestion. The amendment contains no practical suggestion and no sensible comment; it is just a vague moan, and I hope your Lordships will throw it out.

5.11 p.m.

Lord Healey

My Lords, I must start by paying a tribute to my noble friend Lord Currie for his speech of exceptional charm and humour. It demonstrated a quality which was rare among economists when I was young; that is, a certain degree of humility—it is much more common these days.

I thank my noble friend for drawing to our attention what governments, and particularly Chancellors, of all parties have always found to be our biggest single economic obstacle—the poor quality of the majority of British management. I hope that he will continue to draw our attention to that in future debates and make it one of the focuses of his comments.

I stand before your Lordships as the second Chancellor to speak in this debate; I believe a third is to address us later and a fourth most distinguished one is sitting by me as I speak. But I do not propose this afternoon to talk about the economy in general or about my own record compared with that of others, though I shall be delighted to do so on some other occasion as I have so often in the past.

I would rather talk about a subject which, like that chosen by the noble and gallant Lord, Lord Craig, is extremely important for our economy but is rarely discussed in this kind of debate with the care that it deserves; that is, the proposal for European economic and monetary union. We had some discussion on that in the debate on Monday, but it was discussed almost entirely—with one exception on the Benches Opposite—in the context of whether or not it was a good thing in terms of Britain's political relations with her continental neighbours for us to join the EMU. The question as to whether the economic case was made and what was the nature of it was ignored. I want to say a few words about that this afternoon.

The case for EMU and for Britain's membership of it stands and falls on the economic arguments and not the political ones. I must face the fact that Chancellor Kohl, who is by far the one outstanding statesman in Europe today and whom I am glad to see tomorrow will celebrate the longest period in office of any Federal Chancellor, takes the other view. He has made it clear again and again that the political case for a single currency must take precedence.

There are perhaps two reasons for Chancellor Kohl taking that line. First, he hopes to crown his political career by presiding over the introduction of European economic and monetary union before he may have to face the electorate in 1998. The other reason, I fear—even his best friends will agree with this—is that he does not claim a deep understanding of economics and has never demonstrated it. I believe that he was over-influenced by his own experience in having a single currency adopted for a united Germany six years ago. But the situation there was totally different from the problem which Europe faces in creating a single currency for up to 25 states in a few years' time.

When Chancellor Kohl introduced a single currency in the united Germany, he did so against the public and strong opposition of his economic advisers, particularly the Bundesbank—in fact, the chairman of the Bundesbank resigned over the issue. They felt that it was not sensible to have a single currency to unite two groups which had such enormous disparity of economic performance.

To make the single currency work there has had to be a colossal flow of money over the past six years from West Germany to East Germany—between 3 and 4 per cent. of West Germany's GDP and at the moment £400 billion has passed from West to East to try to make the single currency work. Yet we discovered a week or so ago that 85 per cent. of East Germans still think that they are worse off today than they were when the single currency was introduced in 1990. And 15 per cent. of East Germans are out of work; that is why, in addition to the tremendous flow of money from West to East Germany, there has been a tremendous flow of unemployed workers from East Germany to West Germany. Those two flows are continuing at an exceptionally high rate.

The introduction of the single currency was and still is possible in a united Germany because a single currency was introduced to cover a single people and a single state under a single leader. There is therefore the readiness to make sacrifices in the West and labour mobility is possible because people speak the same language. Those conditions do not apply among the potential members of a European economic and monetary union. Nobody has yet shown how it will be possible to deal with the disparities which already exist and will continue to exist among its potential members. Germany will certainly not be prepared to make sacrifices for EMU such as it made for the German single currency. Indeed, Chancellor Kohl made it crystal clear over recent months that Germany is not prepared to go on paying to the European Community at the present rate, never mind the increased rate that would be needed if we had EMU.

My opinion—I believe it to be a growing opinion—is that the Maastricht criteria for EMU were inadequate. The convergence demanded is purely financial. It concerns the level of inflation, the level of debt, the level of interest rates and the level of exchange rates. There is no concern whatever for growth or employment. And in so far as the biggest countries concerned—France and Germany—have converged, they converged on what the Financial Times the other day described as, a dismal level of economic performance". Low growth and high unemployment have been the price and condition of convergence according to the Maastricht criteria.

Even so, at the present time, as the IMF pointed out last week, only Ireland and Luxembourg already meet the criteria for EMU. France, Italy, Spain and the Netherlands hope to meet the criteria, but only by fiddling the figures. The French Government are now up in front of the statistical court—I did not know there was such a thing—in Brussels for including one-off privatisation proceeds next year in order to justify their claim of a 3 per cent. deficit. Mr. Prodi, the Italian Prime Minister, made it clear that two can play at that game—indeed, three, four, five or six can play at it. Even the Dutch are fiddling the figures, as Mr. Duisenberg, the Dutch central banker, pointed out the other day.

The most worrying problem is that at the moment it seems very unlikely that Germany itself will meet the criteria. We have seen the report of the six leading German economic institutes. I share my noble friend's view of economic institutes and economists, but, in my experience, they are more trustworthy if they are independent institutes than if they are government economists. I am glad to see that the noble Lord, Lord Harris, at least agrees on that. What is quite clear is that Germany cannot meet the criteria. None of the other countries can meet them without fiddling, except little countries like Ireland and Luxembourg. But that does not worry Chancellor Kohl. Indeed, he invited the Prime Ministers of Italy and Spain to meet him in Bonn the other day to tell them that whatever the French said it would be okay.

The fact which very few commentators seem to have noticed is that Chancellor Kohl wants a soft euro. He does not want the new single currency to be as strong as the deutschmark. He told us so in a speech at Easter when he said that if EMU fails, the deutschmark will go soaring up into the stratosphere and German industry will be totally uncompetitive. The fact that the markets believe it will be a soft euro is demonstrated by the fact that everyone has been moving money out of deutschmarks and into Swiss francs. The Swiss economy at the moment is crippled. It has stopped growing because its exchange rate has become, as a consequence, far too high. Even yesterday, when the report by the six economic institutes was published, making EMU less likely, the deutschmark went up on the foreign exchange markets.

Against that background it is not surprising that a large number of people who are the most enthusiastic supporters of EMU are now asking for delay. Outside Germany, M. Delors, Mr. Kinnock, the noble Lord, Lord Tugendhat, and Mr. Duisenberg, who is the leader-designate of the European Central Bank and whose job it will be if they make a muck of it to knock their heads together and put them on short rations—gruel and water—for a long period of time, want delay. Even the economists are now beginning to ask for delay. In Britain there is Mr. MacDougall and the National Institute for Industrial and Economic Research.

Others fear worse than delay. They fear disaster. The noble Lord, Lord Dahrendorf, who I fear may not be here this afternoon, has said that he has now turned against EMU because he thinks it will divide Europe rather than unite it. The one thing we can all agree is that if EMU comes about the East European countries, whose membership of the Union and the single currency are to be desired, can be ruled out. If the thing goes ahead, as Chancellor Kohl certainly wants, it will be a disaster economically and politically because the social strains created by the fight between the central bank and the national governments to try to return to the type of convergence which was originally intended will produce riots in the streets, as we have already seen in France, and certainly demonstrations, as we are seeing in Germany.

We must not ignore the fact that in most of northern Europe—Holland is the only exception—a majority of the people are now against EMU. Sixty-five per cent. of Germans are strongly against it. To set up an organisation of this importance against the will of so many people would be a disaster and a terrible error. Of course it is true that in southern Europe the people seem at the moment to be rather in favour of it, but that is not much comfort because none of those countries is likely to qualify without cooking its books.

"What is going to happen?", I hear your Lordships asking. It is too soon to be certain. My own view is that they will opt for delay over Chancellor Kohl's dead body. That would be wise. If they do not delay, it would be very much better for Britain to stay out than to join a system which is bound to be disastrous in its economic and political consequences. There is no reason why we should suffer from that because, as the Ernst & Young Item Club, which I think uses the Treasury model for its predictions, told us yesterday, by the end of the century, if EMU goes ahead as presently conceived, unemployment will be double among its members what it would be in Britain if Britain stays out.

What I think is the real risk facing Britain if it stays out is that we shall find the pound soaring like the Swiss franc which could have damaging consequences of a completely unexpected nature for our country. I believe that we should argue for delay. We should not fudge the criteria. I was delighted to see Her Majesty's Government's representative in Brussels yesterday join other countries in criticising the French fiddle on the 3 per cent. fiscal debt limit. If we delay, we must then add economic criteria to the purely financial criteria—criteria relating to growth and employment—and we must attack far more carefully the problem of relations between those members of the Union who join and those who do not. If all this proves to be too difficult, we must apply Healey's First Law of Holes—when you are in one, stop digging.

5.28 p.m.

Lord Taverne

My Lords, I feel sorely tempted to follow the noble Lord, Lord Healey, in his discussion of monetary union. However, he raised so many different issues which ought to be discussed separately on other occasions that I shall return to the debate on the economy. I wish to associate myself very strongly with the remarks that have been made about the excellent maiden speech of the noble Lord, Lord Currie of Marylebone. He achieved the unusual feat of remaining both non-controversial and saying a lot of things which are extremely important to the subject matter under discussion.

I am not a great fan of the present Government. But if there were to be a fair judgment of the overall general economic management of the past few years, it would be on the whole favourable. There are claims that we have now the strongest economy in Europe. This I believe is a rash and overblown statement and another example of the frequent occurrence of unjustified self-congratulation, which is just as common in Britain as unjustified self-denigration. If one looks at the fact that productivity is still lower in this country and that our savings and investment are lower, as the noble Lord, Lord Ezra, pointed out, and if one also looks at our poor educational standards comparatively, we cannot claim to be the strongest economy in Europe. Nevertheless, in the past few years we have been catching up and on the whole affairs have been managed reasonably well.

What has been the key to that success? I remember reading the IFS and Goldman Sachs green budget just after the 1992 devaluation. As far as I am concerned that is the source of wisdom on budgetary matters. It pointed out that the problem facing us was to make sure that consumption grew much more slowly than the growth of GDP so that there would be room for investment and exports. That required a very tough fiscal policy and major tax increases. I never thought that we would get them but we did. Taxes were put up despite the election promises, consumption was kept down and the deficit was somewhat reduced, although much more slowly and less extensively than one had hoped.

What is the need we face today? We need a much lower budget deficit, as the noble Lords, Lord Peston and Lord Ezra, have pointed out. Our budget deficit is far too high for the present state of the business cycle. Our deficit ought to be down to perhaps 1 per cent. or 2 per cent. at most at a time of healthy growth and falling unemployment. It must be much lower before we reach the top of the current cycle. That is true irrespective of the Maastricht criteria. Measures which people in the Conservative Party would normally have supported are now denounced because they happen to coincide with some perfectly sensible criteria laid down at Maastricht.

At the same time there are very pressing demands on public spending. If one looks at the main constituents of public spending, the social security budget, health and education, there are no prospects for any cuts being effectively made. Indeed, there is an overwhelming case for a certain measure of increase. If one looks first at the social security budget, all attempts at major surgery in this field have failed. The Secretary of State for Social Security, Mr. Lilley, has, rather to my surprise, proved to be a rather effective and thoughtful Secretary of State. But no one can accuse him of being excessively concerned with the reduction of inequality in our society. Mr. Lilley was determined to cut the social services budget, but he failed to do so. It is still growing even at a time when unemployment is falling. The pressure on the present system from increased life expectancy alone is considerable. So one cannot look for any cuts in the social security budget unless one really goes for a major reform of the whole welfare system, which has so far proved to be a very elusive aim.

When one looks at the National Health Service, one sees that it clearly needs a lot more money. When one looks at our schools, our education system clearly needs a lot more money. The other day a list was published of 1,000 best schools. Where were the comprehensive schools in that list? It is a total denial of equality of opportunity which we all preach and which we all claim we wish to see, if in fact there is this huge gap between schools where one pays and schools in our inner cities.

The current fashion is to concentrate on discipline and morality. They are the obsessions of Ministers, politicians and the media. No doubt that mood will pass. But what education needs above all, important as those other matters are, is more money. There is also a new demand, as the noble Lord, Lord Boyd-Carpenter, pointed out. A recent extra demand on public expenditure has come from the Home Secretary's policy of sending as many people as he possibly can to gaol and of trying to bring our penal system more into line with the American penal system, presumably ending with their rates of crime.

If the Chancellor is the best Minister in the Government then there can be very little doubt as to who is the worst. I for one will gladly volunteer for what I understand is going to be a new society, the Penal League for Howard Reform. Figures were quoted the other day by my noble friend Lord Rodgers of Quarry Bank that the cost per average prisoner is something like £25,000 a year. With prison numbers rising from 40,000 in 1990 to what will shortly be about 60,000, the cost, if one adds on the number of prisons that will have to be built, is enormous. It amounts to something in the nature of £200-worth of personal allowances. So despite the evidence that this will only increase crime, we have the most disgraceful and wasteful public expenditure increase that one can possibly imagine. It is a surrender to the crudest form of populism, despite all the evidence which is available to the Home Secretary.

So what is the position in which we find ourselves? We need a lower deficit. We almost certainly need, and will almost certainly get, a higher degree of public expenditure. We also find that consumption is rising at 3.5 per cent. a year. We also find that there is rather a disturbing increase in the money supply. When the Chancellor has to put up interest rates at a time when the exchange rate has been rising, things are fairly serious.

Therefore, the last thing we need in these circumstances is any kind of tax cuts. The lunatic right of the Conservative Party, in asking for tax cuts at this time, has no more sense on this, as on other matters, than its mirror image, the loony left of the Labour Party, had in the 1970s and 1980s. There is every likelihood that, even with healthy economic growth, the next government are more likely to have to raise taxes than to cut them. I wish that the two main parties would be realistic enough to say so. I do not understand what Mr. Brown—who is a very sensible man, and for whom I have a great regard—is doing in promising further tax cuts. I am not generally much of a party man, but I am very glad that on the economy the Liberal Democrats are both realistic and honest.

5.37 p.m.

Viscount Weir

My Lords, perhaps I may first join with other speakers in complimenting the noble Lord, Lord Currie of Marylebone, on his excellent maiden speech. Secondly, may I humbly take issue with the noble Lord, Lord Healey? He made distinctly uncomplimentary remarks about the performance of British industrial management. With the greatest diffidence I tell him that plenty of us in industry take a similar dingy view about the performance of many politicians.

Lord Healey

My Lords, will the noble Lord allow me? He will recall that the present Secretary of State for Trade and Industry made exactly the same point that I made in a speech the other day. It was also made by my noble friend Lord Currie; namely, that there is a small number of well-performing managements, but the bulk of British industry management is below the international level, with some far below.

Viscount Weir

Thank you. My Lords, today I should like to speak about the private finance initiative. First, I must declare an interest. It arises because I am chairman of BICC, which, with its subsidiary, Balfour Beatty, is heavily involved in PFI projects as successful or preferred bidders for road schemes, hospitals and other jobs to a total of over £600 million.

Had I been speaking a fortnight ago my comments on PFI would have been almost wholly critical. In the past 10 days, however, my right honourable friend the Chancellor of the Exchequer has come forward with some proposals which the industries concerned welcome. Although I do not believe that the Chancellor has gone nearly far enough yet and I am still not at all sanguine that anything like his target of £14 billion-worth of schemes by 1998–99 will be met, nevertheless the proposals must be of some help in moving matters forward.

One bugbear has been the cost of bidding. The successful bidder can absorb his cost, but when there are numerous bidders there is, in national terms, a large loss from the wasted costs which the unsuccessful bidders incur. Those costs are a very serious matter. In the first half of 1995, the total operating profits of the construction divisions of the 10 largest contractors were a pitiful £7 million on a turnover of £4.5 billion. Indeed, it is quite likely that last year the combined PFI bidding costs of just a handful of the larger contractors totalled more than the entire operating profits of their industry. That can be neither helpful nor healthy. Those wasted costs damage the contracting industry, which is today in its weakest state for years. They also erode the pool of risk capital which must be available if PFI is to succeed. Clearly, there is also the cost of lost opportunity, where skilled engineers, estimators and surveyors are tied up and are not available to tender for overseas projects, for example. Apparently, bidders will in future be limited to a maximum of three, save in exceptional cases. That is to be welcomed in principle. It will help to reduce the waste.

At an earlier date the Treasury appeared to encourage the clients of PFI projects to make at least a partial refund of bidding costs. Save in the case of the Channel fast rail link, where a very modest refund was made, I have no evidence of any other bodies making such refunds. The Chancellor has now said that there will be no refunds at all. I do not believe that that will help him in meeting his own objectives.

Other complaints have related to the length of the adjudication process for bids, lack of clarity on contract conditions and, in some cases, the spirit in which the adjudication has been carried out. The cost to bidders is partly in proportion to the length of time the adjudication process takes and to the level of detailed information that is required. None of us wants to see sloppy or hurried award procedures, but to save wasted costs and time it is absolutely essential that the preferred bidder must be identified at the earliest possible stage.

It is also welcome news that the Treasury will now clarify some aspects of contract conditions. I hope, however, that these will not be framed or interpreted in too inflexible a way and that they will be derived from experience rather than theory.

Although it is rational that a PFI scheme which has a heavy weighting towards construction costs should be led by a contractor, in many cases the ongoing running costs are the main cost element. Therefore, I hope that as experience is gained and PFI becomes better understood, companies which are primarily providers of services will become much more willing than today to lead bids.

There have also been difficulties on the strictly financial side of PFI. One problem relates to the conditions under which the successful bidders for a particular scheme can eventually sell on their interest so that the limited risk capital available can, in effect, be recirculated. The Chancellor's proposals here are certainly welcome but, again, they have to be interpreted with flexibility and imagination if they are to be effective.

Two other interrelated financial problems are the degree to which a particular project is readily bankable and the cover provided if, unfortunately, a PFI client eventually has difficulty meeting his commitments towards the PFI scheme. I know that those subjects are being addressed, but a much clearer position needs to be developed quickly.

Rather more difficult than the mainly practical issues which I have mentioned so far are both the spirit and the level of competence with which some public sector clients have approached the whole scheme. I regret to say that some clients have looked at it as little more than an opportunity to conduct a Dutch auction. I have already said enough about the financial state of the contracting industry to have, I hope, made it clear that the industry simply cannot afford Dutch auctions. It is nothing but an abuse of ethical contracting procedures to adopt such an approach and it is no more likely to produce a satisfactory end result than confrontational contract management by a client ever does.

On the question of PFI clients' competence, it is essential that clients are certain that they need the project and that they are sufficiently clear about just what it is that they do need and what they can actually afford. That is particularly important in the health and hospital field.

Quite apart from that, clients need to be clearer than some seem to be in understanding the nature of risk and risk transfer. Without going into a very complex field, I would just say that it is pretty useless for a PFI client to try to allocate risks to the contracting party which the latter can neither ascertain nor control. The end result can be that the contractor, who does not have a strong balance sheet, is forced by prudence to take so pessimistic a view of risk that the costs are needlessly inflated.

Clients should also be clearer as to the real nature and potential of the PFI and not just regard it as simply a form of leasing or hire purchase. In that context, I was not much impressed by the suggestion that I saw last week that the MoD should consider leasing battle tanks.

Currently, the PFI requires skills not previously often needed by those in the public sector. To make up for that requires both training and the proper dissemination of experience. On the latter point, the Chancellor's remarks were encouraging. Many people in the public sector must now be prepared to be much more decisive and to take more risk than they have traditionally been asked to do. There also needs to be a proper and real willingness by some public bodies to release control of projects once they pass into the PFI scene. I can, of course, understand that it is not easy for an authority to accept that a new PFI-built road does not actually belong to it.

In conclusion, I remain a strong supporter of PFI. I want it to succeed. I am sure that most taxpayers will share that sentiment. As I have tried to say, however, this is a complex area and one that is still fraught with difficulties. I therefore support what the Chancellor is trying to do through his recent proposals to improve the situation, and if I am forced to say that he has not yet gone nearly far enough and that much remains to be done I hope that that will not be considered a meanspirited comment on my part.

5.48 p.m.

Lord Barnett

My Lords, perhaps I may advise the noble Viscount, Lord Weir, that I too would like to see the private finance initiative being more successful. The trouble is that, whether he likes it or not, the Chancellor is using PFI as a means of cutting public expenditure. That is what it is about as far as the Chancellor is concerned. He is taking account of billions of pounds which he may or may not obtain. That is the real problem, but I do not want to go any further down that road.

I say to the Minister that in the sense he put it the economy is strong. I do not dispute it. Of course, he omitted to tell us with what he was comparing its strength. It is strong compared with the past 17 years of recession. He forgot to mention that. He talked about growth with low inflation. My noble friend Lord Currie, in a notable maiden speech, pointed out that in the coming year we might. have a high rate of growth but what mattered was the average. The average of the past 17 years has been about 2 per cent. That is far too low if we are to get anything out of the economy to help those in desperate need.

My noble friend Lord Peston—perhaps it was my noble friend Lord Healey—pointed out in his brief remarks that low inflation was not really low in the sense that we needed it. While I am delighted to see unemployment coming down, employment is not going up but down compared with what it was. That is an important matter which was not touched upon. He also did not touch to any great extent on the exchange rate. At the moment it is strong. It may be too strong for the reasons referred to by a number of noble Lords. Moreover, manufacturing industrial investment is poor on the basis of any examination of the subject. Despite the words of the Minister, although inward investment is good one would like to see it sustained in future.

That leads me to the vital decision to which no one has so far referred other than my noble friend Lord Healey. As usual, I do not necessarily agree with every word he has spoken. Having worked with him rather closely for five years, he will not be surprised that I do not agree with everything he has said. I was sorry that neither of the two Front Benches touched on the vital decision that will face whoever is in government next year. I hope that it will change in May of next year, if not earlier. I believe that my noble friend Lord Peston touched briefly upon this subject but not sufficiently. The real question that faces this country is whether it will be in or out of the economic and monetary union. Certainly, inward investment would be hit rather badly if economic and monetary union succeeded and this country was outside. I will come to that and take on board the points raised by my noble friend Lord Healey about the decision to be taken. That decision will have to be taken fairly quickly after the next general election. For that reason, it is unfortunate that both parties, including my own, have left open the subject, although in a recent important speech Mr Robin Cook left the matter a little less open than in recent times.

I suppose that the only decent outcome of the General Election would be the intervention of the Referendum Party. While I do not welcome it, during the course of the election it might provoke discussion on the important topic of whether we should be in or out of the economic and monetary union. I should like to see a successful economic and monetary union and Britain part of it, but I have considerable reservations. First, I have a very strong reservation about the European central bank. I am concerned about the control, accountability and power of that bank. The powers must take account of much more than just inflation. It would be disastrous for the economy of Europe if the European central bank was concerned only with inflation, as appears to be the case with Mr. George and the United Kingdom's central bank. To make prices alone the concern of a European central bank is far too restrictive. Indeed, the constitution of the Bundesbank and the Federal Reserve in the United States must take account of much more. They have to take account of other economic objectives—which I should like to see happen here—including growth and employment.

My second reservation before we join is that there should be sustainable convergence, not just in the United Kingdom but in other countries. My noble friend Lord Healey referred to fiddles and cooking the books—something about which I know nothing, as he will be aware—to get borrowing within 3 per cent. of GDP. I forgot to mention in the context of the Minister's speech that public expenditure is now higher than when I left it in 1979. That is their great success story. I do not complain, because I cannot think of any areas of public expenditure today that I would like to see cut.

But sustainable convergence must occur not just in the UK—I should like to see that too—but elsewhere. As my noble friend Lord Healey pointed out, it is by no means certain that Germany will achieve it without cooking the books. That certainly applies to France. If there were economic and monetary union without us, or even with us, and Herr Waigel, the German Finance Minister, sought to impose penalties on those countries which, having forced their economies to fit within the criteria, then fell outside them, his idea simply would not work. I noted that in a recent discussion in the Commission agreement could not be reached on what the penalties should be. If one has to invoke very heavy penalties, frankly the whole of EMU will fall apart.

Another important problem which dominates the arguments of the Eurosceptics is the political one. It is said that there would not just be a federal state of Europe but the abolition of nation states and we would lose not only the pound but the benefit of the UK itself. I am bound to say to those Eurosceptics—including one or two very distinguished noble friends with whom I constantly disagree—that in practice, apart from perhaps Herr Kohl, most other states in Europe do not want to see their states disappear. It will simply not happen. I do not accept what the Eurosceptics say in that sense. There will continue to be a union of nation states with a great deal of subsidiarity, which I would have thought the sceptics would have wanted to see. Without transferring power to a democratic—I emphasise "democratic"—European Union, I would not be alarmed if that transfer were made. What I consider to be alarming from the point of view of the UK's economy is the prospect of a European Union with a strong economic and monetary union but with the United Kingdom outside it. I would be particularly concerned about that and would be alarmed by it.

It is a great delusion on the part of the sceptics that there would be a loss of sovereignty. Frankly, in the economic and fiscal sense we have very little sovereignty at the moment. I suppose the idea is that if we stayed outside we would be free to devalue. In the situation in 1964 to 1967 I strongly wanted devaluation. But the idea that somehow devaluation is a panacea is nonsense, as most of us will understand. Of course it is not. For the most part, when it has happened the benefits have been dissipated very quickly. Without EMU the pound has lost one-third of its value since the UK joined the European Community (as it was then)or certainly since 1979. I concede at once that both governments have frittered away the benefits of devaluation. Certainly, the present Government had a substantial devaluation—it was called "floating down"—following the disaster of the exchange rate mechanism.

Provided we have the right kind of criteria and conditions, I should be willing to join an EMU, and be happy to see us in it. But first we should not be forced in by foolish action to meet a 3 per cent. Maastricht criterion; secondly, when we do meet it, it should be sustainable; thirdly, the European central bank should have its powers changed and there should be control and accountability in the way I have described; and, fourthly, we should have real low inflation, real higher growth, and real falling unemployment, different from the current situation, and the exchange rate should not be too high, unlike the rate at which we went into the ERM.

It may well be impossible for us to join the EMU in the first phase, and I would regret that. It would not be a disaster provided the right economic policies were pursued from outside to enable us to join at a fairly early stage. I believe—I am not sure about my noble friend Lord Healey—that the economy is reasonably strong. It is stronger than the one we inherited in 1974. I see that he is nodding. In that one sense, we agree with the other side. It is slightly stronger, but not relatively in the economic sense, than what we left in 1979.

The vital economic decision we have to make is whether we should join the EMU. It may not happen by 1st January 1999. There is a strong political momentum in France and Germany, together with four or five other countries, that may ensure that it will happen, despite the enigmatic smile of my noble friend Lord Bruce of Donington. But if the UK does not join, for the reasons I have given, I hope that we shall play an active part in all areas so that it will be a better EMU when we are ready to join, which I hope will not be long delayed.

6.2 p.m.

Lord Clark of Kempston

My Lords, I add my congratulations to the noble Lord, Lord Currie of Marylebone. At the same time I should like to add my congratulations to the mover and seconder of the humble Address (my noble friends Lord Gray and Lord Colwyn).

The debate gives one the opportunity to look at the country's economic situation. I should have thought that the main thing to which people are now looking is the forthcoming Budget. Let us look at the state of the economy. Inflation is low. I do not care much for the criticism of the Benches opposite. When they were in power the inflation rate was over 25 per cent. Ours has been under 4 per cent. for many years. Unemployment is falling. One of the reasons for that is that we have a competitive advantage over our European partners in that our welfare costs, welfare taxes and so forth—the on-costs—on wages are not so great.

While talking about competition and our competitive position, I must say that it would be stupid to sign up to the Social Chapter. That is what is giving us our competitive position, or helping to. The minimum wage is misconstrued by many people who think that the minimum wage stops at the minimum wage. If the minimum wage goes up the gap between the higher paid worker and the lower paid worker narrows. It would mean that the differential would have to be passed on to the higher paid workers.

Many noble Lords have spoken about the single currency. I do not believe that there is any question but that that would lead to a loss of jobs in this country. I agree with the noble Lord, Lord Healey, that the amalgamation of the ostmark and the deutschmark, with the re-unification of Germany, is not analogous to joining a single currency. The trouble with the amalgamation of the ostmark and the deutschmark was that Chancellor Kohl insisted on a stupid exchange rate. He wanted one for one. Helmut PÖhl, who was chairman of the Bundesbank, would not have it. After a suitable period he resigned. There was a compromise, but even so, unified Germany's monetary system was upset because of the number of ostmarks exchanged: one for one up to 5,000, and one for two over 5,000. What the German bankers did not realise was that it was not just the number of ostmarks in the banks, but the number under the mattresses. They came out as soon as the East German savers could exchange them for deutschmarks.

Mention has already been made of our strike record. There is no doubt—I do not think anyone denies it—that it is due to the action of the Government under my noble friend Lady Thatcher. We should compare our strike record with that of our competitors abroad. Compared with France, Germany and Italy, we are in a better position. We have not lost many days in strikes.

The balance of payments is important. Our exports are going up. Some Labour critics say that too much investment from this country is going abroad. I would remind your Lordships that in many cases to break into an export market one has to have a financial base in the country. The only way one can achieve a base is to invest. In the long term, that is good. One should compare outward investment with inward investment. There is far more investment coming into this country than is going out. Why is that? Apart from our competitive position, there is our low rate of corporation tax—the lowest in Europe—at 33 per cent. with a lower rate of 24 per cent. Our unit labour costs (the costs of production) are much lower in this country. They are favourable. That is why this country receives 40 per cent. of all investment into the EU. As was said by my noble and learned friend Lord Fraser, not only are Japan, Taiwan and Korea investing in this country many US firms are also investing here.

One thing we are inclined to overlook is the role of the City of London in our economic performance. Our invisible earnings are extremely important. They are as important as our visible earnings. The exchange turnover in the City is greater than that of Tokyo. In addition, there is tourism. In 1995, 24 million came here. They spent £12 billion. That is a boost to our economy. As has already been mentioned, our production is up. On the latest figures it is up 3 per cent. The building industry is stirring. Orders are up.

The success of the economy is not as regional as it was. The economy is improving all over the UK. If we compare the totality of this Government's economic policy with 1979, the standard of living of every man, woman and child in this country has increased. The UK economy is healthy. That has been confirmed by the IMF. It gives the Chancellor of the Exchequer the opportunity to make prudent tax cuts.

The number one priority for any government is to control public expenditure. We have had some success in controlling public expenditure. I am worried that in many cases the tendering price for a contract given by the Government is being exceeded by many millions of pounds. There should be tighter control and anyone in charge of such a tender should be replaced.

Each department has a budget which I hope is monitored every three months. If there is an overspend which cannot be explained economies should be introduced immediately. However, we are inclined to overlook the underspend in budgets. A budget is only an estimate made at the beginning of the year and a continuous underspend might mean that the initial estimate was wrong. I believe that such a budget should be reduced. That would stop departments in the last quarter of the fiscal year issuing contracts in order to eat up the balance of the budget, thereby retaining their budget for the ensuing year.

Furthermore, as regards the control of public expenditure, more emphasis should be placed on the percentage of administrative costs to the workforce of all departments. Before any Budget the Chancellor of the Exchequer and the Chief Secretary to the Treasury receive a great deal of advice. The noble Lord, Lord Barnett, will know that such advice is phenomenal. People ask how much the Chancellor has to give away. He does not have a farthing to give away—he has no money. All he can do is reduce taxation, but that is the wrong emphasis. I believe that in the forthcoming Budget the standard rate of tax should not be reduced and advantages should be targeted towards families and small businesses. For too long there has been in our fiscal policy a divide between married couples and the remaining taxpayers. I wish to see any prudent reduction in taxation geared towards the married person's allowance. It is part of Conservative policy eventually to abolish inheritance tax. That will not be achieved this year but the Chancellor could make a start by increasing the threshold of £250,000. I should like him to examine the 40 per cent. inheritance tax and to have a differential between direct descendants and other people who benefit from an estate. The rate should be reduced for children, grandchildren and great-grandchildren in the direct line.

One of the jewels in our economic crown is the growth of small businesses. There are 1 million more small businesses than there were in 1979, making a total of 3.6 million in the UK. It is the only area of our economic structure in which we can continue to reduce unemployment. It would be a great help to small businesses if the threshold for VAT was increased. Furthermore, we have been promised less bureaucracy but I believe that the introduction of self-assessment for income tax will cause chaos. In many cases, the documents relating to self-assessment are gobbledegook and I believe that they will add to bureaucracy.

I should like the Chancellor to examine capital allowances. There was a loophole as regards leasing and the 100 per cent. capital allowance, but it is not beyond the wit of the parliamentary draftsmen to ensure that that is closed. I should like to see the figure of 100 per cent. reimposed. Being close to a general election, the Chancellor must be careful about his Budget, which will be a tricky one. It must not be a giveaway Budget but it should give confidence to the voters. A mixed Budget to help families and small businessmen would be welcome and within the capacity of the economy. I am delighted that the gracious Speech indicates that we shall continue with firm financial policy.

Finally, I do not know where the noble Lord, Lord Peston, has been during the past few years. I believe that tabling an amendment suggesting that our reputation abroad has decreased indicates that he has not been abroad very much. Our economy, in particular our privatisation, is the envy of most countries and many countries are following our example. Therefore, I do not believe that we need bother about our reputation abroad being harmed.

I was delighted that the noble Lord, Lord Barnett, mentioned devolution. The CBI says that devolution in Scotland will harm business and consequently it should be scrapped. We have a healthy economy and I hope that we shall continue with our firm policy of the past few years. It would be folly to throw away the golden opportunity before us by introducing the social chapter or the minimum wage. We as politicians should stop running down our country's economic achievements and should start talking up our economy.

6.17 p.m.

Lord Bruce of Donington

My Lords, while I was listening to the noble Lord, Lord Clark of Kempston, I wondered not only whether he was of this country but of this world! His remarks appeared to be nothing more than a blanket endorsement of the opening speech of the noble and learned Lord, Lord Fraser of Carmyllie. The noble Lord's speech was extraordinary. One wondered whether he was living with us at all because, according to him, for the past 40 years this country has never been in better financial and economic shape. He selectively quoted some figures and I picked up in particular on the figures relating to unemployment which he said is decreasing. The Government appear to be getting away with their contention about unemployment decreasing and the press has not been discerning in picking up the deception. Of course, when the Government refer to unemployment they refer to claimant unemployment and not to actual unemployment. Whenever they want to reduce the unemployment figure all they do is tighten up the claimant rules, which automatically produces that result.

The Government have made 32 changes in statistical definitions of unemployment since they came into office in 1979. Earlier this year, the Royal Statistical Society was good enough to publish details of the consequences of the changes which have been made in the statutory definition of unemployment. It detailed its conclusions and that resulted in the artificial deflation of the unemployment figures by more than 1.5 million. Therefore, far from unemployment—and I mean real unemployment—going down in this country, the reverse is true: unemployment has remained substantially static at between 3 million and 3.5 million. The only thing that has varied and reduced the figure is the redefinition of what is a claimant.

The Government and their supporters make statements that we have never had a sounder economy for more than 40 years. I wonder how that squares with the observation which they have made, and made officially, concerning the measures which they have taken. They say that if it is not hurting it is not working. More recently they, or Conservative Central Office, have come up with the slogan "It hurt but it worked".

On looking at the Benches opposite, I do not see any signs of particular physical injury. I do not see that anybody there has been hurt in the slightest, nor have the sections of the community from which they normally derive their political support. I do not see those whose salaries in the City have risen from £100,000 to £300,000 being hurt in any way. Therefore, what is meant when it is said that it hurt but it worked? Whom did it hurt? The answer is that it hurt the poorer people of this country, the underclass of something between 30 per cent. and 40 per cent. of our population, of which 14 million are living below the poverty line. That does not sound to me like a whole and healthy community; it is they who are being hurt.

I hear economists, some amateur and some professional, making the statement that we must not have a consumer-led boom. What do they mean by that? They mean that consumption must not increase. But of course, if the 14 million people living below the poverty line are to have any relief, it means that their consuming power will increase. Therefore, when a stabilisation of consumer demand is advocated, in fact what is advocated is a continuous condemnation of that section of the population to a standard of life of which we in the democracy of the United Kingdom should be thoroughly ashamed.

In that connection, I am a little less happy than usual. I have been in politics since 1931, which is rather a long time. Some of my noble friends say that I am now out of the mainstream of British politics, whatever that may mean. But it simply will not wash. We should not allow 40 per cent. of the population to continue to exist in that social framework for longer than necessary. It is far better that we take risks to better their lives and to increase their consumer power than it is to obey the somewhat arid dictates of the banking community.

I am very often fascinated by the devotion that is apparent for bankers. I am bound to say that that is so among all sections of the community. In my experience, bankers are not divine. I seem to remember over the years a number of errors which have been of such astronomic proportions as to cast serious doubt on the profession as a whole, as of course distinct from the distinguished individual bankers which we have in your Lordships' House. There is an uncritical acceptance of the omnipotence and, indeed, the wisdom of bankers. And yet, provided that we comply with the existing drift towards economic and monetary union, if there is 100 per cent. accession to the single currency, we shall be giving complete power without any outside interference whatever for eight years following their appointment to 15 of those bankers. I have seen what bankers have done in six months. But to give a gaggle of them eight years free of any democratic control whatever seems to me to be rather daft.

I note the gradual conversion of my noble friend Lord Barnett, with whom I have had many exchanges on this matter. My noble friend is not ashamed to say—and all honour to him because at least he does not sit on the fence—that he believes in a single currency but he now qualifies that by saying provided that there is more democratic control over the European central bank, which he knows under the text of the treaty is completely forbidden; and provided that extra convergence measures are taken in order to make the economies move closer together, and he knows that that is not in the treaty and would require treaty amendment. Nevertheless, I must say that I take his conversion almost as a personal compliment, since I have been a member of his sub-committee for three or four years. That is all very gratifying.

Gratifying too are the observations of my noble friend Lord Healey. I could hardly believe my ears when I heard such distinguished support for the arguments that I have been seeking to put before your Lordships for the past four or five years. Indeed, that fills me with new hope and expectation.

We are getting near the election. One of the things which makes me depressed is the quest of all the political parties for the high moral ground. I object to that. The way to take the high moral ground is to advocate and take specific measures which in themselves tend to make society a more moral place within which to live. There are fields of action rather than fields of ambiguity. And yet, that is what is happening.

At the moment, we have the somewhat indelicate spectacle of seeking to outdo one another in the degrees of moral probity to which we should like to ascribe ourselves. The effect is not fascinating. At present we are in a position where great generalities are being uttered but we hear very little on specifics. My prediction in that connection would be that those parties who think that they can get the British people interested in supporting the ideals which they are putting forward will be sadly disillusioned if they continue not to define the things that they want to do with some precision; that applies also to the things that they will not do. That is the way to treat an adult electorate. I sincerely hope that that may happen.

I cannot really close my remarks without making some reference to the line that I and some of my colleagues have ventured to take, though not always so popularly as today, with the whole Maastricht Treaty. Here we have one of the most contentious treaties involving further limitations to our liberty and further limitations to the field within which we have to operate economically and in which we have to operate in trade, in the professions and indeed in culture, education and so on. Yet no party other than the Liberal Party—whom heaven preserve in triplicate—is prepared to abandon neutrality on the Maastricht Treaty. My own party supported the treaty on the ostensible grounds that it would contain the social chapter if they got back into power. Therefore, we should not be against Maastricht because it was capable, provided that we were returned to office, of embracing the social chapter for Britain. The party opposite invited support for the Maastricht Treaty because, otherwise, the opt out from the social chapter would not come into operation. I do not believe that that is the kind of attitude that a serious political party ought to take.

Although it may seem a long way back, I can well remember the time when Parliament was alive with the clash of ideas. One could put forward one's own views and convictions with as much clarity and indeed documentation as one wished. Our greatness as a parliamentary democracy fundamentally depended upon that fact. It was spread among all parties—the Churchills, the Atlees and the Bevans. But now we have a namby-pamby fear of committing ourselves to anything. I hope that that will not last.

6.32 p.m.

Lord Cockfield

My Lords, it is always a pleasure and indeed a relief to follow the noble Lord, Lord Bruce of Donington. When he rises to speak, one always experiences a slight tinge of fear that one day he might find a chink in the Government's armour. When the noble Lord sits down, we know that we have survived to fight another day. On this occasion, like my noble and learned friend Lord Howe of Aberavon, I have transferred my allegiance from the debate on foreign affairs to the debate on the economy. That is not just because, as I have argued before, it is very odd to debate the European Union, of which we are members, under the title of "foreign affairs" but principally because my right honourable friend the Chancellor of the Exchequer in his recent speech at the party conference in Bournemouth said that we ought to be concentrating on the economy. Indeed, that is what I propose to do.

However, before I go any further, perhaps I may just say that I regard Mr. Kenneth Clarke as outstandingly the best Chancellor of the Exchequer that we have had in this country since 1945. But he has had the inestimable advantage of the sound foundation provided by my noble and learned friend Lord Howe of Aberavon on which to build. When I draw attention to a number of problems which beset us at present, perhaps I may also make it clear that these problems are largely ones that he has inherited from his predecessors, both distinguished and undistinguished.

I should like to say a few brief words about the amendment tabled in the name of the noble Lord, Lord Peston, which technically is what we are debating at the moment. It is really most interesting. Here we have a distinguished economist eschewing the economy and economics (which is an intellectual discipline requiring rigour of analysis) and transferring his affections to social cohesion. That is one of those broad moral arguments that allow all men of good will and long speech to waffle away to their heart's content.

Lord Peston

My Lords, I am sorry to intervene but I feel that I must interrupt the noble Lord for a moment. Is he aware that the very greatest of all economists, Adam Smith—indeed, an economist that the noble Lord might just have heard of—took exactly that view of social cohesion and the primacy of the community before the economy? Those of us who have been in that tradition, which has lasted for 200 years, are perfectly happy to keep it going. We do not believe that it remotely indicates a lack of intellectual rigour.

Lord Cockfield

Yes, my Lords; I am most grateful to the noble Lord for his clarification. However, I am much more interested in the noble Lord, Lord Peston, who is still alive and among us, than I am in Adam Smith, who has been dead for approximately 200 years. Before the noble Lord interrupted me, I was about to say that the last thing I would accuse him of was waffling away. However, we all accept that he is a man of good will. Therefore, the comment I was making was in fact very fairly balanced. Indeed, when trying to tell us why he had tabled an amendment in such terms, the noble Lord himself explained that he was tailoring it to the needs of his friends sitting behind him. That was a very valid point to make.

I hope that the noble Lord, Lord Richard, will not object to what I am about to say, although I notice that he is not present in the Chamber today. However, when the noble Lord opened the debate on Monday on behalf of the Opposition, he seemed to think that life began in 1979 and that a veil could be drawn over everything that happened before that date. One only wishes that that could be so; but, unfortunately, it cannot. In this world, both as regards men and as regards countries, reputations are made and reputations are lost and, once lost, they are very difficult indeed to regain.

I shall return to that aspect later, but I want to talk specifically about inflation and the rate of interest. I am not talking about the rate of interest that the citizen has to pay to the bank or to the building society, or the somewhat attenuated rate that he gets on his deposits or savings; I am talking about the rate of interest that the Government have to pay on the borrowings that they make. That is what the Prime Minister recently described as the "blot" on our economic performance.

I raised this matter originally at Question Time on 13th March of this year (at col. 847 of Hansard). As neither Front Bench understood the point, I then explained it in some detail in the subsequent debate on the Finance Bill on 26th April (cols. 1375–8 of Hansard). I received no answer. I do not complain about that, but as the point had eluded so prominent and distinguished an economist as the noble Lord, Lord Peston, it was perhaps unreasonable for me to expect my own Front Bench to be able to deal with it. I have given the noble Lord the Hansard references to enable him to swot up and do a little homework afterwards. When he next addresses his students he can no doubt put the point to them and see what answer he gets. However, at least I shall give him the answer that I have to see what he has to say about that.

Yesterday, 29th October, the yield in the United Kingdom on the 10-year bench-mark bond—which is the measure usually taken in comparing interest rates—was 7.56 per cent. In Germany it was 6.01 per cent.; in France it was 5.99 per cent.; in Holland it was 5.94 per cent., and so on. What that means is that we are having to pay in interest on our borrowings 1½ percentage points more than Germany, France, Holland and a good many other countries. The absolute figures will, of course, be lower with short-term borrowings, but the differential remains very much the same. The rate of interest on longer term borrowings again will be slightly more, but the differential is much the same.

This year government borrowing is likely to reach £27 billion. A number of figures have been given but they are all about that order of magnitude. That has understandably alarmed the Prime Minister, but what ought to alarm him even more is that we are having to pay an additional 1½ percentage points of interest on that money compared with what we would have had to pay had our credit been as good as that of the Germans, the French, the Dutch and a good many other people. What we are talking about is hard cash. This is not economic theory or any of that sort of nonsense; it is hard cash; and 1½ per cent. on £27 billion is £400 million. That is the additional burden being placed on this year's Budget as a result of the fact that our credit standing is not as good as that of a whole range of other countries.

But the story does not stop there because the borrowings we make today impose a burden not just on this year but on future years as well. In just the same way, borrowings in the past impose a burden on this year and future years until such time as those borrowings are repaid. The total national debt by the end of this year will be of the order of £400 billion gross or £350 billion net. The additional 1½ per cent. we are having to pay on that amounts to something between £5½ or £6 billion, this year and every year. It will go up as long as there is an increase in the borrowing requirement from one year to another. Let me put this into perspective: £5;½ or £6 billion represents 3p. on the income tax. In other words, if over the years we had managed our affairs with the prudence of the Germans or the Dutch and a good many other people, we would today have had an income tax rate of 21 per cent. and not 24 per cent. In other words, we would be within sight of achieving what has been our long-term target of reaching 20 per cent., and we could do it without either increasing taxation or reducing expenditure in the sense that that term is commonly understood.

One might legitimately in these circumstances ask why is it that we are still so far from the promised land and still wandering in the wilderness. The answer quite simply is that we are paying the price for 50 years of financial mismanagement, well intentioned but based on delusion; 50 years in which governments, in greater or less degree, felt that they could manage the economy; 50 years of national fiscal sovereignty which has achieved nothing other than a debased currency and added to industrial inefficiency and unemployment and produced an excessive level of government expenditure and taxation. Compared with 1945, the pound is worth 4p. That is the price that we are paying for the illusion of national sovereignty—and illusion is all it is. The sooner we see the back of it the better.

The present Chancellor has made great strides in getting inflation under some sort of control, but after 50 years you cannot achieve success overnight. Nevertheless the financial markets remain unconvinced that this country will not once again resort to inflationary measures to solve its problems. Our ambiguous stance on the single currency adds to those fears. The extra 1½ per cent. we have to pay on our borrowings is the insurance premium the markets exact against the risk of our backsliding. We are far from out of the woods.

We are rightly proud of our recent economic performance. Ministers are fond of claiming that we have the strongest economy in western Europe. The gracious Speech said so, so it must be true. However, if one considers inflation, the position is less reassuring. We are not at the top of the league. In August—the latest month for which comparative figures for the European Union are available—the figures indicate that we were not first, we were not second, we were not third, and we were not fourth. I shall not go on any further because not until one reaches 10th place does one finally catch up with the United Kingdom. The prospect of a Labour Government with a record of financial irresponsibility inevitably adds to fears of rising inflation. I regard the past two reductions in interest rates as unwise and as running an unacceptable risk with inflation. The increase made today of ¼ per cent. is a step in the right direction, but I very much fear that there will be a real need for further steps in that direction before we reach May, however unpalatable that may be.

There have been two developments in the past two or three days to which I want to refer. This morning we had Dr. Gordon Brown committing a future Labour Government to reductions in taxation. Whatever view one may have on the specific measure he proposed—which no doubt is a cost-effective way of buying votes—nevertheless it indicates that in the background there is always this pressure in the Labour Party for giving money away, whether or not that can be afforded.

But the most worrying thing of all was what was said by Mr. Robin Cook in a television interview on Sunday. I do not think for a moment that he intended to let the cat out of the bag in the way that he did. He is a highly intelligent man; that is why he has been put in charge of foreign affairs. However, that did not stop him meddling in economics. He was handing out advice on what the Shadow Chancellor ought to do. He has been interpreted quite rightly by the media as being sceptical on the question of the single currency. But one could see something else underlying what he was saying; namely, the clear intention of resorting to inflationary measures if he thought that that could bring unemployment down.

Inflation always initially brings unemployment down; but there is a bitter harvest to be reaped in future years. It is that kind of thing which underlines the fears that still exist today as to whether or not this country is permanently on a low inflation basis. The nearer we come to the election and the more we hear of the hidden thoughts of the Labour Party, the greater those fears will be.

I had not intended talking about the single currency—an act of considerable restraint! However, I feel it essential to say that I do not agree with a single word that the noble Lord, Lord Healey, says about economic and monetary union. My own account of the dispute between Kohl and PÖhl, which is based on conversations with PÖhl himself, is fundamentally different from the noble Lord's account, which is no doubt based on his conversations with Chancellor Kohl. It is not surprising—

Lord Healey

Conversations with PÖhl. I said exactly the opposite.

Lord Cockfield

It is not surprising that you get a different story according to which of the two protagonists, or antagonists, you talk to. My view is that PÖhl was right and Kohl was wrong, and we should have been saved, as would Germany itself, from many of the troubles into which that country ran had the advice of PÖhl been taken and not that of Kohl.

Lord Healey

My Lords, the noble Lord confirms exactly what I said. I said that Kohl made a great mistake in rejecting PÖhl's advice. I have talked to PÖhl many times about this matter. When I met Germans at an Anglo-German Chamber of Commerce function in London a fortnight ago, including Mr. Schlesinger, previously head of the Bundesbank, they all agreed about this. I made that point, and I am really rather baffled that the hearing of the noble Lord, which used to be so keen, suddenly on this occasion proves so defective.

Lord Cockfield

My Lords, I am most grateful to the noble Lord. If I traduced him by misrepresenting his views I most certainly apologise. I had understood that he was adducing an argument in favour of having political control over the central bank. But no doubt he had a totally different point in mind. At least we now agree that the banker was right and the politician was wrong. That is the strongest possible reason for having an independent central bank. I am glad that the noble Lord and I agree on that point.

Lord Healey

My Lords, I am afraid I think that on this occasion the noble Lord knew that he misrepresented my views. Sometimes central bankers are right and sometimes governments are right. It is a great mistake to do as the Maastricht Treaty proposes; namely, set up a European central bank which is not allowed to take advice from anybody outside its ranks, even from the institutions of the European Union.

Lord Cockfield

My Lords, we are now beginning to open up a major debate on the single currency, which is exactly what I wanted to avoid doing. I was trying to make the very simple point that in the case to which the noble Lord, Lord Healey, referred it was the banker who was right and the politician who was wrong. In my opinion politicians are very often wrong, and I am glad that the noble Lord confirms at least that point of view.

I have gone far beyond the time I ought to have taken. Finally, I agree with a very great deal of what the noble Lord, Lord Barnett, said. The whole procedure has probably been pushed a little too fast—not dramatically so, but a little too fast. I feel, as the noble Lord does, that it would be a major tragedy if at the end of the day this country did not find itself in economic and monetary union and participating in the single currency.

6.55 p.m.

Lord Harris of High Cross

My Lords, unlike the noble Lord, Lord Cockfield, I am quite keen on having this grand debate on the EMU. It goes to the heart of our economic prospects for many decades to come. I join my old friend, the noble and learned Lord, Lord Howe of Aberavon, in particularly welcoming the promise of the Government in the gracious Speech to continue with firm financial policies to combine economic growth with low inflation. Indeed, I warmly congratulate the Chancellor on his record since 1992 and agree that he is probably going in the right direction in nudging interest rates slightly upwards.

The trouble with Mr. Clarke's success, however, is that it was made possible only by our leaving the exchange rate mechanism, and yet he still hankers to return to it. The other trouble is that Labour appears to be even more blind to the dangers of monetary union. However, that was before we heard the speech of my new friend, the noble Lord, Lord Healey, who spoke with the rare authority of another former Chancellor of the Exchequer. He pointed out that monetary union had been sinking in the polls on the Continent. The latest Gallup poll in this country shows that the view once held by a few free thinkers on Europe now holds the field with clear majorities in all parties, including even 60 per cent. of the rather sadly confused Liberal Democrats. Among independent economists the weight of opinion has come down decisively against fusing together economies of differing structures and inflexible labour markets without the shock-absorber of exchange rates to cushion the unforeseeable impact of differential change.

As we witness the pain of preparing for EMU on the Continent, the Euro-elites, as the noble Lord, Lord Healey, said, and our own grandees have shifted their ground from hard economics to the rather airy-fairy politics of Helmut Kohl's "grand vision". I do not join in mocking Helmut Kohl as "an old man in a hurry"—aren't we all! He is the survivor of the generation that remembers Hitler's war. He thinks that a federal Europe is the best guarantee of peace in our time.

In that I believe him to be profoundly mistaken. The Treaty of Rome got it right in emphasising that the chief antidote to national enmities is unforced, cumulative economic integration through open markets, fair competition and free trade. The challenge I put to every Member of this House is the following question: why have we, the great majority of ordinary people in Britain, overcome our post-war detestation, our hatred of Japan? Has it been through slogans about moving to the heart of Asia or "punching above our weight"? No. It is by millions of consumers in free markets valuing the chance to buy Japanese cars, cameras, watches, television sets, electronic gear and so on; and the corollary of Japanese investment in British industry. The great Liberal dictum forgotten by most politicians, not least the Liberal Democrat Party, is that trade unites where politics divide.

Why do we single out Mr. Kohl? He hardly needs to punch above his weight and may anyway be in political decline. The Brussels correspondent of The Times, George Brock, whom I have not always read with close attention, recently argued that the late Nicholas Ridley had been wrong to describe monetary union as "a German racket" because, At the root of many British difficulties in Europe lies not one country but a pair of them: France and Germany". Mr. Brock then explained how this axis has set the agenda and rules the roost in Europe. He continued: Britain is regularly wrong footed by a two-country cartel which has cornered the market in ideas on what Europe should be". Their Europe was once described as a marriage between a guilty husband and a jealous wife. The French, who understand these niceties, managed to keep on top until German reunification. Hence Germany's reluctant consent to sink its own currency into the EMU despite suspicions that the French wanted the opportunity to curb the hard-money men in Frankfurt. It was to calm those German fears that the Bundesbank insisted on central bank independence and what is increasingly shown to be bogus and—as the noble Lord, Lord Healey, said—inadequate convergence criteria.

Against this background of Franco-German realpolitik it was always misguided and, in my view, mischievous for the British Foreign Office to think that it could play one country off against the other. Over and above that marriage in Rome, France and Germany share with other continental Catholic countries a totally different philosophy from Anglo-Saxons about the respective roles of the state and individual freedom. My noble friend Lord Rees-Mogg, also in The Times recently, exposed their collectivist thinking as being drawn from outdated Papal teaching. It puts the social cart before the economic horse and prefers corporatism and consensus to competition and challenge. Mr. Delors was the classic victim of these delusions, his "level playing field" and "Global Social Charter" being just two examples of his flat-earth economics.

Greatly daring, I would say that, if we look back to the Bruges speech, we can now see that, judged from an economic point of view, it was not our Margaret or now our Johnnie who was out of step but those fuddled, fudging foreigners. Once Germany and France decided to put their heads into a monetary noose, it was inevitable that the lesser fry would queue up to hang together, even if it meant horrendous unemployment and cooking the books on convergence.

If all this is not sufficient to explain the collective folly we are witnessing across the Channel, most European supplicants have their own differing reasons for wishing—unlike most British (or at least most English)—to become born-again Europeans. A distinguished Spanish economist, Dr. Pedro Schwartz, in his Wincott lecture last week, mocked the muddled motives in Europe in the following words: The Germans want the Union to stop them falling into Nazi ways. The French want to be cured of an inferiority complex. The Italians want to become a nation. The Spaniards want to bury Franco. The Portuguese want to be French. The Greeks do not want to be Turks". He might have added that the Belgians no longer want to be Belgian. Dr. Shwartz's crowning quip, which I commend to your Lordships, was: the Common Market should have been founded not in Rome but in Vienna, on Dr. Freud's couch". Yet it is to such an unstable, unruly, disordered coalition that we are invited to delegate our future economic fortunes. And still the three party leaders shrink from a candid declaration that, while free trade is fine, there are serious questions about monetary and political union. Opposition to that enterprise is, in my view, not only in the British interest but also in the interests of the prosperity, freedom and even national self-respect of all the countries of Europe.

I have to confess my difficulty, confronted with the prospect of a Division later in the evening. Cross-Benchers do not like Divisions, in the same way as psychologists do not like blood. Neither the Government's Motion nor Labour's trifling amendment deal with this transcendent issue of Europe. What should an honest Cross-Bencher do with his vote? It is the impersonation by the noble and learned Lord, Lord Fraser of Carmyllie, of Adam Smith on the imperatives of global free trade that has persuaded me at least to contemplate a rare visit to the Government Lobbies if nothing better turns up in the concluding speeches.

7.5 p.m.

Baroness O'Cathain

My Lords, in my contribution to this debate I wish to deal solely with one sentence in the gracious Speech. In fact, it is the sentence that was quoted by the preceding speaker, the noble Lord, Lord Harris of High Cross: My Government will continue with firm financial policies designed to support sustained economic growth and rising prosperity, while maintaining low inflation". Everyone in business, in commerce—in fact, everyone with any interest in the economy and the economic health of the nation, irrespective of political views—must agree with the laudable objective contained in that sentence.

What immediately strikes me is that so far in this debate there has been considerable agreement that we are in many respects in good economic shape. I believe that the continuation of the current policies is something which is devoutly to be wished. The financial policies designed to support sustained economic growth that have been followed have been successful in their objective.

The main headline on page 1 of the Financial Times on Saturday 26th October said it all: "Economic growth at two-year high." Behind that headline is a most interesting story, a story of economic stability which has now lasted for almost five years. I have to say en passant that the contributions to this debate so far have been incredibly stimulating. One would expect nothing less from such an array of distinguished ex-chancellors, current professors of economics and ex-commissioners, but I should like to point out gently that, although, to quote a phrase already used, I am probably punching above my weight, there is in the Speech nothing which says that we are the leading industrial economy in Western Europe, rather that the Government: … will continue to promote enterprise and further improve the performance of the economy with the aim of creating the strongest industrial economy in Western Europe … Sometimes non-academic economists have to work very hard in business and industry, but they pay a lot of attention to detail. It is very easy to become carried away with rhetoric. The rest of us, who are not very good at rhetoric, find it difficult, but we stick to the text.

Economic stability is the most important factor to anyone in business. How can one plan the future financial viability of an organisation against a background of seesawing financial and economic policies? How can one make production schedules, with all the interlocking facets of orders to suppliers, marketing plans, sales programmes, export plans, to mention but four, if one has no idea how prices are likely to move in both the long and short term in the economy as a whole? How can one become involved in new product development if markets are so uncertain, particularly at home, given that a strong home market is the base for so much of our export effort? Having been a strategic planner in industry for many years, I know just how difficult it can be. As an aside, I think ruefully that I was probably born out of time because, if I were a strategic planner today, it would be so much easier than in my day because there is now a climate of economic stability as the result of firm financial policies.

In my opinion, the pattern of economic activity over the last four-and-a-half years has been more stable than at any time in the past 30 years. All of us here are used to taking statistics and time-frames to suit our own arguments. I use 30 years as a bench-mark because it is precisely 30 years ago that I first became involved in business in this country. My knowledge of working within the parameters of government economic and financial policies prior to that is academic; my knowledge since is practical. I cannot impress strongly enough upon your Lordships the sheer desperation of trying to run a business without any confidence that the plans that one makes have any chance of being relevant, due to stop-go economic policies.

This Government, headed by my right honourable friend the Prime Minister, Mr. John Major, has been in control of the economy since April 1992. I believe that it is no coincidence that the second quarter of 1992 saw the first significant downturn in UK base rates and since then they have been almost unchanged. Even today's news of a one quarter of one per cent. increase is nothing like the shifts that used to occur. Naturally, there is a plea for lower base rates but those with an ounce—or should I say "gram"—of economic sense will realise that to lower them irresponsibly could result in overheating the economy, which would put at risk the objective of "sustained economic growth and rising prosperity".

The problem is that economists moan when consumer expenditure is sluggish but know that when that same expenditure shows buoyancy the warning of overheating is shouted from the rooftops. Despite today's minor change, I do believe that the firm financial policies of the last few years have had the desired effect of sustained economic growth. Minor movements like that of today give the right message: proceed with care on the sustained policy course.

Since the third quarter of 1992, each three-month period has seen an increase in GDP over the same period in the previous year: 15 quarters of "sustained economic growth". No wonder I welcome the statement in the gracious Speech which pledges to continue that.

I do not believe that in this Chamber there can be any argument with the objective of "sustained economic growth". Without that growth we shall not be able to fund all the necessary aspects of our education, health and social policies, to name but three, let alone fund better and rising standards in all those areas. There is nobody in this Chamber who does not want that.

Wealth creation is of fundamental importance and wealth creation on a sound, continuing, sustained basis will further increase the prosperity of all our people and allow for greater contribution to the overseas aid budget and other areas on the "wish list". I am sure that there is consensus on that.

The same arguments apply to the goal of rising prosperity. Wealth creation is, again, an essential ingredient in attaining that goal. There has been an increase in prosperity. Unfortunately we take it for granted when we have it and complain bitterly when we do not. But the biggest success in the economic field of the Government led by my right honourable friend has been the control of inflation. I find it quite staggering and almost unbelievable to be asked by businessmen in Continental Europe, "How have you really done it?" Far from being pitied by our European colleagues, we are now envied.

I find it a most interesting phenomenon that low inflation has of itself posed a problem for business; namely, how does one continue to make sufficient profit to fund investment for future expansion when inflation rates are so significantly lower than base rate? The answer lies in a never-ending search for greater efficiency in everything that business does and a much greater realisation that marketing is the key to our continuing and increasing competitiveness in world markets. Nobody wishes to see a return to high inflation rates, but we must make sure that we are constantly aware of every single factor that can impinge negatively on those same inflation rates, not least imposed costs on business arising from dogma or theoretical exercises espoused by those who have never run a business in their life.

One of the problems with economists is that they rapidly lose their audience when they talk for far too long on what they regard as exciting trends and statistics but which are regarded by non-economists as dry as dust material. Another problem is the old chestnut: take any number of economists and you will have an equal number of differing opinions. In the case of this non-academic economist—probably the only one speaking here today—I can only state what I find both comforting and exciting in the gracious Speech. I hope that I have been brief enough, but not too brief, to encourage everyone to support the wish that we should: continue with firm financial policies designed to support sustained economic growth and rising prosperity, while maintaining low inflation".

7.15 p.m.

Lord Haskel

My Lords, the sentence that I want to quote from the gracious Speech is: My Government will … [promote] a flexible, efficient labour market". Those were some of the very few words in the gracious Speech regarding jobs. But one word was wrong. Industry, I feel, would have preferred the gracious Speech to have promised a flexible and efficient labour force, not just a flexible and efficient labour market.

Let me clarify the difference. A flexible and efficient labour force will help to create successful companies. With successful companies there is security, growth and prospects. But with only a flexible labour market there is uncertainty, poor prospects and division. A flexible and efficient labour force means not only a competent workforce but also a workforce with transferable skills, and with skills in numeracy, literacy, communication and computing. The market does not produce that; training and hard work does. As my noble friend Lord Peston reminded the House, it is the role of government to encourage that.

What has the drive towards that so-called flexibility of the labour market achieved? The Government have been deregulating the labour market for 17 years. During that time, as my noble friend Lord Currie reminded us, we have been steadily falling down the world prosperity league—from 13th to 18th according to the Government's own competitiveness reports. The Minister and other noble Lords told us that we are to be the enterprise centre of Europe. I am not quite sure what that means, but I know that in GDP per capita we are in fact ninth in Europe. Neither will deregulation alone produce a skilled labour force. In many parts of the country we constantly hear about skill shortages. The answer is becoming apparent: the Government's so called labour market flexibility produces division; a divided society.

Nowhere is that division more apparent than in the rising difference in wages between the skilled and the unskilled. For 30 years after the war, the difference in wages between the skilled and the unskilled was fairly constant. Since 1979, the wages of the skilled have soared and the wages of the unskilled have risen barely in line with the rate of inflation. The result is that the difference between the wages of the skilled and the unskilled is now nearly twice what it was 17 years ago.

I presume that those who support the idea of a flexible labour market believed that the wages of the unskilled would fall to a level at which they priced themselves into a job and the wages of the skilled would rise to a level just below where they priced themselves out of a job. That difference would encourage the unskilled to become skilled. In fact, what has happened is that good employers are being held back because of a skill shortage and poor employers are helped to pay low wages by a subsidy through the social security system. In Britain in 1993, £2.4 billion was paid out in social security benefit to supplement low wages. That may lubricate the labour market but, in the absence of a minimum wage, all it does is subsidise poor employers. Perhaps the Government can tell us at what level they expect the unskilled to price themselves into work. I suspect that there is no work for many of the unskilled at any price.

The differential between the pay of the skilled and the unskilled is even more pronounced in the United States. In recent years, the wages of the unskilled in America have fallen by 30 per cent. and the wages of the skilled have increased by over 100 per cent. Have they priced themselves out of jobs and does that explain the low rate of unemployment in the United States?

I have a trick question for the Minister: where does one find 2 per cent. of the American male population of working age? The answer is gaol. As wages drop so men are turning to crime. The proof is that the arrests and prison records in the United States show that the criminal population has the same characteristics as the population doing poorly in the job market. Incidentally, an additional 5 per cent. of the American male population of working age are on probation or on parole. That means that approximately 7 per cent. of American working men are involved with the criminal justice system.

The noble Lord, Lord Taverne, told us all about the cost of prisons. Is that the price the Government are prepared to pay for promoting what they call a flexible labour market? Perhaps that is an example of what my noble friend Lord Currie referred to as market forces operating against the public good. Having 2 per cent. of the male workforce in prison is an expensive way of getting them off the unemployment register.

If work is left to the labour market, one way or the other society will pay for people's lack of skill, either through the welfare system or the prison system. How much more constructive it would be to spend that money on getting people back into work. That is why Labour's plans are designed to encourage those aged 16 to 18, who might join the ranks of the unskilled, to stay on at school. That is why Labour's use of the windfall tax is designed to get those aged 18 to 25, who might join the ranks of the unskilled, into training and into work. That is why, for Labour, welfare is no longer enough. Welfare has to be the step back to work.

The Minister pointed to the reducing unemployment figures as a mark of the Government's success. There certainly has been a decrease in the number of those registered as unemployed and drawing benefit and that I welcome—I welcome it seriously. As other noble Lords pointed out, there is uncertainty over exactly how many people are unemployed. My noble friend Lord Bruce told us about the changes in the methods of collecting statistics; what he did not tell us is that the Royal Statistical Society referred to the manner in which those figures are now collated as "tawdry".

The reason for the uncertainty is that the labour force survey indicates that many people are leaving the workforce early, as the noble Lord, Lord Ezra, told us, because of down-sizing; 193,000 did so in the three years to December 1995. According to Paul Gregg of the London School of Economics one in five households now has no earners. All that inactivity led the Bank of England to conclude in its recent quarterly report: Almost the entire net improvement in unemployment performance in the 1990s compared with the 1980s was accounted for by the rise in inactivity". What is it that has enabled us to increase the pay for skilled workers to such an extent? Is it deregulation? Is it the attack on union power? The answer seems to be technology. It is new technology that increased the demand for skilled workers and the use of that technology enabled firms to pay them more while keeping down unit costs. Those companies and industries where new technology has been introduced more effectively have increased skilled wages far more than in those which use less new technology.

Perhaps I can give an example from my own industry—the textile industry. Germany and Italy, with their high labour costs about which we keep hearing, are still the world's largest producers of fabric, thanks to technology. Could it be that all the time, energy, money and heartache spent on deregulation and attacking employment rights was unnecessary? The economic objectives could have been better achieved by more widely encouraging the introduction and use of new technology.

Quite rightly, departments exist for that purpose in the DTI. But, sadly, the gracious Speech is silent about that. It was silent too about investing in those skills and technologies which are the key to our future economic and industrial success. As a result we can look forward to the same old drift leading to yet greater social division. It must be common ground that we find those divisions unacceptable and feel the need to do something about it.

My noble friend Lord Peston reminded us that low pay is an ethical question. That is why I support his Motion regretting the failure of the Government to preserve social cohesion. Much of the division to which his Motion refers is caused by the Government's fixation on their so-called labour market instead of a flexible and efficient labour force.

7.25 p.m.

Viscount Thurso

My Lords, the noble Lord, Lord Peston, in his opening remarks, drew our attention to the long list of distinguished and erudite speakers contributing to this debate on the economic and industrial parts of the gracious Speech. I crave your Lordships' indulgence as an undistinguished small businessman squeezing between those economic Titans.

I am not an economist and have no understanding of the spells and incantations of that particular brand of sorcery. However, in the Summer Recess I read three books on or by former Chancellors of the Exchequer. I much enjoyed reading the biography of Gladstone by my noble friend Lord Jenkins of Hillhead, and followed that by reading the fascinating autobiographies of the noble Lords, Lord Healey and Lord Lawson. I believe both noble Lords described economics as an art form rather than a science. Having read of their experiences I would perhaps go a little further and say it is an abstract art rather than a figurative one. I am still no wiser. That has nothing to do with their ability as authors but rather more to do with my inability to take in the subject matter. Consequently, I shall confine my contribution to the industrial parts of today's debate and in particular to my own industry; that is, the hospitality industry.

Like the noble and gallant Lord, Lord Craig of Radley, I was not quite sure on which day it would be best to contribute. As my industry is one of the largest employers in the country and one of the major contributors to the economy, I thought today would be appropriate.

Consensus appears to be out of fashion at the moment. Despite that, I believe that there is a broad consensus nowadays as to the requirements and objectives of the economy; that is, that we need stable growth in a low inflation environment in order to produce a large and healthy national cake which will provide for the people of our country. I believe we also agree, though perhaps by differing degrees, that high employment is both a major objective and a principal driver of a strong economy. Where there is disagreement, of course, is on how the national economic cake should be sliced.

Clearly the creation of long-term and sustainable employment is a vital factor in a sound economy. This morning on Radio 4's "Today" programme I heard the Secretary of State for National Heritage say that four out of every 10 new jobs created in the future will be in the industry in which I work—the hospitality industry. For a long time this industry has felt that its value to the economy has not been recognised by government and it is therefore heartening to know that government understand the importance, both today and in the future, of the industry. That is in no small measure due to the opportunities we have had in your Lordships' House to debate particularly the tourism section of the industry, and I shall not therefore go over ground that has already been well trodden. However, I should briefly like to remind your Lordships of the scale of the industry.

As the report of the Select Committee on the European Communities, Tourism in the Community, which your Lordships debated last year, recognised, the industry is extremely diverse and consequently difficult to define. I use the term "hospitality industry" and refer to those businesses covered by the Joint Hospitality Industry Congress. This body, which came into being some three years ago, has representatives of more than a dozen of the main industry bodies, covering not only the traditional tourism side, such as hotels and restaurants, but also other parts of the hospitality industry, such as contract catering and licensed victualling.

According to the British Hospitality Association, a key member of the Joint Hospitality Industry Congress, there are today 2.5 million people employed directly in the hospitality industry. This is equivalent to 11 per cent. of the national workforce. The industry spend is currently £50 billion, equivalent to 10 per cent. of annual UK GDP. For the future, the BHA estimates that 130,000 new direct jobs will be created in the industry by 1999. The Secretary of State herself this morning estimated that the industry will produce a million new jobs over the next 10 years.

Not very long ago the hospitality industry was an economic footnote. Today it is a major driver. However, although the industry as a whole is large, it is very fragmented, made up of many different sections and comprising for the most part small businesses. It is therefore very often difficult for it to present a common front or agree a common strategy. It is consequently an industry where government leadership and support are vital if it is to fulfil its future potential. I am sorry that in his opening speech the noble and learned Lord, Lord Fraser of Carmyllie, giving a long list of successful industries, did not mention anything to do with the hospitality industry, which is one of the UK's largest employers.

It is very easy when in opposition to fall into the habit of opposing for the sake of opposing, and I do believe, however rare it is, that the Government should be given praise where praise is due. A great deal of what is required in the tourism industry is frankly plain common sense and is not party political. The Department of National Heritage has done a lot over the past few years to help the industry. Most importantly, and for the first time, those of us working in the industry feel that our views, whether agreed with or not, are at the very least being listened to and taken seriously. This is a great step forward. I would also compliment the Secretary of State on placing the industry high on her agenda and on the energy she has shown in promoting the industry both at home and abroad and in prosecuting our requirements in Whitehall. However, there is still a considerable amount which the Government can and should do to help the industry.

Let me begin with money. Everyone who speaks on tourism, whether it be in your Lordships' House or elsewhere, makes the point that the budget available for tourism support at the DNH, which in the current year is, I believe, around £46 million, is a minute investment to make when compared both with the size of the industry and with the amount of support given by the Department of Trade and Industry to other industries. We must invest for the future and the only way in which an industry as fragmented as ours can move forward is through government leadership; and that requires investment on a greater scale. It is frankly disappointing to read in this year's Department of National Heritage report that the amount projected for next year is actually to go down.

My criticism of the Government is their failure to take the lead where they have been required to do so. I take the question of hotel classification and grading. The crown scheme introduced 10 years ago has produced widespread confusion. This has been recognised by the DNH. It commissioned research which demonstrates that the public clearly want a better scheme. While I welcome moves to produce a new scheme, I must say to the Government that, as long as such a scheme is voluntary, in my view it will fail. I believe it is up to the Government to take the lead and institute a system to which all accommodation providers are obliged to respond.

Then there is the question of our archaic licensing legislation which is needlessly complicated. A zero-based review of our licensing legislation producing something far more appropriate to today's society would result in a major boost to our industry. I also believe, particularly if we separate the licensing of premises from the licensing of people, that not only would we be able to offer the provision of food and drink at the times when our customers, particularly tourists, want them, but we would also be able to introduce more effective control against the abuse of alcohol and particularly under-age drinking.

However, I believe that the biggest challenge facing our industry is one where we shall get no help whatsoever from the Government. That is in the area of the quality of jobs which the industry is expected to provide. This morning the third report on tourism, Competing with the Best, was published by the Government. It was entitled People working in tourism and hospitality. It was on this report that the Secretary of State was commenting this morning. I have only just managed to get hold of a copy of the report and therefore have not been able to read it properly. But it appears to highlight the immense need for training and motivation within the workforce of the hospitality industry if we are to continue to improve the quality of our product and the size and profitability of the industry as a whole.

The plain fact is that a very great number of people who are employed in the hospitality industry are employed at very low—I would say far too low—rates of pay. The consequence is that we continue to fail to attract the brightest people into the industry and many of our lower paid jobs continue to be jobs of last resort. I have to say I do not believe that the industry will voluntarily change this, and consequently there is a vicious circle in many parts of the industry—and particularly at the bottom—whereby staff work in jobs they do not really want to be in, are not in the least motivated and leave as soon as they can find something better. Because of this, employers see no reason to spend on training or attempt to motivate their workforce. Conditions therefore remain bad.

Over the past 20 years or so the balance of power between capital and labour has swung decisively in the direction of capital. I believe it is an important element of a vigorous economy that there is a proper balance between labour and employers. At the moment that is not the case. Even in industries where trade union support was strong, their power has been greatly diminished. In the fragmented hospitality industry employers without doubt have the upper hand. Despite the efforts of many good employers, the long tail—as the noble Lord, Lord Currie, so eloquently described it—is very unwilling to train, motivate and pay those employed at the bottom of the industry. Consequently, I believe that the only way in which this vicious cycle can be broken is by the imposition in our industry of a minimum pay scale; that is to say, a return to something like the hotel and catering wages council. I believe that this will result in a virtuous circle. Where employers are obliged to pay their employees at the bottom of the scale a decent living wage, they will also be obliged to make better use of those employees. They will be forced to invest properly in training their staff, who will become better motivated.

I am not wholly convinced of the arguments for a national minimum wage, but I am certainly not frightened of the concept. In our industry I believe it is a necessity if the jobs we are to create are to be sustainable and worth while. I simply cannot understand the logic which says, as so many managers do, that the biggest problem is that we do not pay people properly or train them enough and in the same breath we vehemently oppose the most logical methods for remedying these ills. From my brief skim through today's report, it is absolutely clear that low pay has been identified as a major factor holding back the industry.

I am very proud of my industry and as a manager I want to see well paid and well motivated staff not only in my organisation but throughout the industry. I do my best. In fact in my own establishment this year, at the budget time which we are in now, I have asked all my managers to institute a voluntary minimum wage. We have chosen £4 an hour and that is being applied throughout our company. But if these million new jobs which are being created in the next 10 years are not to be for another million low paid, low skilled staff of last resort, a stick much larger than benign urging is required. Without it, they will remain jobs of last resort and unfulfilling and unwanted. They will not contribute to social cohesion as they should, but instead they will perpetuate the divisiveness which has so dogged our society.

7.40 p.m.

Lord Sanderson of Bowden

My Lords, I welcome the opportunity to support Her Majesty's Government in this debate on the gracious Speech in relation to industry and economic affairs, but I reject entirely the terms of the amendment. I believe that our country's reputation abroad on economic matters is light years ahead of the poor ratings we had in the years that ended with the winter of discontent.

As far as Europe is concerned, I trust that all those who are critical of the workings of the European Union will not forget the cost to our nation's trading position of putting at risk the very real gains that are available to us by having broken down the trade barriers in Europe. Let no one suppose that the United Kingdom would be the beneficiary from a pull-out policy, just as no one should suppose that a policy for a statutory— and I underline that word "statutory"—minimum wage would be anything but a tax on jobs. A windfall tax on utilities would be an oncost to consumers of water and electricity.

For those of us lucky enough to live in Scotland a tartan tax would be an unfair extra burden compared with the taxes put on citizens in other parts of the United Kingdom. While on the subject of the Scottish economy, I had the privilege in this House of taking the amendments relating to Ravenscraig when the Steel Bill was passing through and also of answering questions on the future of the Rosyth Dockyard.

I concur with the remarks of my noble friend the Minister in his opening statement. I congratulate my successors in office—turning the tables on the doom and gloom merchants of that time by the huge inward investment projects now secured for Lanarkshire and Fife.

However, this debate is one which rightly ranges over a huge canvas. Others more eloquent than I have addressed and will address the macro-economic scene. In passing perhaps I may say that the speech of my noble friend Lord Cockfield must be essential reading for anyone who wishes to understand the macro-economic position of this country.

I would like to confine my remarks to the current situation relating to small firms and also to make some remarks about two important aspects of Government policy in relation to industry. We should never underestimate the importance that is attached to the number of small businesses in the United Kingdom. We have to be constantly sure that they have a stable economic environment in which to work, with as low burdens as possible as far as bureaucracy is concerned, and that help for their development is always forthcoming. I believe that Her Majesty's Government have indeed been supportive of small businesses. The small company rate of corporation tax, which last April was reduced from 25 per cent. to 24 per cent., was indeed very helpful. I firmly believe that support for small businesses should be private sector led and that we should ensure that help is tailored to the needs of the local business community.

Incentives for these businesses are essential. There has been much talk about the fat cat's club in the press which, I presume, refers to those people who have done very well personally out of the various privatisation issues and who have been a success in their own businesses. They have been fortunate and, in some cases they have been in the right place at the right time. I would prefer to call the club the bumblebee club as those involved have been at the centre of those businesses which have served their "workers" well. My point is that if those people have gained from their positions and the businesses have succeeded, then it is essential that we attract those gains and that money into investments in the United Kingdom and thus prevent the flight of the bumblebees to far off tax shelters like the Cayman Islands.

Last year my right honourable friend the Chancellor of the Exchequer encouraged investment in the United Kingdom by the arrival of venture capital trusts. It is early days to measure their success, but such measures as these and tax allowances for investment in the alternative investment market are good examples of how to ensure that private capital can be reinvested to the benefit of United Kingdom businesses. I know that my right honourable friend the Chancellor of the Exchequer also introduced the enterprise investment scheme to replace the business expansion scheme. I wonder whether he has made that scheme the success that he expected it to be. If I were to hazard a guess I would say, as they say in school reports, "Perhaps he could do better".

We have listened today to a very important speech by my noble friend Lord Weir on the subject of the private finance initiative. I suppose that I should declare an interest as a director of a construction company involved in some projects. I agree with most of what my noble friend said—in fact, he has ensured that my contribution on this subject is considerably shorter than it might have been. However, I would emphasise three important points that he made. First, the costs of mounting bids is huge. That is a definite disincentive to some companies. The bidding process is inevitably complex, but to those companies which are unsuccessful—and they number not a few—there is a greater and greater need for them to be selective. Secondly, my noble friend said that we must avoid Dutch auctions. I agree entirely. If there are too many Dutch auctions in this area we shall end up with nothing to auction. Thirdly, the sooner the preferred bidder status can be reached the better. I suggest that if necessary, after that stage is reached and we have more than one preferred bidder, the Government should fund the costs of the unsuccessful.

The Chancellor's recent announcements have helped to restore confidence in PFI. I believe that it can succeed. I also believe that the area which is slowest to get off the mark and the one which is certainly causing me and others most concern, is the health area.

Finally, businesses of all sizes cannot afford a return to the boom and bust switchback of the past. Therefore, I welcome the Chancellor's corrective action today on interest rates. Low inflation must be the key to sustained economic progress in this country, hence the requirement to pin down government spending to ensure a level that avoids the unwelcome spectacle of unstoppable inflationary pressures that could wreck all the gains achieved, some very painfully. But the current record is the envy of many across the seas, notably on the other side of the English Channel.

7.48 p.m.

Lord Desai

My Lords, we have heard many good speeches today. The first I should like to mention is that made by my noble friend Lord Currie, whom I have known for a long time. He has fulfilled all my expectations by giving a succinct and brilliant speech. I am sure that he will make many more contributions to our debates in the future and I look forward to them.

We have had an almost unintended but major debate on the single currency, to which my noble friends Lord Healey, Lord Bruce of Donington, Lord Barnett and the noble Lord, Lord Cockfield, have contributed. I wish to speak on the single currency in a minute, but first I should like to say something about some of the issues which were mentioned by the noble and learned Lord, Lord Fraser of Carmyllie.

I accept that certain macro-economic figures are very good. Indeed, I said as much last March in an article in the New Statesman which got me into some trouble. However, we must remember that a good performance over 15 quarters is not permanence. The noble Lord, Lord Cockfield, pointed out that although we claim a lot for the macro-economic framework, we continue to pay about 1.5 per cent. for our government debt above what is paid in Germany and the United States. That shows that the market still does not trust the Chancellor of the Exchequer of the United Kingdom—whichever party is in power—to be responsible. It will take many more years before the UK's reputation for fiscal prudence is properly established.

Indeed, although I welcome the quarter per cent. increase in the rate of interest, I do not think that it is enough. Problems with high interest rates arise not so much from what consumers do (although they are spending a lot of money), but from what people suspect that the Chancellor of the Exchequer will do. We are already hearing siren voices saying to him, "Go ahead. Have tax cuts. Why not? If you are lucky, we won't get re-elected and if you are not lucky and we do get re-elected, we'll have a tough Budget next time". That is what happened in 1992. I do not think that we can conduct fiscal policy on that basis.

Although I know that the Chancellor will not take my advice any more than has the Shadow Chancellor, I strongly advise the right honourable gentleman to think seriously about increasing the rate of taxation. As noble Lords know, I am no friend of lower taxation. I never have been. I believe that we have to decide on our spending priorities. In that respect, although a lot of nonsense is talked about savage spending cuts and about controlling spending, by and large spending is difficult to control because most of the money is properly spent. Indeed, we should like to spend more on more things because the voters want more. We cannot get away from the fact that they want smaller classes and a better National Health Service. Talk about making deep cuts in public spending is simply delusion. I know that the Prime Minister is not in favour of caning, but as slapping now seems to have Christian approval, I think that those of his friends who continue to talk about the need for spending cuts should be slapped down.

We are not going to have spending cuts, but what we are going to have if we do not have the courage to tax properly are deficits. Indeed, it has been the rather unseemly haste to cut taxes which has got us into this trouble. Bold decisions will have to be made, if not in this Budget then in the next Budget, whichever party has to frame it. As was pointed out earlier, the public sector borrowing requirement in the UK economy is unsustainable. A country in the fourth year of a good recovery should be producing a surplus on its budget, not a deficit. There is no excuse for continuing to produce a deficit.

It is argued that if you cut taxes, revenues rise. I have two points to make on that. Our major increase in income tax revenues occurred when the tax rate was cut from 87 per cent. to 60 per cent. The next set of cuts—from 60 per cent. to 40 per cent.—did not yield that much extra money. Although the income tax paid by the top 1 to 5 per cent. has increased, the tax base has shrunk, and because it has shrunk we find that, although we are in the middle of a prosperous phase, we are not collecting enough taxation to be able to afford the things that we want. I do not think that that is sustainable. Therefore, I urge the Chancellor, even if he cannot do anything else, in the stealth of the night to remove the ceiling on National Insurance contributions. That might not only bring in more money, but it might even catch some fat cats—and that is not easy. I am sure that this problem cannot easily be solved.

I come now to the Private Finance Initiative about which much has been said. We must remember that PFI is not, and should not be, a substitute for public sector investment. That is my first point. However, I should also point out that PFI is not as successful as some people claim. In the higher education sector where I work, PFI is causing much damage because nobody is paying any attention to the fact that although our capital grants have been cut on the promise that there will be PFI help, we are not going to get that help. As I have said before, I believe that very soon—probably within this financial year—one or two universities will go bankrupt. There is no provision to cover that. We have provision for hospitals going bankrupt, but no such provision for universities. Who will take over the liabilities—and the students—of universities which go bankrupt? This is an urgent problem and I do not know what we can do about it.

Therefore, although the Private Finance Initiative is welcome, it should be an addition to, not a substitute for, public sector investment. That investment has declined precipitously. That is not the kind of expenditure control that I welcome. If the Government want to control expenditure, they should do it somewhere other than in the education sector.

Returning to tax cuts, it is puzzling that although everybody claims a great deal of credit for having reduced the top rate of income tax from 87 per cent. to 40 per cent., the tax that is implicitly being paid by an unemployed person when he or she takes a job is between 80 and 90 per cent., and nobody has done anything about that tax rate. The Government have spent 17 years talking about reforming the welfare state and saying that they want to provide incentives to work, but I must advise them that lower wages are not an incentive to work and that somebody who is contemplating moving from unemployment into employment will need a tremendous boost in their income before work can become worth their while because of the tapering effect of the loss of welfare benefits. We have created a welfare state in which, by deliberately tapering the benefits to which people are entitled, the implicit tax rate is so high that many people at the lower end of the income scale find that taking a job is not worth their while. Nothing has been done about that. If the Government are serious about doing something about the job market, they should give that problem a greater priority.

The possible adoption of the social chapter and a minimum wage are not the problem. The real problem is the disincentive to work, which also has an effect on social cohesion. The lack of social cohesion has become a problem for two reasons. I advise all those who do not believe that the lack of social cohesion is a problem to recollect that all the debates in the press in the past month have centred on violence, child abuse, gun control, declining moral values and what we can do about our children. I do not want to be an economic determinist about this, but if the economy is going so beautifully and if we are the best enterprise centre in Europe, why is there so much trouble among our populace? Why is everybody worried about the quality of life in this country? Why do people feel insecure and threatened? I believe that there is some connection although I do not want to make too much of the point.

Many people are not part of the job market because of a lack of incentives or a lack of skills, and those who are in the job market at the lower end of the scale are often badly paid, yet those people have legitimate aspirations. There is a lot of tension and violence in some families and although the cause is not solely economic, we cannot rule out the fact that the insecurity and poverty of those at the lower end of the scale contributes to family tension and violence. That is why I strongly support that part of my noble friend's amendment in which he refers to policies which preserve, social cohesion and integrity within the United Kingdom. Finally, I should like to make one or two points on the single currency. I was originally a fanatic about the single currency and my point was simple. I wanted a single currency and a federal Euro state. I make no bones about it. I believed that the only way to run a Keynesian policy was on an all-Europe basis. A strong federal state would have guaranteed that one could run a Keynesian policy without a run on the pound or a large export of capital.

Since the Edinburgh Summit (if anyone still remembers it) the programme for a strong federal Europe has been scuttled, so much so that even France and Germany are unwilling to increase the European budget and provide the transfer payments required to meet the cost of a single currency. For that reason, I have come to the conclusion that neither the UK nor any other country should be part of a single currency at the moment. One is talking of a single currency purely for political reasons which refer to a period which has gone by. We no longer need to worry about whether Germany will be part of the western alliance with German reunification. Those fears have passed. Germany's fear that if it is outside a single currency somehow the deutschmark will become too strong is also a delusion. In the past two years the German economy has shown that there is no great danger of that. I do not believe that at the moment it is in anyone's interest to rush into a single currency.

We should not be bound by any deadlines which, after all, are man made and are not God-given law. I believe that when the case for a single currency becomes stronger we should continue to think about it, but I do not believe that we must all march in step because dire consequences will occur if a single currency is not created. After all, the single market has not yet been fully implemented. Why do we have to rush into a single currency just because Jacques Delors thought six years ago that if there was not a single currency programme Germany would escape from the western alliance? There is no possibility of that. Let us think about a single currency. I believe that there will be an evolutionary path whereby countries move closer together. There is probably a core of three or four countries—Germany, Austria, the Netherlands—which are already in a de facto single currency situation. Let them get on with it. At the moment France is killing itself to get into the single currency. France and Italy are involved in a passionate move to do it. We must insist that the Maastricht conditions are strictly adhered to before anybody becomes a member. There must be no fudging or cooking of the books and no concessions should be made. That is the only condition on which a single currency should be entered into. I believe that we will then have a longer period in which to think about a single currency, rather than thinking of a starting date and putting constraints upon ourselves. As to the question of pace, pets are not just presents for Christmas but are for life. One will enter into a single currency not just in 1998. If one is to go into it one is to be in it for a long time. There is no hurry. We must think about it carefully. When the case is stronger perhaps there should be another debate, and then go in.

8.3 p.m.

Lord Tugendhat

My Lords, like others who have spoken in this debate, I begin by congratulating the noble Lord, Lord Currie of Marylebone, on his notable maiden speech. However, I cannot associate myself with his strictures and those of the noble Lord, Lord Healey, on the quality of British management. In that respect, I identify myself much more closely with the views of my noble friend Lord Weir. One of the most striking changes which has taken place in Britain over the past 15 years is the improvement in the quality, professionalism and competitiveness of British management. I find it surprising that those connected with it, in the way that the two noble Lords are, should have formed such a contrary view.

As has been pointed out by a number of speakers in this debate, on balance the past year has been a good one for the British economy. Growth and falling unemployment have compared well with other European countries. People have enjoyed the benefits of tax cuts. Negative equity is on the wane. But one ought not to get too carried away. The current account is poor by European standards. One has only to compare it with those of France and Italy to appreciate that. The budget deficit is higher than forecast and higher than it should be. Not only has inflation failed to get below the Government's target of 2.5 per cent.; it is also very high by most European standards, even if it is rather low by the standards to which we are accustomed in this country.

I should like to dwell on inflation for a few moments. Some of the dangers tending towards higher inflation are well known. For instance, broad monetary growth has been running at dangerously high levels for some months. We can also see the beginnings of a consumer-led boom. For these reasons alone, now is not the time for significant tax cuts. It is the time to begin putting up interest rates if we are to avoid trouble in the second half of next year; that is to say, after the general election. I therefore welcome the Chancellor's decision today to make a small rise in rates and regard it as an appropriate precautionary measure.

There is another factor to which I should like to draw the attention of the House. I feel that hitherto it has received insufficient attention. I refer to the windfalls that will arise from the de-mutualisation of certain building societies and insurance societies during the second half of next year. At a rough estimate, that could put £23 billion into peoples' pockets during the latter six months of next year. That is a truly colossal sum. To put it into context, total mortgage lending this year will probably amount to about £17 billion. If distributed equally, £23 billion would add about 4 per cent. to personal disposable income in 1997; in other words, the de-mutualisation process will potentially have a substantial macro-effect.

All of that money will not be distributed equally. Not everyone is a member of the Halifax Building Society, or has a policy with the Norwich Union, or is involved with the Alliance & Leicester, and so forth. But a great many people are involved with more than one of those institutions. Several million people will be involved with several of them. That makes it extremely difficult to forecast how much will be saved and how much will be spent. When Abbey National converted from a mutual to a plc in 1989—some two years before I became involved with that company—and when TSB was floated, it was estimated that between 25 and 30 per cent. of the shares were sold off quite quickly. If that happens this time the effect will be to add between 1.18 and 1.5 per cent. to the underlying rate of consumer expenditure. My view is that the figure will probably be higher rather than lower because a substantial number of people will benefit from more than one of the windfalls. Against that background, I urge the Chancellor to err on the side of caution in respect of both tax cuts and interest rate rises. Few things in economics are certain, but the cornucopia to which I have just referred is about as certain as anything can be. In those circumstances it would be irresponsible to take risks on the inflation front.

I believe that there is another matter that the Government should bear in mind. It looks increasingly likely that Britain will not be in the first wave of EMU participants. To my great sadness it is probably right that we should not be, as I do not have confidence in the arrangements that seem likely to be put in place. But if EMU goes ahead—which is likely, probable, yes, but not certain—being outside will not be an easy option.

Britain, as several noble Lords have pointed out—notably my noble friend Lord Cockfield—does not have an impressive, long-term record in terms of its public finances, price stability or the maintenance of the external value of its currency. The burden of proof will be on us to show that we can handle these matters better than the participating countries. We will not, I fear, start with the benefit of the doubt.

Others may hope to gain or consolidate reputations for sound money and responsible fiscal and economic policies by going into EMU. If we do not do so, we will have to show that we can achieve those reputations on our own. If not—if we cannot show that—then regardless of our reasons for not joining we will be classified by the international capital markets with those who are too weak or incapable of doing so.

That is a very tall order indeed. But if EMU fails to go ahead, or if it does go ahead and fails to work as its participants hope, if it fails to deliver price stability, and if it creates other problems as well, we could be on the verge of a golden opportunity to transform Britain's reputation relative to others in the world's eyes and those of its markets.

Every year before the Budget it is said that the stakes are high. This time not just the Government's reputation and the Chancellor's are being put to the test, nor even the important task of winning the election; it could also be the position in which Britain enters a new era in European and international monetary relations.

8.10 p.m.

Lord Monkswell

My Lords, last week when I listened to the gracious Speech I was concerned that there was no mention of unemployment. Therefore I was pleased when my noble friend Lord Peston moved his amendment this afternoon. One of the things to which it refers is the country's reputation abroad.

We have heard this afternoon how we have an astronomical PSBR. We know also that the Government have indulged in privatisation on a massive scale over recent years. I was reminded of the contribution made to our national debate 11 years ago by the late Lord Stockton. He pointed out: They have invented the one new law that there is no difference between capital and income. Under this law, apparently, you can spend all your capital on current account". One of the phrases that will go down in history is, "selling the family silver" which I am sure most noble Lords will remember. Lord Stockton pointed out also: Some of the nicest fellows I have known in my life have experienced this confusion between capital and income, but they usually ended up in rather dreary lodging houses".—[Official Report, 23/1/85; col. 254.] The superficial reputation we have abroad may be because we are got up like gay young blades having sold the family silver and having nothing to fall back on in the future. I cannot see the Prime Minister as a gay young blade. "Grey blade" might be a better description. So I was pleased about that part of my noble friend's reasoned amendment.

If we look at unemployment, which is one of the biggest problems with which we have to contend, and the record over the past 20 years or so, we can see that on the Government's own figures, during the period of the previous Labour Government and apparently bad days in the 1970s, unemployment averaged 5.35 per cent. The minimum was 4.5 per cent. and the maximum was 6 per cent.

If we look at the figures for this period of Conservative Government since 1979, we can see that the average figure has been 9.48 per cent. The minimum was 6.5 per cent.—that minimum figure for unemployment over the past 17 years is significantly higher than the highest under the previous Labour Government—and the maximum was 12.5 per cent. We currently have an unemployment rate of approximately 2 million people.

One of the points my noble friend mentions in his reasoned amendment is integrity. We could have a big debate on the Government's integrity vis-à-vis this House: how we were misled into thinking that we were engaged before the Recess in a free vote, a reasoned debate, on the amendment to the Bill of Rights when in fact the Prime Minister advised us subsequently that it was a government ploy and a whipped Division. That does not speak of a great deal of government integrity. I do not want to go into that argument today.

I should like to look at the integrity of the Government's unemployment figures. I was at a meeting during the summer. One of the first questions I was asked following a little speech was, "What is going to be done in the future about government statistics"? We have a problem when people do not believe the statistics the Government publish. One of the problems relates to the unemployment figures. We know that the method of the calculation of unemployment figures has changed many times over the past 17 years.

The other day a colleague in the House asked me what the real unemployment figure is. I have been trying to find out some real figures. Perhaps I may take your Lordships through some figures that I have managed to obtain from the Library. They relate to 1994. It was not possible to obtain sensible figures for later years because they are not available publicly. I looked at the population in different age ranges in the UK. I took a proportion of the population in the 15 to 24 age range because some of them will be in full-time education. I calculated a figure of 5.28 million people available for the labour market. Between the ages of 25 and 59 there were 27.9 million people. In the age range of 60 to 64 there were 1.36 million males. That makes a total of 34.14 million. I chose the ages of 60 and 64 because, nominally, that is the retirement age for women and men. We heard earlier that many people expect to retire before then. I also entered an allowance for mothers involved in rearing young children. Expecting mothers of children under five to get a job does not recognise the important work that is involved in rearing young children and running a household. That allowance was 3.8 million.

The result is that we have an available workforce of 30.34 million but a workforce in employment is 25.48 million. That leaves a balance of 4.86 million people who were notionally unemployed. The Government figures for the same year showed 2.64 million people unemployed. I do not suggest that my figures are perfect but they show our difficulties in accepting the Government's figures for unemployment.

My noble friend's reasoned amendment then deals with social cohesion and in that respect I wish to give the House a case history. Ten years ago a young man of 25 was in reasonable employment. He and his girlfriend decided to marry and have a family. They had two children. Within a couple of years he was out of work. For years he was unable to find full-time employment. The marriage broke down two years ago and this year they were divorced. For the past two years that young man has had a regular job as a careworker. It is a half-time job of just over 20 hours a week. He is not in a position to provide for his wife and family. That is one of the results of unemployment and its effect on social cohesion.

Given the Government's record on unemployment, we can have no confidence that it will change. During the past 17 years we have experienced two major recessions resulting in mass unemployment higher than in the intervening period. I support my noble friend's reasoned amendment because it is right and just to do so. Perhaps I may commend one phrase in the Labour Party's manifesto for the next election. I refer to its commitment for stable and high levels of employment. That phrase was used in the 1945 Labour manifesto and I hope that the next election will usher in for this country and others 30 years of virtual full employment which followed the 1945 Labour victory.

8.24 p.m.

Lord Boardman

My Lords, I am sure that the noble Lord, Lord Monkswell, will forgive me if I do not follow him in ranging wide of the gracious Speech. I believe that the present economic situation is good. I do not propose to list issues such as inflation and so forth, which have been well rehearsed today.

As regards future prospects, I noted that the gracious Speech stated that the Government's financial policies are, designed to support sustained economic growth and rising prosperity, while maintaining low inflation". How right that is. I had hoped that the Opposition would agree with that and would have expressed its agreement, but presumably it does not agree because it has moved a reasoned amendment.

I have looked with some care at what has been said about that amendment. I heard the speech of the noble Lord, Lord Richard, and read it on a number of occasions to see what terrible offence the Conservative Government have committed to which the Labour Party has objected. I could see nothing, apart from one or two issues to which I shall refer in a moment. I also looked to see what the Opposition propose to do better, but again there was nothing. There may be some secret message between the lines, but I cannot find it.

However, I noted in particular that in criticising the Government the noble Lord, Lord Richard, said in justifying the amendment: The terms of our amendment are carefully chosen: cohesion and integrity. Cohesion is in many ways the acid test of any government's success or failure. Is the country more at peace now with itself than it was 17 years ago?". I wonder where the noble Lord, Lord Richard, was 17 years ago. He could hardly have been in this country or in touch with it. Seventeen years ago we had the winter of discontent when the dead could not be buried, yet the noble Lord said that then, among that chaos, the country was more at peace with itself than it is today. I find that a strange statement to make in justifying its claim and it is trying to prop up its attack by arguments which are erroneous, believing that we have forgotten what happened 17 years ago.

The noble Lord went on to deal with the industrial scene. I quote his remarks because, as Leader of the Opposition in this House, I look upon them as constructive suggestions and as being a headstone for where the Opposition stands. He said: Nor, looking at the economic situation, did I ever expect to see such a collapse of British manufacturing industry. I was brought up to believe, as a somewhat naïve individual, that the basis of British prosperity was the export of British manufacture. No longer so. The relationship of manufacturing to total UK production has fallen from 29 per cent. in 1979, when the Conservatives came in, to less than 21 per cent. now".—[Official Report, 24/10/96; col. 30.] I regret that the noble Lord is not in his seat in order to reply, but I wonder whether he remembers what has happened to British manufacturing during the past 17 years. Massive manpower has been replaced largely by electronics, and other changes have taken place. Industrial towns such as Corby, which was a great steel manufacturing town, are full of light industries and service industries. Of course there is prosperity which is much more real than it was when the town manufactured steel largely subsidised by government and the rest. Those were the days of 1979 to which the noble Lord, Lord Richard, happily referred. In 1979, working days lost were 60 times the working days lost in 1995. And yet that is put forward as a ground for this reasoned amendment by the Leader of the Opposition with the background of wanting a country at peace with itself. I really find it very difficult to understand.

The noble Lord referred to the collapse of the British manufacturing industry, but British manufacturing industry has risen. In 1979 it had an index of 77 and it now has an index of 101 or something like that. Growth has not been sensational but has been steady. In fact, manufacturing industry has been largely overtaken by the service industry. But during the years when the Labour Party were in office—and I hate harking back to 1979 but as the noble Lord, Lord Richard, made that comparison, I must do so—manufacturing industry decreased. But between 1979 and 1995 it increased.

I suggest that the spin doctor whom the Labour Party has used to prepare this propaganda, because it is no more than that, and the slur on British industry, should retire. I know that the amendment was moved today by the noble Lord, Lord Peston, but I spare him from my criticisms because I have the printed words in Hansard of the noble Lord, Lord Richard. In any event, I am not quite sure that the noble Lord, Lord Peston, provided me with such good ammunition as did the noble Lord, Lord Richard. Perhaps I shall have to correct that tomorrow. Someone has put forward these figures and presented them to the noble Lord the Leader of the Opposition in order to gain press attention, but they are not correct. That is most regrettable.

I turn now to the economy itself. Several noble Lords have spoken on the single currency. The noble Lord, Lord Barnett, greeted it with surprising enthusiasm. The noble Lord, Lord Bruce of Donington, exercised a certain amount of concern, of which we were perhaps already aware. The noble Lord, Lord Tugendhat, spoke with some wisdom through his experience in the Commission. I support the line which the Government take and I support government policy. If you have a free option, for goodness sake, keep the option open until it must be used. Why should we throw it away? The Government are keeping open that option. They are hoping to help to improve and prepare the system which is being worked out to ensure that it will be in the best interests of those who are in and those who are out. That must be the wise and sensible line to take. There is a promise of a referendum should the Cabinet decide that the United Kingdom should enter. The Conservative Party is the only party to have done that. I have a number of reservations about going in, but I am content to wait and see. I agree with a number of other noble Lords who have reservations about the idea of a European central bank, although I do not accept the criticism of the noble Lord, Lord Bruce, who said that all bankers are probably undesirable. I do not accept that, but, however good they may be, I do not wish to see a number of anonymous bankers ruling the European central bank.

One thing is quite clear. I do not believe that monetary policy can be confined to just that. Fiscal and monetary policy must both be used, certainly to control inflation. You cannot have one without the other. When we come to make the decision, that will be an extremely important factor in the minds of many of us. Many of us as well as members of the public will have grave reservations about that. But I shall leave the matter there for the present time.

8.34 p.m.

Lord Kennet

My Lords, I am sorry to have missed the foreign affairs and defence debate on Monday. I had a choice that day between visiting NATO in Brussels and talking about it here. I chose the former because opportunities to see the outer world are never to be ignored. Therefore, today I intend to profit from the traditional elasticity of subject matter in this debate in order to talk about NATO in the context of public expenditure.

We have heard a great deal in this debate about the generation of wealth but not very much about its spending. It is high time to look at NATO from the financial and economic point of view since our defence policy in itself, and some of our foreign policy too as it will affect our defence needs, look more and more like a collection of bottomless pits: bottomless and also largely unobserved.

I believe that this country cannot afford to embark on new defence commitments without examining them very carefully indeed and discussing them publicly for their economic as well as political implications.

I start with the expansion or enlargement—the Russians call it expansion and the Americans call it enlargement—of NATO, about which the noble Baroness, Lady Chalker, and the noble Earl, Lord Howe, spoke briefly but positively on Monday. Neither mentioned the costs. The noble Earl, Lord Howe, confirmed that Parliament was to be informed as appropriate—dread word! —not consulted. He said that the Government would then lay a take-it-or-leave it protocol before the House for 21 days before accepting it.

That is one of the most crucial decisions that any British government must now take. In my opinion, EMU is nothing like as important as that. The expansion of NATO would be bad strategically and politically because it cannot but antagonise Russia; and that does matter. NATO enlargement, with all the nuclear and other uncertainties about Article 5—that is the guarantee—might well cause the Russian system to revert to paranoia, of which there are already signs, and then to xenophobia in order to find internal cohesion again by reviving the cold war.

Mr. Gorbachev spoke passionately to that very effect, across the road from here, yesterday. Russia is in its Weimar period. Do we want to risk another 1933? The danger should now be more obvious than ever because of the Russian Government's claims—and I quote the words of Mr. Primakov—that: When it was very important for Western politicians to draw from Russia a smooth response to the disbandment of the Warsaw Pact and to get its troops out of East Germany, the Western promises to refrain from NATO enlargement were made but were not put on paper". That is from the BBC Monitoring Service on 9th October of this year. I ask the Government whether they have any comment on that. I do not expect the noble Baroness to respond immediately because I have given no notice of that question, but I should like a response in due course.

Ambassador Churkin, the Russian Ambassador to NATO, told me yesterday that there are interpreters' notes of the United States Secretary of State Baker and the British Foreign Secretary John Major saying precisely that.

Expansion is rapidly becoming the order of the day in Washington. Last week Mr. Portillo said in the House of Commons that we have a moral obligation to the postulant countries to take them on board. We certainly have a moral obligation to consider what interests we share with them. It is certainly a common interest to help them with their new political systems, education, economies and possibly even their own defence. But it is not in our common interest that they should join an historically anti-Russian and potentially anti-Russian alliance led by the United States. That could only produce a reaction in Russia and the Ukraine which would be against their interests as well as against our interests.

Such a Russian reaction would make it absolutely certain that our own defence expenditures would have to rise sharply: a rise which would probably assume the proportions of a new arms race. President Clinton's electoral concerns with the various "ethnic" votes in the Middle West must not be allowed to determine Europe's future. I earnestly trust that this will become more widely appreciated before the die is cast.

Some officials say that NATO expansion is a "done deed". But it cannot possibly be a done deed until we know how much it will cost and who is to pay for it. It would mean not only new expenditure heads; it would also mean a change in the North Atlantic Treaty which would require ratification by all the parliaments of the alliance, and parliaments are also revenue raising assemblies. Most European parliaments are not at all keen at present on what Mr. Portillo (as distinct from Mr. Rifkind) terms "hard defence"; that is, Pentagon-type as opposed to State Department-type defence. In this our parliaments differ sharply from the US Congress which has reduced America's peaceful international expending by half over the past few years, while giving the Pentagon more than it asks for.

On present showing, the US Senate (two thirds of which have to approve) is most likely to want the European allies—who they believe anyhow are a lot of freeloaders—to pay for almost everything: their own costs for the expansion of NATO, to pay for what the Central and East Europeans cannot afford, and indeed probably to pay for the equipment that the US is already telling the Eastern Europeans they will need to buy. Contracts for this last US Aerospace firms are already lobbying for in Prague and Warsaw. We will also have to pay for the anti-ballistic missile defences that Mr. Portillo thinks we need. I trust that the Government will say no to all that. NATO enlargement is an American policy; it is not a wise one, and it should not become everyone else's policy.

But that is not the only unwise policy. It adds together with the proposal for NATO ballistic missile defences against weapons of mass destruction. Already the British official co-chairing the senior NATO defence group on proliferation has written of the urgent need to correct NATO's counter-proliferation capabilities shortfall. What on earth is all that about? Back in July, the noble Earl, Lord Howe, told me in a Written Answer that NATO Foreign and Defence Ministers had, endorsed a comprehensive programme of work recommended by the GPD"— that is the senior NATO Defence Group on Proliferation— the details of which are classified".— [Official Report, 25/7/96; col. WA 167.] Why are they classified? May not Parliament know what has been agreed to, let alone what the "shortfall" on it is? Have the Government not waited for the studies that they commissioned before committing themselves, and the taxpayer too, to BMD, whatever hundreds of millions it might be?

I turn now in more detail to the financial implications. The Prime Minister recently announced that all domestic legislation is now being subjected to compliance costs assessments. The costs that he had in mind are those to business and the voluntary sector. That is a most enlightened idea and should have been thought of centuries ago. But if it is worth doing domestically, surely it should also be worth doing in respect of new foreign and defence policies?

What is the expected cost to this country, to our allies and to our potential adversaries of expanding NATO?

I have also tabled questions in that respect but have received no answers. So we are forced to seek US estimates: after all it was the United States which invented the idea and which is the driving force behind it. (That opinion was expressed by the State department itself.)

I turn now to the crux of what I have to say. There are indeed some new US estimates. Two were produced by the Congressional Budget Office in March and in May of this year. The May one estimates that over the next 15 years the cost of placing infrastructure, reinforcement capability, projection of air power, prepositioned stocks, and a limited Western presence in and for the benefit of the first four new NATO states might amount to about 125 billion dollars. It suggests that the sum might be shared among the concerned states as follows: present NATO members other than the US should pay 54 billion dollars; new NATO members should pay 52 billion dollars; and the US—wait for it! — 20 billion dollars.

So this idea is to be financed overwhelmingly by Europe, and half of the European spend is to be allocated to new members, who are broke. The paper therefore assumes that they, would require bilateral or multilateral financial assistance from the United States and other NATO countries"; In other words, we will also have to pay part of their share.

There have been other estimates, but no meaningful comparison is possible. There is another one from the Congressional Budget Office, and one from the Rand Corporation, which remain deeply embedded in what President Eisenhower called the "United States military industrial complex" when he was in a warning mood, in his last speech to the American people.

In his Detroit speech a few days ago, President Clinton made no financial commitment at all to the enlargement that he was promising his audience by 1999. He said if, we don't seize this historic opportunity … we will have to pay a much higher price down the road". Well, that is a pretty pessimistic, but unjustified, statement.

I have quoted those American figures, but where are ours? Do they exist? I understand that they do not. It is surely overdue for them to be put together by the Treasury, prior to Treasury approval for the financial implications of the policy itself. The Government's old criterion, "value for money" and its new condition the "compliance costs assessment" should both be observed. It is quite improper for the Ministry of Defence to be backing a new international policy that we cannot afford, and leaving it to the next government to sort it out.

The costs of NATO enlargement would be concurrent with civilian enlargement costs of the European Union, which I believe are accepted by all parties without question. That is surely clearly beneficial. They would also be concurrent with whatever we all have to go on doing and paying for in Bosnia, which will be quite a large amount. They would also be concurrent with the cost of any BMD for NATO. At the same time, the next British Government of whatever colour will face the costs of all the defence equipment that we have been ordering nationally, including the electronic and information capabilities for the Armed Forces which our own firms are advancing so fast and so brilliantly, and which are going to spell the end of much of the rest of the equipment.

I should like to know what the view of the Treasury is on all such matters. Does the Chancellor of the Exchequer realise quite what the US counter-proliferation programme, of which our own counter-proliferation/BMD exercise is a subset, would involve in the way of British expenditures? Do they realise how very little of all this would be under any kind of British—or indeed NATO—political or military control, the reason being that only the US has the automatic sensors and triggering gear? We shall be paying for equipment which is outside of our control.

And all this is happening at a time when the interest on government borrowing is drawing up to the level of expenditure on the health service; in other words, at a time when we are in sight of the absolute zero now common in the developing world, where interest on the public debt exceeds possible revenue. Does the Trade and Industry Secretary like all these politically vulnerable weapon trades which he subsidises so heavily on our behalf? Has he forgotten the fate of the Royal Ordnance when the Shah was ousted? Has the Foreign Secretary thought through and passed to other ministers an account of the advantages and disadvantages in the Middle East of our being part of a global defence system controlled by the United States, and by a United States which thinks that Europeans should not be interesting themselves in what happens in the Middle East—indeed, by a United States which is, through the D'Amato Act, attempting to regulate our trade there, and which designates "rogue states" there?

British governments—this one or the next—will have to decide whether we really want to go ahead with these post-cold war visions of US global hegemony. One is the three year-old counter-proliferation programme which could provide all the sensors and all the practical gear for disposing of all the US-defined "rogue states". Now there is a new doctrine called "Shock and Awe", or "Rapid Dominance", which is being elaborated in the US National Defence University. These are doctrines which, with consequent policies and consequent expenditures, leave no room for the United Nations or for any international rule of law, or indeed for democratic or civilian control of the military. They will also be extremely expensive, and the world has better things to devote its resources to than ever greater militarisation.

8.50 p.m.

Earl Attlee

My Lords, before starting my substantive comments I should say that I was on the same parliamentary visit to NATO and SHAPE as the noble Lord, Lord Kennet. He mentioned the 120 billion dollar cost of enlargement of NATO. I am sure he will remember that that was the worst case scenario. However, the costs are certainly substantial.

Lord Kennet

My Lords, that is not correct. In the paper I referred to the range of costs is given as 124 to 150 billion dollars. I used the lowest figure of 124 billion dollars.

Earl Attlee

My Lords, I am sure the noble Lord is right. The costs are significant. The noble Lord also raised important points about the dangers of antagonising Russia when the land forces in Russia are now minimal. However, he is right to pose the question. But whether he is right in his concerns remains to be seen.

On the occasion of the debate on the Queen's Speech I have usually spoken on defence and foreign affairs. On those occasions the debate was normally replied to by the noble Viscount the Leader of the House. However, some time ago I decided that on this occasion I would concentrate my remarks on industrial problems. But the noble Viscount will also reply to this debate. It is of course a great pleasure and an honour to take part in such a debate to which the noble Viscount will reply. He has experience of commercial life and the attendant pressures. I am sure he will appreciate some of the points that I will make. However, I cannot be as high powered as some of the speakers today, and indeed my remarks will not be as exhaustive.

Over the past 17 years government policy has been to increase competition and to transfer commercial concerns to the private sector wherever possible. I support that policy because I see it as providing the nation with the highest possible standard of living for all. Of course there is the odd blot on the landscape such as RAS and the sale of defence housing, to name but a few. However, I think your Lordships would be disappointed if I thought that everything in the garden was rosy.

Let us look at the good side. We have BT, Mercury and many other telecoms operators operating in direct competition with each other. We have a highly profitable and well respected airline industry. We have successful energy companies such as BP—that was an early privatisation. At last something has been done with the railway industry. What is even better, we are now starting to see some positive reports in the media. An article in yesterday's Financial Times was upbeat and reported improvements in service and a much more commercially minded management.

The commercial concerns that I have mentioned have a common requirement; they all need licences and would not be permitted to operate without one. In many cases their licences can be revoked, curtailed or reduced and are subject to regulation. I now have to declare an interest as I am president of the Heavy Transport Association and am also a member of the BRAKE all-party study group. Unfortunately, I do not have any financial interests in road transport, but I am working on it! Road transport should be a good industry for many to enter, and for some cowboys, or even criminals, the streets are paved with gold, or at least with brass. The good points are that, first, one does not have to be highly educated, as being practical is more important. Secondly, sophisticated contacts and marketing are not necessarily required. Finally, the capital risk is not great. Transport assets are expensive but they lend themselves to being financed. Assets are normally easy to sell and residual values can be calculated. Even operating costs are easy to calculate, although actual rates obtained are often far less than operating costs.

However, there is a flip side. The industry is easy to get into and is extremely competitive. But unfortunately it is poorly regulated. Just as with the industries that I glowingly referred to a few moments ago, road transport operators need a licence. The purpose of an operator's licence is supposed to be to ensure that only suitable persons can operate in the road transport industry. One of the many planks of the legislation is the requirement for what is known as good repute. The problem is that operator licences are quite difficult to lose, even in the event of serious wrong-doing. In any case it is easy to operate without a licence. In general there is large-scale illegal operation and that results in unfair competition. Illegal operation is undertaken by some licensed and unlicensed operators alike.

Outside of government much is being done. There is a new pressure group, BRAKE, funded by the respectable part of the transport industry. It is not like many other groups as it recognises the need for road transport but it would like to see it become 100 per cent. safe and legal. BRAKE has identified a number of problems and has produced some excellent reports. The House of Lords Select Committee on Transport has studied the problems and has produced a report. I agree with most of its recommendations, although I think that a few are slightly ahead of their time.

The Minister in opening the debate referred to the Government's competition policy. I am certain that he does not support unfair or illegal competition, but he may not be aware how damaging such competition can be to the transport industry. The main problems are under-taxation of goods vehicles; use of stolen parts or even complete stolen vehicles; use of red diesel, thus saving fuel duty; and employing drivers who are claiming unemployment benefits. The Secretary of State for Social Security suggests disqualification for offending drivers. I would counsel against that as it would create even more serious problems; namely, disqualified drivers may turn to crime to earn a living. A better solution would be the automatic loss of good repute for an operator. Other problems are overloading of vehicles; forcing drivers by various means to drive for longer than the permitted hours; and simply not bothering to maintain vehicles. If an operator commits any of the first four of those infringements he ought to lose his good repute and hence his licence. That certainly should be the case if there is a second infringement.

There was a case of an operator who was convicted of stealing trailers worth several thousand pounds. However, he retained his good repute! How disreputable does one have to be to lose one's good repute? The licensing authority (the LA) can refuse to grant a licence or order a partial or full revocation of the licence. However, that weapon is not used to full effect. The licensing authority may fear making people unemployed. But what is actually happening is that the cowboy operator is using fewer people than are required to do the job properly. So in fact strict and effective enforcement could increase employment and tax returns while reducing social security costs.

The Minister, in his very upbeat opening speech, referred to reducing the burdens on business, particularly with regard to enforcement. I shall read his words carefully tomorrow. My concern is that the various authorities take into consideration the risk of a successful appeal by an aggrieved party. The noble Lord the Minister will have carefully read the report of the noble Lord, Lord Cullen. The education authority had its informed decision not to let out school premises overruled, and the police were fearful of the same problem. Both authorities knew that they were dealing with an "unsuitable person" but there were no supporting convictions. So we need to be careful how easy we make it to appeal against decisions.

If I had an illegal radio transmitter and was caught broadcasting, the transmitter would be confiscated. If I had an illegal firearm, it would be confiscated. If HM Customs and Excise catch an operator using a vehicle running on red (that is, untaxed) fuel they may well impound the vehicle. If the driver has no proper address and answers to the name of "Patrick", they definitely will. Now if the Customs and Excise can successfully impound goods vehicles, why cannot the Vehicle Standards Agency? Of course I accept that primary legislation would be required.

There are some difficulties. The authorities do not have a decent IT system, so it can be difficult to be certain that a vehicle is being operated illegally. The authorities must have the tools for the job.

My message to the Government is that the majority of operators in the road transport industry would like to run their business honestly. They would rather compete by means of making the best technical decisions, having well-trained staff and good man management. They do not want to compete on the basis of who can sail closest to the wind or even operate illegally without being caught.

On the wider front my worry is this. If the industry of which I have some understanding is not properly regulated, how can I be confident about the regulation of industries that I do not understand?

Finally, as for the amendment to the Motion, I have to say that I shall support the Government.

9.2 p.m.

Lord Harmsworth

My Lords, perhaps I may explore a project that has taken place in west Dorset under the Private Finance Initiative. It is a very exciting project, and one which I am sure the House will welcome. It certainly offers lessons for the future.

First, however, may I say that I am not discouraged by the hiccups from which this new funding activity in some areas is suffering. The projects are very complex, the art is a new one, and we are still learning. It is better to go more slowly and get matters right. Even so, the raw national statistics, and local information in Dorset, suggest a future of explosive growth for the PFI. It could well be the control of that growth, and not paucity of interest in these projects, that will exercise those involved.

Some noble Lords will recall from the debate that we held on local government in January last year that there are several major capital projects in west Dorset which are of a size that would tax the shrewdest of county councils. They include a major comprehensive school rebuild (a school which was built for 600 pupils, and now has 900) and the Weymouth relief road. The school, Colfox, is now at the forefront in exploring the possibility of PFI funding for its rebuild. The rebuild is now officially recognised by the DfEE as a "pathfinder" project. It still has to clear one or two hurdles at the beginning of next year before the starting gun for the rebuild; and the cost, at around £10½million, is about one-third of the cost of the Weymouth relief road, now so necessary owing to the closure of the naval base at Portland and the need to revive the area in some non-military way.

The Colfox rebuild is very timely. I recently had the honour of opening a new computer network in the old building of the school. It is a project that might well itself have qualified for PFI funding. It cost £100,000, to be spread over five years. And that massive learning resource, very cleverly devised by the governors and senior teaching staff, and which would surely be the envy of any school in whatever sector, will easily transfer to the new building, which will cater for cabling below floors and behind walls, etc.

One of the important consequences of the decision to use the PFI for the school rebuild has nothing to do with the school itself. It is the freeing of a bottleneck. The county council is no longer confronted with two major capital spends. The school PFI project comes under revenue expenses, and capital funds can still be directed towards the relief road. That makes me wonder whether some mechanism might be put in place for prioritising PFI projects, partly on consideration as to whether some possibly quite unconnected but beneficial side-effect is to be had out of it. Perhaps it may be possible to find some way of flagging up at business case stage, say, these possibly unconnected bonuses.

Another message which emanates from the Colfox experience is that it is very important that the public sector partner is totally clear about what stream of services it wants. This project had an advantage. The preliminary work was already at an advanced stage when the decision to try PFI was made. I suspect it will be the kind of project with which the private sector partner, whoever that may be, will feel fully at ease. I understand that another, similar project, though not similarly located, has had a less easy run, partly owing to the difficulty of establishing the stream of services required by the school—a task made difficult owing to certain matters out of its immediate control not being resolved in a timely fashion. This may be a point worth emphasising even more strongly than it is already in the Treasury's excellently produced booklets on how to proceed. Perhaps more emphasis should be given to the need to sort out questions of ownership, heritage matters, and so on, early enough to ensure that private sector partners are not put off.

My third thought relates to small projects. Some must surely be too small to interest private sector contractors of the required calibre, partly because of the high cost of pre-tender work, to which Members of your Lordships' House have already referred. Might it be possible to devise a mechanism whereby several small projects—say, primary schools or even mixtures of types of build and flows of services—are placed together? It would be interesting to know what scope there may be for setting up this sort of exercise.

The PFI is a most exciting concept. I worked for some time in a government department without ever fully understanding why capital and revenue public expenditure should be segregated. PFI moves me further in that direction. I welcome the erosion of the distinction.

My right honourable friends the Chancellor of the Exchequer and the Secretary of State for Health recently delivered very upbeat and encouraging speeches to the annual conference of the Private Finance Panel. I trust those speeches addressed many of the concerns so powerfully expressed by my noble friends Viscount Weir and Lord Sanderson of Bowden. In its July report the CBI cited like-for-like achieved management savings in certain projects of 14 per cent. annually over comparable publicly-operated projects and savings of 30 per cent. on the capital element. For my part, I am certain that the PFI growth that we have already seen will continue at a fast rate and that, if we handle it well, it will become an export in its own right like privatisation, which overseas has done this country so much credit. It will spread throughout the world. The road ahead contains many challenges and even pitfalls but also major benefits. I hope the Government will pursue this initiative with the utmost vigour.

9.11 p.m.

Lord Dubs

My Lords, I should like first to congratulate my noble friend Lord Currie of Marylebone on the excellent maiden speech he made earlier today.

In looking at the history of this country from 1979 to the end of the century, I think that the future will judge the Conservatives in Government to have been extremely lucky— undeservedly lucky. Let me give two examples to support that.

First, North Sea oil. Without the benefits of North Sea oil, very few of the policies that the Government have introduced since 1979 would have been possible; or the damage inflicted on this country would have been even greater had there not been the cushioning effects of the benefits of North Sea oil.

Secondly, in a perverse sort of way the Government were very lucky to have Black Wednesday because that at least stopped the most disastrous economic policies of all and enabled the Government to change course. Without Black Wednesday the economy would be in much worse shape than many noble Lords have claimed in the debate today.

Let me turn to three points that I want to cover briefly in the course of the next few minutes: first, energy policy; secondly, the regulation of privatised utilities; and, thirdly, if I may dare, moral standards, as that subject seems to be the fashion of the times.

I do not believe that there was any mention of the word "energy" in the gracious Speech. Yet energy is crucially important to the economy, industry and well-being of this country. Therefore I endorse with enthusiasm the amendment standing in the name of my noble friend Lord Peston, on which we shall vote shortly.

As a country, we need options in our sources of energy. We need low-cost fuel, reliable supplies of energy and environmentally safe fuels. Looking at the changing pattern of energy-use in this country, coal is in decline; gas is increasing very rapidly and in the early part of the next century will account for over 50 per cent. of power generation; and nuclear power will decline from its present level of about 26 per cent. to something in the region of 18 per cent. but will still be important. There are interesting differences between various countries. In the United States nuclear power accounts for 20 per cent. and in France for between 70 and 80 per cent., but the big expansion of nuclear energy at the moment is in Japan, Korea and China.

This country needs above all reliable supplies of energy for the future. I do not know to what extent we may face an energy crisis in the next century. We have had them in the past and I do not forecast that there will be an energy crisis. But I should have thought that at the very least we ought to look ahead and allow for what might be the worst case option—that is to say, an energy crisis some time in 20 or 30 years after the turn of the century. I have a fear that if all else fails in terms of energy supplies, we might again have to look at importing nuclear technology and perhaps importing it from the countries that will have developed the technology most; namely, Japan, Korea and China. They will be the countries which will be abreast of technology and we may not be. At the very least, there is an importance in keeping our technological skills in this area up to date, without building any more nuclear stations but certainly to keep abreast of developments.

But perhaps more importantly than that, we need to keep developing coal technology. In the United States, coal accounts for 60 per cent. of power generation. We shall be down to 20 per cent. after the turn of the century. We need to keep developing it because we may have to turn back to coal in terms of both extraction and clean and efficient use of coal for electricity generation.

There is another consideration. If energy costs in the world are to rise—at the moment they are falling—coal would become a more economic fuel and we might wish to get out of the ground some of the coal that is left there at the moment. My fear in energy policy is that governments will not look far enough ahead. Often our timescale is only until the next election. We need to contrast that with the way in which some companies in the oil business look ahead. I went to a presentation given by the Shell oil company a couple of weeks ago. That company's scenario for the future looked 60 or 70 years ahead. I wish that the Government could look a little further ahead than just into the very short-term future.

However, looking ahead, I believe that the basis of our approach to energy should be that we must have choices of fuel which will contribute to a competitive and efficient economy. We need competition in energy, not as an end in itself but as a way of protecting consumers, both domestic and industrial consumers. We need security of supply and we need to redouble our efforts as regards environmental concerns in terms of what different fuels are doing to damage the environment.

I turn to regulation, which was comprehensively debated by your Lordships in December last year. I shall say just a little about that. When we had publicly owned utilities, they were monopolies. They had the advantage of being accountable, not so fully as I should have liked but there was an element of accountability. The difficulty with the Government's headlong rush into privatisation is that the idea of competition was left far behind. Only after the industries were privatised, have the Government given adequate thought to the way in which competition could be introduced into many of those industries, particularly gas and electricity. The problem there is that the interests of consumers were not well enough protected. So, we had the concept of the regulator.

I believe that one key problem in the privatised utilities is that they are virtually safeguarded against bankruptcy. I doubt whether the regulator could possibly allow in practice British Gas, say, to go under. I do not suggest that British Gas will do so, but the concept that we have privatised industries and then shelter them from competition means that they are in a situation of heads they win and tails they do not lose. The upshot is that the consumer is not so well protected as he might be.

Therefore, I feel that we have given the regulators awesome responsibilities. Generally, they do well; but it is a difficult task that we have set them. They have to act as if there were competition when there is not competition. Also, in a sense, they have to try to introduce competition. We have made it extremely difficult for the regulators. Let me repeat that I give them many good marks but they should not have to operate in a context which is so difficult for them. We need to look again at the way in which the regulators operate.

When I was in the United States in the summer, I noticed that in some states the regulatory boards are elected. I heard on the radio in Oklahoma City a woman who had the Democratic nomination to stand for election for the regulatory body. That is very good for public perception but I do not suggest that we should go all that way and have our regulators elected.

I believe that the way forward is for us to re-examine the functions of the regulators and the way in which they operate; there might be a case for examining whether the gas and electricity regulators should be merged into one energy regulator; and we have to consider whether the interests of consumers and their need to have low fuel prices are given sufficient priority in the way in which the present system operates. I am not satisfied that we have the right balance between incentives to efficiency and protection of the consumer.

Our system suffers from a lack of accountability, a lack of transparency in the way regulation operates and a little too much secrecy in the process. We need to broaden the decision-making process. Perhaps we have given too much responsibility to individual regulators. Maybe they should be buttressed by having panels of non-executive directors to work alongside and support the regulators.

We might also look again at the formula used. I fear that too few of the gains from extra efficiency in some of those industries have been returned to the consumer, whether it is the domestic or business consumer. There may be a case for looking at a profit-sharing pricing rule that would share profits between shareholders and consumers while still providing incentives for management and a fair rate of return for investors.

Perhaps I can refer briefly to morality. We have heard a lot about that recently and I do not claim to be able to compete with some of the people who have been commenting on it. I say this. A large element of morality is surely in the example set to young people. I believe it is proper to say to people, "Yes, you may get rich, provided you have worked for it and have not been too greedy"—essentially, provided they have worked for it.

But what have we seen in some of the privatised utilities in recent years? We have seen people getting very rich for doing nothing; we have seen enormous pay rises not justified by performance; we have seen massive capital gains from share options, again not justified by performance. It is no wonder people in this country are angry. When I talked of this to some people in the United States, they were quite shocked at the way matters had got out of hand here. Their view was that capitalism must operate with an element of consent and if industry pushes it as far as the privatised utilities have done in this country—not in all instances, but in many—that consent may be lacking.

I conclude with this thought. How can we expect our young people to hold high moral standards when they see what is going on? Moral standards must surely come at least as much from example as from preaching and exhortation. I urge the House to support the amendment of my noble friend Lord Peston.

9.22 p.m.

The Earl of Harrowby

My Lords, I agree with the noble Lord, Lord Dubs, as regards the benefits of Black Wednesday. But he will remember—I believe it is common knowledge—that it was caused by going in at the wrong rate.

I expect noble Lords will sympathise with me slightly, speaking at this stage of a 30-strong list when practically everything one wanted to say has already been said and I shall be as brief as I can with some layman's remarks. First, I want to refer to the EMU debate on 24th July on the "ins" and "outs" of the EMU and express surprise that there was no discussion during that debate on any halfway house; on any partial move towards the middle way.

The House will probably remember that my noble friend Lord Cockfield raised this subject on an earlier occasion—I enjoyed his speech today though he did not refer to this subject—when he advocated that the ecu would be pronounced legal tender. If each party to a transaction agreed with that, there would be considerable benefits in it. It would help business greatly. By their action the Government would be a willing participant in that concept, and others—if the cost of administration and buying equipment paid them—would rapidly follow suit. We would therefore have a dual economy for those who wished to benefit from it.

I remember discussing this project many years ago with a general manager of Barclays Bank. I want to make the point that that action would help to dispel the animosity growing in Europe. Our European partners are at present our friends but they are fast becoming not so. That is a dangerous situation in which to be. A willing, helpful attitude would be advisable and that would be one of the possibilities.

Those of my generation will have some sympathy with Chancellor Kohl's motivation—I certainly have—but I believe the Prime Minister is right, as my noble friend Lord Boardman has already said, in preserving his options. It is madness to give them away when one does not have to give them away. I was delighted to see—I hope I have not misinterpreted the report I read—that Mr. Cook is beginning to take the same line.

Some of what I now want to say, which is not much, has already been said by the noble Lord, Lord Barnett, with whose speech I 90 per cent. agreed. It seems to me that, anyhow, it is quite likely that there will be no EMU in 1999. The German population is two-thirds hostile to EMU. Eighty per cent. of the German population think that the Euro will be less stable than the Deutschmark. The French have so many difficulties facing them that it is possible that they, too, will be in exactly the same position. There is Air France with its deficit; there is SNCF, French railways, with an enormous deficit; there is the bail out of Credit Lyonnais; there are the social security problems which the French are trying to solve at the moment but which may bring considerable discord this autumn; and there is trouble also with financing France telecom. Will it be that convergence will not be genuine? The politicians may well try to fix the Maastricht rules. They may well succumb to financial engineering and to bending the rules. I hope not, because the consequence would be a complete destabilisation of the Euro. It is also aggravated by ignoring price parity.

I wish the EMU well because it is necessary to show good will towards it. We should prepare for it, as the Governor of the Bank of England has already strongly advocated, whether we go in or not, and we should fully participate in the discussions of the conditions. But, at the end of the day, it is likely that the decision will be that, rather than go in at the earliest possible time, we shall want to wait and see how it fares.

The EMU will face enormous difficulties. First, it will have the indigestion of the new members which ultimately must, under logic, be expected to join, though that will take many years. Secondly, it will have the financial problems and the political upset resulting from the reorganisation of the CAP. Lastly—and this subject is not so frequently mentioned—the rigidities of the mainland European economic system will, unless they are overcome, make the Euro uncompetitive and we shall be reduced—or they will be reduced—to a fortress Europe, which would be disastrous. I remember making that point many years ago in my maiden speech in this House. Otherwise, there will be a consequential decline in living standards, which inevitably will happen on the Continent in any event.

My final point is made in parenthesis in relation to what the noble Lord, Lord Barnett, said. If and when we decide to accept ECB jurisdiction via a probationary step in the ERM or if we decide to accept euro linkage, may we please remember to do so while the sterling index stands at 85 and is not touching 90.

9.30 p.m.

Viscount Chandos

My Lords, I do not propose to make your Lordships' night much longer in the final debate on the loyal Address for what, after all, is mercifully a short Session. I shall therefore be brief in speaking in strong support of the amendment proposed by my noble friend Lord Peston, particularly in the light of the powerful case made by my noble friend in his speech as well as, however uncontroversially and subtly phrased, by my noble friend Lord Currie in his excellent maiden speech.

Perhaps I may begin by paying tribute to the Government on an unusual achievement. After nearly 20 previous gracious Speeches since they took office, from which we can trace a depressingly clear pattern; with inevitably subdued expectations as parliamentary time is limited now that the general election can finally be put off no longer; with a realistic recognition of the effects of the Conservatives' diminishing parliamentary majority; despite every allowance that can be made, this Government still manage to disappoint expectations, demonstrating new levels of muddle and indecision and providing a depressing reminder of 17½ years of broken promises and wasted opportunities.

North Sea oil has been largely squandered, with a £260 billion net increase in indebtedness, as my noble friend Lord Peston observed. Long-term investment in education, training and the infrastructure has been neglected. That is damage which will take a whole generation to repair. We have to lament the Government's failure for yet another year to bring forward the badly needed competition Bill. That is a stark illustration of the thin programme proposed, before and after the Prime Minister's extraordinary U-turns, and the emptiness of the claims made by the Front Bench opposite to be promoting a truly competitive and dynamic economy.

Your Lordships' House will have the opportunity to debate the economy in a month's time with the benefit, if that is not a contradiction in terms, of having seen what the Chancellor proposes in his Budget. I look forward to seeing to what extent the Chancellor pays heed to the encouragement of the noble and learned Lord, Lord Howe, to make virtue the keynote of his pre-election Budget, not baubles for the floating voter. I suspect that at least some of the Chancellor's Cabinet colleagues believe that he might now be more compliant in offering electorally appealing measures if only he had been soundly caned a little more often while at school.

There can be no doubt that today's interest rate rise represents an ominous sign of the trouble that has been stored up by this Government's policies, which may become increasingly apparent during the final months that the party opposite clings desperately to office. It is like John and Ken's cocktail bar where a frothy and initially sweet-tasting concoction slips down quite nicely, but the dangerous combination of constituents—excessive borrowing, masked in part by creative accounting coupled with chronic under-investment—can be guaranteed to leave most people with a vicious hangover.

I should like to believe that next month's Budget will contain measures that offer fair taxes for all, not loopholes for the lucky, and a focus on the quality of public spending, not just the quantity. There is no virtue in reducing public expenditure to some arbitrary percentage of gross domestic product to conform with that applying in whatever Asian country is this month's fashionable and shallow comparison if the services provided cost the consumer more—a clear risk arising from the Government's excessive, distorted and cynical reliance on PFI.

At the same time, the current spending round should not be conducted in a way that leads to VAT being introduced on asthma and incontinence products, for instance, supplied by NHS trusts, as Customs and Excise have recently ruled. Soft options such as those applied outside the process of parliamentary approval betray a government in a terminal state of decay. Whatever damage has been done to the UK economy, the forthcoming Budget could still be used to reduce poverty and disincentives to work, to start the long haul of increasing investment in education and training and to build an economy with long-term sustainable growth which is fundamentally different from the slow crawl out of the self-exacerbated recession over which this Government have presided. However, on past form I do not have high hopes that the next Budget will address those issues, although I am very much more optimistic about the one after that.

I should like to end by addressing one further specific point which may initially seem self-indulgent in the context of the appalling problems facing the long-term unemployed and those living in poverty, but which I believe is nonetheless important as well as perhaps being a microcosm of larger and even more damaging issues. It also illustrates why the conviction of the noble and learned Lord, Lord Fraser of Carmyllie, that the country's reputation abroad has never been higher, is misplaced. I am sure that many of your Lordships will agree that the reputation of this country's arts has been outstanding and that the arts are a vital contributor not just to our culture, but to our economy and employment also. In the past three years the Government's grant in aid to the Arts Council has been reduced by nearly 10 per cent. in real terms with a further cut being signalled in the forthcoming Budget, despite the specific commitment of the Prime Minister that the introduction of the lottery would not lead to a reduction in the current funding of the arts. I should declare an interest as a director of English National Opera, one of the major clients of the Arts Council, although I know that my remarks are, sadly, as pertinent to nearly every arts institution in the UK as to the one with which I am most familiar.

Costs have been vigorously, even savagely, cut in those institutions in a way that plenty of public companies have never even contemplated. Box office sponsorship and donor revenue have in many cases been significantly increased, but many major arts organisations with national and international reputations, such as the Royal Shakespeare Company, the West Yorkshire Playhouse, the major orchestras and the Welsh and Scottish opera companies cannot make further cuts—nor can they meet the requirements for providing three, four and five-year business plans when the only signs are that their grants will continue inexorably to be cut.

There remains massive confusion in the public's eyes about the role of lottery funding and its restrictions vis-à-vis current spending. While there are now in the new initiatives and stabilisation projects proposals for modestly using lottery funds to ease the current account problems, they are moving so painfully slowly that there seems little chance of them being available to address the existing acute and threatening pressures, let alone the longer-term problems. All the while, an estimated £300 million of allocated but undrawn lottery funds for capital projects are, or should be, earning interest—an amount of money which could on its own come close to covering the reduction in the Arts Council's grant in aid in recent years.

This should not be a partisan issue, as I believe has been demonstrated by the submissions to the Department of National Heritage and the Treasury of the noble Earl, Lord Gowrie, chairman of the Arts Council and a former distinguished member of the Front Bench opposite. I urge the Treasury to act upon these and other representations, even if only by the release of accrued interest on lottery funds, to avert irreversible damage to our national heritage leading to further significant direct and indirect increases in unemployment. I am intrinsically inclined to be thankful for small mercies. I am confident that a gesture in this area will be warmly welcomed on every side of the House. However, I harbour no illusions that the larger and even more desperate issues stand any chance of being addressed in the remaining months of this Government. Therefore, I strongly commend to the House the amendment of my noble friend Lord Peston.

9.40 p.m.

Lord Jenkins of Hillhead

My Lords, we have had a long and, on the whole, interesting last day of the debate on the Address. The noble Lord, Lord Currie of Marylebone, made an early and impressive maiden speech. I recall in particular the speech of my noble friend Lord Thurso, who spoke with knowledge and authority, and the experience and wisdom of the noble Lord, Lord Tugendhat, even though I disagreed with the position that he adopted at the end of his speech. That is unusual as between him and me. I also recall the speeches of, and at one stage the direct grappling exchange between, the noble Lord, Lord Healey, and the noble Lord, Lord Cockfield.

The noble Lord, Lord Healey, spoke in cataclysmic terms about the single currency. The noble Lord has the great advantage, which I am afraid I cannot share with him, of unpredictability as to what he will say on European issues. I have seen him alternate from one side to the other approximately 35 times. But one matter that is absolutely consistent about him is that whatever his position at a particular moment, he always holds it with absolute certainty.

I found much of the speech of the noble Lord, Lord Cockfield, of interest and could agree with it, though he seemed to take a rather partisan view as to where profligacy in the management of the economy had occurred. If he looks back, he will find it very difficult to match from other parties the profligate record of successive Conservative Chancellors of the Exchequer, whose names out of delicacy I will not for the moment mention. He earned a mighty rebuke at one stage from the noble Lord, Lord Peston—a justified rebuke. But I nonetheless thought that his analysis of the costs of a higher interest rate was fascinating and important.

The noble Earl, Lord Harrowby, followed some of the arguments of the noble Lord, Lord Healey. I have known the noble Earl (regrettably not very well) since we were first at an officer cadet training unit together 54 years ago. He spoke in general in warm terms about a single currency, but it seemed to me that his speech did in a way encapsulate many built-in fallacies of the British position. Right back from 1950–51 onwards we have underestimated matters and said it is not going to happen: they will not bring off the common market or the Coal and Steel Community. We have so consistently said that that it would be the merest common sense for us to insure the other way. If you are riding a bicycle along a cliff path and you are in danger of bruising your arm if you steer in one direction and in danger of falling 300 feet if you steer in the other direction, it is rather wise to steer on one side rather than the other. The wise side for us to steer on, given our experience, given our track record—"track" is appropriate here—would be to assume things are going to happen, not that they are not going to happen. However, we will all see. You can never predict the future until it has happened.

It is a week since the gracious Speech, and already its contents seem like the most curled and faded of autumn leaves. The Prime Minister's performance in negating part of the speech within four hours of its having been delivered was extraordinary. It was obviously so from the point of view of the indications it gave of the Prime Minister's sudden switches of decision and nervous susceptibility to pressure. But there is another less obvious but equally significant consideration. The grandiloquent ceremony of the State Opening in which we indulge once a year is already in danger of being on the borderline between inappropriate fuss and magnificent historical pageant.

Part of the pageant is that the sovereign has to deliver with great solemnity words which are put into her mouth by the government of the day as their considered programme for the Session. But if the words are to be taken out almost as soon as they are put in, the balance is dangerously tilted towards farce. The present Queen in many ways, and certainly in relation to the opening of Parliament, has a higher sense of duty than had Queen Victoria. But even she, the present Queen, might be tempted to recall Queen Victoria's distaste for the ceremony. It was, she claimed in 1869, a great health hazard. It was too hot inside and too cold outside. Moreover, riding backwards in a carriage upset her.

It is typical of the Government's habit of proclaiming a general principle and then proceeding by all their practical actions to undermine it. Thus, having proclaimed in what in a way is a most un-conservative way, the total inviolability of every frozen aspect of our constitutional arrangements, they proceed to expose them to ridicule. Equally, they mount a holier-than-thou campaign, participation in which all politicians are extremely unwise to indulge, centred on the inculcation of moral principles into the young, while in practice giving them practically no facilities to do anything except to watch a declining quality of television and to have lottery draws twice as often as before.

Then we have yesterday's incident with Mrs. Shephard. On the issue I am on the Prime Minister's side. He seems to have acted for once with precipitate decisiveness. But what a way to conduct a government: to drag a Minister off the platform when she is paying what should be a dignified, authoritative ministerial visit in order to rebuke her, and then having done so, to make sure the press is informed of every detail of the rebuke. There are few less edifying sights than that of a weak man trying to make strong gestures.

I want to talk finally in this economic debate about a more agreeable subject. I certainly do not want to make a long speech at this time of night on the fifth day of the debate. My more agreeable subject is the Chancellor of the Exchequer. I believe that, on the whole, he has been a pretty good Chancellor during the past three years. That is remarkable for I do not think that he had made a great success of health, education or the Home Office. He is, indeed, a standing contradiction to Tacitus's great aphorism. I am tempted to give it in Latin because it is so much shorter in Latin.

Noble Lords

Go on!

Lord Jenkins of Hillhead

My Lords, perhaps I had better say that he is a standing contradiction to the fact that, had he not been Emperor, everyone would have said how good he would have been or, if your Lordships prefer it, omniwn consensu, dignis imperio, nisi imperasset. Had he not stepped to promotion over his failures no one would have realised how good he could be. One reason, perhaps the main reason, why he has been so good is that he has convictions, as he has shown over Europe, and that he has not been pushed into the vulgar fallacy that the main test of a Chancellor of the Exchequer is how quickly he can reduce tax.

As part of his argument against those pushing him in that direction, he has been kind enough to cite the analogy of the 1970 Budget and to contest the view that its relative austerity lost the Wilson government the election of that year. Not unexpectedly, I agree with him in that thesis. Indeed, it was the relative popularity of that Budget which produced the first major spurt in the Government's standing for several years and which alone opened up the possibility of winning.

The Budget could be blamed only as part of a much more subtle thesis which starts with the view that its austerities were too popular—the electorate was fed up with election bribes—and that enticed the Government into too early an election, whereas it would have been better, though I did not see this at the time, to wait six months until the recovery and the balance of payments could be perceived to be more secure.

But, be that as it may, if Mr. Clarke wishes to argue by the 1970 analogy I have two messages for him. First, while the British economy is undoubtedly in better shape than it was when he took over, it is by no means as splendid as some of the complacent claims which are made for it. I am afraid that the noble and learned Lord, Lord Fraser of Carmyllie, was a little complacent today. His was not a reflective speech, if I may say so; it was eloquent rather than reflective. On growth and on unemployment we are at present doing better than our principal neighbours. But that is far from being an across-the-board record for excellence.

On inflation, for instance, which one certainly would not think from many of the speeches we have heard, we are on 2.5 per cent., whereas both Germany and France are on 1.5 per cent. On interest rates—the noble Lord, Lord Cockfield, made the point very powerfully—we are, I make it, 1.8 per cent. above that of France and Germany. His figure was a little less but that was before today's change. And that is certainly not a gap which will narrow if the single currency comes into being with us outside it. On the public sector deficit, we are nearly 25 per cent. worse than are those two countries and show precious little sign of improving. On dead weight debt, the total of debt, however, we are marginally better.

But what is still more significantly the case is that if Mr. Clarke wishes to be a statesman-like Chancellor, firmly giving priority to the future health of the economy over short-term snatches at electoral fixes, he should in November not just avoid the pre-election bonanzas of Butler, Maudling and the noble Lords, Lord Barber and Lord Lawson—except that, rather perversely, the latter had a post-election bonanza—all the great profligate Chancellors. And not just doing that. He should certainly not be thinking that taking a penny off income tax shows austerity. Not even a wholly neutral budget is probably right. Actually applying a slight touch of the brake would now be appropriate. I am as sure as I can be that if that is not done now—and I believe that fiscal policy should supplement and work alongside monetary policy—and even with my respect for Mr. Clarke, I do not think it will be, it will have to be done more roughly and more damaging after the election and in the course of 1997. That is the hard test of Mr. Clarke's virtue and I would guess that he will only half pass it.

9.55 p.m.

Lord Irvine of Lairg

My Lords, it is difficult to wind up four days of debate. It is a privilege to follow the noble Lord, Lord Jenkins of Hillhead, and that is also in itself a difficult task. It is a tribute to your Lordships' House that four days of high quality debate have been generated out of the thin gruel of this Government's last gracious Speech.

It was a gracious Speech designed not for the better government of the country, but for the short-term tactical objective of wrong-footing the Opposition. It fell flat on day one. The initial decision to exclude a stalking Bill and a Bill to establish a paedophile register could only have been because the opposition parties would have supported them. Therefore, the Government's ambition to portray themselves as the sole party serious about law and order would be thwarted by all-party support for those two measures. Therefore, they intended to drop them and had to be shamed into reinstating them when flushed out on the Floor of the other place.

As my noble friend Lord McIntosh of Haringey revealed to your Lordships' House last Thursday, the Labour Party, when it became obvious that those two measures were to be excluded, wrote to the Home Secretary offering its support if they were reinstated. Later, my honourable friend Jack Straw received a complete brush off from the Home Secretary. What happened on the Floor of the House is now history. The notion that the Government took up an offer that was not previously there is just false.

Noble Lords opposite no doubt will be the first to agree that the Sun is the newspaper which always tells the truth. On Thursday of last week the Sun reported: John Major last night sensationally caved in to Labour demands for an all-Party deal to rush in new laws against paedophiles and stalkers. He made the amazing U-turn hours after insisting there was no room for the measures in the government's timetable. The change of heart came after Labour Leader Tony Blair dramatically turned the tables and offered to back the plans—with Lib-Dem support.! His move forced the Government to implement its own proposals it had already dropped.! The bizarre twist came after Ministers insisted they would not let Labour appear as the 'law and order party' by backing the plans". The leader of the Sun, under the heading "Who's Boss?", was harsh. It stated: There's one lesson the Government refuses to learn. ! That the voters are fed up with them dithering about". And that was before the Prime Minister and Gillian Shephard had their spat about the cane. The Sun continued: We are delighted that these vital laws will now be passed. But who is governing the country? Noble Lords opposite will also be ready to agree that the Daily Mail is another newspaper which always tells the truth. How galling for them to read the leader last Thursday which stated: If the chimes of Big Ben punctuated the pageantry for the State Opening of Parliament, it was the ticking of the electoral clock which dictated the contents of the Queen's Speech. The Prime Minister's strategy now is to point up the differences between the real Tory party and the pale imitation led by Tony Blair. How provoking for him, then, that yesterday afternoon he was ambushed into consensus politics by Labour and Lib Democrat offers of support for government Bills to target paedophiles and stalkers". If the Government have lost the forgiveness of the Sun and of the Mail, I doubt whether noble Lords opposite will be able to advise them where to turn.

It is some Queen's Speech when the Opposition secure the addition of two law and order Bills and, who knows, perhaps also a Bill to outlaw the promotion of the sale of combat knives. The noble and learned Lord on the Woolsack gave pride of place when opening our debate last Thursday to the Crime (Sentences) Bill. There is a dangerous feature of that Bill which it has in common with the Civil Procedure Bill which the noble and learned Lord also explained and which will receive its Second Reading next week. That is the Bill allegedly designed to pave the way for implementing the final Woolf Report.

Those Bills, together, deserve the caption, "Buy now, Pay later". The noble Lords, Lord Rodgers of Quarry Bank and Lord Windlesham, in their notable contributions to last week's debate, called attention to the increase in the prison population which will result from the implementation of the Crime (Sentences) Bill, and the associated costs of building new prisons.

The prison population is 57,500 and rising by about 1,000 per month, so today it far exceeds the corporate plan prediction of the Prison Service that the 55,000 figure would not be reached until the year 2001. The Government tell us that their estimate is that the new sentencing proposals taken together will result in an estimated increase of around 11,000 prisoners. Prison population forecasts are always under-estimates; these will be no exception. At least 12 new prisons will have to be built, so Parliament is being asked to buy this proposal today and the country will have to pay tomorrow. The noble Lord, Lord Taverne, spelt out the cost in his speech earlier today.

I heard no answer from the noble Baroness, Lady Blatch, to the pertinent question asked by the noble Lord, Lord Windlesham. I ask it myself again: will implementation of those sentencing proposals, if enacted, be delayed until the new prison places are available? I agree with the noble Lord that that is a crucial point. It demands an answer. Nor did I hear any answer to the question put by my noble friend Lord McIntosh as to how this new capacity can possibly be achieved before the end of the century, and certainly not in the context of a funding cut of 13 per cent. for the Prison Service.

Second under the "Buy now, Pay later" principle is the Civil Procedure Bill. We are told blandly that this is to pave the way for the implementation of the report of the noble and learned Lord, Lord Woolf. But all that the Bill will do is establish a unified rule-making authority for all civil procedure in the courts of England and Wales to make a single set of simplified rules of court. Its Explanatory and Financial Memorandum beguilingly declares that: The Bill is not expected to have any significant financial implications". If there was a simple cost-free panacea to the twin evils of civil litigation, which are cost and delay, it would have been discovered a long time ago. I have the distinct impression from both these Bills that the Government are willing ends but not means, trying to gain short-term political advantage without acknowledging the price that will have to be paid tomorrow.

Your Lordships' discussion on foreign affairs, overseas aid and defence on Monday brought the rich experience of this House to the debate. There were two recurring themes: the concern expressed from many quarters of your Lordships' House both for the fate of the peace process in the Middle East and for the future of the people of Hong Kong after hand-over to China next year.

In July this year I visited Hong Kong and, in September last year, Israel, in each case as a guest of the government there. I had the great privilege of an extended meeting with Yitzhak Rabin about a month before he was tragically cut down. He above all others believed passionately in the security of the state of Israel, as well as in the peace process. He saw progress in the second as a precondition of the first. It was good to hear the noble Baroness, Lady Chalker, forthrightly declare that the peace process must go forward; that the agreed redeployment from Hebron must take place, and promptly; and that Israel must urgently ease the passage of aid personnel, food, medical supplies and development assistance in the occupied territories.

In her masterly survey, my noble friend Lady Blackstone was equally resolute. All of us who are friends both of Israel and of the Palestinian people can make common cause. Agreements that were made in the name of Israel must be honoured by the government of Mr. Netanyahu. The Oslo agreement which burnt so bright and offered so much hope of reconciliation in the Middle East under the government of Prime Ministers Rabin and Peres must not be allowed to flicker out. My noble friend Lady Blackstone is surely right that the restoration of freedom of movement into and out of Israel, and safe right of passage between different parts of the Palestine authority, would be the best earnest of Israel's continuing commitment to the peace process.

Finally, in the foreign affairs debate, my noble friend Lady Blackstone described how the handling of the BSE crisis has heightened the disdain with which we are now regarded in Europe. The Government's conduct of that crisis has been an unfolding textbook of how neither to win friends nor to retain them, nor to influence people. First, the Government announced the problem, without any prior consultation with our European colleagues on how best to handle it both for our benefit and for theirs. Normally it is wise policy when announcing a problem to combine the announcement with the proposed solution, but not a bit of it. Hard on the heels of the first announcement came the second; that the Government's policy was to do nothing about the problem they had revealed. Therefore the beef ban followed. The Government retaliated with their ludicrous policy of serial vetoing, called, I believe, in the Civil Service trade, PONCE, the policy of non-co-operation in Europe. That failed. Then came the Florence Agreement. Next, the Government decided not to fulfil their side of that bargain. So the aim that the Prime Minister expressed to the other place last June; namely, to be able to tell the Commission by October—a month which has now all but expired—that we had met the conditions to lift the ban on two of the five stages, certified herds and animals born after a specified date, has come to absolutely nothing. A few months ago he said that the beef ban would be lifted by November. There is not a hope of that.

These are surely the politics of the madhouse. When next May the Government are ejected there will be a collective sigh of relief all over Europe. To Europeans it will appear that at long last the men and women in white coats have taken charge. It would be laughable if the damage to our national interest and to our farmers was not so great. I do not think that anything in our industry and economic affairs debate today has detracted from the thesis of the noble Lord, Lord Richard, who opened from these Benches last Thursday when he heralded the reasoned amendment which my noble friend Lord Peston has moved today.

The noble and learned Lord, Lord Fraser, trumpeted at the outset of the debate that we are recovering from a recession. I hope that we are. They dug the pit from which we may be emerging. Even this Government cannot keep us in the deepest recession for ever. However, they will be judged on the whole of their record.

I agree with the noble Lord, Lord Ezra, that there is not much to rejoice about. Investment, even now, is less than in any previous upswing; manufacturing investment was down in the past year; there are a million fewer jobs than when the Prime Minister took office. There are 2 million unemployed, with 900,000 long-term unemployed. There has been a huge expansion of public debt, with £25 billion a year spent on interest payments alone. The noble and learned Lord, Lord Howe, recognised that a PSBR of £25 billion to £30 billion is far too high and that restraint on the fiscal side is needed. And in his balanced speech the noble Lord, Lord Tugendhat, acknowledged that inflation is high by most European standards, even if lower than the self-indulgent standards that we have enjoyed; and that the Government's own target has not been reached.

There are 120,000 homeless families. Welfare bills have doubled as we pay for the cost of economic failure. As my noble friend Lord Haskel mentioned, one in five non-pensioner homes have no one working in them at all. More than a million children are in classes of more than 30. By the standards of France and Germany our GCSE results are lamentable. We have the lowest proportion of 16 to 18 year-olds in training or full-time education of all our major competitors. The noble Lord, Lord Currie, in a notable maiden speech emphasised the important relationship between education and training on the one hand, and growth on the other. If this is what the Government call an economic triumph, I should not like to live through what they would call a disaster. The one thing that is enduring about their claim to an economic miracle is that it is the claim that this Government always make before a general election.

My noble friend Lord Richard pointed last Thursday to what this Government have presided over£the want of respect for our institutions; the loss of sense of community; people sleeping rough; the growth of a depressed and alienated underclass. I add a few more: arms for Iraq; sleaze; boardroom rip-offs; cash for questions; Scott; Nolan; the twin doubling of crime and debt; the job insecurity and the business failures.

That is the true but unacknowledged background to the Prime Minister's claim at the last Tory party conference that Mr. Blair should not become Prime Minister because it would be his first real job. Well, Mr. Blair had a distinguished practice at the Bar before entering Parliament. I think enough of my profession and Mr. Leon Brittan, Mr. Michael Howard, Mr. Kenneth Clarke, Mr. Malcolm Rifkind, and the noble and learned Lord, Lord Fraser, to accept that they too, in time past, had real jobs at the Bar. I also have quite enough respect for the other place to accept that all its Members have real jobs. That claim by the Prime Minister was a pure expression of the arrogance of power. And the people do not like it. Neither the Prime Minister, nor his Government, has a freehold of power, only an overlong leasehold interest which is about to expire without being renewed because, as the people will shortly show, power is in their gift.

I commend our reasoned amendment to this House.

10.15 p.m.

The Lord Privy Seal (Viscount Cranborne)

My Lords, may I begin by referring to the maiden speech of the noble Lord, Lord Currie of Marylebone. His reputation preceded him to this House and, if I may say so, we were not misinformed. We await his future contributions with a mixture of pleasure and dread: pleasure at his delivery and dread at the power he will add to the ranks of the Opposition.

My Lords, it is late and your Lordships have listened to an informed debate for five days. I shall try to answer as many points as I can; on others I hope noble Lords will allow me to write to them. I must in the short time available to me try both to weave together the themes of the past five days and to answer the day's debate, which has been distinguished, I think your Lordships will agree, even by the standards of your Lordships' House.

Perhaps I may at this point undertake to pass on the comments of my noble friend Lord Weir on the PFI to my right honourable friend.

One of the overwhelming memories that I shall take away from this afternoon and this evening—and it is an element of the debate that I particularly enjoyed—is the exchanges that took place over the European economic and monetary union. I do not think I need to repeat to your Lordships that our position as a Government is perfectly clear. Before the Opposition rupture themselves with synthetic laughter—laughter which, I have to say, I anticipated—I should say that I shall watch with the greatest of interest the development of the Labour Party's position, which I think is characterised this evening by the sound of back-pedalling more than anything else.

This is the third year that I have found myself at this Dispatch Box at this point in the debate on the Motion for an Humble Address. In my first year, I drew your Lordships' attention to the economic prospects for the country as we emerged from recession. Last year I gave evidence that those prospects were beginning to be realised. This year I will—without repeating what has been said by my noble and learned friend Lord Fraser of Carmyllie—remind your Lordships that our economic performance has continued to improve over the past year and that the prospects for next year give us cause for quiet satisfaction.

I am particularly grateful to the noble Lord, Lord Jenkins of Hillhead, for what I can perhaps best describe as a slightly shady endorsement of my right honourable friend the Chancellor of the Exchequer. Perhaps I may say to the noble Lord that the Government have stuck to their economic policies consistently and tenaciously for some years now, although consistency and tenacity are, I agree, characteristics of my right honourable friend, characteristics which I, like the noble Lord, greatly applaud.

Those policies are working. They are allowing us, as my noble friend Lord Howe has reminded us, to see sustained low inflation and, as the noble Viscount, Lord Thurso, remarks, sustained and sustainable growth. We are seeing continuous reductions in unemployment, continuing improvements in exports, continuing inward investment. I believe, like my noble friend Lady O'Cathain, that our approach has indeed been one of tenacity and courage, for we all know that the economic cycle almost never coincides with the electoral cycle and, no matter what the noble Lord, Lord Jenkins of Hillhead, may say in order to explain the result of the 1970 election, he and I have known enough members of his former party to realise that his explanation did not altogether wash with them at the time and I doubt whether it will entirely wash with them even to this day. I think that that courage is something that my right honourable friend the Chancellor of the Exchequer has rightly shown again today and I am grateful to those noble Lords who have recognised that.

Of course, as my noble friend Lord Tugendhat so rightly said, there is more to be done. I certainly agreed with the noble Lord, Lord Taverne, when he pointed out, for instance, that our productivity still had some way to go before we catch up with some of our major competitors. But some at least of what has still to be done is encapsulated in the legislative programme which was announced in the gracious Speech, including our continuing commitment to bringing the PSBR into balance over the medium term. That is something which has quite rightly occupied the attention of a great number of your Lordships this evening. In fact, I was particularly pleased to hear earlier this afternoon the commitment of the noble Lord, Lord Peston, to fiscal rectitude. I do not wish in any way to be unpleasant, but I must say to him that it certainly sits rather ill with the statements from every spokesman from his party who each demands more expenditure implicitly and explicitly when it comes to talking about particular cases. We must plan for future success as well as emphasising our past achievements.

Before I go any further, I want to draw attention particularly to the speech delivered by the noble and gallant Lord, Lord Craig, to whom I listened with enormous admiration. I pay tribute to his work on the Select Committee, which he mentioned, and I particularly endorse what he said about the future delivery of government services. We face imminently a radical shakeup which I hope and believe will deliver enormously improved services to the citizens of this country. I can certainly confirm to the noble and gallant Lord that the Green Paper will be available on the Internet on the day of publication. It will be available on the government information site on the Internet and the Green Paper will also be released on a CD-ROM package, available through the same outlets as the written report.

Last year I suggested that I saw the health of the nation state, as an institution, as crucial to the success of the nation as a society and indeed as an economic unit.

The Opposition, as we are constantly reminded—I gather that there was an entertaining press conference today on part of this matter—contemplates institutional reforms. Those institutional reforms seem to me, apart from their constitutional implications, to threaten in their wake economic effects as well. Our economic achievements have at least been partly built on our ability as an independent member of the European Union to take the economic decisions which we believe are right for the United Kingdom, including the question of joining EMU.

Sadly, I know that noble Lords opposite will not agree with me when I say that a classic example of that is our decision not to adhere to the social chapter of the Maastricht Treaty. In that context, again, I am particularly glad that the noble Lord, Lord Peston, raised the question of employment. Incidentally, I should perhaps also point out to the noble Lord, Lord Barnett, that not only has the United Kingdom a higher proportion of its population of working age in work than any other major European nation, but that the number of people in work since we came out of recession has increased by 700,000.

The evidence that the provisions of the social chapter costs jobs is overwhelming. We live in a competitive world. Our major partners' unemployment figures alone show that the social chapter represents a range of social policies that we simply cannot afford and indeed that the European Union as a whole cannot afford if it is to compete with the rest of the world. My noble friend Lord Clark was perfectly right to remind us of that.

That illustrates a very real difference between the Government and noble Lords opposite. They say that by refusing to adhere to the social chapter and by refusing to introduce a minimum wage, we shall deliver only a low-wage economy with low job security. They see the social chapter and the minimum wage as the way to avoid both those evils. In fact, well meaning though those measures might seem, they are at best counter-productive. Instead of creating jobs, they discourage employers from taking on new workers. For our part, we want to ensure that the maximum number of people are in work so that they can enjoy the chances of increased prosperity that follow from that condition.

I should like to draw the attention of the noble Lord, Lord Haskel, to some evidence. On internationally consistent definitions our unemployment rate is now just under 8 per cent. As my noble and learned friend Lord Howe, pointed out, it is falling, whereas Germany's is 9 per cent. and rising, and France's is 11.5 per cent. Indeed, the noble Lord, Lord Healey, referred to the fact that those countries have combined low growth and high unemployment. I agree with that. I need hardly point out that those countries enjoy the social chapter, whereas we do not.

If those employment figures of ours were bought at the cost of sweatshop labour, noble Lords opposite might have more of a case. But my right honourable friends the Chief Secretary and the Secretary of State for Social Security have, between them and with help of figures from the OECD, established some illuminating facts. If we take the years 1986–1991, those in the United Kingdom who entered employment enjoyed a higher degree of upward income mobility than people in Germany, France, Italy and Sweden. Only the United States scored more highly than ourselves.

On the other hand, though it is true that in the United States those in the lower decile—the lowest tenth—of earners experienced a fall of 10 per cent. in average real earnings, in this country the growth between 1985 and 1995 for that bottom decile was 10 per cent. for men and 15 per cent. for women. So the lowest earners have not got poorer: so long as they are in work, they have become richer. Therefore what matters is to help people to obtain jobs. Once there, experience shows that they improve their income quite fast. Any barrier which discourages employers from offering jobs encourages an immobile underclass of unemployed and, to borrow a phrase from a reasoned amendment of the noble Lord, Lord Peston, damages "social cohesion".

In fact our opponents seek, through institutional means, not merely to win the political battle (which would be fair enough), but in so doing to lock the unemployed into a model which we believe is failing all the people of western Europe. We hope that our European partners will observe the practical effects of our policies on unemployment on the upward mobility of those employed at lower rates of pay. So, for the sake of the very people about whom both major parties are most concerned, our independence matters. But of what does such independence actually consist?

It consists of national institutions which are capable of taking clear negotiating positions with our partners; which are capable of insisting, where necessary, that our national interest requires us to adopt the position which we believe to be right. Similar considerations of practicality, not ideology, inform our attitude to institutional change for the United Kingdom. I have spoken on these issues before, most recently in July of this year, and I shall not weary your Lordships with yet another attempt at exposition. But underpinning our power to act is our need for strong central institutions legitimised by the authority of a sovereign Parliament.

The gracious Speech gives us one example of practical innovation. The speech referred to the publication of a draft Bill of voluntary identity cards. If your Lordships will allow, I should like to make a short diversion down that road. I regard that as a small but significant step. The Government want to make Parliament and the work of Parliament more accessible. I am sure we all agree on the value of that. The question is: how does one actually achieve it? This is an instance where, under the auspices of Parliament—formally prefigured in the gracious Speech—a draft Bill will be put into the public domain before it is brought forward for enactment.

I turn now to the reasoned amendment of the noble Lord, Lord Preston. I am sorry that so high a proportion of the speech of the noble Lord, Lord Irvine of Lairg, seems to have been written for him by some of the more downmarket newspapers. It was uncharacteristically a piece of "pinching" of other people's work, which disappointed me. I feel the noble Lord has a much better turn of phrase than the Sun.

When I first read the terms of the amendment of the noble Lord, Lord Peston, I was mystified. Perhaps I may remind your Lordships that this House is being asked to regret a putative failure on behalf of the Government, to manage the nation's affairs in a manner which preserves social cohesion and integrity within the United Kingdom and the country's reputation abroad". I could appreciate, when I read these words, that there was a fine sound to some of them. They were good words and phrases—"integrity"; "reputation", although "reputation", as we know in politics, is something of a bubble; even "social cohesion". As so often with fine words we are not told how they could, in the real world, inform policy or legislation. Do these words in any way refer, for instance, to institutional reform and constitutional reform when they refer to, integrity within the United Kingdom". I hope so—and I am glad to see the noble Lord, Lord Williams, nodding. That suits us.

The economy is becoming unpromising ground, for the reasons my noble and learned friend and I have given this afternoon, for the Opposition's attack on the Government. It is hardly surprising, therefore, that they have been casting around in an attempt to find rather more solid ground to support their lumbering chargers.

As so often, they have followed their instincts. They have decided to attack our national institutions instead. This is a well-established ploy hallowed in both the strands of socialist thinking that have flourished in this country: social democracy and state corporatism. It is based on the curious assumption that not only is state control more effective but is morally superior. From there it is but a step to argue that those who control the state know best. We need only remind ourselves of what happened to the grammar schools to see that it is true; or indeed to see what happens to state owned industries when we transfer them to the private sector.

The Labour Party has so often embarked on the long march through the institutions. Now it is appeasing the nationalists and the European federalists by attacking the institutions themselves—most notably the greatest institution of all, our nation state itself.

I shall not weary the House by discussing the party opposite's devolution plans. We all know that it has answered none of the practical questions—from the West Lothian question on—of how to apply those plans. I cannot resist asking in passing what Scotland or indeed my noble friend Lord Sanderson have done to deserve from the Labour Party more bureaucracy, more politicians and more taxes than Wales. However, the reality is that if it ever implemented these proposals they would prove to be the first step on the road to the break up of the United Kingdom.

While I am on the subject of institutions, I was most interested that the noble Lord, Lord Richard, who I am so delighted to see has come back from what must have been an extremely agreeable evening, in his typically pithy and amusing speech—I must say that if ever I need a barrister I hope my solicitor will be able to retain the noble Lord's services: he is, after all, remarkably good at making the best of a bad case—accused me of a death-bed conversion on the question of reforming your Lordships' House.

There were two things wrong with that remark, if I may say so with the greatest respect to the noble Lord. First, neither I nor your Lordships' House is on our death bed; and, secondly, no conversion has taken place. My position is exactly as it was when we debated these matters so memorably in July. I am not in principle against reforming the powers and composition of this House. I never have been. No creation of man, even this House, is perfect. However, this House works well. Any reform would affect us, but it would also affect another place. Labour's two-stage proposal may never get beyond stage one. It may not even get as far as that of course. But stage one would be the worst of all worlds. Yet again the Labour Party is guilty of political opportunism, this time to appease its own Left-wing—that Left-wing which is becoming so restive under the oath of omerta they have sworn until after the next election.

What I say to the Labour Party is this: "You are the ones who want reform. If you were to win the next election and persist with this plan, let us at least try to devise something that might work as well as the existing arrangements. The final decision will quite rightly be taken by another place as the elected Chamber. Why not, if you win, ask another place to set up a Select Committee to examine the question rationally and to make recommendations in the context of Parliament as a whole?". I have to say to my noble friends that I am still waiting for an answer. The noble Lord, Lord Peston, will understand by now that I am puzzled by what he means by integrity within the United Kingdom". When it comes to the country's reputation abroad, like my noble and learned friend Lord Fraser and my noble friends Lord Sanderson and, I believe I am right in saying, Lord Boardman, it seems a little rich to me, coming from the party which presided so memorably over the decline of our country into the basket case that it became in the 1970s. Perhaps I may make a little trip down memory lane in that that excited looks of pity in foreign eyes that I so well remember as a temporary export to California in the 1970s.

There used to be something called "The British Disease". Now we enjoy the strongest inward investment of any nation in the European Union. Companies from all over the world are willing to back our reputation with their investment and with hard cash. Clearly, this is not enough for the party opposite.

But for all these reasons we reject the terms of the reasoned amendment. It comes from a party which landed our country up to its neck in trouble in the 1970s and which has consistently opposed every successful measure that this Government have taken since 1979. It continues to oppose, and I have no doubt that it will continue to do so in the current Session, nearly every measure we bring forward even though they are designed to reinforce our success. But it carefully forgets to promise to repeal them if ever it should by some mischance be returned to power. I hope that your Lordships will see no merit in the reasoned amendment, just as I hope that the electorate will see through the same empty phrases before going to the polls. In that event this Government will have a renewed mandate, which they richly deserve, to finish the job.

10.36 p.m.

The Lord Chancellor (Lord Mackay of Clashfern)

My Lords, the original Question was that an humble Address be presented to Her Majesty in the terms set out on the Order Paper, since when an amendment has been moved by the noble Lord, Lord Peston, to insert at the end of the Address the words set out on the Order Paper. The Question is that this amendment be agreed to.

Their Lordships divided: Contents, 103; Not-Contents, 158.

Division No. 1
CONTENTS
Addington, L.	Lester of Herne Hill, L.
Barnett, L.	Listowel, E.
Beaumont of Whitley, L.	Lockwood, B.
Berkeley, L.	Longford, E.
Blackstone, B.	Lovell-Davis, L.
Blease, L.	McGregor of Durris, L.
Brooks of Tremorfa, L.	McIntosh of Haringey, L.
Bruce of Donington, L.	Mackie of Benshie. L.
Callaghan of Cardiff, L.	McNair, L.
Carmichael of Kelvingrove, L.	McNally, L.
Carter, L.	Mallalieu, B.
Chandos, V.	Mar and Kellie, E.
Cledwyn of Penrhos, L.	Mason of Barnsley, L.
Clinton-Davis, L.	Mayhew, L.
Cocks of Hartcliffe, L.	Merlyn-Rees, L.
Currie of Marylebone, L.	Milner of Leeds, L.
Dahrendorf, L.	Monkswell, L.
David, B.	Morris of Castle Morris. L.[Teller.]
Dean of Beswick, L.	Nicol, B.
Dean of Thornton-le-Fylde, B.	Ogmore, L.
Desai,L.	Peston, L.
Diamond, L.	Plant of Highfield,L.
Donoughue, L.	Prys-Davies, L.
Dormand of Easington, L.	Redesdale, L.
Dubs, L.	Richard, L.
EatwelLL.	Robson of Kiddington, B.
Ezra,L.	Rochester, L.
Falkender, B.	Rodgers of Quarry Bank, L.
Falkland, V.	Russell, E.
Farrington of Ribbleton, B.	Sewel, L.
Gallacher, L.	Shepherd, L.
Geraint,L.	Stoddart of Swindon, L.
Gladwin of Clee,L.	Strabolgi, L.
Gould of Pottemewton, B.	Taverne, L.
Graham of Edmonton, L. [Teller.]	Taylor of Blackburn, L.
Harris of Greenwich, L.	Taylor of Gryfe, L.
Haskel, L.	Thomas of Gresford, L.
Hayman, B.	Thomas of Walliswood, B.
Healey, L.	Thomson of Monifieth, L.
Hilton of Eggardon, B.	Thurso, V.
Hollis of Heigham, B.	Tope, L.
Holme of Cheltenham, L.	Tordoff, L.
Hooson, L.	Turner of Camden, B.
Howie of Troon, L.	Wallace of Saltaire. L.
Hughes, L.	Wedderbum of Charlton, L.
Irvine of Lairg, L.	Whaddon, L.
Jay of Paddington, B.	White, B.
Jenkins of Hillhead, L.	Williams of Elvel, L.
Judd, L.	Williams of Mostyn, L.
Kennet, L.	Winchester, Bp.
Kilbracken, L.	Winchester, Bp.
Kirkhill, L.
NOT-CONTENTS
Addison, V.	Brabazon of Tara, L.
Ampthill, L.	Brentford, V.
Annaly, L.	Brougham and Vaux, L.
Archer of Weston-Super-Mare, L.	Bruntisfield, L.
Attlee, E.	Burnham, L.
Banbury of Southam, L.	Cadman, L.
Beloff, L.	Caithness, E.
Belstead, L.	Campbell of Croy, L.
Berners, B.	Carlisle of Bucklow, L.
Biddulph, L.	Carnock, L.
Blaker, L.	CarrofHadley, L.
Blatch, B.	Chalker of Wallasey, B.
Blyth, L.	Chesham, L. [Teller.]
Boardman, L.	Chichester, Bp.
Bowness, L.	Clanwilliam, E.
Boyd-Carpenter, L.	Clark of Kempston, L.

Cockfield, L.	Harrowby, E.
Coleridge, L.	Haslam, L.
Colwyn, L.	Henley, L.
Courtown, E.	Holderness, L.
Craig of Radley, L.	HolmPatrick, L.
Cranborne, V. [Lord Privy Seal.]	Hooper, B.
Crickhowell, L.	Howe of Aberavon, L.
Cuckney, L.	Huntly, M.
Cumberlege, B.	Inglewood, L.
Darcy (de Knayth), B.	Ironside, L.
Dean of Harptree, L.	Johnston of Rockport, L.
Denham, L.	Kimball, L.
Denton of Wakefield, B.	King of Wartnaby, L.
Dixon-Smith, L.	Kingsland, L.
Donegall, M.	Lauderdale, E.
Downshire, M.	Lawrence, L.
Eden of Winton, L.	Leigh, L.
Ellenborough, L.	Liverpool, E.
Elles, B.	Long, V.
Elliott of Morpeth, L.	Lucas, L.
Elton, L.	Lucas of Chilworth, L.
Ferrers, E.	Luke, L.
Flather, B.	Lyell, L.
Forbes, L.	McColl of Dulwich, L.
Fraser of Carmyllie, L.	Mackay of Clashfern, L. [Lord Chancellor.]
Gage, V.
Gardner of Parkes, B.	Mackay of Drumadoon, L.
Geddes, L.	Macleod of Borve, B.
Gisborough, L.	Masham of Ilton, B.
Goschen, V.	Massereene and Ferrard, V.
Gray of Contin, L.	Merrivale, L.
Greenway, L.	Mersey, V.
Harlech, L.	Miller of Hendon, B.
Harmar-Nicholls, L.	Monteagle of Brandon, L.
Harmsworth, L.	Montrose, D.
Harris of High Cross, L.	Mountgarret, V.
Harris of Peckham, L.	Mowbray and Stourton, L.

Murton of Lindisfarne, L.	Shrewsbury, E.
Newall, L.	Skelmersdale, L.
Northesk, E.	Soulsby of Swaffham Prior, L.
O'Cathain, B.	Stewartby, L.
Oppenheim-Barnes, B.	Strange, B.
Oxfuird, V.	Strathclyde, L. [Teller.]
Park of Monmouth, B.	Taylor of Warwick, L.
Pearson of Rannoch, L.	Tebbit, L.
Pender, L.	Teviot, L.
Perry of Southwark, B.	Thomas of Gwydir, L.
Peyton of Yeovil, L.	Torrington, V.
Plumb, L.	Trumpington, B.
Pym,L.	Tugendhat, L.
Rankeillour, L.	Ullswater, V.
Rawlings, B.	Vivian, L.
Reay, L.	Wade of Chorlton,L.
Rennell, L.	Wakeham, L.
Renton, L.	Waterford, M.
Rotherwick, L.	Weir, V.
St. John of Fawsley, L.	Westbury, L.
Saltoun of Abernethy, Ly.	Wharton, B
Sanderson of Bowden, L.	Whitelaw, V.
Savile, L.	Wilcox, B.
Seccombe, B.	Wise, L.
Sharples, B.	Wolfson, L.
Shaw of Northstead, L.	Wynford, L.
	Young, B.

Resolved in the negative, and amendment disagreed to accordingly. On Question, Motion agreed to: the said Address to be presented to Her Majesty by the Lords with White Staves.

House adjourned at fourteen minutes before eleven o'clock.