Industry: Competitiveness

HL Deb 18 June 1997 vol 580 cc1267-311

5.13 p.m.

Debate resumed.

Lord Burnham

My Lords, when the Lord Privy Seal began to repeat the first Statement—about a couple of years ago it seems to me—he apologised to the noble Lord, Lord Borrie, for interrupting his debate. With respect to the noble Lord, I consider that a little odd. The noble Lord, Lord Borrie, had finished speaking. I have been sitting here for some time and have become increasingly confused by the Statements and their effect on what I might wish to say. All I can do now is to keep my fingers crossed that I do not commit some solecism and that the optimism that was clearly shown by the Lord Privy Seal's right honourable friend will be justified by the facts and what happens to business as a result of what he hopes will be achieved in the coming years.

I should like to thank the noble Lord, Lord Borrie, for having introduced this debate, which is very timely. It comes at a time when the former Conservative Government have handed over the British economy to Labour in a most excellent condition. Of course, it is not so excellent that no further improvement is called for. The means of improvement have been highlighted today in the speech of the noble Lord, although he spent a good deal of time going back into the past. The noble Lord, Lord Borrie, is particularly eligible to speak on this subject. He has the highest credentials as a past Director General of Fair Trading and a lifelong student of consumer affairs and consumer law.

However well the economy is doing we must strive to do better. No doubt during the course of the debate many noble Lords, some of them with experience of what was achieved during the course of the previous Government, will be able to give the new Ministry some worthwhile advice. During the election, and before, repeated but unjustifiable claims were made by Labour politicians that the Conservatives had somehow damaged, if not destroyed, Britain's industrial base. The past 18 years have been a period in which the British economy has moved an immense distance from the position where the previous Labour Government had to apply for help from the International Monetary Fund. The competitiveness of the British economy was transformed beyond recognition under the Conservative Governments of Margaret Thatcher and John Major.

On entering office this Government have inherited the most favourable economic climate for more than a generation. Labour is again in power but at a time when everything is working economically in its favour, unlike the world it left behind it in 1979. Inflation is low and under control. It has been below 4 per cent. for over four years—the longest period of low inflation for half a century. The former Government's target of getting inflation down to 2.5 per cent. or less was achieved. Unemployment at 5.8 per cent., although obviously still much too high, is at its lowest level for seven years and is well below the European Union average. Britain is top of the inward investment league, winning about one third of all inward investment into the European Union. There can be few clearer illustrations of a country's competitiveness than the amount of inward investment that it attracts. The billions of pounds invested in Britain by thousands of foreign companies give an indisputable concrete demonstration of the position that Britain holds in the world today.

I give some facts on which to base this argument. The Economist Intelligence Unit reported in May that Britain had the second most favourable business environment in the world ahead of Singapore, the United States, Japan, Germany, Switzerland and New Zealand and behind only Hong Kong, although it expressed some fear that Hong Kong might not for long be in the lead. However, it did not suggest that this country would go to the top. In March of this year the International Institute of Management Development reported that the United Kingdom had jumped from 19th to 12th in the world competitiveness league, moving ahead of Germany and becoming the highest European G7 member. The UK has had the strongest growth of any EU economy since 1992. It exports more per head than Japan. It is Europe's largest exporter of televisions and computers, and one third of the small businesses started in Europe start in Britain.

This has not come by chance. It has needed hard work and a clear and coherent policy. Incidentally, I wonder what the figures would have been, and may be in the future, if Scotland and Wales were untimely ripped from their mother's womb.

The Conservative Party has made it clear that it will offer nothing but constructive opposition to the Government's programme. Where their policies have a positive impact we will give them our support. Indeed, many of them look very familiar. I am reminded of the advice given to Neil Kinnock before the 1992 election to ignore traditional Labour policies and traditional Labour voters, who would never vote for another party. The adviser said that he should go for the middle class waverers and middle class policies. In that way he could win. Kinnock ignored that advice; Blair did not. What happened?

Nevertheless, there are certain areas of Labour policy which pose a threat to our nation's competitiveness. These have been much talked about but they seem a potential incubus on enterprise. The agenda is already familiar: a national minimum wage, the European social and employment chapters and, something that makes me particularly shudder—new powers for trade unions.

In a debate in this House last week, the noble Lord, Lord Clinton-Davis, pointed out that these policies were what the electorate had massively voted for on 1st May. That is true, but I wonder whether many of the electorate, in their clear wish for a change, really understood what they were laying themselves open to.

Of those policies I shall speak of the trade unions first since I suffered the most bitter personal experiences in the 1970s and very early 1980s. Those were the times when 29 million working days a year were lost through strikes. I do not think that the unions were then particularly pro-Labour or anti-Tory. On the Daily Telegraph we suffered the most convoluted and tongue-in-cheek attempts to get round the regulations on wage restraint introduced by the noble Baroness, Lady Castle. The unions were shameless. The print unions and their members were all that mattered. The country and everyone else could go hang.

At that time my wife had a horse called Union Card, by Good Bond out of Season Ticket. I thought it was rather well named. Having benefited from its success, the National Graphical Association's Imperial Chapel in the composing room gave me a union card of my own. It was a good joke, but what was not a joke was the large, conspicuous monogram on the reverse which in normal hands showed that the owner had not opted out of the political levy. At that time whenever the card had to be shown at a meeting the member's financial support for the Labour Party—the party which later opposed all proposals for trade union reform—could be seen, and the absence of the logo showed the courage of those few who did opt out.

The Conservative Government in 1993 undertook reforms which made the payment of a political levy by the workforce more equitable. Today's debate is particularly timely as it is reported in The Times this morning that Mr. Ian McCartney, the Minister for Trade and Industry, has said that the Government are to introduce legislation to make it easy for the trades unions to exact payments from the workforces. That again makes me shudder.

Times have undoubtedly changed. We have many worker/shareholders who have a broader understanding of investment and business problems, but the policies of the late 1990s are suspiciously like the facts of the 1970s. For instance, we have proposals in the manifesto for compulsory union recognition with new rights for strikers. I have no comment on the rights or wrongs in the current dispute on what was Southern Railways, but, already, here we go again.

There is wide agreement that a minimum wage will destroy jobs. The chairman of the Low Pay Commission, Professor George Bain, has admitted this in an article in The Times this month, when he surprisingly added that some jobs would be better lost anyway. Which jobs? Part time women workers supplementing their husband's incomes? First jobs for the young? Jobs held by those re-entering employment after a period on the dole? These are the categories of the workforce on the lower rates of pay, but they usefully allow flexible working patterns or a first job where new skills can be acquired.

Apart from job losses we will be forced back to one of the most dreaded of the trade union cries, "differentials". No union official and few workmen will accept a rise of a pound or more for the lowest paid without the more skilled workers' differentials above that rate being maintained with an increase of a pound plus being demanded. It is not necessary to underline what this will do for inflation. The DTI calculated last year that a minimum wage of £4.15 an hour, with a 50 per cent. restoration of differentials, which I believe to be optimistic, would destroy a million jobs. I hope that it is wrong.

Labour's commitment to sign up to the social chapter is another blow to Britain's hard won competitiveness. The two pieces of legislation which have been passed already on works councils and parental leave are not benign. The DTI has calculated that the parental leave directive would cost industry £200 million a year.

A great deal of legislation can be passed under the social chapter by QMV. As I say, I have not studied the recent Statement so I am not clear as to the degree to which that is possible. The Prime Minister cannot pick and choose. He has no veto. What he can do is not sign up for the social chapter in the first place. Let us do what a Cabinet Minister is alleged to have done when taking the Oath in another place: keep our fingers crossed.

The Labour Government's determination to ape the ailing European social model by handing over employment to Brussels, a policy which is destroying jobs throughout the Continent, seems bizarre. If we sign up to the employment chapter, Brussels is where job policies will be made—made on the basis of qualified majority voting. Here, no individual EU member can veto a proposal. New measures to be brought forward under the employment chapter would have to be approved by QMV and, almost worst of all, we would adopt a "co-ordinated strategy for employment" which requires member states, to regard promoting employment as a matter of common concern. What is this? Compulsory job sharing with the rest of Europe? It looks like it.

Padraig Flynn, EU Social Affairs Commissioner, has announced that the Commission is to press ahead with legislation to require small and medium-sized companies to introduce bureaucratic works councils (bureaucratic? Ha!) with a right to impose sanctions on those who do not consult adequately. Flynn is also suggesting a reversal of the burden of proof in sex discrimination cases. Employers will be guilty until proved innocent. But all that, as the noble Lord, Lord Clinton-Davis, told your Lordships, is what the electorate voted for. In the words of Lord Walpole: they now ring the bells, but they will soon wring their hands". There are worrying signs that the Commission is failing to honour the legally enshrined principle of subsidiarity—the principle whose prominence is yet another testimony to the previous Government's negotiating success in Europe. Do not let us lose it.

All of this is immensely depressing: depressing, because the British economy is undoubtedly now leaner and fitter than at any time in recent memory. Businesses in Britain now enjoy an excellent climate of low inflation, low taxation, minimum social costs and a flexible labour market. These were not gained easily and we must continue to look at ways in which we can improve, for improve we still must.

One lesson that has been learnt is that there is no "quick fix". If in this debate we can underline the problems which appear likely to arise as a result of the Government's plans and urge the Prime Minister and his colleagues to look very carefully at proposals which seem suspiciously like the old Labour which we have all been told is now dead, we have a chance.

The Government must concentrate on ways of reducing, not increasing, burdens on business. Until they do so, they cannot expect their competitiveness agenda to be taken seriously.

5.27 p.m.

Lord Ezra

My Lords, as the noble Lord, Lord Burnham, pointed out, the noble Lord, Lord Borrie, is to be congratulated on introducing this subject for debate today, particularly at this early stage in the life of the new Government. This is, after all, a crucial issue upon which the objective of sustainable growth, to which all parties are committed, depends. The noble Lord, Lord Borrie, was right in saying that the previous Government had indeed devoted a great deal of attention to the subject, and many White Papers and interesting documents were produced. What we must discuss today are the policies which will be pursued by the present Government.

I believe that this is an occasion, at this seminal period in our post-war history, with a new government with a substantial majority, when we should be considering the role of government in relation to industry. I have in my career served in an industrial capacity throughout the whole of the post-war period. To start with it was in a nationalised industry, and, subsequently, in the private sector. I have been much involved in and concerned with government policy towards industry. The Attlee Government of 1945 introduced what was patently an interventionist policy. They introduced nationalisation of the basic industries, and interventionism spread into other sectors. That was felt at the time to be a desirable policy. My one worry about that policy, having served in a nationalised industry, was that that process of intervention in fact contradicted what was the understanding in setting up the nationalised industries on the Morrisonian principle, that they should be operated at arm's length. In fact that was never so—not under Labour governments or Conservative governments. To my mind, the concept of nationalisation was not defective in itself but in the way in which governments constantly intervened.

That period of intervention in industry was pursued in varying degrees, according to the nature of the Government, right up to the end of the 1970s. As we well know, after that there was a total change of direction when, through the privatisation and deregulation programmes, there was a progressive move on the part of government to disengage and to leave things to market forces. Indeed, many believe that the proper role of government is to keep in the background, to concern themselves only with basic macro-economic matters and to leave things to take charge of themselves. The young Mr. Hague at the age of 16 made his debut in the Conservative Party by making an impassioned speech asking for the Government to withdraw from our lives.

However, I do not believe that at present either the policies of direct and constant intervention or of disengagement are appropriate. I would like to believe that at this late stage in the 20th century we are entering a new phase in which government should act as a stimulator. I would like to indicate where in relation to the subject of our debate the Government should stimulate.

First, we must deal with the question of the basic framework within which industry must operate. There are a number of main areas in which any government must set the scene. Without question, in terms of macro-economic policy, the first is inflation. The Government have moved with commendable speed to introduce a system of controlling inflation which will remove it from political intervention. By giving greater operational independence to the Bank of England, the Government have done word for word what was contained in the CBI document issued in July 1996 entitled Prospering in the Global Economy. It strongly recommended that it should be the role of government to set an inflation target and for the bank to be accountable for its delivery. It indicated that in countries in which there was such an independent operational role for the central banks inflation had been kept under better control.

The test of whether that system works will come when inflationary pressures generally begin to manifest themselves. We are living in a period in which not only in the UK but in all the other countries of the EU inflation has been kept at a very low level. Therefore, we must ask how the system which has now been introduced will act when circumstances and pressures change. At any rate, what has been put in place appears to be eminently sensible, certainly to the CBI and many others.

The containment of public expenditure, which ran out of control in recent years, but more recently came under control, is another essential issue. Undoubtedly, it is part of the role of government. There certainly should be a commitment to keep public expenditure below 40 per cent. of GDP. There is every indication that it could fall below that, but it must be maintained at below that level. The borrowing requirement should be kept within, and below if possible, the Maastricht limit of 3 per cent.

Within those limits of public expenditure there must be prioritisation. I am pleased that the Government have moved to introduce a comprehensive expenditure review, which we discussed last week and which I hope will identify not only the areas in which savings can be made but also the areas which require increased expenditure and where efforts must be found to fund the increased requirements.

Thirdly, there is the issue of currency stability. Sterling is riding high and at one time that was believed to be a good thing. In practice, it is very difficult for many enterprises. Today we have seen the financial results of British Steel, one of our most successful enterprises. In spite of all it has done to improve its efficiency, because it exports so much of its product it has lost out as a result of the high level of sterling.

I was a Member of the Select Committee on Overseas Trade, presided over by the noble Lord, Lord Aldington, in 1985. One of the steps we took in looking at ways in which trade and therefore industry could be promoted was to ask business respondents we interviewed for their views on currency. The first comment they made was that they would like to have a stable currency. We went a bit further and asked, "What do you think the relationship between sterling and the other main currencies should be?". They told us—and it was the common view—that in the case of the dollar it should be 1.5 dollars to the pound and in the case of the deutchsmark it should be 2.5. I believe that those views are as relevant today as they were 12 years ago. Unfortunately, we have the dollar at 1.64 and the deutchmark at 2.85.

It is difficult to control levels of currency in a free-moving area where there are floating currencies. The problem that we must face—and I hope that the Government will be considering it—is that if the single currency were to be introduced at the scheduled time and if the UK were not to be in the first wave, we must think seriously about our relationship with that currency. There could be the risk that sterling could be regarded as a refuge for currencies escaping from the single currency if it were potentially weak, and our currency could go sky-high. The reverse could also be the case. We must be thinking of ways in which we can protect the currency against that kind of major fluctuation.

There is also the issue of competition policy. I shall not deal much with that because the noble Lord, Lord Borrie, one of our leading experts on the subject, spoke wisely on it.

Finally, I hope that we shall soon see some draft legislation. I wish to speak briefly about investment, which undoubtedly must be stimulated. The trouble with the British economy is that in times of boom that boom has tended to be based on increased consumption expenditure and our investment has tended to lag. That is already happening on this occasion, boosted by the windfalls from the building societies.

I hope that we will be able to describe the forthcoming Budget as one for investment and for rebalancing the ways in which we use our resources. We must create the right investment in industry, in essential parts of the public sector and, above all, in skills training. The noble Lord, Lord Borrie, was kind enough to refer to my remarks about the skills shortages which are already emerging. I know that my noble friend Lord Thurso will be developing that issue. If the forthcoming Budget deals with these issues of macro-economic policy, we can look forward to the maintenance of the positive economic conditions under which we presently operate and to which the previous government contributed.

5.40 p.m.

Lord Desai

My Lords, first, I thank my noble friend Lord Borrie not only for introducing this rather timely debate but also for recognising that academics are badly paid. I can entirely support his judgment on that. I congratulate also the noble Lord, Lord Burnham. It is the first time that I have seen him on the Front Bench and I congratulate him on a very fine performance. He promoted my honourable friend Mr. Tony Banks to a Cabinet position, which will no doubt please us all.

Perhaps I may say a few words about the minimum wage. I was not going to speak about that, and some of the things which the noble Lord said were no doubt well taken. If one takes a static view of the economy, a minimum wage set too high would cause a loss of jobs. I teach that to first-year undergraduates and I have no problem with that. But in a dynamic economy other effects should be considered. For example, the most dynamic economy in the world today is that of the United States and the United States has a minimum wage and has had a tremendous growth in employment.

There is a lot of work being undertaken in this area at present, but academic evidence is divided because it is extremely difficult to take into account all the other factors. The United States has a minimum wage which is roughly 40 per cent. of average earnings and yet it still has growing employment. I do not deny that a high minimum wage may cause unemployment but other factors should also be considered when looking at the problem of a minimum wage. I shall say nothing more about that.

Moreover, I shall not go down the path followed by the noble Lord, Lord Ezra, as regards the macro-economic framework for competitiveness. I wish to take up the point of how we define, interpret and understand competitiveness. There are a number of points to be made. A major characteristic of economic policy in Britain—at least post-war policy—is that different governments tried to find the holy grail of competitiveness or economic efficiency. Once upon a time we believed that nationalised industries, large-scale industries, were efficient. Then when the Conservative Government came to power in 1951 they introduced what they understood to be laissez faire. There is a difference between competition and laissez-faire. When the Wilson Government came to power, they believed that we were not performing to our best ability because British firms were too small and that scale was very important. Therefore, there were mergers and large corporations were built up. That Government believed that largeness by itself would make us competitive with the United States and we went down the path of the IRC. The Heath Government went back to competition and Selsdon man. After that, we had deregulation, and so on.

Partly, different strategies work at different times. But also in a sense my worry is that we are always looking for one particular definition, structure, theory of competitiveness which often is based on economic thinking that is slightly out of date. Moreover, it is often static. A lot of work is currently being done in that area and my noble friend Lord Currie is better qualified to speak about that than I am. But economists have had a problem with defining competitiveness. I shall not bore noble Lords with the various exegeses of the literature, but, by and large, we think of monopoly and competition in terms of the numbers of competitors and the level of concentration; and that is extremely static.

What works—and I do not know why it works—is to have an economy in which a sufficient number of innovating firms make sufficient profits to keep a dynamic economy going. Let us look again at the United States. About 15 years ago people were saying that the US would lose its economic power with its low productivity and all sorts of other problems. Professor Paul Kennedy wrote a book about it. Look at the United States now. It is the most dynamic economy in the world. I am not saying that this is the only answer, but there are firms in the United States which are innovative and which have the ability to borrow venture capital and break through established markets. Size does not matter. Microsoft, which was a very small company, practically broke IBM, which was an extremely large company. If we had looked only at size and concentration, we should have thought that IBM was a big, bad beast and poor Microsoft would be crushed by it. But innovation was very important.

We should create a climate for innovation. I return to what my noble friend Lord Borrie said. We have not appreciated fully the important role of basic research in universities which eventually feeds into industrial innovation. I know that tomorrow we shall discuss a report on that topic. Unfortunately, I cannot take part in the debate due to another engagement. But we should think positively about restoring the research base of engineering, science and technology. That may give us the opportunity to get back into an innovative framework.

What really matters is what makes an economy dynamically efficient. One factor must be innovation. Secondly, we should think about competitiveness of the economy and not just industry. Far too often we become hung up on the manufacturing industry. I have nothing against the manufacturing industry but there is a tendency to have a misplaced concreteness in our minds so that if there is not anything solid coming out at the end of the process, we are deeply suspicious. We feel uncomfortable if we see people making profits and nothing concrete is being produced. But that is not the way an economy works.

For example, in the British economy, one of the paradoxes is that the service sector is and has been much more profitable. The rate of return in the service industry is substantially higher than it is in manufacturing. We should ask ourselves why that is. Is it because the service sector is easier to enter and it is easier to borrow money because the commitments may be only short term. In a number of sectors—fashion, design, pop music—Britain has an extremely innovatory economy. If we think of the innovations that we have in pop music, design or fashion, we can see that Britain is a world leader. We should try to understand why those sectors are so successful and learn from them.

As we advance, the economy will not be frozen into the old structure of making solid things and nothing else. Not only shall we not be able to make solid things because there is fierce competition from, for example, east Asia, where highly skilled people can make those products much better than we can make them. It is also partly because products and processes are changing so that what people buy nowadays is not a solid product but an abstract one. People pay a great deal more for design, advertising or promotion than for the solid, material things.

Let us think of when you buy a pair of Nike trainers. You are not merely buying the material which goes into making the shoe but buying the design. Indeed, you are buying fashion, design and endorsement. It turns out that in the production cost of a pair of those shoes labour costs represent only 10 per cent. That is not surprising because anyone can make a pair of shoes once its computer design has been sent over the network from here to China, Thailand or wherever the shoes are being made. Making the shoes is no longer the trick; designing them in a way so that sophisticated consumers buy them is the source of profitability.

If we are to make our economy more competitive, we must understand that encouraging schools of design and fashion is as important as old-fashioned engineering or technology. Indeed, very often that is the leading edge of competitiveness in the world economy today. We must ensure that we do not get into a single solution mentality again. We must also avoid a single sector obsession—manufacturing and nothing else. It must be made quite clear that, whatever we do, the most difficult thing is to change what we have started. As the world economy evolves, any solution that we have today will become out of date within a very short time. Therefore, flexibility in our policy-making and in our thinking is as important as flexibility in labour markets.

5.51 p.m.

Lord Astor of Hever

My Lords, I, too, congratulate the noble Lord, Lord Borrie, on his introduction of this important debate. I should also like to congratulate my noble friend Lord Burnham on his elevation to the Opposition Front Bench.

Efforts to improve Britain's industrial efficiency will fail unless safety and health are placed near the top of today's business agenda. Doubtless there are those who disagree arguing that, desirable though they may be for social reasons, health and safety measures serve only to increase costs and to stifle innovation. After all, they say, does not safety just "get in the way", and is not "risk taking" at the very heart of competition and business decision-making? Those are views which many of us will have heard from time to time. They are ones that I personally encountered in business long before I became president of the Royal Society for the Prevention of Accidents, an interest that I now declare.

While it is often said that Britain, in comparison with many other developed countries, has a very good health and safety at work record, there can be no room for complacency. Thankfully, due to consistent preventive work, there are now relatively few accidental deaths in workplaces. However, about one in 12 workers every year will suffer some kind of injury while at work. Death early in retirement, due to work related health damage, is still a massive problem in this country. Exposure to asbestos alone is estimated to cause up to 6,000 deaths a year, and that figure is set to rise beyond the millennium.

The human cost, including the impact on families, is massive. For that reason alone, as a civilised nation, we should take effective action to protect people who contribute towards building our national wealth. But there is also a powerful economic reason why we should take action, and that is because accidents—and ill health caused through work—damage individual businesses and our entire national economy.

The Health and Safety Executive has calculated that workplace accidents and ill health are costing Britain up to £16 billion annually—nearly 3 per cent. of our GDP. That is equivalent to one average year's economic growth being thrown away, in the main, as a result of failure to put safety first. But government expenditure in 1996–97 on the Health and Safety Commission and Executive is surprisingly modest at some £178 million, representing less than 2 per cent. of the cost of accidents and workplace ill health to UK plc.

Only last week, Frank Davies, Chairman of the Health and Safety Commission, warned companies, saying: Dealing with the causes of accidental losses is not an unnecessary overhead—failure to do so will eat into the profitability of a company". The publication that he was relaunching, The Cost of Accidents, highlights major events such as the "Piper Alpha" explosion which cost 167 lives and £2 billion; and the 1987 BP oil fire, in which only one life was lost, but which cost BP £100 million. The same publication shows that for every pound of accident costs which companies recover through insurance, between £8 and £36 are lost, never to be recovered.

In smaller businesses, injury to a key employee, or a major accident causing business interruption, can quite literally spell the end of that firm. By contrast, action to build the existing management systems benefits efficiency, stimulates innovation, and boosts staff involvement and morale.

Despite the great strengths of Britain's occupational health and safety regime, further action is still urgently needed to improve the management of work-related risks. I will focus on just three specific issues to illustrate this point. First, stress at work is estimated by the Industrial Society to be costing Britain £13 billion every year, and is possibly the biggest single cause of absenteeism. The solutions are not difficult. Good practice guidance has been produced by the HSE, and others, to show businesses how to identify symptoms and root causes, and how to tackle stress problems at source. Very often, that can be done simply by adopting straightforward and low-cost changes to management practice. But such action will not happen on a wide scale without sustained high level publicity and practical support to business.

Secondly, there is the need for organisations to adopt a modern risk management approach to reduce what RoSPA has termed "occupational road risk"—that is, the risk of accidents faced by those who have to drive as part of their job. Available evidence suggests that deaths of drivers, passengers and other road users in accidents, involving vehicles being driven for business reasons, probably account for up to a quarter of the 3,500 fatalities occurring on Britain's roads every year. That is at least double the number of fatalities occurring in all other kinds of work-related accidents.

Risk levels are really quite high. For higher mileage business car drivers, the risk of being killed, in effect while they are working, is as high as in coal mining. An estimated 77,000 people every year sustain injury due to an accident while driving for business reasons. Action is needed to persuade employers to adopt a modern risk management approach, and to tackle the issue as a mainstream health and safety at work question.

Evidence from RoSPA shows that firms, such as British Oxygen and Texaco, which invest in defensive driver training for their staff, can achieve rapid and substantial improvements in their fleet safety performance—meaning that training. pays for itself very quickly. The potential to improve road safety generally—for both employees and the wider public—is immense, and yet this will not happen unless we see much closer co-operation on the issue between the Department of Transport and the Health and Safety Executive.

A third area concerns help to small firms, many of which face real difficulties in understanding the requirements of modern health and safety law. Despite the excellent work done by Frank Davies and his colleagues, much more is still required; for example, to get personal business advisers working for Business Links to give better advice on health and safety for small businesses.

There is also a need to integrate health and safety into schemes such as Investors in People. We must also ensure that health and safety receive high priority in the Government's continuing work on the national curriculum, and in their plans for the university of industry and business schools.

The creation of a thorough-going health and safety culture in this country is an indispensable prerequisite for industrial growth and regeneration. Those businesses which are successful, irrespective of size or sector, are ones which have grasped this principle, and have learnt how to turn it to their advantage.

Put simply, good safety is good business. Yet safety does not happen by accident. Whether in a family business, a blue chip plc, or the nation as a whole, it has to be led from the top. It cannot be a bolt on extra; it can only be achieved by making it an integral part of business planning and management processes.

Improved safety and improved competitiveness go hand in hand. I hope that the Government will integrate health and safety into their business support and development processes, and that Ministers will promote the highest level of co-operation between all government departments involved.

6.2 p.m.

Lord Currie of Marylebone

My Lords, I shall not follow the previous speaker, the noble Lord, Lord Astor of Hever, in discussing health and safety issues as I found his analysis both informative and illuminating.

I return to the broader question of competitiveness. I start by underscoring the need for this debate. I congratulate my noble friend Lord Borrie on introducing this debate. There was a tendency before the election for those who are now on the Benches opposite to say that the British economy was in wonderful shape. It is in good shape, but I am afraid that it is not in good enough shape. If one takes a comparison on OECD figures of GDP per capita on a purchasing power basis, we are ahead of almost no country with which we should like to compare ourselves. I could give noble Lords the list but it is a long one. Most of the major countries we should like to compare ourselves with have a higher per capita income. Even the Republic of Ireland overtook us last year. That must give us pause for thought as to why it is that the British economy is not performing as well as we would like.

There has been a great deal of discussion—and no doubt there will be more in this debate—about the flexibility of labour and product markets. There is a great deal of ambiguity as regards the interpretation of that term. One interpretation is that flexibility is simply about the removal of unwarranted and intrusive government interference and regulation—the agenda that the noble Lord, Lord Ezra, referred to as being the agenda that was pursued in the 1980s. I believe there is growing appreciation that that is not enough; that the freeing up of markets is partially effective and important. However, it is equally vital to ensure that employees, managers and companies have the skills and capacity to take full advantage of the resulting freedom; otherwise, greater freedom may well result in significant losers, and that takes away some of the benefits.

We need flexibility in product and labour markets which encourages innovation and performance. I wish to illustrate that by referring to a number of aspects. I start with the managerial perspective. The noble Lord, Lord Burnham, referred to the industrial relations scene of the 1970s. I think we can all agree that we do not want to return to the confrontational attitudes on both sides—I emphasise the words "on both sides"—of British industry that occurred in that period. I must say in passing that I think that the noble Lord grossly exaggerated the risks of the modest proposals on trade unions that are contained within the Labour Party manifesto. Managers could not and did not manage in that period and there was confrontation. Now they can manage but there is a further problem; namely, the quality of British management does not match international performance. I declare an interest here as my salary is paid by the London Business School and therefore I have an interest in arguing the need for management education.

I speak to many business people on many occasions and many of them are of the best. The UK has many first-rate companies that are well-managed and match the performance of any in the world. However, the fact of the matter is that we also have a longer tail of rather poorly performing companies—more than most of our competitors. That is why our overall productivity performance, taken across the economy as a whole, is lagging behind—measured in level terms—what is happening elsewhere. If we could raise the performance in that tail to even the average of international performance, let alone the best, the British economy would really thrive. That is an objective. It is not just the objective of management to ensure short-term efficiency—I shall return to that—but also to manage innovation and the development of new products that meet the needs of customers and open up new markets. There is one other depressing fact about this tail; namely, the further one goes down it, the more complacent companies become and the more the badly performing managers do not know how badly they are performing relative to international performance.

In improving managerial quality one has to recognise that the scene is moving on. Twenty years ago there was quite a lot of discussion about how many companies could not perform a simple net present value calculation; they would muddle real and nominal values together in a rather confused way and get the wrong answer. It is probably the case now that pretty well every company can do such calculations well. That is routinely taught in the first year finance course of any business programme. Unfortunately not many managers are acquainted with what is taught in the next stage of finance courses, Finance 2. Few of us understand options and similar matters. We think it has something to do with financial companies. I suspect that a lack of understanding of options has been the downfall of as many industrial companies as financial companies. I shall illustrate what I mean by that.

In the early stages of new product development, including design, if one simply applies standard investment appraisal techniques—in the way that most companies do—one gets the wrong answer. R&D and new product development are all about keeping in the game and keeping one's options open. It is worth investing in those processes even when, on a straight routine calculation, that may appear to be unprofitable.

My colleague, Professor Gary Hamel, in his book Competing Pr the Future, argues that many companies have focused too much on cost-cutting and in the process have weakened their capacity for innovation and new product development. My other colleagues, Andrew Sentance and James Clarke, recently carried out a study for the Design Council which made the point that investment in design—this was the point that my noble friend Lord Desai made—can be fundamental to the performance of companies and of economies. The evidence is that investments in R&D and design promote growth at company level and in industry and the economy. An over-emphasis on downsizing—cutting costs at the expense of those functions—can lead to inflexibility with companies failing to adapt to changing circumstances and new market opportunities. Downsizing may well have its down side; and companies are increasingly realising that.

In the employment area, it is undoubtedly desirable to remove excessive regulation of the labour market. We have gone a long way in that direction. That agenda needs to be pursued further in the European context. It may be necessary, but it is not sufficient for good economic performance. Flexible labour markets can all too often mean a flexible move into unemployment not into other sources of employment. The problems of youth unemployment and long term unemployment are with us. They need to be tackled and that is why it is important that the Government's welfare to work programme is undertaken and pursued.

Over many years Professor Sig Prais at the National Institute has pointed to the problems as regards skills and the weaknesses of investment in training and skills in the British economy which hold us back in that area.

Professor Stephen Nickell has undertaken an interesting piece of research into the factors underlying unemployment of male manual unskilled workers across a range of countries. It is true that excessive regulation can cause unemployment in those groups to be high. But there is another factor. The evidence is that those countries which do not invest well in their basic skills and education also have a bad performance in that area. Deregulation may be helpful, but without the positive aspects of investment in skills and training it is not enough.

Let me take another example. The previous Government made much play of the fact that we were the enterprise centre of Europe. We certainly were open to inward investment and have attracted much inward investment. But again that is not enough. How does one explain the fact that France, held up as an example of rigidities and inflexibilities, attracted more foreign direct investment over the five years from 1991 to 1995 than did the UK? The amount of inward investment rose considerably compared with the previous five years whereas our inward investment was down. That involves other factors including our position in the world economy, infrastructure, and investment in education and skills.

That is a prognosis of some of the difficulties. What about remedies? The Government are committed to an agenda which will point us in the right direction: a commitment to macro-economic stability, as the noble Lord, Lord Ezra, pointed out; avoidance of the instabilities that lead to the necessity for savage downsizing and the problems that arise from it; reform of competition, referred to by my noble friend Lord Borrie; reform of City regulation; the welfare-to-work programme; and, above all, a commitment to training, skills and education across the spectrum. We must close the gap with our competitors. I hope very much to see that start to happen over the next five years.

6.13 p.m.

Baroness Lockwood

My Lords, during the debate on the gracious Speech, I said that education and training were vital to the UK's competitiveness. I wish to return to that theme today and to the question of partnership between industry and education.

There is no doubt that partnerships are the flavour of the day. I was interested in a special and quite substantial section of last week's Times Educational Supplement on the subject of school links. There is much support in industry for those links and a considerable amount of money has been invested in them by both individual companies and partners generally. A number of points in that section of the TES were of particular interest. The first was that companies clearly see their own interests very much involved in those links. For instance, an article on Cadbury stated that, One of our major priorities is investing in education, with a need to keep in touch with future markets for recruitment and consumers. The article listed a number of benefits which it saw for the company in those links.

Marks & Spencer has been quoted on a number of occasions as saying that, prosperous high streets need prosperous back streets". That throws an interesting light on the subject of the minimum wage, about which the noble Lord, Lord Burnham, seemed to have a number of problems. Marks & Spencer employees are not likely to live in the worst of the back streets, but as a company Marks & Spencer needs the people who live in those back streets to have a job and to be able to earn sufficient in order to make their purchases in Marks & Spencer high street stores. As a consequence, as a company it is prepared to invest in schemes which help to jack up the standards of low paid workers and find jobs for the unemployed.

There is also the question of who should benefit from the schemes. Again, I was interested in an article by Sir lain Valiance. He said, It is no longer enough to focus exclusively on basic literacy. Interpretative, analytical and communication skills are likely to be at a premium. Most important will be flexibility, wanting to adapt and learn as the environment evolves around us". We hear sometimes of a different kind of flexibility from the Benches opposite. The article underlined for me the importance of business links stretching across the board from the low achievers to the academic high flyers. I agree that industrial links should not be regarded as exclusively for the under-achievers because if they are they will be devalued. We need links between the high flyers who can provide some of the leadership that will be required in the future.

There is a proliferation of schemes. Not all deliver to the same level. A report within the DfEE refers to a lack of co-operation and coherence across the country, and the fact that the best practices are not disseminated. It refers to many other weaknesses. Therefore I welcome the fact that the new Secretary of State is now looking in a holistic way at the whole range of products with a view to making them more cohesive and more evenly spread. Perhaps I may add that in reframing some of the schemes we should not over-bureaucratise the system. It is important that individual firms should have scope for their own initiatives.

Those are some of the things that are happening at school level. But, as I have said on a number of occasions, it is important, too, for partnerships and links to be established at universities. Again, that is happening, but in a patchy way. Not all universities make an equal contribution. I must say with some pride that my own university, Bradford, has an excellent record in this respect. And it is not entirely altruistic. It brings a number of benefits to the university as well as to the community—benefits and links with local companies; the sharing of resources; a better understanding of problems so that the university can help to respond to some of them; and an increasing link between particular departments and appropriate companies. I refer to engineering departments and to our optometry and pharmacy departments all of which have important links with local communities. It is important that those links should be encouraged and that they should not be overlooked when we consider the importance of the contributions of universities at national level. National level links are vital, and there are a number of ways in which they are taking place.

Again, perhaps I may use Bradford as an indication. We have a number of tailor-made courses with some of the important national companies such as Ford, Rover and the BBC, meeting the specific needs of those companies. The university is also involved in the Teaching Company Scheme which is operated by the DTI. I understand that, like other links, that scheme is also being reviewed. However, I suggest that the annual report of that body indicates how successful such schemes can be in terms both of opportunities for the academics in the institutions involved and also in terms of the increased effectiveness and profitability of the firms that are involved.

In all these activities universities are more and more showing a full awareness of the needs of companies in terms of the type of courses to be offered, and in terms of in-company training programmes and the innovations with which firms need help in order to increase wealth and job creation. For all that to be maintained and increased, the future funding of the higher education system needs to ensure the present high quality of our products coming from the universities. Core funding for teaching is one of the major issues emerging at the present time.

So, too, as referred to by my noble friend Lord Desai, is the future of research funding. I should like to comment particularly on that since there has been discussion in the media as to the future of research funding post-Dearing. I believe that the dual support system should be maintained since it seeks to provide infrastructure support through the higher education funding councils for universities and the provision of the well-founded laboratory within the university on the one hand and grant support for specific research projects through the research councils on the other.

Perhaps I may illustrate that point by again referring to the University of Bradford. Last year, a new company, Bradford Particle Designs Ltd., was set up. It arose out of the blue skies research of a young PhD student who experimented in making powder from liquids, a safer powder than that currently used by the pharmaceutical companies. The pharmaceutical companies showed interest in the research and, as a result, the research has been patented, bringing welcome income to both the university and the new company that was set up, as well as to the pharmaceutical companies that became involved.

A second example is also based on blue skies research in one of our engineering departments dealing in polymers and the production of the kind of synthetic materials referred to by the noble Lord, Lord Desai. It started in a simple way within a department, but was later taken up by the research council and is now part of an important inter-disciplinary research centre, one of the centres of excellence in this country. Those are two examples that could be duplicated in many universities and in many other ways. They underline the importance of giving universities the opportunity to contribute in this way, not merely confined to some of the excellent projects foreseen under the Foresight programme but pushing the barriers further forward so that universities can make a unique contribution to the future competitiveness of British industry.

6.26 p.m.

Earl Kitchener

My Lords, there are many types of goods which are best made in low-wage countries or which we in this country have no tradition in making. But there is something odd about seeing our policemen on BMWs and not on Triumphs. I shall refer to customers and retailers, but the ideas can be extended to buying and selling on a larger scale.

Our manufacturers could do more to help themselves, and the most important thing is informative labelling, on the lines of, "Made in Sheffield at the Britannia works of the General Engineering Company, 1997. If you are satisfied, tell your friends; if not, tell us". Among other things, that would encourage the people who make the goods to take a pride in their work and would stimulate dialogue between makers and users. I have been told that directors need to watch for buyers who may well prefer a visit to Paris to one to Birmingham.

Retailers obviously cannot stock everything, but they could have copies of catalogues of British-made goods. I often ask shops selling foreign versions of items that might well have been made in this country whether they receive visits from UK salesmen, but the usual answer is no. Many people have to buy what is offered, and even a small effort by retailers to sell British would be helpful. Usually I find almost no interest among retailers in selling British goods.

Customers who want to help their unemployed fellow countrymen can ask if there is a UK product and, if so, why it is not stocked; and then pass the information on to a UK maker. I have done that in some cases. The most extreme related not to an item I bought but to a pack of cards that I saw which had on it a picture of Buckingham Palace. I asked about it, and found that it had come from the shop there. It was marked, "Made in Switzerland". I wrote to the manager of the shop, who was very polite. He replied that it was bought before his day, but he did try to give some preference to goods made in this country. When I said that there was no cheap labour in Switzerland, I was told that perhaps they had cheap Turkish guest workers. I do not know the cause of that but I hope it is not still going on. What it looks like to foreigners if they buy something at Buckingham Palace made in Switzerland I do not know.

What should the Government be doing? I hope that they will want to hear. Not legislation, noble Lords may be glad to hear, but they and the other bodies over which they have influence must be buying large quantities of almost everything. They could offer information on UK manufacturers. I had quite some correspondence about that which I am afraid I looked at only this morning. I must admit to not having brought myself up to date about something called the Regional Supply Network, but like railway timetable inquiries, I feel that such information should have nothing to do with regions; it should be centralised. Soon it will probably come in an electronic form, which has the advantage of making searching much easier.

Another thing the Government might do is to form an opinion on the question of the usefulness of informative labelling. Manufacturers may not read Hansard and they might be inclined to take more notice of the Government than of me. It may be objected that "Buy British" is unfair to other countries, but where something can reasonably be made here, that is where we should look first.

6.30 p.m.

Lord Monkswell

My Lords, like other noble Lords I welcome the debate and draw attention to the careful way in which the noble Lord, Lord Borrie, phrased the terms of the debate. It is worth reminding ourselves that they are: To call attention to the case for improving the competitiveness of British industry; and to move for Papers". We should recognise the background to the debate. It is that we suffer, and have suffered for a number of years, from a deficit in international trade in industrial production. We are talking about how Britain competes with the rest of the world. The only way in which we can do that effectively is by all working together. We need to instil a sense of co-operation. A number of noble Lords on this side highlighted that. We also need to learn the lessons of the past.

Since the election I have been accosted by people who say: "How can you support the new Government who are adopting all those Conservative policies?". The answer is simple: if the policies are right, it is right that we should adopt them. I take as my text that the old policies of the Conservatives are having an effect on the floor for wages. We talk now in terms of having a minimum wage; that is our policy and we shall implement it. But it is an old Conservative policy, it goes back to Winston Churchill and the early part of the century. It was then recognised that, unless there is a floor for determining wages, we get ridiculously unfair competition between employers. I believe there is a phrase that the bad undercut the good and the totally unscrupulous undercut the bad. That is an example of Conservative policy which I am happy to support.

It is also worth looking back at our real experience. The situation in the 1970s described by the noble Lord, Lord Burnham, was quite different from the situation I remember as someone who worked in industry during that period. I can remember a situation where it was recognised by management that if changes were required the sensible way of achieving those changes was to discuss them with the workforce, usually through the organised trade unions.

However, we were also subjected to external pressures. One was the competitive pressure from Japan where people took a long-term view in developing their industries; we saw the development of, for example, the motor cycle industry and the television production industry, funded with low long-term interest rates. In this country there was a lack of investment in those areas and we lost out because of lack of foresight.

We were also subject to the buffeting of external stimuli. I can remember one event which affected the company for which I worked—Massey Ferguson, which builds tractors and combine harvesters for the agriculture industry. A decision by Jimmy Carter in the late 970s that America would no longer feed the world resulted in a 30 per cent. drop in the demand for agricultural equipment. That had an enormous effect all round the world. The reaction to that decision was significant.

One of the difficulties that we faced with the Conservative Government that came to power in 1979 was that, instead of providing support for the long term, they made the situation worse. We had incredibly high levels for the pound which raised our export prices through the roof. There was effectively a reduction in UK home demand and my company was subjected to enormous pressures. I remember asking our managing director, "Why don't you go down to London and tell the Conservative Government what they are doing to us?". He said: "I have been part of a delegation which met the Minister at the Department of Trade and Industry". At the time that happened to be Keith Joseph. He went on, "It was like talking to a brick wall. He could not understand the effect that government policies were having on our industry". I am sure that we have learnt quite a few lessons from that.

The noble Lord, Lord Desai, pointed out how well the American economy is doing and a number of noble Lords suggested that the British economy had done well over the past few years. It may be useful to consider one of the major events of a few years ago that affected the British and American economies. I suggest that the end of the Cold War may have had some effect because of the significant reductions in defence expenditure that occurred on both sides of the Atlantic. Perhaps that has had a stimulating effect on our economies. I see the noble Lord, Lord Desai, nodding. It might be interesting to conduct some academic research to see whether the idea is right.

We have seen a roller coaster ride through the 1980s and 1990s in terms of trade. Immense problems have been created for British industry because of the way in which the value of the pound has increased and decreased and interest rates have gone up and down. We can credit the new Chancellor of the Exchequer, Gordon Brown, with the iron will to eradicate that up and down factor in financial terms with its effect on trade that besets British industry. I am sure that we all wish Mr. Brown success. Many of the things he is doing suggest that he will have that success.

We are a small country in world terms. I postulate that the only way in which we shall achieve lasting success in a global situation is to be part of the European single currency. Obviously we must ensure that it is run and organised on a sensible basis. But make no mistake, my Lords, outside the single currency we shall not survive. I can imagine Mr. Soros periodically taking £500 million out of the British economy when the whim takes him. It is too horrible a prospect to consider.

With that stable economic framework, which I believe is so important, we have to think in terms of how British industry competes, so to speak, on a level playing field and in terms of supply and demand. I hope that the demand side will be sustained and developed through injections of economic activity at the lower level, where it is needed: the minimum wage policy. As the noble Baroness, Lady Lockwood, pointed out, if people's incomes increase at the lower end, they can buy the goods and services that British industry and commerce provide and thereby generate even more economic activity.

We can also look at the policies of the new Labour Government in terms of the supply side. Other noble Lords have spoken of education as a priority and that is, perhaps, the supply of human talent that is so essential. But there is also a need for the supply of investment. Long-term investment policies are essential to ensure that a supply of new capital is available to British industry, so that industry can invest not only in research and development, in new machinery and new technology, but also in new markets and be able to invest in the worldwide distribution networks that are important in delivering our products to the marketplace.

In conclusion, I take great pleasure in the remarks made yesterday by the President of the Board of Trade. She explained that over the next few months an audit will be conducted by the Department of Trade and Industry into all the strengths and weaknesses and all the assets and liabilities of the British industrial scene; and that out of that will come a long-term project to ensure that British industry and our society are fit, capable, willing and enthusiastic about entering the 21st century.

6.42 p.m.

Lord Ponsonby of Shulbrede

My Lords, first, let me congratulate my noble friend Lord Borne on giving us the opportunity in this debate to talk about competitiveness. I apologise for having missed his opening contribution. Nevertheless, I believe that he will be pleased to hear that my boss decided that my own company's competitiveness was better served by me going and making some of the net present value calculations that my noble friend Lord Currie extolled in his speech. I must explain that I worked out how to do those calculations from a book and not by attending one of his institutions.

I wish also to concentrate my remarks on education and the general need to raise standards. Yesterday I had the privilege of visiting a corporate research centre just outside Cambridge. The company is one of the largest oilfield service companies in the world. It has research centres in Japan, Europe and America. The centre was everything that one might expect it to be: modern, well resourced, flexible and with staff who were highly qualified, international in origin, extremely mobile and, no doubt, well paid. At this end of the education spectrum, Britain can and does compete at the highest level. Only last week we heard about Microsoft's intention to set up its own research centre. That centre will be next door to the centre that I visited yesterday.

But to be successful at the high end of the education spectrum is not enough. In fact, I believe that that masks our lack of success in educating the majority of people for the challenges of working within industry. Last week, I was disturbed to read an article in the Financial Times by Professor Alison Wolf of the Institute of Education. The article was about her reports on GNVQs from 1993 to 1997. It explained that the failure of the NVQ and GNVQ qualifications was due to the very high drop-out rate and the very narrow embrace of the qualification itself.

Britain is already near the bottom of the international skills league. We have fewer 16, 17 and 18 year-olds in full-time education than any industrial nation except Turkey. Nearly two-thirds of the British workforce do not have good educational qualifications compared with a third or less in the Netherlands and France and a quarter in Germany or Switzerland. Britain's skills deficit is crippling British industrial competitiveness. Vocational qualifications need to be upgraded and, above all, employers need to believe that they mean something and have achieved that raising of standards at the lower end of the education spectrum.

I know that the Government are very concerned about this issue and are introducing their Target 2000 programme and their University for Industry. Those are exciting measures and deserve to succeed. Almost every Peer who spoke in this debate referred to the importance of education. I simply echo that call. We have also heard about the importance of innovation, health and safety and flexibility. Those are all parts of the jigsaw and are necessary to build a competitive economy.

But I should like to make a simple point, which I believe is so blindingly obvious that nobody has yet made it; namely, that competitive success is most dependent on economic strength. It is a simple point which is constantly brought home to me in my working life, when I work in Russia. The company with which I am associated develops oilfields in Siberia. We have about 1,000 Russian employees and produce oil which is sold internationally. I know from my working experience in Russia that our Russian employees are on at least an educational par with British people. The company has spent a great deal of money putting up-to-date computer technology into its operations—in fact, computer technology is cheaper in Russia than it is in Britain. We have put money into training. The transport systems, although antiquated, are relatively reliable. However, we are operating in an economic environment that is bankrupt by western standards. That single fact completely overwhelms our operations. Even though all those elements of the jigsaw are present, we are not competitive by western standards. So, I make my single, simple, blindingly obvious point that economic strength is the overwhelming factor in building a competitive economy.

I close by saying that I could not help noticing that I seem to be the only contributor to today's debate who is currently working in British industry. I stand to be corrected on that and maybe the noble Viscount, Lord Thurso, if he were in his place, would correct me on that point. I do not know what that means—whether it means that I should be working harder or that people who work in industry tend to work too hard so that they cannot listen to the experts and what they have to say. Nevertheless, I look forward to any legislation that this Government may seek to bring forward as a result of the work of my noble friend Lord Borrie.

6.49 p.m.

Lord Wedgwood

My Lords, I join all noble Lords in welcoming this debate and congratulate the noble Lord, Lord Borrie, on introducing the subject in such a timely manner. I must declare an interest as I represent a company, based in Staffordshire, by the name of Wedgwood, a manufacturer of solid things, as described by the noble Lord, Lord Desai. Travelling globally to support marketing and sales efforts, we are often presented alongside a number of other companies that exude the elements of which we are justly proud, elements such as quality and design.

In fact I have just returned from the United States. My tour included a visit to San Francisco where we participated in an event appropriately called "Britain meets the Bay". Thanks to the efforts of Her Majesty's Consul-General, a number of companies were encouraged to showcase their products in the San Francisco Bay area, which includes Silicon Valley. The highlight of the events was the visit of His Royal Highness the Duke of York. His Royal Highness seemed to be extremely well briefed, and his enthusiasm added considerably to the occasion. I cannot speak for all who participated, but sales have increased, not to mention the vast amount of good will generated in great part through the local press and media.

In 1996 a similar event took place in Salt Lake City entitled "The UK/Utah Festival". The honoured guest on that occasion was my noble friend Lady Thatcher. My noble friend will be pleased to hear that sales have increased considerably as a result of her efforts.

It is events like these that give us the winning edge in a very competitive global market. I applaud the Government for their initiative to increase support for regional offices that are designed to help drive the sales and heighten the awareness of British products on an international level. Hopefully these agencies will work closely with Her Majesty's trade representatives in all continents.

I have said in your Lordships' House before that there have been occasions of disappointment when industry has not benefited from the full support of embassy and consulate staff. Perhaps with greater encouragement and co-operation from regional offices the examples of San Francisco and Salt Lake City can be repeated. I am interested to note the recent appointment of the noble Lord, Lord Simon of Highbury, as Minister with responsibility for trade and competitiveness in Europe. Should we not consider such a position on a more global basis?

We are experiencing tremendous growth in several countries that require a serious focus. The Japanese are an example of a consumer obsessed by the tried and true manufacturers of quality and design. Companies that have conveyed this to the customer in Japan have been successful. The rewards go beyond Japan, as retailers who carry our products wherever the Japanese travel will attest. In a recent survey by the Corporate Intelligence on Retailing it was shown that the Japanese department store, Mitsukoshi, here in London sells more per square feet than any other store, including the great emporiums of Harvey Nichols, Selfridges and Harrods.

In the same survey, Wedgwood was number one of the top ten buys in luxury goods which also included Burberry and Dunhill. Japan heads the list of other Asian countries that are emerging with excellent opportunities to market our products; to name a few, Malaysia, Thailand, Indonesia, Taiwan, Korea, Vietnam and the Philippines—not all without their own problems, but with enormous potential and increasing demand.

For most of us it is very difficult to predict the development of trade in China. No doubt His Excellency the Governor of Hong Kong will have an interesting insight on his return at the end of the month. Also, India, which recently lifted some very restrictive tariffs on certain luxury products, presents us with a market with which we have close links.

This is all very well, but we live in a global market that is in itself very competitive. The legacy of our forefathers spanning many generations, even those of this century, is not sufficient to bring success. Our competitiveness must start in the workplace, as many noble Lords have said, and on the shopfloor.

The painful exercise of downsizing and reducing overheads has been essential for many companies in recent years. For those that have accepted this challenge and been successful the rewards are significant. No longer is it acceptable to have numerous management layers with complicated reporting systems. Individual responsibility and accountability is the required direction. This can be achieved with a number of programmes and initiatives. Educating the employee through programmes like NVQ has gone a long way to improving professional skills in the workplace and, in turn, providing greater efficiency. Sadly, as has been pointed out, the NVQ programme has been subject to some criticism recently. The value of these awards to a wide variety of employees is enormous and should not be underestimated. This continuous process of training and improving skills should be constantly re-evaluated to ensure that vigorous standards are maintained together with the value and prestige of the awards.

In the area of production alone many companies have had to focus on reorganisation. The rapid development of technology and information systems is available universally. To remain competitive—and even the Japanese are price conscious—it is necessary to reinvest in equipment and machinery, and because of the expense it must be maximised. In other words, responsibilities are brought right down to the shopfloor and the individual employee's motivation takes on an even greater significance.

By improving the competitiveness in British industry, we could better respond to the rapidly changing demands of customers on a global basis, but there can be no compromise on quality and design.

We should avoid preserving any legislation that restricts our companies from operating on a level playing field. While we agree that, for example, health and safety standards are essential—an area well covered by my noble friend Lord Astor of Hever—we must ensure that British companies are not penalised for following the law while other European companies pay scant regard. I hardly need remind the House that we compete on a global basis, not just in Europe.

We would do well to consider how other nations support their valued manufacturers. The Irish are fiercely proud of Waterford Crystal, a company with which I have a unique corporate association. From its dynamic chairman, Dr. Tony O'Reilly, downwards, the product is championed the world over by the widely dispersed Irish family. We have much to be proud of in British industry. The legacy can continue but it requires considerable vision, vigorous support and direction. In this instance we can competitively continue to make quality products here in Britain and not in some far-flung country in east Asia. In fact we can further create demand in those countries for our products. It is my fervent hope that the Government are equal to the challenge.

6.57 p.m.

Viscount Hanworth

My Lords, I wish to join my colleagues in thanking my noble friend Lord Borrie for introducing this timely debate on the topic of Britain's industrial competitiveness. I should also like to thank my noble friend Lord Haskel for challenging some of his more reluctant colleagues, including myself, to speak on this topic for 10 minutes without repetition, hesitation or deviation.

I must say at the start that I may fail this test since, instead of grappling with abstract notions of industrial competitiveness, I intend to tell a story. The story is to illustrate the thesis that many of the policies that have been pursued by large industrial corporations in the past two decades have been utterly inimical to our long-term economic prospects. The new Government are mindful of the need to enhance the skills of our industrial workforce; but I fear that, without a fundamental change in the industrial policies of large corporations, their efforts will not be rewarded.

I will declare three propositions. The first is that the unbridled pursuit of profit is liable to be self-frustrating, even in the short term. The second proposition is that industries which are based on sophisticated technologies need to be managed by technologists. The third proposition is that the industries themselves must play a major role in training their workers and in sponsoring their careers.

In telling my story, I shall conceal the true identities of the parties concerned. Three years ago, I was invited by two friends to accompany them on a routine engineering inspection of a large industrial plant. The plant in question is the brewery at Merton-on-Weir which is owned by the multinational conglomerate corporation Grand Amalgamated Brewers. Since the interests of the corporation nowadays extend far beyond brewing, its directors prefer it to be known simply as Grand Amalgamated; but it is commonly known on the stock market by the acronym GRABS.

The brewery itself was founded in the 1850s; and the original building still stands as a brick precipice on the bank of the river. Set behind this facade and towering above it is a massive steel-girdered structure erected in the 1970s to house a state-of-the-art continuous-process plant. The plant was modelled on a brewery in Hamburg and it resembles a small petrol refinery.

I am told that the design was unprecedented in this country. The German firm responsible for its construction reproduced most of the features of the prototype plant in Hamburg with the consequence that the plant was expensive and overspecified in engineering terms. There were in fact no industrial designers of such plants on the payroll of GRABS, nor could any be found to give independent advice to the directors, and it seems that a considerable amount of money was wasted.

I visited the plant during one of the monthly inspections which my colleagues had contracted to undertake. My own interest is in the electronic technology which is used in inspecting the machinery. We were using electronic sensors to transduce a record of vibrations from the outer casings of machinery. The aim is to determine its fitness much as a doctor aims to assess the health of a patient with a stethoscope. A so-called spectrum analysis of the vibration record is liable to highlight any aberrant vibrations which are due to excessive wear in the bearings of the rotating parts or to the loosening of some of the fixtures.

I should say that our high-tech apparatus is simply a substitute for a well-trained human ear. In truth, our task could have been performed more easily and more effectively by the resident engineers of the brewery given their intimate knowledge of the machinery in question. However, some five years ago, Grand Amalgamated sacked its resident engineers in favour of the seemingly cheaper solution of contracting-out. They reduced their workforce to a skeleton. This sort of policy was, in fact. the basis of many of the much-vaunted productivity gains of the later years of the Thatcher administration.

I should describe the plant itself. This consists of three parallel production lines, each of which encompasses a process which begins with the milling of the grain and which ends with the piping of a premium lager—Steinpilz—into waiting tankers. The original intention was that, at any time, two of the three lines would be in process whilst the third would be undergoing maintenance. More recently, the brewery has been running all three lines simultaneously in pursuit of greater efficiency and against the advice of engineers.

During our visit, only one of the lines was operating. The other two were awaiting the attentions of an engineering task force—engineering mercenaries if you will—who had been called for in desperation but who, at the time, were tied up in another job. The delay was entailing a considerable loss of profit. The sad conclusion was that the value of the lost production was so great that it could have easily financed a meagre resident force of engineers who could have averted a mechanical breakdown—but it has to be admitted that it is difficult these days to find the engineers to employ in some capacity. Companies such as Grand Amalgamated—which is nowadays best described as a holding company—no longer have any interest in training them.

My two engineering colleagues both have personal histories and work experiences which are characteristic of a bygone era and which cannot be reproduced. They both owe their training to their former employers, who were the Coal Board and British Aerospace respectively. Both of them started as 15 year-old apprentices and one of them was sponsored by his employer to attend a university engineering course. Few such avenues of training survive these days and the conclusion is that the very skills on which Grand Amalgamated has been predicating its modern industrial policy are no longer in adequate supply.

As regards the brewery itself, this is scheduled for closure. For the reasons that I have already alluded to, its profitability has fallen far below expectations. It is now proposed that on the site of the dismantled plant a new bottling plant should be established. This facility, which would be highly mechanised and computerised, would be installed by the Esel Machine Tool Company of Milwaukee. The beer itself will be imported in tankers from Hamburg.

I believe that this story speaks for itself, but I should add a few observations. My first observation is that any attempts by the Government to enhance the productivity and the competitiveness of British industry are in danger of being stymied by the gentlemanly and the not-so-gentlemanly pursuit of immediate profit of which the directors of GRABS are exemplars.

Next, I would contend that we cannot expect any great improvements in industrial competitiveness until the control of industry is devolved to some considerable extent to the workplace. One measure which might be adopted is a legal requirement for the appointment of worker-directors. Such a requirement has existed for many years in West Germany where it is regarded as unexceptional.

My final assertion is that I believe that the emphasis on labour mobility and flexibility which has characterised some of the recent political debate is misplaced and that such precepts may be inimical to the acquisition of industrial skills.

My two friends, whom I have mentioned, both envisaged giving lifelong service to their companies until their careers were cut short by redundancy. From the start, they were able to identify their personal interests with those of their employers; and, in return, the employers were keen to invest heavily in their training. Nowadays we seem to expect individuals to acquire such skills independently and in advance of their employment. Then we expect them to market their skills. These are unrealistic expectations.

Of course labour mobility is highly desirable if it serves to mitigate the effects of industrial failure; but it cannot be argued that it is a precondition of industrial success. Job security is doubtless a bugbear in failing industries which require restructuring, but to suggest that it is an impediment to industrial recovery is nonsense.

7.6 p.m.

Lord Graham of Edmonton

My Lords, this is the speech that all noble Lords have been waiting for: it is the one before the winding-up speeches. I am delighted to follow the excellent opening to the debate given by my noble friend Lord Borrie. We are indebted to him.

On Monday I attended a conference organised by the Fabian Society. It was launching a pamphlet called Sold short: Government and retailing. Around the table were representatives from Tesco, Sainsbury, Marks and Spencer, Superdrug, the Civil Aviation Authority and others. The raison d'être for the conference was that over the years governments, when talking about industry, were really talking about manufacturing industry and exports. Retailing as an industry has perhaps been neglected. The argument was not that it needed hand-outs and financial incentives because, as we all know, the major retailers are well able to look after themselves. What they were really pleading for in the Fabian pamphlet and in general around the table was that the retailing industry ought to be taken more seriously for its contribution to the national economy.

Britain's retailers have a massive impact on our daily lives. Be it prices, opening hours, location or wages, we are all affected by the way stores are run and regulated. Yet our politicians seem to have little to say about one of the key sectors of our economy. I was delighted to hear the contributions of the noble Earl, Lord Kitchener, and the noble Lord, Lord Wedgwood, who certainly did not neglect the contribution that retailing can and is making to the general economy. Therefore, I am very pleased about that. They will share my view that retailing adds real value to the economy. It has been the backbone of our economic growth for much of the past 20 years. Politicians should recognise that simple fact and act in the best interests of all sectors rather than pine after the "manufacturing good old days" which are unlikely ever to return.

Any political party which claims to protect the interests of consumers needs to work with the retailers who directly serve them. Many of the policy issues on the horizon—the protection of quality standards along the food chain; the regeneration of town centres; and the introduction of the single currency—will depend on effective collaboration between government and retailers. I believe that this Government (my Government) should seize the opportunity to develop a new partnership with the sector. We are not primarily concerned with the past. I believe that we start from a bright new beginning. Retailers and retailing are waiting and eager to make that partnership a vibrant, living thing.

One of the issues raised at the conference was the lack of a strategy. Most of the big companies have their own strategy. They know where they want to get to and the market penetration they want to achieve in various parts of the country, but nobody can point to what one might call a national strategy for retailing. Of course, that is difficult because we are talking about both big and small businesses. However, I detect a willingness on the part of major retailers to involve themselves with the Government in working on the development of the retail sector of our economy over the years.

Reference was made to the disparate way in which planning applications are considered. Of course, the ministry gives guidance on town-centre, edge-of-town and out-of-town developments, but decisions are left very much to the local councils. Speaking as a local councillor, like many noble Lords present, I say that that is right but that there is a positive lack—if that is not a contradiction in terms—of direction from the centre on how we can achieve a more vibrant and more efficient retailing industry. Many retailers are blamed for social and economic changes which are beyond their responsibility and control. Encouraging examples suggest that local authorities can work with retailers through town centre management to the benefit of local residents and shoppers. Best practice should be disseminated to stimulate urban regeneration and partnership between local authorities and retailers.

The expansion of the economy in the past 20 years has come largely through the service sector, including retailing, and not from the manufacturing sector. That trend has been matched across all OECD countries. Between 1975 and 1995 the output of UK service industries grew by 57 per cent. in real terms while the output of manufacturing industries grew by only 17 per cent. The service sector now accounts for almost two-thirds of GDP while manufacturing accounts for less than one-quarter. Within the service sector, retailing and distribution account for more than 10 per cent. of GDP. Those figures ought to impress.

I have the great pleasure of being the honorary secretary of the All-Party Group for the Retail Industry. Naturally, we look to the views of the British Retail Consortium, which represents 90 per cent. of retailers—all of the large ones and many of the small ones. In a Budget submission earlier this year, the consortium said that an efficient and competitive retail sector is a valuable contributor to the health of the UK economy in two important areas—control of inflation and job creation. The appreciation of sterling has lowered the cost to retailers of goods sourced abroad. Fierce competition in the retail sector has resulted in those savings being passed on to the customers. Annual retailed goods inflation in March and April was just 0.9 per cent., with the prices of many goods lower than a year earlier. Retailers can continue to play their part in controlling the rate of price increases if the Government avoid changes which impose extra costs on, or hamper the efficiency of, the retail sector. The existing cost and tax burdens need to be kept to an absolute minimum.

In addition to their influence in containing inflation, retailers are also significant employers, accounting for over 2.3 million jobs or about 11 per cent. of employees. Retailers created 75,000 new jobs in 1996 and there is scope for further employment growth in the sector if the costs of hiring labour do not become a disincentive.

The British Retail Consortium would welcome the early introduction of a competition Bill. It shares the view that the current UK system is ineffective and that a new Bill is therefore needed to address both restrictive agreements and the abuse of market power as well as the structure and operation of the competition institutions.

Retailing impinges on a great many of our social problems. That is why retailers in general welcome a review of the criminal justice system. The House will be aware that the retail industry arrests some 1.6 million customer-thieves a year, of whom 49,000 are convicted in a magistrates' court, from an estimated 5 million known offences. That situation clearly sends the wrong message and undermines any moral authority that retailers, schools and others may wish to instil. One way forward could be a "civil recovery" system which would address the fact that there are currently no tangible disbenefits for the majority of shop thieves. Such a system would not devalue crime; nor divert from it those who should be so diverted. Only retailers really appreciate the brake on efficiency and competitiveness suffered by retailers and, ultimately, by the consumer as a result of thefts. The Government should take that point on board.

Retailers in general would welcome a strategy to bring together policy making and implementation covering the environment, transport and the regions. They believe that that will be vital in developing the integrated planning and transport system which this country needs. An example is the vitality and viability of town centres. Retail outlets are subject to planning controls, but a key ingredient in the success of a town centre is accessibility. Retailers will be pleased to see that decisions about development and the infrastructure will no longer be taken in a vacuum. That is why they would welcome an integrated transport policy.

Much could be said about improving the competitiveness of British industry. We need to find a way to look more closely at the employer/employee relationship. There needs to be a rethink and that is why, through the BRC, retailers welcome and participate in the industry forum. That demonstrates that under new Labour partnerships with business can be constructive.

Finally, I should like to refer to a speech made by the Secretary of State for Trade and Industry, Mrs. Margaret Beckett, on 4th June this year, when she laid out a series of propositions upon which the Government's policy in this vital area will be predicated. Mrs. Beckett told the audience that the department often looked as if it was there for big business and not much else. She said that she would change that and that the Department of Trade and Industry would be looking to assist everyone. I am glad to see the noble Lord, Lord Burnham, in his place. When speaking for the Opposition, he made a splendid opening address and was bullish about the state in which the economy had been left. However, Mrs. Beckett told us to remember that we are the poorest of the G7 countries and that GDP per head in the UK is 8 per cent. below the OECD average. Despite many excellent firms, productivity in both the manufacturing and the service sectors lags substantially behind the productivity rates of our major competitors. Our share of world trade has fallen below 5 per cent. Despite welcome falls in claimant unemployment, the fact is that employment is still more than 400,000 below its 1990 level and nearly one in five households currently has no one in work. All that shows that while the noble Lord may select his statistics, I can select mine too. They are not incompatible; they are part of the overall picture.

I warmly endorse what has been said today. What we need is a fresh look arising from a fresh opportunity. Forget the past: there is a great deal of good will towards the Government from all sectors of industry. I very much hope that they have the courage to build upon it, not least because of tonight's debate.

7.20 p.m.

Lord Vinson

My Lords, I am indebted to the noble Lord, Lord Borrie, for inviting me to make a brief contribution in the gap. I apologise for not being in the House earlier to hear the other excellent speeches. There are many routes to competitiveness. The particular route to which I wish to speak briefly is the exchange rate. I believe that this matter was raised earlier by the noble Lord, Lord Ezra. I recall that during the early part of the previous Conservative Administration the policies being followed created a situation in which the pound went to two dollars. The effect of that dramatic rise in the exchange rate at that time was to obliterate the competitiveness of a great many British companies. Paradoxically, for somewhat comparable reasons, in the past six months the exchange rate has swung by a factor of 20 per cent. against many of our competitors. However good and efficient a company may he, very few have a profit margin that can absorb a swing of 20 per cent. in the exchange rate when it comes to making a deal overseas. Although the noble Lord, Lord Graham of Edmonton, is absolutely right to state the importance of retailing to the GNP today, it does not contribute much to the balance of payments or to our overseas tradables. It is for that reason that the competitiveness of the exchange rate is so vitally important.

The purpose of my brief contribution is merely to express the hope that this will be well considered when this debate is assessed and government Ministers are debriefed in their appropriate departments. Perhaps they remember that this time last year British Steel was, and still is, regarded as one of the most efficient steel-makers in the world. It has had to cut its prices dramatically and its profits will be cut dramatically. That is due entirely to the exchange rate. That will put pressure upon it to become even more competitive, but it cannot do so overnight. It will take some years to absorb a swing in costs of that magnitude. I hope that our policymakers, when looking at all the other factors that have been mentioned this evening to make British industry more competitive, will conclude that there are only three ingredients to national success and prosperity: productivity, productivity and productivity. In seeking to promote it, I hope they will remember that behind it all hangs the backdrop of the importance of the exchange rate and that our fiscal and monetary policies are so tuned to ensure that the price of sterling remains competitive.

7.23 p.m.

Viscount Thurso

My Lords, I also begin by congratulating the noble Lord, Lord Borrie, for bringing this extremely important matter to our attention. While agreeing with the point just made by the noble Lord, Lord Vinson, about the exchange rate, I cannot accept his comment about retailing. Retailing makes a very strong contribution to our balance of payments. As someone who has been greatly involved in tourism all of my life, I have spent much time trying to persuade retailers in London to contribute to the tourism marketing budget. Overseas tourists spend substantial amounts of money in Oxford Street and Bond Street. Some people have difficulty realising that overseas visitors to this country are an export and British tourists who go overseas an import. If I may, I should like to correct the noble Lord on that point.

I congratulate the noble Lord, Lord Burnham, on his arrival on the Opposition Front Bench. He painted an extremely rosy picture of the economy over the past 18 years with a majestically straight line of growth. I just happened to have in my hand as he spoke a paper entitled Economic Indicators that I obtained from the Library. It contains all kinds of wonderful graphs; I do not have a clue what they mean. I do not know a great deal about economics. I am sure that the noble Lords, Lord Desai and Lord Currie of Marylebone, would make far greater sense of them. However, I am struck by the fact that every single graph is like a yo-yo; it wings up to the top and then whizzes down to the bottom. The period covered is from 1975 to 1996. Even I can work out that if the graphs are winging up and down it can hardly be claimed that they show stable management of the economy.

The noble Lord, Lord Burnham, reserved his best shots for the minimum wage. There are a number of points that should be considered. First, average earnings in this country currently run at about £20,000 a year. If one takes an hourly rate of £3.50, for example, it produces an annual salary of about £7,000. If one takes a rate of £4 per hour the annual salary works out at about £8,300, if my mathematics are right. I believe that the noble Lord suggests that in order to have a competitive economy it is necessary for a certain number of people to be paid at a rate that is so low as to be virtually institutionalised slave labour. I cannot accept that. I am wholly in favour of the minimum wage.

Lord Burnham

My Lords, I thank the noble Viscount for giving way. The specific point I sought to make was about the effect of the minimum wage on inflation. No workman at the current level would accept an enormous increase paid to someone who was coming up to the minimum wage without taking the same increase plus a differential for himself.

Viscount Thurso

My Lords, I thank the noble Lord for making that point, but I disagree. I put in place in my own company a minimum wage of £4 per hour just over a year ago. I told my workforce that I believed that it was a just thing to do and that I was not increasing the wages of anyone else. My workforce fully understood the justice of the argument. I am confident that other workforces throughout the country will also understand it. There is absolutely no moral defence for the management of an economy whose legacy, however good the figures, is one of poverty and division such as we have in this country on an almost unprecedented scale. That is the true legacy of 18 years of Conservative management of the economy.

When I decided to intervene in this debate I asked one of my colleagues if we had a particular policy on competitiveness. His light-hearted answer was, "We are all in favour of it, but not too much." That light-hearted response, however, contains within it an extremely serious point and one which I would like to touch on before moving to the main points of the debate. We want to increase the competitiveness of British industry in order to ensure its success both at home and abroad, which in turn makes us more efficient in creating wealth and consequently delivers a better standard of living for our citizens. Thus, what we do in the wealth-creating process generally, and in particular in making ourselves more competitive, must be within a framework that combines long term and sustainable economic growth with social cohesion and a satisfaction of the aspirations of our citizens. It is important to remember that wealth creation is not an end in itself but a means of helping to deliver a socially cohesive and just society.

Noble Lords will, I am sure, recall the excellent report by the commission chaired by my noble friend Lord Dahrendorf entitled Wealth Creation and Social Cohesion in a Free Society which was debated last year. The noble Lord, Lord Borrie, touched on the very point in his opening remarks. I know that my noble friend would have liked to be in his place today; he was prevented from doing so by a long standing engagement. I am sorry that he is not with us as he would have made the point far better than I can. When we seek to increase our competitiveness and to become more efficient at wealth generation, it is essential that that is for the benefit of all our citizens and that we do not fall into the trap of either jobless growth or the creation of the working poor.

There is a huge range of factors that can impinge on the nation's industrial competitiveness. My noble friend Lord Ezra spoke about macro-economics. A number of other noble Lords have touched on other points. For example, the noble Lord, Lord Borrie, mentioned the transport infrastructure. I believe that there are three key areas that, more than any others, determine the wealth-creating ability of the nation: first, the economic environment; secondly, the availability and cost of capital; and, finally and probably most importantly, the quality and abilities of the human resource. I should like to touch on each of them.

It is generally accepted that stable economic conditions are a pre-requisite for successful long-term industrial growth. I believe that all three parties in their manifestos made that point. We on these Benches had long advocated that a main plank of achieving that stability was the creation of an independent central bank, as my noble friend said. It was with pleasure, a sense of flattery, and some amusement that we observed that virtually the first act of the Chancellor was to enact our policy. However, as already mentioned, monetary policy is but one part of the control of the economy. It is equally important to use fiscal policy to ensure the correct balance in the economy and a sustainable level of economic growth.

There is no doubt that the current strength of sterling, as pointed out by the noble Lord, Lord Vinson, in the past six months, has caused real problems for our exporters. I urge the Government therefore to look closely at fiscal policy. I have no doubt they will do so. I confidently expect an increase in taxation in the Budget.

I turn to the subject of capital. The second major plank to which I referred relates to the cost and availability of capital. In a speech, referred to by the noble Lord, Lord Graham of Edmonton, the President of the Board of Trade, on 4th June, used one phrase which caught my ear. She said: The DTI too often looks like the department not for all business hut for big business. Under my leadership … we will do everything we can to promote enterprise and to assist small firms". I am glad that the Government have recognised the importance of small business. I was staggered to discover that 99.5 per cent. of all businesses in the UK employ fewer than 100 people and that those businesses account for 29 per cent. of turnover and 51 per cent. of employment.

In terms of contribution to employment, small and medium enterprises are key to our future. In a Bow Group research paper published in March, the author clearly highlights the difficulties that SMEs have in raising finance, being so much dependent on overdraft finance. As a result, SMEs in the UK have often paid much higher interest rates than their main competitors and have been particularly vulnerable to recession.

Finally, I turn to the subject of people. I have kept this point to the end because I believe it to be the most important. By far the most effective way of improving competitiveness in British industry is through the development and training of the human resource. There is no quick fix, and nothing can be achieved overnight. It is of course essential that we invest in and improve our education system so that when our young citizens leave school they are properly educated and equipped. No one pretends that that objective can be achieved overnight by waving a magic wand. It will be a long haul. We on these Benches believe that it can be achieved only by a considerable increase in resources. The Government should look at the possibility of putting a penny on income tax to fund education. Were they to say openly and honestly to the people that the problem in education is greater than they supposed and that they intend to put another penny on income tax, I have no doubt that they would receive the full support of the vast majority of our citizens. Furthermore, that would have a beneficial effect on our fiscal policy.

The point upon which I should really like to touch concerns those already in work and what we can do to improve the quality of our current workforce. The noble Lord, Lord Currie of Marylebone, mentioned management education. I am currently chairman of the Master Innholders, a trade body of hoteliers which operates under the patronage of the Worshipful Company of Innholders. Last year I suggested to the worshipful company that a worthwhile way of supporting the industry would be to put together a series of bursaries to send middle and senior managers to management colleges before they were promoted to general managers. That idea was accepted and we had four bursaries for Ashridge and Cranfield. That was a great success. My point in telling your Lordships about that is not to blow my own trumpet but rather to draw attention to the excellent management colleges we have in this country, and, more important, to the rather sad fact that they are used almost exclusively by big business. The opportunities for managers to learn are ignored by smaller firms.

Cranfield recently sent me a fascinating paper entitled Developing Businesses Through Developing Individuals. Because I am running out of time I cannot tell noble Lords a great deal about it. I would recommend anyone interested in management education to get hold of that paper. It deals with wonderful things called "meta abilities", which are the cognitive skills of managers. It is well worth reading.

I congratulate the noble Lord, Lord Borrie, on having brought this matter before your Lordships. These are incredibly important challenges. I return to my main point of departure, which is that competitiveness must be within a framework of social cohesion. The wealth-generating process must be the servant, not the master. Above all, we must be clear that the objective which we are seeking to fulfil is to give all our citizens an inclusive, socially just life of dignity.

7.35 p.m.

Baroness Denton of Wakefield

My Lords, I, too, thank the noble Lord, Lord Borrie, for initiating this debate and those noble Lords who have participated in it, proving once again that this House is an unequalled depository of knowledge and experience which always brings added value to any subject. I, too, share noble Lords' pleasure in the speech of my new colleague at the Dispatch Box.

I hope that industry will read the debate and that someone will ensure that the Treasury reads it, because the Treasury will set the climate in which British industry is competitive and flourishes or wilts. It is not an easy task, but one thing is certain: it is on a global scale. Being the best in Britain is not to be sufficiently competitive. To achieve its objective of winning, British industry must be the best in the world. It must also be of size. Competition policy must be based on global not national standards.

Holding inflation is important, but not while letting the pound run away, as my noble friend Lord Vinson said. The noble Lord, Lord Borrie, said that giving the Bank of England control of interest rates would give business the stability that it wants. I agree that that is what business wants, but I fail to see that handing over decision-making gives stability. If you are to be competitive you learn never to say "never". The noble Lord, Lord Desai, might bring some of his flexibility aims to the attention of the Chancellor.

The noble Lord, Lord Borrie, said also that inward investors were put off by the xenophobic speeches at Conservative Party conferences. I have never met an inward investor so naïve as not to understand the nature of party conferences. I wonder how they will regard the noble Lord's statement this afternoon that it is wrong for skills to come from other countries.

The noble Lord, Lord Currie, drew attention to the weakness of British management. We need to benefit from competitiveness in all skills and we require openness in the exchange of skills. Much skill training is in place, but I hope that we will not say to those who qualify that they can only work in this country. That would be to their detriment and would not be along the lines of the Government's new friendly European policy.

I always recall that on the day I stood up to make my maiden speech, sheet of paper trembling in my hand, words honed and polished over several hours, the noble Lord, Lord Desai, stood up subsequently and made a brilliant maiden speech with his hands behind his back. Today he fluently said much of what I believe: competitiveness must be based on innovation.

The great news is that we are good at it. We used to struggle with the subsequent processes, and we gave away the opportunities because of that. Now, much too slowly, but steadily, design is valued. In Northern Ireland I saw unique creativity in software—the skills which had brought forward music and poetry in that island showed by the production of software a whole new medium in which innovation and creativity flourished. I share the admiration for retailing of the noble Lord, Lord Graham. That is an industry which skills people who often failed to benefit from their earlier education. It is sharp edged and globally competitive. I believe that it grows because it lets its young people through—it grows talent based on pure skill and not on age.

Manufacturing has suffered because it has not always done that. It has believed that somehow age and not ability brings skills. The attitude is slowly changing, but for the sake of competitiveness I should like to see it change more quickly. It will be valuable to encourage schemes such as Young Enterprise which share with children the excitement of industry. I still think that too many parents believe that the professions and the Civil Service, not the creation of wealth, hold the future.

If we are to be competitive we must accept that there will be winners and losers. I fear that we are close to the development of a culture of envy. As was said by the noble Viscount, Lord Thurso, it is important that in creating wealth we create a safety net. We must allow people to create wealth. I believe that Camelot and the windfall tax bring severe challenges to management. I wonder whether the noble Lord, Lord Currie, believes that a windfall tax is downsizing by legislation. I certainly share his fears of downsizing and believe that the tide has swung in recognising that that is not the way to grow. I believe that the Government could afford to carry out their programmes by encouraging the creation of wealth and not its restriction. One certainly needs every management skill one has in facing retrospective taxes of an unknown size.

Returning to competitiveness, when IBM and General Motors lost their way they invested in garden-shed operations. It worked. Companies must be left with resources to invest in research in partnership with academia. I heard some not so subtle pleas for increases in university salaries, but I am sure that I did not hear the requirement to be fat cats in ivory towers. As was said by the noble Baroness, Lady Lockwood, research is best done in partnership with business. The noble Viscount, Lord Hanworth, confirmed that competitiveness comes from working together; from working as a team and sharing the message. I believe that every Member of the House was filled with horror at the story of the gold watch recipient who, after 50 years, said, "Well, that was for the use of my hands. With a little more understanding you could have had my brain for free". I am not convinced that it is for the Government to legislate on what should happen. One of the best directors at Harland and Wolff is its senior trade union member, but that would not have worked a few years ago. There is a part of every company's growth which is best left to be flexible.

It would be wrong of me to stand here today without mentioning the area of my affections where I spent the past three years; indeed, it would be impossible. In many ways, Northern Ireland ideally shows the importance of competitiveness because politics work against growth. Yet Northern Ireland continues to grow. I was pleased to leave the Province with more people in work than ever before and with exports up 50 per cent. on 1992–93. It has benefited not only from the Government targeting assistance to companies capable of improving their international competitiveness but also from business taking up the challenge, rejecting a dependency culture and forming the Northern Ireland Growth Challenge in order to plan strategies in sectors in which Northern Ireland is competitive. It works in many areas, including, my noble friend Lord Astor will be pleased to learn, exercises to reduce the cost of industrial injuries. There can be nothing better than industry recognising its needs and then organising itself to meet them.

Perhaps I may move to another favourite topic, which is the role that women can play in industrial competitiveness. If a nation uses only half of its resources there is no way it can be competitive. At the recent CBI dinner there were about 1,200 men and 50 women. We must change that. It means more encouragement in the education system, in training and in flexibility in the work place and more opportunities for women as their families grow up to return to a career, not just to a job. It is important that their skills are harnessed if we are to be globally competitive. However, I cannot resist asking noble Lords opposite how they reconcile their minimum wage policy with the appointment of a Minister for Women who is not paid.

I believe that there is a whole debate to be held on the competitiveness of small firms. The noble Viscount. Lord Thurso, drew attention to the part those companies play in industry. There is a need to recognise what will work for them in terms of the size and timing of their programme. My definition of a small firm is not the number of its employees but a company in which at the end of the day work comes first and no one else does the work tomorrow. It is where there is great pressure on resources and there is a need to concentrate on programmes for that sector. I pay tribute to the DTI regional supply network which helps the local sourcing of materials, parts and components and encourages the linking of small and large companies to the benefit of both.

In order for British industry to be competitive, government and industry must work together. They must talk to each other and listen to each other. That is why we were happy to see the Government appoint to their Front Bench a senior industrialist and were pleased when he was named Minister for Trade and Competitiveness in Europe. But will there ever be a debate in your Lordships' House more relevant to that Minister's role than today's debate, and yet again he is not here to reply. I worry that our expectations of the role might be too high.

The noble Lord, Lord Borrie, explained that we cannot build competitiveness for industry with only one government department. I hope that the Deputy Prime Minister will recognise the fact that, if he does not give industry the roads and the airports that it needs and does not contain the fuel costs, if he does not ensure environmental changes are brought in at a speed which industry can absorb, and if the planning process is too long and expensive, we shall never encourage competitiveness, whatever the skilling levels. If the Prime Minister cheerfully accepts all the demands of the social chapter without close and regular consultation with industry, I fear that we may lose competitiveness.

I believe that today has seen a useful debate and that this has been an afternoon well spent.

7.48 p.m.

Lord Haskel

My Lords, this is a subject in which I have been passionately interested for many years. Therefore, I too am most grateful to the noble Lord, Lord Borrie, for tabling the Motion on competitiveness. I congratulate him on his role in the Competition Policy Advisory Group as one of the three wise men. He knows that a strong competition policy is vital for the competitiveness of our economy. I also welcome the noble Lord, Lord Burnham, to the Opposition Front Bench.

In our Manifesto for Business, we indicated that there is no issue more fundamental to the prosperity of this nation than the competitiveness of our firms. Not only does it enable us to sell our goods and services on world markets, raise living standards and improve our public services, but competitiveness is essential to create a fairer society in which opportunities are available for all.

This Government recognise the importance of competitiveness for commercial and social reasons. We shall work in a new partnership with business—employers and employees—to improve our competitive position. We have brought the competitiveness unit back where it belongs: to the DTI to reflect our commitment to working with business to achieve improved competitiveness in Britain.

Some noble Lords may say that there is nothing new about that commitment to competitiveness. After all, the previous government published three competitiveness White Papers. Those, however, were based on a partial view of our economic circumstances, and offered a narrow set of solutions.

Our approach to competitiveness will start from an honest appraisal of Britain's strengths and weaknesses. Not that everything the last government did was wrong. They got some things right and we shall not make changes where that is the case. But their competitiveness White Papers tended to gloss over some of our weaknesses. We do have fundamental structural weaknesses which must be addressed. Many noble Lords have listed them. We have many excellent firms but, although we have narrowed the gap, productivity in manufacturing remains 25 per cent. below that of France and Germany and even further behind the USA. As my noble friend Lord Graham reminded us, employment is still over 400,000 below its 1990 peak. The previous government's skills audit showed that our workforce is less well educated and skilled than that of our main competitors. In the past decade income inequality has grown faster in the UK than anywhere else in the OECD, except for New Zealand.

By not properly acknowledging those weaknesses, the previous government's efforts to improve competitiveness, while welcome, did not go far enough. In addition, they failed to build common ground with all those involved in industry, seeming to forget that employees are just as vital a part of business as employers. They often talked as if improving workers' pay and conditions was always bad for competitiveness. Perhaps with the notable exception of the noble Lord, Lord Vinson, they forgot that to be competitive productivity is as important as hourly wage rates. And, as the noble Lord, Lord Wedgwood, reminded us, quality is even more important. They forgot that a competitive economy needs to provide opportunity for all people to use their talent in the economy. The noble Viscount, Lord Thurso, remembered that.

The noble Lord, Lord Burnham, says that all is well, but clearly there is an ongoing challenge. The extent of competition accelerates every year. As we improve so do our competitors: in Europe, in south-east Asia, in the Americas and elsewhere. We must run to stand still. The challenge is all the greater because we cannot compete with countries like China on wages but we can on quality, service and innovation. That is the way forward. We must build an innovative, high skilled, high technology economy.

Many noble Lords have spoken of flexibility. We need what the Government call flexibility plus—flexibility plus investing for the long term: in people as well as in equipment. We must have flexibility plus innovation and flexibility plus creating a culture in which we face up to weaknesses and maximise our strengths. Flexibility is not just easy hire and fire in the absence of regulation but the ability of people to be flexible at work.

Unlike the Opposition, the Government recognise that the economy is both social and commercial. Our vision is of one nation sharing our increasing prosperity, of opportunity for all, not just the few. We simply cannot afford to waste any of our workforce. After 18 years of widening income equality and marginalisation this is indeed a radical vision. Through measures such as welfare to work and initiatives to improve the skills of the workforce we will ensure that all our people contribute towards Britain's improved competitiveness and have a stake in it.

So that is the task. The Government cannot do it alone. We must pursue it in partnership—Government, business, the workforce together. To be a government for business we must also be a government for all our people. And Britain works best when we work together.

I assure the noble Baroness, Lady Denton, that it certainly is not the job of government to tell people how to run industry. We will not try to do the job of industry. Where we are different from the previous Government is that we will not fail to do our own job. This Government will listen, then act. The President of the Board of Trade has invited a range of businesses to take part in an advisory group on competitiveness. She will host a competitiveness summit in July, where a new competitiveness audit will be launched. This will be the benchmark for our competitive position. Where progress has been made, this Government will be pleased to report it. But we shall also face up to current and potential problems. Future achievements will be judged against this audit.

Various aspects of our competitiveness will be examined by a working party, some sessions of which will be chaired by DTI Ministers. Their task will be to produce advice which will be taken into account in a new competitiveness White Paper to be launched early next year.

The noble Lord, Lord Ezra, spoke about the relationship between government and industry. He spoke of stimulation, and I agree with him. As I said, the Government cannot and should not tell industry what to do, but it can provide the right market incentives and the right institutional structures to produce competition and growth. I agree with the noble Lord that the most important contribution that the Government can make to business is economic stability with low inflation.

The noble Lord, Lord Burnham, told us how well the economy is doing now, but business has experienced enough boom and bust under the previous government. I assure my noble friend Lord Ponsonby and the noble Viscount, Lord Thurso, that we are committed to long-term stability which contributes to lower inflation, higher investment and an improvement in most other economic indicators, including the containment of public expenditure. My right honourable friend the Chancellor of the Exchequer has already laid the foundations for that and many noble Lords have congratulated him on his actions.

As well as stability, there are many other facets to competitiveness. The noble Lord, Lord Borrie, mentioned integrity and many noble Lords have mentioned the long-term view. To build the innovative, high skilled, high technology economy that I have described, we need to improve the performance of individual firms and individual workers. We have excellent firms, but too many firms do not live up to their potential. Noble Lords will recall that while in Opposition praised the DTI's work with sectors of [...] practice. Including more effective [...] of technology. Much good work has been, done here and I am the first to say so. This Government will build on that to create a genuine and constructive partnership to improve industry's competitiveness and increase national wealth and employment.

We shall work with all sectors of manufacturing and service industries, including retailing, to build on their strengths and to tackle their weaknesses. As my right honourable friend the President of the Board of Trade said in her speech on 4th June, there will be precisely targeted support and small firms will be a priority for us.

On education and training, we shall lay foundations for the long term. I agree with my noble friend Lady Lockwood and others that the demands on those in the workforce increase all the time as layers of management are removed and the concept of empowerment takes root. We shall equip our workforce to cope with that by making the raising of standards in schools a key priority. We shall set new targets in relation to the three Rs. I assure the noble Lord, Lord Wedgwood, and my noble friend Lord Ponsonby that we shall address the variability mentioned in the recent report about NVQ and GNVQ standards by improving quality assurance and assessment.

Many noble Lords mentioned management as the key element in competitiveness. I agree with them. A commitment to innovation, a willingness to invest resources in the long-term, the vision to unlock the potential of the workforce—these are all aspects of management which can make the crucial difference between mediocre performance and excellence by companies. Many British companies have world-class management. One sure sign of that is their recognition that they need to improve continuously. However, as my noble friend Lord Currie told us, many more, particularly among the smaller firms, are weak in this area. Many firms of all sizes are complacent and underestimate how much they need to raise their game.

This Government will continue to help business to help itself by spreading best practice, creating standards and providing bench-marking measures. We must ensure that people have the opportunity continuously to upgrade their skills. The University of Industry will make a vital contribution to lifetime learning. Our overall approach to education and training can be summed up in one word—improvement.

Many noble Lords spoke about the need for competition policy. My noble friend Lord Borrie reminded us of the previous government's poor record in that regard. There is a need to bring forward long overdue legislation to introduce prohibitions on anti-competitive agreements and abuse of power. This Government will introduce a competition Bill in its first parliamentary Session. My right honourable friend the President of the Board of Trade has made it clear that competition will be the primary consideration in her reference decisions on merger cases.

I agree with noble Lords that competitiveness must apply to all aspects of our economy to complete the jigsaw, as my noble friend Lord Ponsonby put it. Certainly we need economic strength, design, innovation and health and safety. I congratulate the noble Lord, Lord [...] on his work with RoSPA. I also agree that there is a need for management education and for links between

the universities and companies, about which my noble friend Lady Lockwood spoke. Similarly, I note what the noble Earl, Lord Kitchener, said about better labels and catalogues. He also spoke about products made in Britain. Incidentally, I was very much involved with the first "Better made in Britain" exhibition which took place in 1978 and which was opened by the then Prime Minister, my noble friend Lord Callaghan. That was an important initiative on the part of the retailing industry. Indeed, I agree with the noble Lord, Lord Wedgwood, that we need trade shows to improve our selling and marketing overseas. There is no single solution; we must get the balance right. The problem is that the balance is changing all the time as markets change.

My noble friend Lord Monkswell and the noble Lord, Lord Ezra, spoke about the need for investment. Our manifesto made clear our commitment to consider how the tax system could promote longer term investment. My right honourable friend the President of the Board of Trade has invited the new Advisory Group on Competitiveness to report on the most effective way to stimulate and promote investment, including investment in manufacturing, in the present economic climate. I have in mind investment in design, in innovation, in training and in new equipment. I agree with noble Lords who spoke about the need for no investment in down-sizing.

My noble friend Lord Currie, and others, spoke about the need for skills. We recognise that the economies of countries that have higher skills levels grow faster than those of other countries at the same level of income. Indeed, several noble Lords reminded us that some firms are looking overseas for the skills that they need. If we harness the vitality, dynamism and the many talents of the British people, I have no doubt that our economy will move from strength to strength. I should tell the noble Baroness, Lady Denton, that we are not concerned about people taking their skills and training abroad. Training and skills belong to the individuals concerned and they can take them anywhere they like. That is an important part of a free economy.

I agree with my noble friend Lord Hanworth that good companies have undertaken training and broader education to enable staff to be more flexible and to demonstrate that they value people as individuals and as employees. Indeed, I take careful note of his cautionary tale.

My noble friend Lady Lockwood, and other speakers, emphasised the importance of school and industry links. There is a mutual benefit involved which we will encourage. We shall continue the work of the previous government. I welcome the remarks made by my noble friend Lord Ponsonby about research and I heed his wariness about NVQs and GNVQs and the need to upgrade vocational qualifications.

Several speakers mentioned the social chapter. By signing up to the chapter we are playing our full part in Europe and ensuring fairness for our workers. I do not agree with the noble Lord, Lord Burnham, that by doing so we are merely transferring decisions to Brussels. The Government have undertaken to examine any new measures proposed under the social chapter to see whether they will have an impact on competitiveness. Where a measure would threaten competitiveness the Government will oppose it. We will deploy our influence in Europe to ensure that the social chapter develops so as to promote employability and competitiveness, not inflexibility and high social costs. In the past few weeks there has been a major shift in priorities throughout Europe in that direction. I can only say that my 30 years' experience of running a business has taught me that people work better in an atmosphere of trust and co-operation rather than in one of fear.

Competitiveness is part of our policy of inclusion and fairness. It matters because only by being competitive can we ensure that there is the opportunity for everyone to participate fully in our economy. It is also the only way to ensure that all consumers get the best value-for-money products and services. That is the real "trickle-down".

There are no easy answers and no quick fixes. It is a long-term issue that requires serious analysis and an ongoing consensus. It involves all sectors of the economy, including services and manufacturing. There is also an international dimension. Like the noble Baroness, Lady Denton, I welcome the appointment of my noble friend Lord Simon as Minister for Trade and Competitiveness in Europe. It shows our commitment to the need for constructive policies at the European Union level, as well as at the national level. We will work in partnership with business to identify what needs to be changed and the best way of making those changes. Decisions will be based on what works, rather than on dogma. We shall certainly be open to ideas from all.

If there are any points to which I have not responded this evening, I shall write to noble Lords within the course of the next day or two. In conclusion, I should stress that everyone has a role to play in this effort and everyone will be able to share in the prosperity that will result.

Baroness Denton of Wakefield

My Lords, before the Minister sits down, perhaps I may ask him whether he can give us some guidance on timetabling as regards policy implementation. There is an advisory group which is due to report, an audit in process and a White Paper to be published. Are we to assume that the Government will collect the information from those sources before their precise targeting on allocation of resources is under way?

Lord Haskel

My Lords, I should tell the noble Baroness that such matters are still under consideration. The various advisory committees have yet to meet and the timing of their work is very much a matter for them. However, I can assure the noble Baroness that my right honourable friend the President of the Board of Trade is most anxious for this work to be carried out quickly. Some committees are already meeting and the intention is that this work will be carried out quickly.

8.10 p.m.

Lord Borrie

My Lords, I thank my noble friends and indeed noble Lords from all parts of the House for their effective contributions. Indeed there was a series of contributions covering a wide range of matters relevant to competitiveness. I congratulate the noble Lord, Lord Burnham, on his first appearance on the Opposition Front Bench.

I wished the word "industry" in the Motion to be treated widely, and I am delighted that it has been. Retailing industry, services and financial services have been covered as well as manufacturing industry. I was delighted that noble Lords took a broad view as regards the matters which are relevant to competitiveness, including human resources—as the noble Viscount, Lord Thurso, put it—skills training, education and even matters which I must admit I had not contemplated but which I now fully understand are relevant to competitiveness. I refer to safety which the noble Lord, Lord Astor of Hever, mentioned. I am grateful for the contribution in the gap by the noble Lord, Lord Vinson, on the importance of currency stability as regards competitiveness. We have had an excellent debate. It only remains for me to withdraw the Motion standing in my name. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.