Export Sales

HL Deb 01 April 1998 vol 588 cc283-329

3.6 p.m.

The Viscount of Oxfuird

rose to call attention to the importance of export sales to the economy of, and employment in, the United Kingdom; and to move for Papers.

The noble Viscount said: My Lords, I very much appreciate the opportunity that I have been allowed this afternoon to introduce a debate on export selling, which is something with which I have been involved for most of my working life.

This afternoon we are privileged to hear the maiden speeches of two noble Lords whose backgrounds seem almost to have been sculptured for this debate. We shall hear from my noble friend Lord Hunt of Wirral, whose experience as Parliamentary Private Secretary to the Secretary of State for Trade during the early years of the last government, whose time as Secretary of State for Wales—an area of great inward investment—and whose position as Secretary of State for Employment must equip him well for the task ahead. His experience will be most welcome in your Lordships' House.

We shall hear next the maiden speech of the noble Lord, Lord Simpson of Dunkeld. In the noble Lord this House has a man with the greatest experience of manufacturing industry. His career is an inspiring one indeed, having been appointed to the most senior positions and leading such companies as Rover Group, ICI, Pilkington and GEC. Such experience and involvement with industry will be of great benefit to your Lordships' House over the coming years. We await with great interest the contributions of both noble Lords.

In a variety of guises, I have spent most of my career promoting the export sale of British manufactured goods throughout the world. It is a subject that we have not debated in any depth since July 1995. I am a committed exporter. Even today—here I must declare an interest—I regularly visit Korea and the Far East in my role as a non-executive director of a managed investment fund.

In considering the importance of export selling, we should also bear in mind the role that it plays in stimulating employment and all that that means for the wellbeing of our economy. Today, one job in three in the United Kingdom depends on international trade which in itself is very significant. Because of our long history as a trading nation, perhaps that is something that we take for granted. I shall concentrate my remarks on export sales and employment in the manufacturing sector, where my own expertise lies. In doing so, I acknowledge the great importance of trade and employment in the service sector which, in trading terms, has achieved a surplus every year since 1966 and indeed it achieved a record surplus of £7.1 billion in 1996.

In the manufacturing sector, export sales have been the main driver for growth during the 1990s and have helped to bolster a relatively modest domestic demand and hence sustain and increase employment in that sector. Manufacturers depend heavily on export selling, with over one-third of manufacturing output going to export markets. In some sectors, for example electrical and electronic engineering, over 90 per cent. of output is exported. In seeking to highlight the importance of exporting, I hope that I shall not be too controversial if I extol the virtues of global free trade and highlight the contribution that the United Kingdom has made towards achieving that. I believe it is no accident of history that, broadly speaking, the English language and our legal and fiscal systems have been adopted by many of the major trading nations of the world.

I give a few important numbers. The UK's exports of goods and services to the rest of the world in 1997 accounted for over £233 billion compared with only £1.4 billion at current prices in 1946. We must not forget that at the height of our trading influence in the middle of the 19th century, the United Kingdom was responsible for over half the world's trade. One of my purposes in initiating this debate this afternoon is to seek to create an environment that allows us to move back in that general direction. We must not forget that the United Kingdom is still the world's fifth largest trading nation. It exports more per capita than either the United States or Japan, and for at least the past 10 years the UK has stabilised its share of world trade for the first time in over 100 years.

Very major changes have occurred in the pattern of the United Kingdom's export trade in the past 40 years. In 1972, the year immediately prior to our entry into what was then called the Common Market, the current 15 Members of the European Union accounted for about 30 per cent. of the UK's exports and imports. Now it is over 50 per cent. It is surprising that Japan still accounts for under 5 per cent. of both our imports and exports. It is clear that any debate on exports must consider the European dimension. We are striving to create a single market in Europe that puts an entirely different complexion on the way in which we have traditionally viewed our export numbers.

We know that overall the exports of goods and services represent slightly under 30 per cent. of our gross national product, of which over half goes to the other Members of the European Union. Trading within Europe between partners is a very significant factor for all member states. That makes a big difference when we view the same numbers from the perspective of a single European trading bloc. Looking at the numbers in that way, only 8 per cent. of the gross national product of the European Union is exported outside the Union.

I suspect that some noble Lords will find these figures somewhat reassuring; and perhaps I do. However, one wonders whether a return to the womb of a larger European trading bloc is all that we should strive for. Is there not a global dimension that we should also consider'? The fact is that Europe, including the United Kingdom, accounts for only about one-quarter of the world's trade. As a bloc our trade has been declining recently. There is no single reason for that decline.

I am sure that many noble Lords will wish to present other perspectives later in the debate. My view is that throughout many parts of the European Union we appear to have lost a belief in the work ethic and the need to match our own productivity with world class productivity benchmarks. In short, there is a growing tendency in Europe to price ourselves out of the market. Here in the United Kingdom that aspect of what may be called the European disease is less evident, thanks, in part, to the changes in attitude brought about by the Conservative Government in the period 1979 to 1997.

I believe that the European Union stands at a cross-roads. Are we to regress into the fortress of Europe—protectionist zone as it may be—or are we to become full players in the march towards global free trade? In this European debate we in the United Kingdom with our tradition of world trading—thinking back to Drake and Raleigh, perhaps global piracy—have a pivotal role to play, and it is one from which our future will be derived. I congratulate Her Majesty's Government on the positive steps that they have taken to restore the United Kingdom's relationship with the rest of the European Union. I also congratulate them on the positive steps that they have taken to maintain our relationship with the United States of America. The United States is still the most positive force for world peace and stability around today. It is also a very significant trading partner and accounts for about £40 billion worth of exported goods and services or 18 per cent. of our total exports. We must not forget to look west as well as east in our quest for increased export sales.

There is a large consensus in this country which supports a free trade area based on the European Union, with or without a single currency (to which subject I shall come later), but there is no consensus that seeks to cut us off from a long-term vision of a whole world with no trade barriers and hence full global free trading. It would be a tragedy if the present generation of Euro-enthusiasts condemned us to a future as a marginal player in a regional free trade zone and a regional zone whose influence in world terms appeared to he contracting.

Any debate on export selling must consider the important subject of currency and trading currency fluctuations. I am sure that other noble Lords will wish to raise the significant problems that the present strength of sterling is causing for our exporters. I remind your Lordships of only one point. It can take literally decades to establish a sound trading relationship with an export partner, but that relationship can be destroyed very quickly if sterling remains at an uncompetitively high level.

In dealing with currency, we in Europe have been concerned mainly for some time with the debate about a single European currency. It is a subject of great importance. As an exporter, I positively support any steps that make the job easier, and a European single currency when trading within Europe would certainly be extremely useful. But—this is a big "but"—at what cost? I know that each noble Lord appreciates that we, in the UK, are more than just a European trading nation, we are an established world player. With that in mind, perhaps I could be just a little controversial and suggest that, as an exporting nation, we should set our sights a little wider than just a European currency and aspire to a truly global currency.

Having floated that idea, the next question that one must ask is: from what starting point should a global currency be established? To start the debate, perhaps I could give an unequivocal answer: the answer is the US dollar. Why? Because, in my area of experience, in many corners of the world—eastern Europe, Russia, South America, the Caribbean, South East Asia and Africa—the US dollar is still the only truly universally accepted currency benchmark and a currency in which we exporters think.

As I have already said, I know that that is a controversial conclusion to draw. The political ramifications are, if that is possible, even more controversial than the political implications of EMU. For some noble Lords I suspect that a global currency based on the dollar may be too controversial a step to contemplate. Perhaps I might suggest therefore that we strive to create a new global currency—a new global currency unit. We might call it the "global". To my ears, global has a far warmer ring than euro. Whatever the new currency may be called, I would draw to your Lordships' attention the possibility of some form of global currency in the interests of freer trading and a better world.

I am drawing my remarks to a conclusion. I should like to finish on two practical points. What can exporters and government do to help increase UK share of world trade? There are a number of positive ideas. I shall suggest but two.

The first, research and development; the second, reduced bureaucracy. Dealing with the first—research and development—the links between innovation and trade are difficult to measure but, if we segment UK trade according to the R&D intensity of the underlying industries, we find that for the past three decades the R&D-intensive industries consistently experienced a trade surplus while all the rest were in deficit. There is certainly a small lesson there.

My second concluding point relates to bureaucracy. The Defence Manufacturers' Association has drawn to my attention the conclusions of a survey that it carried out in the middle of 1997 on the operation of the procedures for granting export licences. It found that major complaints crop up repeatedly associated with the very long delays in processing open individual export licences. It claims that the requirements imposed on companies with respect to end-user statements are over-bureaucratic and simply ludicrous. It further claims that that situation has worsened noticeably in recent months with desk officers rejecting end-user statements submitted by companies on seemingly farcical grounds. I have no direct personal experience of that problem, but it might be a matter into which the Minister could look.

Finally, today is the 165th anniversary of the Crown Agents—an organisation which has set the highest standards in exporting over so many years. I look forward eagerly to listening to the rest of our debate. I beg to move for Papers.

3.24 p.m.

Lord Simpson of Dunkeld

My Lords, it is with a great sense of privilege and an even deeper sense of trepidation that I rise to make my first contribution to the workings of this House. The combination of the history of this place and the truly great men and women who have spoken here provide the foundation for a very acute case of maiden speech anxiety syndrome.

Having said that, those feelings have been balanced by the warmth of the welcome afforded to me by my noble friends since my introduction to the House. Indeed, even when I have sought, through inexperience, to transgress the unwritten rules of the House—like trying to sit on the Bishops' Bench when the House was full—or even worse—trying to leave the Chamber when the Lord Chancellor was on his feet—the corrective process was administered not only with firmness but also fairness and great understanding. Perhaps there is a lesson here for industry.

My own background is, of course, one of a long-time industrialist, having spent a career spanning more than 30 years working in, and latterly running, some of the UK's most important manufacturing companies. During that time I have gained a deep understanding of the motor industry, the aerospace industry and the defence industry and have indirect experience of many others. The companies I have worked for, as my noble friend said, are all household names in this country and hold important positions in their respective global industries. They have all experienced good times and bad times and have all seen massive transformational change as they have sought to respond to the increasing challenges of today's globalised economy.

It is the knowledge and experience gained from involvement in those changes which I hope I can deploy to the benefit of this House. Sadly, the pressures of modern business are such that I may get less opportunity to do so than I—or indeed my Whips—would like.

The subject of today's debate is, of course, of great significance to anyone involved in manufacturing and industrial activity—and there can be no doubt that export sales are of paramount importance to the economic well being of this country and therefore to employment potential in the UK.

Against that basic premise I should like to make the following points. First, we live in a fast-changing and increasingly complex world. Exports used to arise from UK-owned companies making products in the UK with parts sourced from UK suppliers and selling them abroad. In today's global economy and in today's free trade environment, exports are quite often the result of foreign companies making products in the UK from parts sourced globally and then sold abroad. Indeed, as companies like GEC seek to compete in this new global environment they often have to create manufacturing capacity overseas, thereby not only reducing export flow but indeed in some cases creating an import flow. The point here is that in the new global environment simple fixes are unlikely to be the answer. The real issue is our ability to make the UK an attractive environment for manufacturing industry and the real challenge—to maximise value added in the UK from such global trade flows.

The second point I want to make is that export performance is an outcome—it is, if one likes, a result: a result which arises from achieving international competitiveness. I believe that that is what this debate should be about: how we as a nation can achieve genuine international competitiveness and thereby create the long-term platform for export success.

Clearly international competitiveness derives from a whole raft of issues. The status of technology leadership in this country; the existence of high level skills; our international marketing capability; the flexibility of our labour market; the state of our fiscal and regulatory environment; the efficiency of our education system; and, last but not least, the capability of our corporate management and its willingness to embrace best practice, all play a part in achieving competitive advantage. My second point, therefore, is that we need to concentrate on the causes of good export performance—for example, competitiveness—rather than the result.

My third point is that success in this field is all about mindset. It was Harold Macmillan who said, "Exporting is fun". I am sure that he was right, but it is also very hard work. However, with the right mindset, like the Scandinavian countries which have a very small home market but are hugely successful in world markets, great things can be achieved. Unfortunately, in this country we have developed a mindset which relates the possibility of export success to the relative value of sterling. This, in my view, is the wrong mindset.

From his remarks yesterday, it would seem that the Chancellor and I share a common view on this issue. Of course, I would be among the first to welcome a more realistically valued pound. It would certainly help my company's sales prospects and financial results in the short term. However, I believe it is much more important that we develop a mindset which aims to achieve international competitiveness regardless of the value of the pound.

It was that mindset which helped the Germans and the Japanese to a long period of sustained economic success, despite the millstone of a strong currency. It is that mindset which should drive us to concentrate on seeking comparative advantage, on moving up the value chain and creating better quality and higher added value jobs and on the need continually to restructure our businesses and processes in the search for even greater productivity impetus. It is this mindset which will create internationally competitive industry in this country and therefore the prospects for increased exports and employment. Without this mindset, the prospect of the British economy prospering in the long term is, in my view, remote. Indeed, in the advent of the UK's participation in the European single currency, it is only this mindset which will provide the route to deal with the economic discipline implications of that change.

So in conclusion, I would summarise by reiterating that in today's fast-changing global economy the only real guarantee of export success is to create an environment in this country which will allow companies, UK and foreign, to become truly internationally competitive. Failure to do so will mean that companies with export generating capability will simply go elsewhere.

I should like to thank the noble Viscount, Lord Oxfuird, for introducing today's debate. He has raised a fundamentally important issue for this country and at the same time has allowed me to overcome one of the more difficult personal hurdles in my life.

3.32 p.m.

Lord Sanderson of Bowden

My Lords, it is a great pleasure for me, as a Scotsman, to congratulate the noble Lord, Lord Simpson of Dunkeld, on a very effective maiden speech. I am glad to see in this Chamber taking part in such an important debate someone with so much experience, having come up the hard way through various companies during his business lifetime. He has been managing director of GEC since September 1996, and therefore he is well placed to be of great service to this House. On a lighter note, perhaps I might suggest that he and I discuss our political differences on the golf course. I am happy to invite him to join me at Muirfield. We look forward to hearing from him on many occasions.

I thank my noble friend Lord Oxfuird for initiating this extremely important debate and I give him full marks for his timing. I look forward to hearing the maiden speech of my noble friend Lord Hunt of Wirral.

I must declare an interest as a director of a bank, but also, and more importantly for this debate, as chairman of a small successful knitwear company which has won two export awards in the past five years and whose exports total 80 per cent. of production.

Your Lordships will appreciate that my interest in the currency market is far from academic, and I agree with the Chancellor of the Exchequer that in order to succeed we need a stable and competitive pound over the medium term. The short term is the problem and we must reach the sunlit uplands by some means or another. I note that only today the Scottish Engineering report states that the strength of sterling and labour shortages pose real current dangers. The Bank of Scotland's business survey reveals a sixth consecutive drop in monthly export orders.

That is a serious situation, as any noble Lords involved with exporting will understand. It is a serious dilemma. I deplore those who seek to suggest a difference of opinion between the Bank of England and the Treasury over these matters; the current situation is far too serious for that. If I were addressing Members of the other place today perhaps I would say in the well-known words of the noble Lord, Lord Steel (who, when Leader of the Liberal Democrats said, "Return to your constituencies and prepare for government") "Return to your constituencies and prepare for slowdown".

The uncertainty over the single currency has undoubtedly made sterling more attractive vis-à-vis the deutschmark and is now reaching serious proportions. The real threat to our economy is surely the double whammy of a lasting period of uncompetitive exchange rates causing our export orders to slump while cheap imports are sucked in.

Rightly or wrongly, short-term economic management has been shifted solely to monetary policy, confronting the Monetary Policy Committee with a real dilemma in that there must be genuine doubt about how high interest rates—the only policy weapon left—need to rise in order to head off an inflation threat. The signals about inflation in the pipeline are themselves contradictory, with producer price inflation now at zero, but wage inflation at 4.5 per cent. and, despite the entreaties of the Chancellor of the Exchequer, threatening to rise further.

That tends to exaggerate and exacerbate the outstanding feature of the current economic situation; that is, the widely divergent performance of consumer spending on the one hand and manufacturing/exporting sectors on the other. While retail sales volumes are around 6 per cent. up on a year ago, manufacturing is effectively in recession, not to mention farming, where the high pound makes exports uncompetitive and reduces the real value of the financial support provided through the CAP.

While there may be disagreement about how high interest rates need to rise in the short term, there is consensus that growth is now peaking. However, there is less agreement about the severity of the rate of the slowdown which we may face. For business, the greatest danger is that the markets are right and that interest rates fall sharply in the second half of this year, but in economic circumstances which are more severe than currently envisaged by most forecasters.

The tourniquet of interest rates and strong sterling has been twisted still tighter at a time when there are signs that domestic demand is actually beginning to slow. No matter what the outcome in terms of the performance of the economy as a whole, it is, in my view, inevitable that some sectors—most particularly small businesses and small exporting businesses—will be hit hard in an unexpectedly sharp downturn. Again, I agree entirely with the Chancellor of the Exchequer when he wrote in his book that our ability to produce manufactured goods and compete in our own and world markets that is central to our industrial and economic performance.

Where do we go from here? Since the forecasts which accompanied the Budget also show inflation exceeding targets at the year end, it looks like an open invitation to the Monetary Policy Committee to raise the rates—thus the strength of sterling and the surge in recent days—deepening the divide in the two-speed economy and increasing the risk of an unnecessarily severe downturn. For all its good intentions, the commitment of the Chancellor of the Exchequer to long-term stability may have heightened the chances of another boom/bust situation.

I read that the Chancellor of the Exchequer is urging the banks and bankers to do what they can to help their exporting customers. I have no doubt that bankers will listen to that plea. I just hope that, in return, the Bank of England will listen to those who are saying, "What we need now is a signal that interest rates are at their peak". We have a serious United Kingdom problem before us at present. We must address it or we shall face a very distressing winter next year.

3.40 p.m.

Lord Ezra

My Lords, I join in the congratulations which have been extended to the noble Viscount, Lord Oxfuird, on initiating this debate. As he pointed out, it is the first that we have had for some years on this important element of our economic activity. His precise timing has been impeccable. One cannot pick up a newspaper today which does not write about the possible adverse or, in some cases, beneficial impact—depending on which newspaper one reads—of the high level of sterling on our overseas trade.

I was delighted to have heard the speech of the noble Lord, Lord Simpson of Dunkeld. I agreed with everything that he said and I shall turn later to some of the issues which he raised. I am glad that I shall be able to emphasise some of the arguments which he put forward based on his remarkable expertise and experience of industry.

I greatly look forward to hearing the maiden speech of the noble Lord, Lord Hunt of Wirral, with whom I had a close relationship when he was a Minister at the Department of Energy. He spent much of his time visiting the pits so that he could speak with assurance of what was going on in the industry. That was most helpful at that time.

As the noble Lord, Lord Simpson, pointed out, trade between nations now is much more complex than it has ever been. He talked about globalisation and the freer movement of goods and services. But there is also the massive transfer of components and transfers of capital and ownership. The noble Lord illustrated how one can have a foreign-owned firm in this country, resourcing its materials from abroad, assembling them here and sending the product abroad. Therefore, we really are in a global economy.

Furthermore, there is now much less distinction between the manufacturing side and the service side. Having been the world's first major manufacturer, we have always felt that somehow manufacturing was losing out. I felt that for many years. But there is now a much closer inter-relationship and it is difficult to draw a line. For example, much more out-sourcing is going on. I am involved with a company which provides the service of energy management. We provide that service to a large number of manufacturing companies. They are out-sourcing more and more of their business. Therefore, nowadays, when one talks about manufacturing, the totality of the effort is very closely inter-linked with the service side. That is another important change in the background of our business as a nation.

Then we have the ever-challenging situation of information technology. We no sooner seem to scale one height than there is a new one. But as we know, everything is not plain sailing and there is the problem of the millennium bug facing us. I am delighted that the Prime Minister has seized on that as requiring substantial effort. I was rather disturbed by previous government statements which seemed to indicate a degree of complacency. But I am glad that that complacency no longer exists because it is a very serious matter indeed. However, that in itself can provide opportunities to export methods to cope with debugging the system.

The environment also provides enormous opportunities. If we can lead the way in dealing with climate change, a major enormous market potential opens up in developing countries such as China, India and elsewhere.

The last time that the whole overseas trade scene was reviewed in depth was by the Select Committee on Overseas Trade which met in 1984 and reported in 1985, and which was led so ably and effectively by the noble Lord, Lord Aldington, whom I am delighted to see here today. That was a remarkable report. I had the honour to serve on that committee as one of its members. The report made a substantial impact. I tried to get hold of a copy of the report to give to somebody, but I was told that it was sold out and had long been sold out. A further edition is urgently required.

It made many important recommendations. It would be interesting to know how far we have gone in carrying them out. The most important recommendation, of which the noble Lord reminded me last night when we met in his club, was the emphasis on competitiveness, the very point which the noble Lord, Lord Simpson, has made today. We were stressing that very strongly in our report over 10 years ago.

The reason for establishing that committee was that 1983 was the first year in which we ran into deficit on our visible trade. We had previously been running substantial surpluses. After all, we had been first in the field with the Industrial Revolution. But 1983 was a watershed year in that respect. We ran into deficit. That has been a feature of our trade balance ever since. For example, in 1997 there was a shortfall of nearly £19 billion in our trade in goods other than oil. However, it was offset by a surplus in our oil trade with the benefit of North Sea oil, and a substantial surplus in services—in what is known as invisible trade. Therefore, we have reached a different sort of trade balance. That is another factor with which we must live.

However, when one looks at a breakdown of the sector of goods other than oil, half the deficiency was in food, drink and tobacco where we have traditionally imported more than we have produced. But the other half is in manufactures. One might ask why we are running a trade deficiency of £9 billion in manufactures and what can be done to put that right, bearing in mind that manufactures and services now go much more closely together.

As the noble Viscount, Lord Oxfuird, pointed out, there is no doubt that exports remain a very large part of our total economic activity: namely, more than 25 per cent. of GDP. Creating the right sort of framework, to which the noble Lord, Lord Simpson, referred, is something which not only goes for exports but for our total economy. Therefore, we should look at our overseas trade in a much wider context. That is a point which came out very well in the report for which the noble Lord, Lord Aldington, was responsible.

Of course, there is strong concern about the effect of high interest rates and the value of sterling. But there is a healthy debate about that. There are some who say that that is very harmful. There are sectors, such as the engineering, steel and chemicals, which suffer immediately in their margins. But it can be contended that a high value currency can act as a stimulus. An arresting statistic which I read in preparing for this speech was that our rate of improvement in productivity ceased to move up from September 1992 when sterling was massively devalued by coming out of the ERM. In other words, the impetus was removed. Strong benefits could be derived from the lower value currency and people traded on that.

This is a debate which can well be continued much further. We have the Chancellor putting his view on the subject and the CBI putting another. I have referred to the report of the Select Committee which was published in 1985. I should like to make a recommendation to your Lordships. The time has come when we should set up another Select Committee on overseas trade to look at the situation as it now exists in the light of globalisation, all the changes to which I referred, the position of sterling, what is happening within the European single market and the approach of a single currency. These are massive changes. The report of 1985 made a very important impact. I think that the time has come to review the situation once more. I hope that the usual channels will look upon such a recommendation favourably.

3.50 p.m.

Lord Hunt of Wirral

My Lords, I should like to say how grateful I am to my noble friend Lord Oxfuird for choosing this subject for today's debate. I believe that the House owes him a great debt. Several speakers have already referred to the fact that one only has to pick up virtually any newspaper at present to see that this is a topic which occupies the nation's interest and that it is a matter of considerable controversy.

I am also most grateful to my noble friend for allowing me to rise and make my maiden speech in this Chamber, exactly 22 years to the month since I made my maiden speech in the other place. On that occasion, I chose the theme of jobs and employment. If I may seek the indulgence of the House, I should like to do so again. I must say how much I appreciate my noble friend's very kind words about me and how delighted I was to be privileged to hear—that is, if one maiden speaker is allowed to refer to another—the outstandingly good speech of the noble Lord, Lord Simpson, who has a breadth of experience in these matters which virtually no one else can rival. He has been an outstanding figure industrially for many years. However, as I am not allowed to be controversial, all I would say to him is that we have to bear in mind the medium-term as well as the short-term effects of a rising pound on employment. Employment is seriously affected, both in the short and medium term.

I made my first maiden speech at a time in 1976 when the rate of unemployment stood at 5.7 per cent.—much higher than it is today. I remember feeling that that was far too high, and especially so in my own area of Wirral; indeed, I am proud now to take that name into my title. Wirral relies very much not only on having a magnificent quality of life and a beautiful environment, but also on jobs in manufacturing. I am delighted to see the former Prime Minister, the noble Lord, Lord Callaghan, present in the Chamber, because—speaking if I may as a Scouse Taffy—we in Wales also believe very strongly in manufacturing industry being the life-blood of our nation. These are vitally important jobs for Wales, Wirral and the rest of the UK.

In my first maiden speech I set out most clearly my strongly held view that high levels of unemployment, especially when they are concentrated in certain parts of the country, can destroy the social fabric of society. I was therefore very privileged, as my noble friend said, to enjoy a period as Secretary of State for Employment and as Secretary of State for Wales; and, indeed, during that time, to do everything that I could to bring down unacceptably high levels of unemployment. Moreover, I became absolutely convinced then that, as the noble Lord, Lord Simpson, said, so much depends on our competitiveness.

I turn now to the real problem. The noble Lord, Lord Ezra, with whom I had a close working relationship at Energy, will understand this. I believe that the real problem is that our economy is quite unlike any other economy in the world. I may be wrong, but I am scarred by that experience in 1992 of being involved, as I was then, in the decision to suspend our membership of the exchange rate mechanism. I am also scarred by the early 1980s because of the damage that was done to manufacturing industry by an escalation in the value of the pound.

Of course, we need stability; but stability must be buttressed by a policy which co-ordinates both the monetary and the fiscal side over the medium term. That is why we must do everything that we can now to persuade the Government that we cannot allow a dual economy to develop, with manufacturing industry moving into recession and service industry going from strength to strength. Our economy finds great difficulty in managing such a situation. I should tell my noble friend Lord Oxfuird that his ideas of a world currency are very stimulating. Indeed, I look forward to the debate and hearing the comments of those who are far more expert than I on some of the ideas that he put forward.

We are also most fortunate to have as the Minister who is to respond to the debate, the noble Lord, Lord Clinton-Davis. He was Parliamentary Under-Secretary of State at the Department of Trade and Industry during the 1970s and knows a great deal about the subject of trade, exports and the level of the pound. Indeed, perhaps I may pay a tribute to the noble Lord. He took under his wing a newly appointed Opposition spokesman on shipping. After a short six months on the Back-Benches, he made sure that I was well briefed. His ministerial objective was to ensure that the Opposition was as well briefed as he was. I am very grateful to him for having got my parliamentary career off to a reasonably good start.

Looking ahead, we must ensure that we balance the needs of manufacturing industry against the needs of our competitiveness and the needs of our economy as a global economy. I very much agree with the remarks made by my noble friend Lord Sanderson, with whom I have very happy recollections of working closely on the voluntary side of the Conservative Party. I have always been a One-Nation Conservative. I believe that the whole purpose of being in public life is to improve the lot of others: to ensure that the greatest help goes to those in the greatest need; and indeed to present young people in particular with a menu of opportunities, which does not include the opportunity of life on the dole. When I was Secretary of State for Employment, I believe that one of the most exciting ventures upon which I was able to embark through the vision of the former Prime Minster, my right honourable friend John Major, was the establishment of new modern apprenticeships. They are so important in underpinning the skills of the future.

Perhaps I may just add here that I did step down from the Cabinet to become senior partner of my firm of solicitors where I had been a partner for over 30 years, Beachcroft Stanleys. I am very proud of my legal profession. I look forward to participating in debates on the law. I am spurred on in that respect because I had to sit silently, recently, through a debate in which many learned judges, extremely learned banisters and the noble and learned Lord the Lord Chancellor pontificated on what it was like to run a solicitors' office. Sadly there was no contribution from any solicitor. I shall ensure that that does not happen in the future. We in the legal profession have established London as the legal capital of the world. I take great pride in the fact that my firm has 44 graduates either in training or in the pipeline, and that we have made training such a feature of the profession that people come from all over the world to participate in it. I have also always been an insurance lawyer. Just as the law provides invisible exports of £536 million a year, according to the last figures, so the insurance industry has much to be proud about in providing over £6,000 million of invisible earnings.

I return to my main point; namely, my great concern for the future of jobs and employment. That is why I want to support many of the measures brought forward by this Government, which I believe mirror many of those introduced and piloted by myself and several of my colleagues at the Department for Employment in the past. I do so because they will breathe life-blood into our manufacturing industry and improve the skills and the opportunities for all generations, not just the young. We must also ensure that we make greater use of older people.

Therein lies the future, but we must have a stable currency. That is the only way to underpin our competitiveness.

3.59 p.m.

Lord Paul

My Lords, the Motion before us touches the lifeline of the British economy. I am grateful to, and congratulate, the noble Viscount, Lord Oxfuird, for bringing this subject to our attention.

We have had two excellent maiden speeches. First, I congratulate the noble Lord, Lord Simpson. He brings with him a profound experience of manufacturing industry. I am sure the whole House will be enriched by his contributions. I congratulate too the noble Lord, Lord Hunt of Wirral, on his maiden speech. He brings with him great experience in business as well as in government. As Secretary of State for Wales he took a keen interest in industrial development there. I had the pleasure of welcoming him to our plant in Tredegar. His knowledge of industry is remarkable. We look forward to his future contributions.

We live in a global economy where levels of trade are rising. This has been helped by the reduction of tariffs and trade barriers in recent years. As communism declines, we see the awakening of eastern Europe as a commercial force and even the People's Republic of China is turning towards a market economy. The economic powerhouse of the US goes from strength to strength. Despite the recent financial malaise of many Far Eastern countries, their rapid move to manufacturing and international trading of sophisticated products will not be reversed.

The United Kingdom is part of a world market and therefore has to compete on world terms. Our position in the world economy has historically been dependent on trade. In 1997, according to the Government's Red Book, exports of goods and services equated to nearly 36 per cent. of gross domestic product. Without the benefit of export earnings, our domestic market is insufficient to support the population in the manner to which it is accustomed. For its population size, the UK has traditionally boxed above its weight.

Old allegiances and trading patterns are disappearing. Today the sale of products and services internationally is carried out increasingly on the basis of the highest quality at the lowest cost. If UK producers of goods and services cannot meet those criteria they will lose out. I have no doubt that United Kingdom enterprises can meet, and indeed set, international standards of quality. But they find themselves increasingly disadvantaged against both our near neighbours and those further afield on relative cost.

Budget statistics report that sterling has appreciated against the dollar by 8 per cent. since August 1996. Of greater concern is the 25 per cent. movement against the deutschmark over the same period. On the surface, UK exports over this period appear to have been resilient, but this has masked longer term trends which are now beginning to appear. Many UK exporters have continued to achieve sales volumes at previous or even higher levels, but at the cost of lower or negative profit margins. Clearly this cannot continue. While we congratulate our exporters on maintaining the export drive, we must realise that the losses they are suffering on margins will restrict their investment in long-term technology, and that will be to the detriment of all.

If this weakness in Britain's terms of trade continues, I fear for the health of the economy as a whole. However, I wish to congratulate the Foreign Secretary, the right honourable Robin Cook, on his initiative for increased co-operation between government and the private sector in promoting exports. In particular, while the value of invisible exports and those from the service economy are of great importance, the trading position of UK manufacturing industry is ignored at our peril.

I wish to dwell for a moment on manufacturing industry. There seems to be a tendency to look upon manufacturing as a kind of obsolete activity whereas services and semi-finished products appear to captivate policymakers and pundits. A major portion of our exports are manufactured items and this is one of the more stable parts of our trade. Manufacturing is less vulnerable to the fluctuations of fashion and fad. By its very nature it provides for long-term trade relations and creates a number of ancillary exports.

UK manufacturing is said to support 4 million employees directly and a further 4 million indirectly. In the industrial heartland of the West Midlands and the north, manufacturing remains the engine of the local economy upon which the service sector and many other activities depend. If industry is allowed to die in these areas through neglect, so will the communities themselves. It is accepted that the previous government did not attach much importance to manufacturing industry, but Labour has always been pro-manufacturing and I think the time has come to show that support.

I declare an interest. As chairman of Caparo, a company with a strong export emphasis, I am seeing throughout the business a reduction in the level of orders from UK customers who are beginning to lay off employees as a result of a fall in overseas demand and decisions by multinational customers to source elsewhere in the world than from the United Kingdom. Unless this trend is soon reversed I fear it will lead to recession and all that that implies.

The Government have announced many laudable measures to encourage employment. It would be a tragedy to see the results of those efforts offset by increasing redundancy in the current workforce.

I congratulate the noble Lord, Lord Ezra, on suggesting the establishment of a special Select Committee to study international trade. I hope the House will take that up. There is a cynicism creeping into the minds of UK manufacturers that this Government are indifferent to the fate of manufacturing industry, and this has nothing to do with the pound alone. I know this is not the case, but industry needs reassuring; otherwise the position will be dangerous for the UK economy and its future potential.

4.8 p.m.

Lord Trefgarne

My Lords, I, too, thank my noble friend Lord Oxfuird for giving us the opportunity to debate this important subject. As my noble friend and several other noble Lords have already said, it is not since July 1995 that we have had an opportunity to consider this important subject in any depth.

I shall concentrate my brief remarks on the plight of small businesses, particularly those in the manufacturing sector, to which the noble Lord, Lord Paul, referred, and highlight some of the problems that the current strength of sterling is causing both to employment prospects and the profitability of those businesses. Here I must declare an interest as President of the Mechanical and Metal Trades Confederation (METCOM), which is a group of trade associations which through its members represents some 5,000 small and medium-sized enterprises which employ upwards of 300,000 people.

Immediately after the Budget Statement sterling rose to a nine-year high against the currencies of the United Kingdom's major trading partners. Taking the deutschmark as an example, before the Budget sterling was hovering around 3.00 deutschmarks. In the days since the Budget it has risen further and today stands at nearly 3.1 deutschmarks.

Yet this has been hailed by the Government as a Budget for the small business community. We are told to "stop whingeing" and to "learn to live with a strong pound". That seems to me a little like being told by matron to forget about the side effects of pleurisy and pneumonia and to rise from the sick bed for a cross-country run in the rain followed by a cold shower.

We are faced with a pound that has risen by more than 30 per cent. in a year—to well above the level where we left the ERM—which is destroying so many businesses, especially embryo new businesses in their infancy and hence destroying a prolific source of new jobs; and all at a time when the Government have dedicated their term as President of the European Union to the theme of employability.

It was, of course, very generous of the Chancellor to cut corporation tax in his Budget. But I am afraid that that is of little consolation to a small manufacturing enterprise which has had its profits cut to zero or less on export sales as a result of the strong pound.

The writing is already on the wall. In the final quarter of 1997, manufacturing output fell by 0.4 per cent. on the previous quarter. This must be of great concern and, I believe, is due in large measure to a fall in export sales. In January 1998, the most recent month for which I have figures, there was still no improvement in sight and last month's Budget has almost certainly made matters worse. It seems clear that manufacturing industry is faced with a downturn in output after a period of steady growth stretching all the way back to 1992. This cannot fail to impact upon the positive rise in employment that we have seen in the United Kingdom over the same period.

Given the high level of sterling for some months, it is a surprise to me, with a little experience in these matters, that things are not already worse than they seem. I suspect that our present trading figures are being bolstered artificially by the foresight of the larger manufacturers who have been able to buy forward in the currency markets and hedge against an anticipated rise in the value of sterling. And of course present figures also relate to orders placed some time ago, now being delivered at zero or negative margins.

Last week I was interested to note that even the Treasury's head of economic briefing and analysis, Mr. Christopher Kelly, when asked by the House of Commons Treasury Select Committee whether officials regarded the manufacturing sector as likely to go into recession replied, It is certainly a possibility—we are forecasting zero growth for this year". There is no such thing as zero growth. It is either positive or negative—with negative growth now by far the most likely.

Even the Chancellor's own Red Book admits that the strength of sterling is having a drastic effect on British manufacturers. At page 95, it states: There is now clear evidence that the appreciation of sterling of around 25% … is having an impact, with net trade making a negative contribution to GDP growth in the final quarter of last year". It goes on to acknowledge that, "the full impact of the appreciation can he expected to come through more fully over the coming year, with a widening of the deficit of trade in goods and services". All that is straight from the Chancellor's own pen.

I can conclude on a rather more positive note. As my noble friend Lord Oxfuird observed in opening the debate, whatever the strength of sterling, it is the duty of all of us working in the manufacturing sector to do everything we can to optimise export sales. My noble friend mentioned investment in research and development as one positive factor to assist in achieving that objective. I should like to mention another, and that is investment in people—that is, continuously improving the skills of our workforce by making an investment in training and in the concept of lifelong learning. Here, too, I must declare an interest as Chairman of the Engineering and Marine Training Authority. In that capacity, I am privy to a whole range of data showing that those manufacturing firms which are already making positive investments in the training of their workforce—many of them having already achieved the Investors in People award—are doing far better in their overall business performance, including their export performance, than those who are not.

I think it was my noble friend Lord Hunt of Wirral who referred to the increase in modern apprenticeships. In the Engineering and Marine Training Authority in particular, we are indeed noticing a startling growth in those particular new qualifications, and very welcome that is. So there will always be something that we can all do if not to solve, at least to alleviate, the problems that we face.

That is all I have to say. I hope that in his response the Minister will acknowledge the genuine problems that the current strength of sterling is causing for small businesses. If maintained, it will lead to a further reduction in overseas business, lower exports and a loss of jobs. One job in three in the United Kingdom depends on international trade. It is not too late to halt the decline.

4.15 p.m.

Lord Montague of Oxford

My Lords, I echo the congratulations to the noble Viscount, Lord Oxfuird, on introducing the debate today and enabling me to look back on my 40 years both as a manufacturer and exporter. Listening to the speeches, I cannot help but feel—this is said with no disrespect—that I have heard it all before, in particular about the currency.

It was Michael Edwardes, I believe, who said, wish we'd leave the bloody oil in the ground." The noble Baroness, Lady Thatcher, did not take that advice. And I do not think that Gordon Brown is likely to take much notice of the advice we have been hearing today. In fact he told us that yesterday.

So what can we do? There are two kinds of exporters: those in the commodity business; and those who add value. To those in the commodity business, one can give little advice. They can make their businesses as efficient as possible, but their commodities have an international market price, and whatever is the going rate for it is the going rate, depending upon one's currency. But for those who add value, what we have to do is clear. Every business has to look at itself again and ask, "Are we applying enough importance, are we giving enough resources, are we rewarding enough those whose job it is to put USP (unique selling points) on to products?" In my experience you cannot go too often to a research and development department to improve morale. And you cannot incentivise too much. I really am just a little disappointed when I see some of the market rates offered to research and development engineers at present. They are the gold. They are the honey of manufacturing industry. We need to reward them appropriately. I do not think that we are yet doing that.

We have many companies which are led by accountants. Financial engineering seems to engage much of their attention. I believe that they must spend time visiting their research and development department checking whether it has sufficient resources and ensuring that morale is high. Without that the prospects for those companies may be good in the short term but not in the long term.

We have heard reference to smaller companies. The smaller companies are dependent on the Department of Trade and Industry and its posts overseas. We should congratulate our posts overseas which do a wonderful job in servicing the small and the larger companies. We tend mostly to berate them in public and tell them that they are out of touch and do not understand commerce. There are some like that, but I think that it is a rather unfair generalisation. We have heard that the Foreign Office is to introduce experienced businessmen to take on some of our posts. I hope that approach will be successful. I believe that to some extent it will. But it can only be a minority matter. General enthusiasm in relation to posts everywhere is what counts.

At present the Department of Trade and Industry seems to be doing quite a good job. It has come up with lots of initiatives. I wish to refer to one or two of them. As noble Lords will know, our posts overseas are given specific market leads. It was a decision of the previous government that those should be sold to commerce. It was not a great success. When the new Government came to power the number of people buying those market leads had fallen to 3,000. This information is now to be made available, free, on the Internet, to over 60,000 companies. That is a very useful step and is worth mentioning. Also, the whole question of overseas fairs and the amount of funds made available for them is being reviewed. By 1999, more generous facilities will be available. The department should be congratulated on that score.

Before coming to the House, I was over at Horse Guards Parade where the department has a magnificent exhibition which noble Lords should see. It is called Powerhouse UK. A number of noble Lords may have visited it. It displays four areas of Britain's creativity at the present time. The exhibition is being mounted coincident with the arrival in this country of the Asian leaders. The themes are creativity in lifestyle; creativity in communicating; creativity in networking; and creativity in learning. It is a first-class exhibition. It is open to us all from Friday. I thoroughly commend it to any noble Lords who have not yet seen it.

There are, however, other improvements which the department could make, and they should be drawn to the attention of the House. One of them, put simply, is to make even more resources available to overseas trade at the present time. The department has been steadily reducing its manpower. That cannot go on forever.. It is time that the department examined the budget to see what it can do to provide a "touch on the tiller" at this very delicate time.

We have heard from the Chancellor that as a result of the Budget we are to have £50 million available in universities—I speak partly as a university man—as venture capital, so that some of the new products identified by those in universities can be put into the commercial world. I hope that this very good initiative will be implemented speedily. Only yesterday we heard from the Department for Education the full details of the initiative in education for industry which is about to be started. So there are things going on, and all of them good.

In this important debate, we must be careful not to he too despondent, not to utter contagious pessimism, as it were, in every direction. Our exporters are doing a fine job under very difficult circumstances. They need all the help and encouragement they can get. Every time we are asked to visit a factory and unveil a plaque because there is a new extension, I ask your Lordships: please go into the research and development department there. Talk to those people. Their morale is most important. Whenever your Lordships meet an industrialist, do not ask him how he is doing. Ask about his new products. They are the lifeblood of his company.

We are so ingenious in this country. Time and again we have overcome hurdles. Sometimes, I think: was that last great war merely from 1939 to 1945? Did we invent all those new products in that brief period? Did we put all our energy towards the battle of the time? And did we actually win in such a short time? Whenever we are faced with difficulties, we have no great problem in rising to the challenge. I rather think that is what our exporters will do.

4.25 p.m.

Lord Howell of Guildford

My Lords, it was a great pleasure to hear the speeches of the noble Lord, Lord Simpson, and my noble friend Lord Hunt. Both have vast experience in their areas—the noble Lord. Lord Simpson, in industry and my noble friend Lord Hunt in several high offices of state. We need to weigh their words very carefully. I am grateful to the noble Viscount, Lord Oxfuird, for initiating the debate. I am also personally grateful to the noble Lord, Lord Montague, for telling me what is in those huge silver mushrooms which have just sprouted on Horse Guards Parade. I wondered as I went past: now I know.

There is in this debate a tone of some gloom in relation to export prospects. On the face of it—but only on the face of it—that is understandable. First, before I turn to the currency issue, there is the matter of the Asian turmoil, the effects of which are far from over. Many people predict, and I would certainly agree with them, that in the European market we are about to face a tidal wave of high-quality, cheap exports in everything from motor cars and electronics to petrochemicals and steel. It will have an extremely tough effect on our industries and make the lives of our exporters and those competing with exporters in the home market very much tougher. If one talks to some of the Asian leaders who are in town this week for the ASEM conference, there is a tone amongst their comments that suggests that, despite the difficulties, they are getting their act together again, and the export machine of Asia is about to crank up again—only this time with far more competitive prices. That will he extremely painful and worrying.

The second worry is one that almost every noble Lord has mentioned; namely, the question of the pound—if indeed it is a worry. The noble Lord, Lord Simpson, had some wise, cautionary words about being too obsessed about the currency level—bearing in mind the fantastic performance of the Germans in the 1960s and 1970s on a rising currency. If it is a worry, then I am afraid that I have more gloom to add to it.

Let us reflect. The pound is not a petro-pound at present. The oil price is heading south, and will probably go down to about 10 dollars a barrel before it bounces back, as it usually does for obvious reasons—namely, when it becomes cheap, more people "drink" oil and fewer people go out looking for it, so the matter corrects itself. It will return to the median level at which it has been over the past 20 years, with huge ups and downs and volatility, of about 15 dollars in 1986 money. It may go lower than that, to about 15 dollars in 1996 money, but it will rise a little. So that is the pound now—alleged to be high, with oil "flat on the floor". What is going to happen when we begin to see the oil price pick up again?

That leads me to a broader reflection, which I believe is shared by some in the financial markets; that is, to question whether the pound really is high, or whether we are not seeing a sea change in the relationship so gloomily familiar to us for the past 30 years. We have always assumed that the pound is a sort of passenger, a weak currency which will continue to depreciate against the gilder, the deutschmark and the Swiss franc and all the rest. Could it now be that, for various reasons, the tide has turned?

If one looks back into the history of the deutschmark/pound relationship, that cannot be to do with the differential in the short-term interest rates. We have had a high differential several times in the past. Indeed, to put it differently, we have had a lower short-term differential in the past, but with a much, much higher sterling/deutschmark exchange rate. In 1984 it was 3.78, when the differential was considerably lower; in 1974, it was 6.03; and in the 1960s it was 11 and I2 deutschmarks to the pound. The point is that at all those times Britain was hideously unfavourably placed vis-à-vis Germany in productivity and competitiveness. Our inflation was much higher; we were a strike-ridden nation. We could not hold a candle to the German economic performance. Today we can. Today, on the competitive side, this country looks much better and can become better still. On inflation, for instance, it can be much nearer to the German rate, perhaps not quite so low. General labour costs are extremely good in comparison with those in Germany. Take-home pay is in many cases higher, as the over-taxed German workmen frequently complain. Therefore if one looks at the situation now it could well be argued on cold analytical grounds that the pound ought to be much higher against the deutschmark and not much lower.

That, I know, is a very gloomy message to give to industrialists who are struggling to make an honest turn with the present level and hoping that it will somehow go down to 2.60 and he manoeuvred into the European Monetary Union at that level, but they may all just be hideously wrong, and it could well be that we are moving back to the more normal patterns when the pound becomes again—as many of us have spent years in politics and public life hoping it would—a strong currency which can perform very well against whatever lies ahead, whether it is the euro or separate currencies.

That is the slightly gloomy message I have to add to those which have already been put forward in your Lordships' House about the pound. I think we have to prepare for the fact that it will not go down and may go up considerably further and, whether we like it or not, we have to adjust for that. There is some solace, looking at the overall export situation, and it lies in the fact that while manufacturing against this rising exchange rate for the deutschmark is tough, it has not been quite so bad against the dollar. There is also the fact that in terms of export earnings, as your Lordships have observed, half our export earnings—just under half as a matter of fact on 1996 figures, but I suspect it is just about half now on 1997 figures—come from so-called services and not from merchandise exports at all. Furthermore, within the merchandise exports sector huge amounts of what are called merchandise and manufactured goods are in fact services. As the noble Lord, Lord Ezra, said with great perception in his contribution, this whole area of trying to define what is manufactures and what is services is getting into a huge muddle.

Knowledge products infiltrate all these sectors and cannot be distinguished. Indeed the Office for National Statistics are telling me—as I am sure they are telling others—that they are having enormous trouble in defining what "manufacturing" is nowadays and also in collecting statistics of what "services" are, and indeed in putting all these things into the monthly trade figures—which, it is worth reminding ourselves, usually are only for something called "manufacturing" and do not even include the other half of the economy and the other half of our exports and the other four-fifths of the economy in terms of employment, since four-fifths of the workforce now work in the so-called service sector.

Of course, manufacturing is the spearhead and we have to have good, high quality manufactures, but it is a small and tough spearhead. The service content of it is huge and all the time we are discovering that more and more of the things that we used to be told could not be exported and were not tradeable, are. The joke used to be that you could not export a haircut, but it now turns out that the design and delivery of a hair-cutting service and the associated and ancillary equipment and all the rest is a major export and British designers are beginning to earn a great deal of overseas currency for that kind of thing. We have heard from my noble friend Lord Hunt—and I am very glad to hear it—how you can export if not lawyers then legal services, and earn huge sums. It is the sort of category, rather like educational services, which only a few years ago you could not even find listed in the invisible exports sector.

Finally, it is worth remembering before we get too gloomy that the real driving force in world trade now does not come from goods crossing borders in the conventional sense: it comes from investment flows and from the affiliates which are set up and sell into the foreign markets concerned. It is a fact now—a strange fact but it is so—that the total of activity generated by corporations passing to their subsidiaries and the subsidiaries selling into world markets is actually larger than the entire total of world trade, measured in the conventional sense.

As the noble Lord, Lord Ezra, said, it is a completely new set of global conditions that we are looking at in which old worries about trade in the narrow sense are no longer the relevant concerns. I believe the key here is in foreign investment flows: we are a giant investing nation. Most of our investment in fact is outside the European Union, and most of our earnings come from outside the European Union on the investment side. That does not mean to say that Europe is not important, but we should remember, as the noble Viscount, Lord Oxfuird, said, that the wider world is also our oyster. Therefore, as long as we are saving and investing powerfully and effectively around the world, I believe we shall prosper, even though for the manufacturer at the moment obviously life is tough and in my view is going to get a great deal tougher.

4.34 p.m.

Lord Palmer

My Lords, I too am grateful to the noble Viscount for instigating this important and timely debate. When I was a small child my parents went on a world tour to promote the sale of our biscuits, and I remember so well the pins on the world map and taking them out as each postcard arrived, announcing that they had arrived safely at their next destination.

My father was for years a member of the British National Export Council and I well remember him telling me how vital export markets are to individual companies and to the well-being of our nation as a whole. When I worked within our export department we were selling our delicious biscuits to 159 different markets worldwide. I was also fortunate enough to be on one of the largest United Kingdom trade missions to Hong Kong and Japan back in the 1970s—one of the most exciting three weeks of my life, albeit very gruelling.

I must further declare an interest, as both my main businesses are hugely reliant on the export market: one being farming and the other being tourism, the latter of which, if the bookings we have materialise, will account for some 50 per cent. of our income. I believe that Her Majesty's Government's support to the tourist industry must be further increased. I gratefully acknowledge the increase that the Secretary of State for Scotland has given to the Scottish Tourist Board in this financial year. Overseas tourism is so vital to Scotland.

United Kingdom agriculture and all the related industry sectors are currently experiencing extremely hard times, perhaps even harder than the 1930s. Farm incomes are down by 47 per cent. this year—I repeat, 47 per cent.—and many, many thousands of jobs are threatened. It must not be forgotten that this is the industry which produces the vast bulk of our country's food requirements. Protecting our food supplies and jobs needs above all else a vigorous cereal sector. In recent years the United Kingdom has become established as the world's sixth largest exporter of wheat and barley. Last season we exported 6.8 million tonnes of cereals to more than 50 countries. This was worth £711 million—I emphasise that figure—to the United Kingdom's balance of payments. The premium Italian biscuit manufacturers rely heavily on British wheat, and bakers elsewhere in Europe use it for their bread flours.

Food and drink exports account for a further 3.2 million tonnes of cereals, and this is up from 1.4 million tonnes 10 years ago. A similar increase in the next 10 years would do wonders for our balance of payments. United Kingdom manufacturers and retailers selling high value products abroad have been increasingly successful and this, thankfully, has created many new jobs. To give just one small example, sandwiches made and packed in Britain are travelling through the Channel Tunnel overnight and are put on the supermarket shelves of Paris, Amsterdam and Cologne and even as far afield as Madrid.

One of the fastest expanding areas is the export of malt. The United Kingdom is now the world's largest exporter of malt, particularly to the Japanese market. Likewise, another expanding market, particularly within the European market, is breakfast cereal. Again, I would urge Her Majesty's Government to give these sectors their maximum support and financial encouragement.

The grain exporters, with tremendous help from the industry's promotion bodies such as British Cereal Exports, have greatly expanded this trade in the last 10 years. However, the export drive needs to be vigorously supported by Her Majesty's Government. Help to open up the huge market for malting barley in China is already being offered, but this does need to be sustained. I greatly look forward to hearing how the delegation led by Dr. Cunningham, leaving in 18 days' time, gets on in China. I remember two years ago entertaining a group of Chinese malt buyers on the terrace of your Lordships' House. I wish the mission every possible success.

In markets such as north Africa there is a huge and continuing demand for wheat. It must not be forgotten that competitor nations receive credit guarantee support to succeed in such markets. This is where Her Majesty's Government could greatly support our home-grown industry; I urge them most vehemently to do so.

The United Kingdom's farmers are world leaders in their professional approach to cereal production and marketing. They are the first to have in place an effective and credible farm assurance scheme. All international buyers recognise the integrity of the UK supplier, but, with the current strength of the pound, as other noble Lords have mentioned, every fair means of help must be offered to sustain this valuable trade. I urge Her Majesty's Government to give all their support to this vital industry in order to enhance the value of our exports and to increase the job security of our nation's workforce.

4.40 p.m.

Lord Selsdon

My Lords, until this moment I was enjoying myself, feeling as though I was back at some university listening to most interesting speeches; all of which makes me a little worried about my own speech. I believe it was Emerson who said in regard to England, that she has, a secret vigour and a pulse like a cannon", when he was speaking about the problems of the pressures put upon us by the transition of trade. It is about this transition of trade that I wish to speak today.

I have been involved in trade, or the financing of trade, all my working life, and probably will be so forever. I find exporting fun, and I find trying to export even greater fun. I am very grateful therefore to my noble friend for introducing this debate today and for managing to get together such a remarkable collection of speakers.

With regard to the transition of trade, I recall that over the years on various trade committees the biggest problem has been the transition of Ministers. I believe the first Secretary of State to whom I had the pleasure of reporting indirectly—though he probably never knew who I was—was the noble Lord, Lord Shore, whose intervention I look forward to with considerable interest.

I have been fortunate enough to be involved in the financing of projects with the noble Lord, Lord Simpson. Being a fellow Scot, I cannot help reporting that the Scots in general have always been the most successful engineers and the most successful traders.

The excellent speech of the noble Lord, Lord Hunt, reminded me, as a director of a major Italian white goods company, of the efforts made, with Invest in Britain, to get the company to invest and make fridges, washing machines or cookers over here. We found that the best presentation came from Wales, but decided in the end that it would be cheaper to export from Italy goods which consisted of steel purchased from Britain and of air, which is all that the fridges were.

It is the question of competitivity and sourcing that I am concerned about today. I go back to the report of the committee, to which the noble Lord, Lord Ezra, referred, and on which I had the privilege of serving many years ago. The report was about what should happen if oil runs out and whether we really need to manufacture. The conclusion of the 236 economists, most of them from central and eastern Europe, who worked for the Government was that it did not really matter because we would not have to worry about the balance of payments. I do not believe that we have to worry about the balance of payments; I do not believe that we shall ever again need to worry about the balance of payments. Therefore, what we are worrying about is the impact upon employment and the economy as a whole.

Many figures have been touted. It makes me think of that lovely phrase, with everyone saying, "If only": If Ifs and Ans were pots and pans, there'd he no trade for tinkers". I do not want to be classified as a tinker in your Lordships' House, but tinkering around with things by government never gets anywhere. For every hole that is repaired, there are usually three or four others. If the "if' at the moment is the currency, I have to go back to when I first worked in Germany, trying to sell British building materials to the German market. At that time there were 10.20 deutschmarks to the pound. I worked in a heavy industry which made cast iron bars, which we could still manage to sell somehow, even though they were outdated and outmoded. Now the level of the French franc is the same as it was 10 years ago. The Italian lira has not moved much; it is weaker.

Is it therefore the currency that is the problem? Our manufacturing industry base has been so eroded, and there is so much outsourcing, that probably the position has changed. Yesterday I telephoned three great engineering companies with which I am working at the moment trying to develop trade in strange parts of the world of which I had never heard until a few years ago. I asked, "Is the level of the pound really hitting you?" They said: "Yes, tell the Government it is hitting and hurting like mad. Seventy per cent. of our production"—this was the average of three large groups—"is exported. Our agents abroad, with whom we have worked for many years and whose children have been trained over here and gone to university in England, are saying that they cannot compete with other manufacturers and that they may have to think of taking on alternative ranges of products."

One asks another department, "What proportion of your total cost is imported?" I conclude that over 50 per cent. of the manufacturing cost to British industry is directly or indirectly imported. If that is imported, surely they have a great advantage? Energy costs are lower than ever before and costs of many raw materials are lower. The imported costs of goods such as diesel engines are way down through the floor. It seems to me that we have the leads and lags that often happen when stability is lacking in a currency. I do not believe it is the level of the currency that is important, because, if it is strong, it will work its way through the system. The noble Lord, Lord Simpson, pointed to the success of Germany and Japan. I believe that we are in a position to have considerable success. The difficulty is the question of sourcing and the key issue lies in added value.

The day of talking about exports has long gone. We are already talking of trade and investment which are linked together: perhaps first the trade and then the investment. We have been extraordinarily successful—more successful than any other country in western Europe—in attracting inward investment into this country over the past few years from people who a few years ago we thought would never have the financial resources to be able to invest abroad. The key players were in the early days when I was working in economic and research companies. One of our first clients was the Japanese export trade organisation, which said, "We need to sell abroad in order to build our economy. Will you be kind enough to help us and we will pay you 10 per cent. above the normal fees?" A start was made with the automotive industry. We decided that technically the right way to proceed was to try to sell Japanese cars in countries that did not make cars such as Belgium. After that, cameras. Japanese cameras had an awful image historically. Leica was always the best. A quality of product was gradually established by co-ordinating industry down to the size of the Philips screw and deciding whether to use stainless steel or ordinary zinc. It was all a great success; then came the come-uppance. Perhaps success was too great. The whole financing system was based upon the value of participation in industrial enterprises called shares and the value of land.

Our situation at the moment is that the British economy is sound and well. I believe that London is now probably the world's centre for almost everything—and I do not refer simply to services. We are a country in which almost everyone I know wants to live and work. We have one great advantage, but it is also a disadvantage. The English language is now used in almost all contracts and trade worldwide. If you are British and happen to be part of an international team, you end up, like one of those excellent civil servants in the Department of Trade, being the one who has to draft the minutes and agreements, since you are the only one who speaks English as your first language. It is a most tiring and back-breaking job when your international colleagues are off having dinner.

I have no complaints about the activities of our governments in trade; all of them have tried very hard. The only mistakes possibly made occurred when occasionally governments thought that they should and could trade. That is not their role. It is much better that they perform the kinds of acts that the noble Lord, Lord Clinton-Davis, performed when I was in Hungary recently. He took up a shovel and, I believe, dug a hole and put a tree in it. It was all over the television. Hungarian is very difficult to interpret or translate. My interpreter, who was very kind, said, "They are saying wonderful things about the British. You really are excellent. We intend to follow the rules of your Conservative Government and Mrs. Thatcher and privatise everything that moves." It is odd that a philosophy such as privatisation, which I still think is really a free market economy and the removal of bureaucracy and restrictions, should have been so successful as a British export. I do not believe my party takes any credit for that; I think it was accidental. I believe we are quite surprised that large tracts of central and eastern Europe should suddenly follow this route and understand such things as BOT and BOOT—both English language terms—and PFI, though in one place we stayed someone thought that that was the opposite of the "Ladies". It is in these areas that there is some fun. The first world, I suppose, is all of us. The third world—that is difficult. But the second world of central Asia, eastern Europe and even the Middle East is a wonderful growth area.

I have no fears for the future. I have no fears about the value of the pound. It makes my own life cheaper when I go abroad. When I decided that I would do these things myself, I recalled what my grandfather was told when he asked advice of his grandfather. He was told that there were only three jobs a man could do. He could advise people how to do it, in which case, like the noble Lord, Lord Hunt, he would join the professions to help people to do it, although I tend to find that the legal profession sometimes tries to stop it all. Or he could take the credit for those who do it and then, like the noble Lord, Lord Hunt, become a politician. But if he were a real man, he would go out and do it. I have been trying to go out and do it and my last declaration of interest is that I have had two grants from the Know-How Fund. Thank you very much, Government!

4.50 p.m.

Lord Monkswell

My Lords, I thank the noble Viscount, Lord Oxfuird, for initiating the debate. I want to say a few words about the importance of exports, the broad historical sweep and the current situation, and then pose a couple of questions. I approach this subject from the point of view of common sense and having read a little about it. I am also informed by my experience of working for 20 years for a large multinational manufacturing company in this country which exported between 80 and 90 per cent. of its product through good times and had.

In researching for this debate I had a look at some of the trade and export statistics of the past 500 years. It is quite salutary to learn that the basis of our export wealth derives from the wool trade, which by the middle of the last century had translated into the cotton trade. I shall come back to that point in a moment. The common-sense view of the situation is that exports are important for two reasons. First, by exporting goods and services we generate the income to buy the imports and services that we need. The other factor is that it generates economic activity and therefore employment.

A number of noble Lords have mentioned the difference between exporting what might be described as primary products and those products which have value added. The wool trade formed the basis of our national wealth 500 years ago and then translated into a significant cotton trade. How did that happen? Cotton does not grow in this country. It had to be imported, treated and then re-exported. In 1850, 40 per cent. of our exports were cotton, wool was down to 14 per cent. and iron and steel manufactures were 12 per cent. During this century the pattern of trade has changed. Finished manufactures now comprise more than two-thirds of our exports while textiles account for around 1.5 per cent.

Perhaps I may refer to the pattern of imports and exports for the last full year, 1996–97. The largest category was electrical goods, which my noble friend Lord Simpson will know very well from his industrial experience. In almost every category imports were of a higher value than exports. As the noble Lord, Lord Ezra, pointed out, since 1983 we have had a deficit in our balance of trade.

The two most significant items a family will buy are a house and a motor car. We think of motor cars as one of the strengths of the British economy. However, that is not so. Last year we exported £9 billion worth of motor cars but we imported £14 billion. We exported £34 billion worth of electrical goods but we imported £37 billion. Overall, the export figures were £171 billion and imports were £187 billion. For years we have imported more than we have exported. Partly as a result of that imbalance the value of our currency has declined. The latest long-term trends for the value of the currency show a continuing steep decline, which has been apparent since the end of the last war and mirrors a similar decline which was arrested in the 1930s after the Great War.

Two questions arise from those statistics. First, how can we organise our affairs to ensure that we sell enough to buy the goods and services that we want to import; or, turning it around, how can we limit our purchases to what we can afford? Secondly, why cannot we run our own affairs; why do we need the Germans, the Japanese, the Americans and the French to run our motor car industry? In the past couple of days we have heard that our last significant motor manufacturer owned and controlled by the UK, Rolls-Royce, is being sold to BMW; and that is after BMW bought Rover a couple of years ago. Why do we need the French to have a major say in running our water industry? Why do we need the Americans to have a major say in running our electricity and gas industries?

In the 18 years from 1979 to last May the previous government saw the selling off of the family silver, as the late Lord Stockton put it, as a major plus point. I would add that it was not just the public family silver that was sold off, but also private assets were sold off to foreign owners. I have already mentioned Rover and Rolls-Royce. Perhaps I may suggest that over the next 20 years we will have to find the answers to the questions I have posed. I am sure that with the strong Government we now have—the young, inexperienced government at this stage—over the next few years they will learn the lessons of the problems faced by previous governments and ensure that the answers to my questions are found.

4.58 p.m.

Viscount Montgomery of Alamein

My Lords, in his very thoughtful opening speech my noble friend Lord Oxfuird proposed a global currency. I find that a most interesting proposition. But he implied that the euro enthusiasts may not like it very much. As a euro enthusiast, I believe that it is an extremely good idea that currencies should eventually merge into one great unit for the world. My noble friend is very optimistic if he expects that to happen even in the medium-term, but let us hope for the best.

Since then we have had a wide-ranging debate with a number of contributions on different subjects. I want to narrow down the field. It will come as no surprise to noble Lords that I propose to concentrate my remarks on Latin America, which is an area of the world with which I have been concerned for some 43 years. It is a huge area which is stable and democratic, with new policies driven by market forces. Among the benefits that have resulted from these changes have been a great amount of privatisation and low inflation. For example, Brazil and Argentina both have inflation rates which are lower than European levels.

They are important countries. The gross domestic product of Brazil is greater than that of China. The GDP of the state of Sao Paulo, which is the industrial heartland of Brazil, is greater than that of India. Even Peru has a GDP greater than that of Ireland. In Latin America as a whole, GDP is growing at a rate greater than 4 per cent.

It is against that background that I am glad to say that we have good news in Latin America. Our exports of visible goods have increased remarkably from £2 billion in 1995 to over £3 billion in 1997. Those are not great figures set against our world position, but they represent very substantial increases in this important and growing area. There were major increases in 1997 alone in certain specific markets. In Brazil our trade went up by 21 per cent. to over £1 billion and in Argentina it was up from 47 per cent. to £487 million. In Mexico exports increased by 35 per cent. to £429 million. Those are valuable contributions.

Unfortunately, against these rather spectacular increases our share of the market continues to remain rather low and, as a whole, it is under 2 per cent., although we have had increases in Brazil, Argentina, Colombia and Venezuela of well over 2 per cent. But due to Mexico, the average comes down to well under 1 per cent. Possibly this low penetration of the market in Mexico is due to US domination of the market, which has become even more pronounced since the development of the North American Free Trade Area comprising Canada, the USA and Mexico. The US penetration of this market on a two-way basis is now 76 per cent., which is very high, despite the fact that over many years the Mexicans have tried to diversify their trade links towards Europe. But obviously, with the impact of NAFTA, that has not been possible, but more of that later.

Other noble Lords have referred to two other factors which affect our trade figures. That may mean that the figures I have given are much larger. One is the question of the service sector and what is known as invisible trade. That is very considerable. The other factor is that many UK companies use warehousing facilities in the USA, in Houston and Florida, for re-exporting through their own subsidiary companies into Latin America. If one adds those unknown quantifiable figures together our trade is probably much bigger than it would appear at first sight.

I want to say something now about regional integration. I have mentioned NAFTA, which is bound to affect us. There has been talk of it extending itself south under the umbrella of the free trade area of the Americas. That will probably be very slow to happen. There has been a remarkable development in the past four years of what is known as MERCOSUR. That is the free trade area of the countries in the southern part of the continent comprising Brazil, Argentina, Paraguay, Uruguay and Chile, which is an associate member.

It is probably the most ambitious single regional integration scheme in the world since the European Economic Community started about 40 years ago. It has shown a remarkable degree of development of inter-regional trade within the area. It is also extremely interesting that MERCOSUR is seeking greater links with the European Union.

There is a factor which may affect it in the trade flows. As regards the EU, 87 per cent. of exports to Latin America are manufactures whereas 73 per cent. of the imports from Latin America are primary products. That is completely different from what happens with US-Latin American trade, which is 65 per cent. in manufactured goods. This has been referred to by other speakers. It is possibly due to the fact that a large number of British companies have invested in that part of the world. There are also American companies. But the British companies that have invested in Latin America tend to be only the very large companies. The small and medium-sized enterprises cannot generate the capital resources necessary to invest in these slightly more complicated markets. That is a point that the Minister needs to take into consideration as regards the European Union when discussing how things develop with the WTO. If we have a fortress, we need to be working towards the development of much greater liberality in trade. Sometimes there is a tendency for the European Union to be seen to be doing the reverse.

I believe I have time to mention a couple of other subjects. One factor which has been extremely helpful in the past few years has been the development of Latin American chambers of commerce in the United Kingdom. They are free enterprise bodies. There has been one for Brazil for a long time. In the past few years we have seen chambers of commerce in the United Kingdom for development in Chile, Argentina, Colombia and central America. Peru has a trade and investment group, which is the same thing by another name.

The other factor which has contributed enormously has been the development of the Latin American Trade Advisory Group, which now has a first-class chief executive. I was chairman of that organisation about 25 years ago. Among my duties was to preside over a British exhibition in Brazil. At that time the Secretary of State for Trade was the noble Lord, Lord Shore, who is to speak next. I remember the extraordinary support that he gave to this enterprise. I looked after him for several days. We agreed about almost everything except Europe about which, I fear, we still disagree; otherwise, he was enormously supportive. It is of interest that the Latin American Trade Advisory Group is based at Canning House. On 24th June a seminar will be held there for parliamentarians of both Houses and all parties. I hope that as many parliamentarians as possible will attend because it will cover LATAG, what it is doing, and also our trade flows.

I am not at all gloomy about our export trade. As the noble Lord, Lord Montague, said, the future is all about added value. I once spent a number of years in the perfumery industry. If any industry signifies added value that is it. One starts with very low-value ingredients and one ends up with very high quality and high-cost products which one sells. Added value trade is something that we do extremely well in this country, and long may it last. I look forward to hearing what will happen in the future. I hope that Ministers will continue to lead trade missions to Latin America with great vigour. It should be not just Ministers for trade, but for health, food, agriculture and many other matters because they are extremely beneficial and these sectors are developing fast.

5.8 p.m.

Lord Shore of Stepney

My Lords, I am glad that the noble Viscount, Lord Montgomery, has mentioned the Latin American markets because they are one of a whole series of new, developing markets which offer great prospects for future exports. Of course, I am not thinking just of Latin America although its potential is enormous yet largely unrealised. I am also thinking of the opening markets in Russia and what was previously the Soviet Union, and is now 15 additional states. There is also the much-neglected area of southern Asia and particularly the Indian sub-continent. In all these markets we have those very great assets which arise from our investment and trade in the past. Above all, there is a the extraordinary advantage that we have with the use of the English language.

In my experience, our embassies have been very active in promoting British trade interests, at times almost to the—I was going to say—neglect of their more traditional diplomatic role. Anyone who thinks that our embassies are out of date and unaware of the need for exports, frankly, cannot have been in touch with them for several years—perhaps for two decades or more. So, we have a lot going for us. We have many prospects and possibilities.

One instrument of policy about which I should like to hear more is the use of the Export Credits Guarantee Department. The noble Lord, Lord Palmer, mentioned that. During my period as Secretary of State for Trade, the ECGD was a tremendously useful, highly responsive and flexible instrument for promoting UK exports. I hope that it has not been saddled and lassoed by external regulations emanating from Brussels and that it can still be used as creatively as we used it in the past.

I broadly associate myself with the optimists in this debate, but not in the short term. We listened earlier to the admirable maiden speech of the noble Lord, Lord Simpson of Dunkeld. As he said, we must never forget the many factors which make for underlying competitiveness and we must invest in the future. My noble friend Lord Montague of Oxford made the point very strongly that there is much that we can do. We do not have to accept that we are, as it were, always the victims of fate. There is much that we can do as individuals or as enterprises to deal with the difficulties and to create better opportunities for the future.

However, I fear that it is no good ignoring the here and now; and the here and now and the effects on British exports and exporters of the soaring exchange rate are very serious indeed. I have found most striking the speeches of those noble Lords who have the most direct experience of industry. I refer to the noble Viscount, Lord Oxfuird, who opened the debate and gave us this opportunity; my noble friend Lord Paul, who has very great experience indeed; the noble Lord, Lord Trefgarne, whose speech reflected the dominant opinion and sentiment among small businesses today; and the noble Lord, Lord Palmer, who spoke not only about business in general, but also about the appalling state of our agricultural industry at present, which is also grievously affected by the exchange rate. Anyone who thinks that those difficulties might be short-lived should study the remarks of the noble Lord, Lord Howell of Guildford. The noble Lord is almost certainly right that unless something is done, we shall be in for a very long period of high exchange rates. We cannot simply assume that market sentiment will change. It is very worrying.

I turn to what I see as the sources of the problem and I should like to venture at least one possible policy development to ease the situation. I am not confident in saying that. Indeed, I am diffident because the situation is so difficult. First, we must accept that currency holders in Europe anticipate that the euro will be unsatisfactory and that there is therefore a movement of money into the pound sterling in anticipation of a weak euro. It is, I suppose, just possible that we could help to influence that by striving to achieve a rigorous application of the convergence criteria when the heads of state meet on 1st May. Frankly, I do not have much hope of that happening.

Secondly, we must acknowledge the fact—at least, the Government will certainly have to acknowledge it—that there is still an underlying weakness in the economy. Annex A of the Red Book, on the economy, which was published not very long ago, begins with the words: The UK economy continues to suffer from a number of underlying structural weaknesses. As noted in Chapter I, the level of GDP per head is below that in the other G7 economies and below the OECD average. In part, this reflects the UK's relatively low capital stock per person employed—the result of years of under-investment". That is the key—and it is something that cannot be put right in only a short period of time. There must be a consistent national policy of recognising the under-investment of the past and the need for sustained higher investment in the future.

However, there will not be higher investment in a market economy when firms are unable to break even by using all their present capacity. If they are to be driven into the red in their annual accounts, they will have neither the incentive nor the means to invest more heavily so that the future is secure. That is self-evident. Frankly, unless there is such a change in behaviour and attitude, we as a country (and as a government) will not achieve the many objectives which the Chancellor and his colleagues have set themselves, such as Welfare-To-Work, making changes in the welfare state and, above all, reducing the number of people who are unemployed in the United Kingdom. Although according to the old method of calculation the unemployment figure is down to about 1.5 million, the figure is really about 2 million if one uses a more realistic measure, as will become plain very soon.

If we are to deal with those matters, my goodness!, we cannot disagree with what the noble Lord, Lord Simpson, said in his maiden speech, which is that exports are of paramount importance. Unless we increase our exports and get the balance right, our national prospects and performance will not change for the better.

I believe that the difference in interest rates between the short-term interest rate set by the Bank of England and its advisory body and those set by competing countries in Europe and elsewhere is serious. That is bound to be the case because, unless other factors operate against it, if there is a substantial gap of the order of 3 per cent. between our interest rates and those of most of our continental competitors, money is bound to pour into London and the exchange rate will rise.

I come now to what I think is the crux of the matter. It was wrong—it was folly—to hand over the determination of interest rates to an independent body and council chaired by the Governor of the Bank of England. That determination should have been retained by the Chancellor of the Exchequer. The Chancellor is now unable to move because he no longer has the instrument in his hands. That was a great act of folly and may be the most disastrous of the decisions taken by the Government.

I have only one suggestion to make. I refer to the Bank of England Bill. Incidentally, where are all those noble Lords who participated in the Second Reading debate on 13th February when everyone welcomed the abandonment of the Chancellor's control of the Bank? I put that question to one side, but I should like to refer to the "emergency clause" of that Bill. Clause 19, which states: (1) The Treasury, after consultation with the Governor of the Bank, may by order give the Bank directions with respect to monetary policy if they are satisfied that the directions are required in the public interest and by extreme economic circumstances". That is a very useful reserve power. I do not believe that my noble friend (indeed, he is a friend) who is to reply to this debate can give an answer to this matter, but I very much hope that he will try to secure from his right honourable friend the Chancellor of the Exchequer a positive response to my suggestion that this power be now used.

5.20 p.m.

Lord Razzall

My Lords, I do not believe that my noble friend Lord Harlech is able to participate in this debate. It falls to me to wind up on behalf of the Liberal Democrats. I join other noble Lords in thanking the noble Viscount, Lord Oxfuird, for introducing this debate and giving speakers with far greater experience and wisdom than me an opportunity to participate in it. The Motion calls attention to the importance of export sales to the economy of, and employment in, the United Kingdom". That has gained the unanimous approval of noble Lords present. Having listened to the debate, it is quite clear that we are all in favour in the importance of export sales to the economy of, and employment in, the United Kingdom. I am sure that all noble Lords agree with the comments of the noble Lord, Lord Simpson of Dunkeld, whom we congratulate on a very wise maiden speech. In particular, I note his remark that exports should become a mindset irrespective of their value. Many noble Lords in the course of the debate have followed his lead by indicating that this is not simply a matter of whether the Government's economic policy is right or wrong.

Noble Lords should not lose the opportunity afforded by this debate to ask the Minister a number of questions as to what the Government believe they can do to improve export sales. I and a number of noble Lords entirely support the suggestion of my noble friend Lord Ezra that the Select Committee on which he and others served with such distinction in the 1980s should be revived to look at the issues that have recently arisen. In many ways we face circumstances similar to those that obtained in the 1980s. I am sure that noble Lords endorse my noble friend's suggestion and look forward to the Minister's response to that.

I should like to press the Government on the current economic situation. Noble Lords have indicated that this is an extremely topical debate. At present we cannot open a newspaper or turn on the television without reading or listening to complaints from manufacturing industry—in particular those with significant export sales—about the current exchange rate. Anecdotally, I can do no better than to quote a letter dated 26th February this year from the chairman of a well-known listed exporting company: Has everyone forgotten that our economic revival began on `white Wednesday' when we left the ERM in 1992 and our exchange rates became more realistic, exports improved, the balance of trade improved, industrial activity improved, unemployment fell—are we now going to see this reverse until we are forced to reduce interest rates to bring the exchange rate down?". He wrote to me again yesterday in advance of this debate. He had last written to me in February about the sterling exchange rate. He went on to say: Since that time the situation has further deteriorated and as I forecast more UK manufacturers are now being affected. The high level of sterling is encouraging competitive imports and is making exporting financially unattractive: this I anticipate will result in a substantial deterioration in our balance of trade". That is the anecdotal evidence. The economic case that we have all read in the newspapers and listened to is very straightforward. The argument is that since this Government came to power there has been inadequate fiscal tightening of the economy, which means that the only weapon available to control inflation is interest rates. There is a perception that interest rates will go up, which will simply exacerbate the export position in the economy. People who hold that view say that, as a result, the economy will have a hard landing rather than the soft landing that everyone anticipates. That is the basic case which is made against the method adopted by the Government in their exchange rate policy since the election.

However, as a number of noble Lords have indicated, life is not always that simple. Many sympathise with the Chancellor and believe that in running the British economy he is attempting to drive a car through a thunderstorm without windscreen wipers. A case can be made the other way quite easily. It can be said that there has been significant fiscal tightening through the measures taken by the Chancellor. Although the Tory Opposition do not accept that, a number of economists believe that that has taken place. Further, as the noble Lord, Lord Simpson of Dunkeld, and my noble friend Lord Ezra have said, these days a large volume of our exports has a very different structure from the exports to which we have become accustomed throughout the manufacturing history of this country. It has been said that if the exchange rate is high imports are cheaper. Bearing in mind that a good deal of our export manufacturing industry consists of importing products from outside the United Kingdom and reselling them with added value, the impact of a high exchange rate does not necessarily harm those exports.

A number of economic commentators have said that throughout its history this country has suffered from the fact that, as soon as there is a low exchange rate, productivity gains are given up by the manufacturing sector at the expense of the exchange rate because the opportunity is taken to sell cheaply and to have wage settlements higher than they should be without the discipline of a high exchange rate. That argument is being pushed very strongly at the moment.

The final point, which one tends to ignore, is that by and large those countries that have had a high exchange rate over the years have a higher standard of living. Countries such as Switzerland, which traditionally has had a high exchange rate, have a considerably higher standard of living than we have in this country. Many economists argue that to a significant extent, but not entirely, that is the result of that country's high exchange rate.

Therefore, I believe that the arguments are balanced. I should like to put two significant questions to the Minister. Whether I or other noble Lords are right or wrong in our comments about the exchange rate, the Government's policy on the exchange rate is not clear. I read carefully what the Chancellor of the Exchequer said in his Budget speech. Much of it is welcomed by these Benches. But it was very surprising that, in the context of what was being said by manufacturing industry and economic commentators generally, there was hardly anything in his Budget speech about the Government's policy in regard to the exchange rate. For a considerable period the Conservative Government, under the chancellorship of the noble Lord, Lord Lawson of Blaby, had a significant monetary and exchange rate policy which shadowed the deutschmark. Within all of our recent experience the Treasury has been running a significant exchange rate policy but we do not know what it is.

I read carefully the evidence given yesterday by the Chancellor to the Treasury Select Committee of another place. His line appeared to be that he was not prepared to take short-term action with regard to the exchange rate because of the long-term advantages to the UK economy flowing from our not taking short-term action. However, the Government must have an exchange rate policy. I do not believe that they do not have one, but I should like to know what it is.

The second point upon which I should like the Minister to comment is whether he agrees—if he does—with me (I know that the noble Lord, Lord Shore, will disagree with me) that many of the problems that we have been discussing will be resolved when this country goes into the EMU. Early entry into the EMU at the right level will undoubtedly solve many of the problems about which noble Lords and manufacturing industry have been concerned, but until the Government indicate what their policy is with regard to the exchange rate I do not see how we can have a policy about the correct level for entry into the EMU.

5.30 p.m.

The Earl of Home

My Lords, from this Bench perhaps I may add my thanks to my noble friend Lord Oxfuird for giving us the chance to discuss this important topic, at a most opportune moment. Perhaps I may say also how much we all appreciated the contribution made to our deliberations by my noble friend Lord Hunt of Wirral. Before one can export, one must first make the investment, and, when Secretary of State for Wales, my noble friend did so much to create the right environment for investment in Wales. I have to say that that was sometimes at the expense of investment in Scotland. He was successful and Wales is, of course, reaping that reward.

We also listened, with great fascination, to the first speech in this House of the noble Lord, Lord Simpson of Dunkeld, who has enormous experience in the export field and made some excellent points, of which I hope the Government will take note. I hope also that his busy life will allow him to make many more contributions when, perhaps, he may not be constrained by the tradition of a maiden speaker not being controversial.

The theme of many noble Lords today has been the strength of the pound and I make no apology for returning to that theme, for it is, as has been said, the biggest worry for exporters today. One point, however, which has not been brought out so strongly is that sterling's strength is not, as was the case for several decades with Germany and France, the reflection of any continuous and strong balance of payments surplus. Rather, sterling's strength is due to the tight management of the UK economy. As the noble Lord, Lord Shore of Stepney, pointed out, we have recently debated the Bank of England Bill which will, sadly, give formal powers to the Bank to control interest rates. However, those are still the responsibility of the Chancellor, until the Bill receives Royal Assent. With the Government formally abdicating that responsibility, the chances are that the Bank will continue to keep interest rates high compared with the dollar and the European currencies no doubt in an effort to control inflation, and the problems for exporters, as predicted by my noble friend Lord Howell, will only get worse, or continue to be bad.

I understand that the Minister, during the conference on helping smaller companies to export last week, made the point about Germany and Japan managing well when they had strong currencies. I would point out to him that, first, interest rates in real terms were considerably lower in those countries in those days and companies could borrow more cheaply than we could to finance their export efforts. Secondly, their governments made conditions more attractive for savers at that time and did not have to raise interest rates to curb consumer spending. Thirdly, Japanese exporters often used their own in-house trading companies to assume, on their behalf, some very high risks, some of which went badly wrong for them in Iran in the early eighties and later in Iraq. The right course for the Government to take would have been to encourage higher savings by restoring tax breaks for savers.

At that same conference Mrs. Barbara Roche advised that Companies must learn to be more efficient". Frankly, such a remark is insulting to exporters. The reality is, as everyone involved knows, except apparently this Government, that those days have long gone.

Neither the Chancellor, who yesterday argued that industry must be ready to take the pain of the high exchange rate, nor Mrs. Roche, seems to be aware, or to have taken any notice of the fact, that a vast number of British companies have already been through the enormous pain involved in down-sizing, redundancies and mergers. Industry, including most SMEs, as my noble friend Lord Trefgarne, pointed out, are working long hours with a minimum number of people at their disposal.

The Government's own 1998 Red Book makes disconcerting reading. My noble friend quoted from it the words that I was proposing to quote. I will not repeat them. The Red Book goes on to say that export growth is expected to be more than halved in 1998 from 8 per cent. to a maximum of 3.5 per cent. and the current account to move from a surplus of £4.5 billion last year to a deficit of £6.5 billion this year.

Export growth is still occurring, but that is a result of contracts and understandings entered into earlier. The Chancellor need only read today's Financial Times to see that groups such as the Birmingham Chamber of Commerce, which represents companies in the forefront of exporting, are forecasting serious problems in the near future. My noble friend Lord Sanderson of Bowden rightly mentioned Scottish Engineering as another of those groups referred to today in the press.

Those are worrying trends, particularly in view of the excellent performance of our exporting industry last year. As my noble friend Lord Howell said, it is certainly true that the Asian crisis has not helped but to put the crisis in context, the troubled Asian economies accounted only for less than 7 per cent. of UK exports last year and developments in Asia are, according to the Red Book, only expected to reduce British GDP by half a percentage point in 1998. Where the crisis will, of course, affect us in due course is in other markets, where Asian products will be much more competitive than our own, or indeed in our market where the rise in sterling will make our own imports very much cheaper. Imports in the fourth quarter last year were up 10.75 per cent. on the same period a year earlier and import growth will outstrip export growth for at least the next two years.

Speaking last week at the annual lunch of the Middle East Association the President of the Board of Trade emphasised the need for British companies to concentrate on quality and less on price. I wonder what she thinks British industry has been doing for the past 10 years. She said The need to compete on quality and not just price has, of course, been a consistent theme of my party, although it is a very different message from the one you were receiving up to a year ago". I have to say that I find the last part of that comment quite extraordinary. Not only was it a totally inappropriate forum, with several foreign ambassadors present, to make a somewhat cheap political remark, but I seriously question its validity. In nearly 30 years of travelling to the Middle and Far East, including six years as chairman of the Committee for Middle East Trade, often accompanying Ministers, I have regularly heard Ministers of both political parties emphasising to industrialists the importance of quality. Indeed, the last time I had to endure a significant number of complaints about the quality and delivery of British goods was in the early eighties when British industry was still suffering from the malaise of the late seventies. I should like the Minister to ask his colleague what evidence she can produce to support those comments.

Under increasing pressure to remain in the export of manufactured products, companies are having to switch to using components from overseas producers whose prices are becoming ever more attractive. Overseas sourcing of this kind is a continuing trend and it may indeed be an inevitable feature of the globalisation of world trade, but it does, of course, have an obvious negative impact. When that trend is exacerbated by artificially high interest rates, then it is bound to have an adverse long-term effect on the fortunes of component suppliers and their workforce.

The natural extension of this policy, encouraged by a strong pound, will be that companies will either buy or set up manufacturing capacity in low-cost economies. I have no need to spell out to this audience the clear detrimental effect that such action will have.

However, from these Benches, we welcome some of the action which the Government have taken. We wish the Export Explorer initiative well and hope that the Support for Exhibitors and Seminars Abroad scheme helps the SMEs to find export markets. The Export Explorer scheme is, of course, limited and confined to Europe and Scandinavia, but I hope that the Minister will tell us that it can be extended soon.

Perhaps I may briefly pick up one or two comments made by other noble Lords. The noble Lord, Lord Palmer, spoke of the need to retain our agricultural export markets, particularly in the export of cereals. We have recently debated the plight of the farming industry and it would be yet another slap in the face for farmers, and indeed an abrogation of the hard work of British Cereal Exports, which has done a tremendous job in recent years, if we were to lose those markets for wheat and barley.

Secondly, I was fascinated by the different trade patterns coming out of Latin America, as described by my noble friend Lord Montgomery of Alamein. Surely, there are lessons for us to learn from those, and the fact that our exports to Saudi Arabia, at £3.8 billion, exceeded our total exports to the whole of Latin America must mean that there is still enormous potential if we can exploit those greatly improving markets. Nevertheless, my noble friend's figures on the increase in trade were encouraging.

I should be interested to hear the Minister's reaction to the proposal of the noble Lord, Lord Ezra, for a Select Committee on overseas trade. It is evident from the quality of the speeches we have heard today that many noble Lords are more than qualified to sit on such a committee. Furthermore, I echo the remarks of the noble Lords, Lord Shore of Stepney and Lord Montague of Oxford, in praising the work of our embassy staff. They do a superb job, often in difficult conditions.

In addition, the noble Lord, Lord Shore, mentioned the ECGD. Having sat on its advisory council for five years, I also share his hope that the ECGD will continue to prosper without being emasculated by European bureaucracy.

As was mentioned by the noble Lord, Lord Simpson, one Prime Minister said, "Exporting is fun". I doubt whether today he would find more than a handful of exporters who would agree with him. Yesterday, my noble friend Lord Marlesford gave the House some encouraging statistics showing virtually full employment in several parts of the country. Without exports to help us, redundancies and bankruptcies will quickly erode that position. We on these Benches beg the Government to take urgent steps to stop this trend.

5.42 p.m.

The Minister of State, Department of Trade and Industry (Lord Clinton-Davis)

My Lords, I, too, begin by congratulating the noble Viscount. Lord Oxfuird, on initiating what has been a splendid debate. It has been wide ranging, somewhat controversial and inconclusive in respect of some material issues to which I shall refer later. Furthermore, it has come forward with the reasonably radical proposal of a global currency.

It is a privilege to reply to the debate. I say immediately to my noble friend Lord Monkswell that I speak as perhaps one of the youngest and most inexperienced members of the Government. now well versed after their experience of 11 months.

A number of your Lordships underlined the significance to our economy of international trade, manufacturing and the service sector. The noble Lord, Lord Ezra, commented on how complex that is. I share that view. It is made more complicated by the issues to which he specifically drew attention; for instance, information technology. He also drew attention to the opportunities which arose in certain niche areas, one of which he identified—the issue of environmental services. That is ever more important because of the growing influence and impact of ISO 14,000, which is designed to assist the development of environmental management systems. I believe that that is of particular significance in south east Asia, even at this critical time in the affairs of that region.

I was invited to comment on the proposal of the noble Lord, Lord Ezra, to set up a Select Committee on the issue, which arose some 12 years ago in this House. It is not for the Government to determine whether there should be such a Select Committee; it is a matter for the House. It is, in my personal view—and for that reason I cannot speak for the Government—an issue to which the Government should give serious consideration.

Before turning to deal with a number of issues that have arisen, perhaps I may compliment the two maiden speakers in the debate. Their speeches were of outstanding quality, based on a real experience of trade affairs. My noble friend Lord Simpson made a superb contribution. The fact that such a noted industrialist chose to make his maiden speech in this debate, and to speak so relevantly and with such expertise about some controversial issues, speaks volumes for the significance of the issues we have tried to tackle today. I hope that we shall hear a great deal more from my noble friend on this and many other subjects.

I turn to another good friend. I cannot refer to him as a noble friend because I am not allowed to do so. I refer to the noble Lord, Lord Hunt of Wirral. He and I were sparring partners for some time during the period of the Labour Government from 1974 to 1979. He always speaks from a firm base of knowledge and understanding. On this occasion he spoke with considerable passion, too. I welcome him here and I hope that we shall hear him on many occasions.

Whether fortuitous or planned I do not know, but the debate introduced by the noble Viscount, Lord Oxfuird, is a timely one. Perhaps it is a result of his perspicacity. However, the debate is especially opportune as we are hosting this week the second ASEM meeting and the third Asia/Europe Business Forum. We hope that the delegates, politicians and ministers coming to this capital from Asia and Europe will be able to make a number of recommendations and agree on conclusions which will help to relieve the severe financial crisis currently afflicting many Asian countries. We hope that those conclusions will further improve the conditions for trading between our two continents. Trade is the lifeblood of the UK economy and it is the foundation of our prosperity. As was said by my noble friend Lord Paul, speaking with vast experience of industrial affairs, exports really do matter.

Income from the sale of goods and services overseas represents almost 30 per cent. of our GDP. Compared with the United States and Japan, that is remarkable because their share of exports in GDP terms is much lower at around 10 per cent. each. I believe that my noble friend Lord Simpson was right in underlining the fact that exporting has a direct relationship to competitiveness. The noble Lord, Lord Ezra, made the same comment. A presence in overseas markets exposes firms to more intensive competition, new products, new ideas, more efficient technologies and better working practices.

The term "exports" takes on a much broader meaning today than it ever did in the past. After all, it includes not only receipts from the sale of goods but payments made for the sale of services. For example, it places financial services alongside major and successful manufacturing sector exporters. Services comprise about a quarter of our total exports.

We should not forget too the income from substantial overseas investment made by United Kingdom firms, although that is not, strictly speaking, classified as exports.

What is the linkage between exports and jobs? That is a point to which the noble Lord, Lord Hunt, drew special attention. What he had to say in that respect indicated his own very strong principled position in this matter. There is not a great deal of difference between us in relation to what he said about the significance of training and the importance of linking those issues.

The United Kingdom's exports of goods and services account for about 5.75 million jobs. I have been asked what the Government are doing to support exporters. We inherited a range of export promotion schemes and activities from the previous administration. Nevertheless, we held very significant pre-election consultations with business. We received suggestions from that consultation which were dealt with in our business manifesto. In fact, that is the first time that any political party has had a business manifesto. Those consultations suggested that there was substantial room for improvement. I believe that it was Helmut Schmidt who said that the largest room in the world is the room for improvement. That is a very sage remark.

Consequently, in July of last year we set up the Export Forum, a body made up of people from the private and public sectors. It was asked to undertake a candid assessment of our current export promotion programme. It reported in November with a report entitled Towards an Export Initiative. On 25th March we responded to the forum's report—although only the beginning of a response—with a new package of support aimed specifically at small and medium sized enterprises.

One of the forum's conclusions, which was quite important, was that to have an approach based on the UK's top 80 markets provided no real focus. Therefore, we are developing programmes of additional activity based on a few key markets where we believe extra effort will yield particularly good results.

For new exporters, we are putting together a new export initiative for western Europe and the United States. I unveiled the Export Explorer package for western Europe last week which will allow new exporters to undertake prepared visits to some of the more accessible markets and trade fairs in western Europe for £99, plus travel and accommodation.

Target markets for experienced exporters are—and I believe the noble Viscount, Lord Montgomery, referred to this—South Africa, India, Poland, Russia, China, Japan, South East Asia, Brazil, in the context of Mercosur, Turkey and Egypt, all of which offer enormous potential for British companies. Yet in all those markets we are seriously underachieving. In China, for instance, our share of total world exports in 1997 was only 0.7 per cent. Therefore there is a great deal of room for improvement. I hope that that will be regarded as a fairly uncontroversial observation.

Those markets represent the countries where there will be an additional effort. However, I wish to underline the fact that as a result of that, we shall not be doing less in other markets. Indeed, we are aiming to improve all our services in that field.

The Export Forum recommended that there be a new sales leads service which will aim to make greater use of the internet in supplying market information to UK companies. We have acted on that, too.

On trade fairs, we removed that budget from the sector challenge as it made no sense to subject exhibitions which need long term planning to short term challenge principles. Therefore, in addition, we announced the largest ever programme of DTI sponsored trade fairs.

We shall also be launching our new programmes of activity in the target markets throughout the year. So the package that we launched on 25th March is certainly not the end of our response to the Export Forum. In many ways, it is just the beginning.

In parallel to our work on export promotion, we remain committed to helping British exporters by removing barriers to trade through multilateral trade liberalisation. This is a top priority for my department. That underlines the point made by the noble Viscount, Lord Montgomery. The benefits of unhindered market access speak volumes for themselves—simply witness the rewards we have reaped in the EU. In 1997 our exports to western Europe were worth over £100 billion.

Apart from that, the single market programme has undoubtedly resulted in an expansion of jobs and job opportunities which certainly would not have existed had we not embarked upon that great area of policy. I was going to call it an experiment but it is no longer an experiment. The Delors Commission on which I had the honour to serve and which was very well served by the noble Lord, Lord Cockfield, has indicated how important that really is.

On the global front, perhaps I may say a few words about the World Trade Organisation and its importance to us. It is not the job of government to become involved in telling business what to do. But we must try to establish the right environment which will allow our trading affairs to prosper. Establishing an international rule of law for trade and an effective disputes resolution process which must be respected are truly salient advances. I am a passionate believer in the paramountcy of that disputes resolution procedure and I am totally against the idea which has sometimes been articulated in Congress in the United States of three strikes and you are out. I believe that that would be the beginning and the end of the whole concept of a rule of international law. I hope that Congress will not continue to articulate that view.

What has happened in the WTO, which has been a natural consequence of previous events, is that there has been enormous help to liberalise trade in a range of information technology products, trade in telecommunications services and in financial services. As a government, we have played a leading role in enabling the European Union, through Sir Leon Brittan, to negotiate a successful conclusion to those negotiations. All that will benefit United Kingdom business by creating a more stable trading environment with fewer barriers to trade. Liberalising telecommunication services alone has been estimated to yield annual benefits to the world of some 140 billion dollars in terms of lower prices.

However, we need to- do much more. We have identified a number of areas for consideration by the World Trade Organisation, reflecting business and consumer priorities where real gains can be made. They include further tariff reductions; the simplification of trade procedures for imports and exports: better disciplines on state subsidies; improved respect for intellectual property rights; liberalising public procurement rules; removing technical barriers to trade; simplifying rules of origin and better domestic regulation. That is the right way to proceed internationally.

We have important interests in the further liberalisation of investment and in the examination of the interaction of trade and competition rules. We have existing commitments to liberalise further in the agriculture and services sectors from 2000.

Therefore, that is the right way to proceed. In the next round, we believe that a comprehensive rather than a sectoral approach allowing members to identify trade-offs and make concessions in a range of areas, thus reaching agreement on a package of measures covering both market access and further WTO rule-making, are essential.

Next month, we shall see the second WTO ministerial conference in Geneva. That will review implementation of Uruguay Round commitments, giving a strong push to further work in the WTO, thereby initiating wide-ranging preparatory work to provide a strong foundation for comprehensive negotiations from the year 2000.

I turn now to a slightly more controversial issue; namely, the strength of sterling. I am reminded a little of my long period as a solicitor. I must not say too much about what the noble Lord, Lord Hunt, said, although I rather liked it on the whole. When one is involved in litigation, as the noble Lord and I have been over a long period of time, one is used to hearing experts on both sides speaking with commendable integrity about their views which are in total opposition. It is a little like the situation this afternoon.

On one side of the argument we had my noble friend Lord Shore, with whom I had the great pleasure of serving in government for two years. It was a privilege and I learnt a great deal from him during that time. There were also the noble Lords, Lord Sanderson and Lord Trefgarne, my noble friend Lord Paul and the noble Earl, Lord Home, all of whom put serious question marks on the Government's policy concerning the strength of sterling. They all wanted to see ways and means of reducing the value of sterling at the earliest opportunity. On the other side of the argument there were people like the noble Lord, Lord Ezra, my noble friend Lord Montague, and the noble Lords, Lord Howell and Lord Selsdon, who reflected a rather different point of view. The difficulty for any government is the same as it is for a judge; namely, to try to achieve a true balance. The only way to do so is to have a chip on both shoulders, is it not? It is a difficult matter.

I was invited by the noble Lord, Lord Razzall, to distance myself from my right honourable friend the Chancellor of the Exchequer. But I believe that that would he a little dangerous for me to do; indeed, I do not propose to do it because I think that he is right. He gave evidence yesterday, and although I have not read the entirety of it and have only read reports, it seems to me that he stated quite clearly what his position was, and not for the first time. He also expatiated on the matter in his Budget speech. There is a difference of view. I appreciate that many exporters are facing difficulties, but I am not convinced that those difficulties are exclusively due to the value of sterling.

We are determined to use our best endeavours to keep inflation down. Inflation in this country is still higher than in many EU member states and, indeed, elsewhere. We are determined to maintain sound public finances because we believe that stability in the long run, with a stable and competitive pound, has to be the goal. A boom and bust economy does not lead to long-term, sustainable growth. I am not aiming to be highly controversial, although perhaps I was rather tempted to be so by the noble Earl, Lord Home; but we believe that mistakes were made by the previous administration in that respect. I believe that it was right to ensure that interest rates were removed from political manipulation. Indeed, that led to essential decisions being deferred and it played a part in accelerating the rate of sterling. Those decisions are now reposed with the Bank of England, where the Government believe they should have been before.

In his excellent maiden speech, my noble friend Lord Simpson commented upon the right and wrong mindset. He put it very well. Although the noble Earl thought that my right honourable friend the President of the Board of Trade was speaking down to industry, I have to say that I do not believe that she was doing so; indeed, it is important to emphasise the quality of British products.

The noble Earl then went on to say that this had been done many times before, but he did not comment adversely on that fact. It is important also to emphasise productivity and competitiveness as did my noble friend Lord Simpson. It is also important to exploit new opportunities and to widen markets, and we were given an example of that by the noble Lord, Lord Ezra, who knows a great deal about environmental expertise.

We must ask ourselves—and I put this question again despite the qualifications that were inserted by the noble Earl—how was it that Japan and Germany were able to have such a successful export policy in the 1980s? Would we prefer a weak currency? That is another question which has to be asked in connection with the issues that were traversed today. Despite what has been happening and despite the recession in south-east Asia, British companies are continuing to develop export markets. A number of winners of 1997 export awards for smaller businesses were recently asked how they were dealing with the strength of sterling. They spoke of continuing success being the result of a number of factors: for example, adapting their product to local demands; thorough market research; spotting new opportunities; learning about the culture of the countries into which they were seeking to export; regular training of their overseas sales teams; developing long-term relationships; foreign currency quotations; establishing new markets to compensate for ones which might not be so buoyant; good marketing; and good customer service. Not one of those essential elements of exporting actually relates to the strength of sterling. That is the evidence we were recently given.

I turn now to deal with some of the more specific comments made during the debate. The noble Viscount, Lord Oxfuird, asked about licensing procedures and the time that these take to process. My right honourable friend the Foreign Secretary made it very clear when he made an announcement last July, on the new criteria for the assessment of export licence applications, that the criteria would not be applied mechanistically and that individual applications would be considered case by case. I should point out here that we are talking about export licences for military equipment. In the months following that announcement, this led to an increase in the time taken to assess some applications. Ministers are now very much more involved in this sensitive area than they ever were before. There is some inconvenience and uncertainty attached to the matter as far as concerns delay; but I believe that it is absolutely right that we should continue to proceed along those lines. It involves a number of departments. We hope—in fact, I believe that we are already achieving this—that there is some reduction in the time-scales generally for processing such matters.

My noble friend Lord Paul spoke about the Ambassadors for British Business scheme. I welcome that. Indeed, my noble friend has had a great deal of practical experience in that respect derived from his work in India, Nepal and the USA. Other ambassadors for British business have undertaken work while in Peru, the United States, Hong Kong and Belgium, among other places. Further projects are planned for China, Germany and Mexico. That is an extremely good example of the way in which the DTI and the Foreign and Commonwealth Office work together on such projects.

I turn now to the remarks made by the noble Lord, Lord Palmer, whose family biscuits I have indulged in liberally over the years; indeed, they have been a favourite of mine from childhood to second childhood. I was interested to hear him speak about the expanding area of malt exports. Through our Export Challenge Award, we are supporting British cereal exports to the tune of £30,000 in developing a malting barley strategy for China, South America and eastern Europe. I also welcome the noble Lord's remarks about the importance of tourism and about the work of the British Tourist Authority. That is of vital importance to our trade generally.

The noble Viscount, Lord Montgomery, spoke about an area in which he has vast expertise—Latin America. We see opportunities there for considerable expansion in our export trade. That is one of the recommendations of the Export Forum. I was interested to hear that the noble Viscount was involved at one time in the perfumery business. That reminds me of an opinion poll carried out by the Sun newspaper which asked its readers who or what was Jacques Delors. Some 30 per cent. replied that it was a French perfume!

As regards the ECGD, short-term business was privatised during the early 1990s. However, I assure my noble friend Lord Shore that it is not being unduly constrained by any activity on the part of the European Union. I believe that the ECGD's premium rates are on the whole competitive. I think I have covered most of the points that were raised. I apologise if, due to the extensive area we are discussing, I have not covered them all. This has been an invaluable debate. I end where I began by thanking the noble Viscount for introducing it. It has been a commendable initiative on his part. I believe that the Government will have learnt a great deal from it.

6.10 p.m.

The Viscount of Oxfuird

My Lords, it must be as a result of sixth sense that this Motion appears on the Order Paper. I was under some pressure to tighten the format of the Motion. I am glad that I did not because that broad format has produced some wonderful speeches. I have learnt so much and I have had the privilege of listening to two of the best maiden speeches that I have ever heard in this House. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.