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6.28 p.m.

Lord Cooke of Islandreagh: My Lords, I rise with some trepidation following the four powerful speeches we have just heard on economic affairs. I shall not attempt to emulate them. We have also been fortunate to hear two particularly important maiden speeches, each covering quite different matters. The noble Lord, Lord Nickson, spoke on wealth creation and the noble Lord, Lord Gladwin, on training--quite different subjects, but complementary. They come together. I agree with all that the two noble Lords said.

I must ask the forgiveness of the House, particularly that of the noble Viscount, Lord Cranborne, for having to leave early. The two long Statements have delayed proceedings and in the morning I have to attend a meeting in Dublin which will deal with one of the two matters on which I shall speak. Both require urgent attention.

I am concerned that the gracious Speech does not mention the sea or anything related to it, despite the fact that Britain is an island nation. The Channel Tunnel will make some difference in that we are no longer totally dependent on sea-borne heavy goods. But it will not change the basic facts. Approximately 95 per cent. of the goods imported and exported from this country travel by sea; by volume, only 18 per cent. of those goods are carried in British-flagged ships. One consequence is that a large number of unsafe or improperly crewed ships are trading in our waters. The report of the noble and learned Lord, Lord Donaldson, Safer Ships and Cleaner Seas deals with one aspect of that problem and the consequence of it.

The fact is that the British merchant marine is in steady decline. It now stands at only 3.4 million tonnes dead weight, compared with 36 million tonnes in 1981. The British shipbuilding industry is also in crisis. The formerly large British manufacturing industry for marine equipment is also contracting.

The reason for the crisis both in ship owning and ship building is basically the same. British owners and builders are playing uphill on a steeply inclined playing field. I know that it is the Government's wish to level that playing field. But, if that is ever possible, it will take years, by which time we may no longer have British-owned ships or British shipbuilders. This is not the place to go into the complex details of those

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industries which were fully debated in this House on 28th April 1993. The Government have since taken some action but not nearly enough even to maintain the status quo. To assist the ship owners, I hope that the Chancellor will shortly finalise details for roll-over relief, which he has proposed, and extend the three years that has been suggested to at least five years. I hope also that the Chancellor will override Treasury resistance and give British owners of British-flagged ships the right to 100 per cent. capital allowances. That could be dealt with in two or three sentences in the Chancellor's speech next Tuesday and would give some encouragement to owners and managers of British-flagged ships.

Things are made more difficult for United Kingdom shipbuilders and manufacturers of marine equipment by the substantial assistance given to shipbuilders in other yards in Europe and to a more serious extent in South Korea. Against South Korea, the playing field for our shipbuilders is almost vertical.

South Korean yards have been taking orders for Capesize vessels at around 41 million dollars, which equates approximately to the material cost alone of such ships in the United Kingdom. A recent study has shown Harland and Wolff to be achieving the lowest cost among European builders but even Harland and Wolff's price is between 18 and 26 per cent. more expensive than that of South Korea for this size of ship. It is not surprising therefore that the order book at the end of June for South Korea stood at over 10 million tonnes while the figure for the UK was only one half of 1 million tonnes. The price difference is not wholly due to subsidy. South Korean yards are able to use differences in exchange rates which are very favourable to them. That opportunity is not open to non-South Koreans.

I have had some interest in shipbuilding, being connected with Harland and Wolff for many years. But I know that I speak for all UK shipbuilders who face the same problems. I urge the Department of Trade and Industry to engage in close consultation with British shipbuilders and British manufacturers of marine equipment to identify the problems and to facilitate rapidly the ability of UK manufacturers to compete on equal terms with foreign countries. There is no time to be lost. To me it is quite unthinkable that the UK may soon not have a stake in shipping or that the UK should no longer be able to build ships.

I wish to turn to the economy, but just one aspect of it; namely, investment in manufacturing industry, which was mentioned by the noble Lord, Lord Nickson. It is clear that investment by manufacturing industry is not adequate. That has come through in various reports and is the case despite recent surveys showing that UK manufacturers have fewer companies of so-called "world class" standard than have our competitors elsewhere. There are several reasons why investment is still inadequate, one being the lack of medium-term confidence together with other things that cannot be changed quickly. But there is one reason that stands out.

In the past few years advances in computer software and associated hardware have progressed and have now been applied successfully to a variety of machine types

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used by small and medium-sized companies. That has increased their productivity very considerably. Unfortunately, to take advantage of that progress it is seldom sufficient to buy one machine. It usually means that a whole new system must be installed, perhaps with a different lay-out. In practical terms that means that in order to make a real advance a lot of money must be spent very quickly--very often much more than can be covered by cash flow in the companies involved. Generally speaking, small and medium-sized companies are not over-anxious to put themselves in the hands of their bankers. There is enough evidence of what happened to some companies which did that shortly before the last recession.

There is a relatively simple way of partly overcoming the difficulty. Again, the Chancellor can do it in a sentence on Tuesday. He must give manufacturing companies that wish to make substantial investment the right to 100 per cent. capital allowances. Very often, payment of corporation tax will be delayed by only one year and, as companies become more profitable due to the new investment, the Chancellor's eventual tax take will be larger.

I must declare an interest as the chairman of a small to medium-sized manufacturing company which has recently completed a substantial investment of the nature I have described--with, I must acknowledge, assistance from the Northern Ireland industrial development board. The investment has been completed. The company is working well and is now acknowledged to be world class. I have been through the accounts and, putting aside the financial assistance received, if we had been able to reduce corporation tax during the period of investment by using 100 per cent. capital allowances the effect on cash flow would have been equivalent to 20 per cent. financial assistance with capital expenditure. That illustrates perhaps what a powerful tool 100 per cent. capital allowances can be.

I was pleased to hear the paragraph on Northern Ireland at the end of the gracious Speech. It is everyone's hope that steady progress will be made towards real peace. I wish most sincerely to congratulate the Prime Minister on the way he has handled the Northern Ireland situation and the progress towards peace in recent months. If he and the Secretary of State continue in the same manner, with thought and care for the real interests of all the people in the Province, we shall all be more than grateful. There is general satisfaction. I am particularly pleased that the Prime Minister is to visit on 13th-14th December to chair an international investment conference. It is important that the money that is being offered from various sources is controlled and well directed. The Northern Ireland economy is ready to advance, and we all look forward to the projects that will come from that conference.

6.39 p.m.

Lord Haskel: My Lords, I, too, should like to welcome the maiden speech of the noble Lord, Lord Nickson. In what the noble Lord had to say, I recognised a kindred spirit. I, too, came to this House after a lifetime in manufacturing industry. I sympathise with a

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lot of what he said, and I believe he will agree with a lot of what I have to say. I should also like to welcome the maiden speech of my noble friend Lord Gladwin. I agree entirely with him on how we should deal with competition, especially as he was generous enough to quote words from my maiden speech. I hope that the Government will listen to what he has to say about employment, training and skills and have the good sense to act on it.

In the gracious Speech and in the Minister's opening remarks, there was reference to investment and competitiveness, improved working of the labour market, increased competition in the gas industry and steps to promote enterprise. I should like to look at those four aspects of industrial policy: investment and competitiveness; improved working of the labour market; competition; and enterprise.

Let me first look at investment. As a country, we are not yet paying our way. We shall achieve that only through growth. Both my noble friend Lord Eatwell and the noble Lord, Lord Nickson, explained that that growth must be in our manufacturing sector. The Minister reminded us that during the past year there was a review of competitiveness with a view to encouraging that growth. Where are the proposals from that review to help industry perform better? My noble friend Lord Eatwell reminded us that during last year we were also promised a review about short-termism in investment and the pressures on our companies to pay higher dividends than our competitors. Where is that important work? Perhaps the Minister can tell us.

What we are told is that there is economic recovery. But, as others have pointed out, investment is not recovery. We are all worried about why firms are not investing in response to recovery, especially as we have such a successful financial sector. After all, there is a limit to the amount of restructuring that industry can do. Mr. John Maples seems to have a point when he observes that what the Government are saying is completely at odds with the experience of Tory supporters. The truth is that what the Government are saying about the economy is at odds with everybody's experience.

The answer is that there is a new responsibility for government; namely, to work in partnership with the private sector. Public and private investment are needed to stimulate each other. The noble Lord, Lord Nickson, told us about that. An advanced economy such as ours cannot for long raise its underlying growth without vigorous public and private investment. Properly chosen investment in improving the skills and health of the workforce and the quality of the infrastructure produces high returns, often higher than those from private investment in land and buildings. That is the job of government.

The highest return is from investment in equipment and new technology. That is the job of the private sector. However, Treasury rules are used as an excuse for the Government not stepping in to maximise commitment in those areas which promote growth through a more active public policy. That is why today the Shadow Chancellor has proposed a public-private finance task

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force, which will go much further toward that objective than previously. He has also proposed a corporate tax review to encourage investment.

The factors determining growth are not beyond the influence of government. I found it a little odd and confusing that there was no mention in the gracious Speech of that very important aspect of our national competitiveness, broad-band communication, and then, a week later, a Command paper on that very topic was presented to Parliament. The noble Earl spoke of this matter with great enthusiasm and not a little perplexity. I hope that the Minister will give us an opportunity to debate this matter in your Lordships' House.

The second aspect is the improved working of the labour market. Again, the noble Earl the Minister spoke about it with great enthusiasm. Perhaps this will mark a U-turn and the Government will abandon the ridiculous notion that low wages and the opt-out from the social chapter are the main factors in our competitiveness. That has been disproved time and again in recent months. Only two weeks ago, the Engineering Employers' Federation reported in a survey that 43 per cent. of its respondents thought that the opt-out of the social chapter was entirely irrelevant in running their businesses. This month the Mackenzie Global Institute in Washington reported that it is government barriers to competition rather than labour market rigidities that explain why recent employment creation has been lower in the European Union than in the US and Japan.

I shall come to those government barriers to competition later. Meanwhile, I urge the Minister to note that the Mackenzie study says that, while many employers complained about inflexibility, the evidence showed that when companies were forced to react to changes in the market place they were able to overcome those barriers. I quote:

    "The transaction costs of hiring and firing play a relatively minor role compared to total labour costs".

That only adds to the argument that, if the Government wish to improve the working of the labour market, the way to do it is to educate and train the workforce so that those people become desirable and valued employees and not just a low skill, casualised workforce which is easily hired and fired. The opt-out of the social chapter only encourages such casualisation and protects those companies that are poorly managed, have low investment and rely on the state to top up low wages with benefits. The Government are still out of touch on this issue. In the real world, minimum standards and the social chapter contribute towards competitiveness. They are not obstacles.

I hope that improving the working of the labour market, mentioned in the gracious Speech, will not only incorporate the social chapter but will also apply to the entire labour market from shop floor to boardroom, and include the scandal of excessive executive pay and share options. Share options should be available to all employees under the worker share option schemes. In modern industrial Britain it is as important for employees at all levels to think and act like owners as it is for directors. That is how firms encourage innovation and build innovation into their businesses. In the end, that is how we shall compete.

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That brings me to my third point: competition. The Minister spoke of competition as the key to the Government's trade and industry policy. Yet the Government are split over the most important strategic factor to encourage that competition: a properly working single market within the European Union. Professor Hobsbawm recently observed that the organisations and people which have flourished during the past 20 years are those that operate effectively across international boundaries. Creating transnational bodies that have some form of democratic accountability is our biggest challenge. Sadly, there was nothing in the gracious Speech about that. Perhaps that is yet another example of the needs of the party opposite taking priority over the needs of the country.

Meanwhile, the Government take a relaxed attitude towards competition at home. Since 1988 the Government have admitted on several occasions that UK competition legislation requires substantial strengthening in order to combat price fixing and informal restrictive practices by employers. Successive Directors General of Fair Trading have publicly expressed the urgent need to increase their powers of investigation. In January 1994 the DTI and the Office of Fair Trading paper on deregulation of competition law admitted that the Government are conscious of the strong criticism levelled at them. It is strange that a government claiming to regard competition as the key to its trade and industry policy should have nothing specific about it in the gracious Speech. Perhaps the Minister can explain that.

The other side of the coin from competition is enterprise. In the gracious Speech we were told that the Government will continue to promote enterprise. The Minister said that he believes that enterprise should produce lower prices, better service, improved quality and more choice. I believe that also. But again Mr. John Maples points out that what the Government are saying is completely at odds with what their supporters experience. Their experience is that enterprise is something which is good for shareholders and managers but expensive for consumers.

The noble Lord says that privatisation reacts to what the consumers want. That is not our experience. Consumers of such important items as gas, water, electricity and probably now railways, have a completely different opinion. In those privatised and regulated industries it is the interests of shareholders and managers that come first, even before privatisation. Managers are persuaded by the prospect of higher salaries, higher pension contributions and the necessary share options to agree to privatisation in the first place. The assets are undervalued and sold cheaply at the expense of the consumer. The regulator is then obliged to ensure that for several years the management achieve or improve on the profit forecasts, cash flow figures and other promises made in the privatisation prospectus. In that way managers have an easy regime of relating their prices to the RPI, whereas in the real competitive world they would be faced with many other risks and pressures. That is why--again as Mr. John Maples said--privatisation has not been popular and small

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businessmen in particular feel let down. So much for the noble Earl's euphoria over privatisation and small businesses.

In those circumstances the customer can only look to the regulator because the Government have passed over to the regulators huge powers to make fundamental decisions on such matters as price, profitability and company structure--and that across a sector of our economy which represents 20 per cent. of our gross national product. Not even in the heady days of nationalisation was such commercial power vested in Government appointees. No wonder privatisation is not popular with consumers.

We all want industry to perform better. That is how we will create more jobs. In spite of what the Government say in relation to recovery, people still fear unemployment. They are sceptical because they do not have more money in their pockets. The perceptive Mr. Maples tells us that the reason is that real take-home pay is falling this year; it will fall again in 1995 and again in 1996. I hope that the Government will heed the arguments I put forward today. The mixture will be more effective and will encourage the growth necessary for our country to pay its way.

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