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Lord Barnett: My Lords, before the noble Lord, Lord Tugendhat, goes, I should tell him that I propose to disagree with bankers both present and past. However, I start by saying that I shall not quote the deputy chairman of the Conservative Party, if that is any help to your Lordships. What I propose to do is to disagree with just about everyone else in your Lordships' House who has spoken today.
I thought it would have been nice if the debate had begun with the noble Earl, Lord Ferrers, admitting that just occasionally something had not been quite right in the 1980s, as the noble Lord, Lord Skidelsky, was willing to agree. Indeed it is always a pleasure to follow him because whether or not one agrees with him--I certainly did not agree with everything he said--he makes a serious and important speech, as he did today.
I am sorry that the noble Earl put every aspect of our country's success today down to increased competitiveness which came out of privatisation. That is what he seemed to be saying. I am bound to say that that is somewhat of an exaggeration, to put it mildly. For my part I am prepared to admit that the previous Labour Government did occasionally get it wrong and that I as Chief Secretary to the Treasury from 1974 to 1979--that seems years ago and it is, it is 15 years ago--did occasionally get some matters wrong as regards the economy. But one cannot just gloss over the past 15 years and say that privatisation has dealt with everything and everything will be all right now.
At least the noble Lord, Lord Tugendhat, conceded, as did my noble friend Lord Eatwell, that we owe much of our present success to what used to be called Black Wednesday and the devaluation. It should, of course, be called Wonderful Wednesday. I personally accept that none of what has happened now would have been possible without that devaluation. But I can agree with the Chancellor and with the noble Earl that the outlook we have now, depending on how we use it from here on, is the best we have seen for years. We have high growth, low inflation, falling unemployment--however, I will discuss briefly later how it is not falling anything like fast enough--rising exports and rising investment, and interest rates are at the lowest they have been for many years. It is what the Chancellor called his dream scenario. I see the noble Minister agrees with that.
Lord Barnett: My Lords, he called it a dream scenario. He hoped it was a dream scenario. I take it from that that everything in the garden is lovely, when of course that is far from being the case. Despite the fall in unemployment, which I very much welcome, unemployment is still around 2½ million. No one could welcome an economy where there are 2½ million unemployed. Even then the statistics, to put it mildly, are misleading because the figures are almost certainly higher. That is especially true for the statistics as regards men. That is very sad. The highest level of unemployment arises among men. One cannot just give them lectures about how they should take account of the general economic situation and the fact that it may always be like that, and that they should take part-time jobs, more training and the rest, and all will be all right for them and their families. Frankly, if I were unemployed, I should feel a little upset at being lectured in that way.
However, let me refer to other statistics on unemployment and the "feelbad" factor which clearly stems from the lack of security in employment. I do not think there can be much doubt about that. I would say to the noble Baroness, Lady O'Cathain, that economists
I now turn to investment, which is a crucial area. Although it is growing, as the Chancellor of the Exchequer and the noble Lord, Lord Skidelsky, have pointed out, I think he would accept it is still far too low to enable us to sustain the level of growth which we desperately need if we are to reduce that high level of unemployment. There are figures which indicate that many companies are looking for pay-back periods of as little as two to three years on capital investment. I am sure the noble Lord, Lord Skidelsky, has seen that. If they are waiting for two to three years for pay-back, it is not surprising that they cannot see a return and therefore they do not invest. I find that very sad indeed. It is therefore not just the quantity of investment that we are not getting, but also the quality of investment. That requires, as has been said by many speakers in your Lordships' House, and as was mentioned in an excellent maiden speech by my noble friend Lord Gladwin, investment in skills, training and education. That is vital if we are to obtain the kind of real capital investment we need and, what is more, to deal with the actual shrinkage of our manufacturing base compared with that of many of our leading competitors abroad.
Then, I am bound to ask, as many on the Opposition Benches would ask, what would a Labour government do to deal with these huge problems as well as dealing with the resources that are desperately needed for the National Health Service and social services? Some answers to these points were given yesterday by my good friend the Shadow Chancellor. However, it is no use saying that all those resources will come from higher growth and from dealing with tax avoidance. We shall not obtain much from higher growth in the early years, even if we get the higher growth. Indeed we shall not get it ever unless we are prepared to face up to the consequences of what will happen when we try to achieve that higher level of growth.
As regards stopping tax avoidance, all I can say is that I wish my right honourable friend luck. However, I am bound to tell him that my experience is that those who avoid tax and their advisers are likely to be more fleet of foot than the Shadow Chancellor, or even the Inland Revenue. Therefore, although he will obtain some extra tax, it will be nothing like enough to meet the demands on resources that he will have to face, especially if we are to deal with the huge problem of unemployment.
I am sorry that the noble Lord, Lord Kingsdown, is not in the Chamber. He referred to the cyclical, structural and natural levels of unemployment. If I were one of those unemployed, I would not care very much whether I was structural, cyclical or natural; I would just be very unhappy about being unemployed. I would want to know what was being done about it. For a former Governor of the Bank of England to tell someone that his unemployment is cyclical, structural or natural will not help him very much.
I know, of course, why the Shadow Chancellor talks of tax avoidance rather than what is really needed, tax increases. He is understandably concerned about a repeat of the accusations made during the last general election of "tax and spend". I know that he will be able to throw back in the face of the present Chancellor and Government the fact that, no matter how much tax they cut in 1995 and 1996, the tax increases will still have been higher than those tax cuts, especially if the Chancellor aims for a balanced Budget--or nearly a balanced Budget, as the noble Lord, Lord Skidelsky, put it.
Some of the tax increases which we have seen in the past 15 years, and particularly in the past few years, have been described as taxation by stealth. The way that has been done has been very clever indeed. It has hardly been noticed. No government in history has managed such taxation by stealth. The noble Lord, Lord Jenkins, did not manage it, in his clever way. Mortgage tax relief has been cut; personal allowances have been cut by reducing the amount of tax allowed on those allowances; even tax on dividends has effectively been cut for the higher paid. All that has been achieved by sleight of hand, almost without being seen. There have been all those tax increases, not to mention the VAT which we were told we were not going to have.
If I were going to be Chancellor I would rather accept the challenge of saying how I would finance a Labour programme than win power and then do nothing with it. We must look for radical solutions, and I hope that the Shadow Chancellor will do so in due course.
First, there is the question of growth to pay for the many demands on resources to which I have referred. We already see the constraints, with growth at 3.5 per cent. or nearly 4 per cent. The constraints are clear, and are due to the productive capacity in this country. If he goes for higher levels of growth--and the Shadow Chancellor cannot increase those overnight because he will not be able to increase the productive capacity--he will need higher investment. However, the benefits of that higher investment will take time to come through. In any event, how does one persuade manufacturing companies to invest when they are not doing so now? That is a crucial question. He can, and in my view should, do that by means of some tax incentives, but that will also take time.
The Shadow Chancellor should invest directly in the public sector, I hope in partnership with the private sector. That must be a sensible way to move forward. The noble Lord, Lord Nickson, in his excellent maiden speech, made something of that point. But even that will take time to come to fruition.
A Shadow Chancellor can invest directly in training and education, and I hope that he will. Again, to some extent, he can do that by incentives to the private sector. But once again, all of that will take time.
Therefore, in the early years, when there will be a desperate need for more resources, what is he to do? There are two ways in which he can help immediately and directly. Instead of raising tax by stealth, as the present Chancellor has done, he can say openly and honestly that he will increase tax to some extent in order to finance the extra resources he will have to find if he
Those two measures, together with other incentives to which I want to refer briefly, are vital if we are to have a hope of dealing with the terrible levels of unemployment. They remain terrible, at 2.5 million, although I welcome what has been done so far.
What else can we do? The Chancellor's own six wise men have made recommendations. It is worth mentioning what they said. A significant caucus of them said that the main requirement for a lasting reduction in unemployment is a period of moderate and balanced growth. The Chancellor will no doubt claim that he has achieved that. However, all six of them favour changes that would reduce the cost to employers of taking on people on low wages. Policy options include a negative income tax, subsidies to low-paid employment and welfare benefits to provide a basic income guarantee. I do not necessarily agree with all of those recommendations, but the point made by the noble Lord, Lord Skidelsky, was a good one, and I hope that it will be taken up by the Chancellor next week. I certainly hope that it would be taken up by a Labour Government.
The Chancellor said last week that he will not merely follow United States interest rates upwards. I hope that that is true, but I will believe it when I do not see it. We have seen what has been happening in the past few days, and I would be surprised if he did not follow them.
I want to say to Eddie George, the Governor of the Bank of England, and to my right honourable friend the Shadow Chancellor that if we are not to embark on that old cycle it is crucial that we take the power out of the hands of the Governor of the Bank of England. At the moment we have, effectively, an independent central bank. The power has been given to the Governor of the Bank of England effectively, because, if the Chancellor does not agree with him and it becomes publicly known that he does not agree with him, that would be disastrous. Therefore, we have effectively, an independent central bank, whose sole concern is inflation.
Inflation is crucial, but there are also other, wider issues with which a Labour Government would have to concern itself. The most important of all is that of unemployment. That must be at the top of the list. The Labour Chancellor will not be able to do much about it if he simply follows the present policy. Indeed, neither will the present Government.
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