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9.10 p.m.

Lord Dahrendorf: My Lords, when the economic news is good, we have reason to be grateful to all who have played a part in making it so. Output is rising, unemployment is falling, inflation is low and stable, so let us be thankful to employees and employers, consumers and producers, the Bank of England and the Government. However, a time of good news is not one to sit back and say that all is well and the market will put right those things that are not.

In Russia, a bitter joke is told these days. Under socialism, people used to say, it took five people to replace a broken light bulb: one to get the new bulb from the store, one to fetch the ladder, one to hold it, one to climb up and actually change bulbs, and one to throw the old bulb into the rubbish. How many people does it take under capitalism? The answer is: none, because the market will do it all by itself. Well, it does not. That is why a time of good economic news is also one to introduce necessary reforms.

There are two issues above all which require action. One is to get people back to work. The gracious Speech mentions several measures to this end, and they are welcome. The workings of the labour market need to be improved and those who seek jobs need to be supported. In this regard a great deal can be done that does not require legislation. I shall mention three points. First, some jobs--perhaps many--will not carry wages which make them attractive to anyone. By themselves, they do not allow a decent standard of living. Subsidising employers does not help. Indeed, it may crowd out better-paid workers. At this point, I for one do not agree with the Snower-Layard proposals. Topping up the incomes of those who accept such employment makes more sense, or there may be an argument for introducing viable basic income guarantees through a negative income tax. The example of the tax credit system introduced by the Mexican Finance Minister, Dr. Pedro Aspe Armella, is worth examining.

Secondly, the quandary of many jobs left undone and at the same time many people--notably young people--looking for meaningful things to do, somehow has to be resolved. One way among others is a form of community service by all--a tax on people's time as it were--rather than on their earnings. We are fortunate in

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this country in being able to build on a strong voluntary tradition; indeed, public support for an extended voluntary service may well be the right way forward.

Thirdly, the hard core of those who have grown accustomed to living outside the labour market, but not outside the benefit system, poses special problems. I do not believe that these can be resolved by workfare; that is, by making benefits dependent on work. Perhaps the existing underclass problem cannot be resolved at all. It is all the more important to do everything in our power to prevent the recruitment of another generation to a condition of economic and social exclusion. This is where vocational training linked to jobs and thus at least to an initial experience of the labour market, is crucial.

The other issue of reform to which I wish to draw the attention of your Lordships' House may seem less immediate but is, if anything, more important. It is that of investment. Once again the market by itself, strong and beneficent though its invisible hand may be, will not do it. We need a massive shift from the distribution of the profits of our often highly competitive businesses to investment in the medium and long term if wealth is to be more than a bubble; if it is to create well-being rather than the brief excitement of GNP figures.

Shareholders are fine, although they have long ceased to be representative of the public at large. Aunt Agatha, alas, has given way to institutions which represent numerous interests of aunts, uncles and even of my own college, St. Anthony's. There is nothing wrong with these institutions, but their interests must not be the only driving force of investment decisions or their absence. I was very pleased to listen to the eminent maiden speech by the noble Lord, Lord Nickson, on this subject. Stakeholders are as important as shareholders, if not more important.

I have the pleasure of chairing a commission set up by my right honourable friend Mr. Paddy Ashdown which looks at "wealth creation and social cohesion in a free society". Its members include independent experts as well as some associated with parties on this side of your Lordships' House. Our common concern, which actually has little if anything to do with party, is that the shareholder economy has got to be turned into a stakeholder economy. Shareholders are most certainly also stakeholders; they have a legitimate interest in an adequate return. But there are those who cannot sell their stake as shareholders can--employees, suppliers, financial institutions and local communities. The key question is how we create attitudes which encourage investment in the interest of all stakeholders rather than the distribution of yields in the interests of just one group among them. New attitudes need a new institutional framework to support them.

For this is what a fundamental shift in our policy for the British economy should be about: to move from short-term pain or gain to sustained and sustainable wealth, from a shareholder to a stakeholder economy. To bring about the shift, some hard questions will have to be answered. What changes in the domestic practices of justly renowned financial institutions are needed? Is there a general problem of the relations between banks and business or is this an issue concerning the access of

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small and medium-sized companies to finance? Will the links do the trick? Are current structures of corporate governance adequate? How should company decisions reflect the interest of employees and of the broader community?

It would not be difficult to go on raising such questions, but the main point that I want to offer for consideration is simple. Important reforms take place when conditions are improving. It is a mistake to believe that people accept sustainable changes when they are standing with their backs to the wall. This is therefore a favourable time for changes in basic economic attitudes and policies. The theme of such changes has to be to convert often brilliant, short-term successes of companies, and of the economy generally, into a lasting pattern of wealth creation while at the same time paying attention to the strength of civil society and the commitment to liberty. With many others, I look forward to a future Queen's Speech which states such objectives and spells out some of the means to achieve them.

9.22 p.m.

Lord Cochrane of Cults: My Lords, as 22nd speaker on the fourth day of this debate it is somewhat intimidating for me, not a lawyer, an economist, a large-scale or, indeed, much of a manufacturer, to address your Lordships. I see that it is now 22 minutes past nine, and I shall attempt to be brief. In the gracious Speech many proposals and ideas were listed. It is disappointing, after so many years of successful and vital government by the Conservative Party, on whose Benches I am pleased to sit, to discover that the gracious Speech was described variously as "dull", "unadventurous", or even "worthless".

The noble Lord, Lord Richard, pleased me greatly with his choice of simile when he described the gracious Speech as all blue but sometimes mouldy. I shall attempt in due course to show him that all of it was blue and none of it was mouldy. I hope that I will not take up so much time that your Lordships will feel that I too have made a mouldy speech.

It is always difficult to follow an economist such as the noble Lord, Lord Dahrendorf. I listened with great pleasure to his excellent speech. He is right: we must improve investment and education to prevent the further creation of an underclass--something which, I think, when I was a young boy was always seen as having a ladder out of the slums. In many cases, through faults in the education system, we may have taken out a great many of the rungs in that ladder. That is something which should be addressed as a matter of the greatest importance.

I am glad that the noble Lord thinks that the private sector is an essential part of the fabric of society. He makes the valid point that stakeholders in it cannot always sell their stake, but I hope that under this Government, and in the future, they will not want to do so.

It is difficult to deal in any sense with all the subjects that have been raised. I teased my noble friend on the Front Bench and told him that if he wanted to finish his dinner I could go on for an hour but that I should be a

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bit pushed, and I hope that I will not have to. My noble friend for many years Lord Ferrers made a speech in which he painted a glowing picture of all the Government's successes and of all the good things which are to come. From my experience over a number of years in industry, agriculture and voluntary organisations, I think--in American terms--that he has delivered a True Bill, assuming that we are the Grand Jury, which I am sure we are.

My noble friend said that the Government must not interfere too much. They have created a privatisation revolution that has spread throughout much of the developed and less-developed world. For that our former and present Prime Ministers can take great credit. They have done a tremendous job.

Noble Lords may remember that I introduced the Bill with perhaps the most boring title for many years. I am glad to say that it is now an Act and that there is to be further gas market competition based on that Act and on the Bill soon to be presented.

My noble friend also said that deregulation is helpful particularly to small businesses because they do not have the management power to wrestle with the intricacies of complicated and sometimes seemingly absurd rules. He described them correctly--I know because I am a small businessman--as the engine room of the future.

I entirely agree with his remarks about the clearing banks attracting a great deal of suspicion. On one occasion, my bank manager telephoned me and said that he would like a further guarantee. I said, "I am terribly sorry. I have the most frightful attack of flu and I cannot give you a guarantee in the terms that you want without a board meeting". He asked sharply, "When is that?", and I said, "I haven't fixed a date yet. Who knows, I might die of flu before you have it!". The subject was dropped. One must be tough and in doing so one gains experience.

That is where the idea of Business Links, announced by my noble friend, can be most valuable. It will advise those who are setting up in business which card they can reasonably play against the opposition, whether it be local government, the planning department, the bank or anyone else. It may even be some environmental busybody. It is good to know that we have an outstanding record for exports and growth. It is the best in the EC.

Your Lordships will be pleased to know that, following the announcement about Railtrack, I have dumped a whole section of my speech dealing with the problems facing the railways. I am hoping for better times there, and I am sure that they are coming.

My noble friend remarked that the computer had the same effect on industry, and so forth, as did the arrival of the steam engine. Let us not forget that the steam engine supplanted the horse, wind and water power--or just not doing it at all.

I turn to communications. Perhaps by some ill fortune I and other noble Lords may at any moment be on the television screens in perhaps a couple of hundred houses and therefore we know the speed of communication. Indeed, the world has shrunk.

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I wish to comment on the marvellous maiden speech of my noble friend Lord Nickson. I agree that manufacturing is important and that Britain should not become the service area for the motorways of the world. I am sure that he will agree that valuable services can be supplied for the public and for their good. I intend to touch on one of those services. Some of your Lordships will know that for many years I have been engaged in the tourist industry. I must declare an interest in that a family company of which I have had the honour to be chairman for many years is engaged in the provision of holidays and holiday accommodation.

The tourism industry is probably the largest in the world. It employs an immense number of people, is very labour intensive and therefore should be welcomed as a valuable addition to the labour market. It also has a great advantage in that, unlike many industries, it provides happiness and enjoyment. That is what it is there for. If customers are not happy they do not come. The industry is extensive and covers all the civilised world. I understand that one can go on a package tour to the Antarctic, though I have not yet felt the urge to do so. However, it is also an industry subject to rapid change of fashion or interest and that causes considerable problems in the provision of capital.

In this country for many, many years we were net importers of tourism. That has now changed and we are paying out more from our balance of payments for people to go to the Costa this, that or the other, than comes in from people who wish to go to splendid resorts such as the place where I live, St. Andrews, or to London, Stratford, York or Aberystwyth. With long distance travel by air, that tendency will continue. The Channel Tunnel, which has just opened, makes cross-Channel trips even more attractive, particularly as you can apparently fill a transit van with beer provided you say that you are going to drink it yourself.

The UK is a wonderful country. We have had stable government for many years. We have many historic ruins. The country is compact. It is not very far to travel from anywhere to anywhere unless you are on the M.25. It is orderly, you are not particularly likely to be mugged, murdered or poisoned. Our tourist industry makes a great effort to present what is available in a good style.

It is perhaps as well to remember that in less developed countries if extremists want to overthrow the government, the first thing they do is start to shoot the tourists. I read today in The Times that Egypt has decided to increase its budget to encourage foreign tourists by no less than 14 times--not twice, or four times, but 14 times. I have a particular interest in that country because my mother is buried in Cairo and I have always wanted to go there, but have never had the opportunity.

We must attract more tourists. They can be either indigenous or foreign. I believe that the Government are slightly mistaken in attempting to promote almost exclusively the idea of attracting tourists from foreign countries, preferably the high spending Japanese, Americans or South Americans. Who knows? But it is typical of the EC that something like 80 per cent. of all tourists within the EC visit only their own countries.

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That percentage has been slowly declining in this country due to the attractions of foreign package holidays.

I am sorry to say to my noble friend that that is partly due to the fact that the Government neglect the home market in allocating expenditure; that is, money to be spent by the tourist boards.

Another extremely important factor is that in this country VAT is payable at the rate of 17.5 per cent. on almost any holiday which you chose to take. If you go abroad for a comparable holiday with no travel included--if you rent the premises; for example, a gite in France--the rate is 5.5 or 6 per cent.; that is, one third. In this country we are charging a VAT rate which is three times higher. We must remember that the individual is the ultimate payer of VAT. Businesses can usually reclaim it.

Another factor is that the calculation of VAT on package tours, according to information which I have from an extremely trustworthy and good source, is charged, in effect, only on the profit element of overheads. Overheads can usually be reckoned to be one-third. One reads in the newspapers about major package tour companies making a pound, thirty bob or, on a good day, two quid on each individual holiday. Well, 17.5 per cent. of two quid is 35p. If someone comes to my caravan park--and I tend to charge them about 11 quid a night for a touring caravan--I am sure that anyone can work out 17.5 per cent. of 11 quid. I shall not attempt to do so at this hour of the night, but I should point out that it is a great deal more than 35 pence.

Again, my noble friend spoke in impassioned or, perhaps I should say, eloquent terms, of the importance of a level playing field. But the effect of the high-rated VAT is to impose the equivalent of a very large tariff or barrier to trade on the indigenous holiday industry. If we want to improve employment and investment prospects in that industry, in which I have been happy to work for many years, then, in accordance with my noble friend's announced policy, I hope that he will see his way to levelling the playing field--or, perhaps, in order to avoid the cliche, I should say ensuring that everyone plays fair.

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