Previous Section Back to Table of Contents Lords Hansard Home Page

5.29 p.m.

Lord Peston: My Lords, the noble Lord, Lord Trefgarne, introduced this important debate in an interesting and effective way. Indeed, he was no help to me because most of what he said made perfectly good sense and I agreed with him, which does not make for much of a debate. Happily, he will soon know that there are at least one or two things with which I disagree with him and that, at least, might enable me to add a certain amount of life to what would otherwise be an extremely boring progression of, "Yes, he said that and I agree with him".

Certainly, all of us now agree about the importance of manufacturing and there is no argument there. There is no argument about the importance of small and medium-sized firms. In that regard one should not forget that every year large numbers of firms start up but, regretfully, within about three years most of them have gone. I was extremely interested in the intervention of the noble Lord, Lord Weatherill. He referred to an institutional arrangement which not only helped firms to start but to survive. I believe that he is aware, as all noble Lords are, that going into business as a small firm is highly risky. As I say, the odds are overwhelmingly that the firm will not be there for very long. It is very hard to start a surviving business. I believe that the noble Lord, Lord Skelmersdale, also pointed that out.

7 Dec 1994 : Column 961

In a way, of course, that is the basis of a free market economy. Essentially, entrepreneurship is risk taking. If it were a stone cold certainty it would not be entrepreneurship. Risks are taken and some firms survive and some do not. What is important is to create an environment in which it is easier to survive, particularly if one has products which consumers want. Again, we have to remind ourselves that the ultimate test is: are you producing goods and services which can meet the test of the market? Are you producing things which people want? I hope we all agree—I have said this several times—that firms do not exist for their own sake but in order ultimately to meet demand.

In that regard we have to ask ourselves this question: what is it that the small and medium-sized firm wants? Again, I believe that we all agree that what they want is a stable economic environment. They want an environment in which markets are growing, but what they do not particularly want is a highly fluctuating economy. Given that when this Government first came into power they intended to produce a serious change in economic policy-making, the puzzle is that the economy has fluctuated just as much under this Government as it ever did before. I say it is a puzzle because I thought that perhaps some of the things they were doing might lead to more stability, but they have not.

The manufacturing sector in particular has shown wild swings. Manufacturing output did fall between 1989 to 1992. It has only just risen, almost this very month, to its previous peak. That means that over the whole of the period there has been no growth, although over the longer period there has been growth. Manufacturing investment has not yet got back to its previous peak. We all agree about the importance of investment, as the noble Viscount, Lord Caldecote, emphasised. We have to ask: what is conducive to investment? My own judgment of what is most conducive to investment is that the market should be there when one has the new capital equipment. It is a commonplace to say that it takes time to get the new equipment in. What one does not want is to bring it in during the good times and to find that it is fully operational when the market has gone. That is why economic stability and growth are so tremendously important.

I said that I would introduce an occasional remark of a controversial kind. I certainly do not believe that what the Chancellor of the Exchequer did today in raising the bank rate is remotely of any help to small businesses. We may have a chance to discuss that, I am told, tomorrow, but since I may not be speaking tomorrow I must say that raising the bank rate today makes no economic sense to me whatever. I say to noble Lords opposite that it does not make any political sense to behave in such a panicky way either, but that is for them to reflect on.

I turn to the whole question of finance which other noble Lords have mentioned. I am with them all the way. What a small business wants is a helpful financial environment, but in particular it wants help on a rainy day. To offer a small business funds when times are good is not bad, but what it really wants is that when

7 Dec 1994 : Column 962

things are going wrong help will be available from the financial institutions, which we all agree are, for the most part, the banks. Help is wanted at that time. It does not seem to me that within recent years the banking system has been as helpful to business as it might have been and as I hope it will become again.

In fact, the noble Lord, Lord Trefgarne, said—and I nearly decided to agree with him on the point—that we should discuss this matter on another day. I am not sure when the next day is to be so I thought that I should at least mention the importance of financial arrangements and liquidity to small businesses. I agree with the point made by the noble Lord, Lord Ezra, about interest rates. There must be some loading of interest rates because small business is riskier than big business, but the difference does not seem to me to be justified by market forces. We should consider changed institutional arrangements that might help us.

I believe that there is no difference between us as regards education and vocational training. We simply have to do more, but what we do has to be more effective. One of the matters which concerns me is that there are far too many courses which are not very good. I am delighted that the noble Lord, Lord Trefgarne, has been appointed chairman of the engineering training board. I am sure he will ensure that from now on training is effective and produces the kind of people we want. I am not saying that if I were chairman I could not do the job better. That may well happen within the not too distant future.

There is another point as regards finance which we should bear in mind. The small businessman wants to engage in his business. He or she wants to make the goods or provide the services. Very often finance is not of great interest and the small businessman does not want to get involved. That is why such businesses need a sympathetic financial environment. That is why in the old days the bank manager was a help. He coaxed them along and would say, "Do it this way and it will work out, while you do what you know how to do". As I say, I believe that the problem today is that the sympathetic bank manager has gone. I cannot remember the last time I had an opportunity to see a bank manager. I see either a computer screen or a person who is clearly not a manager with any authority.

I found the contribution of the noble Earl, Lord Kintore, absolutely fascinating. I did not know that there was an international body concerned with bookkeepers, so I have learned something definite today. I have a very sophisticated computer package which I am supposed to use in order to manage my finances. But my experience is that you cannot beat the old box in which you put all the papers. It is the only system I have ever come across which does not fail. All the stuff is in the box and when the time comes you can work through it. I am as much a modernist in these areas as anybody and I am a great believer in optimal information flows, and all that. I keep a box and I always put every piece of paper in it. If any noble Lord wants to know how to run his finances my advice is, first, to get a box and, secondly, put every piece of paper in it and never throw anything away. That is the secret of first-class financial management.

7 Dec 1994 : Column 963

One topic which arose in the debate was our old friend deregulation. Of course one wants to create an environment in which small firms are not over-regulated so that they can get on with what they want to do. The noble Lord, Lord Trefgarne, made a point which is not exactly apposite. He referred to the plethora of directions from Brussels. As I pointed out several times during the passage of the deregulation Bill, we cannot do anything about Brussels. The Brussels directives cannot be overcome via the deregulation procedure. Noble Lords may not like it, but that, I am afraid, is the world in which we now live. The way to deal with directives from Brussels is to try to stop them at source before they get here, as we discussed at Question Time today in relation to buses. So we do not disagree on certain aspects of deregulation, but I do not think that we should be too optimistic.

Reference has been made to the social chapter and the minimum wage. The noble Lord, Lord Skelmersdale, mentioned the latter. I suppose that we just have to disagree on that. A minimum wage policy raises the average cost per employee, but it lowers the marginal cost of an employee. Putting on my old teaching hat, perhaps I may say that what matters is the marginal cost, not the average cost. If I had a blackboard I could demonstrate as part of elementary economic theory that a minimum wage may just as likely be employment-creating as employment-destroying. Therefore, one needs to look at the evidence. And looking at the evidence—without boasting I think that I can say that I have read all of it—the evidence does not tell us one way or the other. There are studies showing that a minimum wage can lose jobs and other studies, interestingly enough, showing that such a policy can create jobs. Therefore, I am a bit puzzled by the strength of some noble Lords' opposition to a minimum wage. To put it at its mildest, which is all that I want to do today, the point is arguable.

I am also puzzled by the attitude that is sometimes taken even now towards the social chapter. I refer particularly to the attitude of the Confederation of British Industry. I know that I shall offend one or two noble Lords by saying this, but I do not expect rationality and good sense from the Institute of Directors. However, although the CBI tends mostly to support the party of noble Lords opposite, it occasionally gives the impression that it is interested in serious argument. Therefore, I simply do not understand why the CBI fails to see that the social chapter is part of good industrial relations which, if appropriately applied, will raise productivity and lower costs.

I reiterate the main point, which we have argued before. There is no possibility of this country being able to compete with, say, the Pacific Rim countries on low wages. There is no way in which we can ever get our wages low enough to become competitive with such countries. Therefore, returning to a point on which we agree, we need high levels of skills, flexibility, worker co-operation and excellent management. I believe that the social chapter provides the economic environment for that. Old-fashioned distant management, which simply wants to give orders to a poorly paid, supine labour force, cannot deliver the hyper-efficiency that we

7 Dec 1994 : Column 964

need. Low wages are like devaluation; they are the easy way out for a management that cannot do its job properly. That is not what we want.

In conclusion, I am extremely pleased that at long last we are having a meeting of minds in this area. When I first became a Member of your Lordships' House, noble Lords opposite could see little or no role for government except perhaps to deal with inflation, and my noble friends and I seemed to be saying that every problem was to be solved by government intervention. As today's debate shows, we have now moved closer together. Noble Lords opposite now see a more positive role for government—they have said so today —and I hope that I have made it clear on this occasion and others that we recognise the limits of government intervention. That does not mean that we agree—I hasten to add, in case any of your Lordships end up in a state of shock—but it does mean that we can argue more constructively and rationally on economic and industrial subjects. I hope that we continue to do that.

Next Section Back to Table of Contents Lords Hansard Home Page