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Lord Haskel: My Lords, the Minister has just told us that work on this code started from a report emanating from your Lordships' House four years ago. I is the Minister satisfied with the rate of progress?

Lord Lucas: My Lords, yes.

Business of the House: Recess Dates

2.57 p.m.

Lord Strathclyde: My Lords, it may be for the convenience of the House to know that, subject to the progress of business, the House will rise for the Christmas Recess on Wednesday 20th December and return on Tuesday 9th January. The House will sit at the usual time of 2.30 p.m. on Wednesday 20th December. It may also be helpful, although somewhat unusual, to announce the dates for the Easter Recess. I am therefore in a position to announce that, again subject to the progress of business, the House will rise for the Easter Recess on Wednesday 3rd April and return in the week beginning Monday 15th April.

Finally, at a convenient moment after 3.30 p.m., my noble friend Lady Chalker of Wallasey will, with the leave of the House, repeat a Statement that is to be made in another place on the former Yugoslavia.

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Lord Graham of Edmonton: My Lords, in giving us advance dates, I wonder whether the Government Chief Whip would care to give us the date of the general election.

Road Traffic (Amendment) Bill [H.L.]

The Earl of Kinnoull: My Lords, I beg to introduce a Bill to provide for the prohibition of the use on roads of motor vehicles fitted with bullbars. I beg to move that this Bill be now read a first time.

Moved, That the Bill be now read a first time.-- (The Earl of Kinnoull.)

On Question, Bill read a first time, and to be printed.

House of Lords Offices: Select Committee

The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the first Motion standing in my name on the Order Paper.

Moved, That the Select Committee on the House of Lords Offices be appointed and that as proposed by the Committee of Selection the following Lords together with the Chairman of Committees be named of the Committee:

V. Allenby of Megiddo,
L. Bruce of Donington,
V. Cranborne (L. Privy Seal),
V. Falkland,
E. Ferrers,
E. Gowrie,
L. Graham of Edmonton,
B. Hamwee,
L. Harris of Greenwich,
L. Hayhoe,
L. Jenkins of Hillhead,
L. Kimball,
L. Lane of Horsell,
L. Mackay of Clashfern (Lord Chancellor),
L. McIntosh of Haringey,
E. Northesk,
V. Oxfuird,
L. Peston,
L. Renfrew of Kaimsthorn,
L. Richard,
B. Serota,
V. Slim,
Bp. Southwark,
L. Stewartby,
L. Strathclyde,
L. Taylor of Blackburn,
L. Tordoff,
B. Turner of Camden,
L. Weatherill.--(The Chairman of Committees.)

On Question, Motion agreed to.

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Liaison: Select Committee

The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.

Moved, That a Select Committee be appointed to advise the House on the resources required for Select Committee work and to allocate resources between Select Committees; to review the Select Committee work of the House; to consider requests for ad hoc committees and report to the House with recommendations; to ensure effective co-ordination between the two Houses; and to consider the availability of Lords to serve on committees;

That as proposed by the Committee of Selection the following Lords together with the Chairman of Committees be named of the Committee:

L. Allen of Abbeydale,
L. Belstead,
V. Cranborne (L. Privy Seal),
L. Dormand of Easington,
E. Jellicoe,
L. Jenkins of Hillhead,
L. Richard,
L. Weatherill.

That the Committee have leave to report from time to time.

That the Committee have power to appoint specialist advisers.--(The Chairman of Committees.)

On Question, Motion agreed to.

Address in Reply to Her Majesty's Most Gracious Speech

3 p.m.

Debate resumed on the Motion moved on Wednesday last by Lord Denham--namely, That an humble Address be presented to Her Majesty as follows:--

    "Most Gracious Sovereign--We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, I am delighted to have the opportunity to open this last day of our debate on the gracious Speech, focusing as it does on industrial and economic affairs. I note from the list of those who intend to speak the degree of importance that is attached to this matter in your Lordships' House.

Our view is that the most important contribution that the Government can make to wealth creation, on which everything depends, is to provide low inflation and sound public finances. They are objectives that are simply stated but in recent decades have only temporarily been achieved. Permanent low inflation is the best way of encouraging the kind of long-term investment that will secure our future.

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We have made markets work more efficiently and brought market disciplines to bear on areas of the economy which had previously been sheltered from them. We have privatised 48 major industries, transferring nearly 1 million people from the public to the private sector, increasing efficiency and improving services to the consumer. Some surprising countries around the world in surprising numbers are now following our lead.

We have further improved value for money in the public sector by market testing and contracting out. We have introduced private-sector skills and expertise by means of the private finance initiative.

We have reduced the main rate of corporation tax from 52 per cent. to 33 per cent., the lowest rate among the major industrial countries. Total taxes on business are lower in the UK than in any other G7 country apart from Canada. The overall tax burden in the UK is lower than in most European economies.

We have cut business free from the tangle of red tape. We have identified over 1,000 regulations for repeal or amendment. It is our aim to put one deregulation order before Parliament every week that it is sitting.

We have reformed the labour market, reducing the powers of trade unions and giving managers back the right to manage. As a result, it is internationally recognised that we now have one of the most flexible labour markets in Europe.

Our educational reforms have raised standards. This is particularly important in a world where success or failure is increasingly dependent on skills and knowledge.

These are vital changes which have had a fundamental effect on the framework within which business operates. From reading our own press, that might not be obvious, but any perusal in the most superficial fashion of the German press will indicate how clearly that achievement is recognised there. Government do not seek to direct but believe that they have an important role to play in helping business to help itself by sponsorship and partnership.

Sponsorship is not about "picking winners". It is not about bailing out failure. It is certainly not about directing business according to some bureaucratic master plan. It is certainly not about protectionism and barriers to trade. Sponsorship is about government working in partnership with individual industries, promoting them, encouraging them to improve their performance to that of the world's best and ensuring that the Government's own activities do not damage those industries.

The DTI, the department in which I am a Minister, has set up sponsor divisions with secondees from the private sector to help understand how business operates and the challenges it faces. I and my colleagues work closely with individual industries encouraging them to improve their performance. We may not direct them but from time to time there is certainly cause to chivvy them to ensure that they match the world's best. We have taken car component makers to Japan. We have worked with the toolmaking industry to encourage firms to benchmark themselves against the best in the world.

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Ministers, excluding myself, have worked with the private sector to enhance the impact of London Fashion Week. We have published an in-depth analysis of the insurance industry. I have highlighted just three of the very many practical initiatives which we have introduced to help British business improve its performance.

A further good example of how we have helped to allow our firms to compete successfully is the way in which we have continued to work towards securing agreement to liberalising telecommunications throughout the European Union. We expect full liberalisation by 1st January 1998. This is a great achievement and is in no small part due to the UK's ability to demonstrate the many benefits to both consumers and industry of freeing up markets and exposing once monolithic state monopolies to competition. The benefits are beyond dispute. Since privatisation, BT's prices have fallen by over 35 per cent. in real terms and UK telephone prices are among the lowest in Europe. Over 90 per cent. of consumers now have a choice of operator and telephone ownership has risen to 90 per cent. from 72 per cent. in 1980.

Liberalising markets and allowing consumers and the economy as a whole to benefit from freer trade is something to which I personally attach a great deal of importance. It is essential that we maintain the momentum towards freer markets. We are working to ensure that the Uruguay GATT Round agreements are properly implemented and that negotiations continue on trade in services. The gracious Speech reinforces our continuing commitment to the long-term goal of free trade and to working for closer links with our transatlantic partners to achieve this. We are helping by identifying and breaking down barriers to trade, by maintaining the pressure for market opening world-wide and at the same time by working for an effective single market within Europe. We are tackling unfair trade practices and over-regulation not just in Europe but in all our major markets.

There is, however, another side to my department's international work. As was indicated in the gracious Speech, we shall be bringing forward legislation to implement the Chemical Weapons Convention which seeks to impose a verifiable ban on an entire class of weapons of mass destruction. This is an important measure and is one for which many noble Lords have expressed their firm support. The Bill will enable the United Kingdom to ratify the convention which promises to rid the world of chemical weapons.

Perhaps one of the most astonishing statistics that persists is that as a major trading nation we export more per head than the US or Japan. Our exports are at record levels and last year manufactured exports grew by 14 per cent., the fastest rate of growth for over 20 years. Since 1981 our manufactured exports have grown faster than in France, Germany and Japan. So far this year our exports to Singapore are up over 60 per cent., to Japan by 25 per cent. and to Hong Kong by 30 per cent. But we can, and must, do better. Less than 3 per cent. of our

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3.5 million or so firms are currently exporters. We aim to see an extra 30,000 British companies join their ranks by the end of the century.

Because we do not direct does not mean that we are standing back and are wholly detached. We provide a wide range of services to help our companies win in world markets. Our top 80 markets all have dedicated staff and we have seconded over 100 high-calibre business people from the private sector to act as export promoters. Noble Lords with recent export experience will doubtless be aware of the quality of those export promoters whom we have brought in.

Both my department and the Foreign and Commonwealth Office have taken steps recently to enhance the information and support services on offer to British business. In England, firms are able to gain easy access to the whole range of government and private sector support available through the Business Links scheme. They will soon also be able to make use of the 70 export development counsellors who are being recruited from the private sector to provide strategic advice to companies seeking to grow through exports. In Scotland and in Wales we are developing similar networks through Scottish Business Shops and Business Connect Wales.

Small and medium-sized enterprises represent a significant proportion of our economy. That is a share that has risen steadily over the last 20 years. In today's increasingly diversified economy, 97 per cent. of firms employ fewer than 20 people. In turn, they account for over one-third of total private sector employment. The great importance that the Government attach to this vital sector was illustrated by the appointment of a new team of small firms Ministers across every Whitehall department. The Government are committed to helping small firms with the management potential and business potential to grow. That commitment to small firms was underlined further in Her Majesty's gracious Speech.

The Business Link network plays a pivotal role in providing help and advice for small firms. By October of this year over 150,000 businesses throughout England were using Business Links. We have also invited representative bodies to organise a series of conferences to involve small businesses more directly in generating future policies. The series of conferences was launched by the Prime Minister in September.

The most recent of those conferences took place last week in Belfast. Had any of your Lordships wanted to attend that conference, it must be a matter of some gratification that you would not have found yourselves travelling alone across the Irish Sea. Last year saw an increase in the number of visitors to the region of 309,000 which is up more than two-thirds on the year earlier. This year visitor figures look set to break all records. More than 1 million people have travelled to Northern Ireland already. The renaissance of this valued region of the UK is in no small part due to the Prime Minister's efforts to secure a lasting peace. But it is also due to the people and businesses of Northern Ireland who are grasping the opportunity of peace with both hands. Between the first and second quarter of this year,

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manufacturing output in Northern Ireland jumped by over 7 per cent. while unemployment has fallen by nearly 10 per cent. in the year to September.

The competitiveness White Papers are more than just a showcase for government policy. They also represent the first official audit of the UK's competitive position. They have shown the enormous task that we face in improving our performance.

They show that we have lost ground to other major economies over the best part of a century, and in particular since 1945. The UK fell from third in real income per head in Europe in 1950 to tenth in 1979. In 1950 our productivity in manufacturing was on average more than 10 per cent higher than that of Germany and more than twice that of Japan; but by 1979, German productivity was 50 per cent. higher than ours, and Japanese productivity one-third higher. Our share of world trade in goods halved over the same period. We lost 13 million days a year through strikes in the 1970s. Our inflation rate averaged 13 per cent.

The 1994 White Paper reported many major improvements in our competitive position in the 1980s, which this year's White Paper showed had continued into the present decade. The 1980s was the first post-war decade in which output, investment and manufacturing productivity grew faster in the UK than in either France or Germany. In the 1960s and 1970s the UK had the slowest economic growth in the G7 and the EU. We closed three-quarters of the manufacturing productivity gap with Germany and France.

Although much of that is encouraging, we should not lose sight of the key message. We intend to publish a further competitiveness White Paper next year.

We are well into our fourth year of recovery. We have grown significantly faster than the G7 average for the past two years and we are expected, along with Germany, to be ahead of the pack again next year.

Unemployment has fallen by over 700,000 since the end of 1992 and by over 250,000 in the past year alone. Last month's fall in inflation was the largest October fall for 50 years. Underlying inflation has been below 4 per cent. for three years. No government Minister has been able to say that for more than three decades. We are now seeing the kind of investment we need to ensure that this recovery is sustained. Over the past year, manufacturing investment as a whole has risen by over 12 per cent. and manufacturing investment in plant and machinery has risen by over 18 per cent. I have taken some time to spell out those figures because they are not always noted. Indeed, they may be uncomfortably valuable.

The benefits of this turnaround in our economic fortunes are evident for all to see. The OECD--an organisation not generally known for its open line in flattery--recently described our economic performance as "impressive". But, as I am sure many noble Lords will agree, actions speak louder than words, particularly when jobs and livelihoods are concerned. The surge of inward investment that has accompanied our economic reforms is testament to our success in making Britain an attractive location for business. Since 1979, the Invest in Britain Bureau has recorded over 4,000 inward

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investment projects, creating or safeguarding no fewer than 700,000 jobs. Inward investment also brings world-class management techniques and has helped to improve the performance of domestic firms.

We continue to receive the lion's share of US and Japanese inward investment in Europe. The area for which I am responsible, the North East of England, has claimed its fair share. If the House will permit it, I should like to give just one example of the kind of investment that has helped rejuvenate Tyneside. In August, Siemens announced what will be the biggest single high-tech investment ever made in Britain, a new £1 billion semiconductor plant in north Tyneside, creating 1,800 new jobs and consolidating the UK's position as the semiconductor capital of Europe.

Of course, many different factors combined to attract Siemens to north Tyneside rather than remaining in Germany, or going to Austria, Portugal or Eire. The skilled, flexible labour force, good industrial relations, low rates of corporate taxation, to which I have referred, and the financial expertise of the City were all important factors. But one of the most important factors in that investment decision was the excellence of the UK's science base. A central part of the bid was the assurance of a steady supply of suitably qualified graduates. As such, Newcastle University was an integral part of the project team.

Our strength in science is a huge national asset, drawing in investment such as that which I indicated from around the world. Our ability to compete in world markets depends increasingly on producing world-beating, high technology, high value-added goods and services. There is clear evidence that UK firms are recognising the importance of innovation to business success. Last year, £9.5 billion worth of R&D was performed by UK business enterprises with over 70 per cent. being funded by businesses themselves. This is encouragingly a 3 per cent. increase in real terms over the previous year.

That emphasis on improved connections between firms and the science and engineering base will help us to achieve and maintain competitiveness in world markets. In the highly competitive and technologically intensive world in which our firms have to compete, it is essential that companies are fully able to understand, access, and apply scientific and technological advances. Frankly, if they do not do so, they will fall behind their competitors, and we shall all suffer. To be able to do so effectively and speedily they need good connections to expertise and skills in the science and engineering base.

My right honourable friend the President of the Board of Trade has made it clear that he attaches a particular importance to enhancing the link between industry, science and government. The transfer of the Office of Science and Technology to the DTI will, we believe, greatly aid that process. We are working hard to stimulate the dialogue and to improve the climate for business innovation, promoting best practice in business management and in the use of technology; and supporting the development and application of new technology through collaborative R&D programmes. In

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addition, the DTI focuses help on small and medium-sized firms through the schemes known under their acronyms of SMART and SPUR.

A competitive economy is vital to our future prosperity. I have outlined just some of the many ways in which the Government are providing real support to British industry.

We have not shirked from taking the difficult--and sometimes unpopular--decisions which have been necessary to achieve an improvement in our long-term performance. Our commitment to low inflation and sound public finances, together with our supply-side reforms, have created an overall economic climate in which business can invest for the future with confidence.

Ultimately our success depends on the ability of our businesses to identify new ways of meeting the needs of future markets, and to exploit them successfully. The Government's role is to help them turn opportunities into new products, new orders and new jobs. Following on what was contained within the gracious Speech, we shall continue to pursue that role with vigour.

3.22 p.m.

Lord Peston: My Lords, most of my contribution in addressing the House today will deal with competitiveness, which is mentioned three times in the gracious Speech. I shall also have some remarks to make on full employment and on fairness in the distribution of income. To make my view on general economics as clear as I can, perhaps I may offer your Lordships a quotation from Keynes which dates back to 1929. Noble Lords will recall that, throughout his life, Keynes was a Liberal and certainly not Labour, as the ignorant sometimes assert. His concern was to save free market capitalism from itself. On the subject of unemployment he said:

    "The Conservative"--
and I emphasise that that is with a capital "C"--

    "belief that there is some law of nature which prevents them from being employed"--
that is, the unemployed from being employed--

    "that it is 'rash' to employ men, and that it is financially 'sound' to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable ... the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years ...To bring up the bogey of inflation as an objection to capital expenditure at the present time is like warning a patient who is wasting away from consumption of the dangers of excessive corpulence".

Those who say that we need a new Keynes for the present day are mistaken. The old Keynes tells us all we need to know. Indeed, listening to the leaders of the financial community today, it is apparent that they have learnt nothing from 70 years of economic history. They are as mistaken, and as damaging, in the mid-1990s as they were in the mid-1920s. In that connection, I must note the Government's fear of referring to full employment. They refer to rising employment, but that is not the same thing at all.

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I believe that it would be useful if I, too, summarise British macro-economic experience since 1979. I agree that this is not the final summary of Conservative economic performance--that must wait until next year--but it will do for today. Average unemployment has been 9.4 per cent. in the period of this Government. It has fluctuated between 4.6 per cent. and 11.5 per cent. Total man years of unemployment--or perhaps I should say personal years of unemployment--from 1980 to 1995 have amounted to 38 million. That contrasts with a mere 16 million from 1950 to 1979 (double the period).

Gross domestic product has grown at an average rate of 2 per cent. per annum. I concede that that is certainly better than the previous five years, but it is not as good as 1964 to 1979 when the figure was 2.5 per cent., or 1951 to 1964 when it was 3 per cent. I hope that I do not have to remind noble Lords opposite who was in power from 1951 to 1964. Inflation has averaged 6.5 per cent., fluctuating between just over 2 per cent. and over 19 per cent. That, too, is better than the previous few years; but not very different from the average of 6.7 per cent. from 1949 to 1979.

The balance of payments on current account has fluctuated from a surplus of 3 per cent. of GDP to a deficit of 5 per cent. The cumulative deficit, which is so important, was actually £73 billion, which is to be compared with a cumulative surplus of some £3 billion in the whole of the previous 30 years which did not have the benefit of North Sea oil. The government budget has fluctuated from a surplus of 1 per cent. of GDP to a deficit of 9 per cent. Again, the cumulative deficit of this Government is £214 billion, all of which has to be repaid unless it is to place a permanent interest burden on the taxpayer.

Short-term interest rates have fluctuated between 5 per cent. and over 15 per cent. and long rates between 8 per cent. and 15 per cent. What is most interesting is the fact that the total tax take has varied between 42 per cent. of GDP and 50 per cent., and public expenditure between 45 per cent. and 53 per cent. I agree that the precise ratio depends on which measure of GDP one prefers. But, politics apart, no one could accuse this Government of being the party of low taxation; no one could accuse the Government of being the party of low public expenditure. The problem has been who has borne the burden of taxation, and the extent to which public expenditure has been wasted.

If we were discussing a school report, I suggest that our comment would be the traditional one; namely, "... is making progress, but needs to work harder and more systematically to do better". Unfortunately for the Government--and to continue the metaphor--they are now about to leave school, or to be expelled, leaving someone else to repair the damage. That can be said despite the one really considerable achievement, which is the improvement in manufacturing productivity to which the noble and learned Lord referred.

There has been a pronounced change in output per person and output per person hour in manufacturing. It looks as if we are catching up with some of our competitors, although my experience of research in the area tells me that we should be a little cautious about

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jumping to conclusions on the matter. We would like the improvement in manufacturing to show up much more in total output and total employment, rather than largely in the shedding of labour. We would also like to see a greater lead taken by British-owned firms. But it would be churlish of me on party grounds to begrudge the achievement that is there, especially as it looks, as the noble and learned Lord said, as if it has been accompanied, up to this year at least, with an end to the fall in our share of world trade.

Economists recognise that it is not just the level of GDP that matters in the aggregate. We must also look at how it is distributed between different groups--between the rich and the poor. The question of how much inequality is needed to provide appropriate incentives for a market economy is as old as economics itself and is not solved even today. However, most students of the subject agree that the mixed economy requires some economic incentives, but that sufficient fairness in the distribution of income is compatible with that and should still be able to salve most of our social consciences. I hasten to add that I am not so naive as to believe that debate over a fair distribution of income is over, or ever will be. I merely insist that the topic is one which can be discussed reasonably by reasonable people.

What economists do agree on is that we should look at income distribution, in part at least, in lifetime terms. Some of the relatively poor today may, or will, be richer tomorrow. That is true of young people in education and training as they start their careers. It is also true of people in high risk professions such as the arts. Sometimes we do not wish to recognise that some who are poor today were rich yesterday and consciously took decisions which led to that outcome. One of the problems we all have to face in discussing pension provision, for example, is whether, in favouring a state pension to guarantee that poverty will be alleviated in old age--that is certainly my view--we also wish the state to limit the freedom of choice of those who wish to have no more than that for their old age. In other words, having provided a fair minimum, how far should we protect the profligate from themselves? It is not often I say this--as noble Lords are aware--but that is one question I am not certain how to answer.

Wearing my libertarian hat, I feel people should be free to choose and should bear the consequences of their actions. Wearing my interventionist hat, and especially noting how myopic people are in preparing for the future, I think perhaps the state must have a greater role. We are interested in the long run performance of the economy because that is the ultimate determinant of our economic welfare and therefore an important part of our welfare in general. What we all agree is that productivity is what determines GDP and GDP per capita in the long term. The key to improvements in productivity is technical progress. The more technically accomplished we are and the more technically advanced is our capital equipment, the higher will be our output. If we raise the rate of technical progress, we can raise our growth rate. Surely we must agree that some of that is market driven, based on the profit motive. However, some is the responsibility of the public sector to improve the

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infrastructure, for example, within which markets work. Some of that derives from basic science and engineering which is not market driven at all. Some technical progress is generated within our country but some involves catching up with the best technology used abroad.

The important point is the existence of advanced technology does not imply its use. The technology has to be incorporated in new capital equipment and that is why a high rate of investment--which we do not have--is conducive to technological progress. We have here one of the clues to the connection between the short run and the long run. Short run policies which raise interest rates, real and nominal, make investment less attractive. The knowledge that policy is devoted exclusively to dealing with inflation and will be used in a restrictive way to dampen down a boom, adds to market risk and is inimical to decisions which show their return over long periods of time. While I agree that short-termism is endemic in the business community and is not easily eradicated, I believe it is the responsibility of government not to add to it.

The possibility of excellent use of equipment does not imply that it will actually happen. Technology is the key but it has to be used. Performance depends above all on management. In my judgment, the explanation of our inferior economic performance in the past is the poor quality of too much of our management at all levels in too many of our firms. This also leads to the conclusion that economic performance depends on the quality of the labour force; on the so-called human capital which is embedded within it. There is ample evidence of the positive return from education and training, certainly from the kind of education and training which is of high quality. I am happy to note that the Government accepted that in the gracious Speech which stated:

    "Increased competitiveness will be encouraged by raising educational and skill levels, advancing knowledge".

There is no point in improving a person's skills if he then finds there are no jobs for him. That is where we have gone wrong in recent years. An idle school leaver or university graduate, no matter how well qualified, contributes nothing to the economy. A person in a job which requires less than his or her full skill, but which he or she takes faute de mieux, again contributes less than his or her full potential to the economy. Those are just two more reasons why the restoration of full employment must be put back at the top of the policy agenda. Incidentally, I do not go to the other extreme and argue that all qualifications are economically productive, or ought to be. There is more to civilised life than producing goods and services as ordinarily defined. Nonetheless, there can be no doubt that the qualified worker is more productive than the unqualified, and the day of the unskilled labourer is largely over.

All this leads me to the theme of competition from low wage economies. This fear goes back to the earliest days of economics. It was what lay behind mercantilism, the destruction of the intellectual basis for which was one of the most important contributions of The Wealth of Nations. In essence the debate was all about protection and free trade. Adam Smith won the battle for free trade, but the war has continued for 200 years

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since then and shows no sign of abating. Smith not only put the case overwhelmingly for free trade, demonstrating its advantages to Great Britain, but he also took a dim view, to say the least, of those who argued for low wages. I shall quote him, as I have before. He stated:

    "Our merchants and master-manufacturers complain much of the bad effects of high wages in raising price, and thereby lessening the sale of their goods at both home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people".

I might add, as some noble Lords may have been led to believe the contrary, that Adam Smith, the great prophet of free enterprise, suffered no illusions about businessmen. He disliked their lack of dedication to their social responsibilities and distrusted their ethics. One more quotation will suffice:

    "The government of an exclusive company of merchants is, perhaps, the worst of all governments of a country".

While my mind is on great economists, let me mention David Ricardo who, at the beginning of the 19th century, set out a theoretically rigorous foundation for international trade. Curiously, it was on that basis that economists discovered certain special cases in which free trade could be disadvantageous, but they were simply that--special cases. In broad terms--I think here the Minister and I agree--it is correct to say that the consumers of this country are net beneficiaries of free trade, and will continue to be so. I deplore the rise of protectionism, especially in the United States recently, in contrast to the leadership which it has given in this area for most of the post-war period.

It must not be forgotten that the consequence of technical progress is to make potential output higher than it otherwise would be. Everyone can be made better off. If the market mechanism operates so that some people are worse off--because they cannot or will not acquire new skills or move to new jobs, for example--the government tax and expenditure mechanism can be used to offset that. Thus, in my judgment and that of most economists, there are grounds for optimism in stressing the benefits of technical advance and free trade as long as micro-economic and macro-economic policy are adjusted correctly. I go further: technological advance and free trade go together. Our standard of living depends on our productivity and on our specialising in forms of activity in which we have a comparative advantage. We must make and export what we are relatively best at, and import what else we want.

However, what must be understood--this is where we differ so strongly from the Government--is that this has nothing to do with nominal wages. Lowering wages does not raise productivity; indeed, it may do the opposite. It will only make us competitive in the nominal sense of offsetting the effects of an incorrect exchange rate. In the gracious Speech the Government assert that,

    "They will promote flexible labour markets and reduced social costs as the best means to improve the competitiveness of the European economy and create a climate for job creation".

That is about as mistaken and misleading a piece of economics as I have come across for some time.

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Of course, relative to our productivity, the more our nominal wages rise compared with our competitors, the more we must devalue the currency if we are to maintain competitiveness. That is the story of the past 15 years. Such devaluation has been amply demonstrated by the Government. But what really matters is our productivity. The logic of causality therefore is better put in this way. Given our wages and our exchange rate, the more productive we must be if we wish to remain competitive and maintain our standard of living.

Just like the perennial panic of technological unemployment, the problem of foreign competition has been with us throughout our history. It is worth emphasising that we have always solved it. Despite the scare of foreign competition and the pessimism that demands are satiated and there will be no more new jobs, we have managed for the most part to maintain high levels of employment. We maintained actual full employment from 1945 to 1979. Over the long run we have managed to employ more people than ever before and to increase our standard of living.

To leave politics altogether, I see nothing to lead to the conclusion that such a scenario is no longer possible, provided that we are sensible. One may feel that that proviso--provided we are sensible--gives the game away, but I do not. I am convinced that, despite occasional aberrations, policy makers can be persuaded to act rationally. I repeat that I welcome technical progress and foreign competition no less than I did in the past.

Competition is like a treadmill. There are always new entrants to a market with new and better products. But we must accept change at all times. To refer to my earlier example, the developing countries will compete with cheap labour, eliminating the demand for unqualified labour here. But the response to that is to go in for knowledge-intensive production, not least in manufacturing, based on the latest research and development and using highly qualified labour. I agree with the noble and learned Lord on that. The structure of production will change. There is no need for permanent unemployment or, in my judgment, job sharing, early retirement, or whatever the latest gimmick put forward by the ignorant happens to be.

I am not a defeatist like those who say that the only solution is lower wages and that we must accept large-scale unemployment. I am convinced that we can compete on technology and by improving the quality of the labour force. Far from needing to lower the living standards of our people as a solution to the problem, the reverse is true in that our history shows how we can solve our problems and raise everybody's standard of living.

However, we still need a managerial revolution to convince managers that they can succeed. After all these years we still need an entrepreneurial revolution to raise the propensity to invest and innovate. We still need a training revolution, but above all we must return to a policy of maintaining aggregate demand to restore and then ensure the continuation of full employment.

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3.40 p.m.

Lord Jenkins of Hillhead: My Lords, we have had, as is habitual, a wide-ranging and long week of debate erected on the somewhat narrow foundation of a not very exciting Queen's Speech. But although the gracious Speech itself was not very memorable, there have undoubtedly been one or two memorable speeches in the course of the debate, including some maiden speeches. I recall in particular the maiden speech of the noble Earl, Lord Sandwich, and the lecture, if I may call it such--normally your Lordships do not like lectures, but on this occasion the lecture was delivered with such authority, knowledge and pungency that it was wholly acceptable--of the noble Lord, Lord Healey, in our foreign affairs debate at the end of last week.

If I may make at least one other agreeable remark, I have been much struck recently by how well, on the whole, the Government case is now presented from the Front Bench opposite. In my view, it is incomparably better done than it was when I first came to your Lordships' House seven or eight years ago. Then, the withdrawal of the noble Viscount, Lord Whitelaw, left a big void which it took some time to begin to fill. As the House would not expect me to be too flattering, perhaps I may say that the improved presentation is the more impressive as the case itself has become steadily worse. If I may be greatly daring in the absence of the noble Lord, Lord Williams of Elvel, and use a cricketing metaphor, some of the most impressive innings are those which occur on a bad wicket in fading light on a cold Tuesday afternoon at Northampton in the course of a match which is being lost. I regard the performance of the noble Viscount, Lord Cranborne, as being in that category. Nevertheless, I congratulate him and his adjutants on their buoyancy in adversity and their skill in making the best of a bad job.

I also think that the Government case is presented better in your Lordships' House than it is in the House of Commons. Indeed, I consider that your Lordships' House is performing much better overall than is the other place. The contrast between our respective handling of the difficult issue of Members' interests could hardly be sharper. It is therefore ironic that we must await, with such fortitude as we can muster, Commons' plans for our reform. Of course, we must always remember that we are logically indefensible. But it is nevertheless the case that in the vital process of restoring confidence between public and Parliament it is the Commons who are seen as the essence of the problem rather than the agents of its solution.

I turn to the prospects for the Session. First, I wonder how much harm our incorrigible Home Secretary, who is up before the courts even more often than the most hardened of his professional criminal clients, will do this Session. I hope that before he does it he will study the devastating speech which the noble and learned Lord, Lord Ackner, made on Monday of this week.

Secondly, I wonder how far the Chancellor will resist the pressures to follow the pre-election primrose paths of even such distinguished statesmen as Lord Butler, Mr. Maudling and the noble Lord, Lord Barber. Indeed, the noble Lord, Lord Lawson, also showed himself

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faithful to the tradition of Tory improvidence, but he at least did it after and not before an election and so could claim greater purity of motive if not probity of result.

To return to the present, I said in the debate last year that I thought that the 1995 Budget rather than the 1994 Budget would be the test of the Chancellor's ability to resist temptation and show at least some respect for the medium-term needs of the economy rather than short-term politics. I adhere to that view, although it did not then fully occur to me that we would this year find ourselves in a climate where competitive promises of tax cuts now, in the future and for ever more have become the dominating feature of politicians' politics. I say politicians' politics because I doubt very much whether the general public find any of those promises and counter promises either edifying or convincing. As one of our must urgent needs is to restore the confidence and respect of citizens in their government this Dutch auction takes us damagingly in the other and wrong direction. I find that at once distasteful and faintly ludicrous. It is difficult enough in practice for a Chancellor to strike a good balance between the competing claims of prudent finance, the provision of adequate public services which are essential to any civilised society and the avoidance of penal or unfair taxation when he is sitting with his advisers, with all the up-to-date facts available and, preferably, the next election several horizons away. To suggest that judgments and promises, made for unforeseen circumstances and under heavy electoral pressure, are worth more than the paper they are written on is to strain credulity.

I wish that the Official Opposition would not get dragged in to that squalid competition. They will regret it. The reputation of Mr. Brown and others will suffer as a result. The hope that a new government might establish a new relationship of trust with the public will be diminished. Nor do I think that it is necessary. I believe that Mr. Blair's repugnance for premature triumphalism was a good thing, almost a sign of grace. But that can go too far and become a debilitating lack of confidence, an obsessive nervousness about losing votes. Nervousness produces unsteady hands, and unsteady hands do not perform neat operations.

My presumptuous advice to the Opposition is to calm down and keep their nerve as well as their radicalism. My presumptuous advice to the Government is to enjoy their twilight without resentment. After a 17 hour day--17 years in Government--they ought to welcome a little repose.

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