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Lord Vinson: My Lords, I am just about to reach that point. I am trying to illustrate precisely what would happen if the very measures that have been advocated on the noble Lord's side of the House were introduced.
As a final throw--this is one of the many true facts--Mr. Jones decides to let out his spare bedroom and take in a lodger, but within a week the fire officer calls and tells him that his furniture does not comply with the 1990s fire regulations. Whilst it is allowable for use by guests, it is illegal for lodgers. That is happening today. Mr. Jones is worried sick. His basic business has suffered deeply and he can hardly sleep at night. He goes bankrupt. It is almost with joyous relief that he goes to register for unemployment benefit only to be told that as a self-employed person he is not entitled to it. That is happening today.
One month later after rigorous assessment he is allowed to go on social security. Miraculously he is entitled to housing benefit and income support totalling £200 a week. That is substantially more than he and his wife had been struggling on for the past six months. Our entrepreneur, killed off by the complexities of state regulation, embraces the state for ultimate survival. These things are happening, can happen and will happen. This is a salutary tale, part fabricated but part true.
Lord Vinson: My Lords, noble Lords may laugh but that is precisely the consequence of the type of legislation that those on the opposite side of the House wish to introduce. It is the consequence of minimum wage legislation and the consequence of removing--as they have said they intend to remove--the ceiling on the exemption for small businesses under the disability Act. This will impinge on the very sources of job creation, and that is why it is so important to discuss the proposals. I realise that perhaps I am like a mole talking to the eagles who only discuss higher things, but this illustrates how the economy of this country actually operates.
All I can say is thank God for the guts of the small businessman, who, despite the EC and other regulations, is responsible for the growth sector of the economy. But his position is very fragile. Few realise how important the small business sector is. Most large firms are down-sizing. New employment is coming mainly from small firms, and most firms are small firms. If their failure rate could be reduced by 50,000 a year, within a decade we would have created hundreds of thousands of new jobs without a penny of government subsidy.
It is worth repeating that the vast majority of businesses are, by any definition, small, and firms employing fewer than nine people make up 94 per cent. of all businesses in this country. Small firms employ over 10 million people--well over half the total of non-government employment--and the figure is rising. That is why this matter is so desperately important.
There are two primary causes of unemployment in the United Kingdom today. One is over-regulation, and the other is the excessive taxation of labour, thereby raising its cost. If one raises the price of anything people use less of it. Any socialist government would exacerbate both maladies.
Unemployment is to some degree a national self-inflicted wound. Here, society has made formal what should essentially be less formal--the process of buying and selling one's labour. In so doing we have frustrated the natural workings of the exchange of labour and thereby the creation of jobs. We should learn from the workings of the informal economy, which is only black because society deems it so.
One also needs to look, by contrast, to France and Spain, with unemployment levels in excess of 11 per cent. and 22 per cent. respectively, to see what happens to small businesses and the creation of jobs in an over-regulated economy. I remind the noble Lord, Lord Barnett, whose speech I much admired, that in fact employment growth in continental Europe in the past decade has been in the public sector. There has been virtually no overall new employment created in the private sector at all. That is what so many of those on the opposite Benches, unknowing of the consequences, seek to achieve. They do not do so deliberately, but they should remember the cautionary tale of Gulliver's Travels:
The road to the dole queue is paved with good intentions. The price of excessive job protection is job destruction. It is for that reason that the Government are to be supported and applauded for their policies aimed to create flexible labour markets and a less regulated economy to the overall benefit of the nation.
Viscount Caldecote: My Lords, in opening the debate my noble and learned friend Lord Fraser gave a faithful and encouraging report of the achievements of this Government in the economic field. However, he recognised, as we all do, that much more needs to be done.
I also enjoyed the speech of the noble Lord, Lord Bruce. It was all good Donington humour. Of course, he was pulling our legs because he knows as well as we do that there have been enormous achievements and improvements since 1979. I share his diagnosis of inadequate investment, but I wholeheartedly reject his prescription of a return to nationalisation. I fear that that is not "new Labour" and he may be in trouble with Mr. Blair.
The gracious Speech contains several references to promoting economic growth and increasing employment through reduced taxes, low inflation and many other good objectives. However, I very much regret that there is no reference to the importance of investment to meet identified market needs for that is the basis for achieving all the good intentions mentioned elsewhere in the gracious Speech.
Low inflation is also a necessary condition to stimulate enterprise and investment. Lower interest rates are also highly desirable because they lower the hurdle rate of return when investment decisions are being made and so encourage investment. As other noble Lords have pointed out, we have had low inflation for some time but investment still lags behind our competitors. That is important because the analysis of OECD figures shows a clear relationship between GDP growth and investment as a proportion of GDP. We are way down at the bottom of the league.
As a result of inadequate investment, every time growth accelerates inflationary pressures increase because demand from the rising amount of money in circulation outstrips our ability to supply goods and services in the UK for that money to buy. Although our productivity has improved markedly over the past 10 years, import penetration--imports expressed as a percentage of the total home and export demand--is still very high. It is between 30 per cent. and 70 per cent. in many important industries. That means that there is still a huge home market demand unsatisfied by domestic manufacture.
Why do we import so much of our requirements? The main factor is the lack of competitive products through failure to invest adequately in product innovation. We are all too prone to talk only of investment in capital. Investment in product development and innovation is at least equally important, and in many cases more important, if we are to satisfy more of the needs of the home market, provide more jobs and improve our balance of payments.
The time to invest in plant and equipment and in product development and, equally important, in training is during times of recession in order to be ready for the next upturn in demand. If one invests only when the going is good one is only ready to use the new plant when recession returns. In too many industries investment is as badly timed as it is inadequate. Successful companies surmount those difficulties, but there are too few, and we urgently need greater incentives to counter-cyclical investment.
I hope that the Budget will make a start in addressing those problems and that the Chancellor will at least give greater first-year capital allowances for investment in plant and equipment. I do not follow the noble Lord, Lord Haskel, in wishing those to be for one year only. That simply distorts the market and may even encourage unsatisfactory and wasteful investment. I hope that they will be permanent and will gradually increase to 100 per cent. That would be a valuable incentive to profitable companies, but more needs to be done for companies recovering from the recession and those striving to enter new markets.
Two arguments are often used to downgrade the importance of achieving a positive balance in our overseas trade. First, any deficit can readily be balanced by capital flows. Surely that is simply one way of selling the family silver to pay for current overspending and must be damaging to the economy in the long run. Secondly, it is said that inward investment, which we have been very successful in attracting, is an entirely satisfactory way of balancing the books. In the short term, that is true, but I do not believe that we want to see more and more of British industry owned overseas, with the profits going overseas. Nor does that contribute to national pride and confidence.
This question is also posed. If foreign companies find investment here so attractive, why are British investors so reluctant to make similar investments even when the expertise is available in this country? I believe that the answer is the old bogy of short-termism which we have still to tackle and beat.
Higher investment within the UK is the key to economic prosperity, more jobs, sustainable development, and our ability to provide full support to education, the arts, health, overseas aid, child care, housing and all the other things for which we should like to make better provision but cannot now afford. We must not let short term advantages or narrow dogmatism stand in the way of greater investment.
Lord Monkswell: My Lords, I wish to say a few words about the illusion and reality of industrial performance and economic affairs and to speak about the visibility that we need to ensure through Parliament.
I had thought that this would be what might be described as a two-sided debate, with the speakers on this side of the Chamber speaking about the realities of life and those on the other side speaking about their illusion which is the figment of the Tory Government's propaganda machine. I am immensely relieved to have just listened to an important speech from the noble Viscount, Lord Caldecote. He threw some light from the other side of this Chamber on this important subject.
I was interested to hear some of the contributions in the debate. The speech by my noble friend Lord Bruce of Donington was one of the most stirring performances that we have heard in this House for a long time. It almost moved me to start singing "The red flag", but perhaps that is not necessary given that we have such glorious red Benches in this House. I was a little concerned about the contribution by the noble Lord, Lord Wade of Chorlton. He highlighted the situation regarding the development of Dumplington Circle. He pointed out that that development had been held up for several years, and that it would provide a good number of jobs. However, he did not tell the House that the development of Dumplington Circle in the way that he described would have caused immense loss of jobs in the centre of the conurbation of Manchester and created a number of environmental problems, apart from tearing the heart out of the city. That was the other side of the equation. It is interesting that even Government Ministers now appreciate the problems of massive out of town shopping developments.
The noble Lord, Lord Skidelsky, spoke of the fast growing economies of the Pacific Rim countries. He pointed out that their public expenditure was a lesser proportion of gross domestic product than that of this country. He suggested that that was a reason for their fast economic growth. I watched a television programme recently on Singapore--as we are told, the jewel in the Pacific Rim crown, if one may put it that way. However, while the share of the gross domestic product consumed by public expenditure directly may be fairly small, there are two factors in the equation. The first involves the direction of their economy through the housing market. On the one hand it demands high standards of housing but also requires rent commensurate with the development. That is effectively forced upon the population. The second involves the very high savings demanded by the Government of their population. Although the Government do not actually spend the money generated in the economy, they direct how that money will be spent or saved. To highlight one element of the economic affairs of the country is not necessarily the right way to make sensible comparisons and judgments between different national economies.
I had hesitated to become involved in that argument. Perhaps I am safe because neither of the two protagonists in the economists' battle which raged earlier in the House are present. I am not an economist. It struck me that it might be useful to give the House a couple of examples of how the way in which the Government run the economy works in an anti-social way. In considering tax cuts--the noble Viscount, Lord Caldecote, referred to them as giving rise to profligate consumption--perhaps I may cite an example. A young man in the City earns a great deal of money. He is not heavily taxed. What does he do with his
I give another example from my own experience. BT rang recently saying, "Because you are a high user of phone services, we are prepared to give you a discount on your bill". I said, "Hold on a moment. If you are going to give me a discount, you will still want your corporate profits to be as high as they have been historically since privatisation. So what will happen?" They could not quite answer that, and I suggested that what would happen in practice is that the charges for those people who use their phones less often would increase. It is a natural balance. If the charges for frequent phone users go down, the prices for infrequent phone users must go up. Who uses phones infrequently? It tends to be people on low incomes, pensioners living on the state pension.
I found the idea that my family and I, who are comparatively well off, should pay less and pensioners who have seen an erosion of their state pensions should pay more rather anti-social. I refused to be involved in that scheme, but how many other people did not make that connection and accepted the discount?
We need to recognise that sometimes the systems and procedures, the ways of working that we set up which are allowed to go ahead in our society, create anti-social effects. Some people have talked about privatisation as being the panacea. It is interesting to see the effect of nationalisation. One of its key effects was to ensure an investment in modernisation in those industries. Unfortunately, we can see that, for example, the privatisation of the water industry has not led to higher investment but to high dividends to shareholders and high pay for directors of those industries.
I had not planned to speak for as long as this, but perhaps I may touch finally on what I would describe as "parliamentary visibility". I admit that my contribution so far has been partisan, but now I hope that I speak not as a Member of these Benches but as a Member of the House. In the gracious Speech there is the sentence:
It has not been easy to find out what that legislation is about. There is no reference to it at the Printed Paper Office. It raises a problem because there have been attempts by the Front Benches, the usual channels, to take business off the Floor of the House. I understand it because no one likes late night sittings. The pressure of business on the House makes it sensible to suggest that we take business off the Floor. We did so last year with the Children (Scotland) Bill. A number of procedural problems arose and I suggest that there is also a political problem in the way in which the Leader of the House suggested that we might tackle Scottish legislation that started in this House this year.
I wish to say a few words on procedural problems. First, when the Committee stages were listed in the Minutes of Proceedings and the Notice of Business, they were listed at the back of the document. Those of us who tend not to take a great deal of interest in Select Committee affairs but take an interest in business on the Floor of the House tend to look at the beginning of the document to find out what is going on. That business was not listed in the early part of the minutes, so it was not easy to find out when the Committee was sitting.
The other problem is with reporting procedures. The Children (Scotland) Bill was recorded by Hansard but the proceedings were not printed in the daily report of Hansard. Thus those people who would normally obtain the daily record to find out what had been said the previous day in the House did not have the opportunity of reading those debates. I hope that if we have similar procedures in the future, Hansard could ensure that the daily record includes all the business of the House.
Finally, I wish to say a quick word about the suggestion that a Scottish Bill which starts in this House might be taken in a committee in Scotland. One of the difficulties with that is that, to enable everyone to be involved, it would have to be a Committee of the Whole House. Bearing in mind that proceedings would take place some distance away from the House, it would be logical to have the meeting on a day when the House was not sitting. I know that I have trespassed in terms of time. I apologise to the House for that and conclude my remarks.
Baroness Rawlings: My Lords, this is the last evening on which we are debating the gracious Speech with which Her Majesty opened the present Session. I rise with some trepidation, having heard so many powerful speeches on economic affairs and several impressive maiden speeches. As this is approximately the 107th speech, I shall try to be brief.
I would like to concentrate on just one short sentence in the gracious Speech that was not mentioned by any of the noble Lords who spoke in reply on the first day, but which was spoken to by several noble Lords today. I hate to challenge the noble Lord, Lord Richard, who is such an experienced and witty politician. Unfortunately, he is not here but I cannot let his critical questions on the gracious Speech of our Government pass unchallenged. I quote:
The implications of digital technology may soon change the face of broadcasting in this country. It is estimated that we shall have at least 18 television channels with the potential of covering a range from 60 per cent. to 90 per cent. of the UK population. This is the future, the 21st century where the influence on our lives will be through the digital system and no longer the wavelengths as we know them in the analogue form.
I spent three weeks in East Anglia fighting the 1970 general election. It was impossible to receive the national popular radio station. However, some of your Lordships may remember that Radio Caroline was beaming loud and clear illegally off the coast. It fully supported the Conservative Party because we had in our manifesto that we would legalise the independent radio stations. I was convinced that we could win the Ipswich seat where I was helping, with my noble friend Lord Belstead. We did so by 13 votes. I tell this story to illustrate the power and influence that the information transmitted on those wavelengths had on the people in the area during that election campaign.
The new digital system is the great new future and a world away from when, in 1979, I fought to save the BBC World Service from cuts of £4 million on its £40 million budget. One reason why this was so vital was that we were about to attend the WARC world conference for the re-allocation of wavelengths. It was vital that we kept our share of the pie, as in those days the Soviets were pitching to get extra wavelengths via Africa which was under-allocated and could ill-afford them. That is in the past.
My noble friend Lord Carrington was Foreign Secretary at the time. Instead of having the budget cut, he succeeded in having extra money allocated. The BBC World Service now has a budget of £179 million. Considering all the wonderful work that it does and the enormous respect that it has all over the world, that is not extravagant. I hope that it is not in for any cuts this year.
We should not forget that the new digital system covers the wireless as well as television. With digital audio broadcasting (DAB) there will be room for at least 12 national services. That will obviously affect the present regulations, as they were based on the concept of "rare resource" within the radio spectrum. The advent of satellite and cable has dramatically changed all that in the past few years. The potential of digital will remove this "rare resource" situation. This is an area where fair legislation will be of great importance, as will a stable climate for our successful stations to continue to develop and serve the public.
Now we have a Conservative Government tackling an even greater and far more complicated advancement. We all welcome the commitment to reform the current media ownership rules. We have in Britain a media
Across Europe, there is a patchwork of different restrictions. The single market has not succeeded here in this complex web of restrictions and regulations. In Spain, no one can own more than 25 per cent. of a television company. In France, no one can own more than 49 per cent. of a terrestrial channel. In Germany, the media are regulated by 15 regional state authorities. Yet in Italy, apparently, you can own two entire commercial channels. Denmark requires a majority of board members of private television companies to live in the area of the licence. In Belgium, at least 51 per cent. of the capital of a Flemish commercial TV licence must be owned by the publishers of Flemish language print media. Imagine the complications if we had similar laws here!
As a result, the European market prevents Europe-based companies from establishing the size necessary to compete with their US counterparts. In the US, where the same cross-media laws apply from New York to San Francisco, a media company can grow to a significant size, enabling it to be in an extra strong position to compete world-wide while taking only a small share of the total market.
The goal for policy makers should not necessarily be harmonisation across Europe. It is the global market that we should aim at, through progressive liberalisation both in Britain and throughout the European Union. Restrictions should hopefully be removed and replaced with the appropriate machinery of competition law, as was mentioned by my noble friend and learned Lord Fraser of Carmyllie.
I was delighted that my noble friend Lord Inglewood did so well at the Culture Council meeting in Brussels on Monday. He was fighting and protecting our interests on several matters; but especially relevant here is the Television Without Frontiers directive from 1989 that caused us so many problems. The Minister secured an agreement that there should be no strengthening of the current Articles 4 and 5 on quotas and that a contact committee should be established, along with a review after five years. These are sensible developments.
I am sure that the aim of the Government's new White Paper will be to help broadcasting expand, not to harm it; to strengthen it, not to weaken it; to reward it, not to punish it; to encourage it, not to threaten it; to stimulate it, not to censor it.
Finally, today's world, despite the fall of communism, is still full of turmoil and instability, with many worldwide social and economic problems. As well as the challenge of the new emerging superpowers, combined with relentless pressure on the Atlantic Alliance, the broadcasting media possess the most powerful voice in the world. They have a responsibility to uphold and protect the public interest. But what do we mean by "the public interest"--rightly mentioned by the noble Lord, Lord Donoughue? Some say that the public interest is merely what interests the public. I disagree. To me the public interest means an inescapable duty to make that voice ring with intelligence and leadership.
In relatively few years this exciting industry has grown from a novelty into an instrument of overwhelming impact on people world-wide. Ours has been called the jet age, the atomic age, the space age. It is also the broadcasting age, with its digital future. International television is expanding so fast: today we accept easily that we receive live on our screens Pavarotti singing at a gala in New York, coverage of the dreadful war in Bosnia, or the funeral of Prime Minister Rabin in Israel. Our world has shrunk. Just as history will decide whether the leaders of today's world employed the atom to destroy the world, or to rebuild it for mankind's benefit, so will history decide whether today's broadcasters employed their powerful voice to enrich the people or to debase them.
The power of instantaneous sight and sound is without precedent in mankind's history. It is an awesome power. It has limitless capabilities for good--and for evil. And it carries awesome responsibilities. Many noble Lords will remember President Kennedy's stirring inaugural address, in which he said:
Viscount Chelmsford: My Lords, we have heard a number of references today to wealth creation, to the need to improve the country's balance of payments, and to the fact that only 3½ per cent. of UK firms are exporters. Clearly, we need to increase our living standards at this time--a time when fierce global competition will otherwise ensure that such standards fall. I wish to focus briefly on just one of the many opportunities that are available now to commerce, industry and government. I refer to the modern use of electronic networks.
Parts of our market in the UK have already successfully adopted the techniques that I am flagging. So my message is anything but revolutionary. I personally carried out my first pilot project as far back as 1973, seeking cost reductions between my own company and a leading US client. By altering simple tasks, such as who had to enter the information, when it must be entered and how long the other party had to disagree with it, we were able to cut mismatches in our respective accounts ledgers within some eight weeks, from 25 per cent. to a ½ per cent. The ensuing cost reduction that arose from that was permanent.
Electronic networks speed process between customer and supplier. Because they require users to operate in a standard way, they also bring discipline to such process. Modern technology offers two great cost-cutting and efficiency producing benefits for those who embrace it properly. The first is one that most companies have already experienced. Information technology allows them to enter once information which, when I started in the 1950s, had to be manually copied into several
There was a period in the 1970s when my own company grew its profits over eight years from £8 million to £23 million, with a head count that grew by only three people overall. What were we doing? We were dropping jobs due to primary benefits from information technology and adding jobs due to growth. The two cancelled each other out. That is a marvellous position to be in, if you can do it. Yet the message is so poorly advertised that some businesses still refuse to have computers. I personally know a local GP who will not have one anywhere around his surgery. I am not getting at GPs. Happily, I know many GPs who use computers to improve their own and their patients' interests.
I now want to focus on the secondary benefits which come from the use of market networks. We all know how productive the major retail stores have become through clever use of electronic networks between themselves and their suppliers. Most of us know how bar codes on items of food both add up the cost as the shopper goes through the cash desk and advise the store on the levels of reserves available in the shop.
That ability to know the level of stocks led to two massive culture changes. First, there was the idea that stores could safely hold much less in reserve when they knew their stock levels with accuracy. Later, there was the second culture change with the determination that keeping stock levels well maintained would become the suppliers' business and not their own. The now famous just-in-time philosophy evolved to improve profits and only to improve profits.
I used that well-known example to show that networking with those with whom one trades produces a second set of benefits. Those benefits arise from the mindset change, the culture change which arises once trading by electronic network begins. Many changes are possible. It is not just the just-in-time type changes. For example, white goods manufacturers, or some of them, became so demoralised a few years ago about the inefficiency in their high street agents that they paid for and handed over to a third party organiser an electronic networking system which has since reduced waiting time for repairs, improved warranty processing and helped the shops themselves to achieve efficient internal accounts. The manufacturers who banded together and came together to do that instead of being in competition have had significant sales since then. They count the cost well worthwhile.
Incidentally, most of the shops which were concerned with that scheme fall under the Government's definition of SMEs--small and medium-sized enterprises. The Government rightly put a lot of effort into persuading SMEs to modernise.
But a major characteristic of the SME is its lack of senior people who have the time to take advantage of the opportunities that are offered. There was a recent European Commission communication on SMEs. It puts
I suggest that a one point plan would have a far greater chance of SME support and that pump-priming market places to build electronic networks would be the single most effective method of growing SMEs. Electronic networks are very good news for SMEs. Few people seem to realise that. The SME joins the network because there is no other way to trade. In doing so, it receives a low cost entry into that network as the development costs have already been paid by the large company network users.
Joining the network brings a standardisation process to the SME and a discipline which few SMEs would otherwise obtain. Companies which spend less time on process have more time to spend on customer care. Companies which have re-thought how best to run their businesses using an electronic network have engaged in what is today misleadingly called business process re-engineering.
To recapitulate: information and communication technology can be used twice to improve profits--first, by improving process within the company; and, secondly, by external improvements through electronic trading. Our leading corporates already make excellent use of that. Others still need to do so. Our trade will be improved if we as a nation complete the change significantly ahead of competitor nations.
I hope that I have demonstrated from my own experience in the 1970s that the change is evolutionary and not revolutionary. I hope that it will be recognised as just one of many ways in which the United Kingdom can hope to improve profitability. It is one way, certainly, but a basic way in which everyone has to go sooner or later. There is no reason why they should not grasp the nettle now and do it sooner.
Lord Desai: My Lords, I am perhaps the last Back-Bench speaker and, if the arithmetic of the noble Baroness, Lady Rawlings, is correct, I am the 109th speaker in this marathon debate on the gracious Speech. I shall be brief. I shall not speak on the Budget, partly because I gave my advice to the Chancellor in print in the New Statesman a fortnight ago. I am sure that by now he has read it. I shall mark his score card next Wednesday when on behalf of us all I shall have the privilege of opening the debate on the economic situation. It remains for me to talk about some of the issues which have arisen from the gracious Speech: low inflation; sound public finance; growth; and, of course, unemployment.
Without making a fetish of inflation as such, we welcome the fact that a low inflation rate has been achieved since our exit from the ERM. However, we have to remember that, while inflation is low from the point of view of British historical data--the lowest that
Ours was 2.8 per cent. Those are small differences. I do not want to make too much of them. It is clear that the low inflation we are experiencing--not just in the United Kingdom but in all the major economies--has less to do with domestic monetary or fiscal policies and more to do with the fundamental change in the supply conditions of tradable manufactured goods owing to globalisation. We must realise that what has happened is a major shift in the supply of manufactured products.
Therefore, the low inflation that we have achieved is common to all the countries and the minor differences are perhaps due to the quality of the fiscal or monetary policy. The fact that low inflation is the result of high productivity growth is a burden as well as a boon. It means that we have to maintain a high rate of productivity growth in our manufacturing. Any growth that we may achieve by higher investment inasmuch as it comes from higher productivity growth will not lead to job creation. Let us be absolutely clear. We want to achieve steady growth but it will not necessarily lead to job creation unless separate and deliberate policies are undertaken which are job creating policies.
We shall have to maintain low inflation. There is no choice. It will determine our competitiveness in world markets. Indeed, the size of our manufacturing sector can be maintained at its present level only if we continue to have productivity growth which more or less matches the rate of growth of manufacturing output. So manufacturing will not be a source of job creation--job preservation, yes; but job creation, no. Moreover, it will take a lot of investment in manufacturing to preserve the jobs we do have. Those are the imperatives of globalisation which we must remember.
I shall return to the subject of job creation in a moment. Let me first mention just one other matter; namely, the state of public finances. We have had a rather good debate about the proper size of government we should have. The noble Lords, Lord Harris of High Cross and Lord Skidelsky, debated that matter. My position is that, firstly, size does not matter so long as one balances the budget over the cycle. The first important point is the balance of the cycle. If we make a fetish of tax cuts and since we cannot reduce expenditure very much--despite all the protestations of the past 16 years, expenditure has not reduced very much--we shall have a PSBR requirement problem. There is not that infinite Laffer curve so that we go on cutting taxes and that gives us higher revenue. If we want to maintain our ratio of public expenditure to GDP at 40 per cent., we must do two things. First, there must be no frivolous tax cuts; and, secondly, we must maintain the economy at a trend rate of growth and not plunge it into recession.
I would not hang my hat on a specific percentage of government expenditure to GDP ratio. It depends on many different factors. The noble Lord, Lord Tugendhat--I am sorry that he is not in his place--made a good speech in which he pointed out how a variety of factors (demographic, cultural and so forth) make a great difference as between countries in regard to the ratio of public expenditure to GDP. Not only that, we could easily transfer some of the financing of the health service on to an employee-employer contribution tax or a voluntary tax which would make a difference to the numbers but not necessarily to take-home pay.
Taxes may be cut publicly or privately and perhaps the noble Lord, Lord Harris, would prefer contributions to be private rather than public. However, at the end of the day it will not make much difference, in the short term, to take-home pay. If we can maintain the economy at a good trend rate of growth and not produce booms and busts, on a good day we will probably manage a 40 per cent. GDP. Even that would be good, whether or not we can actually reduce it.
As Mr. Andrew Dilnot, of the Institute of Fiscal Studies, pointed out, there has been a lot of shadow boxing this season when Ministers claim to be cutting public expenditure and doing horrible things to the spending round. But what is the truth? In real terms spending has increased every year for the past 16 years. The only time real spending was cut in the post-war period of the UK economy was when my noble friend Lord Healey was Chancellor. It was cut by 7 per cent. and was a traumatic experience. I am sorry, I should include my noble friend Lord Barnett. I apologise for not giving him proper recognition for a hard task well carried out. Apart from that, there is not much scope. As the population grows older and people demand a better quality of life, in democratic politics it must be delivered. That is obviously something we must remember.
I wish to make one more point before I sit down. I was surprised that international aspects were kept out of today's debate. I mentioned globalisation. I can only say that we must create jobs in the non-trading sectors--the public and perhaps the private sectors. They will not be easy to create but must be created because manufacturing will not provide jobs.
Surprisingly, too, nobody mentioned either the single currency or the single market. Again, I know why noble Lords opposite have a problem about mentioning Europe; but the problem of a single currency will not go away. Even if we do not join it, it will play a significant part in the British economy. The debate needs to be concerned with what the effect will be of a single currency which we do not join. If that single currency is run on the deflationary principles of the
Lord Harding of Petherton: My Lords, I shall interest the noble Lord, Lord Desai, by speaking on the single currency. I do not know whether or not he will agree with me. Also I should like to mention unemployment; I do not intend to connect the two.
Before we look at our relations within the European Union, we must recognise that Britain is only a medium-sized economic power today. Most British people realise that. However, sometimes encouraged by politicians and the media we seem to hark back to our position in the latter half of the 19th century when we were the leading industrial nation in the world. That leads to unrealistic expectations and faulty analysis as to what our government should be doing.
It follows from our position as a medium-sized economic nation that we must work closely with our nearest neighbours and major trading partners on the continent of Europe. In practice that means taking a full and active part as a member of the European Union. It is no good saying that we would prefer Europe to be merely a free trade area. We did not join such an organisation when we signed up for the Common Market, as it was, 20 years ago. What was political rhetoric at the time may have misled a lot of people that we did. It is true that we joined primarily for economic reasons; but the Common Market was set up before we joined mainly for political reasons. We must make the best of what the European Union now is. That means taking as full a part as possible and trying to influence its development to our own and Europe's best advantage. That is what being at the heart of Europe means to me.
However, that must not exclude our strong ties of language and culture and also of business and financial organisation with the United States. That is visible all the time in the Stock Exchange indices and the exchange rates of the two countries. More often than not the FTSE follows the Dow Jones Index and the pound sterling is very much affected by the fortunes of the dollar.
The United States still gives the lead to the world in industrial progress, invention and enterprise. We must not believe that America is finished and on a downward path; it is not true. We ignore at our peril the trade and investment ties which we have with the United States. Neither must we ignore our historical economic ties with the Commonwealth countries and those in the Far East. The Far Eastern tigers--Japan and now China--offer us the potential to use our expertise in financial management and a fast growing market for the export of our manufactured goods.
Of course, here I refer to the debates on the single currency, the minimum wage and also the social chapter. As regards the latter two subjects I may be repeating what my noble friend Lord Astor said. I heard only a few of his remarks as I entered the Chamber, having left it for a little while.
Taking the single currency first, my right honourable friend the Prime Minister set out the difficulties and problems which have to be faced by European Union leaders in his Guildhall speech the other evening. It looks very unlikely, whatever some European Union leaders may say, that even a few countries will form a single currency in the next five years; even then, I have my doubts. However, the momentum and the rhetoric are there and a few core countries may form one in about five years' time. This core must include France otherwise the whole purpose of the European Union, as seen by France and Germany, will be nullified.
If that happens we have to think very carefully of what we would do. A scenario can be envisaged in which the United Kingdom currency would be decimated if we did not join. This would mean high rates of interest for us indefinitely. It is therefore essential that my right honourable friend the Prime Minister stands firm on not ruling out joining a single currency and keeps our options open.
As regards the minimum wage, I am utterly opposed to adopting it because of its effects on unemployment, especially among the young. The noble Lord, Lord Cooke of Islandreagh, who has direct experience of industry, made that abundantly clear in his speech. I turn to the social chapter. I recognise that large companies operating above a certain level on the Continent have to abide by the rules of having works councils etc. now and maybe other measures shortly. There is nothing that we can do about it. These companies, used to operating within other countries in Europe, can probably manage these measures without damage to themselves. Smaller companies and those who have not operated in this kind of environment, could be badly damaged. I am therefore very much against forcing all companies to do that by law. It is most important that managements consult their workers and take them into their confidence, but not by compulsion.
I now wish to talk about unemployment. I have already mentioned it in connection with the minimum wage. Unemployment in this country, as everyone agrees, is far too high although not so high as in many other countries in the European Union. I believe that the main measures to bring it down are two-fold. The first is education and training. I do not know the figures, but manual and unskilled jobs have vanished everywhere in Britain as elsewhere in the industrial countries. They are becoming fewer all the time. Most of the jobs which are
I do not want to knock teachers: a great many of them do an excellent job. They need praise and not criticism. But the substantial minority who are bad must be made to leave the profession. At the moment it seems almost impossible to sack them. I may well be wrong on this, but it seems to me that the reason why a school in London has to be closed is because it is impossible to get rid of the bad teachers in any other way. I shall not talk any more about education as we are discussing industrial and economic affairs today. However, the standard of education in the country is vital to our economic performance and in order to reduce unemployment.
The second measure is to sort out our tax and benefit system, which deters people from working. The Government made a start in the right direction in the last Session of Parliament. The job seekers and the invalidity benefit measures will help, but much more needs to be done. I hope that in the coming Budget and social security announcements we shall see some progress.
I hope that I have not detained your Lordships too long at this late hour. I shall end by praising the Government who have been the subject of so much unwarranted criticism from all quarters over economic matters. As others of my noble friends have said, they have done extremely well to provide the basis for long-term, non-inflationary growth. We must build on this success to have a thriving economy, which we have at the moment, but with much lower unemployment.
Baroness Seear: My Lords, at this time of night the last thing the House wants is a long speech from someone who is winding up. Perhaps I may start by saying how much I agree with the noble Baroness, Lady Rawlings, in her support and applause for the World Service. In previous times we have had to fight hard battles to support the grants to the World Service and it is very encouraging to know that it is thriving and is at last recognised as it should be. If other broadcasters would learn from it how to keep opinion and fact separate a great deal would be improved in the broadcasting that we get at the present time. A few seminars from representatives of the World Service would do a power of good.
I should also point out what is likely to happen if we do not adopt the single currency when other countries in the European Union do. The large trading companies will use the single currency because it will be so much easier and cheaper for them to do so. They will no doubt keep pounds for home use, but will use the single currency when trading across the European Union. Once again we shall be dragged along. We shall be dragged into the single currency but without having been involved when it was first introduced and without having had any influence on it. We shall be dragged in by our own industrialists whom we think that we are supporting (in some extraordinary way) by not joining at the right time. But enough of that.
Listening to the speeches today from both Front Benches, I felt that there was a marked and distinct degree of complacency on both sides. Of course, there are things that the Government have done which the Government Front Bench naturally and justifiably want to boast about this evening. Inflation is much lower than it has been. As the noble Lord, Lord Desai, pointed out, it has fallen remarkably and, although unemployment is much too high still, it too is falling. Those are successes. Certainly, the great successes of the increase in productivity and the recovery in manufacturing industry are unquestionably gains and advantages.
However, there are an awful lot of things about which the Government have not been able to give a satisfactory account. A great many noble Lords have spoken about unemployment. I agree that unemployment here is less severe than in some European countries and that it has been falling but, as I have said, it is still far too high, and what the Government have done about it up until now does not get us very far.
We hear all the time about the lack of a feel-good factor. I am not very fond of the phrase, but that is the phrase that is used to describe the sense of uncertainty and doubt which is a very great handicap to the Government themselves. We have now reached a point when so many people do not believe good news even when they hear it.
The lack of the feel-good factor might not relate to national policy as much as one might think. The noble Earl, Lord Caithness, interestingly referred to the subject of debt. The citizens advice bureaux say that more of their cases relate to debt than to any other problem. If one considers personal debt--let alone debt at company or national level--and the degree to which it is endemic at present together with job insecurity, one realises that it is not surprising that there is not a feel-good factor. After all, the feel-good factor is primarily what you feel about your own personal circumstances. The reasons for the absence of the feel-good factor need to be examined and dealt with. It is not easy. People get into debt for a
We must always remember that most of the time people are not thinking about national policies, but about what will happen to their own pay packet, their ability to pay their bills and to meet their mortgage. We heard very little about that from the Government Front Bench. Very little was said to answer the questions that people raise in their own minds a great deal of the time.
When the noble Lord, Lord Peston, spoke from the Labour Front Bench I felt, as I have felt so often recently when hearing speeches from the Labour Front Bench, that the Labour Party really believed that everything would be all right if everything was as it used to be. The Opposition imply that things are wrong simply because the Tory Government have changed everything. I have a very long memory--I am a very old woman--and I do not remember that times were so very good when the Labour Party was in power--indeed not. Furthermore, I do not think that the Opposition can be complacent about the reasons for the present unemployment. If more had been done to deal with education and training when the Labour Government were in power, we would not be in the plight that we are in today. The Opposition now talk a great deal about training, but what did they do when they had the opportunity to do something about it? Very little indeed. Their one great achievement in the area of education and training was the development of the Open University and we pay them great credit for that, but for the rest they have a deplorable record.
In 1979 when the Labour Government left office, 40 per cent. of the youngsters leaving our schools went into either unemployment or a job with no training. So, the Labour Party has no real reason to think that its record is such that we would now have a high level of employment if it was in power. It has a great deal to do if it is to create the kind of society which I know that it wants to create in which people can have more highly skilled and highly paid jobs.
The phrase, "Of course, we all want to see everybody in highly paid, highly skilled jobs", is used again and again. When a great many people come out of schools unable adequately to read or add up, how on earth are we going to get them into highly paid, highly skilled jobs? I was in Scotland--yes, in Scotland with all its boasting about its educational achievements--the other day. I was told by a teacher in a secondary school there that she was getting youngsters coming from the primary schools who did not know that one had to start a sentence with a capital letter and finish it with a full stop. Given that the English language is one of our great assets--I notice the noble and learned Lord, Lord Fraser, looking deeply nationalistic at me--if in Scotland they do not know about capital letters and full stops, I am bound to ask (to make my peace with the noble and learned Lord) I wonder what happens in England.
There is a very long way to go. The noble Lord, Lord McCarthy, spoke about small encouragements or sweeteners to get employers to take on people. I must say that the deadweight argument is a powerful one. I do not believe that that is the way in which we will get rid of unemployment. We will only get rid of unemployment when we have the training and education, and the courage and confidence for people to acquire new skills and to change and adapt as changes in the labour market require them so to do.
It is curious how little reference has been made during the debate to the whole issue of the global economy and the extent to which we are up against extremely tough competition throughout the world. The Asian rim countries are very serious competitors indeed. I quite agree that we cannot imitate them. We do not want to imitate them. They are competitors, but there are also opportunities if we can adjust our processes in this country sufficiently to meet the challenges and opportunities.
Only a fortnight ago I was at a conference in Rome. I sat next to a Chinese from Singapore. He took his engineering degree at Imperial College and his PhD at Cambridge. We seem to know all about how to provide people with the necessary equipment. He then went back to Singapore where he was training people and organising teleworking not just in Singapore but it seemed to be pretty well throughout the whole of the east Asian rim. They are moving at an enormous pace. They are catching up very fast. As we know, the average income and standard of living in Singapore are now higher than in this country. We must be there. We must be moving at that rate. There are opportunities there, but are we ready for them?
I heard nothing in the gracious Speech or in the speech from the Government Front Bench which recognised the challenges or the opportunities. It was as if we were concerned only with what went on in this country, marginally with what went on in the EU, and hardly at all with what is going on across the globe. The opportunities exist if we can prepare people properly for them, and if we can take a long-term view. All the discussions today in politics generally are based on short-term considerations. I sometimes think that the horizons stretch all the way from Wednesday evening until Monday morning in some political discussions to which I listen, and not just in your Lordships' House.
We are moving into the 21st century. It has great dangers. It has great possibilities. We need to recognise the need--everyone says that, but we are not doing it--for investment, and that means that we cannot have tax cuts if that cuts back on investment. Investment in people--yes, we all agree with that--but it is no good talking as though investment in people will give us a skilled labour force in the year after next. Investment in nursery schools today--we are all in favour of it in my party, and we want nursery schools for every three or four-year old--will not pay off for 15 years. Those three-year olds will be in their late teens before we get a pay off from that investment.
Lord Richard: My Lords, I am delighted to reply to the debate. I believe that I am the 112th speaker. Perhaps I may first comment on the speech to which we have just listened. The noble Baroness, Lady Seear, attacked both Front Benches for complacency. At least the Front Benchers who opened for the Government and the Opposition spoke about economics. They did not treat us to a tour d'horizon with great elegance, which was perhaps not quite what the noble Baroness had in mind.
Secondly, the noble Baroness gave us one of her penetrating analyses of government policies during the past 30 years. It is difficult to reciprocate. We have to go back to 1911 which was the last time that a solely Liberal Government was elected. But there it is--we are used to hearing the noble Baroness, and I always enjoy listening to her.
It has been an interesting debate in many other ways, too. It has been notable for its three maiden speakers; the noble Earl, Lord Sandwich, and the noble Lords, Lord Carew and Lord Cuckney. They all made significant maiden speeches, but if I could single out one it would be that of the noble Earl, Lord Sandwich, who is not present tonight. He spoke with great experience and his was a remarkable performance for someone making his first speech in this House. I was most pleased to hear him.
The debate on the gracious Speech has ranged widely over a whole raft of Government policies. However, I have been struck by how few contributions, particularly in today's debate, have related to specific items in the gracious Speech. The reason for that is perfectly clear; it is the almost total irrelevance of much of the Speech to the real problems that face the country. Where are the policies set out in the Speech designed to bring about a fall in the unemployment figures? Where are the policies designed to increase investment in our infrastructure or our manufacturing industry? Where in the Speech is set out the Government's proposals to deal with the trading deficit? There is not a word.
Perhaps I may add to that litany. Where is there anything in the Queen's Speech on the machinery of government; on our constitutional structures; or the relationship between Scotland, Wales and the rest of the United Kingdom? There is not a word. The gracious Speech manages even to avoid using the word "Wales", a factor which, I may tell the noble Viscount the Leader of the House, has not passed unnoticed in the Principality. The Speech was so thin that I congratulate noble Lords in keeping the debate going for four days. That was accomplished by talking about almost anything except the Speech itself. It is a trivial and openly political document, as Dr. Mawhinney revealed last week. It has all the vision of a slow worm.
Today's debate has concentrated on the economy. Naturally, from the Government--from the noble and learned Lord, Lord Fraser of Carmyllie--we were given a rosy picture of a thriving, thrusting, bustling Britain; its economy in order; its public finances under control; and the engine of the economy geared up and steamed up ready to go. A bright future is ahead of us. Would it were true.
Perhaps I may give the House one or two facts as opposed to some of the rhetoric that we have heard from the other side today. It would not be a bad idea if, from time to time, those on the Benches opposite opened their minds sufficiently to allow one or two facts to enter. In 1979, this country was thirteenth in the world prosperity league. In 1995, we are eighteenth. Since 1979, Britain's average growth rate has been 1.7 per cent. That is in 15 years of Conservative rule. That percentage is lower than that of any other country in the G7 or the European Union. Since 1979, Britain has suffered the deepest and longest recession since the war and there are still well over 2 million unemployed.
I ask Members opposite to note that there have been no fewer than 21 Conservative tax rises since the last general election. These are government figures and not mine. A typical family is now paying £800 per year more tax. The Chancellor has admitted that the Conservatives' tax rises are equivalent to a 7p increase in the basic rate of income tax. A typical family now pays 35.6 per cent. of its gross income to the Exchequer. In 1979, it paid 32.2 per cent. That is the legacy of 15 years of Conservative administration.
It is the unfairness of the present position which I find particularly distressing. While income tax has been reduced, particularly for the rich, VAT, indirect taxes and national insurance contributions have all risen, hitting the poor hardest. As a result, the poor now pay more tax as a percentage of their income than the rich. Again, let us look at the figures. In 1979, when this Government came to power, the poorest one-fifth of households in this country paid less tax than the richest one-fifth. The actual figures were 31 per cent. for the poor compared with 38 per cent. for the rich. By 1992, which are the most recent figures that we have, that tax burden had shifted. In 1992, the poorest one-fifth paid 39 per cent. of their income in tax compared with 34 per cent. for the richest one-fifth. I ask noble Lords
Whatever else the Government have achieved, they have not achieved fairness in our tax system. VAT on fuel bears four times harder on the poorest one-third of households than on the richest. Therefore, despite the seductive ways this afternoon of the noble and learned Lord, Lord Fraser of Carmyllie, all in the garden is not rosy; on the contrary, it is hardly blush pink.
However, this evening I wish to say a few words about an issue which is not mentioned in the Queen's Speech but which in my view should have been. Since the Government came to power in 1979, it is an issue on which we have had no word from them as to their views. We would have been prepared to listen and indeed to participate in any discussions on the issue. But there has been nothing; there has been silence. I refer to reform of your Lordships' House. The Chief Whip may not like it but, with great respect, constitutional issues, and in particular that issue, could and, in our view, should have been dealt with in the gracious Speech.
I become very irritated with the proposition that since this House works well, it should now be left alone. There is that absurd Americanism which one now hears so often: "If it ain't broke, don't fix it". The fact is that it is broke and it needs fixing.
Perhaps I may give the House some figures. If one looks at the composition of this House at present, there are 476 Peers who ascribe themselves as Conservative. Of those, 142 are life Peers and 334 are hereditary Peers. The Labour Party has 110 Peers, 99 of whom are life Peers and 11 of whom are hereditary Peers. The Liberal Democrats have a total of 52 Peers, of whom 29 are life Peers and 23 are hereditary Peers. The Cross-Benches have 289 Peers, 112 of whom are life Peers and 177 are hereditary Peers. The fact is that your Lordships' House functions at present in an overtly biased and unbalanced way in favour of the Conservative Party, relying as it does on the votes of the hereditary peerage.
Again, perhaps I may give the House some figures in that respect. I believe that it is important for them to be put on record. In the 15 years from 1979 to 1994--that is, the 15 years of Conservative administration--this House defeated the Government on average 10 to 12 times a year. During the last Labour Government of 1974 to 1979, the House defeated the Government on average between 70 and 80 times a year. As an example, during the Session of 1988 to 1989 the Government won 172 Divisions in this House. There were 12 government defeats and in two Divisions there was no quorum. If the votes of the hereditary Peers were excluded from that list in 1988-89, far from winning 172 Divisions, the Government would have lost 153. They would have won 20 and there would have been no quorum in 13 of them.
Therefore, while noble Lords opposite may wish to pretend that the situation is other than it is and that this House behaves with impeccable independence and judgment, I am afraid that the facts establish beyond any peradventure that this House is dominated by hereditary
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