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Lord Skidelsky: My Lords, I do not want to go on any longer. The noble Lord will know that there was a big housing boom in the 1930s, which was driven by very low interest rates.

Lord Merlyn-Rees: My Lords, the noble Lord will also remember that that picked up at the end of the slump in 1931, 1932 and 1933. It occurred again in 1938 and was driven by the trade cycle and not by a link between investment and low interest rates because they had been low before. I said that the noble Lord is always thought-provoking, but he must not allow me to think too much or I shall go over my time.

I shall not refer to the Budget because everyone else has done so. I shall refer to the state of the nation. I am very sceptical about Chancellors who believe that there is vote catching in Budgets. If they do catch votes, then within a few months of getting back into office something has to be done about retrieving the situation. That has happened on two or three occasions in the past 20 years. In any event, the reasons for winning elections are manifold. I do not believe the idea that one can buy the electorate is true, whatever party is in power.

As regards the state of the nation, I want to devote my time to employment, as I usually do, or unemployment, which is the other side of the medal. There has not been much talk about employment; it is no longer the "in" word that it was after the war. Indeed, in my young days there was heavy structural unemployment and nobody bothered very much. It took the war to make people see the iniquities of unemployment when people were brought together in the Armed Forces.

People in work at the moment are not very worried about those who are unemployed. I have a vested interest in unemployment as a result of my past and because for 30 years I represented an area where there was heavy unemployment. I shall come to the particular in a moment. As regards the state of the nation, a typical family pays more tax now than it did in 1979. Indirect taxation cannot be removed from the equation. It affects the lower income groups far more than the likes of most of us in this Chamber. Indirect taxation is regressive. There has been low growth in this country despite the figures over a short period. They are lower than the figures I have here for the other countries of the Group of Seven. We wasted North Sea oil. We invest less than our competitors and that is a matter that we should think about.

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In my native Wales, which I see more of now, there is enthusiasm for working for a Japanese firm. Japanese firms invest. They are in manufacturing and they do it better than most British firms. We have to ask ourselves why. The reasons stem from the nature of the way in which the Japanese raise capital and invest. The Japanese firms are in manufacturing and they go to areas such as the north-east coast. Our manufacturing base has disappeared: is that a good thing? We used to be the workshop of the world, but we are not now. The Japanese are very good at manufacturing, mainly as regards the motor car industry.

I turn to the trade balance. Even with a 25 per cent. devaluation of the pound, compared with the rate when John Major took us into the ERM, we still had a deficit in 1994 of £10.5 billion. The recovery and boom in exports is in spite of and not because of government policy. Is that not marvellous when one thinks of all the troubles and tribulations that we went through with devaluation! The pound has devalued by 25 per cent. Let us imagine what the situation would have been if we were on fixed exchange rates through the IMF. Devaluation is the order of the day.

I come now to employment. The figures I have for October show that the seasonally adjusted claimants for unemployment stood at 2.2 million, which is equivalent to one in 12. For men the figure is 10 per cent., which is much higher, and for women it is 4.4 per cent. We ought to direct our minds to the doubts about the way the employment figures are collected. There are many people and economists who believe that they do not give a true picture. We should look at that, particularly in this House. In 1995 unemployment fell by 331,000, but it is still far higher than it was in 1979. Since that year the fraction of the unemployed out of work for more than a year increased by 50 per cent. to just over 1 million. There is an increasing mismatch between the skills of the unemployed and of those needed in industry.

I suggest to your Lordships that we should look at unemployment. It is falling, but the current situation remains bleak for millions of jobless people. One million people have been unemployed for more than one year and half-a-million have been unemployed for more than two years. One in three people without any O-levels are now out of work and unemployment rates are much higher for young people and members of ethnic minorities. The underlying state of the labour market for women, the poorly educated, low-paid and young people, is getting worse; with poverty increasingly concentrated among the low-paid and households with no work. One in five households have no working adult member. That figure is up from one in 15 in 1975. The gap between higher and lower paid workers is greater than it has been since records began. Economic generation creates part-time jobs. It may be that such jobs are good, but they are not good for me--someone who was brought up on the basis that the man of the house worked a 40, 45 or 50-hour week. In the constituency I represented that does not apply.

I do not live under those circumstances and neither do my children, but many of us who were Labour MPs saw that on a daily and weekly basis. Unemployment is

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in my political blood and we should direct our minds to it. I fished out some figures from the Library, but they are not quite for the area that I represented because there has been a redistribution. In my area 60 per cent. of the population are of working age and of that number 16.5 per cent. are unemployed. In other parts the figure is between 25 and 30 per cent. There is nothing that the Government can do--I am trying to be non-political now--that will alter that fact. The idea that when the economy lifts they will be brought into work is not true. The unemployment situation varies from one part of the country to another. They are good people.

I have said in the House before that when I was in Northern Ireland I met the children of my constituency as soldiers in Northern Ireland. Nowadays the Army is so small, I regret to say, that that does not apply to the same degree as before. I was speaking about Leeds Central. There is unemployment at 8.8 per cent. in Leeds North East, which is a Conservative seat. The way in which people vote is determined not by whether they are caught by the Chancellor, but by the unemployment situation in the area by nature of social class. Those of us who have been absorbed in politics over the years know that to be so. I do not believe that the normal upturn will do very much for us.

The work of the Commission on Social Justice was published not long ago. We have to change our outlook. Our modern war on poverty must tackle the fundamental causes of inequality. High and persistent unemployment leaves people without income and with low and inadequate skills.

I have been putting my mind to this issue and the one thing that I should like to draw to the attention of the House is an article in The Political Quarterly by Professor Dore of LSE and MIT in which he states:

    "the form of unemployment that we have in Europe today is ... different from ... the 1930s ... there is only limited possibility of making a dent in the unemployment figures by macroeconomic demand management ... there are equally limited possibilities of making much more impact on the employment intensity".
He referred also to the driving force of change on the Pacific Rim and to the changes in that part of the world. It is a gloomy prognosis. He has said, "People do not like me saying this" but is it true? Are we wasting our time with the modern analysis of unemployment in which we have been schooled?

There is something fundamentally wrong in this country. In my view, whatever party is in government some people in the kind of area that I represented will be unemployed. Whatever happens to the rate of interest, whatever happens in the banking system, there will be marginal changes, but more fundamental changes need to be made. At the moment, the important department of state in this country is the Department of Social Security and the reason is that we are paying out money because our system does not work and we have to keep people off the breadline.

6.31 p.m.

Baroness O'Cathain: My Lords, I too thank the noble Lord, Lord Desai, for tabling this Motion. The economic state of the nation is good. It is not the

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greatest in the world, but it is considerably better than many of us had dared to hope, having been subjected to the endless drip-drip of negative comment emanating from both noble Lords opposite and the media.

With this Budget, I get the strong feeling that all is under control. That is most comforting. It really is a case of "steady as she goes". The temptation to tinker endlessly has been rejected. Naturally, there will be disappointment that some of the more absurd predictions which littered our newspapers in the days before the Budget have not materialised. On a personal level, there is one omission, on which I had placed some hope, but more of that anon.

As an aside, the noble Lord, Lord Desai, told us that the Budget had been given a lukewarm reception by the Tory Back Benches and a hostile reception everywhere else. When I heard that, I went straight to the Library, thinking that my croaking voice had also affected my brain and vision and that I had misread something in today's Financial Times, but when I looked at the comments from businessmen, they were all supportive. Perhaps the noble Lord does not think that the opinions of businessmen matter.

The management of an economy which has a turnover of nearly £800 billion is no small task. The enormous figures sometimes cloud the brain. We have heard about massive government expenditure and massive government debt, but in simple terms, the total government expenditure of £306 billion is well within the convergence criterion for joining EMU and, similarly, the plans are that the deficit meets the other convergence criterion of 3 per cent. long before EMU takes effect. Not that I am for one moment suggesting that we should positively aspire to EMU membership; I merely wanted to make the point that, whereas one is often led to believe that we are the poor man of Europe, a second-class citizen in EU economic management terms, the reality is that we are strong and healthy. As an aside, the IMF expects us to be at the top of the G7 growth league, along with Germany, next year. Does that indicate economic weakness?

We frequently hear of our declining position in the "wealth table" of the world. Indeed, the noble Lord, Lord Shepherd, referred to that earlier. We are 16th in terms of GDP per capita, but some of the countries that have overtaken us are the low tax, deregulated economies, particularly Hong Kong and Singapore. If we aspire to move up the league table, we must also adopt an even lower tax and deregulation strategy. I wonder whether the Opposition would go along with that. I have yet to discern a great move on those Benches for lower taxes and further deregulation.

But let us not be bemused by statistics. We should get behind some of the numbers; for example, four of the countries ahead of us in that wealth league table (Belgium, France, Germany and the Netherlands) have lower graduation rates. Do we want to reduce our graduation rates from their current level of 25 per cent.? We have the strategy to improve education standards and to increase the proportion of the population which will benefit from university education so that long term our international competitiveness will increase.

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We require, above all, stable economic management which will ensure sustained economic growth and rising prosperity. I emphasise the word "stable". We do not want drastic turns one way or the other. To quote from the Red Book that we have all been using tonight:

    "Economies work most efficiently when inflation is low and stable",
and that is precisely what we have got. Since inflation targets were first introduced, inflation has remained below 4 per cent. for the longest continuous period for almost 50 years. That is a huge achievement. That is the background that business requires in order to invest, grow and increase its competitiveness.

When we talk of the wealth league, let us not forget that it is business in the main that creates wealth. The voice of business is not heard loudly or often enough in your Lordships' House. It is perhaps useful to point out that the forecast income from corporation tax and business rates combined can fund more than total government expenditure on education; combined they can fund more than the budgets for defence and law and order together; combined they can fund more than 82 per cent. of the health and personal social services budget. That is why we have to encourage business and to help business, in turn, to prosper.

Therefore, I am delighted with the Chancellor's proposals for the relief of some business and agricultural assets from inheritance tax. Even more welcome is the change proposed in the relief from capital gains tax for more entrepreneurs and shareholders in family companies. That will result in skilled and successful businessmen--and women--finding it easier to release their capital into new business projects.

I said earlier that I was disappointed by one omission. I refer to the failure to abolish capital gains tax completely. Perhaps I may give my reason. There are millions of individual shareholders who invest in British business from the proceeds of their after-tax income who I am certain would increase that investment if the capital gains from that investment were not taxed. Gains from investment in premium bonds, which in my experience give a much better return than the National Lottery, are not taxed; neither are the gains from the so-called "investment" in the same lottery, so why are the gains from investment in the wealth-creating business sector singled out for continued taxation? Following what will undoubtedly be the positive increased growth resulting from this strategic economic policy, I hope that a tactical shift in taxation can be made in the next Budget and that we can say farewell to capital gains tax for ever.

All of us must be single-minded in our approach to encouraging business. To that end, I was delighted by the Chancellor's proposal to reduce the small companies rate of corporation tax to 24 per cent. from 1st April 1996. It is a staggering thought that about 350,000 companies will benefit from that reduction. It should prove to be a huge incentive to small businesses. Those 350,000 companies account for 85 per cent. of all companies that pay tax. With a wry smile I ask: how about the other 15 per cent. next time?

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If I sound optimistic (albeit rather croakily), it is because I truly believe that the economic health of business is good. Many companies are operating at a level of efficiency and effectiveness that they have never reached before. Our best companies are among the best in the world, creating wealth to underpin a social structure which is equally among the best in the world. Those are the facts. They are not just feelings. Perhaps I may suggest that we drop the phrase "feel good factor". Feelings, according to the Oxford English Dictionary, are defined as,

    "A generic term comprising sensation, desire and emotion but excluding perception".
Let us have more perception and thought. I do not want to feel good. I want to perceive that things are good. I do perceive that, and I think, too, that the Budget is good.

6.40 p.m.

Lord Bruce of Donington: My Lords, my own perceptions of the economic significance of the Budget have been expressed more eloquently by Mr. Matthew Parris on page 2 of The Times today, which I commend to your Lordships' attention. However, on a purely personal level I suppose we shall have the spectacle of more clapped-out bangers in the car park outside, and there is the remote possibility of my noble friend Lord Peston lowering the whisky prices in the bars here. That is roughly the significance of the Budget to which we have been treated.

I propose to deal with three short aspects only which are in continuation of the remarks I had the privilege to make in the debate last week. I was especially glad that my noble friend Lord Eatwell referred to the significance of investment, particularly in the field of replacing lost capacity. One of the achievements of Her Majesty's Government over the past 16 years has been to preside over an economy which started out with a balance of trade surplus of £7 million and which has ended up now with a trade deficit of £7 billion. There is considerable significance in that. What caused that is simple to understand. There has been a mass destruction of manufacturing capacity in this country which has been reflected in an ever-increasing import penetration into the UK. It is as simple as that.

Even when the country has a sporadic recovery due to an artificial injection every now and again from a nearly defunct government, that is lost immediately, because when demand revives domestically there is not the domestic capacity to meet domestic consumer demand. So increased imports arrive. That is something that noble Lords opposite cannot wish away. You started off with a trade surplus and you now have a massive trade deficit which you cannot escape.

We have to have more investment. Everyone is agreed on that. A variety of inducements has been produced for those in possession of capital to invest in UK industry. Noble Lords from time to time in their own self defence, to which of course they are entitled, quote the fact that, Japanese investors in particular--there are also others--have made massive investments in the UK. What they do not say is that their friends

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who finance their own party invest most of their money outside the UK. They do not even have the confidence that their own political arm protests that they ought to have.

So, as my noble friend, Lord Haskel, pointed out in correction of my rough figures last week, for every £100 of investment invested here by countries like Japan in a vote of confidence, £160 is invested by British companies in America or in the Pacific Rim. We have to have some more investment.

Who possesses the funds? Clearly, the lower tenth of the population does not possess anything. It has no capital; its income is its capital. Who has the money? The wealthy and the institutions have the money. How can they be induced to invest? A variety of ways have been suggested: capital allowances; all kinds of hidden subsidies; all kinds of privileges; all kinds of regional grants, and so forth. All of them are very good, but what happens if they will not invest? That is a problem that Mr. Edward Heath addressed to the country in 1972, "and still you won't invest", he said to the financial interests in the City of London. Of course, investors are human. I hesitate to reproach the noble Lord, Lord Skidelsky, with Keynes's view on the subject, which I know may be unpopular. He says at page 162 of The General Theory of Employment:

    "In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends".
What was true then is true now.

I have to suggest, as was suggested in the White Paper on full employment published in 1944 by the Coalition Government, that where private investment does not find it convenient, or has no inclination to invest, then the state must. The state itself has to finance enterprises. That may not be popular to either side of the House, but it will recur time and time again over the years that lie ahead.

The noble Baroness, Lady O'Cathain, referred to small businesses and said how important they were. Indeed they are, because it is by investment in small businesses that the recovery, when it comes--if it comes--is largely likely to be propelled. What is the situation with small businesses at the moment? I can well remember the time when it was possible to go along to the manager of a small bank, have a friendly chat, discuss proposals with him, produce the necessary projection papers: cash flows, draft profit and loss accounts, and so on. Often on his own initiative he would make the necessary advance. But what happens today? One does not go to a manager any more, but to a computer operator who says in accordance with instructions from head office, "I am afraid it is quite impossible for that to be done".

Even where finance is provided by banks, it is accompanied by rates of interest and conditions which are part of a bank's plan to recoup from the small practitioners, the small businesses of this country, the losses incurred due to its own folly of investing in the South American states.

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There was also a time when it was Conservative Party policy that some efforts should be made to get the larger companies, which frequently gobbled up small enterprises, to make prompt payments to their small suppliers. There was a plan to have interest charged on overdue accounts. It was put forward by the DTI, and yet when the President of the Board of Trade (as he then was) came into being after the last election we found that that did not happen. I wonder why.

The practice followed by large corporate firms is clear. A distinguished member of one of them has already recorded the following views:

    "I remember a moment in my business life when every Friday the company finance director used to bring in the list of outstanding creditors. There were three columns headed: solicitors' letters, writs received and writs whose time limits for reply were about to expire. The bills in the last column we paid".
The author of that was none other than the right honourable Michael Heseltine who admits building his business upon that basis. We may possibly have to change that.

Time prevents me from embarrassing the Government any further. With those few parting words and pleasantries, I am pleased to resume my seat.

6.50 p.m.

Lord Birdwood: My Lords, it is no purpose of mine this evening to add to the avalanche of comment about yesterday's Budget. One of this country's niche growth industries is commenting about the Budget. What the ingenious and well-timed Motion of the noble Lord, Lord Desai, does yield is a rare chance to stand back and look at the relationship between the economy and the Government. Perhaps I ought to give that a more academic colour. Perhaps I ought to say the relationship between any economy and any government.

I wish to limit myself to making one point in the form of one question. Why do no government publicly acknowledge that there are in any and every developed economy two perpetually opposed forces? These forces are the search for efficiency and the employment of people. We do not need to tangle with the sophistry of Clause 4; we do not need to worship at the shrine of free market ideology. But we do need to recognise that the more efficient an enterprise the fewer people it will employ. It is painfully, transparently obvious to the ordinary citizen but seems to be quite outside the vocabulary of Westminster, or Washington, or Paris, or Berlin.

The special areas of interest to myself are the new ingredients of innovation and technology which have become the accelerators in the search for competitive advantage. More hard science has been deployed in commerce and industry with the object of greater efficiency in the past 15 years than in the previous 50. What is the end game of this process? Every advance in, say, manufacturing technology raises productivity, makes that company leaner, more profitable, more attractive an investment and needing fewer people. So the state picks up the responsibility for those human beings now outside the virtuous circle of the efficient

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enterprise. The by-product of the efficient enterprise is taxable profit to feed a vicious circle of numerically unemployed and increasingly unemployable individuals.

The paradox is that technology is the lubricant for a country to get richer but for its people to be left staring at the prospect of the end of work. How peculiar. It is my belief that no component in the social fabric puts more strain on its stability than the universally experienced absence of work.

Following from those reflections, I am intensely interested in whether the UK economy is rugged or fragile. It seems to me that there are two expert views of the economic model and they are at odds with each other. The first is that a developed economy such as ours has built-in stabilisers so that the ship stays roughly level when the money storm strikes. The other model introduces mathematical catastrophe points where quite small variants can produce chaotic results. Personally, I lean to the latter because I think that it better mirrors the reality of political powerlessness. Some economic theorists still look for Kondratieff long cycles. Even if they were ever there, the speed with which capital moves around the world and the fine mesh of global information have consigned those ideas to history.

It is totally unoriginal to observe that markets are more powerful than governments. Companies are richer than governments and will be increasingly so. Of course we feel comfortable with these political rituals. They give all of us the chance to assess and calibrate the relationship between an economy and a government. What one perceives though in the veiled agendas of modern Budgets is the recognition of governments that more and more the moment of a Budget is an opportunity for a little social engineering rather than hauling on the levers of macro-economics. And even in social engineering, prudence is the watchword; not so much carrot and stick, more pea and twig.

Have any government cut a template for the millennium which other regimes can use as their patterns? I fear not. No, perhaps I should say that I hope not. Modern economies long ago escaped from their national boundaries. I am not saying that the future fate of future governments will be to become just a caring agency for the illiterate and the immobile. But I am saying that the time is right to bring into the open a new public debate about the relationship between government and the economy because new influences are shaping this relationship in ways undreamt of by Burke, or Adam Smith, or even Karl Marx.

6.57 p.m.

Lord Haskel: My Lords, tonight noble Lords opposite have referred to noble Lords on this side of the House as being people who run down the nation and the economy. The facts and figures on which we base these arguments come from a document called Competitiveness, Forging Ahead. It must be an accurate document because it is published by HMSO and the foreword states:

    "It is a hard-headed assessment of our competitive position".
The foreword is signed by the Prime Minister.

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Pages 12 to 15 list all the countries which are ahead of us in wealth. They were mentioned by the noble Baroness, Lady O'Cathain, and the noble Lord, Lord Shepherd. I believe that before noble Lords opposite accuse us of running down the Government and the economy they should look at this book, because all the data are contained in it at pages 12 to 15.

I wish to speak about investment, which was introduced by my noble friend Lord Eatwell. Yesterday the Chancellor told us that our future prosperity depended on achieving 3 per cent. growth. Central to that must be the investment that we spoke about; that is, investment in infrastructure, education, skills, technology, new products and new markets. That must be the key to growth.

It is fair to ask: what has the Budget done to encourage this investment? The answer, as other noble Lords have pointed out, is that the Government seem to be pinning their hopes on the private finance initiative. Perhaps we can debate that in more detail when we have seen the Treasury's handbook setting out the projects to be undertaken under the scheme. In the meantime, we shall need to be convinced that the scheme is in addition to government investment and not instead of it.

My noble friend Lord Eatwell pointed out that the private finance initiative should not be used as a means of disguising government's lack of interest in the real side of the economy. For the past two years the present Government's private finance initiative has been successful in attracting around £500 million from the private sector. However, during the same period the cut in government investment in precisely the same areas has been in the order of £2 billion. That is a net disinvestment of £1.5 billion. Clearly, the Government can cut public capital expenditure with certainty, but they cannot be certain on delivering private sector funds. In the past, those funds have not been delivered. Little wonder that bodies like the CBI are wondering whether they will be delivered this time round.

Industry will find it very frustrating if imaginative schemes are announced by the Minister while, at the same time, investment programmes are cut in anticipation of them. The new concept of "sponsored investment" seems to consist only of direct government spending. I share the concern of the noble Lord, Lord Skidelsky, on the matter. If the scheme of PFI is to be extended, many problems will have to be sorted out. For instance, the very high bidding costs make it prohibitive for all but a few very large companies. The complexity of the rules make it very difficult for most firms to get involved. The PFI initiative is to be welcomed but, as we have said in the past, it has to become much more flexible and more user friendly. However, perhaps a significant decrease in interest rates will help to secure the investment that is needed.

My noble friend Lord Merlyn-Rees raised the question of jobs. We are all worried about unemployment. We are worried about the economic cost and we are worried about the social cost in terms of crime, in terms of ill health (both physical and mental) and in terms of social unrest and how that contributes towards the racial and other tensions in our society.

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The stubbornly high youth unemployment is both painful and worrying. We all know that the long-term consequences will be bad. It was with that in mind that the Shadow Chancellor proposed several ways to bring down youth unemployment. He also suggested ways of reducing the poverty trap and making the welfare system more of a pathway from welfare to work. But what has the Chancellor of the Exchequer done about it in his Budget? By reducing the tax thresholds, and reducing the basic rate by 1 per cent., he has helped smooth the passage from welfare to work, but that has to be combined with imaginative job creation schemes. What about these? We estimate that state-funded training budgets are being cut overall by 4 per cent. and the budgets of the TECs are facing cuts of some £200 million this year.

The abolition of the community action scheme next March will be a blow for many trying to get from benefit into work, particularly the long-term unemployed. It is hardly an encouragement to those many volunteers who now administer some of those schemes with such dedication.

I am not suggesting that the Government should become the employer of last resort with those schemes. But I am suggesting that the schemes and tax rules should work in harmony to get people from welfare into work. The Shadow Chancellor suggested that there should be a windfall tax on the privatised utilities to fund the passage from welfare to work, but that was ignored by the Chancellor of the Exchequer.

That neatly brings me to another matter which we discussed last week; namely, fairness in the tax system. The noble Lord, Lord Skidelsky, accused us of being the party of high tax. We are not the party of high tax; we are the party of fair tax--fairness in terms of who pays, who can afford to pay and who benefits.

I see that my time is running out and, therefore, I do not have much time to talk on the question of tax. However, on the matter of share options and the privatised utilities--where much of that unfairness lies--I should just like to say that what the Chancellor of the Exchequer has done is virtually to reintroduce the old discretionary option scheme which he found so unsatisfactory in July and call it the "company share option plan". That gives a welcome encouragement to staff share ownership having tax benefits on schemes up to £20,000. But it does nothing to stop senior executives benefiting under a non-approved scheme and is unlikely to make any difference to the amount of tax that they pay.

The Government have also ignored the Greenbury recommendations as regards publishing the full facts about pensions. Indeed, the whole business of regulating the newly privatised utilities needs urgent review. I hope that we will be told about this when the President of the Board of Trade speaks on the matter tomorrow in another place. Meanwhile, this morning we had another wonderful example of a private monopoly exploiting the public. Yorkshire Water announced a rise in its six months' profit, and increased its dividend by 10 per cent. I wonder what the results would have been if its

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customers had been able to switch to another water company. This is not the politics of envy; it is the politics of fairness.

7.5 p.m.

Lord Monkswell: My Lords, I, too, should like to thank my noble friend Lord Desai for opening today's debate in such an elegant way. We are asked to debate,

    "the economic state of the nation",
and the Budget Statement. I should like to talk a little about the economic state of the nation and then make a few comments about the Budget.

I believe that we need, first, to think in terms of what we mean by the economic state of the nation. I should like to follow my noble friend Lord Merlyn-Rees, who effectively suggested that one of the criterion we need to use is unemployment. We need to make a sensible comparison between what is happening now with the economy and the state of the nation and what the situation was in 1979. The noble Lord, Lord Clark of Kempston, made some comments about 1979, but I suggest that the facts are rather different from those that he stated.

If we look back to 1979, we can see that unemployment was less than 1 million and decreasing. We can also see that inflation was decreasing and that we had a positive balance of trade in manufactures. In fact, all those situations are now virtually reversed. Therefore, how do we judge the economic state of our nation as being at all satisfactory if we have over 2 million people unemployed? The noble Lord, Lord Birdwood, suggested that the more efficient an organisation became the fewer people it would employ. That is not my definition of efficiency. My definition of the word in terms of an organisation is where the best use of all resources is made. Effectively, just on the Government's figures, we have 2.2 million people unemployed. To have unemployed resources is surely not efficient.

I must admit that it is most interesting to listen to such debates, to pick up what noble Lords say and then to wonder just on what basis they make their remarks. Can it be satisfactory that a significant part of the productive investment in this country is actually financed from abroad? I was utterly astonished to hear the noble Baroness, Lady O'Cathain, suggest that investment--I believe that she was thinking in terms of investment in industry and commerce--is the same as a gamble or taking part in the lottery. I see that the noble Baroness wishes to respond.

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