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Lord Chesham: My Lords, I should like to say a word about today's debates standing in the names of the noble Baroness, Lady Turner of Camden, and the noble Lord, Lord Judd. In the first debate, other than the mover, Front-Bench spokesmen and the Minister replying, speakers will be limited to 11 minutes and in the second debate eight minutes. I should remind your

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Lordships that, if any noble Lord were to speak at greater length, he would be doing so at the expense of subsequent speakers in the debate. I might also remind your Lordships that, when the digital clock shows 11 minutes, the full 11 minutes have elapsed and the speaker is already trespassing on the time of others.

Financial Services: Employment

3.27 p.m.

Baroness Turner of Camden rose to call attention to the changing patterns of employment in the financial services industries, with consequent lack of security, and the wider social effects of this development; and to move for Papers.

The noble Baroness said: My Lords, my Motion seeks to draw attention to the changing patterns of employment in the financial services sector and the social consequences of such changes.

In the 1980s we became used, wrongly in my opinion, to redundancies occurring in manufacturing industry. Certain areas of the country which had previously been dominated by heavy engineering and manufacturing became devastated as factory after factory reduced the labour force or sometimes closed altogether. Many parts of the country still bear the marks of that experience, with long-term unemployment affecting in particular the male population.

There was a view at the time that the service sector, particularly financial services, would be able to take up the slack, so to speak, in the employment market, that jobs could or would be found for people displaced by the decline of our manufacturing base. For a short time, towards the end of the 1980s and the beginning of this decade, it really seemed that this might be so. However, that has not happened.

Very severe employment problems are now arising in financial services. Of course, everywhere nowadays we hear references to "flexible working". To listen to some people, notably those speaking for some employers and also sometimes government spokespersons, this seems to be a wholly beneficial development. It is a way, so they say, of making the best use of resources, something of benefit to both employers and employees in an increasingly competitive environment. To others, those mostly concerned with employees--unions and organisations concerned with social and personnel questions--it can signify something very different. They watch with horror and concern what they see as an increasing fragmentation of the labour market, bringing with it a growing sense of insecurity.

In the financial services sector, that involves people who hitherto have felt reasonably secure in their employment. Those changes have come about relatively quickly. In addition, they have been due to the impact of technology and increasing globalisation of world markets. But there is also no doubt that they have been enormously stimulated and encouraged by government policy over the past decade or so.

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Governments elected after the last war, whether they were Labour or Conservative, had a strong commitment to policies designed to ensure full employment, at least as an objective. That was because that particular generation of politicians and electorate had very powerful memories of the slump years immediately preceding the war. Those were the years of mass unemployment, hunger marches and the kind of social conditions described by George Orwell in The Road to Wigan Pier.

For 30 years following the war unemployment was not a problem. If someone lost one job it was possible for them to obtain another quite quickly. A Labour administration introduced the Redundancy Payments Act. The thinking behind that was that it would meet needs for a short period pending the obtaining of other employment. It was unthinkable that a middle-aged man with experience and qualifications might be facing a future with no work at all. We even had a brief period when we had earnings-related unemployment pay--again introduced by a Labour government, but ended in the early years of Mrs. Thatcher's first administration. That was based on the assumption that periods of unemployment would be short-lived and be succeeded by full-time, continuous employment.

I need hardly say that all that has changed. According to recent figures from the former Department of Employment, 9.7 million people--38 per cent. of all UK workers--are working part time, in temporary employment, are self-employed (somewhat insecurely in many cases) or on government training schemes. That is an increase of 1.25 million since 1986. The proportion of men who are part of the flexible workforce has risen from 18 per cent. in 1981 to 27 per cent., whereas among women it has remained relatively stable.

According to the Labour Force Survey, the main reason for working part time is that the employees concerned do not want to work full time. That is surely the situation for many women with domestic and childcare commitments. But a significant number of men employed part time said that they would prefer full-time work, but could not find it. There is thus a feeling among many employees that part-time work is a transient experience and that when the opportunity arises they will go for the traditional type of employment--full time, secure and with employment benefit packages like pension provision.

Those changes are having a marked effect upon the financial services sector--an important sector of the economy, as I am sure your Lordships will agree, both as a contributor to the UK's economic performance and as a major employer of labour. The importance of London, for example, as a world provider of financial services cannot be too heavily emphasised. But many of the large institutions have redeployed outside of the City in the past decade, so employment in that sector is not just a matter for London and the South East. The industry employs nearly 1 million people; it provides 18 per cent. of gross domestic product and insurance companies and pension funds own over 50 per cent. of UK companies.

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There is no doubt that some employers in the sector welcome the changes that have taken place, which are often seen as irreversible. We shall never go back, we are told, to the days of a job for life. But there are clearly some negative effects, even for employers, whatever short-term benefits they may perceive. There is the loyalty factor. Many long-established companies and institutions like banks have hitherto relied heavily on loyalty which comes from a commitment on the employer's side to providing security and good conditions of work and to which employees have in the past responded by their own commitment to the company or institution. In the past, it has not been unusual, for example, for several generations of the same family to work for the same company or institution. In addition to work, much of the employee's social life was bound up with the company. Many employees met their marriage partners at work and some of the larger companies have always provided sports and social clubs for employees, all of which had the effect of binding employees closer to the company.

An employee starting work with such an institution may well expect, subject to reasonable performance, to make a career involving gradual progression and though the pay was, generally speaking, not wonderful except at senior levels, there would be an assisted mortgage scheme and a non-contributory pension. In return, the employee was expected to commit himself or herself to the company and many were happy to do so.

A great deal of that loyalty can no longer be counted upon, particularly in situations where there has been what is euphemistically called "downsizing"--a polite way of describing redundancies, increasingly common at middle-management level, and where the replacements, if appointed, are given short-term contracts rather than contracts of the more traditional kind. Those remaining after such an exercise themselves suffer a sense of deep insecurity. They may find themselves having to work much harder or at a faster pace in order to make up for the staff who leave. As a result there has been increasing stress among senior members of staff. Some firms are undertaking stress counselling in order to deal with that recently identified problem. All that has had a spin-off into society generally.

The people working in the industries identified in the Motion are, in the main, from families and backgrounds which are often deeply conservative in both the social and political use of that term. They have been used to and, indeed, highly value a sense of stability in their lives. When they become unemployed it is a deeply shaming experience. If they remain in employment after downsizing, they experience deep feelings of stress and alienation. Certainly there will be no return of the feel-good factor until a sense of stability returns to their lives.

We have only recently begun to realise just how much of our social fabric and the institutions which keep it going have depended upon the notion that the majority of the population will always have continuous, secure employment. The whole concept of the present Government's property-owning democracy is based upon the notion that the householder will be able to take

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out a mortgage and continue to make repayments over a long period. Obviously he or she cannot do that if employment is temporary, short term or liable to be terminated. The Government are bent upon encouraging people to take out private insurance to cover risks which have hitherto been regarded as provided by the state welfare system. But private insurance is not always available, unless the individual seeking it can demonstrate some degree of financial stability.

There has been a dramatic decline in life insurance policies sold recently. There has been a marked growth across the spectrum of forms of work that are not tenured--in other words, the employee does not hold the job long enough to qualify for forms of protection such as the right to employment security because he or she does not spend two years in continuous employment. Seventy per cent. of new jobs are for 16 hours a week or less. Job vacancies in the jobcentres are now largely for temporary or part-time work, according to January figures from the employment services.

It has been prophesied that by the year 2000, unless things change, tenured employment of the traditional kind will be a minority form of employment. A letter I received from one of the unions catering for bank employees stated,


    "The finance sector is going through the equivalent of the industrial revolution, only much more quickly. Job security is a thing of the past; temporary and agency staff very much characterise the present. We are deeply concerned and anything you can do to highlight this situation would be greatly appreciated".
And, of course, there are continuing redundancies. Yesterday Scottish Widows announced 600 redundancies in Scotland, and that all adds to the general sense of insecurity.

The question is: what should be done about those developments? The destabilising effect upon society generally is now widely recognised. Is this fragmentation of employment--showing up starkly in the financial services industry, but already applying in other areas and also a feature of other industries--inevitable? How shall we cope with it?

First, no one on this side of the House believes that there are easy solutions. The new technologies exist and will continue to develop. Indeed, we should seek to use them to the benefit of consumers generally. We cannot turn the clock back 20 or 30 years. We have to find a way of coping with such developments without producing a society in which, as one economist put it, 30 per cent. of the population is unemployed or unemployable; 30 per cent. is in insecure or temporary employment and 40 per cent. in continuous, high-skilled "core" employment. That is the 30:30:40 scenario. Clearly such a development would be socially divisive and the minority in secure employment may find themselves feeling insecure in other ways.

Training obviously plays a major part in getting people back into core employment. I shall not deal with that in detail in my contribution as some of my colleagues may wish to do so. But clearly a great deal more needs to be done to improve educational and skill levels. However, training by itself may not solve the

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problems. The growth of part-time work in the service sector where employers are often seeking female staff--and not paying them very well where they can get away with it--together with widespread age discrimination, which does take place, can mean that well-qualified older male workers find employment prospects increasingly poor. Clearly much more needs to be done to improve pay and conditions for part-time workers. European directives are pushing us in the direction of ensuring that terms and conditions of employment are, pro rata, the same as those for full-time employees doing the same work.

However, I believe that there is a case for re-examining whether the new flexibility is in the long run to the total advantage of employers. It tends to undermine feelings of self-worth and esteem among workforces since no one likes to feel that he or she is expendable. There are the negative social effects to which I have referred. In financial services, in particular, the customer likes to feel that the institution with which he or she is dealing does have some stability and this is undermined if the employees with whom they deal are constantly changing as they come to the end of short-term contracts. The senior officials of a major bank recently said to me that this was beginning to be recognised.

I also believe that it should be possible to construct alternative policies which would arrest the development of a society in which only a minority has security and the remainder has to cope with varying degrees of disadvantage and insecurity. But that will mean turning away from the philosophies and the policies which have dominated government thinking since 1979. It means adopting a positive attitude aimed at employment creation and doing this in conjunction with our partners in Europe, based upon a philosophy that acknowledges social concerns and is not purely market oriented.

When the Government come to reply, I hope that the Minister will not trot out the tired old mantra about the social chapter. He knows as well as I do that it is simply a set of general principles and that the only directive that has emerged from it has been in relation to works councils, which although it does not bind the UK, is nevertheless being operated on a voluntary basis by a number of British firms. Neither is there the slightest evidence that a minimum wage would prevent job creation. Japanese companies investing and manufacturing here have already indicated that they have no difficulty with it.

We shall not deal with the problems to which I have referred, and which in truth are part of the general problem of employment towards the end of this century, by attempting to reduce the living standards and expectations of a large part of the population. I await with interest the Minister's response. My Lords, I beg to move for Papers.

3.42 p.m.

Lord Stewartby: My Lords, we are all grateful to the noble Baroness for giving us an opportunity to debate

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this subject. I must compliment her on the amount that she managed to squeeze into her 15 minutes, which she did most elegantly.

I should begin by declaring an interest as a director of a bank, but it is only rather peripheral to today's subject under discussion because the bank concerned has most of its employees in Asia and Africa and not in this country. But it has given me a considerable insight into what has been happening in the financial sector in this country in recent years. There is no doubt that this sector has been a great success. It is a matter of national pride that the City of London occupies such an important role in European and global financial matters. Although I do not have up-to-date figures available, I believe that the percentage of GDP which the noble Baroness quoted--approaching 20 per cent. from financial services--is very much higher than the percentage of the working population in that sector. Therefore, it is a very vital one.

What slightly worried me about what the noble Baroness said was that much of it appeared to be a statement of regret for the passing of an old order. I share that feeling of regret in many respects. We do not want to see people facing insecurity of employment, and difficulty in obtaining employment, which they can reasonably expect will continue for many years. But the difficulty that poses is that unless our financial sector responds to developments internationally and accepts the implications of technological revolution--for it is no less than a revolution--we shall lose competitiveness and our financial sector, which has managed to obtain so much international business to the great advantage of this country's economy, would lose out on its relative position.

If one just considers some of the developments which have taken place, such as ATMs, telephone banking, Internet, video conferencing and that kind of thing, they are bound to disrupt working arrangements which have seemed for generations to be settled. However uncomfortable we may find these developments, we have to accept that there is a degree of inevitability about them and try to find the right kind of responses. Those responses will come partly from the companies themselves; from the attitudes of employees and would-be employees. Also, there will be an impact on our education and training systems because the kind of working life that people will be facing in the financial sector, and many others, over the next generation, will be profoundly different from those which faced us a generation ago. It is not comfortable, but we need to respond to it.

Unfortunately, the pace of change is, if anything, accelerating. Ten years ago I had the task of putting together the Building Societies Act 1986. At that time I remember discussions in the Treasury as to whether it was possible to construct an Act which was likely to last for 10 years in view of the pace of change in the market place. It is exactly 10 years now since that Act was introduced and I think it did serve well. It is fairly remarkable that it has managed to last that long. I am not at all surprised that new legislation is now in the offing because it is certainly needed in view of the changes which have come about.

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There has been a structural change. As well as within individual companies, the activities of building societies and banks have moved closer together. The same is true of insurance and investment. Foreign companies, German banks and many others, have been buying into the City, and the internationalising of our financial markets has proceeded apace.

The noble Baroness referred to the fact that that happened earlier in the industrial sector, and that is right. Prior to that it happened in the agricultural sector. The difference about the financial sector is that it is so much more geographically concentrated. It is not, as she said, by any means entirely confined to the City of London or indeed only to the major centres because of the movement out of town to other locations. Nevertheless, it is very concentrated. It poses very significant problems both for employees and employers in managing this process of change.

I shall not take up the defensive political points which the noble Baroness made about minimum wages, the social chapter and so on, but it would be helpful if her party could be a little more precise about what kind of employment ideas it believes are appropriate to this fast-changing situation. My own view is that we need to maintain and improve our competitiveness and get our education and training more closely aligned with the needs of employment--not just the old-fashioned idea of the needs of employment, but employment in the new forms which it is beginning to take.

There is a requirement for a different type of approach. Many of the more routine tasks of a clerical nature, particularly in record-keeping, have been taken over by computers and so on. That is at the heart of the problem of the financial sector. In my view, although the noble Baroness expressed a longing for the old days when public policy could be described as full employment, if we were to allow that to be interpreted nowadays as a wish to sustain the status quo, with the inevitable consequences of over-manning, we would be deluding ourselves. I am certainly not accusing the noble Baroness of that, but when one considers such matters after a period of such rapid change there is a temptation to feel that there must be some brakes that could be applied to slow down the whole process. However, I rather doubt that.

In addition to technology and competition, I should like to mention regulation. I am a member of the Securities and Investments Board, a public body which comes in for a fair amount of public comment, not always of a flattering nature. The SIB and associated bodies have tried to do the serious job of ensuring that the financial markets are properly organised and that those who are in those markets behave correctly. I think that there is now possibly a danger of too much regulation rather than too little. If the regulations become too much of a straitjacket, too cumbersome and too mechanical, that can suppress a lot of beneficial business activity.

That brings me to the point made by the noble Baroness about life assurance. Some terrible things were done a few years ago when many pensions and life policies were mis-sold, and those who were responsible

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need to make amends. However, if the consequence of the regime and processes which are applied are such that they dissuade many in the population not to make the kind of savings which are in their own interests, the pendulum may have swung a little too far.

Whenever there has been such a fundamental change, the whole process of redundancy becomes rather stark for groups of people. I agree with the noble Baroness that words such as "down-sizing" and "outplacement" are euphemisms for what is a very unhappy experience for those individuals who suffer them. However, I do not believe that the noble Baroness should be too hard on those employers who have tried to introduce training and new retraining schemes and to provide more flexibility in their employment. That is part of the response which employers need to make.

I know that one of the major high street banks has been introducing work experience for 16 to 18 year-olds to give them some taste, before they finish their formal education, of what today's world of work is likely to require from them. That is beneficial, especially as I understand that it can be done in conjunction with the local education authority and the schools.

We shall have to adopt such new approaches if we are to face up to the fact that the changes in the financial sector are not likely to be reversed. They will probably continue and may even accelerate. The financial sector has been a very important part of this country's economy for many years. I hope that it can retain that leadership internationally. I believe that it can and that it will do so if it remains competitive even if that brings in its train difficult decisions for employers and employees.

3.53 p.m.

Lord Haskel: My Lords, the major financial services industry used to be one of the most secure areas of work. People did have a job for life and would encourage their children and grandchildren to enter banking and insurance companies. There was a recognised career path which enabled people to feel secure and to plan ahead.

As my noble friend Lady Turner told us, all that has now changed. I am most grateful to my noble friend for the opportunity to debate the change. The financial services sector has experienced big fluctuations in employment. It has experienced new technology, deregulation, competition and changes of ownership. All that has led to a casualised and pressurised workforce.

The impact of new technology on the industry has been enormous. Not only have computers and data bases replaced many of the old clerical jobs, but the new communications systems also mean that people need to be in their offices far less. There used to be a time when a new technology could mature within a company or an industry so that people could feel comfortable with it before putting it into effect. As the noble Lord, Lord Stewartby, told us, today there is no time for that. So as technologies change, the people operating the old technology move out, and those skilled in the new technology move in. There is little recruitment for training, just wholesale change. From the employer's

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point of view, it is best to have those specialist people on short-term contracts or employed through agencies to facilitate a rapid turnover.

A second reason for insecurity is the new style of management. No longer do we have the old-style generalist bank manager or insurance manager who would advise on everything from your overdraft, to operating your business, or making a will. Today "focus" is in fashion, so the new style of management is built around specialist products. There is one specialist who will advise you on your overdraft, another on your mortgage, another on your will. Organised that way, the business depends less on personal relationships and more on specialist knowledge. That development tends to upset career progression, again leading to more insecurity.

A third reason for insecurity is the many recent changes in ownership. That has disturbed the usual recruitment and career patterns because new owners need to rationalise and merge operations. In addition, building societies become banks, which means that shareholder value becomes the top priority. That produces other pressures which add to the insecurity. As a result, we now have an industry where an estimated 64 per cent. of people have no employment rights; where short-term contracts and employment through agencies are becoming the norm, and insecurity is endemic.

That insecurity operates at all levels in the industry, from the boardroom to the messenger. It is a fact of life. How Mr. Ian Lang, the President of the Board of Trade, could say to the CBI last November that job insecurity was only a "state of mind" beggars the imagination. Perhaps he had in mind the different ways in which that insecurity is rewarded. At the top of the tree, it is rewarded by high salaries, generous share options, insurance and comfortable pensions. By contrast, insecurity is rewarded lower down the ladder with low pay, no share options, no insurance and no pensions.

How do the Government react to all that? They welcome it. They say that it provides flexibility of employment which, in turn, removes people from dependency on the state. The opposite is, of course, true. The insecurity makes people more dependent on the state. What is more, without insisting on minimum conditions at work, the Government encourage bad employers to use the benefits system to subsidise low wages and low investment.

Of course, the better companies have now realised that all that impacts badly on customer care. They realise that the pendulum of fashion may have swung too far one way. The better companies are more perceptive than the Government and realise that flexibility at work is not just ease of hiring and firing. Flexibility to become more competitive means a different attitude by employees. That kind of flexibility means working flexible hours, adapting to new technology, learning new systems and methods, discarding old ideas, and understanding the need to be competitive and to work more effectively. Better employers also understand that they will not achieve that flexibility by rewarding it with insecurity.

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I agree with my noble friend Lady Turner that we cannot put the clock back, but what has been the Government's response to that change? Do they try to balance a fair society with an efficient economy? No. The Government's response is the jobseeker's allowance, which does nothing for the unemployed. All it does is tackle the claimant counts.

Fortunately, better firms realise that although they have to work in a competitive environment, human beings are not a tradable commodity. While they want to have the benefits of casual employment, they want also to motivate their staff, keep morale high, and be a fair employer so that they can attract the best people to their companies. They need the economic benefit of casual employment, but they need also to satisfy their customers. They need their employees to perform well, and they also need their commitment and loyalty.

The way to achieve that is not by taking away the rights of workers, as encouraged by the Government, but to turn insecurity into security. So, the better firms do give employees employment rights, even though they can fire them the following day. They will also give them a feeling of security and reduce the fear of change by offering training for employability. Labour's University for Industry is designed to do precisely that.

What is the effect if we do not give people more security? My noble friend Lady Turner told us. Living on poverty wages, in conditions of permanent stress and insecurity, has a dreadful effect on society. As the hours of work in which a decent wage can be earned grow longer and longer and more uncertain, so there will be more and more stress on family life. It is no accident that more and more child rearing has fallen on single women. That insecurity leads to people living on income support and resorting to the black economy. That affects everything from the housing market to social security spending, and damages the growth prospects of the entire economy.

Indeed, in his November Budget Mr. Clarke predicted that the economy would grow by 3 per cent. driven largely by a surge in consumer spending. Who are those consumers upon whom Mr. Clarke is depending? Why, the very insecure, low paid people we are discussing in this debate.

4.2 p.m.

Lord Boardman: My Lords, let me first declare an interest, as I am a former chairman of one of the major high street banks and a member of its pension fund. I shall confine my remarks to banking because that is the part of the financial services industry about which I know most.

I accept, as in the terms of the Motion, that there has been a considerable change in the pattern of employment in the financial services industries. However, I am surprised that the noble Baroness chose the financial services, because the arguments that she and the noble Lord, Lord Haskel, put forward seemed to put the financial services in the position of being the good boys. They are doing so many of the things that they urge should be done. I shall develop some of those points later.

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The whole pattern of employment has changed substantially. I regret some of that as did my noble friend Lord Stewartby. I remember being taken as a boy by my father into the local bank. He would talk over the counter to the manager and the transactions were entered in manuscript into the bank ledgers. It was all very comfortable and friendly, and, I think, secure. But that could not last. Technology overtook all that.

My noble friend Lord Stewartby referred to present methods which cut out the need for any man or woman power: the computers, records are stored at a distance, and, without being touched by human hand, they can be recalled by the touch of a button, and so forth. That of course does away with a great amount of human effort. Cash can be obtained by using a card in the high street. There is no need to go to a counter where someone counts out the money and dishes it out. All those changes have made a tremendous difference to patterns of employment.

Alongside that, there has been a vast increase in bank usage, both in the huge increase of customers in the banking sector and in the variety of services offered by an industry which originally may have been looked upon as mainly taking and giving cash.

A few years ago--no doubt it has changed today--if all the cheques that went on one day into the bank of which I was chairman were placed one on top of the other, they would reach three times the height of the NatWest Tower. Each one of those cheques had to be handled three times. That shows the size of the task. No doubt in the years since I recorded that event, things have changed. There are more credit cards and other forms of cash transfer which may well have reduced that total. Yet the total number of people employed in the major clearing banks has varied very little.

In 1984 the major clearing banks employed about 290,000 people. Today I believe there are about 285,000 employed, despite the vast increase in the usage by customers and the variety of services. There have been fluctuations. The numbers have increased and they have decreased as a result of changes made.

The noble Baroness was unfortunately critical of part-time workers. Part-time workers are of great value in banking. Part-time working is also valuable to those who do it. A typical example is the good lady who mans the cash till. Those hours fit in conveniently with school hours. It is convenient for a mother to have that part-time job at a cash till and then be able to collect her children from school. Part-time work is one of the great assets that the financial services industry can and does supply.

I think noble Lords will find that the clearing banks in general have been pace-setters for many of the best employment practices, whether it be with regard to maternity leave, creches and that kind of thing; and in training. The noble Baroness referred to training. I doubt whether there is any industry that has spent more per head on training than banking. Tens of millions of pounds a year are spent on various training courses run by the clearing banks. The aim is to give all members of staff at every level an opportunity to raise themselves to a higher level and to greater opportunities in the

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future; and, at the same time, to provide members of staff with good, well-paid jobs in a social and environmental setting that suits them. Banks cannot and should not be criticised with regard to training.

There is of course one change that has been made to which the noble Baroness rightly and understandably referred: for a long time a job in a bank was looked upon as a job from cradle to grave. Someone joined the bank when they left school and left it when they retired on a pension. That had advantages and disadvantages. It had the advantage of providing staff security and loyalty, something to which the noble Baroness referred. But it limited somewhat the capacity to introduce into banking people at a level and at ages at which they could compete with that system. The change was often resented by members of staff who felt that that operated against their interests.

There have been redundancies in the past year or two resulting from mergers and the recession, but primarily from new technology. Yet I should be surprised if those redundancies cause much unemployment, because they have been dealt with mainly by early retirement and voluntary redundancy.

Bank staff receive training during their employment and banks have been devoted to helping to find new employment for those whom they have to make redundant. Therefore, I imagine that bank staff find it easier to find another job than those from other industries. I accept that for the person concerned unemployment is 100 per cent. I do not seek to say that we can welcome any unemployment. Of course, we dislike it. Furthermore, it is probably more painful for a person who is the only one to be made redundant in an office than it would be if he were one of, say, 1,000 people to lose their jobs because the factory has closed. However, I should be surprised if the number of redundancies in the banks has led to much of an increase in the unemployment register. Those people are very unemployable. Many operations have extended into banking operations--for instance, General Motors and Virgin--and they welcome trained banking staff to help them in their expansion.

The noble Baroness referred to figures which she had received from BIFU. I see that she nods in agreement. I believe that members of BIFU who leave a bank and take a job with, say, Virgin, will not then be members of BIFU and BIFU will report them as leaving banking and becoming unemployed. I believe that only a small number of people who are made redundant from banking remain unemployed for any length of time.

Problems have arisen in industries which have put off changing and have not been prepared to change. They delayed change until eventually everything closed down and they went bust. However, the financial services industries have been willing to change and to lead change. They have promoted many of the vital services that are now copied throughout the world. They have devoted themselves to creating and deploying new technology and they have faced increased competition from abroad. As a result, there is no doubt that London is the leading financial centre of Europe and probably of much of the world.

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No industry has taken more account of the social requirements of the few of its staff whom it has been necessary to make redundant. The financial services industries have a record of which they can be proud.

4.13 p.m.

Lord Monkswell: My Lords, we are indebted to the noble Baroness, Lady Turner of Camden, for introducing the debate so admirably. I had thought that one of the issues Members opposite would raise would be the introduction of new technology causing reductions in employment requirements. I was right. It has been one of the themes of the debate. However, the suggestion that the introduction of new technology has affected the financial services industries only during the past few years and not during the past 20, 30, 50 and 70 years is ingenuous.

We must recognise the changing pattern of demand for financial services. For various reasons, during the 1980s there was an explosion of demand in the industries. That was partly due to the liberalisation regime introduced by the Thatcher government and partly due to other factors. A demand for employees was generated and that brought security of employment which was not experienced by other citizens in the UK.

The noble Baroness referred to the problems in manufacturing industry. I had experience of the front line, so to speak, during the 1980s and I know that local authority employment was subject to the same attack. The health service also has been subjected to similar changing patterns of employment. As patterns of employment have changed during the past 15 years there has been the underlying reality of mass unemployment. We need look back only to the 1960s to realise that the situation can be different. At that time full employment was the objective of both Conservative and Labour governments. The restructuring of the electricity industry, led by the noble Lord, Lord Weinstock, caused a massive shedding of jobs. I remember 2,000 people in south London being made redundant virtually overnight. However, relatively soon afterwards they received their redundancy payments, courtesy of a Labour Government, and found alternative employment. That has not been the case during the past 15 years.

The financial services industries have to a certain extent been immune from such experiences. It is interesting to look at the products of those industries; perhaps I may give an example. About 22 years ago my wife took out a mortgage to buy our first home. Only building societies and local authorities were offering mortgages and only two types were available, endowment or repayment. That was it--two suppliers and two products. What is the case today? At the end of last year I went to my local building society to apply for a mortgage. I was amazed by the variety of options available. The matter was so complicated that I said, "I want the same kind of mortgage I had 20 years ago, a straight repayment mortgage". They said, "All right, we know what you are talking about. We will give you that".

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I suspect that today in the financial services industries, instead of people being offered the bread and butter they need to survive they are being offered cake. We know that during the French Revolution Marie Antoinette said, "Let them eat cake". That was totally inadequate at the time. I suspect that we are reaching a very similar situation today.

How do we deal with the problems caused by the changing patterns of employment in the financial services industries? My noble friend Lady Turner gave some very convincing explanations for the problems. She highlighted the importance of full employment. I reiterate that.

Employees in the financial services industries have skills which are in demand in our society. Generally speaking, they are numerate, and they have administrative skills. One interesting development over the past few years has been the creation of the Child Support Agency. Whether one agrees with the merits or otherwise of the agency, two matters are evident. First, there appears to be a political consensus that it, or something like it, will carry on; secondly, it seems almost totally incapable of operating with a bare minimum of administrative efficiency. The House of Commons Select Committee report last year suggested that the agency achieved something like a 30 per cent. success rate in relation to its administration. That has now improved. According to the latest report, it has something like a 48 per cent. success rate. An organisation which gets wrong over half its basic administrative tasks cannot be said to be functioning effectively. There are employees in the financial services industries who have skills available which could be deployed. It is interesting to note that the agency was staffed, as was described to me, straight out of the jobcentres. The Civil Service recruitment agency was not employed for the task. Now the Government talk about privatising that agency.

A sensible government, looking at the problems, looking for solutions and using the resources available, could have redeployed people from the financial services industries into the agency.

Apart from individual examples of government action which could be taken, right across the political spectrum we need to readopt the consensus that existed for 30 years after the war; namely, that the object of government policy and social, political and economic policy is the maintenance of full employment. Until we readopt that consensus which served this country so well, not only will the people in the financial services industries suffer the problems of insecure employment but so too will everyone else.

4.24 p.m.

The Earl of Clanwilliam: My Lords, the noble Baroness, Lady Turner of Camden, has introduced a very important debate on the financial services industry. I note that the Motion refers to it in the plural and, indeed, there are several sectors of the financial services industry. The sector which everyone thinks about is the City, which is the major producer of benefit to our GDP. But I must thank the noble Baroness for her very sensitive speech in

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looking for support to find solutions to the intractable problems of unemployment in the industry. In the plurality of the word "industries", I believe that the Motion refers less to the boardroom and managers than perhaps to the foot soldiers in the industry.

Indeed, there has been a revolution in the financial services industry brought about by the arrival of a new breed of suppliers of services which were traditionally offered almost exclusively by life assurance companies. Deregulation has given new opportunities to the bancassurers and building societies which are competing for business generated by the introduction of new products such as TESSAs, PEPs, personal pensions and the favourable tax treatment for unit trusts, for which we must all be very grateful to the present Government.

The effect of deregulation has been to widen the scene for businesses which previously offered those services through intermediaries. They are now able to offer them themselves. Therefore, there may be an argument that increased activity and opportunities should cancel out any potential loss of employment. Indeed, it seems that that has been the case.

Of course, the foot soldiers are busy with the smaller investors rather than the man who goes direct to Lloyd's to insure his £500,000 house. They are rather dealing with the people who are trying to spend a few pounds per month investing for the future. Those are the people who are most at risk. Of course, there is a contrast. The Starred Question today dealt with a matter in which many millions of pounds were involved. It is the smaller people who are offering insurance who are most at risk.

The fact that bancassurers and building societies are merging is another example of how traditional businesses which offered security for life to their staff and employees subject, perhaps, to only a number of years of honest and true service, have now had to trim their conditions and rewards for service in the face of competition. On top of that, the mutual life assurance companies are reforming as plcs and in turn merging with banks and building societies. Meanwhile, those new financial products lend themselves to modern technology. In spite of that, employment is expanding due to the increased opportunities in marketing presented by those products.

Additionally, those products used to sell well in the old inflationary environment where it was seen that everything rose slightly ahead of high inflation. The Government have now managed, against all the odds, as we can see from the serious state of our colleagues in Europe, to lower inflation and keep it lower. That means that there is perhaps less excitement in the thrill of investment. Indeed, the bonuses from some of the with-profits policies are rapidly being withdrawn in the face of failure to keep up with the promises which they made in the past.

Nevertheless, the basic need for savings and investment remains. The increase in marketing opportunities have been overtaken by the range of new suppliers all using modern technology. At the same time, those products require sophisticated selling techniques by well-trained staff. As my noble friend Lord Boardman said, enormous sums have been spent

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by the industry on training staff. That adds additional overheads and costs to the products that are sold and that in turn reduces the amount of profit that can be made.

With the greatest respect to the noble Baroness, Lady Turner of Camden, who I know holds an important position on the PIA, I suggest that the rigorous requirements of the regulator are so comprehensive that it may be that three or four visits have to be made by a salesman before completing a transaction.

I took the opportunity to visit the office of a friend of mine who works in the industry as an agent of a life assurance company. He is a very respectable gentleman with an MA degree from Oxford and 40 years' experience in the industry. He has 26 pages of--there is only one word for it; it begins with "b"--which he has to complete. It is an impossible job.

No one is arguing that this protection of the potential investor or client is unnecessary. It is just that the requirements are so time consuming that the investor may become bored while the adviser finds little financial reward to compensate him. Indeed, my noble friend Lord Stewartby suggested that over-regulation could become counter-productive. No matter how much electronic wizardry is employed, the papers have to be completed and signed and I wonder whether there could be a degree of acceptance of long-term and blameless record that would allow experienced advisers to operate with less supervision. Good regulation is not necessarily related to ever bigger rule books. Indeed, is not Brussels the perfect example of that?

It is the crook who needs to be discovered before he starts selling. Your ordinary adviser may be no financial wizard, as is the smooth talking crook, but he is basically honest and genuinely wishes to help.

I congratulate the Government on the extension of choice in offering the ordinary citizen such a wide range of investment opportunities and ask them to press on with the good work especially towards those 10 million employees and self-employed people who have no pension prospect other than the state provision. Perhaps there will then be less concern for the wider social effects that we all wish to relieve.

4.31 p.m.

Baroness Lockwood: My Lords, the debate today targets the financial services industries in particular, but the same trends and social consequences apply right across industry as a whole. To my mind, this is the root cause of the absence of the so-called feel good factor in our society today.

Social Trends states that part-time work for both men and women over the past decade has increased. Over that same period full time jobs for men have declined by 3 per cent. whereas 1.5 million more women were working in 1994 than in 1984. Those are considerable changes in the make-up of the workforce. Table 4.16 of Social Trends indicates that three-quarters of a million men and four and three-quarter million women work part time. In addition, it also indicates that 20 per cent. of full-time and 17 per cent. of part-time male workers work some kind of flexible work pattern; 30.2 per cent.

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of full-time women and 35.5 per cent. of part-time women work some kind of flexible work pattern. This is completely different from the picture 10 years ago.

It is a trend which continues. For example, the Institute for Employment Research in a recent forecast up to the year 2001 portrays a labour market undergoing long-term restructuring with shifts to services and white collar work with most jobs created going to women, mainly part time and often on low rates of pay.

In her opening speech, my noble friend Lady Turner referred to some of the reasons for that change in the structure of the labour market. Changing social patterns have led to women's increasing participation in the labour market. This is now widely accepted as being a permanent feature of the labour market and clearly has had an effect on its structure. I regret to say that it has not always had an effect on the culture of the labour market.

The emergence of new technologies--most speakers have referred to them--have certainly revolutionised our methods and speed of working. The technological revolution, as the noble Lord, Lord Stewartby, termed it, should have been a great boon to our economy. Ten years ago we were anticipating this effect. The great debate at that time was as regards how people would use their new leisure time, and what educational facilities were needed to help us use that time more effectively. Somehow that has not happened. Instead, recession has overtaken us and despite the technological revolution GDP is growing very slowly. The extra leisure that we have has become enforced leisure through higher unemployment. Restructuring is taking place in companies often without consideration of the social consequences. Women's growing participation in the labour market has been seen as an opportunity to reduce labour costs.

This picture is reflected across the board and in the financial sector. The financial sector was one of the sectors which was growing at quite a fast rate until 1990. Traditionally it was regarded as a male sector and one of great stability, as a number of speakers have already indicated. Banking certainly offered security par excellence and the bank manager was a pillar of the local community. All that is now different. Banks employ more women than men and often on a part-time basis. But other changes have taken place in the past five years when the growth stopped. Jobs have been considerably reduced. In fact one in every five jobs in banks has been lost. The noble Lord, Lord Boardman, said that that has not led to a great increase in unemployment or even in redundancies because of the policies that the banks were following to facilitate that. Nevertheless, it means a total reduction in the number of jobs available in banking and therefore fewer opportunities for employees in the future.

Some noble Lords may be surprised at my tone in speaking about the increasing number of women in employment. I normally speak in support of it; I certainly do so today. However, we have to take

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account of a number of caveats. I accept the advantages of new technologies. They must be encouraged. But they must also be managed, and managed in the interests of the community as a whole as well as of the individual companies. I accept that because of their lifestyle many women need or prefer to work part time or to have some flexible working arrangement. Again, that is to be accepted. What is not acceptable is that women should be exploited and used as a source of cheap labour. I have always advocated pro rata terms and conditions for part-time workers with access to training and promotion. The prospects for that should exist, but it is not what the majority of part-time women workers achieve today.

Women have had to pursue their rights through individual cases in tribunals and in the courts. Case after case has established indirect discrimination against women because over 80 per cent. of part-time workers are women. Those cases have been taken under our own legislation--the Sex Discrimination Act--as well as under European legislation. Regrettably, they have sometimes had to be taken against the Government. Despite their avowed commitment to equal opportunity policies between the sexes, the Government have refused to extend rights to part-time women workers because, as they say, it would deter companies from creating new part-time jobs.

However, the Policy Studies Institute, in a cost benefit analysis of giving part-timers pay rates, pension rights, sick pay, holidays and other benefits equal to those in full-time employment, indicates that the cost would be "marginal"--that is, 0.5 per cent. of the national pay bill which, incidentally, is less than is paid to company directors in perks and expenses. The analysis goes on to indicate that even that cost could be partly offset by productivity gains through part-timers becoming more committed and loyal to their company because of the fairer policies.

The TUC estimates that only four out of 10 part-time workers get the same hourly rates as full-time workers doing the same job. Around 2.5 million part-time workers earn less than the national insurance threshold which, in turn, affects their rights to statutory sick, maternity and retirement pay. Recent research by the Equal Opportunities Commission indicates that flexibility and restructuring works more in the interests of companies than of women employees. That operates even in some of the more progressive banking systems, as one of the case studies indicates.

It seems to me that the Government have a number of policies which are in conflict with one another, as my noble friend Lord Haskel implied. Their policies create more jobs, usually at the bottom end of the market--that is, part-time and low-paid. In turn, those jobs, together with continued redundancies, put pressure on social security payments. That then means that their policies to reduce government expenditure are defeated. Equally, their employment and social security policies conflict with their equal opportunity policies.

I believe that we need a fresh approach to facilitating industrial change, to creating new jobs and to educating and training members of the workforce so that they can be flexible in the best application of that term.

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4.44 p.m.

Viscount Chelmsford: My Lords, I see the financial services employment scene as something of a paradox. We hear endless reports of job losses, not very much about new jobs and nothing at all about new company start-ups. We are in a position where our old financial services--not our new ones--are under attack both domestically and internationally; that is to say, banks, insurance, the Stock Exchange and those kinds of industries. There are problems due to less manpower because of technology and there are those dreaded words such as "downsizing" and "outsourcing", restructuring; and, indeed, there is a tax on head office staff and on middle management.

Yet, Canary Wharf is now 75 per cent. full. Indeed, we were in the City the other day and we found the new LUC (the London Underwriting Centre) building 90 per cent. full. Prime space in the City seems to be full. We already have talk about Canary Wharf phase 2, and the City of London is gearing up looking for more prime sites to compete against it. There is something of a paradox there.

Let us go back a little and look at the employment scene from a different direction. In 1982, John Naisbitt wrote Mega Trends and pointed out that US agriculture had once employed one-third of the American workforce in 1900. However, by the time he wrote his book in 1982, the percentage had reduced to 3 per cent. Moreover, US industry, going through the industrial revolution, was doing the same thing. That was followed by the information revolution which led, in turn, to leisure and services. He also pointed out that each of those ages gets shorter. He did not say why, but I suspect that that was because the pace of technology goes ever faster.

Mr. Naisbitt also pointed out another quite interesting factor; namely, that the USA's job creation rate had moved from 93,000 per annum in 1950 up to 600,000 per annum in 1982. He attributed that to the strategic resource now being information. He said that information industries were brain intensive, not capital intensive. I believe that we would probably say today that they were both. But, interestingly, he made no mention of the USA infrastructure which allows new business to flourish or of the risk culture in the states which encourages them to do so. I believe that we still have much to learn from the USA.

I turn now to 1994 when Delors wrote the White Paper Growth Competitiveness and Employment. He started with the famous question: Why this White Paper?--the sole and only reason is unemployment. He pointed out that the EU's competitive position relative to the USA and Japan had worsened and that its growth rate had dropped from 4 per cent. to 2.5 per cent. per annum. Of course, at 2.5 per cent. per annum, that is, at best, a standstill. Countries like Singapore and Malaysia are growing steadily at rates of 8 per cent. and 10 per cent. He called for lifelong education and training and for greater flexibility in business. Indeed, we have already heard mention of that word.

It is interesting to note that Delors did not actually call for flexibility in government. His critics said that the EU was overburdened with regulation and that

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employers were overburdened with employment costs in the form of taxes and that that discouraged job creation. We have quite a good example at present in the UK, as has already been mentioned, of the life assurance industry. Whatever its past sins, it has suddenly had to take on board a heavy burden of new regulation; a massive focus on review of past transactions; over-complex rules about how to sell a policy, although I am happy to tell my noble friend that the PIA told us only the other day that it was working on that aspect; and, of course, the resultant bad press. It is hardly surprising that the profits of the life assurance industry are down and that job creation is not exactly encouraging in that part of the financial services.

It seems that the first law of financial service regulation is that one quadruples the amount of paperwork that one makes and the second law is that you give it to those innocents whom you are trying to protect. Regulation definitely depresses job creation. Regulators do not work themselves out of a job despite all the good intentions of some of them to do so.

I turn now to a different aspect; namely, what is the unemployment rate? It is certainly not what the official figures suggest. We have already heard several times about contract jobs, part-time employment, temporary employment and about those who run several jobs at once and work from home by, perhaps, teleworking. All those activities are not fully accounted for in the statistics that we receive.

Let us consider, for example, some of the parliamentary special advisers whom I am sure many of us know. They work for several employers, both personal and corporate, at the same time and probably do more than the standard nine to five Monday to Friday job. But where are they in the employment statistics? Incidentally, although I cannot remember where I heard it, I was definitely told that Holland had increased its employment by 30 per cent. over an eight-year period through the use of temporary and part-time working.

Earlier I mentioned the indirect costs which governments can and do add to employment costs. Germany currently carries the highest indirect costs. I have some interesting labour statistics for 1994 which are worth quoting. They relate to costs per hour in US dollars averaged, I presume, over all work, not only the financial services. Those costs were: West Germany, 25 dollars; France and the USA, 16 dollars; the UK, 13 dollars; South Korea, 5 dollars; Indonesia, 0.3 dollars.

Asians make highly disciplined clerical workers. At least five years ago UK financial service companies started examining to what extent they could transfer clerical work to Asian countries. Presumably they are moving forward to see how much of their clerical accounting can be handled in those countries. If they do not they may not hold their business, given the cost differentials that I mentioned.

Does that mean that we have to drive down our own labour costs? I do not think so. However, I believe that it means that we have to be much more inventive. We need more innovation and more products which require

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skills that other nations do not yet possess. It also means that we should be very circumspect about awarding ourselves too much pay.

Other nations in Asia with lower costs of living have also learned those clerical skills and that efficiency. Therefore we have to watch the situation carefully. UK job losses in the financial sector arising out of processing, as a result of changes in both technology and labour cost differentials, seem to me to be inevitable over time. It is interesting to learn that the Coopers' report forecasts a 30 per cent. reduction in the financial services industry over the next 10 years. I imagine that that is a major area that has been considered.

It is several years since Charles Handy warned us that the employment changes which have already been mentioned would cause a major shift in employee loyalty. He did not see the concept of a job for life continuing. I am a member of probably the last generation to have one. He said that an employee's first loyalty would be to himself, his second to his trade and his third to his employer. Interestingly, that has been the case for a number of years in one trade which no one has mentioned, that of the information technology professional. A professional in information technology can start his career in, for example, paper manufacture, move on later to the Stock Exchange and end up in the National Health Service. He is doing the same job and his pay relates to that of other information technology professionals, not to the disciplines in which he has worked. It is a paradox that despite the fact that he generates his own pay it is the computer industry which is currently starved of applicants with relevant skills. That brings us back to training.

Perhaps I may summarise the points that I have mentioned which I believe assist employment. Information industries are brain intensive and thus lead to innovation. There is a need to foster a risk culture in which success is rewarded, not envied. There is a need for life long education and training. There must be a supportive infrastructure for easy business start-ups. There must be no government taxation on jobs. There should be the least possible regulation, combined with tough laws, after the event, on monopolies and misdeeds. There must be better measurement of employment to cater for modern jobs, and a concentration on areas where we have excellence and can command our own job rates.

In my view the most important of those is freedom from regulation. I am prejudiced, because I spent my career bringing insurance from a highly regulated American insurance market to a then very free UK insurance market. That counted. Today, in the insurance market, and it is entirely our own fault, the shackles of regulation fall heavily on us at the very time when the USA is progressively deregulating insurance. Without doubt that affects not only employment in insurance in the UK but also UK invisible earnings, because insurance is a major earner for us. Incidentally, brokers--of whom I was one--bring in in excess of £1 billion a year, each year, to this country.

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Perhaps I may end by mentioning a report, which no one else has mentioned but which I believe is very significant, issued by the Royal Society of Arts called Tomorrow's Company. The report said that tomorrow's company has:


    "A new adaptability based on flexible working; commitment to organisational and individual learning--a job is a contract and not a fundamental right; creativity and teamwork--innovation is a team game; people working across multiple technologies; openness on future job cuts and help re. new skills; the will to create opportunities for minorities and to help employees to develop their own enterprises; the will to use the intellectual resources of all".

I hope that those are some of the ways in which we may be able to improve employment, not only in the financial sector but everywhere.

4.54 p.m.

Lord Desai: My Lords, I owe an apology to the House and also to my noble friend for not being in my place when she opened the debate. I had told her that I might find it difficult to be present, and so it proved.

Being the last speaker I am in the happy situation of not having to repeat what has already been said. We have been over the ground thoroughly and heard some very interesting speeches.

Perhaps I may say in response to the noble Viscount, Lord Chelmsford, that I believe that it is right to emphasise that we are witnessing a change within the financial sector in the form of a decline in the old products industries and perhaps also in the new products industries. The old products were in large firms with lots of employees and the new products are generated largely by self employment and small firms. Some of the shrinkage in the financial sector could be accounted for by those gross changes, which are different from the net changes that we have observed.

It is interesting that for a long time we used to make a distinction between manufacturing and services. We thought that manufacturing was solid and production-based while services were protected. We have to think of tradable manufacturing and tradable services. The financial services sector, especially in the UK, has become part of the tradable sector which faces global competition, partly due to the Big Bang and partly due to the various technological changes that we have observed.

Manufacturing and financial services have gone through the same cycle whereby productivity and competitiveness are required merely to stay in the same place and not lose jobs. Competitiveness does not create new jobs in manufacturing; it minimises the loss of jobs. It is essential to be productive because that generates wealth. We are observing that while more output may be produced in manufacturing the number of people is shrinking. For the first time in more than 100 or 200 years we are in a position where wealth creation no longer runs in parallel with job creation. Wealth-creating sectors are not generating jobs. Under the old-fashioned labour theory of value we somehow expect that wealth will be created by hands and brains. We have to learn to think anew in that respect. All those services--not merely financial services--which are subject to

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competition, especially to open entry from abroad, or subject to technological revolution will have the characteristic of creating wealth but not jobs.

That will mean that those who survive in this sector will either have insecure jobs or, if they have secure jobs, highly paid jobs. Therefore, in manufacturing and the tradable services sector we shall end up with highly paid people, but few of them.

The problem is what we as a society do about that. What are the social consequences? That was a question raised by my noble friend. One interesting consequence of competitiveness in the financial services industry has been that at the same time as more people are using banks and financial services and fewer people are employed in those sectors there is a great deal more consumer dissatisfaction with financial services on the part of small firms and of people who use banking and retail services.

Despite all we hear about competition, bank charges have increased. I shall be more explicit. I have never understood why that is the case but perhaps previously bank charges were hidden by the fact that I had non-interest-bearing deposits. Now I receive the interest on the one hand and have bank charges on the other.

Something that I am sure will arise out of market forces and our response to them is that people will need intermediaries in order to obtain better services from banks. One of these days people will have to learn how they can get better service out of banks. It has almost become a specialist job. We all know of the recent case of the people who took a loan from the bank, tried to sue the bank for bad advice and then were sued in return. Obviously, taking a loan from a bank is a specialised activity and no longer as free of problems as it used to be. Perhaps there will be specialists to tell one how to deal with banks.

There might be some job creation where banks concentrate on products rather than on a package of total services, as my noble friend Lord Haskel pointed out. If banks are into selling products rather than services, people will have to buy some of the services elsewhere. I do not believe that that will create many jobs but there will be a growing sector with consumer complaints and the need for consumer help in dealing with financial services.

Far more interesting is that we will have to face up to the issue of where the jobs will come from. That is not the issue today; we are not dealing with the general question of where the jobs will be found. However, we must be clear about this. Not only will jobs not arise easily from the financial services sector but--I agree with most noble Lords who have spoken this afternoon--there is no way in which we can artificially create jobs in such a sector. That would not be right and it would certainly not be the way we shall have to take.

Given that the nature of the financial services sector is changing as new products are added, perhaps we ought to have a better notion of the changing structure of employment. That is not just the total number but, for example, how many people are self-employed rather than employed, how many people are full time or part time, what we include in the financial services sector

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and what we exclude. In management consultancy the number of firms has grown while the traditional financial services area has shrunk. Consultants are much more brain-intensive, with more face-to-face work. They do not sell a single product, but rather a complex combination of products and services.

Our future lies with people who will sell face-to-face services which cannot easily be automated. Once upon a time banking used to do so, but that is no longer the case. If the underwriter gives a face-to-face service, that kind of job will grow.

I believe that we face the problem of a shrinking financial sector in job terms but a growing financial sector in terms of wealth. We will have to learn to manage our non-tradable sector so that we can create jobs in it; transferring some of the surplus created in the tradable sector in order to make jobs for people such as teachers, nurses or retail sales people. Whoever they are, we shall have to create jobs in the non-tradable sector where the nature of competition is low and product innovation moves more slowly than before.

There is no easy answer and no political party has the inside track on one. Despite everything we can do on labour market flexibility, competitiveness and so on, at most such devices slow down the rate of job loss. They do not positively create new jobs. We do not know how to create new jobs positively.

5.5 p.m.

Lord Rochester: My Lords, like other noble Lords I am grateful to the noble Baroness, Lady Turner, for having initiated the debate. I have no personal experience of the financial services industries other than dealings with branches of my bank and building society. However, for nearly 30 years I had the good fortune to work securely for ICI. The changing patterns of employment to which the noble Baroness's Motion refers are also to be seen to a degree in manufacturing industry.

The debate takes us to the heart of employment problems generally and the effects they have on the cohesion of society. Our dilemma stems from the development of both new technology and flexible working. Many of the ways in which that is taking place have been instanced; part-time and temporary employment, the use of short-term contracts, movement from job to job to meet changing economic conditions, and so on. I share the concern expressed about the effects of those developments. People who remain in the same employment--many in posts carrying great responsibility--are suffering the stress of having to work longer hours in place of those who have been made redundant. There is the insecurity occasioned by the fear of so-called downsizing, mergers, takeovers and, in the financial services among other things, the disturbing consequences of building societies being turned into banks. There is also the unwillingness of people to take on long-term housing and insurance commitments and in many cases the inability of householders to move because they are caught in the trap of negative equity.

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There are all those and other difficulties. However, I wish to make clear that I am among those who believe that there is no going back. The overriding need for us to compete in a global market means that flexible working must be accepted. The question is how best, in the short term, the social effects can be mitigated and, in the longer term, the number of people in employment maximised thus avoiding the horrors of a society such as that portrayed in a recent "Panorama" programme. In it the haves retreat behind their guarded laager and the have-nots live in penury outside.

In looking for remedies, I wish to concentrate on three matters. I speak in trepidation because I am far from being an economist. There is need for a thoroughgoing review of our national insurance and benefits system. As the noble Baroness, Lady Turner, reminded us, in the economy as a whole it appears that only about 40 per cent. of the workforce now enjoy tenure of full-time employment or secure self-employment. Another 30 per cent. are insecurely self-employed or are part-time or casual workers, while the bottom 30 per cent. are either working for very low wages or are idle.

As Mr. Will Hutton points out in his book, The State We're In, while a labour market of this divisive kind may seem rational for firms cutting costs or for a government trying to curb inflation, its wider economic and social impact has been disastrous in increasing inequality and poverty and necessitating inflated public spending on the welfare state. It is high time to strike a balance between the competing demands of flexible employment and security by moving towards the concept of a minimum family income, however small it may at first have to be. That would do away with the present rigid division between benefits and earnings and help to ensure that people are no longer discouraged from entering the labour market. To the extent that there are now influential people in all three political parties thinking along these lines, there may even be hope that the necessary action can be taken on a co-operative basis.

Secondly, the advantages of retaining flexibility in the labour market need to be balanced by reducing the adverse impact on part-time staff of insecurity and sometimes exploitation. That could be done by bringing their employment conditions increasingly into line with those of full-time tenured employees. Until now, the Government have insisted that that would have the effect of pushing up costs to business, leading either to price rises or to compensatory job cuts.

However, as the noble Baroness, Lady Lockwood, told us, a recent analysis by the Policy Studies Institute concluded that the effect on employment would be broadly neutral and that any extra cost would be minimal. It needs to be set against other expensive aspects of employment, such as turnover and the need to attract employees of better quality and to enhance their motivation and commitment to the job.

Already, according to a survey carried out by the Institute of Personnel and Development, as many as 84 per cent. of UK employers offer part-timers holiday

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and pension benefits similar to those of full-time staff. It seems therefore that the practice makes sound economic sense and should now have general application.

Thirdly, in education and training, I welcome the Government's decision last year to co-ordinate responsibility for the two functions in a single department. My noble friend Lord Dahrendorf suggested in a debate last June that individual learning accounts should be established to be financed by employers, individuals, and where necessary the taxpayer. That would enable people, in the course of their working lives, to draw on their accounts when they needed training to improve their job opportunities or change their career. It would fulfil the purpose of providing learning and re-training on a life-long basis. A recent newspaper article mentioned that the possibility of introducing such accounts, which is now being examined, I understand, by both the Government and the Labour Party, had encountered some criticism on the grounds that people who are unemployed, self-employed or on low incomes might find themselves excluded. I do not see why that should be so if there was a contribution from the state. Even if that were not forthcoming, it is not a convincing reason for withholding such arrangements from others, including no doubt people working and seeking employment in the financial services.

At the risk of incurring the displeasure of the noble Lord, Lord Henley, for daring to advocate that the taxpayer might be further involved in such transactions, let me reiterate that my party does not shrink from the prospect of adding a penny to the standard rate of income tax if that proves necessary to finance education and training, among other times, after school leaving age. The great advantage of money so spent is that it would be investment in wealth creation and the production of future income, not expenditure on consumption.

The same may be said of investment in the infrastructure. It would give renewed hope of employment to some of the thousands of engineering and construction workers now out of work and it would have a beneficial effect, if only indirectly, on people employed in the financial services. Sadly, that cannot be said of some of the unproductive schemes, however well-intentioned, that are sometimes put forward as a means of keeping people in work. That is because, in the last resort, they fail to meet the overriding need to improve competitiveness.

My only other point may seem a little surprising coming from these Benches rather than those of Labour. A few weeks ago I had the pleasure, along with others, of exchanging views in informal surroundings with the general secretary of the TUC and leaders of major trade unions. I was pleased to find how much common ground there was between us in confronting and looking for solutions to employment problems.

Following events culminating in the winter of discontent in 1979, the Government were right to deal, by means of legislation, with some of the worst abuses of power practised by the unions. Although on these

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Benches we supported much of that early legislation,I have not ceased to believe in the need for trade unions and in the ultimate right of employees, if necessary, to take collective action within the law against unscrupulous employers.

I said earlier that there were grounds for hope that some of the problems discussed today could be handled in a co-operative way. To that end, I should like to think that the Government are willing, not to return to the corporatism of the 1970s, but to search for solutions genuinely and to involve and seek the support of what I believe is now a more responsible trade union movement. I say that because in my experience of the management of change in industry, decisions are more likely to find acceptance with individuals and groups of people if they are taken after consultation with those who will be affected by them.

5.16 p.m.

Lord McCarthy: My Lords, the debate has been very interesting and informative. I thank the noble Baroness for tabling an extremely useful Motion. To recall its words she talks not just of the financial services industries analysing the transformation in conditions of employment in those industries. She asks us also to consider the wider social effects. I want to concentrate on those effects and try to summarise some of the points made on this side of the House. We have been very much together. I also want to refer to points which I do not believe have been contradicted or, for the most part, disagreed with by the three speakers on the other side. Once again, we have a fair degree of agreement.

A question was raised by the noble Earl, Lord Clanwilliam, about the extent to which there is a decline in employment in the financial services. I looked to see what information I could find in Labour Market Trends, the re-named Department of Employment Gazette. It suggested that in general terms financial services have declined from about 1.1 million, however measured, to about 1 million over the past 12 months, a rate of decline overall of something in the region of 8 per cent. If my memory serves me aright--I may be wrong--that trend has existed since the peak period of the early 1990s. So we have seen a gradual decline in overall employment in the sector.

But the significant point emphasised by the noble Baroness is not so much the overall decline but the change in composition. That is the transformation--the change from employment of males to employment of women, the change in the sexual composition and the change in employment tenure and the change from full-time to part-time working, and from life-time, or assumed life-time, employment to short-term contracts. In the financial services the transformation is not simply represented by the loss in numbers, although that continues. It is represented in the terms of employment, the nature of employment, and the kind of people who are increasingly becoming "typical" employees.

We talk these days of atypical employment. In labour economics that means employment that is not full-time and not life-time. But it is time to change. For life-time employment is not typical employment but atypical

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employment. It is the unusual person who takes a job and stays there for the rest of his or her working life or assumes they will. They may leave when they want to to get better employment. It is the atypical person who works full-time. As we see increasingly, the majority of people in the workplace are not in that privileged category. The 40 per cent. or so who are privileged must come increasingly to be regarded as the atypical, lucky devils who have managed to continue in that way.

What is so awful is that as a result everything comes to them. They are the people whose real earnings have increased by 50 per cent. or more since 1979. They are the people who have profit-sharing and bonus options. And if they have profit-related pay they probably designed the scheme themselves. They are the people who have rolling contracts so that if their employment is severed, they have nice compensation agreements. They are the fat cats.

Of course, there may be some fairly thin cats. Perhaps not all Members of the House heard the other day that the chief executive of NAHAT was asked about the chief executives of trusts who now earn on average about £90,000 a year. He was asked whether such people were fat cats. He pointed out that most of them have contracts only lasting a year and that 25 per cent. of them were not reappointed last year. You may think that this is a crazy way to run an industry. However, they may be fat cats but they do not have job stability or job security. And below there are the much larger group who are marginalised and insecure. Below them again are the unemployed.

As has been said by all speakers on this side of the House, no one feels that all this is the fault of the Government. I want to stress that. Also, no one says that the situation is unique and peculiar to this country. In so far as we know the causes of the move away from full-time and life-time employment, they are very close to the kind of reasons mentioned by the noble Lord, Lord Desai.

First, there has been a growth of global product markets to a point where they have virtually destroyed the existence of protected, insulated labour markets. There are no longer any protected insulated labour markets. Secondly, as has been said, there has been a shift in the capital:labour ratio which, in this country alone, has destroyed 4 million manual workers' jobs since 1979, most of them semi-skilled and unskilled. Thirdly--the crux of the matter--we are beginning to see analogous (not identical) developments in finance, accountancy and service industries where the same thing is happening to large numbers of clerical workers whose promotion and security prospects are in decline.

The fourth and final reason--I mention it only because it is there, not because I have a solution--is the failure of world capitalism. We live in a capitalist world. And world capitalism since the early 1970s has failed to obtain in overall terms anything like the growth rates of the 1950s and 1960s. When those four points are put together, one sees that the problem is not the Government's fault. But it is a problem the Government seem to do nothing about. I do not believe one can find a statement from a responsible government Minister expressing any sense of regret. The

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Government do not seem to feel sorry that a major change of considerable disadvantage to a large number of citizens in this country has occurred as a result of the 40-30-30 division. They talk all the time as though it is an unqualified good thing. Of course, they do not like unemployment. But I do not recall a Minister in any way regretting a change in the conditions of the labour force which has meant superiority moving towards the employer and the isolation of those who are doing well from those who are not. The Minister today cannot stop the process. Of course, he cannot. He might as well try to stop Friday. But he might say something about the consequences for millions of citizens. I should like to mention a few of the things he might do.

The Government have encouraged the process towards part-time working. It is calculated that in the social security services, the Civil Service, local government, with the contracting-out provisions, the Post Office and Telecom, before privatisation, government policy has destroyed some 750,000 full-time jobs. The pace of casualisation and part-time working in those services has been more rapid than anywhere else. The Government could stop and think whether they want to continue at precisely that pace in the future.

Secondly, there is the most obvious example of all. What about the two-year rule? What possible justification can there be now for a situation in which only 36 per cent. of workers in employment are covered by unfair dismissal provisions? The original intention of the six-month rule--it was not a two-year rule except at the very beginning and that was caseload--was to make a distinction between the period in which people were working and the period when they were trying to find their way into the job, in other words a period of probation. For six months there were to be no unfair dismissal rights. After six months one had unfair dismissal rights because at that point the employer could decide whether or not he would dismiss the employee.

But what is the rationale of a two-year rule? Why should it be there when we know that 90 per cent. of people with short-term contracts cannot possibly qualify for any of the rights that follow from the two-year rule? The Government know that very soon, when the Seymour-Smith case goes forward, they may very well be told--as they have been told in the Court of appeal already--that the two-year rule is discriminatory anyway on grounds of sex discrimination. Why cannot the Government say that, in the light of what has happened and in view of the insecurity that affects 30 per cent. of the labour force, the two-year rule is an anomaly and unjustifiable and that they will anticipate the House of Lords or the European Court of Justice and get rid of it? I ask the Government tonight to defend that rule in the light of what we know about those to whom it applies.

Finally, I make no apology for coming back to the question of job creation. It is clear that, short of a miracle of a kind we cannot foresee, a considerable number of our citizens will find themselves, after their third short-term job on two days a week, on the dole and receiving benefit. After a while they will find that

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they are six months or seven months on the dole or perhaps two years. At that point all the evidence suggests that it will be extremely difficult, if not impossible, for those people to return to the labour force. Certainly, they will not get back among the favoured 40 per cent.

On two separate occasions I have asked the Minister to tell me what has happened to the very modest proposals that the Chancellor of the Exchequer said he intended to introduce two years ago for workshare--a £60 maximum two-year subsidy for additional workers taken off the two-year waiting list. An IMS study last year showed that it had produced only 40 per cent. dead weight and six out of 10 positive results. In this case the Government are saving money on unemployment benefit by putting people into work via workshare. Why cannot the Government introduce the scheme on a wider scale? Frankly, all I receive is prevarication. I am tired of one pilot scheme after another. There have been three years of pilot schemes. When will the Government put workshare into more general application and see whether it takes people off the long-term unemployment register.

Secondly, I have asked the Government about the national insurance holiday which the Chancellor of the Exchequer announced the year before last as an immediate solution. It has not yet been introduced, but we are told that it will be in April this year. I should like to ask a precise question. The last time I asked the Minister gave an answer I could not work out. He told me that it would remove 130,000 from the register and would cost £50 million. If so, it would be an extraordinarily cheap scheme. It would cost the Treasury around £7 a week for each person off the register. How can that be effective when we are told that the workshare scheme, which gives far more money, is not effective? On that basis I do not believe that the Government's job creation programme makes sense.

We on this side of the House have put together a series of measures which could begin the change that is needed. The Government should at least face it. We are moving into an economy of part-time, short service, casualised labour. That is becoming the typical form of employment. Do not the Government regret that? Cannot they do something about it?

5.30 p.m.

The Minister of State, Department for Education and Employment (Lord Henley): My Lords, I agree with the noble Lord, Lord McCarthy, that we have had a fascinating debate and, as always in this House, a wealth of experience has been placed before us. The noble Baroness, Lady Turner, who introduced the debate, as always brought her trade union perspective to it. We had a wealth of experience on equal opportunities matters from a former chairman of the Equal Opportunities Commission, the noble Baroness, Lady Lockwood. From the groves of academe we had the noble Lords, Lord McCarthy and Lord Desai. For real practical hands-on experience of the financial services sector, from my side of the House, we heard from my noble friends Lord Boardman, Lord Stewartby and Lord Chelmsford.

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There were other interventions. The noble Lords, Lord Haskel and Lord Rochester, both spoke with considerable experience of the manufacturing sector, which went through similar changes a short time ago. I am grateful to the noble Lord, Lord Rochester, for the warm welcome he gave to the merger of the Department for Education with the Department of Employment. That is a merger that has gone very well and we are still awaiting such a welcome from the party opposite.

As always the noble Lord, Lord Rochester, stressed the commitment of his party to the spending of that extra penny of income tax on education and training. I note that commitment as we have noted it many times. However, I suspect that that extra penny has been spent many times over in the dreams of the party of the noble Lord, Lord Rochester, and I would be interested to know on exactly what it is to be spent. Perhaps they will inform us in the future.

We then had the intervention of the noble Lord, Lord Monkswell, for which again I am grateful. With his universality of wisdom he will offer the benefit of his wisdom to this House on three separate occasions this afternoon, as well as speaking on two of the Questions earlier today. We are all deeply grateful for the depth and vision that the noble Lord brings to our deliberations. However, perhaps I can correct him on one small matter, in case his expertise misleads Members who listened to his welcome contributions. I can assure him that the numbers employed in health activities, unlike the impression he gave, have increased from 1.2 million in the early 1980s to nearly 1.5 million today.


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