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Noble Lords: Oh!

Lord Marlesford: Yes, they have! Inflation went up at the beginning for reasons that we know about. There was an increase some four or five years ago. However, recently inflation has been well down. I carry a table of figures in my pocket at all times which shows the retail prices index linked back to 1935. I find it fascinating and helpful in resolving disputes.

The market must be saying that it does not have much confidence that the present Government will be in power--I recognise that--and that it is concerned that

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Old Labour, represented by the noble Lord, Lord Eatwell, may well have a future role to play which puts our inflation gains in doubt.

Perhaps I may move on to unemployment. In my view, dealing with unemployment must remain subsidiary to dealing with inflation. That is what the Bundesbank has always tried to do, so we know that that is not something with which the noble Lord, Lord Eatwell, agrees.

As we have heard, the unemployment figures are improving greatly. I have always found the green research publication which is produced monthly by the House of Commons Library entitled Unemployment by Constituency very useful because it gives a snapshot picture of unemployment in every constituency. Therefore, instead of seeing just the general figures, one can see the unemployment position in 650 discrete parts of the country. Indeed, it makes matters even easier by ranking the 25 constituencies with the lowest unemployment and the 25 constituencies with the highest unemployment. Unemployment currently stands at under 4 per cent. in the 25 constituencies with the lowest unemployment in this country while in five constituencies the proportion is under 3 per cent., which is the old Beveridge definition of "full employment". The proportion in the 25 constituencies with the highest unemployment is over 17 per cent., but only 6 constituencies now have over 20 per cent. unemployment. The figures are continuing to decrease even now. Thirteen of the constituencies with the highest unemployment are in London, including five of the six with the worst figures. Of course, our inner cities have special problems with unemployment and while that can never be acceptable, it must be made tolerable.

What we have to do--what has been done--is to ensure that the jobs that we do have are real jobs. I believe that our economy is structurally more sound than the economies of other countries in the EU because we have faced up to the need for structural change. The country that has most obviously failed to do that is France, where people are once again talking about the changes that are needed. But I wonder whether the French Government will be able to get those changes through. Only this morning I heard, as no doubt did other noble Lords, that the unions there are planning a campaign against those necessary changes.

One of the interesting differences between France and England is that if the Government in Britain try to do something sensible but there is direct action against it on the streets, on the whole the public support the Government. However, strangely in France--I cannot give a reason but I raise the matter because it is a fascinating paradox--when there is direct action on the streets, on the whole public opinion swings behind that action irrespective of who is taking it, be it farmers, nurses, civil servants, fishermen or Air France workers.

The tax structure is crucial to enterprise. I believe that we now have a very good tax structure. I hope that we shall be able to keep that although I doubt whether a Labour government would be able to keep it as it is.

We are also free from the constraints of fixed exchange rates. One must remember that the history of this country ever since the war has been one of political

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constraints caused by fixed exchange rates. That has been the case ever since Bretton Woods. The first big crisis was in 1949 when the then Labour Government were forced into devaluation, causing great trauma. As we all know, we had a debacle with the ERM. Thank goodness that we are now free from the shackles of fixed exchange rates. That will be a major issue for the IGC in the future. Perhaps I may say briefly that my own solution is not that we should move towards a single currency as such, but that we should make the European currency--whatever it is called: the ecu, the Euro or whatever--legal tender in all European Union countries. People could then use it if they wanted to and we could then see whether there was any real desire for it. If it was not used, nothing would be lost. I am in favour of such a gradualist approach. That is something of a variation on Michael Butler's hard ecu, but is even more modest.

Perhaps I may now turn to what I regard as the single biggest achievement of this Government. Historically in this country the middle classes have had a better deal out of life than the working classes, but for the past 15 years or so this Government have made Britain a much more bourgeois society. It is much more individualistic. Far more people are self-employed. We now have fewer union members and so we have fewer labour disputes. The 1996 issue of Social Trends, which I read carefully before the debate, shows the days lost to strikes at their lowest level since records began.

We now have more home owners, with owner-occupation standing at 66 per cent. We have heard about negative equity, but let us bear in mind that of those 66 per cent. owner occupiers, 42 per cent. have a mortgage while 25 per cent. own their homes outright without a mortgage. The Rowntree research in Social Trends shows that over 90 per cent. of those with a mortgage do not have negative equity--that is to say, they do not owe a sum greater than the value of their home.

One of the biggest changes that is coming--I believe that whether or not they remain in power the Government will be greatly praised for this in the future--lies in the enormous resources that will be released by a new generation of people who will own a house without being encumbered by any debt. They will have resources to spend and invest. That will make a tremendous contribution to our economy and to our wealth and prosperity.

Finally, we must have the environment in mind in relation to all of our policies. We cannot sacrifice today the needs and the rights of our children and our children's children. That is a constraint upon what can be done and what can be afforded. I believe that the Government have taken good account of that. On balance, I am extremely optimistic about the future and I think that the Government deserve great credit for the foundations that they have laid.

6.7 p.m.

Lord Bruce of Donington: My Lords, those of us who have been in politics for some time--I have had

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the honour to be a member of the Labour Party since 1935, some 61 years or so ago--

The Earl of Longford: The year before I joined.

Lord Bruce of Donington: --will have noticed over the years the tendency of politicians, sometimes singly and sometimes in their corporate capacity, to self-deception. Few of us are immune from occasional bouts of it, but I have been sitting opposite the Government Benches now for 17 years and I am bound to say that I have never experienced such sustained corporate self-deception as that from which this Government appear to suffer practically all the time. I believe that Ministers are honourable men and that this is not a pose, but something that they really believe. Perhaps the first illusion from which they suffer is that if anything adverse happens to the English economy or to the country, they say that it is due to outside forces. If we have a depression or suffer any mishap, outside forces are to blame; it is nothing to do with the Government. It is only when something goes right-- and that sometimes happens accidentally, as in September 1992--that the Government claim the whole of the credit for it. All of the debits go to the rest of the world and all of the credits go to the Government. I do not think that that position can be sustained.

A similar illusion seems to animate the Government from time to time when they talk about the recovery and the soundness of the recovery. Mind you, they have had two depressions--not self-induced and not in any way their responsibility--since they took office in 1979. Two depressions in 20 years is not bad going. When they talk of the soundness of recovery they assume that it is all-pervasive, that they speak for the country as a whole and that their view is shared by all members of the British economy. Everybody who lives in these islands is part of the British economy and the Government assume that they speak for the lot. Oh dear, oh dear!

We learned yesterday--we saw the press reports this morning--from the very impressive gathering organised by the Church Action on Poverty (of whom the chairwoman is Hilary Russell) that 4 million of our citizens live below the level of income support. We learned that nearly 10 million were in families which relied on income support. We know from other sources--the figures have not been controverted in any way--that the bottom tenth of the population are 17 per cent. worse off than before this Government came into office. There is not much to show as far as that section of the population is concerned. They are not singing hosannas about sound recovery or jumping for joy because of the benefits that have come from what is euphemistically called the sustained recovery. From the Government's point of view, they do not exist at all when they come to consider the economic situation.

My noble friend Lord Eatwell in his very impressive speech spoke of unemployment in this country. It is now referred to as claimant unemployment. Six weeks ago it was referred to as unemployed and claiming benefit. In 1979 they were referred to plainly as the unemployed, but things have shifted. I remember well that in 1979 when the Government took office I was sitting here

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minding my own business for the time being. The Government were returned to office on the basis of the philosophy described in that famous poster "Labour isn't working". Unemployment at that time was about one and a quarter million. Even on the basis of a claimant count, and after 17 years in office, the figure is double that today. Following the publication of an excellent report by the Royal Statistical Society, the real figure today is one and a half million more than that. The figure approaches between three and four million. It puts it almost in the same league as the German Government. If my memory recalls--I have a very good one--10 years ago the German economy was held up as an example that we should follow.

Who has recovered and participated in the benefits of that so-called recovery? For example, we know that the banks have benefited. Those of us who read the papers know perfectly well that bank profits are at an all-time high. The fat cats have benefited. The holders of government appointments in the hundreds of quangos have benefited. They have prosperity and a share in the recovery, but they do not speak for the country as a whole. Only yesterday we learnt that two employees of the NHS Executive had been given a total of £700,000 by way of severance pay. What the Government have done--they have been quite honest and have not endeavoured to conceal it--is to plant their own nominees in every quango that they can at very high salaries which put the incomes of ordinary persons, let alone the poorest in our community, completely in the shade.

The idea that there is a recovery which is all-pervasive throughout the country is a load of nonsense, and the Government ought to know it. If they did not know it before I rammed it down their throats, they know it now. They cannot argue about it. I shall be very interested to hear the response of the noble Lord, Lord Mackay, to the facts that I have addressed to him. In reality, there has been a growth of an insecure economy, not on a sustainable basis, which has brought an all-persuasive fear into the whole of the country.

The noble Lord, Lord Marlesford--whose contributions I always admire, because he has a sense of humour--points out that the feel-good factor is somehow absent. Now the noble Lord knows why it is absent. There is no feel-good factor, sense of optimism or hope, save that ultimately, either in the short term or long term, we get rid of this government. Even in their economic philosophy, when they deign to examine the minutiae of the written or printed word--something of which the Chancellor of the Exchequer cannot be accused--they do not understand what they read. I give your Lordships an illustration. The Government are under the illusion that the present rate of inflation--which they have driven down by the deliberate creation of fear and unemployment--is at a uniquely low level. In the 15 to 20 years that followed the period 1945 to 1948 the inflation rate was lower than it is now. That was achieved under a Labour Government, a Conservative Government and then a Labour Government. It remained low until the famous oil price crisis in the OPEC countries in the early 1970s. Low inflation is not unique.

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The mistake that the Government make--on the assumption that it is a mistake and it is not deliberate--is that unemployment can be cured on a sustainable basis only by seeking to drive down even further the rate of inflation. That is a load of nonsense. In a way, they know it. They face a paradox. On the one hand, they had a very large owner-occupier section of support in the United Kingdom. They encouraged home ownership. At the same time as they call for inflation to be driven down, they hope that house prices will rise. That is the level of the paradox. They advocate higher house prices but lower prices in all other spheres. That is the intellectual level to which they have debased the argument. They have no answer for it. In fact, on the housing front their record is even more disgraceful.

Only last night, if the Minister in his relaxed way was looking at the television, he would have heard the story of Mr. Fletcher, one of his leading supporters charged with the task of letting out MoD properties that had remained uninhabited for five years. The Conservative Party's 1992 manifesto made a specific promise that it would see off the MoD on that question. It was wicked that all those properties--some 13,598, because I have the figures--were left untenanted for all that time. It was going to let them to the homeless. It was a scandal that the properties remained uninhabited, and all the rest of it. So last night Mr. Fletcher announced his resignation from the Conservative Party on the grounds that the promise had been reneged upon. That is not the only time that it has happened.

The Conservative Party does not have the remotest intention of keeping any promises that it finds inconvenient to fulfil when the time for it to be done arises. It does it openly. The Prime Minister did it in the 1992 election campaign when he said that he would not raise indirect taxation, particularly VAT, because he could not see the necessity for it or the possibility of it arising. Within a few months, that was cast off.

The Government are getting tired. When they contradict themselves in those ways it is not funny any more. One can get a little humour out of it, because we sometimes take ourselves too seriously here, and a little laughter is occasionally permissible to enliven our proceedings, but it is now past a joke. Now they are committed even further in that direction, because in common with others whom I will not mention, they are now driving towards a single currency. They are bound by the Maastricht Treaty to continue the constricting and deflationary policies of holding down government deficits and debt to the level prescribed in Article 5 of the Maastricht Treaty, and they are bound by the others as well. Others are not altogether incisive in their rejection of it either, but that is another story. At least in that regard we shall have the noble Lord, Lord Marlesford, on our side.

6.23 p.m.

Lord St. John of Bletso: My Lords, it was almost like a timewarp--I was waiting for the noble Lord, Lord Bruce of Donington, to come up with his normal rhetoric about EMU and ecu. I have always had enormous admiration for his uncanny ability to quote facts and figures, but when he opened his speech by

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mentioning his background in your Lordships' House and telling us how long he has spent in politics, I am afraid that I found it difficult to agree with much of what he had to say. It was a very political speech. The noble Lord, Lord Ezra, was right when he said that he hoped the debate would not just be a political one, but would be balanced and one in which we would be able to get some constructive criticisms over to the Government for future action, whichever government we have in the future.

Unlike the noble Lord, Lord Eatwell, with his distinguished academic background as an economist, my contribution to the debate comes from my background as a meagre UK equities researcher and salesman in the City. So much of what I shall say will come from the perspective of inward investors, both domestic and international. As is customary in your Lordships' House, I wish to declare an interest as a consultant to Merrill Lynch.

Before outlining my brief contribution to the debate, I should like to join in congratulating my noble friend Lord Sempill on his excellent maiden speech. I have known him for many years--from the days when he and I lived in Cape Town. We shared many a laugh and many a long discussion on the future of the House of Lords, and, particularly, on the role of hereditary Peers in the workings and effectiveness of your Lordships' House--an issue which I am sure will become all the more of a hot potato in the run-up to the next election. I am obviously delighted that he has opened his innings, and I am sure that we all look forward to hearing many more contributions from him in the months and years to come.

I should like to approach the debate by discussing my views on the Government's economic strategy from a past, present and future perspective. The Minister will no doubt do exactly that in his wind-up speech. I shall touch briefly on the successes of the Government's economic strategy. It is important to mention more positively the successes. There is no doubt that there have been enormous successes.

One of the great successes has been inflation. Inflation, in line with the global trend, has come down from the lofty heights of 23 per cent. in 1980 to currently just under 3 per cent. That, to a large degree, has been the beneficiary of tight government fiscal policy. There is no doubt that that success in controlling inflation has been achieved to a large degree by the Government's strategy to break the stranglehold that the trade union movement had in the past over much of the economy. Union membership has fallen from 13 million to just under 9 million, for better or for worse, but, more importantly, there has, as a result, been a far more effective and flexible labour market. That has been evidenced by, and has brought enormous dividends in, the dramatic improvement in manufacturing activity per person. It has also had a major impact on promoting more international inward investment into the UK--a point made by the noble Lord, Lord Dean of Harptree.

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I was interested to read in yesterday's Financial Times that a recent survey of 2,500 international business leaders showed that the UK came third after the USA and Singapore in its attractiveness to business, coming ahead of Malaysia, Switzerland and Germany.

The Director-General of the CBI, in his leading article in the CBI News last month, put it aptly:

    "we were once a country renowned for its strike record, double digit wage settlements and inflation rates. We were all too familiar with the boom and bust of the UK economy. In recovery, unemployment would fall, but prices and wages would rise at an accelerating pace. In any recession, unemployment would rise, but moderation of wage rises would come only slowly".

However, even though the Government can be proud of their achievements, their policy to promote home ownership to all echelons of the British people, particularly in the 1980s, giving them, as the noble Lord, Lord Dean, said, a secure stake in society, has in many cases backfired severely, despite mortgage rates being in nominal terms at their lowest levels for decades. The figures vary, but I understand that more than 1.5 million people remain trapped by negative equity in their homes, in consequence, to a large degree, of the house price collapse in 1989, and of the banks giving loans too easily without sufficient collateral. Sadly, the pain of negative equity has been borne mostly by those in poorer areas, and they were not assisted by the reduction in mortgage interest relief.

My second point is more of a concern about the Government's economic strategy, which was highlighted by the noble Lords, Lord Eatwell and Lord Ezra. It is the low amount of government investment in industry. In the words of the noble Lord, Lord Eatwell, it is the Achilles' heel of the British economy. All too often the lack of capital assistance given to British industry has resulted in great British inventions-- I include many of the biotechnology breakthroughs--being exploited in other parts of the world. Perhaps the Minister will elaborate on the assistance that the Government are giving to business to promote education and training.

I wish to touch briefly on a point raised by my noble friend Lord Acton; the issue of unemployment. Even though unemployment has fallen for the past 29 months, the reality is that in 1979 the unemployment rate was just over 1 million and today it remains at more than 2 million. However, the rise in unemployment in the 1980s cannot be blamed solely on the Government's economic policy. There has been a major rationalisation in many industries, including the profession in which I work, where Big Bang in 1985 and more recently Big Bang 2 resulted in major losses of jobs in the financial services sector. Furthermore, as a result of the loss of jobs and many corporate takeovers there is now job insecurity. It has been the issue of job insecurity which many people have given as their reluctance to become involved in buying their own homes or, for that matter, moving from their existing homes, which would help to stimulate the housing market. I do not wish to elaborate further on the unemployment issue, except to acknowledge that on a relative basis the United Kingdom has suffered a lower increase in unemployment than our European partners.

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In the past, poverty used to hit older people particularly hard, but that has improved a great deal. Between 1974 and 1991 the number of older people living on social security fell by 25 per cent. However, during the same period the number of children over the age of 16 who have become dependent on benefits has quadrupled. I mention that statistic because I believe that it is an important consideration in addressing the Motion tabled by the noble Lord, Lord Eatwell.

To bring the Government's economic policy into focus for the present, especially now in the run-up to the next general election, the key phrase that everyone has mentioned today is the "feelgood factor" for the British people. Many argue that the growth in the present economic upturn has gone into cutting government borrowing and raising corporate profits and that there has not been enough redistribution of profits to employees. That is a debatable issue. However, recent statistics clearly show a growing trend and more firm evidence of rising real incomes undiluted by higher taxes. Recent figures from the Halifax Building Society show that there is at long last activity in the housing market, which is rising, assisted by the current low mortgage rates. Therefore, I do not agree with the noble Lord, Lord Bruce of Donington, that there is no feelgood factor. Much of the population believes that it is limited but there is a certain amount and credit should be given for that.

In 1997 the private sector will receive almost £16 billion from building society flotations as well as billions of pounds of maturing TESSAs. That will all contribute to a substantial wealth boost, which will have an extremely positive flow-through to consumer spending growth later this year and, more particularly, next year.

In my introduction, I alluded to endeavouring to be specific in this general debate. Instead, I have veered to addressing too many issues. However, in conclusion, while the debate focuses on the effect of the Government's economic strategy on the economic and social wellbeing of the British people, it is my hope that there will not be a relaxation of economic policy simply to suit the voters ahead of the forthcoming general election. Such a relaxation could lead to excessive economic growth later this year--a point made by the noble Lord, Lord Ezra--and in 1997. That in turn could eventually generate an upturn in inflation by late 1997 and in 1998. I hope that the noble Viscount, Lord Oxfuird, is right in saying that it takes six to seven miles for a tanker to change direction. I trust that this and future Governments will not change tack on their commitment to keep inflation low.

6.35 p.m.

Lord Haskel: My Lords, on 7th March we had an interesting insight into the thinking of the Government. A leaked letter from the Deputy Prime Minister suggested that he wanted to remove from those people working for small companies the right to seek damages for unfair dismissal. The Trade and Industry Secretary, Mr. Ian Lang, rejected that suggestion because it would be too controversial.

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What I found interesting about the exchange was that neither suggested that removing those rights would improve the performance of the economy. The implication seemed to be that Mr. Lang was worried that helping one sector of society to pursue its own economic ends at the expense of another would make the Government more unpopular. That unpopularity would arise from adding to the insecurity which people already feel about their work.

The attitude revealed in that exchange of correspondence speaks volumes and I am grateful to my noble friend Lord Eatwell for providing this opportunity to discuss it. As my noble friend reminded us, it is a cornerstone of the Government's economic strategy that giving people security is too expensive. We can no longer afford it. It increases costs and it makes our businesses less competitive compared with businesses in those countries where the social costs do not exist. To prove their point, the Government's finger is pointed to the current situation in Germany. The noble Viscount, Lord Oxfuird, and the noble Lord, Lord Dean, gave us the numbers. What they ignored was the strength of the German currency, the absorption of East Germany and the high productivity and efficiency of its economy.

Noble Lords opposite would like us to believe that as a result of that strategy we have become the enterprise centre of Europe but, not surprisingly, the strategy has not been successful. The Government's own Competitiveness Report states as much on page 13. It reads:

    "Despite its recent rapid growth, GDP has grown more slowly than in most of our major competitors since 1990. Our GDP per head remains below that of other major industrial countries".
That is accompanied by a chart on page 13 showing how we have slipped from 13th place to 18th in the world prosperity league.

I hope that noble Lords opposite will not accuse me of running down the country. I am quoting from a document with an introduction by the Prime Minister.

The real result of the strategy is that we as a nation have become much more divided socially and economically and at enormous cost, as the Rowntree Report pointed out. This economic division manifests itself in the fact that we have some wonderful world-class businesses which understand that unit costs are important, not the hourly wage rate. Their employment policies are entirely contrary to the Government's strategy of low wages. They are the companies which have carried out the investment about which the noble Lord, Lord Ezra, told us. They know that job insecurity threatens productivity and the quality of the people whom they can attract. The noble Viscount, Lord Oxfuird, told us that prosperity comes from productivity--and such companies know it. Thanks to their superb management, those companies need no government support, whereas companies on the other side of the divide pay poor wages knowing that they will be topped up by the Government through the benefit system. It is part of the Government strategy to encourage those practices instead of encouraging the investment. Hence the deputy Prime Minister's letter to Mr. Lang.

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Similarly, the social results of that economic strategy also divide the country. On the one side, there are people in secure employment who are continuously increasing their performance, skills and knowledge so that their companies can remain competitive. On the other side of the divide are the 2.3 million unemployed, the million lone parents on benefit and the 1.7 million people receiving long-term sickness and disability benefits. In 1979, one in 12 people lived in households dependent on income support. Today the figure is one in six. Does that demonstrate the success of a low pay strategy, or just its result? Is that the prosperity that the noble Lord, Lord Marlesford, said should be the objective of the Government? That is what worries my noble friend Lord Bruce.

Nor is insecurity limited to those groups of people alone. Since the last election, something like one-third of the workforce--some 8.7 million people--have experienced one or more spells of unemployment. From that insecurity comes the waste about which my noble friend Lord Eatwell spoke. A good example of that waste comes from a study carried out by your Lordships' Select Committee on Science and Technology. The committee studied the increase in scientific research staff at universities, and found that virtually all these new scientists were on short-term contracts. After a few years of that insecurity, they were leaving the profession.

Happily, to stem the flow, a proper career structure is now being put in place. The Minister will not be surprised to hear that Scotland is leading the way. Of course it may be in the narrow financial interest of the university to employ such scientists on short-term contracts, but it is not in the national interest to lose those scientists from the profession. The noble Lord, Lord Dean, told us about inward investment. However, I would remind him that a major reason for inward investment into the UK is the quality and excellence of the scientific research which goes on in our colleges and universities.

The Government's strategy is to reduce employment rights to make the labour market more flexible. The proper strategy is to ensure that people, who are no longer needed for one job, have the ability to be trained for and placed in a new job. Surely that is what makes the economy as a whole more flexible and productive. It makes sense for our economy for the Government to encourage firms to do this; and our good firms now find that it does benefit them to try to eliminate that insecurity by going beyond the training required in a particular job. Continuous training and personal development make people feel more secure in themselves. They perform better and they have more loyalty to their employers.

Another important part of the Government's economic strategy is that we can remain competitive by devaluation and financial engineering. The strategy of relying on devaluation, low labour costs and financial engineering has been ignored by our best companies. But for the others, and for the country as a whole, that strategy has led to much shorter and more violent business cycles which discourage the long-term view.

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As a result, if noble Lords opposite think that things are looking promising at the moment, business is wondering if this is just another short-term cycle in the boom or bust sequence. Perhaps that is the explanation to the noble Lord, Lord Marlesford, who wondered why long-term business rates are standing at 8.5 per cent.

Those economic strategies have created a divided economy with an underclass, as described by my noble friend Lord Monkswell. That underclass not only contains people who have no skills, but also, as your Lordships' Select Committee found, people trained as scientists. It is among that underclass that there is a churning of jobs which the Government welcome as a sign of a flexible labour market.

However, a seminal study by Paul Gregg and Jonathan Wadsworth showed that the expected duration of unemployment in the recent recession was certainly 25 per cent. less than in the 1980s recession, but that that was entirely due to people going from unemployment into inactivity rather than from unemployment into jobs. Perhaps that explains the report from the Royal Statistical Society to which my noble friend Lord Bruce referred.

The right economic strategy is to prepare people better at schools and colleges, to train people better so that they are more flexible and can work more intelligently and to improve management performance. That will enable us to improve the quality of our investment and make the best possible use of it. Businesses and institutions need to be encouraged to provide continuous training and personal development so that people will feel more secure in themselves and require less support from government.

All those elements are factored into Labour's policies. Indeed, there are cross-party constructive proposals. The noble Lord, Lord Ezra, exhorted us to be more constructive. Well, I shall be more constructive and point out that there is Gordon Brown's plan for the under-25s; there is Sir Ralph Howell's right to work Bill which enables the unemployed to be paid for taking part in socially useful community projects; and there is Frank Field's benefit to work scheme. They are positive schemes which will be welcomed by both the long-term unemployed and the serial redundant. That is what is required for an economic strategy for the 1990s.

Perhaps I may conclude by telling your Lordships about a recent study from Cornell University. All the non-financial companies that went public in the USA in 1988 were studied. The research showed that companies which treated their workers as stakeholders were far more likely than other new companies still to be doing business five years later. How did I come across that research? I wish I could tell noble Lords that I got it through reading a learned journal. In fact, it was sent to me by a New York stockbroker who advised me to invest in companies with those policies, as they were likely to be more successful. Obviously Wall Street has picked up that insecurity does not work. I hope that the Government will also learn that lesson.

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6.47 p.m.

Baroness Seear: My Lords, I should like to thank the noble Lord, Lord Eatwell, for explaining to us in much more detail--and we have been waiting for an explanation--what is meant by stakeholding. It was indeed a very welcome explanation. It was particularly welcome and good hearing on these Benches, since the stakeholding organisation is something which the Liberal Democrats, and the Liberal Party beforehand, have advocated almost since the beginning of time. In his study of such matters, I dare say that the noble Lord, Lord Eatwell, has at least glanced at Britain's Industrial Future (the Liberal Yellow Book, to which such people as Keynes contributed), which was published in 1928. I sometimes think that a little recognition of such important sources would not come amiss. But repentance, however late, is always welcome. I am most grateful to the noble Lord, Lord Eatwell, for putting the policy on the map.

The noble Lord, Lord Marlesford, said that the noble Lord, Lord Eatwell, represented Old Labour. Perhaps I was not listening, but I did not hear a great deal of "Old Labour" in the noble Lord's speech. I wonder what that not inconsiderable number of members of his party who still support Old Labour--at heart at any rate, and sometimes not only at heart--would make of what the noble Lord said. The picture that he forecasts, and the speeches from New Labour tonight, are in sharp contrast with the Britain under Old Labour that some of us remember all too well--a Britain that was strike-ridden, with high inflation and gross overmanning in industry. I remember well a study in the Philips company comparing its operations in the Netherlands and this country. The evidence of overmanning here was incontrovertible; and it arose not only in the Philips company.

With regard to the exhortations to train, which I shall echo again, I have to remind New Labour that, when Old Labour came out of office in 1979, 40 per cent. of school leavers were either unemployed or went into jobs with no training. The comparable figure in France was 19 per cent. and in Germany 9 per cent. Those figures tell an important story about why this country is so far behind its competitors in continental Europe and elsewhere. We are paying the price for the failure of both parties in those years to invest in training. That 40 per cent. of youngsters who left school in 1979 are now part of the adult labour force, few of them having advanced their position from the days in 1979 when those opportunities were lost.

We welcome these confessions and the recognition of the importance of co-operative working. The noble Lord, Lord Eatwell, was a little hard about a great many managements. Of course, there are some tough, shortsighted and foolish managements. But there are and have been for a long time some wise and far-sighted managements. We talk about works councils. I was management secretary of a works council a mere 50 years ago. I rather like achieving the position where I can cite evidence from half a century ago. At that time a large number of managers were wise and farsighted. We should not forget that. Better companies have continued to act in that way.

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Co-operative working is necessary. Co-operation and greater consensus across political parties is also necessary, but it is not sufficient. We need a great deal more than that if we are to face the future. I endorse many of the criticisms raised about the effect of this Government's policies. I do not wish to repeat what has been said by many previous speakers. But, in referring to social consequences, I underline the folly--less has been made of it today than I would have expected--of not allowing local authorities to spend the money that they gained from capital sales in order to build properties to house people. The worst condemnation of the Government's policy is the sight--we never used to see it in days gone by--of people sleeping rough. It should surely have been possible to allow houses to be built. Such a policy would have encouraged people off the streets and eased the housing problems of a large number of people. It would also have got the construction industry working again. The construction industry is an engine for getting many other industries working. It would have had a substantial effect on unemployment.

We have yet to see whether any other government will improve on this position. My main criticism of the Government is that they are not facing the long-term problems of this country. The noble Lord, Lord Eatwell, played down the problems of competition from the Asian rim and elsewhere. It may be that at present competition from those countries is not so serious as is sometimes represented. But those countries will become a great deal stronger in the future.

When the sleeping giant of China really wakes up, with all the ability, skill and capacity for hard work that we know exist in that country, it will present an example of great competition and great opportunities. We should surely be considering the long-term problems that we are up against and the policies that we ought to adopt to meet those long-term problems and to seize those long-term opportunities. I do not believe that the Government are thinking long term. Some of their short-term measures have been useful, some disastrous. But where is the long-term thinking that will meet those very real challenges in the two vast areas that matter most? I refer to economic growth, and economic opportunities. If those two problems can be solved, one will be well on the way to solving many of the other problems.

My noble friend Lord Ezra spoke of the failure to invest sufficiently. We still hear siren voices stating that what this country needs is a consumer-led recovery. We need a consumer-led recovery like a hole in the head. We need an investment-led recovery. The Government should be getting that message over. One may have short-term benefits before or after an election. What does it matter? In the long term they will hinder, not help, us. People may have to learn that they must live within their means; that we cannot have all the things we want; and that if one wants a decent society one has to plan, invest and pay for it. That is the doctrine that the Government should be getting across if we are to meet the problems that face us in the future and not minimise the nature of the problems, as to some extent did the noble Lord, Lord Eatwell.

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The noble Viscount, Lord Oxfuird, is not in his seat. But it is not good enough to suggest, as he did, that the market will adjust; the market will find a way of getting things right. We on these Benches have always believed that for all normal commercial purposes the market probably is the best way to deal with development of the economy. But one cannot develop the economy satisfactorily unless one deals with the social problems that are brought about by changes in the economy. The market does not deal with those social problems; the market does not know about social problems. It is not in the nature of the market to consider social issues, in particular as regards employment and the kind of people who will or will not be able to obtain jobs.

When we refer to unemployment and availability for employment, let us remember that there is no single labour market. There are many different labour markets in this country. Some will recover by responding to the change in the market. We are already running short of skilled labour in some parts of the country and in some industries. When one has skilled people, the operation of the market will probably get many, if not all of them, back into work.

I referred to the failure to train people in the past. In this country we have a large number of people who do not have the educational background or the skilled training to enable them to take advantage of the jobs that will evolve in a recovering economy. That is on the assumption that the economy recovers, as it is beginning to do, which I fully accept.

I hate the word "underclass" but we understand all too well what it means. We have this hideous problem of people who now feel themselves outside society because they are not in jobs; they have not had jobs. If they have little education and few skills they will not be in employment. The position will not improve under any government; it will become more and more difficult. What are we going to do about such people? That is the heart of the real social problem in this country. We need drastic changes in the tax, benefit and training systems if we are to get anywhere in dealing with the underclass. It will bedevil our society and the system will be grossly unjust to such people unless we cope with it.

Our benefit system encourages people not to take action to get out of unemployment. The department of applied economics at Cambridge came out with figures which showed that, if a man and wife with two children at school started work, they had to earn £170 in order to increase the family income by £20. No one in your Lordships' House would go to the trouble of working for £170 in order to receive £20. That is a nonsense of a benefit system.

We must also ensure that, when people obtain a job, when they have taken training and felt it worth while to apply and to get out of the black market of labour--and there is a great deal of that, as we all know--they do not wish to run into levels of tax which discourage them in their efforts. We need a drastic overhaul of the training, benefit and tax systems. When we start to pull out of the recession, as we are doing, and go on to a better future, we shall still, if we do not take the

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necessary steps, leave a disastrous section of our society behind. That will be appalling, not only for them but for society as a whole.

7.1 p.m.

Viscount Chandos: My Lords, my noble friend Lord Eatwell has earned your Lordships' gratitude for both his initiation of the debate on the economy and for his usual penetrating contribution to the argument. He sets the rest of your Lordships' House a challenging standard to uphold. However, the speeches that have followed his have been stimulating and interesting, not least that by the noble Lord, Lord Sempill. Any anxiety that the noble Lord felt was entirely hidden. Like the noble Lord, Lord Acton, I hope that the maiden speaker enjoys comparable success in his entrepreneurial endeavours.

As a number of your Lordships have observed, there is always a risk in a debate on the economy that your Lordships will suffer from a surfeit of statistics, some used more for support than for illumination. Thus we leave the Chamber gorged and bloated with confusing and contradictory claims. I have no doubt that the Minister will advance his favourite selection of figures to encourage your Lordships to believe that the Government's economic strategy has been beneficial to everyone.

Re-reading the other day the diaries of Mr. Alan Clark (who wrote them while Minister of State for Defence Procurement, in response to the latest economic figures released in May 1990), I was struck by the following:

    "Ten, eleven years of endeavour (or however we call all those deprivations to life and family) and nothing to show for it but the passage of time and the intrusion of age".
Your Lordships will not recall, I suspect, that being the line taken by Mr. Clark's colleagues in this House or another place at that time. The noble Lord, Lord Ezra, remembered the noble Lord, Lord Young of Graffham, not presenting that line. Nor do I expect that the Minister will come to that conclusion today, even though the intervening six years have brought an unprecedented recession and only a painfully slow recovery from that. However, perhaps we may look forward to diaries in the future as revealing and riveting as Mr. Clark's, if not from the Minister himself, then from some of his colleagues.

I shall not burden your Lordships with any more statistics but shall comment briefly on some of the points that have been raised and offer a solution to a question which, above all else, haunts the Government.

If we take a limited period in isolation--the last two years or so--the combination of modest growth and inflation (low by historical UK standards, in statistical macroeconomic terms, ignoring the acute social stress and deprivation that still lie behind those figures) might gain a tentative beta-plus. One of my noble friends has already acknowledged that in a magazine article which Conservative Central Office has grasped, as perhaps the Minister will, like drowning men for comfort, while ignoring the long list of areas--lack of investment, the skills shortage, crises in housing, the National Health

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Service, public transport and the inner cities--where my noble friend identifies the Government's continuing and disastrous failures.

This short-term record could be attributed to the economic equivalent of the random walk investment theory or even the well-established principle that enough monkeys at typewriters could write the collective works of Shakespeare. After 15 or more years, after abandoning the last central plank to their economic policy, after imposing countless new taxes against their manifesto commitments, the Government may have hit, accidentally, a smooth patch of economic water.

As the noble Lord, Lord Ezra, outlined, there are already threats to that short-term stability from a loosely controlled money supply--so vividly highlighted by the eventual publication of the minutes of the meetings between the Chancellor and the Governor of the Bank of England--and the risk of overheating arising from the Government's anxious stimulation of pre-electoral growth. Those are the storm clouds gathering over the economy, to which the noble Viscount, Lord Oxfuird, referred, not the prospects of a Labour Government and the introduction of legislation that would create a fair balance between the interests of employees and employers.

However, even if the Government are cavalier about the short-term threats or blind to them, they have been wrestling with another desperate question. It is one which has been asked by the noble Lords, Lord Dean of Harptree, Lord Sempill and others: "Where is the feel-good factor?" It is clear that the concern on the Government's part relates not so much to any consideration of the country's economic prosperity and social well-being as to the crude electoral prospects of the Conservative Party. Well may they be concerned about them. So concerned are they that I read in a newspaper this week that a summit meeting of key Cabinet Ministers was being held to explore exhaustively the mystery of the missing feel-good factor. The Minister regularly admonishes your Lordships not to believe everything that we read in the newspapers. In the light of that, I do not presume to suggest that the meeting is necessarily taking place, not least because I should like to imagine it not as a pressured meeting at No. 10, Downing Street or at Smith Square, squeezed into busy diaries during the week; but a leisurely exploration of the intractable problem one weekend at Chequers.

One of the traditions of British country house weekends is the party game on Saturday night. The game might be diplomacy, Monopoly, charades or beating a fellow guest with a rolled up newspaper in "Are you there, Moriarty?" Can you imagine the dismay that would be felt as the ministerial cars arrived in Buckinghamshire for Ministers to find that on that particular weekend the game in question was: "Hunt the feel-good factor"?

However, this is a serious question, since confidence--or the lack of it--is at the heart of the immediate problem with the UK economy, as my noble friend Lord Eatwell so powerfully demonstrated. Your Lordships' House does not have to concern itself--or at

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least not all of us--about forlorn attempts to retrieve the Conservative Party's electoral position. But all your Lordships wish to see higher, sustainable, non-inflationary growth and improved employment prospects. The writer Edward Luttwak reinforces what my noble friend Lord Eatwell said when he writes:

    "Structural change, with all its personal upheaval and social disruptions, is now quite rapid even when there is zero growth, becoming that much faster when economies do grow. The engine turns, grinding lives and grinding down established human relationships ... [It is] the central problem of our days: the completely unprecedented personal economic insecurity of working people, from industrial workers and white-collar clerks to medium-high managers". That problem is at the heart of the Government's problem. After promoting a conflict economy for 17 painful years, that overwhelming sense of insecurity towers over every other emotion of working people--another thick, black cloud so vividly imagined by the noble Viscount, Lord Oxfuird, which is again attributable to the Government's policies, but which stands at least some chance of eventual dispersal under a future Labour Government.

I do not wish to suggest that security, the complacency that goes with that and matching financial protection, can be achieved--or at least, not for everybody, since clearly, as the noble Lord, Lord Sempill, and others strikingly highlighted, that is a privilege which only the senior directors of the privatised utilities and a few other fortunate folk can enjoy.

Of course, there is a healthy level of realism, a lack of complacency, a drive to succeed which should motivate everybody in their working life; and comparable levels of pressure should apply from chairman to trainee, from businessman to teacher. But the policies, the attitude, the culture and the words of this Government in creating a conflict economy have moved so far from that healthy level that they should not be in the least bit surprised at the stubborn continuation of the "feel cautious" factor.

That is the appalling problem that the Government face. It is one which, even with the assistance of my undoubtedly clever, but politically misguided friend (in what I would describe as a non-technical use of that word in this House), Mr. Danny Finkelstein, the Conservative Party cannot solve. And why? Because the country no longer trusts the Conservatives. We have all had one Pavlovian electric shock too many. We know the nature of the Conservative beast. We have suffered too much from the roller-coaster ride of the Conservatives' version of a market--a hypermarket--economy.

That presents an economic threat in the short term, as the noble Lord, Lord Ezra, pointed out. The less the economy responds to the Government's stimulation, the more anxious the Government will be, and the more likely they will be to over-react, desperate to encourage consumers to spend. But consumers can remember only too clearly in many cases the painful hangover that has resulted from this Government's erratic past direction of economic policy.

Therefore, I should like to extend my sympathy to the new head of the Conservative research department as he forms up to the Prime Minister, the Deputy Prime

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Minister, Dr. Mawhinney and the other right honourable gentlemen and tells them--as his intellectual rigour will surely drive him to conclude--that, yes, Ministers, the feel good factor can be revived--but only with a change of government.

The new government will be formed by Labour--New Labour. As a recent Member on these Benches, I believe that I am undoubtedly a member of New Labour. I value most highly the support and advice of my noble friend Lord Longford, as well as the kind words of encouragement from the noble Baroness, Lady Seear. To the noble Lord, Lord Marlesford, I say that the long and distinguished service that my noble friend Lord Eatwell has given to the Labour Party, old and new, in no way--

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