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Lord Donoughue: My Lords, those committees are currently examining the situation. We are pressing them for our release from such bans. However, I should point out to the House that at this moment my right honourable friend is in Brussels arguing the case, as, indeed, he was yesterday and last week. That is one way that we are proposing to make progress by adopting a more positive approach with our European partners. My right honourable friend has already had constructive

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talks with Commissioner Fischler and Commissioner Bonino. In fact, I see from reports in today's newspapers that he certainly got much closer to the latter. Through that approach, I believe that we shall make progress, but of course we have to wait for the outcome of the detailed negotiations.

Lord Soulsby of Swaffham Prior: My Lords, in view of the disturbing nature of the report identified by the noble Lord, Lord Wyatt of Weeford, does the Minister agree that it is even more important now to have an objective test to identify BSE in cattle? Further, can the noble Lord give the House any information as regards the progress being made to develop a test for the pre-clinical diagnosis of BSE in cattle and also for BSE carcasses derived from BSE cases?

Lord Donoughue: My Lords, I should stress again that the article in the New Scientist was not the basis for any major concern. But, equally, massive scientific and veterinary resources are being applied in Europe and in this country and, indeed, considerable progress has been made. We must depend on the scientific advice that we receive. My impression as regards both Europe and this country is that it is of very high quality.

The Earl of Radnor: My Lords, can the Minister tell the House how many tragic deaths from CJD in the young are attributable at present to BSE being passed on by jumping from one species to another? That seems to be the nub of the question. The original danger was that it would move from cattle to human beings. Can the Minister say how many people have actually had this disease or even died from it where it has been proven that it originated from cattle?

Lord Donoughue: My Lords, I do not have details of the exact number of new variant CJD cases with me, but I believe that it is about 16. Nevertheless, I shall certainly write to the noble Earl with more information.

London Underground

3.17 p.m.

Lord Ezra asked Her Majesty's Government:

    What is their policy for the London Underground.

Baroness Hayman: My Lords, our policy is that which was clearly set out in our manifesto. We plan to develop a new public/private partnership to improve London Underground, safeguard its commitment to the public interest and guarantee value for money to taxpayers and passengers.

Lord Ezra: My Lords, I thank the Minister for that encouraging statement. However, in the light of the fact that London Underground has had to forgo £700 million worth of essential refurbishment due to recent cuts in its grant, can the noble Baroness say whether the Government intend to restore that money? Further, on the basis of the present network and without extending any new lines, is the Minister aware that the capacity of the

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Underground could be doubled by devising new trains, improving signalling and widening stations? Therefore, will the Government ask London Underground to prepare a plan to that effect, which would have a dramatic effect on reducing congestion on London streets, and consider ways in which the funds necessary could be raised without drawing on public resources?

Baroness Hayman: My Lords, we are certainly most concerned that the past under-investment in the London Underground has led to a quality of service below what passengers can reasonably expect and a level of service that has affected the prosperity of London as a city. We take the problem particularly seriously. My right honourable friend the Secretary of State for the Environment, the Deputy Prime Minister, and my right honourable friend the Minister of Transport both met the chairman of London Transport on Sunday 4th May to begin discussions with him which will cover many of the areas to which the noble Lord referred.

Lord Campbell of Alloway: My Lords, how long is the programme which is about to start likely to take and how will it be financed? Can we have more detail than is stated in the manifesto?

Baroness Hayman: My Lords, I am tempted to say to the noble Lord, more than 18 days and less than 18 years.

These are long-term issues. As a matter of urgency, we are undertaking discussions with London Underground; and London Underground is having discussions about how it can bring forward schemes for public/private partnership to improve investment in the infrastructure within London Underground. As the House will be aware, at the same time my right honourable friend the Paymaster General is carrying out an urgent wider review to improve the private finance initiative.

Viscount Goschen: My Lords, given the Government's somewhat last minute acceptance that the private sector offers the best prospects for the heavy rail network, is it not bizarre that they should deny the same benefits to the travelling public in London? Therefore, the key question is this. If privatisation is not to go forward, how quickly can the investment backlog be recovered under the noble Baroness's scheme?

Baroness Hayman: My Lords, as regards how quickly investment would go forward, exactly the same question could apply to privatisation as to public/private partnership. But we shall be taking the issue forward as a matter of urgency. In looking back at some of the past exchanges on this issue in this House, I think that it ill behoves those opposite to suggest that we have been having last minute conversions on some of these matters.

Lord Harris of Greenwich: My Lords, perhaps I may ask the Minister a specific question. Is the noble Baroness aware that the East London Line has now been closed for a period of over two years? It is now a matter of great

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urgency for this line to be reopened. I realise that the noble Baroness may be unable to answer the question today but I shall be grateful if she will write to me.

Baroness Hayman: My Lords, I undertake to write to the noble Lord as soon as I can.

Lord Avebury: My Lords, is it possible that plans may include an extension of the Underground to parts of south London not served by the Underground at present? I refer to Camberwell where I live.

Baroness Hayman: My Lords, with my new responsibilities for roads and other transport matters, I am learning that we all tend to have personal interests in many of these issues. I should not like to make any commitments in that area at present.

Committee of Selection: Select Committee

3.22 p.m.

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

Moved, That in accordance with Standing Order 61 a Committee of Selection be appointed to select and propose to the House the names of the Lords to form each Select Committee of the House (except the Committee of Selection itself and any committee otherwise provided for by statute or by order of the House) or any other body, not being a Select Committee, and the panel of Deputy Chairmen of Committees; and that the following Lords together with the Chairman of Committees be named of the Committee:

V. Allenby of Megiddo, L. Carter, L. Chesham, V. Cranborne, L. Harris of Greenwich, L. Jenkins of Hillhead, L. McIntosh of Haringey, L. Richard (L. Privy Seal), L. Strathclyde, L. Weatherill;

and that the Committee do meet at noon on Thursday 22nd May in the Moses Room.--(The Chairman of Committees.)

On Question, Motion agreed to.

Address in Reply to Her Majesty's Most Gracious Speech

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

    "Most Gracious Sovereign--We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to

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    thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."

3.23 p.m.

The Minister of State, Department of Trade and Industry (Lord Clinton-Davis): My Lords, before I embark on issues affecting my new responsibilities, perhaps I may revert for a moment to my former responsibilities in transport--and I seek in no way to trespass on the area now held by my noble friend Lady Hayman.

I merely want to say how privileged I felt to be part of what the noble Lord, Lord Tordoff, once dubbed "the Transport Club" for nearly seven years. On the whole we were members of a happy sect of largely unsuccessful evangelists--and real friendships developed in and outside this Chamber between Ministers and Shadow Ministers (roles now happily reversed) and Members of the Liberal Democrats and Cross-Benchers. I thank them all, and not least of course my noble friends Lord Carmichael and Lord Berkeley, as well as those outside Parliament who helped so assiduously to keep us well informed.

The election heralds the start of a new era for Britain and the British economy. We have a new Government, and the opportunity to ensure that Britain does better. It is a huge responsibility, which we approach necessarily with commitment but also humility.

I am convinced that Britain will now do better because we offer a vision of national renewal to equip the country to prosper in the 21st century--and there is undoubtedly a new optimism alive in the country, and it is our task to nourish that.

This Government will put behind us the irrelevant conflicts of the past--public versus private, bosses versus workers, class versus class. Decisions will be based on what works, rather than on dogma.

We believe that there is such a thing as society and that individual aims and those of a caring society are capable of complementing each other. So the new Government will create a series of meaningful new partnerships for prosperity across the nation. We are committed to increasing opportunities for everyone; we believe in enterprise and we want to see more entrepreneurs and more successful workers in our economy. We are determined to encourage and promote innovative ideas to breathe life into this ambition.

This Government will give Britain a new place in Europe. We will stand up for Britain's interests, but will seek to be involved and to be constructive. The days of standing on the sidelines and hurling abuse at those on the field, players and officials alike--which has been an almost unique quest for isolation--has impeded Britain's ability to influence events. Those days are over. A new approach to government is essential to ensure that Britain prospers in the next millennium.

There is also the need to tackle the legacy left by the previous Government. Extravagant claims have been made about the past 18 years. We have never

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asserted that our predecessors were wrong about everything--and I want to be fair about this. I am reminded of what Teddy Roosevelt said in the early part of the century about his presidential opponent, William Howard Taft: sometimes he meant well feebly. We welcome, for example, the improvement that the previous Government achieved in manufacturing productivity. But I suggest that they tended to overlook a number of salient facts. The average rate of growth over the past 18 years has been slower than in any of our major competitors. Manufacturing investment fell by 8 per cent. last year. Our rate of inflation is currently above the average level in the European Union. Prior to the election UK long-term interest rates were over 1½ percentage points higher than in Germany. The national debt doubled in the former Prime Minister's period of office.

The level of employment is still some 1 million below the level it reached in 1990. The current account of the balance of payments has been in deficit in each of the past 11 years, the longest run of deficits this century.

Most important of all was their legacy of a society ill at ease with itself. Wage and income disparities have widened sharply. Experience of unemployment and job insecurity has become pervasive. Inadequate investment in education and training has marginalised many in the labour market. All this has to change. It has to change for the sake of our country.

While there can be no complacency in facing the daunting challenges ahead I am convinced that Britain can do better. We now have a Government that are committed to improving the competitiveness of Britain and to recognising the role of co-operation and partnership in striving for this goal. This Government have a vision of, and a strategy for, growth.

The new Government's policies for business are exactly that--policies for business, in which business is critically involved as partners. Britain works best when we work together. It certainly is not our job to tell people how to run industry. But we can provide the right incentives and structures. The qualities that this Government will seek to promote are stability, partnership, opportunity, and openness. Our objective is to strengthen our wealth-creating base.

Economic stability is an essential platform for sustained growth. But we have suffered from years of instability. Between 1980 and 1996 the UK had the least stable economy among industrial countries, with an inflation rate three times as volatile as the best performing country. This instability led to slow growth and deterred investment.

This Government are determined to put an end to instability. But stability requires prudent and consistent economic management. That is why, as we discussed yesterday, the Bank of England has been given operational responsibility for setting interest rates. As a result, monetary policy decisions will no longer be dominated by short-term political considerations. They can be based on what is necessary to achieve low and stable inflation.

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There are other obstacles which are holding back investment. We will consider how the tax system can better encourage long-term savings and investment.

We recognise that countries which have higher skill levels grow faster than other countries. For too long Britain has languished near the bottom of the international skills league and, with great respect to the former Chancellor, it is preferable to occupy the position in the Premier League of Manchester United rather than Nottingham Forest.

Nearly two-thirds of our workforce do not have good vocational qualifications. Compare that to a third or less in the Netherlands and France and a quarter in Germany or Switzerland. The skills deficit must be tackled.

In this modern economy, no job, no qualifications, will last a lifetime. Nor should an individual's potential be allowed to remain undeveloped for a lifetime. That is why the Government will establish a new university for industry through a public-private partnership.

Our transport system is a fundamental part of our competitiveness and is part of the longer term climate for business--a point raised at Question Time by the noble Lord, Lord Ezra. Our roads are congested and our public transport is neglected. A recent CBI report suggests congestion costs our economy £19 billion per year. We need more investment in our infrastructure to come from the widespread use of partnerships between the public and private sectors. I sought to argue that in the long years of opposition when I was confronted by the noble Viscount, Lord Goschen, an old friend--or, rather, a young friend.

The old argument as to whether public ownership was always best or whether privatisation was the only answer must be put behind us. Our emphasis is now on a new partnership with industry. For example our 12-point plan for partnership will re-invigorate the private finance initiative--we have already made a start by announcing an end to universal testing for private finance potential. That was not a good idea and we propose to eschew it.

Our partnership approach also applies to small and medium-sized business, which produces over half of business output. We will provide the right supportive framework. Our proposals include new measures to tackle late payment; improving the quality and effectiveness of business information and support available from the Business Links network; co-operation with the banks to improve the loans to new high-tech start-up companies within the existing resources of the loan guarantee scheme; and improving the quality of regulation--regulating only where necessary and, not least, ensuring that high environmental and safety standards are an imperative.

Science, technology, design and innovation will be at the centre of this Government's thinking and action. We are grateful for the work of the Select Committee on Science and Technology which my noble friend Lord Simon will report on tomorrow. We will develop the Technology Foresight Initiative further and improve support for high-tech start-up companies.

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Britain lives by trade. We are the world's fifth largest exporter and importer. British firms have notable achievements in export markets, but last year we had an overall trade deficit of over £1 billion a month. Our export performance simply is not good enough. And trade will be a major priority for the Government, and in particular for my department.

Our new export initiative will improve the focus of our efforts to back British business selling abroad. We will bring together the relevant Whitehall departments and business in a new export forum which will undertake a candid assessment of the strengths and weaknesses of our current export promotion programmes and activities. I will be announcing details of the new forum very shortly.

But there is one decision which cannot wait until that review has been carried out and that concerns our predecessors' decision to wind up one of our most successful export promotion programmes and to incorporate the resources, over the next few years, into a single Sector Challenge. I refer to the DTI trade fair and services support scheme, which has over the years proved to be one of our most successful instruments for promoting British exports overseas. The decision by our predecessors was properly criticised by British business for introducing an element of great uncertainty into a form of export activity which necessarily requires substantial and long-term commitment. In our business manifesto--and I always travel with it--we promised to review the previous Government's decision to change the arrangements for supporting British participation in trade fairs.

Industry has told us, in no uncertain terms, that it believes that a separate scheme for trade fair support is far more effective in promoting British exports overseas than the challenge approach. I am pleased to tell the House that we have therefore decided to reverse our predecessors' policy in this area. Future trade fairs support will not be incorporated into Sector Challenge. Instead we will shortly be writing to potential sponsors inviting them to bid for trade fair and services support in 1998-99 under the existing support scheme. It will, of course, be open to the export forum, in consultation with industry, to suggest ways of further improving that scheme in future but I think it is important that we remove at once the present uncertainty affecting our export industries in this area. The previous policy of doing away with a dedicated programme of support for overseas trade fairs was, rightly, opposed by British exporters. We have listened to their views. Our new partnership approach with business has produced results here and will inform our approach to other forms of trade promotion.

We are also considering how we can do more to facilitate contacts between small businesses, particularly those that are not ready to break into export markets, and providers of finance. The need for this was brought home vividly to me at a trade fair in New York at the weekend by young designers seeking capital to expand their businesses, often in vain.

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Therefore I propose, together with my honourable friend Mrs. Barbara Roche, to bring relevant SMEs together with bankers and venture capitalists in order to discuss these purposes.

We shall be outward looking and open in our trade relations, which is why we support development of the World Trade Organisation to achieve more open markets. We shall also be welcoming to inward investors--one of my main areas of responsibilities. We are pleased that the UK has achieved some real success in attracting inward investment in the past two decades. Our position as a gateway into Europe, the English language and the adaptability and the flexibility of our workforce have played a vital part, but let us not forget the work of local authorities in partnership with investors--a factor which was unfortunately overlooked in the past.

We support partnership at work. The social chapter is part of this partnership principle, which is why we shall sign up to it. The two directives involved--works councils for large companies operating across Europe and a right to unpaid parental leave--will not damage the competitiveness of British industry. Indeed, a number of British companies which have already voluntarily included their British employees in their work councils have already reported benefits. Increased partnership within enterprises is bound to be good for business which is why we support and will encourage the development of employee share ownership plans and co-operatives. All this, surely, should be seen not as a burden but as an opportunity.

The previous Government had a lamentable record on unemployment and inequality. The Government are committed to taking 250,000 young people off the dole. We will also offer opportunities to the long-term unemployed.

We hear a lot of scaremongering about the minimum wage and job losses. The case for a minimum wage is accepted in the rest of Europe, the USA and Japan, many of whose economies are far more competitive than ours. We fully appreciate the importance of getting the level right. That is why we shall seek advice from an independent low pay commission including both large and small businesses.

The minimum wage will help underpin the in-work benefit system, encourage people to work, and work better, and to feel that they can play a real part in building and sharing in the nation's growing prosperity; rather than being hopelessly isolated, rooted at the bottom of society--a neglected underclass. Alongside this we have stated our long-term objective of a new lower rate of tax of 10 pence in the pound, again to increase incentives to work.

We want greater opportunity for individuals, but also greater opportunity for all companies. Competitiveness abroad begins with competition at home. This Government will make sure our markets will work better for us all. We will reform competition laws in order to provide a strong deterrent against restrictive agreements

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and abuses of market power. We shall introduce more effective penalties against proven anti-competitive behaviour.

Around 60 per cent. of our trade in goods is with Europe. There are few greater opportunities that we can provide for UK business than the completion of the single market--in for example, gas and electricity, in telecommunications, financial services and in relation to the development of trans-European networks. Those are ambitions which were undertaken by the noble Lord, Lord Cockfield, and myself back in the days of the Commission, between 1985 and 1989. Those purposes remain extremely important.

Let me be clear. This Government want reform in Europe. We propose to use our presidency of the EU to complete a genuine single market by June 1998 free of the distortions of hidden barriers and unfair state aid. We will endeavour to make the EU more democratic and open, which is essential if we are to make the EU more efficient and positive and to prepare for enlargement to the east. We will press for reform of the common agricultural policy. While we do this we will retain our veto in areas important to our interests. The Government will take a full part in the debate on the single currency but we will only join if it is in Britain's economic interest and if this is approved by the British people in a referendum.

The Government will be open with all the British people, and open to ideas from all the British people. This Government are pledged to bring in a freedom of information Act that will lead to more open and honest government.

We will start the process with a full public consultation through a White Paper, which we will aim to prepare by the summer. The White Paper will set out the standards of openness that the public can expect of government and will contain proposals on what a freedom of information Bill should contain.

The needs of business are continuously changing, therefore we need to listen continuously to the views of business. To the business community we say: "Talk to us openly, criticise us, share your ideas with us, we are ready to listen". This will be an open, radical Government. But our radicalism is not about ideology, it is about achievement. Our philosophy can be summed up in what I said earlier: what counts is what works.

We approach our tasks in government with a due sense of humility but also a determination to provide leadership and a new vision. It is distinctly noticeable that there is already a different feeling in the country, an atmosphere of hope alongside a yearning for new direction. The "feel-good factor" arrived at last on 2nd May. With a genuine partnership of trust between government and business and the people, Britain will succeed and once again we can all share and take pride in the economy of this great nation.

3.43 p.m.

Lord Mackay of Ardbrecknish: My Lords, I mentioned this in the course of the Statement yesterday, but perhaps I may start on this more formal occasion by congratulating the noble Lord, Lord Clinton-Davis, on his

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senior appointment in the Government and wish him well both in his Department of Trade and Industry brief and also in his Treasury brief.

I suppose I should say to the party opposite that I congratulate it on a significant victory. It was made all the more significant to me about half an hour ago when I heard the noble Baroness, Lady Symons of Vernham Dean, express her absolute support for Trident. I am afraid that I am old enough to remember the 1983 and 1987 elections when the party opposite was united in wanting to abandon nuclear weapons. My noble friend Lady Thatcher will equally remember the fight we had to retain our membership of NATO and the then Polaris missiles in defence of the West. So it is gratifying to hear the noble Baroness speaking for the new Labour Government, showing that at least they have learnt something from us, along with their conversion to privatisation and many other policies. I suppose we should be flattered.

The Government have a clear mandate--nowhere, I regret to say, clearer than in my part of the United Kingdom. First, I must say that we will accept no excuses from them from now on. They have a big enough mandate. They can govern and should not try to make excuses about the size of the majority--they cannot do that--or about past governments.

However, I can already see some of the excuses beginning to come out from under the carpet. Perhaps my sensitivity to that is increased by the fact that I live in the constituency of Glasgow, Govan. New Labour has still to deal with some accusations involving the goings-on of Glasgow city councillors. That was swept under the carpet prior to the election because it might have been difficult had it come out. Then there are the much more serious allegations in the Govan constituency. Those of us who live there watch and wait, but we do not expect to have to wait long for the positive action that we kept being promised on such matters before the election.

Before I turn to the subject of the debate--the economy and trade and industry--I wish to make one point. I am sure your Lordships will understand why when they hear it. I wish to talk about one serious omission from the gracious Speech. Your Lordships made it clear to me that you wished to see pension-splitting on divorce. I was quite happy to take that cause forward. I produced a Green Paper and a White Paper. I gave a clear promise to introduce legislation in this Session so that pension-splitting could happen in the year 2000. I was very disappointed, as I listened to the gracious Speech, to hear no mention of that at all. I was not satisfied with the assurance given by the noble Baroness, Lady Hollis of Heigham, on Monday. I was perfectly satisfied with some of the nice things she said about me, but not with the assurance. She said that she was determined that:


    "despite a heavy legislative programme we shall not let slip the previous Government's date to implement pension sharing by April 2000".--[Official Report, 19/5/97; col. 248.]
I have never doubted the noble Baroness's determination, but, frankly, I have just a tinge of doubt about her ability to deliver that legislation this Session, with its absence from the Queen's Speech. I shall watch

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with care and interest for the legislation as the months pass. I have a fair idea of when the watershed date is beyond which there is no chance of getting implementation in April 2000.

I return to the economy. Perhaps I may quote an item:


    "Britain's economy is in its best shape for several decades. It has entered its sixth consecutive year of growth with GDP rising fast, unemployment falling, inflation low, exports growing and the balance of payments healthy. There is now plenty of evidence that Britain's century-long relative economic decline has been arrested and, indeed, that it is well placed to improve its relative performance over the next few years".
Those are not my words; they are the words of the Economist on 12th April 1997. It is exactly that position that we have bequeathed to the party opposite and we shall watch carefully and critically to see that it maintains the position. The British economy is healthy and in an excellent state. As I have told your Lordships from the other Dispatch Box month after month, unemployment is declining, in contrast to the unemployment rises which we have seen on the Continent. That has not happened by accident. It has happened because of the work we put in to ensure that difficult decisions were taken, that our economy was less regulated, that our labour markets were open labour markets and that we were in a much better position to receive the very inward investment that the noble Lord, Lord Clinton-Davis, has just underlined as so important to our economy.

I hope that this Government will do nothing in their pursuit of regulation of the labour market, in pursuit of items of the European Social Chapter and in pursuit of the minimum wage which will damage the huge number of people who come here from outside and inside Europe to invest. It is investment which is making a vast difference to certain parts of this country, which did have huge problems when their old industrial base began to fade--places such as Scotland and the north east of England, where the new investment has come and new jobs have been created. It is very important indeed.

In the gracious Speech we read of the windfall tax. When the noble Baroness, Lady Blackstone, answered a Question on Monday, I could not help but notice that she wished to call it a windfall levy. No doubt that change in name has been ordered by the chief spin doctor. At risk of being sent to the Tower, I intend to continue to call it a windfall tax, because that is what it is. It is a tax on, we are told:


    "the excess profits of the privatised utilities".
But which utilities are they? What is to be the basis of the tax? At what level will it be imposed? Is it not amazing that something talked about by the party opposite again and again and again has so little detail attached to it? We are still told, "Wait, we are thinking about it".

We want to know the basis. Whatever that basis is, we suspect that the Government will want to raise perhaps £5 billion--sometimes I read £10 billion, but let us say £5 billion. If it comes from the customer--will it come from the customer? We do not know that--or if perhaps half of it comes from the customer, it will mean a rise in household bills of about £50 a year. That

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is a good deal more than the savings which will be made to those households by the reduction of 3 per cent. in VAT on fuel. Your Lordships will remember that when we put VAT on fuel we increased the pension in order to recompense pensioners for that increase. If the windfall tax lands ultimately on the customer, will the Government compensate the pensioners for the increased charges for their gas, electricity, water, telephones and whatever else? Will they do that?

Will that money come from the shareholders? If it does, it will damage many small shareholders. It will reduce the income of institutional shareholders. It will damage the return on savings. It will also damage the return to the pension funds, which ultimately will damage the pensions of those relying on those pension funds to pay out. But will it damage the fat cats? Of course it will not. They are quietly purring away, untouched and unaffected by that tax.

Which utilities are involved? All we know is that British Telecom had clearly understood its deal about two years ago with Mr. Blair--your Lordships will remember that to help make him business friendly he was able to announce at his party conference two years ago that BT would connect all schools and libraries to the information superhighway for free. What we thought at the time--clearly we were right--was that a little deal had been done. Of course it had, but now it is falling apart. Poor old Sir Iain Vallance is quoted in last week's papers as saying:


    "I wouldn't have voted Labour or put this Government into power if BT had been mentioned in the manifesto".
Well, well, well! I shall give Sir Iain Vallance a little piece of advice. I look to the Bench of Bishops for it. I believe it is Psalm 146, verse 3:


    "Put not your trust in princes, nor in the son of man, in whom there is no help".
I am sorry, Sir Iain, there is no help from Chancellor Brown.

But, of course, the windfall tax, as we heard from the noble Lord, Lord Clinton-Davis, is in order to put lots of people back to work--to provide training and work experience schemes. I must say to the Government that the one thing that we know from the work that we did on this issue in the Department of Social Security is that these schemes do not in fact save money. They cost money. Undoubtedly they cost money. They do so for a number of reasons and I shall list just one or two.

The fact is that most of the subsidy goes to people who would have got jobs anyway. Therefore, it is quite clearly wasted. The second reason is that there will be a danger of replacement of unsubsidised jobs by subsidised jobs. That is something of which we were mindful in the pilot schemes that we set up to try to help encourage people back to work. I hope that the Government will be very mindful of exactly the same problem when they come to run their schemes. We certainly intend to look carefully at the detail.

I find it interesting to read how much money will be involved and how employers will be given £60 or £75 a week in order to take someone on. The Government clearly believe that, if they lower the cost of employing

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people, more people will be employed. Why do they not believe the converse: if you increase the cost of employment, fewer people will be employed? The Government will do that when they sign up to the Social Chapter, with the minimum wage and whatever else comes along. They will have to address those issues very carefully.

From windfall tax, perhaps I may turn to taxation in general. We know that we have a windfall tax and that is the first tax. How many more will come along? The Government clearly promised the people out there that there would be no increase in their income tax. Yet I read in the newspapers that there are threats to MIRAS and mortgage holders will be faced not only with increased interest rates but will see a reduction in their MIRAS. There are threats to the married man's allowance. It would be strange if that were to be abolished by the party which made so much of its admiration of the family and of marriage.

There are dangers to tax relief on pension contributions. Even if changing from the marginal tax rate to the basic tax rate were all that the party opposite were to do, many people would be adversely affected. If that were to happen, in defined benefit schemes, for example, contributions would need to rise from either the employer or the employee. So I hope that the Government will do nothing to upset the way in which pensions are taxed: the money that we put into our pension funds is untaxed, the money as it grows--the growth part--is untaxed and it is taxed on the way out. I gather that it is called exempt taxed. I hope there will be no double taxation by the party opposite. But I keep reading rumours in the press, presumably coming from silent spokesmen of the Government, which suggest otherwise, and especially on that middle exempt section--the exemptions given on investment income, dividends and interest, rents and capital gains.

The abolition at worst of ACT tax credits on dividend income to pension funds would have a very damaging effect on all types of private pension provision. Pensions would either have to be reduced or contributions increased. If we have some short-term capital gains tax on pension funds, again they would lose out and the amount of money that they can earn for their pensioners would decrease.

The noble Earl, Lord Russell, who is not in the Chamber today, taught me, when I was a Minister, always to think of the consequences that my actions in my department might have on the actions in another department. I should say to the Government that any actions that the Treasury takes on taxation ought to be discussed very closely with the Department of Social Security, with its responsibility for pensions, to make sure that we do not damage the important increase in pensions that we all want to see.

I want to make one other tax point which relates to the other proposals in the gracious Speech for a Scottish parliament. I understand that the Scottish parliament is to be financed by the block grant which comes about under the Goschen-Barnett formula, named after one of the forebears of my noble friend Lord Goschen and, of course, the noble Lord, Lord Barnett. I understand that,

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if I live in Scotland and another 3p is imposed on me, I shall just have to pay 3p more and the Government will get about £450 million extra out of the Scottish taxpayer. But I am always told that they may reduce taxation in Scotland. Your Lordships may flock across the Border to join me, if it were not for other problems about which I can tell your Lordships. However, I do not think that we have long enough to go into them.

But what happens if the Government decide to reduce taxes by 3p in the pound for lucky Scottish taxpayers? How would that work out for Her Majesty's Treasury? I should be paying 3p in the pound less than those of your Lordships who live elsewhere in the United Kingdom. So the Treasury would receive about £450 million less from the taxpayers in Scotland. Would that £450 million come off the Scottish block? Would there be a reduction in the Goschen-Barnett formula outcome for £450 million to compensate the Treasury? I should like to know the answer to that question. I appreciate that the noble Baroness, Lady Jay, might have some difficulty in answering it. This may be another question in the "unanswered" box to join the West Lothian question and others. If she is unable to answer, which I quite understand, I hope that she will write to me and explain how that will work.

The noble Lord, Lord Clinton-Davis, made much of private/public co-operation, and that reminded me of one major item of private/public co-operation in Scotland; that is, the bridge to Skye. We no longer have to go over the sea to Skye; we can go over the bridge to Skye. It is a privately financed bridge and there is a toll to pay for that private funding. Perhaps I may say to the noble Lord, Lord Clinton-Davis, that I shall believe his dedication to private financing for infrastructure if he will have a word with his honourable friend the Minister of State for the Scottish Office, Mr. Brian Wilson, and suggest that he stops his virulent campaign against that piece of public/private co-operation. Otherwise we will find the assurance that the Government believe in public/private co-operation to be pretty shallow.

I do not want to go over at too great a length what we discussed yesterday; namely, the Statement in relation to the Bank. However, a number of questions asked yesterday were not answered, neither here nor down the corridor. One of the main ones was how independent the nine people will be who will make up the Monetary Policy Committee. Dare I suggest that I do not believe that they will be very independent because they will all be appointed by the Chancellor of the Exchequer? I do not believe that that makes them terribly independent.

I asked whether Scotland would be represented; even whether the Scottish parliament, if it came about, might be consulted or if it might have a nominee on the policy committee. After all, interest rates will have a considerable impact on the Scottish economy as they will everywhere else. But my main question was why it was done so quickly. As I said yesterday, it was only in February that Mr. Gordon Brown said that the Bank must demonstrate a successful track record in its advice and build greater public credibility. I asked this question yesterday and did not receive an answer. I ask it again: did the Bank manage to establish a successful track

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record and build this greater public credibility over the first weekend in May? Did it really do that? Was it as quick as that, because that would be very impressive indeed?

The Bank will have to prove its track record in getting it right. Current inflation is 2.5 per cent., as Kenneth Clarke said it would be. It is also thanks to Kenneth Clarke, backing his judgment two years ago against the Government, that we are at 2.5 per cent. and that we have the other healthy aspects of our economy. If Mr. Clarke had allowed the Bank its head two years ago, we would have had higher interest rates and lower growth and possibly we would not have seen unemployment falling as fast as it has done.

The danger is that the Bank, left to its own devices, will act as bankers do and be over-cautious, always erring on the deflationary side. Interest rates must be set to meet inflation targets, but they must not be so high as to damage growth, investment and employment. Though it is a little before my time, the record of the Bank of England's independence in the inter-war years does not give me such a huge amount of confidence that I believe it can be trusted to look at the slightly broader picture.

I wonder also why, on the same day that it was announced that the Bank of England would be independent, it was felt necessary to increase interest rates by 0.25 per cent. Factory gate prices are low; earnings increases remain low; sterling is strong--indeed, it is 20 per cent. higher against the deutschmark today than it was 12 months ago. If the noble Lord, Lord Clinton-Davis, is keen on export performance and says that our export performance is not good enough, he can ask his noble friend Lord Paul--who I am happy to see behind him--or the noble Lord, Lord Ezra, who will both express the same concerns they expressed to me some weeks ago when the value of sterling was nothing like as high as it is today.

In addition, the government borrowing requirement is likely to be significantly lower than we forecast. The data this week show a budget surplus in April and show us well on target, as I predicted in this House, to meet a balanced budget in three years. I suspect that the increase was designed to reinforce the image of the "iron" Chancellor. An iron used properly and rightly can iron out the creases in a shirt; that iron used with a heavy hand and with too much heat can damage the shirt. The same is true for the economic well-being of our country.

I started with a quotation from the Economist; I should like to end with a quotation--again about the economic position of our country--this time from Anatole Kaletsky in his column in The Times the other day. He said:


    "it is simply untrue that the Tories have left a mess in the public finances".
That is one of the excuses I have little doubt we shall hear in the months to come when the Government start to find the going a bit tough. He makes it clear that they have no excuse; it is untrue. We have left very sound public finances. The last sentence in the paragraph I quoted from the Economist stated:

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    "But will the result of the general election threaten this rosy scenario?".
Sound public finances; rosy scenario: we will be ever watchful on behalf of the people of this country against government damage to that economic rose garden.

4.5 p.m.

Lord Ezra: My Lords, like the noble Lord, Lord Mackay of Ardbrecknish, I congratulate both the noble Lord, Lord Clinton-Davis, who opened the debate so effectively, and the noble Baroness, Lady Jay of Paddington, who will be closing it, on their important new ministerial positions.

For my colleagues and myself in this party who remain in our seats in the new Parliament, it is interesting to see how the Members of the other two parties behave in their different roles. Judging by today's debate, I congratulate the noble Lord, Lord Clinton-Davis, on the skill with which he has donned the ministerial robes and the clarity with which he enunciated government policy. The noble Lord, Lord Mackay of Ardbrecknish, in opposition, as in government, remains as vigorous as ever and it is always a pleasure to listen to him.

My noble friend Lord Thurso, will be talking about industrial policy with particular reference to small firms. I intend to concentrate on economic policy. I am glad to note that the Government accept that the biggest challenge in the management of economic policy is to achieve an acceptable level of growth which can be sustained over a long period. The record of Britain in that regard has not been particularly good in recent years. We have undoubtedly had periods of growth, but so far they have invariably been followed by recession.

As a country sharing in the global economy, we cannot expect to escape from world trade recessions. What has been noticeable in Britain, however, is that, particularly in recent years, recessions have been more marked here than elsewhere. So the challenge clearly for government is to make sure that those differences are smoothed over as effectively as possible. That is an issue to which many noble Lords have referred in previous debates on economic policy. For instance, in the debate introduced by the noble Lord, Lord Prior, on 5th March this year I drew attention to the fact that we could be moving in due course into another recession and asked what the Government's policies were to try to smooth that change.

Later, in the debate on the Finance Bill on 19th March, I suggested that the task of successive finance Bills should be to try to put the balance right between stimulating consumption on the one hand and increasing investment on the other--bearing in mind that the excessive growth in consumption led to the difficulties we experienced in past recessions.

I am glad that the new Government have already taken measures to stabilise the economy. Some of those measures coincide with proposals contained in our manifesto. As a party we shall certainly support the Government in measures which we consider to be in the long-term interests of the country. We shall make

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proposals for further such measures. Where we feel that the measures that the Government propose are not in line with our thinking, we shall say so and I hope criticise constructively.

In considering how to achieve economic sustainability, dealing with inflation is obviously crucial. The Government explained their policies in that regard yesterday. It is satisfactory to note as a country that all parties are in agreement that we must now aim for a low level of inflation. The challenge is how to achieve that over a long period. I pay tribute to the achievements of the previous government in that regard. I welcomed the increased emphasis given to the meetings between the Chancellor and the Governor of the Bank of England. I welcomed the fact that these were transparent in the sense that the minutes were subsequently published and that there was therefore the opportunity of a general debate on the subject. I believe that the present Government have taken that a step further, and desirably so. They have given the Governor of the Bank of England and the Monetary Policy Committee the operational responsibility for ensuring that the target for inflation set by the Government is in fact achieved. I said that yesterday when the Statement was debated. However, I should like to draw attention to one sentence in the Statement. I hope the noble Baroness will be able to confirm my understanding of it. The Statement said:


    "The Bank's monetary policy objective will be to deliver price stability and, without prejudice to this objective, to support the Government's economic policy, including its objectives for growth and employment".--[Official Report, 20/5/97; col. 303.]
Clearly there is concern, with the independence that the Bank is now going to have, which I think will be generally positive, that it could, in certain circumstances, go in one direction while the Government, in their decisions on fiscal policy, which they still retain, could go in another. It is therefore important for us to be reassured that there will be sufficient continuing contact and preliminary discussion between the Government and the Bank, if not exactly on the lines that the previous Government engaged in, then on some other lines to ensure that no divergence between those two major directions of policy ensues.

Another potential weakness, apart from inflation in the past, in achieving sustainability is the lack of adequate investment. The noble Lord, Lord Clinton-Davis, referred to that. Much to the boredom of the noble Lord, Lord Mackay, I have referred to it frequently in debates on the economy, debates in which the noble Lord took his usual vigourous part. In this country we tend to suffer from being a consumption driven economy. As I have said repeatedly, we need to get a better balance between consumption and investment. We have undoubtedly fallen behind other countries in our relative levels of investment. In the recent upturn, investment has been noticeably weaker than expected. I was glad to note that the issue was highlighted in the gracious Speech, which said that the Government,


    "will aim to deliver high and sustainable levels of growth and employment by encouraging investment in industry, skills, infrastructure and new technologies".

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That is an excellent sentiment. I should now like to help the Government by suggesting how they might achieve it. Perhaps the noble Baroness the Minister will comment on some of my proposals, although, as there is to be a Budget shortly, she may not feel as free to speak as she might otherwise.

The question of investment in industry, particularly in manufacturing industry, is crucial. As the noble Lord, Lord Clinton-Davis, reminded us, investment in manufacturing industry actually fell last year. At a time when we had growing consumer demand and a growing visible trade deficiency we had less investment in manufacturing industry. Our trade balance on visible account, excluding oil, has been worsening in the past three years. In 1994 the imbalance between imports and exports was £14.7 billion. In 1995 it was £15.8 billion and in 1996 £17.4 billion. By comparison, in 1983 we were in balance on that account and in previous years there was actually a surplus. We have, over that period, substantially deteriorated in our visible trade with the rest of the world. I believe that the present reasons for that imbalance are, on the one hand, the inadequacy of our manufacturing capacity and, on the other, the continued growth in consumer demand. It is therefore urgent that action should be taken to stimulate investment in this sector. That could be done by improved investment allowances, to which I have referred on many previous occasions, and also by more self-financing.

It is a fact that the corporate tax regime in this country discourages firms from reinvesting profits. If they borrow money for investment the costs are counted against tax. If they reinvest their profits they have to pay corporation tax. That requires careful reconsideration. We have tended to have an undue increase in dividends in this country, a point frequently referred to. But it is not only the utilities which have paid high dividends; it is also many other companies. There is an encouragement to do so through the tax structure. I hope that some regard will be paid to that in the forthcoming Budget.

As the noble Lord, Lord Clinton-Davis, also mentioned, the infrastructure badly needs more investment. As he was kind enough to say, I drew attention to the problems caused by lack of investment in the London Underground. The Post Office, too, needs to invest more. I am much encouraged by what I believe to be the Government's policy--to try to give the Post Office the ability to raise money commercially, outside government sources. More investment is clearly required in hospitals and schools. I am glad that the Government take this seriously and I look forward with great interest to the recommendations of Mr. Malcolm Bates in his inquiry into how the private finance initiative can be made more effective. Those findings are, I believe, expected in the middle of June.

There is no doubt that this is a very important area. We shall shortly have put before us for Second Reading a Bill which will improve the possibilities for the private finance initiative in the health sector. I fully agree with the Government, and indeed with the previous Government, that in these basic

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infrastructure investment requirements the private sector should play an increased role. We must find ways in which that can be achieved.

In the recent election manifestos, all parties emphasised the need to invest more in skills and training. We look forward to the specific measures which the Government will be announcing in due course. But it is not only a matter for government. Enterprises also have a major responsibility in this area. Recently, in an enterprise in which I am involved, we spent some time talking about employability. Employability is wider than just training people for the skills required in the jobs which they perform. It is to widen their skills in order to give them greater job satisfaction, to add value to what they can contribute to their company and, above all, to make them more employable if and when they leave their current employment. This area requires a great deal more emphasis. It is the responsibility of both government and enterprises to improve the employability of the labour force.

Another relative weakness in Britain has been the inadequate level of investment in basic science, technology and technology transfer. Here also in terms of the percentage of GDP that we invest in civil research, we lag behind other countries. I well remember the debate in 1986, introduced by the late Lord Sherfield, which drew attention to the low level of civil R&D in Britain. Regrettably, that situation still exists. It is therefore of great importance that there should be a major transfer of resources into that area. Perhaps the Minister will be able to give us some indication of how that can be achieved.

I realise that all these things need more resources. We require priorities to be set about the allocation of public resources, and innovation with regard to the ways in which private finance can be drawn into those desirable objectives. But that, after all, is the challenge of government. Indeed, that is why I believe that the present Government were voted into office. They were voted in to provide some new thinking on such matters.

In conclusion, I reiterate that the overriding economic policy objective must be to bring about an acceptable and sustainable level of growth with its attendant industrial and social benefits. The Government have already made a good start, but much more needs to be done. In their manifesto and in the gracious Speech, the Government appear to be committed to positive action in this area. I look forward to further developments and to anything that the Minister can tell us later.

4.21 p.m.

The Lord Bishop of Hereford: My Lords, I add the congratulations of these Benches to the noble Lord, Lord Clinton-Davis, and to the noble Baroness, Lady Jay of Paddington, on their ministerial appointments. Perhaps I may also say how keenly we look forward to the maiden speeches to be made later this afternoon by the noble Earls, Lord Derby and Lord Cork and Orrery. Finally, I congratulate the noble

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Lord, Lord Mackay of Ardbrecknish, on his admirable knowledge of the Psalter and the maxim,


    "put not your trust in princes".
However, I could not help reflecting that of all the members of the Cabinet perhaps Mr. Gordon Brown would be the most reluctant to be promoted to the rank of prince--think of the sartorial implications of that!

I should like to speak briefly about the Government's stated aim in the gracious Speech of securing a "high and stable" level of employment. I welcome that commitment wholeheartedly, echoing as it does the words of the 1944 White Paper on employment. We need to consider carefully how those admirable aspirations can be fulfilled in the very different economic and social circumstances of today.

With that in mind, I should like in particular to draw your Lordships' attention to the important report of the Churches' inquiry into Unemployment and the Future of Work, which was published on 8th April. That inquiry was conducted on behalf of the Council of Churches for Britain and Ireland. All the main Christian denominations were represented on the sponsoring body. The working party was made up of industrialists, academics, theologians and those working closely with the unemployed. Andrew Britton, the former director of the National Institute of Economic and Social Research, was its executive secretary. It was an extremely able group of people. The inquiry team spent 18 months at work. That work was completed only at the beginning of this year, so the report is fully up to date. The inquiry team consulted extensively and visited most of the geographical regions of the country.

The members of the team described being "shocked and saddened" by the contrast that they saw everywhere in Britain and in Ireland between the favoured majority on the one hand and, on the other hand, those who are left out. Those are contrasts which we have uneasily tolerated for a great many years. The inquiry team saw such contrasts as intolerable. Wherever they went, the members of the team saw increasing riches and poverty side by side. They came across much bitterness and despair. They found communities destroyed by a lack of economic opportunity. However, their report also offers hope that the problems can be solved if the issues are given high enough priority.

At present, the economy is doubly crippled by virtue of the fact that so many people are not contributing creatively to it by their work and because the payment of benefits to the unemployed places such a heavy burden on the public purse. Archbishop William Temple wrote in 1942:


    "The worst evil ... is creating in the unemployed a sense that they have fallen out of the common life. However much their physical needs may be supplied ... the gravest part of their trouble remains; they are not wanted!"
That is as true today as it was in the 1930s when Temple conducted a major inquiry into the effects of unemployment on society. Unemployment is isolating, depressing and often humiliating and now, much more obviously than in the 1930s, it is a very fertile breeding ground for crime and drug addiction and for yet more crime to service the addiction.

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People must be able to participate fully in the life of society. That means that they must produce goods and services as well as consume them. It is especially through their work that most people serve the community and serve God. It is also often in our daily work that we can be most truly creative, sharing in the creative work of God and using the gifts that he has given to us. If such claims sound Utopian and absurdly idealistic, that is perhaps a measure of how low we set our sights, our hopes and our expectations of people, all of whom have immense potential for joys and griefs, for hopes, dreams and concerns and, above all, for relationships that bring deep and lasting fulfilment. Work confers dignity, gives meaning to life, and socialises people. Work creates the context in which families can flourish. It is not surprising that without reliable dependable work, family life has suffered so grievously in recent years among so many sections of society.

In the gracious Speech the Government are pledged,


    "to mount a fundamental attack upon youth and long-term unemployment".--[Official Report, 14/5/97; col. 6.]
I am sure that that objective will meet with approval from every Member of your Lordships' House and from all sections in society. However, we need to examine carefully exactly how that attack is to be mounted. We should be concerned not only with broad principles, but also with the implementation of the policies in detail. Will the new programmes be a real improvement on what has been tried in the past? Will they actually be attractive to young people? Will they address the most intractable areas where unemployment is, and has long been, exceptionally high? Most of us never go to such places. We are unaware of the levels of decay and depression that mark them out. We are unaware of the corrosive demoralisation of belonging to the second or third generation without the prospect of real work. There is a lack of awareness of what it is like to be trapped in that sort of hopelessness or to live in that sort of place.

I have therefore been grateful for the work of Church Action on Poverty in conducting hearings at which the unemployed can speak for themselves and tell their own stories. They are harrowing stories, as well as in many cases being uplifting because of the spirit with which such privation is borne by some people. However, those areas of high unemployment continue to be largely hidden and unknown to the inhabitants of comfortable Britain. The churches are there and have always been there. The Church Urban Fund is at work there. The inquiry team for Unemployment and the Future of Work went to such places and I believe that that explains the indignation and passion which underlies the report.

We need to feel deeply and strongly about this problem and not rest until it has been solved. The noble Lord, Lord Clinton-Davis, spoke of a mood of optimism, of partnership and of involving everybody. I associate myself with those hopes and I am glad to acknowledge that in recent months there has been a significant reduction in the number of people unemployed, but it remains a deeply serious problem and I make no apology for dwelling on it in this speech.

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Perhaps I may suggest two practical measures. First, in the private sector, we must reduce the costs associated with jobs. In particular, we must reduce the employers' national insurance contributions for relatively unskilled work. We must reduce the effective marginal tax rate on people taking those relatively low-paid jobs and ensure that the benefits associated with unemployment are not lost as quickly as they are at present. We must introduce a much more gradual tapering of benefit loss. That is vital if people are to be encouraged into work. Secondly, in the public sector we need more jobs. We must be prepared for some additional taxation to make those jobs available, above all in education and the National Health Service.

The Government are committed to fairness at work and will introduce a national minimum wage. I warmly welcome that undertaking, which will do so much to redress the injustices that have flowed from the abolition of the wages councils. The noble Lord, Lord Mackay of Ardbrecknish, said that that would increase the cost of work, but at least that money would be going to those in work. I believe that we must increase the amount that goes to those who work while we try to reduce some of the other costs that fall upon employers. This policy is also in line with a concern that is expressed in the report of the Churches' inquiry about the quality of the jobs that are being created. At the moment there are some very low-grade and desperately low-paid jobs.

I should like to mention briefly another aspect of fairness in the labour market which is emphasised in the report of the Churches' inquiry. I refer to racial discrimination at work. This problem has not gone away despite existing legislation. Indeed, there is some evidence that it is becoming even more serious in some parts of the country. Young people from ethnic minorities grow up with no expectation of any satisfactory employment. They believe--and, I fear, with justification in many cases--that they suffer from racial intolerance and unfair discrimination. In its work the Churches' inquiry visited Northern Ireland to review the very tough legislation in place to outlaw religious discrimination. It suggested that some lessons should be drawn from that legislation for effective action against racial discrimination in all parts of this country.

The future of work is the key issue of economic and social policy that we face. We cannot sit back and assume that the market on its own will solve our problems for us. We cannot acquiesce in a system which allows employers to think of labour merely as a cost of production to be minimised, with the cynical assumption that the taxpayer will foot the bill for income support. As a nation we need to change our attitude to employment and unemployment quite fundamentally. Unless we get it right, the divisions within society will grow deeper and the sense of community that we so urgently need to rebuild will be comprehensively damaged.

I believe that the Government understand the gravity of these matters. I fervently hope that public opinion will support them in going beyond their manifesto commitments and taking the policy initiatives that are

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required to heal the very deep wounds that unemployment has inflicted upon our fragmented society and to release the potential of all our people.

4.33 p.m.

The Earl of Derby: My Lords, it is an honour to be able to address your Lordships' House. I ask for your Lordships' indulgence as I deliver my maiden speech. A recent Financial Times survey on Merseyside carried the front page headline "Pace of recovery begins to quicken". It is on that subject, the Merseyside economy, its decline, problems, renaissance and future, that I wish to address the House.

By way of scene setting, although I may be addressing this distinguished House for the first time, in the previous century six of my antecedents served in or formed the governments of this country. They held posts in Tory, Whig and Liberal administrations--perhaps that is why I sit on the Cross Benches this afternoon--but they all spoke for Liverpool where the Stanley family has lived for over 600 years. The subject of Liverpool and its future prospects is therefore one on which I speak with passion.

Your Lordships will be aware of the great historic significance of Liverpool as Great Britain's main west coast deep port. Sadly, Merseyside, which is centred on Liverpool, has been Britain's most difficult manifestation of urban decline. The reality is that the city's economy was too narrowly based on shipping and associated services. It has been in decline for much of the second half of the 20th century. Liverpool has lost one-third of its population since 1961. Each successive recession has resulted in more factory closures and higher unemployment. Containerisation at the docks resulted in a huge loss of jobs. Your Lordships will recall the riots in Toxteth in 1981, the problems of council debt caused by Militant Tendency, and the council strikes.

By the mid-1980s Merseyside's male unemployment rate had peaked at 24 per cent., and in the worst areas of the city it was up to 50 per cent. This occurred mainly in the over-40 unskilled manual labour category for whom finding new jobs has been very difficult. The right reverend Prelate the Bishop of Hereford referred to the problems faced by these individuals. The press rightly reported just how bad the situation was. There were reports contrasting the success of other areas which showed up the failures of Liverpool and Merseyside even more starkly. The North East has attracted huge inward investment. It has done so by ensuring close liaison with all interested parties who speak as a unified body with one voice. This Merseyside has failed to do for far too long. The city was in a mess. The council was in disarray and many councillors were disqualified. After years of isolation and infighting the region now speaks with one voice and can start to shed its old image. The tide of press comment is now turning, as demonstrated by the quotation from the Financial Times with which I began. The Mersey Partnership as marketing agent is working hard to improve the image and perception of the area.

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For the renaissance to start the building blocks had to be put into place. Here, the Merseyside Development Corporation played a great part. That body was funded by the Department of the Environment and the European Regional Development Fund. Now increasingly it funds itself from rental income and property sales. That self-funding is a measure of its success. In the early years the Merseyside Development Corporation had to get the infrastructure right, and on that it spent about £300 million. The MDC is on target to achieve its ambition to create 25,000 new jobs by the millennium.

In the past five years unemployment in Knowsley, one of Merseyside's five boroughs, has fallen by 6.5 per cent. against the national figure of 3 per cent. Knowsley industrial estate has been successful in attracting investment, including the £300 million northern press of News International and QVC, a US television shopping channel. Importantly, QVC came to Knowsley in spite of hot competition from Dublin which provided incentives to go there. It currently employs 1,100 people and the figure is set to double in the next two years.

The Mersey Docks and Harbour Company's tonnage fell year after year to a nadir of only 9 million tonnes in 1984. I am happy to report that last year a record 31 million tonnes passed through the port. That represents an increase of three and a half times in only 12 years. Between them Ford and Vauxhall have invested £700 million in the past seven years and plan to invest a further £300 million in the next three years.

That Merseyside was eligible for Objective 1 funding demonstrates how serious was the problem. The Objective 1 budget has undoubtedly benefited the region through its five drivers: inward investment, local business development; innovation and new technology; tourism and culture; and human resource. As to the last of these, some have been critical that too much money has been spent on training rather than job creation, but jobs are being created. According to the MDC, already nearly 17,000 jobs have been created. If investment is to continue, then a supply of skilled labour is an important point in attracting inward investment.

The MDC has developed five industrial and technology parks. These are proving to be very successful. The largest number of jobs is in technology, software and call centres. Recent investment examples include Kodak, Sony, Halifax and Abbey National. What Merseyside has not yet attracted is the giant size multinational inward investment. Now that so many of the Merseyside agencies are working towards a common goal and Speke-Garston can offer a 400-acre site we hope that this could be just over the horizon.

The ends of Objective 1 and the MDC are not far away. Between them they have been instrumental in so many ways to help restart a very depressed Merseyside. The signs of improvement are there, the jobs are being created, unemployment is now down to 11 per cent. That is still a very high figure against the national average. There is no doubt that much of the good will only come after Objective 1 and the MDC have gone, but we must ensure that the patient recovers. To help

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this, it is vital that there is close liaison and co-operation between public and private sectors. A healthy economy needs a thriving private sector that attracts more investment. Continued support from European structural funds will be required in the early years of the new millennium to help the region achieve self-sustainability.

It is not just improving business outlook that makes the region a success; it is broader quality of life that contributes as well. Liverpool has two excellent universities. They attract tens of millions of pounds from industry for research every year. The student campus has grown dramatically and helps the local economy. Many students are staying on to work in Merseyside after they finish their degrees.

The National Museums and Galleries on Merseyside are home to some of the finest collections outside London. The Royal Liverpool Philharmonic Orchestra, of which I am president, enjoys a global reputation. The Albert Dock is a bustling 1.2 million square feet of retail, exhibition and residential space. Knowsley Safari Park, which my late uncle had the vision to establish, is home to the largest herd of African elephants in Europe. The Groundwork Trust, started in Knowsley, was a pioneer development in environmental improvements in communities working with the inhabitants that has now been replicated in many other parts of Britain.

In short, Merseyside is an attractive place in which to live, work and invest. We are all aware of the tremendous problems the region has faced through changing industries, depopulation, severe recession and economic depression. After some years in the doldrums, the many agencies involved are helping the city and the city is helping itself to rise back towards the great position it held. We can only hope that the new Government will see fit to support the many initiatives which are taking place on Merseyside and in other similar regions to improve the quality of life for all their inhabitants.

4.43 p.m.

Baroness Lockwood: My Lords, I am sure that the whole House will join with me in congratulating the noble Earl on his admirable, informed and caring maiden speech. As he reminds us, he comes from a distinguished political family. He himself speaks from experience. Already he has a distinguished career in business and financial affairs as well as engaging in many activities and organisations which enhance the economic, cultural, gastronomic and sporting life of Liverpool and Merseyside, where his family has had some influence over the centuries. We hope that he will soon speak again, and that we may hear him on many occasions, in this Session at any rate.

I want to talk about the contribution that universities make to our economy. In doing so, I declare an interest as chairman and pro-chancellor of the University of Bradford. I welcome the emphasis placed on education in the gracious Speech. That is central to economic success. For too long we have failed to accept that our competitive position vis-a-vis Europe and the rest of the world is in the long run dependent upon our creating a

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highly educated and trained workforce, capable of adding value, as the noble Lord, Lord Ezra, said, to whatever task is undertaken, at all levels in the workforce, whether managerial, professional or operational.

I welcome also the spirit of co-operation between government and industry. Our wealth and prosperity depend upon that co-operation. It is infectious, and, in turn, some of the wealth and prosperity of industry depends upon its relationship with the universities. The universities are an important source of innovation and insight. The association is important, not just in science and technology but in the social sciences, which are too often underestimated.

The Government's aspirations to inject new dynamism to modernise our economy and equip it with skills, technology and industrial capacity for the future mean a yet closer association with the universities.

Our university system is a national resource, underpinning the economic, social and environmental wellbeing of the country. Universities have risen to the challenge of doubling the number of home undergraduates over the past 16 years. That has been done by increasing the efficiency, effectiveness, and variety of the many programmes on offer. Our place in Europe as an educational provider for European students generally is second to none.

UK higher education is still recognised internationally as providing a high quality product and good value for money. We now teach three times as many international students as we did 10 years ago. Students from abroad will add £1 billion per annum to the UK's GDP.

In a global knowledge-based society, the UK must invest further in the nation's education at all levels, in higher education no less than at other levels. Such investment has fallen in recent years, and in higher education is still falling. A new funding system is needed which motivates the higher education sector and the staff working within it. Like industries, universities cannot be asked to continue to operate in a stop-start system. Something like a quinquennial, triennial, or even rolling triennial system is desired. We must ask: what is at risk if we get it wrong?

Since 1992 the number of internationally rated university research departments has increased from 290 to 480. UK universities are second in the world-wide league of industrialised countries and above the USA for the rate at which they attract income from industry. Decisions to invest in the UK by international companies are influenced by the known quality of the university's expertise.

UK universities employ more than a quarter of a million people and in many cities are among the largest employers, second only after local government. In the North East, five of the biggest 30 employers are universities. UK universities have a turnover of £10 billion per annum, compared with Marks and Spencer, reported today to have a £7.8 billion turnover, or ICI with £10.6 billion.

Universities' contributions to competitiveness and economic generation are well documented and I hope this House needs no reminders. These contributions

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occur in all of the four primary roles of our universities: first, undergraduate taught level, much of which is for vocational and mature students, often commissioned and sponsored by industry and commerce; secondly, postgraduate taught level, much of which is post experience and linked to continuing professional development, again often commissioned and sponsored by industry and commerce; thirdly, research and development and consultancy, which increasingly is more applied and relevant to companies' profitability; and fourthly, resource and facility centres, which assist short-term and long-term needs of companies, especially in periods of expansion and re-equipping.

There have been a number of studies made which have described, confirmed and quantified the real contributions made to the success of UK companies and to the UK itself. Such studies, whether for the country as a whole, or for regions--Yorkshire and Humberside being an example--or for individual universities, all show value for money represented by our university system.

Higher education is big business and public expenditure, which is currently around £6 billion per annum, is not the only source of income. International student fees, research grants and contracts from companies and outside agencies such as charities, foreign governments, consultancy work, etc., produce an estimated total greater than £2.5 billion per annum.

For the future the participation rate for the 18 to 20 year-olds is likely to need to increase in order to meet the demand from below. The Council for Industry and Higher Education believes that the current figure of 60 per cent. participation rate of 17 year-olds in full-time education could apply to participation in higher education by the year 2000.

If there is to be this expansion in full time and/or part-time--and part-time higher education is growing and is of growing importance--the goodwill of the higher education sector and its staff is at risk if the new funding methods anticipated do not also show due recognition of the contribution made by the staff in higher education. Surely the time has come for an independent pay review body to assess and advise on the pay for university staff paid for from public expenditure, as happens now with the police, in the teaching profession and with doctors and nurses.

Many universities are involved as partners, and unique partners, in the regeneration organisations which exist in many cities and regions. My own vice-chancellor, for example, is a member of the DTI Advisory Committee for the Teaching Company Scheme, chairs the local Business Link and is a director of the local TEC. Such examples can be multiplied many times over and are, as I say, an indication of university participation in regeneration.

I have outlined these contributions because it is important that we acknowledge the full extent and scope of university activity. These activities have increased in size and value, despite the hostile climate in which universities have operated over the last two decades, from the 1981 cuts onwards. Whatever has been asked of them they have delivered, and more, even though this

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has been at the expense of the unit of resource, penalising students; uncompetitive salaries, penalising staff; and creaking buildings and equipment, putting the future in jeopardy. Indeed, one of our major pharmaceutical companies has threatened to take its research to America because of the perceived state of our university laboratories. This cannot be allowed to continue. We have now reached the stage where across the board increased investment in our universities is critical to meeting our economic objectives, and one hopes, indeed expects, that the Dearing Report, due in July, will indicate clear signposts for this.

4.57 p.m.

The Earl of Cork and Orrery: My Lords, I must add my congratulations to the noble Earl, Lord Derby, on completing his maiden speech. I trust he will be able to commiserate with me in just starting mine.

I listened carefully to what the noble Lord, Lord Clinton-Davis had to say in his opening remarks and I feel that a great deal of it will help to underwrite what I am about to say. I pick on one particular phrase, if I may, and I trust that the noble Lord will remind his noble friend the Leader of the House of it. The phrase is, "What counts is what works". I trust that he will arrange for this to apply to your Lordships' House.

I am no economist. I am rather glad about that because I believe it a truism to say that no two economists ever agree with one another. It is, however, appropriate to bring to the attention of the House the engineering and construction industry which has few representatives here or in the other place. When I set out to prepare my maiden speech I was not sure that I could make it a worthwhile length. After some research and seeing how it impinges on almost all aspects of the last days' debates I am fearful that it may be too long. We can all agree with Winston Churchill who said that he must have engineers but heaven forbid that they should all be the same. Sir Winston, who mercifully was educated in the historic tradition, took care to have excellent technical support. But it is, of course, our artistic friends who put the icing on the cake. I want to talk about the cake itself and I hope to find a few plums.

This year we celebrate the Year of Engineering Success. The Engineering Council sets out to persuade us all, especially the younger generation, of the importance of engineering and of success in visible results and in less visible results as well as earnings at home and abroad. For instance, consulting engineers, perhaps some of the cream of the profession, have earned £1.8 billion in fees, nearly half of it overseas and, of course, this represents only a small percentage of the capital costs. There is plenty of room for an ambitious young man to set his sights on.

Many people have a vision of an engineer as a man in a greasy overall with a spanner in one hand and an oil can in the other. We are very pleased to see him when he comes to mend our washing machine or our telephone. Out of sight, more than 1½ million more labour mightily to produce the countless things we nowadays regard as necessities of life--everything

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from, as we have lately seen, the longest bridges and tunnels in the world to a razor blade or a microchip. The Channel Tunnel is a good example as it embraces almost every engineering discipline. We all use our cars, our computers, our lights, our water taps, even our amplifiers and our air conditioning, without much thought as to how they work. The men who put the roof on Westminster Hall performed a world famous, almost miraculous, feat with the materials available at the time. I have not mentioned the TV cameras.

The skilled men, craftsmen and technicians are the shock troops of the industry. They produce 8 per cent. of our gross domestic product and export 60 per cent. of it, earning £160 billion of foreign exchange annually. Only farmers contribute more to our basic needs. And engineers have revolutionised farming, too. They are the drivers of progress, but we largely ignore them. Kipling knew how little they were appreciated when he wrote in his poem, "Sons of Martha":


    "They are concerned with matters hidden-- under the earth line their altars are... Wary and watchful all their days that their brethrens' days may be long in the land".

Nowadays, as technology advances and invades all our lives, the need for education and skill becomes more pressing. I greatly appreciated the remarks of the noble Baroness, Lady Lockwood, who told us about the importance of education. A skilled and educated workforce can and must replace the old worthies of the heavy hammer and brute force. It was encouraging to hear in the gracious Speech of the continuing emphasis to be placed on education at all levels. I was especially interested to hear the noble Lord, Lord Butterworth, on this subject yesterday and I wish to support his plea for more adequate funding. But however important fundamental research is, we still need a different breed of men to put their findings into practice and we require adequate educational support.

Engineers have allowed their ancient and honourable title to be debased. Engineering is a profession several hundred thousand strong in this country but still not strong enough. We need 30,000 of our brightest young people every year to maintain it, more if we are to compete successfully at the breakneck speed of advancing technology worldwide. At present, our universities are producing little more than half the engineering graduates we need. I emphasise that. It is vital to our survival to double our output of engineers and to ensure their lifelong education and re-education to increasingly high standards.

Around the great hall of the Institution of Civil Engineers just across Parliament Square we can read the names of the great men who led the world into the industrial revolution: Telford, Stephenson, Whitworth, Faraday, Brunel, Parsons and others equally proud and distinguished. These men were famous in their time and their names live on, but their modern counterparts are largely unknown to us. Sir Frank Whittle, for instance, whose inventions almost single-handedly have radically changed the lives and the outlook of every one of us, received scant recognition in his lifetime for the truly fantastic revolution in world travel which we now take for granted. Today, great projects have grown so large

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that they can be handled only by co-ordinated team work. It is an exciting development when architects and engineers can combine in teams under the leadership of such outstanding men such as Sir Ove Arup, who was both. We can be proud that he decided to settle in Britain, though we should learn a lesson from the fact that he was educated in Germany and Denmark.

Engineering is exciting, thrilling at times, and fun. Even if it appeals mostly to the numerically minded, simple arithmetic can take you a long way. It takes as long to train for as the professions we recognise more easily, such as law, medicine, accountancy and the others. But it is the one which actually discovers, develops and produces things which we all want and need. In fact, it creates wealth rather than regulates it. All other professions depend mightily upon engineers and their work is intensely satisfying. Every profession has its academics, but for those so inclined it is a first-class introduction to management because the basic discipline involves detailed analysis of problems and the formulation of solutions. Nearly all our top hundred companies have at least one engineer on the board. It is a shame that other less well qualified people have at times attempted to usurp the engineer's management functions, even in his own field, sometimes with unfortunate results.

Engineers are not much interested in politics until they have to be. What they ask from politicians is a stable environment and that their industry should not be used as an economic regulator. Otherwise their work is too absorbing. The laws they obey are made by God and by nature and the penalties for disobeying them are far swifter and more drastic than any imposed by man. In the past, their remuneration has not always kept pace with the responsibilities and the risks they carry. Happily, with improving prosperity, the situation is improving and the signs are that they are catching up with the architects and the accountants. There is still a little way to go before the doctors and lawyers are overhauled. Unemployment is under 2.5 per cent. and now that opportunities in the Armed Services are declining, I submit that noble Lords could perform a useful service to the nation by encouraging their more adventurous children and grandchildren to take up this very important and demanding work, so vital to our future, as my own grandson intends to. It will take them to fascinating scenes and places all over the world, especially if they choose the outdoor environment of civil engineering. There will be lots of hard work, but that is true of any occupation that is going to lead to such a potentially satisfying career--surely more exciting than watching a screen in the City.

Engineers are rapidly developing their care for the environment. Yesterday I was fascinated by the speech of the noble Lord, Lord Rogers. As ever, engineers mean to support their sister profession, morally now as well as physically in the past.

The early non-military engineers founded the Institution of Civil Engineers, the senior institution, about 20 years before the foundation stone was laid for the present Palace of Westminster in which we stand. It is now the single parent of 38 other specialised institutions which must indicate the diversity of interest and choice for aspiring new entrants. It has a Royal Charter but no Royal name. I wish to conclude with a humble petition to

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Her Gracious Majesty and her Privy Council, if any of its members are here, to grant Royal status to the senior institutions. They surely deserve to be Royal at least as much as the surveyors and the architects.

5.10 p.m.

Lord Dahrendorf: My Lords, first, it is my pleasant task to congratulate the noble Earl, Lord Cork and Orrery, on his maiden speech which combined experience and conviction in equal measure. I believe that he was educated on the other side of the Strand from the one which I know best and what he said demonstrated the continuing fruitful tension between those two great colleges--King's College and the London School of Economics. I gather from the words of the noble Baroness, Lady Lockwood, that it is now a political statement that we wish to hear from the noble Earl on many future occasions. Nevertheless, I shall say so.

Like others who have spoken in the debate, I wish to take as my starting point the statement in the gracious Speech that says:


    "The central economic objectives of my Government are high and stable levels of economic growth and employment, to be achieved by ensuring opportunity for all. The essential platform for achieving those objectives is economic stability".

In that connection, I wish to make only one point, a footnote almost, although it is combined with a modest request. Stability has something to do with the way in which we see things and the way in which we see things has something to do with the information which we receive and take in. Indeed, I have sometimes felt that one of the problems with economic stability in this country is that too much information is requested and published too frequently: there are too many monthly and quarterly figures; and one loses sight of the longer term development which alone gives us true knowledge of stability.

My modest request on which I wish to spend a few moments is primarily a request to the Government but perhaps one to the whole House. Please let us have meaningful, comparable, sensible figures. Please let us be sure that when we have quantitative information there is something we can do with it which makes sense. At least make sure that we are spared meaningless information--bad figures.

I illustrate what I mean by making three brief points. The first has to do with bad figures. I went through one of the volumes of our proceedings in your Lordships' House and it did not take me long to find examples. I picked up the volume for October/November 1996 to find examples. I shall not quote names, nor shall I attack anyone personally. I merely give examples of bad figures. A prime example is percentage figures on an unknown base. In Hansard it is stated:


    "I can assure the noble Lord that last year applications for post-graduate training courses rose by some 7 per cent.".
No further evidence is given around that figure. Is it from 30 to 32, from 100 to 107 or from 10,000 to 10,700?

That is not the only example. Another example is:


    "Of the partnerships which won bids for the single regeneration budget, 80 per cent. had local authority involvement and about 50 per cent. had been led by local authorities".

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Of how many? Was it 10 or 50? The percentages are suspiciously round figures in any event?

I give a third example:


    "A recent report ... indicated that walking has declined by 20 per cent. in the past 20 years. That is a major figure. It says that, if the trend continues, walking will disappear completely by 2025".
It is quite amusing to go through your Lordships' debates with a view to identifying more or less informative figures.

In the same chapter of informative or uninformative figures, I count dubious success stories. The following statement was made:


    "I shall let the record speak for itself. In the five years since the reforms, general and acute activity has grown by 33 per cent. compared with an estimated growth of 10 per cent. in the five years before the reforms".
It refers to "estimated growth". By whom? What does it mean in any case? Is it good or bad? In other words, what are we to make of such stories?

In order to be clearly non-partisan, I give a third example. We should beware of irrelevant references to what happened under a particular government. To me, the following question makes very little sense:


    "Can the Minister confirm that the balance of trade on tourism under this Government, which was always in surplus under the Labour Government, has, in fact, for the first time in history, turned into deficit?".
It is perhaps quite useful to examine whether, when figures are given and related to governments, they have anything to do with what governments have or have not done, can do or might do or whether we can leave out governments and concern ourselves just with those figures.

As I pondered those examples, I wondered whether it might not be a good idea to have someone at the Clerks' Table with a little bell which he rings every time one meaningless figure is presented to your Lordships' House. That is my first set of examples as part of my modest request.

Somewhat more seriously, it is important that the information that we have is comparable and relevant. We are all pleased about the relatively low unemployment figures in this country. We know also--and I think we all know--that the picture is quite complicated. For example, it is complicated in the sense that there are a large number of households, larger than one would expect from the basic unemployment figure, in which no one is employed. I hear the little bell ringing, because your Lordships will remind me immediately of the fact that in this country and the United States there are many more single person households and, therefore, the household figures do not necessarily give a clear additional indication.

But I am bound to say that I was delighted to read in the newspapers that the Government intend to do something about the two sets of figures on unemployment and the relationship between unemployment claimants and the Labour Force Survey and that the Office for National Statistics is asking for comments on that. This is as good a time as any to make that change because as soon as this Government have

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published their first figures, they will develop a vested interest in relating everything else to them and not changing the basis on which they are calculated. Therefore, I hope that those changes will happen very soon.

I do not necessarily suggest that the two surveys must be rolled into one. They can both be published if they are published together and thereby allow analysis, which, after all, is one of the objectives of publishing figures in the first place.

My third point is that I hope that we can think of new and meaningful ways of measuring stable growth. That is a difficult one. We read that "Britain is booming", at least if we went through the streets of London and probably other cities. Of course, in one sense, that was a correct statement. Yet many of us knew that, in another sense, it was not. We are going through a phase in which we are experiencing a curious combination of macro-success stories and micro-misery. None of us really knows how to put those two together. In particular, we do not know how one expresses that by using the traditional language of describing what is going on--and notably the traditional language about macro-success stories.

On 21st February 1996 the House discussed--and I hope noble Lords will not regard it as arrogant if I refer to it--a commission report on Wealth Creation and Social Cohesion, with which I had something to do. At least one member of the committee which I chaired is now a reforming member of the new Government, so I assume that what was said then may not be a million miles away from prevailing interests. One recommendation was that we should try to work out a wealth audit which would not intend to put everything into one figure but which would combine the gross national and domestic product growth figures with other relevant data in one context so that one was able to form a judgment of the true complications of economic development which we are now experiencing. Of course, the noble Lord, Lord Desai, has in his own works produced fascinating and important examples of what might be added to such an audit, as have some of our common friends, not least Professor Partha Dasgupta in his book which was published a few years ago.

I wonder whether the Government could have a look at ways in which the latter should be done. Alternatively--and this is the most important comment that I want to make; that is to say, important from my point of view--perhaps I should have said that it is not something for the Government to do. We should perhaps encourage the Office for National Statistics to do it. I am all in favour of greater independence for the Bank of England, but I would be even more in favour of greater, or, indeed, near total, independence for the Office of National Statistics. I say that because that office need not be, as we read in its description, "accountable to the Chancellor of the Exchequer". That office is supposed to help all of us hold government and others to account. It gives us basic information which is relevant to our task in Parliament. There may be other ways of locating the Office of National Statistics, or at any rate making sure that that important source of information is one

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which gives us meaningful, solid and comprehensive information rather than cheap weapons in an unnecessary debate.

5.23 p.m.

Lord Tugendhat: My Lords, perhaps I may begin by adding my tribute to that expressed by other speakers to the two noble Earls who have just delivered their maiden speeches. I know that that can be a daunting experience. However, it is one through which both noble Earls came with flying colours. For as long as the party opposite permits them to stay here, I am sure that they will enrich the quality of our debates.

I should also like to congratulate the noble Lord, Lord Clinton-Davis, and indeed the noble Lord, Lord Richard, on their positions in the Government. As I am sure the noble Lord, Lord Dahrendorf, will agree, the club of former Commissioners in this country is sufficiently small so that we can all rejoice in the success of its members. I have no doubt that the presence of these two former Commissioners in the Government will be a further impetus to the creation of better relations with our European partners, which has been such a notable feature of the first two or three weeks of this Government's life.

As today's debate focuses on industrial and economic affairs, it is inevitable that almost anything that I say could be interpreted as bearing on the interests of Abbey National and Blue Circle Industries, the two companies of which I am chairman. Therefore, I declare that interest at the outset. I should particularly like to focus on what has been happening in the financial field. Here I pay tribute to the whirlwind start that the Chancellor of the Exchequer, Mr. Gordon Brown, has made. I believe that the broad thrust of what he has announced on both supervision and the responsibility of the Bank of England for setting interest rates is absolutely in the right direction. Of course, considered judgments must await the detail of the proposals and, indeed, the detail of the legislation; and there will be plenty of that. I very much hope that the Government will allow adequate time for scrutiny and, where necessary, for amendment when the legislation is brought forward.

I began my career on the Financial Times. The editor at that time, the great Sir Gordon Newton, always used to say that it was more important to be right than first. One might wish that other editors these days followed the same dictum. However, the idea that one should be right rather than first is certainly one that I hope the Chancellor of the Exchequer and his colleagues will pay heed to when this very important legislation is brought before us.

Pending the legislation, perhaps I may say a provisional word or two on the supervisory aspects of what the Chancellor of the Exchequer has announced. I believe that there are three points which particularly need to be borne in mind. First, the transparency, integrity and effectiveness of the new system are as vital to the City's international role and reputation as they are to the interests of the investing public. Secondly, the new SIB will be supervising very different organisations

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and activities. Therefore, it is very important that its structure should reflect the extreme complexity of its task.

For my part, I think that it is right to have a single supervisory authority. However, it will be extremely difficult to establish it on an effective basis from the beginning. I very much hope that there will be the closest possible liaison and co-ordination with the Bank of England. So far as concerns banking, it is perfectly true that the central bank and supervisory authority in other countries have been separated. But I believe that experience shows that very close co-ordination between the two is absolutely essential. In that respect, I think that the appointment of Mr. Howard Davies is certainly encouraging. I am sure that he will do his best to ensure such co-ordination.

Thirdly, it will be vitally important to strike a balance between effective rule-making and enforcement on the one hand and, on the other, not stifling enterprise and initiative. If the supervisory authority tries to prevent any failure from ever occurring, the result can only be atrophy. It is important for us not to get into the position of regarding a supervisor as failing just because one of the institutions which it is supervising happens to fail. It is the way in which failures are dealt with which is important, as well as the integrity, effectiveness and transparency of the supervisory system.

I turn now to the operational independence of the Bank of England. I hope, under this heading, that the Government will reflect on why it is that the Bundesbank and the Federal Reserve are held in such very high repute in their own countries. There are many reasons for that. But one is the fact that the individuals who have been appointed to them are of very high calibre, of great independence and, in a certain sense, representative of a great number of interests within Germany on the one hand and the United States on the other. It will be harder to achieve that degree of independence of background and of representativeness in a unitary state such as ours than in a federal state such as Germany or the United States.

However, it is of the greatest possible importance that the individuals who are appointed to the new monetary policy committee and court of the Bank of England should come from different intellectual and professional backgrounds, different interest groups and--I agree here with the noble Lord who introduced the debate from this side of the House--different parts of the country. That exhortation applies to the monetary policy committee and to the court but may be most difficult to achieve in relation to the monetary policy committee because of the need for the members of that body to work closely together to produce coherent advice and to be able to bear the strain of having their minutes and their votes published.

It will be a difficult body to set up and run. We are extremely fortunate to have an outstanding Governor, Mr. Eddie George, in situ at present to launch this great constitutional and institutional experiment. There are bound to be teething problems. Those problems may lead to misunderstanding and even condemnation of the new policy framework. All those who support the

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innovation, regardless of which part of the political spectrum we come from, need to support the institutions as they grapple with new and unfamiliar problems.

Some commentators have suggested that the Chancellor has handed over the keys of economic management to the Bank of England. But that is absolute nonsense. Monetary policy is only one part of a complex structure that includes fiscal policy, exchange rate management, labour market policy, the social security system, and much else.

That leads me to my final point. After this impressive burst of activity at the start of his period of office, I hope that the Chancellor of the Exchequer will not try to do too much in his Budget. The Government have, I believe--they tell us that they have--far-reaching ideas and plans for all the fields that I have mentioned. The Budget is the time for establishing the processes and structures for bringing those reforms and innovations into effect after adequate public consultation. It would be a great mistake if the Government were to pre-empt or make it more difficult to carry through their subsequent ideas by too much tinkering or innovation with the tax system at present. They must remember that they will be judged on the basis of four, or even five, Budgets and not simply on the basis of one. This Budget should provide the basis for putting into place the processes for introducing wider reforms.

In any case there is no need for radical restructuring or tinkering with the tax system at present. The economy is in good shape. Indeed, this Government have received the best inheritance of any incoming government since the war--better than the Labour Government in 1945; better than the Conservative Government in 1951; better than the change of government in 1964, 1970, 1974 or 1979. I pay tribute to Mr. Kenneth Clarke for the contribution which he has made to putting the economy into its excellent shape. I very much hope that my friends in the House of Commons will bear that in mind in the election upon which they are about to embark.

The economy has a good rate of growth. Inflation is under control. Unemployment is falling. Savings are rising. Competitiveness is improving; and tax revenues are exceeding expectations. Of course rebalancing is required. No doubt the Government will wish to offset largesse in one direction with tightening in another. They may wish to counter some of the effects of de-mutualisation windfalls. They may wish to do something to curb consumer spending. But there is no crisis in the macro-economy; quite the reverse. The public finances are in good order. There is no need for urgent or unpopular measures designed to blacken the reputation of the Government's predecessors or to provide excuses for problems which may arise later. This Government are a very fortunate government; and I hope that they make the best use of the inheritance which they have been lucky enough to receive.

5.36 p.m.

Lord Currie of Marylebone: My Lords, it is a great pleasure to take part in this debate from the novel

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perspective of this side of the House. My sojourn on the opposite Benches was rather brief as a new arrival in your Lordships' House. However, I look forward to a rather longer spell on this side of the House.

We debate issues of economic industrial policy after an historic shift in British politics--a shift that has excited the imaginations of many people around the country. The sense that things have changed is widespread. People even feel better off, according to the latest measure of consumer confidence; consumer confidence rose quite markedly after the election. That carries both risks and opportunities for the new Government: risks of disappointment, and opportunities to press for change. I am delighted that the new Government have shown no signs of disappointing by the flying start that they have made on many policy agendas, and that they have established their own distinctive mark. Those who thought that a change of government would make no difference have been clearly proved wrong.

The economic policies that have been announced to date have two features: first, they have been long overdue; and, secondly, they have been designed not to interfere with and obstruct market forces but rather to improve the policy framework within which markets work, regulating only where necessary to enhance their effectiveness. One example is yesterday's imaginative announcement of a radical reshaping of the regulatory structures. Reform was long overdue. The patchwork quilt of regulatory bodies may have been justified by pragmatism but it meant poor regulation, and overlapping and divided responsibilities. SIB's lack of powers over the self-regulatory bodies made for weak, toothless regulation; and that led to the call for the SROs to be folded into SIB.

However, I am delighted that the Government have gone further to create an overarching single body. I hope that mortgage lending will be included in its responsibilities. For the market reality is that the functional divisions between financial institutions have been dissolving fast so that a regulatory map based on institutional distinctions is increasingly irrelevant and ineffective. Worse than that, differences in approach between regulators can unfairly distort the operation of business and market forces. Yesterday's announcement means that the structures of financial regulation will be updated to reflect the modern realities of a fast-changing international financial marketplace.

It will of course be necessary, given the size of the new organisation, to guard against the dangers of an overbureaucratic and unwieldy SIB. In addition to getting the structure right, we also need a thorough debate and review of what we can expect from regulation in financial services and how best to regulate in this fast-moving world. I fully agree with the remark of the noble Lord, Lord Tugendhat, that a failure of a regulated company need not be seen as the failure of regulation. We need to understand what regulation can achieve in this area.

SIB's record is freer from embarrassment than that of the other regulatory bodies. That is a welcome point. However, it is worth noting that that is largely because

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it has had very little front-line responsibility for regulation. It will have to prove itself. Again like the noble Lord, Lord Tugendhat, I have every confidence in the ability of Mr. Howard Davies to ensure that SIB rises to the challenge.

The announcement of operational independence for the Bank of England was equally overdue. Previous Chancellors, including the noble Lord, Lord Lawson of Blaby, and the noble and learned Lord, Lord Howe of Aberavon, favoured that change but were unable to effect it. We all paid the price in terms of the excessive boom of the late 1980s and the recession of the 1990s. The British economy has been one of the most volatile of any of the major industrial economies. This is my only statistic, and I hope it does not suffer the criticism of the noble Lord, Lord Dahrendorf: we have suffered two of the five worst recessions in OECD countries since the war, both under the last Conservative Government. That volatility owes much to the way interest rates have been influenced by short-term considerations. It is time that changed.

We have already seen the benefit in financial markets. Gilts futures jumped 2¾ points on the day of the announcement, and most of the rise took place within half an hour. That compares with a trading range over the whole of the past year of about 10 points and is the largest gain in five years. It is a signal that the markets not only think that current long-term interest rates will be lower, but that they will be lower into the future. That extra confidence is good news for investment and the long-term health of the economy.

Critics of the change suggest that allowing the Bank of England operational freedom will mean higher interest rates. I believe I am right in associating the noble Lord, Lord Mackay of Ardbrecknish, with that charge. That is wrong. The City clearly does not believe it. The historical evidence from a range of countries is that greater independence and the extra credibility it gives to monetary policy tends to mean not only less volatile interest rates but also lower interest rates on average, to the benefit of all.

The method of choosing the new Monetary Policy Committee and the court is also important. They need to be seen to be independent and sensitive to different interests in the economy. Those appointments will be particularly sensitive. The financial markets will be watching them.

I also welcome the fact that the Government will introduce this Session a comprehensive reform of competition policy. That, too, is long overdue. The previous Government produced a White Paper on the subject in 1989, a Green Paper in 1992 and a blue consultative document in 1995. Even someone like myself, somewhat insensitive to colour, recognises that that is not progress, given the colour coding normally associated with these documents.

There were plans for a limited reform of competition policy in the last Session. However, they were dropped in favour of what were judged to be more politically appealing measures--perhaps wrongly in the event. The measures planned were simply to deal with horizontal cartels and horizontal agreements.

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That provides the opportunity for the new Government to introduce a comprehensive reform dealing not merely with horizontal restraints on competition but also with vertical restraints and restrictions on the abuse of dominance and market power, essentially along the lines of Articles 85 and 86 under European law but suitably adapted to British concerns to avoid unnecessary bureaucracy. These measures are needed to provide the level playing field that ensures that competition is effective and beneficial. Without it, companies can abuse market power to the detriment of other companies and consumers.

The problem with the limited reform proposed by the last Government was that it would have banned actions inimical to competition undertaken by a group of companies in concert but would not have banned the equivalent action if the companies were merged together. That is a logical nonsense. It would have been an absurd policy to have adopted. Action against abuse of dominance is required for that reason.

Reform of competition policy will bring benefits throughout industry. But it will be especially important in the utility sectors--telecommunications, gas, electricity and water. For historical reasons, related to the way in which they were privatised on an unsatisfactory basis, those sectors are dominated by major players. They will be dominated for the foreseeable future by major players who can exert market power. If effective competition is to emerge in those sectors it is vital that that market power is not abused. The Director General of Telecommunications, Mr. Don Cruickshank, rightly emphasised that in his adjudication on the BT price cap last year. With competition provisions in place which limited the capacity of BT to abuse its market position, he felt able to limit the price cap to about one-quarter of BT's retail business; in the absence of it, he rightly felt that he would have to price cap some two-thirds of the business.

Putting in place competition policy allows regulators to get out of the way of some of the big companies. That is a benefit. Mr. Cruickshank's proposed solution, which he adopted, of writing these provisions into the BT licence gave the advantage of those competition measures, but it had the major disadvantage of lacking any appeal mechanism. BT rightly felt that it was not being provided with an appropriate appeals provision. It is much better to do what is proposed; namely, to write the provisions into general competition law.

These measures--reform of City regulation, Bank of England independence, and competition policy--are all important. However, it is quite likely--and right--that the success of the Government's economic policies will be judged by two other major sets of issues: monetary union and the issue of unemployment. There is no time to discuss them in detail, but perhaps I may just touch on each.

It seems likely, at least in the eyes of dispassionate observers, that a number of European countries will proceed to a single currency. If that happens, although there are significant pros and cons on the issue, it is likely to be the case that it will be damaging to the UK's position if the UK stands aside, at least in the long term.

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But there are also major obstacles to early entry, not least the need to win popular support for the proposal in a referendum. After years of general antipathy to European issues and much anti-European rhetoric it will take time for public opinion to change. So it may not even be easy for the Government to take us into monetary union if they wish in the second wave. It is an issue that will be important, and one upon which history will judge the economic record of this Government.

Equally important are the proposals to move the more disadvantaged in our labour market out of unemployment, off benefit and into work. The welfare to work measures are an absolutely vital part of the Government's economic strategy. Targeted at the under-25s and the long-term unemployed, they are greatly to be welcomed. It is not right to argue, as did the noble Lord, Lord Mackay of Ardbrecknish, that they necessarily present problems. Carefully targeting these disadvantaged groups can result in substantial benefits.

The measures are to be funded by the one-off levy on the privatised utilities. We do not know the details yet; therefore it would be inappropriate to discuss them in depth. Nevertheless, there has been a line of criticism that the one-off nature of the levy makes it inappropriate to fund this type of programme. That is an incorrect understanding.

The accumulation of disadvantage over the past decade, particularly as a result of the last recession, has meant that a significant number of the long-term unemployed and under-25s need help out of the welfare trap. This measure, it seems to me, is a fundamental one to get that group back to work. If it is successful, then we can run our economy at a lower level of unemployment, with a lower level of welfare and a higher level of spending available for the other vital areas of education, training and health. We must make the programme of welfare to work effective. The Government have made a good start with a major innovative programme which can begin the process of transforming our economy and society for the better. I look forward to the more detailed discussions on the measures in the rest of the Session.

5.50 p.m.

Lord Roll of Ipsden: My Lords, first I wish to offer my apologies to the House because I shall not be able to remain until the end of the debate. I am particularly sorry to miss the winding up speech of the noble Baroness, Lady Jay, whom I wish to congratulate on her ministerial appointment. Secondly, I wish to add my congratulations to the two noble Earls whose maiden speeches we heard today. They were model maiden speeches: brief, non-contentious, dealing--as your Lordships always appreciate--with matters of which the speakers have deep personal experience and knowledge.

In the 19--or is it only 18?--days since the Government came to power a great deal has been done and a great deal more has been set in train, especially the remarkable, important and weighty legislative programme outlined in the gracious Speech. If current expectations are correct, we shall in the next few weeks have an equally active and exciting time.

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I do not intend to speak about the broader aspects of economic policy, which have been dealt with by a number of speakers. To my mind, so long as we stayed on the level of objectives and purposes there was a fair degree of unanimity in what the Minister and the noble Lords, Lord Mackay of Ardbrecknish, and Lord Ezra, said. The right reverend Prelate the Bishop of Hereford made an urgent and moving addition to that. We shall have to discuss those matters in some detail, no doubt, later. If I have the opportunity, I hope to take part in the discussions.

First, I wish to refer to one or two aspects of the Government's approach to economic policy which, so far at least, have not been mentioned tonight. It is amusing to remember that the party now in power was criticised during the election campaign for not giving a great deal of detail about its economic programme. That was extremely naive. The absence of detail is not at all unusual in election campaigns and the Government were entirely right. In any event, they have made up abundantly for the lack of detail in what has happened in the short time since they came into power.

On one aspect the Government have been precise in their electoral commitment. That is on the level of spending and certain points of personal taxation. They were fairly widely criticised for that, not only on the left wing within their own ranks, but also more generally it was considered extraordinary and perhaps unwise to shackle themselves to that extent in advance of being elected, as they were. But that criticism was totally misguided. If the Government intend--as now seems quite clear--to have a fundamental review of fiscal policy, it was more than prudent to put a temporary freeze on at least some important aspects of fiscal policy so as to pre-empt what I am sure would have been clamorous demands and pressures for policy changes, with immediate and important fiscal policy implications, without adequate consideration of the programme as a whole and its proper co-ordination. That is what is now intended.

I wish to say how much I personally welcome what was announced in that regard. It is clear that a fundamental re-examination of broad aspects of fiscal policy, particularly in relation to the social and economic objectives of the Government, is now on the agenda. I hope it will be undertaken thoroughly and completed as quickly as such matters can be. In all industrial countries of the world the question of what are the proper social and economic objectives, particularly how to reconcile the legitimate demands for social welfare with enterprise and with forces to foster growth and prosperity and so on, and the fiscal implications of policies are being thoroughly examined. It is absolutely vital that that should be done in our country and I am delighted to know that it has been put in train.

I now wish to say a few words about Europe. Your Lordships will not be surprised to hear me say that I thoroughly welcome the new atmosphere that has been created in a short time. The potent virus of hostility against the European Union which has been working away in our body politic for so many years now looks at last like being suppressed, giving way to a much more

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sensible, sober, I might even say adult, attitude of co-operation and constructive participation. It was entirely right to agree to sign the social chapter, not only for the reason that is sometimes put forward: namely, that it will make little practical difference. That may well be true, as I know from my experience of continental companies and their boards. But in addition there is a much larger and more important positive reason for signing the social chapter. The founding fathers of the European Union, Common Market or European Economic Community, as it was earlier--foremost Jean Monnet, as I know from himself--considered that the economics of the European Economic Union and of the Treaty of Rome were primarily directed to fostering those forces which would encourage enterprise to deregulation, liberalisation, creation of a single market and a common policy towards other countries outside the Union so as to foster growth and prosperity. To a large extent, that has been achieved, as any objective observer would recognise.

But many far-sighted people have concluded that the benefits of the process for the broader working populations may be so indirect, so slow and so disproportionate as to create a sense of non-participation and thereby threaten the cohesion not only of the Union but of the individual members. The social chapter is designed to a large extent to avoid that danger. I hope that its signature will help to produce that result. In any event, it will help to create that atmosphere of which I spoke earlier.

Finally, I wish to say a few words about monetary policy and the new status of the Bank of England. It is well over three years since I had the privilege of chairing an independent panel precisely on the question of the status of the Bank of England. The panel consisted of distinguished academic economists and lawyers, highly experienced former central bankers and highly experienced former senior government officials as well as people drawn from the financial world. They came not only from this country but from France, Italy and Germany. The recommendations that we produced at the time--well over three years ago--were very much in the direction of what is now being proposed and what the Chancellor laid down in his letter to the Governor and has now been rounded out by the Statement made by the Chancellor yesterday.

We recommended the kind of independence and accountability that is now being put in train. We debated the question of the relationship between the Bank and the Government as regards government finance. Although the position is not entirely clear, the movement of the management of the public debt from the Bank to the Treasury may well also follow our recommendations for avoiding jeopardising the functions of the Bank in regard to price stability and monetary policy by overt or hidden financing of government deficits.

Our report also referred to the question of banking supervision and the pros and cons of leaving it with the Bank or taking it away. We did not reach a conclusion, although on the whole the report leaned towards separating supervision from the Bank and placing it with an independent agency. The 26 countries we looked at

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are divided roughly half and half; one half has supervision as the responsibility of a central bank and the other of an independent agency, sometimes in conjunction with the ministry of finance and sometimes alone. As the noble Lord, Lord Tugendhat, pointed out, in nearly all cases there is provision for close co-operation with the central bank, even when supervision is in a separate specialised agency.

The changes that the Chancellor announced yesterday--I am sorry that I was not in the House; I read the report this morning in Hansard and was delighted to see that the noble Lord, Lord Callaghan, with his great experience as Chancellor and Prime Minister, and tonight the noble Lord, Lord Tugendhat, were both in favour of the changes--are particularly necessary, as was pointed out a few moments ago, because the dividing lines between the different activities of different institutions in the financial services industry have become extremely blurred. There are now institutions that conduct so-called high street banking (commercial banking), investment banking, fund management and a whole host of other activities. In each of those respects they are subject to different supervisory and regulatory rules and, indeed, to different regulatory institutions and agencies. Some reform in that regard was essential.

I hope that what is proposed will turn out to be the right course, though certain aspects will need to be carefully considered, as the noble Lord, Lord Tugendhat, pointed out. In general, in this process it was extremely difficult, if not impossible, to leave supervision of the banking system--that is to say, essentially of commercial banks--with the central bank alone. Indeed, one of the arguments to which the noble Lord, Lord Tugendhat, referred--namely, that it would be dangerous if the supervisory authority failed to step in when some specific institution was on the point of failure, as our report pointed out--could arise in the case of the central bank as lender of last resort also having supervision of those who might need to have recourse to it in difficulty.

I come back to my starting point. A great deal has been done in this short time. The cataclysmic change which has taken place in the political landscape and which is so visible in another place though not yet so in your Lordships' House, has been greeted in some quarters as a new dawn. If it is, then it is like Kipling's "On the Road to Mandalay", and has come up like thunder. The energy, the pace and the determination which the Government are showing in trying to translate lofty purposes into realistic action and to deal with long overdue reforms are certainly impressive.

To one like myself who has studied our body politic and particularly our economy for 70 years now, the prospect of change in itself can only be welcome. However, we shall need to wait a little while longer before we can be certain that it is a new dawn and whether we can really say with Wordsworth,


    "Bliss was it in that dawn to be alive".
Alas, for my part, I would not be able to add the second line,


    "But to be young was very heaven!".

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6.4 p.m.

Viscount Trenchard: My Lords, I hesitate to participate in this debate, given the great amount of knowledge and experience on all sides of the House. In particular, it is with great trepidation that I follow the noble Lord, Lord Roll of Ipsden.

I congratulate the noble Lord, Lord Clinton-Davis, and the noble Baroness, Lady Jay, on their appointments as Ministers and the noble Lord on his eloquent and spirited introduction of the debate. I wish also to congratulate the noble Earl, Lord Derby, on his most impressive and interesting maiden speech. I was struck by his profound knowledge of Merseyside and his continuing strong commitment to the area with which his family has been so long and so happily associated. I was not surprised at the eloquent and well prepared contribution by the noble Earl because we are fellow directors of Robert Fleming, one of our few remaining independent British investment banking groups, and I am well aware of the high regard in which the noble Earl is held within the firm and elsewhere.

I would reassure your Lordships that even if the Bill to establish a Scottish parliament should become law, the promised related referendum having passed, there is, as far as I know, no present plan for Robert Fleming to return its head office to its country of origin north of the Border, even if a future Scottish parliament should ask for the creation of a Bank of Scotland to execute the functions of a central bank in that country as the Bank of England now does for the country as a whole.

I congratulate also my noble friend Lord Cork and Orrery on his thoughtful and interesting maiden speech. It is clear that both noble Earls have a worthwhile contribution to make to your Lordships' House.

To mention the Bank of England reminds me that I should be talking about the gracious Speech, concentrating on what it said in relation to the economy and industry. In general, as many noble Lords have said, our economy is in very good shape and compares favourably with those of our principal European partners. Your Lordships will be pleased to know that I shall confine myself to two principal areas.

In common with many others who work in the City, I am not unhappy with the Government's decision to introduce a Bill to give operational responsibility for setting interest rates to the Bank of England in order to deliver price stability and support the Government's overall economic policy within a framework of enhanced accountability. Like my noble friend Lord Tugendhat, I am a great admirer of Mr. Eddie George. I can well understand therefore why the Government might consider that to reduce the level of their responsibility in order to increase that of Mr. George is a change which is likely to increase the confidence of international investors in this country and strengthen the stability of the pound sterling. To what extent that will help to deliver price stability, however, is less certain.

With regard to the "framework of enhanced accountability", I understand that that refers to the plan to establish a Monetary Policy Committee of nine members to decide on the appropriate level of interest rates. Your Lordships will have noted that the Treasury

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is to appoint four outside experts and a second deputy governor. Now that Mr. Howard Davies--of whom I am also a great admirer--is to move to the Securities and Investments Board, the Government will have to appoint someone to the first deputy governor's position. The effect of that will be that the six new government-appointed members of the Monetary Policy Committee will constitute a clear majority. It appears that the Governor will be bound by decisions taken by a majority vote.

I worry also about the appointment of a second deputy governor with specific responsibilities. Whereas in the past the single deputy governor acted as a kind of alternate to the Governor across the whole range of his responsibilities, the two deputy governors will in future become an additional layer of management which will in effect diminish the responsibilities of the senior Bank officials carrying similar responsibilities, at the same time as senior officials other than the deputy governors will cease, in the normal case, to be eligible for membership of the Court of Directors.

The use of the term "operational responsibility" may also sound alarm bells in your Lordships' minds given the difficulty in defining clearly the dividing line between that and "responsibility for policy matters" which has recently become so apparent over another matter in another place. I hope that the Government will ensure that the respective responsibilities of the Bank and the Treasury are clearly defined within a comprehensible and workable framework.

Though I am prepared to welcome the change, with reservations as I mentioned, I am surprised that it was introduced so quickly and without detailed discussion of its ramifications. However, it will be a good thing if the change leads to an enhanced role for the Governor, whom I was privileged to hear speak at the annual dinner of the Japan Society held in London last month.

In a fascinating and illuminating speech he told his audience, inter alia, that monetary union would bring one crucial economic benefit to the euro area; it would provide exchange rate certainty, which, if not essential, would, other things being equal, be a desirable complement to the single market. However, Mr. George also explained that there is a problem with this because of the different monetary policy needs of each of the euro member countries that may apply at any one time. The risk is that the single monetary policy, the single, one size fits all, interest rate, which is a necessary corollary of the single currency, may not prove to be appropriate to the domestic monetary needs of each member country.

If Her Majesty's Government do indeed decide in due course, after a referendum and other consultations, to participate in the single currency, as your Lordships are no doubt aware, neither the Bank of England nor the Treasury will set interest rates because this function will be discharged by the European Central Bank in Frankfurt.

Your Lordships will have noticed the announcement yesterday of the Government's intention to legislate to change the regulatory framework within which the City operates. I wonder whether it was an oversight that no

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mention of this was made in the gracious Speech. The current structure is perhaps somewhat cumbersome and practitioners and clients alike may well benefit from a clearer and simpler system. However, shuffling of regulation will not itself result in efficient supervision and regulation. I have some concern that the separation of banking supervision from the Bank of England will weaken the valuable and useful connection between the monetary authority and the regulatory authority. It may make it more difficult for talented "high flyers" within the Bank of England to be persuaded to spend some time working in banking supervision as a normal part of a successful career path. It is important to ensure that banking and securities supervision is placed in the hands of individuals of the highest calibre with a good understanding of how the markets work in practice. In framing the necessary legislation I would ask that the Government pay attention to these points.

There is one other important matter on which I wish to comment, although my noble friend Lord Mackay of Ardbrecknish and other noble Lords have already referred to it. The gracious Speech refers to the Government's intention to introduce a levy on the "excess" profits of the privatised utilities which will be brought forward in an early Budget. I fear, however, that the Government have made a mistake in the selection of their target. Their target, surely, should not be the recently--or fairly recently--privatised companies. To levy, on an arbitrary and retrospective basis, an additional profits tax on certain companies would be most unreasonable and unfair and its effect would be quite different from that intended. I believe that it would harm the owners, the customers and the employees of those companies. The owners are the shareholders, who include millions of pensioners and small savers as well as both British and foreign institutional investors.

I believe that these people are not the Government's target. The Government's intended target is the relatively small number of directors who have benefited greatly from participation in share option schemes--the so called "fat cats". The Government are surely motivated by envy towards these people and, while I admit that the terms of some of these schemes may seem in retrospect to have been generous, at the time that many of them were established it was not appreciated that the economy would soon be in such good shape and that share prices would rise to reflect this.

The Government's intention to treat the privatised utility companies so inequitably will not have the effect they desire. Rather they will weaken the companies' ability to invest in the improved infrastructure which is so badly needed, particularly in the case of the water companies. Reduced leakage from pipes would help to alleviate the problems resulting from the water shortages that we have frequently experienced in recent years.

I welcome the Government's commitment to a new partnership with business, although I do not believe that the introduction of a national minimum wage will help to improve the competitiveness of British industry. I agree with the sentiments of those noble Lords who have questioned the wisdom of "opting in" to the social

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chapter and with those of my noble friend Lord Mackay of Ardbrecknish, who has covered other matters of concern to the House.

The Government's intention to work constructively with industry and with the City is to be welcomed. Nevertheless, I believe that your Lordships' House has an important part to play in persuading the Government to think again over matters where they may have got it wrong. I shall feel privileged if I am able to play a small part in this process. I am grateful to your Lordships for your patience in listening to me.

6.15 p.m.

Lord Blease: My Lords, there can be little doubt that the Queen's Speech last Wednesday set a new distinctive high tone to the parliamentary affairs of the United Kingdom. The 26 Bills outlined in the Queen's Speech range wide and dig deep into the rudiments required to promote effective democratic governance, economic efficiency and social justice. I believe that the gracious Speech, and the subsequent first speech by the Prime Minister at the Dispatch Box in another place, brought about a precise new sense of parliamentary direction. It gave an earnest commitment to the effective resolution of the issues confronting the peoples of this United Kingdom. During the past week we can feel a refreshing sense of hope, of challenge and of revitalisation throughout all sectors of our community life. The broad spectrum of the media has clearly reflected and recorded this marked change.

There are some 1,700 words in the Queen's Speech. Sixty-eight of these address the difficult political situation in Northern Ireland. I am sure that noble Lords from all parts of the House warmly welcome and support the proposals in this Northern Ireland paragraph of the Speech, words which cogently mention measures justly to deal with terrorism, parades, the protection of human rights, discrimination in the work place, increased confidence in policing and measures to promote and foster economic development.

It is 19 years since I first entered this House and 18 years since I last sat on this side. Nevertheless, what I have to say today on the subject of Northern Ireland will not, in essence, be different from anything I have said on the many previous occasions when it has been my privilege to speak on the loyal Address. I am pleased that Her Majesty's Government are once again committed to a settlement which can command the support of the nationalists and Unionists in Northern Ireland and which is negotiated on the principle of consent.

No one in Northern Ireland, nor in this House, can have failed to have been impressed by the personal commitment of the Prime Minister in making his first official visit outside London to Northern Ireland. The Secretary of State for Northern Ireland and her ministerial team all made personal visits to the Province on taking up office. Dr. Mowlam on her arrival in Belfast on Saturday 3rd May stated:


    "I will join with you in confronting the obstacles that remain to achieving a new settlement for Northern Ireland. Labour in Government will be no different from Labour in opposition. We took up principled and balanced positions then and we will carry

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    them through in Government. We will be active in promoting the things we believe in, but we will listen to the views of the people of Northern Ireland and their political leaders and aim for more openness and accountability. We took the bipartisan approach in opposition because it was responsible and it was right, and we look forward to the same from the Conservative opposition. I wish Sir Patrick well, and I, like many people in Northern Ireland, would like to acknowledge the good work and commitment he put into the job".
I should like to be associated with that tribute to Sir Patrick and to pay tribute also to Michael Ancram, who proved to be a dedicated and thoughtful Minister.

A few days ago my noble friend Lord Dubs, now a Minister at the Northern Ireland Office, and I met the noble Baroness, Lady Denton of Wakefield, in the Press Lobby. Each of us had great personal pleasure in commending the noble Baroness on her outstanding work in promoting industry, trade and employment in Northern Ireland. We also acknowledged with thanks her committed support and encouragement for the active participation of Northern Ireland's women in employment, public life and politics. Her constructive contribution to Northern Ireland's industrial and commercial life will be a difficult act to follow.

I am sure that we would all agree with the Prime Minister's public endorsement of the work of his predecessor. When Mr. Blair spoke to the people of Ulster, he first paid tribute to the personal commitment of John Major. During my time in this House my opinion of the various Ministers who have served in Northern Ireland has, if anything, risen in understanding and gratitude as time has gone by. There have been many such Ministers and some are still with us in this House. I think of the noble Viscount, Lord Whitelaw, and of the noble Lords, Lord Callaghan, Lord Pym, Lord Prior, Lord Merlyn-Rees, and Lord Mason. Many others also have given much in terms of time and effort and have sacrificed family life to try to bring peace, civilised living, justice, equality and honour to the Northern Ireland scene. Thanks to their firmness as well as their compassion the Province is now well positioned to benefit from a peaceful settlement which we hope will begin earnestly to be negotiated this summer.

The potential for agreement is enormous. Whenever I have had reason to discuss the policies and the work of the various departments of government in Northern Ireland I have been amazed at how much common ground our Northern Ireland political leaders share. Whether on agriculture, education, economic development, the environment, finance, or health and social services, it would be difficult for any professional political commentator--let alone an ordinary citizen--to tell what separates the main political parties in the Province. Indeed, when they meet to discuss such matters as planning, tourism, business or the price of electricity, the Alliance, the DUP, the Ulster Unionists, the SDLP and even Sinn Fein have broadly similar approaches--or at least share the same differences of opinion within their ranks.

Such agreement would be incredible in any society and it makes the divisions all the more frustrating and difficult to comprehend and to bridge. The answer to what drives people apart is fear: fear of loss of identity

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and fear of violence. Those fears are rooted in actual bigotry, sectarianism and in the acts of planned violence and intimidation.

What can be done? Let me immediately endorse the Prime Minister's words when he said that we must harness more effectively those forces pushing us towards a settlement. How can those demanding social and economic objectives be achieved? If Northern Ireland were a company--and many international companies have bigger budgets--how would any chairman of the board try to steer it away from the risk of being engulfed by global competition and towards protecting and enhancing the livelihood of its employees?

Within the Province there are team builders; there are those actively engaged in promoting dialogue and those who have been building internal capabilities among their colleagues regardless of gender, religion or geographic location. There are leaders to be found in the public, private and voluntary sectors who have sought to encourage initiative, to heal division and to harness the talents of those representative of the community at large.

Let us hope that the peace talks will proceed with earnest good will and that honourable and just decisions will be made in the best interests of all, but let us not forget the basic needs of the people and their hopes for a better life for all. What about the bread-and-butter issues, such as the home and health difficulties, the employment and educational needs and the plight of the children and the aged? Meeting such needs is essential in any community.

There is an absence of public participation in the affairs of the Province. Much of that is due to intimidation and fear, but we have a secret ballot and I plead with the people of Northern Ireland to ensure that their elected representatives keep those basic human needs high on the agenda. I look forward to this side of the House participating in facilitating the achievement of those objectives.

I believe that the Prime Minister's speech in Northern Ireland on Friday 6th May encapsulated much of what I have attempted to say. Mr. Blair said:


    "I have said Northern Ireland has a bright future if only we get the politics right and the gun out of the picture. You all know that to be true. Look at the advantages you have: dynamic and enterprising businesses and businessmen; a record of success on inward investment, despite the violence; a workforce ready to take every opportunity; a potential quality of life second to none in the United Kingdom; huge tourist potential.


    This Government will be building on that potential. The raising of education and training standards, and measures to put the unemployed back to work, will be particularly relevant here. We will be introducing further measures to promote equality of opportunity in the labour market.


    I and my Government have five years ahead of us to do this. With your help, we can. The chance is there, for now. It will not be there for ever".

Perhaps I may conclude on a pleasant note of hope. It gives me much pleasure warmly to congratulate the noble Lord, Lord Clinton-Davis, who is now the Minister of State at the Department of Trade and Industry, and the noble Baroness, Lady Jay of Paddington, who is now the Minister of State at the

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Department of Health, on their appointment to government office. I join all noble Lords in wishing them both good health and every happiness and success.

6.27 p.m.

Baroness Elles: My Lords, it is a pleasure to follow the noble Lord, Lord Blease, in what I hope will continue to be a bi-party approach to Northern Ireland, a subject on which we have always respected each other's point of view. Northern Ireland has always been regarded in this House as an area in which party politics do not have a role to play because we are all concerned about the future of that part of the United Kingdom and it is only by joint effort that that future can be assured. I follow the noble Lord, Lord Blease, in this debate with very great pleasure.

As today sees the closure of the debate on the Queen's Speech and as I believe that from the beginning of June we are to enter a new phase of political activity with regard to legislative measures, it is particularly appropriate today to be able to congratulate the new members of the Government Front Bench and to wish them well. In particular, I congratulate the noble Lord, Lord Clinton-Davis, who opened today's debate with such effort and elegance. I should also like to wish the noble Baroness, Lady Jay of Paddington, well. We look forward to hearing her reply on behalf of the Government.

Although the debate is directed mainly at the future, I believe that it would be a dereliction not to recall the speech made by my noble friend Lord Mackay of Ardbrecknish on 5th March in this House when he set out the economic situation achieved by the previous Government in the knowledge that if there should be a new government following the general election, that government would have an excellent and sound basis upon which to advance their policies, a basis of steady growth and low unemployment. I warmly congratulate Mr. Frank Field, the Minister of State at the Department of Social Security on his appointment. He was quoted as saying that he condemned the doom and gloom analysis of the employment market, which was the attitude taken by the party then in opposition. How right he was!

The figures for temporary jobs quoted by my noble friend Lord Mackay are particularly relevant: 7 per cent. for the United Kingdom, 10 per cent. for Germany, 12 per cent. for France, 16 per cent. for Finland, and 11 per cent. for the EU average. I quote those figures, despite the careful wording of the speech of the noble Lord, Lord Dahrendorf, to show that the temporary work figures are very important in view of the attacks that were made on the then Government in relation to unemployment. Figures published today, in a report by the World Economic Forum based in Geneva, show that the United Kingdom has risen from 15th to seventh place in the global competitiveness league. The forum states that the long-term restructuring measures, deregulation and privatisation contributed to that move. The figures show which countries have the greatest ability to achieve sustained high rates of economic

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growth. It is now a challenge to the Government to ensure that that figure is at least maintained, if not exceeded, in the next five years.

The Government have, however, already put the country's future at risk by signalling their intention to adhere to the European Union's social chapter. Whatever the cause--whether it be solely the effect of the social chapter--Germany has suffered a rise from 2 million to over 4 million unemployed, with consequent removal abroad of many of its leading firms, including such great names as Bosch and Siemens. No doubt the United Kingdom will benefit from those moves. Only two measures have been introduced under the social chapter. So far it has been considered a fairly weak and not particularly interesting activity on the part of the European Union. There are already four draft directives on other matters that may seriously affect the labour position throughout the Union. The proposal to introduce a national minimum wage is not one that inspires confidence that the regular reduction in unemployment will be maintained; on the contrary. Of course, it is an attractive proposition that those who enter the workforce should receive at least a minimum wage of, say, £4.20 an hour. That is perfectly understandable. One understands why people wish to receive that wage when they enter employment. But the fact, which has been proved in many countries, is that those who receive that sum deprive others of a job. That will increase rather than lower the unemployment figures. It is sometimes forgotten or not always realised that employers do not have unlimited coffers into which they can dip to pay this comparatively high sum to an earner who first enters work.

The introduction of a statutory right to interest on late payment of debts is encouraging and is to be warmly welcomed. It has been shown to work successfully in other European Union member states. It is intolerable that particularly small businesses and individuals with limited financial backing and steady outgoings should be uncertain about receiving payment for the delivery of goods or services within a reasonable and accountable time, thus preventing them from going to the wall. Of the number of small firms that have gone to the wall over the past few years, it has been said that a considerable proportion have done so because their debts were not met by larger companies or even government departments in the time due for receipt of those moneys. I very much welcome this proposal of the Government. I hope that it will come into force as soon as possible.

The Government have emphasised that high stable levels of economic growth and employment are to be achieved by ensuring opportunities for all. It will be interesting to see how "opportunities" is defined. It certainly does not provide any guarantees for all. I find that a difficult concept to grasp in relation to the economy. New competitive measures have been on the stocks for some time. We shall have to wait and see how the details of the Bill work out. It has been suggested that it will be revolutionary. It has also been said in the newspapers that the Government may merely bring forward the original Bill drafted by the previous

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Government which was on the stocks but withdrawn before the election. There remains a question mark over it. We shall have to see how matters develop.

The proposals concerning the future role of the Bank of England have provided examples of give and take on a massive scale. We had hardly got over the immediate allocation of operational responsibility to the Bank of England for settling interest rates--it was considered to be a reasonable action on the part of the Chancellor and, indeed, was welcomed by many--when we heard that the Bank had lost its responsibility for the gilt market. Further, a new Securities and Investments Board under the chairmanship of Mr. Howard Davies would remove responsibility of banking supervision from the Bank of England. Whereas certain new attributes have been given to the Bank, even greater attributes have been removed from it. One wonders what is the concept of the Government as to the real role of the Bank of England at the present time. Is it to reduce it to a minimum so that it plays the role of a central bank if and when we join the single European currency? It remains to be seen how many more changes are to be made to the City's monetary and financial structures before the institutions adjust to their remaining tasks of ensuring high and steady economic growth for this country. We can only wish them success as we study and analyse their activities.

6.37 p.m.

Lord Kennet: My Lords, the world is bedeviled by enormous problems which, either obviously or fundamentally, are of economic origin. It is a familiar statement and a familiar list. I shall talk today not about how they can be solved--since that is seldom in doubt--but why it is that they are not being solved. The problem that will haunt us in future is the problem of getting on with it once we have understood it.

Let us remind ourselves what they are: famine, disease, weapons and the economic exploitation of human beings both living and to be born. These are the same old things that have bothered us at home from the beginning of recorded history. The difference is that they are now suffered not only by our neighbours but by billions of people we can see, although only through the protective glass of the BBC or CNN.

A new generation of problems comes up in the wake of new technology: climate change, the export of unethical clinical drug-testing, the genetic exploitation of the poor, privacy in the age of satellite bugging and so on.

I raise these matters on the day that we are debating industry and the economy because it is the unregulated growth of industry and the unfettered scramble for the advantages that are believed to accrue from economic growth that cause them. All solutions thus depend on these impulses being consciously mastered by means of conscious policy.

We live in a single world. I for one am grateful to the new Foreign Secretary for inventing, or at least popularising, a very useful idea towards the understanding of it. I first heard him formulate it at a

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party conference fringe meeting a few years ago. It is that there is or should be a continuum between the improvement of things at home and the improvement of the same things in the world. We, too, have dreadful poverty in certain places here, as the world has dreadful poverty in certain countries, and so on. And, if that is so, the same sorts of measure as serve well here might be expected, within the limits of variety, to serve well there. One could call the general idea the "Cook Continuum". It tends towards a state of welfare in the world at large, though not of course to a world welfare state.

I shall plunge into that argument at random. Take climate. We know what our grab economy and the patches of civilisation it produces contribute both to global warming and to acid rain. In our need for oil, we freely degrade or even destroy the civilisation of people whose land or sea has oil under it: in Nigeria, and apparently now also in Colombia. It also brings war, as we have seen in the Middle East, and are only too likely to see around the Caspian.

Our grab for heat destroys nature's own heat arrangements. I think of the Atlantic heat-pump off Newfoundland which governs the Gulf Stream and which is breaking down. We are beginning to understand that now; but shall we have the will to do anything about it?

Take tobacco. In this country we are about to ban tobacco advertising, 50 years after we learned that tobacco was a killer. Good. The WHO has just put that in a wider frame with a report on the "lifestyle diseases" that industry is inflicting on its customers worldwide, of which tobacco is only an important example. And in the name of free trade we do nothing about it. Have we got the will to do anything about it worldwide? We Europeans do not even have the will to terminate the subsidy we pay, through the EU, to that killer industry, tobacco.

In 1981 the World Health Assembly adopted an international code of conduct about the export of "infant formula" powdered milk. The multinational firms that produce it should be observing that code, but are not. The free trade policies which exploit young mothers in poor countries through low wages also exploit the babies they cannot breast feed. Even in this country, local authorities are allowed to encourage the burning of waste which releases dioxin, which again harms breast-fed babies. In both the poor and the rich world, the next generation will be less healthy than it should have been.

We know what harm is being done to our fellow human beings, and to much of life on earth, by our pesticides and herbicides, our wrongly labelled and out-of-date medicines, our toxic wastes, and the infections we have made drug-resistant: malaria, TB, AIDS.

We know that those unethical products and practices are harmful, but the will is not yet there to end them. In government, as we know it, they are no one's undivided responsibility: they fall between departments. Tobacco; milk powder; dangerous chemicals and biochemicals; dangerous wastes. The practices include all those

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mis-costed, de facto subsidised, activities that in the name of "free trade" distort the world economy and threaten our whole human future. There is at present no global public health.

We know also what our arms exports do. Today's exports of arms cripple the budgets of poor countries. The exports of 30 years ago are still alive and well, and causing civil wars and then fighting them. In effect, we do nothing about it. The departments that promote the arms trade here--DTI and MoD--are not accountable for the consequences of their success in making us the second biggest arms exporter in the world. That is for the ODA and the Foreign Office. In the US, about half the price received by the arms industry for its product has been straightforward subsidy, and that does not include taxpayer-funded R&D.

Given the enormous and to some extent mysterious subsidies our own arms exporters enjoy in all sorts of ways, a proper cost-benefit analysis is now overdue, and I hope that the new defence review promised by the Government will provide it. If it does, it will be not only for our own good, but for that of all other governments and peoples too. One cannot insist in the name of high employment at home on the right to widen the gap in suffering and poverty which exists between the rich and the poor worlds.

Let me enlarge a little on free trade and the WTO. There is something going on here which may be less well known than what I have been describing. The US Government, as we all know, affect the quaint belief that their "national security" is endangered by the existence of the Cuban Government, and claim that they are therefore entitled to exclude and fine non-American citizens and companies which are contaminated by trade with that country. All that is familiar; but now they have refused to accept the submission of the consequent trade dispute to the WTO.

And now another story. When the WHO recently determined that hormone-treated meat was not a very safe thing, and when consequently the EU imposed a ban on its importation from the US, that country had recourse to the WTO. So if it does not work one way around, try it another. All that is public knowledge, but will we stand up?

We know also that it is quite common for substances such as those concerned in this field to have their first bad effects not on the generation that consumed them but on the next. Any proper cost-benefit analysis would show those temporary and local benefits dwarfed by the vast potential costs in suffering, and indeed money.

Such a cost-benefit analysis should also take into account the burden of arms in the whole world economy.

I shall give some basic figures: 8 trillion dollars--12 zeros after the eight--has been spent on nuclear weapons since 1945, and that does not include the cost of clearing up after their manufacture, transport, storage and so forth. In 1995, military expenditures were still running at 1.4 million dollars per minute. And now the US military budget exceeds the total military expenditures of the next 13 countries on the league table together.

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The world holding of arms and the world market in arms includes also all the earlier years' purchases of weapons still trickling down. Weapons, unlike prosperity, really do trickle down. The BBC and CNN show us.

To dwell on this issue is not to decry the importance of the Government's good decision about landmines, only to highlight how far there is to go.

There is one thing here which we often do not understand. It is this: the arms industry is the only one in the world to produce minus value. The most productive industry produces the capital equipment to produce new utility. The next most productive industry produces utility directly. The third most produces consumer durables. The fourth most produces consumption goods, and the fifth produces valueless things. Only the arms industry produces things which, when turned to their intended purpose, destroy value.

Big weapons also inflict another loss on society. The cost of clearing up after the nuclear generations has not yet been looked squarely in the face, beginning with our own obsolete nuclear submarines at Rosyth and Russia's up in the Arctic and the vast poisonous waste in the United States and in the ex-Soviet Union. They trickle down too; into the water table and the water courses. To say nothing of the cost of caring for the people who have been made ill by being unknowingly subjected to tests for the nuclear, chemical and biological arms industries.

We have also to face up to the role of banks, Swiss and others, in money laundering and other secret traffics. This is not only about the post-war and Holocaust victims' gold: it is also about the money that went to Mobutu, Duvalier, Marcos, Ceausescu and all the rest. In 1973 oil money was effectively forced on developing countries and was misused by anti-Communist tyrants, and the successor governments are still required to pay interest on it. The IMF now sees some 500 billion dollars a year change hands criminally. All this is the infrastructure on which the hard drugs trade's and the arms trade's illegal networks depend.

To conclude: in order to get global solutions to global problems, just as to get parochial solutions to parochial problems, two things are needed: understanding and will. What sort of will? Here is an example. The United States has recently mounted a new arms sales drive in Latin America which will, of course, produce new arms races. The Latin American reaction has been a conference on mutual confidence measures, not heroic, but constructive. Will, in this context, includes the courage to name stick-in-the-muds and back-sliders. It also includes the courage to name them, and then seek to persuade them in a voice loud enough to be heard by the rest of humanity. And if that fails, it must include the courage to penalise them, for which a world of treaty and convention exists--on paper.

Potentially, there is equality among individuals in understanding and in courage. Potentially, there can also be equality among states. In execution, in doing, there is no equality among states. But states are only the agents of the people who make them up. Equality in ideas also exists, and ideas spread. Here too there can be a "Cook Continuum".

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Perhaps a revolution in human approaches to the world we live in has already begun. If so, it will do this country enormous credit. We led the way in imperialism, and then in peaceful decolonisation. We led the first industrial revolution, and now, with others, we could lead the way in the humanising of industry. Above all, we could, with others, lead the way towards the humanising of industrial humanity.

6.54 p.m.

The Earl of Perth: My Lords, I heard with great interest the excellent speech of the noble Lord, Lord Clinton-Davis. Perhaps I may take this opportunity to congratulate him and the noble Baroness, Lady Jay, on their new ministerial appointments.

Lord Clinton-Davis said that the Government will join the Euro--that is to say, the single European currency--"only if it is in Britain's interest and after a referendum". My purpose is to show that we must work with our European partners and not drag our feet. We must work with our European partners in order to obtain the right structure to govern the new currency, and not wait until after a referendum. The eminence and experience in the City of London can be of the greatest value in this and can help in launching a single currency, which I, as I have said already, believe is in our interests.

Those against argue--and the two noble Lords to speak next are probably against it--that it means loss of sovereignty, loss of powers in Parliament and somewhere patriotism is called to their aid. Surely, the events of the last years, the pound being driven out of the ERM by Mr. Soros and other speculators, despite the Government's efforts to stay in, and earlier at the time of Suez when Parliament could not face the threat of American and world financial pressures, shows that our sovereignty and parliamentary powers against the might of the financial world and its opinion, and indeed the history of earlier times when we came on and off the gold standard, all show that we do not have all that much sovereignty in such affairs.

I come to the millennium. As I see it, there will be three or four great currency blocs. There will clearly be the mighty dollar, the European currency, perhaps the yen combined with other Far Eastern currencies and somewhere or other India and China will come into the picture. Europe, with which we do over half our trade, is even now setting up, as your Lordships know, the rules for a central currency bloc, which will be strongly guarded by independent central bankers to ensure its stability. Germany, France, Italy, Spain and other countries all want to join from the start and to meet the Maastricht qualifications at great sacrifice.

The doubters say that it will not work, that disaster looms and that perhaps we could take advantage of this. I think that they are misguided. We must play a leading part now in setting up the new currency and, as I have already said, the City has an enormous contribution to make. We must be sure that the City's experience is used by the Government to ensure that the new structure and rules are right and drawn up, above all, with our help.

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I recall that it took us many years and the efforts of Jean Monnet, Edward Heath and many others like the noble Lord, Lord Roll, and even yours truly, to let us join the Treaty of Rome. It would have been far better if we had been in all the time and certain things would undoubtedly be more to our advantage if that had been the case. Let us remember this in relation to the European currency.

The doubters argue that Germany, France and others are cooking their books in order to meet the Maastricht criteria and that the rules on such matters as the social chapter, run from Brussels and the European courts, have led to massive unemployment. There may be some substance in that, but let us remember that the minimum wage and the social chapter, which we have heard the Government are to join, is a small part of the issue relating to a common currency. Cooking the books is another matter, but one can be sure that the Germans, above all, will insist that nothing should be done in the new currency which will endanger or devalue the deutschmark. Therefore, we can derive much strength from that.

There is the parallel of the Federal Reserve and the Congress. The doubters can easily say, "That is just what we fear", but we must be realists in this matter. Already on defence and foreign affairs we have in degree ceded our sovereignty deliberately and rightly. The same is necessary in relation to a common currency for the reasons that I have tried to outline.

Furthermore, let us always remember that the German Lander, the French and Spanish regions and many other countries are at least as jealous of their independence and prerogatives as we are and are strongly against too much interference from the bureaucrats and even from the courts. We will be in a much stronger position if we are in from the start. Let us recall what happened when we failed and found ourselves faced with the Treaty of Rome from which we were kept out.

Today, the unrivalled skills and knowledge of the City are the envy of all. Let us use them to the benefit of Europe, of which we are an integral part. Business welcomes stability. I read that foreign industrial companies and, I believe, the CBI are calling for us to join in the common currency. I am sure that they are right and I am sure that the European powers will rejoice and welcome our help in setting up the new currency.

Finally, let us not be lulled by 50 years of peace to try to go it alone on such a vital issue as a common currency which will give a new bastion of strength to Europe as a whole to be combined with the existing defence and foreign affairs structures. Let us not wait until the outcome of a referendum. Let us make a start now and join the other European countries in working out the machinery of the common currency.

I plan to return to the Chamber for the winding-up speeches. I have a long-standing date and if I fail I hope that the House will excuse me now that I have reached the age of 90.

7.4 p.m.

Lord Bruce of Donington: My Lords, I hope that in turn the noble Earl will forgive me if I do not refer

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immediately to some of his observations on the single currency. I hope that if time permits I shall touch lightly upon the matter later. However, I wish to refer to the speech of the noble Lord, Lord Dahrendorf, about the necessity for accurate data and information. For a long time I have been an assiduous reader of my party's journals and publications and it is my understanding that work is well advanced on a freedom of information Bill. Indeed, during the past four years the matter was raised in the House of Commons on three separate occasions by my party and I was given to understand that a Bill was almost in draft. Therefore, it is a little surprising and somewhat disappointing that it is not a little higher up the list. I have no doubt that it will be pursued vigorously in due course.

In the meantime, perhaps I may echo the words of the noble Lord, Lord Dahrendorf, on the subject of accurate information. He is, of course, quite right. One of the greatest difficulties of a practising politician, whether it be in another place or here, if he takes more than a passing interest in the deliberations of the House and has more than a little affection in the affairs of his country, is to obtain accurate information. It is necessary to have a regular source of what are quite indisputable facts. During the past few years that facility has become sadly lacking. I need only instance, in addition to the matters raised by the noble Lord, Lord Dahrendorf, the proceedings of the Scott Commission, where it was openly revealed that half-truths were regarded as whole truths; that it was the normal part of the drill that civil servants briefing Ministers gave as little information as possible under the circumstances. Of course, we have the immortal observation of the noble Lord, Lord Armstrong, about economies with the truth. That has occurred for a long time and it is high time that it was stopped.

During the past few Question Times, I observed that the answers of my own Ministers on this side of the House--whom I congratulate collectively and individually on their appointments--show that there has been a definite effort to reply factually to questions put to them. I can assume only that they put their foot down pretty firmly when they arrived at their ministries in order that this service could be provided to them.

There are two other aspects relating to the provision of facts. The first is the delay in obtaining information from the European Commission and the European Parliament. Apparently initially everything is in French. I am not sure of the reason; perhaps it was agreed in the Franco-German treaty of 1963 that French should be the official leading language and that everyone else should wait. However, it has happened time and time again in my searches not only on my behalf but, presumptuously perhaps, for your Lordships' convenience when I have had the opportunity of addressing the House, because noble Lords should have the facts at their disposal. They are most difficult to obtain. I am not the only person to make such a complaint.

The Select Committees in another place and the Standing Committee on European legislation have made repeated complaints about the delay in providing information to the British Parliament, about providing garbled information to the British Parliament and about

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providing no information to the British Parliament. If any noble Lord wishes to document that--there is not time during the course of my speech--I will acquaint him fully with the Select Committee and Standing Committee reports which refer specifically to this matter. Some noble Lords may object to the words of slight and mild reproof which from time to time I offer to the European Commission. However, they should bear in mind that many of us do not intend to put up with this indefinitely. Other countries do not put up with it and there is no reason why we should.

Most of all perhaps concerning the provision of facts to Members of Parliament there is the whole question of the number of unemployed. Over and over again, knowingly inaccurate figures and estimates have been presented to both Houses over the past five to 10 years or even longer.

That was revealed most appositely by the Royal Statistical Society in a special report published in April 1995. It sets out in great detail exactly how the basis of the unemployment figures as made available to the public have been doctored over the years, specifically in Appendix A. Variations in the basis on which figures are counted and calculated occurred no fewer than 32 times up to that date; and were the unemployment figures presented on the same basis as when the Tories took over in 1979, there would have been 1.5 million more unemployed. Therefore, when we come to consider the wonderful legacy left to Her Majesty's Government by the previous Tory Government, among other matters we shall consider the unemployed that we are inheriting.

As regards unemployment, I say straight away that I would far sooner pay attention to the words that fell from the lips of the right reverend Prelate the Bishop of Hereford this afternoon in his description of the effects of unemployment and its extent and causes than to some of the glib and cold remarks which fall from time to time from the lips of the so-called economists, whether of the econometric school or the more orthodox school. They want their brains examining.

Unemployment in this country is one of the most serious factors that we experience. Do not let anybody say for one moment that that has always been the case; that it is some miraculous visitation upon us; that fire and brimstone have fallen upon us from completely unexplained causes. From the time of the Attlee Government to the time of the first oil crisis and the quadrupling of the price of oil, unemployment was below 3.5 per cent. consistently, and moreover the rate of inflation was under 2.7 per cent. consistently. So that has been achieved. It has been achieved by parties, including the parties immediately following the war, which followed the whole policy as set out in the document published by the coalition government on employment policy, which no one in the party opposite now appears to have read. Listening to them, one would think that it was part of the inevitable order of things that there should be unemployment.

Therefore, when the noble Lord, Lord Mackay of Ardbrecknish, referred this afternoon to the glowing position that we took over when we assumed office a

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few days ago, he should bear in mind that not only did we inherit nearly 3.5 million unemployed people but we inherited also decaying housing which has needed repair for years; a rotten infrastructure; and, above all, a divided society which has become bitter and which knew perfectly well, in spite of the blandishments offered to it, that it was not receiving a fair deal.

Therefore, regardless of all the figures, and comparing ourselves very conveniently with Germany--although, of course, for 10 years it was the other way round--and saying how wonderfully we are doing, it is hardly surprising that the British public at large did not feel what they should have felt according to the previous Government's phoney figures and their record.

That is something we must now remedy. The noble Lord gave some indication, and my right honourable friend the Chancellor of the Exchequer in another place elaborated further, on ways in which we shall deal with that matter. Short-termism is out. There is no question about that. Indeed, it is made quite clear in the announcement by my right honourable friend the Chancellor of the Exchequer, repeated here by my noble friend Lord Clinton-Davis, that the decision to give operational control over interest rates to the Bank of England, given a certain target of inflation supplied by Her Majesty's Government, was done to prevent the menace of short-termism persisting.

I must say, with a degree of the utmost friendliness towards my noble friend, that over the past 10 years I heard no complaints at all from the Bank of England about short-termism. Short-termism was no particular problem for the Bank of England. However, I learnt from my party and my party leaders that short-termism in investment and industry and so on was our principal problem. Therefore, if I accept that short-termism should be dealt with, I should have expected it to be dealt with by the Chancellor of the Exchequer and Her Majesty's Government. But no, they decline to accept responsibility for that and say that it should be the responsibility of the Bank of England. I trust sincerely that they will reflect upon that and work out the practical implications before they make it a permanent feature of a change to our constitution.

We are back once again to the question of unemployment. It was mentioned no fewer than six times in the gracious Speech. I must say that that makes a change because the Conservative Party regarded unemployment as a price worth paying for the alleged prosperity that the country was enjoying. It is not so. My party has put forward plans to tackle unemployment. One of them is the course that has been advocated repeatedly from the Back Benches by my noble friend Lord Dean of Beswick and myself in order to start up the housing programme and release the funds in the hands of local authorities. I applaud that because it will ensure a push in employment among the 350,000 unemployed building workers at this time. Therefore, I applaud that.

As to the rest, we appear to be relying on the willingness of British capital to invest in both people and capital equipment in order that we can maintain some semblance of progress towards prosperity.

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I should not query the intention behind that, which I find wholly admirable. It is of the utmost importance that the new Government should enlist the support of capital in investing in new projects and, indeed, in helping out in a whole series of ways on the basis of voluntary co-operation between the Government and private finance.

However, I must remind the House that the history has not been particularly good. Way back in 1972 Mr. Heath was complaining that, in spite of all the incentives given to private capital, there was insufficient investment. Investment of British capital in Britain over the past 20 years has been far lower than it was in the years following the war when the Labour Government were in office from 1945 to 1950.

I have one question for my noble friend. If, despite all the incentives on offer--whether it be capital allowances, concessions in tax, subsidies or whatever--capital does not respond, what happens? Will they then opt for the Keynesian solution to the problem of permitting or, indeed, encouraging the state to invest? Alternatively, will they leave it as it is? One thing is for certain--it will be no use leaving it to the European Commission. The Commission is bent upon one thing only; namely, increasing its institutional power. Indeed, it is quite frank about that and everyone knows it. Therefore, why cannot the Government take a more rational attitude towards their whole economic policies and one not based upon the shibboleths which are still mouthed as a sort of hangover from Hayek? Why do they not take a sane and calm view of the economic assessments that are available, not only from the students of Keynes but also from those who have developed Keynesian policies since? That would be much more sensible. It is in that hope that I warmly support the Government's efforts. I sincerely hope that they will be very, very successful.

7.21 p.m.

Lord Pearson of Rannoch: My Lords, I start by apologising to your Lordships if I cannot be here for the winding-up speeches tonight. I have been committed for some time to attend a dinner which may now turn out to be largely a celebration of the new Labour Government's education policy. This may seem a strange thing for a loyal Conservative to be doing, but those of us who have been accused for many years by this country's education establishment of being "hard right" have much to celebrate. This accusation was made against us largely because we believed that our state education system was failing our children if it did not teach them to read, write, add up, subtract and divide--the three Rs--by the time they were nine at the latest.

It is therefore very refreshing to read the speech made yesterday by the noble Baroness, Lady Blackstone, in which she said that the new Government will be going back to basics and will begin with the three Rs. Better still, she said that the the Government will improve the present poor levels of reading by various methods, including through the teaching of phonics. So I would

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like to take this opportunity to wish the noble Baroness well in these endeavours, and the very best of luck with her department.

I trust that your Lordships will forgive me if I continue with education for just a few more moments--a vastly improved education system is, after all, crucial to our future industry and economy--and mention one problem which the noble Baroness, Lady Blackstone, may have overlooked. This is that, just as our education system is at present failing to teach our children how to read and write, so it is also failing to teach our young people how to draw, with potentially disastrous implications for our art schools, and indeed for our very important art and design industries in the future. I would be happy to put the noble Baroness in touch with my contacts in this area, if by any chance she felt that to be worth her while.

I have to say that I noticed with somewhat greater apprehension the new Government's commitment to continue to integrate all children with special educational needs into mainstream schools, but was heartened by the noble Baroness's recognition that for some children special facilities are indeed necessary. I hope that we may return to this dilemma in due course.

In concluding my remarks on education, I should of course mention that the last Conservative Government had started to tackle many of the problems to which the noble Baroness referred in her speech, and so I trust that what I have just said will not be seen as being unusually disloyal to my party. In this respect I stand by what I said in the debate of the most reverend Primate the Archbishop of Canterbury on 5th July last, and very much hope that our education will continue to improve under the new Government, as it had started to do under the old.

I turn now to our relationship with the European Union, where of course, as a mild Euro-sceptic, I part company with the Benches opposite. Before doing so, I hope that I may be allowed a passing swipe at those who blame us Euro-sceptics for the size of the Conservative defeat at the recent general election. My noble friend Lord Cockfield took this line in our debate last Thursday, 15th May, and no doubt enjoyed what I would have regarded as the doubtful privilege of being strongly supported by the noble Lord, Lord Jenkins of Hillhead; and there have been others.

My own view is rather different, and is certainly shared by large numbers of Conservatives, perhaps the majority of them. This is that the electorate felt that healthy democracy required a change of government. The electorate may also not have forgiven the Conservative Party for the disaster of our dalliance with the European exchange rate mechanism in 1992, nor for our subsequent lack of clarity about whether we wanted to join European economic and monetary union in future--EMU.

After Labour had done us the great honour of copying so many of our other policies, there really was not much to choose between us, not even over Europe, because the evils of the social chapter (to which Labour are committed but which we wisely eschew) have not yet been felt by the British people. All this would probably

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have been enough to ensure our defeat, perhaps by a few dozen seats, and many noble Lords may agree with the electorate that that would have been no bad thing in the interests, as I say, of a healthy democracy. However, I submit that we suffered such an overwhelming defeat because we were an overtly divided party, and of course we were divided over Europe.

So my answer to my noble friend Lord Cockfield and others is that we would have lost much less badly if we had had a clear and reasonable Euro-sceptic manifesto, which at the very least committed us never to join EMU, that flightless bird which looks as though it may cause such huge damage to the Europe we all know and love--not, I hasten to add, the "Europe" which proceeds from the Treaty of Rome, the cuckoo in the true European nest, if noble Lords will forgive such a mixture of ornithological metaphors.

Anyway, we are where we are, and I for one do not regret it, because the Conservative Party now has the chance to go back to its healthy roots and rediscover its true place in our country's history, in our culture, in our relationship with Europe and the rest of the world, and thus in our future.

In all this I still see "Europe" as the burning issue. I do not think that it will have gone away by the next election. Indeed, under the new Government's plans, it is likely to be an even more significant issue at the next general election than it was at the last. I say this because the new Government have made the dangerous commitment to sign the social chapter. Because I suppose it is just conceivable that the noble Baroness, Lady Jay, on the Government Front Bench will not take seriously anything I have to say about the social chapter, I propose to quote from a talk given on Monday night in London by Miss Haruko Fukuda, the Deputy Chairman of Nikko Europe Plc, who presumably knows a thing or two about the attitude of Japanese investors--and, indeed, American investors--many of whom are her clients. I should emphasise, of course, that she was speaking personally, but even so I would urge the Government to read her whole speech, and perhaps even to talk to her and other like-minded experts, both from the United States and Japan, before they commit this country to the folly of the social chapter.

Miss Fukuda was talking about the effect of social Europe on inward investment in this country, and the Government's intention so speedily to sign the social chapter. I quote extracts from her important speech as follows:


    "This is alarming because it seems to me that a whole set of new circumstances will be brought into Britain without any further reflection or debate, which will have far-reaching consequences on the relative cost/price relationship in the British economy and on the general conditions Britain will offer in future to foreign investors".
I should point out to your Lordships that I am quoting extracts from the speech. Miss Fukuda continued to say:


    "I am afraid that the deeper one looks into it, the more alarmed one becomes about Social Europe ... It was the ground-breaking trade union reforms of the Thatcher government that finally cured Britain of what the Japanese called Eikoku-byo (the British disease). Without them Britain would never have attracted the level of inward investment that it has. The 'opt out' [from the social chapter] was not just a sentimental legacy of the Thatcher era; it was a part of the profound realisation that deregulation of the labour market, along

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    with privatisation, provided the key to restoring competitiveness to the British economy, creating employment, investment and savings, an environment apparently inviting to foreign investors.


    "Signing up to the Social Chapter will wipe out at a stroke all this achievement of the last two decades, during which Britain managed to re-enter world competition for industrial growth, only to contract the virus of the European disease. There are currently some 19 million registered unemployed people in the EU. The unemployment rate in Germany and France is twice that in the UK and is still growing today. Few people doubt that Social Europe legislation is at least partly to blame...


    "The important thing to recognise is that the Social Chapter (and the Social Charter) is not a given set of existing or intended legislation from which businesses can assess the potential burden of costs. It is a bulging pipeline of unspecified employment legislation".
Miss Fukuda goes on to remind us that businessmen need to know the risks they are to run. They do not like surprise. In that she foretold the comments this afternoon of the noble Lord, Lord Clinton-Davis, who extolled the benefits of stability. She continued:


    "One reason why so much less inward investment has come to continental European countries than to Britain in recent years may well be this overwhelming uncertainty over cost factors which are outside the control of foreign management ... So we cannot know what the potential cost burden of a utopian Social Europe will be to businesses in Britain in the future".
She then compares social Europe to the common agricultural policy, and states:


    "The philosophy of Social Europe appears to be one which finds its ideal where all European industry is equally uncompetitive".
Miss Fukuda concludes:


    "Consequently, as we approach the twenty-first century, the complex centralised bureaucracy of the European Union protecting its regional solidarity against the rest of the world is becoming obsolete. It is precisely the inefficient form of Socialistic business organisation from which Britain has so recently and successfully struggled to escape.


    "Signing up to the Social Chapter is a reversal of the hard-won radical change in the business culture of the UK of the last 18 years which has been so clearly recognised and admired by the international business community".
Those are not my words. They are the words of the European deputy chairman of one of the largest Japanese investment houses.

As for me, I would have only one humble question for the Government. How do they pretend that they can sign the social chapter and then avoid any legislation which they may feel is damaging to our economy but which can be forced upon us by the qualified majority vote under the chapter? I hope that the answer will not be that no such legislation will be forthcoming because I fear it surely will.

I should have liked to have had more time to welcome the new Government's possible reticence about European monetary union (EMU), but no doubt another occasion to debate that issue will present itself. In the meantime, I urge the Government not only not to take this country into EMU but to do everything they can to persuade the rest of Europe not to go ahead with such folly. The impossibility of getting the diverse economies of Europe genuinely to converge for any length of time, the prospect of Europe-wide exchange and interest rates, and the acknowledged immobility of labour in Europe

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have the makings of a very dangerous cocktail given the colossal transfers of resources which will therefore be inevitable.

Furthermore, the transition costs to the new currency are so astronomic as to be literally unquantifiable, rendering the oft-quoted savings on transaction costs insignificant. Very few politicians appear yet to have taken a serious look at these transition costs--the cost of introducing the euro. I hear that a leading French bank has just estimated that switching to the euro will require it to make some 52,000 software changes, each requiring at least three man days. Our big five banks have estimated that just to switch their customer accounts into the euro will cost them at least £200 million each, and they are not quite sure who will pay for it. Software programmers are already in short supply and will have a whale of a time. I gather that IBM has recommended that EMU should be postponed for that reason alone.

In addition to all this, the legal and market difficulties which the euro would face in the world's currency markets during the two-year phase B of the EMU project--when the euro and the national currencies are supposed to run in parallel--appear to many of us to be completely insurmountable. Of course it will be uncomfortable if the project is called off before it starts, but it will be much less comfortable if it goes ahead and crashes, as I fear it certainly must.

I conclude by urging the Government to use their new-found influence in Brussels to persuade Chancellor Kohl and his friends to reconsider this ill-fated venture and to settle for the Europe of nation states which both the leading parties in this country appear to favour.

7.35 p.m.

Lord Rea: My Lords, in your Lordships' House I have usually spoken on health, international development or human rights rather than economics. Certainly ornithology in the shape of emus or cuckoos is well outside my range of competence. However, the economy is very relevant to all three of my usual topics. I intend to look at them this afternoon through economic spectacles so far as I am competent to do so. I shall concentrate on health--that may be of some comfort to my noble friend who will reply to the debate--because it will be familiar territory to both of us.

Perhaps I may briefly ask a few questions on international development and the arms trade. I feel great satisfaction that we now have a Secretary of State for International Development in the Cabinet. It signals the importance that our new Government give to the elimination of poverty in the world. I am sure that Clare Short will make a great success of the new department. Can my noble friend say what role the new department will play in the international financial institutions? Just as the Bank of England, as we have heard over and again today, plays a central role in our own economy, the World Bank and the IMF are crucial players in the international economy. Will the new Minister represent the United Kingdom on the governing bodies of those two institutions; and will their deliberations be more

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open and accountable to Parliament? Despite frequent statements that the central role of the World Bank is to combat poverty, that has not always been evident. With structural adjustment, the International Monetary Fund has often increased poverty in the pursuit of fiscal rectitude. It will be of major benefit to the world's poor if a reforming Government can have an increased role in the decision making of those two important international financial institutions.

The regulation of the international arms trade has rightly been put forward by the Foreign Secretary as a priority aim. But, as he pointed out, this is a difficult area, since arms form a substantial part of the exports of many industrial nations. Can my noble friend assure us that the United Kingdom will play a leading role in achieving the international regulatory framework that is needed through the United Nations but perhaps starting in Europe? No nation can usefully "go it alone" in this area without detriment, however much it may morally disapprove of the arms trade. Can the noble Baroness say whether the Defence Diversification Agency for the United Kingdom which was proposed as part of Labour Party policy is going ahead? It was not mentioned in the Queen's Speech.

I turn now to the main part of my remarks: the relationship of health to the economy, or vice versa. In Britain we do not experience the gross poverty that afflicts a large proportion of the population of the nations of the South. But, as my noble friend knows only too well, we have seen, increasingly, relative poverty in the United Kingdom in the past two decades. It is a wonderful relief to me that I do not have to spell out to a government Minister the important effects that this has had on health; on the increasing disparities in health between the best and least well off. It is very welcome news indeed that a new task force, or working group, is to be set up to look into inequalities in health and their relation to poverty and the best way to tackle it. It should not take as long to report as the three years needed by Professor Douglas Black's working group to produce its report, because much of the research has been done--itself often stimulated by the Black Report. The appointment of Tessa Jowell, who is fully aware of this central problem, as Minister for Public Health, is a guarantee that it will be tackled effectively. But her success will be governed by how far other government departments play their part in creating a healthier nation. I look forward to the formation of a much strengthened, interdepartmental Cabinet level committee to oversee this.

The disparity in income is reflected not only in terms of poorer health but also in increased crime, much of it drug or alcohol related. That affects all of us, not merely because of the extra costs imposed on the National Health Service. Incidentally, those costs would be much greater if true equity according to need prevailed. There is increasing evidence that, although disadvantaged groups see their general practitioners more often and may spend more time in hospital, the increased care they receive is not in proportion to their increased need.

Dr. Richard Wilkinson, whose work I have mentioned on previous occasions in this House, has shown in many studies, now amplified in his book, Unhealthy Societies: The Afflictions of Inequality, that it is the distribution of

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income within developed countries rather than their GDP per capita that is most strongly related to better health and longer expectation of life. The wealthiest countries in the world are not necessarily the healthiest.

The United Kingdom has been moving in the wrong direction, to a more unequal income distribution. Dr. Wilkinson's work is confirmed by an American study which compared the different states of the Union. Those with the most equitable income distribution had the best health. Interestingly, the homicide rate followed exactly the same pattern. Extremes of wealth lead not only to worse health but also to increased crime. It is not only the poor who suffer; we all do, as was pointed out by Jack Straw, the Home Secretary, only a few days ago, when he described the links between drug abuse and crime and the huge costs to society.

If income distribution is fairer, then society becomes more cohesive. That is the society for which we should be aiming. A number of policies announced by the Government will help us, I am glad to say, to move in that direction--for example, helping marginalised young people back into employment, or into employment for the first time; and the setting of a minimum wage. I agree with my noble friend Lord Bruce that releasing capital funds for housing construction will be enormously helpful in reducing unemployment among the less skilled workers which has dominated the scene.

However, the Government have ruled out the most obvious redistributive instrument; namely, progressive direct income tax. That will slow down redistribution. There are of course other means available which will have the effect of taking more money from the better off and diminishing income disparities. I know that my noble friend the Minister knows about those so I do not need to spell them out. But there are possible additional "bad habit" taxes--taxes on undesirable activities which have adverse effects on health or the environment. These could be used for continued support of the welfare to work programmes that will initially be funded by the wonderful windfall tax. I share the concerns of the noble Lord, Lord Mackay, and some of his impatience, while waiting for details as to how the tax will be collected--although I hope that I shall not personally be much affected, unless the cost of telephones and fuel rises excessively.

While on the topic of taxation on bad habits, I congratulate the Government on having the courage not only to ban direct tobacco advertising but also to tackle the thornier question of sports sponsorship. There is a worry about where the substitute money is to be found. Perhaps I may remind my noble friend and her department of the very successful scheme in Victoria State in Australia, the Health Promotion Foundation levy. I described the scheme to your Lordships nearly eight years ago. Under that scheme, 10 Australian cents is added to the cost of a packet of cigarettes and goes to the foundation, whose object is to promote sports and other beneficial projects. It has been so successful that all the previously tobacco-sponsored sports have been funded and a surplus has been available for the arts and other cultural activities. In the United Kingdom, one

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penny on a packet of cigarettes would raise £40 million, which would practically deal with our sports sponsorship problem at a stroke.

I am aware, however, that earmarked taxes are unpopular with the Treasury. I am afraid though that, if such an additional levy were to enter the consolidated fund, there are so many urgent uses for it that it might be swallowed up. An additional levy on tobacco products would be effective in its own right--especially if it were more than 1p--in reducing smoking and would be one of the several additional measures needed to back up the advertising ban.

Recent research has shown, however, that the poorest people, who also smoke the most, are the ones who are least able to give up. Since increased tax will thus leave them with less money and possibly lead to a worse diet and increased debt, special efforts should be made to help this group stop smoking. A good step might be to include nicotine chewing gum, one of the most effective ways of helping people to give up, on the "white list" of National Health Service prescribable items. It is presently not prescribable. Those on low incomes would then receive it free.

There are several other bad habits or unwanted environmental habits on which we could home in; for example, large cars. We could devise systems of road pricing or congestion taxes at certain times on certain roads. If the elderly could be fully protected--and it is a big "if"--there is a strong case for a carbon tax to encourage energy saving. I suggest that some way down the road there is the possibility of partial legalisation and taxation of addictive drugs. That would be a very big earner if properly handled. We need a serious debate on drugs, as suggested by the Liberal Democrat Party. Many members of the Labour Party and the Standing Committee on Drug Abuse would also greatly welcome that. After all, other departments have been told to "think the unthinkable."

To end on a more strictly economic note, it is a fairly central tenet of the Labour Party and the Social Justice Commission that education counters unemployment. We are committed eventually to a high skill, high wage economy. That means, in the manufacturing sector at least, that we shall be producing more high value goods with a smaller workforce. As productivity increases, redundancies tend to follow; even redundancies among highly skilled people, although the less skilled are usually the first to go.

It must be the Government's aim to create an economy that will absorb those excess workers. There is an enormous need, as many noble Lords remarked, to improve our infrastructure and public services, including the National Health Service and education service. But arranging a proper economic structure to do that will require some very able lateral thinking and wide consultations with very wise people. The teaching of J. M. Keynes, as my noble friend Lord Bruce said, should not be forgotten.

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We have a very able crew on the bridge. However, there are plenty of icebergs ahead. Let us make sure that the depth-sounding and radar equipment is in excellent order so that we can make the passage through after such a promising start to the voyage.


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