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Lord Hardy of Wath: My Lords, I welcome the Statement. It demonstrates the Government's determination to fulfil their mandate to pursue a coherent and sensible regional policy building on the voluntary developments which have taken place since the major political change in May. Will my noble friend say more about the correction of the democratic deficit which has developed over the past 20 years? The new Government were committed to correcting that deficit under the manifesto of which the noble Lord made copious mention.

Baroness Hayman: My Lords, the Government have had to tackle an enormous democratic deficit that we inherited in May. As the House is aware, we have started to tackle that deficit through establishing a parliament for Scotland, an assembly for Wales and an assembly for London. Now we are taking forward our work in the regions. We believe that the correct thing to do is to start by tackling the economic deficit within the regions. Therefore the first piece of the jigsaw, as it were, is the regional development agencies. As I said earlier, we hope that the regional development agencies will in themselves provide a catalyst for increasing and encouraging the work of regional chambers. The White Paper specifically refers to the need for RDAs to achieve regional accountability through their partnership with the chambers. In the longer term we remain committed to

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more accountable regional government within England. It is accepted that different areas have varying degrees of enthusiasm for regional government. We have to tackle this matter in a measured way. We are tackling it in a measured way and we have taken the first step.

Lord Harmar-Nicholls: My Lords, I am glad that the noble Lord, Lord Shuttleworth, spoke before me as I wanted to congratulate him on the positive contribution he has made to this matter by his gesture and explaining that what is being done now seems to be without thought. I do not wish to criticise the noble Baroness who repeated the Statement because she is merely the mouthpiece of the Deputy Prime Minister on this occasion. However, she is an articulate spokesperson. I believe that the Statement represents an abuse of the parliamentary system of making Statements. At the end of the day the noble Baroness has said nothing. She used many words but at the end of her speech nothing emerged that was positive or clearly understandable. A Statement is intended to lead one along the way of knowing some of the details of a particular matter.

Baroness Farrington of Ribbleton: My Lords, I must remind speakers that this is an opportunity to ask questions.

Lord Harmar-Nicholls: My Lords, I want to get to the question, but the lead-in to it is important. All we have heard are words which add up to nothing in practical terms. The question I want to ask--to satisfy the noble Baroness and my noble friend if he is also disturbed about this--is: will the new regional power be able to override, for example, the planning decisions made by a local authority because, at the moment, as I understand what has been said, the Government are merely saying, "We did not like your quango system but we shall bring in our own quango system?". At the end of the day the system being used is identical to that of the previous government. I do not think that that is the way to use Statements and White Papers to try to give guidance to Parliament.

Lord Graham of Edmonton: My Lords, that intervention was an abuse.

Baroness Hayman: My Lords, I shall not bandy words with the noble Lord about whether the Statement was an abuse. I thought that I had answered the specific questions asked on specific points. The Statement made clear the process that the Government are undertaking in relation to the regional development agencies. The White Paper fleshes out the detail of that. There will be a Bill before the House. I have done my best not simply to be a mouthpiece but to answer the questions that have been asked on all sides of the House. One of the questions that was asked which I answered--the noble Lord obviously did not hear--concerned planning. I said clearly that regional

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development agencies would not have any powers to override the democratic bodies that currently have planning powers. They will have no planning powers themselves.

Lord Carter: My Lords, the 20 minutes are up.

Economic Prospects

5.40 p.m.

Debate resumed.

Lord Barnett: My Lords, perhaps I may begin by apologising to your Lordships. Our colleague, the noble Lord, Lord Roll of Ipsden, is 90 today. The Bank of England is holding a dinner for him to which I have been invited. I may therefore have to beg the forgiveness of the House.

We have had some excellent maiden speeches. I much look forward to the speech of my noble friend Lord Thomas of Macclesfied. I should declare an interest. He is the chairman of a bank which has been of considerable help to a small company that I chair. I look forward to his speech with great interest.

I agree with much that was in the pre-Budget report, in particular, the small measures on the welfare to work scheme about which the Chancellor spoke. I agree with the national economic objectives, especially the need for fiscal stability. But I fear that the Chancellor's policies will run counter to the chances of achieving his economic objectives. If we are to achieve his objectives at reasonable levels, we shall need reasonable levels of economic growth. I fear that his policies will not achieve that.

All in all, I find the report rather depressing. It adds up to a sad and disappointing list of policies for four major reasons: first, growth; secondly, public expenditure and tax; thirdly, unemployment; and, fourthly, economic and monetary union. I shall refer briefly to each in turn, even if I do not always agree with my noble friend Lord Shore on the fourth point.

First, in an excellent opening speech my noble friend Lord Currie spoke of the need for some reduction in growth. I accept that. However, if one reads the Chancellor's pre-Budget report, we now have less than 3 per cent. growth per year until the end of the century. That is not a reduction; it is a destruction of any economic growth. That is a forecast, not an assumption. Next year the figure will be 2.25 per cent., and possibly 2.75 per cent. if his exhortations on employment are heeded, which I very much doubt. The figure for 1999 is even worse at 1.5 per cent. to 2 per cent. For the year 2000 the figure is 2.25 per cent. to 2.75 per cent. Those are appalling lists of forecasts for the remainder of this century.

Why has the Chancellor made those forecasts? What are the assumptions underlying them? Clearly the position relates to inflation and levels of interest. I have read what has been said. We are told that inflation is "invariant". My

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knowledge of the English language not being that good, I looked up the word in the Oxford English Dictionary. The first words I read were:

    "Each cause is invariant; it is only the phenomena that are variable".

That will be clear to all the bright people in your Lordships' House. I believe that it means that the issue will take priority over almost anything else. It will not be variable. That might have been an easier word to use.

We are told that interest rates will be,

    "in line with market expectations".

I do not know quite what that means. I doubt whether the market does. But quite clearly economic growth, which is essential if we are to achieve anything, for three out of five years will be less than 3 per cent. and is clearly not a priority in achieving fiscal stability or the Chancellor's other policies.

I agree that he should not be going for a boom/bust situation, but instead he is going for an almost permanent recession. That is one hell of a situation for the remainder of this Parliament. With all that the Chancellor is doing, his national economic objectives have little or no chance of being achieved. I am all in favour of long termism--we are bound to remember that in the long term we are all dead, although I make exception of all noble Lords present and others outside this House. But we shall not have reasonable levels of growth in the short term, and certainly not for three years. That is why I am not happy about the Chancellor's economic policies and his pre-Budget statement.

Secondly, on public expenditure and taxation, it is sad for me that, despite the higher revenue that the Chancellor will have available, he would rather use it on tax relief, even if it is at 10p in the pound, than to increase vital areas of public expenditure.

I am only too well aware of the manifesto commitment that for the first two years of this Government there will be no increase in tax rates. On previous occasions in your Lordships' House I have been able to explain the many other ways in which one can obtain extra revenue without increasing rates. We now have not only more revenue but improvements as regards the cash flow in the short term. As some noble Lords, and others, have complained, the change in ACT will mean that the Chancellor will have available in the short term an extra £2 billion a year. That will change later, but by then I hope that we shall have higher levels of economic growth and higher revenue. But for now the Chancellor will have more available for public expenditure. I recognise only too well the need to maintain tight control of public expenditure, having had to do so for something like five years in difficult circumstances. But it seems to me that a modest increase now in vital areas of public services must be more than justified; I believe that they are essential.

I turn to the third of my disagreements with the Chancellor. As noble Lords will be aware, I never like to spend too much time agreeing with him. On unemployment, I strongly agree with his pledge,

    "to achieve high and stable levels of employment".

But the pre-Budget report states that they will be,

    "flat at October levels".

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That is an assumption, not a forecast. Frankly, if it is only an assumption, I hope that he will change some of the other assumptions in order to achieve a better level of unemployment than is likely to be the case under his policies.

If we are to have levels of growth of the kind I should like to see, sadly the assumptions are all too likely to be the outturns over the next three years. Excellent as are the small measures, including his welfare to work programme--I hope that it will create some jobs--there will be far more jobs lost by the poor economic prospects that he has created. That is my third reason for not being happy about the pre-Budget report.

Fourthly--at this point my noble friend Lord Shore may stop nodding his agreement with me--I refer to EMU and the single currency. My noble friend Lord Currie said that we have seen the political consequence--we are not in the club. Of course we are not in the club; we are not members. We are not going to be members. Why should we be surprised that we are not to be in the club? I am sorry to see at page 23 of the pre-Budget report that we still do not plan to join in this Parliament. The length of the Parliament must surely be irrelevant to a decision on whether we join a single currency. That decision has nothing to do with the length of a Parliament. Indeed, the Chancellor said so. He said that we will join when it is in the national interest. Let us suppose, as I hope, that the national interest occurs two years before the end of this Parliament. Is the Chancellor saying that even if it does, he will not join? In practice, we know that it would not be just the end of this Parliament. If Parliament continues to 2002, after a referendum and legislation it will be 2003 and possibly later. I note the statement that,

    "barring some fundamental and unforeseen change",

we might still go into economic and monetary union. I hope that there will be such a change.

The Chancellor also repeats his five tests as to whether we should join. We all know that there is only one test: whether there is sustainable convergence for us and others in the European Union. But the plain fact is that as of this moment, apart from one area to which I shall refer in a minute, we have a greater sustainable convergence than many of the 11 countries who are likely to start an economic and monetary union. The Chancellor has said the following on exchange rates and interest rates. He quotes the interest rates: ours at 7 per cent. and the French and German at just over 3 per cent. What is most disturbing is that he tells us that the gap,

    "is expected to continue for some time".

He is expecting the interest rate gap to last perhaps for five or six years. If that is his conclusion, then I am even more disturbed than I was before. We should see interest rates starting to come down in two or three years' time at the least, even if they increase a little in the next year. By then, I hope that it will have an impact on the exchange rate also, so that we would be nearer to an exchange rate and interest rate convergence than now.

I trust--and I am sure that my noble friend Lord McIntosh will be able to tell us that the Government will do this--that if it is in the national interest and barring those unforeseen circumstances, we will enter economic and monetary union before the end of this Parliament.

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I know my noble friend Lord Bruce might disagree with me, but I hope that we will do so because the Chancellor has spelt out the benefits to this country if and when we join. I hope we do so before the end of this Parliament.

I conclude with this. The Chancellor has asked for a national debate. I have made my own modest contribution to the national debate. I hope that the Chancellor might even take on board one or two of the points I have made and change his policies accordingly.

5.52 p.m.

Lord Brooke of Alverthorpe: My Lords, I am grateful for the opportunity to make my maiden speech in this debate and I am delighted to be following my noble friend Lord Barnett. I recall that he was in the business of growth. He did not have a green budget but if my memory is right he produced a record number of budgets in one year, three in one year with the noble Lord, Lord Healey.

I am grateful too for the kindness, understanding and warm support given to me by all whom I have met since joining the House just over a month ago. It is a great privilege to be here, made even more so by your fellowship.

Later this month I shall be moving on from a lifetime's work in the trade union movement. This has been primarily in the public and Civil Service arenas. Latterly, however, with privatisation and contracting out, I have spent more of my time working with the private sector, negotiating and discussing with multinational corporations which are extending their activities beyond simply acquiring public utilities and outsourced support functions in government departments and agencies but increasingly moving into the core of public administration. This is now happening on a worldwide basis. It is another aspect of the global economy. I anticipate that we shall have more of it in the future, rather than less.

It is all a far cry from my earlier days as a general secretary. They were spent trying to improve the lot of a most deserving but little-loved group of important contributors to the economy, Her Majesty's inspectors of taxes and tax collectors; alternatively, as the noble Lord, Lord Blyth of Rowington, who mentioned them earlier, would have described them, "those of the light hands". Had he been here, I could have told him that a number of them came to the House on Monday to view your Lordships at work. Have no fear. They were not here on official duty. They were greatly impressed by your Lordships, but I regret not sufficiently so to offer any dispensations or discounts.

Our visitors were pleased to see other ex-employees of the former Inland Revenue Staff Federation here--our noble friends Lord Callaghan of Cardiff and Baroness Symons of Vernham Dean, who now make such distinguished contributions to this House.

Noble Lords will also remember with great respect and affection the IRSF's first general secretary and founder, Lord Houghton of Sowerby. I only wish he was with us: to our regret, he died last year. I mention also

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our second general secretary, Lord Plant of Benenden, who was in this House. They are both much missed, as are their contributions.

In my brief contribution I wish--contrary to the previous speaker--to welcome the Chancellor's Statement last week outlining the challenges which face the nation on productivity, employment and stability. Progress has been made in improving productivity, and that applies equally to the public sector as to the private sector. But more needs to be done. The civil and public services have embraced significant changes in recent years. The Civil Service alone has been reduced in size from over 700,000 to 475,000, the present figure. Costs have been better contained; output has gone up. There has been greater focus on the quality of services delivered and on customers' needs.

Some of the changes have been painful for employees or members. Some have been disliked or resisted. We must also admit that many of the changes have been significantly for the better. As a result, this country now has a relatively modern Civil Service and one of which we can be justifiably proud. I certainly am. It is one which, in many observers' view, is way ahead in productivity terms of others in Europe. It is certainly ahead in that respect of the federal machine in the USA.

I believe that ours is a model which we should strongly advocate to others in Europe. Our approach has found ways of rooting out waste. If we take our lessons into Europe, press them and argue with others for them, we could effect substantial savings in the contributions we have to make to European institutions. It is another of those many opportunities open to us in this country to give a lead in Europe where everyone can gain from what we have to offer, particularly with our newfound expertise in this area.

But the drive for modernisation and even better services at home must continue. That means more change. In my experience, that is not necessarily perceived as good news by all, especially if it is badly handled. The new Government should seek to be more sensitive to it than their predecessors were, at least in their latter years in power.

Job insecurity consistently ranks as the number one fear and cause for concern among employees, both public and private. The search for better frameworks within which employees can embrace change with more confidence, so that productivity goes up, must continue. Education, training, re-skilling, lifelong learning and employability are at the heart of confidence-building in the workplace.

I welcome and support the Government's ambitious programmes here. But the tight monetary constraints and accompanying tight fiscal regimes of keeping taxes and deficits low leave little scope for the investment needed. Like others, I would like to know more about how, when and where it will come from. Like the noble Lord, Lord Ezra, I should like elucidation and clearer statements on those areas because we need the investment.

Public partnerships with the private sector offer possibilities. But they also bring other fears for public service employees. More innovative approaches are

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needed than we have seen in the past. There should be more employee involvement from the bottom up; it should be allowed and encouraged. I was greatly heartened by the contribution made by the noble Lord, Lord Levy, who talked in visionary terms about the types of relationship that we can develop between the public, the private and the voluntary sectors. Much more work needs to be done in those areas.

There are a thousand flowers everywhere waiting to bloom. An active programme for greater fairness at work would help to remove hostilities and suspicions and ease the way forward on improving productivity. Dare I say it: an active job creation policy is needed too. There are parts of the country with high unemployment where neither the private nor the voluntary sectors can produce jobs. But there is work to be done.

These days people ask me where are my estates, as I am now in the House of Lords. My estate was just outside Wakefield, a council estate. As I go round I see the condition of council estates from one end of the country to another. Do not let anyone either in this House or elsewhere say there is no work to be done.

We all share the Chancellor's recent stated concerns about the possible growth of wage inflation and the effects that that could have on jobs. There is, we know, an inextricable link between the levels of wages and jobs. Annual wage and salary bargaining points this up every year. I have had much experience in that arena and increasingly come to the view that we should be trying to move away from the annual negotiating cycle and into longer-term pay settlements stretching over two, three or even four years to link into inflation.

That is something I have been pressing on the Government since they were elected earlier in the year and I hope that others will take it up so that we see some movement forward with the Government setting an example. That may be picked up wider in the public service area and beyond that in the private sector too. We need a culture change in our approach to wages and jobs. I know that there is a range of technical obstacles to be overcome, not least the PSBR. But they are not insurmountable.

Finally, a few words about unemployment. I was a member of the independent inquiry into unemployment and the future of work conducted under the auspices of the Council of Churches for Britain and Ireland which reported last April. The report was produced after 18 months of fact finding and was written by Andrew Britton, a well known and respected economist formerly in the Treasury and director of the National Institute of Economic and Social Research. The right reverend David Sheppard, formerly Bishop of Liverpool, chaired our sponsoring body.

Time does not permit me to cover the whole of the report and its recommendations. But I trust your Lordships will have heard of it and its principal messages in relation to creating jobs and tackling poverty. Like many in the country I am delighted that the Government are preparing to make serious efforts through the new deal and welfare to work programmes to tackle the seemingly inexorable underlying growth of unemployment. While it is true that the unemployed

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claimant count is falling, like my noble friend Lord Bruce of Donington, I do not believe that that represents the full worrying picture about the state of unemployment.

While the unemployment figures may be falling, there is no justification for anyone spurning the Government's initiatives. Moreover, if more youngsters are finding jobs, the mountain of longer-term unemployed still remains and needs to be tackled. I hope that all in this House will not only wish the Government's programmes God speed, but that, irrespective of party, all will give every assistance they can to ensure that every pound of the windfall tax is put to good and productive use for reasons which are social and spiritual as well as economic.

To that end I would welcome some guidance as to how this House may do more work in that area. Might we not possibly establish an all-party Peers group to monitor and provide a channel through which we could influence the ideas and effectiveness of the new deal. I would welcome advice on how to move forward along those lines.

I am grateful for your Lordships' attention and patience. I am overjoyed to be in this House today. I believe that we have great opportunities and that our economic prospects are good. They will be even better if we are prepared to pull together. That is what the country wants: opportunities for all, fairness and a helping hand for the dispossessed and disadvantaged. That is what I hope I can work for in this House with your Lordships.

6.4 p.m.

Lord Boardman: My Lords, it is a great pleasure to congratulate the noble Lord, Lord Brooke of Alverthorpe, on his maiden speech. As many will know, he had a distinguished career in the trade union movement. The jobs and duties that he has taken on have given him vast experience. I was particularly interested to see that he was a director of the Prince's Trust Volunteers, a trust in which I have some interest. I know that he will make a major contribution to future debates in this House on those matters with which he is so familiar and so experienced.

I thank the noble Lord, Lord Currie, for introducing this debate. It is a subject of vital importance to both sides and he did it with great clarity. For me, it was rather like the curate's egg; there are a lot of parts which I may wish to qualify and some with which I find myself in agreement.

The starting-point is the position on 1st May last, and the then hand-over to the present Government of an economy which must have been the best economy ever handed over to a succeeding government by a different party. The noble Lord, Lord Currie--this is one of those parts of the egg which perhaps did not come over so well--tried to damn with faint praise what they inherited at that time: a situation of reducing unemployment, increasing growth, reducing RPI and so forth. Shortly after the election, the International Monetary Fund described it in its report as one of impressive macro-economic performance, strong growth and low

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inflation. I am sure that no incoming government had ever been met with so cheerful a message in relation to their inheritance.

The Labour Government have been lucky. They took that rich inheritance and, at the same time, during the election campaign, promised not to change it. There was not to be any more "old Labour"--tax and spend; there would be sound Conservative policies. They convinced the public that that would be so, and I cannot help saying that perhaps we helped a little in the process. At any rate, they did that with great success.

What has happened since then? It seems that every Minister, in every speech that I have heard in this House or outside, and particularly on television, includes early in the speech a reference to "the mess that we inherited"--"we" being the present Government. It has no bearing on whether there is truth or reality in the comment; it is automatically churned out by the spin doctors or speech writers and must be included in the speech, or else. I waited with interest to hear what the noble Lord, Lord Currie, had to say. Rightly, and correctly no doubt according to the remit of the authorities, he, too, included that reference in his speech. So be it.

What are the future economic prospects of the nation? They ought to be good--they are built on the foundations of the work done over the past 18 years, so the chances that they are good are tremendous. The Conservative government freed the nation from so many of the problems that had damned the economy for far too long. They freed it from industrial disputes. I congratulate the noble Lord, Lord Jacobs, who spoke from the Liberal Democrat Benches, on giving praise where it was due in that regard, and in regard to denationalisation. I remind the House that it was the old Labour government who thought it a good idea to have 98 per cent. taxation. We must not forget that.

The question is, how long the momentum of that 18 years' work will continue with the present Administration, given the problems that undoubtedly exist. Some of those problems are external and beyond the Government's control. The noble Lord, Lord Currie, referred to the Far East, and he is absolutely right. The Far East does present problems. There is doubt as to how far it will affect future exports and doubt as to how much internal investment in this country will be affected, bearing in mind the massive investment brought into this country--particularly to Wales and Scotland--during the 18 years of Tory government. They are vulnerable, and our Government are limited in the amount of control they can exercise over them.

With regard to Europe, I find myself not in agreement with the noble Lord, Lord Currie of Marylebone, or indeed with the noble Lord, Lord Barnett, who seemed to suggest that it is only a matter of timing as to when we go into EMU, with all the consequences that will follow from that. The choice to which the Government have to give some thought is whether we are going to be a constructive member of a federation of nation states or merely a small member of a federal Europe. That is the stark choice that will face us. EMU would commit us, inevitably, to the latter--to being a small member of

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a federal Europe. It would be dominated by Germany and its junior partner, France. Other member states seem determined to bring us down to their level. They want to bring our unemployment up to their level, because they cannot get their unemployment down. There are other areas where they wish to see our supreme position lowered. The Government have signed the social chapter, which will give them many opportunities to do that.

There are divisions on the Benches opposite and in the other place, divisions which extend perhaps between the Prime Minister and the Chancellor of the Exchequer. However, I must admit, sadly, that such differences have been known to occur in previous administrations. It is to be hoped that those can be resolved before the temptation by others to try to trap us by bribes and threats brings an unfortunate answer.

The Government have already inflicted domestic damage on our economy. Despite their promise that there would be no increase in taxation, they have done just that. We all know that there have been 17 new taxes and a £15 billion pension tax. The average family is £650 a year worse off than it was on 1st May. A total of £25 billion in tax has been imposed on business by this Administration. In the past couple of days TESSAs and PEPs have both been faced with their destruction, leaving a number of people with nothing but to try to follow the advice to find a Channel Isles tax haven in which to hide the savings they have accumulated to pay off their mortgage and the like.

There has been some discussion during the debate about the role of the Bank of England. My noble friend Lord Higgins made an excellent contribution. I shall not try to add to that except to say that the attempted division between monetary policy, which has been handed over to the Bank of England, and fiscal policy, which is to remain under the control of the Chancellor, is an unsatisfactory way to proceed. You can have only one person in charge of the economy of this country. You cannot have a Chancellor who says, "But I am not in control of monetary policy. I cannot control interest rates so I have had to put up taxes". That is a matter of some importance which I hope we can consider on some other occasion.

The prospects for this country are somewhat cloudy. We are in a period when speech writers and spin doctors have been concealing what has been going on. They have been concealing the increases in taxation and preventing the average person realising that the pension tax will hit their pockets. Very few people have yet realised this. But that era is now passing. I do not think the public will be fooled for long. They will see through this charade. The Government will pay for it in due course. My only hope is that the Government will not have destroyed our economic prospects before reality comes back.

6.14 p.m.

Lord Thomas of Macclesfield: My Lords, it is both an honour and a pleasure to enjoy the privilege of making my maiden speech in your Lordships' House while we are debating the economic prospects of our

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nation. My only frustration today is that, as the unpaid chairman of the North West Partnership, which is made up of public, private, voluntary and academic sectors in the north west of England, I shall not be able to reply to some of the fears raised by the Benches opposite. However, perhaps I shall be able to do that on another occasion.

If I may contribute to this debate, my first observation, and what brought joy to my heart, was that the pre-Budget report, together with the related booklets and press releases issued by the Chancellor of the Exchequer last week, took an inclusive and not an exclusive approach to the economy, while every comment was anchored in the real world of industry, commerce and ecology, in an attempt to ensure that we collectively secure Britain's long term economic future. This debate will, of course, continue. My noble friend Lord Islwyn, in his maiden speech, covered much of that ground.

In my experience as a banker, it is only when a business embraces in an inclusive manner all the parties who contribute to the long-term success of that business while also understanding and responding positively to the non-negotiable facts of nature that the business has an opportunity to enjoy both economic success and longevity. In my opinion, this applies equally to an individual company and to society at large. This theme of the inclusive partnership I will return to later. However, I have been cautioned that a maiden speech should be non-controversial. This causes me particular difficulty since I must confess that I have earned a good living by being both controversial and fiercely competitive. So, without wishing to be controversial, I will concentrate on this theme of an inclusive partnership, whether in business or society, as it is based on my own lifetime and professional experience.

The inclusive approach to business is not new. It was first embraced 200 years ago by the industrialist and social reformer, Robert Owen, 1771-1858, and many Quaker companies of that era whose names still surround us today. It was much later embraced by the American, Dr. Edward Deming, some 40 years ago when he almost single-handedly transformed the concept of quality and getting it right first time in Japanese industry. Your Lordships will be aware of the subsequent global impact on quality standards in the manufacturing industries. Then again, the inclusive approach to business once again emerged in the middle 1990s when the results of three years' research by the Royal Society of Arts, Manufacture and Commerce were published under the title Tomorrow's Company.

But first I should like to return to the 18th century and the textile trade, for which the north west of England was famous, and to Robert Owen, a fellow Welshman, mill manager, then mill owner, a social reformer and practical visionary, and a successful businessman whose ideas are now emerging across the world as the most appropriate and intelligent approach to managing a successful and profitable business over the long term--and I emphasise "over the long term". By that I mean least several generations.

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It so happens that he was born in Newtown, Wales, in 1771 and his long life overlaps with Adam Smith in Scotland and Karl Marx studying in London. After early business experience in London between the tender ages of 10 and 20, he became a mill manager in Manchester. But he is best known today for what he achieved, and his determination to develop this particular inclusive approach to business, in New Lanark in Scotland.

It has taken us perhaps 200 years to appreciate fully his hard-nosed approach of common sense and business acumen. His ideas were based on the simple proposition that, if the natural partners of a business--customers, staff (significantly) and their families, suppliers, the local community, society at large and, of course, shareholders--were treated and managed fairly, not in preference one to another but in balance and across time, then you would have the formula for both profitability and longevity.

However, it would be wrong to see him as a do-gooder, or as a paternalist, or even as a religious prophet, since he was none of those things. His basic belief was that it was simply the most successful, efficient, ethical, humane and intelligent way to do business in the long term. He was a man who, unlike any of his peer group, and without the support of legislation, took children under 10 years of age out of his mills, built them a school, and provided the school with fully-paid and qualified teachers, while building modern homes for all his employees with clean, running water and waste disposal: what Maslow, the famous behavioural scientist, would later refer to as the basic hygiene factors in the hierarchy of man's needs. That was 200 years ago, gentlemen!

This was seen as revolutionary at the time, and it was believed that it would damage the whole textile industry and cause major unemployment. Do not those sort of comments ring bells again today? However, Robert Owen prospered and never made a loss in New Lanark. Indeed, he produced superior results in terms of quality. He was the first to produce the famous and up-market Sea Island cotton and also a better return on shareholder funds despite carrying those extra costs.

The Sturges Bourne Committee of 1817, which I am sure some of us will remember, was a parliamentary committee set up by Lord Liverpool's government under Sturges Bourne to consider the revision of the Poor Laws, which could not cope with the post-1815 distress. Owen was to present his proposals to the committee with maps, drawings and publications. Unfortunately, the manufacturing establishment of that time got there first and, after the committee had deliberated in private, it voted by a majority that Owen should not be heard nor his evidence accepted. We can only now wonder what might have happened to our manufacturing industry, our society and our environment, if he had been heard and his approach adopted in that era. That is sometimes the fate of great men and women who are visionaries.

There is a similar tale about Dr. Deming, who tried--and gave up trying--to get his approach to business and quality heard and adopted by the post-Second World

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War American industrialists. Instead, he took his ideas to a conquered country and his words echo down the years to us today. First, for example,

    "The consumer is the most important part of the production line".


    "Quality should be aimed at the needs of the consumer, present and future".

Thirdly, he said,

    "The aim proposed for any organisation is for everybody to gain--stockholders, employees, suppliers, customers, community, and the environment--and all over the long-term".

Again, with respect to employees he said,

    "The aim might be to provide for them good management, opportunities for training and education for further growth, plus other contributors to joy in work and quality of life".

In that, he was clearly well before his time as regards this country.

Then, to bring us right up to date, there are the findings of the research by business practitioners into the characteristics of tomorrow's company. They too concluded that the essential element was an inclusive partnership which embraced shareholders, customers, employees, suppliers and the local community. Again, after Greenbury and Cadbury, the Hampel Committee, in July of this very year, said,

    "Directors' duty is to shareholders both present and future ... but more importantly companies can meet this duty and pursue the objective of long-term shareholder value successfully only by developing and sustaining their other relationships".

We in a clearing bank, which is the Co-operative Bank, have developed this inclusive partnership approach to include the wider society--global, national or regional--which has allowed us to embrace the wider ecological issues and we have also found that, by applying the other elements of Maslow's hierarchy of man's needs, like ego and spirit, we can unite the otherwise possibly divergent views of staff, customers and suppliers in a task bigger and more important than the individual or the company itself.

Examples of that approach have been, first, the setting up of a business and ecology centre with the four universities of Greater Manchester to serve the needs of small and medium-sized enterprises trying to take advantage of the probable developments and opportunities in terms of legislation on green issues, and, secondly, the campaign that we first launched on behalf of our many national charity customers, to ban the manufacture of landmines worldwide.

To test our sincerity over time, we also embraced a benchmark of past and future generations. Have we honoured the past in terms of the original objectives and aspirations? One thinks of the demutualisation of building societies, for example, as a particularly obscene example of throwing away an important heritage with one generation benefiting from 10 generations of hard work. Have we added today to what we inherited? Are we handing over to generations perhaps not yet born something clearly superior to what we ourselves inherited? That, I suggest, might be a useful benchmark for business and society as a whole and for this and any future government.

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In conclusion, my role as a businessman, as I see it, is to ensure that future economic legislation encourages both business and society to develop an inclusive partnership which will allow both to prosper in balance and across time. I thank noble Lords for their patience.

6.26 p.m.

Lord Taverne: My Lords, I begin with an apology. I had very carefully rearranged my affairs so that I could be here at the end of this debate--indeed, I was scheduled to wind up for these Benches. But, unfortunately, in view of the hour-long Statement which took place in the middle of the debate, it has become impossible for me to stay until the end of the proceedings. I hope that the House will understand. Perhaps I may just add that there could possibly be a case for the Procedure Committee to look at the very heavy weight of Statements now being made in this House.

I have a very pleasurable task indeed, not only in congratulating the many excellent maiden speakers who have spoken already in the debate, but in particular the noble Lord, Lord Thomas of Macclesfield, who has just spoken. He has played a signally effective part as managing director--and he is still playing that part--in the Co-operative Bank, but, in particular, it is his role in being a foremost champion of ethics in business, which is the cause he championed in his speech today, which has been remarkable. He has also been the moving spirit in founding the national centre for business and ecology. Again, I believe that we are aware of the very considerable role that he has played in bringing together the public and private sectors in the course of the regeneration of the North West. I congratulate the Government on selecting such an excellent Life Peer to their Benches. He will be a great asset to this House, as he demonstrated in his speech.

I want to address first the macro-economic issues which have been raised. Like my noble friend Lord Jacobs in his excellent maiden speech, I pay tribute to both the last and the present governments in their macro-economic policies. We start from a strong base. I also believe that the Chancellor is right to be cautious in his approach to public spending. He may well need room to manoeuvre later on. He is more likely to sustain a reasonable rate of growth in the long run if he avoids a consumption boom in the short run. Again, I suspect that it will be easier to put the United Kingdom on the path of convergence towards monetary union if he proceeds cautiously at this stage.

However, I have three reservations. First, it is clear that the Government have lost some control over our economic affairs by the delay in entering monetary union. It is going to be affected by decisions on economic co-ordination which will be taken by the very important council of EMU members. We cannot take part in that, as the noble Lord, Lord Barnett, or another noble Lord, pointed out, if we are not members ourselves. So we have lost some sovereignty.

But what worries me particularly is that the Government do not seem to understand how the European Union works. The Chancellor of the Exchequer is perhaps

3 Dec 1997 : Column 1421

the most capable or brainiest Member of the Government, with the exception of the talent on the Benches opposite. He is certainly one of the most capable Members of the Government and one of their most pro-European. It is a tragedy that he should so mishandle probably the most important council meeting that he has yet faced in the Council of Ministers.

If such a capable and pro-European Minister makes such a mess, what will the others do? I think that Lionel Barber in today's Financial Times has hit the nail on the head. The Government have not yet taken the trouble to find out exactly how the politics of the European Union work--and please let us have no more speeches from the Prime Minister or anyone else about the great leadership role which Britain is going to play in Europe. It comes ill from a country with a record of missed opportunities such as Britain has. So let us have no more speeches which might please the headline writers of the Daily Mail: in the long run it is far more important to establish proper relations with our European partners, which will also bring greater electoral advantage.

My second reservation is that while the Government have adopted the Conservative spending plans, I am not sure that they have thought through the implications. If one takes, for example, the spending on the health service, it has been growing at 3 per cent. per annum, and yet the health service faces a crisis. In the next few years spending is going to grow at a much lower rate. It may be impossible to continue to spend as much on the health service as it needs, but to contain it within even tighter limits is a recipe for disaster. If that is to be done then one must re-think the relationship between the health service and the private sector. One may have to look again at the whole question of compulsory insurance. The principle of access for all irrespective of means is a sacred principle which must be preserved, but there may be other ways in which it can be promoted. In dealing with the rising drugs bill, it may well be that the market will have to play a greater role in setting the price of drugs and one may have to look at the Irish passport system to ensure that all those who need treatment can get it, irrespective of means.

My third reservation concerns the Government's attitude on justice. The Chancellor has quite a lot of leeway in achieving his objectives. The income which has come in to the Government is higher than expected and spending is somewhat lower than expected. In seeking to be cautious, there is no reason why he should stick to every single target which the previous government set themselves. Government, understandably, has abandoned the aim of equality, though perhaps to a greater degree than I should like to see, but the Government claim that they are concerned with justice. However, where is the justice in removing up to £11 a week from lone parents, some of whom are the poorest people in the land? The policy of trying to get people from welfare on to work is a very sensible policy, but many single mothers cannot work. In many cases there is no work for them in the area in which they live. Many of them should not work in their particular circumstances. Many of them are quite incapable of doing a job. Are they to be penalised? It is not as if the whole edifice of fiscal discipline is going to come

3 Dec 1997 : Column 1422

crashing down if the cuts of up to £11 per week were not imposed on single mothers. Frankly, this is a measure of which they should be ashamed. I hope that their Back-Benchers revolt in droves, and I hope they frustrate this ridiculous, shameful measure.

My last comment is about the new regime for savings. The savings regime in this country is in a mess, and savings treatment by taxation is often inconsistent. It was to some extent made worse by the Government's measures on the taxation of pensions, but the individual savings accounts, the ISAs, do lessen distortion and make the system fairer. It was always absurd that small liquid deposits in banks and building society accounts should be excluded from the tax advantages of TESSAs and PEPs.

The Government are right, in my view, to widen the base of the whole range of savings and treat more savings alike. It also seems to me that the Government are right to have no requirement for a minimum holding period because those who cannot afford, or have not felt they can afford, TESSAs and those who probably have not had a higher enough income to invest in shares and go for PEPs--and the people who hold their savings in building societies--are on the whole the less well off sections of society. They need certain precautionary balances. They need to be able to draw on their savings from time to time and so the Government are right not to have a minimum holding period.

The Government are also right to limit the costs, because, having taken the measures they did, these could be enormous. They are right to limit annual contributions and to impose an overall limit, although possibly a £50,000 limit is somewhat on the low side. If that had not been done there would have been a massive quick move into tax havens with savings which would be made in any event. So on the whole I welcome the new individual saving accounts wholeheartedly.

However, I have one worry. This may be yet one other example of piecemeal reform. It may make for a more sensible form of particular kinds of savings, but one has to look at other savings, too. I hope that in due course the Government will abolish mortgage tax relief and the anomalous exemption from tax of lump sums payable as pension benefits. At the moment there are a host of working parties. There is the party on long-term care; there is the working party on tax and benefits; and of course there is the major review being undertaken on stakeholder pensions.

These individual savings accounts are bound to affect what happens to pensions. If the second tier, privately funded stakeholder pension is made compulsory, as I think it should be--and I advocated that recently in this House--there is bound to be a conflict with other forms of savings such as individual savings accounts. With the 10 per cent. tax credits which will be allowed in these accounts on United Kingdom dividends, you will have a more favourable regime for individual savings accounts than you will almost certainly have for stakeholder pensions. Inconsistency is inevitable, if you look at these questions piecemeal. They should be looked at as a whole, and it is the failure to look at these things as a whole and instead produce reforms piecemeal, which is my other source of worry.

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6.36 p.m.

Lord Desai: My Lords, let me first of all congratulate my noble friend Lord Currie of Marylebone on having introduced this debate in a very deep and serious way. He has posed certain questions which we have to address today. Like the noble Lord, Lord Taverne, I have been surprised by the unforeseen circumstances of the Statement. I shall stay as long as I can but I may not be able to stay until the very end of the debate. I apologise for that but it is an unfortunate circumstance.

Like many other noble Lords, I intend to deal with the business cycle issues raised by the Green Budget Statement, and then I shall say something about the related topics of EMU and the individual savings account. It seems to me that the Chancellor is right to introduce a consultative document and it is right for us to have a debate, as my noble friend Lord Barnett, said. If we merely stand up and agree with him we are doing him an injustice, and therefore I shall actually disagree in parts because my areas of agreement with the Chancellor are well known.

Let me first of all say that the Chancellor of the Exchequer has confirmed the golden rule. That is very good and I have been trying to argue even in the pages of Tribune for many years, that the golden rule is a sound principle of public finance. What worries me about the Green Budget is that, if you look carefully at the numbers for this year and next year, as I pointed out when my noble friend Lord McIntosh read out the Statement on that occasion, we seem this year to be not hitting the golden rule in that, partly due to inheritance, we have borrowed more than the capital spending limit, and next year we seem to be following a super golden rule in the sense that capital investment is now about £9.5 billion and the PSBR is around £4.5 billion.

Given the fact that this year we are running an economy at the peak of the cycle and next year, by the Treasury's own forecast, we are going to slow down, this seems to me to be the wrong combination. I remember saying before the July Budget that at the top of the cycle we must produce a surplus. That is the only sound principle of public finance I can think of. Although the Chancellor did do quite a bit in this respect, in my view he did not do enough. Had he taken a lot more spending out of the economy--and he might have had justification in trying what I call the Italian trick of taxing the windfall gains of the owners of building society shares and restoring them maybe in 2001, just to even out the cycle. That would have been sound public finance, not to say good politics.

If he had done that, the pressure on the Bank of England to operate on the monetary policy side would have been that much less and we would have had fewer increases in the rate of interest. Like the noble Lord, Lord Higgins--whose speech I admired--I think the rate of interest is a somewhat blunt instrument which acts with delay. I have never believed that that by itself can control inflation. Central banks which sign contracts to control inflation by the use of that

3 Dec 1997 : Column 1424

one weapon need their heads examined. I would not do that if I was appointed Governor of the Bank of England--a very unlikely prospect.

Given what we have now got--and I say this with as many qualifications as possible--we may be getting into a position that the Chancellor wants to avoid. As my noble friend Lord Currie said, we cannot eliminate the business cycle, but we can stop exacerbating it. Compared to the projected growth rate this year, we are going to grow faster. Looking at the growth projections based on fiscal year, not on calendar year, the Chancellor's document predicts a halving of the growth rate from 3½ per cent. to 1¾ per cent. That is a big reduction in the growth rate.

Again qualified by all sorts of caveats, my fear is that, given the strength of the exchange rate and the rise in interest rates which we have already had--and I do not see why this will not continue because, if you hold the Bank of England responsible for just targeting inflation, that is all it will do; that is its job--we may have a bigger slow down in the growth rate next year. So we may tilt the cycle; bigger boom this year, bigger recession next year. That is something we should try to avoid.

Although this year is more or less gone and there is very little we can do in this year, the £5 billion underspend which is scheduled for next year is definitely something that the Chancellor should look at very carefully to see whether there are a number of things on which he could relax a little. This is an underspend which, if fulfilled, would not be violating the Maastricht criteria--indeed, the PSBR would be about 1 and a bit per cent. off the GDP. It is not profligacy; it is prudence. I am not advocating profligacy--as noble Lords know, I am rather a hard man in fiscal terms--but from a fiscal point of view the right thing to do would be to keep that coming, especially if we expect the economy to slow down. If we expect that, it is up to us to do something now so that that is avoided next year.

The whole welfare-to-work programme is based on an assumption that the labour market will remain tight; that there will be jobs out there for people to do if only they have skills and receive suitable advice from jobcentres or whatever. At the moment it is all right. We have had falling unemployment since about the first quarter of 1993--except for a month here or there, we have had unemployment falling for four years--but given a predicted growth rate of 1¾ per cent. for next year, by about the second half of 1998/first half of 1999, that situation will be fundamentally reversed.

One does not need a sophisticated model to predict that; that is what will happen--especially if the competitive pressures on British business are such that the productivity growth cannot slow down. But if you have a productivity rate of roughly 2½ to 3 per cent., and if you have a growth rate of 1¾ per cent., by and large we know what will happen. Given that fact, the whole welfare-to-work programme requires a much smoother running economy, because the moment when these people are trained will be exactly the moment when the job market becomes flat.

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I wish the policy luck. I have some reservations but I wish the policy luck. If we can do it, it will be very nice--but I do not think we can take it for granted that the job market will stay tight forever. There are a number of assumptions on which this policy is based but, given the projections we have, I doubt very much that the job market will stay tight. What will happen is that the people we are currently preparing for the job market will be last in, first out.

While we are trying the welfare-to-work programme, we must leave in reserve the existing arrangements which are meant to look after people who have longer spells of unemployment than we would like. We should not abandon the old welfare system so totally that we move to a condition where, if you do not work, you do not get any welfare. It may well turn out that, even with the best will in the world and the best supply-side policies, there may not be the demand. If there is not the demand, then we cannot blame the unemployed for being unemployed. They may not be workshy; there may be no work for them to be shy of. That is something I would very much emphasise with this policy.

Finally, I come to the individual savings accounts. I agree with the noble Lord, Lord Taverne. For many years I have said that we ought to move to an expenditure tax and away from an income tax. It is crying out to be done. Every good-thinking economist has said that we should have an expenditure tax and not an income tax and yet somehow we cannot do it except by all sorts of inventive things with interesting titles like TESSAs, PEPs and ISAs. The point is very simple. We should be taxing consumption; we should not be taxing income. That way we exclude savings from being taxed. I do not know when we will get to that stage, we will just have to wait.

I have one reservation which perhaps I can put in the form of a question to my noble friend on the Front Bench. I am not very familiar with these sorts of things, but it worries me when things are sold over supermarket counters. I do not know who will be selling these individual savings accounts. Our experience with personal pensions is not very good, and the kind of people we are trying to attract into the savings phenomenon may not have the time or the expertise to look at the contracts very carefully. Who in the FSA will be looking after the new savings accounts? Now that the PIA has merged into the FSA, who in the FSA is controlling these instruments and making sure that we do not have a repeat of the personal pensions saga? I do not know whether the PIA or its successor was consulted about this or not, but that is enough disagreement for the day.

6.49 p.m.

Lord Montague of Oxford: My Lords, when I knew that I was to speak on the economic prospects of the nation, my first thought was to ask myself, "What are our prospects?" and I looked back on my commercial career when the prospects of this nation were forever being damaged by balance of payment crises. The answer to that problem seemed to be our discovery of oil and gas. So I thought that the first thing to do was to telephone a few friends to try to find out just how

3 Dec 1997 : Column 1426

long that revenue is likely to last. I was pleasantly surprised to hear that the latest estimate is that the reserves might last until 2050. I was amazed at that, because I remembered hearing that the downturn might be as soon as the year 2000. My first source of comfort, therefore, is that, according to the experts, we have a long period of oil and gas revenues before us.

I turn now to the pre-Budget report. I do not know where that title came from, because we are really talking about a consultative period prior to the Budget. I should first like to consider the timing of the pre-Budget report, and of the Budget, because the change in timing is most important. Business people know that the most critical selling period is the Christmas period. Retailers build up their stocks. Nothing could be more damaging to business than to have a Budget in bad times at this vital period. Therefore, it is excellent that the Budget has been deferred until the spring. I hope that that change will be permanent. I do not have sufficient parliamentary knowledge at this stage of my life in your Lordships' House to know whether the noble Lord, Lord Higgins, is right that there are parliamentary considerations to be taken into account. However, from a business point of view, I very much welcome the fact that the Budget will be in the spring.

There has been some criticism and debate about whether the Chancellor is being sufficiently cautious or too cautious in the current circumstances. Perhaps I may draw your Lordships' attention to one or two points which have not yet arisen. We are told that it is marvellous that the PSBR will be £9.5 billion. Yes, it is marvellous, but it is not exactly natural. Only yesterday the House discussed the Education (Student Loans) Bill, when we were reminded that the Bill seeks only to sell off the accumulated student debt at a very great discount so that £1.5 billion this year and £1.6 billion next year will be taken into the PSBR. So, an asset sale can have that effect. We know that the Ministry of Defence has done the same with its housing stock. That has been sold off at a great discount. We therefore have two lump sums to consider. I repeat that that flow is not exactly natural and the position is exacerbated slightly by the National Lottery. Your Lordships may wonder how the National Lottery can exacerbate the position, so I shall tell you. The National Lottery has cash in the bank at this immediate moment amounting to over £3 billion. That money is taken as a credit into the PSBR. Whether that is right or wrong is open to consideration, but I can tell your Lordships that that is the case.

That is why I am not sure that the economy is quite as rosy as some would have us believe. The noble Lord, Lord Boardman, said that after 18 years of Conservative government the economy is in a magnificent state. The noble Lord will remember that there were two terrible recessions in those 18 years. I think that we should be wise to reconsider the position. I do not suggest that we are sailing on the "Titanic", but I am not sure that all is total glory, and I am pleased that the Chancellor is being cautious.

Our exporters tell us of their pain at present as a result of the strong exchange rate. We should give some consideration to that point. What we need are more new products and more innovation in this country. Our

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manufacturers can do more if only they would invest more in research and development. Some in this House would be dismayed to know that, expressed as a percentage of turnover, our great country comes bottom of the league for research and development. We should look to the future with more confidence if we were at the top, but we are not; we are at the bottom.

What should we do about it? We already allow research and development expenditure to be set against taxation. In Australia, Canada, France, Japan and the USA there are special measures to ensure that more is spent on research and development. Only one industry in this country spends a good level of money on research and development and that is the pharmaceutical industry. It is a wonderful industry. Let us hope that the Chancellor will act in the coming Budget to influence companies to spend more on research and development.

Perhaps I may refer now to capital gains tax because the Chancellor has said, "This is the consultation period and these are the things that I would like you to think about. What are your views?" One area on which he has invited us to comment is capital gains tax. My first point is that we do not raise very much from that tax--only about £1 billion--so it is not a great source of income. However, that £1 billion results in quite adverse effects on those who have to compute their capital gains tax, particularly when it comes to decisions about, for example, selling a business. If you have created your own business and you come to sell it, and go to an accountant and ask, "How much tax will I have to pay?", he will say, "I can't tell you that. It will take two or three years to work it out with the Revenue". That is hardly satisfactory. Again, those who want to calculate capital gains tax for other reasons have to go back to a base date of 1982. That is becoming increasingly ridiculous as the years go by. I suggest that in formulating the forthcoming Budget the Chancellor should urgently consider getting rid of the inflation allowance and base capital gains tax on the current date.

Other noble Lords have terminated their speeches with references to savings. I very much welcome the Chancellor's new savings instrument, particularly as I am what is called a "trickle-up man" and not a "trickle-down man". I have never believed that when you give a lot of money to people who already have a lot of money they will go out and spend it. I wonder how many National Lottery winners have spent all their money. Not many, I hope. That is not the way life works. If we could get everybody at the bottom to spend a little more, the country would do a lot better.

Returning to the new savings instrument which the Chancellor has just announced, I notice that today's newspapers have concentrated on what they describe as a terrible feature. They say that it will be unfair to many people who have bought PEPs and who, above a certain amount, will lose part of their gains. I know Gordon Brown. He is a sensible fellow and very fair. I telephoned his office to find out whether what the newspapers have said is indeed the case, and I am pleased to tell the House that I am absolutely assured that it is not the case. All existing gains will be honoured.

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I have great confidence in this Chancellor. He is a prudent and a careful man. Furthermore, because of our oil and gas revenues and the ingenuity of our manufacturing industry, I have confidence in the prospects for the economy. Perhaps I may conclude on my earlier point about innovation: let us spend more money on research and development and on new products.

6.58 p.m.

Viscount Caldecote: My Lords, in my view the economic prospects of this country are indeed good, but that is not because of what this Government have done in the past six months. Judgment of their policies will come in a few years' time when we see whether these good prospects have come to fruition. The fact is that our good prospects are due to 18 years of good Conservative government and to our record over that time in enormously improving productivity and competitiveness. Perhaps most important of all, we rekindled a spirit of enterprise and initiative, and improved industrial relations. Of course there is more to do. There must be greater emphasis on increasing the output of our manufacturing industry and its share of world trade. That is the key objective. All other objectives, such as improving competitiveness and productivity, are means to that end and should be so regarded.

In the Chancellor's pre-Budget review I was very pleased to see a reference to the importance of investment in R&D and innovation. I appreciate that R&D is internationally recognised as a measure for comparing levels of innovative investment. However, as I have often said in your Lordships' House, research is very different from development. It is different in risk, cost, market dependence and the outlook of those who carry it out. I was delighted to hear in the speeches of the noble Lords, Lord Ezra and Lord Montague, emphasis on the importance of greater investment. The key to our future prosperity is greater investment in the design and development of new products and processes for sale in world markets.

I should like to ask the noble Lord, Lord McIntosh, who is to reply to this debate, what action Her Majesty's Government intend to take to stimulate such investment which requires a long-term outlook that is foreign to the ethos of too many companies? In particular, what progress do the Government believe they are making in filling the gap of high risk early stage investment from £100,000 to £1 million which is so important in getting new ideas developed by small companies? That range of investment is not attractive to venture capital companies and some other way must be devised to find a source of such investment. In past years there has been a good deal of talk of business angels; that is, people who put relatively small (to them) sums into this kind of investment. That is good, but there are not enough business angels. How do the Government intend to attract more of them and create investment in that area?

Too many of our industries have declined, lost market share or even disappeared for lack of innovative investment. A glaring and tragic example is our once great shipbuilding industry. It was decimated in the

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1980s by a misunderstanding of the future prospects of that great industry. That led to wrong policy decisions and the closing of many shipyards. Shipbuilding was wrongly regarded by my noble friend Lady Thatcher and her government as great hunks of steel with the addition of some equipment and engines. In reality today's ships are giant systems similar to aircraft. The hull is a relatively small component of the cost. Ships are filled with electrical, electronic and mechanical equipment, much of it under computer control. It is also a fact that for so far ahead as any of us or our grandchildren can see 90 per cent. of our overseas trade will be carried in ships, most of it in container ships. The tragedy is that we build none of them.

There are now nearly 2,000 large container ships in service. In 1996 there were 339 ships ordered or under construction. Of these, more than 50 are being built in Germany and more than 50 in Poland. None is being built in the UK. Today there are even bigger vessels called PANAMAX ships in excess of 100,000 gross registered tonnes which can carry 5,000 containers. Those ships do not need to go through the Panama Canal and so are not limited in size by that requirement. Over 80 of them are now being built or are on order: 12 in Denmark; eight in Germany but none in the UK. There are also huge luxurious cruise ships of 100,000 gross registered tonnes or more. They have replaced the great transatlantic liners in previous days, such as the "Queen Mary", the "Queen Elizabeth", and so on. Thirty-two are now being built or are ordered: 12 in Italy; nine in Germany; five each in Finland and France, but none in the UK. It is tragic--and well-nigh incredible--that a great maritime nation like Britain is building none of these great ships. They are full of mechanical, electrical and electronic equipment that would be of enormous value to our maritime equipment industry. Think what it would mean in employment and exports if we built just a few of these ships like other European countries. It is incredible that our friends in Europe, in Germany, Finland and Denmark where rates of pay are not very different from here--I do not speak about the Far East where different outlooks and wage levels apply--can build these great ships which would be of such enormous value to our economy but we cannot.

I ask the Minister whether the Government will review the future prospects of the shipbuilding industry. Will they consider ways in which Britain, which is so dependent on ships, can regain its share of this lucrative market, probably by partnership between the public and private sectors? I hope that the noble Lord, Lord McIntosh, will not hark back to those mistaken policies of the previous government that I have often criticised. I hope that he replies constructively to the questions that I have raised. They raise important long-term issues of enormous significance to the prosperity of our country.

In conclusion, this has been an important, useful and interesting debate. However, it is rather sad that the great majority of speeches have been concerned with straight economics. With the happy exception of the speeches of the noble Lord, Lord Montague, and one or two other noble Lords, very little reference has been made to where the real wealth of this country is created. Much of it is created in manufacturing industry. If we

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are to have long term prosperity and high levels of employment we must pay more attention to our manufacturing industry. I hope that the new Government will take that to heart and do all that they can to assist manufacturing industry, particularly shipbuilding, to recover the markets that they have lost over the years.

7.8 p.m.

Lord Randall of St. Budeaux: My Lords, I begin by thanking my noble friend Lord Currie for tabling the debate today. This debate on the economy is different from others in the past in both Houses of Parliament. What makes this economic debate different? I believe that the answer is very simple. Two or three weeks ago a Statement which was made in the other place by the Chancellor of the Exchequer and repeated in this House made it quite clear that the Labour Government would take Britain, with the consent of the people, into the single currency. So, businesses and ordinary people now know where they stand. The bulk of the uncertainty has been removed and preparations for the adoption for the single currency can proceed.

I believe that not only is it firmly in the national interest for Britain to enter the euro currency zone but that it should do so as soon as possible. By failing to join in the first wave, Britain's influence may be diminished in formulating policy. For example, the whole of the central bank structure is now being planned without Britain being fully involved. That is just unacceptable.

We saw the concerns of our EU partners at the Brussels ECOFIN this Monday. Questions arose as to whether Britain would have a seat in the policy meetings, and whether we should have the right to vote. At the moment, that is still unresolved. We must maximise our influence in those important policy forums so that our national interests are pursued. That is how the EU works.

As a parallel, it is worth recalling what happened to the CAP because we were unable to influence its formation. It could reasonably be argued that British farming is the most productive and competitive in the world. It employs about 2 per cent. of our national workforce. Our temperate and wet climate adds to the success of British farming. Yet we still have a CAP which is unsuited to the interests and needs of British farming and the British economy.

The CAP is more suited to the farming industries of France and Germany. Why is that? It is just because France and Germany were members of the Common Market and were thus able to negotiate during the CAP formation and to protect their own national interests. Britain, by contrast, was on the outside and lost out. The same argument applies to Britain joining the EMU. We must not fail with the EMU as we did with the CAP.

The positive message sent to the EU just two or three days after the Labour Government came into power has unquestionably helped strengthen relations between Britain and the rest of the EU. Other positive steps have also helped. However our partners are looking forward to commitment by us to the EU in the form of early and full participation in the development of the EMU. Hesitation on the sidelines must be a thing of the past.

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In 1986, the then Conservative government, under the leadership of the noble Baroness, Lady Thatcher, adopted the treaty which took Britain into the single market. That treaty resulted in a huge leap in the level of European integration--far more integration than has ever ensued from the later treaties of Maastricht and Amsterdam.

I welcomed that, not just because it led to further constructive development of the EU but because the economic benefits to Britain of the single market have been enormous. Growth of British trade with the EU 15 has soared, resulting in more jobs, increased profits and, importantly, business investment. The single market has been a remarkable success story for Britain, although there is still more work to be done to complete it. I have always believed that the European single market could never be complete without a single currency.

The case for the single currency is overwhelmingly strong. Yet opinion polls suggest that the people feel ignorant about it all. However, the good news is that those polls show that the public also wishes to learn more about the EMU. The strongest supporters are the young people and businesses. Clearly the message regarding the advantages and disadvantages has not been communicated to the public, so there is an important task to be done there.

The single currency will be a vital instrument in helping the Government meet their key economic objectives, which are more economic growth, more jobs and economic stability. If the Government can meet those objectives, then the enormous problem of funding the escalating costs of social policy in the future can be eased somewhat.

On the other hand, the Government's policies--for example, welfare to work--are crucial, bearing in mind that the costs of social policy are not only high but have, on aggregate, high growth rate projections, due largely to the fact that we have an ageing population which requires increasingly costly support services. What makes the funding of social policy so complex is the fact that the sums of money required are so large that they cannot be funded entirely through direct taxation. There are two reasons for that. First, the public no longer likes the idea of paying large amounts of direct tax; secondly, if direct taxes were to be raised substantially, that would have the effect of damping down job creation, which takes place predominantly in businesses employing few people--perhaps between one and five people.

That of course contradicts one of the Government's key economic policies of job creation. So other ways of funding social policy have to be found. The Government seem to be working hard on that. Mr. Frank Field MP has been drafted into the Government to think the unthinkable about how to fund the more expensive parts of social policy. At the same time, wealth generation through increased economic growth remains a key economic objective of the Government.

One of the advantages of joining the EMU is that there will be a greater chance of achieving higher economic growth, which could contribute to funding

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social policy. For some time, Labour Party policy has been economic efficiency and social justice. The euro must be a success. That means that the euro must be a hard currency. To have a single currency that is overly vulnerable to speculation would be unacceptable. Therefore we must have good monetary and economic discipline.

What do I expect from the single currency? One way of putting it is that I want businesses, especially small ones, in places such as Hull, to be able to trade as easily with businesses in Rotterdam as they currently can with businesses in Leeds or Manchester. There are still enormous impediments which stifle trade within the EU. The biggest impediment is transacting business in different currencies. Within the euro-currency zone we can expect to have a reduction in the cost of changing money, which currently amounts to a trade tax of about £3 billion per annum.

Secondly, exchange rates will be more stable. Then we could see price cutting because consumers will be more easily able to compare product prices. That will apply especially to cars. Lower interest rates will arrive, and we shall obtain the big benefit of a 1 per cent. to 2 per cent. reduction in interest rates for long-term money, because the market's fears of inflation will be diminished. I hope, too, that we shall see an end to the boom-bust economics which have so dogged the British economy for 40 years.

Our competitors in the EU have enjoyed lower interest rates and lower inflation, and have been able to sustain a good economic performance. With the European central bank we should be able to build on that record of good economic performance to the benefit of Britain.

7.20 p.m.

Lord Bruce of Donington: My Lords, today's debate has centred around the economic prospects of the nation. In that respect, the issue of the single currency has no relevance whatever--at any rate, for the time being. I shall refer to my noble friend's speech later.

It has been a puzzling debate, almost reminiscent of our debates on the Maastricht Treaty. At that time we had a coalition of the then Labour Opposition and the then Conservative Government. They were united in their support for the main provisions of the treaty. I observe that today some minor skirmishing over the social chapter and the relevance or otherwise of the minimum wage has taken its usual form. But in the main, the House as a whole appears to agree that the economy is sound.

References have been made to a possible inheritance of one or two adverse factors. My Government have been accused of unjustly blaming the party opposite for having left some dubious legacies, but, in general, that accusation has lacked force. The House has resumed almost exactly the unanimity of the debates on the Maastricht Treaty.

During my long political life I have learnt to be most suspicious when governments and opposition parties are agreed on anything. Because of a factual ignorance on both sides, matters almost always end up in a joint conspiracy to deceive the public. I am not saying that

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that is happening today, but anyone who says that the British economy or its prospects are sound wants his brains examining. Nothing could be further from the truth.

My noble friend Lord Barnett, who unhappily is not in the Chamber, gave the most devastating reasons for that. He pointed out that on the Government's own forecast their programme for growth during the next four or five years is virtually non-existent and will in the ultimate result in a decline in economic activity in the United Kingdom. He made his case persuasively. Indeed, the more I listened to him the more I said to myself, "Bruce, this guy is coming around to your point of view on these matters". His criticism was quite devastating.

Likewise, my noble friend Lord Desai almost repeated what he wrote in the Observer on 17th August. I gave him notice that I would mention his article. He stated:

    "The economy is hot but not overheated. Unemployment is going down and will continue to do so. The Bank will wait and watch before it puts interest rates up again. Consumer spending is high and likely to stay so. The only fly in the ointment is sterling".

Perhaps he has learnt a little since 17th August, because it has become abundantly clear that the distorted strength of sterling in both the mark and dollar markets is one of the reasons why the balance of trade is sharply deteriorating. If my noble friend Lord Barnett, who is very experienced in these matters, is to be believed, it is likely to continue to do so. How can anyone describe an economy with large-scale unemployment as "sound"?

The figures are damming. We are not dealing with a figure of some 300,000 unemployed, as we were until the quadrupling of the price of oil in 1974. We are dealing with unemployment at a level of 2,822,000, according to the latest figures. I know that the earlier figure is preferred by some people; an adopted figure which refers to claimants of unemployment relief and not to the real number of unemployed. There is a prediction that there might be a downturn in economic activity later this year. My noble friend Lord Desai expressed some misgivings about a slowdown, as he did in the article to which I referred.

We now have a situation in which, if unemployment falls significantly below 2,800,000, inflation is bound to result. That is the logic of the situation. Is that really tenable? The answer is simple; that there are not the employment opportunities at current capacity levels, plus any anticipated addition to manufacturing capacity in particular, to be able to absorb any labour that is released or propelled under the new welfare-to-work process. The programme of welfare-to-work is excellent. At this stage, I shall refrain from making any more observations about the helpless people against whom the penalties have been directed. I shall return to the matter on a later occasion.

We are saying that our economy has reached the stage when professional economists, bankers and so forth can say that, if unemployment falls significantly below 2,800,000, inflation will result. That is a great deal of

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nonsense. Anyone who knows anything about economics on a practical basis--not on the theoretical and academic side--knows that to be true.

Why should it be so? According to noble friends of the ilk of my noble friend Lord Randall, Europe and our participation in it has been a success. We find the clear reasons not from any prejudiced person such as me but from the European Commissioner for Employment and Social Affairs, Padraig Flynn. He states:

    "Present policies have failed and each year our present policies result in two million people being added to the long term unemployed in Europe".

That is the verdict of the commissioner. What is he blaming? He is blaming the inflationary policies laid down in the Maastricht Treaty. They were laid down in a way that has restricted economic development not only in Europe but in this country, too. People can sing and dance as much as they like about the benefits of the single market. I shall quote from them: unemployment in Europe as a whole has gone up by 5 million since the Maastricht Treaty, despite all the alleged successes.

It is not only a question of unemployment; it a question of social cohesion. Ultimately, all economic activity depends on social organisation and the working of one group of people with another in either a locality or a factory. All economic activity is essentially social in nature. It must be so because of the division of labour. People must work with one another even to produce a single item.

Once social cohesion begins to be threatened, the whole base of the economy is threatened. One of the reasons why we were so successful in the last war was because of a feeling of elan, the feeling of confidence and even, to some extent, of pleasure and joy of working with one another for a specific aim. That relationship has progressively been poisoned by the existence of large scale unemployment, by injustice and by lack of housing. Indeed, the number of new houses being built has decreased by 50,000 a year compared with 1979. That has led to a progressive deterioration in housing stock and to the progressive constriction of the normal, legitimate aspirations of people--in other words, their hopes, ideals and dreams. So the relationship in the country in relation to its future prospects has become progressively sour.

It is not a situation which can be eliminated by pure jingoism or anything of that kind; but it is something to which a government must address themselves. There is one thing they could do when they get rid of the schizophrenic attitude towards house prices--on the one hand, they are not liked when they rise because they send inflation up but, on the other hand, they are not liked when they go down because of the threat of repossession. So the Government even have a split mind in that respect. What must--not could--be done on a completely non-inflationary basis would be the immediate enlargement of the entire housing programme in the United Kingdom. That would not need welfare-to-work schemes in order to get people skilled in the art of construction. It is one of those assembly operations in which the amount of skilled labour required is very limited. We shall ultimately be judged in this country as a government--and we,

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possibly, as Members of this House will be judged if we fail to provide the impetus by urging the Government to do things that they can do, provided that they retain the power to do so.

7.33 p.m.

The Earl of Longford: My Lords, it is possible to see the arrangement of the speakers' list in this House as representing a descending scale of insignificance, or an ascending scale. I like to think of it as the latter. I am proud to be a postscript to my noble friend Lord Bruce of Donington and the preface to my noble friend Lord Peston. I believe that we are really all part of an upward movement. I am particularly glad to follow my noble friend--and, if I may say so, my real friend-- Lord Bruce of Donington. Indeed, of all the friends I have, I feel that if he did not exist it would be necessary to invent him, for there would be no air of pugnacity in the House; we might be thought to be a sort of tea party. He brings some real hostility into the argument, which is all to the good.

When I was an under-graduate, I studied at Oxford officially what was known as "philosophy, politics and economics", which I believe is now known as PPE but was then usually called Modern Greats. I shall not inflict any philosophical views on the House tonight; but, in my few short remarks, I wish to submit that we cannot form a good assessment of the economic future of this country without reference to the political context.

It seems to be reasonable to assume that a Labour Government will be in power for quite a few years. I do not build extravagant hopes on that prospect. Many of us will recall--or, if not, many will have read about it, if they have not been through it--that the Liberal Government with a huge majority of 1906 had disappeared by 1910. Similarly, the Labour Government had such a majority in 1945 but had also disappeared by 1950. Therefore, one must not be unduly optimistic. Nevertheless, it is reasonable to think that the Labour Party in this country will be in power for quite a few years.

That would have been a very grim prospect both in the City and in industry, when I was chairman of one of the small clearing banks between 1955 and 1963. I am not qualified to speak about industry from first-hand experience, unless one counts the publishing industry. But that is generally not considered in that light. In those eight years as chairman, I spent most days in the City and never met a Labour sympathiser--at least, no one was open about it. There may have been a few cryptos; but, if so, they did not talk about it until later when Labour won in 1964.

I remind myself that, as chairman of a clearing bank, I achieved the unprecedented feat of being blackballed from the City club. It was politely put to me that it was done on political grounds; but of course it may have been for other reasons, we cannot be too sure. In any case, that was the atmosphere in the City some 30 years ago. But now what do we see? All is sweetness and light among the Government, the City and business. Long

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may it remain so! It is good news for the country and for the economy. If that goes on indefinitely, no doubt it will help to ensure that the economic future is bright.

However, can we assume that the situation will be quite as happy as that indefinitely? Although the ideals of the various political parties may become dormant, we must remember that they do not die. I was personal assistant to Sir William Beveridge for three years when he produced the welfare plan which was officially accepted by all parties at the end of the war. But when Sir William approached a former patron, the then Prime Minister Winston Churchill, and asked for an interview, the latter did not think the moment propitious. He was too busy with the war. In due course, Winston Churchill reappeared as Conservative Prime Minister.

Again, the King's Norton Labour Party was suspended during the war for breaking the party truce. My wife was then the candidate. It was not her fault. It was part of a misfortune at the time. The Labour Party was suspended for breaking the truce. But what happened in 1945? King's Norton was won for Labour by 12,000 votes, although, by that time, my wife had retired and had four children. We must realise that what may appear to be unanimity does not necessarily last forever.

This Government are very popular. I am very glad that they are. All old timers like myself are delighted with the Labour victory; we are full of hope and encouragement, with confidence in the leaders of new Labour. However, we realise that during the war there was unanimity in pursuit of the common victory and that that disappeared after the war. Therefore, we cannot think of this happy situation going on for ever.

So what do I look forward to? Well, I am unashamedly old Labour. I am old enough. If one is not old at 92, I do not know when one is. The noble Lord, Lord Soper, is a little older but apart from him I believe that I may be one of the oldest Labour people. Although it is true that I started life as a Conservative, 62 years in the party--it may be only 61; I have rather lost track of it over the years--qualifies one to be old Labour.

We welcome new Labour, but what we always look for is a policy which can be considered worthy of real Labour. That is what we shall expect eventually. We realise that we are inhibited for two years by the understandable election manifesto, but the time will come when real Labour will assert itself. When I say "real Labour" I do not mean some extreme Leftist policy, certainly nothing based on Marxism and not even based particularly on nationalisation which I do not think will play a large part in the future, but something that reasserts the traditional Labour demand for social justice. That involves some redistribution of wealth which cannot be effected in the next two years under manifesto pledges. However, that demand will not die; it will reassert itself.

The traditional Labour demand for social justice draws its inspiration from various sources. I rely particularly on the Christian inspiration; but there are others. The noble Lord, Lord McIntosh, represents worthily a humanist tradition and no doubt he will reassert it in his final remarks today. Whether the

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inspiration is Christian, humanist or whatever, that insistent demand for social justice will not disappear. Some years from now there will be a new situation. Will this most welcome partnership between the Labour Government on the one hand and the City and business on the other continue? I hope and believe that it will. I and all my friends have the utmost confidence in the present leaders of the party. I believe they are establishing a new relationship with the City and industry which will last when the real ideals of the Labour Party are reasserted a few years from now.

7.42 p.m.

Lord Peston: My Lords, I join with other noble Lords in thanking my noble friend Lord Currie for his excellent introduction to this interesting debate. I echo those noble Lords who congratulated the maiden speakers on their contributions. The only new Peer who left me slightly worried was the noble Lord, Lord Jacobs. If we confine ourselves to speaking only on subjects we know something about, your Lordships will need to meet only one afternoon a week, if that!

In making a contribution to this debate I wish to present as balanced a view as possible. I shall not say that everything that happened before 1st May was wrong and that everything my right honourable friend the Chancellor of the Exchequer has done, or is about to do, is right. We should recognise that the previous Chancellor acted well and honestly according to his lights, and the incoming Labour Government for the first time in our history was left an economy which, although it has some problems, was not in a state of disaster and did not need immediate crisis management. Somewhat cynically, I am mystified how that happened, but it did.

I cannot refrain from remarking that historians of the future may come to remark on an ultimate irony. I can even envisage the A-level history question; namely, that the Conservative Party tore itself apart, even destroyed itself for a generation, while laying the economic and financial foundation which enabled the Labour Government to meet the conditions for entry to European monetary union and to proceed with such entry reasonably quickly.

In debating our economic prospects, we mean both our long run performance and also what is likely to happen in the next year or two. Our long run performance is determined largely but not entirely by so-called "real forces"--investment in plant and people, technology, enterprise, managerial skills and the like. There is no room for disagreement on that. The Government have got off to an excellent start in achieving our desired aims. We may disagree on the scale of the role of government but I am clear that our differences lie within the range of reasonable discourse. We must also all recognise that there is no pot of gold. If we want to have a high standard of living, we must choose to be economically efficient. That is the case whether or not we take into account international competition. But, overwhelmingly, in a world of free trade and free capital movement, if we choose erroneous policies we shall be unproductive, poor and dependent

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on others. If we choose the right policies, we shall be productive, independent and able to pay ourselves high real wages.

I use the word "we" advisedly. The failure of the so-called "trickle down" theory in the past decade has been truly shocking. It is a central task of the new Government to reverse the trend in which the poor did not participate in economic advance. Of course, where that is possible, the poor wish to be full members of the economy and of our society and earn their own incomes. The Government are to be congratulated on endeavouring to create circumstances in which that will happen. The restoration of full employment is absolutely central to that aim. But for quite a while there will be many people disadvantaged in all sorts of ways who need help. A country as rich as ours--I emphasise the words "as rich as ours"--can afford to give such help. I for one have no difficulty in advocating progressive and redistributive taxation to achieve that end. In that connection, I add en passant how much I agree with the Chancellor's brilliant initiative on the new individual savings accounts and, of course, with the Government's policy on the minimum wage. I had much to say about the minimum wage but the contribution of my noble friend Lord Davies of Coity was so masterly that there is nothing left for me or any other noble Lord to add on that.

We have a problem of short-term management which is not easy to solve. That is clearly seen both in the pre-Budget document and the Bank of England inflation report. Demand is rising more rapidly than the underlying rate of growth and although nothing catastrophic has yet occurred something needs to be done sooner rather than later. I suppose that is the rationale behind the tightening of interest rates, and why the market is expecting further tightening. The trouble with that is that we end up with sterling stronger--in my judgment, absurdly so--than is warranted by so-called fundamentals. Without being a slavish devotee of what is called purchasing power parity theory, one can still be worried about the pound's strength as it affects exports, and notably as it affects manufactures and the balance of payments.

However, if monetary policy is not made tighter, fiscal policy must be. I do not see many of my noble friends advocating cuts in public expenditure. We seem to have a new doctrine that has emerged--at least for the moment--that taxation must not be increased. I shall return to that theme in a moment. That means that my right honourable friend the Chancellor's position is not all that easy. It is made even more difficult by the likelihood that as demand converges on its sustainable equilibrium next year, unemployment will rise at least for a while. That means--as my noble friend Lord Desai has pointed out--that those who are being helped to become more employable by the Government's education and training policies will find it harder to get jobs and the whole purpose of the exercise could be defeated.

At the margin I would rather take a risk with inflation than employment, but I must emphasise the words "at the margin". There is a little room for manoeuvre here but not much. I do not believe that the economy will

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adjust automatically. Therefore we end up with the Chancellor being in the standard difficult position. The wrong policy mix and poor timing can make things worse. If the position deteriorates and he fails to act, he will not be able to say, "It had nothing to do with me".

On that note, I turn to public expenditure and taxation. No one doubts that in the long run there are limits to the relative size of the national debt, and therefore to budget deficits. That would be so whether or not we had signed the Maastricht treaty or accepted Maastricht criteria. That does not mean that deficits should not vary over the cycle, as my noble friend Lord Currie has said. That is, incidentally, a problem which EMU has yet to face up to. But it means that, starting from the right average fiscal position, public expenditure must be tax financed. That obliges people like me who wish to see more spent on education and health to say how we shall pay for it.

I was interested in the remarks of the noble Lord, Lord Higgins. I was a great devotee of the unified budget. I gave several lectures on the subject, until I discovered that what I had considered important was the one thing that the Treasury would not allow. As regards the unified budget, the only matter of importance is that the other place and this House should be able to answer the following question: if you want to raise public expenditure, what else will you cut or what taxes will you increase? As we are not allowed to debate the unified budget we might as well forget about it. I say that with deep regret. I am not afraid to face those questions.

I know that for a while the restoration of full employment will reduce transfer payments and will release funds for other purposes. But that is only a temporary solution. In the long run the people of this country have a choice. Do they want a National Health Service and a public expenditure system financed by taxation; do they want user charges, tuition fees and the like; do they want private sector expansion; or do they simply want a continuing fall in standards of public service?

I despair of those who are afraid to make the choices and who complain when they need hospital treatment that the resources are not there when they themselves by their votes chose lower taxation instead. Equally, when people retire they say that they want the state pension to be linked to earnings. But when in work they voted for a party that destroyed that link.

All that is political. As noble Lords know that is not a subject I understand at all. However, I know that it is for my right honourable friends in another place to assess what the people want and what they are willing to pay for. I believe that the average person can be reasonable if the options are set out clearly. In particular, the average person can be reasonable if the Government themselves show leadership.

Perhaps I may say a few words on EMU. I entirely support my right honourable friend giving the Bank of England more independence. I look forward to analysing that when the proposed Bill comes before your Lordships' House. Noble Lords will be aware that

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on balance I favour joining EMU. But I also understand--I have addressed your Lordships on this matter--that many distinguished economists take the opposite view. Therefore it is a matter of balance.

I do not wish to go over those economic technicalities again this evening. I wish to advert to two related topics. One concerns timing. I know that it is now too late, but I wish that we had put ourselves in the position of being able to join EMU as founder members. It was difficult, if not impossible, for the new Government to take that decision so soon after taking power. It was even more impossible for their predecessors to take any rational decision on Europe in their last year. But EMU will happen and I do not wish to see us again carping from the sidelines. I am not too happy with the proposition that we should wait to see whether EMU is successful and then decide whether to join. If I may put it as simply and politely as I can, that is not the most courageous approach to economic policy making. As my noble friend Lord Randall, said, if we want to be taken seriously, once and for all we must end this business of joining when the main decisions have been taken.

The country may decide not to join EMU. I do not believe, given the leadership of my right honourable friend the Prime Minister, that it will come to that view, but it might. The position of the party opposite for all practical purposes is that we should not join. In that case our place in the European Union becomes quite peripheral. In the long run the rational outcome would be to leave altogether. It is not clear whether the party opposite has thought through the consequences of the policy it has adopted. All I can say from my point of view, and from that of many of my noble friends, is that what noble Lords opposite propose on the subject would be disastrous for our country.

As an economist, it goes against the grain for me to say that the broad economic outlook is good--it sticks in my craw. But despite my professional pessimism, I am convinced that it is. But I conclude by emphasising that economic success is not an end in itself. We welcome economic success because it enables us to pursue other policies which are desirable; and in the eradication of poverty economic success enables us to do that which I regard as a moral imperative.

7.55 p.m.

Lord Razzall: My Lords, in responding on behalf of the Liberal Democrats, perhaps I may say, first, that I do not agree with the noble Lord, Lord Bruce of Donington, that there is unanimity of approach between the Tory Party and the Labour Benches. Indeed, anyone winding up a speech on behalf of the Liberal Democrats must feel rather between the Scylla and Charybdis of the other two main parties. If we may call the noble Lord, Lord Boardman, the Scylla of the Tories, he seemed to reflect the specific approach that the Tories have taken to economic policy in this country over the past few years: that the crucial issue is how to lower the tax burden. The Shadow Chancellor of the Exchequer in another place, when responding to the Statement by the Chancellor last week, seemed to indicate that that was the only critical issue that the Government faced in their economic policy, and repeated the accusation--it was

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rehearsed again this evening by the noble Lord, Lord Boardman--about the 17 taxes that new Labour has put up since coming into office.

As an aside, perhaps I may say that the Tory Government record leaves no room for complacency despite their success in persuading the public over 18 years that reductions in taxation simply meant reductions in income tax. It is now well documented that over the 18 years of the Tory Government, tax as a proportion of GDP went up rather than down. In 1978-79, the first year of a Tory Government, taxation represented 34.3 per cent. of GDP. In the last year before they left office, taxation represented 35.8 per cent. of GDP. I think that the Tory obsession with taxation is incorrect, and their record leaves much to be desired.

On this side of the House we believe that the significant question for the British economy and for the Government is not what to do about taxation but whether at this stage of the economic cycle we have the right balance between taxation policies and public expenditure policies.

Following the classical analogy a little further, reference to sirens might be a better analogy. I am sure that in winding up on the part of the Government, the noble Lord, Lord McIntosh, will indicate that the general stance the Government take will continue--that is, "Trust us, and we will deliver you the economic paradise that you seek". That will not be now, by the way, but probably at some stage round about the next election. I have some sympathy for new Labour with regard to the performance of my party since the election. We are in danger of becoming the Oliver Twist of British politics. Whatever concessions we achieve from new Labour, we always ask for more.

As regards the conduct of the Government's economic policy, perhaps I may indicate where we agree with them. There is a fairly long list. We agree with them on the idea of the publication of the Chancellor's pre-Budget paper--the Green Budget as it has been called. We shall in due course give our response to it. We agree with giving a greater degree of independence to the Bank of England. It is a policy we have long advocated. We agree with the code of fiscal stability which the Government have brought in. It is the natural companion of an operationally independent central bank. As my noble friend Lord Taverne indicated earlier, we agree in general principle with the announcement yesterday of the creation of Isas, although we would argue that perhaps the limits should be raised. In broad terms, we have welcomed extra money for pensions although we might target it differently, extra resources for childcare, and reduction of VAT on energy saving materials, for which my noble friend Lord Ezra, has campaigned for many years. We welcome the reform of the tax and benefits system to facilitate moving from welfare to work.

I suppose I should also say that we agree that in macro terms the fiscal stance that the Government are currently taking is about right. However, we note the pessimism of the current Treasury forecasts. We note that the Chancellor of the Exchequer revised down in

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July the growth forecasts for the current year from 2.75 per cent. to 2.25 per cent. and further reductions in growth, as the noble Lord, Lord Desai, indicated, for the following year. We are particularly surprised by the inflation figure for the last quarter of next year of 3 per cent. in the Treasury statistics which is significantly higher than the Bank of England forecast. As the noble Lord, Lord Ezra, indicated, if the Government believed those statistics, perhaps it is now time to start taking action for further increases in public expenditure.

Following the point that the noble Lord, Lord Bruce of Donington, indicated, that there is common ground between us, I believe that there is common ground on all sides of the House. However, if we look at the general government statistics as produced by the Treasury and all independent economic forecasters, the general government financial deficit will generate an enormous surplus in the year 2001-2002. That is arguably quite a good time in the political cycle for the Government.

Putting it into perspective, were the Government to stick to their existing forecast spending plans, it would indicate a £20 billion surplus on the PSBR in today's money terms. That is about 2.4 per cent. of GDP. If we assumed even a modest growth in public expenditure plans over and above what the Government forecast, we are probably looking at a surplus in the region of £7.5 billion in that year.

Having given an encomium to the noble Lord, Lord McIntosh, in the hope that he will then take note of the areas in which we disagree with the Government, the first and most significant area of our disagreement is to follow the noble Lord, Lord Barnett, in his plea for a modest increase now in, as he described it, vital areas of public expenditure.

I shall not attempt to rehearse the arguments that were extensively debated during the last general election. As noble Lords will appreciate, the Liberal Democrats argued that if necessary we would put up income tax by 1p in the pound in order to fund improvements in the National Health Service and our school system. The reason that it would be pointless for us to continue that argument is that the Government did not accept it during the election, they have set their face against it and they were elected by a large majority. Therefore the chance of the Government agreeing in their next Budget to put up income tax in order to do what we want is pretty remote.

However, following the noble Lord, Lord Barnett, I wish to indicate within the envelope of the Government's existing spending plans that there is room for that essential expenditure now. Perhaps I may demonstrate it. First, there has been rapid announcement of a number of public expenditure initiatives by the Chancellor. On the basis of those rapid announcements, it is difficult not to lose track of the fact that, first, we have a £2 billion contingency which is left unspent in the Government's spending plans, notwithstanding their determination to stay within the Tory Government spending plans. So there is £2 billion as yet unallocated which is held in the contingency.

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Secondly, as always in economic statements and statistics, the devil is in the detail. I commend to noble Lords interested in the subject Appendix B of the Public Expenditure Statistical Analysis 1997/98 which was released at the same time as the Green Budget. It contains the Treasury figures for the current year which demonstrate that total general expenditure is likely to be nearly £1 billion lower than it was thought to be in July for the current year, primarily as a result of the £1 billion reduction in cyclical social security spending.

My submission on behalf of my party is that, first, on the Government's own figures, staying within the expenditure limits to which the Government have committed themselves--the Tory spending limits--within the overall envelope significant sums are available for increased expenditure in the next budget.

Secondly, I urge the noble Lord, Lord McIntosh, and, through him, the Chancellor, to follow the advice of the noble Lord, Lord Desai, and my noble friend Lord Ezra, that within the macro-economic framework of the Treasury statistics there is also a macro-economic argument as to why additional expenditure should start in that budget.

I agree entirely with the noble Viscount, Lord Caldecote, that much of the debate this evening has dealt with the economy in rather dry statistical terms.

In winding up, I wish to refute the remark made by my noble friend Lord Smith of Clifton to me the other day that there is no longer any poetry in economics. I wish to put into perspective what we argue for in the language of real life. When the noble Lord, Lord Barnett, or others on this side talk about essential increases in public services, we mean in real terms, in real language, such things as reducing waiting lists in the National Health Service so that, for example, more people who need hip operations can have them. We mean avoiding next spring local authorities sacking teachers because there is not enough money in the school system to employ the teachers who need to be employed. We need more children of nursery age to be given an opportunity to start nursery education at an age when it is now demonstrated that education is of major benefit for them.

We and the Labour Party used to attack the Tories for operating an economic policy in the early 1980s that destroyed the fabric of manufacturing industry. Many economists believe that manufacturing industry has never recovered from the operation of the Tory economic policy in the early 1980s. As an aside to the noble Viscount, Lord Caldecote, who argued strongly in favour of the shipbuilding industry, I must say that I suspect that one reason his hopes are unlikely to be fulfilled is because of the destruction of the capacity in the shipbuilding industry which occurred during that period. But what worries me about the position we are in now is that we are likely to face exactly the same situation in the public sector. We are likely to have the boom and bust situation in the public sector so that when teachers are sacked because of the straitjacket of government policy, those teachers will not be available in three years' time when the Government turn

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on the taps again. I very much urge the noble Lord, Lord McIntosh, and, through him, the Chancellor of the Exchequer, to take action in the next Budget.

8.7 p.m.

Lord Mackay of Ardbrecknish: My Lords, this has been the usual interesting debate that we have on economic matters. As your Lordships know, I always enjoy them. The House will not be surprised that I enjoyed them a little more when I sat on the opposite side, but on the other hand perhaps I had to listen to more criticism when I sat there.

As I said last week in response to the Chancellor's Statement, it is quite interesting to see the contrast between the upbeat message on the economy that we are now receiving from the Government and the message we received only a few months ago, when the Chancellor tried to paint as black a picture as he possibly could. Of course, he did it on purpose because he wanted to justify 17 tax rises. Those tax rises included a £5 billion-a-year Maxwell-type raid on pension funds. That and all the other taxes imposed already by this Government and the five mortgages rises that have gone with the interest rate rises mean that the average family in this country is already some £650 a year worse off.

There was absolutely no need to do any of it. I use the words of the noble Lord, Lord Healey, who said:

    "We must remember that rarely if ever has a Government had such cause to be grateful to their predecessors when it comes to the economy".

Even the noble Lord, Lord Currie, who was given the task today of introducing the debate, was tempted down the road of saying that it was an excellent legacy. He could not go that far, but he said he thought there was some truth in it. The noble Lord, Lord Jacobs, in an interesting maiden speech, if I remember his words rightly, described it as a "honeypot" situation. I must tell him that his Chief Whip, the noble Lord, Lord Harris of Greenwich, might not like such laudatory remarks about the last Conservative Government. Secondly, it was nice to hear a balanced view because the noble Lord said laudatory things about the Chancellor.

Earlier this year the IMF described our economy as showing,

    "Impressive macroeconomic performance--strong growth declining unemployment and low inflation".

I am delighted to see unemployment continuing to fall. That is something I should not like to see reversed. But I wonder for how much longer that can continue. There appear to be conflicting signals on the economic front and perhaps the Minister will tell us which we should believe.

For example, I read the other day that the Chartered Institute of Purchasing and Supply reported that growth in Britain's manufacturing sector hit a seven-month high in November. And I also read suggestions of a boom in the high street this Christmas. That looks like good news and I welcome it. However, I wonder whether Eddie George and his monetary committee will welcome it. My noble friend Lord Higgins and the noble Lord, Lord Desai, were concerned that the Bank of England

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was given sole responsibility on those matters and the only weapon it had to hand was interest rates. The thought of the noble Lord, Lord Desai, as the Governor of the Bank of England was an interesting one and I suspect would be one that would challenge the Chancellor on some of his economic policies.

My concern is that in the New Year we may see interest rates rise further. That will certainly bring about growth predictions of 1.5 per cent.--not 1.5 to 2 per cent.--in two years. The growth predictions are clearly there in the book. A growth of 1.5 per cent. will bring damaging results for employment, as was well illustrated by the noble Lord, Lord Barnett.

I see some contradictory signs to that; for example, signs which would concern Mr. Robert Owen at New Lanark, about whom we heard from the noble Lord, Lord Thomas of Macclesfield, in his maiden speech. I am sorry to see that he is not in his place. This week in Glasgow, Hussmann Europe, who manufacture refrigeration equipment, announced their closure with the loss of 300 manufacturing jobs. In Falkirk, Wranglers plant announced closure with 200 manufacturing job losses. I wonder if such closures are being repeated in regional newspapers--they are not big in absolute terms; 200 here and 300 there--throughout the country. In Scotland in the past few weeks we have seen announcements of 1,100 jobs in manufacturing industry either gone or going.

In relation to the Hussmann loss, Brian Wilson, the Scottish Office industry Minister could only describe it as "unwelcome news". If it had happened while we had been in government, his phraseology might have been a good deal stronger. On top of that, as the noble Lord, Lord Currie, rightly pointed out, we have the shadow of the Far East. I am pleased to hear that nobody tried to blame the Conservative government for that. But I wonder what is happening at the Hyundai development in Dunfermline, where the Chancellor's own constituents were looking forward to a huge investment bringing lots of jobs. I understand that on Teesside Samsung has actually withdrawn from the investment that was going to produce 2,000 jobs.

Those are real problems. I fully accept that the problems in the Far East are not the fault of the Government, but the manufacturing ones may be. For example, Wranglers are clearly saying that the problem is literally three deutschmarks to the pound. It is manufacturing and other jobs that are important. At the risk of embarrassing him, the noble Lord, Lord Peston, made that point clear last week when we were discussing welfare to work. He said,

    "Is my noble friend aware that that makes the labour force more employable"--

referring to education and training--

    "it does not make the labour force more employed ... I ask my noble friend to bear in mind that if, next year, we follow the lead of the Bank of England, which has already decided that demand is rising too rapidly--and it appears as if the Treasury believes that as well--most of us believe that, if we were then to cut back on demand for other reasons, unemployment would rise, despite everybody's good intentions with respect to the labour force".--[Official Report, 24/11/97; col.770.]

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That is the point. Whether it is welfare to work, single parents being made to look for work or the disabled being made to look for work, there must be work for them to find. That was a point made by the noble Lord, Lord Brooke of Alverthorpe, in his maiden speech, which I found most interesting as the Minister responsible for some of the changes to the Civil Service that he mentioned. I am sorry that he too is not in his place. Dennis Skinner in the House of Commons yesterday made that very telling point when he described his constituency as somewhere where there was little or no work, so what was the point of talking about people having available work. I doubt if he found Mr. Bradley's reply even vaguely satisfactory-- Mr. Bradley, who was standing in for the Secretary of State who, probably for the first time in living memory, decided to duck out of making the social security uprating Statement.

I want to turn to pensions and savings. The abolition of ACT on pensions we have already discussed. The first excuse given by the Government and repeated by the noble Lord, Lord McIntosh, was that it would encourage industry to invest rather than to pay out dividends. When challenged, they could produce no evidence and, indeed, a study by the City University Business School concluded that,

    "our analysis does not provide support for the short-termism argument and suggests that dividend payments as well as investment in R&D are distinct strategic decisions of the firm, both aimed at maximising shareholder wealth".

Indeed, my noble friend Lord Blyth of Rowington made the same point. But my noble friend did not notice and I did not notice until the other day that the argument had shifted. The noble Lord, Lord McIntosh of Haringey, said last week that the reason for the policy on pension taxation was to remove double tax credits. He did not in any way apologise for the removal of those. He said that,

    "They were an anomaly that had to be dealt with quickly".--[Official Report, 25/11/97; col. 895.]

That was a long-standing anomaly designed by governments to encourage pension savings: exempt, exempt and taxed. Now it has become exempt, taxed and taxed. The result is that people who thought they were in line for a decent pension will have to put in more money to obtain the pension they were aiming at or accept a lower pension.

In his announcement on ISAs yesterday--an announcement that oddly was not made to Parliament--the Paymaster General clawed back tax relief from between 750,000 and 1 million savers. I felt that that came pretty rich from Mr. Geoffrey Robinson, who, unlike most of the savers, is able to shelter his not inconsiderable wealth in offshore funds.

Again, the noble Lord, Lord Currie, talked of tax reforms to increase investment. That seems to be at variance with the £50,000 cap. I have no problem with encouraging people to save; PEPs and TESSAs have done just that for 6.5 million people. But we should look at the other side of the issue--namely, their pension proposals--before we pass final judgment. Savings like PEPs, TESSAs and ISAs may be used for retirement, but not necessarily. Indeed, because ISAs do not look

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as long term as PEPs and TESSAs, they appear to me to perhaps discourage long-term savings and could result in a reduction in the savings ratio.

It is saving for retirement that must be the priority. I shall reserve judgment on ISAs until I see what proposals the Government bring forward in relation to saving for retirement. It may be the former Social Security Minister speaking, but saving for retirement seems to me, above all, to be what we want.

When we look at TESSAs and PEPs and the fact that many people are now going to be taxed, the manifesto promise not to increase income tax looks like a pretty tarnished promise. Hard working, hard saving families are now to be hit on their savings just as they are being hit on their pensions. It was Polly Toynbee who said--drawn to our attention by the noble Lord, Lord Russell--"Trust them--they are liars".

I could go on to other issues but do not have the time. I wonder about working family tax credit. Will it replace family credit? Will it be on the individual or will it mean that we will have a joint assessment return? I should have thought that one of the reforms that the sisterhood--if I may call them that--so enjoyed was the reform of the noble Lord, Lord Lawson, of separate taxation. I wonder whether family tax credit will mean the return of joint assessment. I am in some difficulty in working out how it will operate if it is not on joint assessment.

I wonder too what the pre-Budget Statement meant in regard to national insurance contributions and the 10p. rate. To make one last point to the Government, if they really want to help people on low incomes who are just coming into the tax system, it is not a 10p. rate that we want--though I would welcome any reduction in taxation--it is an increase in personal allowances. That is the most direct way to help low earners out of paying taxation.

This has been, as always, a fascinating debate. We enjoyed the maiden speeches. I am looking forward to hearing the noble Lord, Lord McIntosh of Haringey, perform the task that I used to perform.

8.19 p.m.

Lord McIntosh of Haringey: My Lords, I am glad that so many noble Lords have said that this is a welcome occasion. It is indeed. We had the pre-Budget report last week, and it was obvious from the attention that was paid to it and from the concern people had that it was not possible in the circumstances of a Statement, with responses from the Back-Benches limited to 20 minutes, to do justice to the complex issues we have been debating for nearly five hours today. I am pleased that so many people from all parts of the House have felt that it was right for the Labour Party to devote one of its Wednesdays to these important issues.

It has also been valuable because of the quality of all five maiden speakers in the debate. I hope I shall be able to refer to each of them in responding to different parts of the debate, but I just wanted to pay that general tribute at the outset.

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I should like to draw the attention of the House to the wording of the Motion. It refers to "prospects". It does not refer to "forecasts" or to "targets". A great deal of debate has taken place today about forecasts and targets. My noble friend Lord Barnett--I should not refer to him because I should not refer to noble Lords who are not in their places for the closing speeches, but I just have to on this occasion--was disappointed with the forecasts which were represented in the documents produced last week. He felt that on these forecasts--this view was shared by a number of noble Lords--we were simply not going to achieve the kind of growth which is necessary to meet the aspirations of our people. I have to repeat: forecasts are not targets.

Perhaps I may illustrate that with the most familiar quotation from Marx:

    "Historians have only interpreted the world. Our task now is to change it".

That is exactly the position of this Government. We make these forecasts; we make the best forecasts we can; we have for the first time had them verified by the National Audit Office in order to make sure that the assumptions we have made--for example, about stable equity prices--are the best available to us; and then we try to beat them. That is what it is all about. If we spend too much time in forecasting rather than in action, we will be betraying the task that is in front of us. Perhaps I may move from Marx to a more modern British poet. In Non Cogunt Astra, Robert Graves wrote:

    "Come, live in now and occupy it well. Prediction is no alternative to forethought".

I have said a few words about the future. As to the past, I think it would be as well for all of us to abjure self-congratulation, either for the achievements of the past seven months or of the past 18 years; or indeed of a much longer period. Economic history does not come in bite sized pieces. It happens over a period of time. Very many of the things that happen in economic history seem to bear remarkably little relation to the party of the day in political power. The changes that have taken place in our economy have been changes from the Industrial Revolution to the post-Industrial Revolution, the oil price changes of the early 1970s, and the rise--and perhaps the plateauing--of the Asian economies. All of those have happened independently of the party which happened to be in power. I do not think it is fruitful for us to spend time in abusing each other or praising ourselves.

Nevertheless, it is necessary to say that there was general agreement, with the exception of the noble Lord, Lord Boardman, that our economic prospects are good--he described them as cloudy, which I thought was hedging his bets rather. There has been a danger of mixing up the economic prospects for the country as a whole and the financial prospects for the public sector and for government. I have seen that confusion in a number of speeches. But I shall not specify them.

So far as concerns the economy as a whole and central government, there have been warning signs to which the Government have had to pay attention. It was the case that the Bank of England warnings that interest rates needed to go up to get the economy back on track were ignored in the latter part of 1996 and the early part

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of 1997. It was the case--it has been the case for many years now: this is an underlying problem with which we have to deal--that one in five working age households have no one earning a wage, and that unemployment, particularly among young people, and long-term unemployment, are persistent and very hard to fight. My noble friend Lord Bruce of Donington made that point with his usual forcefulness. We cannot ignore the fact that our productivity levels, despite any improvement there may have been, are still up to 30 per cent. below those of the more successful economies.

There is a whole range of policies that we have to adopt in order to deal with those. I shall expound on as many of them as I can. However, the first fundamental thing the Government have to do is to convince the country, business people and the world that we mean what we say about putting into place long-term policies. That means--I pay tribute to the noble Lord, Lord Ezra, and to the noble Viscount, Lord Caldecote, for their references to this--that we must systematically remove the barriers that hinder both growth and job creation, and that we must build a new partnership between government, the people and business. In this respect my noble friend Lord Thomas of Macclesfield made a very effective speech about what he called the "inclusive" approach. My noble friend Lord Longford made the same point. It is no good us treating government as some kind of independent arbiter. We have to be in there fighting with business and with people in order to achieve what we need to achieve.

That kind of inclusive approach--if I may use the word of my noble friend Lord Thomas--is necessary to promote economic and social stability, high long-term growth, employment opportunities for all and a fair tax system. In order to achieve those, I hope noble Lords in all parts of the House will agree that we have at least been trying to create a more open style of government based on wider consultation and greater transparency in policy rules.

The noble Lord, Lord Higgins, curiously to my mind, questioned whether there was any consultation in what was said in the pre-Budget report. I thought there was a mass of consultation--an almost overwhelming mass of consultation. There was consultation on corporation tax reforms last week; on individual savings accounts yesterday--I point out that individual savings accounts are not firm proposals: it is a consultative document. There was consultation on options for water pollution last week; on charities, in the review that was announced in the July Budget; on the enterprise investment scheme and venture capital tax; on the North Sea oil taxation review which we have announced; and on capital gains tax. I wonder how much more consultation the noble Lord wants. Sometimes I think we are drowning in consultation. The noble Lord, Lord Ezra, was closer to the mark when he applauded the Government for the amount of consultation that we were involved in.

Above all, this consultation is designed to underline our commitment to economic stability. We have already outlined the five key principles which will guide fiscal policy. They are: transparency, stability, responsibility, fairness and efficiency. They have been reinforced by the code for fiscal stability to ensure that our fiscal

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policy is in line with these principles and in Britain's long-term interests. I still disagree with the noble Lord, Lord Higgins, about that. The Gramm-Rudman Act was more notable for its abandonment in the face of fire than by any conspicuous or continuous success. We set our sights much more by the Australian and New Zealand models which involve legislation which is slightly less level than the Gramm-Rudman Act.

As regards the promotion of growth, a number of noble Lords have quite rightly drawn attention to the need for higher quality investment in both the public and private sectors. I am surprised at the coolness of the response to some of these issues because business spokesmen have been very welcoming of our measures, particularly those that relate to advance corporation tax. Together with the abolition of that tax and the reduction of corporation tax itself, there has been a move to quarterly payments. I remind your Lordships that those payments will only be required of large companies who make more than £1.5 million in profit in any given year. That is only 11 per cent. of all companies, although I recognise that it is a very much higher proportion--more than 80 per cent.--of tax revenue. There are 350,000 small companies who will not be affected by quarterly payments and 15,000 medium-sized companies will have a regime which is tempered for them.

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