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3.55 p.m.

Lord Eatwell: My Lords, we have heard a notably informative speech from the noble Earl, a speech full of apparent good news. It contained passage after passage full of cheery optimism and hope. It contained a myriad of facts. It contained not a single coherent new idea.

The noble Earl began by saying that he would look backwards. But there was no analysis of the cause of the recession from which we have now emerged; there was no indication of which discredited economic ideas have been abandoned; there was no indication of what exactly the current intellectual parameters of the Government's policy might be; and there was no inkling of how exactly the Government are going to ensure that the current recovery is sustained and that we do not slip back into recession. And there was no analysis of the Government's policies towards the European Union.

I can see that no one today expects the Government to be able to present a coherent policy on Europe. The Chancellor of the Exchequer is an enthusiast for monetary union. The Secretary of State for Employment is opposed to monetary union. The Prime Minister, as has become customary, seems to believe one thing on one day and another thing on another. It would be quite unfair of me this afternoon to expect logic or coherence in the midst of a family quarrel which has now gone as far as a suicide pact.

However, we might hope for coherence elsewhere. We find none. The gracious Speech declares that the Government,

At the same time the Government boast of two years of interest rate cuts, beginning when inflation was double what it is now. Was that firm financial policy?

The gracious Speech declares:

    "Fiscal policy will continue to be set to bring the budget deficit back towards balance over the medium term".

Yet the Budget Red Book directly contradicts that proposition. It says that the Government are determined,

    "to ensure that when the economy is on trend the public sector borrows no more than is required to finance its net capital investment".

Which is it? A balanced budget or borrowing to pay for investment? Should we not be told?

Throughout the Government's presentation of economic policy there is the ambiguity and uncertainty which is the inevitable result of a lack of coherent ideas. Lacking any clear analysis from the noble Earl of what has happened, we must go in search of the economic policy which has produced all the good news with which he sought to cheer us up on this dull November afternoon.

With the aid of the most powerful analytical tool available to economists, namely hindsight, it is not difficult to work out what the Government's economic policy has actually been. First, the Government devalued the pound; secondly, they raised taxes which, by cutting living standards, ensured that resources were

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available to the export industries; and thirdly, they had a stroke of good luck. A world-wide slump in raw material prices took the sting out of any inflationary pressure which the devaluation might have created. That is how the Government did it. Do they intend to continue the policy stance which has brought the good news which the noble Earl assailed us with? Are we to expect more devaluation and higher taxes with fingers crossed for continued impoverishment in the third world which ensures ever lower materials prices? That has been the policy for the past two years.

Why did not the noble Earl boast about the devaluation and higher taxes? Why did he not tell us, as Mr. Maples does in his famous memorandum, that real take-home pay is falling this year and "will fall again in 1995-96"? Why did not the noble Earl tell us that the result of the Government's policy, as Mr. Maples put it, will be,

    "four or even five years of recovery with no rise in living standards"?

Perhaps it is because the noble Earl realises, as so many are coming to realise, that instead of creating new strengths for the British economy the recovery from recession has exposed the weakness of the economy--a weakness which the policies of the past decade have created.

What is really happening has been identified precisely by the Engineering Employers' Federation. The EEF says:

    "Today there is a real danger that recovery from deep recession will be seen as evidence that the UK economy is healthy and that no further policy changes are needed. The EEF does not agree. The cyclical economic recovery which is now happily occurring will not be sufficient to ensure continuing growth of employment and living standards. For sustained future growth it will be necessary permanently to increase investment, by a large amount".

In the past 15 years Britain has had the lowest rate of investment among the major industrial countries. That persistent low investment--low investment in capacity, skills and new techniques--means quite simply that while our trading sector may be efficient, it is far too small. And the problem is getting worse. Despite the strong overall growth of the economy, gross fixed capital formation is today falling. Even more serious, given the importance of manufacturing in our international trade, investment in manufacturing is not only falling. It is now, in real terms, 30 per cent. below the levels achieved in the 1989 boom. Indeed, investment in manufacturing is now well below the levels of 1979.

British business is showing its total lack of confidence in the Government. British business is not investing. Everyone knows that if we do not invest, growing demand cannot be met. Of course, in the short run, extra shifts can be worked with existing machinery. More overtime can be worked by skilled workers. But there is a limit, and without investment Britain reaches that limit all too soon with serious consequences both for the balance of payments and the rate of inflation. That is why living standards, as Mr. Maples put it, will continue to fall.

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So what is the Government's policy on investment? The noble Earl told us a lot about export and information services of the DTI. He told us about the DTI's role as a travel agency, taking businessmen to Japan. But when will the Government do something concrete? Are the Government themselves willing to take a lead by launching an investment programme to tackle the high infrastructure costs which place such a serious burden on the competitiveness of British industry? Are the Government at last prepared to face up to the serious deficiencies in Britain's investment in education and skills training in comparison not only with our European partners but also with the East Asian tigers like South Korea or Taiwan?

The answer to those questions is all too clear. Only this Monday, on the very day the German Government announced the creation of a Ministry of the Future, combining education, science, and research and technology, and dedicated to placing Germany in the forefront of world innovators, the President of the Board of Trade declared that he would commit the rest of his political career to converting the "last tiny rump" of Tory MPs who wrecked his plans to privatise the Post Office. That is his priority. That is his approach to investment in the Post Office, a vital part of Britain's communications infrastructure, whose importance is paramount for every industry in Britain.

The Government are simply unwilling to amend the Treasury rules to allow the Post Office to raise capital and operate freely. To do that would draw into question the rationale of their mindless privatisations, not only of the Post Office but of the railways too. How many noble Lords have taken the new Eurostar train to Paris and experienced the awful feeling of national shame as the train crawls from Waterloo to the Tunnel before speeding to Paris on the French side? Instead of a rational policy which allows the public sector industries to operate freely and compete according to sound commercial criteria, building alliances where appropriate with private sector investors--a policy which the Labour Party has consistently advocated--the Government prefer dogma.

If they are so dogmatically opposed to public investment, surely the Government must be doing something to boost private investment and help the growth of small firms on which so much of the necessary job creation and technical creativity depends. Something more than just information services is needed. Again, dogma has triumphed over any attempt to construct a practical policy.

As we learned over the summer, the Treasury is steadily (with due apologies to the noble Earl) emasculating the DTI. The boyish figure of the then Chief Secretary simply told the distinguished President of the Board of Trade that he could not have his regional incentives, and that was that. The DTI launched a study of competitiveness. It was a notable damp squib. Then the DTI launched a study of dividends and investment. What happened to that? When will it be published? Will the noble Viscount tell us? The truth, as he knows, is that it will never be published.

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Indeed, the Treasury has cut the DTI down to size. Last year's Red Book revealed that in real terms the budget of the DTI would be cut from £3.5 billion in 1993-94 to £2.1 billion in 1994-95, to £1.6 billion in 1995-96 and to £1.2 billion in 1996-97--a department shrunk to just a third of its former size in four years. That will teach the President of the Board of Trade to say that he would intervene between meals. What a sad end for an ambitious president--Tarzan replaced by the Incredible Shrinking Man.

The DTI is not the only department which is being cut. The Red Book plans indicate major cuts in the Department of Employment too. No doubt Mr. Portillo will be asking for even greater cuts. At a time when our international competitiveness depends more than ever before on the quality and talents of our labour force the Government are obsessed with a labour market strategy which maximises uncertainty, exacerbates the poverty trap and penalises the unemployed. More time is spent by the Department of Employment on monitoring and penalising the unemployed than in helping them to retrain.

So here at last we have a policy. In the name of "flexibility", the Government are dismantling the employment rights of workers, denying them consultation, and denying rights for women and the disabled embodied in the social chapter of the Maastricht Treaty. They have stripped away minimum wage protection for those on poverty pay.

I hope that we hear nothing today from the Government side of the demonising slogan that workers' rights "destroy jobs". Not only does it ill behove a Government who have presided over record levels of unemployment to talk about others destroying jobs, but also all the evidence indicates that the deregulated, so-called flexibility strategy is profoundly inefficient. For example, in the deregulated services sector in the United States, there has been no productivity growth for the past 20 years. In the deregulated US construction industry, productivity growth has been negative over the past 20 years. In Europe, both sectors have enjoyed high rates of productivity growth. The reason is simple to see. A labour market policy which increases instability and uncertainty necessarily undermines investment in skills by firms and by their workers.

Today the Labour Party is publishing a new fair contract with the unemployed. We are committing ourselves to a package of measures which will create true flexibility, including, I can announce, a national insurance holiday for employers who hire people unemployed for over one year, and a tax rebate of up to £75 a week for six months to any employer who takes on a person who has been out of work for two years or more.

True flexibility, true efficiency, derives from a well-trained, secure and self-confident labour force which feels involved and committed to the enterprise in which it is employed. That is Labour's goal. By contrast, the Government's policies have done nothing but undermine the creation of a world-class labour force in this country.

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So there we have it. For the past two years the economy has been successful because the Government have pursued a policy of devaluation and higher taxes, which they avidly declare they do not believe in. But even that transient success cannot be sustained without higher investment. Yet investment is falling and the Government have no policy whatever to do anything about it.

Britain desperately needs a government committed to investment and industrial prosperity; a government, most of all, whose policies are built on the long-term approach that every industrialist knows is the key to building economic success. Instead, we have a Government committed to a suicide pact in a desperate scramble for short-term survival. The sooner that pact is put into effect the better for Britain's economy.

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