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Baroness Chalker of Wallasey: My Lords, the noble Lord, Lord Judd, is right about seeking to strengthen the working of the Lomé Convention. However, we must ensure that the European Union makes its programmes

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as effective as possible. I noted, in the evidence to the House of Commons Select Committee on Foreign Affairs, that the European Commission said that:

    "Only a third of its projects and programmes go well; around one-third are satisfactory but not brilliant and about one-third are not good value for money."

The noble Lord will, therefore, understand why I am keen to improve the situation. He is absolutely right that trade access to those countries is critical. That is why I have argued consistently that we should discuss the matter in detail, and I shall continue to do so.

I believe that the peaceful transition of the countries of eastern Europe and the former Soviet Union is important, but we must also keep up the good progress which is being made by many of the African countries. That means that we must cut our coat according to our cloth and not make decisions which we cannot afford to fulfil. We must bring a balance to the situation.

Lord Ennals: My Lords, is the Minister prepared to give the figures which would indicate the priority which the Government give, first, to Lomé and, secondly, to projects through the European Community? Can she indicate whether the figures are on an upward or a downward trend, showing the degree of commitment to which she referred?

Baroness Chalker of Wallasey: My Lords, I cannot give the noble Lord the exact figures without notice. However, obviously the Berlin Wall only fell in 1989 and before that the European Union and we ourselves could not give help to the eastern European and former Soviet Union countries. Thus, those figures are inevitably on an upward trend, although not a continuing upward trend. The figures for the poorest countries of the world remain approximately level with some changes, according to the different projects that arise at any one time. The figures given for the poorest countries, particularly through special programmes for Africa and the assistance programmes other than that of the European Union, show an increase. It is important that they continue to do so and I shall write to the noble Lord with the details.

Lord Acton: My Lords, does the Minister agree that Britain and all the countries of the European Union wish to assist in the development of post-apartheid South Africa? To that end, during the course of the current Lomé 4 mid-term review, will the Government do their utmost to ensure that a clause is inserted to enable South Africa to form the closest possible relationship with the Lomé Convention?

Baroness Chalker of Wallasey: My Lords, as a close friend of South Africa and its new government, we have been discussing what relationship is in the best interests of South Africa, both directly with bilateral donors and with the European Union. As the noble Lord may know, £100 million of UK aid is committed to South Africa, £60 million of which is bilateral aid. However, Ministers in South Africa are not yet fully agreed upon the

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relationship with the Lomé Convention. They will want trade access and help and Britain is already giving a major part of that help.

Baroness Elles: My Lords, will my noble friend confirm that the European Development Fund, which provides the funding for the Lomé Convention, is not subject on any occasion to democratic control either by the European Parliament—because it is not in the European Community budget—or by a national parliament under present circumstances? Does my noble friend agree that the matter should be closely examined in order to encourage certain projects not to waste taxpayers' funds throughout the Community?

Baroness Chalker of Wallasey: My Lords, as my noble friend will know, I have sympathy with her view that we should have better control of European expenditure of aid money. We started a Horizon 2000 work programme under our 1992 presidency because we believe that if we could achieve greater co-ordination between the Commission and the member states we would not only make better use of EDF, but would also have better results. That is proceeding, albeit too slowly. I believe that the debates now taking place between our 14 partners and ourselves with the Commission will lead to improvement. However, as the commitment will be decided upon voluntarily, it will also be up to us to argue in the development council the best way of spending the money.

The Lord Bishop of Oxford: My Lords, does the Minister believe that adequate mechanisms are in place for considering the effect of European trade policies on the economies of the developing world? Does she believe that such effects are properly considered and taken into account in the formulation of policy?

Baroness Chalker of Wallasey: My Lords, I wish that there had been a debate when we were last in Brussels ready to discuss the matter. I sought to persuade members of the ACP and the EU to engage in a debate. The two chairmen declined, even though all our friends in the ACP wanted a discussion about trade. I do not believe that the trade discussion is as adequate as it needs to be.

Lord Ashley of Stoke: My Lords, how does the Minister reconcile her first Answer about the Government remaining committed and having aid as a high priority with the undoubted fact of the diversion of resources to the Soviet Union and eastern Europe? Is it not a fact that finances to the third world are being cut? Statements by the Minister that we must cut our coat according to our cloth ignore the fact that the cut has taken place. It is the Government's responsibility to restore the cut.

Baroness Chalker of Wallasey: My Lords, the noble Lord, Lord Ashley, has omitted to note that there is not only an increase in what we spend but also a continual increase in the European development funds. I remind him that the seventh programme now in operation has an increase of over 45 per cent on the sixth programme which operated at nearly a 40 per cent. increase on the fifth programme. So there is no question but that those

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countries are receiving attention. However, we cannot close our eyes to the fact that eastern Europe and the former Soviet Union also need help. I said that we must achieve a balance and we are striving to achieve that now.

Viscount Waverley: My Lords, would it be a more effective use of resources if the ACP secretariat were urged to reassess its capacity for efficient delivery in terms of its role as facilitator to ACP countries in this critical period of the Lomé Convention?

Baroness Chalker of Wallasey: My Lords, it is important that the ACP countries and governments are kept well informed by their secretariat about all aspects of the convention. We must help to bring that about.

Lord Judd: My Lords, does the Minister accept that in the European programme it is not a matter of quality against quantity, but the need for quality with quantity? Is not her real problem that, despite her valiant efforts, both multilaterally and bilaterally the British aid programme has been steadily decreasing as a proportion of GNP and is set to fall in real terms over the next four years?

Baroness Chalker of Wallasey: My Lords, there are many problems in helping the third world. We must give quality and ensure that it is effectively targeted.

Pensions Bill [H.L.]

3.18 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the amendments for the Report stage be marshalled and considered in the following order:

Clause 1,

Schedule 1,

Clauses 2 to 13,

Clauses 85 to 98,

Clauses 14 to 70,

Schedule 2,

Clause 71 to 84,

Clauses 99 to 110,

Schedule 3,

Clauses 111 to 114,

Schedule 4,

Clauses 115 to 131,

Schedule 5,

Clauses 132 to 148,

Schedule 6,

Clauses 149 to 153,

Schedule 7,

Clauses 154 to 157.—(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.

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Income and Wealth: Rowntree Report

3.19 p.m.

Lord Eatwell rose to call attention to the Rowntree Report on Income and Wealth and the effect of inequality on Britain's economic and industrial strength; and to move for Papers.

The noble Lord said: My Lords, the publication of the inquiry into income and wealth by the Joseph Rowntree Foundation marks an important and, indeed, chastening moment in the social and political life of our country, for this deeply disturbing report demonstrates beyond all reasonable doubt that over the past 16 years there has been an extraordinarily sharp increase in inequality in Britain. The increase has been so sharp that the real incomes of 20 per cent. to 30 per cent. of the people in this country have actually fallen, or at best failed to rise, even though the economy as a whole has grown by over 30 per cent. That large minority of the British population has not benefited from the economic growth of the past 15 years. Instead, they have been left behind, left out, marginalised, and typically concentrated in decaying areas in which economic and social problems have proliferated.

It is worth quoting the report at length. It states:

    "a substantial proportion of the population is unable to afford the goods which the majority ... regards as basic necessities ... many of those dependent on state benefits —particularly for long periods—are unable to make ends meet, or are doing so by accumulating ever higher levels of debt and arrears. If such low incomes were a temporary phenomenon, there might be less cause for concern, but there is disturbing evidence that lengths of time with low incomes, for instance because of lack of work, are becoming longer. Low levels of income are disturbingly correlated with poor health and high mortality".

The report argues, quite rightly, that the rapid increase in inequality is something which concerns us all. It states:

    "Regardless of any moral arguments or feelings of altruism, everyone shares an interest in the cohesiveness of society. As the gaps between rich and poor grow, the problems of the marginalised groups which are being left behind rebound on the more comfortable majority ... unless something is done to reintegrate these groups, all of society will end up by suffering the consequences. The very richest may be able to build walls around their suburbs, but most people cannot. It is only necessary to look across the Atlantic to the USA to see the consequences of an impoverished minority for the quality of life of the majority".

I have quoted these sections of the report at length to stress the fact that, while it demonstrates that inequality has increased unambiguously throughout society, with income differentials among the employed and the non-employed widening, the report's principal concern is with the living standards and life opportunities of the poorest. I stress this point because, when the report was debated in another place a fortnight ago, there were quite disreputable attempts to discredit its findings as "the politics of envy". Nothing could be further from the truth.

The Rowntree Report contains an enormous quantity of carefully presented statistical argument which it is impossible even to summarise adequately in a single speech. I am sure that noble Lords will range widely over the information in the course of the debate this afternoon. But two characteristics of the changes in UK

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income distribution are worth emphasising. First, the rapid growth in inequality over the past 16 years more than reverses the gentle trend towards equality which has been evident since the Second World War. The overall result is far greater inequality than at any time in the past 50 years. Secondly, growing inequality in the 1980s was not an international phenomenon. Although inequality grew in many countries, in others inequality was reduced. Inequality increased in Britain faster than in any other advanced country except New Zealand. The absolute increase in the standard measure of inequality in Britain was more than double the largest increase anywhere else in the advanced world.

Before turning to the reasons why inequality has increased, it is worth considering for a moment the important misconceptions and criticisms of the report that were made, most notably by Mr. Peter Lilley, when it was debated in another place. It is worth noting that Mr. Lilley failed to make clear in his speech that virtually all the statistical material contained within the report was derived from official government publications and used a methodology proposed by government statisticians. Indeed, Volume 2, which contains the details of the analysis, was made available to Mr. Lilley's department prior to publication and was checked by his officials. It should also be noted that the conclusions of the study are the agreed views of the entire inquiry group, including Mr. Michael Bett, the deputy chairman of British Telecom, and Mr. Howard Davies, the director-general of the CBI.

Unable to refute these basic statistical findings, Ministers in another place attempted to obscure them by making a series of quite irrelevant points. For example, it was stated on several occasions by Mr. Lilley that average incomes increased in the 1980s. They did—but that is irrelevant to the issue of inequality. Let us suppose for example, that the entire growth of the British economy since the Industrial Revolution had accrued to the family of the noble Lord, Lord Mackay of Ardbrecknish, alone, leaving the rest of the entire population of Britain living in grinding 18th century misery. The average growth of the British economy would have been exactly the same; but the distribution of income would have been quite different. So I hope that we hear nothing today about the performance of averages, whether it be the average income of production workers, pensioners or any other average. They are quite simply irrelevant.

Another attempted smokescreen was the argument that, since the poorest groups in society have acquired a number of consumer durables such as washing machines or televisions, they cannot possibly be as badly off as the statistics suggest. That argument is also bogus. It so happens that the prices of consumer durables have fallen sharply relative to other consumer goods over the past 20 years or so. People have accordingly bought more of them and fewer other goods. These effects are already incorporated in the price index which is used to measure the real incomes of the poorest groups. They are already taken account of. To pick out one item of expenditure from the rest is a totally misleading exercise.

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Yet another smokescreen was Mr. Lilley's argument that society is mobile, and the membership of the poorest groups is not constant. That was as true 16 years ago as it is today. As the report makes clear, mobility out of the poorest groups in society is today less than it used to be.

Finally, in this litany of half-baked excuses, there has been a lot of cant about whether inequality is absolute or relative. As we have already seen, the point is largely irrelevant, because much of the focus of the Rowntree Report is on the fall in absolute real incomes of the very poorest groups. But it is worth a moment's consideration.

Let us consider the relevant example of transport. In the 1950s, when there were few private cars, there was an abundance of cheap public transport which those on above average and below average incomes could use and would use. Today, most can afford a car. Public transport is limited and expensive. That severely reduces the living standards of the relatively poor, who are forced either to buy a car that they cannot really afford or not to travel at all. Relative poverty is, in these important respects, absolute poverty. Therefore, I hope that we shall hear none of those bogus excuses from the Government Benches this afternoon. Indeed, I hope the Minister realises that the Government's search for excuses in this matter is thoroughly offensive to the British people. I hope that the Minister will accept the findings of the report and tell us what practical steps are proposed to reduce the massive increase in inequality which has occurred during this Government's time in office.

The report makes clear that there are a variety of factors which have contributed to the growth in inequality, some of which are the direct outcome of government policy. Others, of which the links are less direct, on careful examination, are the Government's responsibility too.

First, higher unemployment and a number of demographic and social factors mean that more people have become dependent on state benefits. Since the Government have chosen to link benefits to prices and not to earnings, the gap has widened between those on benefit and those with earned incomes. Secondly, changes that the Government have made to the tax system have robbed taxation of its earlier automatic tendency to reduce inequality. Instead, the burden of taxation has shifted from higher income groups to lower and middle income groups. Also, differences in earned incomes have grown rapidly. Since 1978, hourly real wages for the lowest paid men hardly changed at all, while top wage earners have enjoyed real increases of about 50 per cent. For households that increasing inequality of earned incomes has been reinforced by the trend towards work-rich, two-earner households and at the same time towards more work-poor, no-earner households. Moreover, the changes that the Government are introducing into the pension system, moving from the pay-as-you-go state pension to funded private pensions, will result in the growing inequalities of earned income being translated in later years to growing inequalities of pension income.

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Given that so much of the increase in inequality has been the direct outcome of government policy, the crucial question which the Government must answer is why they allow that to happen. What justification is there for it? For example, has the increase in misery and deprivation brought with it superior economic performance? The question we need to confront is whether inequality is efficient.

It is well known that greater inequality brings in its wake deterioration in health. Across the advanced countries the more unequal a country may be, the lower will be its life expectancy, the higher will be the mortality and the worse will be its general standards of health. Inequality makes us sick and inequality kills. It is also well known that greater inequality is associated with rising crime. That is hardly surprising when inequality marginalises whole communities, destroying their stake in society.

Ill health and rising crime impose heavy economic burdens on our society. In that sense inequality is clearly inefficient. But I want to concentrate this afternoon on the more narrow economic issue of the impact of the increasing inequality among wage rates and earned incomes. Is that efficient? In this case, is increasing inequality simply the outcome of the logic of efficient market forces? The Chancellor of the Exchequer clearly thinks it is. In his Mais lecture entitled "The Changing World of Work in the 1990s", delivered on 4th May last year, Kenneth Clarke argued that the widening of pay differentials in the 1980s was, "inevitable and probably desirable". Moreover, he stated that no one knows how far the gap between the highest paid and the lowest paid will continue to widen.

In his lecture the Chancellor made clear that the increasing inequality is the result of government policy, and he is proud of it. Wage bargaining is more flexible and decentralised so that pay is now increasingly market-determined, he declares. Market mechanisms are the key. To give him his due, the Chancellor also argued that market-determined inequality should be alleviated by a strong welfare state. He argued that the urban underclass is a major plague in American society. It is thanks to our welfare state that an underclass on that giant scale has not yet developed in Britain.

Surely the Chancellor's position is now hardly sustainable, given that the Rowntree Report revealed the truth of what is really going on. Indeed, the Chancellor's advocacy of the need for a comprehensive welfare state is disingenuous. There is a key contradiction in his argument. As he makes clear, the American labour market is the model for the deregulated flexible market he wants to create in Britain. But the high levels of employment in the United States derive exactly from the absence of any comprehensive social support. When, as is the case in many US states, there is little or no unemployment benefit, there will be no unemployment. It is as simple as that. People must scrape by somehow and, far from boosting economic efficiency, the American case is extremely inefficient.

Productivity growth in the United States in the 1980s was the lowest in the western world. Indeed, productivity growth in the American services industry has, for the past 20 years, been zero—hardly a model of

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economic efficiency. The American culmination of social deprivation, crime, falling health standards and negligible productivity growth shows us exactly what could happen here if the Government's policies continue in their current direction. The urban underclass is an essential component of American employment policy—the policy which the Chancellor wishes to pursue.

It is not only in America that Kenneth Clarke's core proposition that increasing inequality is inevitable and probably desirable is revealed to be false. A recent Columbia University study of growth in 65 countries over the period 1960 to 1985 reached the unambiguous conclusion that countries where income is more equally distributed also grow faster. That finding was supported by the World Bank in its 1991 world development report. The World Bank argues that there is no evidence that income inequality leads to higher growth. If anything, it seems that inequality is associated with lower growth.

The Chancellor has got it spectacularly wrong. Far from increasing inequality being "probably desirable", it is associated with lower growth of output and productivity. Inequality is inefficient. A careful examination of what has happened in this country reveals some of the reasons for this. An important element in growing inequality in earned incomes has been the collapse in full-time employment for men as huge sections of British manufacturing industry have been allowed to decline—a conscious policy of Mrs Thatcher's Government, it should be remembered.

If the reaction to the competitive pressures associated with the fall in manufacturing employment is to allow inequality to increase, a self-reinforcing spiral of inequality and inefficiency is put in place. First, increased impoverishment of parents is associated with the deteriorating educational achievements of their children. As government figures reveal, of today's British workers whose parents were unskilled manual workers, 60 per cent. have no educational qualification at all and only 3 per cent. have a degree; whereas of those whose parents were professionals, only 7 per cent. have no qualification at all and 32 per cent. have a university degree. That waste of talent is handed down from generation to generation and as inequality increases, so the waste increases also.

Secondly, as inequality increases and wages fall, there is a powerful disincentive for employers to invest in new technologies or in the skills of their labour force. If they try, they will simply be undercut by those who fail to invest and who secure competitive advantage through the use of cheap labour. Low wages are a means of keeping inefficient employers in business and penalising the efforts of employers who would seek to compete upmarket.

Thirdly, as the stock of skills is in increasingly short supply, inflationary pressures in the labour market increase and those inflationary pressures can only be contained by higher levels of unemployment, increasing inequality yet further. On the supply side therefore, and on the demand side, inequality and inefficiency reinforce one another in a deadly downward spiral. As the inefficiency grows, the competitive strength of the

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nation declines, jobs are lost and the potential for inflation increases. That process is neither inevitable nor desirable.

The cycle of deprivation, loss of skills and increasing inequality can only be broken if action is taken at every point in the chain. A direct attack on poverty itself is necessary to reintegrate the large marginalised group back into society, and that needs to be combined with high quality education and training. Too often services for the poor are poor services. At the same time, every incentive must be given to employers to invest in high quality training and in the latest techniques.

I have focused on one aspect of the growth of inequality in our country—the growing inequality among earned incomes. I did that not just because there happens to be a particularly clear statement of government policy by the Chancellor of the Exchequer, but also because it is an area in which the Government's policy is so obviously wrong. By reinforcing inequality, they are reinforcing inefficiency.

The Rowntree Report contains a large number of broad, mutually reinforcing proposals for addressing the problem of inequality in all areas and from wherever it may come. A more comprehensive analysis along exactly the same lines is provided by the outstanding study entitled Social Justice produced by the independent Social Justice Commission established by the late John Smith. In both cases what is provided is a long-term strategy for tackling the inequality and inefficiency which are blighting our economy and our society. As both reports made clear, there is no quick fix; there is no simple, costed programme on offer. Those who call for such quick fixes either do not understand the scale of the problem in our country or are deliberately trying to obscure it.

The Rowntree Report concludes:

    "At present too much public spending is directed at paying the costs of failure rather than in promoting future success ... Public spending appears to have got into a trap, where short-term savings have had long-term costs, in turn creating pressure for later short-term savings, in a continuing spiral".

We must escape that trap. We need a new, comprehensive approach to tackling inequality, which is the source of inefficiency, and inefficiency, which is the source of inequality. The great Conservative economic and social experiment of the past 16 years has been an appalling failure with terrible consequences for millions of people in this country. That failed economic and social philosophy must not be allowed to blight our children's future, too. My Lords, I beg to move for Papers.

3.40 p.m.

Lord Jenkin of Roding: My Lords, I am sure that the whole House will be grateful to the noble Lord, Lord Eatwell, for giving us the opportunity to put the Rowntree Report under a more critical examination than he and a number of his right honourable and honourable friends in another place have chosen to do. The noble Lord seems to have accepted the entire argument hook line and sinker with no sort of recognition of some of

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the flaws and failings in the methodology of the Rowntree Report. Not surprisingly, that has led to some pretty strange conclusions.

As we have limited time, I shall not attempt to follow the noble Lord in all his arguments. My examination of the report has led me to agree with a recent writer on the subject who described it as being "deeply flawed". Those are not my words but those of Daniel Finklestein of the Social Market Foundation. That is an organisation which both the Labour and Liberal Democrat party have been very pleased to quote when producing arguments in their favour.

I argue that the report is deeply flawed for three very clear and specific reasons. The noble Lord, Lord Eatwell, made the point that of course the figures are based, as so often they are, on government statistics. But on what government statistics? The first point that one notices is that in attempting to develop arguments about inequality and poverty, all the figures in the report leave wholly out of account any of the benefits in kind which are enjoyed by the population. By that I mean the benefits of a free health service, a free education service, free school meals for the poorest, housing and travel subsidies and all the rest.

I am very interested to note that the noble Lord, Lord Diamond, has put down his name to speak later in the debate. There have been many times when he and I have found ourselves opposite each other in another place when he has sought to persuade the House that one cannot look at prosperity and wealth simply in terms of income; one has to take account of the benefits of public service. Since that is one of the principal instruments of redistribution of wealth, it is a pretty damaging blow at the thesis of the Rowntree Report which says nothing about it at all.

As the whole House will recognise, the percentage of the final household income represented by the benefits in kind I have been describing, varies enormously. Of the lowest income households, the poorest 20 per cent., the figure is close to 50 per cent. of the value of their household "income". The actual figure is 48.3 per cent. There is a net value per household of about £3,610. For the top 20 per cent., the percentage is only 6 per cent. of their "income", the actual value is smaller in being just over £2,000 per household.

The report, which was intended to be about poverty and inequality, has ignored this crucial element in the standard of living of families which is the biggest single source of the increased standard of living of families in recent years. The noble Lord will know that as regards health, education and all the other public services, expenditure has soared to the benefit of the poorest families in many cases. That is the first fatal flaw in the Rowntree Report.

The noble Lord did at least touch on the argument that the Rowntree Report concerns only income. It does not seem to take any account of what are the visible factors this year in the standard of living of the poorest families in the land. He went so far as to say that the arguments based on what people actually spend their money on is bogus. The noble Lord will recognise that that cannot be right. When one looks at the Government publication Social Trends, one finds some quite

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remarkable figures as to what has happened to spending at all levels on some of these desirable products which people now have in their households.

Taking the Social Trends figures at random, in 1972 42 per cent. of households had a telephone. Ninety per cent. of households had a telephone in 1993 and I expect the figure is now higher. Many housewives regard a washing machine as an absolute necessity as part of the standard of living. In 1972 the figure was 66 per cent. and in 1993 it was 88 per cent. The figure for households with a deep freeze or a fridge freezer used to be below 50 per cent. in 1981. It is now nearly 90 per cent.

I see the noble Lord grin; but the fact of the matter is that those are the products on which people are spending their money. That applies not just to the top 80 per cent. of the population, but goes right down to the very poorest families in the land. The noble Lord did not say very much about poverty; he talked about inequality. In some cases he seemed to regard inequality as the source of poor health and poor education; it is not, it is poverty. If the noble Lord had directed more of his remarks towards poverty, perhaps there might have been a greater readiness to follow him on that. Fatal flaw number two therefore is that the report takes absolutely no account of the actual spending of the poorest families. The Rowntree Report paints a very partial and misleading picture.

The third fatal flaw is that the report states—and this we welcome—that it is its aim to reduce dependency. When I was Secretary of State for Social Services, the question of the growing dependency of people on benefits of all kinds was a source of considerable anxiety. The desire to reduce it is something which we would all applaud. But when one looks at the report's recommendations, one can see that there is a whole range of measures which are liable to increase dependency.

What was remarkable about the noble Lord's speech from the Dispatch Box and therefore speaking on behalf of his party, is that there was absolutely no indication whatever as to whether his party is going to do any of the things which are recommended by the Rowntree Report. I shall give him a list of the things which I hope he will not do because they would be immensely damaging. He said he wants to increase benefits faster than prices, and that is what the report said. There has been no real attempt by the Labour Party to seek to reverse the legislation which I introduced which broke the link with earnings otherwise we would have been bankrupt by paying pensions at the higher of earnings and prices.

There is also a recommendation for a relaxation of the 21-hour rule which enables people to undertake training and education part-time while looking for work. That would increase Government expenditure on benefits. The Rowntree Group appears to favour the retention of unemployment benefit entitlement for 12 months rather than the Government proposal of six months. It would be very costly and a further disincentive to return to work. They want a maintenance disregard for single parents on income support. Again,

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that would increase Government spending and reduce work incentives by reducing the clear water between income out of work and in work.

The report says that the housing benefit tapers should be lowered, but this too could only be achieved at huge expense. What is notable about the speech we have heard is that none of these concrete proposals was referred to by the noble Lord at all. He preferred to devote most of his speech to abusing my right honourable friends in another place.

So, I do not attach all that amount of weight to the Rowntree Report. I think perhaps that the Labour Front Bench might be a little cautious when having regard to the source of much of the statistical work. That is the only name on the outside of the statistical supplement; namely, Mr. John Hills who is credited by the Guardian of having invented Labour's tax bombshell in 1992, which perhaps helped us to win the election. Again, last year he was advocating increased spending on social security by 5 per cent. I fear that the Rowntree report is not only flawed but tainted.

However, it has some very important points to make and there are important points to make about it. One of them is this. A speech which the noble Lord did not mention was one made by my right honourable friend Peter Lilley in Belfast last November: the Northern Ireland CPC speech. That was described by his honourable friend Mr. Frank Field, secretary of the Social Security Select Committee in another place, as the most important contribution to social thinking for a decade. What Mr. Lilley talked about there—and I paid tribute to his speech—was the dispersion of earnings power. I should like to quote one or two passages from that speech because they are very relevant to the subject that we are debating today. He said:

    "Rising productivity generates rising earnings. For most of this century that growth of earnings was spread fairly evenly across the whole working population. If anything, the earnings of those in lower paid occupations tended to rise a bit more rapidly than the average. So earnings differentials diminished. But over the last couple of decades, although average earnings have grown strongly, the differentials have widened. The earnings of the less well off have tended to rise less rapidly than those in jobs earning average or above average rates of pay. In general, those with skills have outstripped those without skills. The earning power of brawn has fallen behind that of brain".

It seems to me that in these circumstances that is something of which we all need to take account. And of course the report has some useful things to say about the need to get people back into work, the need to improve work training and also the need to improve education. But I have to say that the noble Lord, Lord Eatwell, when he got involved with inequality and inefficiency actually stood the argument on its head, because we have it on the authority of the OECD that if you have an inflexible labour system such as one has in a number of continental countries, which seek to underpin labour by means of such things as the social chapter, what you have is unemployment rising much faster, whereas if you have more a flexible employment scene where there is greater room for differentials, unemployment rises much more slowly. It is a fact that jobs have been created in this country faster than in

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almost every other country in the European Union because we have had a more flexible labour force. As the OECD said,

    "In most countries where relative wage rates have been inflexible (the United States, Canada and Australia) both the relative employment and unemployment rates of the unskilled changed little during the 1980s. In comparatively inflexible Europe, on the other hand, both employment and unemployment rates deteriorated".

My Lords, my time is up. I do not attach a great deal of importance to the report because I think its argumentation is flawed. There are many things which can be done and indeed which the Government are doing which will raise the standards of living of the poorest. That is what we want to do, and it seems to me that to concentrate on poverty is a great deal more important than to concentrate on inequality.

3.53 p.m.

Earl Russell: My Lords, I should like to congratulate the noble Lord, Lord Eatwell, for introducing this debate and for doing so on St. David's Day, thereby drawing attention to the fact that there is an international as well as a regional dimension to economic inequality in Britain. That is something which we on these Benches would like to do something about. I should also like to congratulate the authors of a very distinguished report. I hope I am not being immodest in doing so, since the report says everything that I have been saying in the House for the past four years. But that in fact is because I have been paying attention to the distinguished series of reports from the Social Security Advisory Committee under the chairmanship of Sir Peter Barclay, chairman of the committee which produced the report.

The noble Lord, Lord Jenkin of Roding, was, I think, extremely unwise to be so critical of the report. He is not paying attention to the fact that this report represents what is now a firmly set consensus among the academic community and among all those who know anything about this subject, save only for the party opposite. Whether that is in fact an exception is a question I will leave open.

The noble Lord, Lord Jenkin of Roding, criticised the report for not dealing more with the question of benefits in kind, a free national health service and so forth. I have made something of a study of that. When I went to America in 1979 and when I returned in 1984 I naturally wanted to know in real terms what the difference in salary was going to mean. In 1979 I calculated that the welfare state meant that the British salary was actually worth 20 per cent. more than its paper figure. In 1984 I reached the conclusion that the real figure was rather nearer 10 per cent. I put a great deal of calculation into that, with which I will not bore the House now.

It seems to me that the noble Lord's example tends rather in the opposite direction from the one he would have wished. This is an economic debate, and I congratulate the noble Lord, Lord Eatwell, on that also. It tends logically to divide into two halves. One is the effect on general economic performance of inequality; and the other is the effect on economic performance of an economy with a very long tail—if I may so put it, an economy which does not bat below No. 7. Any social

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security spokesman is obviously going to be tempted to talk about the second, which is why I will for a while resist temptation and begin with the first.

The notion of efficiency, though it is unfashionable to say so, does in fact involve some concern with how the job is done. Recently I had occasion to employ a breakdown service. I was chatting to the driver of the breakdown service and asked how long he was on duty. I discovered that he worked a regular shift of 20 hours. I do not think that is efficient. If I were proposing to take a job which kept me at the wheel all that long, I am sure that at home I would be told about it in no uncertain terms.

If we look at the Hidden report on the Clapham Common train disaster, one of the key facts was the extraordinary length of time that the electrician who made the key mistake had been on duty. I heard of a person who was required to be at work for 18 hours, without a break to go to the lavatory. That is not what I think of as efficient, in economic or any other terms. Mr. Alistair Burt, in his Glasgow speech just over a year ago, drew attention to the effect of these very long hours on family life and on the increasing and expensive tendency to family breakdown. That was a speech which I think calls for a great deal more thought on all sides of the House.

The noble Lord, Lord Jenkin of Roding, made great play with washing machines. He may not have noticed, but there are now many households which cannot support themselves unless the woman goes out to work. Since there are many men in this country who still need education on the subject of washing, it is very often impossible for the household to support itself without such a machine, and in many more cases than was true in 1979.

The noble Lord was also rather unwise to rely without comment on the arguments of the OECD about rigidity in the labour market. He may not yet have read a report published last Wednesday by the ILO on World Employment in 1995. It will interest the noble Lord, Lord Eatwell, since it quotes him in his academic capacity with considerable approval. That report argues the case which I think deserves attention on both sides of the House; namely, that the Government's diagnosis of the labour market was in essentials right in 1979 but has not been right for some 10 years or so.

That report argues that it is now not rigidities in the labour market which keep unemployment up; it is deficiency of demand and the fact that our increased competitiveness does not give us the advantage that it should because the demand is not there to sustain it. To take a sadly topical example, it is at least a tenable hypothesis that the failure of Pentos may have something to do with the very substantial weakening of demand in the student market, on which both Ryman and Dillons relied heavily. Without the demand, a business simply cannot be kept going.

I have no doubt that a Conservative Peer will invoke the phrase "trickle-down". There is a lot to be said for childish games, but it is a great pity that whoever invented the phrase "trickle-down" did not spend more time playing with sandcastles as a child. I used to experiment with trickle-down and sandcastles. It was

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always clear that a great deal of water never reached the bottom; it soaked away into the sand. A great deal more of it ran away somewhere else. One of the disadvantages of trickle-down in a global economy is that the trickle-down is extremely likely to be outside this country and to add further to balance-of-payments problems which we could do without.

To turn for a while to the other half—to the economy not batting below No. 7—there is a very big problem here. I listened to the Minister last Monday arguing that the weight of the social security budget was a great drain on our competitiveness. I understand that argument and I do not dispute it, but this year's up-rating statement illustrates the realisation in the Department of Social Security—and, indeed, even in the Treasury—that the alternatives are worse. People do not voluntarily starve. The noble Lord, Lord Eatwell, mentioned people in the United States building walls around their suburbs. I remember reading a column by Russell Baker describing a visit to Beverly Hills where, at the edge of every lawn, was a notice saying, "Do not enter. Armed response". We do not want to get to that point in this country.

If one looks at a place like Carlton Ward, Kilburn—the ward next to my own—where last year 37 per cent. of the adult population was dependent on means-tested benefits, one can see why those who live there might regard drug dealing and muggings as the path of opportunity. That is not in any of our interests and, when it comes to prison and policing bills, it is very expensive indeed.

The noble Lord, Lord Eatwell, was right to mention health. Tuberculosis is now back on our streets, as Crisis has drawn to our attention many times. TB is a very expensive illness. It is not economically efficient.

I shall not dwell at length on top salaries. The Minister may be wondering what he can say about that, but I advise him not to follow the example of other members of his party and simply to say "envy". That statement may be true, but I hope that no noble Lord opposite thinks that we are going to abolish envy. We should not wantonly give in to it, but we must accept that in the real world envy exists and we should not wantonly provoke it. Paying people salaries so large that, if they are earning them, I do not see how they can possibly find the time to spend them is unnecessarily provoking.

I hope that the noble Lord, Lord Jenkin, will not rebuke me for not going into greater detail about the remedies, but I have already argued for almost every remedy that is mentioned in the report—and the noble Lord has argued against me. He knows that I am ready to argue the detail until the cows come home—but they will be coming home very soon now.

We need to consider the bottlenecks that make it difficult for people to come off benefits. I know that the Chancellor of the Exchequer is already doing that and I congratulate him on it. However, I think that we should look further at an income support disregard. What I said to the Minister last Monday about the up-rating of capital limits and the possible use of a Motion to Resolve on the next statement applies to income support disregards also. It also applies to childcare. I shall not develop that now, but the alternative route through the

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Child Support Act has not been a great success. That point applies also to housing repairs about which I should like to say a lot, but cannot. It also applies to the real holes in the safety net, to 16 and 17 year-olds and to the Social Fund.

It cannot be economically efficient to let people fall through the safety net so that they become unemployable for life. That is making society carry too large a tail. It cannot be good for education to have 25 per cent. of this country's children dependent on income support. If I have one criticism of the report, it is that you cannot rely on education alone without putting people in a position such that they can afford to take advantage of it. But that is only one criticism in a great deal of approval.

4.6 p.m.

The Lord Bishop of Bristol: My Lords, I should like to add my thanks to the noble Lord, Lord Eatwell, for providing us with this opportunity to debate a very important subject and for the information and analysis that he has shared with the House.

The Rowntree Report is by no means all bad news. Most families are substantially better off now than they were in the late 1970s. That may not necessarily bring happiness, but in general it brings more comfort and opportunities. Many people have worked hard and honestly to achieve that general increase in wealth and it would be wrong for them to feel that they have not achieved anything. Moreover, most pensioners are appreciably better off than their counterparts 20 years ago and although we cannot be complacent, that, too, is a social improvement and an achievement.

It would be wrong to encourage further fatalism and despondency on the basis that however hard we try, we are no nearer a good and decent society. We need not fatalism but hope—and, I hope, commitment also. Part of that is to recognise that in many ways, thanks to the efforts of so many people, there are unprecedented opportunities and choices from which all our people could—I stress the word "could"—benefit if only we do not give up on the idea of a just society.

I join the noble Earl, Lord Russell, in expressing gratitude to the Joseph Rowntree Foundation and to Sir Peter Barclay's working party. The report is a fitting embodiment of the Rowntree tradition, whereby successful wealth creation is pursued not as an end in itself, but as a means of service to one's fellow human beings. The Rowntrees, I gather, built their fortune not on narrow individualism, but on the moral ideal of service. For the Rowntrees, society was as depicted in the Biblical tradition: a collaborative moral project under God; not just a conglomeration of competing individuals.

But there is bad news—and that is why we cannot rest easily. First, I refer to the key finding that the poorest 20 to 30 per cent. have failed to benefit from the economic growth since the late 1970s and that we have indeed become a more unequal society. Page 35 of volume 1 of the report contains information about the care of children. According to the statistics given by the

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International Year of the Family fact sheet No. 2, 3.9 million children are poor—that is, one in three of our families receive less than half the average income of this country. That is a figure of which all of us must be ashamed.

Secondly, I should like to share with your Lordships a picture of the city in which I live. When I first arrived in Bristol nearly 10 years ago, there were no beggars on the streets. There are now. They are all, in general terms, those seeking work, a home or food. The homelessness figures have increased. I believe that a just society cannot tolerate those figures. That matters because it weakens social cohesion. It matters because it undermines the human solidarity which should bind us together in a well-ordered society.

I was glad that the noble Earl, Lord Russell, reminded us that today is St. David's Day. It is also Ash Wednesday, which may well be an appropriate day for this debate. In many churches throughout the country, these words were read earlier this morning from the Prophet Isiah:

    "The kind of fasting I want is this.

    Share your food with the hungry

    and open your homes to the homeless.

    Give clothes to those who have nothing to wear

    and do not refuse to help your relatives".

And that is the minimum requirement of a community in which we would wish to live.

A substantial minority of our people are left feeling that they are not valued as part of the whole. They do not participate in society's benefits and opportunities, and that damages their self-esteem and dignity. Amid the many successes of the past 20 years, that is a major failure.

I shall quote from A.H. Halsey of the Guardian—and, yes, I know that it was in 1987, but I believe it to be true today—

    "A pattern has emerged of an unequal society, as between a majority in secure attachment to a still prosperous country and a minority in marginal economic and social conditions."

Moreover, the casualties of inequality tend to be concentrated, in the most acute form, in the larger metropolitan areas of northern Britain and in inner London, and in particular in wards and estates. The churches have long borne witness to those realities, not least in the report Faith in the City, in the work of the Church Urban Fund, and in the pastoral commitment of so many churches in areas long since abandoned by banks, building societies, most shops and other services. There may well be more consumer durables bought; but you have to go a long way to buy them in many of the estates about which we are talking.

In general, the call of the Rowntree Report for a continuing, multi-dimensional onslaught on inequality, deprivation and social exclusion echoes what many Church leaders have put forward over the years as one essential dimension of working for a more just and equal society.

Let me make three points about the response that is needed. Technocratic solutions will not be enough. It will involve moral decisions, too—as it did for Rowntree—a bringing together of individual responsibility and social responsibility, one for another.

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Self-restraint and hard choices will be involved. I was delighted that the noble Earl, Lord Russell, also played with sandcastles; wealth does not trickle down as we are invited to believe it does —and the cost is there to be seen by all.

Let me quote what the most reverend Primate the Archbishop of Canterbury said in a speech last year. It is appropriate to our debate today.

    "One-eyed individualism and the privatisation of morality exact a high price in personal and public dimensions of life alike. It is not just about economics, it is about a moral society which believes in a just and equal community."

Secondly, we need to encourage the concept of participation, and that may well be the key. Nobody really wants to be a passive dependant. Perhaps we can go back to the care of families and the place of children in our society. Many single parents wish to be economically viable for their family unit; but they are incapable of doing that because the right kind of child care is not available. Social benefits need to be provided in kind, and the right structures put in place, so that all our people can be enabled and encouraged to take care of themselves. Dependency is not a good thing, but we need to put in place the structures which will allow people to join in and make their contributions.

The Church Urban Fund is based on putting local people in charge of their own plans for self-improvement and helping others. Safety nets are no substitute for real opportunities and fair incentives to play a part in advancing the common good. I realise that that is easier said than done, but it is an important principle. We need to concentrate on participation.

Let me give one example. In the south side of Bristol, in the estate of Hartcliffe—where not very long ago there were major riots—there is partnership between the local community, the Church Urban Fund and business in the community. They know very well that to do good enables wealth to be created. Not the other way around—create wealth in order to do good—but do good in order to create wealth. That partnership and participation is a basis for the way in which this country needs to move forward.

Lastly, to moderate inequality is not necessarily to impair economic growth. As the commentator Will Hutton has argued, the World Bank has produced impressive statistics showing that lower inequality throughout the Third World is one of the most important determinants of growth. The more an economy can integrate all of its people into national development, the greater their skills, the larger their incomes, the more rapidly economic growth takes place. We have not heard much about East Asia—the most dynamically growing part of the world—but that is one of the least unequal areas. We should not carry a large section of the community as poor and unskilled—a social and economic burden that holds us back.

Perhaps I may return to Ash Wednesday. We have heard about the politics of envy. Envy is a sin. But there is one greater sin, and that is providing people with occasion to sin. That is the crux of the debate today. Your Lordships' House prays daily for the uniting and

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knitting together of the hearts of all persons under saints, in love and charity towards one another. Love and charity mean a just and equal society.

4.17 p.m.

Lord Ennals: My Lords, I am glad of the opportunity to follow the right reverend Prelate the Bishop of Bristol in his assessment of the report that we are debating. I went along with what he had to say in many respects.

I felt very sad that the noble Lord, Lord Jenkin of Roding, not only sought to rubbish the Rowntree Report, its facts and figures, its conclusions and recommendations, but also to say that it was tainted. No doubt he will take some other opportunity to explain what is tainted by this report and this working party. I have looked at those who have participated in it—I am proud to know some of them, but not most—and certainly in no sense are they a political group of people but they are very broadly representative of the caring spectrum of experience.

I suppose it was inevitable that the noble Lord's response to Rowntree would remind me of his response to the Black Report in 1980, which was also carried out by a very distinguished team. It drew on the facts available and made a series of assessments and recommendations, which he, as the then Secretary of State, rubbished in rather the same way as he has today. I will say no more, but I am sad about that.

I want to thank and congratulate the Rowntree Foundation and its chairman, Sir Peter Barclay, whose contribution to social work in the United Kingdom is indeed a substantial one. The report should provide a very firm basis on which to build social policy in this country, based on fairness and equality. It sits very comfortably with the report of the Social Justice Commission, which no doubt at some time we will have the opportunity of debating.

In his introduction to the report, the chairman, Sir Peter Barclay, describes a picture of a dramatic social and economic change in Britain over the 1980s, the scale and consequences of which are probably not yet fully appreciated by policy makers or the population at large. I fear that he may be right, the policy makers have not recognised just what is happening in terms of inequality of opportunity, and hardship based on that inequality, in Britain today. I hope that we shall receive a response from the Minister which is different from that we had from his noble friend.

The report reaches some devastating conclusions. It makes comparisons with inequitable trends in other countries, particularly the OECD countries and some Commonwealth countries. They include many of our competitors. As was said by my noble friend Lord Eatwell—he explained that he would be out of the Chamber for a short time, and I want in his absence to congratulate him on his speech—if one looks at page 14 one can see just where Britain stands in relation to countries such as Norway, Australia, Sweden, the Netherlands, Japan, the United States, Belgium, and so forth, in terms of the extent of the inequality which exists now in British society.

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On page 14 there are three conclusions from which I should like to quote. The first describes:

    "The speed with which inequality increased in the United Kingdom between 1977 and 1990".

It continues:

    "Since 1979 the lowest income groups have not benefited from economic growth."

We should remind ourselves that there has been some economic growth. Of course better standards of living are to be found in Britain. If one takes an average, of course our living standards are higher than they were two decades, or even one decade, ago. It would be extraordinary were that not to be the case. The third conclusion is:

    "Since 1977 the proportion of the population with less than half the average income has more than trebled. As a result, the proportion of the population with low incomes relative to the average has risen".

The House will not be surprised at my interest in the subject. It was as Secretary of State that in 1977 I asked Sir Douglas Black and a distinguished team to produce a report. I did so because I was concerned then (18 years ago) at the inequalities which continued to exist in our society and upon which I even then thought we needed to concentrate. One of the tragic things is that the situation has since become significantly worse. If one looks at health, which was one of the factors, we see that the situation has worsened in many respects.

I shall give one or two examples. The baby of an unskilled manual worker is one and a half times more likely to die in the first year as the baby of a professional or a manager; the poorest children are twice as likely to die from a respiratory disease as a child from social class I. In some of the poorest parts of Britain, death rates are now as high as they were 40 years ago. In many ways, statistics upon which we can base the inequalities in health are becoming worse in some respects than they were 40 years ago. The mortality ratio in the 10 per cent. most deprived electoral wards in the north of Britain is almost double that in the 10 per cent. least deprived. My last example is of unemployed men. They are 10 to 15 times more likely to attempt suicide than others.

The picture is a disturbing one. Looking at the different categories, according to the latest figures, one sees that one in four people (including children) in the UK were living in poverty in 1991-92 compared with under one in 10 in 1979. Children are even more likely to be in poverty. Nearly one in three, as has already been said, were living in poverty in 1991-92 compared to one in 10 in 1979. If we look at the number of people (including children) living in poverty, we can see that there has been a dramatic increase. Including children, in 1979 we were looking at 5 million; in 1991-92, we were looking at nearly 14 million. That is a dramatic increase. If we look at children in particular, we are looking at an increase from 1.4 million to 4.1 million. Again, that is a dramatic increase.

There were more children than pensioners living in poverty in 1991-92: 4.1 million children lived in poverty compared with 3.2 million pensioners. It is fair to recognise that the extent of inequality has varied in

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different sections of the community. Pensioners have not suffered as much as lone parents (six in 10 were in poverty); or single pensioners (4 in 10 were in poverty); and couples with children perhaps suffered most. They formed the largest group in poverty; 37 per cent. fell into that group. Pensioner couples—I am grateful for this, because I am part of a pensioner couple—have perhaps suffered less inequality than single pensioners, couples with children, couples without children, and lone parents. It is a disturbing situation. It will be interesting to see how the Government react to it.

On the other side, it may be asked why we have not put forward a set of proposals. Well we are asking the Government what are their proposals. We can have a further debate on our proposals. The late John Smith set up the commission which has already produced its report. So, for heavens sake, we have done more than the party opposite. I should be interested to hear whether the Minister replies in the same way as did Peter Lilley, who was referred to by my noble friend Lord Eatwell, or, for that matter, the noble Lord, Lord Jenkin of Roding.

On Monday, my noble friend Lord Molloy tabled a Question asking the Government what they were doing to decrease poverty. I hesitated, but not for long, to intervene. I said that I was surprised by the Question, because I should not have expected the Government to have taken action to decrease the disparity in wealth between the rich and the poor, because that is part of their motivation. If they are to be converted on the road to Jerusalem, I shall certainly welcome that. I admire the report which we are debating but I am extremely pessimistic about the response that we shall be given by the Government.

4.30 p.m.

Baroness Elles: My Lords, I do not entirely follow the way of thinking of the noble Lord, Lord Ennals, although we may all find ourselves on the same road to Jerusalem, and I suspect I know who will get there first.

This debate on the Rowntree Foundation's recent inquiry into income and wealth is to be warmly welcomed. I applaud the fact that the noble Lord, Lord Eatwell, has introduced the matter. It raises important economic and industrial issues, but it also gives us the opportunity to refute some of the conclusions and recommendations contained in the report.

I should be grateful if, when the noble Lord, Lord Peston, winds up on behalf of the Opposition, he will state whether the recommendations contained in the report are part of Opposition policy and whether those which involve public expenditure, so widely, it seems, encouraged by the report, will also form part of eventual Opposition policy.

I do not find fault in all the recommendations as did my noble friend Lord Jenkin of Roding, because the Government have already initiated some of the work incentive measures listed in them. I welcome that.

It is generally accepted that there is a dispersion of earning power. My right honourable friend Peter Lilley mentioned that specifically in his very important speech in Belfast in November 1994. He underlined that it is a

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phenomenon applicable to western industrialised countries as a whole. It is not confined to the United Kingdom.

Different countries are seeking solutions through different measures. It is doubtful whether the word "poverty" can be assumed to apply to anyone with income in the bottom one-fifth of income distribution; that is, to those whose incomes are less than half the national average. To my mind, that is an abuse of the word "poverty" and, considered in the context of international statistics, is grossly misleading. To use the same terminology to describe millions of people existing in many parts of the globe—for example, India, South America and large parts of Africa —and the 20 per cent. living below the so-called poverty line in this country, even if they live on unattractive or run-down housing estates, must give a completely false impression of the wealth and social conscience of this country, including the social conscience of all noble Lords who work towards the relief of poverty.

Nick Adkin, in his interesting article in Social Trends 1994, points out that although that 20 per cent. represents 11.2 million of the United Kingdom population, it should not be assumed that all the people in the bottom quintile are poor or on low incomes. Such a definition would mean that 20 per cent., and only 20 per cent., of the population would always be poor or on low income. Selection is necessarily arbitrary. He adds also that income of groups such as the self-employed has not proved as helpful as wished. I shall not name all the categories listed in the report but farmers and accountants are included in that category. That gives leave to question the sense of the exercise and makes it more difficult to identify the truly financially disadvantaged.

There are dangers in averages, the tool of the statistician —the man who says that if you have your feet in the fridge and your head in the gas oven, you are averagely comfortable. That is of little help to the policy maker and to those determined to raise the standard of living for all while living in a society—common to all contemporary, industrialised societies—based on high wages, high-level skills and high productivity, but with declining opportunities for unskilled manual labour. As the average line rises, so will the number of relatively poor.

It must be made clear that, sadly, there are truly poor in our society. Most of us in this House have been made aware of tragic situations which are incidental to individuals rather than to any recognisable, identifiable group. Perhaps fortunately, that is often at one time in a person's life. Many examples come to mind—a wife who is suddenly deserted; ill health, especially where someone is living alone; a physical accident, or death of a partner. A whole gamut of tragedies can hit people regardless of age or origin and can reduce that person to genuine destitution.

However, if statistics are anything to go by, the majority of the 20 per cent. have a very different lifestyle. To maintain, as the inquiry does on pages 6 and 46, that it is unsatisfactory that a large part of the population is not sharing at all in rising living standards is frankly nonsense. Some figures set out in Social

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Trends 1979 and in 1995 show the real difference. It is shown in particular by the charts which cover disposable income and consumer durables. My noble friend Lord Jenkin of Roding mentioned consumer durables and various answers cover that particular argument. But it is difficult to argue against the fact that in 1979, of the disposable income of pensioners—I take the lowest level, the poorest of that particular sector —food accounted for 35 per cent. and housing 16 per cent., leaving 49 per cent. of net income to spend on other factors such as alcohol, tobacco, travel, services and so on. But by 1993, which is the latest figure, food accounts for 20 per cent. of disposable income and housing accounts for 13.4 per cent., which makes a maximum of 33.4 per cent. That leaves 66.6 per cent. net. That 66.6 per cent. is in the hands of that particular pensioner to be spent as he chooses. I accept that there are other items of expenditure but that is clearly evidence that it is not only the wealthier who have benefited from increased economic growth.

But while the rich are getting richer, I have not found real evidence to show that the poor are getting poorer, other than in relative but not material terms. So far as I am aware there is no recognition in the report that without a wealth creating society it would not be possible to transfer nearly £80 billion or just under half of total national expenditure this year to those who are in need. There is no recognition, except in general terms, concerning benefits.

My noble friend Lord Jenkin referred to education, health and so on. Of course, I accept that those services may not always be adequate. They are run by human beings. But they cannot be left out of the calculation. Equality as such is not a desirable objective. As Disraeli said over 150 years ago,

    "There is the equality which levels and destroys as well as the equality which elevates and creates".

It is the quality of opportunity which has to be guaranteed and the effective targeting of those sectors and individuals in our society who genuinely suffer financial disadvantages and who are the weakest economic sector of our society.

One obvious sector is the unemployed. I welcome the recent statistic given by the Government that a further half million have come out of that sad statistic. The Government have introduced policies such as the jobseeker's allowance and the work start programme, about which I have no doubt my noble friend will wish to speak.

Much is focused on training and education but I agree with those noble Lords who have said that, in isolation, they are not sufficient. Throwing money at a problem does not always produce solutions. But there are steps which can be taken. I started an organisation called Target in the Thames Valley in 1986 under the European Community's programme. I declare an interest, although I am an entirely voluntary chairman. We receive funding from the European Community. It links industrialists, including small businesses, with training providers, to ensure that the training courses provided correspond with the identified skills needed by companies in the area. That encourages young people to attend training courses, because they know that they will

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be able to obtain employment. A raft of activities includes programmes for women returners. They mainly identify the need for confidence building and opportunities available. There are training courses for self employment, and work experience is arranged for collegers and young students both in the area and on the Continent.

It may be of interest that unemployment in the area of Berkshire in January was 5.4 per cent., whereas elsewhere in the United Kingdom it was about 8.8 per cent., or just under 9 per cent. Identification of genuine need in a complex society when some people's needs are far greater according to their education, tradition, training and so on is not easy. But recognising, certain areas to be targeted, as the Secretary of State has done, is an encouraging sign.

I wish to mention three matters which should be more closely looked at and given wider encouragement. They are opportunities for more tax-free savings so that people will be able to meet crisis more easily; tax incentives for married couples, not to encourage marriage necessarily—although I would no doubt be accused of being political correct—but as a sign from the Government that their policy is to encourage stable family life for the benefit of children; and further and greater efforts by employers to ensure that women's wages rise to a level where they do not remain permanently disadvantaged in terms of their earning capacity and are reflected also in the level of their occupational pensions.

Several noble Lords mentioned the question of envy. I believe that there is more than one sin in the Epistles. Indeed, there is envy on the one hand and greed on the other. Undoubtedly, both combined have a detrimental effect on the fabric of society. Therefore, in order to maintain a peaceful and stable society the issue of growing disparity in earnings must be addressed. Whatever else the inquiry has done, it has given us an opportunity to identify such a serious problem.

4.41 p.m.

Baroness David: My Lords, one of the striking facts mentioned in the report was that, during what the Government claim to be a period of economic success, more people have become dependent on state benefits. The reasons for this, according to the report, are:

    "Higher unemployment and economic inactivity (like early retirement and invalidity) and demographic factors such as lone parents".

No doubt the Government will say that it is all the people's own fault: people are choosing to become unemployed and to retire early because of the benefits available. This is also the cause of marital breakdown, they say, and similar social problems and is not the concern of the Government. Is that the Minister's view? It is not mine and not that of most people who have looked at the problem.

People are unemployed because they have been fired and cannot find new jobs, or, when they are young, they cannot find a first job at all. Retirement is also, in many cases, a version of premature unemployment. There is little or no correlation between marital breakdown and

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the benefit system. The hoary old myth that young people become lone parents because of the availability of benefits is precisely that. Indeed, if any of that were true, the trend should be the opposite of what it is. The report shows the relative and, in some cases, the absolute decline in benefits. Why then has unemployment remained so high and the social problems referred to so persistent?

The report says:

    "There have been polar shifts towards double-income families, where both parents work but are able to spend less time with their children".

Do the Government have an explanation as to why that is so? Do they think that it is desirable?

Will the Minister admit that most people do wish to support themselves and accept state support faute de mieux? They hate being a burden, but the system makes them so. I guess many of us here today have relations who have been forced to go on to benefits and know how reluctant they are to take that first step and to apply. I may say that the time between applying and receiving any cash should be shorter. The young unemployed, I know, are longing for work. The benefit that they receive does not lead to an exactly comfortable lifestyle.

The report has a number of suggestions for encouraging and helping those forced on to benefit to make it easier to return to work. That is not made easy at the moment. At present, too much public spending is directed at paying the costs of failure, rather than in promoting future success. Public spending seems to have got into a trap, where short-term savings have had long-term costs, in turn creating pressure for later short-term savings in a continuous spiral. Are the Government convinced by some of the proposals for helping people back to work and in the early stages of being in work when extra money is sorely needed? I shall mention some of those proposals. The noble Lord, Lord Jenkin, criticised my noble friend for not doing so; but I shall.

There should be disregard of child maintenance in income support. The Enterprise Allowance concept should be extended to benefits, to allow continued payments of benefit for a short time after a person finds employment; employment on trial (where benefit is not lost if a person leaves a job after a short trial period) should be made better known; lump sums should be available for back-to-work grants; income support disregard should be £10, not £5, and it should be able to accumulate—for instance, up to £60 over a six-week period—to allow lump sums and not disqualify occasional casual work. Legitimate childcare costs and working expenses should be allowed as a deduction in assessing earnings for the disregard; free school meals should be restored for family credit recipients; the taper for housing benefit and family credit should be lower to reduce marginal tax rates. All these may involve short-term costs, but surely will result in long-term gains in getting more people back into employment and—it is to be hoped—making them happier.

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Above all, the importance of raising education and training standards in Britain cannot be put too strongly. While people are on benefit, it must surely make sense for them to occupy themselves productively. The report states clearly:

    "For those out of work and on benefit:—The rule generally limiting participation in education to no more than 21 hours per week should be relaxed".

Therefore, it is a pity that the Government have moved policy in exactly the opposite direction to reduce the number of permitted hours and to make the whole business of education for the unemployed most difficult. The training guarantee should be honoured; if not, there is a clear case for widening benefit entitlement for 16 and 17 year-olds.

The report says:

    "We are concerned by the position of children being brought up in low-income families, particularly those in neighbourhoods where most families are poor. Whilst parents have the primary responsibility of their children's welfare, the community as a whole has a vital role in supporting them to carry out that task".

Do the Government agree with that? If they do not, I can see a very gloomy future for this country.

This year sees the 150th anniversary of the publication of a novel by a distinguished leader of the Tory Party. Sybil describes the condition of early Victorian Britain and the two nations into which its peoples were divided. During the 1960s and 1970s we experienced what Eric Hobsbawm calls "a Golden Age" when, for a brief moment, we seemed to be moving towards a more unified and fairer society. We have heard from my noble friend Lord Eatwell about the economic gulf that now separates the richest and the poorest in our society. My particular concern is with the social and human consequences of this increasing divide and the frustrated dreams and ambition of those who can never hope to share the security and lifestyle of the often undeserving rich. That applies especially in relation to the young.

During the past 15 years, recorded violent crime in this country has doubled. A recent report from the Employment Policy Institute (by Dr. John Wells of Cambridge University), shows that Britain's departure from full employment and the emergence of mass unemployment since the mid-1970s have coincided with a strong rising trend in recorded crime. The report notes that the inner-city riots and disorder during the recessions of the 1980s and the 1990s were accompanied by "spiralling unemployment" and that a,

    "society with such large numbers of children in poverty runs the risk of massive criminal delinquency".

Unemployment, moreover, does not affect all sectors of our society equally—unemployment among young black males in London was recently shown by the Labour Force survey to be 62 per cent., and overall, the unemployment figure for blacks, (10 per cent.) was more than double that for whites (4 per cent.). As the Rowntree Report observes,

    "the incomes of certain ethnic minority groups are well below the national average and a large proportion of their populations live in areas ranked highly by indicators of deprivation ... Certain parts of the country seem locked in a spiral of decline ... notably with the problems of Inner London growing substantially".

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We have only to look across the Atlantic to the United States to see the awful prospect of what may lie ahead for our cities. As in Washington, New York and Los Angeles, there will be increasing ghettoisation of the poor in crime-ridden, drug-sodden and bleak inner-city areas whilst the rich retreat to affluent suburbs or the countryside. That is, of course, a potent recipe for social unrest, as in the recent Los Angeles riots, and for increasing crime and drug taking.

It is unfortunate that, at a time when our society's bonds are already weakened, we have a Home Secretary who deals in stereotypes and short-term populist tactics to address problems that need complex and long-term solutions. Those who commit crimes are not very different from other human beings and are unlikely to respond to the simplistic Skinnerian models of reward and punishment currently favoured by the Home Office that work well with rats and pigeons but not with humans.

I should like to end with two sentences from Disraeli's Sybil or The Two Nations:

    "In an age of political infidelity, of mean passions, and petty thoughts, I would have impressed upon the rising race not to despair, but to seek in a right understanding of the history of their country and in the energies of heroic youth, the elements of national welfare... From the state of Parties it now would draw public thought to the state of the People whom those Parties for two centuries have governed. The comprehension and the cure of this greater theme depend upon the same agencies as the first: it is the past alone that can explain the present, and it is youth that alone can mould the remedial future".

4.51 p.m.

Lord Griffiths of Fforestfach: My Lords, it is a great pleasure to follow the noble Baroness. Not only was her speech eloquent; it showed a mastery of the issues raised by the report and it was unusually literary. The sentiment she expressed about one nation is one with which I hope everyone in this House would agree.

Like other participants in the debate I thank the noble Lord, Lord Eatwell, for providing the opportunity to discuss this very important subject. When preparing my speech I jotted down that it would be quite wrong to use an occasion such as this to make party political points. However, as I listened to the remarks of the noble Lord, Lord Eatwell, I was provoked to the limits. I shall nevertheless try to exercise self-discipline and not make this a political issue.

However, I should like to make one point. I have not had the opportunity of reading Daniel Finkelstein, but as someone who was at least trained as an economist I find a number of aspects of the report somewhat flawed: for example, the emphasis on inequality and not poverty as such, the measurement of the problem of inequality using snapshots at points in time rather than lifetime earnings and the Gini co-efficient, the cursory treatment of the distribution of wealth, and knowing exactly how much confidence one can have in the official data on households below average income. I was therefore somewhat surprised by the confidence shown by the noble Lord when he introduced the report. I almost felt that he had more confidence in the report than the report had in itself.

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Page 113 of volume 2, which is the penultimate page of the report, deals with the question of how one measures inequality. It states that,

    "one might want to look at income differences not in a single year [as the report does] but over complete lifetimes ... In the 'snapshot' the poorest tenth have annual incomes which are only just over a fifth of the average, but the 'lifetime poorest' tenth have lifetime incomes which are more than half the average. Lifetime incomes are much more equally distributed than annual incomes: depending on the measure, the inequality observed on an annual basis is reduced by between a third and a half".

As I recollect, dealing with statistics on income and wealth distribution is not the same as measuring output from steelworks. It is very tricky. Therefore, a degree of caution is needed in relation to the methodology of the report.

Secondly, the noble Lord stated categorically that what was happening in the UK in terms of increasing inequality was not an international phenomenon. As he spoke, and as my blood pressure rose, I turned to figure 37 in volume 2 where there are three pictures. In the graph of countries with rising inequality, Britain is shown alongside Australia, the Netherlands, New Zealand, Norway and Sweden. Countries with slowly rising inequality are the US, France, Japan, West Germany and Belgium. I note, incidentally, that although they have slowly rising inequality three of them start from a position of higher inequality than we do. There are other countries with falling inequality. Therefore, it is misleading to suggest that somehow the UK is alone in the trend towards greater inequality, even though the extent of the movement may be much greater here.

It would be wrong to dismiss the report on those grounds. That is why I felt that it would be wrong to use an occasion such as this to try to defend the record of the past 15 years. The report is important not because of its emphasis on inequality but because it puts its finger on something disturbing in our society. As we were reminded by the right reverend Prelate, the report Faith in the City on the significance of underprivileged areas in this country jarred us all. Similarly, the Rowntree Report draws attention to those people, including young people and children, who have not benefited from the growing prosperity of the past 15 years, or who have benefited only to a limited extent.

I should like to address three issues raised by the report which should be of concern to the House. They deal with the causes of the problems with which the report confronts us.

First, as the noble Lord, Lord Eatwell, and also the noble Baroness, Lady Elles, said, there is a growth in the differential of earnings between those in the labour market with substantial skills and those with few skills. The Institute for Fiscal Studies, which studied the position in the UK between 1960 and 1990, concluded that wage inequality has risen at an unprecedented rate since the late 1970s. I do not believe that that is a direct result of government policy. The institute says that between 1966 and 1972 the dispersion was flat; that between 1972 and 1977 it was compressed; but that since 1977 the lowest percentage of the earnings distribution has shown zero growth, the median has

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risen by just under 30 per cent., and the top part of the distribution has shown growth of 45 to 50 per cent. That is not a British phenomenon. It is a trend which is taking place throughout the whole of the industrialised world. To the extent that governments try to stop the trend and try to compress wages, unemployment rises.

The cause or causes are open to debate, but most people emphasise two facts, which again are global. One is associated with trade and investment, and particularly with the emergence of Asia as the most dynamic region in the world economy with its huge labour market, much of which has limited skills. The second is the extraordinary revolution in technology we are living through, particularly associated with telecommunications, computing, information technology and the media.

Having travelled to China many times in the past two-and-a-half years, and also having taken the opportunity to visit schools, it seems to me that that is a trend which it is not easy to reverse. I also doubt whether parents or the education profession in this country have come to terms with it. Asian economies still face barriers to trade in the West. As those barriers are reduced, so we can expect higher imports from those countries, particularly of goods produced with low wages. Countries such as China, with 1.2 billion people, are committed to moving to a more market-oriented economy, and once again we shall face increasing competition. Nearly all the leading companies in this country, western Europe and the US are making investment in Asia a priority, if not the priority, of their business development. Our workforce therefore desperately needs greater skills if it is to avoid being paid a world wage rate for unskilled labour which will be set by the Asian economies.

My fear is that the report does not go far enough. The better the skills, the greater the remuneration. I envisage the divergence between very skilled people and unskilled people increasing rather than decreasing, therefore exacerbating the problem. Because of that, I believe that education deserves emphasis today. I fully accept the point a number of people have made about education in a more general context. However, I am still not happy about one specific area of education. I am happy about a number of the reforms introduced in the 1980s, in particular city technology colleges and technology colleges in general, and the greater variety of schools through the grant-maintained system. Those must surely be steps in the right direction. But vocational education leaves me with doubts, as it did when I was chairman of the School Examinations and Assessment Council, and confirms the magnificent work done by the National Institute of Economic and Social Research. The quality of vocational education in this country lags behind our competitors in Europe.

The second issue I wish to raise—it is raised in the report—regards unemployment. We have now experienced high unemployment for approximately 25 years; we are in danger of treating it as given. It is clearly a major factor driving poverty. And, as the report points out, and as has been pointed out today, it has serious long-term consequences quite apart from the wasted resources.

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It is because of the seriousness of unemployment that the Government have introduced policies specifically targeted at getting people back to work. The report discusses a number of measures ranging from improved childcare provision to more flexibility in working hours, subsidies to employers, and so on. However, there is one glaring omission in the report. The chairman's introduction states that the terms of reference were to consider evidence on matters relating to living standards, income and personal wealth and to make recommendations regarding public policy which bear on living standards. The extraordinary omission was the creation of wealth itself. Surely wealth creation is by far the most enduring form of job creation, far more powerful in the longer term than job creation programmes.

A growing economy provides opportunities for people of all income levels to improve themselves. Unemployment fell during the latter part of the 1980s until there occurred that totally unnecessary cycle of inflation and severe recession. At present unemployment is falling again. I do not know whether that is considered a trickle-down effect but it seems to me that it is an important factor. We should support measures to improve and sustain our growth.

5.5 p.m.

Lord Desai: My Lords, it is a pleasure to follow the noble Lord, Lord Griffiths of Fforestfach. Let me start on a rather serious note. I am sorry that the noble Lord, Lord Jenkin of Roding, is not in his place. However, the noble Lord, a former Secretary of State for Social Services, sought to denigrate the Rowntree Report, especially the second volume, by stating that my colleague John Hills (who is associated with it) is somehow a troublemaker. I want absolutely to deplore that. John Hills is meticulous. He cannot defend himself against such attacks. His scholarship is not in doubt. The sources on which he relies are absolutely impeccable. I would take on anyone on the opposite side in or out of government who challenges his competence in the matter. Let it not be said that he was the man who planted a tax bombshell. He may have planted it, but the people who exploded that tax bombshell are in power now. We only propose tax increases. The Government implement them and their tax proposals were much more severe than John Hills could possibly have imagined. Therefore let us not hear any more about tax bombshells. Let us not have any further unfair attacks on a man who cannot defend himself.

The Rowntree Report is a careful and scholarly document. The point was made about whether or not direct benefits were included. At the back of volume 2 there is a careful consideration of the effect of introducing direct benefits into the calculations. As the noble Lord, Lord Griffiths, pointed out, lifetime incomes are also considered. It has been said that if data on lifetime incomes were available they would be used. They were not available and therefore the report carefully carries out a simulation experiment and seeks to guess the effect. It quite honestly states that if life cycle incomes were available one would not find a great amount of equality but less inequality. It is not that the

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results in the report are somehow flawed by methodology; they are not flawed. If one reads both volumes carefully, and—dare I say it?—understands what is stated, every aspect is well covered. If people wish to defend the record of the present Government, they should find a better method than by attacking the report.

I wish to take up various points. First, it has been stated that the report deals with inequality and not poverty. I am untouched by the sentiment of those on the opposite Benches about poverty. I have not heard it for all these years; and suddenly, when inequality is debated, those noble Lords like poverty. Had we been attacking poverty they would have liked inequality.

What does the report say about it? I shall refer to volume 2. Its author is my colleague, John Hills. Page 31 indicates that in the bottom two deciles—and that is the area of poverty—there has been no increase in income after allowing for housing costs. Indeed, with regard to the bottom decile one can hardly see the faint green line. There is a slight deterioration both ways. Therefore poverty has actually increased. Regarding inequality, the bottom decile has been affected. Who are in the bottom decile? Obviously many unemployed people, old people, single parents and children. First, it is said those groups are transient; they come and go. Careful research indicates that many single parents and old people are not transient. When children are in poverty it takes them ages to get above poverty. I do not believe that one should use the transient argument too frequently.

Let that go. It has been suggested that average incomes have risen in this country. The truth is that they have not risen fast because the growth record of the past 15 years is appalling—there is no other word for it—compared with any previous 15 years. The noble Lord, Lord Griffiths, spoke about wealth creation but there has not been enough, I am sorry to say. If we compare the growth in income and the growth in wealth over the 15 years before 1979 with that over the 15 years after 1979, there is no serious statistical dispute; the growth has been lower. There may have been some diminution in unemployment over the past two years, about which the Government are excited. I remember that when I first came here all the problems were due to our competitors causing the recession in this country. When things go badly it is the fault of foreigners and when they go well it is all to our credit.

Unemployment in this country has not been lower in a single year since 1979 compared with when Labour left office. Despite all the miracles of productivity, lean growth and the marvellous things about which we shall hear, unemployment has not been lower in a single year. What is more, we are talking about doctored unemployment figures, not even the real ones.

Perhaps I may read some rather nice remarks about statistics of unemployment written by an impeccable authority who had to deal with them. I will give the author later:

    "Faster than I can digest them great wadges of documentation are whumped into my 'In' tray. The subject matter is turgid: a mass of 'schemes' whose purpose, plainly, is not so much to bring relief to those out of work as to devise excuses for removing them from the

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    Register. Among my other responsibilities are 'statistics', so it will be me who has to tell the House each month what is the 'jobless' total.

    "The Enterprise Allowance Scheme, the Job Release Scheme, the Community Scheme. Convoluted and obscure even at their inception, they have since been so picked over and 'modified' by civil servants as to be incomprehensible. I ought to welcome these devices, and must try and master their intricacies. But my head is bursting. I understand Nabokov's analogy of a traveller in a foreign city, whose language he does not speak, attempting in the middle of a power strike, in the late evening, to find his hotel."

So said Alan Clark. That is the attitude on the unemployed, thinking of them as statistics to be got rid of. Various benefits have been announced, but probably 1 million people have been taken off the unemployment register and hidden somewhere. Is it any wonder that we have a growth in poverty?

Late in the past 16 years there is some decline in unemployment, but it is not enough to compensate for the sluggish growth that we have had for 16 years. The growth has been marred by two of the most severe recessions since records began in this country. So it is not as if we have had fantastic growth and the poor people who did not have enough skill and education—entirely through their own fault—have been left behind, and I actually dare to show the Government up as bad. It is not like that at all. It is that the country has had a low rate of investment and growth because policies which have been followed by the Government have, without fail, been inconsistently bad. The Government have adopted monetarism, Keynesianism and various other policies but they have not succeeded in achieving the trend rate of growth that was achieved in the 15 years before they came into office.

The noble Lord, Lord Griffiths, talked eloquently and rightly about globalisation and how we face the challenge of the skill revolution. He said that we ought to do more about education. However, being skilled or unskilled is not a matter of birth; unskilled people can be made skilled. It is not a matter of saying, "Those poor unskilled people! What should we do about them?" If they are unskilled, we can do something about it through education. What we should not do is to cut the education budget. If the Government are not going to pay teachers enough money then they should not say, "Oh, the poor unskilled workers! What should we do about them?"

Subjects like education have been deprived of funds. I work in higher education and I can tell noble Lords that despite the growth in the number of people in higher education, the per capita amount of money per student has been cut so badly that many teachers in higher education are unable to do their job properly. The noble Earl, Lord Russell, has been saying that to us for a long time. Education has not only been starved of funds but has been so badly politically manipulated over the past 15 years that we no longer have the first class education system that we used to have. Let us hear more about what the Government will finally do about education. Are they serious about education and skills?

On our side, my right honourable friend Mr. Gordon Brown has for many years been setting out our policies for enriching education, skills, research and

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development and on how we shall change policies so that British firms become more investment-oriented and less dividend-oriented. We need a cultural revolution in the City. It is not the other side who will do it; it is we who will do it. I can only hope that events in another place this evening and perhaps tomorrow will hasten the day when we get the opportunity to solve the problems of the country.

5.17 p.m.

The Lord Bishop of Oxford: My Lords, G.K. Chesterton once remarked that the English working man was less interested in the equality of human beings than he was in the inequality of race horses. What he is also interested in, however, as are your Lordships, is the availability of the basic elements of a decent life. All of us here know the absolute necessity of adequate education, good job opportunities, health care and housing. So my concern now is not so much with the gap which has opened up between the rich and the poor—important though that is—which has been dealt with so thoroughly by the noble Lord, Lord Eatwell; and I too am grateful to him for the opportunity to engage in this debate. My concern is above all what might be done to support those who are now losing out so badly—the bottom 10 per cent. so frequently mentioned in the Rowntree Report.

We live in a world increasingly dominated by market forces. The market, as Reinhold Niebuhr once put it, in words later echoed by Sir Winston Churchill, is the worst possible system in the world—except for all the others. It needs to be put like that because no human mechanism or institution is perfect. One of the great Christian insights into political thinking is that because we are all flawed, tending to pursue our own interests at the expense of others; and, to use old-fashioned language on this Ash Wednesday, because of sin (it is structural sin that is revealed in the Rowntree Report) some are bound to be pushed to the margins. The market as operated by human beings of unequal power and unequal wealth is not a purely neutral device. It does not benefit everyone equally, as the Rowntree figures show so starkly. Therefore, the market needs to be set within a wider and, above all, ethical and political framework which takes that into account. That is a point which I could demonstrate by a number of quotations from some of the most fervent advocates of a free market, including the writings of the noble Lord, Lord Griffiths of Fforestfach. In a world in which, as a result of market forces, there will be continuing high unemployment—at the moment it stands at 2.6 million people, of whom 850,000 are below the age of 25—there will be a continuing need for support of many kinds. If we say yes to the market and its mechanisms, as I would want, as the least inefficient means of increasing national wealth (which is desperately important), then no less fervently we must say yes to the need for compensatory action by government on behalf of those who, through no fault of their own, still stand at the foot of the ladder, unable to climb on.

The noble Lord, Lord Jenkin of Roding, complained that the report had not taken into account benefits in kind. He maintained that on them expenditure had, in

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his words, soared. But let us simply consider the point that is made by Rowntree on housing. The report says that the reduction in subsidies to local authorities and the housing associations has gone too far. It has indeed. General government expenditure on housing fell from £13.3 billion in 1979 to £5.3 billion in 1994. In the past two years, housing association funding has been cut by £635 million. As a result, in the year commencing 1st April, the number of public rented housing starts will be the lowest for 50 years. There is no evidence here of expenditure "soaring", or of real commitment to those most in need.

I could not agree more with the noble Lord, Lord Griffiths, about the need for education, particularly vocational education, if we are genuinely committed to a flourishing, wealthy society. But, as the noble Lord, Lord Desai, pointed out, it is no good having that commitment unless we are prepared to put some money into education.

The housing association movement is one of the great successes of the post-war period. It brings together local initiative, knowledge and energy, local authority expertise and government policy and resources, in a creative partnership. The result has so often been new housing, on a secure basis, in which the inhabitants can take proper pride. But the housing need is still acute. Last year, 130,000 families were accepted as homeless and at least the same number were refused. It has been estimated that over 1 million people are either homeless or have to live in sub-standard, over-crowded or totally inadequate accommodation.

The noble Baroness, Lady Elles, quoted Disraeli's words about the importance of equality of opportunity. It was nearly 65 years ago when R.H. Tawney wrote his classic work on the subject of equality. There he wrote words which have not lost their force and which need to be heard again today in relation to our market-orientated society and the uncomfortable figures revealed by the Rowntree Report. Tawney wrote:

    "Equality of opportunity is fictitious without equality in the circumstances under which men have to develop and exercise their capacities".

Those circumstances certainly include adequate housing. I believe that the Government can and should respond to the Rowntree Report in the area of housing need, first, by restoring the £635 million cuts in housing associations' allocations; and, secondly, by the release of local authorities' capital receipts in order to enable them to make their contribution to meeting that great need.

Not all can be winners. Perhaps some degree of inequality in wealth is inevitable in the world in which we live. But all of us have exactly the same need for education, job opportunities, health, and, as I have tried to emphasise, decent housing.

5.23 p.m.

Lord Merlyn-Rees: My Lords, it is a privilege to follow the right reverend Prelate. I usually listen to him at 10 minutes to eight in the morning on a regular basis. I am particularly pleased that he mentioned housing. That is still a most important issue in many parts of the country—not in all parts as it was in the years from

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1946 to 1948, but in some areas. The right reverend Prelate reminded the House of the quotation from Tawney on equality. That enables me to say at the beginning that it would be a very interesting subject for a debate. However, a different aspect of equality is the subject of this debate.

I learnt early in my life that there were people who—what is the right way of putting it?—were more unequal than I was; but that their position did not depend on their ability. There are blockages in our social system that prevent everybody from breaking through in the way in which they ought perhaps to be able to. I congratulate my noble friend Lord Eatwell on instigating the debate.

What we say in this debate today is not likely to have the slightest effect. Nobody seems to listen to the debates that we have in this House. They are not reported in the press or the other media to any great extent. We talk to ourselves, more is the pity. I have learnt in two or three years that in this place there is a wide spectrum of experience that is not available everywhere. My brief remarks are based on my own experience (not over a lifetime by a long chalk) of poverty before the war. I have never forgotten it, and perhaps it influences me too much. I also had 30 years' experience in an inner-city part of Leeds which another right reverend Prelate still knows very well. There, before I left three years ago, I remember visiting a primary school in one part of the city and the head teacher telling me, "We are beginning to have to feed some young children breakfast because, like many years ago, they do not get a proper breakfast at home". That was in one part only; it does not apply to everybody, but that is what I was told.

I should like to concentrate on one part of the Motion; namely, the part that refers to,

    "the effect of inequality on Britain's economic and industrial strength".

It was good to see that the Rowntree Foundation had published a report. Again it relates to my past. As a young man, I was brought up on the Rowntree Report on York —one report being published in 1901, before I was born. One was a classical work in the 1930s, and further reports were published, I believe, in 1936 and 1951. The reports are in the tradition of Booth's Life and Labour of the People in London, and Mayhew. There were other reports on Liverpool, Southampton and South Wales. Perhaps I figured as a statistic in a previous report.

I am made constantly aware in my old constituency and in my own family life today, where poverty is a million miles off the menu, that much has changed since the days when those reports were written. There is a danger of someone like me living in the past and trying to come up with solutions to problems that are no longer with us, or which show themselves in a different way. There is de-industrialisation. I have on my wall at home an aerial photograph of my constituency eight years ago. Compared with 10 years before that, it is like Hamburg in 1945. The engineering works and the clothing factories have gone. Britain is no longer the workshop

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of the world. That has happened not just in the lifetime of this Government; it began earlier. There has been a decline in manufacturing wage earners.

At polling time, I used to address political meetings at lunch-time attended by men in overalls who came straight from the lathe. You cannot do that now. People wear white jackets in places—they can hardly be called factories—where they distribute goods that are made in Japan. It is a different world. You cannot run an election in the way in which it used to be run. You cannot reach people. We did not have full employment until 1942. There were three years of war before we had it. I agree with the remarks of the noble Lord, Lord Desai. That is the key to much of what we are discussing today. Unemployment has been high again in recent years. It has improved in recent months, but it is still far too high.

Another factor is that, unlike in the past, Britain is among the poorest countries in the European Union. When I hear that stated, it sticks in my political gullet. I repeat, we are among the poorest in the European Union measured by GDP —no wonder we have Rowntree Reports.

There are other reports, such as Social Trends. Of all the findings mentioned, which means that I do not need to go through them again, it is interesting that it was the Tory Deputy Chairman who said,

    "The reality is now that the rich are getting richer on the backs of the rest, who are getting poorer".

He was making a political point. Was he wrong? He said it behind closed doors so he was not worried what the media would make of it. That is what he said and there is an element of truth about it. I have seen the facts and figures, no doubt to be qualified by statistical analysis or said to contain weaknesses and so forth. I do not know. All I know is that there is a problem, as there was a problem in the 1930s. And the major problem is that of unemployment.

We talk in this House of inequalities and list recommendations in relation to different forms of payments such as "transfer payments" as I had to learn to call them at one time. There are 6 million people in this country receiving transfer payments. I am one of them. I collect a war pension. We could cut out people like me—my payment is not given to me because I need it, but because the community says I should receive it, as my father did before me from another war. A community that does not generate income by work for 4 million people—I refer not only to those who are unemployed of course—should cut back on such payments. There is something wrong in such a community. We see it in the United States and in France; I do not know about Germany because I do not go there very often.

Most of the recommendations in the report only ameliorate the situation. What can we do now to deal with it? I do not know. I listen to the economists. At one time I was a kind of economist. They say "There is this; there is that. There are problems that if we expand the economy too much we are being too Keynesian. If we take too much notice of savings being greater than investment it will affect the price levels. Unless we have

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tight control of price levels we will go back to 1988". I understand all that, but there is a problem in relation to unemployment.

Perhaps we would do better—this is not conventional wisdom, if it is wisdom—if we had three managed currencies; the yen, the dollar and the ERM. There may be some sense in that. It may well be that there should be more regulation of the European banking system, not just the banking system in this country. We are being very insular in our talk about the European Union, as though we can stand alone, and I am as sceptical as anyone else about Brussels in general.

In 1940—not in 1920 and 1930—few people were interested in the underclasses. The war brought about a realisation that there were people who were poor, when poor children were evacuated to middle-class houses. People said "We didn't know people lived like that. We must do something about it", and we should be thinking of what we can do now. There should be a more even distribution of wealth. I could afford to pay more taxation. We must consider the training aspect. A great deal of discussion takes place in regard to training and I know that this Government, for the past 15 years, have tried, as did the government before. But it is no good training people if there are no jobs at the end of it. It is no good offering training only to unskilled people; there is a need to train people with far higher aspirations. The noble Lord, Lord Griffiths of Fforestfach, talked of the difference between us and the Pacific Rim. He is certainly correct. If we are among the five poorest in Europe, we shall fast reach the pitch where we are even lower than that.

Unemployment is the key to the whole of the report. We concern ourselves with other matters in relation to the fairer distribution of income, payments being made to the unemployed in different ways—job-seeking allowances, old age pensions and so forth. I understand all of that. But I learnt from experience that the great transformation in my life was when my father obtained a job. That is what matters—when the income comes along. I remember my mother paying back the poor relief that we received from The Guardians (that takes me back because they ended in 1929). She paid back every penny because she did not want to be beholden to them. I have never forgotten that. Unemployment and the cure for it cannot be beyond our capabilities. It was not when it was a national phenomenon —heaven only knows that in South Wales there were international aspects of that because of the nature of the coal industry.

I am glad that the report was published. We should read the Social Trends report, and there are others. The more we think about it, the more chance there is of doing something about it. But if I was sceptical at the beginning, I shall be sceptical at the end. In the 1920s and the 1930s those who had a job were not worried about those that did not have a job. In the RAF we called it, "I care not for thee, Jack; I am fire-proof". That is the situation at the moment. I am not sure that we care very much in this House, though we are all good, decent types and we say "Of course we do; we are sorry for them". Everybody was sorry in the 1920s and 1930s, and they did nothing about it except arrange for transfer of labour from one place to another.

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It is an excellent report; perhaps statistically flawed, I would not know—I did not listen all that carefully to my statistics lectures at the London School of Economics. But I know there is something wrong, and I know it from spending 30 years as a Member of Parliament for an inner city constituency that nobody visits.

5.36 p.m.

Lord Skidelsky: My Lords, I welcome the debate. I am glad to be able to take part in it and only regret that I shall not be able to stay to the end owing to a prior engagement.

The Rowntree Trust has a great tradition of social investigation and we should take its findings seriously. However, we should not treat them as gospel. There has been some tendency, especially in the opening remarks of the noble Lord, Lord Eatwell, to treat the report with more confidence than it showed itself, as one noble Lord aptly remarked. The authority of the signatories, the quantity and complication of the statistics, can easily blind the unwary to omissions, hidden assumptions and questionable methodologies. I want to concentrate on one methodology which was mentioned earlier. My noble friend Lord Jenkin of Roding pointed out that the report did not consider, in its calculation of income trends over the past 15 years, benefits in kind. That assertion is correct, and the logic of omitting them was not supported by anyone on either side of the House. I hope therefore that the noble Lord, Lord Peston, when he makes his final speech, will address that point.

The report purports to show that during the period of Conservative Government since 1979 inequality has grown significantly; the rich have been getting richer and the poor poorer. That finding is based on the measurement of net incomes. For Britain's poorest people income is fundamentally made up of state cash benefits—family credit, income support, housing benefit and the state pension. For the poorest one-fifth of British households, state cash benefits amount to 70 per cent. of total gross income. The Rowntree Inquiry's conclusion that the poorest people have failed to see their incomes rise at anywhere near the same rate as Britain's wealthiest people is merely a platitude. Since the decision was taken to link the rate of increase in cash benefits to prices, rather than to earnings, it was inevitable that over the years an income gap would emerge between those who are predominantly dependent on benefits and those who are not. As it was intended, that has been taken by the press as the main conclusion of the report. But it follows absolutely inevitably from the decision to de-link cash benefits from earnings.

We may regret that; but let us suppose that we were to re-establish the link for state pensions. In 10 years we would be spending as much on the state pension as we now spend on the National Health Service. Is that the kind of expenditure that the Opposition are willing to contemplate with all its tax implications? Are they willing to restore the link between state cash benefits and earnings? If not, logically the Opposition have to accept that the gap which the Rowntree Trust has highlighted will continue to grow.

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The measure of how well-off people are should surely include more than simply cash income. Britain's welfare state is built on benefits in kind as well as benefits in cash. The provision of public service is free at the point of use. In the 1970s the Labour Party used to talk about the social wage. We have not heard that phrase today. An increasing social wage was proclaimed as the great quid pro quo for restraint on the growth of cash incomes. In fact, a rising social wage was put forward as the key to social cohesion. But the social wage has been rising in the 1980s and the early 1990s precisely for that group which is most disadvantaged. Yet the Rowntree Report entirely omits the social wage—the benefits in kind—in evaluating how the poor in Britain are faring.

These benefits in kind include housing subsidy, travel subsidies, free school meals and milk—and, most significantly, state education and the National Health Service. Consumption of these benefits in kind is, as the Institute for Fiscal Studies has noted, substantially redistributive. I believe I understood the noble Earl rightly that he calculated benefits in kind were about 10 per cent. of average income. But that is not the point of course; it is the proportion of benefits in kind in the income of the lowest 20 per cent. which is relevant for this particular inquiry. The Central Statistical Office estimates that in 1993 these services were worth £3,600 to the poorest one-fifth of households which is 48.3 per cent. of their net income. It is not 10 per cent. nor indeed the 6 per cent. of the net income of the richest 20 per cent.

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