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Earl Russell: My Lords, can the noble Lord tell me which of the benefits in kind he mentioned are more generous now than they were in 1979?

Lord Skidelsky: My Lords, certainly. Real spending on the National Health Service and state education has increased very substantially since the 1970s. A greater share of those benefits has been going to the poorest 20 per cent. of the population. It is not surprising that the Rowntree Report found that Britain's poorest were growing poorer when it omitted from its calculations 48.3 per cent. of their final household income. If these services do not matter for that sort of calculation, why are we redistributing so much money through these benefits? If, as is surely the case, they do matter to the standard of living of this section of the population, what reason can the Rowntree Report have for not taking them into account?

The explanation offered by the report for excluding benefits in kind from the calculation was referred to briefly by the noble Lord, Lord Desai. He said that it was tucked away at the end of Volume 2 of the report, which is a very good device for not attracting attention to anything you say. The explanation offered by the report was that the benefits were based on need and therefore somehow they should not be included in the calculation. But cash benefits are just as much based on need. Indeed, that is the reason for the entire system of redistributive benefits, whether in cash or in kind.

If benefits in kind were abolished and £3,610 were given to the poorest one-fifth of the population directly in cash, say, through weighted vouchers instead of via

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the National Health Service, education and other subsidies, the Rowntree Report would find that part of the population that much richer when in reality it would be no better off than before.

When the value of these benefits in kind is taken into account, it emerges that because of their redistributive nature and the increasing real resources devoted to them, Britain's poorest citizens have been growing better off both relatively and absolutely since 1979. That is QED so far as I am concerned with that particular argument in the report. I am not denying that the report is very valuable in many other ways, but the particular argument that the poorest 20 per cent. have been getting either poorer or have not been benefiting at all through the growth of the economy during that period, cannot be seriously sustained.

In the final few moments of my speech, perhaps I may turn to some of the wider issues. Some of the points have been made before but they are worth repeating. It is a mistake to assume that we would have had less inequality had we had fuller employment over this period. Greater wage dispersal has been the result of the technological revolution which has brought to an end the era of a mass production economy —"Fordism" as it is sometimes called—which required standardised labour. Howard Davies, writing in the Financial Times on 10th February said,

    "Global competition and technological change have increased the incomes of skilled workers. But the UK force is less highly skilled than those of its main competitors".

Nature's short-term remedy for that situation is greater wage dispersal. Of course, one can compress incomes through an incomes policy, minimum wage legislation, and so on; but the result will simply be higher unemployment, as my noble friend Lord Griffiths pointed out.

It is frequently claimed, even by capitalism's supporters, that there is no trickle down effect. I am always amazed when that claim is made. As an historian, how can the noble Earl, Lord Russell, explain the continuous growth in the real incomes of all sections of a continually expanding world population since the Industrial Revolution without the existence of a very powerful trickle down effect continually at work? At various times there may be increases in inequality, but the tendency of the system is to produce both higher incomes and greater equality over time than anything known before the emergence of capitalism as a world system. That trickle down effect was at work before the existence of trade unions, social legislation and other things. That should be the premise on how we think of the development of our system in future.

Noble Lords have referred to the World Bank report which says that greater equality is good for growth. Of course that is so when one is thinking about the less developed countries. But there is no comparison at all between the spread of income in this country and the gross inequalities in Latin America, Brazil, Peru, Sub-Saharan Africa and so on, which hold back growth. There is nothing in this country with its huge middle class that is remotely comparable with that situation; so

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it is a sham to use that kind of argument, which is perfectly valid for very poor countries, in relation to our own situation.

I want to end by saying that certainly we should consider very seriously what this report says. But let us at least start the argument about what we should do about unemployment, and so on, from the right premise—that is, that trickle down works and that this proposition is validated by a fair consideration of the facts and figures of the past 15 years.

5.50 p.m.

Lord Haskel: My Lords, from the mid-1960s to 1979 we could keep track of inequality in income and wealth through a Royal Commission. In 1979 the Government abolished it; so all we have now is the Rowntree Report. I am most grateful to my noble friend Lord Eatwell for introducing the debate. The report details today's inequality. I shall add nothing to what other noble Lords have said except to say that this rising inequality has not helped Britain achieve a better economic performance. As the report says, the trend towards greater inequality of incomes has not produced a faster rate of growth than in previous periods when the gap between rich and poor was smaller.

The report looks at how this rising inequality is reflected in the distribution of wealth. Table 5.23 in the 1995 edition of Social Trends tells us that if dwellings are excluded the most wealthy 10 per cent. now own two-thirds of all the marketable wealth of this country. Much of our debate has concentrated on the poorest 10 per cent. in this country. I would like to examine the lessons that the top 10 per cent. should learn from the report. Should they be quietly satisfied that they have done rather well? Or does this report tell them something important?

Unfortunately, our greater accumulation of wealth has not been matched by a faster rate of growth, so there has been a transfer of wealth from the poorer section of society to the richer. I am not satisfied with this. Nor apparently is Mr. John Maples, who, as my noble friend Lord Merlyn-Rees reminded us, is the Tory party deputy chairman. He said:

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

Perhaps he, and certainly I, would want to see us all getting richer together. Sadly, Mr. Maples does not tell us how to deal with the situation because the Tory free market dogma does not work in this case. As the report says:

    "Left to themselves, market forces will not deliver levels of education, training and investment in human capital which are optimal for the economy and society".

It is the 10 per cent. élite then, and not market forces, who must be the ones to influence events which will deliver the education, training and investment. It is in their own interests to do so, for two reasons. First, few of us want to live in a society, so aptly described by my noble friend Lord Eatwell, which is so divided that many families and individuals have no stake in future prosperity. The prospect of protecting ourselves from

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this minority with excessive security and all that that means in lack of freedom of movement both for ourselves and for our children is totally unacceptable.

Secondly, the World Bank report and experience has shown that the higher the share of income taken by the top 10 per cent. or 20 per cent., the slower the economy grows. A greater share for the poor, and particularly the middle income groups, is associated with faster growth. Countries where income is more equally distributed grow faster and everybody gets richer. That is what we want to achieve.

The practical solution, as the noble Lord, Lord Griffiths, told us, lies in managing our assets so that we get people back to work. What are these assets? Going back to Social Trends, Chart 5.22 tells us that if we exclude dwellings the top 10 per cent. have most of their assets in stocks, shares, unit trusts, life assurance and pension funds. We have to take an active interest in the management of these assets. Whether we manage them ourselves at work or whether they are managed for us by investment managers, we have to make our long-term wishes known. I have made this point to the Minister during proceedings on the Pensions Bill. I am sorry that he is not in his place, because although he disagreed with me about mandatory voting then, it looks as if he may be becoming a little isolated. His right honourable friend the Prime Minister yesterday seemed to be moving towards some sort of legal obligation. I make no apology for again calling on investors to vote their shares in exactly the same way that I called upon pension fund trustees to do. The Cadbury Committee recommendations apply as much to the 10 per cent élite as they do to pension fund beneficiaries.

We are reminded every day of the importance of good corporate governance in improving Britain's prosperity; yet much as the United Kingdom Government would like to see more longer-term investment, neither business nor government believe the other is willing to make long-term commitments. We, the ultimate owners of the companies, must break the cycle by taking an active interest. By taking an active interest, I mean that we should turn up to company meetings and ask the questions posed in the Rowntree Report. The report sees childcare provision as a key to getting single parents back to work. What is our company doing about that?

The report favours extending the Government's current experiment with subsidies to employers over hiring people out of work for two years. Is our company taking advantage of this? The report talks about future international competitiveness depending on investment in human and physical capital. Is our company doing this? What is our company doing about training and introducing information technology into the business? We should not be afraid to ask these questions; they are the very points raised in the Government's own White Paper on the competitiveness of British industry. The social needs of the Rowntree Report coincide exactly with our industrial and commercial needs in the report on competitiveness.

The only justification for being a passive owner has been the trickle down effect, about which many noble Lords have spoken. The argument over whether this has or has not occurred is totally irrelevant. I reject the idea

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as being feudal and out of date. The notion that crumbs from the rich man's table are the means of feeding the poor is degrading to both the poor and to the rich man. In a modern society surely the task of the rich man at the table is to make his assets work for the benefit of the nation as a whole. Most of us want to live in a fair society and many of us care about the poor, but compassion alone will not create wealth.

Are we then, the 10 per cent. élite, happy with the fund managers who, in the last recession, rather than encouraging companies to maintain their investments for the long term, demanded and got higher dividends? Indeed, the Government encouraged the process by offering lower effective tax rates on dividends to pension funds than on money reinvested in the business. This was done in our name. Are we satisfied with this?

We have to get the balance right between profit and long-term interest. We, the 10 per cent. élite, have to make sure that our rewards are deserved and reasonable; otherwise we may be faced with the politics of envy. I hope that the Minister, in his reply, will call on those who have benefited from this inequality, many of whom must be his supporters, to welcome the report. I hope that he will urge them to use the assets they have accumulated to help reduce inequality by creating long-term work. If we, the 10 per cent. élite, are ambitious for our vested interests only, we shall end up with a society of which we do not wish to be a part. So we must be ambitious for all our people. On these Benches, that is what we mean by social justice.

6 p.m.

Lord Rea: My Lords, the House will not be surprised that I shall not be joining in the battle between the five professors or former professors of economics who are taking part in this debate nor with the one professor of history, but that I shall be talking about health and its relationship to wealth.

I shall attempt to justify two propositions: the first is that social inequality and relative poverty are related to increases in ill-health and decreases in lifespan or, put more succinctly, to increased morbidity and mortality. The second is that that increased morbidity and mortality has a deleterious effect on the economy.

There is now a large body of scientific evidence to back both of those propositions—so much so that they can now be regarded as research-based truths rather than hypotheses. The best known evidence comes from the report on inequalities in health which was published in 1980 by the working group that was set up by my noble friend Lord Ennals, who described it in his speech. That working group was chaired by Sir Douglas Black, hence its usual title, the Black Report, which has nothing to do with its contents (although some people might have thought so).

Further evidence has been built up over the past 15 years showing that, as my noble friend said, although health has improved generally, the gap between rich and poor in health terms has increased in parallel with the increasing disparity in incomes, which is so graphically (in both senses) demonstrated by the Rowntree Report.

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Nearly all causes of ill-health and death have a social gradient, with the poor being the worst off. The two main exceptions are skin cancer, which is related to excessive exposure to the sun in white races, and breast cancer, which has a relationship with alcohol consumption and late first pregnancies. Both are more common in better-off people. It is now clear that the major task of public health medicine is to convince governments that the best way of improving the health of nations is to bring about conditions which will raise the health status of the less educated and less well-off people to that of those who are better off and better educated. Departments of health cannot do that alone; almost every department of state needs to play a part.

There is a steady gradient in health across the whole social spectrum—it is not restricted simply to the poor. That has been shown most clearly by Professor Michael Marmot of UCL in his longitudinal study of 11,000 civil servants, the second Whitehall study. He has found that there is a threefold rise in mortality between the top administrative grades and the lowest grade doing the most menial tasks. The same applies to spells of sickness absence, with the lowest grade taking four times as many spells of time off work as the highest grade. That gradient persists even after allowance has been made for the known risk factors such as smoking and lack of exercise which are more common among those in the lowest groups.

A small study that I am carrying out on an inner-city practice population—it has not yet been published, although I hope that it will be by the end of the year—reflects those findings, but in the general population. Drug costs and other measures of morbidity follow the same pattern.

I should like briefly to mention the work of Dr. Richard Wilkinson, who is based at the Trafford Research Centre at Sussex University, a centre named after the late much respected Tony Trafford, who was a popular Member of your Lordships' House, sitting on the Government Benches. Dr. Wilkinson has discovered that among developed nations it is not the average income, or GDP, which determines the country's average expectation of life, but the distribution of income within the country that matters. Interestingly, he found that it is the share received by the lowest two-thirds of the population that matters, rather than that of the very lowest 10 per cent.

Perhaps I did not need to use scientific papers to prove the point that health and income are related. Many would accept it as fairly obvious. But the Government sometimes seem to need to have uncomfortable facts demonstrated beyond reasonable doubt before taking them seriously, although even then action is slow to materialise. In The Health of the Nation White Paper, this, the major public health problem in the world, receives scarcely a mention. Of course, I am pleased that the Department of Health has set up a working group under Dr. Jeremy Metters, the Deputy Chief Medical Officer, to look at what the National Health Service could do to deal with health inequalities, but the wider implications (which require high level interdepartmental action) have not been faced.

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The need for such high-level strategic co-operation between ministries and departments was recommended by both the Black Report of 14 and a half years ago and the Canterbury Report of 1984 on the prevention of coronary heart disease, but for many years little was done. The Health of the Nation White Paper and the activities emanating from it are very welcome, but far more needs to be done.

I have not left quite as much time as I wanted to discuss my second proposition: that bad health is bad for the economy. It is harmful for three reasons. First, increased illness costs the health service more. Poorer people with less good health make more demands on GPs, nurses and hospitals, and their drug costs are higher. I could go into details and give examples of research that has shown that, but I do not think that there is sufficient time. Secondly, there are higher social security costs because the higher morbidity of poorer people results in greater claims for sickness absence, as I described earlier. Thirdly, a sick workforce is a less efficient workforce—quite apart from the disruption of production that is caused by frequent sickness absences.

Finally, it is worth looking at the role of education in relation to both health and wealth. Developed countries—in fact, all countries—need a skilled workforce to run high-tech industries. Several noble Lords have referred to the skills revolution. There is a strong link between health and education. It is not only that educated people can usually obtain better paid jobs, but the jobs are usually more intellectually stimulating and in better surroundings. Better educated people usually make more decisions themselves in their work and are more likely to be in control than to be controlled. Professor Marmot suggests that that is a key factor in the relationship between job status and overall health.

Prescriptions and remedies are clearly stated in the excellent report. Among the most important are those relating to increasing employment opportunities. Another very important prescription, which both the report and a number of noble Lords have put forward to help to solve the present economic divide, is increasing educational training and retraining opportunities at all levels from nursery school upwards. We need the same prescription to improve the nation's health.

I should like to end by echoing the conclusion of Robert Reich in his book The Work of Nations, which is quoted in the Rowntree Report. He stated:

    "Each nation's primary asset is no longer its stock of raw materials or physical assets, but predominantly its stock of human capital—the skills and insights of its citizens".

6.10 p.m.

The Viscount of Oxfuird: My Lords, we are grateful to the noble Lord, Lord Eatwell, and I hope that derives comfort from the level of erudition applied to the debate. There is no doubt that people of considerable experience have risen to the occasion and given their thoughts pro or con the report. I hope that the press will take a sincere and dignified look at what has been said today on all sides of the House.

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There are one or two points that worry me about the Rowntree Report. I would not like them to be omitted by default. It is acknowledged that we must be vigilant. We must be vigilant in examining trends in living standards, income and personal wealth, and take steps to deal with any that are adverse. In that sense, I warmly welcome the objectives set out in the introduction to volume 1 of the report. There are, however, some aspects of the evidence laid out in the report that worry me profoundly, as they have other noble Lords.

In their haste to draw the most sensational possible conclusions, the authors of the report have been extremely selective in their handling of data. The report seemingly moves at will from a base comparative year of 1979 to 1977 when such a change will support the thrust of the report's conclusion. As Samuel Brittan pointed out in the Financial Times on 16th February:

    "Students of the subject have long been aware that such snapshots are highly misleading."

My noble friend Lord Jenkin of Roding referred to the writing of Daniel Finkelstein in the European edition of the Wall Street Journal in which he pointed out the issue of benefits. My noble friend Lord Skidelsky dealt with that, and I shall go no further than remind your Lordships that, at the end of the day, the figure for the poorest 20 per cent. of households in 1993 amounted to £300 a month plus. That is, if I may say so, a fairly fundamental omission.

My right honourable friend the Prime Minister has stated that the Government have a responsibility to reduce inequality—and I certainly acknowledge that—but it is wholly impractical to assume that some form of inequality will not always exist.

I was glancing through the books in a friend's library at the weekend. My eye alighted on a volume entitled Soviet Communism—A New Civilisation written in 1935 by Beatrice and Sydney Webb. How often have we been bemused into a sense of false security or beguiled by a seemingly simple solution of the well-meaning prophets of the Left? It is clear, 60 years later, that Soviet communism did not succeed in eliminating inequalities in Russian society. In fact, the reality of the situation was well parodied in George Orwell's Animal Farm. As I read through the Rowntree Report, and some of the press comments it produced I have to admit to a sense of déjo vu.

So what action can we take to reduce inequalities in our society? The Government had gone some way towards implementing some of the report's more sensible conclusions before it was published. I refer to work incentive methods, including the childcare disregard and the back to work bonus, which the Government announced in the recent Budget.

To go further, we should look at the fields of education and training. My right honourable friend the Secretary of State for Social Security, speaking in another place—this has been mentioned already but it is worth repeating—rightly highlighted that the earning power of brawn has not kept pace with that of brain. Over the past few years technology advances have made the skilled more productive while increased competition from the lower unit cost labour markets of the Pacific Rim have eaten away at the relative productivity of our

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manual and semi-skilled workers. This trend can only be addressed by more relevant and more flexible training, by redoubling our efforts in the vital field of vocational training and by urging businesses to pay more attention to their own training policies—as was mentioned by the noble Lord, Lord Haskel—including training for part-time workers. The key to business success in the future will be a flexible labour force geared to a flexible labour market.

Throughout my industrial career I have travelled widely and have seen for myself the great inequalities between rich and poor. In India—where the noble Lord, Lord Desai, has some experience—a visit to Calcutta in 1975 was a singularly salutory experience. It naturally worries me to see beggars on our streets and at our railway stations, but I assure you that this bears no comparison to third world poverty.

Many of those asking for change at underground stations are in the same category as Sir Arthur Conan Doyle's beggar in the Sherlock Holmes story who commuted home every night to a comfortable suburban lifestyle. I do not say all; just some. Many are the unfortunate product of the mistakes made with our educational system in the 60s and 70s, young people somehow brainwashed into losing the will to work.

Speaking in 1964 about the situation in the United States, President Lyndon Baines Johnson said:

    "For the first time in our history it is possible to conquer poverty."

I am sure that in a theoretical sense he may have been right. I still saw beggars on the streets of New York when I was there last year. I have also seen beggars on the streets of Brussels and, more rarely, in Geneva and Zurich.

The conquest of poverty is more about creating an environment of enterprise, of generating the will to succeed and of training to get the right skills in the right place at the right time than it is about providing state handouts. I have to admit that none of us in the world, and in particular in the United Kingdom—not even the learned authors of the Rowntree Report—has all the answers.

As one starts to read the Rowntree Report, it is easy to miss one of the early statements—widely picked up by the press and mentioned today by the noble Lord, Lord Eatwell—saying that the speed of the rich/poor differential is greater in the United Kingdom than in any other industrial country with the exception of New Zealand. Having held a New Zealand passport for 12 years, I took some exception to that. So the other day I got in touch with the High Commissioner. The response was electric. There was a 22-page fax awaiting me on my return home. I say that only to make the point about using such a large league table in that way. If we are going to make such comparisons we must balance the books with reality. My noble friend Lord Skidelsky can confirm that the march forward in New Zealand in recent years has been dramatic.

New Zealand and Britain have led the way in economic reform which has, in effect, created the speed of the divide. The important point is that New Zealand farmers, whose contribution to their GDP is nearly 5 per cent. greater than in the UK, have accepted voluntarily

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the removal of subsidies. What would the Rowntree Report look like if there were no Brussels-sponsored CAP? We must show compassion, but we must be realistic, just as we must be realistic in drawing too hasty conclusions from Rowntree.

My final point concerns our seemingly black economy. I suspect that it is no coincidence that a large number of Rowntree's bottom 10 per cent. are self employed. The figures can be found in the report; we need not mention them here. Like the Secretary of State for Social Security speaking in another place, I quote one significant paragraph from the second volume of the report:

    "households reporting zero or negative incomes in 1990-91 also reported expenditure above the average for all households ... the suspicion is that some may habitually misreport income to the authorities, disguising comfortable life styles".

I rest my case.

We must work to reduce inequalities; we must show compassion; but we should not be over-impressed by the quality or the conclusions of the report.

6.20 p.m.

Lord Diamond: My Lords, I always like to start a speech by finding such common ground as I can, and so far as concerns the noble Viscount's speech, the only thing I can say to him is that I share his admiration for New Zealand, where a large part of my family lives on South Island. If I did not have to live here, I should be happy to live there. As to the rest of his speech, I am afraid that I cannot go with him one inch.

I want first to thank my noble friend Lord Eatwell, and to congratulate him, not just on today's excellent speech, but on yesterday's, which I was privileged to hear. To make one good speech may be one-off; but to make two good speeches on two day's running, shows promise. My congratulations must be a little muted, because he said virtually everything that I wanted to say. I shall repeat just some of what he said, because the noble Lord, Lord Jenkin of Roding, repeated the irrelevancies of the speeches made in the other place. No doubt he was duly briefed, and loyally kept to his brief, in trying to pretend that we were not talking about inequality, which is comparing one thing with another. So long as one's definitions are the same at both ends of the comparison, it matters not one whit so long as one compares like with like. I hope that the noble Lord will be good enough to listen to what I have to say as I was delighted to listen to what he had to say.

The reports published over the past 20 years, including government publications such as Economic Trends and Social Trends, ministerial Answers to Questions—I have here one to me—the nine reports of the Royal Commission, the present Rowntree Report and several others, all tell the same story. I have not heard from anyone on the other side of the House a single assertion that there is an authoritative report anywhere which pretends, or tries to drive to the conclusion, that inequality in incomes in our society has not increased since 1979.

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The same story is told in all those reports, and the story is that in the early years of this century, the gap in incomes between the top and the bottom was very marked indeed. The policies pursued by every government since then, irrespective of party, were such that the gap narrowed gradually. Decade after decade, the trend was clear and consistent. But in the early 1980s, the trend was seen to falter, and then to go into reverse. For the following 10 years, the gap grew so that we are now back to where we were over 40 years ago. The progress made in those years towards a more cohesive and stable society has been lost as a result of the policies pursued by the present Government.

That position has not arisen by accident. It has come about deliberately. Let us look for a moment at the three main levers available to a government if they wish to make progress towards a fairer society. The first is income tax —a progressive tax which rests, as we all know, on the simple proposition that the broader shoulders are best able to carry the heavier burdens; but year after year since the early 1980s, new income tax provisions have been introduced which have had the effect of favouring those with the highest incomes. I shall give the figures shortly, although there is no need to because everyone in the House will know, if they have taken the trouble to compare rates of tax at the end of that decade with rates of tax at the beginning of that decade, the effect that they have had on their own bank accounts.

Secondly, I must look at indirect taxes such as VAT—a tax the very opposite to a progressive tax where the burden falls equally on the giant as on the weakling. So the Government reduced the progressive effects of income tax and increased substantially the tax which falls disproportionately on the poor.

If any further evidence were needed of the Government's deliberate intention to increase the gap in final incomes, we have only to look at the poll tax—well-to-do householders living in highly rated houses were favoured with an enormous reduction in their rates bill while millions of those who were badly off found themselves faced for the first time with large charges. As is well known, the overall burden of taxation was not reduced in that period so that the benefit to one section—those at the top—could only be at the cost to others, including those at the bottom.

The figures are illuminating. The top 1 per cent. has received tax cuts since 1979 of £75 billion; the bottom 10 per cent. has suffered an extra tax burden of £3 a week. In addition to using the tax system as a means of income redistribution in reverse, the Government turned their attention to social security benefits. Since the early 1980s, as we know, benefit levels have been linked to prices rather than wages. That has had the effect of denying to the poorest section of the community a share in all the modern improvements which their neighbours have come to regard as necessities. So in those and other ways the Government have legislated deliberately for greater inequality in final incomes. The figures show that not only has the gap widened but there has been an absolute fall in the living standards of the poorest. I regard that as deplorable. If I were asked to suggest the

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best single indicator of the level of civilisation of a society, unhesitatingly I would answer that it would be the way that society treated its poor.

The results of the Government's policies are to be seen inevitably in fields other than the financial one, as referred to by my noble friend, and in the greater alienation of large numbers in our society, with the consequent increase in crime and lawlessness, the gap in the incidence of illness and the gap in the expectation of life itself, of which we have had such valuable confirmation.

The Government's justification has always been that in implementing these measures they will benefit the economy as a whole in which all will share. That has never been more than an unjustifiable assertion. Nevertheless, let us test it by relating it to the facts. In addition to the long-term trend towards greater equality in incomes, there is another well-known long-term trend. Since World War II the economy has, with negligible exceptions, grown at an average annual rate of a little over two-and-a-half per cent. What happened to each of these trends after the present Government took office? The equality trend changed course and became a trend towards greater inequality. Growth in the economy, far from accelerating in the way it was claimed, slowed down to a figure of a little over one-and-a-half per cent. compared with the trend of two-and-a-half per cent. established over all those years. What went with greater inequality in our society was slower growth in the economy. There was an improvement at the top and a deterioration at the bottom. The much vaunted trickle-down effect was nowhere to be seen. A huge but not impossible task faces the next government.

I should like to suggest two matters for consideration by my Front Bench. Unless one takes a series of positive steps to move towards greater equality, the situation will automatically get worse. The dynamics of decline are such that even if one follows neutral policies, the gap will widen. Not surprisingly, the well-educated and well-connected will prove more than a match for the poorly-educated, with no friends in the right places, however level the playing field may be. A simple policy of equality of opportunity will be quite inadequate. In addition to the inbuilt tendency for the gap in incomes to widen, there is a tendency for those at the lowest income levels to remain there, or thereabouts, even through the generations. They may move from the lowest level to the next one but, with rare exceptions, no further than that. Often they will drop back as the years go by. That is not surprising, but it should not be overlooked in policy-making.

In short, fairness and stability in our society and the physical and financial wellbeing of its members, all point in the same direction. There is a need for long-term policies to restore the century-old trend to greater equality and a fairer and more prosperous society. Future Labour Ministers should have ringing in their ears the advice which those of us plebeian enough to use the Underground from time to time know so well: "Mind the gap!".

6.35 p.m.

The Earl of Longford: My Lords, I am very happy to precede the noble Earl, Lord Clanwilliam. My old

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Oxford friend and much admired Hugh Gaitskell would have been particularly pleased to find the noble Lord, Lord Diamond, back in the fold and speaking so effectively along Socialist lines. He would have welcomed him like the father welcomed the prodigal son, with a fatted calf and all the rest of it. Whether or not the noble Lord confessed to any sins or claimed that he had remained the same and we had all changed, what he said was very effective.

I have one vivid memory of the ancestor of the noble Earl, Lord Clanwilliam. He was chairman of the Carlton Club and I was a young Conservative who was about to desert the party and the club. I went to see the eminent man, who said, "Have a glass of port, my dear boy." I blurted out, "I'm awfully sorry, but I want to leave the club." He said, "What on earth for? No one has ever done it before." I said, "I have written a book." He replied, "If all the fellows here who had written damn silly books resigned, we would not have a member left." With that, I had to find an alternative way out.

I listened with great admiration and envy to the fine speech of my noble friend Lord Eatwell and the speeches of others who have spoken with highly relevant knowledge. In these latter days I certainly do not dare put myself forward as an authority on economic matters. At one time I hoped to be a professional economist. I entertained the dream of becoming one day somebody like my noble friend Lord Eatwell, or in fantasy, a professor like my noble friend Lord Peston. However, neither of them had been born at the time. Those dreams were shattered by an interview with J. M. Keynes. I was introduced to him as a likely recruit to his research team at Cambridge. He had peculiar gimlet-like eyes which bored into me. He leant across the table and said, "In Cambridge we claim to be possibly 10 or 50 years ahead of the rest of the world. I cannot see into your mind." I had the terrible feeling that he could see into it all too clearly and appreciated exactly how unequal I would be to the task. He asked, "Would you be able to keep up?" He left me in no doubt about his view and my answer. As a result, I crept back to Oxford and proceeded to teach politics, which was a much softer option.

I realise that in these days, when serious-minded people come to decide whether or not to vote Labour, if they are not already committed, they ask themselves the relevant questions which have been discussed this afternoon with such learning. Will Labour do a better economic job than the others? For me, that has always been a very significant question, though not a decisive one. When I worked in the Conservative research department between 1930 and 1932 I was familiar with all the arguments now used in favour of inequality. I remember a leading article in The Times which said that unfortunately wealth was like heat; it was only when it was unequally distributed that it performed what physicists called work. The trickle-down effect is simply a modern version of that. I suppose that the argument about "fat cats" is the same kind of thing. We need fat cats if we are to have plump kittens. Those were the arguments which I propounded more or less cheerfully in those days.

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At the same time, I was working, curiously enough, for the Workers' Educational Association. There I acquired very different ideas: for example, that the Labour ideal was a much nobler one. The question was: could one convince oneself that Labour, if returned to power, would do sufficiently well economically to produce something to which one could give one's life?

The Labour Party's record in government at that time had not been very happy. It had twice been in office but, as we used to say, not in power. On neither occasion was it very successful. For four years I thought about all that. I came under the irresistible influence of my wife, and in 1936 I joined the Labour Party. I have been a member of that party for longer than anyone on the Front Bench. How I saw it then is how I see it now. The divisions within the Labour Party are moral divisions. One cannot ignore practical questions but, for me, the decisive issue is moral.

I was once asked by George VI, when I was a Lord in Waiting, why I had joined the Labour Party. I felt that it was impertinent to give the true answer, which was that all human beings are of equal and infinite worth. I stood there bowing and said instead, "I am on the side of the underdog." Having founded the Duke of York's camps, he was entitled to add, "So am I." Being on the side of the underdog is part of it. But the fact that all human beings are of equal and infinite worth applies to criminals and to Mr. Michael Howard, the Home Secretary. At least, I try to remember that it applies to him. That is a fundamental, moral reason.

I am a Socialist because I am a Christian. I say that again now with even stronger conviction. But I must make two major qualifications. First, I look around this House—I am rather short-sighted and cannot see everybody very well —when it is full and I can see many better Christians than myself in all parts of it. That is one aspect of the matter. Religion does not decide one's party politics. Inevitably, other factors come into the decision.

The present Leader of this House is a representative of the most famous Christian family in this country. Five of his predecessors have been Leaders of the House, so there is plenty of Christianity there, as elsewhere. I recall that Lord Salisbury, who is commemorated in the Corridor, said of Gladstone, the great Liberal, when he died, "He has kept alive the soul in England. He was a great Christian man". I do not say that if one is a Christian, one necessarily joins one party or the other. I merely explain how it has worked out in my life.

As my noble friend Lord McIntosh reminded me the other day, there is a strong Christian tradition in the Labour Party. But there are other strong traditions. My noble friend Lord McIntosh represents one such tradition very bravely and effectively. I remember introducing Lady Wootton, who was a dedicated humanist, and waiting while the Clerks hunted for the alternative form of the oath. It was a great honour to sponsor such a tremendous humanist. Moreover, outside my family and the clergy no one had more influence on me than Victor Gollancz. He was a great, noble Jew, although, in later days, he called himself a Judaeo-Christian. Therefore, I wish noble Lords to be

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aware of all those considerations when I say that I am a Socialist because I am a Christian. I am speaking about one man's faith. No one should speak for anyone except himself on such a fundamental matter.

In the last resort, I shall go to my grave believing that the Labour Party would make far more just and humane the distribution of wealth in this country. On that, at least, the Labour Party will always be united.

6.45 p.m.

The Earl of Clanwilliam: My Lords, I thank the noble Earl, Lord Longford, for his kind remarks about my uncle. The noble Earl referred to bringing back to the fold the noble Lord, Lord Diamond. Perhaps my uncle would wish also that the noble Earl, Lord Longford, would return to the fold of the Carlton club and the Conservative Party.

The noble Earl said that all men are equal and indeed they are. But inequality is another matter. That is inescapable as the noble Lord, Lord Eatwell, to whom we are extremely grateful for introducing the debate, said. He suggested to my noble friend on the Front Bench that at one stage in his life, he might own all the wealth in the world. That makes the point that inequality exists and has existed throughout the ages.

The solution to the problem lies in reducing poverty. The Rowntree solutions are somewhat inflammatory. It is disturbing that the Rowntree Report found that 20 per cent. to 30 per cent. of the population failed to benefit from economic growth in the 1980s and that the factors which led to that inequality were themselves contributors to overall economic growth. The report concludes that a balancing act is needed to decide how to compensate losers while maintaining economic growth. I ask your Lordships to note the word "compensate". The report refers to income transfers. Is that a form of further taxation? It refers also to support for education and training. We are all in favour of education and training, but does that not mean more taxation?

In the 1980s we were living with the educational legacies of the 1960s, when the perception of personal integrity had been denigrated. The noble Lord, Lord Merlyn-Rees, told us that his mother's dedication to honour and integrity was entire and intact. I believe that such honour and integrity were lost in the 1960s. But in the meantime the Government have been overcoming the educational problems caused by poor teachers, and improperly politically-motivated teachers to boot.

The report refers to changes in the relative distribution of wealth and income and, in particular, income which is the index of poverty. It says that changes have not allowed the rich to subvent the poor and makes recommendations as to how to achieve that in relation to the trickle-down effect. As my noble friend Lord Skidelsky pointed out, the trickle-down effect is constant. It happens all the time and it goes with the cyclical change in economic growth.

Falling relative incomes cause problems regardless of whether they reach an absolute standard. But we must ask what is that absolute standard and where poverty starts. Is it to be 50 per cent. of the average wage? Are

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we to say that those earning £7,000 per annum are poor? Is that not an insult to the poor in Africa and Asia? How can we, in all morality, complain that 50 per cent. of the average wage is poverty? That is ridiculous.

As my noble friends Lord Jenkin of Roding, Lord Griffiths and Lord Skidelsky said, social security payments have not been counted in the report. It calls for investment from every sector of the economy. That is easy to say, but does that mean that there will be a minimum wage which, at one stage, the report advocates? On this side of the House, we know that the argument in favour of the minimum wage is ridiculous and mistaken. It imposes an additional charge on the economy and creates rising unemployment.

The report talks about payment grants. There may be something in that because when one sees on television the crowded rooms of the unfortunate people who are living in extreme poverty, one cannot fail to see also the television sets, the VCRs, the microwaves and stereos and, as my noble friend Lord Jenkin said, the famous washing machine. All those items are purchased on HP at an APR of 30 per cent. per annum. Over three years the taxpayer has paid twice over for those items. It seems to me that if we wish to reduce poverty, it is a mistake for the taxpayer to pay twice over for those items at an interest rate of 30 per cent. per annum.

Housing is one of the great factors in the development of inequality. We are living with the legacy of the 1960s housing schemes where the poor were concentrated together and poverty became endemic. As has been clearly said—and, indeed, as is stated in the report—poor housing creates family problems such as divorce, lone parenting, poor parenting (which I believe is, perhaps, a euphemism for children being badly brought up), low standards in personal life, youth unemployment and crime and vandalism. I believe that the cure is improved housing and the creation of a mixture of tenure, as the report suggests, in an estate using different income groups such as present-day rural village life presents. That creates a population with a range of occupations and skills.

I believe that there is a reference on page 39 of the report to what I interpret as "domestic help". I must declare an interest in that respect. I can claim to be a pretty good butler, excellent in the cellar, not a bad footman and certainly one of the best scullery boys in Wiltshire. However, the village is being destroyed by shopping centres and supermarkets. London is one of those examples where there is inherent in the city village enclaves; for example, Fulham is well known as North Sussex to some of us. We need to revive society, not to throw money at it as the report suggests.

I cannot conclude without saying a few words to my noble friend on the Front Bench in respect of pensions. The creation of wealth is the vital activity in removing inequality. The production of wealth by the population can only be done through savings and through proper pension arrangements. That pension plans should be started at the earliest possible moment is a plea that I make to my noble friend on the Front Bench. The report

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is important. It needs great study, but it is to be welcomed. However, I suggest that there are some flaws in it.

7.2 p.m.

Lord Sefton of Garston: My Lords, in thanking my noble friend Lord Eatwell for introducing the debate, I should also like to couple that with my thanks and express my pleasure at the article which he wrote in the Evening Standard a few days ago. In that article, my noble friend said:

    "The economic constitution has as much, if not more, influence on the freedom and happiness of the people as does the political one".

I should like to deal with that point during the 10 or 12 minutes that I have at my disposal. I do not believe that it is necessary for anyone to start dealing with the Rowntree Report. The consequences of the gap widening in our society with regard to equality were amply demonstrated by the noble Lord, Lord Diamond. No one can quarrel with that analysis. It is good. But, if I wanted more confirmation, all I would have to do is to look at the fact that the European Parliament has now decided that Liverpool is on a par with the poorest places in the whole of Europe. Indeed, some people have even suggested that it is perhaps worse off and more deprived than some places in the Pacific Rim—and I am not talking about Hong Kong or the other places. So I would need no further confirmation about the inequalities that exist in our society.

However, there is another inequality that springs from the economic circumstances. How is it that a man earning £450,000 a year can say that the question of his salary has nothing to do with ordinary people? It has a tremendous effect on ordinary people. He claims that the only people who should be told about it are the shareholders. But who are those shareholders in this so-called "democracy" of ours? They are people who have achieved their position of authority purely because of the possession of money.

Tonight I feel somewhat sad because it has just dawned upon me how old I am. There is a phrase called déjo vu—if I have pronounced that wrong it is because I am ill educated and cannot speak French—in other words, I have been here before. Who at my age has not? How many reports were there in the 1920s about equality? How many reports were there about deprived areas in the country? Moreover, what was the factor that started that cycle of deprivation for some people and prosperity for others? I suppose that one could say that it was the Great War when it fostered all the technology that began to build the technological revolution that we have today. That is a fair guess—although some people might go back further than that and may even go back to the Boer War. I shall not touch on any of that. It is said that we won the war in 1918. But who is "we"? It certainly was not the miners in 1924 and 1925; it certainly was not the Jarrow marchers; it certainly was not those deprived people of whom the Prince of Wales said that something must be done; and it was not the people who were the subjects of other reports similar to the Rowntree Report. I pay tribute to them. We owe a

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debt to those people who produced the Rowntree Report, and other reports, upon the social life of this nation. They are the conscience of the nation.

When one looks at it very closely, one has to ask: why were there such areas of deprivation? It was because the free market had full rein. Those concerned were determined to get what they wanted, and that was their philosophy. What lessons have we learnt from that? Well, I believe that we are about to see a transformation in the political guidance of the country. During the war when ordinary working people and other people were needed to win the war, we got rid of the inequality. People began to believe that we were one nation and that, in fact, all our interests were the same.

The war came and went with the consequent loss of all those lives. Then came peace and a transformation had taken place. The transformation was that the concept of one nation was beginning to be felt. I believe that the last defender of that concept was Mr. Heath. So, for a few years, the inequalities were not so pronounced, although there was still unemployment of 750,000 or 1 million. However, then came 1979, and what happened? The year 1979 was the high watermark for free enterprise and capitalism. They were to be freed; and, being freed, they would release everyone else from poverty. That was the theme. But, as has been pointed out in today's debate, what a failure it was! All it did was accentuate the divisions in our society.

However, the situation became worse. It took on a new note. Those people who had previously operated in local government and who had done so as a voluntary service with, in most cases, payment of expenses only, those who had contributed efforts to electricity, gas, water, sewerage and all the other supplies which are so necessary for decent communal life and so necessary to ordinary people, were suddenly thrown into a new world. But what was that world? It was that money counts—"efficiency" is the word. So, we privatised. As one well-respected Member of this Chamber said, we sold the silver. However, we were not only selling the silver; we were also selling the only possibility that people have to get a decent standard of life. We were selling employment. On the basis of wholesale redundancies, some of these elevated people in the privatised utilities suddenly became efficiency experts. Never mind that they had to scrap 250,000 jobs and put people on the scrapheap. That did not matter, the company was becoming efficient.

The unemployment which in 1979 the Tories said they would get rid of began to mount. It is still there. The Tories say it is hovering around the 2.5 million mark. It is not: it is hovering around the 4 million mark. When one counts those unemployed people and their dependants, within our society there is a growing threat to the stability of our political and social system. I make no bones about it: that threat exists. One has only to look at the demonstrations that have taken place over the export of live animals. Imagine what will happen when those people who are being deprived of a decent standard of life in this country suddenly decide that it is time that they enjoyed some of the prosperity, not all of it but a decent standard of life. When they decide that

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that is worth demonstrating about, believe me, the demonstrations that have taken place over the transport of live animals will be nothing.

Your Lordships may think that that is an exaggeration. What about the case of the chairman responsible for a health trust that was criticised by this very Parliament for the system, which he had organised, which allowed a lady to go for eight months without being told that she had breast cancer? I wonder what she and people who are interested in her case think about the justice of the situation when the person in charge of that health trust went home with a £200,000 pension while that lady was left to go home and worry the very soul out of her, and her family was left to worry, about the fact that she had not been told.

What about the man from British Telecom who thinks it a big joke to compare himself with a junior doctor in a hospital? That is the kind of mentality that is bred by the current attitudes. People know that, and sooner or later they will not stand for it. I shall be on their side, and I hope a lot of people will be on their side. Society is moving towards breakdown unless we do something about it.

I want to deal with one other point, whether this free enterprise of ours is patriotic. I remember somebody who was once a director of the Bank of England—I am getting old. Famous words were ascribed to him. It was at a time of financial difficulty, and I am not a financial expert. He said that he knew that it was not good for the British economy to sell sterling, but it was good business. He did it. That was a measure of his patriotism.

Three years ago I raised a Question as to whether British Aerospace should be prevented from selling off some of our industry. I mentioned in particular the manufacture of the 125 jet. That was a successful jet which was making £500 million profit. There was nothing wrong with it. But British Aerospace had a little problem and decided to "flog" it. It was sold to Raytheon. Raytheon said that they had a manufacturing base at Broughton in Cheshire. They built the jet there for 18 months, but 500 jobs have now been exported to the United States of America. Rover is another example. The list is endless. What is going to happen when we arrive at a situation when, as is in the pipeline, some of those privatised utilities are owned by foreigners.

Our new Labour Government, which will come into existence, may talk about regulating the economy. They may talk as much as they like about the whole of private enterprise, never mind the privatised utilities, and the long-standing pattern in free enterprise whereby the amount of money paid to executives is well above anything paid to others. The rules of the game are to get as much as one can. The new government will not be able to regulate that: they will have to control it.

7.5 p.m.

Lord Monkswell: My Lords, this has been a fascinating debate. There have been some big hitters. I refer particularly to the contributions of the noble Lord, Lord Merlyn-Rees, and the noble Lord, Lord Sefton of Garston. We all owe a debt to the noble Lord, Lord Eatwell, for introducing the debate so well.

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I was concerned by the contribution of the noble Lord, Lord Jenkin of Roding—which set the tone for the contributions from the Government Benches—which suggested that the report was flawed. Somebody referred to taking snapshots. One of the interesting aspects of the report is the way in which a number of snapshots run together to show a moving picture. We must recognise that there is a difference between the basic statistics and factual information that should be the basis for our decisions and the way we interpret those figures and the decisions we arrive at as a result.

The report we are debating today, the Rowntree Report on Income and Wealth, has provided us with the statistical, factual information that has not been available to us up until now. Up until now we have had to take on board the Government's view that their way of running the economy was the best one in the sense that it increased wealth and growth and that everyone benefited from that. The report has highlighted the fact that the incomes of the bottom 10 per cent. to 20 per cent. of our population have not increased over the past 20 years, but the incomes of the top 10 per cent. of the population have increased significantly more than inflation.

I would have hoped that the facts presented to us in the report would be accepted. How we interpret those facts and the decisions that we arrive at as a result of that interpretation are open to debate and question. However, it is unfortunate that basic facts which are presented to Parliament are denigrated and ridiculed and it is suggested that they are not accurate.

The statistics show the moving picture which has been provided by taking snapshots. They show that people on lower incomes have not benefited over the past 30 years and the theory of trickle down has not worked in practice. It is interesting to reflect on the fact that the report identifies the period from, I think, 1977. We can legitimately ask: why did the situation change then? We have to look back to the mid-1970s and realise that the whole of the Western world was dislocated by the massive increases in oil prices engendered by OPEC. We must recognise the destabilising effect that that increase had on world economies.

As a response to that destabilisation there was—dare I say it?—an unfortunate reversion to old style economic thinking referred to as monetarism. That pervaded not just the Conservative Party but also the Labour Party and was prevalent around the world. The Labour Government in this country attempted to ameliorate the difficulties which faced the economy. However, after 1979, as many noble Lords have pointed out, instead of seeking to ameliorate the difficulties, the Conservative Government made them worse. The noble Lord, Lord Jenkin of Roding, seemed pleased with himself for having been the one who broke the link between average earnings and pensions and unemployment benefit. We have to recognise that the statistics in the Rowntree Report effectively indicate that that was one of the factors which made the situation worse.

As an engineer I look at facts, figures and statistics. In this House we have a tremendous advantage through the amazing knowledge that some Members bring to bear regarding the historic dimension. The noble Lord,

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Lord Merlyn-Rees, encapsulated the problems that we face by comparing the situation on unemployment that we face today with that faced by the country in the 1930s. As an engineer it is interesting to reflect on what has happened in engineering production firms. What are the comparisons between now and the 1930s? There were similar disparities between income and wealth, in particular in the 1920s. With regard to the production of motor cars, a number of leading motor manufacturers produced motor cars with large V-12 engines, appealing to the upper end of the market. A number of rich people wanted the very best and they were provided for. However, that period in motor development lasted for only a few years. The crash then came and those wealthy people could not afford the big cars. They could not afford to put in the petrol to keep them running. It is interesting to note that exactly similar events have occurred over the past few years. All the leading prestigious manufacturers of motor cars have produced V-12 engines over the past 10 years. I refer to Jaguar, BMW, Mercedes Benz and some of the prestigious American manufacturers too. I speak in a European context.

When considering the differences between income and wealth, we must look at the way in which people with excessive incomes spend their money, and at the result for poor people of not having money to spend. I have spoken of the expensive, prestigious motor cars that in some respects are a blot on our landscape because of excessive consumption of petrol and the attendant pollution problems. That is one problem relating to the high income end.

Regarding the lower end of the income scale, let us consider young people with inadequate incomes. What do they do? They buy run-down motor cars. They cannot afford to maintain them so they are run inefficiently and pollute the environment. The chances are that they cannot afford the tax, the MOT or the insurance, and inevitably they will fall foul of the law. Large numbers of those young people are sent to prison. That is an added cost to the Exchequer and to our society.

These factors have a knock-on effect on the economic and industrial strength of the country. That is the key to what we are talking about. I have referred to motor cars. However, one can use that practical experience in a range of other areas. One can see that rich people over-consume on housing. They may have a second or third house abroad which does nothing for the economy of this country. The poor people do not have enough money to maintain their houses. Therefore the housing stock of poor people deteriorates.

Perhaps I may refer to what noble Lords opposite have suggested is a problem: that the report does not take into account benefits in kind—education, health and others. The costs of those benefits in kind have increased for poor people. Education is not completely free because parents have to buy books. Prescription charges have gone up. However, one of the interesting aspects relates to wealth. Before this Government came into power, we were all shareholders in the large, nationalised utilities. But those have been sold off and the poor people are no longer shareholders in those

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privatised utilities. Therefore, they have effectively lost wealth. I hope that the Government will recognise that the report contains important statistics which we need to bear in mind when developing policies for the future. I suspect that the Government will not respond satisfactorily to the report. I am sure that a Labour Government will do so, and will ensure that our country makes progress.

7.18 p.m.

Lord Beaumont of Whitley: My Lords, we have had a most interesting debate and very good speeches. I select in particular the speeches of the noble Lords, Lord Haskel and Lord Sefton of Garston, and that of the right reverend Prelate the Bishop of Bristol. We have had some not-so-good speeches. We have had one or two good speeches from noble Lords who had to leave before the end of the debate. I believe that that should not happen. Your Lordships are of a mind that there should be a very good reason for that; no doubt there was. However, I should like to suggest Beaumont's law. The more important you consider your speech, the more important it is that you stay until the end to hear people answer it. If you have airy nothings to say that is fine. You can slip away. If not, you ought to stay whatever happens.

I wish to concentrate on the undesirability of extreme poverty and extreme riches. I personally have experienced both poverty and riches and have no doubt that both are undesirable, although one is considerably pleasanter than the other. My experience tends to protect me against the usual small arms fire which has not been absent from the debate and which implies either that one does not know what one is talking about or that one is consumed by envy.

In deploring poverty, I am clearly in tune with the majority of your Lordships' House, although some noble Lords on the Benches opposite would claim, and have claimed, that since there is no such thing as absolute poverty in this country there is really nothing to deplore. However, we need to hammer on about poverty which seems to have passed out of mainstream political debate in this country, although one would not think so from today's proceedings. I define poverty in the same way as Adam Smith (surely acceptable to the party opposite) defined necessities. He said:

    "By them, I understand not only the commodities which are indispensably necessary for the support of life, but whatever a custom of the country renders it indecent for creditable people, even in the lowest order, to be without".

I was present yesterday evening as a member of the executive of the family service units of Lambeth and Southwark. We were discussing our plans and the budget available for the next year to help abused children, refugees and battered wives, almost all of whom live in extreme poverty. The FSU executive committee was wondering what on earth it would do with an income which would be reduced, first, by the saving of funds of the local authorities on which it depends and, secondly, by the difficulty of going to charities when a major charity has just gone bust. The charity went broke through gambling. It was not simply

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that the man absconded; the firm had been quite happy to receive income from his gambling last year when it made a profit. It was only when he started making a loss that he became the villain of the piece.

The party opposite, with some honourable exceptions, has never been much interested in the topic of poverty. The Labour Party has an honourable record. But the main reason I never sought to join it was that it seemed to me that the basic contradictions in the party—those which drove colleagues like my noble friends Lady Williams and Lord Jenkins out of it—would prevent the party ever being able to do anything about it.

The Labour Party has more or less got rid of those contradictions, but at the same time the baby appears to have been thrown out with the bathwater. With the exception of some speeches, I no longer detect the burning zeal for the abolition of poverty which I used to admire. A fair question is being asked of the Labour Front Bench which I request them to answer this evening: which of the recommendations of the report will they themselves put into operation?

I have always thought it honourable in this cause to be on the radical wing of my own party, the party of Beveridge. However, since I am being rude about others, I may say that I am not proud of my party's refusal to continue with a policy of citizen's income for which my noble friend Lady Seear fought so hard and for which the noble Lord, Lord Desai, has been a major protagonist. No more do I admire the inability of the Borrie Commission's report to do more than toy with the subject.

As to riches, I find myself in a small minority in deploring them. Without making comparisons, I am always heartened by the teachings of Jesus of Nazareth. While not paying a great deal of attention, according to the Gospels, to poverty, he paid a great deal, not at all complimentary, to riches. On poverty, his most prominent pronouncements were that "the poor are always with us" and that they are "blessed", a saying which, given the arguments used by theologians over the years, we cannot really use as the basis for very much. He also said that the poor will have the Gospel preached to them. About riches and rich people, almost all his references are pejorative—in which, of course, he stands in the great tradition of the Jewish prophets and the Jewish religion.

I am likely to get more of a hearing from noble Lords if I concentrate on the evils of major inequality in society, to which the Motion calls attention. The Government, in a rather oblique way, added their own welcome comment on the subject in the Prime Minister's remarks yesterday about high salaries.

The Motion is careful to limit its reference to the effects on our economic performance, but I argue that you cannot separate social performance from those effects, as did the noble Lord who inaugurated the debate, to whom we are extremely grateful. A nation at odds with itself, as a country with wide disparities of wealth is, will not, in the long or medium term, be an economic success, and probably not in the short term either.

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In a democracy it is important that the governed be in social touch with the governors. The dustman thinks that all politicians are crooks and that members of the Cabinet are the crookedest of all. If noble Lords doubt that statement, they have not been canvassing recently. I know that all politicians are not crooks, partly because I know members of the Cabinet who are not crooks. It is impossible for all dustmen to know members of the Cabinet, but society needs to be so reticulated that MPs, councillors and their electors form a web of personal connections, recognising each other's worth, even when they dissent violently from each other's opinions. Major disparities of wealth, accompanied by policies of segregation, either of the rich or the poor, make great gashes in that web. It is sad that the middle classes have entirely deserted the ghettos. It is true that the only profession who still live in the ghettos are the clergy. Social workers do a wonderful job, but they move out in the evenings.

There are some who say that we must have these extremes if we are to be internationally competitive. I believe that they are probably wrong, even in terms of the present economic order. In terms of the future economic order, to which all the governments of the world, including our own, are committed—that of the sustainable economy—they must be wrong.

The implications of the sustainable economy clearly involve an immense decrease in international and national inequality. Of course, there are major conceptual and practical difficulties in the way of equality, but as Tony Crosland so rightly pointed out, in the tradition of Karl Popper, that is no reason not to try to diminish inequality. I suggest that a differential within a nation of family incomes after tax of something like 5:1 is a target at which to aim. Every party and almost every person in this House would subscribe to the aim of a coherent society at peace with itself. Let us turn our words into action and realise what are the necessary steps to achieve that and then let us take them.

7.28 p.m.

Lord Peston: My Lords, my time is limited and I must not take any from the Minister. Therefore, I can only cover some of the points raised in this afternoon's extremely interesting debate. If I fail to deal with all the errors made by noble Lords opposite—and there were many—I ask them not to be insulted. If I neglect any, perhaps they will approach me privately later, when I shall be perfectly happy to explain where they went wrong!

The central question, which was emphasised by many noble Lords but certainly by my noble friend Lord Desai and the noble Lord, Lord Diamond, is: has there been any sort of economic miracle, and has the increase in equality been beneficial to the country at large, albeit at the expense of the poor?

As the noble Lord, Lord Diamond, pointed out, under this Government GDP has grown at about 1.75 per cent. per annum, which is less than the long-run trend in growth of the UK economy of 2½ per cent. per annum. Manufacturing productivity has certainly risen, but manufacturing output has not risen to anything like the same extent. Essentially, firms have shed labour. The

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market mechanism has failed in that most of the workers who have been shed have failed to find employment elsewhere. They are unemployed or prematurely retired.

Unemployment was at 1.3 million when this Government came to power. It has not fallen below 1.6 million since then, and for the most part has been above 2 million. Indeed, it is a measure of the Government's acceptance of failure that they boast that a fall below 2.5 million is a triumph. The inflation rate has fallen. But that is not surprising. If you are willing to weaken the labour market and allow unemployment to rise and stay high, there is no difficulty in controlling inflation. But even then, the alleged success is less than impressive. With unemployment above 2 million, there is already talk about rising inflation and the need to tighten policy; i.e. a new rise in unemployment in due course.

That is one reason why the Rowntree Report is so valuable. It brings out what noble Lords have said: much of the problem of poverty is connected with lack of jobs for workers who want to work, which is exacerbated by low pay in some of the jobs that are there. Low pay is precisely what the Government advocate—people must price themselves into work. It is also connected with the fact that the Government oppose worker protection and a minimum wage. In this connection, I must quote the greatest of all economists. He said:

    "Our merchants frequently complain of the high wages of British labour as the cause of their manufactures being undersold in foreign markets"—

that is an argument that I have heard several times this afternoon—

    "but they are silent about the high profits of stock. They complain of the extravagant gain of other people; but they say nothing of their own. The high profits of British stock, however, may contribute towards raising the price of British manufactures in many cases as much, and in some perhaps more than the high wages of British labour".

That was said by Adam Smith, an economist often supported by noble Lords opposite but never read.

May I say how delighted I am that the Prime Minister has stopped shilly-shallying and has recognised how appalled most people are at the greed of the heads of the former public corporations. Now that the Prime Minister has spoken, I hope that we shall hear no more from noble Lords opposite about "the politics of envy". In the old days, the Right-Wing press used to refer to trades unionists as having their snouts in the trough; but these people have immersed their whole bodies in it. They have shown how moderate the trade unions were, even at the height of their powers, in their demands for more pay.

The public are happy to see high rewards corresponding to merit and economic efficiency. But what we have seen recently is quite different—especially bearing in mind that most of the people involved have little obvious merit above the average. What I think ordinary people find most distasteful is less the greed and, as noble Lords have pointed out, more the attempt to justify it. It is one thing to take the money if you can get it, and if someone is fool enough to give it to you. But it is quite another to make comparisons with those who lay down their lives for their fellow human beings and serve the community.

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I happen to know some of the people about whom we are talking. When I have met them, they have seemed to me to be decent, ordinary human beings. One can only reflect sadly on the corrupting influence of large sums of money when we look at the events of recent weeks.

I turn to philosophical principle. I advocate the Rawlsian proposition which is implicit in much that has been said; namely, that we should justify a policy initiative according to how it affects the poorest in the community. The simplest way to put this is to ignore relative incomes for the moment and to say that policy is good if it makes the poor better off and bad if it makes the poor worse off. In a world of uncertainty, perhaps we ought to say—Rowntree alludes to this—that a policy is good if it has the potential to make the poorest better off; and, as a minimum, that a policy which neither makes the poor better off nor has the possibility of doing so, is bad. That is precisely what has happened in the lifetime of this Government.

My noble friend Lord Longford raised the question of morality. He and I may differ on the underlying basis of morality, but what has appalled me during this debate is that not a word of ethics or morality has been uttered by noble Lords opposite. I have sat through many education debates in which noble Lords opposite have argued for, and voted for, compulsory religious education of a predominantly Christian character. Why have they not expressed such beliefs in connection with the subject of today's debate? If they were teaching a religious education class, how would they reply to a young person who queried the morality of a society in which those who have most are getting more still, and those who have least are getting least in addition? I give way to the noble Earl.

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