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Lord Skidelsky: My Lords, if that is how they were taken, I unreservedly withdraw them. I believe that I was entirely within my rights to say that he had misinterpreted that remark by Lord Keynes. I did not think that any purpose was to be served by becoming involved in a debate about what Keynes really meant in 1929. Those debates have filled thousands of pages of learned journals and they are inconclusive.
Viscount Chandos: My Lords, it is a tribute to the creative endeavour and imagination of the 30-odd speakers today that a substantial debate can be derived from what my noble friend Lord Richard described as an anorexically thin gracious Speech. There have been penetrating but fair critiques, not least by my noble friend Lord Peston, of the disparity between the Government's record and the unexceptionable statements of economic intentions contained in the gracious Speech. My purchases to date of lottery tickets have not so far produced a jackpot win, so I do not feel that my luck will change sufficiently to forecast accurately the measures in next week's Budget Statement. I shall therefore leave any comments on the Government's current economic policies until the debate to be initiated next Wednesday by my noble friend Lord Desai.
In the light of that, and the long list of speakers tonight, I should like to speak very briefly on two subjects in specific areas, directly or indirectly alluded to in the gracious speech. So modest are the measures proposed in the last full Session of this Parliament, that the skills of a keyhole microsurgeon are needed--aided by the steady nerves and hands advocated by
Calling on another literary source, Sir Arthur Conan Doyle might have called the gracious Speech, The Case of the Bill that isn't and of the Bill that (perhaps) needn't be. In the measures proposed in the gracious Speech there is one glaring omission which demonstrates vividly the credibility gap for the Government as they table platitudes about their commitment to the markets, competition and competitiveness. This week, in the annual Wincott lecture, Sir Bryan Carsberg set out his compelling case for careful reform and consolidation of competition regulation in the UK, thereby making even clearer the frustrations which lay behind his resignation a year ago as Director General of the Office of Fair Trading. The inexplicable failure of the Government to honour their past commitments to address that subject can only lend weight to the picture painted by the noble Lord, Lord Jenkins, of a twilight era of an insincere Administration.
In the area of restrictive agreements, a 1989 White Paper made a commitment to reform procedures, and this was repeated in the Conservative Party's 1992 general election manifesto. Since then, the House of Commons Trade and Industry Select Committee this year reaffirmed its support for changes in this area. Yet once more the Government have chosen not to propose legislation in this Session. The modest and inadequate measures foreshadowed by the President of the Board of Trade in another place on Monday go nowhere towards addressing even the limited area of restrictive agreements, let alone the other issues outstanding--and so well set out by Sir Brian--such as the case for a unitary authority to replace the duplicative complexity of the Office of Fair Trading, the Monopolies and Mergers Commission and the Restrictive Practices Court in addition to the different sectorial regulators; the case for restricting ministerial discretion, if only to the limit of that which applies to the regulation of utilities; and for the case for a simplification and rationalisation of the four main and countless peripheral acts covering competition policy.
This is not an omission of some obscure technical legislation which is of relevance only to a few companies and specialist professionals. The most rigorous and stringent enforcement of competition policy lies at the heart of a competitive market economy and that in turn is central to the very objective declared in the gracious Speech:
This latest breach of faith by the Government is, I am afraid, only the last in a long line of instances where the Government's bark is far more vociferous than their bite is tenacious. I am reminded of the disparaging dismissal from the American West: "Big Hat... No Cattle".
I am confident that when the much discussed exchange of Benches occurs and the new government take office, not only will the existing competition laws and regulations be more rigorously and consistently enforced but a new framework of greater simplicity and effectiveness will in due course be introduced.
The Bill which perhaps, or in theory, need not be is the Broadcasting Bill, since without denying the special factors applying to the area of media there are undoubted attractions in seeing the regulation of that industry incorporated in a properly structured and effectively enforced competition regime. As my noble friend Lord Donoughue pointed out, the technological and other developments in the broadcasting and other media are so fast moving that a degree of flexibility is highly desirable but more difficult to achieve within specific legislation rather than within overall competition law.
In practice, however, the complex legacy of the Broadcasting Act 1990 and other legislation and the very failure of the Government, to which I have already referred, to create a consistent and stringent competition environment leads me in the end to support and therefore welcome the prospective new Broadcasting Bill if it incorporates broadly the measures outlined in this year's White Paper. I should declare that I have a number of business interests both as an adviser and as a principal in the broadcasting and media industry which I can detail on a future occasion. I took the reminder of my noble friend Lord Peston of Adam Smith's low view of businessmen as an additional spur to examine my views on the deregulation of media ownership from a public interest perspective. But I am unshaken in my belief, like that of my noble friend Lord Donoughue, that there will be substantial benefits in both economic and cultural terms from further controlled deregulation in this sector. I look forward to the early introduction of the Bill in your Lordships' House.
But that, however welcome, is all that there is to look forward to from the gracious Speech and from the Government Benches opposite. That is apart, of course, from their final departure for a period of well earned contemplation in opposition which, notwithstanding the protestations of the noble Viscount, Lord Astor, I anticipate with renewed hope and confidence.
Lord Tugendhat: My Lords, inevitably, this debate, falling when it does, is somewhat overshadowed by the forthcoming Budget. Therefore, unlike the noble Viscount, Lord Chandos, I should like to begin my speech with a few short references to the Budget and then move on to other matters of perhaps more enduring interest.
As regards the Budget, it is right to warn the Chancellor, as have several speakers on this side of the House and on the Cross Benches, that there are many in the markets and elsewhere who are perhaps more fearful of what he might be tempted to do in response to pressure from his own Back-Benchers anxious to close the gap in the polls than about what an incoming Labour Government might do. Therefore, I urge the
Despite some recent setbacks and bad news--news is rarely consistently good all the time--the outlook for the coming year is encouraging. Most likely, whether in terms of economic growth, inflation, or even in the continued reduction in unemployment, the performance of the economy in the calendar year 1996 will compare very favourably with that which we were used to for most years until quite recently.
I urge the Chancellor not to put at risk what has been gained and to be cautious in what he does. I accept of course that within that context he will be making cuts in income tax. There is room for some modest reductions. However, I hope that he will not go for headline-catching reductions in the basic rate. I hope rather that he will concentrate on getting as many as possible of those on low incomes out of the tax net altogether through raising allowances. I hope too that he will find ways of widening the 20 per cent. band to provide maximum help for those on lower incomes who will still be paying tax.
After those brief exhortations to the Chancellor about the forthcoming Budget I wish to turn to a longer-term issue. It may be bring me into conflict--I hope not--with the noble Lord, Lord Harris of High Cross, and perhaps even with my noble friend Lord Skidelsky. I hope that the Government and the Conservative Party will not be led astray by those siren voices who are suggesting that we should regard the levels of public expenditure prevailing in the economies of the Pacific Rim countries as relevant guidelines to what we should be doing in this country.
Of course, we should study the economies of the Pacific Rim countries and we should try to learn from them. I certainly regard as an enduring achievement of this Conservative Government their success in attracting so much direct investment into this country from Japan, South Korea and most recently Taiwan. I value that investment for what the companies concerned can teach us about management and the application of new techniques as much as for what they have done for the balance of payments. But I think that it would be very unwise to become too carried away by the Pacific Rim successes.
The present assumptions being made in some quarters about the future, about the 21st century, and about the Asian century remind me of the late 1950s and early 1960s when many, including those who detested communism, assumed that the USSR would economically outstrip the West. Certainly, very cogent words on that subject appear in the book written by my noble friend Lord Skidelsky--The World After Communism--which I too read in the holidays.
In the first place, of course, the intrusiveness and sheer authoritarianism of government often provide a substitute for what is done in this part of the world by public expenditure. Secondly, family structures, in terms both of mutual support and as units of economic activity, are very different from what they are in western Europe and especially in northern Europe. Thirdly, the demographic situation of those societies is completely different from ours. At present, they have a much higher proportion of young people than is the case in this part of the world. Their forms of social discipline are very different from ours. And finally, perhaps above all, their attitude to the acquisition and application of knowledge is very different to that which prevails in this part of the world.
Therefore, for all those reasons, I believe that the comparisons which are being made in some quarters of the Conservative Party between ourselves and the Pacific Rim countries are unwise and the lessons are difficult to draw. I hope that in framing our policies we shall be more influenced by our own circumstances and the experience of societies similar to our own than those of the Pacific Rim. By "societies similar to our own" I mean of course the member states of the European Union but also Switzerland and the United States. If one takes that broad band of countries, one sees a wide range in the proportion of GDP that is accounted for by public expenditure.
By that standard, too, I think that the Government's record in transferring the provision of goods and services from the public to the private sector is already good. I think that it could be carried further. In particular, I believe that there is a greater role than has hitherto been realised in the provision of pensions and healthcare. I must declare an interest as the chairman of Abbey National, a major provider of financial services of a variety of different sorts. But, on the basis of that experience, I should like to point out in particular to the Government the very worrying situation which is developing in relation to long-term care.
At present, it is a source of immense worry and sometimes real anguish both for those who have to go into long-term care but also for their families. A lifetime's savings can be used up in a very short time at the end of a person's life. Indeed, in a sense as a result of the £8,000 rule, those who have saved up diligently throughout a lifetime and who have tried to prepare for difficulties at the end of their lives in some ways are treated worse than those who have lived merely for the day and who have not put money aside to see them through their old age. In that regard, I believe that there
In my view, the Government should be guided by three main considerations. First, individuals should be encouraged to start making provision as early as possible in life, just as for pensions. Secondly, a scheme should be launched as soon as possible because of the huge increase in the demand for long-term care which will arise in the next century. Thirdly, guidelines need to be agreed for determining the extent of the insurance companies' liabilities on the one hand, and thus the level of premiums, and on the other hand, the obligations which will remain with the state over and above those which private provision can meet.
The Government have a very good record in transferring responsibilities and the provision of a number of services from the public to the private sector. There is more that can be done. But it behoves us to remember that whatever happens the role of public expenditure will remain substantial in our society. Not everyone can look after themselves. Economic and technological change, social upheavals and sheer human frailties will see to that. Job uncertainty and unemployment will remain features of all western economies for as far ahead as I can see. Therefore, huge sums will continue to be required for public expenditure on health, social security and education as well as law and order and the basic infrastructure on which the private sector depends.
By all means let us do all we can to ensure that public expenditure is not excessive. By all means let us look at the examples of other countries with circumstances similar to our own. But the Conservative Party would be wise to devote at least as much attention to trying to make public expenditure as effective as possible rather than trying to diminish it as much as possible.
Lord Haskel: My Lords, my noble friend Lord Peston spoke very forcefully about the importance of raising productivity and right on cue, the noble Viscount, Lord Astor, told us that the social chapter and the minimum wage would stand in the way of that. I am sorry that the noble Viscount is not in his place because, usually, he is very thoughtful in his remarks on industry. But when it comes to the social chapter and the minimum wage, he and many noble Lords opposite seem to lose their objectivity. They exaggerate the financial costs, if any, and ignore the benefits in terms of social cohesion and the quality of life.
Perhaps I may try to put some balance into this debate and look at the matters in an even-handed way. I have yet to meet an employer who does not agree with the 12 principles which are outlined in the social chapter. Those principles relate to such matters as free movement in the community, health and safety, consultation, equal rights for men and women and the protection of children. They are not a set of rules with the force of law. But each firm may interpret the principles in its own way so that businesses do not have to carry out inefficient and costly practices. The need to remain competitive would soon stop that.
The need to be competitive is paramount. In spite of what the continental friends of the noble Viscount, Lord Astor, say, it is clear to me, as an employer, that successful, world-class companies do not focus only on their own financial criteria but also on people, relationships and technology. As business becomes more competitive, not only do you have to retain good people, but you have to get them to work with greater commitment, skill and determination in order to perform to the much higher standards which are now demanded.
The latter involves obligations both ways: the obligation of the employee to perform better so that the firm can be competitive and the obligation of the employer to be fair. That is the basis of the social chapter. It is not a threat to good companies; nor is the minimum wage. Most business people I meet recognise the social justice of having a floor under wages. Without it, you have the social security system subsidising those businesses which have low investment and which pay poor wages. That is neither efficient nor is it fair.
Of course, much depends on the level at which the minimum wage is fixed and a Labour government are committed to fixing the level only after full consultation with business. Compare that with the abolition of the wages councils. We were promised by the Government that employment would increase in those industries where the wages councils were abolished. That has not happened. In fact, there has been a fall in employment. Nor will jobs be lost because of the introduction of a minimum wage.
However, those matters, while important, cannot make a difference between economic success and failure. The fact remains that, in competitiveness, Britain ranks way below those countries with a minimum wage which have signed the social chapter. To be exact, we are 23rd in the productivity league table. I agree with the Minister and my noble friend Lord Bruce. What makes a difference is investment: the quality of investment and the amount of investment.
I have in mind investment in technology, in infrastructure, in research, in skills, in education, in new markets and in new products. I salute noble Lords opposite who encouraged this country to change by exposing us to international competition. They certainly forced many companies to change their out-of-date methods and technologies and eliminate many restrictive practices. Sadly, that is no longer enough. As a result, as the Minister told us, not only have we been declining in the league table of productivity, but also in the tables of income, investment and employment growth. Never mind that we are below Germany, Japan and the United States, but now even Italy invests 19 per cent. more of its gross national product than we do. In those circumstances, can we really call ourselves the enterprise capital of Europe? We have to be realistic, and the task of government is to reverse those trends.
I think that those organisations will share my disappointment that the gracious Speech did not specifically mention encouraging investment, especially as we are currently experiencing the slowest growth in investment in any post-war recovery. I hope that the Chancellor of the Exchequer will put that right with a Budget that encourages investment instead of consumption.
How can we encourage that investment? Certainly, low inflation and a smooth economic cycle are essential to create confidence. But active encouragement is also required. Perhaps I may suggest four ways in which that can be done. First, we should have a modern competition policy. My noble friend Lord Chandos reminded us of the importance of the latter and, at long last, the President of the Board of Trade announced on Monday that he was coming round to that point of view. As my noble friend said, competitiveness overseas depends on greater competition here.
Is competition really served by the merger of privatised water and electricity utilities, before there is proper competition in either of those businesses? We have some wonderful, world-class firms, but also weak performers in certain sectors. A proper competition policy will either force those companies to be more competitive, or force them out of business. Staggering on in a sheltered market only diminishes our performance in that area of business.
Secondly, we need to get away from the old ideas of adversarial relationships. The relationship as regards employees, shareholders and management needs to be one of co-operation. The public and private sectors must also work together. I welcome the partnership between government and industry to introduce best practice. I believe that that is a very important initiative on the part of the Government. I also welcome the private finance initiative. However, to make the latter work much more flexibility will have to be built into it.
Thirdly, we must modernise our welfare state. Instead of just providing a safety net, it has to become a means of providing pathways from welfare to work. Instead of being a poverty trap, welfare can encourage and enable people to find employment and gain skills. That will encourage investment by reducing the skills' bottleneck. The proposal of the shadow Chancellor of the Exchequer to cut the starting rate of tax to 10 per cent. is an integral part of our welfare-to-work proposals. The noble Lord, Lord Tugendhat, intimated that he, possibly, agreed with that proposal.
Fourthly, we need a fair tax system that rewards hard work and encourages long-term investment, as opposed to rewarding short-term speculation. Most of us would agree that there should be a difference between taxing the profits from a business built up over many years and providing useful products and services, as opposed to profits made from short-term, speculative financial activities.
However, there is an immediate problem of sluggish growth. That is why the shadow Chancellor of the Exchequer recently proposed that, in next week's Budget, the Chancellor of the Exchequer should double the first year tax allowance for new investment from 25 per cent. to 50 per cent. for a limited period of 12 months.
The quality of investment is as important as the quantity. I have heard it said that the low ratio of investment to industrial output in Britain indicates that we have a higher quality of investment. That is nonsense. Those of us working in industry know that much of our current industrial output is attributable to exports due to the effect of devaluation, particularly since we left the ERM.
The Minister told us about our success in exporting, but I am afraid that the noble and learned Lord was being selective. He did not tell us that our importers are doing better than our exporters. The August trade figures published earlier this month showed a further worsening of our annual trade deficit to £11.4 billion. Only yesterday, the trade figures for non-EC trade showed a £1.2 billion deficit--the worst figure in that series on record.
The situation cannot continue. So it is to be hoped that some of last month's surge in imports was in capital goods which will eventually help to improve our performance. But the brutal fact is that, although exports have risen in recent years, as world trade in general has risen, the volume of imports into this country has risen faster.
My noble friend Lord Bruce of Donington also reminded us that the same principle applies with inward investment. According to my noble friend, for every £100 which comes in, British companies invest £200 overseas. My figures show the latter as being £160. We should be a little concerned that that inward investment is substituting investment by UK companies in Britain. It is not in addition to investment by British companies in this country as it should be; it is instead of.
Prior to the gracious Speech we were told that one of its purposes was to "smoke out" Labour's true commitments; to set an electoral trap. I am not afraid of being smoked out. My commitment is to the success of British industry. It is not a matter of party politics; it is the public interest which should motivate the gracious Speech. It is a matter of supporting those policies which are in the best interests of all of us with a stake in British business.
Lord Vinson: My Lords, I happen to think that the Government are to be much congratulated on the progressive fall in unemployment; indeed a steady continuation of their present policies will ensure this drops well below the 2 million mark and keeps going down. But, of course, central to these policies is the importance of having a lightly regulated economy and a flexible labour market. I wish to speak to that.
With rare exceptions they do not realise the malign consequences of what they seek. Many of them are by background so trade union oriented and so conditioned to promote the interests of those in work that they fail to see that these can often be entirely damaging to those out of work. Excessive job protection measures inevitably lead to job destruction. I wish to illustrate that by telling noble Lords of one of the most momentous events in my life, apart from marriage. I took the decision to increase the workforce of my business by 100 per cent. overnight. I moved from a business employing myself to a business employing someone else and with that step I became an employer. One has to do that to know how vulnerable one feels when one risks all in this way.
In the United Kingdom there are approximately 3.5 million self-employed people. It has often been said that if only half of them employed one other person, unemployment would be virtually banished. This past year a quarter of a million new businesses were formed and over the same period 195,000 businesses closed down. That is a failure rate equivalent to some 80 per cent. of the new starts, so anything that can be done to improve the survival rate of small businesses would improve employment. The reason so many businesses fail is not hard to find. They are often forced to their knees by over-regulation. The sheer complexity of running a business today is not so bad when one has others to whom to delegate; it is a nightmare when one is virtually on one's own.
I illustrate that with the imaginary tale of Mr. Jones, an electronics engineer. As a hobby he developed a promising device which he took to a potential customer. The customer liked it and told him that he would buy from him. Mr. Jones therefore left his job and became self-employed. His wife also left her job in order to help him. They set up in a back room of their house. Living on their savings was not easy but through hard work and good fortune they obtained repeat orders. Mr. Jones had started down the classic route of the entrepreneur, the job creator.
It was then that they took the monumental decision to increase their labour force by 100 per cent.--by one person--and their payroll costs by 100 per cent. which reflected that one person. In so doing they became an employer. It was here that their troubles began. They came to terms with the complexities of PAYE, National Insurance and VAT when one day their new employee announced that she was pregnant. As the exemption limit had recently been changed by the newly elected socialist government, the responsibility for paying her now fell on them. That was a further call on their precious capital.
They then advertised at some cost for a new temporary employee and, after interviews, they appointed a candidate who happened to be black. One of the unsuccessful white candidates then brought an action against them for discrimination, supported by the Commission for Racial Equality. Here again, the Joneses had to conduct and pay for their own defence. They were now spending more time on the administration of their business than they were on the manufacture of their product--their livelihood.
An acquaintance of theirs was severely handicapped but they offered him the job at a lower wage than normal because, due to his disability, his output was slow. Little did they know that within days this would lead to an official visit from an agent working under the auspices of the new minimum wage regulations who warned them that they would be severely fined unless they increased his wage to the full rate. Their costs of production increased significantly as a consequence. The agent also advised them that as the new socialist government, honouring a promise they had made in the House of Lords in 1995, had removed the small company exemption, they would in future have to make any new premises accessible to the disabled at a cost of about £2,000 which would fall on them. That was a further blow to their ever diminishing capital.
At this point the entrepreneur's wife became pregnant but because she was not an employee as such she was not entitled to maternity pay, yet they were still paying it to an employee who was not working for them. They then hired an additional person who, after expensive training, did the job admirably. However, one month later, their original employee returned from maternity leave and asked for her job back. Although they felt great reluctance, to accommodate this they had to dismiss her wholly satisfactory substitute. After a week the re-engaged employee left.
Our hero is in desperation. He has no time to run his business; he is disappearing under a mountain of regulations and costs; his wife is out of action unassisted by the state and yet he has been paying for the pregnancy of another's wife and subsidising a disabled neighbour. He faces litigants with unlimited legal aid whilst he has no prospect of recovering his costs.
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