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Privileges: Select Committee
The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That the Committee for Privileges be appointed and that as proposed by the Committee of Selection the following Lords together with the Chairman of Committees and any four Lords of Appeal be named of the Committee:
L. Allen of Abbeydale,
L. Campbell of Alloway,
L. Cledwyn of Penrhos,
V. Cranborne (L. Privy Seal),
L. Glenamara,
L. Graham of Edmonton,
L. Jenkins of Hillhead,
L. Mowbray and Stourton,
L. Nathan,
L. Richard,
L. Strabolgi,
L. Strathclyde,
L. Weatherill,
V. Whitelaw,
L. Wigoder;
That the Committee have power to appoint Sub-Committees and that such Sub-Committees have power to appoint their own Chairmen; and
That the Committee have power to co-opt any Lord for the purposes of serving on any Sub-Committee.--(The Chairman of Committees.)
On Question, Motion agreed to.
Address in Reply to her Majesty's Most Gracious Speech
3.28 p.m.
Debate resumed on the Motion moved on Wednesday last by Lord Gray of Contin--namely, That an humble Address be presented to Her Majesty as follows:
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"Most Gracious Sovereign--We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament".
Our Government's objective, as my right honourable friend the President of the Board of Trade has said many times, is to set enterprise free. We are pursuing three clear priorities to achieve that; namely, promoting competition, championing free trade and sharpening the focus of the Government's relationship with business. As a result of our privatisation and liberalisation initiatives, competition is present to a greater degree than ever before. There is, for example, already strong competition in the United Kingdom in telecommunications and supplying larger users of gas and electricity. We are working towards opening the household energy market fully to competition in 1998. No one should be in any doubt that we shall press to hold to that target.
In the past year we have introduced competition into the supply of domestic gas. A pilot in the south-west of England has already delivered price cuts of some 20 per cent. to customers. We see no reason why they should enjoy that benefit exclusively and we want to extend it to the whole country. Indeed, it will be an advantage significantly greater than the 3 per cent. reduction in VAT which I understand that Mr. Gordon Brown now offers as a tax bribe.
The state-owned sector of industry has been reduced by about two-thirds since 1979. In the 1994-95 tax year, £2.6 billion in taxes was contributed by privatised companies which paid only £37 million in 1979--a 70-fold increase. I refer your Lordships to the OECD's recent report which praised our privatisation programme, saying:
- "since privatisation, most of the utilities have achieved substantial improvements in productivity and consumers have benefited from large reductions in real prices as well as improved quality of services."
With the private finance initiative, the UK is once again in the forefront of public sector reform. The Government are moving from provider to purchaser of public services. The initiative is picking up speed, with ever more projects being set up. Indeed, earlier this month the Exchequer published a list showing that some £7,000 million-worth of deals are already agreed. That is the capital value. Earlier this month my right honourable friend the Chancellor of the Exchequer announced measures to streamline the processes involved so that the PFI will offer even more opportunities for business. The Minister responsible for local government, Mr. David Curry, has introduced major new flexibility into the way in which capital finance regulations apply to projects proposed by local authorities.
I know that my noble friend Lord Weir wishes to address your Lordships on this issue and we certainly take the CBI's point that we do not want to reinvent the wheel on every contract that is let under the initiative. That point has been taken on board and that is why something like two dozen or more standard conditions have now been set out, together with guidelines stating what might be applicable where there are transfers of investments in PFI projects.
However, we are not looking only at what we do at home, but at what we do in the world. As a traditional trading nation, free trade is particularly vital to the UK. With only 1 per cent. of the world's population, the United Kingdom is the world's fifth largest trading nation. We export more per head than either the United States or Japan. Our exports of goods and services represent around a third of our national income.
We thus have very good reason to press ahead with efforts to remove remaining barriers to trade. The President of the Board of Trade has outlined his vision of Britain at the forefront of the drive to further trade liberalisation, just as we were at the forefront of the drive to establish the European single market, in which my noble friend Lord Cockfield played such a prominent part.
The President of the Board of Trade has advocated a three-stage approach. First, the ministerial meeting of the World Trade Organisation, which will take place in December this year in Singapore, should agree a comprehensive work programme of further trade liberalisation. We have identified a number of key areas including standards and technical regulations, government procurement, tariffs, and customs procedures. We shall also be pressing for an agreement to eliminate tariffs in the information technology sector, and for completion of negotiations outstanding from the Uruguay Round for the liberalisation of trade in services, in particular telecommunications services. Secondly, a new round of multilateral negotiations within the World Trade Organisation should be launched before the end of this decade to be concluded early in the next century. Thirdly, countries should
commit themselves to the target of achieving global free trade by 2020. We believe these steps will increase the level of absolute trade and help to raise living standards. A 2020 vision for the achievement of global free trade is meaningful, realistic and challenging. We are not simply interested in the grand gesture of that vision; we have a commitment to undertake the painstaking, detailed work that will be necessary if it is to be achieved.In championing competition and free trade, we are also determined to sharpen the focus of our support to help business help itself. In each of the past three years the Government have published a White Paper on competitiveness which has benchmarked our competitive position. In the DTI, our key themes have been encouraging greater interaction between the science base and industry, deregulation, small firms, and partnership between government and business. On science, we launched the Technology Foresight exercise. The Foresight Challenge is giving this real muscle. We have awarded £30 million to the successful entrants, which is attracting more than twice as much investment from the private sector. In information technology, we set up the Information Society Initiative and we shall shortly be launching a major new initiative to increase general public awareness of the everyday benefits and uses of the new technologies and to facilitate access to them.
To set enterprise free the Government have also worked to free business of unnecessary restrictions and red tape. We have now amended or repealed over 750 pieces of burdensome legislation. That has resulted in businesses being saved millions of pounds annually.
However, beyond the elimination of those burdensome pieces of legislation, any business will tell you that the way in which regulations are enforced can be just as important as what they say. That is why we are introducing new rights for business: a right to clear explanations of enforcement action, an opportunity for business to put its point of view before any enforcement action takes place, and a right of appeal. In March we completed the most thorough consultation exercise ever with the small business sector through a series of 12 conferences across the country.
As I have said, that was the most complete and the most thorough of consultation exercises, but I notice that Mrs. Margaret Beckett in her foreword to Vision for Growth makes exactly the same claim. She said:
- "This document represents the latest stage in one of the most comprehensive consultations with business and industry which has ever been undertaken by any political party in this country".
- "Business opposes a minimum wage which would undermine flexibility and is a poor way to tackle poverty".
Earlier in the month my right honourable friend the President of the Board of Trade announced a radical new approach to, and simplification of, the Government's support services for business. To sharpen the customer focus of those services, we will delegate design and delivery away from Whitehall to business-led partnerships, such as Business Links and trade associations. To that end, the President launched two new Challenge competitions offering funding for the most imaginative and customer-focused projects to help smaller firms. He also announced a major streamlining of centrally organised business support schemes. Before we began we had something like 140 such schemes. They have now been reduced in number to 25. We are committed to involving business and business support organisations much more in the development of that restricted number of schemes.
Business Links will play a key role in the new arrangements for business support. Following the discussion we had on this matter last year, I am pleased to be able to report that Business Links now covers about 99 per cent. of England's SMEs. It has been very successful. Something like 8,200 businesses use Business Links every week. Business told us that it wanted simpler, more accessible and better tailored support. Our approach delivers just that. It could not contrast more sharply with that set out in the document to which I have referred.
Not only are we debating the humble Address but there is an amendment in the name of the noble Lord, Lord Peston. Part of that amendment is an expression of regret at the failure of Her Majesty's Government to preserve the country's reputation abroad. I say to my noble and learned friend Lord Howe of Aberavon that he should plead guilty to that charge. When he took over as Chancellor of the Exchequer in 1979 Britain had only one reputation abroad: as the sick man of Europe. I invite my noble and learned friend to plead guilty to that charge in view of the massive adjustment to that reputation that has occurred. Both the IMF and the OECD have recently reported on our macro-economic performance. Both forecast that the UK will grow faster than any other major EU economy this year and next. The OECD has referred to our good employment record compared with many continental European countries and said that,
- "policy in the last three years has provided a sound foundation for sustained economic recovery".
- "recent economic performance has been enviable".
I do not believe that we have done anything but significantly improve the reputation of our country abroad, and those quotations prove it. The economy is now in its fifth year of sustained growth and has enjoyed the strongest, longest and steadiest recovery of any major EU country. Underlying inflation has been below
4 per cent. for four years, which is the best inflation performance for almost half a century. Unemployment has fallen by over 900,000 since the start of the labour market recovery, and the rate of unemployment is the lowest in any major EU country. The growth in manufacturing productivity has been the highest in any EU country since 1980. I could go on. Mortgage rates are at their lowest level for 30 years. The number of working days lost has gone from an average of 12.9 million a year to 0.4 million in 1995. I believe I have said enough to show that we have the most favourable macro-economic conditions for a generation. That is our reputation abroad--so much so that Mr. Jan Timmer, president of Philips, has said that Britain is, quite simply,
- "the most competitive country in Europe".
The Opposition may refuse to be convinced in spite of those unsolicited testimonials from Europe. In particular, they have tried to talk down our investment record. Contrary to popular opinion, business investment in the UK compares well with that of our major competitors. Since 1979 business investment has risen by a third, and that is a higher proportion of GDP than in France, Germany, Italy and the United States. What is more, overseas investors recognise our achievements in the most practical way. Traditionally, the UK is one of the world's leading recipients of overseas investment. We are the number one location for Japanese, US and Korean investment in the European Union. Not only has that created and safeguarded approximately 8,000 jobs but it has developed and modernised our industrial base, increased output, introduced new products and processes and brought in new technology and management processes.
Last year I focused particularly on the massive inward investment by Siemens in Tyneside. Since then that record has been broken not once but three times: first, by Chunghwa in Lanarkshire; secondly, by the Korean company LG which has announced its intention to locate a £1.6 billion high-tech manufacturing plant near Newport in South Wales; and, thirdly and most recently, by Hyundai, another Korean company, which has announced Europe's largest ever inward investment of £2.4 billion in a semi-conductor project in Fife that will create 2,000 new jobs. I hope that some of those who talked about the demise of Ravenscraig and Rosyth will feel a black burning shame in the morale-sapping gloom with which they predicted the future for both places. Both Lanarkshire and South Fife are well on course to have the most modern parts of the economy in the United Kingdom. It did them no good as they sought to recover to be told that they had no prospects of ever being successful.
We are now doing extremely well. One of our competitive advantages is the high level of social costs in other countries compared with our own. In the United Kingdom, for every £100 spent on wages an employer has to spend an extra £18 for non-wage costs. The same employer would have to add £32 in Germany, £34 in Spain, £41 in France and £44 in Italy. No wonder Chunghwa, LG, Hyundai and others wish to locate in
the United Kingdom. I do not have to search for further quotations but merely look to inward investment as the best verdict on our reputation abroad.The Government are creating in the United Kingdom the enterprise centre of Europe. The UK was indeed once the sick man of Europe but is now the most competitive country in Europe. We have nothing whatever to be ashamed of in the way that we have conducted the economy. Indeed, what has been said by others accurately reflects where we stand in the world. What is contained in the amendment is a complete misdescription of all that has been achieved in the past 17 years.
3.46 p.m.
Lord Peston rose to move, as an amendment to the above Motion, at the end of the Address to insert ("but regret the failure of Your Majesty's Government to manage the nation's affairs in a manner which preserves social cohesion and integrity within the United Kingdom and the country's reputation abroad.")
The noble Lord said: My Lords, in thanking the noble and learned Lord for introducing this part of the debate, I begin by drawing your Lordships' attention to the exact wording of the amendment. I emphasise that I do not regard this as a Motion of no confidence. That does not mean that I have any confidence in the Government, but I do not believe that it is right on virtually any occasion for your Lordships to debate a matter of confidence. It is much more a matter for the other place. I believe that the Minister has put his finger on it. The amendment is an expression of regret concerning the conduct of the nation's affairs by Her Majesty's Government, which implies that they ought to do better. It goes further than that--this ought to encourage noble Lords opposite--because it implies that in the past few months they could have done better. Whether or not they will is another matter.
Before I get down to the main business, one of my pleasant duties is to welcome my noble friend Lord Currie to today's deliberations. I helped to introduce him yesterday and today he makes his maiden speech. He is an economist of outstanding merit. I can say that with great confidence since I gave him his first academic post at Queen Mary College. I should like to comment on the astonishing quality of the speakers in today's debate: three chancellors of the exchequer; three commissioners; two chief secretaries; one financial secretary; and (above all) three professors of economics. They have one thing in common: all of them are life Peers. I should like to reiterate by way of an apology the introductory remarks of my noble friend Lord Williams of Elvel. There are so many topics to be covered today that I shall be able to choose only a few of them. I am afraid that what I have to say will be disjointed and I shall jump from topic to topic. It is impossible to put the whole matter together.
I advert immediately to a pledge in the gracious Speech to double living standards in the next 25 years. Whether this is meant to refer to real personal disposable income or, more correctly, to real national income, it represents a target significantly better than
the Government's actual record since it came to power. The relevant comparison between 1979 and 1995 is a 2.4 per cent. annual growth in personal disposable income, and 2.1 per cent. for GDP, but that target implies a growth rate of 2.8 per cent. for the next 25 years. It almost looks as if the Treasury, which is unwilling to discuss the serious economic problems confronting our country, but which was desperate to put something in the Queen's Speech, looked on its shelf of forgotten pledges and dusted that one down. Looking around, some noble Lords will be old enough to remember the last time that promise was made.Forgotten pledges or not, one of the important points is that the present incumbents will be long gone when the eventual pledge is put to the test. Of course another view is that, with the expected change of government, this gracious Speech merely anticipates the likely achievements of my honourable friend the Shadow Chancellor of the Exchequer. He is much more likely to achieve something like that than his predecessors.
Perhaps I may also draw noble Lords' attention to the fact that nowhere in the gracious Speech, having talked about that growth figure, is there a word about giving any priority to those in most need in our community when it comes to distributing the fruits of growth. No doubt we shall have a debate on the economy following the Budget. I do not want to anticipate what noble Lords will say then, but there is a matter that I must emphasise today. If we look at the Government's record, the most astonishing part of it is that since 1979 this Government's accumulated financial deficit amounts to £260 billion--£260 billion of expenditure in excess of revenue. Total government debt interest has risen from £8.8 billion in 1979 to £25.8 billion today.
The gracious Speech refers to the target of budget balance in the medium term, but not now. All I can say today is that the present fiscal position is not sustainable. I do not believe that the present Chancellor will be allowed to do anything about that this side of a general election, but someone, some day, will have to face fiscal reality.
Of course, I could go further and suggest that fiscal prudence--Gladstonian principles if one likes--implies that the years of profligacy (of deficit) should not be followed by budget balance; they need really to be followed by budget surplus in order to reduce the national debt in ways other than by massive inflation.
On public expenditure, I have no doubt that my right honourable friend the Shadow Chancellor is right to stress that pledges cannot be made ahead of a serious assessment of the fiscal position, and that resources used in one place will be at the expense of those used elsewhere, either in the public sector or the private sector. But that is not to make this Government's mistake that resources do not matter. I would be willing to believe that if noble Lords opposite would explain to me why resources do matter in private medicine that they buy for themselves and private schools to which they send their children or attended themselves. When they accept long waiting lists for treatment, leaking roofs, shortage of textbooks and large class sizes in schools to which their children go, I will accept that these things do not matter in the state system.
While I am on the subject of education, perhaps I may ask noble Lords opposite whether they were at their party conference and listened to their right honourable friend the Prime Minister on the subject of education. I heard him. I was quite frankly astonished. I went immediately to my favourite reading, Dod's Parliamentary Companion. Over half of all Tory hereditary Peers went to one public school, and another six public schools account for pretty well all the rest. Clearly, the Prime Minister did not know that, and no matter how many great state schools we have, and we do, none of them appears to have been good enough for noble Lords opposite or, I suppose, for their children. When we talk about integrity and cohesion in our society, that is what we have in mind.
In his fascinating speech yesterday, the noble Earl, Lord Ferrers, talked about the hereditaries as an endangered species. He was certainly right about that. The Prime Minister was adding insult to injury. It is all very well for nasty state schoolboys like me to rough up the public school boys on the other side, but the Prime Minister should be much more sensitive.
In this general area there is another remark which I wish to make which I think in this case will be met with general agreement. I wish to praise the British winners of the Nobel Prize in this centenary year. In both cases the prize is richly deserved. Professor Merilees is a distinguished economist. His contributions have been first class, if technically rather difficult. It is not for me to push the significance of economics per se but it is a remarkable tribute to the strength of the subject in our country that we have won the prize some half a dozen times.
But that is nothing compared to the extraordinary achievements in chemistry. Sir Harry Kroto, a distinguished member of the Royal Society of Chemistry, is the latest in a long line of quite brilliant contributors to that subject. Indeed I speak with pride. We have one Nobel Prize winner who I am afraid is not in his seat at the moment: the noble Lord, Lord Porter, also won the Nobel Prize. He won it 29 years ago. I have to say that despite vulgar voices to the contrary that we occasionally hear, I remain convinced that if we are to have a successful future at all a science base, especially in higher education, is an essential ingredient.
I suppose the most extraordinary expression in the gracious Speech is:
- "My Government will continue with firm financial policies".
- "Continue" means, having started, will carry on the same way. When have the Government pursued firm financial policies? Possibly for a year or two in the mid to late 1980s. Other than that, profligacy with a view to electoral advantage has been the watchword. I fear that they have learnt nothing and will continue to fritter away the nation's precious assets.
What we have been privileged to observe over this period is the rise and fall of monetarism in all its forms, and the complete intellectual triumph of what I will call sophisticated Keynesianism, by which I mean the economic doctrine in which Keynes himself believed.
I exaggerate slightly, because EMU, as narrowly formulated, is monetarist in conception, but it is apparent that in reality were EMU actually to take place it would have to be accompanied by joint or co-ordinated macro-economic policy by the individual members of the Union.
One word that is missing from the gracious Speech is "employment". One phrase that is missing is "full employment". Speaking as a voice from yesteryear, neither the word nor the phrase troubles me. I remain convinced that the full employment objective is a correct one for economic policy and is attainable. I believe, a fortiori, that many of our problems of excessive public expenditure and too low a flow of tax revenue derive from the persistence of unemployment. And above all, since I stand second to no one in insisting that people should and actually do want to fend for themselves (self help is the old phrase) there is a duty of government to create an economic climate in which jobs are available and workers are trained to a level of productivity that enables them to take those jobs and to be paid a decent wage. I do not say that all the social and moral problems that dominate current debates are caused by failures on the side of industry and the economy, but I do believe that unemployment is one of the causes.
I hope that noble Lords will allow me to digress briefly to make two technical points, one of which is acutely embarrassing. The first is to reiterate what I have noted before. Certainly the inflation rate has come down, but interest rates have fallen less, so that real interest rates remain high--too high in my judgment. If the economy is to move on to a higher sustainable growth rate, real interest rates need to fall. I wrote that last week. I assume that the Chancellor was out to annoy his noble friend Lord Tebbit with today's announcement of raising interest rates. He clearly did not have me in mind. But I felt on grounds of honesty that your Lordships would rather I said what I originally wrote than weaselled and pretended that nothing has happened. I believe that interest rates are too high.
My own researches, for what they are worth, suggest that the economy is in a position where we may safely set much more optimistic employment targets. I do not suggest that the full employment rate of between 1.5 per cent. and 2.5 per cent. which existed in the 1960s is attainable, but I am coming to the view that a target nearer 4 per cent. is worth talking about. Perhaps in reply the Minister will inform us of his current advice on that highly contentious topic.
I noted the remark in the gracious Speech about deregulation and regulations, and the Minister commented on that. I wonder whether during the lifetime of the Government business overall is less regulated. The Minister referred more to the quality rather than the quantity but I wonder about that matter. The Government talk about the regulations that they remove, but what about the new regulations that they impose? What evidence is there about the net position? Noble Lords will recall that when we debated the Deregulation and Contracting Out Bill the noble Lord, Lord Rodgers of Quarry Bank, made the most sensible suggestion that there should be an annual debate on deregulation based either on some legislative proposal or on a White Paper. I still believe that that is a good idea and I commend it to your Lordships as one that we are especially well placed to debate.
The topic which dominates the media today is the struggle for the moral high ground. We are told that the leaders of all our political parties are jostling for position and why it may turn out to be a dangerous peak. I do not usually trouble your Lordships with my views on such matters--not because I regard them as unimportant, but because I find them extremely difficult. I prefer to leave them to those Members of your Lordships' House who find them simple and can speak on moral matters forthrightly and with no doubts whatever. That is my usual position.
However, in the light of the gracious Speech and the amendment standing in my name, I am moved to make a few remarks. My chief remark is that, merely because in our debates on the economy in all its forms we do not usually mention ethical questions, it does not follow that industry, trade and finance are morally free zones. Quite the contrary; ethical principles depend for their validity on universality. Therefore, those who ill-treat their fellows as employees by offering low pay and insecure working conditions cannot expect absolution on the grounds that business is business.
That is also true of the firms which in their advertising or in the small print of their terms of sale mislead consumers. Caveat emptor is good advice; but it is not a moral principle. The point of course holds for insider trading and related financial malpractice. There is more to morality than not being found out and not being proved guilty in a court of law. In that connection, can we be told how the help line of the Secretary of State for Social Security is working with respect to employers? It is widely believed that many employers connive at benefit fraud by telling their employees that they must supplement their low hourly wages by making fraudulent claims. Can we be told something about that?
One part of Government policy which I wish strongly to support is its desire to help rural communities by making life a little easier for local enterprises, notably shops. That must be right. But I must add that I am a trifle cynical of those who shed crocodile tears for their village shop while at the same time doing the bulk of their shopping at the hypermarket on the main road. If one wants the local shop to survive for both convenience and the desirability of the survival of the local community there is a price to be paid. Good intentions do not pay wages; actual purchases do.
Perhaps I may refer to the high speed rail link, with which your Lordships will be dealing tomorrow. I hope that I shall not be accused of naive patriotism when I mention how upset I become when I travel on the excellent Eurostar service as it chunters slowly through Kent only to display its full potential in France. Therefore, I strongly support the Bill and I strongly support the link. But I must add that I hope that when it comes to the purchase of land--I can make my comments totally objectively because I have no interest to declare--the landowners will be dealt with fairly. Bearing in mind Crichel Down, I hope that only minimum necessary land required to build the link will be purchased and no more. The promoters of the Bill should not be in a position to make profits from land speculation incidental to their real activity. How confident are the Government that the high speed rail link can be financed? What will be the true scale of public-sector support, both explicit and implicit?
My last rag-bag topic relates to the National Lottery which, I gather, is to have a second draw mid week. Presumably the company have pressed for that because it seeks to increase its turnover and its already excessive profits. I suppose that the Government acquiesce because it is a useful source of taxation in the ordinary sense and a form of hypothecated taxation to fund so-called good causes. I say "so-called" because in my judgment much of the money is being misspent, but I can save my grumpy views on that for another day. All I wish to argue is that little of real net value is created by the lottery. Many other activities--some in betting and gaming but, more importantly, in charities--will be hard hit by the second draw. I wonder whether the Government have thought the matter through and will in due course allow us to have some appropriate detailed statistical information on the new development.
As I come to my concluding remarks, I refer again to the interesting speech of the noble Earl, Lord Ferrers, yesterday. He reminded us of the world population explosion. Our own country, the population of which is hardly growing at all, appears tiny in that context. But tiny is not the same as insignificant. Thus, although the remarks made by the noble Earl yesterday were potentially depressing, especially when we contemplate the world which our children and grandchildren are entering, I refuse to be depressed. My reason is that, despite our problems, despite our hostile environment and despite our political agreements (they are not to be underestimated), what we have not lost is our native genius. By that I do not mean triumph in adversity--the Dunkirk spirit and all that. What our fathers and grandfathers did was marvellous, but we should never have been in that position in the first place. My view is that we have a nation crying out for new bearings and great leadership.
There is tremendous capacity for good in all our people, and I emphasise the word "all". Three million people unemployed and unable to contribute productively is not tolerable. Many men and women retired earlier than they would have wished and, again on ageist grounds, not being allowed to contribute is not tolerable. Many young people not being able to start out in life as workers is not tolerable.
Twenty years ago that was common ground between all of us and it must become common ground again. Our first priority must be to end that defeatism, especially on employment. A second is to end the defeatism which says that we can be competitive only by paying low wages and continually devaluing sterling rather than raising productivity. Third and finally, we must end the defeatism that says we are so poor that we cannot give those in need a decent life. We on this side are not defeatist. I hope that what I have said today will have persuaded noble Lords opposite that they need not be defeatist either. I beg to move.
Moved, That as an amendment to the above motion, at the end of the Address to insert ("but regret the failure of Your Majesty's Government to manage the nation's affairs in a manner which preserves social cohesion and integrity within the United Kingdom and the country's reputation abroad.").--(Lord Peston.)
4.8 p.m.
Lord Ezra: My Lords, as the noble Lord, Lord Peston, indicated in his wide-ranging speech, the issues of economic policy will again come before us when we move towards the Budget. Nevertheless, this is an occasion when appropriately we can raise some major issues of economic policy which we can discuss more fully on a later occasion when we are more aware of the Government's intentions.
The noble and learned Lord, Lord Fraser of Carmyllie, in the latter part of his speech rose to oratorical heights in referring to the Government's great economic achievements. I see his colleagues nodding in support. But of course, that is par for the course. I can remember on every one of these occasions for the past 14 or so years in which I have had the honour and privilege to be in your Lordships' House, that whoever occupied the eminent position of the noble and learned Lord, Lord Fraser, has said almost the same thing, no matter what has happened thereafter. They have said that government policies have been absolutely correct and they intended to continue to pursue them.
We are told, and no doubt the noble Viscount, the Leader of the House, will tell us when he winds up the debate, that the Government have achieved a situation in which we have a growing economy with low inflation; we have reducing unemployment; we have increased consumer spending, increasing house prices and everything is going positively. We are told that the Government will continue the mixture as before and when the time comes, and the Chancellor is willing, they will reduce taxes. That seems to be the message.
Let us, however, look at one or two issues which are hidden behind that very positive statement. The fact that the Chancellor has chosen the present time to increase interest rates suggests that he too is becoming rather worried about the way in which the economy is going and is taking a small step to try to restrain it.
The first issue which we should bear in mind is that it is potentially dangerous that we should be basing growth in the economy on increasing consumption and rising house prices. Obviously, from the point of view
of creating a feel-good factor, those are very desirable achievements. But from the point of view of a sustained economy, I doubt it. Indeed, in advance of all recent elections, we have lived through a situation in which consumer spending has been stimulated. Certainly on at least one such occasion in living memory, it was stimulated so much that it led to one of the worst subsequent recessions which we have endured since the war. Therefore, that must be watched with great care.One cannot help being concerned with the difference between what is happening here, with growth being fuelled by consumer spending, and what is happening in the United States where for three years running there have been record levels of investment. There is not the slightest doubt that the way in which the economy of the United States is being stimulated, no doubt also in advance of the election, is a much sounder basis than what is occurring here.
In spite of what the noble and learned Lord, Lord Fraser, said, the fact is that our level of investment generally in the private sector has been lagging behind that of our competitors. It may have increased at a higher rate in recent years, but it is lagging behind and in the case of the manufacturing industry, investment actually fell last year, far from rising at the dizzy rates which the Minister mentioned.
I heard the economic director of the CBI at lunchtime today commenting on the action taken by the Chancellor and expressing some slight surprise because she said that manufacturing activity, while it had recovered somewhat in Britain, was still fairly sluggish. Therefore, we have a situation in which this growth, which we all want to see, is based on the stimulus of consumer spending rather than on the more virtuous aspect of high investment.
It is not only the private sector but also the public sector in which investment has fallen substantially. One has only to look at the Red Book to see the way in which the Government have already slashed, and intend further to slash, public investment. In the period 1992-93 and 1998-99, public capital investment will have fallen by 25 per cent. on the Government's own figures.
The private finance initiative, to which the noble and learned Lord referred, was, I should remind your Lordships, introduced originally to increase the amount of investment in the public sector. It has now been used exclusively to replace the reductions which the Government are introducing and the extent to which public investment has fallen far exceeds the amount to which the PFI has come in to redress the balance.
The noble and learned Lord referred to the fact that £7 billion is reported to have been committed over a number of years. The Treasury's original estimate, when it introduced its savage cuts in public investment, was double that; it was £14 billion. I remind your Lordships that of the £7 billion, £3 billion is for the cross-Channel rail link to which the noble Lord, Lord Peston, referred. Surely that is quite exceptional and a one-off. We cannot expect cross-Channel rail links to be invested in every year ahead. Therefore, we have about £4 billion of
continuing investment as a result of the PFI in order to compensate for a much greater amount of reduction in the publicly funded investment.The noble and learned Lord, Lord Fraser, referred to the fact that there have been many problems with the PFI. It has been administered in an excessively bureaucratic manner; there have been long delays; tendering has been very costly; and it has had a seriously harmful effect on companies' balance sheets because they have had to raise the money to put into those projects. As the noble and learned Lord rightly said, that was addressed at a major conference convened by the Chancellor on 22nd October. All those issues were aired and debated openly and the Chancellor gave an assurance that they would be put right. We shall have to see. At least some action has been taken.
I turn to the question of unemployment and in particular, employment. While unemployment continues to fall--and that is highly desirable--there are still 2 million unemployed, which everyone agrees is far too high, and 900,000 of those 2 million are long-term unemployed; that is, unemployed for a year or more.
What is a particularly puzzling aspect of the present situation is that the employment figures are rising at a substantially lower rate than the unemployment figures are falling. Therefore, we must ask how that difference is to be explained. I have read a number of articles on the subject and the view which is gradually being formed is that there is an explanation in the process of what is now known as "down-sizing". That word is a rather regrettable import from the United States. Hardly a day passes when a firm does not announce that it is to reduce its labour force by substantial numbers, that it is going to down-size, in order to improve its efficiency.
The people who are down-sized are generally the older people. I am afraid that in that context, "older"--and this may surprise some of your Lordships--means people of the age of 40 and above. It is those relatively older people who are being down-sized.
The impression is that those down-sized older people are not going onto the unemployment register. They are deciding that that is it; it is very difficult to get another job; and they will retire at that relatively early age. Therefore, that goes some way towards explaining the figures. If that is true, it is very unsettling. We have a whole range of people there with excellent experience who are anxious to work but are being put off looking for jobs and not getting onto the unemployment register. Therefore, there is that apparent anomaly. That is a serious problem which I hope the noble Viscount the Leader of the House will address when he speaks to us later.
Perhaps the most serious aspect of the general economic and financial situation of the country is what is happening to the PSBR, to which reference has already been made. Although taxes were substantially raised in the early years of this Government, tax revenues, much to the surprise of the Treasury, have substantially fallen. That applies particularly to VAT. That, among others, is the reason why, despite all the forecasts that the Treasury made about the level of the PSBR, in the end that level has been much higher than it indicated.
While talking about tax revenues, I should point out that at present about £18 billion less is being obtained from taxes than was estimated by the Treasury in November 1994. For 1997-98 the Treasury expects the PSBR to be of the order of £23 billion which in fact has to be compared with the £5 billion which it anticipated in 1994. Nevertheless, the Treasury has now decided that it will be £23 billion. However, looking carefully at what the CBI has written on the subject, it appears that the confederation thinks that that is optimistic and that we could well end up with a PSBR next year roughly at this year's level; namely, some £28 billion. If that is what an objective assessment leads one to suppose, it means that when we come to this Budget the Chancellor of the Exchequer will have exceedingly little room for manoeuvre. It will be surprising if he can do very much, if anything, at that time. One of the things that the Government might do is to say, "Let's not have a Budget; let's leave things as they are. They are going extremely well anyway, what's the point of tinkering with it?" They may say that in the knowledge that if they did have a Budget they would be able to do very little in any event. That is a suggestion that I make without attempting in any way to lead the Government into doing things that they do not want to do.
Looking further ahead to the situation after the election, whatever Government are then in power will have to face up to the fact that, as is usual in such post-election situations, they will have to introduce a number of restrictive measures. That has been widely forecast by economists. This was referred to by the noble Lord, Lord Peston, and I could also pray in aid the economists of Natwest, with whom the noble Lord, Lord Boardman, was closely connected, who have been saying for some time that the expectation is that restrictive policies will be pursued after the election and that such action would in fact damp down the level of growth. A number of measures would then have to be introduced, by whatever government is in power, to get the economy on the right path.
If we were not facing election year, I believe that the Chancellor of the Exchequer, having given us a very small foretaste of what he is tempted to do to correct the economy, would be taking much stricter measures. In fact he will not be able to do so for obvious reasons. That could come later. We face a period of difficulty. If we are to retain and keep on achieving the basic objective to which we all subscribe of having growth with low inflation and having more people at work, then great care must be taken as to how the levers of economic power are exerted.
I return to the point that I made at the beginning of my remarks. It is particularly unfortunate that, once again, we have growth in the economy fuelled by increased consumer spending. How much better it would have been if we could have said--and, indeed, if the noble and learned Lord, Lord Fraser of Carmyllie, could have said--that we take pride in the fact that the basic reason for the growth in Britain is the very high level of investment, both public and private. Unfortunately that was something he was unable to say. We must hope that some future government will achieve that aim.
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