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Lord Healey: Conversations with Pohl. I said exactly the opposite.
Lord Cockfield: It is not surprising that you get a different story according to which of the two protagonists, or antagonists, you talk to. My view is that Pohl was right and Kohl was wrong, and we should have been saved, as would Germany itself, from many of the troubles into which that country ran had the advice of Pohl been taken and not that of Kohl.
Lord Healey: My Lords, the noble Lord confirms exactly what I said. I said that Kohl made a great mistake in rejecting Pohl's advice. I have talked to Pohl many times about this matter. When I met Germans at an Anglo-German Chamber of Commerce function in London a fortnight ago, including Mr. Schlesinger, previously head of the Bundesbank, they all agreed about this. I made that point, and I am really rather baffled that the hearing of the noble Lord, which used to be so keen, suddenly on this occasion proves so defective.
Lord Cockfield: My Lords, I am most grateful to the noble Lord. If I traduced him by misrepresenting his views I most certainly apologise. I had understood that he was adducing an argument in favour of having political control over the central bank. But no doubt he had a totally different point in mind. At least we now agree that the banker was right and the politician was wrong. That is the strongest possible reason for having an independent central bank. I am glad that the noble Lord and I agree on that point.
Lord Healey: My Lords, I am afraid I think that on this occasion the noble Lord knew that he misrepresented my views. Sometimes central bankers are right and sometimes governments are right. It is a great mistake to do as the Maastricht Treaty proposes; namely, set up a European central bank which is not allowed to take advice from anybody outside its ranks, even from the institutions of the European Union.
Lord Cockfield: My Lords, we are now beginning to open up a major debate on the single currency, which is
exactly what I wanted to avoid doing. I was trying to make the very simple point that in the case to which the noble Lord, Lord Healey, referred it was the banker who was right and the politician who was wrong. In my opinion politicians are very often wrong, and I am glad that the noble Lord confirms at least that point of view.I have gone far beyond the time I ought to have taken. Finally, I agree with a very great deal of what the noble Lord, Lord Barnett, said. The whole procedure has probably been pushed a little too fast--not dramatically so, but a little too fast. I feel, as the noble Lord does, that it would be a major tragedy if at the end of the day this country did not find itself in economic and monetary union and participating in the single currency.
6.55 p.m.
Lord Harris of High Cross: My Lords, unlike the noble Lord, Lord Cockfield, I am quite keen on having this grand debate on the EMU. It goes to the heart of our economic prospects for many decades to come. I join my old friend, the noble and learned Lord, Lord Howe of Aberavon, in particularly welcoming the promise of the Government in the gracious Speech to continue with firm financial policies to combine economic growth with low inflation. Indeed, I warmly congratulate the Chancellor on his record since 1992 and agree that he is probably going in the right direction in nudging interest rates slightly upwards.
The trouble with Mr. Clarke's success, however, is that it was made possible only by our leaving the exchange rate mechanism, and yet he still hankers to return to it. The other trouble is that Labour appears to be even more blind to the dangers of monetary union. However, that was before we heard the speech of my new friend, the noble Lord, Lord Healey, who spoke with the rare authority of another former Chancellor of the Exchequer. He pointed out that monetary union had been sinking in the polls on the Continent. The latest Gallup poll in this country shows that the view once held by a few free thinkers on Europe now holds the field with clear majorities in all parties, including even 60 per cent. of the rather sadly confused Liberal Democrats. Among independent economists the weight of opinion has come down decisively against fusing together economies of differing structures and inflexible labour markets without the shock-absorber of exchange rates to cushion the unforeseeable impact of differential change.
As we witness the pain of preparing for EMU on the Continent, the Euro-elites, as the noble Lord, Lord Healey, said, and our own grandees have shifted their ground from hard economics to the rather airy-fairy politics of Helmut Kohl's "grand vision". I do not join in mocking Helmut Kohl as "an old man in a hurry"--aren't we all! He is the survivor of the generation that remembers Hitler's war. He thinks that a federal Europe is the best guarantee of peace in our time.
In that I believe him to be profoundly mistaken. The Treaty of Rome got it right in emphasising that the chief antidote to national enmities is unforced, cumulative economic integration through open markets, fair competition and free trade. The challenge I put to every
Member of this House is the following question: why have we, the great majority of ordinary people in Britain, overcome our post-war detestation, our hatred of Japan? Has it been through slogans about moving to the heart of Asia or "punching above our weight"? No. It is by millions of consumers in free markets valuing the chance to buy Japanese cars, cameras, watches, television sets, electronic gear and so on; and the corollary of Japanese investment in British industry. The great Liberal dictum forgotten by most politicians, not least the Liberal Democrat Party, is that trade unites where politics divide.Why do we single out Mr. Kohl? He hardly needs to punch above his weight and may anyway be in political decline. The Brussels correspondent of The Times, George Brock, whom I have not always read with close attention, recently argued that the late Nicholas Ridley had been wrong to describe monetary union as "a German racket" because,
- "At the root of many British difficulties in Europe lies not one country but a pair of them: France and Germany".
Mr. Brock then explained how this axis has set the agenda and rules the roost in Europe. He continued:
- "Britain is regularly wrong footed by a two-country cartel which has cornered the market in ideas on what Europe should be".
Their Europe was once described as a marriage between a guilty husband and a jealous wife. The French, who understand these niceties, managed to keep on top until German reunification. Hence Germany's reluctant consent to sink its own currency into the EMU despite suspicions that the French wanted the opportunity to curb the hard-money men in Frankfurt. It was to calm those German fears that the Bundesbank insisted on central bank independence and what is increasingly shown to be bogus and--as the noble Lord, Lord Healey, said--inadequate convergence criteria.
Against this background of Franco-German realpolitik it was always misguided and, in my view, mischievous for the British Foreign Office to think that it could play one country off against the other. Over and above that marriage in Rome, France and Germany share with other continental Catholic countries a totally different philosophy from Anglo-Saxons about the respective roles of the state and individual freedom. My noble friend Lord Rees-Mogg, also in The Times recently, exposed their collectivist thinking as being drawn from outdated Papal teaching. It puts the social cart before the economic horse and prefers corporatism and consensus to competition and challenge. Mr. Delors was the classic victim of these delusions, his "level playing field" and "Global Social Charter" being just two examples of his flat-earth economics.
Greatly daring, I would say that, if we look back to the Bruges speech, we can now see that, judged from an economic point of view, it was not our Margaret or now our Johnnie who was out of step but those fuddled, fudging foreigners. Once Germany and France decided to put their heads into a monetary noose, it was inevitable that the lesser fry would queue up to hang together, even if it meant horrendous unemployment and cooking the books on convergence.
If all this is not sufficient to explain the collective folly we are witnessing across the Channel, most European supplicants have their own differing reasons for wishing--unlike most British (or at least most English)--to become born-again Europeans. A distinguished Spanish economist, Dr. Pedro Schwartz, in his Wincott lecture last week, mocked the muddled motives in Europe in the following words:
- "The Germans want the Union to stop them falling into Nazi ways. The French want to be cured of an inferiority complex. The Italians want to become a nation. The Spaniards want to bury Franco. The Portuguese want to be French. The Greeks do not want to be Turks".
He might have added that the Belgians no longer want to be Belgian. Dr. Shwartz's crowning quip, which I commend to your Lordships, was:
- "the Common Market should have been founded not in Rome but in Vienna, on Dr. Freud's couch".
Yet it is to such an unstable, unruly, disordered coalition that we are invited to delegate our future economic fortunes. And still the three party leaders shrink from a candid declaration that, while free trade is fine, there are serious questions about monetary and political union. Opposition to that enterprise is, in my view, not only in the British interest but also in the interests of the prosperity, freedom and even national self-respect of all the countries of Europe.
I have to confess my difficulty, confronted with the prospect of a Division later in the evening. Cross-Benchers do not like Divisions, in the same way as psychologists do not like blood. Neither the Government's Motion nor Labour's trifling amendment deal with this transcendent issue of Europe. What should an honest Cross-Bencher do with his vote? It is the impersonation by the noble and learned Lord, Lord Fraser of Carmyllie, of Adam Smith on the imperatives of global free trade that has persuaded me at least to contemplate a rare visit to the Government Lobbies if nothing better turns up in the concluding speeches.
7.5 p.m.
Baroness O'Cathain: My Lords, in my contribution to this debate I wish to deal solely with one sentence in the gracious Speech. In fact, it is the sentence that was quoted by the preceding speaker, the noble Lord, Lord Harris of High Cross:
- "My Government will continue with firm financial policies designed to support sustained economic growth and rising prosperity, while maintaining low inflation".
Everyone in business, in commerce--in fact, everyone with any interest in the economy and the economic health of the nation, irrespective of political views--must agree with the laudable objective contained in that sentence.
What immediately strikes me is that so far in this debate there has been considerable agreement that we are in many respects in good economic shape. I believe that the continuation of the current policies is something which is devoutly to be wished. The financial policies designed to support sustained economic growth that have been followed have been successful in their objective.
The main headline on page 1 of the Financial Times on Saturday 26th October said it all: "Economic growth at two-year high." Behind that headline is a most interesting story, a story of economic stability which has now lasted for almost five years. I have to say en passant that the contributions to this debate so far have been incredibly stimulating. One would expect nothing less from such an array of distinguished ex-chancellors, current professors of economics and ex-commissioners, but I should like to point out gently that, although, to quote a phrase already used, I am probably punching above my weight, there is in the Speech nothing which says that we are the leading industrial economy in Western Europe, rather that the Government:
- " ... will continue to promote enterprise and further improve the performance of the economy with the aim of creating the strongest industrial economy in Western Europe ..."
Sometimes non-academic economists have to work very hard in business and industry, but they pay a lot of attention to detail. It is very easy to become carried away with rhetoric. The rest of us, who are not very good at rhetoric, find it difficult, but we stick to the text.
Economic stability is the most important factor to anyone in business. How can one plan the future financial viability of an organisation against a background of seesawing financial and economic policies? How can one make production schedules, with all the interlocking facets of orders to suppliers, marketing plans, sales programmes, export plans, to mention but four, if one has no idea how prices are likely to move in both the long and short term in the economy as a whole? How can one become involved in new product development if markets are so uncertain, particularly at home, given that a strong home market is the base for so much of our export effort? Having been a strategic planner in industry for many years, I know just how difficult it can be. As an aside, I think ruefully that I was probably born out of time because, if I were a strategic planner today, it would be so much easier than in my day because there is now a climate of economic stability as the result of firm financial policies.
In my opinion, the pattern of economic activity over the last four-and-a-half years has been more stable than at any time in the past 30 years. All of us here are used to taking statistics and time-frames to suit our own arguments. I use 30 years as a bench-mark because it is precisely 30 years ago that I first became involved in business in this country. My knowledge of working within the parameters of government economic and financial policies prior to that is academic; my knowledge since is practical. I cannot impress strongly enough upon your Lordships the sheer desperation of trying to run a business without any confidence that the plans that one makes have any chance of being relevant, due to stop-go economic policies.
This Government, headed by my right honourable friend the Prime Minister, Mr. John Major, has been in control of the economy since April 1992. I believe that it is no coincidence that the second quarter of 1992 saw the first significant downturn in UK base rates and since then they have been almost unchanged. Even today's
news of a one quarter of one per cent. increase is nothing like the shifts that used to occur. Naturally, there is a plea for lower base rates but those with an ounce--or should I say "gram"--of economic sense will realise that to lower them irresponsibly could result in overheating the economy, which would put at risk the objective of "sustained economic growth and rising prosperity".The problem is that economists moan when consumer expenditure is sluggish but know that when that same expenditure shows buoyancy the warning of overheating is shouted from the rooftops. Despite today's minor change, I do believe that the firm financial policies of the last few years have had the desired effect of sustained economic growth. Minor movements like that of today give the right message: proceed with care on the sustained policy course.
Since the third quarter of 1992, each three-month period has seen an increase in GDP over the same period in the previous year: 15 quarters of "sustained economic growth". No wonder I welcome the statement in the gracious Speech which pledges to continue that.
I do not believe that in this Chamber there can be any argument with the objective of "sustained economic growth". Without that growth we shall not be able to fund all the necessary aspects of our education, health and social policies, to name but three, let alone fund better and rising standards in all those areas. There is nobody in this Chamber who does not want that.
Wealth creation is of fundamental importance and wealth creation on a sound, continuing, sustained basis will further increase the prosperity of all our people and allow for greater contribution to the overseas aid budget and other areas on the "wish list". I am sure that there is consensus on that.
The same arguments apply to the goal of rising prosperity. Wealth creation is, again, an essential ingredient in attaining that goal. There has been an increase in prosperity. Unfortunately we take it for granted when we have it and complain bitterly when we do not. But the biggest success in the economic field of the Government led by my right honourable friend has been the control of inflation. I find it quite staggering and almost unbelievable to be asked by businessmen in Continental Europe, "How have you really done it?" Far from being pitied by our European colleagues, we are now envied.
I find it a most interesting phenomenon that low inflation has of itself posed a problem for business; namely, how does one continue to make sufficient profit to fund investment for future expansion when inflation rates are so significantly lower than base rate? The answer lies in a never-ending search for greater efficiency in everything that business does and a much greater realisation that marketing is the key to our continuing and increasing competitiveness in world markets. Nobody wishes to see a return to high inflation rates, but we must make sure that we are constantly aware of every single factor that can impinge negatively on those same inflation rates, not least imposed costs on business arising from dogma or theoretical exercises espoused by those who have never run a business in their life.
One of the problems with economists is that they rapidly lose their audience when they talk for far too long on what they regard as exciting trends and statistics but which are regarded by non-economists as dry as dust material. Another problem is the old chestnut: take any number of economists and you will have an equal number of differing opinions. In the case of this non-academic economist--probably the only one speaking here today--I can only state what I find both comforting and exciting in the gracious Speech. I hope that I have been brief enough, but not too brief, to encourage everyone to support the wish that we should:
- "continue with firm financial policies designed to support sustained economic growth and rising prosperity, while maintaining low inflation".
7.15 p.m.
Lord Haskel: My Lords, the sentence that I want to quote from the gracious Speech is:
- "My Government will ... [promote] a flexible, efficient labour market".
Let me clarify the difference. A flexible and efficient labour force will help to create successful companies. With successful companies there is security, growth and prospects. But with only a flexible labour market there is uncertainty, poor prospects and division. A flexible and efficient labour force means not only a competent workforce but also a workforce with transferable skills, and with skills in numeracy, literacy, communication and computing. The market does not produce that; training and hard work does. As my noble friend Lord Peston reminded the House, it is the role of government to encourage that.
What has the drive towards that so-called flexibility of the labour market achieved? The Government have been deregulating the labour market for 17 years. During that time, as my noble friend Lord Currie reminded us, we have been steadily falling down the world prosperity league--from 13th to 18th according to the Government's own competitiveness reports. The Minister and other noble Lords told us that we are to be the enterprise centre of Europe. I am not quite sure what that means, but I know that in GDP per capita we are in fact ninth in Europe. Neither will deregulation alone produce a skilled labour force. In many parts of the country we constantly hear about skill shortages. The answer is becoming apparent: the Government's so called labour market flexibility produces division; a divided society.
Nowhere is that division more apparent than in the rising difference in wages between the skilled and the unskilled. For 30 years after the war, the difference in wages between the skilled and the unskilled was fairly constant. Since 1979, the wages of the skilled have soared and the wages of the unskilled have risen barely in line with the rate of inflation. The result is that the difference between the wages of the skilled and the unskilled is now nearly twice what it was 17 years ago.
I presume that those who support the idea of a flexible labour market believed that the wages of the unskilled would fall to a level at which they priced themselves into a job and the wages of the skilled would rise to a level just below where they priced themselves out of a job. That difference would encourage the unskilled to become skilled. In fact, what has happened is that good employers are being held back because of a skill shortage and poor employers are helped to pay low wages by a subsidy through the social security system. In Britain in 1993, £2.4 billion was paid out in social security benefit to supplement low wages. That may lubricate the labour market but, in the absence of a minimum wage, all it does is subsidise poor employers. Perhaps the Government can tell us at what level they expect the unskilled to price themselves into work. I suspect that there is no work for many of the unskilled at any price.
The differential between the pay of the skilled and the unskilled is even more pronounced in the United States. In recent years, the wages of the unskilled in America have fallen by 30 per cent. and the wages of the skilled have increased by over 100 per cent. Have they priced themselves out of jobs and does that explain the low rate of unemployment in the United States?
I have a trick question for the Minister: where does one find 2 per cent. of the American male population of working age? The answer is gaol. As wages drop so men are turning to crime. The proof is that the arrests and prison records in the United States show that the criminal population has the same characteristics as the population doing poorly in the job market. Incidentally, an additional 5 per cent. of the American male population of working age are on probation or on parole. That means that approximately 7 per cent. of American working men are involved with the criminal justice system.
The noble Lord, Lord Taverne, told us all about the cost of prisons. Is that the price the Government are prepared to pay for promoting what they call a flexible labour market? Perhaps that is an example of what my noble friend Lord Currie referred to as market forces operating against the public good. Having 2 per cent. of the male workforce in prison is an expensive way of getting them off the unemployment register.
If work is left to the labour market, one way or the other society will pay for people's lack of skill, either through the welfare system or the prison system. How much more constructive it would be to spend that money on getting people back into work. That is why Labour's plans are designed to encourage those aged 16 to 18, who might join the ranks of the unskilled, to stay on at school. That is why Labour's use of the windfall tax is designed to get those aged 18 to 25, who might join the ranks of the unskilled, into training and into work. That is why, for Labour, welfare is no longer enough. Welfare has to be the step back to work.
The Minister pointed to the reducing unemployment figures as a mark of the Government's success. There certainly has been a decrease in the number of those registered as unemployed and drawing benefit and that I welcome--I welcome it seriously. As other noble
Lords pointed out, there is uncertainty over exactly how many people are unemployed. My noble friend Lord Bruce told us about the changes in the methods of collecting statistics; what he did not tell us is that the Royal Statistical Society referred to the manner in which those figures are now collated as "tawdry".The reason for the uncertainty is that the labour force survey indicates that many people are leaving the workforce early, as the noble Lord, Lord Ezra, told us, because of down-sizing; 193,000 did so in the three years to December 1995. According to Paul Gregg of the London School of Economics one in five households now has no earners. All that inactivity led the Bank of England to conclude in its recent quarterly report:
- "Almost the entire net improvement in unemployment performance in the 1990s compared with the 1980s was accounted for by the rise in inactivity".
What is it that has enabled us to increase the pay for skilled workers to such an extent? Is it deregulation? Is it the attack on union power? The answer seems to be technology. It is new technology that increased the demand for skilled workers and the use of that technology enabled firms to pay them more while keeping down unit costs. Those companies and industries where new technology has been introduced more effectively have increased skilled wages far more than in those which use less new technology.
Perhaps I can give an example from my own industry--the textile industry. Germany and Italy, with their high labour costs about which we keep hearing, are still the world's largest producers of fabric, thanks to technology. Could it be that all the time, energy, money and heartache spent on deregulation and attacking employment rights was unnecessary? The economic objectives could have been better achieved by more widely encouraging the introduction and use of new technology.
Quite rightly, departments exist for that purpose in the DTI. But, sadly, the gracious Speech is silent about that. It was silent too about investing in those skills and technologies which are the key to our future economic and industrial success. As a result we can look forward to the same old drift leading to yet greater social division. It must be common ground that we find those divisions unacceptable and feel the need to do something about it.
My noble friend Lord Peston reminded us that low pay is an ethical question. That is why I support his Motion regretting the failure of the Government to preserve social cohesion. Much of the division to which his Motion refers is caused by the Government's fixation on their so-called labour market instead of a flexible and efficient labour force.
7.25 p.m.
Viscount Thurso: My Lords, the noble Lord, Lord Peston, in his opening remarks, drew our attention to the long list of distinguished and erudite speakers contributing to this debate on the economic and industrial parts of the gracious Speech. I crave your Lordships' indulgence as an undistinguished small businessman squeezing between those economic Titans.
I am not an economist and have no understanding of the spells and incantations of that particular brand of sorcery. However, in the Summer Recess I read three books on or by former Chancellors of the Exchequer. I much enjoyed reading the biography of Gladstone by my noble friend Lord Jenkins of Hillhead, and followed that by reading the fascinating autobiographies of the noble Lords, Lord Healey and Lord Lawson. I believe both noble Lords described economics as an art form rather than a science. Having read of their experiences I would perhaps go a little further and say it is an abstract art rather than a figurative one. I am still no wiser. That has nothing to do with their ability as authors but rather more to do with my inability to take in the subject matter. Consequently, I shall confine my contribution to the industrial parts of today's debate and in particular to my own industry; that is, the hospitality industry.
Like the noble and gallant Lord, Lord Craig of Radley, I was not quite sure on which day it would be best to contribute. As my industry is one of the largest employers in the country and one of the major contributors to the economy, I thought today would be appropriate.
Consensus appears to be out of fashion at the moment. Despite that, I believe that there is a broad consensus nowadays as to the requirements and objectives of the economy; that is, that we need stable growth in a low inflation environment in order to produce a large and healthy national cake which will provide for the people of our country. I believe we also agree, though perhaps by differing degrees, that high employment is both a major objective and a principal driver of a strong economy. Where there is disagreement, of course, is on how the national economic cake should be sliced.
Clearly the creation of long-term and sustainable employment is a vital factor in a sound economy. This morning on Radio 4's "Today" programme I heard the Secretary of State for National Heritage say that four out of every 10 new jobs created in the future will be in the industry in which I work--the hospitality industry. For a long time this industry has felt that its value to the economy has not been recognised by government and it is therefore heartening to know that government understand the importance, both today and in the future, of the industry. That is in no small measure due to the opportunities we have had in your Lordships' House to debate particularly the tourism section of the industry, and I shall not therefore go over ground that has already been well trodden. However, I should briefly like to remind your Lordships of the scale of the industry.
As the report of the Select Committee on the European Communities, Tourism in the Community, which your Lordships debated last year, recognised, the industry is extremely diverse and consequently difficult to define. I use the term "hospitality industry" and refer to those businesses covered by the Joint Hospitality Industry Congress. This body, which came into being some three years ago, has representatives of more than a dozen of the main industry bodies, covering not only the traditional tourism side, such as hotels and
restaurants, but also other parts of the hospitality industry, such as contract catering and licensed victualling.According to the British Hospitality Association, a key member of the Joint Hospitality Industry Congress, there are today 2.5 million people employed directly in the hospitality industry. This is equivalent to 11 per cent. of the national workforce. The industry spend is currently £50 billion, equivalent to 10 per cent. of annual UK GDP. For the future, the BHA estimates that 130,000 new direct jobs will be created in the industry by 1999. The Secretary of State herself this morning estimated that the industry will produce a million new jobs over the next 10 years.
Not very long ago the hospitality industry was an economic footnote. Today it is a major driver. However, although the industry as a whole is large, it is very fragmented, made up of many different sections and comprising for the most part small businesses. It is therefore very often difficult for it to present a common front or agree a common strategy. It is consequently an industry where government leadership and support are vital if it is to fulfil its future potential. I am sorry that in his opening speech the noble and learned Lord, Lord Fraser of Carmyllie, giving a long list of successful industries, did not mention anything to do with the hospitality industry, which is one of the UK's largest employers.
It is very easy when in opposition to fall into the habit of opposing for the sake of opposing, and I do believe, however rare it is, that the Government should be given praise where praise is due. A great deal of what is required in the tourism industry is frankly plain common sense and is not party political. The Department of National Heritage has done a lot over the past few years to help the industry. Most importantly, and for the first time, those of us working in the industry feel that our views, whether agreed with or not, are at the very least being listened to and taken seriously. This is a great step forward. I would also compliment the Secretary of State on placing the industry high on her agenda and on the energy she has shown in promoting the industry both at home and abroad and in prosecuting our requirements in Whitehall. However, there is still a considerable amount which the Government can and should do to help the industry.
Let me begin with money. Everyone who speaks on tourism, whether it be in your Lordships' House or elsewhere, makes the point that the budget available for tourism support at the DNH, which in the current year is, I believe, around £46 million, is a minute investment to make when compared both with the size of the industry and with the amount of support given by the Department of Trade and Industry to other industries. We must invest for the future and the only way in which an industry as fragmented as ours can move forward is through government leadership; and that requires investment on a greater scale. It is frankly disappointing to read in this year's Department of National Heritage report that the amount projected for next year is actually to go down.
My criticism of the Government is their failure to take the lead where they have been required to do so. I take the question of hotel classification and grading. The crown scheme introduced 10 years ago has produced widespread confusion. This has been recognised by the DNH. It commissioned research which demonstrates that the public clearly want a better scheme. While I welcome moves to produce a new scheme, I must say to the Government that, as long as such a scheme is voluntary, in my view it will fail. I believe it is up to the Government to take the lead and institute a system to which all accommodation providers are obliged to respond.
Then there is the question of our archaic licensing legislation which is needlessly complicated. A zero-based review of our licensing legislation producing something far more appropriate to today's society would result in a major boost to our industry. I also believe, particularly if we separate the licensing of premises from the licensing of people, that not only would we be able to offer the provision of food and drink at the times when our customers, particularly tourists, want them, but we would also be able to introduce more effective control against the abuse of alcohol and particularly under-age drinking.
However, I believe that the biggest challenge facing our industry is one where we shall get no help whatsoever from the Government. That is in the area of the quality of jobs which the industry is expected to provide. This morning the third report on tourism, Competing with the Best, was published by the Government. It was entitled People working in tourism and hospitality. It was on this report that the Secretary of State was commenting this morning. I have only just managed to get hold of a copy of the report and therefore have not been able to read it properly. But it appears to highlight the immense need for training and motivation within the workforce of the hospitality industry if we are to continue to improve the quality of our product and the size and profitability of the industry as a whole.
The plain fact is that a very great number of people who are employed in the hospitality industry are employed at very low--I would say far too low--rates of pay. The consequence is that we continue to fail to attract the brightest people into the industry and many of our lower paid jobs continue to be jobs of last resort. I have to say I do not believe that the industry will voluntarily change this, and consequently there is a vicious circle in many parts of the industry--and particularly at the bottom--whereby staff work in jobs they do not really want to be in, are not in the least motivated and leave as soon as they can find something better. Because of this, employers see no reason to spend on training or attempt to motivate their workforce. Conditions therefore remain bad.
Over the past 20 years or so the balance of power between capital and labour has swung decisively in the direction of capital. I believe it is an important element of a vigorous economy that there is a proper balance between labour and employers. At the moment that is not the case. Even in industries where trade union support was strong, their power has been greatly diminished. In the fragmented hospitality industry
employers without doubt have the upper hand. Despite the efforts of many good employers, the long tail--as the noble Lord, Lord Currie, so eloquently described it--is very unwilling to train, motivate and pay those employed at the bottom of the industry. Consequently, I believe that the only way in which this vicious cycle can be broken is by the imposition in our industry of a minimum pay scale; that is to say, a return to something like the hotel and catering wages council. I believe that this will result in a virtuous circle. Where employers are obliged to pay their employees at the bottom of the scale a decent living wage, they will also be obliged to make better use of those employees. They will be forced to invest properly in training their staff, who will become better motivated.I am not wholly convinced of the arguments for a national minimum wage, but I am certainly not frightened of the concept. In our industry I believe it is a necessity if the jobs we are to create are to be sustainable and worth while. I simply cannot understand the logic which says, as so many managers do, that the biggest problem is that we do not pay people properly or train them enough and in the same breath we vehemently oppose the most logical methods for remedying these ills. From my brief skim through today's report, it is absolutely clear that low pay has been identified as a major factor holding back the industry.
I am very proud of my industry and as a manager I want to see well paid and well motivated staff not only in my organisation but throughout the industry. I do my best. In fact in my own establishment this year, at the budget time which we are in now, I have asked all my managers to institute a voluntary minimum wage. We have chosen £4 an hour and that is being applied throughout our company. But if these million new jobs which are being created in the next 10 years are not to be for another million low paid, low skilled staff of last resort, a stick much larger than benign urging is required. Without it, they will remain jobs of last resort and unfulfilling and unwanted. They will not contribute to social cohesion as they should, but instead they will perpetuate the divisiveness which has so dogged our society.
7.40 p.m.
Lord Sanderson of Bowden: My Lords, I welcome the opportunity to support Her Majesty's Government in this debate on the gracious Speech in relation to industry and economic affairs, but I reject entirely the terms of the amendment. I believe that our country's reputation abroad on economic matters is light years ahead of the poor ratings we had in the years that ended with the winter of discontent.
As far as Europe is concerned, I trust that all those who are critical of the workings of the European Union will not forget the cost to our nation's trading position of putting at risk the very real gains that are available to us by having broken down the trade barriers in Europe. Let no one suppose that the United Kingdom would be the beneficiary from a pull-out policy, just as no one should suppose that a policy for a statutory--
and I underline that word "statutory"--minimum wage would be anything but a tax on jobs. A windfall tax on utilities would be an oncost to consumers of water and electricity.For those of us lucky enough to live in Scotland a tartan tax would be an unfair extra burden compared with the taxes put on citizens in other parts of the United Kingdom. While on the subject of the Scottish economy, I had the privilege in this House of taking the amendments relating to Ravenscraig when the Steel Bill was passing through and also of answering questions on the future of the Rosyth Dockyard.
I concur with the remarks of my noble friend the Minister in his opening statement. I congratulate my successors in office--turning the tables on the doom and gloom merchants of that time by the huge inward investment projects now secured for Lanarkshire and Fife.
However, this debate is one which rightly ranges over a huge canvas. Others more eloquent than I have addressed and will address the macro-economic scene. In passing perhaps I may say that the speech of my noble friend Lord Cockfield must be essential reading for anyone who wishes to understand the macro-economic position of this country.
I would like to confine my remarks to the current situation relating to small firms and also to make some remarks about two important aspects of Government policy in relation to industry. We should never underestimate the importance that is attached to the number of small businesses in the United Kingdom. We have to be constantly sure that they have a stable economic environment in which to work, with as low burdens as possible as far as bureaucracy is concerned, and that help for their development is always forthcoming. I believe that Her Majesty's Government have indeed been supportive of small businesses. The small company rate of corporation tax, which last April was reduced from 25 per cent. to 24 per cent., was indeed very helpful. I firmly believe that support for small businesses should be private sector led and that we should ensure that help is tailored to the needs of the local business community.
Incentives for these businesses are essential. There has been much talk about the fat cat's club in the press which, I presume, refers to those people who have done very well personally out of the various privatisation issues and who have been a success in their own businesses. They have been fortunate and, in some cases they have been in the right place at the right time. I would prefer to call the club the bumblebee club as those involved have been at the centre of those businesses which have served their "workers" well. My point is that if those people have gained from their positions and the businesses have succeeded, then it is essential that we attract those gains and that money into investments in the United Kingdom and thus prevent the flight of the bumblebees to far off tax shelters like the Cayman Islands.
Last year my right honourable friend the Chancellor of the Exchequer encouraged investment in the United Kingdom by the arrival of venture capital trusts. It is
early days to measure their success, but such measures as these and tax allowances for investment in the alternative investment market are good examples of how to ensure that private capital can be reinvested to the benefit of United Kingdom businesses. I know that my right honourable friend the Chancellor of the Exchequer also introduced the enterprise investment scheme to replace the business expansion scheme. I wonder whether he has made that scheme the success that he expected it to be. If I were to hazard a guess I would say, as they say in school reports, "Perhaps he could do better".We have listened today to a very important speech by my noble friend Lord Weir on the subject of the private finance initiative. I suppose that I should declare an interest as a director of a construction company involved in some projects. I agree with most of what my noble friend said--in fact, he has ensured that my contribution on this subject is considerably shorter than it might have been. However, I would emphasise three important points that he made. First, the costs of mounting bids is huge. That is a definite disincentive to some companies. The bidding process is inevitably complex, but to those companies which are unsuccessful--and they number not a few--there is a greater and greater need for them to be selective. Secondly, my noble friend said that we must avoid Dutch auctions. I agree entirely. If there are too many Dutch auctions in this area we shall end up with nothing to auction. Thirdly, the sooner the preferred bidder status can be reached the better. I suggest that if necessary, after that stage is reached and we have more than one preferred bidder, the Government should fund the costs of the unsuccessful.
The Chancellor's recent announcements have helped to restore confidence in PFI. I believe that it can succeed. I also believe that the area which is slowest to get off the mark and the one which is certainly causing me and others most concern, is the health area.
Finally, businesses of all sizes cannot afford a return to the boom and bust switchback of the past. Therefore, I welcome the Chancellor's corrective action today on interest rates. Low inflation must be the key to sustained economic progress in this country, hence the requirement to pin down government spending to ensure a level that avoids the unwelcome spectacle of unstoppable inflationary pressures that could wreck all the gains achieved, some very painfully. But the current record is the envy of many across the seas, notably on the other side of the English Channel.
7.48 p.m.
Lord Desai: My Lords, we have heard many good speeches today. The first I should like to mention is that made by my noble friend Lord Currie, whom I have known for a long time. He has fulfilled all my expectations by giving a succinct and brilliant speech. I am sure that he will make many more contributions to our debates in the future and I look forward to them.
We have had an almost unintended but major debate on the single currency, to which my noble friends Lord Healey, Lord Bruce of Donington, Lord Barnett and the noble Lord, Lord Cockfield, have contributed. I wish to
speak on the single currency in a minute, but first I should like to say something about some of the issues which were mentioned by the noble and learned Lord, Lord Fraser of Carmyllie.I accept that certain macro-economic figures are very good. Indeed, I said as much last March in an article in the New Statesman which got me into some trouble. However, we must remember that a good performance over 15 quarters is not permanence. The noble Lord, Lord Cockfield, pointed out that although we claim a lot for the macro-economic framework, we continue to pay about 1.5 per cent. for our government debt above what is paid in Germany and the United States. That shows that the market still does not trust the Chancellor of the Exchequer of the United Kingdom--whichever party is in power--to be responsible. It will take many more years before the UK's reputation for fiscal prudence is properly established.
Indeed, although I welcome the quarter per cent. increase in the rate of interest, I do not think that it is enough. Problems with high interest rates arise not so much from what consumers do (although they are spending a lot of money), but from what people suspect that the Chancellor of the Exchequer will do. We are already hearing siren voices saying to him, "Go ahead. Have tax cuts. Why not? If you are lucky, we won't get re-elected and if you are not lucky and we do get re-elected, we'll have a tough Budget next time". That is what happened in 1992. I do not think that we can conduct fiscal policy on that basis.
Although I know that the Chancellor will not take my advice any more than has the Shadow Chancellor, I strongly advise the right honourable gentleman to think seriously about increasing the rate of taxation. As noble Lords know, I am no friend of lower taxation. I never have been. I believe that we have to decide on our spending priorities. In that respect, although a lot of nonsense is talked about savage spending cuts and about controlling spending, by and large spending is difficult to control because most of the money is properly spent. Indeed, we should like to spend more on more things because the voters want more. We cannot get away from the fact that they want smaller classes and a better National Health Service. Talk about making deep cuts in public spending is simply delusion. I know that the Prime Minister is not in favour of caning, but as slapping now seems to have Christian approval, I think that those of his friends who continue to talk about the need for spending cuts should be slapped down.
We are not going to have spending cuts, but what we are going to have if we do not have the courage to tax properly are deficits. Indeed, it has been the rather unseemly haste to cut taxes which has got us into this trouble. Bold decisions will have to be made, if not in this Budget then in the next Budget, whichever party has to frame it. As was pointed out earlier, the public sector borrowing requirement in the UK economy is unsustainable. A country in the fourth year of a good recovery should be producing a surplus on its budget, not a deficit. There is no excuse for continuing to produce a deficit.
It is argued that if you cut taxes, revenues rise. I have two points to make on that. Our major increase in income tax revenues occurred when the tax rate was cut from 87 per cent. to 60 per cent. The next set of cuts--from 60 per cent. to 40 per cent.--did not yield that much extra money. Although the income tax paid by the top 1 to 5 per cent. has increased, the tax base has shrunk, and because it has shrunk we find that, although we are in the middle of a prosperous phase, we are not collecting enough taxation to be able to afford the things that we want. I do not think that that is sustainable. Therefore, I urge the Chancellor, even if he cannot do anything else, in the stealth of the night to remove the ceiling on National Insurance contributions. That might not only bring in more money, but it might even catch some fat cats--and that is not easy. I am sure that this problem cannot easily be solved.
I come now to the Private Finance Initiative about which much has been said. We must remember that PFI is not, and should not be, a substitute for public sector investment. That is my first point. However, I should also point out that PFI is not as successful as some people claim. In the higher education sector where I work, PFI is causing much damage because nobody is paying any attention to the fact that although our capital grants have been cut on the promise that there will be PFI help, we are not going to get that help. As I have said before, I believe that very soon--probably within this financial year--one or two universities will go bankrupt. There is no provision to cover that. We have provision for hospitals going bankrupt, but no such provision for universities. Who will take over the liabilities--and the students--of universities which go bankrupt? This is an urgent problem and I do not know what we can do about it.
Therefore, although the Private Finance Initiative is welcome, it should be an addition to, not a substitute for, public sector investment. That investment has declined precipitously. That is not the kind of expenditure control that I welcome. If the Government want to control expenditure, they should do it somewhere other than in the education sector.
Returning to tax cuts, it is puzzling that although everybody claims a great deal of credit for having reduced the top rate of income tax from 87 per cent. to 40 per cent., the tax that is implicitly being paid by an unemployed person when he or she takes a job is between 80 and 90 per cent., and nobody has done anything about that tax rate. The Government have spent 17 years talking about reforming the welfare state and saying that they want to provide incentives to work, but I must advise them that lower wages are not an incentive to work and that somebody who is contemplating moving from unemployment into employment will need a tremendous boost in their income before work can become worth their while because of the tapering effect of the loss of welfare benefits. We have created a welfare state in which, by deliberately tapering the benefits to which people are entitled, the implicit tax rate is so high that many people at the lower end of the income scale find that taking a job is not worth their while. Nothing has been done about that. If the
Government are serious about doing something about the job market, they should give that problem a greater priority.The possible adoption of the social chapter and a minimum wage are not the problem. The real problem is the disincentive to work, which also has an effect on social cohesion. The lack of social cohesion has become a problem for two reasons. I advise all those who do not believe that the lack of social cohesion is a problem to recollect that all the debates in the press in the past month have centred on violence, child abuse, gun control, declining moral values and what we can do about our children. I do not want to be an economic determinist about this, but if the economy is going so beautifully and if we are the best enterprise centre in Europe, why is there so much trouble among our populace? Why is everybody worried about the quality of life in this country? Why do people feel insecure and threatened? I believe that there is some connection although I do not want to make too much of the point.
Many people are not part of the job market because of a lack of incentives or a lack of skills, and those who are in the job market at the lower end of the scale are often badly paid, yet those people have legitimate aspirations. There is a lot of tension and violence in some families and although the cause is not solely economic, we cannot rule out the fact that the insecurity and poverty of those at the lower end of the scale contributes to family tension and violence. That is why I strongly support that part of my noble friend's amendment in which he refers to policies which preserve,
- "social cohesion and integrity within the United Kingdom."
Finally, I should like to make one or two points on the single currency. I was originally a fanatic about the single currency and my point was simple. I wanted a single currency and a federal Euro state. I make no bones about it. I believed that the only way to run a Keynesian policy was on an all-Europe basis. A strong federal state would have guaranteed that one could run a Keynesian policy without a run on the pound or a large export of capital.
Since the Edinburgh Summit (if anyone still remembers it) the programme for a strong federal Europe has been scuttled, so much so that even France and Germany are unwilling to increase the European budget and provide the transfer payments required to meet the cost of a single currency. For that reason, I have come to the conclusion that neither the UK nor any other country should be part of a single currency at the moment. One is talking of a single currency purely for political reasons which refer to a period which has gone by. We no longer need to worry about whether Germany will be part of the western alliance with German reunification. Those fears have passed. Germany's fear that if it is outside a single currency somehow the deutschmark will become too strong is also a delusion. In the past two years the German economy has shown that there is no great danger of that. I do not believe that at the moment it is in anyone's interest to rush into a single currency.
We should not be bound by any deadlines which, after all, are man made and are not God-given law. I believe that when the case for a single currency becomes stronger we should continue to think about it, but I do not believe that we must all march in step because dire consequences will occur if a single currency is not created. After all, the single market has not yet been fully implemented. Why do we have to rush into a single currency just because Jacques Delors thought six years ago that if there was not a single currency programme Germany would escape from the western alliance? There is no possibility of that. Let us think about a single currency. I believe that there will be an evolutionary path whereby countries move closer together. There is probably a core of three or four countries--Germany, Austria, the Netherlands--which are already in a de facto single currency situation. Let them get on with it. At the moment France is killing itself to get into the single currency. France and Italy are involved in a passionate move to do it. We must insist that the Maastricht conditions are strictly adhered to before anybody becomes a member. There must be no fudging or cooking of the books and no concessions should be made. That is the only condition on which a single currency should be entered into. I believe that we will then have a longer period in which to think about a single currency, rather than thinking of a starting date and putting constraints upon ourselves. As to the question of pace, pets are not just presents for Christmas but are for life. One will enter into a single currency not just in 1998. If one is to go into it one is to be in it for a long time. There is no hurry. We must think about it carefully. When the case is stronger perhaps there should be another debate, and then go in.
8.3 p.m.
Lord Tugendhat: My Lords, like others who have spoken in this debate, I begin by congratulating the noble Lord, Lord Currie of Marylebone, on his notable maiden speech. However, I cannot associate myself with his strictures and those of the noble Lord, Lord Healey, on the quality of British management. In that respect, I identify myself much more closely with the views of my noble friend Lord Weir. One of the most striking changes which has taken place in Britain over the past 15 years is the improvement in the quality, professionalism and competitiveness of British management. I find it surprising that those connected with it, in the way that the two noble Lords are, should have formed such a contrary view.
As has been pointed out by a number of speakers in this debate, on balance the past year has been a good one for the British economy. Growth and falling unemployment have compared well with other European countries. People have enjoyed the benefits of tax cuts. Negative equity is on the wane. But one ought not to get too carried away. The current account is poor by European standards. One has only to compare it with those of France and Italy to appreciate that. The budget deficit is higher than forecast and higher than it should be. Not only has inflation failed to get below the Government's target of 2.5 per cent.; it is also very high
by most European standards, even if it is rather low by the standards to which we are accustomed in this country.I should like to dwell on inflation for a few moments. Some of the dangers tending towards higher inflation are well known. For instance, broad monetary growth has been running at dangerously high levels for some months. We can also see the beginnings of a consumer-led boom. For these reasons alone, now is not the time for significant tax cuts. It is the time to begin putting up interest rates if we are to avoid trouble in the second half of next year; that is to say, after the general election. I therefore welcome the Chancellor's decision today to make a small rise in rates and regard it as an appropriate precautionary measure.
There is another factor to which I should like to draw the attention of the House. I feel that hitherto it has received insufficient attention. I refer to the windfalls that will arise from the de-mutualisation of certain building societies and insurance societies during the second half of next year. At a rough estimate, that could put £23 billion into peoples' pockets during the latter six months of next year. That is a truly colossal sum. To put it into context, total mortgage lending this year will probably amount to about £17 billion. If distributed equally, £23 billion would add about 4 per cent. to personal disposable income in 1997; in other words, the de-mutualisation process will potentially have a substantial macro-effect.
All of that money will not be distributed equally. Not everyone is a member of the Halifax Building Society, or has a policy with the Norwich Union, or is involved with the Alliance & Leicester, and so forth. But a great many people are involved with more than one of those institutions. Several million people will be involved with several of them. That makes it extremely difficult to forecast how much will be saved and how much will be spent. When Abbey National converted from a mutual to a plc in 1989--some two years before I became involved with that company--and when TSB was floated, it was estimated that between 25 and 30 per cent. of the shares were sold off quite quickly. If that happens this time the effect will be to add between 1.18 and 1.5 per cent. to the underlying rate of consumer expenditure. My view is that the figure will probably be higher rather than lower because a substantial number of people will benefit from more than one of the windfalls. Against that background, I urge the Chancellor to err on the side of caution in respect of both tax cuts and interest rate rises. Few things in economics are certain, but the cornucopia to which I have just referred is about as certain as anything can be. In those circumstances it would be irresponsible to take risks on the inflation front.
I believe that there is another matter that the Government should bear in mind. It looks increasingly likely that Britain will not be in the first wave of EMU participants. To my great sadness it is probably right that we should not be, as I do not have confidence in the arrangements that seem likely to be put in place. But if EMU goes ahead--which is likely, probable, yes, but not certain--being outside will not be an easy option.
Britain, as several noble Lords have pointed out--notably my noble friend Lord Cockfield--does not have an impressive, long-term record in terms of its public finances, price stability or the maintenance of the external value of its currency. The burden of proof will be on us to show that we can handle these matters better than the participating countries. We will not, I fear, start with the benefit of the doubt.
Others may hope to gain or consolidate reputations for sound money and responsible fiscal and economic policies by going into EMU. If we do not do so, we will have to show that we can achieve those reputations on our own. If not--if we cannot show that--then regardless of our reasons for not joining we will be classified by the international capital markets with those who are too weak or incapable of doing so.
That is a very tall order indeed. But if EMU fails to go ahead, or if it does go ahead and fails to work as its participants hope, if it fails to deliver price stability, and if it creates other problems as well, we could be on the verge of a golden opportunity to transform Britain's reputation relative to others in the world's eyes and those of its markets.
Every year before the Budget it is said that the stakes are high. This time not just the Government's reputation and the Chancellor's are being put to the test, nor even the important task of winning the election; it could also be the position in which Britain enters a new era in European and international monetary relations.
8.10 p.m.
Lord Monkswell: My Lords, last week when I listened to the gracious Speech I was concerned that there was no mention of unemployment. Therefore I was pleased when my noble friend Lord Peston moved his amendment this afternoon. One of the things to which it refers is the country's reputation abroad.
We have heard this afternoon how we have an astronomical PSBR. We know also that the Government have indulged in privatisation on a massive scale over recent years. I was reminded of the contribution made to our national debate 11 years ago by the late Lord Stockton. He pointed out:
- "They have invented the one new law that there is no difference between capital and income. Under this law, apparently, you can spend all your capital on current account".
- "Some of the nicest fellows I have known in my life have experienced this confusion between capital and income, but they usually ended up in rather dreary lodging houses".--[Official Report, 23/1/85; col. 254.]
The superficial reputation we have abroad may be because we are got up like gay young blades having sold the family silver and having nothing to fall back on in the future. I cannot see the Prime Minister as a gay young blade. "Grey blade" might be a better description. So I was pleased about that part of my noble friend's reasoned amendment.
If we look at unemployment, which is one of the biggest problems with which we have to contend, and the record over the past 20 years or so, we can see that on the Government's own figures, during the period of the previous Labour Government and apparently bad days in the 1970s, unemployment averaged 5.35 per cent. The minimum was 4.5 per cent. and the maximum was 6 per cent.
If we look at the figures for this period of Conservative Government since 1979, we can see that the average figure has been 9.48 per cent. The minimum was 6.5 per cent.--that minimum figure for unemployment over the past 17 years is significantly higher than the highest under the previous Labour Government--and the maximum was 12.5 per cent. We currently have an unemployment rate of approximately 2 million people.
One of the points my noble friend mentions in his reasoned amendment is integrity. We could have a big debate on the Government's integrity vis-a-vis this House: how we were misled into thinking that we were engaged before the Recess in a free vote, a reasoned debate, on the amendment to the Bill of Rights when in fact the Prime Minister advised us subsequently that it was a government ploy and a whipped Division. That does not speak of a great deal of government integrity. I do not want to go into that argument today.
I should like to look at the integrity of the Government's unemployment figures. I was at a meeting during the summer. One of the first questions I was asked following a little speech was, "What is going to be done in the future about government statistics"? We have a problem when people do not believe the statistics the Government publish. One of the problems relates to the unemployment figures. We know that the method of the calculation of unemployment figures has changed many times over the past 17 years.
The other day a colleague in the House asked me what the real unemployment figure is. I have been trying to find out some real figures. Perhaps I may take your Lordships through some figures that I have managed to obtain from the Library. They relate to 1994. It was not possible to obtain sensible figures for later years because they are not available publicly. I looked at the population in different age ranges in the UK. I took a proportion of the population in the 15 to 24 age range because some of them will be in full-time education. I calculated a figure of 5.28 million people available for the labour market. Between the ages of 25 and 59 there were 27.9 million people. In the age range of 60 to 64 there were 1.36 million males. That makes a total of 34.14 million. I chose the ages of 60 and 64 because, nominally, that is the retirement age for women and men. We heard earlier that many people expect to retire before then. I also entered an allowance for mothers involved in rearing young children. Expecting mothers of children under five to get a job does not recognise the important work that is involved in rearing young children and running a household. That allowance was 3.8 million.
The result is that we have an available workforce of 30.34 million but a workforce in employment is 25.48 million. That leaves a balance of 4.86 million
people who were notionally unemployed. The Government figures for the same year showed 2.64 million people unemployed. I do not suggest that my figures are perfect but they show our difficulties in accepting the Government's figures for unemployment.My noble friend's reasoned amendment then deals with social cohesion and in that respect I wish to give the House a case history. Ten years ago a young man of 25 was in reasonable employment. He and his girlfriend decided to marry and have a family. They had two children. Within a couple of years he was out of work. For years he was unable to find full-time employment. The marriage broke down two years ago and this year they were divorced. For the past two years that young man has had a regular job as a careworker. It is a half-time job of just over 20 hours a week. He is not in a position to provide for his wife and family. That is one of the results of unemployment and its effect on social cohesion.
Given the Government's record on unemployment, we can have no confidence that it will change. During the past 17 years we have experienced two major recessions resulting in mass unemployment higher than in the intervening period. I support my noble friend's reasoned amendment because it is right and just to do so. Perhaps I may commend one phrase in the Labour Party's manifesto for the next election. I refer to its commitment for stable and high levels of employment. That phrase was used in the 1945 Labour manifesto and I hope that the next election will usher in for this country and others 30 years of virtual full employment which followed the 1945 Labour victory.
8.24 p.m.
Lord Boardman: My Lords, I am sure that the noble Lord, Lord Monkswell, will forgive me if I do not follow him in ranging wide of the gracious Speech. I believe that the present economic situation is good. I do not propose to list issues such as inflation and so forth, which have been well rehearsed today.
As regards future prospects, I noted that the gracious Speech stated that the Government's financial policies are,
- "designed to support sustained economic growth and rising prosperity, while maintaining low inflation".
I have looked with some care at what has been said about that amendment. I heard the speech of the noble Lord, Lord Richard, and read it on a number of occasions to see what terrible offence the Conservative Government have committed to which the Labour Party has objected. I could see nothing, apart from one or two issues to which I shall refer in a moment. I also looked to see what the Opposition propose to do better, but again there was nothing. There may be some secret message between the lines, but I cannot find it.
However, I noted in particular that in criticising the Government the noble Lord, Lord Richard, said in justifying the amendment:
- "The terms of our amendment are carefully chosen: cohesion and integrity. Cohesion is in many ways the acid test of any government's success or failure. Is the country more at peace now with itself than it was 17 years ago?".
I wonder where the noble Lord, Lord Richard, was 17 years ago. He could hardly have been in this country or in touch with it. Seventeen years ago we had the winter of discontent when the dead could not be buried, yet the noble Lord said that then, among that chaos, the country was more at peace with itself than it is today. I find that a strange statement to make in justifying its claim and it is trying to prop up its attack by arguments which are erroneous, believing that we have forgotten what happened 17 years ago.
The noble Lord went on to deal with the industrial scene. I quote his remarks because, as Leader of the Opposition in this House, I look upon them as constructive suggestions and as being a headstone for where the Opposition stands. He said:
- "Nor, looking at the economic situation, did I ever expect to see such a collapse of British manufacturing industry. I was brought up to believe, as a somewhat naive individual, that the basis of British prosperity was the export of British manufacture. No longer so. The relationship of manufacturing to total UK production has fallen from 29 per cent. in 1979, when the Conservatives came in, to less than 21 per cent. now".--[Official Report, 24/10/96; col. 30.]
I regret that the noble Lord is not in his seat in order to reply, but I wonder whether he remembers what has happened to British manufacturing during the past 17 years. Massive manpower has been replaced largely by electronics, and other changes have taken place. Industrial towns such as Corby, which was a great steel manufacturing town, are full of light industries and service industries. Of course there is prosperity which is much more real than it was when the town manufactured steel largely subsidised by government and the rest. Those were the days of 1979 to which the noble Lord, Lord Richard, happily referred. In 1979, working days lost were 60 times the working days lost in 1995. And yet that is put forward as a ground for this reasoned amendment by the Leader of the Opposition with the background of wanting a country at peace with itself. I really find it very difficult to understand.
The noble Lord referred to the collapse of the British manufacturing industry, but British manufacturing industry has risen. In 1979 it had an index of 77 and it now has an index of 101 or something like that. Growth has not been sensational but has been steady. In fact, manufacturing industry has been largely overtaken by the service industry. But during the years when the Labour Party were in office--and I hate harking back to 1979 but as the noble Lord, Lord Richard, made that comparison, I must do so--manufacturing industry decreased. But between 1979 and 1995 it increased.
I suggest that the spin doctor whom the Labour Party has used to prepare this propaganda, because it is no more than that, and the slur on British industry, should retire. I know that the amendment was moved today by the noble Lord, Lord Peston, but I spare him from my criticisms because I have the printed words in Hansard
of the noble Lord, Lord Richard. In any event, I am not quite sure that the noble Lord, Lord Peston, provided me with such good ammunition as did the noble Lord, Lord Richard. Perhaps I shall have to correct that tomorrow. Someone has put forward these figures and presented them to the noble Lord the Leader of the Opposition in order to gain press attention, but they are not correct. That is most regrettable.I turn now to the economy itself. Several noble Lords have spoken on the single currency. The noble Lord, Lord Barnett, greeted it with surprising enthusiasm. The noble Lord, Lord Bruce of Donington, exercised a certain amount of concern, of which we were perhaps already aware. The noble Lord, Lord Tugendhat, spoke with some wisdom through his experience in the Commission. I support the line which the Government take and I support government policy. If you have a free option, for goodness sake, keep the option open until it must be used. Why should we throw it away? The Government are keeping open that option. They are hoping to help to improve and prepare the system which is being worked out to ensure that it will be in the best interests of those who are in and those who are out. That must be the wise and sensible line to take. There is a promise of a referendum should the Cabinet decide that the United Kingdom should enter. The Conservative Party is the only party to have done that. I have a number of reservations about going in, but I am content to wait and see. I agree with a number of other noble Lords who have reservations about the idea of a European central bank, although I do not accept the criticism of the noble Lord, Lord Bruce, who said that all bankers are probably undesirable. I do not accept that, but, however good they may be, I do not wish to see a number of anonymous bankers ruling the European central bank.
One thing is quite clear. I do not believe that monetary policy can be confined to just that. Fiscal and monetary policy must both be used, certainly to control inflation. You cannot have one without the other. When we come to make the decision, that will be an extremely important factor in the minds of many of us. Many of us as well as members of the public will have grave reservations about that. But I shall leave the matter there for the present time.
8.34 p.m.
Lord Kennet: My Lords, I am sorry to have missed the foreign affairs and defence debate on Monday. I had a choice that day between visiting NATO in Brussels and talking about it here. I chose the former because opportunities to see the outer world are never to be ignored. Therefore, today I intend to profit from the traditional elasticity of subject matter in this debate in order to talk about NATO in the context of public expenditure.
We have heard a great deal in this debate about the generation of wealth but not very much about its spending. It is high time to look at NATO from the financial and economic point of view since our defence policy in itself, and some of our foreign policy too as it will affect our defence needs, look more and more like a collection of bottomless pits: bottomless and also largely unobserved.
I believe that this country cannot afford to embark on new defence commitments without examining them very carefully indeed and discussing them publicly for their economic as well as political implications.
I start with the expansion or enlargement--the Russians call it expansion and the Americans call it enlargement--of NATO, about which the noble Baroness, Lady Chalker, and the noble Earl, Lord Howe, spoke briefly but positively on Monday. Neither mentioned the costs. The noble Earl, Lord Howe, confirmed that Parliament was to be informed as appropriate--dread word!--not consulted. He said that the Government would then lay a take-it-or-leave it protocol before the House for 21 days before accepting it.
That is one of the most crucial decisions that any British government must now take. In my opinion, EMU is nothing like as important as that. The expansion of NATO would be bad strategically and politically because it cannot but antagonise Russia; and that does matter. NATO enlargement, with all the nuclear and other uncertainties about Article 5--that is the guarantee--might well cause the Russian system to revert to paranoia, of which there are already signs, and then to xenophobia in order to find internal cohesion again by reviving the cold war.
Mr. Gorbachev spoke passionately to that very effect, across the road from here, yesterday. Russia is in its Weimar period. Do we want to risk another 1933? The danger should now be more obvious than ever because of the Russian Government's claims--and I quote the words of Mr. Primakov--that:
- "When it was very important for Western politicians to draw from Russia a smooth response to the disbandment of the Warsaw Pact and to get its troops out of East Germany, the Western promises to refrain from NATO enlargement were made but were not put on paper".
Ambassador Churkin, the Russian Ambassador to NATO, told me yesterday that there are interpreters' notes of the United States Secretary of State Baker and the British Foreign Secretary John Major saying precisely that.
Expansion is rapidly becoming the order of the day in Washington. Last week Mr. Portillo said in the House of Commons that we have a moral obligation to the postulant countries to take them on board. We certainly have a moral obligation to consider what interests we share with them. It is certainly a common interest to help them with their new political systems, education, economies and possibly even their own defence. But it is not in our common interest that they should join an historically anti-Russian and potentially anti-Russian alliance led by the United States. That could only produce a reaction in Russia and the Ukraine which would be against their interests as well as against our interests.
Such a Russian reaction would make it absolutely certain that our own defence expenditures would have to rise sharply: a rise which would probably assume the proportions of a new arms race. President Clinton's
electoral concerns with the various "ethnic" votes in the Middle West must not be allowed to determine Europe's future. I earnestly trust that this will become more widely appreciated before the die is cast.Some officials say that NATO expansion is a "done deed". But it cannot possibly be a done deed until we know how much it will cost and who is to pay for it. It would mean not only new expenditure heads; it would also mean a change in the North Atlantic Treaty which would require ratification by all the parliaments of the alliance, and parliaments are also revenue raising assemblies. Most European parliaments are not at all keen at present on what Mr. Portillo (as distinct from Mr. Rifkind) terms "hard defence"; that is, Pentagon-type as opposed to State Department-type defence. In this our parliaments differ sharply from the US Congress which has reduced America's peaceful international expending by half over the past few years, while giving the Pentagon more than it asks for.
On present showing, the US Senate (two thirds of which have to approve) is most likely to want the European allies--who they believe anyhow are a lot of freeloaders--to pay for almost everything: their own costs for the expansion of NATO, to pay for what the Central and East Europeans cannot afford, and indeed probably to pay for the equipment that the US is already telling the Eastern Europeans they will need to buy. Contracts for this last US Aerospace firms are already lobbying for in Prague and Warsaw. We will also have to pay for the anti-ballistic missile defences that Mr. Portillo thinks we need. I trust that the Government will say no to all that. NATO enlargement is an American policy; it is not a wise one, and it should not become everyone else's policy.
But that is not the only unwise policy. It adds together with the proposal for NATO ballistic missile defences against weapons of mass destruction. Already the British official co-chairing the senior NATO defence group on proliferation has written of the urgent need to correct NATO's counter-proliferation capabilities shortfall. What on earth is all that about? Back in July, the noble Earl, Lord Howe, told me in a Written Answer that NATO Foreign and Defence Ministers had,
- "endorsed a comprehensive programme of work recommended by the GPD"--
- "the details of which are classified".--[Official Report, 25/7/96; col. WA 167.]
I turn now in more detail to the financial implications. The Prime Minister recently announced that all domestic legislation is now being subjected to compliance costs assessments. The costs that he had in mind are those to business and the voluntary sector. That is a most enlightened idea and should have been thought of
centuries ago. But if it is worth doing domestically, surely it should also be worth doing in respect of new foreign and defence policies?What is the expected cost to this country, to our allies and to our potential adversaries of expanding NATO?
I have also tabled questions in that respect but have received no answers. So we are forced to seek US estimates: after all it was the United States which invented the idea and which is the driving force behind it. (That opinion was expressed by the State department itself.)
I turn now to the crux of what I have to say. There are indeed some new US estimates. Two were produced by the Congressional Budget Office in March and in May of this year. The May one estimates that over the next 15 years the cost of placing infrastructure, reinforcement capability, projection of air power, prepositioned stocks, and a limited Western presence in and for the benefit of the first four new NATO states might amount to about 125 billion dollars. It suggests that the sum might be shared among the concerned states as follows: present NATO members other than the US should pay 54 billion dollars; new NATO members should pay 52 billion dollars; and the US--wait for it!--20 billion dollars.
So this idea is to be financed overwhelmingly by Europe, and half of the European spend is to be allocated to new members, who are broke. The paper therefore assumes that they,
- "would require bilateral or multilateral financial assistance from the United States and other NATO countries";
There have been other estimates, but no meaningful comparison is possible. There is another one from the Congressional Budget Office, and one from the Rand Corporation, which remain deeply embedded in what President Eisenhower called the "United States military industrial complex" when he was in a warning mood, in his last speech to the American people.
In his Detroit speech a few days ago, President Clinton made no financial commitment at all to the enlargement that he was promising his audience by 1999. He said if,
- "we don't seize this historic opportunity ... we will have to pay a much higher price down the road".
I have quoted those American figures, but where are ours? Do they exist? I understand that they do not. It is surely overdue for them to be put together by the Treasury, prior to Treasury approval for the financial implications of the policy itself. The Government's old criterion, "value for money" and its new condition the "compliance costs assessment" should both be observed. It is quite improper for the Ministry of Defence to be backing a new international policy that we cannot afford, and leaving it to the next government to sort it out.
The costs of NATO enlargement would be concurrent with civilian enlargement costs of the European Union, which I believe are accepted by all parties without
question. That is surely clearly beneficial. They would also be concurrent with whatever we all have to go on doing and paying for in Bosnia, which will be quite a large amount. They would also be concurrent with the cost of any BMD for NATO. At the same time, the next British Government of whatever colour will face the costs of all the defence equipment that we have been ordering nationally, including the electronic and information capabilities for the Armed Forces which our own firms are advancing so fast and so brilliantly, and which are going to spell the end of much of the rest of the equipment.I should like to know what the view of the Treasury is on all such matters. Does the Chancellor of the Exchequer realise quite what the US counter-proliferation programme, of which our own counter-proliferation/BMD exercise is a subset, would involve in the way of British expenditures? Do they realise how very little of all this would be under any kind of British--or indeed NATO--political or military control, the reason being that only the US has the automatic sensors and triggering gear? We shall be paying for equipment which is outside of our control.
And all this is happening at a time when the interest on government borrowing is drawing up to the level of expenditure on the health service; in other words, at a time when we are in sight of the absolute zero now common in the developing world, where interest on the public debt exceeds possible revenue. Does the Trade and Industry Secretary like all these politically vulnerable weapon trades which he subsidises so heavily on our behalf? Has he forgotten the fate of the Royal Ordnance when the Shah was ousted? Has the Foreign Secretary thought through and passed to other ministers an account of the advantages and disadvantages in the Middle East of our being part of a global defence system controlled by the United States, and by a United States which thinks that Europeans should not be interesting themselves in what happens in the Middle East--indeed, by a United States which is, through the D'Amato Act, attempting to regulate our trade there, and which designates "rogue states" there?
British governments--this one or the next--will have to decide whether we really want to go ahead with these post-cold war visions of US global hegemony. One is the three year-old counter-proliferation programme which could provide all the sensors and all the practical gear for disposing of all the US-defined "rogue states". Now there is a new doctrine called "Shock and Awe", or "Rapid Dominance", which is being elaborated in the US National Defence University. These are doctrines which, with consequent policies and consequent expenditures, leave no room for the United Nations or for any international rule of law, or indeed for democratic or civilian control of the military. They will also be extremely expensive, and the world has better things to devote its resources to than ever greater militarisation.
8.50 p.m.
Earl Attlee: My Lords, before starting my substantive comments I should say that I was on the
same parliamentary visit to NATO and SHAPE as the noble Lord, Lord Kennet. He mentioned the 120 billion dollar cost of enlargement of NATO. I am sure he will remember that that was the worst case scenario. However, the costs are certainly substantial.
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