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6.35 p.m.
The Viscount of Oxfuird: My Lords, this House is enriched by its amateur membership which brings the reality of the outside world to our deliberations. There is no more perfect example of that than the three maiden speeches that we have listened to this afternoon. My noble friend Lord Home expressed some very pertinent points on the ability of the British financial institutions to take long-term views. The noble Lord, Lord Paul, whom I am very pleased to see is now sitting in his place in the Chamber, said much to remind us of the past. I hope that perhaps on another occasion we may find that we have one or two friends that we mutually enjoy from Calcutta, as I spent some time there. The noble Lord, Lord Whitty, gave us a speech of some distinction. Indeed, all three maiden speakers will be nothing more than a benefit to your Lordships' House, not only now but in the future.
This is a most timely motion and I join other noble Lords in thanking my noble friend Lord Mackay of Ardbrecknish for giving us the opportunity to review the United Kingdom's recent economic performance, and perhaps enabling us to count the blessings of being citizens of this country. This is particularly important following last Tuesday's Budget Statement which was, in my view, one of the most sensible and far-sighted Budget Statements in recent years.
The sustained and consistent policy that the Chancellor of the Exchequer and the Government have followed over recent years--a policy of establishing a stable, low inflation economy, free from the boom and bust of which I freely admit neither major party has so determiningly followed since the Second World War--is exactly what manufacturing industry in this country is seeking.
Some noble Lords may recall the remarks made by my noble friend Lady Thatcher during her Nicholas Ridley Memorial Lecture on Friday evening. In this debate on the economy, I believe that it is right to remind your Lordships of the main thrust of her message because if we do not take heed of it then we may not be looking at such a favourable combination of economic circumstances into the future. My noble friend said:
- "Yesterday's socialism, characterised by militant trade unionism and burdensome state-owned industries has ... almost certainly gone for good"--
The word "almost" has to be remembered--
- "But in the form of a continuing tendency to intervene in people's lives for ends which are quite extraneous to the state's proper functions, it is very much present".
That is timely advice which I urge your Lordships and indeed our whole country not to forget.
I must confess that given the wealth of good economic news provided to us over recent months I had to resist very hard the temptation not to burden your Lordships with an avalanche of favourable statistics. I think others have got there before me. I find it exciting, however, that both the OECD and the IMF predict that the United Kingdom will continue to grow faster in 1996 and 1997 than any other major European Union economy.
I also find it exciting that unemployment has fallen by over 900,000 since December 1992 and is now at its lowest for five years. As we all know, the United Kingdom has the lowest unemployment rate of any major European Union country. It is lower than that of Germany, lower than that of France, and much lower than that of Italy.
In a debate such as this it is possible to deal only with a small number of key points. I would, however, like to say a few words about that vitally important issue of exporting, which is something that I have been concerned with for most of my professional life and which is one of the strongest influences on the economic state of this nation.
It is also pleasing to note that UK exports are currently running at record levels and are expected to grow further, helped by growth in world trade and by the United Kingdom's strong competitive position. As has already been said, we now export more per head than both Japan and the United States. The United Kingdom is a leading exporter of high technology goods and is Europe's leading exporter of televisions, computers and microchips. As we have heard, exports rose again in August by 1 per cent. to £13.9 billion.
Indeed the UK economy as a whole is on a path of sustained steady growth and low inflation. The economy has been growing for over four years and productivity is now at a record peak. It is just not true--as was implied by some of the noble Lords who spoke in the debate on the economy that was initiated in your Lordships' House almost exactly a year ago by the noble Lord, Lord Desai--that our UK economy is heading for recession. Only yesterday evening the noble Lord advised me that we had reached the low point of the Kondratieff cycle, and it was his belief that the cycle would now deliver the improvements anticipated under the theory which, as noble Lords know, has a periodicity of 50 to 60 years. However, my noble friend Lord Cockfield has a different view.
Indeed, one senses a new mood of confidence in the boardrooms of this country's industrial enterprises, as is beginning to be evidenced in all sorts of ways.
I have had close involvement with the engineering manufacturing industry sector over the past 40 years--indeed, I started my engineering career, after a spell with the Royal Air Force, as an apprentice at the Ford Motor Company. I find it particularly exciting that we are beginning to see some of the outputs of the Action for Engineering initiative which was kicked off by my right honourable friend the Deputy Prime Minister in 1994 when he was still President of the Board of Trade.
One of the outputs of Task Force 3 of that initiative was to challenge engineering employers to invest more in the training of apprentices, technicians and junior managers and into continuous improvement of the skills of their workforces by way of continuous professional development.
I was delighted to read in the Financial Times last Friday a prediction by my noble friend Lord Trefgarne, the chairman of the Engineering and Marine Training Authority, that 12,000 young people would be taking up engineering modern apprenticeships in 1997, compared
with 8,000 in 1996 and 6,000 in 1995. That is progress indeed, if from small beginnings. Engineering companies are only making that kind of major investment in work-based training because they are confident about the future and about the need to upgrade the skills of the engineering workforce to fuel the growth in the United Kingdom's manufacturing output.We have an enviable combination of circumstances at this time in this country: low inflation, sound public finances and increasingly competitive business enterprises. Most objective evidence suggests that the growth in the United Kingdom's economy is set to continue.
I know that we have received over the past 48 hours a variety of analyses about the effect that the Budget will have on each of us. It has been a field day for the economists who have presented us with such a dazzling array of sometimes contradictory conclusions.
Indeed I am tempted to recall, as I confess I have done before in your Lordships' House, the words of the late George Bernard Shaw who said:
- "If all economists were laid end to end, they would still not reach a conclusion".
The reality is that Tuesday's Budget was steady and prudent. It was deliberately crafted to maintain our economy in its present sound shape. It was also a fair Budget giving a welcome boost where it was most needed. I believe that Tuesday's Budget will help to reinforce the growing view that in the present Government we have a tried and experienced team who can be trusted not to tinker with our economy for short-term political gain.
Our economy is in good shape and we have just been presented with a Budget that will consolidate the gains already made and place us in an even stronger position for the years to come.
6.47 p.m.
Lord Harding of Petherton: My Lords, we have heard many excellent speeches from many distinguished people who have experience in business. That applies to the three excellent maiden speakers and everyone who has spoken before me. I am afraid that I have been only a soldier and a farmer. Perhaps I should not be speaking at all in this debate. However, I have always been interested in economics. The noble Lord, Lord Briggs, was my tutor at Worcester College, Oxford. I have read the Economist almost every week for 50 years. Therefore I am an interested observer.
The economy of the United Kingdom is in the best state that it has been for a long time, as many speakers have said. The reforms implemented by my noble friend Lady Thatcher and continued by my right honourable friend John Major have brought about that happy state. Let us not doubt that at all; it has not come about through luck. That is not to say that things are perfect--perhaps they can never be perfect--there are many things still to be done.
Government spending is still too high, and consequently the Budget deficit is still too high. The deficit is now coming down but this is due to increasing
growth and therefore higher tax revenues. My right honourable friend the Chancellor of the Exchequer is to be congratulated on keeping a tight hold on spending during his term of Office. However, he has been able only to hold the line. Government spending is still rising, albeit slower than in the recent past. The deficit has not become so high solely because of the recession--as some people advocate--from which we emerged four years ago. In my opinion it is in large part due to loose fiscal policies from 1987 to 1992. A downturn will occur again some time. The business cycle has not been eliminated. Unless something is done about reducing government spending, the deficit will rise again when that occurs.High deficits result in interest rates that are too high. That badly affects capital formation and economic expansion. The economic well-being of everyone in the country depends on the productive part of the economy, both manufacturing and service industries. High interest rates hit them hard. Reducing government expenditure is the hardest thing that that Government have to do. The public's expectation of better healthcare, education, and spending on law and order are much higher than they were even 20 years ago. People are living longer. We all want to ensure that we have a reasonable life in old age and infirmity. We all want to see that our children and grandchildren have the best education and training for the future. We must ensure that our Armed Forces are strong and well trained. Those all cost a great deal of money. This has to come out of tax revenues or has to be borrowed. The Government must not borrow too much. Not only does high borrowing make interest rates too high, it also burdens future generations.
High taxes are unpopular. People do not like seeing much of their hard earned wages and salaries taken away by the Government. Not only that, but high taxes have a bad effect on incentives to work. That is a vicious circle, as it increases social security spending. The hard answer is that people will have to spend more of their own money in future on health and education and other services that the Government now provide. I am afraid that politicians of all stripes are not facing that problem.
Those who cannot provide for themselves due to unemployment, long-term illness or disability, or for some other reason, must be protected. That is what our social security system should be about. Too much money is spent at present by the Government on those who could provide for themselves. In a benevolent dictatorship this would be much easier to do. But whoever heard of a benevolent dictator staying benevolent? I should be one of the first to rebel against him or her. Quite rightly, we all value our freedom and the ability to choose our governments and the policies they pursue. A dictator, however benevolent, will not restrict his or her laws only to taxing and spending. He or she would pass laws telling us what to do or what not to do on everything else. I do not believe that anyone in this country wants to live under an authoritarian regime such as Singapore.
In a democracy, it is extremely difficult to reduce government spending. The United States of America is a classic example. The Republicans, under the leadership of Newt Gingrich swept to power in Congress
two years ago on that very platform. As soon as the middle classes in America realised that it meant that this was going to affect them, Newt Gingrich became the most unpopular politician in America. The Right-wing in my own party might bear that in mind. However, I agree with the Right-wing in my party when it urges that government spending should be reduced. It is the way in which it is accomplished and the rhetoric that is used to expound it from which I differ.British people, especially women, are no different from Americans in being frightened by extreme right wing rhetoric. Government proposals for change must be explained quietly and properly, and the process must be gradual. That is all easier said than done. I have not had experience, as has my noble friend Lord Griffiths of Fforestfach, in 10 Downing Street. But I agree with him, even as an amateur economist and observer, about the threat of increasing inflation at present. In the past, governments have only acted too late. The rise in the money supply has been very high in the past year, as my noble friend said. Other indicators are showing a danger that in a year or less inflation will rise, and there is always a delayed action. Most people believe that one can deal with inflation at the time. However, one has to think in terms of two years hence. One has to consider the indicators now to see what one would do to stop inflation rising in future.
My right honourable friends the Prime Minister and the Chancellor have not been tested to stick to their promises that inflation will be nipped in the bud and not allowed to rise. I believe and hope that they will stick to them. Luckily, when he was Chancellor my right honourable friend Norman Lamont opened up to public scrutiny discussions about interest rates and inflation between the Chancellor and the Governor of the Bank of England. We all owe him a debt for doing so. It is now more difficult for the Chancellor to go against the Governor's strongly held advice than in the past.
The financial markets expect a rise in interest rates. I think that most economists agree that it is very necessary. In my humble opinion, it is no good waiting until after the election to raise interest rates. It will be too late and the rise would have to be larger than if interest rates were raised now. The Budget appears to have tightened fiscal policy. I have read opinion which differs on that. However, I have heard no such opinion in this House, and I prefer to believe what I have heard in this Chamber--the Budget tightens fiscal policy.
The high pound also helps to contain inflation. However, I do not think from all that I have read from experts and commentators that the high pound and the Budget are enough.
Raising interest rates would be very unpopular. Mortgage interest rates would be affected as well as overdrafts. A Conservative Government re-elected next spring (as I am sure it will be) would lose all credibility at the beginning of their term if they had to raise interest rates sharply after the election. Even if by some awful chance the Labour Government were elected, the Conservative Party would lose any public trust in competent, economic management and would find it hard to be re-elected if they were to raise interest rates immediately after the election.
Inflation is a monetary phenomenon, whatever some journalists and others like to think. Other than putting up interest rates, there is no way to keep inflation in check when it looks like rising. If the Government were able sharply to cut back government spending, that would keep it in check as well but in a longer time frame. As I have explained before, that is not possible in a democratic country. Not only are the indicators turning from amber to red, but next year there will be enormous sums of money in the hands of building society investors. If the spending proportion of this year's windfalls is followed, between a quarter and a third of that money will be spent. That will increase inflationary pressures significantly.
The pound may go higher if interest rates are raised. It is high at present. Some exporters will undoubtedly suffer, but they will suffer far more if inflation is allowed to increase. I wonder whether, contrary to Treasury statements, some of the pound's rise is not because of hedging by financial markets against a proposed single currency. But I do not think that anyone really knows. Soames Forsyte's remark that,
- "we should not worry too much about the economy; the pound is strong",
I should now like to turn to the real economy, as did the noble Lord, Lord Haskel, and other speakers. Jobs, and the fear of losing them, the cost of living, the size of the weekly wage packet, poverty and homelessness, the healthcare that people have, the education their children receive, the disparity of incomes--the "fat cat" syndrome--are the things that politicians, bankers and financial people mean by the economy. Unemployment is the biggest worry of many people when the economic state of the nation is talked about. Unemployment is coming down. It has come down steadily for the past few years. However, it is still too high. It is 3 per cent. higher here than in the United States of America, although much lower than for some of our European partners.
There are some measures that the Government have not taken which could help bring unemployment down faster. The private rented sector could be regulated more than it has been. The Government have gone some way in that direction, but should go the whole hog. People cannot move to jobs if they cannot find accommodation. Doing that would produce howls from the parties opposite, but freeing the private rented sector completely would, over time, produce far more accommodation and would help bring unemployment down.
A lot of social security spending deters people from seeking work. As I have said previously, that needs careful thought and presentation.
Primary and secondary school education must be improved. Here I agree with Labour and the Liberal Democrats. However, their high-sounding pronouncements at national level are not followed by their party councillors in local government. Reducing large classes, although necessary, will not by itself improve the education of our children. Good teaching is the key. Bad 1960s-type teaching methods do not help; nor does the
attitude of some teaching unions. The Government are trying their hardest. My right honourable friend Gillian Shephard is doing her best; but it is an uphill struggle.Good education is vitally important for the economy of the future. So many manual and unskilled jobs are now done more cheaply in developing countries. We cannot match their low-wage economies in that respect, and should not try to do so. Our future lies in high-tech, advanced products. That needs a highly educated population. Improving education will help in the medium to long term. It will not help today; but it is vitally important.
Management in this country must improve. Managers must realise that their employees are their most important assets. Sometimes managers do not do enough to take their employees into their confidence and involve them.
In conclusion, I congratulate the Government on all that they have done to bring our economy into such a good state. However, there is still a lot to be done. I look forward to an election manifesto which will take the economy even further forward through the millennium.
7.3 p.m.
Viscount Chandos: My Lords, I thank the noble Lord, Lord Mackay of Ardbrecknish, for introducing today's debate on the state of the economy, building on the excellent precedent established last year by my noble friend Lord Desai and giving this House the chance to consider the implications of the Budget in the immediate aftermath of the Chancellor's Statement.
The powerful speech of my noble friend Lord Eatwell, who opened from these Benches, needs no comment from me, save to say that once again I am faced with the impossible task of trying to maintain his standard in winding up. I believe that most Members of the House await with interest, as I do, the Minister's response to my noble friend's analysis.
The quality of the debate was strikingly enhanced by the maiden speeches of the noble Earl, Lord Home, and my noble friends Lord Paul and Lord Whitty. I hope that I may bask in the reflected glory of the impressive speech made by my fellow but far more distinguished banker, the noble Earl, Lord Home, by claiming him as a distant kinsman--if that does not lead to his being immediately ostracised by all on his own Benches. His comments about banks' hidden reserves reminded me of my own maiden speech on precisely that arcane subject. I was delighted also to hear the noble Earl address the issue of short-termism, a blight which a number of noble Lords on the Benches opposite would, I suspect, deny even existed.
The contribution of my noble friend Lord Paul comes as no surprise in the light of his remarkable career as an industrialist and entrepreneur. There is a strong tradition of successful businessmen who have recognised that long-term economic success is more likely to be achieved by the approach taken by these Benches than it is by that of the Benches opposite. With every day that passes, more and more men and women with
outstanding records in the business world are endorsing the Labour Party, as I am sure even noble Lords opposite cannot fail to have noticed.I was also particularly interested in the comments by my noble friend Lord Paul on the importance of venture capital. There are very interesting studies in the United States which show that the vibrancy of the US capital markets has been a significant factor in the job creation that has occurred in the United States over the past 10 or 15 years, which has not been matched in Europe.
My noble friend Lord Whitty made a speech that was no less remarkable after a similarly outstanding career, not least with the Labour Party itself. I take particular pride, therefore, in paying tribute to the maiden speeches and the distinguished careers of both my noble friends and look forward to their frequent future participation in debates in this House, and also that of the noble Earl, Lord Home.
I am struck however on this, as on other occasions, by the essential absurdity of my welcoming to this House anyone whose membership has been earned through their own distinction, owing as I do my own position to nothing more than the premature death of my father--of which, by coincidence, this is the 16th anniversary. I confidently anticipate, therefore, that my noble friends Lord Paul and Lord Whitty will be active in this House long after I and other hereditary Members will have ceded our rights following the constitutional reforms to be introduced by the next Labour government. I hope that given those circumstances the father and grandfather of the noble Lord, Lord Whitty, would perhaps become a little less disapproving of his membership of this House. In turn, I hope that the noble Earl, Lord Home, whose father chaired what I believe was the last review by the Conservative Party of the composition of this House, supports that group's recommendations for reform, even if he quite clearly does not require the same matchstick based computing system as his father claimed to have used.
It is as a result of previous reforms that this House plays no detailed role in the passage of the Finance Bill, so that today's debate and the Third Reading, which in due course will give rise to a further opportunity to return to the subject of the Finance Bill, can concentrate on the broad overview of the Chancellor's well trailed Statement and its implications for the economy. In referring obliquely (and I hope diplomatically) to the embarrassing and regrettable leak of the Budget details, I feel moved to ask the Minister whether the inquiry will be restricted merely to the specific documents handed to the Daily Mirror or to the wider dissemination of information over a longer period.
The Financial Times, for instance, published in September what now seems a remarkably prescient article flagging the likely tax changes relating to profit-related pay. Should that not also be examined by the inquiry? Or might the investigators find too quickly and easily that the story emanated from a Tory, or Treasury, spin doctor? Will the Minister assess the extent to which that story might have led to an accelerated introduction of schemes between September and November, so actually increasing the short-term
loss of tax revenues which the Chancellor has heroically threatened to claw back by the end of the decade--by which time of course, as all noble Lords know, the right honourable gentleman will either be sitting on the Opposition Benches or possibly acting as vice-president (public relations) for the European Monetary Institute. I look forward to hearing the Minister's reply with the same anticipation with which I awaited his opening remarks.Those opening remarks did not disappoint me, as they did not disappoint my noble friend Lord Haskel. I never cease to be impressed by the eloquence and conviction with which the noble Lord tries to convey the Government's case, to present the carefully manipulated and selected statistics, to draw the most imaginative conclusions from the most unpromising material. It is a pleasure to watch a great artist at work; or perhaps not a great artist or actor but an impresario or theatrical producer. I realised as I listened to the noble Lord speaking earlier and presenting the same selective figures as his right honourable friend the Chancellor what I was reminded of. A West End theatre producer wakes up the morning after his new show opens and surveys the unremittingly bad reviews in every newspaper, every magazine, every journal. Pausing only to find his scissors and paste, he prepares the copy for the advertisement in the Evening Standard and the poster outside the theatre. "Unmitigated drivel", the doyen of theatre critics might have written; "It was a joy to leave the theatre. I urge you to avoid this play at all costs. Get a ticket to the South Pole rather than sit through this rubbish". "Unmitigated ... joy. I urge you ... at all costs ... get a ticket", reads the resulting advertisement.
That is what the Government do in their presentation of disposable income trends over recent years: carefully choose the starting date; throw in the effect of economic growth as if that was due to the Government as opposed to being despite their economic mismanagement; artfully omit the extraordinary and unrepeatable effect over the last 17 years of the build-up of North Sea oil production.
Let me quote to your Lordships, without editing, without dots, without doctoring, the conclusions of the Institute for Fiscal Studies, from which my noble friend Lord Eatwell quoted earlier.
- "The total tax burden, which had risen by around £18 billion, was cut by a couple of billion last year and another couple of billion this year. The net effect is still to leave nearly everyone paying more tax than in 1992".
That is the true achievement of this Government, not a £1,100 improvement in the average family's real income, more than all of which should properly be attributed to the efforts of the individuals concerned.
Just as the punters in the West End can spot a real flop, whatever the theatrical spin doctors manage to do with their selective editing, so, it is clear, the electorate can see through the equivalent work of the Chancellor and his colleagues on the Benches opposite. The National Opinion Poll survey for political context published yesterday shows that, even after the Chancellor's bravura performance on Tuesday, ordinary people do not believe the promises or the analysis of the
Chancellor; they do not feel that they are paying less tax, nor do they trust the Conservatives not to raise taxes again in the future.The most consistent theme that has emerged from all sides of your Lordships' House today is deep concern about the level of the public sector borrowing requirement at this point in the economic cycle. The noble Lords, Lord Cockfield, Lord Ezra and Lord Clark of Kempston, and my noble friend Lord Desai all joined my noble friend Lord Eatwell in expressing this concern with a striking degree of consensus, backed up, as the noble Lord, Lord Cockfield, pointed out, by the judgment of the markets and the price and yield movements of government bonds.
I say to the noble Lord, Lord Cockfield, that the threat to the Government's future borrowing costs has nothing to do with the identity of the party in office next year, which I confidently expect will be Labour, but everything to do with the fundamentally dangerous state of the public finances over which, as my noble friend Lord Eatwell so clearly demonstrated, the Government have year after year deferred taking the necessary action. "Lord make me chaste", they say, "but not yet".
The noble Lord, Lord Cockfield, also put his finger on the problem by identifying the tendency of forecasters--in this case, I am sure, actively encouraged by the Government--to assume a continuation of all favourable trends and the appearance of no unfavourable ones. I am reminded of a memorable passage in the definitive book on corporate greed in the United States, Barbarians at the Gate, a book which, incidentally, I believe has been included in the induction pack of every director of every privatised utility. The book describes the competing bids for the leveraged buy-out of the giant food and tobacco conglomerate RJR Nabisco between several different financial groups. Every time the bidding went higher, those highly paid investment bankers and analysts would simply revise upwards their revenue projections to ensure that the necessary rates of return could be projected for their investors. That is the technique which has been borrowed by noble Lords opposite in compiling the projections in the Red Book. The consequence of that, as noble Lords on every side of the House predicted, will be rising inflation and interest rates and another unnecessary and devastating recession.
I listened with interest to the speech of the noble Lord, Lord Selsdon. If I said that I did not agree with him, I do not know whether that would lead to a good argument or a bad argument. What I am absolutely certain of is that the argument put forward by my right honourable friends the Leader of the Opposition and the Shadow Chancellor and my noble friend Lord Eatwell for investment in education and the NHS and in jobs for the under 25s, financed by a monopoly utilities tax not an overall tax on capital investment by all of industry, is a good argument, and the electorate will shortly have the chance and the good judgment to confirm that.
The Chancellor of the Exchequer seemed, in making his Budget Statement on Tuesday, to suffer from an identity crisis linked to, and perhaps caused by, the festive season. He could not decide whether he was
Santa Claus or Scrooge, so he decided he was neither. As the noble Lord, Lord Griffiths of Fforestfach, reminded us, today is the US holiday of Thanksgiving. I would suggest that the Red Book projections are, suitably, pumpkin pie in the sky. As for the Chancellor, he is a popular and pugnacious old bird. If he is luckier than many others of his breed to get through both Thanksgiving and Christmas, his time will come no later than next May.7.17 p.m.
Lord Mackay of Ardbrecknish: My Lords, these are always interesting debates. The cast is usually pretty much the same, but today we have welcomed three newcomers. I hope they have not just taken this opportunity to make their maiden speeches but that they have put down a marker that they will return to these economic debates.
I was unsure as to the order in which I should take the three maiden speakers. I do it for no particular reason, but I will start with the noble Lord, Lord Whitty. He and I have three things in common today. Clearly, when we looked to see which ties we should wear this morning, we both came to the same kind of conclusion on colour schemes, but I think we have managed to avoid being exactly the same. The second thing we have in common is a long background in politics and political parties and their ups and downs. The third is that I suspect, although he did not say this directly, that he is perhaps the first generation of his family to have gone to university and obtained a university degree. One of the impressive things that I can say to him about education is that in 1979 something like one in eight school leavers had the opportunity that he and I clearly had a little earlier than 1979. The figure today is one in three. That is a measure of success in education that I am sure everybody welcomes.
The noble Lord also showed his interest in the environment. He will find that a number of Members of your Lordships' House share that interest. I should like to think that the package of tax measures put forward by the Chancellor to improve air quality by reducing the pollution poured out by vehicles will be welcomed by him. I believe in fact he did say that. Clearly the tax advantage given to lead-free petrol proved a driving force in the shift from ordinary to lead-free petrol. Now that we have discovered that diesel is not just as green, as my recollection tells me we were told it was, and that we have to watch the particulates, I know that the noble Lord will agree with the decision taken by the Chancellor to at least make the position neutral in relation to the two kinds of diesel.
There are other measures in the Budget to help reduce pollution in our towns and cities, of which I know the noble Lord will approve--though I suspect that he will join the little group of your Lordships who chide the Government, any government, about the fact that they are moving too slowly in that direction. There are always a number of competing pressures when one comes to make moves on environmental matters.
I thought for a little while that I had mistaken where the noble Lord, Lord Paul, was sitting. He talked of the opportunities which Britain provided and about hard work and determination--all things we adhere to completely. He underlined the importance of manufacturing and in that he joins a number of your Lordships who make that their theme when they come to these debates. I refer to the noble Lords, Lord Ezra and Lord Haskel, and my noble friend Lord Harding of Petherton who have all mentioned that particular issue before. I agree that it is important.
Manufacturing is important to education. I fear that education has all too often downgraded the advantages of a manufacturing career, and that is particularly true perhaps for universities which tend to treat the engineering faculty as the bottom rung of the ladder. Perhaps it is at the bottom; it is the base on which everything else in our economy depends, though that is not the way many universities look at it when they take their view of faculties. But we do recognise the importance of manufacturing.
It is important also that we recognise that manufacturing has changed. I believe I know the background of the noble Lord, Lord Paul. There was a bit of a tendency, as I have said before from this Box, to think of manufacturing still in the production of large steel objects--for example, railway engines or ships. But manufacturing industry--the noble Lord indicates he agrees--is much wider than that. It ranges all the way from those products to the microchip and all the products that go with it.
Our manufacturing industry is in good heart. I mentioned in my speech inward investment, and that is investment in the manufacturing industry. Car production in this country has enjoyed a remarkable renaissance. It is not just the production of the car, it is also the production of the components that help to build up employment and prosperity. Indeed, production has risen by over 50 per cent. in this country over the past 10 years. As I mentioned in my speech, we are Europe's biggest exporters of computers, TVs and semi-conductors. Our pharmaceutical industry is extremely powerful, as are our iron and steel industries--an industry in which the noble Lord is particularly interested, I cannot resist saying, as a result of the privatisation of British Steel which is now one of the most successful steel companies in Europe.
Perhaps I may turn now to my noble friend Lord Home and say how welcome his speech was. He comes from a background in banking, which suggests to me that he will definitely not need his matchsticks. He and I both come from North of the Border so he will understand my fear that he may suffer from the old Scottish adage, "I kent his faither". To a certain extent we all do that when we go to wherever one's parents were perhaps famous or well known. His problem is that his father was well known and highly respected everywhere so that old Scottish adage will tend to haunt him a little. But after today's speech I am sure that your Lordships will agree that we can look forward to hearing many more interesting contributions from someone with such a splendid background in the world of banking and
finance, another sphere of our productive economy which is extraordinarily successful both here and in the export markets.I turn now to other parts of the debate. The most vigorous criticism the noble Lord, Lord Eatwell, made of my speech was that I ought to ask the Treasury to find me a new speech writer. I should let your Lordships into a secret. I thought that myself when I discovered that the speech writer had been a pupil of the noble Lord, Lord Eatwell. But I persevered and, between us and all the other pieces of information that came to hand, I like to think (as my noble friends have agreed) that we provided a robust defence of the Government's policy and a clear exposition of the true position of the British economy.
The noble Lord, Lord Eatwell, has heard me say before that I am not sure I would like to be a student lectured by him, unlike the enjoyment I would have being lectured by the noble Lord, Lord Desai. The problem is that the noble Lord, Lord Eatwell, keeps posing me questions and challenges but never gives me the answers. He never tells me what I should be doing and that worries me. I feel that a professional economist giving lectures ought to give some indication of what they feel they would do if they were in the Government's shoes. Perhaps the reason is the one explained by my noble friend Lord Cockfield; that is, that Mr. Gordon Brown keeps his cards so close to his chest that he does not even allow the noble Lord, Lord Eatwell, to see them.
Predictably, the noble Lord talked about borrowing, as did a number of your Lordships. He pointed to the fact that the public sector borrowing requirement is slow to come down, though, as I pointed out, it is predicted to come down and be in balance around the end of the century. The PSBR in the whole period of the last Labour Government, which covered an economic upswing in part, was never as low as it is today. What do I mean when I say the noble Lord should answer some questions? The PSBR is the difference between two figures--the amount of income one has and the amount one spends. If I want to do something about the PSBR, as the noble Lord, Lord Eatwell, suggested I should be doing, he ought to have told me how he would increase the income or reduce the expenditure. He never does that; not today nor on any previous day. While I do not mind him complaining about the PSBR--he and other noble Lords are right to point to the need to control it--he has a responsibility to say that his party will either increase taxation and where and how they will do it, or they will reduce government spending and how they will do that. That is important.
The noble Lord, Lord Eatwell, suggested that the reduction in capital allowances was a backdoor windfall tax. I am not sure whether or not that is a compliment. I do not believe it is a windfall tax. It proposes to reduce capital allowances on long-life assets from 25 per cent. to 6 per cent. a year and is designed to remove a distortion in favour of long-life assets. Other parts of the debate concerned the need to take a long-term view. For investments and assets with an economic life of more
than 25 years, the depreciation allowed for tax purposes is brought more closely into line with commercial depreciation, and I believe that to be right and proper.The noble Lord complained that in the tax changes in the Budget the largest benefits were being given to the better off. I suggested in my opening speech that that would probably be the line taken. It is giving in which we believe and not taking from people that which they have earned. That is an important difference between us.
One of the issues that inevitably arises in the debate--it did again today--is that the flexible labour market is really just a trick; that the reduction in unemployment is a trick and the increase in employment is a third trick. It is never actually said that the figures are not true, just that they are a trick. The trick is usually portrayed as the jobs being part-time, passing, not good and so forth. But it is important to bear in mind that both full and part-time jobs have risen significantly in this economy. People should remember when they attack part-time jobs that 85 per cent. of part-time workers, when interviewed, say that that is what they want; they want part-time not full-time jobs. That is what the flexible labour market gives them. That desire of those people who have part-time jobs would be threatened by minimum wages, the social chapter and the like.
The noble Lord, Lord Ezra, returned to a theme which he continues to pursue and other noble Lords have pursued. I refer to the question of weak business investment. My noble friend Lady O'Cathain rather countered that in part of her contribution. It is well worth saying that in the 1990s business investment in relation to GDP has been higher than in the 1980s, which was in turn higher than in the 1970s. Since 1979 business investment in relation to GDP has been very similar to that in most other major industrial countries. But what matters is not just the investment; it is the quality of the investment. The UK's business sector capital productivity has grown faster since 1979 than in any other major industrial country.
The noble Lord, Lord Ezra, was also concerned about repeating the mistakes of the late 1980s, with the consumer boom and so on. I thought that my noble friend Lord Griffiths of Fforestfach dealt with that point. I hope the noble Lord, Lord Ezra, found some of the points that my noble friend made, with his experience within government at the time, of considerable help. Consumer spending this time is not expected to grow at anything like the rate in the late 1980s; and, unlike the late 1980s, the balance of payments has recovered in this recovery.
I am particularly grateful to my noble friends Lord Cockfield and Lord Young of Graffham for speaking in the debate. Both are distinguished former Cabinet Ministers who sat in this House. I must say that having departmental Cabinet Ministers in this House is a tradition which we could perhaps resurrect. Both of them have long experience of business and commerce. Indeed, my noble friend Lord Cockfield has experience of the European Union. I could, I suspect, occasionally do with his help at Question Time, as the European issue keeps coming up there.
My noble friend Lord Young of Graffham said that the economy is in better shape than at any time in his life. I wrote down those words. Coming from someone who has been successful in government and business, that is a good indication of exactly what is happening in the economy. He reminded me with some amusement that when he was in government he was always being asked when we would join the ERM. Well, they keep on asking me a slightly different question, but it keeps on coming up. He made an interesting point which underlined what I was saying about inward investment but underlined it in a different way because it underlined it looking at the Continent. He explained about French and German investment in this country. I am sure that we are grateful to him for his contribution.
My noble friend Lord Cockfield discussed tax matters and asked whether we could reduce the basic rate if we swept away all the various tax reliefs. We publish such information in Tax Ready Reckoner and Tax Reliefs. I am sure there is a copy in the Library. However, I shall not go into that tonight. My noble friend also pointed out that there are lots of twists--he called them carbuncles--in the tax system which acted in favour of tax avoidance. As my noble friend knows, the Chancellor has in this Budget taken measures to try to deal with many of the worst avoidance devices, such as those in the field of leasing and purchasing by companies of their own shares and of buying in foreign tax credits by multinational companies, devices on which we think we ought to try to bear down.
My noble friend Lord Clark of Kempston discussed the council tax. I wondered whether he was going to point out that Sir Jeremy Beecham, who is chairman of the Local Government Association, said that there would be a rise of at least 6 per cent. in council tax. Last year he said that there would be a rise of 10 per cent. The rise was 6 per cent. If my arithmetic on proportions is correct, 6 per cent. probably means 3.6 per cent. I think there has been a good deal of special pleading and squealing over this issue.
The noble Lord, Lord McConnell, pointed out the considerable success which the economy in Northern Ireland is having. That is partly due to the Government's economic policies. It undoubtedly has been due to the element of peace which has been restored to Northern Ireland and the confidence there. One can only hope that the IRA will realise the consequences of having a ceasefire in that many of the people it purports to want to defend have a far better chance of getting a job. The noble Lord also said something about beef. As I hope to return to Scotland this evening and be allowed in, I am not going to make any comment about the beef farmers in Northern Ireland. However, I shall certainly pass on his comments to my noble friend.
The noble Lord, Lord Desai, made an interesting speech. He talked about the overspending in the plans for this year. He asked why people should believe the plans for the future. An overspend of around £500 million is expected largely because of the unforeseen problems we have had with BSE which have been very expensive on the Chancellor in trying to help the farmers who have been affected by this problem.
The noble Lord, Lord Haskel, repeated the theme delivered by the noble Lord, Lord Paul, in his speech and emphasised the importance of companies. He said that it is companies that compete for business, not countries. On this side of the House we always say that it is companies and businesses that create jobs; it is not governments. We are agreed on that absolutely. According to the FT's top 500 survey, we in the United Kingdom have the lion's share of Europe's most successful companies. A new study by Morgan Stanley shows that the UK is in second place behind the United States in the number of globally competitive companies.
My noble friends Lord Cockfield and Lord Griffiths, the noble Lord, Lord Desai, and others asked about inflation. They asked whether the inflation target will be met and whether I am confident it will be. The noble Lord, Lord Griffiths, answered some of these points from his experience of the 1980s. We believe that there are factors playing very much in our favour this time--low input prices, subdued earnings growth and vigorous high street competition. But I want to underline what I said in my speech. If there is a problem, the Chancellor has already shown that he is prepared to raise interest rates, if that proves to be necessary, in order to keep control of inflation. No one should be in any doubt as to his determination to do that.
My noble friend Lady O'Cathain spoke about cross-border shopping and the problems there. We understand the problem. It is one of the reasons why, for the second year running, we have frozen the duty on wine and beer and have cut the duty on whisky and other spirits which I shall not bother to mention to your Lordships. We are aware of the problem. However, it is a little like the question I posed to the noble Lord, Lord Eatwell. What do you do? Do you reduce the duty on this side of the Channel, with the problems that brings for the Exchequer and also some of the social problems that it can bring? Do you ask the French to increase their duty? I do not think we would get very far with that. Or do we do what we are trying to do--tighten up on the smuggling and the illegal moving of these products into the United Kingdom?
The noble Lord, Lord Monson, also dealt with that problem. He referred to alcopops and suggested that my right honourable friend the Chancellor should have raised the duty on alcopops even more. We shall be looking closely at that product because some spin-off problems clearly do come from it. My right honourable friend has shown that he is prepared to act if he thinks it necessary.
The noble Viscount, Lord Chandos, went back to all the arguments about taxing and whether people are better off. The fact is that people are better off. Because they are better off, they pay more taxes. That is why the Government can do many of the things we have been able to do--spend more money on education, as the noble Lord, Lord Haskel, wants us to do; and spend more money on the health service, as the noble Lord, Lord Haskel, wants us to do. But it is interesting. When they want us to spend more money on lots of other things, they still do not tell us where that money is going
to come from. That is what is absolutely and completely missing from this debate and any other economic debate in which I have participated.The Opposition criticise me. I do not mind that. They tell me where the Government are going wrong and they tell me what we ought to be doing. But they do not actually say what they would do and how they would balance this difficult problem of what you take in and what you spend. If they want to spend more on social security, fine; but they either have to get it from cutting some other part of spending or they have to get it by increasing tax. Money does not grow on a magic tree in Whitehall. I have not found it. None of my right honourable and honourable friends have found it in the 17 years we have been in government. I have to tell the Benches opposite that, in the unlikely event they win the next election, they will look in vain for that magic money tree.
I was delighted to hear that the noble Lord, Lord Selsdon, had got into the Internet. I am sorry to hear that he did not reach us. We had a quarter of a million what are called "hits" on Budget day, so our address was very popular. We are happy to be involved as much as we possibly can as a government in the new IT world which is so important for the success of the whole British economy.
My noble friend Lord Selsdon said that I should climb a tree and holler. I can assure him that I and all my friends in Government will be climbing as many trees as we can find and hollering as loudly as we can about the success of the British economy and of this Government.
On Question, Motion agreed to.
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