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Lord Barnett: That applies to Conservative Governments as well!
Lord Brabazon of Tara: My Lords, that may well be the case. However, the fact is that it would be a powerful disincentive to business and inward investment. That applies especially to the prospect of a windfall tax, which, as has been said, would not only disadvantage consumers but would also put off some of the foreign investors whom we want to attract and who have already invested in some of the privatised utilities in question. We do not want more regulation; we do not want the social chapter; and we do not want European monetary union. We have a good economy. Let us keep it that way.
5.38 p.m.
Lord St. John of Bletso: My Lords, I find it somewhat daunting to be speaking after such a distinguished and noteworthy list of speakers. I say "noteworthy" because there have been some exceptional contributions to today's debate. Like other noble Lords, I am grateful to the noble Lord, Lord Prior, for introducing the debate. Whatever criticisms may be levelled against the Government's track record on education, on the BSE crisis, on law and order or indeed on the National Health Service, I do not believe that anyone can deny now that the British economy is reaping the benefits of the Government's prudent and, if I may say so, sensible monetary and fiscal policies.
Against a raft of good news on the state of the economy, I am baffled as to why the Government are fighting such a negative campaign in the run up to the general election. The economic figures could hardly be better. Many noble Lords have spoken about them
today. Consumer confidence today is as high as it was in early 1989. I beg to differ with the noble Lord, Lord Eatwell. I believe that people appear less worried now about losing their jobs than at any time since then. However, according to the opinion polls, the economic optimism does not appear to be rubbing off on political attitudes of the voters. There is a simple presumption in economics that it takes a long time for structural adjustments to take effect. The irony is that, at a time when there is so much convincing evidence that the benefits of reforms are coming through, the Government are getting little credit for what is going right and are certainly being lambasted for almost everything they do wrong.This may sound as though I am making a party political speech. The noble Lord, Lord Barnett, said that he did not intend to make a party political speech. I am proud to be a confirmed Cross-Bencher, but I believe that credit ought to be given where credit is due. Last year there was a steady although unspectacular pick up in economic activity, largely on the back of a revival in consumer activity. The consumer side of the economy remains buoyant. Retail sales, particularly car sales and consumer confidence, are all at fairly high levels. The housing market in many parts of the country, particularly the south east, has improved sharply. Although retail sales showed a sharp and rather unexpected fall in December last year and that made consumer confidence edge down slightly, this confidence, thankfully, has picked up in January and February and in the view of many leading economists it is at its highest level since the late 1980s.
The momentum of the consumer recovery has helped explain the sharp upturn in service sector activity. However, in contrast to the evidence of growing activity in the service and construction sectors, the signs for the manufacturing sector have been fairly mixed. I look forward to the short Question which the noble Lord, Lord Paul, will ask tomorrow at Question Time on this issue. Whilst the consumer recovery has started to filter through to the manufacturing sector on the back of stronger domestic and, to a lesser extent, firmer international demand, sterling's 18 per cent. appreciation against the deutschmark since its low point in 1996 is certainly likely to take its toll on export orders.
According to a recent Merrill Lynch report, among the major economies the United Kingdom is expected to grow at the fastest rate during 1997. In consequence many fear that the United Kingdom may have to suffer a tightening of monetary policy. Fund managers--I say this in my capacity as a consultant to a stockbroking firm in the City--are certainly extremely upbeat on the outlook for the United Kingdom and are forecasting economic growth above the trend. This is reflected in a preference for investments in commercial property and smaller companies, both of which tend to prosper when growth is strong.
As several noble Lords have already mentioned, consumer spending will also shortly be boosted by the windfall gains from building society flotations and by the reductions in income tax announced in the Budget, as well of course by the reduction in unemployment
and rising real incomes. Whilst inflation should stay low on a one-year time horizon, many are concerned about the longer term. One danger is that the tightening labour market could well lead to a distinctive upturn in pay settlement levels through 1998. There can be no denying that a major contributing factor to the drop in the rate of unemployment has been as a result of the relatively free and flexible labour market in the UK which has resulted in the high levels of international inward investment, which several noble Lords have mentioned.The trend in the past appeared to be that when unemployment fell there was a tightening of labour markets causing upward pressure on wages and ultimately a rising of inflation. One of the main areas, and certainly one of the aims of supply side policy, should be to improve the trade-off between unemployment and inflation. Economists have been surprised how muted labour market wage demands have been over the past year. The hope is that we should aim to avoid the boom and bust scenario of the 1980s and, as my noble friend Lord Kingsdown, the noble Lord, Lord Ezra, and the noble Lord, Lord Barnett, have already mentioned, to work to achieve a sustainable recovery.
If the Labour Party is concerned about the supply side, I query its commitment to the social chapter. The noble Lord, Lord Brabazon, has already made mention of this in the previous speech. Although the Labour Party argues that joining the social chapter would have little effect on United Kingdom competitiveness, excessive labour market regulation has provided a powerful explanation for continental Europe's poor performance on job creation in recent years. By contrast, however, international observers have identified the United Kingdom's labour market policies as being the key reason for its improved economic performance. There is no way of estimating what costs the social chapter may impose in the future. There is a strong likelihood that the European Commission would use the institutions of the European Union to try to standardise social policies along continental lines.
On a range of important issues covered by the social chapter the United Kingdom would have no veto. It would have to accept measures agreed by the majority, just as the current Government are likely to have to accept the European Union's 48-hour week directive. I argue that the social chapter offers no discernible economic benefits to the UK. I was surprised at the statistics given by the noble Lords, Lord Eatwell and Lord Currie, that the level of international investment has fallen in the United Kingdom over the past few years. I believe that by signing up to the social chapter we may well see that level of inward investment fall a lot more over time.
My time is up. I certainly agree with the noble Lord, Lord Barnett, that it is easier to forecast the weather than to forecast the economy. My hope however is that for a sustainable recovery the next government will keep the current winning formula.
5.48 p.m.
Lord Birdwood: My Lords, more than 30 years ago, my work led me into contact with decision-making techniques which were then fashionable, by which companies decided on courses of action. Two of these, I remember, went by the names of Delphi and Monte Carlo. Perhaps they are still around today, but it is a long time since I have heard either of them referred to.
Both techniques called on one's ability to list influencing factors comprehensively, and give them appropriate weights as one moved towards a decision: open a plant, close a plant, use a particular port, stop using a port, start exporting to X, or give it up--that sort of thing. In those simple days--and they seem as far off and innocent as "Mrs. Dale's Diary"--the operational research support in a firm would make certain projections and assumptions based on currencies, markets, labour, innovation and, to a lesser extent, politics.
While I was collecting my thoughts in relation to this challenging and timely debate initiated by my noble friend today, I found myself scanning what expert opinion on "the economy" I could lay my hands on in the shape of recent publications. I have a pile with me. Economists as a breed have always frightened me far more than geneticists, biologists, or any of today's other tabloid bogeymen. When economists write about "the economy", they are so authoritative, so un-tentative.
In the context of the wording of the Motion--my noble friend has carefully referred to "the state of the economy"--the voices of expert economic opinion seem largely to be in accord. Just at this moment, just for the United Kingdom, just in the rosy glow of the longest bull market in history, things seem to be pretty good. As a House here we have exhaustively aired the things that are not so good: education, structural unemployment and welfare costs. But a snapshot of Britain is and should be a source of pride if not complacency.
Our economic cycles seem to be in advance at least of our European cousins: first into recession, first out; and it is a tribute to the economic realism of workers and managers. It is also a tribute to the profound changes in political ideology in the past 15 years or so. Two decades ago we were the closest thing to a command economy outside the totalitarian models. Today, not only are we a model of a demand economy but, with the exception of a handful of countries in permanent political quarantine, so is the rest of the world. The market has won. A little while ago we read about the end of history. And now I am led to the core of my brief and superficial observations today.
In a discussion like this, it is a natural thing to talk about "we". "We" are doing well, we say. What is the "we"? It is the sovereign state which gives us "our" identity. And it is the captive heart, the consciousness of nationhood, which seems to be drifting away from the understanding of what happens next in what the noble Lord, Lord Prior, commends to our attention.
I yield to no one in the importance I give to academic economic theory. I have infinite respect for the mathematical models which are now the basis for every economic projection, every forecast. But an economy, "our" economy, is only the collective endeavour of people--our people. What, I have often wondered, are the smallest and the largest collective identities in which the individual feels pride? The military worked it out 300 years ago: the section; the platoon; the regiment; the corps; and so on. For ordinary people what is it? Is it the company? Yes. Is it the country? Yes, as well. Is it the Continent? I do not think so.
If I were using that "expert opinion", in the form of the articles and features to which I referred a moment ago, to make decisions about a company or a country, I should be forced to have the deepest doubts about the effect of European financial integration on this our economy.
Perhaps my absorption of the detail has been careless. But one thing strikes me with force about the arguments now being laid before us on European monetary union; and it comes as a paradox. The arguments in favour of EMU are almost shockingly emotional. The arguments ranged against EMU are surprisingly intellectual. I would have expected them to be the other way round.
But why bring up EMU in a debate about the economy? It is just that everything, and I mean "everything" which could influence "our" economy--the Delphi or the Monte Carlo factors--becomes completely trivial compared with the consequences of this politically engineered fiscal tidal wave. We are like children building sandcastles on the beach and the grown-ups are assuring that the 50-foot wave coming towards us will be interesting, a challenge to our competitiveness.
If I were assembling evidence in a court of law, I should be content, or deeply troubled, according to my Euro credentials, on reading articles such as those of Larry Elliott in the Guardian, the noble Lord, Lord Hanson, in last week's Spectator, Mark Archer last October, Charles Goodhart in Prospect this month, and Robert Samuelson in Newsweek. These are grown-up voices too. The noble Lord, Lord Currie, has just had his own ferociously analytical work, The Pros and Cons of EMU, reviewed by the Economist. The reviewer remarks that,
- "governments will have to act prudently and far-sightedly ... Unless the potential reward is huge (which, in the report's view it isn't), why risk it?".
So do those prudent, far-sighted governments exist but only by the will of the same people who feel they belong in countries, not continents; the same people who are the human engines of this or any other economy?
I feel privileged on many counts to have had this chance to participate, albeit briefly, in the debate initiated by the noble Lord, Lord Prior, on the state of the economy. It could be the last debate that this House can ever have on the subject because the idea of "our" economy could cease to have any meaning after next year. To be sure, there will be economic activity, and plenty of it. People will be richer or poorer. People will
buy and sell. But to discuss in a national context the concepts of a national economy will have as much meaning as the penguins in the zoo discussing the price of admission.5.57 p.m.
Lord Borrie: My Lords, six weeks ago, the Deputy Prime Minister, Mr. Michael Heseltine, invited himself to a conference. It was a conference to launch a significant and detailed report on the state of the United Kingdom economy. In the course of his speech to that conference, Mr. Heseltine said that the members of the Commission on Public Policy and British Business were a front organisation for the Labour Party. Many noble Lords may have read the reports of Mr. Heseltine's speech. That seemed to be a singularly inept phrase for the many distinguished people, including distinguished businessmen, who sat on that commission and had worked for some 18 months preparing the report.
The members included the chairman of Legal and General, the chairman of Sainsbury's, the chairman of British Aerospace and the managing director of GEC, the very company of which the noble Lord, Lord Prior, has been chairman for some 12 or 13 years. While we all welcome the debate that the noble Lord has initiated--I do not know whether he agrees with me--I felt that that wide-ranging commission did an excellent job in assessing in a balanced apolitical way the state of Britain's economy today. But obviously it irritated some people, especially current members of the Government who in the run-up to the general election want everyone to imagine that everything is for the best in the best of all possible worlds.
Yet the conclusions of the commission were surely not all that remarkable or novel. They did not relate merely to the past four or five years, the period to which several noble Lords referred, but to longer-term trends, especially over the past couple of decades. The commission, which includes the businessmen to whom I referred, stated that there had been more instability, more volatility, in macro-economic policy in this country than in that of our major competitors. Our recessions have been twice to three times as long as most of our competitors. Businessmen know, better than most, that instability discourages investment and long-term planning and saps business confidence in general.
The commission made the point, referred to by my noble friend Lord Haskel, that the best of British firms are equal to the best anywhere in the world. But, at the same time, there is a "long tail" in this country of under-performing firms, as the commission puts it. It drags down average business performance and is closely linked with under-investment in innovation, physical capital and research.
Of course we in this House, as no doubt do people outside it, all welcome the recent improvements in the job market. We welcome the strength, over quite a long period, of inward investment. The economy is now in good shape, as one noble Lord put it. However, one has to be careful. Worrying about these matters is not just some "nastiness" on the part of the Opposition in this
House. I refer back to the views of the commission, including those distinguished businessmen. Noble Lords will have noticed last week that, according to the UN Conference on Trade and Development, our share of inward investment in Europe from Asian countries has recently shrunk. It is evident that at least a contributory cause of that is the uncertainty and instability to which those businessmen referred--in this case, in regard to the Government's relations with the European Union. Countries in Asia and elsewhere feel uncertainty as to what will be our relations with Europe in the long term. The divisions within the Government must be a contributory cause. Surely we cannot be complacent when we rank ninth in the European prosperity league; or, as the Conservative Member of Parliament and former Minister, George Walden, put it last week in the Observer:
- "Britain remains one of the poorest countries in Europe in terms of gross national product per head".
The commission pointed out that, besides the long tail of under-performing firms, there is another long tail of low-skilled, under-performing and under-achieving people. The CBI's recent policy document on education and training said very clearly:
- "although the best in the UK is world class, the tail of education and under-performance is striking".
A particular consequence of the "long tail" problem regarding people in this country, and unskilled people in particular is that part of the tail ultimately becomes quite detached from the body. Some of the unskilled become more or less permanently unemployed. As my noble friend Lord Currie said, rising inequality in this country is connected closely with that. It is wrong to think of this as purely a social problem. It has considerable fiscal and economic consequences. High levels of dependency mean heavy costs to the taxpayer, not just in social welfare but in additional expenditure in numerous budgets across numerous government departments, including those connected with the criminal justice system, the health service and so on. It means that vital public investment in our transport infrastructure, which is called for not merely by my party but by the CBI, businessmen and many others, is inevitably short-changed, to the disadvantage of British business, the British economy and the British people generally.
I would add that the UK economy suffers not just from the considerable gap between the performance of our best firms and that of the worst, or between our best graduates and those people who lack the most basic skills. We should also take into account the unevenness between one region and another. We often find, sometimes in close geographical proximity, contrasting worlds in which there is prosperity and comfort on the one hand and poverty and despair on the other. The economic success of the United Kingdom as a whole depends on the success of all regions of the United Kingdom. If any region is under-performing, then the United Kingdom as a whole is not maximising its economic potential.
The noble Lord, Lord Lawson of Blaby, mentioned competition as being among the Government's successes over many years. I believe that the noble
Lord was still Chancellor when the Government, in 1989, issued a White Paper advocating considerable improvement in the competition law of this country in order to bring it up to date. I regret to say, as I believe I have on one or more previous occasions in my short time in this House, that the Government have failed time and again over the past eight years to implement those proposals. Even the last Queen's Speech made no mention of bringing our competition laws up to date. Yet surely we all agree that the competitiveness of British firms--ensuring that our policy tries to get people to compete more effectively--requires the updating of competition laws. Surely the tired mantra, "when parliamentary time permits", which was said to me by the noble Viscount, Lord Goschen, in answer to a supplementary question only a few weeks ago, is totally inadequate. Time is running out for the Government. They will never now be able to implement the promises of 1989. That will have to be done by someone else.6.7 p.m.
Lord Astor of Hever: My Lords, I, too, thank my noble friend Lord Prior for initiating this very important debate. Like my noble friend Lord Lawson of Blaby, I also commend the noble Lord, Lord Desai, on his economic honesty in the article he wrote last month, the more so since his party's message on the economy is all doom and gloom, as we heard today. In his article the noble Lord mentioned job security and the risk that Labour policies on the social chapter might lead to more job losses, as in Germany.
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