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Lord Desai: My Lords, perhaps I may intervene. I did not mention the social chapter in that article.
Lord Astor of Hever: My Lords, with the greatest respect, I have the article here, and it was mentioned.
Certainly Labour's enthusiasm to sign up to the social chapter would open the door to a slippery slope of higher costs, more regulation and renewed union rights which would undo much of the success that the noble Lord, Lord Desai, so accurately described, and which was acknowledged by the noble Lords, Lord Barnett, and Lord St John of Bletso, and even by the noble Lord, Lord Borrie.
As a result of the opt-outs secured by the Prime Minister at Maastricht, together with the absence of a minimum wage, employers in this country are not subject to the job destruction measures which have helped to create mass unemployment on the Continent. Europe's heavy-handed labour regulations make it expensive to give someone a job, and the labour market is characterised by the classic combination of high regulation, high costs and high unemployment.
In December 1996 our unemployment rate was 6.7 per cent. and falling. Across the EU the average is 11 per cent., with the French rate a catastrophic 12.5 per cent. As a director of two French companies, I can speak with some experience of how much more expensive it is to employ workers there because of crippling tax and social security costs. Whereas those cost a British employer only an additional £15 for every £100 spent on wages, in France they add £41. It is that
more than anything else that explains why Britain receives, as my noble friends Lord Prior and Lord Brabazon pointed out, more than a third of all the EU's inward investment as opposed to a tenth in France and a fifth in Germany.Significantly, we attract more direct investment from Germany than anywhere else in the world. Because of spiralling overheads and red tape, export of jobs is now commonplace there. Already half of the staff of Bosch work abroad and in two years Siemens expects to be in the same position. Maastricht, and significantly the social chapter, placed immense burdens on German employers across the board. Tens of thousands of firms have gone into recievership and tens of thousands of firms have had to shed staff to stay alive. At the time of Maastricht, Germany had 2 million unemployed; today the official figure is 4.6 million.
As the noble Viscount, Lord Chandos, pointed out in his speech on the City of London six weeks' ago, 25 million new jobs were created in the US from 1980 to 1995; a mere 4 million were created in Europe, a paltry growth rate of 0.2 per cent. per annum. The noble Viscount wisely also pointed out that an obvious factor for that disparity was labour-market regulation, a view hardly consistent with Labour's pledge to end Britain's hard won opt-out from the social chapter which contains much more regulation.
Why should important decisions on Britain's employment policy be made in Brussels? No Tory Government is likely to sign up to the social chapter or introduce a minimum wage. Why impose burdensome new social costs on British firms, particularly smaller companies, many of which are still struggling with the after-effects of the recession?
Two industries that will be particularly affected by the social chapter and a minimum wage are the tourist and motorsport industries. The tourist industry, which typically has low wages and flexibility in the use of staff, would be devastated. So too would the British motorsport industry, an industry in which the United Kingdom dominates the world and which last year generated more than £2 billion for this country. I declare an interest as the unpaid President of the Motorsport Industry Association.
Fifty thousand people are directly employed within British motorsport and twice that number enjoy part-time employment in a fragmented industry where small, specialist firms compete fiercely to achieve the results that their sponsors demand. A high proportion of the UK's scarce resource of skilled and creative engineers is engaged in motorsport. The dispersal of the industry into small, specialist sectors is one of the main reasons for its success, allowing for rapid decision-making and a high degree of flexibility.
The motorsport industry in this country has become a world leader through the readiness of its people to work what are often unsocial hours and on a part-time basis to be involved in a business about which most employees are passionate. The social chapter and a minimum wage would open the door to foreign competition, particularly from the Far East where the
motorsport industry is already blossoming. Our position is threatened. Let us not destroy it with unnecessary legislation.6.15 p.m.
Lord Monkswell: My Lords, like other noble Lords, I should like to thank the noble Lord, Lord Prior, for introducing this debate. I rather presumed that there would be a fairly one-sided description of our economy from the other Benches and I intended to offer a different perspective. I had not appreciated that virtually no noble Lord would talk seriously about our nation's balance of trade and balance of payments. I think that it would probably be quite useful therefore, particularly following the contribution of the noble Lord, Lord Kingsdown, to say a few words about what I might describe as money-market domination.
One of the difficulties in a debate in which we have contributions from a combination of academic economists and people who might be described as relatively well-off members of society is that they say that the economy is now doing very well. For those people the economy probably is doing very well. But there is another perspective, which the noble Lord, Lord Bruce of Donington, touched on when he mentioned unemployment. We need to recognise that the real economy is the business of the way we organise society to provide the goods and services and the mechanism of exchange that provides the things that we as human beings need and want to enable us to live a decent life. For many millions of our citizens the British economy is not in good shape because it does not provide them with the goods and services that they need and want.
One of the intriguing things about the introduction by the noble Lord, Lord Prior, was that he suggested that the two major good things about the changes in the economy over the last 18 years were privatisation and trade union law reform. He suggested that the trade union law reform provided industrial relations peace. It might be more sensible to recognise that it is the existence of mass unemployment rather than any changes in the rules and regulations that has contributed to the change in labour relations that has typified the last 18 years.
Privatisation is a good thing? The remarks of the late Earl of Stockton come to mind when in his maiden speech in January 1985, on the same day as I made my maiden speech, he talked about selling off the family silver and the problems that that resulted in for what he described as the gay young blades. I am not sure that I would describe Government Ministers as gay young blades. Some of them are, I suppose, but that may be a different story.
One of the reasons that we have had privatisation is that the Government have almost consistently, year on year, determined to spend more than they raised, which means that it is necessary either to borrow or to sell off some assets to bridge the gap. It is intriguing to think that not only have the Government done that and notionally sold off public assets to the British public, but we are now seeing a situation where essential national assets are being sold off to foreign interests.
In talking about the British economy, we need to recognise that it is ours and something over which we should have control. But if those major elements of our economy are owned by foreigners, then by definition we cannot be in control.
There may be some positive advantages from inward investment as a proportion of a particular industry or service sector. For example, there was the inward investment of the Ford Motor Company, basically the American company of General Motors, or Peugeot in this country when we ourselves had a very large British motor industry. But now virtually all the motor manufacturing undertaken in Britain is carried out by foreigners--the Japanese, Germans, French or Americans--and there is virtually no British-owned element, apart from the racing scene mentioned by the previous speaker, which I suspect will fall to Japanese competition fairly soon and is only a very small part of British motor manufacturing. All the rest is foreign owned. I am not sure that that is good for our economy.
The noble Lord, Lord Prior, did not talk about the balance of trade and the balance of payments. It was probably some academic economist who said that there could not be an imbalance in the balance of payments because it would naturally have to balance. But we can recognise that this country does not produce enough goods and services for our own consumption. We have to buy-in those goods and services from abroad and we have either to borrow money or sell assets to be able to afford them. That has been going on for over 10 years. It started under this Conservative Government when the balance of trade for the first time in our history went into an adverse situation. That leaves the economy of our country vulnerable to what other people think and feel about it.
That brings me to the remarks made earlier in the debate by the noble Lord, Lord Kingsdown, who, in a very telling phrase, referred to the money markets as vigilantes. I do not believe that anybody would argue that we should aspire to, recognise or accept that vigilante law or vigilante justice should determine our future. But that is effectively what is happening. The globalisation of money markets, the billions of dollars, yen and pounds which are whirling around the world's foreign exchanges completely take out of the hands of small, medium-sized or even very large nations the ability to control their destiny. For some people it may be very good to survive in that kind of "casino" operation but the vast majority of people on this planet want to have some control over their affairs. We cannot allow the money markets--the vigilante operations--completely to destabilise economies and human relationships in terms of economic affairs.
It seems to me that one of the difficulties is the fact that the vast sums of money swirling around the foreign exchanges are able to destabilise small, medium-sized and even large countries. There is a need to find some mechanism of control. I suspect that part of such a mechanism of control would be the emergence of three or four major economies in the world. The development of the European Union and the European Monetary System will be part of that.
In conclusion, I hope that we shall find some way to control the money market vigilantes before they reduce human activity to the chaos of bloody conflict and war which has previously happened in our history and which we do not wish to see repeated. We must find a peaceful way out of the problems that we have created for ourselves.
6.26 p.m.
Lord Stewartby: My Lords, I have not before followed the noble Lord, Lord Monkswell, in a debate in your Lordships' House. I am, therefore, pleased to have this opportunity of complimenting him, if I may put it that way, on a more effective speech than that of the noble Lord, Lord Eatwell, on his Front Bench.
Like many other noble Lords, I am most grateful to my noble friend Lord Prior for introducing the debate this afternoon. It has been an extremely interesting and wide-ranging discussion. I shall not try in any way to repeat what my noble friend and many others have said about the success of the British economy. I simply wish to endorse in particular the point that he made at the outset; namely, that a great deal of the economic performance that we now see in the 1990s derives from the structural changes over a wide area which were undertaken in the 1980s. It is not only a matter of having a more flexible labour force and lower non-wage costs than our competitors. We restructured our economy in a number of ways much earlier than our competitors. That is one of the reasons for significantly improved relative performance now.
The noble Lord has just mentioned privatisation. Earlier, the noble Lord, Lord Ezra, said that there were many people with significant skills in the nationalised industries before they were privatised. That is of course true. But the key fact is that many of those nationalised industries were heavily overmanned and lacked the disciplines of the financial control in the private sector. I believe that the potential of those industries could not have been realised had they not been put into the private sector. The proof is that, instead of year on year being a drag on the taxpayer, they now produce every year large and increasing revenues for the Exchequer.
My other point on the restructuring of the economy concerns taxation. When my noble friend Lord Lawson was Chancellor, I had the privilege of being a member of his team. We not only reduced direct rates of taxation for individuals, which is very important in terms of incentive as high taxation is economically inefficient as well as unattractive to those who have to pay it, but he also carried out a far-reaching structural reform of company taxation. It is hard now to remember the days when corporation tax was above 50 per cent., but it was 52 per cent., with substantial initial capital allowances for investment.
It was quite clear at that time that much of the investment was inefficient. A large part of it was done purely to avoid making such large payments of tax. Although there was much resistance at the time and many said that it would discourage investment and have unattractive consequences for industry and throughout the economy, in fact it has had the opposite effect.
It has made this country in the corporate sector much more efficient than it was 10 or 20 years ago. That is a reform which is often overlooked when the catalogue of measures of the 1980s is set out. It was an important reform.The two points on which I particularly want to touch this evening are monetary policy and interest rates on the one hand and public expenditure on the other. I took the precaution of not preparing a speech for this afternoon's debate. It seemed to me that with so many distinguished speakers it would be wiser to listen to what was said and make personal comments in the light of the debate. I particularly want to agree with what the noble Lord, Lord Kingsdown, said in relation to monetary policy and interest rates.
In the past, increases in interest rates were a "shock, horror" affair and often large. They were usually taken rather too late and inevitably had a disproportionate effect on economic activity. The past four years in particular have shown the virtues of conducting monetary policy with a longer view and taking pre-emptive judgment in regard to the appropriate level of interest rates. Of course, we have not abolished the economic cycle. But I agree with the noble Lord, Lord Kingsdown, that if we continue to pursue those policies, then the fluctuations in the cycle are likely to be flatter and the periods of recovery and growth longer.
It is a pity the way in which the tabloids and other commentators tend to dramatise movements in interest rates. I do not know whether in two years' time the present rate of interest will prove to have been correctly set at 6 per cent. or whether it should have been 6.5 per cent. We are not talking about large differences of view between the Governor and the Chancellor. I am quite sure that we will not now see economic developments taking place where interest rate policy lags behind economic developments in such a way that, when changes are eventually made, they have to be more substantial than they would otherwise have been. If they are not sudden and they are not large, then changes in interest rates are really part of a sensible and responsible management of the economy.
If it is necessary in the coming months or over the next year or two for interest rates to rise by 0.5 per cent. or 1 per cent., that will not be an economic and financial disaster; it will be merely a recognition that the policies we have been pursuing have created the conditions in which economic growth can develop strongly. In order to ensure that it does not get out of hand and become too strong, some restraining move may need to be made.
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