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Lord Ezra: My Lords, I thank the noble Lord for giving way. I shall be brief. In the light of what he said, would he agree with the advice given by the Governor of the Bank of England that interest rates should have been increased by 0.25 per cent.?

Lord Stewartby: My Lords, as I said, I do not know whether the present rate will prove, with the benefit of hindsight, to have been correctly set at this level or whether it should be at a slightly different level. The main difficulty in answering the question of the noble

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Lord, Lord Ezra, is that nobody is yet sufficiently able to measure the potential effects of the recent increase in the value of sterling. It will undoubtedly have a significant impact on the degree of activity in certain areas of the economy. But because that is a relatively recent development, the nature of the impact is not yet clear.

I conclude by saying a few words in relation to public expenditure. Long before I became a Member of another place and took an interest in these matters, I was impressed by a remark of Selwyn Lloyd. He said that the pressures on a Chancellor of the Exchequer to increase public expenditure had to be experienced to be believed. What may have been true a generation ago is doubly true today. It is not only the political and economic factors that come into play; there are also demographic issues which mean that any Chancellor, any Chief Secretary, faces relentless pressure to increase public expenditure.

It is difficult enough to control expenditure if the governing party has an instinct that public expenditure should be controlled and contained to a sensible level. In my view it is likely to be impossible if a governing party wish to move in the opposite direction. Therefore, I listened with great interest to what was said by the noble Lord, Lord Barnett, when he implied that, even though Mr. Blair and Mr. Brown may be saying the right things, it is unlikely that they will be able to hold to the public expenditure figures as projected. I agree with my noble and learned friend Lord Howe that it is not credible. It would be difficult for the next government, if they continue to be a Conservative government, to keep that continuous control over public expenditure. In my view it would be impossible if by some mischance the next government were to be formed by a party whose instincts over the generations have been to encourage and not to restrain public expenditure.

6.36 p.m.

Lord Desai: My Lords, first, I apologise to the noble Lord, Lord Astor of Hever, for interrupting his speech. He is quite right; I did make that remark. Unlike the Secretary of State for Health, I repeat what I said and do not say that I was befuddled or it was a breakdown in communications. It is a great honour to be quoted by a former Chancellor of the Exchequer and Privy Councillor. That is the highest state I have attained and I am afraid that from here it is downhill all the way.

When I wrote the article mentioned it was designed to warn my party not to be smug. I believe I succeeded in making the opposite party smug, and that is a good result. The more smug the opposite party becomes, the better we are and the better are our chances of success. I must point out that on our side there is a great division between me and my noble friends. I believe that a Conservative victory is impossible, but not unlikely; they believe that it is unlikely, but not impossible.

I want to take up two issues. First, the noble Lord, Lord Ezra, raised the question of whether the economic recovery is sustainable. Again, I thank the noble Lord, Lord Prior, for giving us the opportunity to discuss this question. I want to discuss it without mentioning the

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election and such matters again because what we have arrived at now is what we arrived at in around the late 1940s.

In the late 1940s we arrived at a consensus about the nature of the economic and social policy--later it was referred to as "Butskellism". That happened when the Conservative Party decided, after its defeat in 1945, to change its thinking on specific issues--and it is nice that it changed its thinking. Then we had around 20 or maybe 25 years of consensual economic policy making. The consensus then broke down. We are now back at a consensus that, given the way the global economy is at present, it is unlikely that any government would succeed by being fiscally irresponsible; that devaluation does not give us any permanent gains; and that we have to keep to a strict spending limit.

I welcome that. Differences still exist between us and, if I have an opportunity, I shall speak about them later. But I welcome the fact that once again we have a consensual, macro-economic framework and within that framework we will conduct policy. It is in nobody's interest that the country does badly in its economy; nobody gains by that. In fact, people only lose by it.

I turn to the question of the sustainability of the current recovery. This is the fifth year of the recovery, but that is not unusual. The last recovery, if we start from the trough of 1981, lasted to around 1990; that was a nine-year cycle. We must not all get carried away. We must make special efforts to sustain the recovery. In that respect the first point I would make, which was mentioned by the noble Lord, Lord Kingsdown, is that we are currently paying a premium of between 1 per cent. and 1.5 per cent. on long-dated government stock. That has been going on for quite some time. Why is that so? It is connected with the current hardening of the exchange rate. Is that a systematic force or is it just a blip? The answer to that question lies in a very simple fact.

Many people emphasise independence for a central bank. The noble Lord, Lord Lawson of Blaby, mentioned that point. The problem of the British economy does not arise from anything the Bank of England has done or not done but has arisen from the fact that we have not had a good record of fiscal responsibility. As I said in the debate on the Budget in November, if at the top of the cycle we are still running a deficit and if the Chancellor says that in the next year he has no hope of producing a surplus, one wonders when the British economy will ever have fiscal responsibility.

I am happy to confess that I was converted to that view about 10 years ago. I was not born a fiscal conservative. What has happened is that, on the one hand, we have narrowed the tax base. Collections have kept up but the tax base has narrowed. On the other hand, the Government, with the best of intentions, are finding it difficult to control spending. The British public like spending. It is not only a matter of political parties. The British public like certain kinds of spending to be undertaken by the Government. They want decent schools, they want good health care and they want law and order. Those are very difficult to resist. What we

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have seen over the past 15 years is a see-sawing of the GDP ratio from 45 down to 30 and the persistence of the PSBR problem, especially if one takes out the privatisation receipts. The treatment of privatisation receipts is a problem in economics.

One ought to worry about this matter rather seriously. We are paying a premium of between 1 and 1.5 per cent. because we are not trusted to be fiscally responsible. We are not trusted to stick to an announced policy. The temptations are rather great. I may not gain the approval of my noble friend Lord Bruce but I would have preferred it had we gone into the ERM way back in 1985. We did not go into the ERM. We went back and forth for about five years. When we eventually went in, we did so at the wrong rate. There was a possibility of realignment within the ERM but we did not take it, and we went out. Whatever one may think about the ERM, good or bad, if one goes into something one has to show commitment to stick to it and not run away when a crisis occurs. The market quite rightly judged at that time that even after the Government had been re-elected they did not have the courage in a recession to stick to the ERM discipline. That is why we are suffering still.

I am not necessarily saying that I would immediately jump into EMU. I have already said that I am not right now in favour of going into a single currency. But whatever we think about it, if we go in, we should stay. If we do not mean to go in, we have to ask--the question has been asked for the past four years--what is our monetary and fiscal framework or medium-term financial strategy, as was mentioned by the noble Lord, Lord Lawson. A medium-term financial strategy should have not only an inflation target but a much sterner fiscal target than we have been used to so far. In this respect the golden rule of government borrowing is a very good one. We should say that whichever government come to power--it is almost an equivalent of central bank independence--the UK's fiscal policy will be conducted on the basis of the golden rule and that if we seem to be deviating from the golden rule there will be a quick and stern correction the next year. That would be done either by genuinely cutting expenditure or by increasing taxation, whichever was required. No one likes taxation but it is better to have taxation than to run unsustainable fiscal deficits.

I am grateful to the noble Lord, Lord Prior, for giving us the opportunity to speak on the economy. The problem of constructing a sustainable and viable macro-economic framework for British prosperity is one for all of us.

6.46 p.m.

Lord Nickson: My Lords, I should like to apologise to the House, and particularly to my noble friend Lord Prior, for not being here at the start of the debate. I had a meeting I could not avoid which was fixed long before the debate. I was particularly sorry to miss my noble friend's opening speech and also the speeches earlier in the debate of my noble friend Lord Kingsdown, who did me the honour of being one of my supporters when I came to your Lordships' House, and my noble friend Lord Lawson of Blaby, who was always enormously considerate to me during the time he was Chancellor of

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the Exchequer, except once when he rang me up at four o'clock in the morning in Tokyo under the impression that it was four o'clock in the afternoon in Scotland.

We have heard extremely important speeches from distinguished economists and politicians. I speak as a simple businessman who comes from Scotland. I want to ask your Lordships to walk down memory lane with me briefly and then, with your permission, I would like to be very parochial and talk about a particular worry I have about the economy in Scotland.

Down memory lane I should like to take your Lordships back to the mid-1960s and to the opening of a printing warehouse in Glasgow by the noble and gallant Viscount, the late Lord Montgomery. As was his wont, he spoke a lot about himself and not much about the firm for which I worked, which had just published his memoirs. He said that he had no quarrel with us over that, but as publishers of bibles and hymn books he was always being asked to sing hymns that went, "Oh Paradise, Oh Paradise, How I long for thee". "Well", he said, "I don't, I don't. I would like to sing a hymn that goes, 'Oh Paradise, Oh Paradise, I have a little shop, and just so long as profits last, here I mean to stop'".

Well, my Lords, we moved from that decade of the swinging sixties to the decade, in my terms, of the sad, sad seventies, the most miserable decade of my working life in business. I shall not rehearse to the House all the terrible problems of high inflation, high unemployment, industrial relations conflict--which I venture to suggest few Members of the House can have experienced at first hand in all its unpleasantness and severity--the secondary banking crisis, and so on. Profits did not last and many businesses, including the one to which I refer, were brought to their knees by that sequence of economic events.

My second flashback is to a meeting at which I was a guest where the then Leader of the Opposition was speaking. I am referring to my noble friend Lady Thatcher. She spoke with immense confidence--it was the first time I had seen her or heard her--about her conviction as to what needed doing for Britain. I was totally captivated. I thought I was listening to Don Quixote tilting at windmills because all my experience could not have prepared me for the idea that anything she said was likely to be possible.

The first questioner asked her about proportional representation, to which I was quite inclined myself at that time. She demolished him with withering scorn and, in my opinion, with all the wrong arguments. I said to my host--I was sitting next to him--"She can't get away with that". He said, "Well, if you want to ask a question, you go ahead". He moved a long way from me. I got my first major handbagging from her. She said, "If that's the way you think, you don't understand what needs to be done to change this country. You have no conception of what we have to do. If that's the way you think I don't want your support and I don't want your vote either". I retired duly humiliated.

My third flashback jumps on to the early 1990s and another Chancellor of the Exchequer, the current Prime Minister. I went to see him because at the time

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I was chairman of what was then the Top Salaries Review Body. We had come to the conclusion that what we were paying our public servants in this country was neither fair nor wise. I went to seek the mind of government on that matter. He listened to me with great patience. Then he read me a little lecture about inflation, the state of the economy and what he intended to do about it. Shortly afterwards, of course, he did become Prime Minister. I would only point out that I was very impressed with his earnestness, conviction and determination at that time. Exactly what he said was going to happen has happened. Those are my three little flashbacks.

I hope that I sound neither gleeful nor smug about the state of the economy at the moment. I am firmly of the view that, in the words of another Conservative Prime Minister, so far as the climate for the wealth-creating sector of British industry is concerned, we have never had it so good. I now turn to Scotland. What are my fears? I am talking on a constitutional point. I am deeply, deeply worried about the proposals of the party opposite for Scottish devolution. I am worried on a constitutional level and I am worried on an economic and business level. Why? Because it is not quite as easy in Scotland to be world class as it is elsewhere. It is not quite as easy to attract inward investment--geography is against us. It is always difficult to attract key, crucial executives to run Scottish companies if they do not happen to be Scots. For all those reasons it is very important that the climate in Scotland is at least as good as it is elsewhere.

If we do have a referendum on Scottish devolution and the Scottish people vote for it, in my view that will be irreversible and indisputable. Much as I am against it, I also fear that it will not last because it will not deliver and it is a short cut inevitably--if not in my lifetime, then in that of my children--to separatism.

I have a young friend who is about to stand as a Conservative candidate in the Western Isles. He was greeted with an encouraging comment that Conservatives in South Uist are scarcer than corncrakes. We have many red-listed endangered species in Scotland, but I have to tell noble Lords that Old Labour is not among them. It will dominate a Scottish assembly if it comes. If Old Labour produces a paper on the tartan tax, it will need to say how it will be raised. Is it only on Scottish residents; is it true that it will average out at 3 pence--(£500)--for the average wage earner, £5 per week for the pensioner; £3,000 a year for the middle manager?

The point is that Scotland benefits by about 30 per cent. more spending per capita than the other citizens of this United Kingdom. That is about £8 billion. If the commitments to controlling public expenditure are true, the tartan tax might raise £400 million, not £8 billion. The pressures will come through local authority expenditure. Why? It is because the party opposite has said that it will return the business rate to local authorities. Perhaps I may tell noble Lords what happened in the late 1980s. The rateable value to brew a barrel of beer in Fountainbridge was eight times what it was in Burton-on-Trent. A tourist who laid his head on a pillow in a four-star hotel in Edinburgh paid £3.50 in rates; in London the equivalent

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was £1. Forty per cent. of the total rates of the Central Region come from the BP and ICI complexes at Grangemouth. Jenners in Princes Street paid £1 million--4 per cent. of its total costs--in rates, the same as Harrods, which is eight times its size.

What will happen is that pressure on public expenditure to finance Old Labour's policies in Scotland will be passed back to local authorities and they will immediately be forced to use business to finance those policies. It is business that will pay. The Scottish economy will suffer. I ask noble Lords on the Benches opposite to talk to their colleagues in another place and to express in the most serious way the concerns that I have about devolution and its effects on the Scottish economy.

6.57 p.m.

The Earl of Clanwilliam: My Lords, my noble friend Lord Nickson and other noble Lords have spoken with great experience about the state of the economy. The debate has been cogently introduced by my noble friend Lord Prior. We are indeed fortunate in having an economy which is thriving and is the envy of all Europe.

I wish in particular to refer to the valuable part played by the insurance and investment industry in the City. It has provided vital support for the City in creating an excellent balance of payments. In particular, it has been central in building up pension reserves on behalf of our great industrial companies, greatly to their cost. It has been estimated that the cost to industry of building up these occupational pensions has been in the region of 6 per cent. of its profits. That should be taken in relation to what I am about to say. As is well known, about £600 billion have been built up. That is something which cannot be said too often.

We are doubly fortunate in that we are in a much stronger position vis-a-vis other members of the EU, many of whom have a serious deficit a-building which is not, incidentally, being taken into account in the Maastricht criteria now being judged by the Commission. My noble friend Lord Lawson of Blaby mentioned the factors and I shall repeat them. It is very important to know that the net unfunded liabilities of the present systems amount in Germany to 139 per cent. of GDP; in Italy it is 113 per cent. of GDP; in France it is 98 per cent. Whereas my noble friend Lord Lawson of Blaby mentioned a figure of 5 per cent., I have a figure of 19 per cent. to the year 2070.

Similarly, as regards the percentage of total workers who have private pensions, the best figures are in Switzerland and the United States with over 50 per cent. Ourselves, Norway and Denmark have well over 40 per cent and we are followed by the Netherlands and Sweden. The rest of Europe comes nowhere; some 20 per cent. of those workers have private pensions.

That was to be the import of my speech today but, as noble Lords will know, I have been pre-empted. I had intended to ask my noble friend on the Front Bench what he was going to do about pensions for the young. My right honourable friend Peter Lilley has made a statement on pensions today which has not only pre-empted my call for what represents mandatory

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savings, but has gone further and answered the greater question of how he was going to ask the young of this country to make the contributions.

Perhaps I may take this opportunity of congratulating the Government on grasping the nettle that our competitors in the EU have woefully ignored. This aspect at least must contribute enormously to enhancing the excellent and positive success of the economy of this country in the long term.

7 p.m.

Lord Taverne: My Lords, this extremely interesting debate introduced by the noble Lord, Lord Prior--to whom we are grateful--has to a large extent been a review of the past 18 years of this government. A great many tributes have been paid and it struck me that they were in some ways like the tributes paid during a memorial service, although the Government are not yet dead.

The tributes from the Opposition side were rather less fulsome, as one might expect. One of the questions which was raised from the start was this. Many people conceded and stressed that in many respects we were doing well at present. The question was asked by a number of noble Lords: is the present trend sustainable? My noble friend Lord Ezra was the first to raise the question. I too wish to address it and, like many noble Lords who have spoken, wish to see what lessons can be learnt from comparisons with other countries of the European Union. If it is possible in this pre-election period, I hope to do so in as non-partisan a spirit as I can summon.

There is the Government's view of the path to continued success, as stressed by the noble Lord, Lord Prior, and a number of other noble Lords, including the industrialists who spoke, such as the noble Lords, Lord Blyth of Rowington and Lord Trefgarne. Speakers from the Government Benches have stressed the need for continued deregulation of the labour market. They say: "Essential to our success is that we should have a flexible labour market. If reliance on the market means that there are much greater inequalities, so be it". They claim that it works. "Look at the sclerotic labour market on the Continent of Europe, particularly in Germany, with its high costs and inflexibility, which has driven many of the German companies to invest elsewhere".

I do not believe that there can be any doubt that in the past 18 years the Government have scored a number of successes. To start with, it must be conceded by those who oppose the Government in other respects that large numbers of our top companies are in a much better state than they were 18 years ago. Secondly, many people, certainly on these Benches--the two of us on this occasion--would concede that over the past few years there has been good macroeconomic management by the Chancellor of the Exchequer. However, I believe that he took some fearful risks in the Budget. I agreed very much with the noble Lord, Lord Barnett, that there was a great deal of counting of chickens, particularly when it came to the gains to be realised from anti-avoidance measures.

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Further, I feel that great risks are being taken with the money supply. One of the exceptions to the universal chorus of praise and hope for the future was the remarkable speech made by the noble Earl, Lord Caithness. He drew our attention to the increase in the money supply, the increase in the level of debt and the worries which that caused. I too worry about it. I hope that his gloomy predictions are not borne out. I am even more worried about it because his view is strongly supported by Professor Tim Congdon. I differ from him in many ways, but he has a remarkable record as a forecaster. If he warns about the consequences for future inflation of the growth in the money supply, we should take notice.

I am also worried about the pledge made by both the Government and the Shadow Chancellor that there should be no increase in income tax. There will be great difficulties about raising tax generally. Sometimes one wonders what will change if there is a change of government. I am reminded of the poem by Hilaire Belloc, who for some reason took exception to women and did not like champagne. He said:

    "The accursed power which stands on Privilege (And goes with Women, and Champagne, and Bridge) Broke--and Democracy resumed her reign: (Which goes with Bridge, and Women, and Champagne)".

So whether there will be any change I am not sure. Nevertheless, over the past four years we have had good economic management.

There has also been a drop in the unemployment figures, of which more later. There has been reasonable growth over the past few years; and more growth is projected, though too much stress is laid on the projections of the OECD, which proceeds largely on the basis of information supplied by member state governments. Particularly important, there has been a catching up in productivity.

However, before we indulge in a mood of self-congratulation, it is also important to look at the qualifications. We are not the biggest and strongest economy in Europe, as a number of noble Lords on the Opposition Benches have pointed out, not even in the past three years where, for example, the record of growth of Ireland has exceeded ours. The noble and learned Lord, Lord Howe, mentioned the record of the Netherlands. It is worth remembering that the Netherlands has had higher growth than we have had, lower unemployment than we have had, lower inflation than we have and, unlike the United Kingdom, it has managed to accompany that success without an increase in the inequalities of salaries and wages. It is also worth remembering that its success has been based on an old-style consensus. Agreement between government and unions and industry has been absolutely central to its success.

The second qualification is one on which I do not need to add to the words of the noble Lord, Lord Currie of Marylebone. It is that our growth rate over the past 10 years has been average. Our productivity is still well below that of Germany, France, the Netherlands, Sweden, Denmark and a number of other EU countries. The third qualification is that while our unemployment

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figures are going the right way, it should also be noted that the Government have been rather more successful at reducing the unemployment figures than they have at reducing unemployment. If one considers the OECD comparison of employment, which takes into account involuntary short-time working, participation rates, who is on the register and who has taken early retirement, one must note what the noble Lord, Lord Eatwell, said, that the total number of people employed in recent years has not increased. On that basis, on the modified OECD figures, our record is not that much better over the past few years than the average of most EU countries.

However, I wish to look particularly at the comparison with Germany made by many speakers. First, Germany has problems galore, many of which stem from unification, which led, after all, to the transfer of 4 per cent. of the GDP of West Germany to East Germany. It is worrying that despite that vast transfer, there has been no lessening of East Germany's dependence. Secondly, it was also unification which led to strong deflationary policies from the Bundesbank. There was no restraint in wage claims and it was felt by the bank that there were inflationary pressures which could only be restrained by a very restrictive monetary policy. This affected the rest of the European Union as well. Thirdly, as the noble Lord, Lord Prior, pointed out, Germany has suffered from high social costs which have risen strongly recently. I was looking at them the other day. Social security costs were 26.5 per cent. of wages in 1970, 35.8 per cent. in 1990 and 40.9 per cent. in 1996. That has led to the relocation referred to by a number of noble Lords, particularly relocation of industries which require a low level of skill.

But it is a mistake to assume that the Germans are about to abandon the Rhineland model and go hell for leather for the Anglo-Saxon model instead. That is for good reasons. Despite the high labour costs, the extraordinary thing is that in the past 15 years, while we have lost our share of world trade, they have increased their share. Despite their high costs, they have managed an export surplus; indeed, the French, too, with their high costs have managed it, while we have an export deficit. There is a very interesting balanced analysis in the January edition of the National Institute of Economic and Social Research review. The paper is by Wendy Carlin and David Soskice, who works for an institute in Berlin which looks at the secrets of German success in exports. One of the reasons for this is that the Germans sell on quality. They have a particularly good record in high quality incremental innovation in medium technology industries. This success is based on several factors. There is a very high level of training both in the high technology skills and the less skilled labour force. There has been company-specific innovation which enables particular companies to compete successfully despite their high costs. All of this is based on consensus and a degree of security of employment that is quite incompatible with a hire and fire approach.

Further, in approaching the need for redundancies it is noticeable that there has been an agreement between the unions and management to keep up the training of young workers and concentrate redundancies among the

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older workers, who get good unemployment benefit and then become unemployed but treat this as a preliminary stage of retirement. Therefore, one has a low level of unemployment among young workers in Germany and a high level of unemployment of people who are in effect retired and have ceased to work at about the age of 55.

If one compares skills in Germany and the United Kingdom, disturbingly one finds that 61 per cent. of the United Kingdom workforce is low or unskilled, whereas 16 per cent. of the German workforce falls into that category. I do not suggest that we should copy the German solution. I believe that we have many advantages. Our open capital markets make the United Kingdom, like the United States, perhaps a better place for growing new hi-tech companies. Obviously we cannot transplant the German model in any event to very different circumstances. But it is not altogether surprising that in Germany there is no rush to copy the Anglo-Saxon model.

This raises very important questions for us of sustainability in the longer term. What will be the future for employment? So many speakers from the Benches opposite have stressed our low labour costs. Of course, that is a very great advantage, but in the end we cannot beat India or China on low labour costs. In the end we must compete on quality. The future sustainability of our employment depends on the UK being a high technology, high wage, high skill economy. It is not always fashionable to stress the importance of maximising security of employment and the value of involving the workforce in achieving the kind of training that is essential to a high quality workforce. The central factor in training and securing the quality of our workforce is security of employment. It also means that government must play a major role. In the long term if sustainability of prosperity rests, as I believe it does, on the quality of our products, we have no grounds for complacency but much ground for concern.

7.13 p.m.

Viscount Chandos: My Lords, I add my thanks to those of other noble Lords to the noble Lord, Lord Prior, for initiating today's debate even if, not surprisingly, I disagree with much of what the noble Lord has said, particularly in respect of these Benches.

Twelve minutes is a short time in which to try to draw together the debate over the past four hours or more, let alone to attempt an economic assessment of the 17 years and 10 months during which the Benches Opposite have been filled by a Conservative Government. The fin de siecle feeling which, inevitably, hangs over the closing days of this Parliament, led the noble Lord, Lord Prior, in his opening speech, and many other noble Lords to look back over the full period of this Government, as well as at the present position and the performance of the economy since the country last had a chance in 1992 to pass judgment on the Government's stewardship.

Although I am wary of appearing presumptuous to the many noble and learned Lords in your Lordships' House, I can understand the task that faces a distinguished judge in summing up a long and complex

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court case and giving appropriate directions to the jury. In this case the jury is not here in your Lordships' House but in the country at large. Even without the benefit in almost every case of having heard this afternoon's provocative debate and of my directions (as it were), the electorate will shortly determine whether the arguments of my noble friends Lord Eatwell--who is absolutely anything but mean-minded--Lord Currie and others on these Benches are fair in assessing the Government's economic record and whether the policies and approach of the Labour Government would be better.

The noble Lord, Lord Harris of High Cross, was more generous than the noble Lords, Lord Prior, Lord Lawson and others on the Benches Opposite, in his acceptance of the Labour's Party's integrity and good faith in its advocacy of a market economy and the consequential framework of policies. I am sorry if the noble Lord, Lord Harris, misses the fun of educating all shades of politicians on the virtues of the market. I hope that he will in retirement come more often to the meetings of the Institute of Public Policy Research and the Social Market Foundation--the think tanks that my noble friend Lord Eatwell and I have respectively played a part in founding--where the next generation of such debates now takes place.

I admire, enjoy and value the views of my noble friend Lord Desai and all my noble friends, even when I do not entirely agree with them or even understand them. The noble Lord, Lord Lawson, knows perfectly well that the noble Lord, Lord Desai, speaks from a more prominent position from behind me because of his irrepressible individuality, and that the similarly distinguished economic credentials of my noble friend Lord Eatwell, along with my own experience (setting false modesty aside) of 22 years as an investment banker and businessman, bestow adequate credibility on our Front Bench in these areas of debate.

There is a fundamental commitment going from my right honourable friend the Leader of the Opposition through every level of the Labour Party to a market economy, and it is one that I have every confidence will be seen very clearly in years to come as different and better than that over which the Conservative Government have presided. The noble Lord, Lord Lawson, and the noble and learned Lord, Lord Howe of Aberavon, may feel uncomfortable at my noble friend Lord Eatwell's dissection of their trial-and-error approach to economic management during the 1980s, but they cannot cover up the facts by pretending that my noble friend Lord Eatwell and I are International Socialist Party entryists to the Labour Party or (in the words of the noble Lord, Lord Prior) miscreants gone straight who will return to our misguided ways on the 2nd May this year or, for that matter, any year hereafter.

The noble Lord, Lord Lawson, suggested that we had to understand what the Conservative Government had achieved before we--or more relevantly, in the case of economic policy in particular, our colleagues in another place--were fit to govern. I find this concept of pre-qualification to form a future government, based on a satisfactory appreciation of the incumbent's achievements, a novel constitutional innovation, but I shall put it down to the desire of the Conservatives to

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find at least some initiatives in this area where otherwise they seem uncritically to advocate the status quo--perhaps timed to steal the thunder of the very welcome constitutional package announced today by the combined Opposition Benches.

Of course there have been some improvements in the economic framework of the United Kingdom in the past 18 years, particularly in the area of supply side reforms which were referred to in particular by the noble Lord, Lord Harris of High Cross; it would be an achievement even beyond the grasp of the Benches opposite to have used those 18 years, the £60 billion of North Sea oil tax revenues and similar levels of privatisation proceeds to absolutely no avail. It would be churlish not to recognise even that the Government could take some credit for initiatives in this area. Even my noble friend Lord Eatwell might have done so had he not been limited to a speech two minutes shorter than mine. Nonetheless, your Lordships' House would be in danger of equal and opposite generosity in seeing these changes as deriving solely and exclusively from the actions of the Conservative Government.

As Samuel Brittan has highlighted, the former head of economics at the OECD, David Henderson, has traced the general movement of western governments in a market-oriented direction from the late 1970s onwards, but not with any consistent association with Conservative governments, given the changes in this period in countries such as Australia, New Zealand, Spain, Sweden and even France.

Like Napoleon's generals, successful politicians are lucky, and perhaps they also identify early the trends running through global economic and social developments and hitch themselves and their party to that moving wagon. Despite the more extravagant claims of certain members of the party opposite, whose rewriting of history concerning privatisation, for instance (which was barely mentioned in its 1979 election manifesto) deserves the Booker prize for fiction, the Conservative Government did not single-handedly move the world away from collectivism; nor have these Benches played anything other than a constructively critical role.

Those supply side achievements have nonetheless been against the background of the unparalleled volatility and instability to which my noble friend Lord Eatwell referred, and so strikingly expounded by the Lloyds Bank Review. The noble Lord, Lord Kingsdown, referred to the period when, as governor of the Bank of England and with the noble Lord, Lord Lawson, as Chancellor, the sterling exchange rate fell to near parity with the US dollar. Since that occurred at a time when the tax revenues from North Sea oil were close to their peak of £14 billion in a single year, your Lordships will, I suspect, recognise the extent to which the Conservative Government's economic policies have been based, as I have already said, on trial and error.

In his newly adopted role as an international bond salesman, the noble Lord, Lord Kingsdown, expressed surprise that government bond yields were up to 2 per cent. higher in the UK than in Germany, despite the strength of the currency. Surely it is perfectly clear that

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it is the other way around: the current exchange rate is uncomfortably and damagingly high for all exporting industries, except, I suppose, sterling bond trading firms, precisely because of that interest rate premium which is attracting high levels of inward portfolio investment to the UK. There is a real economic and social cost to that: jobs lost unnecessarily and painfully, of which my noble friend Lord Eatwell has already given examples.

Over the past 18 years, the Government have combined those selective achievements with debilitating instability and inadequate investment, both in the physical stock of industry and the nation's infrastructure, but also, and even more damagingly, in the education of the next generations of our workforce. As my noble friend Lord Borrie spelled out, the Conservative Government included in their last two election manifestos commitments to the much needed reform of competition policy and law--action which is central to the achievement of sustainable, non-inflationary growth, and yet no legislation has been introduced.

There need be no doubt that there is much that a Labour Government can do which this Government have ignored or neglected; the country need have no fear that the coming choice is not a real one and a vital one. Education, investment, a constructive but critical attitude towards the EU and EMU can be combined with non-inflationary growth and economic stability, and will be if a Labour Government are elected in two months' time.

7.24 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, as I have said in your Lordships' House on a number of occasions at the end of a Wednesday debate, this has been a particularly interesting debate. But I believe that this one wins the prize. All of your Lordships who have sat through the debate, as I have done, will agree with me. We have had a number of splendid contributions. The only thing upon which I will agree with the noble Viscount, Lord Chandos, is that it is extremely difficult to sum them up and encompass every one of those contributions. My difficulty is even greater than that of the noble Viscount, because I have listened to all of the speakers in the debate.

Before I come to some of the impressive speeches, I should like to start with the opening speech of the noble Lord, Lord Eatwell. The noble Lord, I thought, was going to give me an introduction to what a Labour Government might do. So I took out my pen. I prepared a piece of paper. I waited, and I waited, and I waited. At the end of the 12 minutes, the paper was blank. Because he did not tell me anything a Labour Government might do if they were to win an election in a few weeks' time. I did learn a few things. He did not like the high rate of sterling. He went on at some length about that. He did not tell me what might be done about that; how we might get it down; what steps we might take. He did not tell me whether we should take any steps to get it down. He did not like the growth in consumption, but he did not tell me whether he wanted to do something to reverse the growth in consumption, although I suspect that the election of a

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Labour Government might reverse it pretty smartly without anything else happening. But that is beside the point. That is history being repeated, I should think.

The noble Lord went on a bit about instability in employment. I wonder about that, and want to take it up because it is one of the little fictions that is being pushed around by the Labour Party at present. Yes, I did say a fiction. Widespread job insecurity was a myth. Those are not my words, my Lords, but those printed in Friday's edition of the Daily Mail. They referred to Mr. Frank Field, Labour's very respected spokesman and expert on social security. Mr. Field said that he condemned the doom and gloom analysis of the employment market, supported by his party's leadership. He would have had a pretty troubled afternoon listening to the noble Lord, Lord Eatwell. Mr. Field said that insecurity was no worse than it had ever been. The interesting thing to back that up is that if one looks at part-time and full-time jobs--both have risen significantly since 1992--all the surveys show that 85 per cent. of people with part-time jobs want part-time jobs. As for job insecurity (temporary jobs) in one of my idle moments while reading Social Trends, I came across table 4.11 in the labour market chapter on the percentage of employees with temporary jobs and making an EU comparison.

Your Lordships will be forgiven for thinking that we were in the lead in that table. Our total figure in the UK for males and females in temporary jobs is 7 per cent. In Germany it is 10 per cent., France 12 per cent., Sweden 12 per cent., Finland 16 per cent., Spain 35 per cent., and the EU average is 11 per cent. That is not quite the picture that the noble Lord, Lord Eatwell, was painting. Indeed, anything positive waited until the end. At the end, we had five sound bites from the collective book of sound bites from the Leader of the Opposition but they did not add up to a policy on a single issue.

When my noble friend Lord Prior introduced the debate, he reminded us of the late 1970s. I had almost forgotten the trade union anarchy, the winter of discontent, and, indeed, discontent in the Cabinet of those days, as the noble Lord, Lord Barnett, struggled manfully, as is explained in his interesting book, to contain public spending and the desires of all his colleagues, as my noble friend Lord Stewartby said, to push up public spending.

Indeed, my noble friend Lord Prior reminded us that learned newspapers and journals were asking whether the UK was ungovernable. It was not. It just needed a change of government. What do they say to us now? It is time for a change! Back to that? Back to 1979? Some change! Anyone who wants a change back to that must have forgotten all we learnt in those dreary days in the late 1970s.

In his interesting speech my noble friend Lord Lawson agreed with the noble Lord, Lord Ezra, about the need for caution in watching economic growth, inflation and so forth. He mentioned in particular, unfunded pensions, as indeed did my noble friend Lord Clanwilliam who has taken part in a number of debates on that issue. One of the great advantages we

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have in this country is that we have £650 billion of funded pension provision--more than the rest of the EU put together.

This morning, my right honourable friend Peter Lilley and the Prime Minister announced a policy which will bring for future generations the same strength of funding to the basic pension and to the SERPS equivalent. We will move away from the dangerous pay-as-you-go systems which we have tried to follow in the past.

The noble Lord, Lord Barnett, always makes an interesting speech. He was open in saying that there might be a need for higher taxes if a future Labour Government are to do what they want. In his usual extremely interesting speech, the noble Lord, Lord Desai, suggested a somewhat similar conclusion. The Labour Party is going to put up taxes, together with their Liberal Democrat friends, as my noble friend Lord Nickson explained. However, those who live in England will be fortunate enough to avoid one of their new taxes; the one to which they are pledged. Those of us who are unfortunate enough to live in Scotland will be paying 3 pence in the pound or even more. As my noble friend Lord Nickson said, in Scotland old Labour reigns supreme. Every newspaper in Scotland carries story after story of the demand from local politicians for more spending, regardless of the consequences. Therefore, the party is not reconstructed, and a weekend in Scotland will show any of your Lordships who doubt that that is the case.

The noble Lord, Lord Ezra, mentioned privatisation. I agree with him that not all the management in nationalised industries were bad. Indeed, many were very good, as they proved when their industries became privatised. The noble Lord should have asked why they were not good in the nationalised industries. As he said, it was because of Government intervention and interference, not the market. They were transformed by privatisation and I hope the noble Lord does not believe that we should return to that.

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