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The Earl of Onslow: My Lords, is my noble friend aware--I am sorry, I should have said "the noble Lord opposite", but I hope that I still regard the noble Lord as a friend--that he is now making the same sort of noises which my noble friend Lord Lucas made when he occupied that position? It is interesting, however, that my noble friend Lord Lucas is, in effect, a sinner reformed. He hath repenteth. Surely in this

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agreement there has been no addressing of the problems of the basic faults of the common fisheries policy, including the appalling discard rate, which the Norwegians and the Canadians can cut by 95 per cent; and there has been no change in the regulations on cod ends or landings of discards.

What has happened is that there has been an exchange of letters. That is exactly the same as me writing to the noble Lord stating, "Dear Lord Donoughue, we do not mind you speeding down the Guildford bypass and we shall ignore it", but a court will say that that is totally unlawful. It is certain that the Spaniards and the Dutch, who have at least 50 per cent. of the quota-hopping vessels, will go to the European Court and say, "Okay, Mr. Blair has written to M. Santer and they have come to an agreement", but that would be outside the treaty, and if something is outside the treaty, whatever Mr. Blair and M. Santer write to each other will not make a ha'p'orth of difference. That is what has gone wrong in this agreement. We have not addressed the basic faults of the common fisheries policy. The Namibians, the Canadians and the Norwegians all run much better fisheries policies. All that we have done is to write letters, hoping to avoid a problem.

I absolutely accept that what the Government want to do represents a major advance, but what they will actually achieve is not worth the paper that the letters have been written on. It is a great advantage that my noble friend Lord Lucas is a sinner who hath repenteth, but the Government have not advanced one jot or tittle from where we were last April.

Lord Donoughue: My Lords, I have particular sympathy for sinners, whether or not they have repented. However, I believe that the noble Earl is wrong to dismiss the letters out of hand. An exchange of letters between the British Prime Minister and the President of the Commission is not like an exchange of letters between the noble Earl and myself. I cannot think of the parallel, but on the Kingston bypass the chief constable of Surrey might be more appropriate. The President of the Commission is not an ordinary citizen. He and the Commission are the guardians of the treaties and the law of the European Union. A commitment from the President and the Commission has much greater significance.

We have a lot of sympathy with what the noble Earl says about the faults of the common fisheries policy. However, it was the previous Administration who negotiated that common fisheries policy. They have missed every opportunity to improve it since. We have to live with what we inherited. However, we shall bear in mind what the noble Earl said and shall do our best to attempt to correct some of the policy's obvious and undisputed failings.

Lord Willoughby de Broke: My Lords, when the noble Lord repeated the Statement he mentioned as one considerable gain the fact that there was now economic linkage and that the quota hoppers would be required to land in the order of 50 per cent. of

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their catch in British ports. That is not new. I have here a fishing licence which is dated 1993, the conditions of which specifically state that,

    "In each 6 month period ... at least 50 per cent. by weight of the total landings of all stocks",
should be landed at British ports. That licence is out of date by four years, so even the miracle workers of this Government can hardly claim to have achieved something that was not in place before. I wonder, therefore, whether some of the other things for which the Government are now claiming credit are as hollow. Perhaps the noble Lord can reassure us on that point.

Lord Donoughue: My Lords, I hope that I can reassure the noble Lord. That was, indeed, a condition in the previous licence, but we have built on and extended that. The noble Lord has given one condition, but an alternative requirement was that a foreign quota-hopping boat could call at a British port four times in six months and that would be all right. We have now stitched together a series of conditions going far beyond that. Together, they constitute a link between fishing, the fishing communities and their economic health. The condition is now 50 per cent. of landings with no evasion through dropping in at a port a few times every six months, or 50 per cent. of crew being resident in the UK, or 50 per cent. of the fishing trips originating in British ports. Those conditions are much more significant and go much wider than the condition quoted by the noble Lord. That was, indeed, the case previously but we have built heavily on it.

Lord Mackay of Ardbrecknish: My Lords, I find that answer particularly interesting, but the fact remains that the licence conditions to date included 50 per cent. by weight, with the second criterion being that,

    "evidence is provided of the vessel's presence in ports [in this country] on at least 4 occasions of at least 8 hours duration".
With the best will in the world--and I really mean that because I am hugely interested in the wellbeing of the fishing industry and this has been a very difficult problem which is, I suspect, much more difficult than the noble Lord yet appreciates--I do not see that the conditions that are laid out in the letter to the President of the Commission are significantly different from those already contained in British fishing licences. I must ask the noble Lord to check the conditions in those licences at present and to check on the straightforward fact that the problem has arisen not because of the Commission's involvement, but because the European Court has clearly stated that the treaty overrides the common fisheries policy. That is the central problem and until we get the Commission and the other member states to agree to a change of policy, I am afraid that there will be another Spanish quota hopper in here tomorrow.

Lord Donoughue: My Lords, indeed Spanish quota hoppers can come in given the existing situation. The noble Lord has read from the licence conditions to which I have referred. It is true that they referred to a 50 per cent. catch or eight hours or four visits within six months. But I believe that that is a much slimmer condition than that which we are applying. He is quite right that in the end we must see what happens in the

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European Court. It is our view that the assurances given by the President of the Commission as to his interpretation of the legal position represent progress on what we had before, because there was no prospect at all of the approach through the protocol being passed.

Lord Cobbold: My Lords, I understand the motive behind the new condition that 50 per cent. of crews should be from the flag country. However, does the Minister see any possible conflict between that and the priority at the IGC to achieve a more flexible labour market in Europe?

Lord Donoughue: My Lords, no. What we have proposed is fairly flexible. One of the reasons is not to conflict with those requirements of flexibility and impose inflexible constraints on our fishermen who may wish, flexibly, to fish abroad.

Lord Harris of Greenwich: My Lords, is not the reality that the Government faced an extremely difficult problem when they came into office and had to deal with this issue? Most of us recognise that the idea that this problem can be solved in six weeks is nonsensical. Many of us congratulate the Government on what has so far been achieved, recognising that a great deal more must be done?

Lord Donoughue: My Lords, I thank the noble Lord for what in my view is a totally accurate and helpful description of the situation. We have not attempted to oversell it. The Statement says quite specifically that what we have done is a valuable step forward, but there is very much more to do.

Baroness Denton of Wakefield: My Lords, can the Minister tell the House whether his discussions with the Commissioner, with which he is so well pleased, or the exchange of letters included The Hague preference which gives Northern Ireland fishermen great concern as it allows the Irish to have quotas that they do not even fish? If they did include The Hague preference, what was the outcome; if not, when does the Minister intend to raise the issue?

Lord Donoughue: My Lords, I confess that in my mind the name "Hague" is otherwise associated. As I recall, it does not refer to that matter. My impression is that it makes no change in the Northern Irish situation. However, as before, we shall continue the stream of letters to the noble Baroness.

Industry: Competitiveness

5.13 p.m.

Debate resumed.

Lord Burnham: My Lords, when the Lord Privy Seal began to repeat the first Statement--about a couple of years ago it seems to me--he apologised to the noble Lord, Lord Borrie, for interrupting his debate. With

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respect to the noble Lord, I consider that a little odd. The noble Lord, Lord Borrie, had finished speaking. I have been sitting here for some time and have become increasingly confused by the Statements and their effect on what I might wish to say. All I can do now is to keep my fingers crossed that I do not commit some solecism and that the optimism that was clearly shown by the Lord Privy Seal's right honourable friend will be justified by the facts and what happens to business as a result of what he hopes will be achieved in the coming years.

I should like to thank the noble Lord, Lord Borrie, for having introduced this debate, which is very timely. It comes at a time when the former Conservative Government have handed over the British economy to Labour in a most excellent condition. Of course, it is not so excellent that no further improvement is called for. The means of improvement have been highlighted today in the speech of the noble Lord, although he spent a good deal of time going back into the past. The noble Lord, Lord Borrie, is particularly eligible to speak on this subject. He has the highest credentials as a past Director General of Fair Trading and a lifelong student of consumer affairs and consumer law.

However well the economy is doing we must strive to do better. No doubt during the course of the debate many noble Lords, some of them with experience of what was achieved during the course of the previous Government, will be able to give the new Ministry some worthwhile advice. During the election, and before, repeated but unjustifiable claims were made by Labour politicians that the Conservatives had somehow damaged, if not destroyed, Britain's industrial base. The past 18 years have been a period in which the British economy has moved an immense distance from the position where the previous Labour Government had to apply for help from the International Monetary Fund. The competitiveness of the British economy was transformed beyond recognition under the Conservative Governments of Margaret Thatcher and John Major.

On entering office this Government have inherited the most favourable economic climate for more than a generation. Labour is again in power but at a time when everything is working economically in its favour, unlike the world it left behind it in 1979. Inflation is low and under control. It has been below 4 per cent. for over four years--the longest period of low inflation for half a century. The former Government's target of getting inflation down to 2.5 per cent. or less was achieved. Unemployment at 5.8 per cent., although obviously still much too high, is at its lowest level for seven years and is well below the European Union average. Britain is top of the inward investment league, winning about one third of all inward investment into the European Union. There can be few clearer illustrations of a country's competitiveness than the amount of inward investment that it attracts. The billions of pounds invested in Britain by thousands of foreign companies give an indisputable concrete demonstration of the position that Britain holds in the world today.

I give some facts on which to base this argument. The Economist Intelligence Unit reported in May that Britain had the second most favourable business environment in

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the world ahead of Singapore, the United States, Japan, Germany, Switzerland and New Zealand and behind only Hong Kong, although it expressed some fear that Hong Kong might not for long be in the lead. However, it did not suggest that this country would go to the top. In March of this year the International Institute of Management Development reported that the United Kingdom had jumped from 19th to 12th in the world competitiveness league, moving ahead of Germany and becoming the highest European G7 member. The UK has had the strongest growth of any EU economy since 1992. It exports more per head than Japan. It is Europe's largest exporter of televisions and computers, and one third of the small businesses started in Europe start in Britain.

This has not come by chance. It has needed hard work and a clear and coherent policy. Incidentally, I wonder what the figures would have been, and may be in the future, if Scotland and Wales were untimely ripped from their mother's womb.

The Conservative Party has made it clear that it will offer nothing but constructive opposition to the Government's programme. Where their policies have a positive impact we will give them our support. Indeed, many of them look very familiar. I am reminded of the advice given to Neil Kinnock before the 1992 election to ignore traditional Labour policies and traditional Labour voters, who would never vote for another party. The adviser said that he should go for the middle class waverers and middle class policies. In that way he could win. Kinnock ignored that advice; Blair did not. What happened?

Nevertheless, there are certain areas of Labour policy which pose a threat to our nation's competitiveness. These have been much talked about but they seem a potential incubus on enterprise. The agenda is already familiar: a national minimum wage, the European social and employment chapters and, something that makes me particularly shudder--new powers for trade unions.

In a debate in this House last week, the noble Lord, Lord Clinton-Davis, pointed out that these policies were what the electorate had massively voted for on 1st May. That is true, but I wonder whether many of the electorate, in their clear wish for a change, really understood what they were laying themselves open to.

Of those policies I shall speak of the trade unions first since I suffered the most bitter personal experiences in the 1970s and very early 1980s. Those were the times when 29 million working days a year were lost through strikes. I do not think that the unions were then particularly pro-Labour or anti-Tory. On the Daily Telegraph we suffered the most convoluted and tongue-in-cheek attempts to get round the regulations on wage restraint introduced by the noble Baroness, Lady Castle. The unions were shameless. The print unions and their members were all that mattered. The country and everyone else could go hang.

At that time my wife had a horse called Union Card, by Good Bond out of Season Ticket. I thought it was rather well named. Having benefited from its success, the National Graphical Association's Imperial Chapel in the composing room gave me a union card of my own. It was a good joke, but what was not a joke was the

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large, conspicuous monogram on the reverse which in normal hands showed that the owner had not opted out of the political levy. At that time whenever the card had to be shown at a meeting the member's financial support for the Labour Party--the party which later opposed all proposals for trade union reform--could be seen, and the absence of the logo showed the courage of those few who did opt out.

The Conservative Government in 1993 undertook reforms which made the payment of a political levy by the workforce more equitable. Today's debate is particularly timely as it is reported in The Times this morning that Mr. Ian McCartney, the Minister for Trade and Industry, has said that the Government are to introduce legislation to make it easy for the trades unions to exact payments from the workforces. That again makes me shudder.

Times have undoubtedly changed. We have many worker/shareholders who have a broader understanding of investment and business problems, but the policies of the late 1990s are suspiciously like the facts of the 1970s. For instance, we have proposals in the manifesto for compulsory union recognition with new rights for strikers. I have no comment on the rights or wrongs in the current dispute on what was Southern Railways, but, already, here we go again.

There is wide agreement that a minimum wage will destroy jobs. The chairman of the Low Pay Commission, Professor George Bain, has admitted this in an article in The Times this month, when he surprisingly added that some jobs would be better lost anyway. Which jobs? Part time women workers supplementing their husband's incomes? First jobs for the young? Jobs held by those re-entering employment after a period on the dole? These are the categories of the workforce on the lower rates of pay, but they usefully allow flexible working patterns or a first job where new skills can be acquired.

Apart from job losses we will be forced back to one of the most dreaded of the trade union cries, "differentials". No union official and few workmen will accept a rise of a pound or more for the lowest paid without the more skilled workers' differentials above that rate being maintained with an increase of a pound plus being demanded. It is not necessary to underline what this will do for inflation. The DTI calculated last year that a minimum wage of £4.15 an hour, with a 50 per cent. restoration of differentials, which I believe to be optimistic, would destroy a million jobs. I hope that it is wrong.

Labour's commitment to sign up to the social chapter is another blow to Britain's hard won competitiveness. The two pieces of legislation which have been passed already on works councils and parental leave are not benign. The DTI has calculated that the parental leave directive would cost industry £200 million a year.

A great deal of legislation can be passed under the social chapter by QMV. As I say, I have not studied the recent Statement so I am not clear as to the degree to which that is possible. The Prime Minister cannot pick and choose. He has no veto. What he can do is not sign up for the social chapter in the first place. Let us do

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what a Cabinet Minister is alleged to have done when taking the Oath in another place: keep our fingers crossed.

The Labour Government's determination to ape the ailing European social model by handing over employment to Brussels, a policy which is destroying jobs throughout the Continent, seems bizarre. If we sign up to the employment chapter, Brussels is where job policies will be made--made on the basis of qualified majority voting. Here, no individual EU member can veto a proposal. New measures to be brought forward under the employment chapter would have to be approved by QMV and, almost worst of all, we would adopt a "co-ordinated strategy for employment" which requires member states,

    "to regard promoting employment as a matter of common concern."
What is this? Compulsory job sharing with the rest of Europe? It looks like it.

Padraig Flynn, EU Social Affairs Commissioner, has announced that the Commission is to press ahead with legislation to require small and medium-sized companies to introduce bureaucratic works councils (bureaucratic? Ha!) with a right to impose sanctions on those who do not consult adequately. Flynn is also suggesting a reversal of the burden of proof in sex discrimination cases. Employers will be guilty until proved innocent. But all that, as the noble Lord, Lord Clinton-Davis, told your Lordships, is what the electorate voted for. In the words of Lord Walpole:

    "they now ring the bells, but they will soon wring their hands".

There are worrying signs that the Commission is failing to honour the legally enshrined principle of subsidiarity--the principle whose prominence is yet another testimony to the previous Government's negotiating success in Europe. Do not let us lose it.

All of this is immensely depressing: depressing, because the British economy is undoubtedly now leaner and fitter than at any time in recent memory. Businesses in Britain now enjoy an excellent climate of low inflation, low taxation, minimum social costs and a flexible labour market. These were not gained easily and we must continue to look at ways in which we can improve, for improve we still must.

One lesson that has been learnt is that there is no "quick fix". If in this debate we can underline the problems which appear likely to arise as a result of the Government's plans and urge the Prime Minister and his colleagues to look very carefully at proposals which seem suspiciously like the old Labour which we have all been told is now dead, we have a chance.

The Government must concentrate on ways of reducing, not increasing, burdens on business. Until they do so, they cannot expect their competitiveness agenda to be taken seriously.

5.27 p.m.

Lord Ezra: My Lords, as the noble Lord, Lord Burnham, pointed out, the noble Lord, Lord Borrie, is to be congratulated on introducing this subject for debate today, particularly at this early stage in the life

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of the new Government. This is, after all, a crucial issue upon which the objective of sustainable growth, to which all parties are committed, depends. The noble Lord, Lord Borrie, was right in saying that the previous Government had indeed devoted a great deal of attention to the subject, and many White Papers and interesting documents were produced. What we must discuss today are the policies which will be pursued by the present Government.

I believe that this is an occasion, at this seminal period in our post-war history, with a new government with a substantial majority, when we should be considering the role of government in relation to industry. I have in my career served in an industrial capacity throughout the whole of the post-war period. To start with it was in a nationalised industry, and, subsequently, in the private sector. I have been much involved in and concerned with government policy towards industry. The Attlee Government of 1945 introduced what was patently an interventionist policy. They introduced nationalisation of the basic industries, and interventionism spread into other sectors. That was felt at the time to be a desirable policy. My one worry about that policy, having served in a nationalised industry, was that that process of intervention in fact contradicted what was the understanding in setting up the nationalised industries on the Morrisonian principle, that they should be operated at arm's length. In fact that was never so--not under Labour governments or Conservative governments. To my mind, the concept of nationalisation was not defective in itself but in the way in which governments constantly intervened.

That period of intervention in industry was pursued in varying degrees, according to the nature of the Government, right up to the end of the 1970s. As we well know, after that there was a total change of direction when, through the privatisation and deregulation programmes, there was a progressive move on the part of government to disengage and to leave things to market forces. Indeed, many believe that the proper role of government is to keep in the background, to concern themselves only with basic macro-economic matters and to leave things to take charge of themselves. The young Mr. Hague at the age of 16 made his debut in the Conservative Party by making an impassioned speech asking for the Government to withdraw from our lives.

However, I do not believe that at present either the policies of direct and constant intervention or of disengagement are appropriate. I would like to believe that at this late stage in the 20th century we are entering a new phase in which government should act as a stimulator. I would like to indicate where in relation to the subject of our debate the Government should stimulate.

First, we must deal with the question of the basic framework within which industry must operate. There are a number of main areas in which any government must set the scene. Without question, in terms of macro-economic policy, the first is inflation. The Government have moved with commendable speed to introduce a system of controlling inflation which will remove it from political intervention. By giving greater

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operational independence to the Bank of England, the Government have done word for word what was contained in the CBI document issued in July 1996 entitled Prospering in the Global Economy. It strongly recommended that it should be the role of government to set an inflation target and for the bank to be accountable for its delivery. It indicated that in countries in which there was such an independent operational role for the central banks inflation had been kept under better control.

The test of whether that system works will come when inflationary pressures generally begin to manifest themselves. We are living in a period in which not only in the UK but in all the other countries of the EU inflation has been kept at a very low level. Therefore, we must ask how the system which has now been introduced will act when circumstances and pressures change. At any rate, what has been put in place appears to be eminently sensible, certainly to the CBI and many others.

The containment of public expenditure, which ran out of control in recent years, but more recently came under control, is another essential issue. Undoubtedly, it is part of the role of government. There certainly should be a commitment to keep public expenditure below 40 per cent. of GDP. There is every indication that it could fall below that, but it must be maintained at below that level. The borrowing requirement should be kept within, and below if possible, the Maastricht limit of 3 per cent.

Within those limits of public expenditure there must be prioritisation. I am pleased that the Government have moved to introduce a comprehensive expenditure review, which we discussed last week and which I hope will identify not only the areas in which savings can be made but also the areas which require increased expenditure and where efforts must be found to fund the increased requirements.

Thirdly, there is the issue of currency stability. Sterling is riding high and at one time that was believed to be a good thing. In practice, it is very difficult for many enterprises. Today we have seen the financial results of British Steel, one of our most successful enterprises. In spite of all it has done to improve its efficiency, because it exports so much of its product it has lost out as a result of the high level of sterling.

I was a Member of the Select Committee on Overseas Trade, presided over by the noble Lord, Lord Aldington, in 1985. One of the steps we took in looking at ways in which trade and therefore industry could be promoted was to ask business respondents we interviewed for their views on currency. The first comment they made was that they would like to have a stable currency. We went a bit further and asked, "What do you think the relationship between sterling and the other main currencies should be?". They told us--and it was the common view--that in the case of the dollar it should be 1.5 dollars to the pound and in the case of the deutchsmark it should be 2.5. I believe that those views are as relevant today as they were 12 years ago. Unfortunately, we have the dollar at 1.64 and the deutchmark at 2.85.

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It is difficult to control levels of currency in a free-moving area where there are floating currencies. The problem that we must face--and I hope that the Government will be considering it--is that if the single currency were to be introduced at the scheduled time and if the UK were not to be in the first wave, we must think seriously about our relationship with that currency. There could be the risk that sterling could be regarded as a refuge for currencies escaping from the single currency if it were potentially weak, and our currency could go sky-high. The reverse could also be the case. We must be thinking of ways in which we can protect the currency against that kind of major fluctuation.

There is also the issue of competition policy. I shall not deal much with that because the noble Lord, Lord Borrie, one of our leading experts on the subject, spoke wisely on it.

Finally, I hope that we shall soon see some draft legislation. I wish to speak briefly about investment, which undoubtedly must be stimulated. The trouble with the British economy is that in times of boom that boom has tended to be based on increased consumption expenditure and our investment has tended to lag. That is already happening on this occasion, boosted by the windfalls from the building societies.

I hope that we will be able to describe the forthcoming Budget as one for investment and for rebalancing the ways in which we use our resources. We must create the right investment in industry, in essential parts of the public sector and, above all, in skills training. The noble Lord, Lord Borrie, was kind enough to refer to my remarks about the skills shortages which are already emerging. I know that my noble friend Lord Thurso will be developing that issue. If the forthcoming Budget deals with these issues of macro-economic policy, we can look forward to the maintenance of the positive economic conditions under which we presently operate and to which the previous government contributed.

5.40 p.m.

Lord Desai: My Lords, first, I thank my noble friend Lord Borrie not only for introducing this rather timely debate but also for recognising that academics are badly paid. I can entirely support his judgment on that. I congratulate also the noble Lord, Lord Burnham. It is the first time that I have seen him on the Front Bench and I congratulate him on a very fine performance. He promoted my honourable friend Mr. Tony Banks to a Cabinet position, which will no doubt please us all.

Perhaps I may say a few words about the minimum wage. I was not going to speak about that, and some of the things which the noble Lord said were no doubt well taken. If one takes a static view of the economy, a minimum wage set too high would cause a loss of jobs. I teach that to first-year undergraduates and I have no problem with that. But in a dynamic economy other effects should be considered. For example, the most dynamic economy in the world today is that of the United States and the United States has a minimum wage and has had a tremendous growth in employment.

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There is a lot of work being undertaken in this area at present, but academic evidence is divided because it is extremely difficult to take into account all the other factors. The United States has a minimum wage which is roughly 40 per cent. of average earnings and yet it still has growing employment. I do not deny that a high minimum wage may cause unemployment but other factors should also be considered when looking at the problem of a minimum wage. I shall say nothing more about that.

Moreover, I shall not go down the path followed by the noble Lord, Lord Ezra, as regards the macro-economic framework for competitiveness. I wish to take up the point of how we define, interpret and understand competitiveness. There are a number of points to be made. A major characteristic of economic policy in Britain--at least post-war policy--is that different governments tried to find the holy grail of competitiveness or economic efficiency. Once upon a time we believed that nationalised industries, large-scale industries, were efficient. Then when the Conservative Government came to power in 1951 they introduced what they understood to be laissez faire. There is a difference between competition and laissez-faire. When the Wilson Government came to power, they believed that we were not performing to our best ability because British firms were too small and that scale was very important. Therefore, there were mergers and large corporations were built up. That Government believed that largeness by itself would make us competitive with the United States and we went down the path of the IRC. The Heath Government went back to competition and Selsdon man. After that, we had deregulation, and so on.

Partly, different strategies work at different times. But also in a sense my worry is that we are always looking for one particular definition, structure, theory of competitiveness which often is based on economic thinking that is slightly out of date. Moreover, it is often static. A lot of work is currently being done in that area and my noble friend Lord Currie is better qualified to speak about that than I am. But economists have had a problem with defining competitiveness. I shall not bore noble Lords with the various exegeses of the literature, but, by and large, we think of monopoly and competition in terms of the numbers of competitors and the level of concentration; and that is extremely static.

What works--and I do not know why it works--is to have an economy in which a sufficient number of innovating firms make sufficient profits to keep a dynamic economy going. Let us look again at the United States. About 15 years ago people were saying that the US would lose its economic power with its low productivity and all sorts of other problems. Professor Paul Kennedy wrote a book about it. Look at the United States now. It is the most dynamic economy in the world. I am not saying that this is the only answer, but there are firms in the United States which are innovative and which have the ability to borrow venture capital and break through established markets. Size does not matter. Microsoft, which was a very small company, practically broke IBM, which was an extremely large company. If

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we had looked only at size and concentration, we should have thought that IBM was a big, bad beast and poor Microsoft would be crushed by it. But innovation was very important.

We should create a climate for innovation. I return to what my noble friend Lord Borrie said. We have not appreciated fully the important role of basic research in universities which eventually feeds into industrial innovation. I know that tomorrow we shall discuss a report on that topic. Unfortunately, I cannot take part in the debate due to another engagement. But we should think positively about restoring the research base of engineering, science and technology. That may give us the opportunity to get back into an innovative framework.

What really matters is what makes an economy dynamically efficient. One factor must be innovation. Secondly, we should think about competitiveness of the economy and not just industry. Far too often we become hung up on the manufacturing industry. I have nothing against the manufacturing industry but there is a tendency to have a misplaced concreteness in our minds so that if there is not anything solid coming out at the end of the process, we are deeply suspicious. We feel uncomfortable if we see people making profits and nothing concrete is being produced. But that is not the way an economy works.

For example, in the British economy, one of the paradoxes is that the service sector is and has been much more profitable. The rate of return in the service industry is substantially higher than it is in manufacturing. We should ask ourselves why that is. Is it because the service sector is easier to enter and it is easier to borrow money because the commitments may be only short term. In a number of sectors--fashion, design, pop music--Britain has an extremely innovatory economy. If we think of the innovations that we have in pop music, design or fashion, we can see that Britain is a world leader. We should try to understand why those sectors are so successful and learn from them.

As we advance, the economy will not be frozen into the old structure of making solid things and nothing else. Not only shall we not be able to make solid things because there is fierce competition from, for example, east Asia, where highly skilled people can make those products much better than we can make them. It is also partly because products and processes are changing so that what people buy nowadays is not a solid product but an abstract one. People pay a great deal more for design, advertising or promotion than for the solid, material things.

Let us think of when you buy a pair of Nike trainers. You are not merely buying the material which goes into making the shoe but buying the design. Indeed, you are buying fashion, design and endorsement. It turns out that in the production cost of a pair of those shoes labour costs represent only 10 per cent. That is not surprising because anyone can make a pair of shoes once its computer design has been sent over the network from here to China, Thailand or wherever the shoes are being made. Making the shoes is no longer the trick; designing them in a way so that sophisticated consumers buy them is the source of profitability.

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If we are to make our economy more competitive, we must understand that encouraging schools of design and fashion is as important as old-fashioned engineering or technology. Indeed, very often that is the leading edge of competitiveness in the world economy today. We must ensure that we do not get into a single solution mentality again. We must also avoid a single sector obsession--manufacturing and nothing else. It must be made quite clear that, whatever we do, the most difficult thing is to change what we have started. As the world economy evolves, any solution that we have today will become out of date within a very short time. Therefore, flexibility in our policy-making and in our thinking is as important as flexibility in labour markets.

5.51 p.m.

Lord Astor of Hever: My Lords, I, too, congratulate the noble Lord, Lord Borrie, on his introduction of this important debate. I should also like to congratulate my noble friend Lord Burnham on his elevation to the Opposition Front Bench.

Efforts to improve Britain's industrial efficiency will fail unless safety and health are placed near the top of today's business agenda. Doubtless there are those who disagree arguing that, desirable though they may be for social reasons, health and safety measures serve only to increase costs and to stifle innovation. After all, they say, does not safety just "get in the way", and is not "risk taking" at the very heart of competition and business decision-making? Those are views which many of us will have heard from time to time. They are ones that I personally encountered in business long before I became president of the Royal Society for the Prevention of Accidents, an interest that I now declare.

While it is often said that Britain, in comparison with many other developed countries, has a very good health and safety at work record, there can be no room for complacency. Thankfully, due to consistent preventive work, there are now relatively few accidental deaths in workplaces. However, about one in 12 workers every year will suffer some kind of injury while at work. Death early in retirement, due to work related health damage, is still a massive problem in this country. Exposure to asbestos alone is estimated to cause up to 6,000 deaths a year, and that figure is set to rise beyond the millennium.

The human cost, including the impact on families, is massive. For that reason alone, as a civilised nation, we should take effective action to protect people who contribute towards building our national wealth. But there is also a powerful economic reason why we should take action, and that is because accidents--and ill health caused through work--damage individual businesses and our entire national economy.

The Health and Safety Executive has calculated that workplace accidents and ill health are costing Britain up to £16 billion annually--nearly 3 per cent. of our GDP. That is equivalent to one average year's economic growth being thrown away, in the main, as a result of failure to put safety first. But government expenditure in 1996-97 on the Health and Safety Commission and

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Executive is surprisingly modest at some £178 million, representing less than 2 per cent. of the cost of accidents and workplace ill health to UK plc.

Only last week, Frank Davies, Chairman of the Health and Safety Commission, warned companies, saying:

    "Dealing with the causes of accidental losses is not an unnecessary overhead--failure to do so will eat into the profitability of a company".
The publication that he was relaunching, The Cost of Accidents, highlights major events such as the "Piper Alpha" explosion which cost 167 lives and £2 billion; and the 1987 BP oil fire, in which only one life was lost, but which cost BP £100 million. The same publication shows that for every pound of accident costs which companies recover through insurance, between £8 and £36 are lost, never to be recovered.

In smaller businesses, injury to a key employee, or a major accident causing business interruption, can quite literally spell the end of that firm. By contrast, action to build the existing management systems benefits efficiency, stimulates innovation, and boosts staff involvement and morale.

Despite the great strengths of Britain's occupational health and safety regime, further action is still urgently needed to improve the management of work-related risks. I will focus on just three specific issues to illustrate this point. First, stress at work is estimated by the Industrial Society to be costing Britain £13 billion every year, and is possibly the biggest single cause of absenteeism. The solutions are not difficult. Good practice guidance has been produced by the HSE, and others, to show businesses how to identify symptoms and root causes, and how to tackle stress problems at source. Very often, that can be done simply by adopting straightforward and low-cost changes to management practice. But such action will not happen on a wide scale without sustained high level publicity and practical support to business.

Secondly, there is the need for organisations to adopt a modern risk management approach to reduce what RoSPA has termed "occupational road risk"--that is, the risk of accidents faced by those who have to drive as part of their job. Available evidence suggests that deaths of drivers, passengers and other road users in accidents, involving vehicles being driven for business reasons, probably account for up to a quarter of the 3,500 fatalities occurring on Britain's roads every year. That is at least double the number of fatalities occurring in all other kinds of work-related accidents.

Risk levels are really quite high. For higher mileage business car drivers, the risk of being killed, in effect while they are working, is as high as in coal mining. An estimated 77,000 people every year sustain injury due to an accident while driving for business reasons. Action is needed to persuade employers to adopt a modern risk management approach, and to tackle the issue as a mainstream health and safety at work question.

Evidence from RoSPA shows that firms, such as British Oxygen and Texaco, which invest in defensive driver training for their staff, can achieve rapid and substantial improvements in their fleet safety performance--meaning that training pays for itself very

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quickly. The potential to improve road safety generally--for both employees and the wider public--is immense, and yet this will not happen unless we see much closer co-operation on the issue between the Department of Transport and the Health and Safety Executive.

A third area concerns help to small firms, many of which face real difficulties in understanding the requirements of modern health and safety law. Despite the excellent work done by Frank Davies and his colleagues, much more is still required; for example, to get personal business advisers working for Business Links to give better advice on health and safety for small businesses.

There is also a need to integrate health and safety into schemes such as Investors in People. We must also ensure that health and safety receive high priority in the Government's continuing work on the national curriculum, and in their plans for the university of industry and business schools.

The creation of a thorough-going health and safety culture in this country is an indispensable prerequisite for industrial growth and regeneration. Those businesses which are successful, irrespective of size or sector, are ones which have grasped this principle, and have learnt how to turn it to their advantage.

Put simply, good safety is good business. Yet safety does not happen by accident. Whether in a family business, a blue chip plc, or the nation as a whole, it has to be led from the top. It cannot be a bolt on extra; it can only be achieved by making it an integral part of business planning and management processes.

Improved safety and improved competitiveness go hand in hand. I hope that the Government will integrate health and safety into their business support and development processes, and that Ministers will promote the highest level of co-operation between all government departments involved.

6.2 p.m.

Lord Currie of Marylebone: My Lords, I shall not follow the previous speaker, the noble Lord, Lord Astor of Hever, in discussing health and safety issues as I found his analysis both informative and illuminating.

I return to the broader question of competitiveness. I start by underscoring the need for this debate. I congratulate my noble friend Lord Borrie on introducing this debate. There was a tendency before the election for those who are now on the Benches opposite to say that the British economy was in wonderful shape. It is in good shape, but I am afraid that it is not in good enough shape. If one takes a comparison on OECD figures of GDP per capita on a purchasing power basis, we are ahead of almost no country with which we should like to compare ourselves. I could give noble Lords the list but it is a long one. Most of the major countries we should like to compare ourselves with have a higher per capita income. Even the Republic of Ireland overtook us last year. That must give us pause for thought as to why it is that the British economy is not performing as well as we would like.

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There has been a great deal of discussion--and no doubt there will be more in this debate--about the flexibility of labour and product markets. There is a great deal of ambiguity as regards the interpretation of that term. One interpretation is that flexibility is simply about the removal of unwarranted and intrusive government interference and regulation--the agenda that the noble Lord, Lord Ezra, referred to as being the agenda that was pursued in the 1980s. I believe there is growing appreciation that that is not enough; that the freeing up of markets is partially effective and important. However, it is equally vital to ensure that employees, managers and companies have the skills and capacity to take full advantage of the resulting freedom; otherwise, greater freedom may well result in significant losers, and that takes away some of the benefits.

We need flexibility in product and labour markets which encourages innovation and performance. I wish to illustrate that by referring to a number of aspects. I start with the managerial perspective. The noble Lord, Lord Burnham, referred to the industrial relations scene of the 1970s. I think we can all agree that we do not want to return to the confrontational attitudes on both sides--I emphasise the words "on both sides"--of British industry that occurred in that period. I must say in passing that I think that the noble Lord grossly exaggerated the risks of the modest proposals on trade unions that are contained within the Labour Party manifesto. Managers could not and did not manage in that period and there was confrontation. Now they can manage but there is a further problem; namely, the quality of British management does not match international performance. I declare an interest here as my salary is paid by the London Business School and therefore I have an interest in arguing the need for management education.

I speak to many business people on many occasions and many of them are of the best. The UK has many first-rate companies that are well-managed and match the performance of any in the world. However, the fact of the matter is that we also have a longer tail of rather poorly performing companies--more than most of our competitors. That is why our overall productivity performance, taken across the economy as a whole, is lagging behind--measured in level terms--what is happening elsewhere. If we could raise the performance in that tail to even the average of international performance, let alone the best, the British economy would really thrive. That is an objective. It is not just the objective of management to ensure short-term efficiency--I shall return to that--but also to manage innovation and the development of new products that meet the needs of customers and open up new markets. There is one other depressing fact about this tail; namely, the further one goes down it, the more complacent companies become and the more the badly performing managers do not know how badly they are performing relative to international performance.

In improving managerial quality one has to recognise that the scene is moving on. Twenty years ago there was quite a lot of discussion about how many companies could not perform a simple net present value calculation; they would muddle real and nominal values together in

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a rather confused way and get the wrong answer. It is probably the case now that pretty well every company can do such calculations well. That is routinely taught in the first year finance course of any business programme. Unfortunately not many managers are acquainted with what is taught in the next stage of finance courses, Finance 2. Few of us understand options and similar matters. We think it has something to do with financial companies. I suspect that a lack of understanding of options has been the downfall of as many industrial companies as financial companies. I shall illustrate what I mean by that.

In the early stages of new product development, including design, if one simply applies standard investment appraisal techniques--in the way that most companies do--one gets the wrong answer. R&D and new product development are all about keeping in the game and keeping one's options open. It is worth investing in those processes even when, on a straight routine calculation, that may appear to be unprofitable.

My colleague, Professor Gary Hamel, in his book Competing for the Future, argues that many companies have focused too much on cost-cutting and in the process have weakened their capacity for innovation and new product development. My other colleagues, Andrew Sentance and James Clarke, recently carried out a study for the Design Council which made the point that investment in design--this was the point that my noble friend Lord Desai made--can be fundamental to the performance of companies and of economies. The evidence is that investments in R&D and design promote growth at company level and in industry and the economy. An over-emphasis on downsizing--cutting costs at the expense of those functions--can lead to inflexibility with companies failing to adapt to changing circumstances and new market opportunities. Downsizing may well have its down side; and companies are increasingly realising that.

In the employment area, it is undoubtedly desirable to remove excessive regulation of the labour market. We have gone a long way in that direction. That agenda needs to be pursued further in the European context. It may be necessary, but it is not sufficient for good economic performance. Flexible labour markets can all too often mean a flexible move into unemployment not into other sources of employment. The problems of youth unemployment and long term unemployment are with us. They need to be tackled and that is why it is important that the Government's welfare to work programme is undertaken and pursued.

Over many years Professor Sig Prais at the National Institute has pointed to the problems as regards skills and the weaknesses of investment in training and skills in the British economy which hold us back in that area.

Professor Stephen Nickell has undertaken an interesting piece of research into the factors underlying unemployment of male manual unskilled workers across a range of countries. It is true that excessive regulation can cause unemployment in those groups to be high. But there is another factor. The evidence is that those countries which do not invest well in their basic skills and education also have a bad performance in that area.

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Deregulation may be helpful, but without the positive aspects of investment in skills and training it is not enough.

Let me take another example. The previous Government made much play of the fact that we were the enterprise centre of Europe. We certainly were open to inward investment and have attracted much inward investment. But again that is not enough. How does one explain the fact that France, held up as an example of rigidities and inflexibilities, attracted more foreign direct investment over the five years from 1991 to 1995 than did the UK? The amount of inward investment rose considerably compared with the previous five years whereas our inward investment was down. That involves other factors including our position in the world economy, infrastructure, and investment in education and skills.

That is a prognosis of some of the difficulties. What about remedies? The Government are committed to an agenda which will point us in the right direction: a commitment to macro-economic stability, as the noble Lord, Lord Ezra, pointed out; avoidance of the instabilities that lead to the necessity for savage downsizing and the problems that arise from it; reform of competition, referred to by my noble friend Lord Borrie; reform of City regulation; the welfare-to-work programme; and, above all, a commitment to training, skills and education across the spectrum. We must close the gap with our competitors. I hope very much to see that start to happen over the next five years.

6.13 p.m.

Baroness Lockwood: My Lords, during the debate on the gracious Speech, I said that education and training were vital to the UK's competitiveness. I wish to return to that theme today and to the question of partnership between industry and education.

There is no doubt that partnerships are the flavour of the day. I was interested in a special and quite substantial section of last week's Times Educational Supplement on the subject of school links. There is much support in industry for those links and a considerable amount of money has been invested in them by both individual companies and partners generally. A number of points in that section of the TES were of particular interest. The first was that companies clearly see their own interests very much involved in those links. For instance, an article on Cadbury stated that,

    "One of our major priorities is investing in education, with a need to keep in touch with future markets for recruitment and consumers."
The article listed a number of benefits which it saw for the company in those links.

Marks & Spencer has been quoted on a number of occasions as saying that,

    "prosperous high streets need prosperous back streets".
That throws an interesting light on the subject of the minimum wage, about which the noble Lord, Lord Burnham, seemed to have a number of problems. Marks & Spencer employees are not likely to live in the worst

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of the back streets, but as a company Marks & Spencer needs the people who live in those back streets to have a job and to be able to earn sufficient in order to make their purchases in Marks & Spencer high street stores. As a consequence, as a company it is prepared to invest in schemes which help to jack up the standards of low paid workers and find jobs for the unemployed.

There is also the question of who should benefit from the schemes. Again, I was interested in an article by Sir Iain Vallance. He said,

    "It is no longer enough to focus exclusively on basic literacy. Interpretative, analytical and communication skills are likely to be at a premium. Most important will be flexibility, wanting to adapt and learn as the environment evolves around us".
We hear sometimes of a different kind of flexibility from the Benches opposite. The article underlined for me the importance of business links stretching across the board from the low achievers to the academic high flyers. I agree that industrial links should not be regarded as exclusively for the under-achievers because if they are they will be devalued. We need links between the high flyers who can provide some of the leadership that will be required in the future.

There is a proliferation of schemes. Not all deliver to the same level. A report within the DfEE refers to a lack of co-operation and coherence across the country, and the fact that the best practices are not disseminated. It refers to many other weaknesses. Therefore I welcome the fact that the new Secretary of State is now looking in a holistic way at the whole range of products with a view to making them more cohesive and more evenly spread. Perhaps I may add that in reframing some of the schemes we should not over-bureaucratise the system. It is important that individual firms should have scope for their own initiatives.

Those are some of the things that are happening at school level. But, as I have said on a number of occasions, it is important, too, for partnerships and links to be established at universities. Again, that is happening, but in a patchy way. Not all universities make an equal contribution. I must say with some pride that my own university, Bradford, has an excellent record in this respect. And it is not entirely altruistic. It brings a number of benefits to the university as well as to the community--benefits and links with local companies; the sharing of resources; a better understanding of problems so that the university can help to respond to some of them; and an increasing link between particular departments and appropriate companies. I refer to engineering departments and to our optometry and pharmacy departments all of which have important links with local communities. It is important that those links should be encouraged and that they should not be overlooked when we consider the importance of the contributions of universities at national level. National level links are vital, and there are a number of ways in which they are taking place.

Again, perhaps I may use Bradford as an indication. We have a number of tailor-made courses with some of the important national companies such as Ford, Rover and the BBC, meeting the specific needs of those companies. The university is also involved in the

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Teaching Company Scheme which is operated by the DTI. I understand that, like other links, that scheme is also being reviewed. However, I suggest that the annual report of that body indicates how successful such schemes can be in terms both of opportunities for the academics in the institutions involved and also in terms of the increased effectiveness and profitability of the firms that are involved.

In all these activities universities are more and more showing a full awareness of the needs of companies in terms of the type of courses to be offered, and in terms of in-company training programmes and the innovations with which firms need help in order to increase wealth and job creation. For all that to be maintained and increased, the future funding of the higher education system needs to ensure the present high quality of our products coming from the universities. Core funding for teaching is one of the major issues emerging at the present time.

So, too, as referred to by my noble friend Lord Desai, is the future of research funding. I should like to comment particularly on that since there has been discussion in the media as to the future of research funding post-Dearing. I believe that the dual support system should be maintained since it seeks to provide infrastructure support through the higher education funding councils for universities and the provision of the well-founded laboratory within the university on the one hand and grant support for specific research projects through the research councils on the other.

Perhaps I may illustrate that point by again referring to the University of Bradford. Last year, a new company, Bradford Particle Designs Ltd., was set up. It arose out of the blue skies research of a young PhD student who experimented in making powder from liquids, a safer powder than that currently used by the pharmaceutical companies. The pharmaceutical companies showed interest in the research and, as a result, the research has been patented, bringing welcome income to both the university and the new company that was set up, as well as to the pharmaceutical companies that became involved.

A second example is also based on blue skies research in one of our engineering departments dealing in polymers and the production of the kind of synthetic materials referred to by the noble Lord, Lord Desai. It started in a simple way within a department, but was later taken up by the research council and is now part of an important inter-disciplinary research centre, one of the centres of excellence in this country. Those are two examples that could be duplicated in many universities and in many other ways. They underline the importance of giving universities the opportunity to contribute in this way, not merely confined to some of the excellent projects foreseen under the Foresight programme but pushing the barriers further forward so that universities can make a unique contribution to the future competitiveness of British industry.

6.26 p.m.

Earl Kitchener: My Lords, there are many types of goods which are best made in low-wage countries or

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which we in this country have no tradition in making. But there is something odd about seeing our policemen on BMWs and not on Triumphs. I shall refer to customers and retailers, but the ideas can be extended to buying and selling on a larger scale.

Our manufacturers could do more to help themselves, and the most important thing is informative labelling, on the lines of, "Made in Sheffield at the Britannia works of the General Engineering Company, 1997. If you are satisfied, tell your friends; if not, tell us". Among other things, that would encourage the people who make the goods to take a pride in their work and would stimulate dialogue between makers and users. I have been told that directors need to watch for buyers who may well prefer a visit to Paris to one to Birmingham.

Retailers obviously cannot stock everything, but they could have copies of catalogues of British-made goods. I often ask shops selling foreign versions of items that might well have been made in this country whether they receive visits from UK salesmen, but the usual answer is no. Many people have to buy what is offered, and even a small effort by retailers to sell British would be helpful. Usually I find almost no interest among retailers in selling British goods.

Customers who want to help their unemployed fellow countrymen can ask if there is a UK product and, if so, why it is not stocked; and then pass the information on to a UK maker. I have done that in some cases. The most extreme related not to an item I bought but to a pack of cards that I saw which had on it a picture of Buckingham Palace. I asked about it, and found that it had come from the shop there. It was marked, "Made in Switzerland". I wrote to the manager of the shop, who was very polite. He replied that it was bought before his day, but he did try to give some preference to goods made in this country. When I said that there was no cheap labour in Switzerland, I was told that perhaps they had cheap Turkish guest workers. I do not know the cause of that but I hope it is not still going on. What it looks like to foreigners if they buy something at Buckingham Palace made in Switzerland I do not know.

What should the Government be doing? I hope that they will want to hear. Not legislation, noble Lords may be glad to hear, but they and the other bodies over which they have influence must be buying large quantities of almost everything. They could offer information on UK manufacturers. I had quite some correspondence about that which I am afraid I looked at only this morning. I must admit to not having brought myself up to date about something called the Regional Supply Network, but like railway timetable inquiries, I feel that such information should have nothing to do with regions; it should be centralised. Soon it will probably come in an electronic form, which has the advantage of making searching much easier.

Another thing the Government might do is to form an opinion on the question of the usefulness of informative labelling. Manufacturers may not read Hansard and they might be inclined to take more notice of the Government than of me. It may be objected that "Buy British" is

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unfair to other countries, but where something can reasonably be made here, that is where we should look first.

6.30 p.m.

Lord Monkswell: My Lords, like other noble Lords I welcome the debate and draw attention to the careful way in which the noble Lord, Lord Borrie, phrased the terms of the debate. It is worth reminding ourselves that they are:

    "To call attention to the case for improving the competitiveness of British industry; and to move for Papers".
We should recognise the background to the debate. It is that we suffer, and have suffered for a number of years, from a deficit in international trade in industrial production. We are talking about how Britain competes with the rest of the world. The only way in which we can do that effectively is by all working together. We need to instil a sense of co-operation. A number of noble Lords on this side highlighted that. We also need to learn the lessons of the past.

Since the election I have been accosted by people who say: "How can you support the new Government who are adopting all those Conservative policies?". The answer is simple: if the policies are right, it is right that we should adopt them. I take as my text that the old policies of the Conservatives are having an effect on the floor for wages. We talk now in terms of having a minimum wage; that is our policy and we shall implement it. But it is an old Conservative policy, it goes back to Winston Churchill and the early part of the century. It was then recognised that, unless there is a floor for determining wages, we get ridiculously unfair competition between employers. I believe there is a phrase that the bad undercut the good and the totally unscrupulous undercut the bad. That is an example of Conservative policy which I am happy to support.

It is also worth looking back at our real experience. The situation in the 1970s described by the noble Lord, Lord Burnham, was quite different from the situation I remember as someone who worked in industry during that period. I can remember a situation where it was recognised by management that if changes were required the sensible way of achieving those changes was to discuss them with the workforce, usually through the organised trade unions.

However, we were also subjected to external pressures. One was the competitive pressure from Japan where people took a long-term view in developing their industries; we saw the development of, for example, the motor cycle industry and the television production industry, funded with low long-term interest rates. In this country there was a lack of investment in those areas and we lost out because of lack of foresight.

We were also subject to the buffeting of external stimuli. I can remember one event which affected the company for which I worked--Massey Ferguson, which builds tractors and combine harvesters for the agriculture industry. A decision by Jimmy Carter in the late 1970s that America would no longer feed the world resulted in a 30 per cent. drop in the demand for

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agricultural equipment. That had an enormous effect all round the world. The reaction to that decision was significant.

One of the difficulties that we faced with the Conservative Government that came to power in 1979 was that, instead of providing support for the long term, they made the situation worse. We had incredibly high levels for the pound which raised our export prices through the roof. There was effectively a reduction in UK home demand and my company was subjected to enormous pressures. I remember asking our managing director, "Why don't you go down to London and tell the Conservative Government what they are doing to us?". He said: "I have been part of a delegation which met the Minister at the Department of Trade and Industry". At the time that happened to be Keith Joseph. He went on, "It was like talking to a brick wall. He could not understand the effect that government policies were having on our industry". I am sure that we have learnt quite a few lessons from that.

The noble Lord, Lord Desai, pointed out how well the American economy is doing and a number of noble Lords suggested that the British economy had done well over the past few years. It may be useful to consider one of the major events of a few years ago that affected the British and American economies. I suggest that the end of the Cold War may have had some effect because of the significant reductions in defence expenditure that occurred on both sides of the Atlantic. Perhaps that has had a stimulating effect on our economies. I see the noble Lord, Lord Desai, nodding. It might be interesting to conduct some academic research to see whether the idea is right.

We have seen a roller coaster ride through the 1980s and 1990s in terms of trade. Immense problems have been created for British industry because of the way in which the value of the pound has increased and decreased and interest rates have gone up and down. We can credit the new Chancellor of the Exchequer, Gordon Brown, with the iron will to eradicate that up and down factor in financial terms with its effect on trade that besets British industry. I am sure that we all wish Mr. Brown success. Many of the things he is doing suggest that he will have that success.

We are a small country in world terms. I postulate that the only way in which we shall achieve lasting success in a global situation is to be part of the European single currency. Obviously we must ensure that it is run and organised on a sensible basis. But make no mistake, my Lords, outside the single currency we shall not survive. I can imagine Mr. Soros periodically taking £500 million out of the British economy when the whim takes him. It is too horrible a prospect to consider.

With that stable economic framework, which I believe is so important, we have to think in terms of how British industry competes, so to speak, on a level playing field and in terms of supply and demand. I hope that the demand side will be sustained and developed through injections of economic activity at the lower level, where it is needed: the minimum wage policy. As the noble Baroness, Lady Lockwood, pointed out, if people's incomes increase at the lower end, they can

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buy the goods and services that British industry and commerce provide and thereby generate even more economic activity.

We can also look at the policies of the new Labour Government in terms of the supply side. Other noble Lords have spoken of education as a priority and that is, perhaps, the supply of human talent that is so essential. But there is also a need for the supply of investment. Long-term investment policies are essential to ensure that a supply of new capital is available to British industry, so that industry can invest not only in research and development, in new machinery and new technology, but also in new markets and be able to invest in the worldwide distribution networks that are important in delivering our products to the marketplace.

In conclusion, I take great pleasure in the remarks made yesterday by the President of the Board of Trade. She explained that over the next few months an audit will be conducted by the Department of Trade and Industry into all the strengths and weaknesses and all the assets and liabilities of the British industrial scene; and that out of that will come a long-term project to ensure that British industry and our society are fit, capable, willing and enthusiastic about entering the 21st century.

6.42 p.m.

Lord Ponsonby of Shulbrede: My Lords, first, let me congratulate my noble friend Lord Borrie on giving us the opportunity in this debate to talk about competitiveness. I apologise for having missed his opening contribution. Nevertheless, I believe that he will be pleased to hear that my boss decided that my own company's competitiveness was better served by me going and making some of the net present value calculations that my noble friend Lord Currie extolled in his speech. I must explain that I worked out how to do those calculations from a book and not by attending one of his institutions.

I wish also to concentrate my remarks on education and the general need to raise standards. Yesterday I had the privilege of visiting a corporate research centre just outside Cambridge. The company is one of the largest oilfield service companies in the world. It has research centres in Japan, Europe and America. The centre was everything that one might expect it to be: modern, well resourced, flexible and with staff who were highly qualified, international in origin, extremely mobile and, no doubt, well paid. At this end of the education spectrum, Britain can and does compete at the highest level. Only last week we heard about Microsoft's intention to set up its own research centre. That centre will be next door to the centre that I visited yesterday.

But to be successful at the high end of the education spectrum is not enough. In fact, I believe that that masks our lack of success in educating the majority of people for the challenges of working within industry. Last week, I was disturbed to read an article in the Financial Times by Professor Alison Wolf of the Institute of Education. The article was about her reports on GNVQs from 1993 to 1997. It explained that the failure of the

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NVQ and GNVQ qualifications was due to the very high drop-out rate and the very narrow embrace of the qualification itself.

Britain is already near the bottom of the international skills league. We have fewer 16, 17 and 18 year-olds in full-time education than any industrial nation except Turkey. Nearly two-thirds of the British workforce do not have good educational qualifications compared with a third or less in the Netherlands and France and a quarter in Germany or Switzerland. Britain's skills deficit is crippling British industrial competitiveness. Vocational qualifications need to be upgraded and, above all, employers need to believe that they mean something and have achieved that raising of standards at the lower end of the education spectrum.

I know that the Government are very concerned about this issue and are introducing their Target 2000 programme and their University for Industry. Those are exciting measures and deserve to succeed. Almost every Peer who spoke in this debate referred to the importance of education. I simply echo that call. We have also heard about the importance of innovation, health and safety and flexibility. Those are all parts of the jigsaw and are necessary to build a competitive economy.

But I should like to make a simple point, which I believe is so blindingly obvious that nobody has yet made it; namely, that competitive success is most dependent on economic strength. It is a simple point which is constantly brought home to me in my working life, when I work in Russia. The company with which I am associated develops oilfields in Siberia. We have about 1,000 Russian employees and produce oil which is sold internationally. I know from my working experience in Russia that our Russian employees are on at least an educational par with British people. The company has spent a great deal of money putting up-to-date computer technology into its operations--in fact, computer technology is cheaper in Russia than it is in Britain. We have put money into training. The transport systems, although antiquated, are relatively reliable. However, we are operating in an economic environment that is bankrupt by western standards. That single fact completely overwhelms our operations. Even though all those elements of the jigsaw are present, we are not competitive by western standards. So, I make my single, simple, blindingly obvious point that economic strength is the overwhelming factor in building a competitive economy.

I close by saying that I could not help noticing that I seem to be the only contributor to today's debate who is currently working in British industry. I stand to be corrected on that and maybe the noble Viscount, Lord Thurso, if he were in his place, would correct me on that point. I do not know what that means--whether it means that I should be working harder or that people who work in industry tend to work too hard so that they cannot listen to the experts and what they have to say. Nevertheless, I look forward to any legislation that this Government may seek to bring forward as a result of the work of my noble friend Lord Borrie.

18 Jun 1997 : Column 1290

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