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Lord Ashley of Stoke: My Lords, as a result of the fall in recruitment and the consequent financial difficulties for some universities, especially the new ones, would it not be fairer to allocate most of the available money to those which have been badly hit?

Baroness Blackstone: My Lords, there has not yet been a fall in recruitment in any of the universities. In fact, this autumn the universities took in more students than in the previous year. Applications are slightly down on last year, but the final date for applications through the UCAS system is 15th December. Therefore, it is a little too early to say whether numbers will be down.

Perhaps I may remind my noble friend that only about 75 per cent. of applications are usually received by 15th December; therefore we need to wait and see. Next year we shall be providing additional support for the new universities, as with the old universities, through the extra £155 million announced in September by my right honourable friend the Secretary of State.

Lord Avebury: My Lords, has the Minister noticed that the number of applications expected by the universities is declining drastically, with the effect that hundreds of thousands of letters are being sent to local authorities and others to encourage more applications? If there is a fall in the number of students entering higher education in 1998 how will the universities make up the resulting drop in income?

Baroness Blackstone: My Lords, there has not been a drastic decline in applications. There has been a small decline; the latest figure indicates that it is around 7 per cent. However, there is still time before the closing date for applications. Large numbers of students required more information about the new scheme, which they have now received. When the scheme is fully understood, I believe that students will realise that it is fair and equitable and that it is in their interests to pursue a course in higher education if they have the potential to do so.

Lord Glenamara: My Lords, will the £1,000 a year paid by a student for tuition be retained by the university which provides that tuition?

Baroness Blackstone: My Lords, yes.

Lord Beloff: My Lords, will the Minister inform the House of the distinction that she draws between higher and further education, as so many of her colleagues tend to use those expressions interchangeably?

Baroness Blackstone: My Lords, it would be wrong to use those expressions interchangeably. There is a clear difference between universities and the provision that they make available, and further education colleges.

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Universities provide degree-level courses at both undergraduate and postgraduate level. For the most part, colleges of further education provide sub-degree-level courses, including a vast range of vocational courses. However, there is a slight blurring at the edges in that some new universities provide HND and HNC courses, which are sub-degree-level courses. Similarly, some FE colleges provide degree-level courses. That is a long-standing situation which developed throughout the period of the previous government.

Baroness Carnegy of Lour: My Lords, will the Minister confirm that, in response to the supplementary question from my noble friend Lady Blatch, she said that all moneys saved as a result of the abolition of maintenance grants would be devoted to higher education?

Baroness Blackstone: My Lords, no, I did not say that. I said that all the money which would be produced as a result of the changes in the support system for students would go to either higher education or further education.

Lord Peston: My Lords, would not the most obvious and correct source of funds for the expansion of further education be the removal of the misuse of public funds involved in the excess subsidy to the Oxford and Cambridge colleges? Is not that the true source in terms of ability to find money for further education?

Baroness Blackstone: My Lords, the additional premiums which the universities of Oxford and Cambridge receive through the college fee system is £35 million. No decisions have been made by the Government as to whether that premium should continue. However, were there to be any changes, it would be right that any money should be redistributed to the university sector.

Lord Pearson of Rannoch: My Lords, does the Minister agree that the financing of students in higher education might be considerably helped if more worked their way through college, as students do in the United States of America? Do the Government have any plans to facilitate such work?

Baroness Blackstone: My Lords, approximately one-third of all students in higher education are studying part-time. Nearly all of those have jobs during the day and study either on day release or in the evenings and at weekends. Therefore, a huge number of students in the British higher education system are already working their way through university.

Earl Russell: My Lords, is the Minister aware that when students enter the labour market with a debt arising from loans and tuition fees some private employers may offer to pay those debts? Does she believe that the public services, as employers, can compete with that?

Baroness Blackstone: My Lords, I am aware of the possibility that, in future, some employers may

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wish to buy off the debt. As regards the public services, the Government are putting in place a system which will allow medical students who are employed by the public sector to undertake the longer courses which are necessary in order to obtain their medical degrees, with a bursary scheme in the fifth and sixth years of study. Similarly, the Government are putting in place a system whereby PGCE students who are training to be teachers will receive their PGCE course with an exemption from the payment of tuition fees and bursaries.

The Viscount of Oxfuird: My Lords, is the Minister aware that the pamphlet is not what the 17 to 18 year-old student is expecting, and that the details which he or she does not know are important? The student does not know the level of parental income which absolves the tuition fee; the income level at which repayments start; the period of repayment, the level of difficulty; how he will qualify for a £250 loan; or how he will repay it. The leaflet does not answer those important questions. What is the situation?

Baroness Blackstone: My Lords, under the existing scheme students are already subject to means testing in terms of their maintenance awards. Their parents must complete a long and complicated form in order to gain access to a maintenance grant or a loan. Therefore, in respect of the information which parents must provide, there is no difference between the old and the new scheme. It may be true that potential students do not know their parents' incomes, but their parents must continue to do exactly what they are doing at present. We have provided potential students with an enormous amount of information. We have also provided that information to those who advise them in the careers service and in schools and colleges. The trigger point for the repayment of loans is clear. All the information is included in the leaflet which students have received.


3.9 p.m.

Lord Carter: My Lords, at a convenient moment after 3.30 p.m., my noble friend Lady Hayman will, with the leave of the House, repeat a Statement that is being made in another place on regional development agencies in England. It is hoped that the Statement will be taken after the speech of the noble Lord, Lord Higgins.

National Lottery Bill [H.L.]

Lord McIntosh of Haringey: My Lords, I beg to introduce a Bill to make further provision in relation to the National Lottery; to make provision for and in connection with the establishment of a body corporate to be endowed out of the National Lottery distribution fund and to be known as the National Endowment for

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Science, Technology and the Arts; and for connected purposes. I beg to move that this Bill be now read a first time.

Moved, That the Bill be now read a first time.--(Lord McIntosh of Haringey.)

On Question, Bill read a first time, and to be printed.

Business of the House: Debate this Day

Lord Richard: My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the debate on the Motion in the name of the Lord Currie of Marylebone set down for today shall be limited to five hours.--(Lord Richard.)

On Question, Motion agreed to.

Economic Prospects

3.10 p.m.

Lord Currie of Marylebone rose to call attention to the economic prospects of the nation; and to move for Papers.

The noble Lord said: My Lords, today's Motion to,

    "call attention to the economic prospects of the nation",

gives your Lordships an opportunity to discuss economic prospects and issues seven months into a radically reforming new government. There are many distinguished contributors to today's debate. In particular, I look forward to hearing the five maiden speeches that are to be made.

The terms of the Motion are deliberately drawn widely. We can range over world developments and their impact on the British economy; on the conduct of monetary and fiscal policy by the new Government; on our productivity performance, compared with our competitors; on public expenditure and taxation issues; and, indeed, on the welfare to work programme of the new Government. Moreover, there are the issues of innovation, research and development and new product development which matter so much for the long-term prospects of the country. As I said, the debate is widely drawn. I am sure that noble Lords, with their unlimited ingenuity, will demonstrate that all sorts of other issues can comfortably nestle under the welcoming branches of the Motion.

I wish to address four particular issues: first, the legacy that this Government received from the previous government; secondly, the question of the Government's strategy and, in particular, the question of whether the charge that my right honourable friend the Chancellor of the Exchequer has been over-prudent in his fiscal management has validity; thirdly, the risks posed to our economic prosperity by the tumultuous developments in Asian markets; and finally, the issue of EMU and our entry into it.

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We hear a lot these days about how the Labour Government have been blessed by receiving from the previous government an excellent legacy. I have to say that there is some truth in that. Since 1992, the British economy has grown steadily with low inflation. On the whole, macro economic policy has been well conducted. In saying that, I have to declare an interest in that I was an independent adviser--and I stress the word "independent"--to the former Chancellor of the Exchequer as a member of the Treasury's panel of independent forecasters.

With that background, I can say that the legacy is not as good as all that. The previous year saw boom and bust. It is worth recalling that output peaked in the early part of 1990: it took four years for it first to fall and then climb back to that same level. Normally one would have expected it to march upwards. Those were four wasted years for the British economy which has proved to be the most unstable of any of the G7 countries over the past 20 years. Unemployment soared over that period--that is, from 1990. As a result the employment prospects of successive cohorts of school-leavers were blighted, and not just for a year or two. The evidence is that the consequence will flow on through their record of employment and that they will have less good jobs as a result of that initial starting point.

The effects of unemployment live on through successive generations. From the evidence of the national child development survey, we know that family poverty resulting from unemployment adversely affects the educational attainment of children and their subsequent employment record. If one takes the longer view, the British economy grew no faster over the past decade than the economies of France or the United States and was appreciably slower than that of Germany. The same is true if one goes back to 1979. That helps to explain, as the Government have noted in their recent statements, that our productivity performance lags well behind that of our competitors. There is a great deal of ground to make up.

Some commentators have suggested that the shift of tone with a change of government is a tribute to the impartiality of our civil servants. I rather think that it is an example of the over-hyped rhetoric we had before the election coming down to earth. We are doing well, but we need to do better. Some of our companies are among the best, but we have a long tail of unsatisfactorily performing companies. We need to improve our record of innovation, new product development and research and development in order to catch up with our competitors.

The legacy also involves an economy which has been growing rather too quickly in an unsustainable way--demand growing rather faster than is likely to be sustainable. That arises because of the previous government's reluctance to heed the Bank of England's advice that interest rates needed to rise before the election to head off over-rapid demand growth. That expansion was fuelled by consumer windfalls, admittedly small compared to the scale of the windfalls enjoyed in the late 1980s when house price increases added something like £900 billion, nearly a trillion pounds, to personal sector wealth, leading to massive

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recession. The windfalls that we have had recently have been more modest. House price rises and windfalls from building society conversions have, nonetheless, been fuelling consumer spending too quickly. We see growing signs of skill shortages in the British economy comparable to the period at the end of 1987. Perhaps I may quote Alan Greenspan, talking about the US economy. He said:

    "The law of supply and demand has not been repealed. If labour demand continues to outpace sustainable increases in supply, the question is surely when, not whether, labour costs will escalate more rapidly".

That dilemma is part of the legacy received from the previous government.

Against that background, I believe that my right honourable friend the Chancellor of the Exchequer is entirely right to be firm in his fiscal management and in his overall stance on policy. There has been iron in the policy, but I believe that to be appropriate. We must avoid a repetition of the boom-bust of the previous government. We cannot realistically abolish the cycle, but we do not have to encourage it. We can certainly hope to limit it.

I believe it was entirely right to make the Bank of England independent. The Monetary Policy Committee, in turn, has been right to push up interest rates to check the rapid growth of domestic demand and the tight stance of fiscal policy is also to be welcomed at this point of the cycle. The recently announced code for fiscal stability again takes us forward by injecting much greater consistency, stability and openness in the conduct of fiscal policy. It will help us to avoid the mistakes of the past.

If we can keep the cycle under control--the booms and busts on the demand side--we need then to operate effectively in terms of supply-side policies. We need to help the disadvantaged in the labour market to get back into the world of work. We need to reform the welfare and tax system to prevent the creation of artificial barriers to re-entering work. Education and training become an absolute priority to give people the capacity to respond to opportunities. We need to encourage flexible product markets which will, in turn, encourage competition and the dynamism which create jobs and, indeed, innovation. In that respect the Competition Bill which your Lordships are considering at present is an important part of the picture. We also need tax reforms to promote investment and encourage longer-term growth. All of these are matters where the Government have action in hand. I believe that we will see results over time.

There are two points I wish to make. First, these supply side measures take a long time to work through. The fruits are not quick and we need to be patient. Secondly, the devil is often in the detail of policy in this area. I refer to problems of working out interactions of welfare systems and tax systems to make them helpful in allowing people to move back into work. This is a fundamentally difficult area to tackle. We shall have to see how easy it is to work out the full details.

I turn to the world scene. Until recently the forecasts for the world were relatively benign. Growth has primarily occurred in the US, the UK and the Asian

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Pacific. It was hoped that the baton of growth would be passed to continental Europe and Japan. Against that background the best prospect was for a slowdown of the British economy to a more sustainable growth rate. That is certainly the forecast produced by my colleagues at the London Business School who predict a slowdown of about 2 per cent., where inflationary pressures will not be triggered, and unemployment falling to about 1.4 million. That is still possible. However, the Asian developments may threaten the situation. I remind noble Lords that the Asian "flu" spread from the smaller ASEAN economies of Thailand, Malaysia, Indonesia and the Philippines to Korea, once described as the eleventh biggest economy in the world but now, following devaluation of its currency, much smaller, and now threatens Japan, the weak link in the industrial world. We can expect impacts on Brazil, Russia and eastern Europe. A number of the emerging markets will be much more turbulent and much less dynamic over the next year as a consequence. The key domino that may fall is China.

My colleagues are forecasting zero growth for Asia next year and the year after. That is a dramatic change in the world economy. Conventional forecasts suggest that all this means is a few decimal points off our growth rate, nothing dramatic, just a bit of a slowdown. However, I suspect that that is wrong as it fails to take account of the interconnections in a dynamic world. The cancellation of Samsung's investment in the north is an example of what will happen. We shall see more of that kind of thing. I expect to see inward portfolio investment cool, affecting our capital markets. I would not be surprised if the London housing market comes off the boil as money from overseas ceases to flow in. We may see a loss of confidence leading to a much more severe weakening of the economy, internationally and at home, than we might expect.

I hope that noble Lords will not misunderstand me. I am not a Jeremiah predicting that we are about to be engulfed in a major world recession. That is a remote possibility, not least because we have the powers to prevent it. But it is a call for policy vigilance. Last week Alan Greenspan was entirely correct in deciding not to raise US interest rates, which might have been justified on domestic grounds in the light of the Asian developments. The Monetary Policy Committee needs to follow that lead. We have given it the independence to exercise its judgment with wisdom and I suspect that that may be tested over the next few months. A further rise in interest rates would be unwise. We need to be ready to exercise prudence on fiscal policy to advantage. If the UK economy significantly weakens, it will be right to let the public deficit rise, to borrow more, to spend more or to tax less--not permanently but temporarily--to prevent the risk of an unnecessary slide into recession. There are times when it is prudent to spend. Our current fiscal rectitude, which I applaud, is an investment that should allow us to respond firmly and decisively to risks of emerging recession, should they arise. That is a point that has much wider international application. I refer to an issue that is worrying; namely, the shortage of hard currencies that the International Monetary Fund may face over the

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coming year as a result of the bail-outs it has had to carry out. We need to address that issue if we want a well ordered international economy.

I turn to EMU, an issue that will have a great influence and--contrary, possibly, to the views of some Eurosceptics in your Lordships' House--a positive influence on British economic prospects. It is clear that EMU will proceed with a large first wave. Therefore, the Government's commitment to entry in principle and when the appropriate conditions are right is much to be welcomed. It is also right to rule out entry in this Parliament. The position of the British economy with its different cyclical configuration from our continental partners makes for difficulties. Our interest rates are higher and need to come down in time. Sterling, having appreciated 20 per cent. or so over the past year, needs to be at a lower level. To enter at this level of sterling would be a mistake. The personal sector needs to adjust its variable interest mortgage borrowing to a fixed form at the appropriate time if it is to avoid being hit unduly by interest rate changes imposed by a future European central bank.

However, I believe that we shall pay a high cost if we stand aside in the longer term. I refer to both economic and political costs. Over the past few days we have seen the possible political costs of not being in the first wave with our partners' understandable reluctance to give us a Euroclub seat on Euro-X's committee. We shall have to travel steerage for a while.

The evidence from large companies that are studying the euro points to the possible danger that the rationalisation they are going through may adversely affect us. I give an example. The big companies that operate across the European Community are aware that the euro touches every aspect of their operations. They have set up major taskforces to review them. If one reviews the whole of one's company's operations in the light of the euro, one may as well review the whole of one's company's operations altogether. This is an opportunity for rationalisation which many major international companies are taking. There is a danger that those countries which stand aside may find themselves rationalised somewhat out of the picture. There is a real danger that we may be marginalised. Although I do not see dangers arising from our not joining immediately, if we stay out long term there will be dangers for us. I am concerned therefore that leaving the decision to the next Parliament makes it harder for us to join in a timely way. A rushed decision after the next election is just about feasible. It is possible technically for that to happen. Government and business could make the appropriate arrangements for a parallel arrangement where sterling circulates alongside the euro--it is fixed irrevocably but circulates alongside. However, that would mean a two or three-year period of working with sterling and the euro in parallel. That dual working is difficult; it is costly to business and it could be avoided.

Such a step would give little time for mortgage holders to adjust the maturity of their mortgages. That is rather vital if the European central bank's decisions on interest rates are not to fall unduly on our personal

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sector. It is not sensible for mortgage holders to switch now because if they were to do so they would incur the inflation risk built into our long-term interest rates reflecting the risk that we may not join. If one joins quickly--a rapid decision after the next election--that implies a rapid adjustment that will be hard to accomplish. There is also a risk that we shall see re-emerging convergence plays in Forex around 1999 or 2000. Speculation on whether we shall or shall not be "in" would destabilise our interest rates, asset markets and exchange rates. That instability could make life difficult for us in going in. ERM as a condition of entry to EMU may well be waived if--and probably only if--sterling is relatively stable against continental European currencies.

I worry that without a decision on EMU earlier than the next election we may be in some difficulty. For all those reasons I hope that the door on such an earlier decision is not altogether closed. Otherwise we may be a rather late entrant to EMU, and that would be damaging to our economic prospects.

In conclusion, the Government are right to argue that our economic prospects are good. With the current arrangements, the independent Bank, and the code on fiscal stability, we shall not see a repeat of the past excesses that proved so damaging to growth and jobs in the British economy. We cannot eliminate the economic cycle, but we can limit it. It will involve hard choices, in particular in public spending and elsewhere, to ensure that factors for long term growth are put and kept in-place. But with economic stability and more people brought into work, with more resources flowing in time into the key areas of education and training, and a confidence in our place in Europe, I believe that the long-term prospects for the British economy are very good indeed. I beg to move for Papers.

3.30 p.m.

Lord Ezra: My Lords, I congratulate the noble Lord, Lord Currie of Marylebone, on the wide-ranging and judicious way in which he reviewed many of the basic aspects of our economic prospects. As he rightly said, this is a subject on which many issues can be dealt with. There are a number of distinguished Peers who will speak later, and many maiden speakers. No doubt noble Lords will choose their specific subject on which to speak.

I wish to concentrate on the pre-Budget report which we discussed briefly last week. As I stated, it is an innovative document which leads to more transparency in policy formulation. We have the opportunity to respond at greater length today to the challenges which the report raises.

The message of the pre-Budget Statement is that the Government, in carrying out their economic policy, wish above all to avoid the pitfalls of the past--the boom and bust situations which have been such a feature in Britain in recent decades. I was interested to read the document setting out the lessons from the previous economic cycle. I welcome it especially because in formulating forward policy we do not often spend time learning lessons from the past. The Statement is a good illustration of the benefits of so doing.

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The economic growth forecasts in the document show that the economy is increasing currently at the rate of about 4 per cent. per annum, which is well above the historic average of 2.25 per cent. In 1998 it is expected to fall to the average of 2.25 per cent., with a further slowing down to between 1.5 per cent. and 2 per cent. in the year 1999 to 2000, and thereafter there could be some modest increase back to the historic average. In the government forecast which is more or less in line with other independent forecasts--for example, the forecast of the CBI--there will be a noticeable slowing down in the economy in the two to three years ahead. The real test will be how that is dealt with.

Where, according to the Government's analysis, things went wrong at the end of the 1980s, when we were at a comparable peak in the cycle, was that fiscal policy was unduly relaxed, thus precipitating a deterioration which led to the PSBR reaching a high point in 1993-94 at just over 7 per cent. of GDP or £46 billion. The Government state that now that we are once more at the peak of an economic cycle, they are determined not to repeat such an error.

The two areas where the Government can most influence the economy are monetary and fiscal policy. Steps have already been taken to exert a strict control of monetary policy and the Bank of England has been given the task of carrying out the Government's objective of a maximum of 2.5 per cent. inflation. It is a policy which we from these Benches have long advocated. We are glad to see it has been brought about.

In the matter of fiscal policy, the Government have sought also to introduce a similar degree of stability. With the papers accompanying the pre-Budget document, they issued a document relating to what they call the code for fiscal stability. I welcome that, too, because it is another way in which we are able to discuss in advance the bases of government strategy. If monetary and fiscal stability can be achieved through the means agreed upon, we should be reasonably on the way to avoiding the overheating which occurred so regularly in the past.

Nevertheless, the Government's own growth figures suggest a major slowing down in the coming two to three years to which I referred earlier. Although this slow down will be by no means as sharp as on previous occasions, according to the current forecast, it nevertheless could cause economic and social problems particularly in the matter of employment, especially if the economy falls to the lower of the figures forecast by the Government. An important way of avoiding the disadvantage of slow growth in the next two or three years would be, I believe, to stimulate the level of investment in both the private and public sectors.

The chart on page 77 of the pre-Budget document demonstrates that the UK's overall investment performance has been poor by international standards, just as we have had the productivity lag to which the noble Lord, Lord Currie, referred. Investment in the UK has consistently been below the OECD average since at least 1960. In my opinion, it is urgent that we should now seek to catch up. I can think of no better time to try to do this than when the economy is about to begin

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slowing down. The Government have already taken some steps to stimulate investment in the private sector by reducing corporation tax and by improving investment allowances for small firms. I believe that in the three years ahead there should be further incentives along these lines. There is also a need for investment in essential parts of the public sector. A start has been made by injecting more funds into education and health, but more is required not only in improving those services but also in providing the essential built infrastructure. That would have the benefit of maintaining activity in the construction industry in a period of possible slow down. The release of housing funds would also help in that regard. My noble friend Lord Razzall will speak on these aspects later.

I need hardly remind noble Lords that an area of public activity which urgently needs more investment is transport. It is particularly necessary on environmental grounds. The UK is rightly taking up a positive position at the Kyoto conference, but this must be followed up by urgent action. Such forms of transport as the London Underground require urgent additional funds. The injection of private funding is desirable, but the form in which it is to be done must be settled quickly. Investment in energy saving is also important. The Government are to be commended on reducing VAT for schemes helping the less well off to insulate their homes, as I mentioned last week. It satisfies an environmental need as well as meeting a social requirement. I am delighted that it could mean that 40,000 extra homes a year could be insulated under the home energy efficiency scheme as a result of the change.

We are entering an important new phase in the conduct of economic policies. The setting out well in advance of Budgets of the issues that have to be met and the clear statement of long-term policy objectives are to be commended, and I hope that they will be a regular feature from now on. But setting out the issues is one thing. Progressive and determined action is required to achieve the desirable objectives stated by the Government. In my opinion, that applies particularly in matters of investment and environmental improvement.

3.41 p.m.

Lord Islwyn: My Lords, I welcome the opportunity to address your Lordships' House for the first time. May I say that it is a particular pleasure to follow the noble Lord, Lord Ezra, who, I recall, had such a distinguished record as chairman of the National Coal Board. Perhaps I may say, too, that since being here I have been treated with nothing but friendship, and from the staff I have received courtesy and help, particularly in finding my way around the corridors.

Of course, this is not my first maiden speech. That took place in the other place on 25th May 1966 on the Second Reading of the Finance Bill. I recall going up to the Speaker's Chair and saying: "Mr. Speaker, I wish to make my maiden speech today". The Speaker at that time was Dr. Horace King, who subsequently became Lord Maybray-King. He replied: "When Margaret Thatcher sits down, you are on. Good luck!" I hasten to add that at that time the noble Baroness was the number

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two Treasury spokesman for the Conservative Party in Opposition. Few of us could have forecast at that time the remarkable role she was to play in future years in the affairs of our country.

Numerous noble Lords have inquired about the origin of my title "Islwyn". It comes from the mountain Mynyddislwyn, in the county of Gwent, where I was born and where I still have strong local and family connections. I was influenced, too, by the fact that the Welsh poet/preacher of last century, the Reverend William Thomas, who lived close to my old home, took his bardic title, "Islwyn", from the same mountain. It was said of him that, "he loved Wales--her mountains, her religion, her hymns, her history". I can assure your Lordships that I share those sentiments.

The debate today, so admirably opened by the noble Lord, Lord Currie, is about Britain's economic prospects, following on from the pre-Budget report put forward a week ago in the other place by the Chancellor of the Exchequer. That report shows that the Government aim to build long-term prosperity through measures to help people off welfare and into work; improve competition, innovation and investment; and ensure economic stability. The Chancellor is clearly trying to get rid of the dependency culture, and I fully support his objective. It is so much better for people to be in meaningful employment rather than waiting for the next social security cheque. People who get back into work gain a new dignity and self-respect. I appreciate that low wages prevail in many trades and industries today. That may be a disincentive to people seeking employment. But at least there is in preparation the minimum wage legislation, which will go some way towards eradicating that problem.

I commend, too, the help that is to be given to pensioners in relation to winter fuel bills: £20 for all pensioner households, and £50 for pensioner households on income support. Such measures can do nothing but good for old people, who for so long have been crying out for a better deal. Then there is the £300 million programme for childcare over the next five years. I hope that the scheme will be successful.

I would urge the Chancellor to place increasing emphasis on the importance of the traditional family. So much can be done through taxation; yet over the years successive Chancellors have tended to move in the opposite direction. Traditional family life has been the bedrock of our society, and the move away from it in recent years has led to so much juvenile delinquency, with all the side-effects of drugs, homelessness and lack of educational attainment. I repeat that I strongly urge the Chancellor to look closely at the issue of the family; he is in a position where he can do a great deal to help.

The Chancellor's expressed objective is that:

    "everyone in Britain can share in higher living standards and greater job opportunities".

During the recent general election campaign there was much emphasis on regional disparities and the need to iron them out. In Wales and some other regions there is a dire need to expand local industries, besides the need to attract foreign investment. There are now nearly 400

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overseas firms operating in Wales. But for all their significance, they employ only 6 per cent. of the Welsh workforce. I was rather surprised, therefore, to read about Sir George Russell, chairman of the Northern Development Corporation, complaining about preferential treatment for areas like Wales. He was referring to the so-called "Barnett" formula, which was mentioned at Question Time today. It is designed to spread wealth around the component parts of the United Kingdom via the public purse. At least, that is my understanding of the situation.

Because the gross domestic product in Wales is only 83 per cent. of the United Kingdom average, in general terms, for every £100 that the Government spend in England, they spend £116 in Wales and £125 in Scotland. The noble Lord, Lord Barnett, whose formula bears his name, recently went on record as saying that,

    "if a new review were undertaken then Wales was a deserving case for a more favourable settlement".

He confirmed that point of view this afternoon. I draw attention also to the remark at Question Time by my noble friend Lord Cledwyn, who called for action on the situation in Wales. I endorse that sentiment.

I can assure Sir George Russell and his North-East colleagues that Wales is not some sort of Eldorado. It has numerous unemployment black spots and poor housing, together with a great deal of poverty. Anything that we have achieved in Wales, whether it be the Korean LG investment or the second Severn crossing, has been the direct result of our own efforts.

In conclusion, I support the Chancellor in his efforts to get rid of the dependency culture and to put people back to work. I urge him to back the traditional family and, likewise, to recognise the economic disparities in Britain today. Wales and a number of other regions are simply crying out for a better deal.

3.50 p.m.

Lord Blyth of Rowington: My Lords, first, I congratulate the noble Lord, Lord Islwyn, on a speech which had a charming introduction and a body about which he felt extremely sincere. Secondly, I declare an interest as a chief executive of a goods company.

This debate is taking place, as mentioned by the noble Lord, Lord Currie, against the backcloth of an economy which is in extremely good shape. Those responsible for that should be given the credit that they deserve. We find ourselves in the happy position of having low inflation, falling levels of unemployment, real growth in output and a strong pound--a position which is the envy of our European neighbours.

The reality is--these things do not happen quickly--that we are now enjoying the fruits of policies adopted and rigorously applied by the previous government. In saying that, I do not seek to detract from the economic measures taken by the current Administration nor even particularly to comment upon them. I wish only to acknowledge that it was the tight management of the economy and the willingness to take unpopular measures by the previous Administration that led directly to the satisfactory situation in which we find ourselves today--credit where credit is due.

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I have spoken in this House before on EMU. The noble Lord, Lord Currie, raised the subject again and commented that he was glad that we were not planning to go in in the immediate future, though I believe he hoped that we would decide to go in in the life of this Parliament. I have said before and will say again that in my view the practical difficulties of handling the introduction into economic and monetary union simultaneously with handling the practical difficulties of debugging the Millennium, would have meant that many organisations such as my own in this country--though I suspect the banks also--would find it incredibly difficult to cope. We suspect that many of our continental retailing competitors will discover just how difficult it is, and that there will be many pitfalls before this particular baby is born.

Your Lordships may recall that in his July Budget the Chancellor abolished tax credits on dividends for tax exempt pension funds. The rationale given for that was that the loss of tax credits would remove an incentive to pay out high dividends and encourage companies to invest more of their profits in the business. I am afraid that that line of reasoning is utterly flawed and the only certain impact is that government revenues will go up by around £5 billion at the expense of those who are prudently investing for the future. The Chancellor has introduced a swingeing new tax on pensions concealed behind the appearance of economic rectitude. It will damage the economy. It is not only a tax on pensions; it is also a tax on jobs. It will raise the cost of employment for businesses, local authorities and any others who are required to make good the deficit in the funding of their pension schemes.

The noble Lord, Lord Ezra, referred to last week's so-called green Budget. That also contained a proposed change to tax regulations which should not be allowed to pass unnoticed nor unchallenged. Advance corporation tax is to be abolished, at last, and I very much welcome that. The payment of ACT is administratively burdensome and falls unfairly and sometimes irrecoverably on many companies. However, the scheme proposed to replace ACT will require businesses to pay, in quarterly instalments, during the course of the fiscal year. In other words, as I understand it, they--we--will be required to forecast the full year profit on which corporation tax is to be levied in order to calculate the quarterly payments in advance.

It is a fundamental principle of taxation in this country that losses should not be assumed nor indeed profits anticipated. I can think of no other situation in which a taxpayer is obliged to make payment before the full measure of liability is known and where the calculation is not based on actual figures. In this case the inequity is compounded by the proposed imposition of a differentially high interest rate on any business that wittingly or unwittingly underestimates its full year liability. Where businesses are highly seasonal, that is all too easily done.

We are promised that the Inland Revenue will treat such underestimates with a light hand. I believe that to be an oxymoron of prodigious portent--the light hand of the Inland Revenue. There is also the question of commercial confidentiality. To provide the Inland

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Revenue with quarterly payments in advance is to give an implied profit forecast for the full year, and that simply is not acceptable. Indeed, the whole proposal as it stands is unworkable. In the United States, Germany and Japan, all of which currently require corporation tax payments on account, companies base their calculations on previous year actual profits or on profits already generated in the current fiscal year. I submit that those are much more satisfactory arrangements which the Government would do well to consider.

3.56 p.m.

Lord Jacobs: My Lords, I rise with some trepidation to address your Lordships for the first time. More than 20 years ago I made two attempts to become a Liberal MP but without success. I do not therefore feel as well prepared to make a speech among your Lordships as those recently arrived from another place.

In considering my maiden speech, my noble kinsman Lord Wigoder advised me to speak upon a subject about which I know very little, lest I risk being known as a one-subject specialist. That left the choice of subjects rather wide, for there are many subjects about which I know very little. However, as we all know, advice from friends and family can safely be ignored and I have therefore chosen a subject upon which I have a little knowledge.

Liberal Democrat politicians have one advantage over the two other major parties in the sense that they can criticise present and past governments with impunity. For, even in my lifetime, we have not had a Liberal Democrat administration. I hope therefore that your Lordships, particularly those on my Benches, will forgive me if, in a spirit of constructive opposition, I offer on this occasion some praise to former and present governments for economic management.

While what came to be described, I believe, as the "Lawson boom" ran out of control and thereby caused interest rates to be raised so high to reduce inflation that it brought about a severe recession, I do not recall many voices at that time urging the Government to rein in the economy. Most of us were advocating how money would be better spent helping the poor rather than reducing rates of income tax.

Following the last recession the government, under their excellent Chancellor of the Exchequer, had to embark upon a course of retrenchment to bring under control a £46 billion fiscal deficit. That was a painful period for most people. Nevertheless the deficit was brought down to around £20 billion while the economy slowly recovered--a creditable effort, in my opinion, although of course we can and do argue that excessive public expenditure before the 1992 election substantially caused the deficit in the first place.

In other words, in the past three years the government have managed the economy well; it has to be recognised, however, that they may have caused most of the problem. In the past 18 years they have brought about two fundamental changes in the economy. First, the privatisation programme turned loss making, inefficient nationalised industries into profitable, efficient private industries. Secondly, they succeeded in

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reducing trade union power, leaving unions with adequate strength but not a stranglehold on the economy.

The Labour Government have come to power at a time when Britain is economically the strongest country in Europe: low inflation, falling unemployment, steady growth in the economy, a rapidly diminishing PSBR, altogether a veritable honeypot of a situation. Have the Government yielded to temptation and consumed the honey by increasing public expenditure? Indeed, they have not, for their strategy, I believe, is to bring the PSBR to zero as rapidly as possible. I agree with that strategy. So why am I and my party urging that more money be spent this winter on the health service to cut waiting lists, and on education to reduce class sizes?

I believe that the Government want to increase public expenditure to achieve those very same objectives and, in addition, to bring in by stages a 10p reduced rate of income tax to help the unemployed get back to work. Can all these competing demands be met without increasing the PSBR? I believe they can. The fiscal system in this country is continually distorted by providing reliefs for every imaginable subject. The special reliefs against income tax were devised, historically, when less than half of those in work paid income tax. What the system fails to take into account today is that the tax base has been lowered time and time again by so much that if the minimum wage were to be just £4 an hour everyone in full-time employment would pay income tax on more than half their earnings. As a consequence, perhaps half the taxpayers in this country would be unable to take advantage of many tax reliefs and, worse than that, would actually be contributing to the tax reliefs of higher earners.

I give housing as an example. Surely it is the better off people who buy houses and the relatively speaking less well off who rent council houses. One gets mortgage relief to buy a house while those renting homes partly pay for that relief from their own income tax and VAT payments. It is incontrovertible that the less well off are subsidising the better off.

Then there is tax-free, profit-related pay, a very well intentioned relief which we supported. But the cost has spiralled out of control. There are numerous other special tax reliefs--TESSAs and PEPs to encourage savings--and property enterprise and venture capital trusts. There is also tax relief for pensions, which could certainly be restricted to the basic rate. Just these few examples could yield £4 billion a year--£2 billion perhaps for health and education and £2 billion going a fifth of the way towards a 10p rate band. There are many more ways of increasing public expenditure without increasing the rate of income tax and without increasing the PSBR.

Finally, I come to the prospects for the economy as a whole. Economists seem to make little mention of the fact that the US and the UK are at present engaged in a massive economic experiment. They are seeking to discover if, by modest early increases in interest rates, they can restrain the economy and prevent rising inflation. With unemployment rates steady, this may present no problem. But if unemployment continues to

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fall, we step into the great unknown. Economic theory used to dictate there was a natural rate of unemployment below which inflation would rise. At one time this was believed to be nearly 10 per cent. Today in the United States unemployment is less than 5 per cent., and still inflation is not increasing. Do we know when we have to apply much higher interest rates? Can we avoid serious recession? We are attempting to fine tune the economy. Ironically, most economists do not believe that fine tuning is effective. Still, economists have been wrong before, and we must just wait and see. I remain, however, more optimistic for Britain's economic future than at any time since the war.

In conclusion, I thank your Lordships for your patience in listening to me today and ask in particular your forgiveness for my presumption in believing that there are straightforward, equitable and pragmatic solutions to some of today's social problems.

4.5 p.m.

Lord Davies of Coity: My Lords, it gives me considerable pleasure to congratulate the noble Lord, Lord Jacobs, on behalf of the whole House on a clear and precise maiden speech. The noble Lord's experience in business will be of considerable value to your Lordships' House. I know that I speak on behalf of all of us when I say that we look forward to hearing many more addresses from him in the future.

The area I wish to address is the question of the national minimum wage. Although I make no apology for believing that there should be a national minimum wage on social justice grounds alone, I also hope to demonstrate that it is economically sound to introduce such a provision into this country. It is interesting to observe that in the 19th century many men of good will proposed changes either for humanitarian reasons or because they believed they were socially just. But what is significant is that each time they advanced those proposals, they found that they met resistance on economic grounds.

I should like to draw your Lordships' attention to William Wilberforce. He introduced a Bill in 1791 to abolish the slave trade, but it was not passed by the Commons until 1804 and was even then twice rejected by the Lords. It eventually became law in 1807. In his later years William Wilberforce supported the movement for the total abolition of slavery, which was not accomplished until 1833. Each time he argued for the abolition of the slave trade and of slavery he was met with resistance on economic grounds. It was said that we would collapse economically if we did not continue with slavery. It is interesting that as early as 1791, in his last letter to Wilberforce, John Wesley wrote:

    "Unless God has raised you up for this very thing, you will be worn out by the opposition of men and devils."

Still in the 19th century, perhaps I may now refer to Lord Shaftesbury and his Mines Act of 1842. Under the Act the underground employment of women, and of children under the age of 10, was forbidden. The year 1842 is a significant date to me personally. It was the year that my great grandfather was born. It seems as though the legislation for the employment of children

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under the age of 10 did not get to south Wales in time because in 1849 my great grandfather went to work underground in the pits at the age of seven, seeing daylight in the winter months only on a Sunday. This is what the Guinness Book of Records recorded about my great grandfather:

    "Most Durable Coal Miner.

    David Davies [born] 19th February 1842, Pontrhyfen, Afan Valley, South Wales worked underground as a collier for 73 years from 1849 to 1922 from the age of seven to his retirement at 80."

Lord Shaftesbury again met with economic resistance when he wanted to reduce the age at which children could be employed. Wilberforce and Shaftesbury were told that there would be economic disaster facing this country if they took these measures. Also in the 19th century there was an economist, educated at Eton, by the name of Nassua Senior. Regarding the long hours that were worked in the middle and late 19th century, it was said that if those long hours were reduced, according to the economist, there would be total economic disaster. He argued that the profit was made in the last hour of the day and all profits would be destroyed as a result.

We then turn to the 20th century. I believe that Winston Churchill understood the matter a little better because in 1909 he introduced legislation which was the forerunner of the wages councils of this country. He did not argue from the point of view of social justice, although that was the manifestation of it, but from an economic and competitive point of view. That is confirmed in his classic statement which he made in the other House when he was introducing the legislation. He said that if we did not have minimum standards of wages, then the bad employers would undercut the good employers and the worst employers would undercut the bad. In fact, the wages councils stood the test of time from 1909 to 1986 when they were butchered and finally abolished in 1993. So the people of this country do not have any protection, unlike all the other countries of the Western world.

But we still hear today the siren voices and the prophets of doom that call out and say, "If you introduce a national minimum wage there will be economic disaster and bankruptcies". That should not occur. The Labour Government have set up a Low Pay Commission, which will take into account the evidence presented by all sides of industry. Certainly it is not the wish of a Labour Government to see job losses arising from the introduction of a minimum wage, because they have a policy of trying to maximise the employment levels in this country. Therefore, I see the national minimum wage as also a contributing factor to our economy.

The reason I say that is because no civilised country should tolerate poverty wages that have to be subsidised by state handouts, which in turn go to bad employers, unscrupulous employers and certainly to inefficient employers. That cannot be an efficient way of running a country. What are these subsidies? They are family credit, income support, housing benefit and council tax benefit. They are state subsidies paying the employees of employers who can maximise their profits as a result. There is no need to become more efficient because the

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employers can survive on the basis of paying low wages and finding that their employees can be subsidised from the taxpayer.

Earlier this year, in Scotland alone, it was assessed that £265 million per year is paid from the state to top up low pay. In the north west, where I now come from, 30 per cent. of the working population earn less than £4 an hour. Advertisements in Jobcentres cite a banner maker at £2.36 per hour, which is £92 a week; a care assistant at £2.80 per hour for working a night shift; a hairdresser is cited at £1.31 pence per hour, which is £55 a week. An employee in a travel agent is quoted at £60 for a 39 hour week. I could go on with further examples.

But it seems to me that we cannot go on as a country subsidising bad employers with welfare payments. We cannot go on allowing people to languish in the poverty trap between low wages and benefits and allowing more and more of our people to have no training, no skills, no hope of jobs or even of better jobs. In my view that is a recipe for spiralling down further into the pit where we compete with the worst and not with the world's best.

The national minimum wage is part of the Labour Government's policy for economic and social stability. No self-respecting and reputable employer has anything to fear from a national minimum wage. Labour's policy of welfare-to-work; the removal of the poverty trap; continuous training, high technology, high levels of employment; a skilled workforce, with committed and ambitious workers, will provide the economy that we want. We want workers with hope, expectation, dignity and self-respect. That is the society that I wish to see in the 21st century, with Britain competing successfully with the best economies of the world and not trying to compete with the worst, where covert slave labour rates of pay and not so covert child labour is employed.

When legislation for the national minimum wage comes before this House I expect support from all sides. If not, I may again feel obliged to remind the House of the things that I have said today.

4.17 p.m.

Lord Levy: My Lords, it is indeed a great honour and privilege for me to make my maiden speech in your Lordships' House. It is a great honour also for my family, my wife and children and my dear, late parents. I appreciate the welcoming and friendly atmosphere of the House and in particular the many warm handshakes after my Introduction.

I would like to say a few words about my personal background. I come from a religious family. My grandfather was a rabbi and my father was in full-time service to the synagogue. I qualified as a chartered accountant, started professional practice and then went into commerce in the entertainment industry. For many years I have spent a great deal of my time within the voluntary sector.

I believe strongly that economic and entrepreneurial activity must be combined with an involved voluntary role in order to have an active community and therefore create a strong society. I recognise the wealth and depth

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of experience and expertise within your Lordships' House and I sincerely hope that I can make a contribution from my own experience.

I must congratulate the Chancellor of the Exchequer on the first ever pre-Budget report, which will encourage meaningful and informed debate on the economic choices confronting government. The aims of the report are to be welcomed, particularly as regards helping people away from welfare into work, improving competition, innovation and investment and, above all, ensuring economic stability. The report underlines the Government's priorities in the fields of education and health, improving childcare and helping pensioners. The new national childcare programme is one of the most ambitious and practical on record, with up to 30,000 new childcare clubs within five years and up to one million new childcare places. Positive health for all pensioners is also welcomed. There will be real financial help with fuel bills and additional help for those on income support. The voluntary programme to support the long-term sick and disabled who want to get back to work is to be commended, with action on skill shortages through the new deal.

The key factors must include a framework of stability and trust. I particularly welcome the focus on the arts. Music and film have been a major contributory factor to the economic well-being of this country and have created vitality and respect around the world. I am therefore particularly encouraged by the new national endowment for science, technology and the arts, which will make grants to encourage creative talents. Important references have been made to fairness, job creation and training, help for pensioners and also welfare to work. These are very much linked to my particular passion, the voluntary sector, which can contribute many major innovations and solutions and must be taken very seriously within both the economy and society.

The partnership between the voluntary sector, the business and private sectors and the public sector is crucial and an important ingredient for our economic and social prospects. Where one sector is not pulling its weight, nor putting in the necessary investment and support, the other sectors cannot sufficiently compensate. To create an environment where the public sector, the business sector and the voluntary sector can all work together in harmony, understanding and respecting each other's interests, expertise and problems, is crucial to the elements of stability and trust in both our economy and society.

Various facilities can be created to act as a catalyst to co-operation and to better our economic and social prospects. One example is the provision of employment resource centres. Within the many facilities of Jewish Care, the charity of which I have the privilege to be chairman is the employment resource centre, which was started several years ago. To date over 3,000 people have passed through the centre. Therefore the voluntary sector initiated and facilitated the idea, the public sector helped with support and the business community took up the

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challenge. To date, over 2,000 of those going through the centre now have gainful employment. This is welfare to work in a practical and dignified manner, a meaningful and useful stimulus to our economic and social prospects, particularly if spread and used on a much wider scale.

Another initiative concerns day centres for the elderly--a facility which I call "youth clubs for the elderly"--where people come to meet others in a warm and friendly atmosphere and where they can maintain their independence and dignity by spending time together, by having a hot meal and by receiving stimulus and entertainment. Within the same charity to which I have referred six of these centres have been created and a membership of over 10,000 now exists. That gives comfort and assurance to the family. It allows the members to help each other and facilitates dealing with the day-to-day problems of life. This helps pensioners in a practical and sensible way and is again an example of all sectors working together and helping both economically and socially a crucial grouping of our society.

These examples prove how useful the partnership is between the three sectors and, most importantly, the help that is provided in meeting people's priorities. We must be intent on pursuing policies to boost the rate of growth and to deliver higher prosperity for all. Every ingredient must count in the mix, particularly as we confront the difficult choices our country has to make in building for the long term. Initiatives that work on a small scale must be examined in detail, explored to the full and then magnified if appropriate on a wider scale. Partnership, understanding and team work are vital in creating a solid foundation for all sectors to work together because by doing so we will be able to maximise the economic and social prospects of the entire nation. I thank your Lordships, and I look forward very much to working together with you all.

4.26 p.m.

Lord Higgins: My Lords, it is a great personal pleasure for me, on behalf of the entire House, to congratulate the noble Lord, Lord Levy, on his maiden speech. He brings to the House a wealth of experience and combines it with compassion, which he has demonstrated so clearly in the charitable work which he has undertaken outside this House. I know that we shall all listen with great interest, as we have this afternoon, to his future contributions. The work which he has done outside, and not least so far as Jewish Care is concerned, has been of very great value and it is of the essence of these economic debates that we should seek to find expertise, for example, on accountancy--as the noble Lord does--with the desire to use that expertise to improve the lot of our community, whether it be by government action or by voluntary work. So we are very glad indeed that he is here in your Lordships' House. We welcome him and express to him our congratulations.

I should like to begin by spending just a moment or two on expanding a point which I introduced previously in a debate last week. In answering the

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questions put to him on the Statement--the green Statement which we are debating in part today--the noble Lord, Lord McIntosh of Haringey, said:

    "no final decision has been taken about whether we shall continue with the unified Budget and Public Expenditure Statement or about the timing".--[Official Report, 25/11/97; col. 896.]

This is a matter which in many ways is primarily one for the other place but nonetheless I think it has very great significance for your Lordships as well. My own view all along has been that this so-called unified Budget is misnamed. A unified budget would be one that had a trade-off between expenditure on the one hand and taxation on the other. But that of course is not the case either in parliamentary or in government terms. The House of Commons itself is unable to say, "We want to spend more on something and put up taxes accordingly". The Rules of Order prevent that kind of trade-off. One can either put forward proposals to cut taxation or put up expenditure: one cannot trade them off together. Therefore it is not a unified budget in any sense and indeed, as the noble Lord, Lord Barnett, will accept, it is not so in government, either. The Secretary of State for this or that department does not go to the Chancellor and say, "You must put up taxes because I want to spend more on something else". That is not the way it works.

The unified Budget is therefore a misnomer; but what has gone wrong is very much on the timing, because what happened when the Budget was unified was that it moved to the autumn. The effect of that was to crowd into the autumn both the Queen's Speech debates and the Budget debates, and so other legislation did not receive a Second Reading until a very great deal later. That has had an inevitable effect on the programme of your Lordships' House. The situation is not the same this year because we have had an election but I very much hope that in the light of the remarks made by the noble Lord, Lord McIntosh, the Government will reconsider this issue, either by allowing the Budget to resume in the spring, as indeed it has this year, or alternatively that the Queen's Speech comes in the spring and the Budget in the autumn. In many ways that might be a better arrangement. If the parliamentary programme in both Houses is to be put right, this is something which needs serious consideration.

Much reference has been made in the debate to the so-called green Budget and the Statement today. There was relatively little in the Statement which provided a basis for consultation. It either said there will be other reviews on which we could consult or it put forward a number of specific proposals--not least a new deal for lone parents; heating for pensioners; a strategy for childcare; and so on. I make no complaint about that. The fact that the Government are doing so is something I welcome in the spirit that Iain Macleod once expressed, that the Opposition should never shoot Santa Claus.

It is difficult not to feel that these measures may have something to do with the position of the Secretary of State for Social Security. I know of no other reason. In that context, it is extraordinary that yesterday the Secretary of State did not make the usual up-rating Statement in the House of Commons. I cannot think of any precedent where that has been the case. The Minister of State did not do so either and it was left to an Under-Secretary.

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There is a danger that, at present, the Government are tending to treat Parliament with a degree of contempt to a considerable extent. Whether the right honourable lady will, in the words once supplied by Mrs. Thatcher, remain unassailable is a matter of conjecture, but it is important that we see these measures in the context that I have just described.

I want to concentrate primarily on the question of inflation, particularly on some of the measures which are mentioned in the so-called pre-Budget Statement and on the question of the independence of the Bank of England. It is quite extraordinary that the Governor of the Bank of England is prepared to accept what the Government have proposed. He is to be held accountable for controlling inflation, and the only weapon which he has been given is control of short-term interest rates. I cannot think of anyone who believes that the control of short-term interest rates alone gives sufficient power to control inflation. It is strange that that situation has been accepted by the Governor of the Bank of England.

One must relate not only monetary policy and interest rate policy but fiscal policy together. The crucial relationship is one which relates the PSBR, the extent to which it is funded, and the effect of that on the money supply.

Curiously, the arrangement for the Bank of England appears to be an interest rate policy. It has a so-called monetary committee but it is really an interest rate committee. It is not at all clear how that committee or the Bank of England will control the money supply. It is therefore difficult to avoid the conclusion that the Chancellor is trying to dispose of the responsibility for what happens to inflation onto the Governor of the Bank of England, but is not giving him adequate control.

One of the more paradoxical aspects of the new arrangement is that it would appear that the control of long-term interest rates has come back to the Treasury and away from the Bank of England. Indeed, in the Statement which we discussed the other day, the Chancellor actually takes credit for a fall in long-term interest rates. It is a very strange situation.

We have instead a so-called code for fiscal stability. When we discussed this earlier, the noble Lord, Lord McIntosh, said no, we did not want a Gramm-Rudman arrangement, as they have in the United States. While that has had its difficulties, it has the great advantage, if the borrowing requirement is to be kept under control, of a set limit, and if necessary for a vote to remove that limit. It would be a much more effective control by Parliament on the Chancellor than the mere fact that he will come back to this House and report on whether or not that limit has been breached.

What is not clear is the purpose of fiscal policy. This is not spelt out in the consultation document, and while it is in many ways an interesting document it does not deal with many of the crucial issues.

In the Statement we are now debating, there is a remark that there is a danger that today's pay rises threaten to become tomorrow's mortgage rises. While it may be a chicken and egg situation, after we have had--I have lost count--four or five increases in interest rates, it is extraordinary that the Chancellor of the Exchequer should

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put the proposition in that way. We must all hope that we will move to a situation where pay restraint is achieved and there is a reasonable rate of economic growth.

The idea that the Bank of England can be held accountable on these matters really does ignore what is happening on fiscal policy. It also ignores what is happening on import prices, on the exchange rate and on wage settlements. It is important that we should treat the proposals which are now put before us with a degree of scepticism. We must all hope that the Chancellor succeeds in his objectives. If his proposals are sensible, we must back those objectives and the measures he proposes. It is important that we look at them critically. I hope that the Treasury Select Committee in another place will bring forward the kind of points I have raised today. It is a very welcome development that your Lordships have this opportunity of discussing this today.

One final point. There will be other occasions when we can discuss the question of economic and monetary union and there are many traditional arguments for that development and many against it. They are very well known and I do not wish to deploy them now. But one argument did emerge when the Chancellor made his Statement to the House of Commons about the Government's position on EMU which had not been used to any great extent previously, and that is that we cannot do anything now because our economy is not in sync with those elsewhere in Europe.

We must consider very carefully whether it is desirable that the economies of Europe--and certainly the economies of an extended Europe--should all be in sync. If they are, it is inevitable that if there is a recession it will be at least a Europe-wide recession and will probably cause a world-wide recession. If the countries of Europe are in sync and there is inflation, it will be Europe-wide and probably world-wide inflation. I hope we will not hear that particular argument used in the context of the single currency issue.

These are all complex questions which we will need to consider very carefully. I am sure that the expertise of the noble Lord who made his maiden speech just ahead of me will make a valuable contribution to our debates in the future.

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