Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Renton: My Lords, I am grateful to my noble and learned friend for giving way. He has raised a very important point. Is it being suggested by the

1 Dec 1998 : Column 374

Government that this is to be treated as a revenue Bill, which therefore limits the powers of your Lordships' House?

Lord Fraser of Carmyllie: My Lords, I do not know. But I certainly understand the proposed timetable. I suppose that I am leading towards a rather bleak realisation that possibly the Government are anticipating that this Bill might in some way be carried over into the next Session. If that is the proposal, it raises some very difficult considerations--not for your Lordships--undesirable as it is that the timetable for considering such a Bill should not be unduly extended.

But let us get away from issues of our own responsibilities and our own convenience. It concerns me that this vital sector of our economy--an absolutely crucial one which, if anything, we would wish to see grow rather than contract in any way--will effectively be in limbo for something over a year. I cannot believe that it is to the advantage or the good health of the financial institutions--be they in the City of London, Edinburgh or any other place where they provide such valuable employment and give us such a worldwide pre-eminence--that that extended period of limbo should exist. I very much hope that before we get to the end of this debate we will understand exactly what is intended. We have every intention of scrutinising the Bill as constructively and carefully as we possibly can. However, we will not be prepared to participate in a shoddy, unduly protracted legislative process. I hope the Government appreciate that it cannot be expected that this House will nod through such an important piece of legislation.

I conclude by saying, in harmony with the noble Baroness, Lady Hollis, that I, too, look forward to the maiden speeches which are to be made during today's debate. I hope that the Government will understand the realities of the economy of this country and, now that we are well into their period of office, will at long last accept some responsibility for it.

3.50 p.m.

Lord Razzall: My Lords, the Minister indicated in her opening remarks that today's debate extends across a number of areas: industry, the economy and social affairs. In my opening remarks I will be touching on industrial and economic matters and will be helped and assisted by various of my noble friends. My noble friend Lord Russell, in winding up, will respond to many of the points raised by the Minister on social issues.

I am afraid that from these Benches we did not allocate any of my noble friends to the unscheduled amendment introduced by the noble and learned Lord, Lord Fraser, regarding the results of the north-east Scotland European Parliament by-election. Perhaps it would be better if I left it to the noble Lord, Lord Simon, to deal with the points he made in what I calculate was 20 per cent. of his speech. From these Benches we do not draw any conclusion from an election in which approximately 79 per cent. of the electorate voted against the Conservative Party and in which, on turnout, under 4 per cent. of the adult population of that constituency voted for it.

1 Dec 1998 : Column 375

The noble Baroness indicated in her opening remarks that the first touchstone of the Government's economic policy must be to endeavour to create a sound economy. She indicated that there will be a departure from the boom and bust policy which she regards as having occurred under previous administrations. I will not attempt to follow the lead of my noble friend Lord Rodgers of Quarry Bank on the first day of the debate on the gracious Speech in attempting to give marks out of 10 to the Government for their handling of the economy. Suffice it to say, broadly from these Benches, and from our Benches in another place, we have agreed with the Government's overall macro-economic position.

We believe that the public finances are sounder than they have been for some years. The Conservative Opposition might well say that that is the result of the Government's inheritance from them. However, there is some inconsistency in that statement which is sometimes made from the Conservative Benches with the statement from their Benches that the population of this country has been subject to many new taxes. There is a little inconsistency between, on the one hand, claiming credit for the inheritance and on the other hand blaming the Government for what they have done since. Be that as it may, we would say that the public finances are sound.

As noble Lords will be aware, we strongly welcomed the initial decision of the Government to give independence to the Bank of England in relation to monetary policy. The Liberal Democrats had advocated that for many years. We support the Government's policy in that area. We note with interest that even economic writers, such as Anatole Kaletsky in The Times, who were extremely sceptical at the time are now beginning to come round to the view that the policy is working, is the correct one and is a model for the kind of independent central bank that we look to see.

On the technical side, we have welcomed the decision of the Treasury, in calculating public expenditure, to separate capital expenditure from revenue expenditure. We regard that as a significant development in the management of our public finances. It has long been regarded by people in business as silly that social services expenditure and expenditure on unemployment benefits should, for public expenditure purposes, be calculated in exactly the same way as capital expenditure on roads, hospitals and schools. We very much welcome the Government's ability to persuade the Treasury mandarins to convert to that view.

However, having said that, in two areas we are clear that we would not have started from here were we in government. First, although we welcome the public expenditure increases announced by the Chancellor of the Exchequer, we remain critical of the Government's policy of sticking to the Conservative Government's expenditure plans for the first two years of their period in office. We believe that that was an imprudent exercise of the power of the Treasury in relation to the needs of social services, education and the National Health Service. We regard it as an unnecessary and draconian

1 Dec 1998 : Column 376

policy imposed by the Treasury. As noble Lords will be well aware, we would have increased taxation, if necessary, to absorb that public expenditure.

Secondly, we believe that the Chancellor of the Exchequer made a significant mistake by not putting up taxes for the consumer immediately the Government came into office. Most economic commentators now agree that the previous administration, presumably in an attempt to win the last election, allowed consumer spending to run too far ahead of where it should have been. While understanding the political constraints on the Government, we believe that a mistake was made by not damping down consumer expenditure at that point. As a result of the failure to take that decision, we believe that the reduction in growth in the economy has been greater than it otherwise would have been. Therefore, in those two areas, we criticise the Government. As I said, we would not have started from here.

We find the position of the Conservative Opposition somewhat puzzling. I note that of the 60 to 65 commentators who comment on the economy not one is currently indicating that he believes that the economy is heading for recession. The argument is about whether the growth rate will be 1 per cent., 1.5 per cent. or 0.5 per cent. But not one significant academic or economic commentator is actually forecasting a recession. I thought that the only person who was doing so was the Shadow Chancellor of the Exchequer in another place. However, I now know that two people are doing so. There is the Shadow Chancellor of the Exchequer in another place and the noble and learned Lord, Lord Fraser of Carmyllie, who in his speech today indicated that he believed that the economy--

Lord Fraser of Carmyllie: My Lords, I know that my speech may have been uninteresting to the noble Lord but he might at least quote me accurately. I said that as far as I was aware every responsible commentator in the country is revising his figures downwards.

Lord Razzall: My Lords, it is correct that those were the words that were used. Nevertheless, the tenor of the Conservative Party's opposition to the Government's economic policy has been that the Chancellor is driving the economy into a recession which he is refusing to forecast and is therefore over-optimistic. The main reason I think that is an inadvisable position for the Conservative Opposition to take--I would welcome the Minister's confirmation of this when he replies to the debate--is that the Treasury has indicated, and indeed the Prime Minister has indicated in press comment, that were the economic statistics to prove to be worse than the Government currently forecast, nevertheless borrowing would be allowed to rise to maintain the public expenditure plans that the Government have announced.

Those students of the economy who have not been bedazzled by the monetary policy mumbo-jumbo of the 1980s will know that that is classic Keynesian economics. I think this House would welcome a confirmation from the Minister when he replies to the

1 Dec 1998 : Column 377

debate that that is exactly what the Government's policy is and that there is no intention of their being blown off course with regard to their public expenditure plans, and, if necessary, they will allow public spending to rise and enable it to absorb the recessionary pressures.

I now turn to manufacturing industry. The noble and learned Lord, Lord Fraser of Carmyllie, has a point here. Clearly the issue of manufacturing closures and manufacturing activity in this country is a significant one. The problem that the Government and all of us who comment on these issues are faced with is that manufacturing industry these days probably affects only about 20 per cent. of the economy of this country, and probably half of that 20 per cent. is not involved in manufacturing as we have traditionally known it, but is involved in the assembly of components which are often brought in from overseas. Nevertheless it is the case that manufacturing industry in this country is suffering. We see factory closures and unemployment rising in that sector. Without going as far as the Conservative Opposition, we think it is disappointing that the gracious Speech has not produced any measures to deal with the downturn and the problems of manufacturing industry.

There are two obvious areas where we need confirmation that action will be taken. First of all, there is nothing in the gracious Speech about cutting red tape and reducing bureaucracy. That would have a significant impact on small manufacturing companies. Secondly, the Minister indicated in her earlier remarks that productivity was at the heart of the problems of industry. There is nothing in the gracious Speech to tackle those problems of productivity. It would be helpful if the Minister who is to reply to the debate could comment on what the Government intend to do with regard to announcements and plans. We are aware of possible studies by the Treasury and possible action. However, as regards any debate on our current industrial position, it is important that, if possible, those plans should be spelt out.

I turn to the industrial policy measures set out in the gracious Speech. The promotion of the right honourable Member for Hartlepool has enabled the DTI to rise up the Queen's Speech pecking order in terms of the number of Bills that we have before us. We obviously welcome in principle the legislation to promote electronic commerce. It will be interesting to see what that legislation contains. Apart from giving it a broad welcome there is nothing more that we can say at this stage. However, we have some reservations about press reports that some kind of Internet "tsar" will be created, on a par with the drugs tsar, to try to promote the Internet because it seems to us that that rather belies the way in which the Internet is supposed to work; namely, "bottom up" rather than hierarchically "top down". Nevertheless, we look forward to seeing the Bill.

We also look forward to the implementation of the fairness at work legislation. We wait with interest to see whether the Government's initial proposals have been developed further following the consultation exercise. Should that be the case, we on these Benches will not wish to intrude into the private grief of the Government and the trade union movement as to what may or may not have happened. I say as an aside to the noble and

1 Dec 1998 : Column 378

learned Lord, Lord Fraser of Carmyllie, who also touched on the minimum wage in his remarks, that I think it is true to say that not one of the European countries that has a stronger economy than ours and a greater GDP per head than ours and a greater growth rate over the past 10 to 15 years than ours, does not also have fairness at work proposals and minimum wage legislation at least as strong as the measures that will be proposed here. Some lesson should be drawn from that.

There are three major areas in which the Government should be criticised in relation to the implications of the gracious Speech for industry and the economy. First of all, it is extremely disappointing that there is no real provision for anything to be done about the "green agenda". The Deputy Prime Minister has striven nobly from Kyoto to Buenos Aires to bring the Government into the forefront on these issues. Yet nowhere do we see any proposals to tackle carbon taxes, pollution, and the green taxes that we were promised by the Government in the run-up to the election. We note with horror that the Government appear to be backing down as a result of pressure from the motor industry in relation to the whole area of motor car control, inner city pricing, and taxes on large cars. We feel that this is a significant omission which lies right at the heart of what should be a major plank of the Government's industrial policy.

Secondly, we feel that the Government and the gracious Speech are weak on what I would describe as the rights of the consumer. In the press, in this House and in another place there has been consistent questioning of the Government with regard to what is now emerging as a potential major scandal for the consumer in this country. By and large people pay more in this country for similar products than anywhere else in the European Union. There are all kinds of reasons for that but I believe the evidence is now consistent enough to show that that is the case. I know that when the Minister replies to the debate he will say that he introduced the Competition Act to give the OFT the power to do something about that situation. Time will tell. I believe there is a significant omission in the gracious Speech with regard to the Government's commitment to ensure that this matter is tackled. Whenever we raise this issue we are told that a campaign has been run by the Daily Express, as if that makes everything all right. However, the Sunday Times has also run a campaign on this issue and many people have produced evidence of what is happening. It is vital that the consumer interest in this country is protected. We wait with great interest to hear whether the Minister will confirm that he will ensure the necessary steps are taken following action by the Office of Fair Trading.

The third and final area I wish to discuss constitutes from our point of view the most glaring omission from the gracious Speech; namely, the question of the euro. Were a Liberal Democrat government in power and were this our gracious Speech, we would now bring into effect legislation to enable a referendum to be held. There is no doubt about that. We believe that it was a significant mistake on the part of the Government not to take steps immediately after the election to hold the referendum on joining the euro, and not to take steps

1 Dec 1998 : Column 379

immediately following such a referendum to join the euro at its inception. We believe that is a mistake that the Government will regret.

Notwithstanding the attempts by newspapers such as the Sunday Telegraph, which last Sunday falsified figures to indicate that there is some movement against the euro, we believe that the population of this country is moving away from, "Should we join the euro?" and towards, "When should we join the euro?". While recognising that we shall not have enabling legislation this Session which would allow us to hold the referendum or legislation that will enable us to join the euro, it would be extremely helpful if the Minister would give some indication of the timetable, and some indication that the Government's thinking has moved on, so that the question is now no longer "if" but "when". We believe that failure to decide on when to join the euro bedevils our economy.

4.10 p.m.

The Lord Bishop of Oxford: My Lords, this debate is obviously a special one, with no less than five maiden speeches. I look forward to learning from the wealth of experience that they will bring of industry and economic and social affairs.

Over the past 15 years I have had a number of opportunities to address gatherings of business leaders. I always enjoy such occasions because business brings an important element of realism into any discussion. In the end, business has to work or it goes bust. In that spirit of respect for business, I want to refer to the statement in the gracious Speech that the Government,

    "will continue with economic policies designed to build stability for the long term".

Talking to business people 15 years ago, one was aware of a spirited defence of the position that the shareholder always reigned supreme. Today it is widely accepted that the shareholder is one among a number of stakeholders: the employee, the customer, the supplier and the wider community, including the environment. It is recognised that each of those stakeholders has a legitimate claim and that the long-term success of the company depends upon that being worked out in practice. The mission statements of most modern companies will contain an expression of that commitment to the stakeholder concept. That is a remarkable change in the way in which our best companies view themselves and want others to view them. Of course, it is possible to be cynical and to regard mission statements as no more than window dressing, an attempt to look good on the front page of a glossy annual report. Even that may not be entirely worthless if you agree with the Duc de la Rochefoucauld that,

    "Hypocrisy is a tribute which vice pays to virtue".

Nevertheless, in our best companies there is an ethos that is undergirded by, and suffused with, a definite set of values. Nor is that just pure idealism unrelated to the hard facts of the financial world. The "Tomorrow's Company" project, sponsored by a number of our

1 Dec 1998 : Column 380

leading companies, shows that the stakeholder concept is fundamental to the long-term prosperity of a company. In short, ethics and profits go together.

I focus on this point for two reasons. First, the stated intention of the Government in the gracious Speech is,

    "the modernisation of the country, its institutions, its public services and its economy".
I believe that that modernisation is linked integrally with a revaluing of our national life; that is, a rediscovery and a reaffirmation of the values without which there can be no long-term well-being or prosperity. By values I do not primarily mean a set of principles urged by religious bodies. I mean teasing out, articulating, affirming and strengthening those values already implicit in our best institutions which lie somewhere in every human heart.

There are many modes of being modern--some superficial, some merely fashionable and some actually dangerous. True modernisation is inseparable from a greater emphasis on the shared values which not only bind our society together but which are also essential for its long-term well-being and prosperity.

My second reason for focusing on the point is that industry and commercial life generally have a crucially important role to play in this endeavour. As the gracious Speech put it, the Government are committed,

    "to work in partnership with business, and welcome the improved relations between business and trade unions".
I believe it important to affirm the continuing role of trade unions. It has been fashionable in recent years to knock them or try to marginalise them. Historically, trade unions have played a vital role in pressing for the basic values in industry and commercial life that today we take for granted. Often they have had to struggle against powerful vested interests in the name of a basic humanity. They still have an important role to play.

It is all too easy to confine values to a special debate on the subject or to associate them only with issues of personal morality or so-called "family values". However, values are fundamental to every aspect of our national life. That is why what has happened in our best companies in recent years has been so significant. They have publicly recognised the role of values in their long-term prosperity. That is shown not only by their method of operation but also by the way in which they have supported inner-city regeneration and many worthwhile social projects and through the lending of expertise as much as financial support.

Today's debate is about industry, economic and social affairs. We rightly associate social affairs with values, ensuring that the disabled are properly cared for, helping people into work, and so on. As the Minister put it, "Work for those who can, security for those who cannot." The problem is that debate of that kind is so often polarised between those who support issues of social welfare and social concern, which are traditionally associated with values, and those who like to speak on economic and industrial affairs, which traditionally have been regarded somehow as "value-free zones". There is no such thing as a value-free zone.

1 Dec 1998 : Column 381

Part of my thesis is that the kind of values that commercial and industrial life today are rediscovering and reaffirming are crucially important for the whole of our society. Values run, and need to run, right through all aspects of our lives, the public and economic aspects just as much as the social aspect. Business, both companies and trade unions, have played and continue to play an important role, helping to modernise our society in such a way that the core values, on which society as a whole depends, inform and shape our industrial, economic and social life.

4.19 p.m.

Lord Evans of Watford: My Lords, beware, I am a printer. Because I am a printer, it was with great anticipation that I ventured into your Lordships' Library. Books give me great pleasure. I delight in fine printing, good typography and elegant works. But, as I said, beware, I am a printer. If we are to believe Thomas Carlyle, my democratic trade is capable of dismissing hired armies and cashiering senates, but I promise that I have nothing so drastic in mind.

However, my reason for making an early visit to the Library was not simply for the pleasure of handling its fine volumes. Faced with the disconcerting prospect of this maiden speech in your Lordships' House, I wanted to discover what some of my new colleagues had said upon their introduction. It confirmed for me what a cosmopolitan collection, from many varied walks of life, this House is.

My apprenticeship began when I was 15. Luckily, I came to love the produce of my labours, but looking back I realise that formal apprenticeships were not as good as nostalgia would have us believe. Often, the institution encouraged what amounted to indentured slavery when boys were forced to do skilled men's work for a fraction of the proper wage. Gladly, those times have changed.

When I started, everyone believed that an apprenticeship meant a trade for life and that the skills learned would provide for an entire career. How vastly different it is today. Such is the speed of change that only continuous learning ensures that a person continues to be a valuable skilled provider; and it is now quite likely that a distinct change of career will occur two or three times during an individual's working life.

I was fortunate. By my mid-20s I had gained experience in sales and marketing within the printing industry and at 29, having saved a few thousand pounds, decided to start my own business. Some noble Lords will have personal experience of the trials and tribulations of starting and running a small enterprise. They will know how difficult it is to survive, how much one depends on customers and suppliers and, above all, on the loyalty of staff.

Cash flow is always the main concern of small and medium-sized enterprises--or SMEs as we are now collectively known. For this reason I was delighted when the Late Payment of Commercial Debts (Interest) Act received Royal Assent in the summer. As noble Lords will know, the Act seeks to ensure that large firms do not use their muscle unfairly to delay payments to smaller suppliers.

1 Dec 1998 : Column 382

The Act has yet to have much effect. Fear of recession, whether justified or not, is currently prompting some large firms to become sticky-fingered with cash which rightfully belongs to their suppliers. I hope that the intention of the Act is not to be thwarted by corporate bullying tactics, such as pretending invoices are not received, or the wilful abuse of procurement procedures as an excuse to delay settlement. These are not commonplace in well run companies.

SMEs provide 50 per cent. of this country's economic growth but also suffer a 50 per cent. failure rate within four years of inception. Many are hampered by unfair and now illegal withholding of their money by larger corporations. Eighty per cent. of this country's working population is employed by companies with fewer than 200 staff. Small and medium-sized businesses are a vital part of our economy and must be treated fairly.

Today, 27 years after I started, my business has grown to employ 180 people. We work in printing, publishing and graphic communications globally and are proud to be part of the United Kingdom's fifth largest manufacturing industry. Printing employs around 170,000 people in over 12,000 companies with a combined annual turnover of about £13 billion.

As noble Lords consider the gracious Speech and its particular relevance to industry, economics and social affairs, it occurs to me that my experience in building up a small company from scratch may be of some relevance. So I asked myself: what more could be done to help small firms? I have said that training has become a life-time activity. As the Government have made very clear, they believe strongly that education is the key investment for ensuring that Britain maintains and improves its economic position in the world. Despite this, few companies provide ongoing training for their staff, for the simple reason that they feel they cannot afford the time or the money. They are probably wrong, but any encouragement of, or assistance for, personnel development that could be offered to SMEs would, I believe, be both welcome and cost-effective. Its vital importance has been brought home to me during a 15-year happy association with the Institute of Personnel and Development in a joint enterprise to publish its highly regarded fortnightly magazine, People Management.

The ability of small firms to provide secure jobs so that people can develop their skills cries out for economic stability, a need clearly identified by the Prime Minister. So the Government's attempts to steady our economic ship in the choppy waters of globalisation, as evidenced by lower interest rates and corporation tax, are very welcome.

Our banks also have an important role to play in helping companies to weather the economic storms and, in turn, help to stabilise the economy. Like many others, I was dismayed to observe how, without warning, some British banks brutally brought down the shutters on small firms during the last recession. Whether they like it or not, banks have a social responsibility to our community which is wider than mere shareholder accountability. That said, it is welcome news indeed that

1 Dec 1998 : Column 383

the Government are considering legislation to provide companies in financial difficulty with a period of creditor respite for the purposes of reorganisation. I hope that the banking community will appreciate how helpful such legislation has proved to be in building the United States' economy and will consider its response to the proposed changes to insolvency law very carefully and positively.

Finally, one contribution that the Government could make to improve the prospects of small firms in this country would be to review the way that government departments and public institutions conduct their procurement policies. Human nature is such that long-established supplier/customer relationships are comfortable but this can be anti-competitive and, in the long run, economically damaging to society. It also leads to complacency. I believe there is still considerable room here for improvement in the way that public money is spent.

I thank your Lordships for giving me the time to say a few words on behalf of small and medium-sized businesses--and in particular, those in printing. The economic future lies in the hands of those who have the courage to be entrepreneurs. I see no shortage of potential candidates and I urge the Government to do all that they can to assist them.

4.27 p.m.

Baroness O'Cathain: My Lords, I am honoured to have been selected to congratulate on behalf of the whole House the noble Lord, Lord Evans of Watford, on his fascinating maiden speech. The noble Lord has had, and is still having, a brilliant career. As he said, he started his apprenticeship as a printer at the age of 15 and rose to launch one of Europe's leading print companies with an annual turnover, I am told, in excess of £50 million. That progression, which could not have been achieved without a huge commitment to part-time study, continuous learning and sheer hard work, is what we all admire. Although the noble Lord has achieved such success in business, he has still had the time and energy to develop his interests in a number of charities and political organisations. As a fellow Fellow of the Chartered Institute of Marketing, I am delighted to thank him for a memorable and relevant maiden speech. I truly look forward to his future contributions to our deliberations.

Like the right reverend Prelate the Bishop of Oxford I noted in the gracious Speech the phrase,

    "My Government will continue with economic policies designed to build stability for the long term".
When I heard the gracious Speech, I momentarily breathed a sigh of relief--but only momentarily. I was unable to stop my mind racing back to last year and to one of the first economic policies introduced by this Government, which was doubtless designed to build stability for the long term but, sadly, in the short term has proved to be anything but stable. I refer to the decision to change the ACT rules. I hope that in relation to the welfare reform Bill that is to be introduced we may have an opportunity to look at the matter afresh.

1 Dec 1998 : Column 384

A new government run by a party that had not been in power for 18 years were almost bound to make some errors. I cannot remember who said, "A man who does not make a mistake does not make anything," but I shall give the Government the benefit of the doubt and suggest that the ACT issue has had genuinely unintended consequences. I hope that in the interests of formulating policies designed to build stability for the long term the Government may change their mind.

Today's debate on the gracious Speech deals with industry and economic and social affairs. The consequences of the ACT policy change have been serious in terms of additional cost burdens on industry, the effect on the economy, and the implications for social affairs.

The annual cost of the change to the British Telecommunications Pension Fund is estimated by Lane, Clark and Peacock to be £166 million. In the case of British Gas the amount is £92 million, and for the Railways Pension Fund, £30 million. These are annual charges. They are figures I have picked out at random. The position is serious, particularly at a time when there is genuine worry about an economic slow-down. I hope that the noble Lord, Lord Razzall, will note that I did not mention the word "recession"--merely a slow-down in growth.

However, my plea to the Government is not based solely on the cost to industry. It seems we are dealing with a difficult situation. The Department of Social Security is giving broad hints--and more--that pensions are an area of ever-escalating cost pressure on the Exchequer and that perhaps more people should provide pensions for themselves and rely less on the state pension. I applaud the move. However, the very act of changing the ACT rules has made that alternative much less attractive. It was in effect a double hit--a hit in terms of business costs and a disincentive to follow the laudable suggestion that people should seriously consider planning to provide additional pensions for their third age, the current euphemism for old age.

I assure the House that company boards up and down the country, including those on which I sit, are now looking hard at changing their pension schemes to move towards money purchase schemes instead of final salary schemes. I have received information from the National Association of Pension Funds indicating that my experience is by no means unique. J. Sainsbury, for example, according to NAPF, has estimated the cost of the change to be £10 million per annum. It has had to pay additional contributions and has taken steps towards a money purchase scheme.

As I am sure everyone knows, money purchase schemes are nothing like as attractive as schemes based on final salaries. I shall not bore the House by detailing the reasons. Suffice it to say that it would be a sensible and welcome move if the Government could see their way to changing the policy now. In my personal experience of business one receives many more Brownie points by admitting that one was wrong in the first place and changing course than by sticking rigidly to an approach that had had unintended consequences.

1 Dec 1998 : Column 385

Having got that off my chest, I should now like to congratulate the Government on their radical decision to introduce a Bill to transfer the Contributions Agency to the Inland Revenue. I have a very high regard for the staff of the Inland Revenue, who have to be the least loved members of society. General reaction to tax collectors, tax inspectors et al has always been negative, right from the time of Christ when they were among the most despised of people. In those days, tax collectors operated on a "commission" basis and probably merited some sort of ignominy. In my book the Inland Revenue is probably the most dedicated, efficient and trustworthy band of civil servants I have ever dealt with--but I guess I would say that, being the daughter of an inspector of taxes.

The decision to amalgamate the Contributions Agency with the Inland Revenue should result in significant savings in administration--dead costs, as I usually describe administration charges. It should eliminate a great deal of the hassle of trying to get answers about one's deductions, be they income tax or national insurance. Let us face it: national insurance contributions are income tax under another name. I am sure that amalgamating the two will lead to greater efficiency. It is a good move. Indeed, I wonder why it has not happened before.

Thinking about the proposal--and it is quite radical--I wonder whether the Government care to be tempted to be even more radical and add to the Inland Revenue both the Benefits Agency and Customs and Excise. I am aware that the Benefits Agency is vast, and doubtless people will say, "Oh no, we couldn't possibly do that." But let us think about it a little longer before dismissing it out of hand.

The efficiencies in administration (dead costs) could be huge and--and it is an important point--having the Inland Revenue, the Contributions Agency and the Benefits Agency under one administrative system would almost certainly give power to discover and act upon benefit fraud. It would in effect result in a one-stop shop for the gathering and spending of the largest amount of money handled by government agencies.

Continuing in the spirit of radicalism, perhaps I may suggest that the whole question of negative income tax could also be considered. Just because it was the suggestion, I believe, of Milton Friedman is no reason for not revisiting the proposition. It is just a thought. I ask your Lordships to remember that you heard it first here, and from the Opposition Back-Benches!

All economists fall into the trap of analysing everything ad infinitum. I am not decrying analysis, but very often we fall into the trap of sifting out analytical results that do not conform to our long-held, if unstated, views about a particular issue.

The Government have undertaken analysis as to why industry in this country is relatively uncompetitive, and we have all heard the major reason--productivity. The noble Baroness the Minister majored on that in her opening remarks, quoting the productivity gap between the UK and the US as being 40 per cent. and that between the UK and France and Germany, 20 per cent.

1 Dec 1998 : Column 386

Analyses of productivity are very seldom what they seem at a first, superficial glance. The reflex action when faced with a diagnosis of productivity shortfalls is to hammer industry or employers for low productivity. I fear that we have heard that again today. It leads to a demoralised industrial sector, all the more demoralised because the sector is aware that in much of what it does it cannot change much.

The McKinsey Report, Driving productivity and growth in the UK economy, is probably the catalyst for this emphasis on productivity. Of course we must improve productivity. However, having read the McKinsey Report, I was slightly taken aback to see that selectivity had once more come into play and that one of the major reasons for our relatively inadequate performance in the productivity stakes does not get mentioned by government spokesmen or by the media; namely, the stultifying regulatory environment in which we operate.

The regulatory system in this country seems to be expanding all the time. We in this House have tried to halt the pace of expansion. At every turn, yet more regulation appears. All of us seem powerless to halt it. I fear that I have personally fallen into the trap on many occasions when I have said, "Why don't we legislate for X, Y or Z?" But the McKinsey Report makes it clear that the regulatory barriers in the economy are a significant hindrance to our competitiveness.

A few points raised by the McKinsey Report bear stating here. All are direct quotations from the report. The first is:

    "Product market and land use regulations create barriers to the entry of new firms and hinder the domestic expansion of the most productive UK companies. As a result, the best operators tend to focus their efforts elsewhere, on increasing domestic margins or expanding internationally. Because of this, unproductive businesses are able to generate reasonable profit margins and stay in business long after they would otherwise have been forced out".


    "The CAP has severely limited the supply of milk to UK dairy producers ... as a result UK dairy producers have faced supply constraints in developing more productive dairy products such as cheese and yoghurt. Countries less disadvantaged by regulation have been able to build much stronger and more productive dairy processing industries which in some cases now export their produce to the UK".


    "Strict building codes have prevented the development of a productive hotel industry".


    "Regulations governing pricing and competition have artificially constrained the productivity of the UK's fixed telecoms network".
So it goes on. Finally, from my batch of selected quotations, I offer this:

    "High street banks and other retailers located in listed buildings encounter difficulties in modernising their branches to improve customer services".

I do not point a "guilty" finger at anyone or any government but we should all be aware, when we criticise British industry for its lack of competitiveness, that as legislators we should examine our own actions first and establish whether or not we have to shoulder some of the blame.

1 Dec 1998 : Column 387

We all anxiously await publication of the competitiveness White Paper and hope that the regulations point is both exposed and dealt with. To use the in word, we need to modernise our whole plethora of regulations in a root and branch way, not just tinker with the twigs.

I wish to comment briefly on two other issues highlighted in the gracious Speech. The first concerns the promise to introduce legislation to improve the regulation of financial services and markets. I look forward to the consideration we shall give the Bill. Much of the draft Bill is to be welcomed, but there are areas which need further attention, including consumer compensation, an enhanced international role for the FSA and the need to continue consultation.

The second issue relates to the fact that legislation will be brought forward to provide a fair basis for water charging in England and Wales. I declare an interest as a director of a water company and look forward to contributing to the debate, based on my experience from the coalface, or should I say from the pipeline.

All of us in this House have the shared objective with the Government that, whatever we determine in the months to come, we hope that it will contribute to building stability for our economy in the long term. I look forward to the months ahead and hope that we are all successful in achieving that objective.

4.41 p.m.

Lord Christopher: My Lords, for me it is a pleasant happenstance that I follow the noble Baroness, Lady O'Cathain. She illustrates very well for me one of the first impressions I had when I came into this House a few weeks ago. It is how often many of your Lordships have crossed my path, and I yours, over the course of the past quarter of a century. The noble Baroness, Lady O'Cathain, is one. That leads me to say that the lasting impression I have is of the friendliness and help which my new colleagues and I have received from everyone in this House. That is certainly true of noble Lords, and particularly of all the officers and staff. I hope that there is some mechanism for conveying to them that such remarks are made about them, not as a matter of form but most sincerely.

It was a considerable surprise to me at my age to be invited to come here, but there are a number of possible reasons for it. If credit is due to anyone, it is the late Lord Houghton of Sowerby, who was the general secretary of the Inland Revenue Staff Federation, from whence I came. I very much appreciated remarks about the Inland Revenue and support them entirely. Lord Houghton established a culture which has done a great deal of good for many people. He believed in matters mentioned yesterday: training, fitness and productivity. Although he never used the word, he almost invented the concept of "stakeholders". Therefore it is a great privilege to me to come into the House and find the noble Lord, Lord Callaghan, here. I have wondered several times what would have happened both in the federation and in other quarters if he had not gone into the Navy. He and Douglas greatly supported

1 Dec 1998 : Column 388

me with their advice, and that is so of Douglas particularly from the time when he and I had our first clash at my first conference in 1953. He won, but it somehow led to a friendship which lasted until he died a couple of years ago.

Lord Plant of Benenden followed Douglas as general secretary. I now join two colleagues, the noble Lord, Lord Brooke of Alverthorpe--and noble Lords will join me in wishing him a speedy recovery from his illness--and my noble friend Lady Symons of Vernham Dean, who has already found herself on a distinguished Front Bench.

I reflected on what Douglas would have expected me to talk about. He believed very much in lateral thinking and in being radical. I do not think he would have wanted me to spend the time without making suggestions for change. So I hope he would be content that my maiden speech in your Lordships' House should be about the so-called "stakeholder" pensions on which we await a Green Paper.

Here I had better declare an interest. I am the executive chairman of Trade Union Fund Managers--a small unit trust company--and of the trustees of the charitable trust which owns it. We just might have a small interest in what happens in the future.

I understand why the Green Paper has been so long delayed. I am even a little encouraged by that delay and glad that it will be green and not white, since neither Lloyd George nor any government since have put the ultimate pensions system in place.

Therefore, I wish to question the wisdom of a conventional approach of a stakeholder pension scheme per se. I ask my noble friend Lady Hollis of Heigham, the Minister, to consider instead provision for retirement age through an individual retirement savings fund--an IRSF. I shall explain.

What--at least as I see them--are our objectives and perhaps the tests by which any scheme will be judged? First, whatever is done, whether or not it is compulsory--and my own belief is that any change is likely to be unworkable without compulsion--must not be or even look like more taxation or higher national insurance contributions. The global economy, anyway, pushes us towards lower taxes to sustain growth and work.

Secondly, I believe we must look towards personal ownership of whatever results. It is good psychology, but it also offers the prospect of maximum long-term benefit and, most importantly, provides absolute portability, certainly within the EU and probably worldwide. On that score, I am uneasy about the fashion for group and industry schemes.

Thirdly, we must look for rock-bottom charges. Fourthly, combined with that, we must look for top quality value for money.

Fifthly, the history of pensions suggests that we need to ensure that there is flexibility for governments to alter regulations to meet social and economic changes over time.

1 Dec 1998 : Column 389

Sixthly, we need a scheme which does not openly encourage employers to wind up good existing pension schemes or shift to schemes such as those to which the noble Baroness, Lady O'Cathain, referred.

How could it be done differently if it is not literally a pension scheme? I believe that it could be by means of a fund--an IRSF--invested for, say, 30 years in equities and, perhaps afterwards, progressively in less volatile securities. It could be a fund reported upon regularly by the manager to its personal owner.

What I see as important, if we are contemplating a period of a full working life--as I now do by way of illustration--is this. Over 40 years to the end of 1997, £1,000 invested in the equivalent of the all-share index, with net income re-invested, would be worth £173,000 today.

An objection to equities, oft repeated, was described in a pensions pamphlet which I recently received as,

    "the fluctuations of the rocky world of stock markets".
There is, of course, volatility in all market places, but this is not a valid reason for not using equity investment. The year 1992 saw the UK leave the ERM. The Financial Times/Stock Exchange all-share index dropped more than 15 per cent. over three months. What happened afterwards? One thousand pounds invested in June 1992, just before the ERM affair, would now be worth £2,200; £1,000 invested immediately after the crash would now be worth £2,600. But if the investment had been delayed until June 1993, the outcome would be £1,980. For different reasons, 1998 has witnessed similar phenomena--thus far anyway.

As I have said, taking a prudent view of 40 years is more likely to provide greater benefits on my basis than any likely pension scheme, and at much lower annual charges.

I have asked myself why the only thing that one should be allowed to do with such a fund is to purchase an annuity. Goodness knows why it is still demanded today. The objective of the state is to avoid burdens falling upon it. I imagine that it will be possible, annually, to calculate the minimum additional pension that any of us requires beyond the state or any other pension we may have so that we are not eligible for other state benefits. There are options that are not exclusive.

First, if the fund is large enough to provide income above the minimum requirement one can put the fund into "trust", by which I mean escrow, and draw income. On death, subject perhaps to a special tax after a reasonable exemption limit of, say, 15 per cent. in current terms to take account of the fund's origins, the fund could be part of a deceased's estate.

Secondly, one could require everyone to pay to the state whatever was required to purchase the minimum extra pension. Anyone would be free to use any balance as he wished, perhaps subject to a requirement to provide additionally for old age care. The Government would accept responsibility for paying this supplementary pension and for inflation-proofing it. This means that the Government would be assured as to the citizen's minimum income. Because the state would be both insurer and payer there would be no regulation

1 Dec 1998 : Column 390

costs, no private sector profits to be met and, assuming that payment was with the basic state pension, no extra payment costs.

Thirdly, another option would be to purchase at least the minimum annuity in the market. One would be free to use any balance as one wished, again subject perhaps to the need to provide for old age care.

I believe that this proposal, perforce outlined but briefly, goes a very long way towards meeting flexibly, perhaps in a popular way, the long-term aims of the Government. It could even become effective, albeit modestly, in contributing to individual retirement needs quite some time earlier than a narrow pension proposal. What is more, the owners receive all that is put into the fund both by themselves and their employers and the growth that has accrued over the period of time.

I make only one request of the Minister today. I am confident that the response will not be quite as bleak as that which Lord Houghton of Sowerby received in his early days when he made proposals for a pay-as-you-earn system. The Inland Revenue Staff Federation invented the pay-as-you-earn system. He was told by the then Chancellor, who I believe was Sir Kingsley Wood, to keep his nose out of the Government's business. The Government introduced pay-as-you-earn a short while afterwards. I simply ask my noble friend to think about what I have suggested. I thank the House for listening to me so patiently.

4.53 p.m.

Lord Levene of Portsoken: My Lords, it gives me particular pleasure to have the privilege of congratulating the noble Lord, Lord Christopher, on his perceptive contribution to this debate in his maiden speech today. His experience in the Inland Revenue both as a civil servant and latterly as general secretary of the staff federation brings a particular insight to your Lordships' proceedings in this House. His work and concern for many of the less fortunate members of society will also be of great value in your Lordships' consideration of these issues. We all look forward to hearing more from him in future.

I must declare two interests and make one apology. My interests are as chairman of Bankers Trust International and this year as Lord Mayor of the City of London. My apology is that my duties as Lord Mayor require me to leave the debate before it is over to attend the Queen's state banquet for the President of Germany.

My responsibilities as Lord Mayor cover two areas in the gracious Speech: the governance of London and the proposals for reform of the regulation of the financial services industry. The governance of London was dealt with in yesterday's debate, but I should like to place on record two points. First, your Lordships should note that in due course they will receive a Private Bill sponsored by the Corporation of London which will set in hand its own reforms, designed to modernise its electoral system and to give the world's international financial centre the best and most efficient local government, catering for the special needs of the industry, to be found anywhere in the world. Secondly, London governance and financial services are interrelated in this way: the

1 Dec 1998 : Column 391

success of our financial services contributes to the stature of London as a genuinely world city. The better London as a whole is run the more attractive it becomes as a location for the companies and individuals who make up the financial services industry.

The City of London, which I represent, has become one of the strongest brand names that this country has. It is now recognised around the globe as the world's greatest international financial centre, as the noble and learned Lord, Lord Fraser, observed. But, like Wall Street in New York, which is used as a metaphor for that country's financial services industry, the same industry in London has now spread well beyond the City's and London's boundaries. But it is that industry which is called "the City", as its core activities are still concentrated in the Square Mile, and doubtless always will be. Today over 1 million people in Greater London work in financial services. The national figure is 4 million, which is the same as for the entire manufacturing sector.

The next Session of Parliament will be a very busy one. Despite that, we must guard against anything that creeps into the legislative programme here or elsewhere which will harm this asset; it is vital not only to the UK but to the whole of Europe.

The City has given the UK a huge competitive advantage throughout history. But today, all the nations of Europe can benefit from that same competitive advantage. The number of overseas banks and other financial services firms in London is the clearest evidence of that. It is one of the most important messages that the City needs to convey in Europe during the coming year, especially in the context of economic and monetary union. The euro will certainly bring huge changes and the City is well prepared; indeed, it is better prepared than many others. Throughout the New Year bank holiday weekend, when most of London is either revelling or asleep, some 30,000 people will be working in the City in order to prepare for the first day of trading in the euro on 4th January 1999.

The single currency will not rob London of its importance in the European time zone overnight. On the contrary, the deep, liquid markets in the City will be essential for the euro's birth and effective operation next year and in the future irrespective of whether or not the United Kingdom joins. While the United Kingdom is outside the first wave of the euro, the City of London is very firmly in and will trade the new currency from day one almost certainly to a greater extent than the rest of Europe's markets put together. The euro, however, may not even be the most important challenge. Other issues will profoundly shape the City's future. One is the role of financial services in modern society. Will financial institutions take on responsibilities allocated to the state over the past half century? What are the responsibilities of fund managers? Does greater private provision for personal financial security mean that the City will be subject to greater public accountability?

Technology is another challenge. New nimble providers will emerge. Borrowers and savers have already found innumerable and ingenious ways to cut out traditional intermediaries as many City markets have

1 Dec 1998 : Column 392

discovered, sometimes uncomfortably. We are even treated to a vision of banking being conducted by satellites orbiting miles above the earth, conveniently free from inquisition by any government or tax collector.

Intense and intensifying competition within and between financial centres partly stems from relentless technological innovation. But the long history of the City suggests that it has little to fear from competition. That is why the City generally has always welcomed the creation of a single market in financial services in the European Union. The completion of the single market is vital to the prosperity of the whole of the European Union.

However, the rules for the single market must be drawn up so that Europe's financial business generally is not driven offshore and outside Europe altogether. The Commission's plans for a withholding tax to apply across the European Union to savings, income and, in particular, the huge euro bond market, concentrated in London but an asset to the whole Continent, will be highly damaging to Europe's standing in world financial markets. Elimination of harmful tax competition is fine, but it becomes self-defeating if the effect is to send business to other countries; and who is the winner then?

The Government have rightly taken a firm position against these plans. But I urge the Commission and the European Union presidency, both Austria now and Germany next year, to work through the OECD to seek world-wide agreement on such changes first instead of seeking to bring them into Europe alone. That is the only way to avoid the damage across Europe that they would otherwise bring.

This afternoon I have talked about a genuine British success story. The success of the City of London brings jobs and prosperity not only to London and the United Kingdom but to Europe as a whole. We promote standards of excellence which are generally the envy of the world. We act as hosts to an international community which affects the global nature of our world economy. It is vitally important that in implementing this Queen's Speech, and others in the future, Parliament and government are mindful of that, and nurture it as such to the benefit of London, Britain, Europe and the world.

5.1 p.m.

Lord Brookman: My Lords, it gives me personal pleasure in this maiden speech to have the opportunity to talk about a subject close to my heart: the manufacturing industry.

I welcome the measures set out in the gracious Speech which I believe will continue to form the basis for a fairer society in this country. All my working life has been spent, in one way or another, in the steel industry, an industry which was given much support earlier today. I started at the Ebbw Vale steelworks in south-east Wales in 1953, following the footsteps of my grandfather, father and brothers. Those were the days when one expected to begin and end one's working life with the same employer. It was one of the periods when Welsh rugby reigned supreme. How times have changed!

1 Dec 1998 : Column 393

At that time, my steelworks employed some 13,000 people. Today, that figure is reduced to 1,250 and continues to decline with rationalisation and so on. The scale of change in the steel industry is clearly illustrated by a statistic that I uncovered recently. When I began work in 1953, the steel industry in the UK employed 450,000 people producing over 17.5 million tonnes. Last year, 18.5 million tonnes were produced by fewer than 50,000 people. The changes that I and many others have witnessed at first hand have been staggering and painful for those communities like my home town of Ebbw Vale.

Yet today the UK steel industry, despite its current difficulties, is a success, with £4 billion a year being earned in exports, which is a fivefold increase over the past 15 years. I suggest that that is not an inconsiderable sum.

One of the current difficulties faced by manufacturing--and the steel industry is one of the most badly affected sectors--is the high exchange rate, which was mentioned earlier today. I am sure that that has been discussed many times in this House. There are those who are unhappy about the Government's decision to give the Monetary Policy Committee responsibility for setting interest rates, and in that respect I very much welcome the statement made by the noble Baroness the Leader of the House regarding the appointment of a Select Committee to consider its operation and to make recommendations.

From my perspective, a crucial question that needs to be asked is: how does the MPC's decision affect manufacturing? I believe that there is a need for the MPC to be given a wider remit which gives equal weight to employment and output as well as the control of inflation.

There have been suggestions, most notably from the TUC, for an exchange rate target. That may seem unfashionable in some quarters, but it would, if set at a sensible level, greatly assist our manufacturing industries.

I give one example of the consequences of too high an exchange rate. British Steel plc has claimed that every 10 pfennig increase in the value of the pound against the deutschmark results in £100 million lost profits. I am sure that noble Lords agree that it is a cause of great concern. However, I must say that in my view the Government have made a very good start in addressing the supply side of the economy and focusing on Britain's productivity problems, although it will undoubtedly be some time before the measures to address investment and training start to bear fruit.

It must be right for the productivity issue to be given top priority. The recent McKinsey Report, already touched on by the noble Baroness, Lady O'Cathain, showed that in many areas Britain is lagging behind its competitors in terms of productivity, although we must be careful, I suggest, to compare like with like. For example, the United States of America has higher prosperity per head, but that is partly as a result of longer working hours and higher employment rates. Moreover, productivity growth in the United States has been less. One disturbing fact is the growth in America

1 Dec 1998 : Column 394

of the "working poor". Significantly, according to the McKinsey Report the world leaders in manufacturing workplace productivity are France and Germany.

I suggest that it is quite clear from analysing that report that the deregulations of the 1980s did nothing to create a more productive society. What these statistics seem to imply to me is that there is a positive correlation between the levels of investment, research and development, and growth and productivity. Here again, I would say that the UK steel industry is an exception, having increased its productivity by 10 per cent. per annum over the past 15 years. In fact, the UK steel industry is, by common consent, among the most efficient in the world. That is a tribute to the joint efforts of management and the workers in the industry. That is why the current difficulties that our domestic steel industry faces are a cause for concern.

The steel industry has invested in training and new technology and has introduced new working practices to improve quality and increase productivity. Yet the resulting benefits are under threat due to circumstances which many would suggest and some would agree are beyond the industry's control.

In my opinion the key to the continuing successful introduction of measures to improve the performance of our manufacturing industry is to ensure the involvement of social partners. We need to continue to develop a culture in this country between employers and the workers which is based on trust and mutual respect, one which recognises that workers and their elected representatives have a legitimate role to play in improving the performance of the companies for which they work.

For all my working life as a trade union official, whether locally or at national level, I sought to develop a relationship with employers, including industrialists such as my good and noble friend Lord Paul, who sits on the Benches below me today, which was based on trust and mutual respect. That is why I wholeheartedly endorse the Government's commitment in the gracious Speech to continue to work in partnership with business, and their welcoming of the improved relations between business and trade unions. I am personally delighted that the Government are to bring forward measures to establish a forward-looking balance of rights and responsibilities for employers and employees and will promote partnership at work.

There may have been an argument--indeed, a strong view held by many--that trade unions were obstructive to change in the past. But my experiences demonstrate otherwise. I shall use what influence I have to encourage unions to work with employers on the basis of such social partnership. In my opinion, the measures in the gracious Speech lay the foundation for such partnership and fairness at work, as well as promoting competitive success. I am delighted to support the Government's programme.

Finally, I thank everyone--and I genuinely mean everyone--for the warmth and friendship shown to me and the new Peers who have joined me in your Lordships' House. It is indeed a privilege to be here.

1 Dec 1998 : Column 395

5.11 p.m.

Lord Wade of Chorlton: My Lords, it gives me immense pleasure on behalf of the whole House to congratulate the noble Lord, Lord Brookman, on his maiden speech. As we gathered, he is a Welshman of steel, a formidable combination. On reading a little about him, what impressed me most was that one of his pastimes is keeping fit. I must admit that that is one aspect of life which I have never been able to put at the top of my agenda. In fact, I always carry a telephone number in my pocket so that should I get the urge to jog I can ring the number and the lady on the other end will talk me out of it. Therefore, I have great admiration for the noble Lord's iron discipline that has allowed him to go to the gym rather than to be seduced away by his trade union activities. It has been a privilege to listen to his maiden speech; it is a privilege that he should join us in your Lordships' House. We wish him well and look forward to the many other opportunities which we shall have to hear his views on a whole range of subjects.

In discussing industry and the economy, it must be said that within the United Kingdom we have some of the finest and most efficient companies in the world, companies which produce the finest products in the world. We have some of the best managers and some of the leading employees with skills and a range of enthusiasms which are difficult to beat.

The noble Baroness, Lady Hollis, referred to the fact that our productivity needs to improve. Clearly, when one looks at the demands on society and government, we need to see a steady increase in the economic growth of this country if we are to have a hope of ever meeting the demands that society is continually putting upon us. Therefore, it is right that we should address the issues which are preventing that necessary development and growth.

My noble friend Lady O'Cathain referred to the McKinsey Report, as did the noble Lord, Lord Brookman. It was my intention to make that the basis of my remarks. Therefore, I shall now be able to shorten them, which will be in the interests of all.

The gracious Speech states:

    "At home, the central economic objectives of my Government are high and stable levels of economic growth and employment, enabling everyone to share in higher living standards and greater job opportunities".
That is extremely important. I read with some interest the comments of Peter Mandelson when speaking at the CBI national conference recently. He said:

    "Businesses' overriding responsibilities are to win markets and to make profits; government's to concentrate on getting the business environment right. Competition drives innovation, customer service and competitiveness. My ambition at the DTI is simple: to create a world-class environment for business, bringing business into the heart of policy making in Whitehall, in the regions and in Europe".
I agree strongly with those sentiments. But one is sometimes doubtful whether the implementation fits in with other aspects of government policy.

1 Dec 1998 : Column 396

I agree also with the part of the gracious Speech which refers to regional development agencies. It confirms that they,

    "will be established in England, decentralising decision-taking to the English regions. They will have a remit to serve both rural and urban areas".
I hope that they will be responsible for business growth.

The underlying point of the McKinsey Report is to draw attention to the fact that we need to look again at some of the critical trade-offs in the United Kingdom between social and economic objectives. The balance between the two has probably gone more towards social and environmental aspects and has forgotten the important economic objectives for which any European policy and government policy must be responsible. Wide productivity gaps will ultimately be unsustainable in a global marketplace in which customers have their pick of goods and services from anywhere in the world and while best practice customers seek to extend their advantage into more and more national markets. In such an environment, companies which are not up to the standard of the global benchmark for productivity will eventually become non-viable.

Those arguments do not propose the wholesale lifting of land and property regulations. Many other matters must be brought into consideration. What matters is that planning decisions and regulations are made on the basis of full and accurate information and properly balanced objectives and that when choices are made, everyone understands the possible economic consequences.

Product market and land use regulations create barriers to the entry of new firms and hinder the domestic expansion of the most productive of our companies. I am extremely grateful to my noble friend for citing some of the quotations which I intended to give because that has made life much easier for me.

Let us look at some of the proposals. To reform product market and land use regulation, there needs to be, first, a systematic identification of the barriers in each product market and the barriers to world-class productivity. A thorough assessment is then needed to understand the economic cost against social benefit together with a comprehensive reform of product market and land use regulation. I have personal experience of dealing with small and growing companies from both the financial and management points of view. I believe that those are extremely serious issues which the Government must address.

It is unfair to ask local planners to implement a more growth-orientated regulatory regime if their communities do not see any direct benefits from it. Local communities should derive financial benefits from new investment in their areas.

We need to develop a modern approach to competition and increase exposure to global best practice. Government and industry could sponsor international benchmarking studies to identify the rate of productivity improvement in the UK and the causes for the gaps. More positive action could be taken for the creation of incentives for companies, particularly overseas companies, to start operation in sectors of low productivity rather than in areas of low employment. In

1 Dec 1998 : Column 397

many of our activities we have put too much emphasis on employment creation rather than on improving productivity. There is no doubt that higher productivity is the best stimulus for creating jobs. The creation of jobs is not the key to economic growth but productivity is.

We must invest more in the capability and flexibility of the working population. The regional development agencies will have a responsibility for rural matters and rural economy issues. There is no question that there is a crying need for retraining and the development of ideas and enthusiasms in the populations which are now encountering serious problems in rural areas. We need a much better policy to deal with the retraining of those people. We need to remove barriers to entrepreneurship and technological innovation.

We need improvement in the commercialisation of academic research. I have been instrumental in the north west in the development of Campus Ventures, a special company of Manchester University set up to encourage the commercialisation of innovative ideas. I notice the noble Lord, Lord Sainsbury, looking at me. He was recently invited to visit but unfortunately had a more pressing engagement. I ask the noble Lord publicly again to put it on his agenda. I hope that at Manchester University he will see how we have been able to take 30 or 40 companies from scratch (no assets, only an idea) and turn many into successful businesses. It has needed outside resources and input from a whole range of people to make it happen. It is so important to the future of our economy.

The universities should improve their ability to develop more potentially high-tech entrepreneurs. In my view universities could provide courses for entrepreneurs which would give confidence to seedcorn capital and venture capital companies to back those who have passed such courses. The Government could underwrite such financial support. In Germany there is a special scheme supported by the government where people, if financed by banks, will be underwritten by the government if they have passed the appropriate courses. We need much more support to assist people with technological skills to run businesses. It is an area we need to examine more closely.

We need investors better educated in the needs of small businesses. The noble Lord, Lord Evans, in his maiden speech--I agree with so much of what he said--drew attention to the needs of small businesses by detailing how he had struggled in the early stages. Clearly, there is a wide gap between those who can provide the finance and the needs of small businesses. Neither understands the needs and the working mind of the other. A great deal could be done in that regard with the support of the Government.

Seedcorn investment needs particular attention and support. We need provision of a liquid exit market to provide finance for seedcorn investment companies to re-invest. I am involved with one or two seedcorn investment organisations. We find it extremely difficult to get our money out of company A in order to invest in company B because it is very often the only capital that was in that seedcorn company and the next stage

1 Dec 1998 : Column 398

cannot be brought in until we find a solution. We require the removal of barriers to the formation of natural clusters of entrepreneurial ventures. Clusters act as a magnet for talent and reduce costs. Many universities and centres of higher education wishing to create such clusters face problems of planning which prevent development along lines the market really needs.

It is my belief that tax and fiscal harmonisation in Europe would be against competition; it would be against economic growth in Europe; and it would be against the interests of all those who live in Europe. I hope the Government will stick by what they say and resist it at all costs.

I believe that what the Government are tackling and what is being discussed in this debate is the need for an economic policy which encourages all levels of entrepreneurship, ideas and the technology within that economy which is essential to achieving everything else we wish to see.

5.23 p.m.

Lord Newby: My Lords, it is a great pleasure for me to speak in a debate with so many maiden speeches. I do not know whether there is a collective noun for maiden speeches--perhaps it should be a lobby--but I have listened with great interest and wish that I were able to take up all the points that have been made. I was particularly sympathetic to some of the comments of the noble Lord, Lord Christopher, in respect of pensions. I would like to debate with the noble Lord, Lord Brookman, the alleged relationship between employment in the steel industry and the prowess of the Welsh rugby team. Although one could do a time-series which might or might not prove that in the case of Wales, one might have a bit more difficulty in applying the same principle to New Zealand.

Instead I wish to concentrate this afternoon on a number of international aspects of our economic and industrial affairs. I suspect the House will not be too surprised if I start with the vexed question of EMU. The Queen's Speech contains the following ringing declaration, that Her Majesty's Government,

    "will encourage preparations in the United Kingdom for the introduction in other Member States of the Euro".
The biggest economic initiative since the Treaty of Rome receives in the UK a mere whimper by way of government response. One may disagree with Opposition policy but at least it is clear. There will be no entry into EMU for at least the life of this Parliament and the next.

It seems to me that the Government's position is truly inglorious. The Chancellor wants us in. The Secretary of State for Trade and Industry wants to get us in. Yet Rupert Murdoch does not want us in yet, at least until his European empire has grown somewhat. And so we have an elaborate device for the five economic tests to give spurious cover for a political decision to procrastinate. No wonder that industry is confused and unsure how to prepare for 1st January.

In Continental Europe, by comparison, dual pricing in the shops (the euro and the national currency) has graphically demonstrated to everyone that change is on

1 Dec 1998 : Column 399

the way. Here business is understandably loath to spend money preparing for the euro when it is often unsure how it will affect it in the short term and even less clear about the longer term. Given the lag between any decision to enter and the ability of banks, shops and industry to manage the transition to the euro, even a decision in principle now to enter would leave us a number of years behind the 11 initial members of the euro club.

We will, in January, see the Government's changeover plan for entry, which I suspect will show that the changeover period will be some three to four years. The earliest, therefore, that the UK could enter would be 2002, but even that would require a decision early next year and so far there has been no sign of this.

It seems to me that there are significant short- and long-term costs to this delay. It is particularly so because the pound and interest rates are still too high. As far as sterling is concerned, although the trade-weighted value of the pound appears to be only a little above its May 1997 level, looking at the real effective sterling exchange rate used in the OECD index, it is clear that it is some 8 per cent. higher than in May last year and fully 26 per cent. above the level in May 1996. In other words, it is clear that sterling is still somewhat over-valued and life is going to remain tough for exporters. The economists Goldman Sachs, in their weekly economic update, suggest this week that they consider the level of 2.50 deutschmarks to be close to the fair value of sterling, still some 30 pfennigs below where we are today.

A lack of government commitment over the coming months, I believe, runs the real risk of leaving the pound open to buffeting between the Scylla of the euro and the Charybdis of the dollar. It is hardly a stable basis on which our exporters can plan. If the pound is too high it is clear that our short-term interest rates are still extremely high in relation to those of Europe. At 6.75 per cent. it is around double the 3.3 per cent. average in the euro zone. With the retail side of the UK economy still softening it may well be that the Bank of England is able to cut interest rates by a further quarter point next Thursday, but this will still leave a yawning gap between the UK and the euro zone. The clear commitment to join the single currency now could help take pressure off our hard-pressed manufacturing sector.

If these are short-term problems, in the longer term we face the prospect yet again of Britain having no real ability to determine many of the rules of the euro game simply because we are not at the table. The Chancellor may have signed up to the new European way with his socialist and social-democratic colleagues, but the plans which this document sets out are predicated on the reality of the euro. The truth, of course, is that this Government still cling too much to the old British way of dealing with Europe: letting the other members take the risks and set the rules and then coming in late and expecting the rules to be changed to suit us.

An example of what we are missing by being left out relates to some of the principles on which the European Central Bank is now planning to operate. The effect of having had an independent central bank means that

1 Dec 1998 : Column 400

we have discovered a measure of openness and accountability in dealing with the central bank. The European Central Bank started off with a different tradition and, frankly, we had little input into that. Had we been at the table from the start it would have been easier for us to obtain a greater degree of openness and accountability from the European Central Bank.

The Government's lack of clarity on the euro is matched by their lack of clarity more widely on the question of taxation and the implications of EMU for taxation. It must be said that a tremendous amount of nonsense has been written on this issue over recent weeks. For example, contrary to what one might have thought on reading some of the tabloids, there are no plans to harmonise income tax; there is no conspiracy to set uniform business taxes. There has been some discussion about co-ordination and co-operation to avoid mutually harmful tax competition, and surely that makes sense. Even on the one issue on which there is a firm proposal which causes some concern in this country, to which the noble Lord, Lord Levene, referred--namely, the withholding of tax on savings--that is opposed not only by the UK but also by a number of other member states. Therefore, even if the veto on tax matters did not exist--and it does exist--that measure would not have obtained a qualified majority and stands no realistic chance of going through.

It seems to me that the paranoia in relation to tax reflects a lack of self-confidence in the country and an unwarranted assumption that if a Commissioner or Cabinet Minister in another member state floats an idea it is about to be imposed upon us virtually without our having any say, whereas, by comparison, if a UK Cabinet Minister floats an idea there is an assumption that it will necessarily meet a hostile reception and sink without trace. Neither of those stereotypes is true but they have bedevilled our relations with the EU from the start. I fear that this Government's policy will do little to change that.

Perhaps I can make a final point on tax. There may be some areas where a joint approach to taxation makes sense. One which is specifically in our minds on these Benches is the area of energy taxation, where there is a clear desire across Europe and in this country--as the noble Lord, Lord Marshall, demonstrated in his recent paper--to have a degree of taxation on energy matters. It makes sense that that is done in a co-ordinated rather than in a piecemeal way.

A final area to which I should like to refer this afternoon goes beyond the euro and our relations with the EU, but relates to a broadly similar matter; namely, the fact that increasingly our economic and industrial success depends on the actions of a range of international institutions. So far I have talked about the European Union. I should like to speak briefly about the international financial and economic institutions. They have an increasing importance across a whole range of matters affecting the UK, both directly and indirectly, by the impact they have on the economies of our trading partners, particularly in the developing world.

I have been pleased that over recent months the Government appear to be taking the lead in a number of major issues affecting those institutions, whether it is

1 Dec 1998 : Column 401

Internet commerce or an attempt to recast the MAI. But there is a gap in the way that Parliament deals with its scrutiny of those bodies.

Tremendous time and effort is taken both in another place and this House to call domestic institutions to account. When it comes to international financial and economic institutions, all of which have UK representation, there is little attempt, ability or opportunity to discuss what we are doing in, for example, the EBRD or the World Bank. That is a major gap which has the effect that those institutions not only are but are also seen to be unaccountable, and that diminishes their standing among politicians and more generally. I urge the Government, therefore, to give some consideration to how the principle of scrutiny which we have developed in domestic institutions can be extended to these increasingly important international counterparts.

5.34 p.m.

Lord Craigmyle: My Lords, a newcomer to your Lordships' House is frequently asked whether he feels nervous. I say "No. Their Lordships' House is a kind place, whose Members and officers epitomise helpfulness and encouragement", for which I am very grateful. However, I am awed by the content and majesty of your Lordships' deliberations. And with awe, I now crave your Lordships' indulgence.

We have a welfare system built up over 50 years, so complex in its results that it is almost impossible to predict the outcome of any change made to it. The effects of change can seldom be only those which were intended. I wonder sometimes whether Ministers wish that they could sweep away the entire edifice and start again with a clean slate. Plainly, the Government should be congratulated on taking on entrenched and systemic problems.

Along with the great majority of family men, I chose marriage. Families founded on marriage are most likely to produce children who do well in school; who go on to higher standards of education and who get jobs. Like their parents, they tend to be healthier than children from other families. They see their doctors and visit hospitals less often and are less likely to need social or financial assistance from the state. When the time comes, they have the best chance of repeating their satisfactory childhood experiences when raising their own children. Children of marriages are least likely to turn to substance abuse or to crime. Have I made a case for marriage yet? In the interests of fairness, I sought to find unflattering statistics about marriage. I failed. It has been shown that married people are even less likely to have road accidents--I do not know why.

Of course, we can be grateful that some unmarried families buck the trend in a positive direction. But we cannot escape the statistical probabilities that shape society. Plainly, there are huge benefits in being married and I am delighted that the Government have a stated aim of supporting and encouraging marriage; all the traits of marriage bring fulfilment and joy to relationships and stability to the country. They make the

1 Dec 1998 : Column 402

family, as the Home Secretary rightly said, the building blocks of society. They are of course also a gift to the Exchequer.

Frequently in a family, not just in marriage, one parent--usually the mother--stays with the children for their early years. She watches over their every development, understanding through an invisible bond their unspoken needs, and answering their questions at the rate of 20 to 30 an hour. Such diligence is not for sale. Love has no price. Yet a mother is often under great pressure, both social and financial, to seek paid employment while leaving her children in care. The suggestion seems to be that government agencies or non-related persons can make up for the lack of a parent. I am very uncomfortable with that suggestion.

Yet, some parents wish to work away from their children; we will never know just how many until they are presented with an unbiased choice. An unbiased choice means no loss of benefits for those who would look after their own children. It means that their spouses, if they have spouses, should not pay extra tax as a result of leaving their partners at home.

I have avoided numerical statistics. I shall resort to quoting some to express just what a pickle we are in. The medium gross income for families is now £407 per week. If that comes from the efforts of a single earner with, say, two children, it is reduced by tax and benefit losses to 48 per cent. of the net equivalised income of a single person earning the same amount. Less than half.

Poverty has become a marital issue. I am grateful to the analytical services division of the DSS which last week showed how children are affected by it. Taking poverty at half average income, most children affected by it are from married families. There are 1.8 million of them. The point, my Lords, is that marriage is being driven into poverty in spite of its intrinsic strengths.

These are gritty problems to embrace, but as long as the Government drive towards their stated aim of supporting marriage--and I hope that they will--I am sure they will receive wide support.

5.40 p.m.

Lord Barnett: My Lords, it is traditional to congratulate a maiden speaker. I do so not because it is traditional but because it is well deserved. That was an excellent speech. Indeed, we have heard many excellent speeches today, but that of the noble Lord, Lord Craigmyle, has given us all a great deal to think about. I declare an interest in the sense that my parents, I am happy to say, were married. I shall turn shortly to a few matters concerning tax, to which the noble Lord also referred.

I know that the noble Lord runs a successful string of SMEs; that is, small and medium enterprises. I declare an interest as chairman of an SME. For obvious reasons, I believe that small is beautiful.

The noble Lord also has a great social conscience and has a good deal to do with social and charitable organisations. I know that he will be a great Member of your Lordships' House for however long he is here!

1 Dec 1998 : Column 403

I look forward to hearing him speak as often as possible, as, I am sure, do other noble Lords. His views will be of great interest to us.

The noble Baroness, Lady Hollis, will forgive me if most of my speech is on the economy. However, perhaps I may comment first on means tests. The noble Baroness did not say much about them. However, there is no need for her to apologise if from time to time the Government need to use them in order to achieve their objective of helping those in greatest need. That would include taxation of child benefit. I know that that is not entirely a matter for her, but I hope that it will be a matter for my right honourable friend the Chancellor of the Exchequer. Traditionally, we in the party have always opposed means tests because of the way they worked in the past. However, provided that they are carried out so as to give dignity and respect to the recipients, we should not need to apologise for them. I urge that point on my noble friend.

I turn to the economy. There has been much talk in the press about crisis and recession. The media likes the word "crisis". It makes a nice headline and is a useful word to them. I do not blame them for using it; they have to fill their papers with something. However, I noticed that the Prime Minister, recognising that the word "stability" would not make a good headline, added another word. He said, "Stability is sexy". Even that did not prompt too many headlines!

I asked myself two questions: "Is there a crisis? Is there a recession?". I first had to answer the question: What is a recession? I asked a number of economists and received at least three different definitions--my learned friend Lord Desai will have many more. The first is that there are two successive quarters of negative growth. The second definition, by some economists, is that any fall in growth is a recession. The third, which might be a more recognised definition, is growth below a sustainable trend.

At least two of those definitions are effective now. There has certainly been--and there is now--a slow down in economic growth. More importantly, what will happen to economic growth next year and the year after? That is the real cause for worry about whether there is or is not a recession.

The Chancellor, in his recent pre-Budget Statement, forecasted that next year we shall see 1 to 1.5 per cent. growth; the following year 2.25 to 2.75 per cent., and in 2001 2.75 to 3.25 per cent. Other economists have more varied views. Perhaps not surprisingly, if one consults a large number of economists one will receive a large number of views. However, I am in the "don't know" category. I would not care to forecast tomorrow's weather, particularly in Manchester where I live.

The question is whether growth in the economy in two years' time will be affected by a quarter or a half per cent. cut or increase in interest rates. I find it astonishing that anybody is able to say that a quarter per cent. more or less will do this or that in two years' time. For those reasons, I have probably ruled myself out as a member of the Monetary Policy Committee, but

1 Dec 1998 : Column 404

perhaps not of the Select Committee which studies what the MPC is doing. I have always envied people who are able to make such forecasts.

On the one hand, we read that a quarter per cent. cut in interest rates is not enough, but, on the other hand, we read that a half per cent. cut causes panic. That is another buzzword. I do not know the answer. I would prefer to have lower rates than at present. Sadly, unemployment is set to rise. That seems true, whichever economists' views are taken into account.

Some manufacturers are having a bad time though not all. That, I understand. I have spoken to many manufacturers. Much of the problem is to do with high interest rates and the high exchange rate. However, I have to say that I have not heard those who criticise such high rates suggesting ways to reduce them. I shall put one or two suggestions to my noble friend in a moment. I would prefer higher rates of growth--to pay for so many of the things which need to be done--even with a small risk to the level of inflation. However, I do not believe there is much of a risk at present. I do not blame the Monetary Policy Committee for dealing with interest rates in the way it has. After all, your Lordships and another place gave it the powers in the Bank of England Act to give the highest priority to inflation and, as I said previously, only then to give consideration to the Government's own economic policy. I hope that might be changed in the not too distant future.

How much lower will growth fall? I fear it is distinctly possible that the Chancellor may have been too optimistic. I hope that I am wrong. However, I would have qualified the forecast if I had been the Chancellor. On the other hand, even if the gloom-mongers or doomsters are right about growth. It seems to me that the borrowing requirement--we no longer seem to use those four letters, the PSBR--leaves plenty of room to avoid an old-style slump or crisis. The plain fact is that in 1997-98 the borrowing requirement, or the PSBR, was £42.1 billion. Of course, that is a lot of money--unless one says it very quickly--but in 1998-99 GDP is likely to be around £855 billion. Therefore, the PSBR will be less than 40 per cent. However, if my noble friend will forgive me for using the term, the Maastricht criterion is 60 per cent. I know my noble friend will understand that we can well afford that kind of borrowing requirement.

I hope that the Government will allow the borrowing requirement to rise so as to prevent growth falling too low. It seems to me that there is today a low inflation culture both here and in Europe, and, indeed, in the western world. So I prefer stability, whether "sexy" or not, to the doomsters' predictions.

However, although this will upset my noble friends the Eurosceptics, we could have even greater stability if we were more positive on economic and monetary union. I hope that my noble friends will not just dismiss the scare stories about tax harmonisation because of our veto. I would not like to pretend that the tax system is perfect in every sense--I believe that there is clear room for improvement--but we should not dismiss every possible change as being ridiculous. It would not be. Indeed, there is also room for change in that respect! Of

1 Dec 1998 : Column 405

course, Eurosceptics will not believe what I say. During the debate a few weeks ago on the European elections Bill, I said that if they offered every member of the Community a bar of gold it would be turned down. Equally, any tax harmonisation would be turned down even if it were to our benefit. I hope that we will not turn that down.

The main issue is not tax; it is the consequences of economic and monetary union, whether we are in or out. EMU is due to start in a month's time. I know that some people believe that we can ignore it and live happily ever after--and I shall not mention names--but I hope that most of us will recognise that that is a ludicrous idea. The plain fact is that we will be affected whether we are in or out. As we said in our report on the European Central Bank, being in is not risk free but we also said unanimously that it will work.

So what should the UK be doing? I have one final, simple question for my noble friend the Minister to which he can give me an equally simple answer when he responds to the debate. I urge him not to repeat the Prime Minister's statements. He is an independent Minister here in this House and does not necessarily have to agree with everything that the Prime Minister says. As it stands, we seem unlikely to join much before the year 2003. I should like to focus briefly on the statements made by the Prime Minister and others that we will join economic and monetary union when the time is right and when it is in the UK's national interest.

Therefore, does my noble friend the Minister agree that it is not a question of if but of when we will join the EMU? After all, that will still leave us free to join when the time is right. Indeed, it will be a no-lose situation, because we will not join until the time is right. Interest rates would start to fall to the 3.3 per cent. average in Europe, and our exchange rate would also start to fall. Can my noble friend confirm that it is a question of when we join rather than if? I know that he will give me a truthful answer to that question.

5.54 p.m.

Baroness Sharp of Guildford: My Lords, it is a pleasure to be speaking in this debate when we have been treated to so many excellent maiden speeches. Indeed, I look forward to hearing another one very shortly. I put my name forward for the debate because I wish to record my endorsement of the Government's commitment recorded in the gracious Speech to promoting growth and higher levels of employment both within the UK and within the wider framework of the European Union. Like the noble Lord, Lord Barnett, I feel that those commitments are important.

However, I wish to address my remarks today to one of the issues which has already been fairly well covered; namely, the productivity gap. I should like to speak specifically about two issues arising from that gap which I believe to be very important and which have not received enough attention to date. The first issue is that of skills. As the noble Lord, Lord Barnett, said, last year the UK recorded a growth of 3.5 per cent. But that rate of growth, which is one of the highest rates that we have recorded over the past 25 years, was considered

1 Dec 1998 : Column 406

unsustainable. It was considered unsustainable because we would run into bottlenecks on the supply side which would force us into inflation. As a result, the Monetary Policy Committee stepped in and raised interest rates--as it is bound to do because legislation requires it to do so if it fears that inflation will rise--and, in so doing, has not only cooled the economy by raising the cost of credit but has also disproportionately hit manufacturing industry by raising the value of the pound.

As my noble friends Lord Razzall and Lord Newby pointed out, had the previous government, or even this Government, taken our advice and used taxation rather than interest rates to cool the economy and, on top of that, had they made a commitment to enter in the euro at the earliest possible point, we might have avoided these problems. But we did not. However, be that as it may, the point that I wish to bring to your Lordships' attention is that, even though the unemployment figure last year was still close to two million, nevertheless, with the growth rate 3.5 per cent., we teetered on the brink of inflation. Why is that? What are these supply-side bottlenecks that cause us to move into inflation so rapidly?

I believe that the most important of those bottlenecks is the one that we hear so much about; namely, the skills bottleneck. This year it has been computer programmers and systems engineers partly because of the millennium bug, but--and those who work in the property business will know this very well--we have also run out of electricians, bricklayers and plumbers. Indeed, we have run out of a great many ordinary skills which we might have been expected to have. But now that we have a deregulated market in all those areas, the moment the economy tightens, wages rise rapidly and the skills shortages show themselves very clearly.

The Government quite rightly identify education as a key priority. It lies at the heart of the productivity problem. Much has been achieved by increasing the proportion of 18 year-olds going into higher education and by encouraging many older people to go back into higher education. But we still have a disproportionate number of young people leaving school at the age of 16 and failing to achieve a proper post-16 education or training. A recent survey reported in The Times Higher Education Supplement found that standards on training schemes are extremely low and leave much to be desired. Many of those who have been put through training schemes then pass on to another such scheme and thereby miss the chance to get a proper job.

The old apprenticeship system that we had, which required seven years of sitting next to Nelly, quite rightly collapsed at the end of the 1970s and in the early 1980s. We now have what we call a modern apprenticeship system but far too few young people sign up for modern apprenticeships and far too few of those who do sign up carry on with the apprenticeship to the end. As a result we have far too few qualified plumbers, electricians, bricklayers and telecoms engineers and far too many cowboys who have done a little bit of a course here and there. It is precisely this lack of skills in core areas such as construction that makes a 3.5 per cent. rate

1 Dec 1998 : Column 407

of growth unsustainable for us. Unless we address this issue, we shall not be able to bring unemployment down.

I am not yet convinced that the Government have grappled with the issue of vocational training. Last year, an excellent report was published by a group led by the noble Baroness, Lady Kennedy, but we have yet to see the result of that report coming through. Perhaps too much emphasis is currently being put on the school and higher education sector and not enough on this sector. I look forward to hearing the Minister's comments on this issue.

I would like briefly to turn to the second issue of small and medium-sized businesses. We have already had some discussion of it in this House. Again, if we look at the productivity problem, it is the performance of these companies which lies at the root of it. In some senses it is a matter of needing to hi-tech our low-tech businesses. New technologies--particularly information and communication technologies--have transformed both industrial processes and administrative procedures for such companies. It is vital that these opportunities are seized by industry, large and small. It is in taking up these new technologies that the small business sector is the laggard.

How best can small business be helped? We have had many schemes put forward but they have been predominantly schemes concerned with what I call the hi-tech end of small business. They are concerned with seed corn capital, with venture capital, with helping to link up with universities in terms of hi-tech businesses. Yet the core problem of productivity lies not with our hi-tech businesses but with our non-hi-tech businesses and the way they take up new technologies and use them to improve their productivity. It is the tail of these small companies that weighs down our productivity performance.

I recommend to your Lordships a programme undertaken in the United States called the Manufacturing Extension Programme. It is deliberately based on the same sort of ideas as the agricultural extension programme, ideas about getting out and helping small businesses on the ground. There, they work in conjunction with state governments, local government, local universities and local community colleges to upgrade the performance of small businesses.

We see the same in Germany with the Frauenhofer Society institutes, which work in conjunction with their local chambers of commerce and serve the Mittelstadt, which is such an important part of German industry. I want to draw to your attention the transformation which has taken place in Germany over the past 10 years. I work a great deal in the area of biotechnology. I am fascinated that, in the past 10 years, Germany, from having lagged behind in terms of small biotechnology companies, is now leading Europe. When they decide to pick up and work on new technologies, the Germans work very fast indeed.

We need policies for small and medium-sized businesses which start bottom-up, not top-down. It is no good the DTI laying down policies that have to be

1 Dec 1998 : Column 408

followed through government offices of the regions, and so forth. We hope very much that the new regional development agencies may do some of this. But I fear that they also are too top-down. They have not been given enough discretion. We have not yet sufficiently cut the Treasury bond. We need to see more vitality and more creativity coming up from the bottom. If we are prepared to give some discretion to certain of these institutions and organisations, I believe we can do it. I do not believe we can do it if we continue to keep the reins too tight.

I recommend both areas as being important to the productivity issue. We have spoken a great deal about this in this debate. It is an issue that has bedevilled the UK economy for the past 50 years. Education and skills and the performance of small businesses are key factors in Britain's performance. I welcome the priority given to both issues by the Government within their overall economic strategy and I look forward to hearing from the noble Lord, Lord Simon, as to how it is proposed to carry forward these matters in future.

6.05 p.m.

Lord Clarke of Hampstead: My Lords, I am conscious of the fact that I am the fifth of the maiden speakers this afternoon, but I would like to offer my congratulations to the other four noble Lords who have preceded me in their maiden speeches. They were of excellent quality. I just hope that the standard will be continued for the next few moments.

I would like to spend a few moments remembering two noble Lords--now, sadly, no longer with us--who have sat in your Lordships' House and who bore the same title of Hampstead. I refer to the late Lord Pitt of Hampstead and the late Lord Finsberg of Hampstead. They were two noble Lords separated by their political allegiances but together in their desire to give of their best endeavours to help others throughout their distinguished public lives.

All three of us were candidates in the Hampstead Parliamentary constituency. The late Lord Pitt entered your Lordships' House in 1975. David Pitt, as he was in 1959, contested the Hampstead parliamentary seat in that year. I well recall that election. I canvassed many households seeking support for David. I am pleased to say that he never held me responsible for the fact that he was unsuccessful. In both the 1974 general elections, I stood as the Labour candidate and my opponent was the late Geoffrey Finsberg. Like the late Lord Pitt before me, I too was unsuccessful. Geoffrey Finsberg, as he was then, retained his seat until his retirement from the other House in 1992. Later that year he entered your Lordships' House.

It is with a little pride and a great deal of humility that I say during this, my first contribution to your Lordships' House, that I remember both noble Lords with much pleasure. I am proud to say that they were both my friends. I can only express the hope that in my time here I can get somewhere near the high standards that they both set. It is a very tall order. All I can say is that I shall try.

1 Dec 1998 : Column 409

I listened carefully to the gracious Speech. I was hoping that it would contain an indication that the industry that I have been associated with for over half a century would at long last know what its future would be. I speak of our great Post Office, a post office that I joined at the age of 14 in 1946.

I am aware that I am not the first postman to join your Lordships' House. That honour fell to my noble friend Lord Ewing of Kirkford. While I accept my place as the junior postman in this House, perhaps I can claim to be the first telegraph boy to arrive here. I have no doubt that someone will correct me on that point if I am wrong.

Speaking of postmen, I understand that my noble friend Lord McIntosh of Haringey, in a reply to a point made by the noble Lord, Lord Ewing, on the 10th November at col. 626 of the Official Report, said that the noble Lord, Lord Dearing, had informed your Lordships' House that he had been a postman. This information came as a bit of a surprise to me. I recall a number of delicate situations in the Post Office when the noble Lord, Lord Dearing, was in fact chairman of the Post Office Board and I was a senior negotiating officer for the Union of Communication Workers. I thought that I should check carefully what the noble Lord said, and col. 507 of the Official Report provided the answer. Declaring his interest in the Post Office, the noble Lord, Lord Dearing, described himself:

    "as a former postman of sorts".--(Official Report, 9/12/98; col. 507.]
I can assure your Lordships that he was not the sort who got up at around half past four in the morning to deliver the mail. He did not join us in serving the 26 million addresses that our great Post Office serves every day. I have had the opportunity to speak to the noble Lord, Lord Dearing, about this. He was happy to concede that he had not delivered many letters but he said he had sold a lot of stamps.

The gracious Speech mentioned that other measures would be laid before Parliament. It is my hope that among those other measures will be a decision on the future of the Post Office. During my long years with it I have witnessed many reports and reviews of the Post Office. Recently they have come in thick and fast. Including select committee and Monopolies and Mergers Commission reports, they have averaged one per year for the past 13 years. To many employed in the industry--I include management and staff alike--such constant examination and re-examination appear to take up time and resources that could be better used in the ever-present determination to improve on the magnificent service that they already provide. I believe that it is the best service in the world--and I have seen many of them in my long time as a union official in the Post Office.

The Post Office that I am so proud of has contributed much to the Treasury over many, many years. This year, the financial targets set through the external financing limit have again been met, and met handsomely. Given an overall external financing limit target of £313 million for the Post Office as a whole, it actually achieved £338 million--£338 million paid direct to the Treasury on top of the £217 million paid in corporation tax.

1 Dec 1998 : Column 410

It is not only this year that the Post Office has met the target set for it by the Treasury. For 20 years the Post Office has achieved subsidy-free profits. It has exceeded the external financing limit target set for it in 13 of the past 16 years. It has contributed in excess of £2 billion to the Treasury during the same period of 16 years.

I would add that this success story has been achieved at a time when Royal Mail has been able to maintain 33 months of stable prices. With the price freeze that will last until next April, it is the longest period of price stability for more than 40 years.

The Post Office, all of it--the counters business, Parcelforce and Royal Mail--deserves better. It is my sincere hope that, when the current review is concluded, it will recommend that our Post Office should be allowed to get on with its job of serving the public. It should, in my view, be given the commercial freedom that it has asked for, real commercial freedom that will allow it to compete and grow unencumbered by the constraints of the public sector borrowing requirement.

The case for allowing the Post Office to have commercial freedom has been well made by both management and the unions in the industry. In July of this year, John Roberts, the Chief Executive of the Post Office, when presenting the 1997-98 accounts, said:

    "We are planning our future on the basis that it is no longer a question of whether we will be getting commercial freedom, but when".
He added:

    "But it must be real commercial freedom which will allow us to compete and grow our business, unfettered by the chains of the Public Sector Borrowing Requirement".
The Communication Workers Union, my union, has recently put its model for an independent publicly owned corporation to London Economics. That theory of an independent publicly owned corporation has been validated and supported by London Economics. The general secretary of my union, Derek Hodgson, has welcomed the firm backing given by such a highly regarded leader in the field of the economics of privatisation and regulation. Mr. Hodgson has said:

    "The IPOC model, if accepted by the Government, will give the Post Office the commercial freedom it needs to compete, it will impose discipline on managers; at the same time it will give the public an assurance that the Post Office monopoly will not be exploited to produce excessive profits".

Commercial freedom will allow the Post Office to plan outside the Government's public expenditure cycle. It will give it freedom to borrow and invest, freedom to enter into acquisitions, joint ventures and strategic alliances and freedom to allow the workforce to share in the success of the Post Office.

The competition that faces the Post Office--and especially the Royal Mail--is real. At least eight overseas postal authorities are busy at work in the United Kingdom competing for business with Royal Mail. The uncertainty that has overshadowed the Post Office for so long has to be ended, and ended quickly, if our great publicly owned corporation is to beat off the challenges of foreign postal administrations.

1 Dec 1998 : Column 411

I am grateful for the opportunity to say a few words about the Post Office. Noble Lords will have gathered that I have a deep affection for it. It has given me so much. My hope is that the loyal and dedicated staff who work in the postal business will soon be told that their future employment will be within a publicly owned corporation, free of Treasury constraints. The Post Office should be given the commercial freedom that will help it to maintain its fine traditions and to ensure that our Post Office remains the world's best.

Finally, I join with others in placing on record my sincere thanks to the officers and staff of your Lordships' House, who, without exception, from the date of my introduction on 20th October and before, have been so courteous and helpful. I am most grateful to all of them. Thank you, my Lords, for your patience.

6.14 p.m.

Lord Harris of High Cross: My Lords, it is a real pleasure for me to express on behalf of the whole House our congratulations to the noble Lord who has just sat down. He told us that he joined the Post Office at the age of 14. He did not go on to say that he worked his way through the trade union ranks to become deputy general secretary of the Union of Post Office Workers, that he served on the Labour Party's national executive committee and that he was briefly chairman of the Labour Party. In his spare time he is also active with the Friends of Israel group and was one of the co-founders of One World in Action. In my 20 years' experience in the House, I have never seen five maidens perform such a lavish sacrifice of virginity in the space of a few hours. We all hope we will hear the noble Lord, Lord Clarke, speak frequently in the House. I personally hope he will address us constantly on the issue of commercial freedom for the Post Office, an issue on which he can count me a strong ally.

On the occasion of the last Queen's Speech in May 1997, I ventured to offer warm congratulations to the new Labour Government. I do not think it will do them much good if, as a Cross-Bench full-frontal market economist, I now appear too enthusiastic. I must confess to increasing reservations, although I am far from abandoning all hope, much less looking around for political asylum. The tribute I shall shortly pay to Gordon Brown as Chancellor is, I suspect, more generous than he might receive from others on the Labour Benches.

Before turning to economics, I want to express my own shared anxiety over the Government's headlong stampede into constitutional experimentation. I refer not only to the emasculation of your Lordships' House and to the threatened dismemberment of the United Kingdom but also to the denaturing of our vigorous politics through proportional representation, whether through open or closed lists. Perversely, as a Londoner, I am even fearful of the new layer of local government that is threatened, even if we can keep out of the mayor's parlour certain self-advertising, power-seeking individuals.

1 Dec 1998 : Column 412

Whenever I see amiable activists like Ken Livingstone or the less amiable activists like Mr. Alex Salmond in full cry I recall Adam Smith's distinction between the ideal which he described as,

    "a legislator, whose deliberations ought to be governed by general principles which are always the same",
in contrast to what he called,

    "that insidious and crafty animal, vulgarly called a statesman or politician, whose counsels are directed by the momentary fluctuation of affairs".
Here we glimpse two faces of new Labour: on the one hand, the insidious, indiscriminate constitutional experimentation; on the other, I am glad to say, the principled macro-economic strategy trumpeted in the gracious Speech as,

    "the historic decision to give the Bank of England the power to set interest rates".

These two faces have precisely opposite tendencies. In place of constitutional recklessness, we have a Chancellor who displays financial prudence. Instead of half-baked adventurism, he will offer well considered construction. In contrast to short-term expediency, the Chancellor sticks resolutely to the long-term view. Come to think of it, Gordon Brown is about the only Scot in an administration dominated by Scots who appears to have any kinship with dear old Adam Smith.

By giving the Monetary Policy Committee the single objective of keeping inflation around the central target rate of 2½ per cent., the Chancellor has removed from all influence the insidious and crafty politicians around him who are always urging lower interest rates without too much concern for inflation. His simple aim is to entrench long-run expectations of a stable monetary environment. The absence of such stability has not only kept our interest rates higher than Germany's; it has also meant the disruption of production and employment by the alternation of stop-go policies throughout the 1950s, 1960s and 1970s. No one seems at the moment to have noticed that the Chancellor's first major step after the election of 1997 was to undo the first major step of an earlier Labour government after the election of 1945; namely, to reverse the nationalisation of the Bank of England. It has thus taken half a century to rumble Keynes and to rediscover the older wisdom that money is too important to be entrusted to politicians.

I am genuinely sorry that the Tories felt obliged to denounce this one promising innovation by new Labour, just as I am disappointed that Mr. Gordon Brown has failed to acknowledge that his success to date could not conceivably have been possible without the sound economic inheritance from the Tories. As regards the Monetary Policy Committee, I simply add that, in the unavoidable absence of Montague Norman, it seems to be doing a pretty good job. My own view is that this innovation by Gordon Brown displayed a personal courage not matched by a British Chancellor since my noble and learned friend Lord Howe of Aberavon struck down exchange control in 1979. Who would now try to reverse that particular initiative?

Alas, if the Chancellor deserves high praise for judgment and rare vision on this key issue, the same cannot be said for his other policies. Having won the

1 Dec 1998 : Column 413

election by promising to stick to Tory income tax rates, he promptly removed exemption on insurance company funds, raised stamp duty on buying and selling homes, and killed off personal equity plans. He thereby weakened both the Government's economic and social strategies by simultaneously discouraging private pensions, taxing mobility of labour, and attacking personal savings. We have then to add the future uncertain impact of minimum wages, the EU's social charter, the strengthening of trade union influence, loose talk about "fairness at work", and the ceaseless extension of regulation, which other noble Lords have mentioned. All such measures must cumulatively add to production costs and subtract from the very flexibility which was the unacknowledged inheritance Thatcherism gave to the new Labour Government.

In a recent article entitled Drifting back to bad old Labour days, my friend, Professor Colin Robinson, the scholarly editorial director of the Institute of Economic Affairs, exposed the Government's Achilles' heel. In a succinct sentence pregnant with warning, he wrote,

    "The fundamental problem is that there are no obvious limits to regulation".
It is these cumulative burdens that will increasingly imperil the Government's hopes for sustained growth and employment and will undermine the very basis on which their burgeoning social policies are hopefully founded. A neglected paradox is that Gordon Brown's successful monetary strategy relies on depoliticisation; that is, getting government and the bureaucrats out of the action. Yet at the same time his colleagues are busy almost casually extending politicisation into every other department of policy.

In conclusion I suggest a last reason for welcoming the denationalisation of the Bank of England. It seems to me to remove the only respectable reason for joining EMU, which was to fix a chronically weak, suspect pound sterling against periodic devaluation. Henceforth we no longer need that anchor, whether it be the deutschmark or the wholly unproven euro. Therefore I commend even to Liberal Democrats the half dozen words in the gracious Speech pledging, without any of the customary ifs or buts, that Her Majesty's Government,

    "will maintain the United Kingdom's abatement".
For those words alone I offer up a prayer of heartfelt thanks. For the rest I admit to thinking that we could have got along quite nicely without troubling Her Majesty to deliver this gracious Speech.

6.25 p.m.

Baroness Turner of Camden: My Lords, I welcome the opportunity to participate in this debate, which has been distinguished by so many excellent maiden speeches. I would like in the time at my disposal to discuss two aspects of the speech about which I have some knowledge and some concerns, although I speak against the background that I believe the Government's welfare package to be well-intentioned and benign, and therefore, generally speaking, I believe it should be supported.

1 Dec 1998 : Column 414

First, there is the question of pensions. We are promised a Green Paper, but in the meantime there will presumably be some interim legislation to bring in stakeholder pensions for those not able to be members of occupational schemes and unable for various reasons to be covered by personal pensions. I assume that many of these people will be self-employed. There has been an increase in the number of self-employed, largely as a result of the employment shake-out we saw under the previous government. Of course it is right that something should be done for such people, many of whom are far from well off.

However, pension provision in general continues to present a number of problems. There is never any difficulty about pension provision for people in secure, reasonably well-paid employment. Many of them will be covered by good occupational schemes or will make their own private arrangements. The difficulties always arise when considering how to protect people in retirement who have been in low-paid employment during their working years. Often such people have had a chequered work pattern, moving from job to job. Large numbers of women are in that situation. To expect such people voluntarily and individually to set aside money in order to provide for retirement, when many live from payday to payday, is really expecting rather a lot.

There has been much talk of making second-tier pensions--presumably stakeholder pensions--compul-sory. I think this will be difficult for the less well off and will be widely seen as another tax. My own view is that the previous Labour government in the mid-seventies were responsible for introducing the best pensions framework that this country has ever seen. It became known as the Castle Plan after my noble friend Lady Castle who was responsible for its introduction. For the first time everyone would have to be in a second-tier pension, either SERPS or a contracted-out occupational scheme. SERPS itself--with its provision that pensions would be based on the best 20 years' earnings uprated--was basically redistributive and enormously beneficial to women. It would have been possible to have transformed SERPS into a national pensions plan, and to make access available to the self-employed. Unfortunately, the line taken by the previous government that SERPS in its original form could not be afforded seems to have been widely accepted. I think that is wrong.

One way or another, retirement has to be paid for, if not through a good state scheme, then at much greater expense through private insurance schemes. In case it is claimed--as it sometimes is--that the problem with state schemes is that governments often change the goalposts so there is bound to be an element of uncertainty, I point out that the financial services industry is not exactly risk free. Many people who took out personal pensions have begun to find that out. Indeed, few seem to realise just how much they must set aside from current disposable income in order to be sure of a pension large enough to have a reasonable standard of life in retirement. "The value of investments can go down as well as up", as financial services providers now must tell their clients. There will, of

1 Dec 1998 : Column 415

course, be a need to establish standards for stakeholder pensions and a system of regulation. Perhaps the Minister will tell us about that.

The second matter with which I should like to deal is the welfare package. There is a great deal about it that is entirely good. I welcome the establishment of a disability rights commission. My noble friend Lady Gould spoke about that with some passion yesterday. She was quite right that it is an enormous step forward.

There seems to be a genuine attempt to deal with poverty. Who can disagree with the proposition that the only real, long-term way out of poverty is through work? The concept of the "single gateway" on to the benefits system is a good one. At present, the benefits system is extremely confusing and often people do not receive their entitlement. That is particularly true of older people.

On the other hand, there is undoubtedly benefit fraud. It is in no one's interest that that should continue. It is alleged that, along with errors, fraud has cost the system around £1 billion a year.

However, some aspects of the welfare package arouse a certain amount of disquiet. It is clear that the emphasis will be on work, rather than on benefits. But what kind of work? What will be available? Is it really to the advantage of very young children that someone else should be paid to look after them while their mother undertakes poorly paid work elsewhere, which may mean that she has all the extra hassle of working, plus the expense involved, plus keeping a home going for her family, but at the end of it she is only a few pounds a week better off?

I am glad to note that the acceptance of a job will be voluntary for a lone mother, but I am a little unhappy about the pressures that are likely to build up to get young women into low-paid employment, when they might prefer to stay with their children while they are young. I certainly think that no mother with children under the age of five should be subjected to any kind of pressure to work whatsoever. If she wants to work and good quality childcare is available, that is fine, but it must be a genuinely voluntary choice.

My other point--I have mentioned this before--relates to widows' benefits. My noble friend Lady Hollis will not be surprised that I have returned to this subject again. I was rather surprised to read in the Queen's Speech that widows' benefits are to be "modernised". One would not have realised from that that the intention is that for a number of widows such a benefit is in future to be removed altogether as an automatic entitlement. The reason is stated to be the need to treat widowers equally, as a result of a decision that is expected from the European Court of Justice. On that basis, both widows and widowers will receive a bereavement grant, which is to be increased to £2,000. Widowers and widows with dependent children will receive what seems to be the equivalent of the present widowed mothers' allowance. However, the benefit currently paid to widows between the ages of 45 and 55 will apparently disappear as an automatic entitlement, although present benefits will continue.

1 Dec 1998 : Column 416

The Government intend to save around £600 million by scrapping widows' benefits. Presumably, in future, a widow will be expected to present herself at the "single gateway" when an attempt will be made to find her suitable work. It is difficult to see what sort of work will be available for an ageing woman who has spent most of her life bringing up a family.

One reason advanced for that is that there have been very big changes in women's roles since Beveridge. Nearly 50 per cent. of all women work during marriage. It is also said that many receive generous occupational pension provision. Of course, there have been changes, but are they really as great as many would have us believe? More women may work, but often in part-time, badly paid employment. Many may benefit under a husband's occupational pension scheme, but it must be recognised that most occupational pensions are based on the assumption that they are second-tier provision. In other words, the basic state pension is an integral part of the total pension provision. The same is true as far as the widows' benefit is concerned, which, in any event, is only a portion of the full pension. That also is based on an assumption that there will, in the case of a widow, be a widow's pension in addition.

There may, of course, be a few wealthy widows around, just as there are well-to-do people entitled to the basic state pension. However, that is no reason for removing the automatic right to benefit from large numbers of other widows who are far from well off. Widowhood is a traumatic experience anyway, and for many there is the added burden of penury.

As I said in an earlier debate, the benefit is a contributory one. It is paid on the basis of the husband's contributions record. I gather that the benefit will be paid to widowers on the same basis--that is, the wife's contributions record. As women, in general, are more likely than men to have an incomplete contributions record, it follows that it is unlikely to cost as much to pay the full benefit to widowers as has been suggested. So it is possible that it would not cost so much to equalise benefits as between men and women without taking away benefits from women.

I am aware that previous governments have been only too willing to depart from the contributory principle, as the previous Conservative administration did over SERPS. However, that does not make it right. Therefore, I hope that the present Government, whose intentions, as I said before, are entirely benign, will not feel tempted to follow suit.

6.35 p.m.

Lord Skidelsky: My Lords, as this is my first speech as Opposition Treasury spokesman in your Lordships' House, I shall surprise your Lordships by talking about Treasury matters.

The Government have promised to make,

    "high and stable levels of growth and employment"
their central economic objective. That wholly laudable aim is subject to two provisos in the gracious Speech: the freedom given to the Bank of England to set interest

1 Dec 1998 : Column 417

rates to meet the Government's low inflation target, and the Government's commitment to,

    "abide by its fiscal rules".
Those rather bland phrases express the consensus view that the main contribution macro-economic policy can make to growth and employment is to provide a stable environment for business.

I agree with the noble Lord, Lord Harris of High Cross, when he said that no political party has a monopoly of wicked Chancellors. But it was partly at least because the Labour Party had the reputation of being an inflation-prone, high-tax, high-spend party that the Chancellor imposed those two self-denying ordinances on himself.

Monetary policy is safe because the Chancellor has given control of interest rates to the Bank of England, and fiscal policy is safe because he has shackled himself to the "golden rule". What is the "golden rule"? It states that the net increase in public debt must not exceed government spending on investment. That means that the current account must balance over the economic cycle. The Chancellor intones that rule on every ritual occasion. Perhaps he sings it to himself in the bath. I emphasise it because that is the test against which he wants his fiscal policy to be judged. The question is: will he stick to it? Has he stuck to it? I suggest to your Lordships that his lapse into virtue was a purely temporary aberration.

Before the Chancellor came into office, he pledged to stick for two years to the spending plans of his predecessor, Mr. Kenneth Clarke, and he did. Because he inherited a rapidly improving fiscal position and because the economy in 1998 grew faster than expected, he is now looking forward to a budget surplus for the first time in 10 years. All credit to him for that, although it is a bit rich of him to claim sole credit. He simply borrowed Mr. Clarke's hair shirt for a couple of years.

However, two years of virtue seem to be about as much as a Labour Chancellor can take. At the first opportunity, last July, Mr. Brown announced £40 billion-worth of new spending on health and education over the three years 1999 to 2001. It would be completely affordable, he said, because the economy would grow at 2¼ per cent. a year over that period. Our party warned at the time that his three-year spending commitment was reckless and based on hopelessly optimistic growth estimates. The noble Lord, Lord Barnett, apparently agrees with this. In July the Financial Times stated soberly:

    "Gordon Brown is taking a risk, but one which a British Labour Chancellor could scarcely avoid".
That is an astonishing, but I think perfectly accurate, admission that a British Labour Chancellor is driven to take such risks because he is under constant spending pressure from his party.

We were right in our warning. A few weeks ago the Chancellor came to the House of Commons to announce that the economy will not grow by 2 per cent. next year, but by only 1 per cent. He blamed that on the global downturn following the east Asian crisis. But when

1 Dec 1998 : Column 418

Labour's forecasts were made in July, Asia was already in crisis. A prudent Chancellor would have waited for his surplus before telling us how he intended to spend it.

Mr. Brown is not in the least disconcerted by the rapid falsification of his most recent growth estimates. The new assumption, made a few weeks ago, is that after a small dip in 1999 the economy will resume its growth at an even faster pace than he previously forecast. That is how he now expects to balance the books.

So what is the current position? There will be a small budget surplus this year as a result of the Chancellor sticking to Conservative policies. He promises us another one in two years' time as a result of sticking to Labour forecasts.

Next Section Back to Table of Contents Lords Hansard Home Page