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Lord Skidelsky: My Lords, I thank the noble Lord for giving way. He wants a debate on economic policy. I ask him this question: why does he believe that it is so important that our Government should retain these instruments when we have had such a relatively dismal record in the post-war period, when we were using those instruments freely? Why are they so important? What is the evidence that they will improve our economic performance?

Lord Shore of Stepney: My Lords, I shall not at present attempt to answer that not because, as the noble Lord will well understand, I lack any ability to answer, but because of time and the width of the debate.

I have directly related the debate to the economy and the fact that we have no macro-economic policy; that we have adopted a European macro-economic policy. Whether or not that is right, we can debate the implications at another time. But that is why we are not debating economic policy now--because we do not have one.

I come to the fundamental problem for the Government. Things have happened since the previous Queen's Speech; momentous events. First, the world economy has changed and, as we all know, the balance of risk is no longer inflation, it is deflation. Because of that, virtually all the arrangements made under Maastricht based on the fear of inflation are outmoded and out of date.

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The second great change is the political balance in Europe; the Left or centre Left has taken over. The centre Left has brought in two major new policies that have left our Government gasping. First, they want a policy of full employment and economic expansion. In pursuit of that policy, Lafontaine, Schroder and all the rest have taken head on the banker, Mr. Duisenberg, who will not allow them to cut interest rates, and the European commissioners, who will not allow them to relax the Growth and Stability Pact and who keep them squeezed within the parameters of the 3 per cent. borrowing requirement. This is a great problem, but the struggle is not yet resolved. Therefore the Government are left in the unhappy position of having to decide which European macro-economic policy to adopt: the old one embedded in the treaty or the new one which under German leadership will almost certainly emerge after a fierce conflict with Duisenberg and the European Commission.

The other great innovation is the vast new offensive to thrust forward the federal project. It is on the lips of the German Foreign Minister and Chancellor. All those who say that this has been invented by the Eurosceptics had better start thinking very hard. I believe that the Government face a very difficult choice. They do not know which way to turn and which Euro-policy to back and adopt. I believe that the sensible approach is to recognise that we are coming to the parting of the ways. There is a federal way, but it is not for us and we should not attempt to pursue it. We should be quite clear that very soon the choice is between the proper defence of British interests and the abandonment of those interests in the vain and foolish endeavour to be at the heart of Europe.

7.1 p.m.

Lord Desai: My Lords, first I apologise to my noble friend on the Front Bench for not being in my place at the beginning of the debate. Today we have heard five excellent maiden speeches. I want to concentrate on the sixth maiden speech made by the noble Lord, Lord Skidelsky, as Treasury spokesperson for the Opposition. I do not know whether I disagree more with the noble Lord, Lord Skidelsky, or my noble friend Lord Shore. I shall have difficulty in manoeuvring between them.

I refer first to one matter alluded to by the noble Lord, Lord Skidelsky. Does the prospect of recession face us? My noble friend Lord Barnett also spoke to this matter. He started by expressing scepticism about forecasts and then made one or two of his own. For the past five years we have had very good economic growth because we have had a stable monetary framework with or without an independent Bank of England. This began with a very high deficit. I need hardly remind the noble Lord, Lord Skidelsky, that the highest deficit in recent years was under a Conservative government and forecasts went very, very wrong. Forecasts have not just begun to go wrong. I recall that on that occasion the figure was £50 billion. We have had a stable monetary and fiscal policy and good growth. Quite unusually, we have had a five-year recovery boom period that puts us in a very good budgetary situation. Even if the worst fears of the

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noble Lord, Lord Skidelsky, were realised, an overspend of £24 billion over three years in an economy which averages £870 billion per year in GNP frankly is peanuts. It represents less than one per cent of GNP per year. Therefore, even on the basis of the worst fears of the noble Lord, we do not face a budgetary disaster. It may not be 1987 when we had a surplus, but it is not 1992. We must get the numbers into perspective. There is no great black hole.

My right honourable friend the Chancellor got into the bad habit of taking three-year totals and bandying them about as if they were one-year totals. He thought that he would spend £40 billion on health and education and everybody became excited, but that was £40 billion over three years. What I liked about both the July budget and his return to the House with revised forecasts was the comment that his three-year spending targets would not be abandoned although the forecast was a greater slowdown in growth than he had previously thought. That is remarkable. Every previous Chancellor of both parties has panicked and immediately begun to cut spending. I believe that what the Chancellor said about fiscal stability meets the point. I am in the unusual position of praising the Chancellor from the Back Benches, which is not my normal role, but in this he is right. He has said that these are three-year spending targets and he will stick to them. When the Budget was presented I recall saying from my position here that it was not actual spending but a steady state forecast. Actual spending would deviate from that because the economy would not behave as one expected--no economy does so--and that is why most forecasts must be revised. The first point to make is that perhaps there will be a slowdown in growth. We may even have technically a recession, as my noble friend Lord Barnett defined it: two quarters of lost output. I still say that that will not lead to a budgetary disaster because the worst assumptions that the National Institute can make still result only in £24 billion over three years. I believe that that is peanuts.

How bad is the economy? I come next to the point made by my noble friend Lord Shore about the balance of trade deficit. For some time we have not had the panic about the balance of trade that we used to have in the 1960s and 1970s because we now live in a very different regime. Once one has free capital mobility, balance of trade deficits can be financed by capital movements. They are a counterpart of capital movements. Many noble Lords will recall how in 1980 we had an over-valued pound and a large deficit but there were capital movements to compensate for it. We now live in a very different world. This is not the world of the 1950s, the 1960s or the 1970s. Welcome to globalisation. With free capital movements we do not have to think in the same terms. The fact is that despite this big deficit the pound has not collapsed--far from it. Manufacturers may be happy if it did. The rules of the game are now very different.

I remember going to the launch of the single issue of Marxism Today--I go to these kinds of events--and hearing a speech about how the Blair project had not understood globalisation. I remember saying to someone

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that the one thing the Government had understood properly was globalisation. The Government understand that with globalisation it is very important to get the framework right and not to swim against the tide, which is foolishness, and to minimise damage to the economy.

I believe that despite the balance of trade figures, to which my noble friend Lord Shore alluded, the impact of such a deficit on the real economy will be minimal in today's world because of the flows of capital. There may be a slowdown in growth and a recession but if action is taken it will go up again. I expect the recession to be short. Even if the recession was not short I do not believe that it would affect the real economy very much.

I wish to make two other points in this context. I agree with my noble friend Lord Shore that we are entering an era of deflation rather than inflation. It is a serious danger. When Sub-Committee A of the European Communities Committee, chaired by my noble friend Lord Barnett, had hearings on the European Central Bank, I asked almost every witness this question. Does a stable rate of inflation mean that one will have that rate of inflation? Is it 2.5 per cent. or less? Are you going to be symmetrical above and below the inflation target? Alternatively, will you say, "Let's get the prices down and don't let's worry about anything else?"

If the European Central Bank were to say that it would like a target but that if the rate falls below it is happy, we are in serious deflationary danger. The Bank of England's target is very different. It is 2.5 per cent., and that is that. If the figure goes below that, it is under a statutory duty to reflate the economy. That is the right way to set an inflation target, especially if one is in a deflationary situation. We have to say that there is no asymmetry; there is symmetry above and below the rate of inflation.

I agree with my noble friend Lord Shore in saying that I am not all that worried about hyperinflation. The noble Baroness, Lady Sharp, raised the question as to whether there are real limits to the ability of the economy to expand. If the economy hits a bottleneck, there will not be inflation but a balance of trade deficit. All that happens is that we import more if a bottleneck is hit. Deflation is a danger and we shall have to rethink our policies in the future. But I do not think that for the life of this Parliament there will be any great difficulty in following through the code laid down by my right honourable friend.

Finally, given the new labour market, the fragmentation of production, and so on, it is optimistic to think that work will be found for everyone who needs work. I am sceptical of that. As regards reform of the welfare state, although it would be very nice if everyone found work, it is wildly optimistic to think that everyone will do so. Therefore, the safety net that exists for people who, despite their best efforts, cannot find work should not be dismantled because it is unlikely that we shall attain the full employment levels that were prevalent in the 1950s and 1960s. As I said, the world has changed and we have to adapt to the world.

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7.12 p.m.

Lord Cooke of Islandreagh: My Lords, I agree with the noble Lord, Lord Shore of Stepney, when he expresses surprise that the economy was not much mentioned in the Queen's Speech. However, it is clear that that has not stopped us talking about it today. My view of the economy is very simple. Unless the economy generates wealth and employs directly or indirectly most of the available workforce, the United Kingdom is in real trouble. That is what one has to consider.

I do not intend to compete with many of today's able and interesting speeches on the economy and different elements of it. I wish to speak about two aspects which I believe are important. Over the years we have suffered the CAP which affects agriculture. The policy has produced many undesirable distortions for the economy and economics of agriculture. Now I believe that they are almost at crisis point. Arable farms in the United Kingdom have been able to make good profits with such ridiculous things as set-aside, and so on. Unfortunately, the grassland farmers--they are important in Wales, Scotland and Northern Ireland--have an entirely different story to tell. They rear cattle and sheep, and grow very good grass. They are losing money, and the position is getting worse. It is not clear how it can be cured.

In Northern Ireland, the situation is very much worse. For years its agricultural food business was a success story. It employed 77,000 people, with 4.2 per cent. of the GDP of Northern Ireland. Unfortunately, that is no longer the case. The exchange rate is making it difficult to rebuild the foreign markets for beef which it enjoyed before the BSE-based embargo stopped all beef exports. Fat lamb prices are lower than 10 years ago; and in November the profit on a fat pig sold for bacon was minus £23 per pig. It is estimated that 30 per cent. of our pig farmers have already gone out of business, and many of them are bankrupt.

The noble Lord, Lord Dubs, is well aware of the situation and has been in close discussions with the leaders of the farming industry. Recently a package of aid for UK farmers was announced, but it is not enough to stop further bankruptcies.

In Northern Ireland, it is not just the rural economy which depends on agriculture; the rural social structure is based on farmers and their families. Any collapse of farming would have serious consequences. At present, farmers in Northern Ireland owe £500 million to banks and £45 million to feed merchants; and the situation is getting worse. The present income of farmers has dropped 78 per cent. from 1996 levels. These problems will not be easy to solve. They may have a world-wide base, but until the viability of the agricultural food business can be stabilised, I urge the Government to study more deeply the problems of the industry in Northern Ireland and to discuss with it the full situation. I hope that the Government will take whatever steps are necessary to offset the present rate of loss until the way forward to viability becomes clearer.

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I wish to speak about one element of the industrial economy and manufacturing. In manufacturing the large companies, which are often multinationals, receive all the attention. But we are dependent on small and medium businesses and start-up companies to refresh the large companies. Unless that refreshment is ongoing, we have real cause to worry. What is going on? On the face of it, the businesses are in reasonably good shape, and most small and medium companies are determined to overcome what they hope is a temporary downturn.

The noble Baroness, Lady O'Cathain, spoke about the effect of regulations and restrictions on businesses. I wish to speak about one specific element. Last week I studied the new working time regulations which became effective in October without discussion and with no warning. The working time regulations are detailed. They are restrictive and complex, covering all manner of things. They restrict the average maximum working week to 48 hours. They detail rest periods in work breaks. They require four weeks paid holiday. They list nine headings which employers must attend to or face the wrath of the various enforcement agencies. I know that small companies do not have much time to undertake such work in addition to what they are doing; and they certainly do not have the inclination. The majority of small firms work all hours of the day and night, as necessary to address and advance their business. Out of that, they derive a sense of achievement. They must now spend hours listing all manner of details which are far in excess of what any company would need to keep for pay purposes.

A survey by the Economist Intelligence Unit ranked Britain as second in the world for its business environment during the period 1994 to 1998. About 50 per cent. of companies starting up in Europe in those years came to the United Kingdom because of that favourable environment. What will prospective new companies think of those regulations? I am sure they will not think much of them. So why do we have them? The regulations have been introduced into the United Kingdom in compliance with a European directive in respect of which we have had no input. That is only a beginning. We are now threatened with similar restrictions applying to junior doctors and truck drivers. I am told that the directive may increase the cost of distribution involving night driving by as much as 30 per cent. That is not just alarming, but threatens the British economy which everyone in business knows is now part of the world economy where we are competing with east and west, north and south.

A few minutes thought about the history of the United Kingdom is relevant. Throughout the second millennium, in medieval times, our people have been energetic, imaginative and have accepted risk whether as brigands or tribal warriors, later as mercenaries and later still as business adventurers or colonisers. The citizens of these islands have been outstanding adventurers. The industrial revolution in this country led the world. We can continue to box beyond our weight in the new world economy by using our wits, inventiveness and so on.

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In the past 500 years, despite all efforts, European countries have failed to stop us. Have they at last found a way to bring us to heel by introducing new and restrictive directives to which they do not pay very much attention? I believe that that bears thinking about. With a few more regulations like that, can one imagine any man with ambition or initiative prepared to put up with such obstacles to development in the United Kingdom? Shall we continue to have start-up businesses to refresh our larger businesses? I very much doubt it.

I find the whole business of very detailed restriction and regulation in matters of great detail to be extremely worrying. If it continues, the inevitable result will be at first, a slow and later a rapid decline in company growth, and from that a decline in the economic health of the country. Unfortunately, politicians who have little or no experience of business are the last to be able to judge the effect of such regulations.

I believe that we should regard those regulations as an amber light for the United Kingdom economy. We must wake up before it is too late. For the first time I have felt that if I were younger, I should seriously consider emigration. We must stop that regulation and nannying. We do not need it. Employers, unions and workers, generally speaking, have arrived at good and appropriate arrangements. If we intend to compete in the world economy, we must just stop that nonsense.

In the press this morning I read that Brussels was taking exception to a small package of assistance to small and medium-sized companies in Northern Ireland, which was announced recently. It was apparently too much for Brussels. It has taken objection also to alleged assistance for ship repairers. That is ironic because anyone who knows anything about shipbuilding and ship repairing will know that there are all kinds of different devices available to countries on the Continent by which they can undercut UK repairers. We must watch out. I agree with the noble Lord, Lord Shore, that we must look seriously at our relationship with a Europe which adopts such devices.

7.25 p.m.

Lord Davies of Coity: My Lords, first, I too add my congratulations to those noble Lords who have made such excellent maiden speeches in this debate.

It is my intention to speak only on the Government's proposals to introduce legislation to improve and extend fairness at work. That legislation should be welcomed universally not only because of the specific benefits it will provide for working people but also, I believe, because it will enable workers to have the greater dignity and self-respect to which they are entitled in their employment where they spend so much of their lives. By raising the status of employment in that way, it will make for a much better workforce.

The legislation is not only intended to be fair. Its purpose is also to be enterprising, bringing both sides of industry closer together, encouraging working in partnership and enhancing greater co-operation, commitment and mutual respect. It is legislation which

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no employer with vision, understanding or feeling for those he employs need fear. Indeed, many employers already practise much of what the legislation proposes.

My best example of an employer fitting that description is Tesco. I first came to have dealings with Tesco as a trade union officer nearly 30 years ago. Over the years, I saw the company move from a pile-it-high, sell-it-cheap retailer to the United Kingdom's leading grocer. Most of us in this House, I have no doubt, know that the noble Lord, Lord MacLaurin, as chairman of Tesco--he now sits on the Conservative Benches--was largely responsible for that dramatic trading change.

When the noble Lord, Lord MacLaurin, headed Tesco, he was not only enterprising but his consideration and feeling for those in his employ was second to none. When I was elected general secretary of USDAW--the Union of Shop, Distributive and Allied Workers--in 1995, Ian MacLaurin and I became good friends and remain so today. Throughout the whole period of the previous government's anti-trade union legislation, he never lost faith in his belief that good relations with those he employed and those who represented them was both right and proper and made good business sense.

Tesco not only wanted to be among the business leaders but also wanted its staff to be among the best in terms of wages and conditions of employment. The joint work of Tesco and USDAW is one of the prime examples of how partnership is good for the employer and good for the employee. The company and the union, in good times and in bad, worked together to achieve success and both have benefited. On the one hand, Tesco profits have continually increased; its market share has increased; and the company is continuing to expand. On the other hand, the staff have security of employment and wages and conditions among the best in the retail sector, including share options, pensions and sick pay schemes.

Despite the constant bombardment the trade unions were receiving from the Conservative government, never once did Tesco lose faith in its relationship with USDAW. If anything during that period the relationship strengthened because both sides worked together to achieve common objectives. Indeed, following the introduction of one particular piece of anti-trade union legislation, I remember that Tesco was one of the last companies in this country to relinquish the union membership agreement. It did so only after the company and the union had renegotiated a further agreement for recruitment and retention of union members. Today, USDAW's membership among Tesco staff is only just short of 100,000. That is no doubt the largest membership that any union has with a single employer in the private sector in the United Kingdom.

Those employers with the vision and the approach of Tesco have nothing to fear from the legislation because they have nothing to fear from those they employ and nothing to fear from those whom the staff choose to represent them. Of course I appreciate that what I have described has not always been the case. But we have moved on, and it is now necessary to go even further and encourage the same approach to be adopted throughout the whole of industry.

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When I started work at 15 in the Port Talbot steelworks where I remained for nearly 20 years, except for two years in the Royal Air Force, I experienced a very different approach. Those were the days in the steel industry before the change to which my noble friend Lord Brookman so ably referred. The steel plant where I worked was large with nearly 20,000 workers, fully unionised, with full recognition and collective bargaining rights, and yet the two sides of industry were distinct, each side often entrenched in pursuing its own separate interests, a clear absence of common objectives and a culture of conflict rather than co-operation. The company was strong and the unions were strong--strong as distinct from influential, strong in an environment of conflict, not influential in an environment of partnership. The culture was based on management's right to manage and the union's right to organise, wholly lacking in the co-operation necessary to seek and pursue common interests that benefit both sides.

Yet I was well paid under the system--or so I thought. The work was hot, dirty and hard. My wages were made up of a relatively low basic wage supplemented by shift pay, tonnage pay and abnormal condition money. But what of the other employment conditions? There was no sick pay, no pension provision, minimum holidays and holiday pay savagely reduced because it did not include the supplementary payments. Nevertheless, as a shop steward I cut my eye teeth on this kind of employer/employee relationship and eventually learned that it was never going to be in the long-term interests of either side and certainly not in the interests of the nation.

There must be a balance, a balance between fairness and enterprise. If, at one time, the environment of conflict was damaging enterprise, there is no merit and nothing to be gained in swinging the pendulum so far in the other direction that unfairness becomes savagely acute, which I am afraid is exactly what occurred under the previous government. Before I contrast what the proposed legislation will achieve as distinct from what was introduced during the 18 years of Conservative rule, let me quote the embarrassing findings of the Committee of Experts of the ILO, the International Labour Organisation, of which Britain was one of the foundation cornerstones. It reported in July 1996:

    "The International Labour Organisation (ILO) has again condemned UK employment laws because they do not meet international standards aimed at protecting the rights of trade union members. In a hard-hitting report, the ILO's Committee of Experts has said that the law which is supposed to protect trade unionists from victimisation is too weak. The Committee points to the change in the law in 1993 which says that where workers refuse to give up their rights to collective bargaining and are denied a pay increase, their employer is not guilty of victimisation."
I emphasise the word "again".

This was not the first time that the Conservative government were charged with ignoring and riding roughshod over international employment conventions. Other countries, to whom we would expect to show a good example, became more and more bemused as we were compared more and more with China, Cuba and other dictatorships for our violation of ILO standards. However, at a conference in Geneva in June 1997, at which I was present, my right honourable friend

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Andrew Smith made clear that the Government were anxious to repair the United Kingdom's poor reputation in the International Labour Organisation after a decade of formal complaints about UK breaches of ILO conventions. Speaking at the ILO conference, Mr Smith, Minister of State for Employment, said that he welcomed the opportunity to put on record the United Kingdom's,

    "wholehearted commitment to human rights and our full support for the ILO's efforts to promote internationally recognised core labour standards".
In keeping with this commitment was the speedy restoration of union rights at GCHQ, reversing the Conservative government's 1984 ban on unions.

From those two extracts one sees the clear difference of approach between the two governments.

There are specific employment issues which further illustrate that difference of approach. Before a worker was entitled to make a claim to an employment tribunal for unfair dismissal the Tory Government in 1980 increased the service qualification to two years. The Labour Government now proposes to reduce the qualifying period to one year. In 1984 the Conservative Government banned trade unions at GCHQ and sacked workers who remained in trade unions. Throughout the 1980s they removed many of the rights enjoyed by trade unions and trade unionists. Additionally they made it easier for employers to prevent workers joining a trade union. In contrast the Labour Government have restored trade union rights at GCHQ and have provided justice for the sacked trade unionists. Now the Labour Government propose to allow as of right trade unions to represent their members where members wish it. Where 40 per cent. of the staff vote in a ballot, trade union recognition will be established. When more than 50 per cent. of the staff join, union recognition will be automatic.

In 1980 the Conservative government cut maternity rights. Now Labour will extend maternity rights, allow fathers to have paternity leave and introduce time off to care for sick children. The Tories removed the minimum protection for young workers in 1986 and for all workers in 1993 when they finalised the abolition of the wages councils which had been introduced by Winston Churchill at the beginning of this century. Labour, however, in an approach completely opposite to that of the Conservatives, has already introduced the provisions for a national minimum wage in order to protect the most vulnerable and most exploited of those in the world of work.

These are just some of the examples which demonstrate Labour's confidence that, given the encouragement, both sides of industry can work in partnership, can pursue common objectives of mutual interest and can work as one for the good of all. The Labour Government believe in wealth creation and in social justice. These two are the respective sides of the same coin in any civilised society. If enterprise and fairness do not go hand in hand, then in my view our civilisation is in great danger. As I do believe they go hand in hand, I welcome the Labour Government's proposals wholeheartedly and hope that many of your Lordships do as well.

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7.38 p.m.

Lord Stoddart of Swindon: My Lords, like other noble Lords I, too, would like to congratulate the bevy of maidens we have heard from today and hope that we will hear much from them in the future.

In the gracious Speech the Government said that their policies were well placed to weather the international financial storms and to emerge stronger from them. I hope they are right. I do indeed believe that it is possible for them to be right provided they follow the economic and industrial policies which are suitable for Britain and which put Britain's interests first. My noble friend Lord Shore emphasised that point and wondered whether our Government was doing that. As it happens, I have with me Council recommendation 11393/97 which seeks to bring an end to the situation of excessive government deficit in the United Kingdom. It says,

    "It hereby recommends that the Government of the United Kingdom should put an end to the present excessive deficit situation as rapidly as possible".
That seems to me to be the same as an instruction under the Maastricht Treaty and smacks of the sort of instruction we used to receive from the IMF in 1976. But, of course, it was lending us money. The difference is that we regularly give the European Union and the European Commission around £2.5 billion to £3 billion every year. Therefore my noble friend was absolutely right to draw attention to the fact that our policies do not appear to be putting business interests first, but putting those of Europe first.

As other noble Lords have mentioned, it is true that there are serious problems ahead, especially in relation to the balance of trade, which reached a huge deficit of £2.5 billion in September of this year and, indeed, after taking invisibles into account, £1.5 billion. That deficit can be managed over the medium and long term provided British industry, especially manufacturing industry, is given help and encouragement. In the short term that deficit will be cushioned by inward investment which continues to flow into Britain.

Indeed, investment flows into Britain in greater volume than into other European countries. The United Kingdom accounts for 34 per cent. of overseas direct investment into the EU. There must be good reasons why people want their trade to come to this country as opposed to going to other countries in the European Union. Those reasons are, of course, that they find the business and industrial environment in this country better than it is on the Continent. It is therefore extremely important that we do not adopt policies, practices and regulations emanating from the European Union which will hinder business and industry and curb their desire and ability to expand and maintain their operations in the United Kingdom.

The noble Lord, Lord Cooke of Islandreagh, who has experience of these matters, outlined the difficulties which small and medium businesses in particular are experiencing. But he is not the only one. No less than the chairman of Rolls-Royce warned that United Kingdom firms, including Rolls-Royce, could move abroad to escape industry costs and regulations imposed by the European Union. Industry does not need those

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regulations; it needs the freedom and encouragement to expand in this country so that our people are given jobs. That ought to be a priority of Her Majesty's Government.

I want to turn to taxation. We heard a little about that this afternoon and I am going to say a little more. Indeed, over the past week a great deal has been said in the newspapers about tax harmonisation in the European Union. They have been described by Joyce Quin, the Minister for Europe, the Chancellor of the Exchequer and other people in this House this afternoon as "scare stories". Unfortunately, in the past those scare stories often proved to be accurate and the British people found themselves faced with a fait accompli about which they could do nothing.

That is the problem. Newspapers running those articles and reports have no doubt been reading the Commission document 398Y0106(01). That was the conclusion of the ECOFIN council on 1st December 1997 laying down tax measures covered by the code on taxation and setting up the group to assess tax measures that may fall within that code. It will, of course, be widened. Once we have a code, from then on it will be built on. That has been the experience so far, and that, I am sure, will be the experience in the future. We know that once the Commission starts down a road it is never satisfied until it reaches the end and controls it.

One of the taxes the European Union wishes to impose upon us is the withholding tax. It will do this country a great deal of harm and lose many jobs. A failure by the Chancellor to state absolutely and unequivocally that he will veto that tax has led to fears that we are on the road to damaging tax harmonisation in that respect. As Aneurin Bevan so aptly said, "You don't have to gaze into a crystal ball when you can read an open book"; and there are many books to read about the activities of the European Union over the past 25 years since we have been members.

Then, of course, there are the statements of European leaders, particularly the new German Chancellor, the German Finance Minister and the German Foreign Minister. Mr. Schroder, the Chancellor, said in his inauguration speech that he wanted a federal Europe along German lines. There is no mistake about that. Mr. Lafontaine, the Finance Minister, wants high government spending and harmonisation of taxes. He is quoted as saying a united currency needs a fair and equal tax framework. There is no doubt about that; he said it. We cannot argue with him. Of course, Mr. Fischler, the Foreign Minister, believes that Germany should be at the heart of a new European political entity and he is quoted as saying,

    "We ought to work on a common constitution to turn the EU into an entity under international law".
In plain English that means a country called "Europe".

Those are not scare stories. Those people are serious about European political as well as economic union. It does not matter what they call themselves--whether it be CDU, SPD or Green--the ambition is the same; that is, a European superstate under German suzerainty. As I said, it is there. Time and time again Kohl said it, and now his successor is saying it. The person has changed but the policy remains exactly the same as it was before.

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Taxation, monetary policy and central planning are the building blocks of such a European superstate. It is not the newspapers that raised these issues that are the scaremongers. They are doing their duty in raising awareness about what is going on in the European Union and telling people about it.

The House of Commons should be particularly concerned about the demand for euro taxation because its power derives from its ability to grant or withhold supply. If it once loses that power, it will become completely redundant. Indeed, we should not be worrying ourselves about the hereditary Peers; we should be concerning ourselves with the future of the House of Commons and its powers over the Executive. In case noble Lords think that I am scaremongering, they should read the reply to a Question to the noble Lord, Lord Tebbit on 2nd November at column WA28. In effect that makes absolutely clear that once a Minister has decided--and he does not have to have the authority to decide--to support a tax measure and it becomes a measure in Europe, that cannot be overturned by the House of Commons without the House of Commons committing an offence. It would be illegal under European law. That, in effect, removes the right of the House of Commons to bring Ministers to account and to decide what taxation is to be.

That is a serious matter. The House of Commons must take it seriously. We know only too well how the creeping competence of the European Union has taken over much of our government and decision-making. The Prime Minister--who declared in the Sun newspaper in March 1997, just before the election, that he was a British patriot--should, at the summit in a couple of weeks time, prove his patriotism by declaring firmly and unequivocally that taxation is not a matter for the European Union but for the British House of Commons, and that he will veto any attempt to extend the powers of the European Union any further into the realms of taxation. Further, he should reiterate firmly that Britain does not want, and will not be part of, a centralised European superstate. If he does that, he will find that he has much support in the country.

7.51 p.m.

Lord Blackwell: My Lords, in listening to the opening speech from the Government Front Bench, I was encouraged to believe that I might share with the Government the criteria by which I would wish to judge the various measures put forward in this programme. First, do these measures support wealth creation by free enterprise within a stable economy? Secondly, do they encourage people to take primary responsibility for looking after themselves and their family while protecting the needy? I would welcome confirmation that the Government share those objectives. I would applaud them for doing so. Having said that, I believe that on both points their rhetoric diverges substantially from the reality of what this programme and other measures brought forward by the Government will deliver. I shall summarise why I believe that to be the case.

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As regards free enterprise, I applaud the Government for having carried through a number of measures of privatisation against previous opposition. However, as mentioned by many noble Lords, their fondness for regulation and legislation, is the enemy of enterprise. I refer to the working time directive, the minimum wage and the introduction in this Session of the workers' rights of recognition. All that will add to the cost of employment and the burden on business. I agree with the noble Lord, Lord Davies, that the Government have a very different approach to these issues from that of the previous government.

When the Government speak in Europe, they applaud and recognise the benefits of flexibility in the UK economy and in the UK labour market. That flexibility has, over the past 10 to 15 years, led to a substantial share of inward investment from Europe to the UK. It has led to the on-costs on top of labour costs being half or less in the UK than in some other European countries. That has encouraged the growth of employment, with many more jobs being created in the UK than in other European countries. In practice, despite talking of encouraging flexibility in Europe, the Government's policies have been taking us in precisely the opposite direction. They have taken us away from the flexibility that we have enjoyed, imposing on us the same kind of inflexibility suffered by other European economies. Having signed the European social chapter, I fear that the Government now have no protection against further rigidities and costs entering the UK economy. I believe that there is nothing in this programme which will help enterprise to cope with those disadvantages.

I turn to economic stability. Like my noble friend Lord Skidelsky, I pay tribute to the fact that the Chancellor initially continued the constraints on public spending which he inherited. I also pay tribute to the sound finances which he inherited. However, I believe that those have been put at risk by the spending commitments which have been given. In particular, the contingency, which is traditionally provided for in future government spending plans, has, so far as I can see, been almost entirely eliminated in order to try to balance the books. Higher spending inevitably means higher taxes. I believe that the risks which have been taken are risks which we may well, in the future, consider to have been inappropriate.

I would welcome the Government stating not only their commitment to the golden rule, but restating the commitment of the previous government to keep public expenditure below 40 per cent. of GDP as a long-term, permanent target. I echo the words of the noble Lord, Lord Stoddart of Swindon, about the threat to taxation in this country--and low taxation in this country--from the European policy on taxation. Like the noble Lord, I, too, would welcome further confirmation from the Government that they would veto any such proposals for the harmonisation of taxes in Europe and where precisely they believe they have the power to veto if such proposals were put forward.

I turn to the third area of the programme, that of encouraging people to look after themselves and their families. Again, there are some good things in what the Government have done. The introduction of interviews

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for work is something that has been developed consistently over the past two decades. The noble Lord, Lord Young of Graffham, when he was Secretary of State for Employment, first introduced restart interviews. Unemployed people had interviews to encourage them back to work before receiving benefit. That principle was gradually extended by the previous government. I welcome the further extension of that principle to try to ensure that people are properly interviewed before receiving an automatic entitlement to benefit. I also welcome the continuing review of the criteria for benefit entitlement that the Government have proposed. However, we will need to look carefully at the details as with other measures, to ensure that they are fair and do not prejudice people.

Against those improvements, I believe that the Government's programme totally fails to address the wider issue of welfare reform, particularly in the area of pension development. Their only measure in that area so far has been the tax on private pensions. That will leave many existing pensioners worse off. Although there is promise of further progress on stakeholder pensions, we have yet to hear any details on what might be proposed to widen pension holding further.

If the Government really are having problems in coming up with ideas on this matter, they might look back at the proposals put forward by the previous government; namely, to use National Insurance contributions and a rebate from such contributions to start to build up private pension funds for individuals. Those proposals were initially welcomed by the then Opposition when they were put forward but were attacked shortly afterwards because that appeared to be opportunistic. However, those proposals had been worked out extensively over a period of time by officials in the Department of Social Security and the Treasury. They were well founded and by far the most exciting and innovative proposals to be brought forward on this topic. If the Government are unable to bring forward anything better, I would urge them to swallow their pride, reconsider those proposals and reintroduce them. At the minimum, I should like to suggest that any plan brought forward should be set alongside those proposals and tested against them to see whether it is better in terms of value for money and better as regards benefits and building up a long-term fund of investments to offset against pension costs in the next century.

So, as I look through the programme I agree with the objectives which are set out in a number of areas and which the noble Baroness outlined at the beginning of today's debate. However, an electorate will not judge this Government on the rhetoric; it will do so on the delivery. As regards the measures that we are talking about today, as in so many other areas of the Government's programme, I fear that the practical delivery falls a long way short of the rhetoric. On that basis, that I find that the programme as put forward fails to fill the gap.

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8 p.m.

Lord Haskel: My Lords, I believe that it may have escaped the attention of the noble Lord, Lord Razzall, that, early in the gracious Speech, we were told that the Government will seek to improve productivity by,

    "measures addressing competition, investment, entrepreneurship, and improving the skills of the British people".
I shall focus first on entrepreneurship. Like my noble friend Lord Evans, I am delighted that the Government are brave enough to grasp this matter. But I wonder if the Government realise the size of the task that they have taken upon themselves. Make no mistake, entrepreneurship is not some business technique to be taught in schools and introduced by consultants: it is a cultural shift in all areas of society--not just in business--and some of these areas are quite surprising.

Entrepreneurship is not pure self-interest or narrow opportunism, as the previous government might have thought. Individual self-interest is not a basic building block for a healthy economy. Entrepreneurship is showing individual initiative--individual initiative within acceptable social norms. The late John Smith said that part of the work of the Department of Trade and Industry was to balance the imperatives of the market with fairness and social justice in society. That is why the task of my noble friend the Minister as "Competitiveness Minister" is so difficult. He has to convert us into entrepreneurs while maintaining John Smith's delicate balance.

As with many changes of attitude, you have to start with education. Commercial awareness has received little attention in the debate on the curriculum, yet it could be introduced quite simply; for example, when teaching ways to solve problems, examples could be taken from present-day commercial success. But what is obvious is that young people will need to be entrepreneurial in their attitude because they will no longer have jobs for life, and this attitude will help them through the 21st century. Perhaps this is where GNVQs will score.

In his recent pre-Budget report, the Chancellor of the Exchequer outlined plans for up to eight institutes of enterprise at British universities. Unlike the noble Lord, Lord Wade, I am not sure if there can be formal training for enterprise. Institutions can teach business basics, but I suspect that enterprise and entrepreneurship are about a spark and a leap of imagination which cannot be taught; indeed, it can really only be demonstrated.

What is important when training people for enterprise is having the school or university plus an incubator together in the same premises. That mixture helps to generate enthusiasm and excitement which, in turn, can ignite the spark of imagination. This is important because the measure of an entrepreneurial economy is how fast and effectively it generates commercial ideas and exploits them.

Entrepreneurship is not just a matter of business training and awareness. It is also a matter of our attitude towards risk and reward, and towards success and failure. Our change of attitude towards these is the measure of our cultural shift to an entrepreneurial society. Investing in a hedge fund or moving money

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round the world short-term is not the kind of risk I mean. I mean the risk of being in business itself. The cultural shift is that instead of being resentful or jealous of reward, we view it as an accolade--as just reward.

As many of us know, it is also easy to fail. You are trying simultaneously to judge the movement of the market and the movement of money, and you have to get them both right at the same time. These are very difficult judgments to make. Sometimes you just have to be lucky. That is why the Secretary of State is right to suggest that we must change our attitude towards failure. I do not believe that he had in mind our English cricketers in Australia; indeed, I think he meant that an entrepreneurial society will benefit from the lessons of failure. Failure will encourage entrepreneurs to try again. So it is important to sort it out quickly. Perhaps this does mean leaving the debtor in charge so that the team, the skills and the knowledge gained can be kept intact to help turn the failure into a success.

Certainly protection is required against the unscrupulous, but an entrepreneurial culture assumes that not everyone is unscrupulous. Perhaps the cultural change required is that, instead of failure carrying the stigma, those who have never failed as entrepreneurs should be criticised for not trying hard enough.

Of course, many failures are due to companies being badly run. The DTI recognised this many years ago. It is to the credit of the previous government that they set about trying to reduce the number of failures not with money but with advice, support and training. Unfortunately this enthusiasm has resulted in a multiplicity of schemes which are sometimes bewildering: TECs, Business Links, Enterprise Agencies, personal business advisors, pre-start advice and training, export advice and assistance, IT for All, and entrepreneur clubs.

The noble Baroness, Lady Sharp, spoke about these things. I believe they do help to increase the success rate and, most importantly, they help to screen out some of the potential failures. But obviously some rationalisation is required. It is to be hoped that the regional development agencies will do this vigorously, and soon.

However, the real cultural shift, the really ambitious change needed to convert us into an entrepreneurial society, is to introduce entrepreneurial attitudes into areas of life other than just business and commerce. People have to be entrepreneurial about their own lives and careers in every kind of work, public and private, voluntary and paid.

My noble friend Lady Hollis said in her opening remarks that people would have to take more risks. She is quite right in that respect. They have to behave in an entrepreneurial way because they can no longer expect to climb the rungs of the company ladder; neither can they expect to receive big payouts in the event of failure.

The companies themselves have become unstable. This sort of risk may be more depressing than energising, but it is where the cultural change is needed. My noble friend Lord Evans reminded us that entrepreneurial people have to take responsibility for their own progress and continuous professional development.

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The Minister will also have to focus on the voluntary sector. The Government now depend on the voluntary sector to deliver quite a range of services. Indeed, those doing voluntary work already have to show entrepreneurial skills. My wife is a governor of an FE college, and the skills she needs are every bit as entrepreneurial as those needed to run a business. It is essential that this change in culture pervades the modern voluntary sector, because at some time or another we may all need to call on our voluntary work entrepreneur.

Cultural entrepreneurs are also to be encouraged. Within the word "cultural", I include design, fashion, film and graphics, as well as art, music and the theatre. An entrepreneurial society must embrace these activities too, but the means will have to be different for three main reasons: the assets are intangible, the skills are cultural and the people are--well--difficult. It is impossible to organise creative people. An entrepreneurial society understands this. That is why it is important to create an environment where they can be effective and flourish. It is to the credit of local authorities that they are doing so in a number of innovative ways. Planners are providing the infrastructure for them. Not only is there the famous cluster in Cambridge and the noble Lord, Lord Wade of Chorlton, mentioned Manchester, but Sussex has more than 350 companies covering all branches of new media. Glasgow, Sheffield and Newcastle are doing their version of the same thing. Nor does this apply only to hi-tech business. There is a cluster of caravan manufacturers and all their specialist component suppliers in Yorkshire. In this way the public sector is already making an important and imaginative contribution to the entrepreneurial society.

It is a big project to improve productivity by entrepreneurship because it means change in every sector of our society. But economics is not just about numbers. As the right reverend Bishop of Oxford said, it is about values and I think it is about change in society. Making it more possible to show individual initiative will not only improve our productivity, it will improve our lives.

8.10 p.m.

Lord Ewing of Kirkford: My Lords, I begin my contribution to this debate on the gracious Speech in the same way as last year in the debate on the first gracious Speech of the incoming Labour Government. I wish the occupants of the Government Front Bench well in the Session ahead. They will have realised today that the post they hold can sometimes be lonely and always difficult. When I offer my support I am the first to accept that, in terms of attendance, that support may be patchy; but in terms of loyalty to the job that my noble friends on the Front Bench are charged to discharge, they have my full support. In case any noble Lord thinks that in such an indication of support I buy favours, let me disabuse your Lordships of any such thing. The eloquent testimony is that number 26 on the list of speakers is hardly the greatest favour I have ever been awarded.

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I have listened over these last two days to 12 maiden speeches--seven yesterday and five today--all of them making a marvellous contribution to our discussions on the various aspects of the gracious Speech. A number of them were from trade unionists whom I know well. Each time one of my trade union colleagues has contributed to the debate--either in a maiden speech or as a contribution to the debate, as did the noble Lord, Lord Davies of Coity,--I am reminded of a rather virulent trade union conference which I once attended. The general secretary was having great difficulty with the unruly delegates. At the end of the general secretary's address he was faced with about 10 per cent. of the delegates booing him and 90 per cent. applauding. He turned to his deputy and he said, "Well, that's me won that debate". His deputy quickly disabused him of any such idea by explaining that the 90 per cent. who were applauding were applauding the 10 per cent. who were booing. There was no such thing in your Lordships' House; there was unanimous approval of the 12 maiden speeches.

There is no Scottish legislation in the gracious Speech, for very understandable reasons--although obviously in the National Health Service Bill that is to come before your Lordships' House in due course there will be a Scottish element. The Scottish Office requires legislation for the restructuring of the National Health Service--the reduction of the number of trusts in Scotland and the introduction of the new system. In my view, that will be the only opportunity between now and the establishment of the Scottish parliament to discuss Scottish business. I apologise to my noble friend Lord Simon, who has to respond to this debate, for taking advantage of this opportunity to address specifically Scottish problems.

Before I do so--and before I forget--I want to pay generous tribute to my noble friend Lord Clarke of Hampstead, who kindly referred to me in his maiden speech as the first postman to enter your Lordships' House. My noble friend Lord Simon is about to become the third postman because I am going to ask him to deliver my comments to the Scottish Office once I have concluded my speech.

I came to the other place after a by-election in 1971, having been a rural postman and delivered letters each morning to my local Member of Parliament, Sir John Gilmour. I can hear him even to this day, as I was being introduced to the other place, saying in a rather loud voice to his colleagues, "There is something going wrong with this place. They have got my postman here how". I do not know what he would say now that he can see two postmen here in your Lordships' House.

The important point is that when it comes to the reform of your Lordships' House, just as we would expect the other place to represent the make-up of the population of the United Kingdom in every aspect, whatever system is adopted for the appointment of Members of your Lordships' House it should be devised in such a way that the membership of your Lordships' House also reflects the make-up of the United Kingdom--and postmen are part of that make-up.

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If at any time in my constituency I was faced with an unruly lady at an election meeting, I used to remind her that I had seen her at seven o'clock in the morning in her dressing gown and her curlers. There was nothing better designed to quieten her down than reminding her of that.

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