§ 2.59 p.m.
The Earl of Gowrie
My Lords, I beg to move that this Bill be now read a second time.
The Finance Bill gives effect to the tax changes announced by my right honourable friend the Chancellor of the Exchequer in his Budget last March. These are part and parcel of the Government's economic policy generally. It is a straightforward economic policy and extremely easy to understand. Its object is to keep down inflation and sustain economic growth; or, in other words, to ensure that the country does a bit better each year and see to it that any such improvement is sustained and not eroded by changes in the value of our money.
Our political system is an adversarial one and nowadays there are no less than three suitors for the hand of the public. Perhaps I should say four, because on a number of issues, not least economic policy, the Liberal and Social Democratic parties take distinct and differing views. Critics of the Government's overall economic policy—and we shall hear from one or two this afternoon—have to ask, and also to answer, three questions: first, is real growth desirable; secondly, is it taking place; and, thirdly, is it sustainable? If the answers to these questions are in the affirmative—if they are, "Yes"—I hope that noble Lords opposite will be honest enough to make speeches which say in effect: "I agree with what the Government are doing. I have these particular criticisms on points of detail". Let me put it to the 1099 House that there is no way of ducking that challenge. It will be interesting to see who ducks it and who faces up to it.
Is real growth desirable? There are people who feel that it is not. They normally argue their case on ecological grounds—that is to say, that the resources of our planet are not up to the depredations brought on them by our species. Here and there I have points of agreement with them. We need, for instance, to worry in a constructive way about population growth. The tragedy in Northern Africa is not just one of climate or politics. It is also a result of population outstripping natural resources even in relatively favourable times, let alone as now during a prolonged drought which may itself owe something to population growth. Here in the developed world, infinitely more fortunate as we are, population changes can nevertheless cause great difficulty. Take the issue of unemployment. At the present time the baby boom that followed the First World War is only just starting to come off the labour market. The baby boom of the 'sixties—which I fear I added to—has been on the labour market for some time. Of course, we have the resources to tackle such problems. But the problems are there. That said, I do not know of any serious critics of this Government's policy who contest the need for real growth.
Is real growth taking place? I challenge any speaker in this debate to say that it is not. Britain is entering a fifth year of uninterrupted economic growth. Since the Budget, the consensus of economic forecasts made quite independently of the Government is that growth this year will reach 3½ per cent. This is the fastest in the European Community and will probably exceed the American growth rate. The CBI is forecasting 4 per cent. growth and its June trend inquiry results showed export and total order books were at their highest level since the survey began in 1977. Last week the Economist had this to say:British industrialists make poor lobbyists. They have been telling the Government that high interest rates and a strong pound are bad for investment—just when investment is booming as never before. Sterling has gone up again; so have their grumbles. But they look like investing regardless. Total fixed investment grew 7.4 per cent. in real terms last year—the biggest rise since 1967".So industrial confidence is high, and so is its reflection through investment. I believe that confidence in that investment will turn down if there is any serious prospect that the Labour Party will form a Government. At present, and even with the Government suffering the usual loss of support in midterm, that does not look very likely. But it is a worrying prospect and we in Government must do better and bang the drum a bit harder. In my experience, business does not necessarily mind a Labour Government from time to time. But it cannot live with a Socialist Government, and nor can the British economy.
I laid emphasis on real growth and the figures I gave were in real terms. This is why we must never ease up on inflation, and, in my judgment, it is irresponsible to try to persuade the public that just a little extra spending, a little more inflation, could ease things—for teachers, let us say, or for young people looking for jobs. It is true that inflation has increased since the Budget. A major factor was the unsustainable strength of the dollar at the beginning of the year. This had an effect on interest rates and mortgage rates and thence 1100 on the RPI early this summer. Changes in benefits this autumn will reflect inflation at that somewhat artificial rate—artificial because the underlying movement of prices remains low. Last month, for instance, prices rose by only 0.2 per cent.
The outturn is that the Government need to have a tight public spending round over the next year to compensate, if one likes, for artificially high requirements to be made on the public purse through these indexed entitlements. But that should improve next year. We should be able to reduce inflation towards 5 per cent. by the end of this year and get below that figure next year. Our long-term objective of course is to get it lower still.
Because inflation is much lower overall than it used to be, it may seem a bit abstract as an issue to some people, and we sometimes get complaints that the Government should attend to other issues and give priority to them. But business must be able to make plans within as stable a financial framework as possible, and our goods must be competitive at home and abroad. I like to think of inflation as a kind of tax: an unholy, unlawful, unvoted VAT. Governments in the short term do quite well out of it, as do unions with muscle. But most people and most countries do not, and no one does well out of it in the longer term. Without financial stability and competitive industry we have no chance of reducing unemployment on a lasting basis. The trade-off between inflation and employment is only briefly, if at all, in favour of jobs.
Looking ahead, as I have just been doing, we come to the last question: Is real growth sustainable? The answer, I think, is, "That depends". It depends on our stars and on ourselves. I am not going to spend much time star-gazing, but let us not forget that we are, if not a global village, much more mutually interdependent than we used to be. In many ways—in perhaps the most important ways—this is an excellent thing. Witness the way that people are more responsive now to global tragedies or injustices. It may be that our species will owe its survival to this responsiveness.
But interdependence can be a headache in small ways. I have already outlined the problems posed for the British Government's public expenditure plans this autumn by the strength of the dollar last spring. The American headache is deficit financing—running an overdraft. Most American commentators do not believe that the deficit can be sustained, and yet the American boom depends on it, and before long the American boom may start to wobble. The headache of the developing countries is debt. The scale of their debt may imperil the growth rates of our developed world, growth rates on which they, in turn, depend.
It seems to me that the European headache is that we think of rights and entitlements before we think of performance. That is why we have, throughout the Community, high unemployment, whereas the Far East and Pacific countries do not. I believe in social justice and equity, but I believe that it has to be earned and paid for. And one does not earn or pay for it without a pretty robust attitude to rewards and differentials. Those of us who work mainly for love are lucky. Most people work mainly for money.
Whatever happens to the world over the next few years, I think few people will argue in this debate that 1101 global conditions are so reassuring as to make us here in Britain relax from the hard grind of maintaining and perhaps expanding our markets at home and abroad. So sustainable growth depends mainly on ourselves. By "ourselves" I do not mean "our Government". Governments can help a little and hinder a lot. The longer I work in Government, I have to say, the more I should like to wind many of its activities down. For goodness sake let us not start falling back on the comforting socialist myth that the determining factor for economics is economic policy.
Wealth generation in Western societies in the late 20th century is about the interaction of some fairly simple phenomena. It is about information, adaptation, competition, profitability, reinvestment and communication. If one lines up those sights, one is on target for success. Be successful, whether corporately or individually, and one will be in a position to help—or to be required to help—others who are less successful. But do not patronisingly deny those others the chance to line up the sights for themselves.
This Bill provides a framework within which the country—not the Government—can get on with the job, and thereby create more jobs. It has three simple objectives. The first is to reduce taxes so as to improve incentives and create jobs, for example, by encouraging self-employment. The second is to encourage enterprise and innovation. The third is to continue the process of tax reform and to improve the administration and lighten the cost burden of our tax system. Let me say a brief word about each of these objectives in turn. With your Lordships' leave, I can of course go into greater detail when I come to wind up the debate.
First, taxes have been reduced so as to improve work incentives and create jobs. Personal allowances are now 20 per cent. higher after inflation in real terms than in Labour's last year, and the effect of this increase has been to take 1¼ million people out of tax altogether. When the new national insurance rates are implemented in October, it will be cheaper to hire people on wages of up to £130 per week. There are plenty of jobs to do in this economy. But unless lower-paid jobs are made more attractive in net terms to people, it is wholly unsurprising that they should prefer to register as unemployed.
We should have liked to do more in the reduction of taxes. It is easy, on a nice July day, to forget that this Budget was introduced just one week after the working miners—without any help from the Labour leadership, one might say—defeated Mr. Scargill. We would have lower taxes, and more jobs, without that dispute within the NUM. Nevertheless, I for one believe that the cost of supporting the right to work was worth every penny of the £2¾ billion on the PSBR. I do not believe that that money will need to be spent again.
The Budget also contained tax changes to encourage self-employment. Self-employment is rising fast. This Budget, by reducing Class 2 national insurance contributions and giving some tax relief to Class 4 contributions, will swell the rise. The self-employed now number more than 10 per cent. of the working population. They are dynamic and flexible, and our economy needs to encourage both virtues.
1102 Next, there is the encouragement of enterprise and innovation. Again, this is all to do with a general policy. Your Lordships will be pleased at the excellent reception my noble friend the Minister Without Portfolio's deregulation package has received. I am proud to have been working on it with him since its inception. In the present Bill the business expansion scheme is extended to research and development companies; there is a special set of measures for the high technology industries, and measures to encourage transactions in commodities and financial futures. These are very important to increase turnover on the London market and encourage our competitive position against similar markets abroad.
Lastly, we have introduced various tax reforms aimed primarily at simplifying the tax system and its administration. The largest element of these is the implementation of the changes to the enforcement powers of Customs and Excise which were based on recommendations of the Keith Committee. The changes are designed to achieve a fairer balance between the interests of the Government and those of the taxpayer. Other tax changes in the Budget included the abolition of development land tax, the extension and reform of capital gains tax indexation provisions and an overhaul of the ancient stamp duties.
In sum, this Bill is the legislative arm of a responsible Budget and a successful economic policy. It is successful because it is delivering employment as well as growth to the nation. Since the spring of 1983 the United Kindom employed labour force has risen by over 600,000. Those are new jobs, jobs not previously existing in the economy. Our critics say that many of these jobs are female or part-time. What on earth is wrong with that? It is perfectly clear, to me at any rate, that the traditional industrial employment—the man doing the same job for life and supporting his family on his wages—is disappearing all over the Western world. While I recognise the stresses and strains, the individual suffering which can occur during any period of economic change, I am convinced that the changes themselves are for the better.
If the Government were today presiding over a 1950s' style of full employment and traditional economy, in my belief we would be under attack for allowing a whole generation to suffer the boredom and degradation of repetitive manual industrial labour. Machines threaten man—I always think the Luddites had a point—but in the end they liberate them. Because we welcome change, as well as recognising the anxieties which it can cause, we are spending money in unprecedented amounts to move it forward and to alleviate its effects. I am thinking of course of the Youth Training Scheme, the Community Programme, the extra money promised to the education world, the National Health Service and the like.
We are also maintaining employment. Never forget that Britain has a very large labour force. About the same number of people in the age group 16 to 65 are in work in this country as are in work in the United States of America, and that is substantially more than our competitors in France and Germany. Of course there are problems for any economic policy, but at present it seems to me they are principally political. Bankrupt of any economic policy other than unwritten 1103 agreements with a handful of senior trade union leaders, the official Opposition have indeed made some headway in associating this Government with cuts—cuts in programmes which they simply cannot substantiate through the figures.
They argue for additional borrowing and spending. They argue against high interest rates and taxes. Even so relatively responsible a figure as the noble Lord, Lord Barnett, dismissed as derisory in our first Budget debate the three-quarters of a billion pounds which the Chancellor of the Exchequer gave back in this year's Budget. The noble Lord did not go on to argue that this could have been over £3 billion without the miners' dispute, and his leader is still at sixes and sevens over where he stands on the use of industrial muscle or the right of people to work. Reducing taxation, encouraging enterprise, improving competitiveness and getting good value for the public for the money which, after all, comes from them is surely the better way. It is also the way of this Bill, and I commend it to your Lordships.
§ Moved, That the Bill be now read a second time.—(The Earl of Gowrie.)
§ 3.21 p.m.
§ Lord Barnett
My Lords, one cannot help but sympathise with the noble Earl. He has to defend the indefensible. He did so this afternoon by choosing his own three questions to answer, ignoring all the many others that are being asked not just in your Lordships' House but throughout the country. As his speech showed, the noble Earl has to pretend that everything is getting better while maintaining that anyone who disagrees with him is being both irresponsible and party political. If it were not that one had sympathy with the manner in which the noble Earl addresses your Lordships' House, one would see how ludicrous the argument is.
I have never argued that the problems of Government are easy. Certainly, at the end of his remarks, the noble Earl said that we have one or two problems, although he did not mention what they were. I concede, as I have always done, that all Governments have this problem of pretending that everything is for the best in the best of all possible worlds. That is what leads to the unpopularity of Governments, and particularly of this one. That is why the Government are being blamed when it is patently obvious that we have not got so happy an economic situation as the noble Earl leads your Lordships to believe. As it happens, your Lordships do not have a vote, as they do in Brecon and Radnor. Those voters showed exactly what they think of the problems that were ignored by the noble Earl.
I agree with the noble Earl that the extent to which any Government's policies can influence the major economic problems of the day are marginal. Governments get into serious electoral trouble by pretending that they have solutions and by pretending that they can achieve the unachievable. That is the impression that the noble Earl led us to accept today. I see that the noble Lord, Lord Harmar-Nicholls, nods both ways on that. But the great danger about the way in which the noble Earl presented the difficulties faced by any Government and particularly by this one, and 1104 the economic problems faced by our nation, is the danger to democracy itself through building up public expectations that no one, let alone this Government, can deliver.
The noble Earl elegantly tries to avoid saying that everything is marvellous. But the implication of his remarks and his selective use of figures indicated, as he led us to believe, that everything is coming right. The essential facts show that this is far from being the situation. The noble Earl selected some figures to show that income tax was much lower than it was in 1979. We all know that total taxes and national insurance contributions are substantially higher than they were in 1979. We also know, if we have contact with anyone involved in self-employment, that the Inland Revenue—I am not saying at the behest of the Government, because the Inland Revenue are a law unto themselves under the Taxes Management Act—are not making life particularly easy for the self-employed. Neither are the Government in the legislation that they have been introducing.
Apart from that, I take one of the questions raised by the noble Earl on economic growth. I agree with the figures that he gave to the House. However, your Lordships will know that this is very much only part of the problem that we face as a nation. If one looks at manufacturing output, a not unimportant matter, in what was once a major industrial nation one sees that it is not back to 1979 levels—I do not pretend that the 1979 levels were particularly high—but is now below them. Why did not the noble Earl ask us that question? He missed that one out. Why did he not ask the question whether it is right that public sector investment should be below what it was in 1979? Why did he not answer that question as well as putting it to us? It is because he knows the answer. It is down on what it was in 1979.
Why did not the noble Earl deal with the central problem that after six years of managing the economy, as we have been told, so well, and when everything is so great, we now have the highest levels of unemployment ever and astronomical levels of interest rates which are doing terrible damage to the economy and particularly to industry? I recently attended a lunch at which there were present bankers and leading industrialists. It was very interesting. The bankers thought that the Government could not do a lot to reduce interest rates. The industrialists said, "You had better get on with reducing them because we are finding it very difficult to deal with our competitors abroad faced by these levels of interest and by this exchange rate". I should like to turn to that matter, my Lords, as the central point I wish to make. I want to deal with the whole central position of the Government on inflation, money supply, interest rates and so on.
Before doing so, however, I should like to deal with the question of taxes and public expenditure which are apparently, or so we are led to believe, at the heart of what the Government are arguing about, or what the Cabinet are arguing about. We must, after all, believe what we read in the newspapers. There is an argument between the so-called consolidators, the wets and the dries, about whether there should be cuts in taxation or increases in public expenditure. There is one point on which I agree with the noble Earl. It is the problem 1105 of whether the Government have been cutting public expenditure. After all, the policy of the Government, above all else, when they came to office in 1979 was to cut public expenditure and to cut taxation.
In practice, they have increased public expenditure and they have increased taxation, as a percentage of GNP, from 36 per cent. to 42 per cent. Public expenditure has actually increased by 16.5 per cent. in real terms. Yet I must say that if any medals were being issued at the present time they should be issued to this Government for the remarkable feat of having increased public expenditure by this amount while persuading everyone in the country that they have spent the last six years cutting it.
So the noble Earl was quite right. The Government have, in fact, increased public expenditure. But, of course, they have, in another sense, also been cutting it. They have had constant cuts in some essential areas of public expenditure to offset the increases—the inevitable increases—caused by another arm of their policy that so massively increased the level of unemployment. That is why they have had the worst of all possible worlds. And no Government deserved it more.
There is much that is bogus in the argument between tax and public expenditure. Again, whatever the Government wish to do—even this Government—it can only be done, as the noble Earl said in another context, on the margin. How many will now recall that in the Budget, the Finance Bill of which we are now not debating, the Chancellor gave away, if that is the right term, in net tax relief, something like £ 1.5 billion? That was forgotten within a day, let alone weeks and months later. If there are to be any major cuts in taxation that would have real impact, one would have to cut taxation in current days by many thousands of millions of pounds. I do not believe for a moment that even this Government are going to be able to find that kind of money.
Nor, for that matter, are they going to be able to do much other than on the margin in the field of public expenditure. If they increased it or reduced it by some £2 billion or £3 billion, that would be a lot. It would be out of a total public expenditure level of some £139 billion. I am sure that your Lordships will have been interested to hear the noble Earl say that if it had not been for the miners' strike they would have increased public expenditure by £2 billion this year. I thought that that was what he said, but I shall read it with even greater interest tomorrow—and I am sure that he will, too.
As I have said, there is much that is bogus in the so-called "Cabinet argument" between tax and public expenditure. Most of us would want to see—and here we would agree with both the Prime Minister and the Chancellor of the Exchequer—lower taxes and national insurance on low incomes. Nobody would dispute that. The problem is the huge cost of any substantial increase in the thresholds that would be required when one realises that one could do so little with £1.5 billion.
However, generally the consolidators in the Cabinet are right to want to see increases in public expenditure on capital assets, not just because that is what the 1106 public apparently want but because they, like most politicians and most Cabinet Ministers, want to see increases in public expenditure and they want to see increases in tax as well. We know that to be so. That is my experience, and anyone who has been in the Treasury will know that that is the view of both spending Ministers and those who lobby for more money.
It is right that the consolidators should have their way on expenditure on capital assets as regards the infrastructure, for two reasons. One reason is that if they do not do so there will be a disastrous decline in the infrastructure in this country. Your Lordships do not have to take my word for it. A pamphlet has recently been issued; it is entitled The British Economic Base 1985 and is by W. A. P. Manser of the Federation of Civil Engineering Contractors. I see that the noble Earl is laughing. I suppose that he is a member of the Labour Party. I did not know.
The Earl of Gowrie
My Lords, the only reason that a very brief expression of mirth crossed my face was that any civil engineer worth his salt would be arguing for increased civil work.
§ Lord Barnett
My Lords, that is why the noble Earl, for example, wants to support the Government: it is not because he believes it; it is just because he is a member of the Government. That is the argument.
§ Lord Howie of Troon
My Lords, will my noble friend bear in mind that any civil engineer worth his salt would certainly wish for that type of expenditure, but only because it is needed?
§ Lord Barnett
My Lords, I am obliged to my noble friend. I was going to deal with what Mr. Manser said rather than with who he is, and then perhaps the noble Earl will deal with the matter. In his booklet he says:Britain's infrastructure, including railways, roads and sewers, which was deemed ill-cared for five years ago, is now sufficiently unkempt and at risk to give rise to public alarm".Whoever Mr. Manser may be, those of us who go round the country with our eyes open will have seen that for ourselves and will know that to be true.
Therefore, I really complain just a little about the contemptuous dismissal of this report by the noble Earl just because the man happens to be a civil engineer. I should have thought that we would do well in this country to have greater regard for engineers, because then we may have a better industrial base than we have at the present time. However, it is not only a question of the infrastructure needing money spent on it. All of us know that on any analysis more money spent on the infrastructure will help private manufacturing industry and help jobs more than it would if it were spent on simple cuts in taxation. Therefore, I hope that the consolidators win.
I have little doubt that in practice what this Government will do will be the typical British way: both sides will win. We shall have little, selective, highly-publicised increases in public expenditure and some tax cuts by a massaging of the public expenditure and borrowing requirement figures in the way I have described to your Lordships on previous occasions.
1107 However, if there is to be a non-answer to the public expenditure/tax problem, it is surely well past the time for a rethink on the issue at the very heart of the Government's economic problems—that is, money supply with its crucial relationship to interest rates, inflation and exchange rates. I have never argued that we can ignore money supply; it is the degree of emphasis which this Government give to money supply that I query. I query the absolute certainty, the sublime faith—and I exclude the noble Earl in this respect—in the whole question of money supply.
There are only a few left with that kind of sublime faith, but unfortunately one is the Chancellor of the Exchequer. He still believes that we can do everything in the management of our economy with money supply. He was the architect of the medium-term strategy in March 1980, even before he became the Chancellor of the Exchequer. His aim was a progressive reduction in the growth of money in the economy in order to bring about a reduction in inflation some two to three years later.
Five years later money, as measured by cash or bank deposits, is expanding faster than the target which was laid down as long ago as 1980–81. Indeed, the first year is now expanding twice as fast as the target. Yet inflation was reduced from over 20 per cent. to 3.7 per cent. in mid-1983. It is now back to 7 per cent., and I think that the noble Earl, Lord Gowrie, is likely to be right in saying that we shall probably have it back to about 5 per cent., if not by the end of the year then shortly afterwards, but it will be nothing whatever to do with money supply.
No monetarist, certainly not the noble Earl, has ever explained why that should be the case. The truth is—and they hate to admit it—that they do not know whether the money supply is out of control, for one very simple reason: they cannot measure money supply. That is and has always been the trouble. How do you measure money supply? We had a brief exchange across the Dispatch Boxes this afternoon. The noble Earl sought to say that it was all better now than it was between 1974 and 1979. At some point perhaps he will explain to me how and by what measure. As I have said, the trouble always is that you cannot measure the money supply. I, for my part, do not blame the Chancellor of the Exchequer for the way in which the markets from time to time react to the money supply figures which come out on a particular measurement, because that is no fault of the Chancellor of the Exchequer.
However, the plain fact is that there have been very strange reactions in the market. There was recently a rise in one of the measures—that is, sterling M3—which took its annual growth rate so hopelessly wide of the Chancellor's target range of 5 to 9 per cent., and yet, despite that, the market decided that the pound should rise in value. That was the decision despite that massive increase in the money supply over and above what the Chancellor had wanted to see. That led City economists—not members of the Labour Party—like Malcolm Roberts of Laing and Cruickshank to argue that the obvious distortions to sterling M3 over the past few months now provided a golden opportunity for the Chancellor effectively to 1108 abandon sterling M3. I agree; I think that he should abandon sterling M3.
However, the problem is that if you are still a monetarist—which I am not—what do you put in its place? I noted that this afternoon the noble Earl apparently put what has come to be known as "Little Mo" in its place. That is a much narrower money supply measure that at the moment points to a firm monetary condition. However, it is a narrow measure and that is why others have looked at different measures such as, for example, M1, M2, PSL1 and PSL2. Others will probably argue along the lines, for example, of the CBI, who said recently:The Chancellor seems to be using Mo when he wants to demonstrate the success of monetary policy and sterling M3 when he wants to sound the alarm".So the Government have tried to have it all ways. However, there would be much less alarm if they paid less attention to the obviously inadequate measure of money supply. We would have much lower levels of interest rates and we would have much lower levels of inflation because not only would it help industry and jobs but it would help industry by a more realistic exchange rate as well.
A lower interest rate in such a context would also meet one of the Government's own main objectives: it would effectively work like an income tax cut by reducing mortgage payments, thus increasing personal disposable income at a stroke. It might even make the Government popular—something which, frankly, I am prepared to put up with temporarily. It would be a price worth paying. The obsession with money supply is shown to be so hopelessly distorted that even a rights issue—such as, for example, Abbey Life—does great damage and so affects manufacturing industry and the chance of creating much-needed jobs.
Therefore, one is bound to ask why, in the face of this evidence, an intelligent man such as the Chancellor, supported by another intelligent man such as the noble Earl, still insists on such high interest rates? They are startlingly high in any context, certainly in international comparison. They are some 6 per cent. above those in Germany and Japan, and even the United States, with a huge budget deficit, is some 3 per cent. lower. They are higher than when the Government came into office in 1979, and despite all the economic recovery we heard of from the noble Earl, and six years of huge benefit from North Sea oil, we still have this massively high interest rate.
Why do we have it? The answer, I regret to say, is that cursed money supply. Because of that we have these penal rates to reduce demand for money and credit. But even that does not do the job because penal interest rates, as we have seen, have not choked off demand for money and credit. Instead it has had the perverse effect. High interest rates have attracted huge sums to banks, thus increasing sterling M3, and building societies, thus increasing PSL2 (which is the wider definition), and it just adds to the nonsense because companies then have to borrow more money to pay the higher interest charges.
This is the situation which has been created by this Government, with all the "great benefits" that we heard about from the noble Earl. But it is even worse than that. The Government could have cut public expenditure substantially more, so helping all of us, 1109 but the Government—indeed all of us—have to pay substantially more in net interest charges, and find that that is precisely the biggest and fastest growing area of public expenditure. Net interest charges have grown from 1979–80 figure of £3.4 billion to £9 billion, which is the Government's own estimate for 1985–86. That is the crazy situation to which this Government have brought us.
If that was not bad enough, or mad enough, a further consequence is that we are now back to high exchange rates, certainly on the weighted average if not yet on the dollar, and this in turn stems from the Chancellor's concern with what might be called the Government's only real success, inflation.
The Earl of Gowrie
My Lords, before the noble Lord leaves the question of the monetary conditions could he explain to us—as indeed I challenged him to do in my speech—why, if policy of this kind is far too tight and restrictive, and interest rates are far too high, business is investing at the pace that it is?
§ Lord Barnett
My Lords, the noble Earl clearly was not listening. He was looking at his brief. I did not say that the money supply was too tight. I said for obvious reasons, the reasons I stated, that you cannot measure it. I do not know whether it is too tight. What this Goverment are saying is that it is not tight enough, and that we must have higher interest rates. That is what I said. You can take whichever money supply measure you like. Your can take sterling M3 as a measure of the tightness of money supply, and find that it is too loose: you can take Mo and find that it is too tight.
When the noble Earl replies tonight perhaps he will tell us—I see that he will; I am delighted to hear it—which measure of money supply he is going to take. All I can tell him and your Lordships now is that because the Government are taking any particular measure they care to choose, and none is in any way accurate, we have the disastrous situation I have described. The plain fact is that in achieving the only real success, the one single success on inflation which all of us would want to see, they have done it at the expense of terrible damage, if not near destruction, to so much of manufacturing industry.
I doubt that I am alone in finding these very high interest rates in these circumstances a strange way to reduce inflation and create more jobs. Indeed those at the sharp end, the CBI, have made their views clear to the Government. I hope that those on Government Benches who share my concern might take note of the CBI and those in manufacturing industry. I hope they will use their influence to persuade the Chancellor that lower interest rates and the exchange rate are not a wet way of managing the economy; it is not a middle way; it is just, my Lords, a better way.
§ Viscount Eccles
My Lords, before the noble Lord sits down may I ask him a question? Does the noble Lord really think that high interest rates, especially the last time they were raised, had anything to do with money supply? It was the result of the exchange rate, and that is something quite different.
§ Lord Barnett
My Lords, the noble Viscount has misunderstood what his own Chancellor has been saying. The reason why he has been seeking to make 1110 the exchange rate higher through high interest rates is precisely at the heart of his economic policy. It is all down to this obsession with money supply, which I know the noble Viscount does not go along with.
§ 3.45 p.m.
§ Lord Ezra
My Lords, the noble Earl, Lord Gowrie, started his speech, to which we all listened attentively as we always do, with three questions. I agree with the noble Lord, Lord Barnett, that many other questions could have been asked, but the noble Earl asked the three questions and so I shall start my remarks by trying to answer them.
Is real growth desirable? Yes, it is. Real growth is desirable so long as it develops in a way which takes full account of the environment and of people; that it serves people; that it enables people to live in better conditions and with better living standards. Secondly, is real growth taking place? Yes, there is a degree of growth taking place. But I would put in a caveat. That growth is to some degree engendered by the exceptional position we have as an oil producer, one of the largest oil producers in the world, and therefore that growth, shorn of the oil, would look very different.
That leads to the answer to the third question. Is this growth sustainable? The noble Earl said that he had some doubts about this. It depended upon external circumstances and our own efforts. I would say that it is unlikely to be sustainable in the light of present policies, again because of the oil problem.
Let us be clear about the oil. Some people think that it has been a good thing for this country, and others have their doubts. I have no doubt at all. Of course, it has been a good thing for this country. We have found a source of natural wealth, and with an enormous amount of skill we have developed it. The technology that has been developed in regard to North Sea exploitation is one of the technological wonders of the world. There is no doubt about that.
However, what one could question is whether, in the light of the fact that this is a wasting asset—at some stage everybody is agreed that this oil will diminish in quantity, and that the enormous revenues that it is generating will diminish—we have handled the situation in the right way having regard to the medium and longer term. This is the grave doubt that many of us have at the moment, and my remarks will be addressed to this. I shall try to be constructive, I shall try to pose some questions, and make some suggestions as to how policy should be modified.
I hope that the noble Earl, when he winds up, will not feel that the Government—or indeed any government—should not from time to time modify their policies. Any enterprise will do it. When external circumstances change it will take a new look at things and consider whether there should be a new emphasis in its policies. Indeed, if enterprises were not to do that they would soon be out of business, because external circumstances change, competitive conditions change, and it is those who respond most actively and most vigorously who achieve the greatest success. What goes for enterprises, I believe, goes for governments.
Therefore, my suggestion is that the time has now come for a major review of the thrust of economic policy. We are a country which in the past has 1111 achieved greatness on the basis of being the first to industrialise. We have subsequently over the years tended to diminish that great asset, and certainly in the most recent years—and it does not start in 1979; it goes back earlier than that—the size of our manufacturing capability has progressively diminished.
This is a phenomenon which is true of many other countries. But what is different between Britain and our major competitors is that, whereas the share of manufacturing industry in GNP in most major countries has diminished, in our case the actual manufacturing activity has reduced in absolute terms and in those other countries it has not. In other words, we are seeing a rapid diminution in absolute terms of our manufacturing base. I believe that the time has come when we must address ourselves seriously to that problem.
It is not enough to say that market forces will sort this out, that if we produce less manufactured goods we shall provide more services. That is sometimes alleged. In fact a large part of the service industries—who again have performed very well in recent times: let there be no mistake about that—and the services they offer are related to manufacturing industry. Without a strong and growing manufacturing industry, the service sector, and in particular the banking and insurance sectors and all those related activities, will suffer. So the two have to go together.
In a situation of this sort it pays one to consider what other countries are doing. Just as in an enterprise, if I may use that simile again, one would tend to consider what one's major competitors are doing, so I think should we do that. We have certain major competitors in world markets: we have America, Japan, Germany and France, to name but a few. If we take the Continental countries simply because they are nearer to us and conditions are more similar, it is a fact that in Germany and in France the general policy is to create the right framework within which industry can thrive; a policy to which this Government have said they are totally committed. Indeed that is absolutely right; that is what Governments must do. The difference arises in how they do it. Abroad they do it in a much more pointed and determined way. In Germany, through the Ministry of Economic Affairs, they identify those sectors which are particularly deserving of support and help and they stimulate and support a much greater degree of research and development than we do here. They have a much more extended and effective industrial training scheme. In the matter of industrial investment, in the matter of research and development and in the matter of training they are way ahead of us.
In France it is similar. Through the Commissariat du Plan, the planning commission, they work out a broad approach to the economic problems of the country. On a recent visit I paid to Paris with Members of your Lordships' House on the Select Committee on Overseas Trade it was made very clear to us that they regard their industrial activities as the absolute basis of the economic wealth of the country. There is a very clearly defined plan for ensuring that investment, research and development and training to support a 1112 regeneration of the industrial sector shall take place.
I should like to suggest that, while all these countries agree that the Government's role must be to create the right framework, there seems to be a difference in the way in which this is set about. It seems to me that in this country under the present Government the framework is so broad that at times it does not seem to have the right sort of impact. What industry is worried about at present, as the noble Lord, Lord Barnett, made clear, is the very high level of interest rates and the increasing value of the pound, which is making our goods less competitive.
The noble Earl quoted from the Economist. As it seems to be in order to quote from various newspapers today, I should like to quote from The Times of yesterday. This had a very interesting passage relating to the whole question of money supply, on which the noble Lord, Lord Barnett, was so eloquent a few moments ago. The Times said this:In its June quarterly bulletin, the Bank of England observed that in the second half of last year capital issues by companies dropped sharply, probably because firms were unwilling to tap the market in the run-up to the British Telecom flotation. This contributed to the surge in bank lending to companies and the apparent loss of control of (broad money) sterling M.3. This in turn was a factor in the sterling crisis and 4½ points base rate hike in January.That is a very interesting analysis of the situation. It suggests reasons, which so far have not been forthcoming, as to why the money supply situation seems to have got out of control, why interest rates are so high and why sterling seems to be rising beyond the level which would be suitable for us.
The question that this obviously poses is how the Government will handle the much more massive flotation of British Gas. If these are indeed the reasons, the consequences of what has been done in relation to British Telecom—a flotation of about half the value of British Gas, as the Bank of England and The Times have indicated—I should have thought that the Government ought to proceed extremely cautiously on the flotation of such a large issue as British Gas if it is likely to have these kinds of tidal wave effects. I do not think this is the time or the place to discuss the merits or demerits of privatisation. It is the impact of massive flotations of that order on the rest of the market which is in question. We need to try to understand a bit more, as the noble Lord, Lord Barnett, pointed out, why the money supply situation seems to be so out of control and why we have these related factors of high interest rates and rising sterling.
Finally, I should like to mention the question of the infrastructure. This is something which we have debated on many occasions in this House. There are those who feel that more should be spent on it and there are those who feel that enough has been spent on it. I was personally somewhat encouraged about what appeared to be a relaxation of the Government's attitude on this vexed subject, because there have been reports in the newspapers of a recent meeting of the NEDC as recently as 10th July. It is said that there were presented at that meeting the departmental considerations of the NEDO document, with which your Lordships will be familiar because it was issued last January, which pointed to major shortcomings in repair and maintenance of public assets. It appears from newspaper reports—I am going by the Financial 1113 Times in this case—that the departmental Ministers present at that meeting generally concurred with the findings of the NEDO document. They admitted that much more needs to be done. So it would be interesting to hear from the noble Earl whether those press reports were a correct statement of what went on and whether it is now a fact that the Government are looking carefully at spending rather more than they have hitherto on the much needed maintenance and refurbishment of the fabric of the nation.
From all this, I feel it emerges that the time has come when a new look needs to be given to our economic affairs, when we need to be considering very seriously what steps we can take, without leading to inflation, to restimulate our industrial base and to study carefully what other nations are doing in this connection. We need also to take seriously the warnings which are coming from all sides about the state of the infrastructure. The noble Lord, Lord Barnett, referred to one recently published document from the civil engineering contractors which is a very serious document, and I suggest to the noble Earl that this be read seriously by the Government. Warnings are coming from all sides, from all professional bodies and trade organisations, about the risks that this country will run by allowing our basic fabric to get more and more into difficulty, rather than being maintained, refurbished and expanded as it ought to be. All the facts are there: what we need now is a comprehensive policy to deal with these matters.
§ 4 p.m.
§ Lord King of Wartnaby
My Lords, I am reminded today really of the many hours that I have spent with the noble Lord, Lord Ezra, discussing that great industry, the mining industry, which we were concerned with together. I think that he has left me still concerned with it. However, he speaks eloquently and well and thoughtfully, as he did so often on the subject that he knows so well. It was in the debate on the Second Reading of the Finance Bill a year ago that I made my maiden speech here in your Lordships' House. I have not spoken here since. It made a deep impression on me but it was certainly not my intention that speaking should be an annual event. However, circumstances have conspired to keep me away from here at my desk rather more than I would wish.
When I heard the Budget speech of the Chancellor of the Exchequer, given in another place, I found a great deal in it on which to congratulate him. He abolished another tax: that on development land, which is excellent and right. He once again raised the starting point of income tax well above the rate of inflation, thereby once more liberating some thousands from the tax net. That is something that I heartily applaud. Given the Chancellor's absolute commitment to fiscal rectitude, it was remarkable that he made enough room for himself to be able to help the poorest-paid in that way.
There were in my opinion some disappointments in the Budget. The Chancellor, who is committed to tax reform, has postponed reform in two key ares: VAT and the taxation of savings. I was sorry, too, that yet another year went by without the standard rate of tax being cut—the sixth such year in a row. But I have no 1114 doubt of the Chancellor's determination to cut tax—nor of the Prime Minister's. The Government were elected on the promise to reduce income tax and neither the Chancellor nor the Prime Minister can doubt that this they must do. For one thing, the Government must do so to improve incentives. We have heard this truth many times but so far we have only paid lip service to its execution. But there is another and more pressing reason. Originally the impost of tax was directed at the well-to-do. Nowadays the heaviest burden of taxation rests on the shoulders of the relatively poorer sections of the population.
Income tax is now predominantly a tax on the least-well-paid and it is from those on or below average income that much of our tax revenue comes. A nurse, for example, getting £140 a week may be paying £40 a week in income tax and national insurance. This I am sure your Lordships will consider preposterous, to say the least of it. The Chancellor has brought them welcome relief by lifting the starting point of tax. However, there are two parts to the problem. One of these is the starting point; the other is the starting rate.
The basic rate in this country is also the starting rate—30 per cent. This is a higher percentage than when the Government took office. I believe that I am right in saying that only one other Western nation has a higher starting rate of tax; and that is Ireland. The impact of so high a starting rate acts as a disincentive, particularly to the unemployed and the low-paid, and the time has come to cut it. In this context, it is of interest to note that the rate of tax on a single person's income, once it creeps above £42 a week—and, in the married man's case, £67 a week—jumps immediately from nought to 30 per cent. And out of every extra pound above those earnings about 35 pence passes directly to the Government in tax and national insurance. In fact, the married man on £67 a week pays more in tax and national insurance on every pound of income than does his employer, who may be earning, say, £19,000 per annum.
It is from the starting rate, much more than from the thresholds, that people judge whether or not they are highly taxed. It is the high rates of tax which saps their will to work or to gain promotion. The Government have done well to raise the thresholds but now they must direct their efforts to cutting the rates. Cutting taxes is so often represented as being for the sole benefit of the rich. As my previous remarks have shown, this is opportunist propaganda. Given that the burden of taxation lies so heavily on the less-well-paid, then even small reductions in tax can be of significance to them.
I suggest that what happened for so many years was that promises were made to the poorer sections of the nation for ever more social security benefits in order to win their votes, but they have in large part had to fund those benefits themselves through higher taxes. At the same time the better off have been bribed with a range of exemptions and allowances to make their tax burden seem lighter. For the unemployed and the low paid this has led to ever greater expectations of help from Government, while the increasing benefits stifled their will to provide for themselves. On the other hand, those who can make use of exemptions and allowances are under the delusion that they are being assisted.
1115 Mortgage interest relief is an interesting case. I choose it as an example of the sort of distortion which we almost take for granted, but which means higher taxes for us all. If we had no such relief, tax rates could be lower for rich and poor alike. People think that they are better off because the relief makes it possible for them to afford a more expensive home. But because they can afford a more expensive house, the price of houses rises to reflect what the market will bear. As a result, they are no better off than if they had no relief and houses were cheaper. On the other hand, because houses are dearer as a result of mortgage interest relief, rents are higher. But the people who pay rent do not benefit from the relief, and many of them are on low incomes; so that the tax subsidy to the better off is paid for by the worse off, both through rents and through their taxes.
The relief for pensions is a similar sort of subsidy. Clearly, it benefits the higher earner and is also paid for by the taxpayer, both rich and poor. In my opinion this allowance has been a major factor in the decline of personal investment in shares while at the same time it has contributed to a great increase in the power wielded by fund managers, good and bad—a fact which has by no means always been to the benefit of the economy.
The Government have talked about their own ambition of moving towards fiscal neutrality. It is a worthy aim. After all, given that we need taxes, we should attempt to apply them so evenly that the economy functions without distortions as though taxation did not exist at all. It could be argued that the Government's efforts in this direction have been too timid and, because they have been too timid, the British people have been so unmoved as to reject them. Adjustments have been piecemeal, like the abolition of life assurance premium relief—an item which is too small in itself to enable reductions to be made in the basic rate of tax.
Changes like this, though welcome, create hostile groups or vested interests determined to defend their privileges. I believe that a bigger package of reform affecting a wider range of tax privileges might paradoxically have a better chance of commanding public acceptance. Just imagine for a moment if we did not have in place those reliefs on pensions and mortgage interests. Then, of course, there would be no need to have a basic rate of tax as high as it is today.
Of course, if we tried to abolish them now there would be an outcry. People ought, at least in my view, to be able to see what would be the point of making such a change. It would greatly increase people's spendable income and thereby give them a greater freedom of choice in how they spend their money. Furthermore, it would cause the financial institutions to increase their competitiveness. Then, if you told the taxpayers that their rate of tax would be cut, say, from 30p to 24p you would have the makings of a deal that they could accept. Sacrifice and the reward would come into balance. People might even clamour for the change. It is the sort of choice—high reliefs or low taxes—that ought to be put before them.
My ideas may seem radical, but I am not sure that they are different from the proposed policies on which 1116 this Government were elected. Those outside government may be of the same mind in that I believe that a committee of inquiry, chaired by His Royal Highness the Duke of Edinburgh, may well conclude that mortgage relief is not helping to give the poorest in society a fair chance to rent or buy their homes.
We must not get into such a frame of mind about what is and what is not politically possible that we refuse even to consider certain policy options. The world around us is moving fast. Six years ago our Government appeared to be leading the way among most Western nations towards radical economic policies. Not so today. Governments around the world of every colour have followed this Government's lead in recognising the need to free their economies from subsidies and distortions. Now they appear to recognise the need for radical reform more clearly than we do in this country.
For instance, New Zealand's Left-wing Government, having already abolished controls on prices, wages and interest rates, have removed subsidies to agriculture, private industry and nationalised corporations. Now they are turning their minds to tax reform, and I am informed that they plan to put VAT on everything, including food, and have already stopped tax relief on all new mortgages, private pensions and life assurance schemes.
We all know the difficulties which our Government here have faced. Nonetheless, it is disappointing that after six years of Conservative government in Britain the minimum rate of tax is still 30 per cent. President Reagan has announced his plans to reduce the top American rate to 35 per cent.—just 5 per cent. more than our starting rate—and he has further plans to have just three tax rates overall, of 15, 25 and 35 per cent.
There are those both inside and outside the Government who question whether they should consolidate on what they have achieved or go further towards the implementation of radical policies. Some fear the electoral consequences of being radical and continuing to implement the ideas with which they came to power. I do not believe those fears are well grounded. Where they have been radical, the Government have been successful. The revolution in home ownership has been, and is, popular. The Government have decisively and perhaps irreversibly shifted the pattern of share ownership away from the state. This, too, is popular and right. They are giving control of trade unions back to their members, which certainly is welcome and right. On every count the public has made known its approval, and in nearly every instance the Labour Party has had to trim its policies.
However, in those few instances where the Government have shillied and shallied they have lost direction and credibility. At times they have seemed confused as to whether or not to claim credit for increasing public expenditure on health and social security, and as a result they have been attacked on all sides when they ought to have been receiving credit both for their financial competence and for their recognition of key areas for the spending of taxpayers' money.
1117 Over taxation, the Government must show clarity of purpose. When this Government were elected—and I thank the Lord that they were—they were elected to reduce the burden of tax. They were not elected to consolidate. I urge them to go on with what they were elected to do.
§ 4.17 p.m.
§ Lord Hatch of Lusby
My Lords, the noble Earl who opened the debate today stated that the basic policy of his Government was to keep down inflation and to sustain growth. I propose to take him on his own grounds. As my noble friend Lord Barnett has already pointed out, despite the fact that the major plank in the Government's armoury when they tackled these problems six years ago was to reduce public expenditure, that public expenditure has increased steadily throughout the life of the Government.
As I understand it—and I hope the noble Earl will correct me if I am wrong—the Government set out with the objectives of keeping down inflation and sustaining growth by the method of reducing public expenditure and increasing the competitiveness of British industry. But I would ask your Lordships to look at the public expenditure figures. By any test they have risen. Of course, they have risen. Take social security: that bill has risen by 30 per cent. Why? One has only to look at the unemployment figures to see why.
But this is only the surface story of the picture of this Government, because there is a hidden budget behind the published figures on public expenditure and on revenue. The hidden budget is the revenues which the Government have received, as the noble Lord, Lord Ezra, has pointed out, from North Sea oil. Those revenues, according to my reckoning—and again the noble Earl will correct me if I am wrong—have been to the tune of some £100 billion over the life of this Government since 1979. Those revenues from this year will decline. It is estimated that the balance of our oil will disappear in five years' time, by 1990; and by that time we shall be just about even. Therefore, the Government's hidden revenues, which they have had as this windfall over the past six years, have now reached their peak and from now will continually decline.
However, there is another aspect of this hidden budget. What have the Government been doing in order to increase their pocket money over the past six years? They have been selling national assets. According to the OECD survey of January of this year, the total amount of assets received by the sale of nationalised industries since this Government came into office has now reached £5½ billion. The Government are depriving themselves, and indeed all their successor governments, of the revenues that they would have obtained from the interest on these national assets in the future. So that will also decline—unless the Government have to go on selling the family silver by privatising gas, British Airways and perhaps even the Army, Navy and Air Force. Where will they turn for what has been, according to their policy so far, an essential addition to their normal revenues?
What has been the consequence of their stewardship of this vast amount of money—revenue plus the two windfalls that I have mentioned? The armed forces are 1118 better paid; the police are better paid; but not many more people, so far as the Government are concerned, and certainly not those in public employment. Perhaps the Government are intending before the next election—as the noble Lord, Lord King, has urged them to do—to reduce taxation. If they were to reduce taxation by some of the methods that the noble Lord, Lord King, mentioned, that would be applauded on this side. But neither this Government, nor, I must admit, any other Government before, have been able to reduce taxation without at the same time putting the major burden of taxation on the lower paid half of our employees. Of course this Government showed their own philosophy with their first taxation reductions, when they cut them off the top. That did not help a great deal the morale of the nurses and teachers about whom the noble Lord, Lord King, was speaking, who have had to continue to pay a high proportion of their wages in income tax.
What is the consequence of the policy that the Government have pursued, when it has been, as the noble Earl indicated, devoted to reducing and keeping down inflation and sustaining growth? The record can be very easily listed. The result is record bankruptcies and a relative decline in competitiveness which, I should point out to the noble Earl, has started again over the past two years. While there was some increase in competitiveness up to two years ago, it is now relatively in decline in comparison with our competitors. There is vast industrial decline over large areas of the country and a decline in capacity. If there were a time when industry was given the opportunity to revive, the capacity would simply not be there. There is record import penetration.
The noble Earl talks about growth. Yes, there is a growth in demand. How much of that is taken up by a constant increase in the purchase of foreign goods? For the first time in the history of this country since the beginning of the Industrial Revolution there is a deficit in manufacturing trade. In 1983, for the first time the United Kingdom was importing more manufactured goods than it exported. That figure became worse in 1984; and in the first three months of this year it has become worse still. And, of course, the most tragic of all is the record unemployment, with something like, in real terms, 4 million now unemployed.
I must say that I thought it was unpardonably arrogant of the noble Earl to lecture the unemployed about how there were jobs waiting for them. Where are the jobs? The noble Earl and the noble Lord, Lord Young, have been telling us continually how many new jobs have been created. The noble Earl was at least modest enough to admit that many of them are part-time jobs; and part-time jobs for women. What he did not say was the extent to which the increase, even of jobs of that kind—are these real jobs?—had kept up with the increase in the labour force. The answer is, of course, known to every noble Lord in this House. While the noble Earl and the noble Lord, Lord Young, have been trying to divert the country's attention from the fact that the trend in unemployment has been continually increasing, there has been nothing in the Government's policy which has even halted it. Therefore, the unemployed are being told by the noble Earl that if only they wanted a 1119 job there were jobs there for them. I would suggest that that is as insensitive—
The Earl of Gowrie
My Lords, I am simply interrupting because that is not what I said. I said that I did not blame people for not taking low-paid jobs if they could do better without taking them.
§ Lord Hatch of Lusby
My Lords, in that case, so far as I can see, the noble Earl is simply twisting the words around. If he said that he does not blame them then there must be jobs there. Then he is saying, not that the unemployed are drawing unemployment benefit because they cannot find a job, but that there are jobs there. This is the point I am making.
The Earl of Gowrie
My Lords, the noble Lord wants to distort my words. Of course some people who are looking for it cannot find work of any kind. A large number of people make the—from their point of view, quite sensible—economic decision not to take low-paid jobs. Everyone knows that. It is perfectly evident.
§ Lord Hatch of Lusby
My Lords, so the argument is precisely the same: that there are jobs if the unemployed want to take them or find it in their interest to take them. I would contest that. I would suggest that the noble Earl comes round with me to the North-West, the North-East, Scotland, Wales, Northern Ireland, the Midlands, and tells the unemployed what he has just told this House. I regard this as insensitive a public attitude as was the decision of the Government last week to ratify and apply the recommendations of the Top Salaries Review Body. I understood that it was the philosophy of the Government that Ministers and Members of Parliament and all leaders in industry and elsewhere should give a lead in wage restraint.
Apparently the Prime Minister has discovered a revolutionary theory of anthropology. There are apparently two species of individual in this country now: those who are rich but who need more money in order to work efficiently; and all the rest who are not so rich who need less money if they are to work efficiently. Is this the philosophy of the Government? And how does the noble Earl defend the decision that was taken only last week—I believe it is being debated at this very moment in another place—about the salary of our beloved noble and learned Lord on the Woolsack, the Lord Chancellor?
The end product of this policy was seen in that very philosophy: give the rich more in order to encourage them to work efficiently. The rest must have less. We must abolish the wages councils defending the under-21s. We must tell the teachers that there is only a certain amount of money, though we do not tell the generals or the judges that there is only a certain amount of money. We also tell the rest of the public employees the same thing.
I suggest to the noble Earl that he looks not just in the South-East, but in the North-West, in the North-East, in the Midlands and in the other areas of the country that I told him about. He will find that the members of his own party, the councillors of his own party, will tell him about the closing of hospitals, about the closing of hospital wards, about the needs of schools, about the need for paint for schools and about 1120 the need, apparently, for textbooks and exercise books in some schools that are short of them.
There are the appalling housing needs which I believe we shall see before the end of this week revealed from a high source in this country—housing which has been cut more than any other element of public spending since this Government came into office. There is also the need for roads and for the whole range of rural facilities. I suggest to the noble Earl that the policy that his Government have been putting into effect, the policy which I ask your Lordships to remember has been supported by the windfalls of North Sea oil and the sale of national assets, can be summed-up in one phrase: we have left behind a shabby Britain.
It reminds me of the words of Oliver Goldsmith. I know that the noble Earl appreciates quotations and I hope that he will get his officials to find a riposte when he comes to reply. Those words sum up the kind of Britain that this Government have left, with all the monetary advantages that they have been given over the past seven years. Oliver Goldsmith said:But now the sounds of population fail,No cheerful murmurs fluctuate in the galeNo busy steps the grass-grown footways treadBut all the blooming flush of life is fled".
§ Viscount Massereene and Ferrard
My Lords, before the noble Lord sits down, he appears to imply that the Government, by selling off certain nationalised industries, have impoverished the economy. That is complete and utter nonsense. Nowadays, those industries belong to the people. They are not under the restrictions of civil servants. They are free and therefore they become far more profitable. They now belong to the people, but before they did not. With due respect to the noble Lord, I really thought that in the whole of his speech he completely got the wrong end of the stick.
§ Lord Hatch of Lusby
My Lords, I will only say to the noble Viscount, when he says that the nationalised industries now belong to the people, that it would be more accurate to say that they now belong to certain people with sufficient money to buy shares; to a very large number of institutions, whereas previously they belonged to the whole people, under the control of the elected Government—elected in order, among other things, to run industries and services which are for the national good and for the national benefit.
§ Lord Hatch of Lusby
My Lords, is gas making a national loss, is electricity making a national loss and is British Airways making a national loss? Why does the noble Viscount think that the Government are trying right now to build up those industries? It is so that they can sell them at the highest possible price.