My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

My Lords, I regret that it has not been possible to trace the vessel which caused this unfortunate pollution off the Isles of Coll and Tiree last month and which resulted in such a regrettable loss of bird life in the area. Samples of oil were taken from the shores of Coll and Tiree and from the plumage of oiled birds during the incident and these were compared with samples taken from two vessels known to have been in the area at the time, but tests indicate that none of the samples taken from the vessels matched the oil spilled in the incident.

My Lords, I thank my noble friend for his reply. I share his regret that the culprit has not been traced on this occasion when many sea birds suffered a miserable death. Can my noble friend say whether the system of matching oils is yet precise enough to obtain conclusive evidence against a particular vessel?

Yes, my Lords. Government scientists are quite satisfied that the techniques now employed could achieve that result.

My Lords, can the Minister indicate briefly what monitoring arrangements are made to check on oil spillage? Are the Government satisfied that everything possible is being done in that monitoring?

My Lords, the Marine Pollution Control Unit comprises a small number of people but it also has eight aircraft which are maintained and operated around the clock. They are stationed in various parts of the country. In addition, that unit has recently acquired airborne remote-sensing equipment for identifying oil at sea.

My Lords, is it not the case that Lloyd' s Register can locate any vessel at any time if it is engaged in legitimate shipping business?

My Lords, I very much regret to have to tell the noble Lord, Lord Shinwell, that that is not so. There is a voluntary code of identification mostly used in the Dover Straits, particularly by vessels carrying dangerous or hazardous cargo. Otherwise, Lloyd's can only identify a ship sailing on a particular day but not exactly where it might be.

My Lords, is my noble friend aware that some time ago I asked a Question about oil spillage in the Minch? The Answer was not very satisfactory. I was told that it was something to do with the laws of the sea. Is he aware of the danger not only to birds but to people living both on the islands and on the mainland? Is he also aware that the oil spill could have been very much worse had it been further north where it would have been completely closed in in what is very nearly an inland sea? Will he ask his noble friend to look more carefully into the question of oil vessels, usually sailing under flags of convenience—which makes the situation even more dangerous—using the Minch?

My Lords, I can certainly assure my noble friend that I shall draw his remarks to the attention of my right honourable friend. We have no evidence that ships flying flags of convenience are worse culprits than others. We think that the incident to which my noble friend Lord Campbell of Croy refers in his Question is probably the result of illegal tank or bilge washing.

My Lords, does the noble Lord agree that the large number of catastrophes that we have had with oil vessels implies that on the whole tankers tend to be rather too large and therefore not easily manageable at sea?

My Lords, there is no evidence to suggest that the size of tankers has very much to do with the occurrence of spillages.

My Lords, is my noble friend aware that in this case it was fuel oil and not crude, so that it could have come from almost any kind of craft? Will the Government promote the development of the system of detection, as well as the system of matching oils? This could be a powerful deterrent against practices which foul our inshore water and our coastline.

My Lords, my noble friend is quite right. It will undoubtedly be of interest to noble Lords to know that the 1973 International Convention for Prevention of Pollution from Ships and the Protocol of 1978, which sets out the regulations, came into force on 2nd October. The transfer of information between the Northern European port operators and ourselves is now very much closer than it was before.

My Lords, is the noble Lord aware that at an inquiry in Paris in 1979 into accidents at sea, including oil pollution, which was held under the auspices of the European Parliament, evidence was produced that ships flying flags of convenience in the main were more culpable than the rest? Will he have a further look into this matter?

Yes, my Lords.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

My Lords, the Metropolitan Police and 10 other police forces in England and Wales are operating neighbourhood watch schemes, under various names, and a further six will be doing so within a year. I understand that no schemes are in operation in Scotland and Northern Ireland at present. The matter is, however, being kept under active review by the police forces concerned.

My Lords, I thank my noble friend for that reply. I understand that the scheme only started at the beginning of September. Would my noble friend agree that it has been an extremely encouraging start, in that I understand that in one area in London the reduction in crime has been 50 per cent. compared to an equivalent period for last year? Would he also agree that the community spirit shown by people is excellent and numbers of people are coming forward to be special constables?

My Lords, I am grateful for my noble friend's supplementary question. Indeed, we are encouraged by our experience in this field. Policing is a matter of work within the community and not upon the community. and this is a very good way of generating a community spirit and co-operation with the police force.

My Lords, does the noble Lord the Minister remember, as I am sure he will, a very interesting debate on crimes of violence which took place on the initiation of the right reverend Prelate, Primate—I mean the most reverend Primate? If the noble Lord the Minister does not remember my question. he will at least remember the corrections that have been made to it. Was it not the very essence of that debate that there should be more community involvement with the police? Is this not an excellent way of showing it. and are the Government going to encourage it as much as possible?

My Lords, I do indeed remember the debate initiated by the most reverend Primate and its central theme, and I welcome the noble Lord's support for our view that the co-operation of the police and the community is the foundation of good law keeping; and we shall of course support it.

My Lords, I beg leave to ask the Question standing in my name on the Order paper.

My Lords, on 30th September there were 26 sentenced 15-year-old offenders held in prisons and remand centres. This figure does show an increase over earlier years. It may reflect recent changes in sentencing patterns, but it is too early to draw any firm conclusions following the implementation of the Criminal Justice Act 1982, and noble Lords will be aware that it is for the courts to decide how each individual case should be dealt with. Initial indications. however, are that fewer detention centre orders are being imposed on boys under 17 than formerly. As to community homes, community homes with education are not reserved for offenders and the courts have no powers to require a child to be sent to one. In recent years the demand for residential care has decreased and the Government are concerned to extend and strengthen the range of community based disposals for young offenders.

My Lords, while thanking the noble Lord for that full reply, may I ask him whether he is aware that, when we get boys sent to us in youth custody centres, they have very often completed maybe half of their sentence in an adult prison? Would he not agree with me that for a 15 or 16 year-old boy to be locked up 23 hours a day while in the middle of his puberty could be very damaging?

My Lords, of course it is our aim to have as little recourse to imprisonment for this class of offender as possible. but I think that in the cases to which the noble Baroness refers the period in custody will have been short. The allocation procedure is normally completed in between four and 10 days and transfer allocation to another establishment is normally then done with despatch, and at any rate within a week. It is on occasion the case that so little of a short sentence remains that it is not in the interests of the prisoner to be put to the upset of removal to yet another strange place for the remaining period.

My Lords, does not the noble Lord agree that to hold 15-year-old children in a prison with hardened criminals is an appalling state of affairs, and as the numbers are so small—the noble Lord quoted the figure of 26—could not some alternative arrangements be made throughout the country?

My Lords, it is a question of administration—and that is not meant to be a pettifogging reply, but we do have to provide the means of allocation which is a specialised job. The young people concerned are not kept in contact with adult offenders; they are in separate parts of the establishment. The allocation process is carried out as swiftly as possible and we find that it does not militate against the interests of the prisoners to the extent that I think the noble Lord fears.

My Lords, may I ask the Minister how many community homes with education have been closed and whether it is likely that more will be closed?—because the one with which I am involved as a governor has now 19 people at it, when it has places for 54, and the facilities and teaching are excellent. Even though the courts cannot send the young people directly there, the courts can put the young people into the care of the local authority which can then send them to the community homes with education.

My Lords, we are aware of this problem. But I have to remind the noble Baroness that the closure or maintenance in operation of a community home with education is the responsibility of a local authority, and even before the implementation of the 1982 Act a surplus of accommodation in such homes had already developed. Where this has led to establishments becoming uneconomic, local authorities have had no alternative but to close them.

My Lords, following the previous question, is the Minister satisfied that the staffing of community homes, while necessarily high in relation to the number of resident children, is not excessive in present circumstances of under-use, as pointed out by the noble Baroness in her original question? Is it not a fact that in some of these homes, with one of which I happen to be personally involved, the number of staff considerably exceeds the number of resident children?

My Lords, the noble Lord has put his finger on what I was trying to point out. Sometimes these homes are uneconomic. We are trying to see how these facilities can be made more cost effective. New provisions in the Health and Social Services and Social Security Adjudications Act 1983, which comes into force shortly, will widen the use that community homes with education may be put to, and should stimulate this development.

My Lords, may I refer to the noble Lord's reply to my supplementary question? I appreciate the point about administration, but surely it is not beyond our wit and ingenuity to ensure that 26 children are not held in jail. We can organise all kinds of things. We organised a war 8,000 miles away at the drop of a hat. Surely we can organise matters so that 26 children are not held in jail. Why cannot that be done?

My Lords, the Falklands episode is used as a yardstick for a great many things. I am not sure that this is the most appropriate. Leaving that aside, we are talking about 26 individuals at any one time spread across the country in a number of institutions. The offences occur all over the country, not in specific places. If we are to reduce the number of places in which they are to be held for allocation and very rarely for anything else, we automatically make it a much greater distance for the family to travel in order to visit and support, as well as a more expensive process for the system. We have to balance the interests of all prisoners one against the other. In the light of what the noble Lord has said, I shall of course look at the matter again, but I am broadly satisfied that what we are doing meets the criteria both of cost effectiveness and of humanitarianism, as it should.

My Lords, did the noble Lord the Minister catch the anxiety in the House following upon what the noble Lord has just said in his supplementary question? Would he regard cost effectiveness as being the least priority in this matter instead of one of the main priorities? Will the noble Lord kindly answer this question? In regard to youth custody orders, is it not correct that in the passage of the Criminal Justice Bill the hope was expressed by the Government that youth custody orders would be on the decrease? Has that hope so far been fulfilled?

My Lords, I did catch the anxiety. I thought that I responded to it in the terms in which I replied to the noble Lord. As to cost effectiveness, I cannot agree with the noble Lord, but perhaps he does not quite take the point that I am making. We have a finite budget and a finite amount of money to spend on the service. Within that service, the more cost effective we are in dealing with one prisoner, the better we can treat another. I am therefore seeking the best way to use the money so that all prisoners benefit to the maximum amount. I do not think that I can give disproportionate amounts of money to individual classes of prisoner beyond what may be required by their tender age and the fact that they may be first offenders.

As to the noble Lord' s last supplementary question, I well remember the heat of the debate on Section 1, as it now is, of the Criminal Justice Act in which the noble Lord and I partook. and which makes it an obligation on the courts to consider every other form of disposal of a prisoner before custody is considered. That is still what we intend. As I said in my original and equally long substantive Answer, it is yet too early to see how the pattern of sentencing will settle down.

My Lords, does my noble friend, the Minister, agree that one of the problems is the inability to suspend a youth custody order under existing law? If he agrees, will Her Majesty's Government give favourable consideration to introducing an amendment to cure that defect?

My Lords, I think that my noble friend is wishing to remind me of the remarks made by the noble and learned Lord Chief Justice on the question of the suspension of such sentences. As my honourable friend made clear recently in another place, we do not at the moment foresee an opportunity for early legislation.

My Lords, is there not a problem in that some magistrates are not aware that detention centres are not being fully used? They are under the impression that the centres are very full. Is he aware that I have discussed this with some magistrates?

My Lords, I am aware that the noble Baroness has discussed it with some magistrates. She was kind enought to tell me yesterday that she had done so. I trust that in future discussions she will enlighten her friends in that quarter and that our exchanges in the House will serve to enlighten the rest.

My Lords, is the Minister aware that not only are more young people receiving youth custody sentences but also many more are in secure accommodation since the implementation of the Criminal Justice Act? I made local enquiries. I found that, in five months before implementation of the Act, no boys were in secure accommodation in my county. In the five months since the implementation of the Act, 209 boy-days have been spent in secure accommodation. This is very unfortunate in every way, and also from the point of view of cost. It costs £500 a week to keep a boy in such accommodation.

My Lords, I repeat that I think it is a little early to form a judgment on the working of the Act. I shall look at the working of the Act in the light of what the noble Baroness has said.

My Lords, on a practical point, is the noble Lord saying that exchanges in the House are sufficient to inform magistrates of the point that the noble Baroness was making? Will the noble Lord give an assurance to the House that he will discuss the matter with his noble and learned friend the Lord Chancellor to see whether the magistrates can be specifically informed of the point at issue?

My Lords, I am most grateful to the noble Lord for drawing attention to what was intended to be a verbal felicity but not to limit the scope of my action.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

My Lords, assuming that the building work proceeds on the timetable envisaged, the Theatre Museum's Covent Garden premises should be ready to be opened to the public during 1986 or early 1987. I hope it will be possible to let the building contracts for building starts very shortly indeed.

My Lords, I should like to thank my noble friend for that Answer. I am sure that he will be aware how much we are looking forward to the opening after this long delay, and the sooner the better.

My Lords, is the noble Earl aware that the decision to locate the Theatre Museum in Covent Garden was announced in another place by a Labour predecessor of his in 1975? Since then, there have been three Conservative Arts Ministers who do not seem to have been hurrying themselves enormously in the last eight years. Nevertheless, is the noble Earl further aware that we warmly welcome the fact that at last he is able, apparently, to put a date on matters? Would he not agree that it is sad that the date is as far away as 1986 or 1987? Nevertheless, will he accept that we are very glad to know that at least he has put a date on it? Will he do whatever he can to see that it goes ahead as quickly as possible?

My Lords, I am grateful to the noble Lord for his welcome of my announcement. I would point out to him that a Labour predecessor may have announced the project in 1975 but I notice that no Labour predecessor of mine actually brought it to fruition.

My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Gowrie will, with the leave of the House, repeat in the form of a Statement the answer to a Private Notice Question in another place on the dispute at the Messenger Newspaper Group. This will be followed by my noble friend, Lord Trefgarne, who will repeat a Statement on the intermediate-range nuclear forces negotiations.

rose to call attention to the urgent need to liberate from the control of Government and other public bodies more of the resources required for the creation of wealth; and to diminish the disincentive effects on work and investment of high levels of taxation; and, to move for Papers.

My Lords—

My Lords, I hope the noble Lord will forgive me, but I have a good deal to say and I do not want to detain the House any longer than I must. The noble Lord may have a chance to speak later.

I ask your Lordships to consider the point of the diversion of investment by the Government into the public sector—the use of the guaranteed borrowing power of the state to secure that a large proportion of the resources available for industrial investment goes into the public sector. I would invite those of your Lordships who have not followed this argument very closely to look at a recent leading article in The Times headed:

"It depends on the rate of return".

This article points out that, particularly in the middle-1970s, huge investments were undertaken in the steel and coal industries to increase their capacities—in the case of steel to increase its capacity by the construction of Ravenscraig and by the expansion of Redcar, and in the case of the coal industry to extend its capacity after 1985 up to a possible total of 42 million tonnes a year. The Times, in its brutal but I fear—and many of your Lordships will think—its justified way, says:

"The money 'invested' in the two industries was, in fact, clear and massive social waste".

Since the war, apart altogether from investment but by way of subsidy and writing off of debts, some £40,000 million have been provided from central Government for the nationalised industries. It is easy to reflect what immense return might have been earned on such an investment had it been directed into the newer areas of electronics and communications—the newer industries which are still clamouring for capital and for investment.

Therefore, one must reflect on the damage done to the British economy by the diversion of these resources, not on the basis of proved economic need (and still less on the basis of proved prospects of profitability) but simply because the industries concerned happened to be publicly-owned and in the public sector. If your Lordships want one further example—and I promise that I shall not give more at the moment—there is the case of British Shipbuilders which even in the past few months in the case of the "Canberra" replacement, in the case of the "Queen Elizabeth II" refit, in the case of the "Cunard Countess" refit and in the case of the "Atlantic Conveyor" refit, have demonstrated themselves to be completely uncompetitive with their foreign rivals.

Why has this happened? It is certainly not due to any lack of quality in the leadership of these industries. Very far from it. On the whole, they have been led by men of great distinction and ability, two of whom—the noble Lords, Lord Ezra and Lord Beswick—I understand are taking part in this debate. I hope they will allow me to say that they are people who have undoubtedly proved their capacity to run industries and organisations in very difficult circumstances with very great ability.

Therefore, it is all the more significant that, despite having had the advantage of the leadership of such men. these industries have produced so dismal a result—a dismal result in that even the electricity industry is only returning 2 per cent. On capital employed at a time when the cost of money is 9 per cent. or 10 per cent. Indeed, in the nationalised sector as a whole the overall return on capital employed at the moment is about nil.

Why has this happened? I think this is almost literally the 64 billion dollar question—or, indeed, your Lordships might name a higher figure. My submission to your Lordships is that this derives from the nature of the system. The managers are not free to manage; they are subject to continuous interference, not so much by Ministers but by civil servants. Here I speak from experience as a former chairman of the Civil Aviation Authority where the Ministers under whom I worked, both Conservative and Labour, were helpful in the extreme, but where a great many of their civil servants were the reverse and took up a great deal of my time and that of my senior staff asking silly and pointless questions which had nothing whatever to do with the conduct of the business.

Secondly, in the nationalised industry sector it is the fact that no one's living depends on its profitability. This creates particular difficulties when difficult decisions have to be taken over closures of plant or equipment. In the private sector if parts of your activities are unprofitable, you have to brace yourself to close them down and to say to those concerned, "This has to be done to keep the company viable and going". No leader of a nationalised industry can say that because it would not be true, and all those concerned would know that the resources of the state were behind it.

Equally, the managers of these industries have to deal not only with Whitehall but with monopoly trade unions, and they are denied the advantage which we have in the private sector of the development of employee shareholding. In a company of which I have the honour to be chairman, over 90 per cent. of those who work for us are shareholders in the company, and for that reason have a feeling of common interest with those who run the company. This is impossible in the nationalised structure.

Again, a good many, but not all, nationalised industries are subject to the enervating effect of monopoly, of absence of competition, of the fact that they have captive customers. This is bad for all of us and only too easily leads to a contempt for your customers—the very opposite of that American placard which I saw in an American factory, which on a previous occasion I quoted to your Lordships:

"Customers make pay day possible".

I suggest to your Lordships that it is this system which is the cause and the explanation of the problem.

The words which were used by the present Financial Secretary to the Treasury I think sum up this part of my argument:

"At the end of the day the heart of the matter is that a nationalised industry does not have to succeed in order to survive".

Evidence about the system is coming to our hands daily now as a result of my noble friends' and my right honourable friends' policy of denationalisation. I prefer to say, "denationalisation" because in common with most of your Lordships I hate the expression "privatisation". Quickly let me give your Lordships one or two examples. Since Cable and Wireless was denationalised, it has produced pre-tax profits more than double those in the last year under nationalisation. The profits of Associated British Ports for the first six months have gone up from £1.5 million under nationalisation to £6.8 million under company structure. Amersham's profits, despite the competition. have risen by a third. There is every reason to believe that the National Freight Company—itself a good example of co-operation—is going to bring in profits of something like £5 million this year after breaking even last year.

Here is solid evidence that the system is working against the efficiency of the industries, and therefore against the creation of wealth in this country. To take one final example, even the prospect of denationalisation—plus of course the dynamic leadership of my noble friend Lord King of Wartnaby—has pushed British Airways back into profit after some years of deficit. The result is that all these denationalised industries or about to be denationalised industries are now creating wealth for the nation instead of consuming it.

A criticism has been made which I ought to answer. It was made in another place by a member of the party opposite, who said that to sell these nationalised industries and use the proceeds for current expenditure was like "selling the family silver to pay the food bills". There is a slightly feudal ring about that observation. But with respect, I think it is right. It is extremely important that we should not use the proceeds of these sales simply to finance current expenditure. The resources should be made available for investment in the private sector, either indirectly by using them for necessary Government capital expenditure, so diminishing the demands of the Government on the market for funds, or perhaps even more firmly and effectively by reducing taxation, but certainly not by financing current expenditure.

On the mention of taxation I must add this: I am concerned, as I think are many of your Lordships, by the observations of the Chancellor of the Exchequer that he might be contemplating increases in taxation in the coming Budget. From the point of view of the creation of wealth, as indeed from the point of view of the whole policy of the Government as I understand it, that would be a most unfortunate step to take.

We have become so accustomed to it that not all of us realise how high is the burden of taxation in this country: a burden of taxation, local and national, which takes up in the current year 42.5 per cent. of gross national product—and I shall give noble Lords opposite the point, otherwise they will certainly take it—which is a higher figure than in the last year of the Labour Government. In those circumstances, to increase taxation further would, I suggest to your Lordships, be a particularly unfortunate step to take.

Taxation is very high. You do not need to say that because your Lordships pay it. But when you consider that a man of substantial earnings—I am going to the top of the scale deliberately now—who has certain savings is paying tax at the rate of 75 per cent. on some part of his income, one cannot forbear the comment that taxation at that rate is confiscation. I am rather surprised that those bodies who interest themselves in human rights have not made that point. Gross domestic product is being taxed to the extent of 42.5 per cent. There are taxes on capital; there is 15per cent. VAT; and there is the national insurance employers' surcharge. All these constitute a heavy burden on the taxpayer.

They do two things: first of all, they directly divert wealth from the private hands to the public sector; secondly, they diminish incentive either to save or to undertake additional work. The 15 per cent. surcharge on investment income hits particularly viciously a person such as perhaps the small shopkeeper who has not had an opportunity to contribute to a pension, which is treated as earned income, but has built up a little business and sold it to pay for his retirement, and finds himself taxed with this 15 per cent. surcharge on whatever else is his rate of tax.

I say to my noble friend the Lord President of the Council, who is to speak in a moment, I beg of him to convey to his right honourable friends the need for reductions rather than increases in taxation. I believe that I am going to the right court. According to the public prints my noble friend is President of the Court of Star Chamber on Public Expenditure. In that role, as one who was once involved in control of public expenditure, I wish him extremely well, because it is of course only through the success of his efforts in restraining the growth of public expenditure that the reductions of taxation, which are a necessary part of a policy aimed at the creation of wealth, can be effective.

Having said that, I hope that none of your Lordships will suggest that those of us who take this view are wanting in compassion for those who need the support of our social services. I assure them that they have no monopoly of compassion. Where I think we differ from this is as to the means, not the ends. We all want to see a prosperous, wealthy country. We all want to see a country where resources and incomes rise year by year, where inflation is checked, and where, so far as human happiness depends on material things, that human happiness is increased. We all want to see that. The object of those of us who have put down this Motion is to suggest that that purpose is best served by the creation of wealth, and by concentrating on measures which stimulate the creation of wealth.

It is one of the advantages of this House that, as we are not subject to direct electoral pressure, we can express our views with complete freedom without fear of saying things that are unpopular. But that does, I suggest to your Lordships, impose on us a particular duty—as freedoms always do impose duties—and that is to seek to the best of our ability, whether measures are popular or unpopular, to secure that those measures are the right ones for our country, because it is only if the economic and financial policies which we follow are right—and I suggest that these should be policies concentrating on the creation of wealth—that we shall be able, in the words of the poet, to "scatter plenty o'er a smiling land". My Lords, I beg to move for Papers.

My Lords, I should like to begin by congratulating my noble friend on his choice of Motion today. May I humbly say to one whom I have both long admired and wished that I could emulate in his oratory, how much I admired the speech that he made this afternoon. His theme is central to the Government's policies for economic recovery. It is fortunate that we should be considering these questions only a week after my right honourable friend the Chancellor of the Exchequer published his Autumn Statement; and it is apt that the Motion should stand in the name of my noble friend.

In an earlier incarnation he was a distinguished member of a Treasury team. He was, indeed, the second of a long line of Chief Secretaries—now powerfully reinforced in this House—whose thankless task is always to remind us that the public purse is never quite so full as we should like it to be. It is a task which requires all the persuasive skills which my noble friend has long shown, and which he has certainly shown again today.

The economic background to this debate is one of modest optimism. The economic recovery has now been under way since early 1981. Growth this year is likely to be up by 3 per cent. We are now growing faster than any other country in the European Community. As the economy recovers, the job market is also beginning to recover. The total number in employment (including the self-employed) is estimated to have risen in the second quarter of this year. Vacancies are continuing to rise. Unemployment is worryingly high, but it is now levelling out.

The recovery has begun with a rise in consumer spending and an acceleration of housebuilding. These resulted from increased confidence, lower interest rates, and, above all, low inflation. The emphasis of the recovery can now be expected to switch from the personal sector to the company sector, as investment increases and exports benefit from the world recovery.

The Government's economic objective is clear. It is to achieve sustainable non-inflationary growth. The first essential is to continue our sound money policies and make further progress against inflation. This means keeping to our medium-term financial strategy and maintaining downward pressure on Government borrowing. But equally important is to encourage enterprise where it really matters—in the market place. This means increasing incentives, exposing more of the economy to the forces of competition, and removing obstacles to the operation of free markets. Those are the main themes of the Motion put before us by my noble friend.

It is right that this Motion should link the questions of wealth-creation and investment with that of the level of taxation and its disincentive effects. No member of the Government could claim to be satisfied with the progress that we have made so far. I shall certainly convey to my right honourable friend the Chancellor of the Exchequer what my noble friend said about the future; with considerable acceptance on this side of the House, I noted. But we judged that high inflation and high interest rates are even more damaging to investment and wealth-creation. That is why our aim of reducing taxation has had to take second place. Yet we have made substantial and beneficial improvements in taxation.

The basic rate of income tax has been reduced by three percentage points. The penal higher rates of income tax have been reduced to levels equivalent to those of our European competitors. The income tax thresholds, including the threshold for the investment income surcharge. have been increased in real terms. The capital tax regime has been recast to reduce disincentives to productive investment. In the field of company taxation, the national insurance surcharge (the tax on jobs) has been cut from 3½ per cent. to 1 per cent.—a reduction worth some £2,000 million a year to the private sector.

But, as my noble friend made clear basic success in reducing the burden of taxation can be achieved only through firm control of public spending. So often in the past we have seen the relentless tendency of public expenditure to creep upwards. White Paper has succeeded White Paper, and each year's plans have been higher than the plans they replaced. Last year we halted that process. For the first time in years the Government's spending plans were within the level already set. When last week my right honourable friend announced his plans for spending in 1984–85, he was able to show that once again we have kept to the level of spending we had planned. When next year's White Paper gives the figures for the two following years, it will be clear that we are keeping to our plans in those years. too. It is this discipline which strengthens the Government's determination to get good value for the taxpayers' money.

As noble Lords know, and as my noble friend mentioned, I have recently had some small part in the difficult decisions required to achieve these results. This experience has demonstrated to me the relentless pressure for more public spending. The truth is that many of those who press for reduction in public spending in general still have their own particular favourite projects which they wish to protect or, indeed, enhance. Nor can this dilemma be solved by vague talk of priorities, nor by illusory hopes of basing substantial economies solely on administrative saving. Of course, every Government must constantly seek to improve their efficiency and to cut staffing costs. as this Government certainly have done and shall continue to do. But the undeniable fact is that beyond a certain point any further major reduction in public spending can come only from fundamental changes in policy. That is why I agree so strongly with my right honourable friend the Chancellor of the Exchequer that, at a time when trends in our society are pointing to increasing Government expenditure. we should have a frank and informed public debate about the alternatives before any decisions are taken. I would suggest that there is no better place in which such a debate can take place in those terms than your Lordships' House.

But it is not simply a matter of adjusting the programmes from year to year to meet short-term pressures. We need to take a broader view of the shape of the public sector—how we can best strike the balance between public and private activity, how we can best deploy the nation' s resources overall. To that aspect my noble friend addressed a considerable part of his speech.

As he has suggested, denationalisation is, and must be, a key part of our drive to roll back the frontiers of the public sector. It is one of the most important means of liberating wealth-creating resources. This is so, first, because of the size of the problem. Nationalised industries account for about a tenth of the gross domestic product. Secondly, I have to say—as my noble friend made so dramatically clear—that in many cases the performance of these industries has been poor. Their rates of return have been consistently lower than in the private sector, and since 1970 have been around zero. That, too, is a reason for a new approach.

Thirdly, liberation is important because of the numbers of people directly affected. In the end recovery depends on the initiative and enterprise of the British people, one-and-a-half million of whom work in the nationalised industries. Their talents need to be deployed to the best possible effect. Denationalisation will make it possible to link pay to success; and it decisively breaks the political link, which can so easily intrude on commercial decisions—evenunder the best-intentioned of Governments. Denationalisation will enable those who work in the nationalised industries to take a greater pride in them, and their job satisfaction will be increased. As my noble friend made clear, it offers employees the chance of owning a stake in the business in which they spend their working lives.

In this field, we already have a record of major achievement. British Aerospace, Cable and Wireless, the National Freight Corporation, Amersham International, Britoil, Associated British Ports, International Aeradio, and others have already been transferred to the private sector. Our manifesto set out our intentions for further denationalisation. They include British Telecom, British Airways, Enterprise Oil, and as many as possible of Britain's airports. We shall also continue to identify and bring forward other candidates.

But it is not enough just to transfer control. We must also tackle the problems of monopoly and lack of competition. Competition is an extraordinarily efficient mechanism. It ensures that goods and services preferred by the consumer are delivered at the lowest economic cost. It responds constantly to changes in consumer preferences. It does not require politicians or civil servants to make it work.

The denationalisation programme furthers our objective of reducing the size of the public sector and holds substantial advantages for the management of the industries, their employees, and the taxpayer. But our main objective is to promote competition and increase efficiency, and the prime beneficiaries will be the economy and the consumer.

It has been strongly represented to me that these Wednesday debates belong to Back-Benchers and that Government speakers must not monopolise debating time. I intend this afternoon to set a good example and so I will leave other questions such as reductions in Civil Service numbers to my noble friend the Minister of State. I will conclude, therefore, simply by reminding the House that we start with a much brighter economic picture than for some time. Already we have done much to reshape the tax system, to encourage incentives and the creation of wealth. We hope to, and must, do more. We are operating a firm control over public expenditure and we have a major programme for transferring industrial activity from the public to the private sector. It is a programme for a Parliament and the people have given it their support. My Lords, we shall carry it through.

My Lords, it maybe for the convenience of the House if I now repeat an Answer given to a Private Notice Question in another place about the dispute at the Stockport Messenger Newspaper Group. My right honourable friend the Secretary of State for Employment delivered a Statement which reads as follows:

"As the House will know, there has been a dispute over the past year between the Stockport Messenger Group of Newspapers and the National Graphical Association in connection with the establishment of closed-shop agreements at the firm's subsidiaries at Warrington and Bury. As a result of action taken by the union during the dispute, the Messenger Group sought an injunction against the union in the High Court. The injunction was granted requiring the union to desist from organising unlawful industrial action. The court subsequently found that the injunction was not being observed and imposed a fine of £50,000 on the National Graphical Association for breach of that injunction. The fine has not been paid and I understand that the High Court has now directed that it wishes to deal with the non payment of the fine on Friday of this week.

"As the House will also know, there have been intermittent incidents of intermittent incidents of intimidatory picketing at different plants culminating in the mass picket at Warrington last night. One policeman was seriously injured. I understand a number of arrests have been made. Criminal charges have already been brought against those involved in earlier incidents and further charges may be made against those arrested last night.

"In connection with the substance of the dispute, the Advisory Conciliation and Arbitration Service has already been involved in seeking to assist the parties to a resolution of this dispute. I understand that the conciliation service are seeking to arrange a further meeting of the parties very shortly.

"Whatever the arguments in relation to the dispute, I hope that all sides of the House will join with me in deploring the disgraceful behaviour that occurred at Warrington last night, to reaffirm that such conduct has no place in industrial relations in this country and that the law must be observed".

My Lords, that concludes the Answer.

My Lords, may I first thank the Minister for repeating the Statement on this particular dispute. May I also extend our sympathy to the people who were injured last night, especially the policemen and the pickets concerned. I must emphasise here that violence has no part in our philosophy in the resolution of industrial disputes. It serves no purpose whatsoever and very often has the effect only of delaying a settlement.

Part of this Statement refers to court proceedings that are to take place, I understand, on Friday. I think that it would be incorrect of me to attempt to pass any comments on that particular facet of this Statement. But is it not a fact that the best way of resolving this situation for all concerned would be a quick settlement acceptable to all? May I ask the Minister whether he will urge the Secretary of State to give the fullest and most urgent support to ACAS in their attempt to convene another conference by all parties concerned in order to get a settlement of the sad state of affairs that exists at present?

My Lords from these Benches I should like to join in thanking the noble Earl, Lord Gowrie, for having repeated this statement. In this House we have our differences over employment legislation. Indeed, during the passage of the 1982 Employment Bill (as it then was) my noble friends and I actually voted against the selective dismissal of strikers following industrial action—one of the issues in this dispute. But a law to which we on these Benches in general subscribe has been enacted concerning secondary picketing and it covers among other things this very point of selective dismissal.

That legislation was endorsed at the general election last June and we, for our part, are clear that the action that has been taken by the National Graphical Association and other unions is unlawful and should be condemned. Therefore, such question as I have will be of a rather rhetorical kind. Is not the National Graphical Association, with which before now I have had to negotiate, notorious for its restrictive practices; and does not the refusal of this union to abandon unlawful secondary picketing or to pay the fine imposed upon it by the Higher Court represent an attempt to impose on society the most restrictive of all practices? Is there not now an obligation resting on us all to back the police, whose duty it is to enforce the law, and to support any further legal sanction which may prove necessary to ensure that the law is upheld?

My Lords, I am grateful to both noble Lords for the responsible way in which they received the Statement. Also, I should like to extend on behalf of these Benches our great sympathy and anxiety to the policeman who was hurt in the incident last night. We hope that his recovery will be rapid. In respect of the remarks of the noble Lord, Lord Dean of Beswick, the point here is that of course ACAS has a role, and, indeed, has had a role, but nothing that ACAS can do can prevail against those who not only deliberately break the law but continue to encourage their members to do so. This is simply unforgiveable and has no place in any kind of credible industrial relations system. This was the point made substantively by the noble Lord, Lord Rochester, and I have to say that I wholeheartedly agree with him.

My Lords, can my noble friend say whether it is true, as reported in some newspapers, that, with the employment by this firm of only 120 people, no less than 500 of the pickets were bussed in from areas around? Is he able to say whether the union, before imposing the closed shop, has made any attempt to hold a ballot; and, if so, what was the result of the ballot?

My Lords, with regard to my noble friend's preliminary supplementary question, I have to say that the NGA has a particularly bad record in seeking to coerce employees into joining trade unions against their will. All the information that I have suggests that the employees of the Messenger were content not to proceed with the closed-shop arrangement and that the people creating the incidents which we all regret so much came in from outside.

My Lords, I am delighted to have the opportunity of opening from our side in this debate and I should like to begin by congratulating the noble Lord, Lord Boyd-Carpenter, on choosing this important subject. Also, I feel perhaps a little inhibited in criticising anything he had to say because I have always had enormous regard for him. I served under him when he was chairman of the Public Accounts Committee, a position which I later filled, and there is the fact that, like myself, he is also a former Chief Secretary to the Treasury. So it would be very nice to agree with him this afternoon. However, I am bound to tell your Lordships that there is very little I found in his speech that I could agree with, as I hope to indicate.

If I might say a word to the noble Viscount, Lord Whitelaw, simple assertions, or even complicated ones, do not really make a case: nor is a tax cut equal to a tax reform. In saying that I am not alone, as I am sure your Lordships will appreciate, for I doubt whether there are many on any side of this House or of another place, or in the country, who would accept that either under the present Government or under any previous one we have made any real start to a fundamental reform of our tax system. I hope to return to that in a moment.

Could I say a word to the noble Lord. Lord Boyd-Carpenter? I hope he will not mind my saying that he seemed almost to be saying that prior to 1964 we had, as it were, an almost Utopian situation in this country, with every-thing going swimmingly. Again, being a reasonable man, I am sure he would be the first to recognise that there are very few in any political party who would accept that what happened prior to 1964, in economic or industrial terms, was at all Utopian. Indeed, many on both sides of this House and elsewhere would argue that much of what happened prior to 1964 was responsible for what happened after it.

However. I want to deal briefly, if I may, with the first part of the noble Lord' s Motion, which says (and I quote):

"To call attention to the urgent need to liberate" —

a lovely word!—

"from the control of Government and other public bodies more of the resources required for the creation of wealth".

I think it is fair to say that the noble Lord somewhat exaggerated just what would happen or has happened in the so-called "liberation" of resources where there has been denationalisation in order to create an enormous improvement in "the creation of wealth". The noble Lord, as one would expect. tried his best; but I am afraid he did not succeed, I would have thought. in the eyes of anyone looking at it dispassionately.

For what resources was he referring to? He was referring, presumably, to manpower and to tangible and intangible assets in Government departments and in public bodies generally. The evidence is, at best, inconclusive. Of course there is inefficiency in public bodies, but I would hope that all of us would also accept that there is considerable inefficiency in large private bodies, too. Of course it is possible for the noble Lord to point to companies that have taken over from nationalised industries and to show that in certain circumstances they did better than they had done previously. I must say, however, that his choice of British Shipbuilders was not necessarily a good one, because in private hands they did not exactly do wonderfully well, either.

I am bound to say, too, that anybody looking fairly at what has happened in the case of denationalised industries would have to admit that we would need a much longer experience of how they did in private hands before we jumped to conclusions and made false assertions that everything is now going to go swimmingly and everything is now going to be all for the best, in the best of all possible worlds, simply because a large industry is in private rather than in public hands. Even then it is possible to produce evidence that companies did better in public hands than they did in private hands, as your Lordships will be only too well aware. British Leyland and Rolls-Royce Aero Engines did not exactly do wonderfully well in private hands. Of course, I am not suggesting that they have done brilliantly in public hands, but they have done very much better than was happening when they were in private hands.

The noble Lord referred to British Airways. It has done much better in recent years—very much better under the chairmanship of the noble Lord, Lord King of Wartnaby—but he overlooked the fact that it has done better in public hands and the noble Lord, Lord King, who wants to privatise it, as we know, would be the first to admit that his priority was to get greater efficiency in that industry, and he has achieved it in public hands—

My Lords, would the noble Lord allow me to intervene since he has challenged me on this matter?

Certainly.

Would the noble Lord also allow for the fact that the most welcome recovery under my noble friend' s guidance in British Airways has flowed directly—both in time and in cause—from the decision that it should be liberated?

My Lords, really I am surprised at that statement from the noble Lord. I doubt whether the noble Lord, Lord King of Wartnaby, would argue that it is only because of something which may happen this year, next year or some time in the near future that he has achieved whatever success he has. I doubt whether he would assert that.

However, let me come to the real way that the noble Lord's case was undermined. It was undermined for him—indeed sunk—by one of his right honourable friends in another place yesterday. In answer to a Question in another place yesterday, we were told that the proportion of our GNP taken by public expenditure in the United Kingdom is the lowest in the EEC—not the highest but the lowest—and that was despite the fact that almost every country within the EEC can show a better economic performance than ours in this country under successive Governments, I am bound to concede. It certainly does not prove in any way that what is needed is a so-called "liberation", as the noble Lord put it. Indeed, one could argue the reverse. I do not propose to try to do so. Certainly one cannot prove in any way the assertions made by the noble Lord, for there is no evidence to do so. Even if one takes the return on capital employed which the noble Lord took—that every part of British private manufacturing industry has done magnificently in terms of return on capital employed—has the noble Lord forgotten that it is our manufacturing industry largely in private hands, that has done so badly for so long? Is he suggesting to us on the basis of that evidence that what we need to do is to transform all manufacturing industry which is now in public hands into private hands and it will then do as well as it has done in the past? There is absolutely no evidence for that. He produced none, and for the obvious reason: he could not produce any.

Above all, what I think the noble Lord did—and what anyone does who seeks to argue that what is needed above all to solve our major and serious economic problems is to denationalise everything—is to seek to do huge damage. This is to play political football with major industries in this country by moving them in and out of the public sector—especially when, as I say, it cannot be shown that liberating them has any clear advantage. So, I hope noble Lords, wherever they may sit in this House, will not accept the arguments we have heard from the noble Lord today.

Unlike the noble Lord, I want to spend the greater part of my speech this afternoon on the second part of the Motion, which says:

"and to diminish the disincentive effects on work and investment of high levels of taxation;".

It seemed to me from the speech of the noble Lord and from that of the noble Viscount that what they were saying is that high tax is bad and therefore we should reduce it. In the view of the noble Viscount, that constitutes tax reform. I agree that high levels of taxation can be a disincentive to both work and investment; but it is far too generalised a statement to say that in the way that it was said because there is ample evidence that it does nothing of the kind.

Before turning to the disincentive effect on work, I should like to say a word on investment, which is in the Motion. Successive Governments have tried a variety of investment incentives, many of them quite substantial: cash grants, investment tax allowances of very high levels, regional grants and particular industry grants. Some were effective for a short period—but usually only for a short period. They were usually more effective when there was an economic upturn; usually at a time therefore when one did not really need any specific grants to encourage new investment. The major disincentive for companies as regards investment is not, as the noble Lord sought to have us believe, the levels of taxation. The major disincentive for new investment is when a company cannot see where the additional sales from the extra production provided by that new investment will come from.

Certainly, in recent years nobody could possibly argue that the level of corporation tax was a disincentive for, as the noble Lord must know, most expanding companies hardly paid any mainstream corporation tax. Indeed, some of it, I willingly concede, is due to something that I introduced—a major form of stock relief which largely ensured that for years most companies, particularly the expanding ones, did not pay any corporation tax at all. So it is certainly not possible to argue that the levels of taxation have formed a major disincentive for companies to invest. It has been the level of demand that has largely caused the problem; and I am not suggesting for a moment that it is easy to ensure that the level of demand can be at the kind of sustained levels that most companies should like to see and that I should like to see.

I should now like to turn to what I assume to be the main part of the Motion, although the noble Lord did not dwell on it too much; that is, the high levels of taxation. That is normally taken to mean—indeed, the noble Lord referred to it—the highest level of earned income of 60p and the highest level of investment income tax of 75p. I want to turn in a moment to much higher levels of taxation, in any real sense of the word. I mean the truly high rates at the other end of the income scale, which neither the noble Lord nor the noble Viscount saw fit to dwell upon, for perhaps understandable reasons.

But, first, I think we can all agree that nobody likes paying tax, at whatever level, and tax avoidance—here I declare an interest: I have from time to time indulged in it, both on my own behalf and on that of clients—isnot necessarily at its high point where the tax rates are at the highest points. As the House may know, capital gains tax at 30 per cent. is the major area for tax avoidance schemes—and for very good reasons. People do not like paying tax at whatever level and the greatest area for tax evasion—that is, the illegal form of evasion—is where the rate of VAT is just 15 per cent. So it is just not true to say that it is the very highest levels of taxation that cause either avoidance or evasion.

As to the idea that the highest rates of income tax are a major disincentive, I want to assert and show that that kind of assertion is much exaggerated and is certainly not proven. When there were major cuts in direct taxation at the very highest level in 1979, in the very first Budget of the then Government, what happened? In the years immediately thereafter, we had not only low levels of economic growth; we had negative levels of economic growth; that is, with huge cuts in the highest levels of taxation. Indeed, President Ronald Reagan in the United States made equally very large cuts in taxation on the highest paid, and what did he get in the first few years after he had been installed as President?—again, negative rates of economic growth.

So far as the United Kingdom is concerned, our taxation, as the noble Lord and the House will be aware, as a percentage of GNP is lower than in many countries, certainly in the EEC, with far better economic performance than anything we have yet achieved under any Government. Of course, that is not to say that if the incentive is big enough and personally directed it will not have effect; but it has to be specific and it has to be directly identifiable so that a man or woman might be motivated to do more.

For example, if somebody is earning £50,000 a year, then clearly he might just work a little more and a little longer and be prepared to earn a little more than that modest sum if, for every pound, he paid no tax whatsoever. It is perfectly true that that kind of incentive would work, although my experience tells me that even though individuals on high rates of tax say that it is the tax that is the reason why they do not want to do any more work, the real reason, which the man or woman concerned would prefer not to mention, is that it does not sound so good to say that they would like to play more golf, their ambition had been reduced or they simply had a diminished appetite for work. That is all perfectly understandable, but it is certainly not taxation that is the major reason why they tend to work less. It is usually easier to blame the tax system and the Government of the day than to concede the true reason.

On the other hand, it is certainly true for some that tax levels are a disincentive. It is a very personal reaction. It applies more, I suspect, in the professions where men and women have literally to work very hard and long hours for each extra pound; and, as they are already earning substantial sums, the extra, less tax, makes it less worthwhile working. But in many cases of course even then, the same attitude would apply as for many others on a high rate of tax, and the real reason is that they have earned enough and they would not mind taking it a little easier now.

But as to the real area of growth potential, both personally and for the country, I submit that tax is by no means a disincentive, and I refer to the self-employed and the small companies. The opportunities for legitimate tax avoidance in small expanding firms abound. and the tax system certainly does not in any way prevent a really successful small firm from making very large sums of money, as we have seen in recent years with the growth of the unlisted securities market. But that does not prevent the unsuccessful, small businessmen from blaming the tax system, the Government and anyone else they can find readily to hand.

But the tax that is a really big disincentive, as I have indicated, is at the very lowest level of income, which is called the poverty trap and the unemployment trap level. Taking tax in its broadest sense to include national insurance contributions, which are certainly a tax, and family income supplement and other means tested benefits, there is no doubt whatsoever that tax at those levels is far higher than at the other end of the income scale. Let me give just one example. It is not my own; it comes from the all-party Treasury and Civil Service Select Committee.

In certain instances—and it is not a small number of families—an extra pound of cash is taxed at 30p in the pound, then there is 8¾p national insurance contribution and there is a 50p reduction in family income supplement, making a total tax bill for that man, who is on a very low level of income, of just short of 89 per cent. In fact, it will invariably be higher and be above 100 per cent., because there will be at least 20p to 30p in the pound lost from rent and rate rebates. So it would be a tax disincentive for that person of well over 100 per cent., and we heard nothing of that from either the noble Lord or the noble Viscount.

I say that we are not talking of small numbers because, again, the Treasury and Civil Service Select Committee told us something of the number of people who would be affected. I am quoting from paragraph vii of their report in May this year. They said:

"Using a relative definition of poverty, the poor are not only always with us but more numerous than ever—just over six million on a narrow definition of those with net incomes at or below supplementary benefit level".

They went on to say:

"perhaps a quarter of the population, on a wider one, if we include those with up to one and a half times supplementary benefit".

So we are talking about large numbers of people. Not all of those, but quite a substantial number of people are paying tax at that kind of level. The Minister for Social Security told us in another place on 11th July of this year that the latest study he had done in his department indicated that an estimated 9 per cent. of people did better out of work than in work.

There can be little doubt that all that is a major cause of what has been described as the black economy and moonlighting, something which the chairman of the Board of Inland Revenue has estimated to be costing this country, in terms of income not taxed, somewhere between 5 and 7½ per cent. of GDP—between £15 billion and £20 billion. Of course, tax evasion does not apply only at the lower end of the income scale but when a man or woman can do better out of work than in work, especially if a modest amount of moonlighting will help, we should not be too surprised if, human nature being what it is, that person takes advantage of the situation. We should not like it; indeed, I certainly do not like it. But the plain fact is that the black economy and moonlighting has been growing. While it is understandable, I am bound to tell your Lordships that in my view, and I hope in everybody else's, it goes a long way towards undermining the very fabric of a civilised society. This is the area which should be concerning your Lordships' House and the other place rather more than some of the points which were made by the noble Lord.

I am bound to say immediately that it is easier to show the extent of the problem than it is to offer a simple solution. Certainly there is no solution by simply arguing for a cut in taxation, as some people do from time to time, whether it be a cut in the rate, which would be of no help whatsoever in the poverty trap or the unemployment trap to which I have referred, or even a reduced rate of tax, or higher thresholds, which personally I would prefer. Although it is better to do that rather than to have a higher starting point, it certainly would not solve the problem of this terrible poverty trap and unemployment trap. But it is no solution, as is sometimes suggested, to make major cuts in public expenditure in order to make major cuts in taxation. Anybody who looks at our public services in this country must recognise that what is vitally needed is not a cut-back but the maintenance and improvement of the level of our public services.

The all-party Select Committee report showed a number of ways in which we might be able to relieve the poverty trap and the unemployment trap. One way, I must tell your Lordships, was not by cutting public expenditure but by increasing it, and increasing it substantially in the one area of public expenditure which would really help—child benefits. That would be the way to begin to get to grips with the problem, but of course it would be very costly and that cost is undoubtedly at the heart of the problem. In 1982, the Inland Revenue estimated that it would cost some £8 billion to raise the tax threshold just to supplementary benefit levels—I repeat, just to supplementary benefit levels. The sub-committee of the Select Committee estimated that income tax changes to deal with the problem might cost as much as £15 billion.

In the Financial Times on 28th April 1983 the very well-known journalist, Sam Brittan, came up, as always, with a very imaginative way of dealing with the problem—imaginative, but in a way which would just about hurt everybody he could lay his hands on. He would, for example, pay for all this by abolishing the marriage allowance, the age allowance, mortgage relief, life assurance relief, the upper earnings limit for national insurance contributions and pensions fund relief and by the payment of a national insurance contribution on investment income. I imagine your Lordships would find most of that unpalatable but that was the way he suggested we might pay for removing the poverty trap and the unemployment trap.

I want to make it quite clear that I am not suggesting anything so drastic, but what I believe it does do, when one looks at the real problem which faces us as a nation, is to put into perspective what the Motion we are debating should be about: the difficulty of finding a solution to the problem. I am grateful to the noble Lord for having introduced this debate in order to give us a chance to discuss a serious problem. On any analysis, even if the Government were able to maintain in perpetuity the present levels of economic growth, which I doubt whether even the Chancellor of the Exchequer would argue, although he might, we should not have sufficient resources more than to tinker with the problem. Many of the solutions simply create an even worse social injustice. That would certainly apply if we cut public expenditure.

As I say, I do not have a simple solution but I do have five suggestions to make. First, we must treat national insurance contributions as the income tax that it really is. Second, we should merge it with income tax and start at a much higher level than that at which it now starts for very low-paid people. Third, we must increase child benefits. If there were to be a substantial increase, speaking for myself I believe that it should be subjected to tax so that those with the highest levels of income do not obtain child benefit. We should also have a much more graduated scale of income tax so that people do not start paying tax at 30 per cent. on ridiculously low levels of income. Finally, I would abolish the family income supplement and the child needs allowance, in that way removing earnings related benefits which do so much damage. Some of this could be paid for by reducing other reliefs. Certainly the marriage allowance, which is unfair, anyway, could go. But if we want to do something about the real disincentives which are in the Motion, if not in the speech of the noble Lord, that is, I believe, the direction in which we have to move. Any new resources obtained from increased economic growth need to be utilised in this way to deal with the real problem which is facing our nation.

My Lords, with your Lordships' permission, I will now repeat the Statement which is being made by my honourable friend Mr. Luce in the other place. The Statement is as follows:

"As honourable Members may he aware, the Soviet delegate to the Geneva INF talks has made it clear this morning that the Soviet Union does not intend to continue the present round and has given no date for the resumption of the talks.

"Her Majesty's Government regret this Soviet decision and can see no justification for it. As recently as 15th November the United States tabled a further constructive proposal in the negotiation which was rejected out of hand by the Soviet Union. The Russians may seek to justify their interruption of the talks by the final preparations for initial Western INF deployment. But the House will recall that the West has remained at the conference table while the Soviet Union has increased its own deployments of SS.20s by over 40 per cent.

"The NATO Alliance has made its first priority the achievement of a balanced and verifiable agreement to reduce and if possible to eliminate these weapons worldwide. At the same time, we have made it clear that until such an agreement can be attained the Alliance will proceed in accordance with its decision in 1979 to work towards a balance which would safeguard Western security.

"We will not be deflected from achieving the first stage of this objective by the end of this year.

"But I wish to emphasise that the Alliance remains ready to halt or reverse at any time the deployment of the missiles if only we can secure an agreement with the Soviet Union which would allow us to do so. The achievement of such an agreement remains our unshakeable objective. The Alliance will spare no effort to secure it. We remain convinced that an agreement is possible and that it remains in the interests of East and West that the negotiations should resume at the earliest possible date. We therefore urge the Soviet Union to demonstrate an equally sincere commitment to arms control by returning to the negotiating table."

My Lords, that concludes the Statement.

My Lords, I thank the noble Lord the Minister for repeating the Statement here. The country will be greatly alarmed, although not surprised, that the INF talks have broken down, for the Government were warned that insistence on going ahead with the deployment of missiles here could lead to the Soviets acting in the way they have.

Do the Government not see even now that going ahead and ignoring the genuine concern of people from all walks of life here and in Europe has increased the number of those opposed to nuclear policy, to the evident satisfaction of the Soviet Union? The Government have surely done much more than CND and the women of Greenham Common to ensure that even more people are opposed to nuclear policy. That is revealed by the public opinion poll which has just been announced.

One may ask the question: why in those talks have the allies ignored the Soviet offer to radically reduce warheads; and why did we refuse to allow our intermediate nuclear weapons to be counted in the deal when such a policy would lead to the situation we now face? Does the Minister not agree that the deployment of missiles has not led to any enhancement of the prospects of peace but has led to the first shooting down of the prospects of peace hopes that we had?

In the Statement, the Minister says:

"I wish to emphasise that the Alliance remains ready to halt or reverse at any time the deployment of the missiles if only we can secure an agreement with the Soviet Union which would allow us to do so".

Accepting—with regret, of course—the failure of the peace initiatives up to now, due to deployment and inflexibility, will the Government now promise, as the building up of weapons has not produced the results that we wanted, to cease further deployment until the talks are resumed? Further, with the lessons of Grenada, will the Government themselves take a major initiative of their own and recognise also the increasing importance of dual control of the weapons we have? This is a very grave Statement, and the Government must take a large share of the responsibility; and at the same time, they must have new initiatives to bring us out of the prospects we face at the present time.

My Lords, this is a bleak little Statement for what is, after all, a very grave moment in the history of Europe. Was not the East unwise to continue to deploy its SS.20s throughout the four-year period of negotiations: and was not the West unwise to insist that the needlessly alarming Pershing 2s should be included in Western deployment? Is it not instructive that it is the decision of the German Parliament to go ahead which has been the immediate trigger for the Soviet Union to break off negotiations, and not the decision of our own House of Commons?

We do not reject, as I believe the Labour Opposition does, the Government' s conclusion that there is no alternative but to allow our own deployment to carry on. Nevertheless, will the Government now recognise that, as so often before, a disarmament negotiation has failed not because it tried to bite off too much but because it tried to bite off too little? Will the Government, not just stand back and hope that the Soviet Union will one day come back to this particular negotiating table, hut, starting this evening, work towards a disarmament negotiation which will include enough countries and will talk about enough weapon systems, and in which our country in particular will be entitled to speak for itself?

My Lords, I am grateful to both noble Lords. The noble Lord, Lord Bishopston, asked a number of questions. Why was it, he asked, for example, that the United Kingdom and French forces were not to be included in the negotiations? That point has been answered on a number of occasions from this Dispatch Box. The United Kingdom and the French forces are not intermediate range forces but are strategic forces, and they constitute but a tiny fraction of the total forces held by the Soviet Union in that category of weapon.

The noble Lord also asked why Soviet offers—so-called offers—at the INF talks have had to be rejected. The fact of the matter is that the Soviet Union seem to have had but one objective in the INF talks, and that has been to maintain their total monopoly of this category of weapon all the time, while they have been deploying more and more of their SS.20s. In the past two years or so since the talks started in Geneva, they have continued to deploy this category of weapon. At the same time, the United States have remained at the negotiating table there.

The noble Lord, Lord Bishopston, referred also to the shooting down of the Korean airliner. I would have thought that nothing would have shown more effectively the need for us to keep up our guard in this area, as in others. The noble Lord went on to ask whether it was not now ripe to halt deployment of the Western intermediate range weapons in Europe. I believe not because, as I have said, at this time the Soviet Union have a total monopoly of this category of weapon in Central Europe.

Moving now to the remarks of the noble Lord, Lord Kennet, he asked whether the East was not unwise to continue to deploy SS.20s during negotiations. Indeed it was; I wholly agree with the noble Lord. There was an alternative option available to the East, but it was rejected. As to the West's position, I believe we had no alternative but to proceed as we have done. As the noble Lord and other noble Lords will know, we shall be effectively deploying these weapons by the end of the year.

The noble Lord, Lord Kennet, went on to ask whether we should not widen the talks in Geneva. I must say that I disagree with him in that particular argument because we have shown effectively at the various disarmament for a which have taken place in the past 10 or even 20 years that the right approach is a step by step approach. The fact of the matter is that the comprehensive disarmament discussions which have taken place from time to time have all in the end been bogged down in various details. The idea that strategic nuclear arms reductions, for example, could be agreed in a wide forum of 30 or 40 people when only two or three nations actually hold that particular category of weapon is, I believe, a myth, and one not worthy of examination.

My Lords, before the Minister sits down may I say without any hint of rebuke that I did not refer to the shooting down of the Korean airliner. What I did say was that in the light of the Grenada experience I wondered whether this was not a reason why the United Kingdom should take some major initiative.

My Lords, I apologise if I misheard the noble Lord, but I thought that he did refer to the shooting down. The Grenada matter is, of course, something entirely different, and therefore something quite outside the ken of this particular matter.

My Lords, can my noble friend the Minister say whether the Soviet Government have, publicly or behind the scenes, given any reason for their withdrawal from these talks? Does he agree (as many noble Lords on these Benches, together with many other people in the Conservative Party and throughout the country, agree) that the Russians' withdrawal from the talks makes it imperative that we should calmly and deliberately proceed with our deployment programme of these missiles? Thirdly, will my noble friend comment on the danger of the proposal made by the noble Lord, Lord Bishopston, that we should deploy no more missiles until the Russians are prepared to come to the negotiating table again? Does he not consider that if we were to take that step it would mean that in future negotiations we would be negotiating from weakness?

My Lords, my noble friend is quite right. If we were to follow the course proposed by the noble Lord, Lord Bishopston, we would be giving the Soviets exactly what they want without getting so much as an iota in return. That would not be fair or successful negotiation. As to what is the present Soviet position, I must say that it is rather difficult to ascertain. For example, they make proposals in Geneva which they then publicly withdraw, attributing them to the United States. From what we understand of the latest so-called offer which they made the other day, they are still proposing to keep more than 120 SS.20 missiles within the range of Western Europe while demanding that there should be no such deployment in Europe of United States missiles. Such a monopoly remains, as I have said, unacceptable to the Western alliance.

My Lords, is the noble Lord aware that, if they can see no justification in the Soviet action in withdrawing from these talks, the Government must be blind? Is he further aware that many analysts of this subject, not only analysts on this side of the fence, had told the Government that this would happen and had explained to the Government in detail why it would happen? Are not the Government, therefore, in the position of refusing to know rather than being unable to know what the Soviet position is? Do not the Government know full well that from the beginning the Soviet Government have said that the British and French weapons must be counted, and is he aware that it is technically impossible for the Soviet Union to know from their radar systems where a weapon is coming from? Is not the only hope at the present time to initiate a fresh series of talks on the START basis, taking into consideration all nuclear weapons on either side? Must not the initiative be asserted by European nations? Is the noble Lord not aware, finally, that the people of this country and the people of Europe have no faith whatever that the American Government are negotiating in good faith?

My Lords, I can assure the noble Lord that the United States Government are negotiating in good faith. They have made what has come to be known as the zero option proposal, which apparently was not acceptable to the Soviet Union. The United States then made some adjustments and amendments to that proposal, and those, too, apparently were not acceptable to the Soviet Union. All that seems to be acceptable to the Soviet Union in these talks is a total monopoly on their side of this category of weapons. I do not understand how that could be thought to be fair or reasonable.

As to the knowledge that the noble Lord imparted to us, it is true that Mr. Andropov is reported to have said some weeks ago that there was a risk that the Soviet Union would withdraw from these talks, but the fact that we knew that it was possible does not mean that it was justified.

My Lords, does the noble Lord recall the repeated statements of the Government over the last two years that it was only when the missiles were being deployed that the Soviet Union would start negotiating seriously? Does he recall the very opposite predictions made by my noble friends and myself repeatedly in this House and elsewhere?

Secondly, is the noble Lord aware that many of those who oppose the unilateral approach are dismayed at the handling of these negotiations by the United States Government? The noble Lord referred to changes in the zero option proposal, but is he aware that examination shows that there has been no significant move away from the zero option by the United States Government? The zero option is where they stood two years ago before the negotiations began, and in two years there has been no serious change in the negotiating position of the United States. Will the noble Lord, therefore, now inform the United States Government that we shall not agree either to the deployment of the missiles now in this country or to the arrival of further missiles until there has been a decisive change in the negotiating position of the United States?

My Lords, I suspect that the noble Lord has not been following these matters too closely in recent weeks if he says that there has been no change in the United States position in recent days. It was as recently as 14th November that the United States offered the Russians a precise figure in terms of the number of warheads in terms of a global ceiling—420 was the figure. The Russians have refused this as they have refused all previous offers.

My Lords, would the noble Lord not agree, whatever detailed arguments may be advanced on one side or the other, that this is a deeply disappointing development and will be so regarded by the people of this country and indeed by people throughout the world?

Secondly, can the noble Lord say what initiatives, if any, Her Majesty's Government have in mind to bring about a resumption of these talks as soon as possible? That again will be the desire of the people of this country and people everywhere else.

Thirdly, can the noble Lord say what effect he thinks this development will have on other talks—for example, the START talks—which are equally important?

My Lords, of course, I agree that it is deeply regrettable that these talks have for the time being at least come to an end. I hope the Soviet Union will urgently reconsider its position and return to the negotiating table as soon as may be. In the meantime, I am certain that we must be steadfast in our plans to continue with the deployment of intermediate range missiles so that the monopoly that the Soviet Union possesses can be brought into balance.

As to the implication of the Soviet Union's decision today for the other talks currently proceeding—for example, the START talks—we have no reason to believe that there will be any parallel effect on those discussions.

My Lords, as I have frequently in this House criticised the content of the negotiations which are now the subject of this question based on the announcement the noble Lord has made, may I ask the noble Lord this question? Has not our approach been based on a comparison of weapons and not on the political issues involved? Is there any advantage in returning to a conference where they discuss the number of weapons on either side, because we will never reach a satisfactory conclusion that way? Would it not be far better to say to the Russians quite directly, "What are your intentions?". We have some knowledge of what their intentions are, but all the cards should be laid on the table. They have a perfect right to respond by asking the United States of America, ourselves and the other allies what our intentions are. The other side want Communism throughout the world; we do not want Communism throughout the world. Let us discuss those issues, and not assume that, if we reach some conclusion about the number of weapons that either side possesses, it will not lead to peace but will mean war.

My Lords, the difficulty is matching the Russians' words with their deeds. They have professed all sorts of peaceful intentions, like the Helsinki Final Act and the United Nations Charter, and what do we have? Breaches of human rights left, right and centre in the United Kingdom, not to mention the invasion of Afghanistan.

My Lords, is the noble Lord the Minister aware that the Secretary General of the United Nations this morning foresaw this situation which is expressed this afternoon in this House and tried to take an initiative from his end to bring the parties together? With the discontinuance of the disarmament talks at Geneva we must surely maintain some form of communication. May I say that the Statement made today, with its rejection of all Soviet intentions and approaches, introduces into this question a degree of finality which would be disastrous for all of us if it were to continue?

My Lords, I warmly welcome the Statement of the Secretary General of the United Nations this morning. We shall certainly want to study what he has said very carefully and hope that a way forward may emerge from what he has said.

My Lords, although the last supple mentary question has largely taken my point, may I say that what alarms the people of Europe is not merely the build-up of nuclear arms but the build-up of nuclear arms in a deteriorating political situation, and it is only the pursuit of some form of detente which will give them any hope during the consequent build-up of arms?

My Lords, the difficulties to which the noble Lord refers are, of course, in the forefront of everyone's mind. That is why it is important to move forward to achieve an agreement in these matters. That is why we hope sincerely that the Russians will return to the INF talks in Geneva. That is why we also hope that progress can he made in the other international for a to which I have referred.

My Lords, I am told that in my reply to the noble Lord, Lord Shinwell, I referred inadvertently to breaches of human rights in the United Kingdom. I did of course mean the Soviet Union.

My Lords, may I ask the Minister one very important question? Has it ever occurred to the Government that it is very probable that the cruise missile will not work when it is tried, and for a fundamental reason? It depends for its navigation on precisely observing the ground beneath it. Small hillocks, and so on, are used to check the inertia navigation on which it basically depends. If you stand on the Malvern Hills and look east, the first hillock would be the Ural Mountains. In principle, even, the missile cannot work because there is nothing to guide it. In any event, the maps have not been prepared and it will take at least two or three years to prepare them. They have not yet been started. It will cost several hundred million pounds to do that, and no funds seem to have been allocated for the purpose. I wonder whether there is any purpose at all in talking about cruise as a viable and useful weapon for the time being.

My Lords, I am sorry to say that the noble Lord is not quite right in all that. The cruise missiles have been very fully tested. I also assure him that they need less than a range of mountains by which to navigate.

My Lords, are the Government aware that one feature of the present situation which worries people most is that the two parties have ceased to talk? It is terribly important to go on talking to people when you disagree with them. I suppose that there will be quiet ambassadorial discussions about this; but will the Government agree that it is terribly necessary to promote and encourage those discussions? It is easier for the Americans to do that than for us. An awful lot hangs on these results. Will the Government also agree that one feature of the recent negotiations that has worried people has been the tendency for the negotiations to be conducted at the top of the voice rather than in the quietness of a negotiating forum; and that proposals have been made and rejected within about an hour of their being heard on the other side? Will the Government be able to encourage a quieter approach to this extremely delicate, important and vital question?

My Lords, I entirely agree that we need to go on talking just as often and long as we can. That is why we hope that the Soviet Union will return to these talks. It is the Soviet Union that has left the table at Geneva and not the United States. But the noble Lord may be reassured that the talks in the other disarmament for a are continuing, as I have said, and we know of no reason to think that they should not do just that. The noble Lord is right: we need to go on talking. I also agree with him that it is sometimes better if these talks are conducted rather more confidentially than has always been the case in the past.

My Lords, would the noble Lord the Minister agree with me that if the level of political and economic hostility increases at the rate that it has increased over the past five years (and particularly over the past three), there will probably be military hostilities between the East and the West; and even if those military hostilities start with no nuclear weapons at all being used, it will not be long before that stage is reached? Therefore, does he agree that it would perhaps be a good idea if the Government of the United Kingdom approached the Government of the Soviet Union to talk about détente and to try to establish some common sense in the relationship that now exists between East and West, so that we do not have a situation where the powerful forces in America are determined to stop any economic co-operation between the Soviet Union and the United Kingdom and the rest of Europe by opposing such ventures as the oil pipeline?

My Lords, there has been no war in Europe for nigh on 40 years. I believe that that has been because we have succeeded in deterring the Soviet Union, or anyone else, from perpetrating aggression upon us. It is our policy to continue to deter, and I believe that we shall be successful in that.

My Lords, will the noble Lord accept that what some of us find most depressing is the negative aspect of his Statement, and what not just noble Lords in this House but people in the country will be looking for is evidence that the day on which the present talks break down is the day on which positive plans must be made for the resumption of new talks?

My Lords, the negative aspect of the Statement today is of course the departure of the Soviet Union from the negotiating table in Geneva. A positive aspect would be the return of the Soviet Union to that negotiating table, and that is what I hope will happen.

My Lords, I join the noble Viscount, Lord Whitelaw, and the noble Lord, Lord Barnett, in congratulating the noble Lord, Lord Boyd-Carpenter, on choosing such an important subject for debate today. He has worded the Motion in such a way that we need not be too repetitive. It covers such a wide range of important topics that I believe most of us will try to choose one particular angle on which to concentrate.

We have heard with commendable brevity from the noble Viscount. Lord Whitelaw, what is the Government's policy. We had what I believe many of us felt was a brilliant contribution on tax reform from the noble Lord, Lord Barnett. It is a subject on which, in view of its importance, I hope that we shall be able to hear him many times in the future.

As I listened to the noble Lord, Lord Boyd-Carpenter, as someone who for many years worked in a nationalised industry, I felt tempted to respond to some of his remarks. He was kind enough to disarm me by referring not only to my role; he also reminded us that at one time he, too. was the chairman of a nationalised industry—and a very distinguished chairman he was. I should like to see the day when noble Lords opposite can perhaps speak about nationalisation with rather less fervour than they do at present. It seems to me that every time the word "nationalisation" is mentioned, they see a colour which is not normally associated with them. I feel that we should be getting to the point at which we can look at this whole question rather more objectively.

It is a pity that when the weaknesses of nationalisation are referred to, certain industries only are mentioned—those which are in difficulty, such as steel, coal, shipbuilding, and the railways. But these industries are in difficulty in varying degrees throughout the world. Little mention is made of the sectors under nationalisation, such as telecommunications, electricity, gas, and the Post Office, which, measured in profit and loss terms at any rate, are very successful. Neither is mention made of the contribution coming from many of these industries. Sometimes size is an advantage. It enables a considerable degree of concentration of technical research and development to take place.

I refer to the industry with which I was associated. The mining industry has made remarkable progress over the years since the war in massively reducing the incidence of accidents to a point at which we are the least accident-prone mining industry in the world. We have made enormous progress in dealing with pneumoconiosis to the point at which the incidence of new cases is very low indeed. We have in our mining industry won the Queen's Award for technical innovation in dealing with this matter. Then there is the technical development in methods of mining itself. I hope that the day might come when a rather more balanced view will be taken of the contribution that these industries—all of which are great in their own right—make to our affairs.

But I would rather not dwell on that aspect too long. I feel that there are other temptations held out to us in the Motion put before us by the noble Lord, Lord Boyd-Carpenter. The aspect which tempts me to speak on for a little while is wealth creation, which, after all, is the nub of the whole issue raised in the Motion. Here is a problem which we would do well to ponder in order to consider how we can start to create real wealth in this country at a rate which will enable us not only to see living standards continually improved, but to make adequate provision for those people who, through age or infirmity, need to be helped.

We only need to consider the great pressure on social expenditure these days to realise that the creation of wealth is not proceeding at a rate which enables us to do all that we should like to do. At the root of this question of wealth creation, I feel, lies the question of capital formation. The record of Britain in recent years in capital formation is dismal indeed. There are many figures that I could quote, but I shall quote just a few. I shall take the period from 1979, when the recession set in, to 1982. If one takes the rate of capital growth—fixed capital formation in manufacturing industry—one sees that in that period it actually declined by 34 per cent. If one takes the construction industry, one sees that in that period it declined by 49 per cent. If one takes the transport industry, one sees that in that period it declined by 36 per cent. If one takes housing, one sees that it was 26 per cent. Admittedly, in some of the sectors there is now some improvement, but I have taken the last figures available for a full year.

The question is, how can we deal with this situation? If we do not deal with this problem of capital formation fairly soon, I think that we shall get into very great difficulty.

Last week we had a debate on our overseas trade, and in analysing the figures of this trade it was possible to discern what seems to be the consequence of the lack of capital investment in our manufacturing industry. For the first time for very many years—we were told from the Government Benches we had to go back to 1931—we have actually seen the emergence of a substantial deficit in our manufacturing balance of trade. That upsets the whole of our balance of trade because we know that the great benefit we are getting from oil at the moment is going to start slowly declining before long and unless we can make sure that the contribution to our overseas payment from manufacturing industry, as well as the very important contribution made by invisibles, is built up to take over from the contribution now being made temporarily by oil, then we shall indeed be in great difficulty.

We come to the question of how we might deal with this problem. There is nothing new that one can say here because it has been amply and vigorously debated in recent years. Indeed, the CBI at their Glasgow conference went through this subject in great depth and detail and the conclusion that was reached there, if you read summaries of the speeches as they appeared in the press and listened to those who talked on radio and television, was that they were getting increasingly worried about the lack of resource which was finding its way into capital formation.

What emerges from this debate in my opinion, among those who are involved with industry, whether public or private, is that they feel that we have not yet got the conditions under which this lack of capital formation can be put right. In the private sector there is still the feeling that there are impediments in the way of the burden of real interest rates, national insurance surcharge, and the many things we have talked about so many times in this House. In the public sector there is this question of the infrastructure which has also been fully debated.

What I worry about when I hear about all these cuts in public expenditure is that it does seem to be having such a very substantial impact upon capital formation, which seems to be the wrong objective. The trouble about this whole issue is that the dividing line between desirable investments in the public and private sectors is a very thin one. The interdependence of the two sectors is very considerable indeed.

In the days when I was responsible for the coal industry and we invested substantial amounts in new mines, we knew that that investment would immediately have to be undertaken by the private sector, and I do not believe that this interdependence of the two sectors in relation to capital formation has been sufficiently realised.

We know of the Government's great reluctance to enable public expenditure to rise in any aspect. Nonetheless, I think here is a matter which must be looked at very seriously. As there is interdependence, can we not perhaps deploy some creative thinking as to how these necessary investments can be financed which could involve both sectors?

We were told some years ago in the coal industry that if we could find suitable ways for injecting private capital into some of our projects which came out with the Government's limit on our capital expenditure, we could proceed with them, and the Treasury gave us some ground rules: so we worked very hard at finding ways round this problem because we now knew that we could attract external capital. It ended up by being some sort of parlour game. The more we thought we found solutions on the basis of the Treasury's ground rules, the more they seemed to change the rules. After a time I am afraid we had to give up.

We heard only the other day of a rather imaginative proposal which certain private contractors had made to undertake an extension of the road building programme. Reports in the press have already indicated that the Treasury are likely to turn that down. I wonder whether we cannot try to persuade our friends in the Treasury that perhaps they have a responsibility for a bit of creative thinking from time to time and not just to tell other people to be creative and then sit back and turn down their ideas. We have a real problem here. There must be a solution to it. We need to get more capital formation in the infrastructure in such a way that provides us with much needed resources and facilities and at the same time stimulate a whole great tranche of the private sector. There is money ready to be put into these projects and surely it cannot be beyond our wit and capability in this highly computerised, technological age to find a way round that.

The noble Lord, Lord Boyd-Carpenter, in his speech referred to the criticism that had been made about selling off national assets to meet current expenditure, and I think I am right in saying that he also believed that anything realised from the sale of these national assets should go into asset formation. I hope I understood him correctly.

Entirely.

If so, I should like to say that I heartily concur with that sentiment and I should like to make a small suggestion here. If we take our minds to the Province of Alberta in Canada, a Province which has been blessed with very substantial mineral resources, they realised that those resources would not last for ever: a large part of the proceeds which the Government gained from the exploitation of those resources they put into what they called a Heritage Fund and that fund has been used to develop longer lasting industrial activities.

It is worth consideration whether the amounts realised from the sale of national assets should not be put into a capital formation fund for the stimulus of much-needed investment either in the public or the private sector by whatever desirable means might come to hand. At least we should then know that we are not losing out in this, that we are not transferring capital assets from the public to private sector in such a way that they would simply mop up a large amount of the resources at that time available in the private sector for capital formation.

This is, I am afraid, what is likely to happen if we have such a large issue of new shares as the Telecom's privatisation will involve. It means that a large part of the resources allocated by the institutions for equity investment will be mopped up. It is not an answer to that, as I have heard said, that if the Government did not get the money this way they would have to do it by gilts issues, because the two markets are totally separate. Anybody in the banking world will know the way the institutions work is that they allocate certain resources to one market and certain resources to the other, and I do think that we shall find that the substantial sales to the private sector of public sector assets that are coming up could do harm to this objective to stimulate investment and capital formation. This is another issue to which we might address ourselves in the wholly laudable objective of creating real wealth in this country.

I do not want to take up more time. I wish to concentrate on making two proposals arising from the very important Motion put to us by the noble Lord, Lord Boyd-Carpenter. These are, if I may remind you, that we should find some way of making sure that the funds released from the sale of assets are used for the creation of other assets, perhaps by allocating them in a specific way. I should also like to suggest that we give some creative thinking to ways in which public and private investment can be brought together to finance desirable infrastructure projects.

My Lords, it was represented to me some time ago that the habit of elderly graduates from another place exclaiming the happy coincidence that they had made their maiden speeches there here, so to speak, had become a rather boring commonplace, so I thought that I would not mention that today but just say that it is nice to be back after all these years among so many old friends in all parts of the House. It is a particular pleasure to have the opportunity to make my maiden speech on the Motion of my noble friend Lord Boyd-Carpenter. I do not think that it will embarrass him, since he wears his years so lightly, if I say that I have known him for more than half a century and have learnt much from him over the years. It was good to hear him still in such excellent form today.

Important as capital formation, investment and the ownership of industries are, I want to deal with another form of resource today. I believe that the greatest and most important resource that any nation has is its people and that any restrictions or controls which prevent their proper employment in productive and satisfying work are to be deplored. There are today far too many of these restrictions, particularly those which deter small businesses from taking on one or two more workers. This is particularly true of the self-employed, the one-man business. I know at least half a dozen in the country area where I live, independent craftsmen who are grossly overworked, who are booked up with jobs months ahead and who would be delighted to be able to take on one or even two assistants. But the restrictions of the extra paperwork that becoming an employer involves are too complicated and costly to make this attractive.

One has to consider first the position of the wife of such an individual. She is probably sitting by the telephone most of the day doing the book-keeping, planning out the orders and certainly coping with the VAT during her evenings and at week-ends. Just the sight of the PAYE tax tables and the accompanying forms on top of them is enough to make the idea of employing someone singularly unattractive to her at least. A survey by the Economist Intelligence Unit recently showed that the United Kingdom came almost bottom of the European league in measures taken to help profitability of small businesses. It was only in tax incentives that it came near the top. I would give credit to the last Government for the tax incentives they gave to help firms start up and expand; the loan guarantee scheme, the business start-up and expansion schemes, and so on. But the PAYE and national insurance system is a very severe burden on very small firms.

The fact is that the Inland Revenue does not like the self-employed. For obvious reasons, it takes longer to get in their tax money than it does tax from those who are subject to PAYE. So it came about, at the time when the last Government were trying to encourage the self-employed, that the Inland Revenue was busy forcibly reclassifying self-employed people as employees. It is estimated that no fewer than 107,000 self-employed people were so forcibly reclassified during the lifetime of the last Government. This is very hard on the one-man business which starts, as so many of them do, with only one customer or client. If he is forcibly made to become an employee of that customer or client, he finds it much more difficult to get others. It stifles the growth of that business at the start.

But it is when the one-man business takes on an employee that the cost burden rises most sharply. The costs of acting as unpaid tax and insurance collector for the Government are very regressive. The cost of collection per employee is many times higher for the smallest firm than for the largest. Whereas the very large firm gets a substantial offsetting cash flow from the PAYE system which may far outweigh the collection cost, the very small firm benefits very little indeed. It should surely be possible to devise some method of offsetting the burden of collection costs for very small businesses with one or two employees. But PAYE and national insurance are far from being the only deterrents to employment.

I do not propose to discuss today the vexed question of wages councils, which generates a certain amount of heat and which might be thought a shade too controversial for a maiden speech, important though the problem is. But becoming an employer brings much trouble in its wake. There are the provisions on unfair dismissal and redundancy. There are the complicated laws and regulations on race and sex discrimination and equal pay. The employer is likely to come to the notice of inspectors under the Health and Safety at Work Act 1974, the Factories Act 1961, the Fire Precautions Act 1971, the Offices, Shops and Railway Premises Act 1963, and Heaven knows how many more. At a certain size, the firm may become liable to pay a training board levy, though one will not get very much benefit from it. All these were well intentioned measures, but together they constitute a nightmare for the very small business or the one-man business contemplating taking on an assistant.

It might have been hoped that the youth training scheme would have helped in the respect, but I am sorry to say that the Manpower Services Commission has been pretty bureaucratic and restrictive about this. Even under the previous schemes it often refused to include one-man businesses in the scheme at all on the grounds that the young person could not be adequately supervised. Indeed, the problems that the youth training scheme was designed to cure are for the most part problems that have been created by Governments themselves. I submit that it really is time that this Government made a genuine effort to remove the bureaucratic burdens and restrictions on very small businesses and to simplify the tax system to remove injustices.

It may seem an unnatural reaction, but I do have some sympathy with the Inland Revenue. They have a job to do and they have to administer the system with equality for all. But I believe that a system that tries to treat everyone alike may end by doing justice to no one. I believe that more flexibility and understanding would be welcomed, for it is true, I am afraid, that some income tax and VAT collectors do unduly harass small businessmen.

In conclusion. I am convinced that the scope for increased employment is great if some of these deterrents can be eased. There are about 2 million self-employed people in this country and about 1½ million very small businesses. Many of these could use one or more extra workers. Indeed, some could be the great firms of the future once they get off the ground. It is salutary to consider from what small beginnings some of the great enterprises of today sprang—for example, Mr. Morris in his bicycle shed. I seriously doubt whether many of them would have got off the ground at all if they had had to contend with the complications, the regulations, the restrictions and the Government-imposed costs which confront the small businessman today. The need for action is obvious and I hope that the Government will rise to this challenge, and soon.

My Lords, I have the privilege of being the first to offer congratulations to the noble Lord, Lord Maude of Stratford-upon-Avon, and I do so with sincerity and alacrity. Having graduated with him to this Chamber and having followed his career, although occasionally at a distance, in public service, I have the utmost admiration for both his intellect and his integrity. However, I find it a somewhat frightening thought when he tells us that together he and the noble Lord, Lord Boyd-Carpenter, have a century of mutual experience. The fact that for 50 years they have been sharpening up each other's wits and intellects must make us all the more careful. I am sure that I speak for every one when I say that I do hope that it will be possible for the noble Lord, Lord Maude, to come and speak to us as frequently as he wishes.

The noble Viscount the Leader of the House paid a most pleasant compliment to the noble Lord, Lord Boyd-Carpenter. I would echo that compliment about the most formidable powers of oratory which the noble Lord possesses. I am sure we all have to discipline ourselves to ensure that the force of the argument does not cloud the substance of what he endeavours to put over to us. I was a little surprised to hear him say that he agreed with us about the lack of wisdom of selling off national assets and using the proceeds as current revenue.

In the last week or so there have been a number of Questions put to the noble Lord, Lord Cockfield, speaking for the Government, and I do not recall that we had any great support from the noble Lord, Lord Boyd-Carpenter. Certainly the noble Lord, Lord Cockfield, had absolutely no doubt about the wisdom of this action. It will be remembered that ultimately he fell back on the argument—and I quote from the answer that he gave to the noble Lord, Lord Diamond—that there was, "a fundamental difference of philosophy".—[Official Report, 16/11/83; col. 1281.] I fear that there is a fundamental difference of philosophy, and I find it difficult to follow the noble Lord, Lord Boyd-Carpenter, when he says that the present Government have strayed a little too far towards the path of impartiality. There is a difference between us—and I think that I speak about this matter within the context of what the noble Lord, Lord Maude of Stratford-upon-Avon, said about the absolute need to consider the investment in people. The fact is that since this Government came to power the division between one body of British people and another is wide, is widening, and ought to be narrowed, and is one of the most unfortunate features of the present political scene.

I have to say, sadly, to the noble Lord, Lord Boyd Carpenter—for whom I have reason to have the greatest respect—that his speech and the policies that he propounds will widen still further the gaps which are developing between us. There is, tragically, a widening gap today between those who have a job and those who do not have a job. For all the restraints on pay settlements, current earnings continue to go beyond the RPI, while at the same time, by one device or another, payments to the unemployed fall below the rise of living costs. Of course there has been a consumer boom. Some of those in work are doing very well indeed.

But there is another widening gap between the low and the high wage and salary earner. Every percentage settlement applied across the board has the effect of widening that gap. A week ago the noble Lord himself complained about a 6 per cent. wages board award. However, it is not the percentage figure that matters, but the base to which it is applied. Indeed, 6 per cent. on the wage of a shop assistant or a health service worker will mean about another £5 a week, but the same percentage on the wage of a man earning £20,000 a year means another £1,200 a year—over 400 per cent. more if we want to fool ourselves with percentages. Yet for the low and the higher paid worker the cost of a pint of beer, or a packet of sugar, or a pound of potatoes, or the price of gas and electricity, is almost exactly the same.

If we are considering wage rates and the need to increase motivation and productivity—which is one of the themes in the noble Lord's Motion—we might consider another phenomenon of the current scene. Payments to those who dig our coal, deliver our letters, nurse our sick, or bury our dead, are examined in detail by the press and in this House. But only half of wage and salary earners in this country are covered by agreements which are publicised or by trade union negotiations. Among the other half, in which the people are not members of trade unions, there has been in the last year or so a quite remarkable wage explosion.

I suppose that £50,000, £60,000, or £100,000 a year for a footballer might be justified on the basis that he plays only for a few years, though I am not sure that this applies to a man who only comments on football, yet who is said to earn £80,000 a year. In my view that type of thing is bad for football: but it is part of this new, commercial entrepreneurial spirit which the latter-day Tories suggest will now save Britain. Probably more serious than the payments to a few footballers are the claims which are now being made on society by those who presently operate in the brash, new financial organisations. A year or two ago, before this Government came to power—and the noble Lord, Lord Ezra, might confirm what I say—a salary for the head of a great manufacturing organisation was held to be reasonable at £25,000 or £30,000 a year. But that is now chicken feed, especially for those who are in finance or in public relations and who are not conspicuously creating real wealth. I read recently that Merrill Lynch were prepared to pay up to £200,000 a year for an analyst. Maybe that is exceptional for that kind of desk work, or maybe the report was exaggerated. But I have a list of salaries now being paid of between £250,000 and £500,000 a year.

The noble Lord, Lord Boyd-Carpenter, spoke understandably—and I so much agree with him—about the need for both incentives and motivation. But I have said before, and I say again, that a society which relies on that order of motivation is not a society which will endure.

There is another gap which is relevant to this Motion—the gap between those who depend upon, or are compelled to resort to, the social services, and those who pay for them. The noble Lord wishes to reduce the burden of taxation, but what is a burden to one man is a source of relief to another; and both live in the same society. Let me say at once that there are some enormous items of expenditure which I think we must all regret. Apparently, Fortress Falklands is costing us £600 million a year, though the runway is extra. The bill for Northern Ireland must be even higher. There are hundreds of millions of pounds going to waste on the scandal known as the common agricultural policy. And the item which is really causing financial trouble is the economic policy which brings about unemployment and makes a potential taxpayer into a drawer of the dole. We could usefully discuss lightening those burdens, but I want to put tax-paying into a different context.

The other day we must all have read of a worker in a field who had his arm cut off. He picked up the arm and went for help, and at the national health hospital he had the limb sewn back on. We must all marvel at that man's courage. But ought we not also to rejoice in the fact that we have built a society which can provide a service of that kind? The cost of that new surgical equipment is one cause of the rise of health costs, but we ought not to talk of a burden. Is it really a disincentive to us if we work to create a society of that kind?

I think it can be shown that some cuts in social services can be bad economics. Next week I shall ask an Unstarred Question about the care of those among us who are mentally ill, and I think that it will be possible to show that an increase of expenditure on local government care services would enable recovering patients to be released earlier from hospital, with a consequent eventual net saving to the public purse, as well as an increase in human happiness. There are a number of ways in which an increase now in social services, instead of a cut, can mean a saving in the years ahead.

I again turn to the subject on which I started; namely, the sale of assets which were previously held in common to limited sections of the community. More and more people are coming to realise, with the noble Lord, Lord Boyd-Carpenter, that it is unsound business to balance the housekeeping accounts by selling off bits of the house; or maybe I am not putting that as strongly as I should for it seems from last week's Statement that £2 billion has been raised by selling off entire houses—and at up to a 50 per cent. discount on market values.

I do not believe—and in this I agree with the noble Lord, Lord Ezra—that a crude argument of public versus private enterprise is helpful. I believe that there is a need for both. I have myself worked in both. I am in favour of a mixed economy. Not the least damaging consequence of the Government's policy is that it has diverted thought and action from getting the best out of both the public and the private sector.

There are three areas of relationships within the public sector to which we should be giving attention, and where improvements are possible. One area is that of trade union relationships. It is possible to say that in the public sector union organisation is easier and the influence is stronger. This strength can be, and sometimes is, used to procure settlements more favourable to the producer than to the consumer. But the approach here should not be to try and get back to some Victorian concept of master and man, or to glorify market forces with the sanction of the sack. We should be seeking more than ever to secure a steady development of worker participation in management.

Alongside that approach we have to face the problem of wage bargaining. I have some experience of the practical difficulties of imposing from Whitehall a so-called incomes policy. With all those difficulties in mind, I still say that some attempt must be made to ensure that strength in negotiation is not confused with fairness. Overall fairness must mean that we do not try to restrict settlements in the organised half of the national workforce, while within the other half the doctrine of "grab what you can" still prevails. Moreover, in any consensus in the future I hope that there will be not only a minimum wage, but a maximum figure, too—a ratio between the highest and the lowest paid in the country.

Another area in which constructive improvement is possible is that of consumer representation and influence. For all the valiant efforts of the noble Baroness, Lady Burton of Coventry, there is still much to done there—and not simply in the narrow field of prices and service to the consumer, but also in the whole question of identity with the community as a whole.

There are private companies which would love to have the potential feedback from customers which is open to some national industries through consumer councils.

In appropriate corporations I am sure that we could have consumer representation making a positive contribution, not only towards an even more efficient service, and not only in curbing an undue tendency towards syndicalism, but also possibly in countering the bigoted anti-public ownership stance of the gutter press and, indeed, the more elegant criticisms and prejudices of Conservative propaganda. We need to ensure, and then to show, that the interests of the British people are identical with the industries which they own: and the consequence could be a very real incentive and motivation in those who work within those industries.

The third area of relationships in which, in my view, change is overdue is that between public corporations and the Treasury. If public sector management is less than totally resistant to a 51 per cent. sale of shares, it is because this means for them protection from Treasury frustration. The doctrine that productive investment in the public sector has a malign influence on the demand-supply situation in the economy, but that this does not apply if the national holding is only 49 per cent., surely is stretching dogma too far.

Along with others, including the noble Lord. Lord Ezra, I have already said that I am not disposed to pick faults in individual private companies. I do not need anyone to preach to me the merits of personal initiative. But what I shall argue is that if we are to have a properly balanced economy and a truly civilised society, then we need more, and not less, public investment.

Mr. Peter Rees, the Chief Secretary to the Treasury, said at The Times conference last week that:

"Privatisation was also the solution which produced the most efficient allocation of resources for investment".

I wonder whether post-war experience really proves that. The noble Lord, Lord Boyd-Carpenter, made great play of the point that increased profits from some of those organisations have now gone from the public into the private sector. But he knows as well as I do that a company does not make increased profits in one year as a result of the decisions taken in that year. In all those cases the investment when under public control and public ownership had been ample, and those investments are now paying off, as they should have done in either case under public or private control.

Apart from that, does the noble Lord really tell us that we should have the present basic energy industries, as efficient as any in the world, if they had been left after the war to private capital? Should we have had the same massive conversion to North Sea gas? Would the rural areas in the United Kingdom have had the same electric power, post, or telephone services if the market forces dogma had prevailed? Of course not.

Long-term investment in basic manufacturing industry just does not appeal to private capital. We have seen this past few days something of the money markets' idea of social priorities. They poured £500 million into the flotation of a casino. The issue was over-subscribed 55 times. The week before BAT announced that they had surveyed the economic scene and decided that the £700 million that they had to invest would go into the financial sector. I have no doubt that that was wise from the point of view of the shareholders of British American Tobacco, but from the point of view of Britain it was not so good.

In the years I have spent in this House I have learned to hold in great regard the readiness of colleagues with vast experience to identify the issues which will really shape our national character in the years ahead. In the debate of 9th November on the Health Service I was especially impressed by the words of the noble Lord, Lord Richardson, a former president of the General Medical Council, and who is never concerned with short-term political arguments. He spoke of, "the very great threat" which confronts our teaching hospitals: and of St. Thomas' s in particular he said that if present projections are applied,

"it will amount to the extinction of St. Thomas's…as a national centre".—[Official Report, col. 868.]

The impression made upon me by that was heightened because in the same week, as it happened, I had sat at lunch next to the head of one of Oxford' s colleges. He told me that Oxford could not complain of their allocation from the UGC, but he went on to say that the overall economies meant that they were no longer attracting talented young people to an academic career. "If this process continues", he said, "we shall not have a university of international standing at Oxford by the middle of the 1990s".

If we get tax cuts now—the tax cuts which the noble Lord is demanding—we might well step up the current boom in video sales. But Britain would be better off if we had not cut the home improvement grants. The allocation of resources by the private market might well mean that we get a super casino in the West End, but should we not all feel much prouder if the standing of Oxford was maintained and our teaching hospitals were preserved?

It gives me great encouragement to think that more people are beginning to see the implications of the present Government's economic policy. Maybe this is what Peter Walker was getting round to saying as reported this morning. Recently I have derived even greater hope from the feeling that the new leadership in the Labour Party would soon be putting this new philosophy into practice.

My Lords, I should like to start by adding my warm congratulations to the noble Lord, Lord Boyd-Carpenter, who opened this debate. For us all, wherever we sit in the House, that was a speech that was such a tour de force that we shall long remember it as a high point in 1983. I should also like to add my congratulations to the noble Lord, Lord Maude of Stratford-upon-Avon, and old friend from a long period together in another place. How right he was to concentrate in such an effective maiden speech on the problems of the small businesses. I should like to endorse everything he said. I hope that this Government are not running out of steam on that front. We started with great energy, great enthusiasm, and we need to keep it up, because if pressure is not kept up the Treasury will have their way and tax them out of existence.

It is right to have a debate of this nature on this subject at this moment, because the public accounts for the coming year have just been published in a grey paper, and it is desperately important that we should consider where the wealth creation is going to come from and how we can help it in the future. I shall not repeat it, but there is much to be said for what the noble Lord, Lord Boyd-Carpenter, said in his opening speech about the heady days of the 1930s. I was re-reading recently—I have it here, but in the interests of brevity I shall not quote it—Let Us Face the Future, the programme on which the Labour Party won the 1945 election. All the quotations are a little hollow today in that almost every forecast about the service being better and the price being lower to the public was wrong.

They are not the only people who got it wrong, by the way. A programme like that goes ahead with enthusiasm, but one looks to see what Lord Beveridge said when the National Health Service was set up, of which so many people have spoken, and which can go on expanding and improving provided that we have a healthy wealth-creating sector. It is strange to think today that he forecast that the cost of the Health Service in its first years of operation would be about £70 million, but that it would be a reducing cost because the health of our nation would steadily improve and there would be fewer people seeking to go to our hospitals. That is a forecast which is so amazingly wrong that it is now costing £14,500 million, not £70 million, and employing, by the way, 828,000 people.

Looking at the results of the nationalised industries—and there are some 20 of them and they are all different in many respects such as size, position, centralisation, subject and everything else—it is broadly true to say, as has been said in this debate. that prices have regularly increased rather more rapidly—considerably more rapidly in some cases—in the nationalised industries than the RPI has increased. It is also sad that the productivity of labour in the nationalised industries—and perhaps restrictive practices that go with that—has not matched up. The employment costs of gas—I was studying them recently—are up by 38 per cent. more than the employment costs in the private sector. Coal is 21 per cent. more than in the private sector, as an average. Even in telecommunications and electricity they are up 18 per cent. more. Therefore, although big investments have been made in many of these fields, it has not unfortunately yet been matched by big improvements in productivity.

It is important that we should discuss the public sector from time to time, the public industries particularly, because they represent exactly a tenth of the total United Kingdom gross domestic product. They also employ 1,500,000 people. So on any score they are of considerable importance. Of course, they also dominate some sectors of our economy—sectors which are vitally important infrastructure to British industry. The whole of transport, energy, communications, road, rail, air, telecom, steel—all these industries are in the public sector, as well as shipbuilding and part of aerospace, and therefore it is a worthy subject to discuss.

I am sad in a way that noble Lords opposite, who have not made desperately partisan speeches, have not come forward with any constructive ways in which they believe the performance of the nationalised industries might be better. I think that that is sad. I do not blame the managers or the work force in any way. I, like the previous speaker, worked for a national monopoly, the BBC television service, for many years. It was rather more fun in its early days; it has probably become more bureaucratic since then. I also worked in the private sector for many years. I do not criticise in any way. I find that people work in nationalised industries with exactly the same dedication and loyalty. The very size of the organisation sometimes has a repressive effect on their energies and ambitions.

We have to go on trying to prod the nationalised industries because they will long remain monopolies, even if all the ambitious proposals for privatisation come about. It will leave many of the twenty untouched. We must go on prodding, probing and encouraging the use of productivity measures, of comparative figures between one and another and among the regions of a single organisation. One should carefully monitor the amount of research and development money which is going back for the future of those industries. The reaction time and the innovative process should also be examined, because if a decision has to go through a number of layers or strata before it is endorsed it will take a long time and may lose its thrust in the process. Capital expenditure has long been monitored by successive Governments.

One of the astonishing things when we discussed British Telecom recently was that it turned out that the organisation has only one profit centre. Here is an enormous organisation by any standards, with no knowledge of certain facets. It could not tell whether public kiosks were making a loss or a profit. It did not believe that there were losses as some people had suggested, but there were no figures to say so. Now two large accountancy firms have been put in to British Telecom to see whether they can start some cost centres and begin to get some facts on the business which is managed. It is a sad fact that it is said the processes will take a further two years before there will be any figures by which efficiency can be measured.

It is wrong to say, as one speaker did, that British Airways has not been livened up by the threat of privatisation. It is true to say that British Telecom has changed out of all colour, not just from red to yellow. It has really woken up. One of the problems for the small private companies is how they will compete with British Telecom, which is a very lively outfit and prepared to spend almost any amount of money advertising. A Member in another place said during the Committee stage of the Bill, which I read recently, that £17 million had been spent in launching Merlin, one of the new projects. I know that £1,000 has been spent in Scotland for every paging gadget that is sold—£1,000 for every gadget sold, though they cost only £100 each. British Telecom is not short of money or energy; just the mere whiff of competitive grapeshot has had a salutary effect.

All Governments since the honeymoon of Socialist days of 1945–51 have attempted to grapple with the problems. They have put forward a number of solutions. I remember new formula after new formula. The original one was breaking even taking one year with another. That did not work out very well because we never came across "the other"; we always came across the uneven one. Then there was the capital investment which should only be undertaken if there was rigorous "discounted cash flow"—the buzz word at that time—so every capital investment project had to be examined under this score and unfortunately we never got around to examining it.

Then there was Government control and interference. Every time one tried to insert a whole layer in the Ministry responsible, the people concerned had first to learn about the business then had to try to control, as someone recently said, and waste an awful lot of time of the management in answering questions to educate the people who were their official bosses. Governments of all persuasions have tried.

The introduction of external finance limits has had some salutary effects because it has meant that if one can generate the profits within one can undertake more ambitious capital programmes and research and development for the future. That is a healthy discipline and probably the best we have had for some time.

We all have a duty in the House, wherever we sit, conscientiously to seek routes for improvement. In 1984 there are two areas which we understand are to be privatised. I like others do not like the word, but it describes the efforts. It is sad that in the case of British Telecom the DTI, the Ministry responsible, estimates that, despite all the objections from the POEU, 97 per cent. of telephones will remain under the aegis of British Telecom and only 3 per cent. will be won by Mercury, the rival network which is to be set up. That does not seem to be anything like true competition when one remembers that if one has technically 30 per cent. of a market one is subject to a Monopoly investigation. What happens when one has 97 per cent. of the market set up under a statute?

What is sad, particularly in view of what my noble friend said about small companies, is that 97 per cent. goes to British Telecom and 3 per cent. to Mercury, and all the other fringe services—the 47 little companies who provide paging, mobile telephones and message answering services for doctors and other people who need them—are apparently unthought of. No one has encouraged them. In fact their growth is being inhibited by forbidding them to have the frequencies which they need with which to expand and to create the jobs.

My Lords, why do it?

My Lords, I am delighted that people are doing it because I believe a pace-setter is required and Mercury will act as a pace-setter for British Telecom. I even think that the Hull telephone exchange acts as a pace-setter because that is one yardstick by which one can measure the efficiency of telephones in this country without having to go to France, Sweden or anywhere else. A pace-setter, whether or not one is the best 1,500-metre man in the world (I was not) is a very valuable person to have because one can measure oneself against his efficiency.

I was sorry to read that British Caledonian will not he given the chance to grow. I still think that 80 per cent. of the market in British Airways hands, however good it is. and however good its administration, is too much and 10 per cent. is too small a portion for British Caledonian. I should have preferred to see it more equally divided.

That brings me. finally, to what we intend to do not only with the industries which may be privatised in 1984 but with all the others. Let us suppose we privatise two in 1984; that still leaves 18 others. Should we perhaps be strengthening the Monopolies and Mergers Commission? When we set it up there was a feeling that it should deal with both monopolies and restrictive practices. I think it should, and I think it should be enlarged and modernised in the light of experience to do that.

We also have the Office of Fair Trading. I know it is struggling, and sometimes it is successful, but it is a slow moving outfit. Can it really investigate whether trading is fair between the national and the private sector? In the case of British Telecom there is to be Oftel, the Office of Telecommunications; a new outfit to control. I wonder whether we are giving all these organisations sufficient strength and sufficient teeth to do a job and create a competitive economy within the national industries and mixed industries where we have both. It seems to me that we want to examine these methods most carefully, otherwise all our efforts to privatise will not be successful.

My Lords, I strongly welcome the Motion in the name of the noble Lord. Lord Boyd-Carpenter. It exactly reflects my own impatience with the failure of the Government to push on more rapidly in reducing the burden of taxation which has grown remorselessly throughout the whole of this century. If we look back to 1900 we find that Governments took 15 per cent. of the national income. By 1938they took 30 per cent. of the national income, by 1960 they took 40 per cent. and, through the 1970s, they took around 50 per cent. of the national income. I checked back with the Blue Book for 1982 which showed that for that year total state spending was£128,000 million of a net national income of £240,000 million. Those two figures tell us that central and local government and their various offshoots laid claim to 53 per cent. of all the income earned by the exertions and enterprise of this nation.

In a prudent world all this mounting public spending has to be financed from rates and taxes of a whole variety of kinds or it has to be borrowed from current savers and eventually to be repaid by future taxpayers. It must be obvious, even to such overflowingly generous and well-intentioned people as the noble Lord, Lord Beswick, that there is some limit to the amount of tax that Governments can take without doing more harm than good. This is a matter of judgment. Unlike the noble Lord, Lord Barnett, I judge that we have already gone beyond the bounds of prudence.

I would assert that, above a modest level, all taxes damage our economic performance in a variety of ways. Most people, despite what the noble Lord, Lord Beswick, has said, do not positively rejoice in paying higher taxes. There is no such thing as a free tax. We all know that local authority rates have rocketed, firms have been forced out of socialist city centres and sometimes, too often, have been forced out of business.

My Lords, I did not talk about rejoicing in paying higher taxes. I rejoiced that we had a system which could give the surgical treatment which a poor man needed. Does not the noble Lord also rejoice in that; and, if he does rejoice, does he not accept that it follows that we must pay taxes?

My Lords, we must go back and look at the record of Hansard. The noble Lord implied that people should take pleasure in paying taxes because it led to some good things of which you approved. I approve of some things that the Government do but I thoroughly disapprove of many other things where I can see that my money is wasted. So I cannot take pleasure in the total burden of tax that falls upon me. My argument is that income tax and national insurance contributions raise costs, depress efficiency, distort effort, make British products less competitive than foreign competition and so destroy jobs.

I was not impressed by the complacent comparison of the noble Lord, Lord Barnett, with European tax levels—and for a number of reasons. In the first place, the structure of our own income tax is, in my view, more onerous, especially on lower and higher incomes. Secondly, European earnings over the post-war years have risen a good deal faster than those in Britain; so that, despite rising taxes, take-home pay has risen faster in those other countries. Furthermore, Britain suffers from larger handicaps than France, Germany or even Sweden, especially in our troublesome trade unions and in the more extensive nationalisation. Therefore, we need all the additional help that we can get from lower taxes.

It is a fallacy to suppose that taxes do not matter because only some people are affected by their disincentive impact. The noble Lord, Lord Barnett, conceded that some people are so discouraged; and that concedes my point. The only dispute is how widely that particularly damaging effect runs. I wholly agree with the noble Lord, Lord Barnett, in his attack on taxes on lower income. I would say that before the war working class families like my own parents never paid taxes unless incomes rose to something like two or three times average earnings. Today income tax starts for many at levels nearer one-third of average earnings, and even below the entitlement level to supplementary benefit. It is no wonder that we hear of the unemployment trap and the poverty trap and so forth where people are discouraged from taking a job which would leave them worse off after loss of tax and benefits than if they had stayed on social security. As the noble Lord, Lord Barnett, acknowledged quite explicitly, we are literally taxing people into poverty and unemployment as well as taxing other people into the black market or the underground economy.

Another count against this great tax snatch is that by knocking-off almost 40 per cent. from take-home pay workers are encouraged to try to pass the buck to the employers by demanding wage and salary increases which firms cannot afford. The buck eventually has to stop somewhere, and it tends to stop on the backs of the creators of wealth. It is indisputable that all taxes are a negative transfer of goods and services away from individuals and towards the Government. The trouble is that higher taxes must, however marginally the noble Lord may think, reduce the flow of wealth which alone enables us to pay increasing taxes in the future.

A further disadvantage of high public spending which has not been touched upon is that no Government can give as good value for our money as we get when we spend it for ourselves and our families. The men in Whitehall cannot know and cannot really even care about individual preferences which differ very widely. They are inevitably inclined to spend other people's money just as though it was other people's money. I have a great deal of admiration for an unnamed noble Earl—and I went back to the Hansard of 7th November 1979 to check my recollection. On that occasion (in column 977) I found from a noble Earl who was then, and is now, a Minister, the following words:

"I rather like spending other people's money; it is one of the most enjoyable functions of a Minister's life".

At that time I was deeply shocked. That was four years ago. Now I am a hundred years older and wiser and sadder; and I have come to accept that there is not much prospect of getting politicians to treat the taxpayer's money with the most especial respect which it should deserve.

Even if Ministers were recruited exclusively from the legendary one-armed Macedonian with sewn-up pockets, I would argue that it is impossible for public services to be as cost-conscious as private suppliers who have to compete to win customers. Even in the recession, we have seen that managements in local government, in education, and in health services have faced none of the market disciplines that have compelled private enterprise to improve efficiency by cutting out waste, ending slack working habits, reducing manpower often by 10 per cent., 20 per cent., or 30 per cent. without, in many cases, reducing output or capacity. The additional difficulty that has been touched upon is that state services and nationalised industries have over-powerful trade unions that have fought, often without scruple, to retain over every over-manned post and preserve every demarcation and restrictive practice.

I may say with respect to the noble Lord, Lord Ezra, that I think I heard him say that the National Coal Board had won Queen's Awards for some of its technical triumphs; but it would win no taxpayers' or customers' awards for its efficiency or its return on capital over a period of years.

The trouble fundamentally, which has been touched upon earlier, is that wherever any activity is plugged into Government all the pressures are for more spending. The noble Lord, Lord Barnett, would agree, I know, with this proposition in the light of his own excellent post-mortem on the years 1974 to 1979 when he was the Labour Chief Secretary at the Treasury. His remarkably readable requiem entitled, Inside the Treasury, is full of instructive revelations which I never cease to advertise in this House and before wider audiences. If his sales are doing well it is partly due to my advocacy. Early in his book he lamented—and I quote:

"The days had long since passed when I naively thought it would be easy to persuade my colleagues that two plus two really did make four".

A little later he said:

"So many of my colleagues wanted to have their cake and eat it; even the most intelligent of them wanted both tax cuts and public expenditure increases".

I think the noble Lord's colleagues are not so different from many Ministers on the other side of the House, but I think I can say with some confidence that at least the present Government have not been guilty of that degree of folly. I have no doubt that the present Chancellor would like to get spending and taxes down, even if Mr. Peter Walker and other Tory rustics and romantics are not entirely in agreement. Therefore, I would urge Mr. Nigel Lawson to persevere, and I offer this concluding thought: no single boon would do more for growth and employment prospects than a large and continuing reduction in the burden of taxation on workers, savers and investors. It is they—millions of ordinary and extraordinary people, not Governments of any party—who are the true source of Britain' s wealth and future prosperity.

My Lords, like other noble Lords, I should like to congratulate my noble friend Lord Boyd-Carpenter on the introduction of this debate in his inimitable style. I also congratulate my noble friend Lord Maude of Stratford-upon-Avon. It is a joy to hear him once again, having listened to him with pleasure for many years in another place.

One matter which has not been mentioned so far in the debate is the dramatic change which has taken place since 1979. Prior to 1979 there was a sort of ratchet effect operating which made it appear quite impossible ever to shift back from increasing state intervention and state ownership to greater reliance upon the private sector. But since 1979 that has been released: not an easy task. It says much I think for the courage and perseverance of the Government, and in particular of my right honourable friend the Prime Minister, that the reversal has been achieved. It has now become possible, for the first time for many decades, for there to be a shift hack to get a better balance between the public and the private sectors.

No-one should minimise the extent of that achievement. Lip service has been paid to the aim by previous governments over some 30 years. Previous Conservative Governments had pledged themselves to try to get back to a greater private sector and to prevent the increase in the public sector's erosion of so much of our activity; but the sum total up to 1979 was minuscule. There was I think a de-nationalisation of road haulage; there was a return of some of the pubs—the Carlisle Brewery, I think it was—to the private sector. The noble Lord, Lord Ezra, will remember that there was a transfer of the National Coal Board brickworks to the private sector; and there was a travel agency. But that was about the lot. Indeed, the balance tended to go somewhat the other way and, as the noble Lord, Lord Barnett, reminded us, we had the nationalisation of Rolls-Royce. I will not go into the circumstances of that but I am sure the noble Lord will well remember the responsibility that his then colleagues had for that sad state of events—

Hear, hear!—the RB.211.

My Lords, the reasons why there was so little shift back, the release of that ratchet, were manifold. There was massive resistance by the Labour Party and massive resistance by the trade unions in the public sector. Then of course there was the recognition that, these vast public monopolies having been created, to return them to the private sector would probably lead to a private monopoly which to many was and is unacceptable.

The consequences of the massive shift to the public sector, unintentionally, were economically disastrous. I believe that if we plotted the industrial decline of the United Kingdom since the war and matched it against the trend of increasing state intervention, we should find a remarkable correlation between the two graphs. The vast state-owned monopolies had an impact on the economy which has done grave damage. No Government have felt able to stand back and say: "Let us allow them to get on with their business". The levers of power which Government Ministers have in those industries are irresistible; and management, as my noble friend Lord Boyd-Carpenter said, had to act in a strange environment. The management of those industries, as my noble friend said, was often of a very high quality. Management at all levels in those nationalised industries are not blamed for the circumstances. They worked within an environment which made it impossible to apply the same judgments as applied elsewhere. They were directed by political considerations rather than industrial ones; pricing policy was not fixed upon ordinary commercial terms but upon its impact upon the RPI. Employment policies were fixed upon the effect, particularly concerning unemployment, in constituencies that might arise if what would otherwise be a sensible commercial decision was taken.

Management, as has also been said in this debate, had a blank cheque and they were free from the disciplines of the market place. I had ministerial responsibility for some of those industries for some two years and I know the frustrations suffered by management on the one hand and by Government on the other. In the middle there were the powerful public sector trade unions, determined to preserve their jobs, their place in the wage "pecking" league, and their restrictive practices. It was really a recipe for economic chaos and I suggest that the pudding has been proved in the eating.

I do not want to bore your Lordships with statistics, but I noted with interest and my usual pleasure the figures quoted by the noble Lord, Lord Harris. I will avoid putting figures to you, but since 1979, as I have said, the direction has been reversed. Some may say—indeed I believe I should myself— "too little and too slow". But to reverse the momentum of some 30 years takes some doing.

One may ask: what are the benefits of reverting to a greater part of our industrial and commercial activity being in the private sector? May I give one small illustration from my personal experience? The noble Lord, Lord Ezra, will recall, as indeed would the noble Lord, Lord Gormley, who is no longer in the Chamber, that the National Coal Board possessed a whole lot of brickworks—old, not main line activities, loss-makers, starved of capital. To prise those out of the National Coal Board was a major effort. Every opposition was put forward, I am sure with the very best of motives, from the noble Lord, Lord Ezra, and the noble Lord, Lord Gormley. The resistance was great, but it was achieved and they were prised out and sold to the private sector. Perhaps I may just finish this sentence and then I will gladly give way to the noble Lord, Lord Ezra. They went to the private sector, to a company of which some years later I became chairman. I may say I am no longer chairman. Those brickworks are now the most modern in Europe; they are highly profitable, using highly competent, efficient and well-paid staff; and they are making a very significant contribution to the nation's economy and welfare.

My Lords, I thank the noble Lord, Lord Boardman, for letting me speak on this question of the brickworks. If I may, I should like to correct the record slightly. I should also like to say that our relations with the noble Lord were always amicable while he was a Minister. The point is not that we did not want to sell off the brickworks; we wanted to get a good price for them. It was my task to nurse those brickworks, and I spent some years on it, to the point at which we thought we could profitably dispose of them, which I am glad to say we did. We disposed of them because it did not seem to us to make good commercial sense to go on operating a brickworks which we had inherited from the old mine owners.

My Lords, of course I accept the noble Lord's interpretation. But what he has said endorses my point, which is the desirability of getting that type of peripheral activity away from the main line activity and back into the private sector, where it can be managed more effectively. The Government are moving in this direction and I congratulate them on what they are doing with British Telecom, British Airways and the like. But these large denationalisations will take time. and I ask my noble friend to consider urging the nationalised industries and the public sector to look through all the bits and pieces that they have on their books, which are not part of their mainline activity.

Every part of the public sector should be required to reveal all the resources that it employs, all the jobs that it does, which are not essential to that mainline activity. For example, as the noble Lord, Lord Ezra, is in his place, I ask: why should the Coal Board have investments in builders' merchants, and why should the electricity and gas boards have their showrooms? Are they essentially a mainline activity? Is a direct labour force the most cost-effective way of maintaining our roads, and so on? These are questions which should be asked. I believe that the answers will reveal massive barnacles on the hulls of these vehicles, slowing down progress and wasting resources.

It is not something which applies only in the public sector. It applied throughout much of the private sector. In more prosperous days, large companies accumulated masses of bits and pieces. Due to the recession and the need to clean out and release what resources they can, many of them—I hope all of them—have looked at their "bottom drawer" and have seen what they could turn out. The recession has forced them to divest and many of these divestments from the private sector have been to very successful management buyers.

Now is the time to get this divestment through. It is difficult to achieve in recession; but I believe, as my noble friend Lord Whitelaw said earlier, that the indicators are all hopeful. They are all going the right way. Inflation is down and will come down further; interest rates are low and I hope that they will come down lower; the growth forecast is 3 per cent.; public attitudes have come to accept the sort of change which is so essential; there is reasonable stability in exchange rates and cash resources are available from the private sector. That is where the financial services of the private sector make such a massive contribution to our economy and to our overseas earnings.

In this context, I declare an interest as I am chairman of a major clearing bank, and may I remind my noble friend that it is this part of the economy, the financial services sector, that has done so much to support and sustain the weaker parts of our economy; that has made, and is making, a greater contribution to the preservation of the international financial system, which is the greatest source of net earnings from overseas, as well as providing the means for British industry to compete in world markets.

If, as the press suggests, the Chancellor of the Exchequer is minded to impose further special penalties on this sector, he will be putting his whole philosophy in reverse. If the reserves of British banks are to be eroded by further taxation, then "the normal banking prudence", to which the Prime Minister referred in her Mansion House speech last week, will limit the support available to British industry as it comes out of recession, and the contribution to achieving the financial stability that is needed in those parts of the world which provide major markets and jobs. That task, if it is worthwhile—and is for the Government to decide—and if those circumstances arose, would fall on the public purse. For that reason, I say that it would be a reversal of the policies which the Chancellor and the Government are pursuing.

I conclude by congratulating the Government on the direction which they are taking. They are moving in the right direction. They have overcome the ratchet effect, of which I spoke earlier, and I hope that they will speed it up wherever possible. I also hope that they will look at all the peripheral activities which should and could be returned to the private sector. Finally, I put in a plea that they do not weaken the private financial structure, which carries the weight of British industry and commerce.

My Lords, 1 should first like to join those who have congratulated the noble Lord, Lord Maude, on his maiden speech tonight, and on his emphasis on the development of and help for the small business, which has always been a subject of great concern to Members on these Benches. Your Lordships will be pleased to hear that I shall be very brief, partly because of the late hour and the number of speakers still to come but even more because, much to my alarm, the noble Lord, Lord Barnett, in the second half of his speech and with a great deal more eloquence than I could command. said nearly all the things that I wanted to say. This is a fate which, sooner or later, befalls all speakers coming later in the list, but it is slightly disconcerting when you believe that you have points to make which other people are less likely to bring forward.

The first part of the debate has concentrated on the question of wealth creation. It seems to me rather a pity that so much time has been spent on arguing as to whether wealth creation is better carried on in the private or the public sector. Underlying the discussion there has been emphasis, about which I think there is agreement on all sides, on the need for greater investment. But, surely, what is important is getting that greater investment and seeing that it is used to the greatest possible effect in both the public and the private sectors.

Indeed, as the debate has gone on this evening, and having listened to speakers from the other side of the House, I am tempted to put to the noble Earl, Lord Gowrie, a question which we used to put from these Benches in the days of the Labour Government. Do the Government still really believe in a mixed economy, or do they not? We always had protestations from the Labour Government, which we did not always believe, that they did, in fact, support the mixed economy. Is this still true of the Conservatives, and will they confirm that this is the position? From the tenor of many speeches tonight, one really begins to think that they believe there is no use at all for a public sector. However, of the importance of capital formation for wealth creation there can be no doubt, and I think there is very little disagreement inside your Lordships' House.

This leads me to say once again, as we have said so often in the Alliance, how extraordinary and regrettable it is that the Government are so unwilling to make funds available for essential capital investment in the public sector. I was very glad to hear that they are to spend money on building new prisons, which are long overdue. But, surely, money should be found for such things as home improvements, which we were told at the end of last week are to be cut, and for the repair of the sewers—a subject which we have pressed for a very long time. That is job-creating, essential work which must be done sooner or later. Surely, if there is one job which cannot be indefinitely delayed it is the repair of our 100-year old sewers, and, if it were done on the scale required, it would be very job-creating. The Government say that they cannot spend that kind of money without returning to inflation. We can only point out to them that the amount of money that it has been estimated to cost is less than the margin of error which is made regularly every year in the estimate of the PSBR. That is all I wish to say on the first part of today's debate.

I want to pick up and underline one or two of the points made by the noble Lord, Lord Barnett, about the incidence of tax at the lower level. I do not believe that anybody has so far made the point that we are not in fact a very highly taxed country. In the league table of taxation I believe that we are about half-way down the league table compared with other industrial countries. If we look at the level of tax in relation to productivity and unemployment, there is no correlation whatsoever.

There is no indication from the figures, when you examine them comparatively, that the existing level of tax contributes one way or the other to the major problems that we in this country face. But the noble Lord, Lord Barnett, was surely absolutely right to stress the appalling incidence of tax at the lowest level of all and to point our that, because of the muddle we are in and because of the way in which tax and social security payments have been added incrementally, ad hoc, to meet particular problems as those problems have arisen and have never been reviewed as a whole since we began schemes of this kind, we are now in the most frightful muddle so far as tax and benefit at the lower level of the scale are concerned.

"The poverty trap" has become one of the phrases that is very commonly used. So is "the black economy". They are the other areas about which I wish to speak. We regard them as marginal problems that are always with us and probably always will be with us, and there is not very much that we can do about them. What I want to say tonight—I am very sorry that the noble Earl, Lord Gowrie, is not here because I wanted particularly to address these remarks to him—is that surely the time has come, at the beginning of a new Government with three or four years ahead of them, to examine seriously, perhaps on an all-party basis, these two subjects which are of major importance in order to find out whether or not we can work out a very radical reform which will get rid of the poverty trap and deal with the issues which are associated with the black economy.

To take first the poverty trap, may I just repeat that the issue of the poverty trap and the issue of the black economy have been talked about for a very long time. But no Government have attempted to tackle them on a radical basis. There has been no real examination on an all-party basis of what can be done to get rid of the poverty trap and to explore the issues connected with the black economy. This is not a marginal matter. It is a matter of very considerable importance, and it is going to get more important unless we do something about it. It has been with us for a long time. We do not have to do it tomorrow; we can take our time, study it and try to get it right. The noble Lord, Lord Barnett, illustrated the absolute nonsense of what is, with tax and insurance alone, practically a 40 per cent. marginal rate at the lowest level of all. Then there are the additional losses because of the means-tested benefits and the very strong inducement indeed to people not to get jobs when they are at that level, because it simply is not worth their while.

The noble Lord, Lord Barnett, said—and I agree with him—that the Government do not know the answer in the short term. There are certain things one could do. I have always found it difficult to believe that there would not be some value in having a lower band of tax. It would not take us very far, but it would be something. We did have a lower band at one time; if my memory serves me right, it was introduced by Roy Jenkins when he was Chancellor of the Exchequer in the Labour Administration. For some reason which I have never understood, unless it was as a result of pressure from the Inland Revenue on the ground that it is easier to cope with a smaller number of bands (but that is only fancy on my part; there may be no truth in it), we removed that lower band and restored it to, at that time, 33 per cent., plus national insurance. This is absolutely absurd.

All parties have attempted to look at this question in terms of a tax credit scheme. The more one examines it the more obvious it becomes that only some form of tax credit scheme—the amalgamation of the tax and benefit system into one system—will make sense in the long run. I know, because my party and the Social Democratic Party have done a good deal of work on it, that it is not at all easy, but we are equally convinced that it is essential to find a way. I would suggest to the noble Earl that now is the time to get together the most high-powered group that we can find to work the maggots out of tax credit schemes, for tinkering about with tax and benefit is going to get us absolutely nowhere and will leave us indefinitely with a poverty gap, with all the undesirable economic and social consequences which flow from it.

My second point is the effect of tax on the creation of the black economy. I have shocked some members of your Lordships' House in the past by saying that I do not take a very appalled view of the existence of the black economy. It is real work; it is real income for the people who earn the money from it; it gives them something to do; certainly it is a great deal better than having nothing to do. But it has also very considerable and serious disadvantages. That it is large there can be no doubt. I do not believe it to be profitable to spend a lot of time trying to calculate how large, because we shall never know. But if we look at the figures which measure GNP by expenditure and compare them with the figures which measure GNP by either income or production, it is quite clear that a very great deal is going on in the black economy.

Although there are advantages and benefits which flow from the black economy, there are also very great disadvantages. No doubt a small black economy has always existed and is something we can all live with. But I do not believe there can be much doubt that it is growing. Nor do I believe that any of us would like a country which had, as other European countries already have, a black economy which was a very sizable proportion of the economic activity of the country as a whole. Some of both the economic and social consequences which would flow from an economy which had a very heavy black edge to it are not what I believe any of us would want. Perhaps the least of the disadvantages of the black economy is that it mucks up the national statistics quite impossibly. We do not know what the GNP really is; we do not know what money is available for taxation; we do not know what the true figure of unemployment is. All these things we ought to know. If the figures are only small it does not matter, but as they get bigger it becomes very serious indeed.

One of the advantages of the black economy—here I know that I shall shock some people—and probably one of the reasons for its success is that it introduces a flexibility in labour costs which our excessively rigid system of labour pricing does not enable us to have in any other way. A great many people in the black economy are underpaying themselves, in trade union terms, quite considerably. That is why they are able to get jobs. But that is by the way. That is one reason which would make the system appeal to some Members of your Lordships' House, while it would be deplored by other Members of your Lordships' House. But the black economy probably also involves a considerable waste and distortion of genuine entrepreneurial effort. There are undoubtedly people in the black economy who would be capable of making a very considerable contribution if their efforts were better supported and better directed than they are at present, because plainly there are many limits to what they are able to do when they are operating in that way.

We surely want to find ways of getting people to come out of the black economy and into the normal operation of the economy. I do not know how one achieves that, but we must find a way; we must find a way of making it really worthwhile. It is not worthwhile at the present time for a man who is running a successful plumbing business on the side to run his own small business as a proper small business—openly recognised, paying tax, and doing all the things that small businesses should do.

I urge the noble Earl that the second project that should be undertaken in this field is another investigation into the ways in which one can reduce the size of the black economy—not spending a long time trying to measure it, but accepting that it exists. It is our old friend the elephant again: we cannot define it but we know it when we see it. We must try to see what policy steps can be taken to reduce the inducement to stay in the black economy and to give positive encouragement. It will probably mean some rather drastic steps; making changes which many people may not wish to make. But if we do not do something now, we shall before very long be in the situation in which the black economy is so deeply established as a major part of the economy that there will be no way of altering matters.

My Lords, before the noble Baroness sits down, does she have in mind a Select Committee of this House to investigate the matters she has described as being so urgent? Does she have any suggestions to make on that point?

I had that in my mind, my Lords, as one possible way of dealing with the question, but I did not want to say so in precisely those words.

My Lords, your Lordships' experience and expertise in the matters under debate are, of course, copious. I have been listening with enormous interest, especially to my noble friend Lord Maude of Stratford-upon-Avon, whose maiden speech was on an aspect very near to my heart. But personally I have a great fear about this debate and, perhaps even more importantly, about the national debate now going on across the country.

My fear is that the Government underestimate the extent to which the vast majority of the people of this country now understand the essentials of this situation in which we find ourselves: and that as a result of that underestimation, Parliament will be too slow, and not nearly radical enough, nor nearly creative enough, in determining the way forward from this time on.

Since 1979 the British people have in many ways been taken into the Government's confidence. We have come through several years of learning hard lessons, and we have disciplined ourselves to hard policies. There is now, even in the area in which I live—which does not typically vote Conservative, or anything like it—a widespread view that the old ways will not do any more; that to carry on with the old structures, even if we had a lot more money to spend on them, would not work; and that to keep those structures and spend less and less on them would be even worse.

Likewise, increasing numbers of people in all walks of life appreciate very well that economic reality is crucial. They know also that the economy is not an abstruse creature with a life of its own and uncontrollable by ordinary human beings, but that it is largely made up of people in this and other countries who can influence the economy, and that the economy exists for us, and not us for it.

People are aware, too, of the history of the welfare state. Those who are old enough to remember—and others know from them, and from television—the high hopes of the 1940s and 1950s, shared across a large part of the political spectrum, know that we had found the best way for an educated modern society to maximise freedom and fulfilment for us all. They therefore understand why today we still ask every citizen to forgo part of his or her income, in the form of tax, rates, or national insurance for those in work; and in the form of lower benefits and pensions than would otherwise be available for those not in work or retired, in order to pay for education, health and social services; public housing, employment and training services; roads and railways, and to subsidise coal mining, postal services, and the rest.

People also know from their own experience the way in which the system of paying for essential and very personal services by way of the state actually works in practice. Responsibility for these matters may be in the hands of democratically-elected and replaceable councillors and Members of Parliament, but it is not clear that those people are able to ensure that precious potential spending power forgone by individuals is turned into provision where the individual customer's needs or wishes are always paramount.

It does not pass unnoticed, for example, in the great housing schemes of the Scottish cities that schools are still not seeking the greatly increased answerability to parents which those parents strongly desire. Across the country, despite the marvellous operations which the hospitals are capable of performing, hospital patients and visitors do not by any means always feel that the hospital exists for, and belongs to, them—which, of course, it does.

People notice the roads coned off and traffic jams prolonged for far longer than is actually needed for the job. They also observe expensive chromium-plated barriers which have recently been purchased on their behalf by the Post Office, so that they—the waiting customers—may be coralled like sheep waiting to be dipped. They notice, too, that housing officials—and even councillors themselves—are often markedly reluctant to help people with advice about expediting the buying of their own homes or to accommodate their wishes as tenants in other ways.

On the employment front, there is growing understanding that if the state makes it too difficult for employers to employ people, or if self-employment involves too many problems, there will simply be less employment. Likewise, if the creation of part-time or fixed-time employment opportunities is discouraged, there may be no opportunities in that particular area at all.

There is also—dare I say it?—considerable disillusionment about the role of politiciansin all this. Local government councils and Parliament itself are widely suspected of being concerned more with political gamesmanship and manipulation than with dedicating themselves to the creation of a setting in which, given the constraints and the new possibilities of changing times, the people of this country can find ways of leading happy and fulfilling lives.

For most people, the power to live their lives in the way that they want, and the freedom to exercise responsibility as they see it, comes from time to time through the ballot box; though in practice, largely through having the power to spend. They have recently voted, and the vote was massively anti-Socialist. It is now for the Government to recognise what it is that the people are wanting and are saying; to continue to take the people into their confidence; to take courage, to be innovative and radical; and with all speed to set about finding ways of meeting at least some of those clearly expressed desires.

My Lords, it is indeed a privilege to follow my noble friend Lady Carnegy of Lour in making such a heartfelt speech from the country as opposed to the great theories that we all advance, and I thoroughly endorse from my part of the country a great deal of what she has said. I too should like to congratulate my noble friend Lord Maude and endorse so much of what he said about the difficulties very small businesses have in expanding themselves in a small way because the very stiff rules of the Treasury make it so difficult for them. My thanks are particularly to my noble friend Lord Boyd-Carpenter for introducing this most important debate.

My own experience is in having been a manager in the public sector, in the private sector and in a non-profit making quango. From all that I think I have gleaned a profound truth: that is, that it is most important for us all to realise that the key to prosperity is competition in an open market, and the key to the ability of a country to look after its old, its sick and its children is for the country to be prosperous.

The great lesson, as I see it, of the past 50 years has been that the theories of Marx and his many socialist successors have been shown to be totally false. My noble friend Lord Boyd-Carpenter quoted from a book by the late Lord Morrison of Lambeth, Socialisation of Transport. If I might briefly remind your Lordships by paraphrasing what my noble friend quoted, it was that service will improve, prices will fall. industry will be more efficiently conducted. I would add also that the board of a nationalised industry and its officers must regard themselves as the high custodians of the public interest.

Sadly, in practice the very reverse of each of these high hopes has in the event occurred. It is indeed tragic that real humans have let the theorists down, not only in free countries like ours where we can all take important choices but also in dictatorships riddled with secret police. But we should not be surprised. The Bible gives ample evidence of similar human failings. What is indeed more tragic is the slowness of many people to grasp the lessons of the past 50 years. It is understandable that the sincere theorists should cling to their theories even when totally discredited. It is also understandable that trade union leaders in nationalised industries who have gained tremendous power in artificially buttressed unproductive industries should wish to cling to that power even if it is gradually destroying their industry by making it uncompetitive in the world market.

But the rest of us who desperately want a prosperous country which can take a proper share in helping to put developing countries on their feet, as well as looking after our own disadvantaged people properly, really must throw off all false ideas about any practical benefits from state or corporate ownership. The message is being well understood by other countries, like Germany, Japan, Singapore, et cetera. We have not much time to waste in turning over all the industries we can to private ownership. In doing so, however—and here my noble friend Lord Orr-Ewing made the point, as indeed did my noble friend the Leader of the House—we must not forget, as I said at the outset of my speech, that the key to prosperity is competition. A denationalised industry that has more than 40 per cent. of any of its markets and is able to control its own market place is more of a danger than a sleepy nationalised giant.

The noble Lord, Lord Barnett, told us that there were of course inefficiencies in public bodies and also inefficiencies in large private industries. I am not so sure about that second point in relation to the first. Perhaps I could illustrate what I think and illustrate the message that I am trying to convey to your Lordships albeit humbly, by concluding by recounting to your Lordships two really live stories which demonstrate those points. Last week a television set which I had been borrowing was recovered by its owner. We realised on Monday that we would require another television set on Wednesday because a young nephew was coming home for his half-term holiday. On Tuesday morning I rang up the private enterprise firm Radio Rentals, which, as your Lordships will know, is in competition with several other rental companies. By five o' clock that evening we had the set installed and working. I should mention that my son-in-law when told about this said "It must be unfair special treatment for Peers"; for he had had to wait a week for his set.

Let us compare this with the treatment that my same son-in-law and my daughter received from the nationalised gas board. They came back from the united States—where incidentally, prompt service is the normal practice—last April. They took possession of their house on 28th June. The men from the gas board discovered on 1st July that the gas central heating was faulty and they reported that major repairs were necessary. My daughter assumed that they would return to do this reasonably soon, and she did not take any immediate action. However, by 18th August she was a little concerned and rang the gas board. She now blames herself for not chasing sooner. The interesting feature of this story is that the gas men made her feel guilty for not keeping them up to the mark. There was no question of them giving a service. That is a subtlety but an important one, and it bears out what my noble friend Lady Carnegy was saying. The men said that they would repair the system after 18th August. They finally arrived on 21st October, saying there had been a strike. They did not ring up to say they could not come because there was a strike; they just eventually turned up. The central heating was still not working last week, five months after it was orginally discovered that a major repair was necessary, so my daughter and son-in-law had to come to dinner with us to escape the cold.

Superficially your Lordships might think that a television set is simpler than a gas heating system somehow, but do not forget that the central heating problem was a repair and not an installation job. I worked for Radio Rentals 15 years ago as the director of personnel and training. In that company we had a problem in getting sufficient trained engineers to instal the sets, to maintain them and to respond to calls. In those days they frequently had to instal the aerial as well as the set. That is not so much the case now. Our problem was that by long-established practice the engineers were required to do a five-year apprenticeship. This was not good enough for a company which had to balance the books to survive. That is a key point. So the technical director asked the training staff to work out a minimum training scheme for competent engineers. We adopted a basic 16-week technical course plus nine months' practical training in the field under supervision to produce people most of whom were as good as the five-year apprentices. Indeed, our prize student came to us straight off his milk float.

Your Lordships may feel that if one can do that to produce shorter training courses there may be some other factor. How about safety? We all know that gas explodes, but let us not forget that the high voltages in television sets may he just as much a killer as gas. They are safe for the public because of good set design by free enterprise designers and competent installation by engineers such as I have described.

Quite honestly, to have a difference of one week in installation and five months for repairs. whatever the background reasoning, is absolutely disgraceful. Even the employees of a pre-war municipal gasworks would have done far better—but they would not ever have seen themselves as Lord Morrison's high custodians of public interest. For heaven's sake!, let us stop fooling ourselves that Government of any sort can run any industry. We must have competition to prosper; and without prosperity our welfare state will founder.

My Lords, I should like to join the other noble Lords who have spoken this afternoon in thanking the noble Lord, Lord Boyd-Carpenter, for introducing this debate on a stimulating, but contentious subject. After one of my first speeches to your Lordships' House, the noble Lord suggested that my contribution exhibited a radical naivety, or perhaps a naive radicalism, which reminded him of some of the speeches made by members of the Labour Party in another place when, immediately after the Second World War, they were lodging temporarily in your Lordships' Chamber. I hope that the noble Lord will not think me impertinent if I say that the subject of the debate which he has proposed, and his speech, suggest to me naivety certainly, but perhaps radicalism also, now that the advocates of a return to laissez-faire economics have been able to claim the description "radical" for their views. It seems to me simply naive, however, and not at all radical, to say that public ownership is bad and private ownership is good.

My noble friends and allies in the Social Democratic Party and Liberal Party respectively are declared supporters of the mixed economy, and can justifiably claim to be the only political grouping to be supporters and defenders of the mixed economy, though many noble Lords who sit on the Labour Benches here are individual supporters of the mixed economy, as the noble Lord, Lord Barnett. has shown. Many others, such as the noble Lord, Lord Beswick, have made distinguished contributions to the mixed economy. The official policies of the Labour Party can now only be described as ambiguous, while the views of many of the most active members of constituency and local Labour parties are openly opposed to the continuation, let alone the expansion, of the mixed economy.

There are also many distinguished members of the business world on the Conservative Benches in your Lordships' House. I believe that many share a view similar to that of noble Lords on this side of the House that the mixed economy represents the best approach to increasing the wealth of this country and of all those members of our community in a complicated, competitive, and challenging world. Once more, however, the official policy of the Conservative Party, and the attitude and spirit behind it, have grown increasingly different from this view and increasingly distant from the real interests of all members of our society, whether in industry, commerce, public service, or private life.

The noble Viscount, Lord Whitelaw, described the theme of today's debate as being central to this Government's objectives—an admission that the Government have finally taken up residence in their own ideological tax haven: cloud cuckoo-land. I regret therefore that the noble Lord, Lord Boyd-Carpenter, whose career has encompassed parliamentary politics, as well as service as chairman of a major public body and as chairman and director of notable private companies, should nonetheless feel that his experience points to such a serious imbalance between the strengths of the public and private sectors. With what the noble Lord will undoubtedly think is the blind idealism and optimism of youth, I think that he is wrong.

One of the problems of speaking at this stage of the afternoon's debate and trying to summarise the position of my noble friends and allies, is the excellence of many of the speeches that have come before. Not only did I find much common ground with the views of the noble Lord, Lord Maude of Stratford-upon-Avon, but I can also say that his contribution was an outstanding part of today's debate, as would be expected from a noble Lord who was not only such a distinguished Member of another place, but who has included the town of Stratford-upon-Avon in his title.

I have to contend, furthermore, with following not only the excellent speeches of my noble allies Lord Ezra and Lady Seear, but also the first speech that I have been privileged to hear by the noble Lord, Lord Barnett. In my short time in your Lordships' House a number of the noble Lord's colleagues on the Labour Benches have suspended party rivalries and said some kind and encouraging things about my speeches. I should therefore like to call a similar, but temporary, truce and express my admiration for the speech of the noble Lord, Lord Barnett, very little of which differed from the views held by any of my noble friends and allies—which is perhaps why he is now in your Lordships' House, rather than having been selected by a Labour constituency party to return to another place.

One phrase used by the noble Lord, Lord Barnett, seemed decidedly familiar to anybody who has listened to the policies proposed by the SDP in the past two-and-a-half years; namely, the dangers of treating the nationalised industries as a political football. Rather than complain that the noble Lord has stolen our football, if not our clothes, I should like in my speech to concentrate on suggesting a sensible approach to determining the frontiers between the public and private sectors—not rolling them back indiscriminately like a squadron of tanks at full tilt, crushing friend and foe alike, or pushing them forward recklessly, without rhyme or reason, but creating an environment in which both public and private sectors can grow for the benefit of employees, consumers and the owners (as shareholders or taxpayers) of those businesses.

Some noble Lords have mentioned companies that are now in public ownership, or have been in public ownership and are now private sector companies, or vice versa, in every case to prove the point of view which they hold. It is inevitable that such examples are selective, just as the instances that I shall ask your Lordships to consider will also be selective. In mentioning various names I should perhaps declare that in my professional life some of my banking colleagues are, or have been, involved in a number of the transactions to which I shall refer. Needless to say, anything that I say reflects my own views and I hope those of my noble friends and allies, but not necessarily those of my professional colleagues. Equally, nothing which I say is based on anything other than publicly available information.

First, perhaps I may ask those noble Lords on the Government Benches which instance of the sale of Government shareholdings they would consider the most successful. It does of course depend on the objectives of such operations—whether they be simple fund-raising for the Government, the attempted improvement in the efficiency of the companies concerned, the satisfaction of manifesto promises, or whatever. On one set of criteria I would suggest that perhaps the sale of the holding of the National Enterprise Board in ICL, the computer company, should take first prize. Every investment manager in the City must admire the Government's timing in selling at the top of the market and no doubt reinvesting the proceeds in some constructive and profitable way. Sadly, however, the liberation from Government control of that company did not have any noticeable effect on its profitability—or not a positive one, since it was effectively bankrupt not long after. It has of course now staged an encouraging recovery in private ownership, with collaboration agreements throughout the world, but only after the Government had guaranteed a considerable portion of its debts for a time to ensure its continued survival.

The Government cannot, of course, allow major companies in the private sector to go bankrupt any more easily than those in the public sector, here or in any other industrialised country, as demonstrated by the US Government's support of Chrysler a few years ago. So it is wilful misrepresentation of reality for the noble Lord, Lord Boyd-Carpenter, to claim that employees of nationalised industries are really less dependent on profitability for their continued long term employment than those in a major private sector company. The more, moreover, that the Chief Financial Secretary to the Treasury says that nationalised industries do not have to succeed to survive, the more he is exacerbating whatever problems there are.

Taking some further examples of companies where the Government have sold some of their shareholding, I believe that both British Aerospace and Cable and Wireless have benefited from the change in their corporate status and the other consequential changes. As I have said to your Lordships on previous occasions, the success of British Aerospace now is undoubtedly the result of the merger of its constituent parts at the time of its nationalisation under the distinguished chairmanship of the noble Lord, Lord Beswick.

Equally, even if the efficiency of Cable and Wireless might have improved in the last two years, who can deny that the foundations of its outstanding business were laid in its 30 years of public ownership, as, of course, can be said for other high technology companies such as International Aeradio and Amersham International. During the time such companies prospered in public ownership it would be invidious to single out private sector companies which declined. whether or not terminally.

I suggest to your Lordships that while these examples are selective, they do demonstrate, unlike those used by other noble Lords, that there are two sides of the argument. Businesses are dynamic, and at different times they need varying degrees of support, intervention, finance and autonomy. Furthermore, even in those countries such as Japan and Germany, where their economies have grown most significantly in the last three decades, the level of Government intervention, if not necessarily of Government ownership, has been very substantial.

I believe, therefore, that a rational policy towards the frontiers between the public and private sectors should be based not on simple ideology but on the intelligent balancing of a number of different factors. First, there should be stability, unless there are good reasons for changing the ownership of a company. The noble Viscount, Lord Whitelaw, emphasised the importance of competition and the prevention of monopoly. The conversion of a public monopoly into effectively a private one, as in the case of British Telecom, is unacceptable, and the potential increase in efficiency from such a transaction does not seem to be great. Second, however, within the general principle of stability there must be a readiness to make changes where benefits can be identified, and those changes can cover the acquisition of a shareholding in a company, whether whole or partial, as well as the disposal. But in every case not only the management but all the employees of the company must be carried along and convinced of the benefit by the Government.

I would ask the Government to consider the case of Sealink, where I believe the best solution to the company would be one involving the participation of the employees in the same way as in the case of the National Freight Corporation, and unlike the case of British Transport Hotels, where the Government rejected an offer by the employees for a majority of the hotels in favour of one where the group was split up.

My noble ally Lady Seear has represented our views on the second part of the debate, on tax, very effectively, and I will not add much to that. I should merely like to pick up a comment of the noble Lord, Lord Boyd-Carpenter, who felt that those people who were taxed at a rate of 75 per cent. were a minority cause who deserved support. I am sure the council of Amnesty International will drop further business to consider such a proposal! In conclusion, my Lords, I would suggest to the Government that there are many things that have much greater urgency to our economy, and to which they should give prior consideration, rather than the subjects proposed by the noble Lord, Lord Boyd-Carpenter.

My Lords, the House has already expressed its gratitude to the noble Lord, Lord Boyd-Carpenter, for having introduced this subject this afternoon. The House has also had the opportunity of hearing a maiden speech from the noble Lord, Lord Maude, to whom I should like to offer my congratulations as one of the former inhabitants of another place when it was in this place but who, owing to the harsh arbitrament of arithmetic, vacated his seat at precisely the same time as the noble Lord arrived. I very much enjoyed his speech, and I sincerely hope that he will take a further opportunity of enlarging further on some of those matters to which he referred this afternoon relative to small businesses, particularly one-man businesses. I rather thought that the application of all the items in his long list of restrictions as applicable to one-man businesses only was possibly slightly exaggerated, but, nevertheless, the noble Lord raised a matter of very great importance and we on this side of the House sincerely hope that he will return to it.

When I read the Motion on the Order Paper in the name of the noble Lord. Lord Boyd-Carpenter, I thought he was going to discuss with us the need to liberate "resources" required for the creation of wealth. There was an inference behind that; but he meticulously kept his resources to cash, to ordinary wealth resources, rather than human. I myself confess to some wonderment, because, of course, capital has been liberated for a very long time. I remember well that in 1979, when the exchange control regulations were lifted, capital in this country voted with its feet on its confidence in the Conservative Government by departing from this country in very large quantities indeed. As noble Lords, particularly those in the banking community, know quite well—and I am looking at the noble Lord, Lord Boardman, and the noble Viscount, Lord Chandos—capital can be transferred from one side of the world to another in a matter of minutes by telex and by other means, and indeed has been.

The idea that capital needs liberating, I must say, is rather a novel one. Capital exists in very considerable quantities, some of it in bank deposit form and in various other forms—and, indeed, is held by institutions on a very wide scale—and I was interested in the way the noble Lord was going to deploy his argument as to how it could be liberated. The inference was, I thought, that by pursuing a programme of privatisation, wealth was somehow going to be liberated and production was going to fructify. Of course. the reverse is true. Any liquid resources that are spent merely in acquiring shares in an existing company or acquiring control of it are a purely passive investment. In fact, the more that funds are put into passive investment, merely into acquiring ownership of nationalised, or indeed other, industries, the less money there is available to devote to constructive and valuable investment projects. I should in that connection like to express my complete agreement, or perhaps I had better say almost complete agreement, with the arguments so ably advanced by the noble Lord, Lord Ezra.

It is the whole question of investment in productive industry, investment in infrastructure, that lies at the core of the country's future prosperity. When considering important matters of this kind it is really no good to embark upon the familiar diatribe that we have heard many times before in which all the alleged evils of nationalised industries are paraded before the House. This serves no useful purpose when we are addressing ourselves to the key problem which was proposed by the noble Lord, Lord Ezra. however amusing it may have been to contemplate the noble Lord, Lord Harris of High Cross, putting out his own fires, having rockets on his roof to defend himself, paving his own roads round his house and doing all the other things that are provided by local authorities or by the Government of the day. This is the question.

I am glad that the noble Viscount, Lord Chandos, raised one or two questions about the way in which the denationalised companies had behaved since they had become privatised. This illustrates the complete hypocrisy of the suggestion that somehow, by investing money in acquiring nationalised industries, you liberate funds. 1 have made it a point to study the accounts of British Aerospace which, as your Lordships recall, was privatised in 1980 under the British Aerospace Bill. I observed from its latest report, dated March 1983, that at the present time it has unused medium-term hank facilities of £300 million in addition to unused short-term facilities of over £200 million and further liquid assets of another £250 million. In short, British Aerospace Limited has done very well indeed largely, as I think is widely acknowledged, due to the efforts that were made by the old company in investment when it was under the control of my noble friend Lord Beswick. This is not, I think, in dispute.

I was therefore surprised to find in the course of Sir Austin Pearce's speech that the company was looking for Government aid for the new air bus. In fact, in The Times last week I observed that some £420 million was being applied for. This is surely a little remarkable. At the time of the privatisation, the noble Lord, Lord Trefgarne, speaking in this place and moving the Second Reading of the Bill, said:

"I wish to emphasise that our intention is to create a free-standing company, independent of Government and, by the same token, divorced from automatic Government subsidy. This is an essential departure from the usual practice adopted for a nationalised industry".

The noble Lord also said:

"The successor company will be free to raise its finance on the commercial markets of the world: it will have no special claim on the public purse".—[Official Report, 3/3/80; col. 17.]

This must be a triumph for privatisation. Here we have a company that was privatised and which is now apparently looking, in spite of it being an independent private concern, to the Government to assist it. I have no objection in principle to that for entirely other reasons. I do not take the narrow view that it is not right for the state in certain circumstances to aid private companies. Indeed, as the noble Lord, Lord Boardman, will probably recall, considerable efforts were made by a Conservative Government to aid Rolls-Royce, and Rolls-Royce was ultimately nationalised by them, as again the noble Lord will recall.

It seems to me remarkable that, having been privatised, British Aerospace is behaving in exactly the same way as before. Is it to be thought that this private company could not obtain its funds from the normal market in the City of London or elsewhere? Did it try to do so? If so, why was it unable to obtain funds from the City which, according to the noble Lord, Lord Boardman, is the fount from which all benefits flow and sustain? Its accounts show a good record. Its prospects are good. Why, therefore, should it happen to do that?

My guess is that it tried. My guess is that, in accordance with the original intention of the Government, it did try to raise the £420 million but the City, financed with the lush prospect of being able to invest its money, £4,000 million of it, in British Telecom for doing nothing, with an established profitable concern in which its investment was gilt-edged, or would be near gilt-edged, preferred to hold its money for the further lush pickings that will arise on the privatisation of other industries. That is my guess—

My Lords, I think that I should put one point straight. Most of the liquidity to which the noble Lord refers consists of customers' deposits which can never be put into anew project. And the new project for which Government support is being asked will probably take seven to 10 years before it is profitable. I hope that the wrong impression is not taken from what the noble Lord says.

My Lords, no. I take that immediately from the noble Lord. I have no objection to that at all. I am certainly not suggesting that the funds that I detailed coming out of the chairman's speech should have been devoted to investment purposes. Certainly not. There are several ways of raising money. You can have a rights issue. You can have a new issue altogether. There are several ways of raising money in the City for a project of this kind.

It seemed a little odd to me that the suggestion should be made that, somehow, privatisation was the answer to all our problems. Clearly, it is not. If, in the event, Her Majesty's Government decide to advance, on whatever terms they think fit, the £420 million to British Aerospace, it will, on their own definition of the public sector borrowing requirement, come out of that, and therefore it will have a very bad effect on the other aspects of Government expenditure.

I come to the tax disincentives. I thought that the case for a radical tax change was very adequately dealt with by my noble friend Lord Barnett and, indeed, by other speakers. It is a very complex matter and, as an accountant, I know the complexities of it. I do hope that at some time an effort will be made to have a more rational tax structure. However, it is one thing to say it, but quite another thing to embark on the very complex way of carrying it into effect if we are to be—as we always wish to be in the United Kingdom—as fair to the individual taxpayer as we can. It is the desire to attain equity within our tax system that gives rise—as I am sure my noble friend Lord Barnett will agree—to many of its legal abstrusities and complexities. But it would be a mistake to assume that British industry suffers unduly from its tax burden. Nobody likes to pay taxes and certainly nobody would wish to impose on British industry tax burdens that are unfair or uncompetitive in relation to our colleagues.

Some study may have been made of the recent paper put out by the Institute of Fiscal Studies which dealt with this question and endeavoured to arrive at a comparison of various countries as regards the percentage of their total tax revenues devoted to the taxation of companies either on capital or on the payroll. The fact of the matter is that we were well below any other country in the Western world in this respect. In France such taxes amount to 50.5 per cent.; in Italy 44.5 per cent.; in Japan 41 per cent.; in the United States 36 per cent.; in West Germany 32 per cent.; and in the United Kingdom 26 per cent. So I do not think it can be said that, in comparison with other countries competitively, we are over-taxed in that particular sense.

The worst aspect of the whole question of resources is that we tend to evaluate them in cash, bank balance or capital terms. One of the resources that we waste the most is human resources. I would point out to those who keep on parroting the cry of reducing Government expenditure, that at the moment our extra unemployed are costing us £8,500 million a year. One of the finest ways to reduce Government expenditure would be to reduce the number of unemployed and to pursue policies that resulted in that. If that were done very much on the lines that have been suggested by my noble friend Lord Barnett, and certainly by the noble Lord, Lord Ezra, if some constructive effort were made to evaluate and to give priority to the vital capital investment of this country regardless of whether it should be made by the private sector or by the public sector—but preferably it would be done by a combination of them both—it would ensure, first, that our expenditure on unemployment would be far less and, secondly, it would make for a far better social climate in our country, a far better relationship within industry and ultimately a far greater degree of creativity and production in all the companies in this country.

My Lords, I should like to begin conventionally, but sincerely in this case, with two congratulations. I should like to congratulate my noble friend Lord Boyd-Carpenter on introducing the debate and on the way in which he did so, and perhaps most of all, on keeping the Government's eye on the ball which the electorate gave them. When faced with the day-to-day problems of any large, mixed economy, it is very easy to get your eye off the ball which your electorate has handed to you. My noble friend reminded us of that, and his reminder was echoed most eloquently later in the debate by my noble friend Lady Carnegy of Lour.

I also want to congratulate most warmly my noble friend Lord Maude of Stratford-upon-Avon. As the House may be aware, in the first term of the Conservative Government my noble friend was Paymaster General and during that time he used to send round small forms—short pieces of paper—with reminders of policy and reminders about how policy should be translated into action. They were models of their kind. I have them filed away in my office, and occasionally I pit them against the briefs that I am given. I always find as a result of doing so that I remain a healthier, if somewhat drier, Minister than I might otherwise be.

I also thought that in his own, single and, very largely, unpaid person my noble friend answered the request of the noble Baroness, Lady Seear, for a committee to look into the effects of the black economy. He did so with great concision and eloquence, and I hope that the noble Baroness will find that what he said repays study, as I certainly shall.

The central theme of the debate has been the creation of wealth for the country by removing disincentives and liberating the energies and enthusiasms both of individuals and companies. It is the business of wealth creation upon which we have to keep our eye—whether we do it within the public sector, or within the private sector, or whether we shift the balance a little between the two.

Wealth is created by the efforts, skills and inventiveness of individuals. Governments do not create enterprise; they can, however, get in the way of its creation. In our philosophy the responsibility of Government is to provide the overall conditions under which individuals can give of their best. We have a range of policies to strengthen these conditions and encourage competition and enterprise. They range fairly widely, and they involve trying to wind down controls. They also include, for instance, an improved legislative framework for trade unions (and today we are sharply aware of the justified need for that legislation); the direct encouragement of small businesses; the privatisation, or "freeing", of industries, which is the more attractive term which we have discussed today; trying to achieve lower tax burdens on businesses and on individuals; and a lesser, rather than a greater, share in the mix of public spending.

Lower inflation of course provides the necessary conditions for wealth creation by giving greater certainty about the future for individuals and businesses, by enabling them to plan ahead, and by recognising that inflation is in itself a very large form of taxation. It is only under such conditions that sustainable growth can emerge. In the first term of the Government we got control over inflation and, almost as important, we succeeded in reducing inflationary expectations.

In the next term of the Government we must establish control over public expenditure, and we must reduce taxation, if we can do so, without additional borrowing and, therefore, without future inflation. I believe that we can and will be able to succeed in this; and the substance for this belief can I think be found in a phrase used by my noble friend the Leader of the House when he opened the debate from our side. He said:

"We are now growing faster than any other country in the European Community."

My noble friend also referred to the three main themes to which the debate has constantly returned: to taxation, to control of public spending and to privatisation. I should like quickly to treat with these in turn, dealing if I can on the way with some of the points raised.

The overall burden of taxation has increased, which is a great disappointment to the Government but not, I would suggest, wholly surprising in a great recession and in a time when the priority has been given to reducing inflation and therefore to reducing borrowing. But against that background it is worth mentioning in a little more detail some of the steps which the Government have succeeded in taking to encourage enterprise and initiative through the tax system as an earnest of our determination to go on with fiscal improvements of this kind and to get the overall burden down in the life of this Parliament.

For instance, in the field of capital taxes the annual exempt amount for capital gains tax has been increased three-fold in real terms, and we have taken the substantial step of indexing future gains. The threshold for capital transfer tax has been more than doubled with, in addition, indexation of the threshold and rate bands and considerable improvements in the reliefs for business transfers. On company taxes, a much more generous system of stock relief was introduced in 1981, and the small companies; rate of corporation tax has been reduced from 42 per cent. to 38 per cent., with substantial increases in the profits limits for this reduced rate to enable more companies to benefit. Again, I hope that my noble friend Lord Maude will take account of that as he was concerned with this issue.

There have also been improvements in the reliefs on interest for borrowng to invest in close companies, partnerships, co-operatives and, recently, employee buy-outs. These will help to create that vital sense of identity between an employee and the success of his firm; the sense of "we" as against the sense of "they" on which all good enterprise depends. There have also been a number of innovatory tax reliefs to encourage the provision of finance for unquoted companies, and these were mentioned in the debate: the venture capital scheme introduced in 1980 and extended the next year; the business start-up scheme introduced in 1981 and extended last year and this year its transformation into the business expansion scheme. Measures such as these have done much to eliminate the "equity gap" which was so much the concern of the late 1970s.

I believe that these changes are consistent with the aims of my noble friend's Motion. He may say, and others may echo him, that the Government have not done enough. I certainly would not dissent from that. We have not done enough and we intend to do more. We were re-elected on a manifesto which had as its objectives further improvements in allowances, lower rates of income tax and the encouragement of wider ownership by lowering taxes on capital and savings. It also remains our objective further to reduce these disincentives. Mention of the word "disincentives" came in the very interesting and clear speech, as we would expect of the noble Lord, Lord Barnett. I was going to play the old trick of selectively quoting at him some of his remarks from his book, Inside the Treasury. I shall desist from doing so for two reasons. One is the lateness of the hour and the fact that I must get on with my speech, and the other is that I found a perfectly marvellous passage in it which I intend to use in Manchester tomorrow!

The poverty and unemployment traps mentioned by the noble Lord, indeed, present this country and the Government with very real problems, even though they affect a relatively small proportion of the working population. As the noble Lord emphasised, there are no quick, easy or cheap solutions and many of the solutions proposed—including, I fear, some proposed by the noble Baroness—not only involve radical changes in the tax and benefit system, but would be liable to end in an increase in taxation, and therefore in a worsening of the very problem that was intended to be cured.

The traps have of course arisen because of the development of an overlap between tax and social security benefits, as tax has been levied at lower and lower levels of income in order to finance higher and higher levels of public spending, including those same benefits. The realistic response surely is to try and reverse this trend: to increase tax thresholds by releasing resources through controlling public spending, and by allocating the resources so released—provided also on top of that release hopefully by some economic growth—to tax cuts rather than spending increases. That is certainly the Government's aim in this regard.

On this issue of public spending, I wish to emphasise the key point that growth requires low borrowing to keep down inflation and interest rates and low taxation to provide the necessary incentives. May I say to the noble Lord, Lord Bruce, that, of course, we do not think that incentives by themselves or low taxes by themselves, are all-in-all for improving the output of an economy, but it was his noble friend Lord Barnett—then Mr. Joel Barnett as Chief Secretary—who saw the point of the disincentives in corporation tax and who, indeed, made it easier for companies not to pay it.

The earnest of the Government's achievement here in terms of control of public spending lies in the outcome of the annual review this year, which has been to hold the planning total for 1984–85 at the level announced in previous plans. That repeats the Government's achievement last year. This is the first time that this has been done in two consecutive years. We mean to keep up this record. I think that this more than anything should be an indicator to some of those like the noble Lord, Lord Harris of High Cross, who believe that in some way the Government may be losing their drift, losing their way, or departing from the concepts on which they were elected. I must confess to the noble Lord, Lord Harris of High Cross, and to the House that I was the guilty man who confessed in an earlier debate that Ministers in fact rather like spending other people's money. But my confession was a wry, perhaps even an ironic, recognition of the difficulties of controlling public expenditure, not of any lack of determination to do so.

There has been much mention made of the nationalised industries; and in his opening remarks my noble friend dealt with the privatisation issue. I shall not make too much of it now. I noticed that the noble Lord, Lord Ezra, said that we must look at the nationalised industries rather more objectively. When arts bodies call on me as Arts Minister to look at them rather more objectively, it is inevitably a prelude for requests for more public money—and they are often richly deserved requests. So the noble Lord's sentence made my heart sink. Then—lo! and behold!—only a few moments later the noble Lord, Lord Beswick pointed out that there was too much under-investment in nationalised industries and that more money would have to be provided. I simply want to say that we are not at all hostile, as the debate has suggested in some quarters, to the concept of capital formation in the public sector. During the latest public expenditure review, in spite of the overall successful outcome of retaining last year's base levels, we have been very much aware of the need to find room for worthwhile capital spending projects.

I ask the noble Lord, Lord Bruce of Donington, who criticised us in this respect, to look objectively at this part of my speech at any rate. There will be some increases in capital programmes. There is the issue of the overdue prison buildings; and the conspicuous reduction in the housing programme is not a capital reduction but mainly an increase in council house sales—£300 million out of £500 million.

The revised total provision for housing capital next year is still no lower in cash terms than for this year. Details of public sector capital spending have of course still to be worked out for the three years ahead, and certainly capital projects must he carefully evaluated within the overall public expenditure policy; but they are only a small part of total fixed investment in the economy which has been rising steadily since the trough of the recession in 1981, and is forecast to be 13 per cent. higher than that level in real terms next year.

The noble Lord also mentioned injections of private capital for public capital projects. Again, he and I have trodden this ground before, and trodden the ground of the problems of mixing guaranteed capital with capital that is subject to real risk. I can say to the noble Lord that in 1982–83 total public sector capital spending was nearly £17 billion, excluding special sales of assets and public sector housing sales, and even more important is that Government expenditure or borrowing—and already, as I have shown, it is at a high rate rather than a low rate—should not squeeze out profitable private sector investment. It is encouraging to see that this has grown, and it is expected by the CBI to grow by 5 per cent. in the coming year. One way by which profitable private sector investment can grow is through more privatisation, and again my noble friend dealt with some of our ambitions in that direction.

There has been mention of efficiency. Privatising can lead to much more efficiency. Large savings have already been achieved by contracting out, as the House will be aware, and we want to continue the impetus there. But I want to make it clear that contracting out will not be undertaken regardless of cost. My right honourable friend the Prime Minister laid great emphasis on this point when she said that it will be done—I am quoting her—

"only when commensurate with sound management and good value for money for the taxpayer".

I cannot see that Members of your Lordships' House, wherever they sit, could really object to those sentiments.

I have a special interest as Civil Service Minister in efficiency within our own purlieus, and with putting our own house in order. We are aiming to reduce the scale of government, and thus the burden of financing it. In 1980 we announced our aim of reducing the size of the Civil Service by 14 per cent., from 732,000 to around 630.000, by 1st April 1984. This target should be reached, and that is a considerable achievement in itself. Our aim over the next four years will be to maintain a steady pressure on manpower numbers in order to take maximum advantage of all opportunities for the further improvement of efficiency. Your Lordships will notice that this is taking place outside the context of the wider debate as to what services government should, or should not, provide.

In conclusion, there is one point which, with my particular responsibilities. I would not wish to overlook in the wording of this Motion. I notice that it speaks of liberating

"from the control of Government…more of the resources required for the creation of wealth".

I believe that the word "more" is important here. The Motion in the name of my noble friend does not say "all", nor does it say even "most". None of us would deny the essential role of our public services: the defence of the nation; the education and health services; an efficient transport system: and (dare I say it?) the high arts activities, which have always been subsidised. whether by states or by. monarchs. All these in their different ways contribute to the quality of our national life, and in many cases to our efficiency and our economic well-being.

There are many functions which can well be provided by a well-run public service, and some which can be provided only in that way. I hope that that answers the questions put to me by the noble Baroness, and by the noble Viscount, Lord Chandos, as to whether we believe in the mixed economy. Of course, as should have been quite clear, if not from my remarks then from the remarks of my noble friends Lord Orr-Ewing and Lord Mottistone, we believe in the mixed economy, but we also believe in attending to the proportion of the mix.

Our concern is to strike the right balance: to keep to the public sector those things which can best or uniquely be provided there—and in these cases to ensure value for money—and for the rest to rely to the greatest extent possible on the skills and freedom of the private sector. For many years that balance has been weighted too heavily towards public provision and against individual endeavour. We aim to redress that imbalance, not only in taxation but in public spending, industrial enterprise and individual incentive. I believe that the Government's objectives accord fully with the spirit of my noble friend's Motion, and I therefore congratulate him on the way in which he moved it.

My Lords, although the hour is not by the recent standards of this House a late one, I understand that the custom and practice of the House suggests that what I say at this stage should be largely formal, although I may well yield to the temptation to reply to one or two arguments which were specifically directed at me during the course of the debate. My first and pleasant duty is to thank all of your Lordships who have taken part in this debate, and also, if I may do so without impertinence, to remark on the excellent precedent which has been established, inasmuch as I understand that all of your Lordships who took part in the debate are here present at its termination. Without making heavy weather of this, the good practice of the House that this should be so has, in recent months, not always been completely observed by all of your Lordships. I hope that the good example which your Lordships present tonight have set will have its repercussions in future.

I should like also to thank particularly the noble Lord, Lord Harris of High Cross, for a reason of which I think your Lordships are not aware. He had set down for early debate a Motion not in precisely the same terms as the one before your Lordships at the moment, but broadly similar in effect. In accordance with the proper rules of this House one cannot gazump, or near gazump, a fellow Peer's Motion, and I had therefore to approach the noble Lord, Lord Harris, to ask his permission. I am glad to say that he not only most generously gave it but contributed greatly to the debate by the speech he made on it. I should like to express my gratitude, and that of a good many of my colleagues, to the noble Lord for that.

So much has been so rightly said about my noble friend Lord Maude of Stratford-upon-Avon that I shall only say that I ventured in advance to forecast that his speech would be one which would appeal greatly to your Lordships. I am glad, as one whose forecasts do not always come off completely, that on this occasion I am not subject to any criticism whatever on that point. We all, I know, share the hope that my noble friend with his great experience and considerable powers of speech, will adorn our debates in the future.

I should also like, if it is not an impertinence, to congratulate the Leader of the House on what I believe is for him a somewhat novel occasion. In his long and immensely distinguished career he has not, on the whole, specialised in speeches on financial and economic matters. Indeed, the only link that I could really find between his participation today and his previous distinguished employment was the old remark, "The only way to prevent crime paying is to nationalise it". My noble friend the Leader of the House—it is an impertinence to say it, but nonetheless I say it—gave us a most effective speech. We are greatly indebted to him, as to my noble friend Lord Gowrie, who has just wound up.

This has been, not an unusual debate but what to people outside would be an unexpected debate in the normal run, because it has been noble Lords on this side of the House who have been advocating change, and conservatism has been manifested very strongly in the speeches from the other side of the House. This is reflecting what is becoming evident in the country as a whole, that the Government, under their present Prime Minister, are—if I may adopt the phrase of the noble Viscount, Lord Chandos—the radical ones faced with the massive, almost reactionary conservatism of the Labour party. This only shows that your Lordships' House is, as always, fully up to the moment in the movements of public opinion.

With your Lordships' permission, I should like briefly to refer to two or three specific points that were put. I hate, as he said he hated quarrelling with me, to quarrel with the noble Lord, Lord Barnett, because we belong to the same union, or indeed to two of the same unions. We have both been through similar and, in both cases, similarly trying experiences both as Chief Secretary and in the Public Accounts Committee. When he was good enough to allow me to interrupt him, he missed the whole point about British Airways. It is beyond dispute that there is a very close coincidence in date between the great recovery in British Airways and the announcement that it was to be privatised.

I know there are other factors—one formidable factor being my noble friend Lord King of Wartnaby—but I believe the noble Lord, Lord Barnett, overlooked the fact that the knowledge that British Airways was going into the private sector greatly helped my noble friend in the changes he was making because it became apparent to all in British Airways that they would be subjected to the disciplines of the private sector. Therefore, steps in respect of overmanning, for example, which would have encountered appalling resistance at an earlier date, went through with considerable ease. It is difficult in an interruption to put over a point with complete clarity and fullness, but I hope that the noble Lord, Lord Barnett, will reflect on this and not, as he seemed to he doing in his speech, brush that argument aside.

I have only one other point in respect of the noble Lord, Lord Barnett, whose speech I know he knows I very much enjoyed, which is that he seemed to ignore the stimulus which competition, the disciplines of the market and all the atmosphere of private industry have upon denationalised industry. He could not quite brush aside the fact that those industries which have been denationalised in the recent past have shown so much better results.

I should also comment for one reason on one observation of the noble Viscount, Lord Chandos. I do so only because he used, no doubt inadvertently, rather strong language in describing an argument of mine. He was good enough to observe that it was wilful misrepresentation to suggest that there was any difference between nationalised and privately-owned industries in the need to be prosperous if they were to survive. I do not wish to seem over-sensitive; indeed, none of your Lordships would believe I was after a number of years in English public life, because no one who was would have survived that. "Wilful misrepresentation" is a strong term not often used in this House; indeed it carries a connotation of a criminal offence. But I should like to deal with the substance, as he put it this way, of the noble Viscount's observation.

I maintain and reaffirm the view that not only is there a great difference between a nationalised industry and a privately-owned one in this respect, but it is a difference of major importance. It is perfectly true, as the noble Viscount properly said, that particularly large industries may have to be or think they have to be rescued by the Government of the day if they get into bad trouble. But in practical terms there is all the difference in the world between an industry which knows that it is owned by the Government, which the Government cannot allow to go bankrupt, which the Government have to sustain, however heavy its losses, and a privately-owned industry which, if it gets into serious trouble, can ask the Government for help and may even hope the Government will help, but which, even at that late stage in the day, has no certainty that that help will be forthcoming.

One may be thinking, for example, of the effect of trade union action. The knowledge in the unions in the public sector is that, however rapacious their wage demands may be, however much damage they may do by industrial action to their industry, they are not destroying their industry or their jobs. In no company in the private sector is there any such certainty. This is a significant factor—I beg the noble Viscount to consider this—by way of difference between the two.

I do not intend to take the discussion of points further, though I made some notes in the course of the debate. It therefore remains for me, once again, to thank your Lordships for the personal courtesy which so many of your Lordships showed to me and which I deeply appreciate.

The substance of the Motion is for Papers. I would remind your Lordships of one of the horror stories of this House. The late Lord Woolton was replying to a debate in this House and, among his many qualities, that great man did not have much concern for the niceties of procedure. Therefore, to the horror of his officials, he accepted a Motion for Papers. This created a practical problem which was resolved by our ever adroit and humorous officials arranging for delivery at the private house of the noble Lord who had moved the Motion for Papers, a vanload of out-of-date papers from the Printed Public Paper Office. I am anxious to avoid that fate. I hope your Lordships will protect me from it by accepting my application to withdraw the Motion.

to ask Her Majesty's Government what is their policy on drilling for oil in areas of outstanding natural beauty, in particular Ditchling Beacon.

Hear, hear!

My Lords, I would say, Oh good! It is nice to hear a voice. Sometimes one feels one is just talking to cushions! Is this not another reason for lifting the decision-making process out of local government into the national forum so that oil exploration plans in AONBs, if they are to continue to be placed there. can be examined at the outset by technical experts and the chances of them growing, like Topsy, can be reduced?

I am grateful to your Lordships for listening to the points that I have made. I am asking my noble friend on the Government Bench what policies the Government have towards oil exploration in AONBs because in so far as I have seen them in operation they do not seem to be either sufficient or strong enough to protect them. Although I do not wish to pre-empt what he will say, I shall be interested in his views on two possible remedies. The first and ideal one is that the Department of the Environment agrees with the Department of Energy areas where exploration permits will not be issued. These latter will, I hope, include all AONBs. Secondly, failing that. an agreement could be made with local councils on specific no-go areas which extend beyond individual county boundaries and which in particular include high land. Thirdly, councils could be directed to institute a "presumption against" oil exploration in all AONBs. I urge the Government to act quickly and to review those applications which have already been submitted.

Finally, may I say that the whole subject of this debate has been brought to me not from any local authority but from preservation societies and I am sure that the country is very grateful for their efforts regarding the conservation of our countryside over the past twenty years. These societies bring these matters to our attention and they urge us to get up on to our feet and speak for them. My Lords, I look forward to the rest of this short debate.

My Lords, I very much welcome this opportunity of supporting the noble Lord, Lord Teviot, in his protest about this threat which overhangs the South Downs, which he and I know so well. Like him, I should like to offer my congratulations to my noble friend Lady Nicol on her assumption of duties at the Dispatch Box, and I wish her well not only this evening but in the future.

I join in this debate in my capacity as president of the Society of Sussex Downsmen. That is a role which I am very glad to fulfil, because since my early boyhood, in many different ways and on many different walks, I have appreciated the beauty of the Sussex Downs, sometimes guided by the book which the noble Lord, Lord Teviot, has written in this respect. There is no doubt about the great beauty of the Sussex Downs—what Kipling called our "blunt, bowheaded, whale-backed downs".

That beauty of the Sussex Downs has inspired many of the best of our nation' s poets—Hilaire Belloc, William Blake, Robert Bridges, John Goldsworthy, Rudyard Kipling, Alfred Noyes and Lord Tennyson. All these famous people have extolled the beauty of our downland and now, as the noble Lord has explained so carefully, there is no doubt that that beauty is under threat from unwelcome commercialisation. As he said in his closing remarks, that threat has aroused great protests from many organisations which are concerned to preserve the Sussex countryside.

The noble Lord pointed out that, although his Question this evening refers to Ditchling Beacon, this is the second drilling application in recent times. He explained that in the village of Graffham, in West Sussex, earlier this year there was a similar application and similar controversy. On that occasion, on behalf of the society which I have mentioned, I was in correspondence with the Minister responsible—at that time, it was Mr. Giles Shaw—about the application for drilling in the Graffham area. I urged him, as the Society of Sussex Downsmen urges, that in this matter there should be a public inquiry, and it is that point that I particularly hope to impress upon the Minister who is to reply this evening.

I would just quote one paragraph from the letter which Mr. Giles Shaw sent to me on that occasion. He said:

"Under the Town and Country Planning Act 1971, Parliament has given the day to day responsibility for the control of development to local planning authorities (the County Council in this case), and it is therefore only in exceptional circumstances—for example, when matters of national or regional importance areinvolved—that the Secretary of State would feel justified in intervening".

I believe that that paragraph is based on a complete misconception of the problem with which we are concerned, because this is not a local question. This is a regional question and for that reason it justifies a public inquiry.

Of course, any particular drilling is local. Graffham was a local case. Ditchling Beacon is a local case. But we said at the time, in the spring of this year, that the Graffham application would be the first of many. We now have the Ditchling Beacon one and in a report the planning officer of East Sussex County Council says:

"Several planning applications are expected for a variety of sites over the County within the next 12 months".

What, I wonder, is to come next. Will it be Kingston Ridge near Lewes—that would be a local case. Will it be Wolstanbury?—that would be a local spot. Will it be Mount Caburn, Lancing Clump or Firle Beacon? Each one of these taken seriatim could be considered local and, therefore, not justifying a public inquiry. But when we take them all together, we clearly have a regional problem. The South Downs are a region, and a particularly important region as the noble Lord has pointed out. They are important, because they have been designated as an area of outstanding natural beauty.

The noble Lord quoted a paragraph from the policy statement of the Countryside Commission, which I shall not now need to quote which I was proposing to quote. But I would follow his quotation with one from a press release of the Department of the Environment. That reads:

"The Government agree with the Commission's"—

that is, the Countryside Commission's—

"view that, in general, it would be inconsistent with the aims of designation to permit the siting of major industrial and commercial development in AONBs. Only proven national interest and lack of alternative sites can justify any exception".

That. I suggest, is the Government's policy and I hope that the Minister, in answering the Question this evening, will reiterate that that is the Government's policy and it will be applied in this case.

How can it be said that there is a "proven national interest" to justify these drillings? The noble Lord, Lord Teviot, dealt with the oil question, and whether it is in the national interest that we should seek out this tiny fraction, as it would be, of oil supplies for this country. I do not believe that there is the beginning of a case on the national interest theme. But if it is claimed that there is a national interest, then why should it not be deployed before a properly constituted public inquiry? That is where the oil companies should openly state their case. Not only that, it would give the preservation societies, of which there are many in the county, the chance to state their case in opposition to that of the oil companies.

In recent years your Lordships' House has dealt in great detail with two important Acts which are very relevant to tonight's discussion. There was—and we remember the long proceedings on it—the Wildlife and Countryside Act and, more recently, there was the National Heritage Bill. I claim that the South Downs are one of the most beautiful areas of the British countryside and that they are, indeed, one of the treasures, both historically and aesthetically, of the British heritage. Therefore, it would be criminal to allow their beauty to be despoiled, unless there is an overwhelming national case on the other side; and, as I have indicated. I do not believe that there begins to be such a national case.

The poet Alfred Noyes, one of the poets on the list which I gave just now, wrote a poem of protest against the destruction of the South Downs flora. I believe that his protest might equally be directed against the current threat to the Sussex Downs. I shall quote and then sit down:

"Not into words can I distil

The pity or the pain

Which hallowing all that lonely hill

Cried out 'Refrain. refrain' ".

My Lords, more than the average amount of conventional thanks are due to the noble Lord, Lord Teviot, for having raised this matter this evening. He has given two opportunities to the House: first, to ask about Ditchling; secondly (and this is no less important) to ask about the presently established procedures for coming to a decision on a matter like this. I know that the department has this matter under consideration at the moment, but this is a very suitable moment to reinforce the argument that there should be a rearrangement of the procedures in aid of preserving the countryside, both in areas of outstanding natural beauty and in national parks.

As tonight's debate shows, there is considerable disquiet about the procedures for licensing, prospecting and drilling in those areas. There is no dispute that mineral sources should be explored and, in many cases, exploited; and, of course, that there are times and occasions when exploitation comes very high on the list of priorities—for instance, in wartime, or at a time of fuel crisis. No national park or area of outstanding natural beauty can claim to be completely sacrosanct, and nobody has made that claim tonight. But every proposition to despoil in any way these areas must be explored carefully, publicly and in time so that it can be stopped, if that is what the community decides.

As I understand it, the present procedure envisages three stages: first, an exploration licence, which gives rise to seismic surveys and shallow drills; secondly, what is called a production licence, after which deep exploratory wells can be sunk; and, thirdly, planning permission, after which actual production can go ahead. The stages as they are, and the nomenclatures appended to them, are muddling and can lead to real problems. It is often suggested that there is a real safeguard at the planning permission stage, after which production can go ahead. But I understand that there are no examples of the Government refusing permission to exploit, once oil has been found. And it usually comes to Government. As has been pointed out, this particular stage is not very suitable for local authorities, because so much pressure is put upon them.

I would follow the excellent suggestion which has been put forward, I understand, to the Ministry by the Council for the Protection of Rural England: that at a very early stage, the exploration licence stage, the Secretary of State for the Environment should be brought on to the scene, particularly in sensitive areas—the kind of areas we are discussing tonight. It seems to be absolutely wrong that the Department of Energy should go ahead with issuing licences at this stage without at least alerting and preferably consulting the brother or sister department, which must have a real interest in the situation.

Secondly, in the case of particularly sensitive areas the Secretary of State for Energy should be able to inform potential licensees that if finds are made during exploration no subsequent exploitation is likely to be allowed to be made because they are areas of considerable sensitivity—which, of course, they will know if they have done their homework. But it has to be said that some of the companies which are now exploring for oil do not necessarily have the expertise and ability to discharge to the full their responsibilities. This is the moment when it can be said that production rights will not necessarily be given. Possibly a compromise can be achieved by saying to the company, "You can explore; exploration is in the interests of everybody, since we should know what is there, and, by exploring, you achieve the right to sink wells for oil eventually. But you must not take it for granted that permission and a licence actually to extract oil will come in the near future, or at all. All we can say to you is that if you undertake to go ahead with exploration you will have reserved rights when permission is finally given, if it ever is".

Thirdly, provision should be made for public inquiry where there is a substantive volume of unresolved objections, as happens with road schemes. I can well believe that some of the ministries and civil servants may not be too encouraged by the thought of having to go through the same procedures as apply to road schemes, but on the whole our roads inquiries have been seen, and are seen by other countries, as models of their kind. I see no reason why this kind of public inquiry should not take place.

The present system is confusing. It is too easy for licensees to creep up on their objective, with no real chance for the public interest to intervene. As the noble Lord, Lord Teviot, said, once permission for one well to be sunk has been given the chance of finding the courage, the backing and the independence to say, "No, no further", grows more and more remote. The time to stop, if you are going to stop, is at an earlier stage. That earlier stage must be signposted so that everybody who is interested—both those who want to extract the oil and those who have doubts as to whether it should be extracted—can see exactly what happens at each stage and where the decisions are made.

The object of what I have set out. which I hope the department is already exploring and will continue to explore, is not to stop the exploitation of minerals and oil—still less to stop exploration which, as I have said, is extremely important—but to allow the community as a whole, whether at local or national level (and there is a case for saying that both levels should be brought in) to make up its mind whether in this particular instance, in this particular place, exploration and exploitation should be allowed.

My Lords, I came along tonight to listen to this debate, but as somebody who works in the oil exploration industry—especially, one exploring on-shore in the United Kingdom—I am afraid that I was unable to resist the temptation to rise to my feet. Your Lordships might think mine was a dubious qualification for speaking in this debate, but perhaps I can add a couple of better ones. The first is that I myself live in a fairly attractive area of Hampshire which is under licence to a company which has been mentioned already—Carless Exploration —and the second is that I went to school within what the noble Lord, Lord Teviot, called the good golf shot of Ditchling Beacon. So perhaps I have a little knowledge of this problem.

One of the greatest problems the oil industry faces in exploring on-shore in the United Kingdom is that this country has come to know something about the oil industry from essentially the wrong end. In the United States oil drilling started off as something that was done with a little cable tool rig and two men and a dog—a small engine, a small derrick maybe 20 feet in height which hauled the tool up and down and dropped it. It is essentially the same equipment that has been used in drilling water wells all over the world.

We first saw the oil industry through the development of major off-shore fields in the North Sea. The British public has seen on television huge concrete structures, and they have heard the sort of figures involved in that type of exploration. But the on-shore oil industry is not really comparable. In areas of outstanding natural beauty, I do not believe that anybody ever particularly disliked the sight of an old water well; that simple, latticed mast with a little fan on top. In fact, one hardly ever sees such wells now because they have almost disappeared throughout the entire country. But essentially those old water wells are just the same as oil wells; they are merely completed in a zone below ground from which water is extracted as opposed to oil.

Essentially it is a cottage industry on a slightly larger scale, perhaps, than the old-fashioned cottage industry. I always hate to introduce an American analogy because I believe to do so often puts a number of people's hacks up—hut it is very much a cottage industry still in the United States. The average oil well in the United States produces less than five barrels of oil a day—that is, about 150 gallons of oil a day. The majority of wells are drilled by individuals rather than by companies; by the old-fashioned oil speculator, so called. When wells are drilled, it is a matter between one individual and another—between the man who wants to drill the well and the landowner. People do not feel threatened to anything like the degree they seem to feel here by the very corporate nature of the oil industry.

The noble Lord, Lord Teviot, suggested that areas of outstanding natural beauty can be lost for ever as a result of oil drilling. We appreciate that when a well is drilled, a very large piece of equipment is brought along and an area of land has to be flattened. The process is very visual for a while, but the majority of exploration wells in Southern England have to date been dry, and although techniques for deciding where oil may be are improving, no doubt the majority will continue to be dry in the future. The oil industry puts a great deal of effort into the restoration of these sites. I have some experience of trying to find sites where oil wells have been drilled within the past 20 years, and it is often extremely difficult to identify the precise spot.

Site restoration is something of which the oil industry is only to well aware in the event of a dry hole. In the event that oil is successfully found, a single well will probably consists of a pump jack, and maybe a stock tank and an electricity line laid to drive the pump. But those items can be considerably less disfiguring than, for example, a site I see every day from my house—which results from a neighbouring and very good natured farmer, who nevertheless abandons equipment when it ends its useful life. His land is strewn with old combined harvesters, which are considerably more obtrusive than pump jacks would be.

The oil industry is very aware of the environmental problems. I do not believe, as the noble Lord, Lord Beaumont of Whitley, suggested, that it expects to creep up on planning permissions. The degree of public interest that is shown in these matters really pre-empts that.

If the noble Viscount will give way, my Lords, I should like to make it plain that I was not in any way suggesting that the oil companies were doing that on purpose. I was merely suggesting that it was the effect that happened from the public point of view. It may be just as bad for the oil companies because they may get to a stage where they find that public opinion tries to stop them, a stage where they find that they have been put into a false position. I was certainly not suggesting that it was the oil companies' fault.

My Lords, I am grateful to the noble Lord for that clarification. Touching on another point made by the noble Lord, perhaps it would be desirable that the oil industry should explore, given a situation where it had almost no right to exploit—only a right in the sense of a lease from the Government relating to the oil rights but with no reasonable expectation of planning permission unless it can show a very good case.

One of the problems is that drilling for oil is not a cheap business. It is considerably more expensive off-shore than on-shore. I might add that the cost per foot of drilling wells in this country is about ten times the cost in the United States where they have a developed industry of this nature, whereas we have a relatively under-developed industry. To drill a well costs approximately £100 a foot in this country, so if one drills a 5,000 foot well one has £500,000 invested in that well. It would be very difficult to have any wells drilled at all if there was less than a 50–50 chance that companies would have the opportunity to exploit anything they find.

The drilling of a well is an exploratory process. Everything one says or tries to say to local people, to councils or in planning inquiries is based on supposition. One does not know whether oil is down there until one has actually drilled a well to find it. The oil industry has to find a way to live within the constraints of the planning process and in a way that will allow it to do its work and allow people to be reasonably protected—indeed, well protected—from bad and ill-thought-out developments.

In Southern England the oil industry is very aware of the outstanding natural beauty of the country: not just of designated areas but of areas as a whole. I know that a great deal of thought is put into minimising the impact of developments. I hope that we do not create a situation in the planning arena which makes it impossible for this work to go ahead. There are benefits. We have enormous off-shore fields. But if by any chance there was some form of disturbance which affected Europe we would be very grateful for the amounts of oil—albeit small amounts, although perhaps Wytch Farm is not so small—at our fingertips. To that extent, these developments are considerably more secure strategically than our off-shore oil and gas developments.

My Lords, I am very grateful to the noble Lord, Lord Teviot, not only for raising this question so that we may discuss it tonight but also for his kind wishes to me, as I am also grateful for the good wishes of my noble friend Lord Oram. I am conscious of the honour that it is to stand and address your Lordships from this place—second only to the honour of being in your Lordships' House to begin with.

With the exception of the noble Viscount who has just spoken, we are all saying roughly the same thing although perhaps we have some variations on the theme. The subject raises issues far beyond that of Ditchling and even beyond areas of natural beauty. The Government's present policy, as I understand it, is to encourage the fullest possible development of oil resources, a policy based on economic and strategic considerations and not on environmental ones. The economic assessments appear to be based on assumptions about a possible future alternative source of energy. Perhaps these assumptions should be questioned at another time.

Tonight we are concerned with the environmental impact of drilling for oil or indeed gas. The noble Lord, Lord Teviot, drew attention to the need for central Government, policy on areas of natural beauty. It seems incredible, as other speakers have said, that licences to explore can be issued by the Department of Energy without reference to the Department of the Environment at all. Yet this appears to be the case. These licences enable the applicant to carry out seismic works and to drill shallow boreholes and he does not require planning permission at this stage. If his exploration is promising he then applies for a production In licence and will he required to obtain planning, permission for each borehole from then on. Lord Teviot was I think a little doubtful of the abilities of planning authorities to control the operation at this stage. Indeed the protection offered by the need for planning permission is of doubtful value.

Local authorities find arguments about the national interest very hard to resist. In any case, planning refusal can be overturned by the Minister from whom companies who have already made large investments in exploration are likely to receive sympathetic consideration, given the existing policy. During the past few years there has been a dramatic increase in the number of licences issued, and large areas of the country, much of it of outstanding natural beauty, will be explored on existing licences. There is an urgent need for a firm policy to rationalise the issue of exploration licences and to establish firm protection for particular areas.

We must define these areas with great care. No one denies the need for a healthy economy, especially in the fight against unemployment: but we also have a duty to protect our environment for the sake of this and future generations. I agree with Lord Teviot, who says that we must ask the Minister to consider that all applications for exploration licences should be cleared with the Department of the Environment. We further suggest that certain areas should be given absolute protection by a classification which would indicate that exploration licences would not even be considered. These areas would be limited in number. They would include certain areas of outstanding natural beauty of a particularly vulnerable nature where restoration is likely to be unsatisfactory. Also included would be sites of special scientific interest, and in a moment I shall enlarge on the present difficulties of these sites.

There could be a second classification of other areas of natural beauty or local amenity where exploration could be allowed against the possibility of future national need, but where production permissions would not normally follow. The public inquiry procedure suggested by the noble Lord, Lord Oram, could probably operate at this stage and in this classification, but it would be no substitute for a firm Government policy in the first place.

Now I should like to say a special word about SSSIs. These fragile survivors from better times are already under threat. They contain flora and fauna of recognised value and in many cases are irreplaceable. Even the noble Viscount's modest wells would wreak havoc on these sites. It is widely believed that the Wildlife and Countryside Act 1981 offers adequate protection for them. In fact the renotification necessary for their protection is proceeding too slowly because of the reduced budget of the Nature Conservancy Council, and many are being destroyed as each year passes. These sites are often not in areas of outstanding natural beauty and will therefore require to be specially defined in any new approach to exploration controls. The formula of "lost profits" compensation applied to agricultural protection would be far beyond the resources of the NCC if applied to oil or gas, and this would need to be recognised by the Government.

And now at last to Ditchling Beacon. Other noble Lords who know more of the area than I do have spoken with feeling on this subject. and I share their concern. The proposed alteration to the East Sussex County Council's structure plan indicates that they may take a less positive stand in defence of sensitive areas. I have the draft proposal, and as one who has been closely involved with the production of a structure plan I can see all the dangers in this one. Although Policy 1, as drafted, would appear to give fairly comprehensive protection to areas of natural beauty and indeed for the whole business of exploration, Policy 2 starts:

"Oil and gas development will normally he permitted only if the following criteria are met to the satisfaction of the planning authority…"

I am aware of the number of times that word "normally" has been included in structure plans for the sole purpose of allowing exceptions, which it is expected will be numerous and which are then the subject of inquiry after inquiry. I should think a lot more of the attempts of the County Council to protect if they had omitted that particular word.

They go on to list the criteria which will protect the sites and which must be followed. One of them is,

"It does not significantly injure an ancient monument or a listed building or its setting."

What does the word "significantly" mean in this case? There are some of us who would argue that any injury to an ancient monument or a listed building or its setting is unacceptable. Again, this word "significantly" shows, to my mind, a lack of intention on the part of the authority. They continue in the next item:

"A landscape plan and programme is provided to ensure that the impact of the development is reduced as far as possible."

There are other get-out phrases of this kind with which I will not weary your Lordships. But as a protective document that structure plan proposal is useless. In view of the attitude displayed in it, an attitude not unique to East Sussex, it becomes a matter of urgency that a national policy should be evolved for the protection of a national resource which, as the noble Lord, Lord Teviot, has said, is in its way as important to our well-being as the resources of oil and gas. All of them are finite.

My Lords—perhaps, just to prove that I have been listening to my noble friend Lord Teviot, I should say "my cushions"—I am most grateful to my noble friend for raising this Question this evening. It touches on a subject which I know to be of great concern to this House and to many outside. Energy and environment issues invariably arouse strong interest—even passion—not least among your Lordships. I must in this connection restrain my natural impulse to blow a kiss across the Dispatch Box in welcoming the noble Baroness, Lady Nicol, to the Opposition Front Bench. I am delighted to see her in her new position and to welcome her as Environment co-spokesman on the Front Bench opposite. I have no doubt that she will bring a lightness of touch which is on occasion so needed in countryside matters. I do not know whether the noble Baroness was here when we had the wide-ranging and informative debate earlier this year on the future of the Commission on Energy and Environment, but I can tell her that tonight's debate has definitely been in that tradition. I am grateful to noble Lords who have spoken in the debate.

My noble friend Lord Teviot naturally (if I may use the word) started with the concept of areas of outstanding natural beauty. He then continued to discuss the oil implications which are implicit in his Question. With the permission of the House, I intend to reverse that order.

It has been the policy of successive Govenments over the years to give every possible encouragement to the exploration for and proving of our indigenous mineral reserves. Oil and natural gas are an integral part of those resources. The cynic would probably say that this is because the Petroleum Production Act 1934 vested oil and gas in the Crown, but I am only a part-time cynic and certainly not one tonight. Whether or not this vesting had happened, in my view it is quite irresponsible for any Government not to discover the extent of what are clearly our national assets. It is only by determining the location and the full extent of these hydrocarbon resources that we can make sensible provision for the future and ensure that energy needs are balanced against environmental considerations.

I must agree with every noble Lord who has spoken that that is exactly the right policy to seek. We must at all times seek to achieve a balance in our planning law. Nobody would argue with that. It must be in the country's long-term interest to know at the very least what resources are potentially available.

Oil and gas exploration and extraction are by their very nature less intrusive than other forms of mineral working, and the potentially most objectionable phase—the drilling—is completed relatively quickly. However, when drilling is taking place, there can be considerable noise from the operations, together with visual intrusion from a derrick 120 ft. or so high—my noble friend Lord Teviot will correct me if I am wrong—and the flaring of gas if found and if allowed. Although each site may be occupied for only four to eight weeks, drilling in a particular district may continue for several years. The remaining surface development, if oil is found, can be effectively screened and operated without causing a nuisance or environmental problems. The outstanding example is Wytch Farm on the Purbeck peninsula in Dorset, the success of which won British Gas and the Dorset County Council jointly the Jubilee Cup of the Royal Institution of Chartered Surveyors.

My noble friend Lord Teviot compared such exploration with that of water. Like the Lord High Executioner, I have a list of exactly what has gone on since 1966 in the area of outstanding natural beauty that we are discussing. Let us take first public utilities: water bore holes and associated pumping stations; some covered reservoirs; overhead power lines; high pressure gas mains; and radio masts. Then there are playing fields. I think probably every noble Lord would admit that these are perfectly allowable under the Access to the Countryside Act 1949. The tipping of inert material at Waterhall at the back of Brighton was carried out for some years by the Brighton council. There is the case involving the University of Sussex and the polytechnic at Falmouth. There is then residential development in three villages which I need not mention. There are road schemes: for example, the improvement of the A..27 at Newmarket. An old chalk quarry is used as a county council tip. Another chalk quarry at Tarring Neville has recently been given planning permission for an extension. To say that areas of outstanding natural beauty should be sacrosanct and prevented from having change occurring in them is quite evidently nonsense.

My Lords. I am hoping that my noble friend has a point in bringing all these lovelies along about overhead power cables, chalk pits and all the other things referred to, but I cannot say that one accepts those any more than one accepts these. The power cables going up have made certain areas quite hideous. One certainly does not want any more. I cannot let my noble friend get away with it. I do not know what is on the rest of his list, or whether there will be any more items, but I shall listen.

My Lords, I had hoped that I had proved my point. I certainly was not going to read any more from my list. In all those applications, I have not noticed the enormous public or local outcry which has been occasioned by the particular application—perhaps I might better call it a series of applications, as we are now on our second—to drill for oil on the Sussex Downs.

Where a mineral such as oil is found in any quantity within an environmentally attractive area some conflict of interest is inevitable. Resolving such conflicts depends upon assigning a value both to the mineral and to the damage that the working will cause both during the life of the site and permanently thereafter. This can only sensibly be done where details of the exact location, size and quality of mineral deposit have been proved and the various possible ways of exploiting it have been fully explained. In the case of oil, I understand moreover that on average only one in 35 exploratory bore holes drilled reveal oil in commercial quantities.

Noble Lords question whether the need for oil is so great in the present circumstances. The Government seek to ensure that United Kingdom oil and gas resources are developed economically and expeditiously, while taking full account of environmental and other considerations, and that a fair return to the Exchequer is obtained while ensuring that developments which are economic pre-tax remain so post-tax.

Oil and gas production on the United Kingdom Continental Shelf is expected to peak within the next few years. In particular, the Government seek through their fiscal and regulatory functions to ensure that a high level of United Kingdom oil and gas production will be maintained at least until the end of the century. This means exploration both on the Continental Shelf out at sea and at land-based sites.

Having said that, we recognise that even the prospect of exploration, much less a firm intention to exploit, arouses strong feelings in areas of attractive and beautiful countryside such as is typified by the Sussex Downs. This is entirely understandable, but it is an uncomfortable fact that many mineral deposits occur in some of the most beautiful parts of the countryside. We cannot pretend that these do not exist, nor that the economy can prosper without our exploiting some of these essential sources of supply. It is a truism to say that the extractive industries can operate only where the raw products are to be found, be they coal, limestone, oil or any other of the natural substances upon which our modern world relies. The Government have a duty to ensure that adequate provision is made for the development of these resources in the years ahead. Equally however we have a responsibility to weigh carefully short term economic gains against the longer term implications for the beauty of our countryside and for nature conservation.

It might be helpful to the House if I, like the noble Baroness, Lady Nicol, and indeed the noble Lord, Lord Beaumont, were to say a few words about the respective roles of the licensing and planning systems. Licensing gives certain rights and responsibilities to a single company for any given area. What it does not do—and I think this is important—is to confer any planning or access rights: a company licensed by my right honourable friend the Secretary of State for Energy needs to obtain any necessary planning permissions before any development can take place at any particular site.

Planning permission will normally be required on at least two occasions. First, when an application is made to drill an exploratory well; and, secondly, if oil is found, to put in production and transportation facilities. Under planning law, it is the responsibility of county councils—in this case, East Sussex—to determine applications relating to mineral exploration and extraction. This they do in their county plan, and the noble Baroness referred to the green document and she has a very good point. The noble Baroness and the House will of course know that it is part of the perogative of my right honourable friend the Secretary of State for the Environment to approve proposed changes in structure plans and I will see that he takes her remarks into account when he comes to look at that particular proposal.

Having made sure that the proposed application is within the structure plan, the planning authority will decide such applications, taking into consideration the views of local people, the district and parish councils, and so on. In only very rare circumstances, where issues of regional and national significance are involved, are such cases called in for determination by my right honourable friend the Secretary of State for the Environment after a public local inquiry. I am sure that noble Lords will agree that it must be right for the vast majority of planning applications to be decided by local authorities. After all, it is local people elected to such councils who know the site where the development is proposed and who can take into account all relevant considerations.

The Ditchling Site is, as we now know, in the Sussex Downs area of outstanding natural beauty. The Government regard the AONB system as having a most important role in conserving our natural heritage. The landscape of designated areas is recognised as being of national importance in terms of their natural beauty. This means in general we should not expect to see the siting in those areas of, for example, large scale industrial or commercial development unless there was a proven national interest and no reasonable alternative site was available. In other words, the national significance of the amenity value in these circumstances becomes a factor to be weighed in the balance against the need for the development concerned. As I have already said, in the case of minerals this "need" argument has to include the unhappy fact that they can only be worked where they occur.

I apologise if that sounds an unnecessarily abstract way of talking about some of our finest areas of countryside. I like, I am sure, every noble Lord in the House this evening was very moved by the speech of the noble Lord, Lord Oram. I wish that I had his facility with quotations so that I could quote one back at him. But I can assure the House that I have not lost sight of the basic issues that we are discussing here today. Few visitors walking along the South Downs Way on a fine summer's day would be very much concerned with terms such as "national scenic importance", or "outstanding natural beauty". They would be too busy enjoying a day out in one of the most beautiful parts of Southern England. The scenery and the magnificent views would be sufficient in themselves.

The Government's job is to provide guidelines by which others, principally the local authorities, may formulate more detailed proposals for the shape of future land use within each area. Local authorities should take these guidelines into account in preparing their structure and local plans. A number of local authorities now have approved structure plans containing policies for oil and gas development as well as those for the protection of the environment. As I said just now to the noble Baroness, East Sussex County Council are in the midst of this process.

My Lords, you will understand if I do not venture into discussion on the merits of the County Council's policies in this respect, nor on any application to the proposals for exploration near Ditchling Beacon which the Council is at present considering. As long as the possibility remains that those proposals might at some future stage come before my right honourable friend, the Secretary of State for the Environment, for decision, I think it would be preferable if I were to confine myself to matters of general principle rather than individual cases. But the approach adopted by many local authorities towards oil and gas development is certainly one which we would commend to your Lordships. It offers in our view a sound basis for the proper consideration of mineral applications and reflects the Government's firm policy that all such applications for substantial new working in AONBs, or extensions to existing workings, should he subject to the most rigorous examination because of their potential impact on the natural beauty of those areas.

I hope it is clear from what I have said this evening that we are acutely conscious of the need to strike the right balance between meeting the nation's energy requirements from indigenous sources and protecting the environment in some of our more beautiful areas. But there is no escape from the dilemma that I put to the House at the beginning—that many valuable mineral resources are to be found in outstanding, naturally attractive areas. I can assure the House that we shall continue to encourage local authorities to take a responsible attitude towards these matters and to insist that all applications in AONBs and in other environmentally sensitive areas are subjected to a full and rigorous assessment.

The noble Baroness, Lady Nicol, suggested, if I have understood her correctly, that it is wrong for large areas of environmentally attractive country to be covered by oil production licences, and that such licences, anyway, should not be issued without the consent of the Department of the Environment. As I understood it, she proposed the creation of super sensitive sites. It is my view that this would undervalue areas of outstanding natural beauty that have been with us since the National Parks and Access to the Countryside Act 1949. I would hate to have a new body, or even a sub-body, to determine what, or perhaps where, such sites should be. We would immediately have second-class sites. In this connection, I would remind the noble Baroness of her own answer to the question, rather like her noble friend Lord Graham the other day, that in this connection, anyway, SSSIs have nothing to do with AONBs. One might be superimposed on the other, but they are there for totally different reasons.

My Lords, they are both badly treated by way of being looked after and cared for by the resources that the Government give to the Nature Conservancy Council.

My Lords, they are considerably better treated than if they had not been identified in the first place.

My noble friend Lord Teviot had, I think, a rather better idea. That was to have all areas of outstanding natural beauty excluded from oil and gas extraction applications. But we all know what is contained in Section 39, I think it is, of the 1949 Act. But only the Government can decide upon just what is the national interest. Once that is established, I can see no possible reason why a planning authority should not decide on local issues of environmental sensitivity and all the other local issues.

Having said that, the noble Lord, Lord Beaumont, is correct. My right honourable friend the Secretary of State for Energy is undertaking a review of current licensing procedures, and the views expressed by noble Lords tonight will be carefully considered in this context. I must say, however, that I can see grave dangers in a system whereby the Department of the Environment is asked to give its blessing to licensing large areas of countryside, for, really, the environmental implications of a proposal can be fully considered only when the exact site is known. I can see a good deal of merit in the current clear distinction between licensing and planning procedures.