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

My Lords, the uprating of social security benefits which takes place this week was based on a forecast price movement of 9 per cent. made at the time of the Budget, which because of our successful strategy against inflation has turned out to be too high. My right honourable friend the Chancellor of the Exchequer made clear on 8th November in another place that the Government will make an adjustment to the 1983 uprating having regard to this; but the extent of that uprating for individual benefits will be decided, as usual, at the time of the Budget.

My Lords, I thank the Minister for that brief factual reply. Before we are deluged by emotions from a certain quarter, I would like to ask a simple question, if I may. Are the Government not the least bit worried about the effect on employment incentives of tilting the balance still further against net take-home pay, which has risen less, and often much less, than this 11 per cent. by which all benefits have now been increased?

My Lords, the noble Lord is, of course, quite right to say that many people have settled for wage increases considerably less than the 11 per cent. by which most benefits were uprated earlier this week; but, of course, it was not the intention to uprate benefits by this excess, whatever it may turn out to be, over and above inflation. The target is always, as it was of course in the time of the previous Administration, to match the increase with the rise in prices.

My Lords, may I ask the noble Lord the Minister this: if the Government are going to contemplate clawing back some of the over-expenditure, is it not disgraceful, considering that the amount involved is only £180 million a year and £90 million of that will come from old-age pensioners who never enjoy a high standard of living?

My Lords, the sum of money which the noble Lord mentions is not yet properly established. The figure which my right honourable friend referred to in the other place was the amount by which he was proposing to adjust the social security budget as a whole for the part year, not a whole year, running from the uprating next year to the end of March 1984. It was never the intention of the Legislature—it was certainly never the case when noble Lords opposite and their right honourable friends were in power—that pensions should be uprated above the rate of inflation.

My Lords, is the noble Lord aware that by increasing benefits by 11 per cent. and trying to hold wages to 4 per cent. the Government have in fact radically increased the dangers of the poverty and unemployment traps? Is he aware that there is a solution, which is to raise the tax thresholds and the starting point of tax by higher than that amount? That will obviate the poverty trap and unemployment trap effects, which he has unintentionally initiated by this 11 per cent rise in benefits.

My Lords, the poverty trap and the problems which it brings in its wake are a pretty wide subject on their own, perhaps a little wide for Question Time, particularly on a day when we have a debate on these matters to follow shortly. But I take note of what my noble friend says.

My Lords, is it not the case that 2 per cent. of the 11 per cent. referred in the Question of the noble Lord, Lord Harris of High Cross, is in fact a repayment for a previous shortfall?

Yes, my Lords, the noble Lord is quite right; we did add this year a small percentage to make up for a shortfall last year.

My Lords, may I ask the noble Lord whether he is aware that the Government took 5 per cent. off the unemployed three years ago, which they have now refused to refund? Is he further aware that two years ago they gave the pensioners a 53-week year, thereby depriving them of one week, to give them a Christmas box of £10? Does he not think the attitude of the Government is really nauseating?

My Lords, there are a number of improvements in social security benefits which we would like to make when the necessary funds are available. As to the 5 per cent. abatement to which the noble Lord referred, my right honourable friends in the other place have acknowledged and accepted the principle of restoring that abatement as soon as resources allow.

My Lords, can the noble Lord perhaps in due course inform the House, apropos the present clawback from the old-age pensioners, how much of that clawback and of other reductions over the past three years will go to enhancing the tax relief of the very wealthy?

My Lords, we have not yet made any detailed anouncement in respect of the adjustment which the noble Lord asks about. It is perhaps worth noting that since we came into office, retirement pensions, for example, which are, of course, a very important, if not the most important, benefit, have increased in real terms by something approaching 4 per cent.

My Lords, may I ask the Minister whether he is aware, as I am sure he is, that a large number of old-age pensioners are living below the poverty line because they are not taking up the various benefits to which they are entitled? To claw back from 9 million or 10 million people an amount of £90 million in those circumstances is quite deplorable.

My Lords, no announcement has been made about the rate of any adjustment which may be made next year. That is a decision which will be taken along with all others when my right honourable and learned friend the Chancellor of the Exchequer formulates his Budget proposals next spring.

My Lords, is the Minister aware that many of us believe there is a case for excluding retirement pensioners from the clawback because their spending pattern is quite different? For example, in the ordinary retail price index, mortgage repayments are a big element but retired people rarely have mortgages. Is there a case for looking at retirement pensioners separately from the rest of the community and excluding them from the clawback?

My Lords, it is of course the case that the recipients of different types of benefit will wish to advance their own case to be shielded from any adjustment. My right honourable and learned friend will take all these thoughts into account when formulating his proposals.

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

My Lords, Her Majesty's Government accept that Spanish accession is likely to affect British producers in a limited number of horticultural products. We have made it clear that accession arrangements must include transitional provisions to help safeguard the interests of such producers.

My Lords, I thank the Minister for that declaration of intent. Is he aware that Spain has a great potential, through protective cropping and irrigation, to produce fruit and vegetables during the North European season? Does he agree that if that potential is developed, as is being done now, it would have a serious effect on jobs in horticulture, which is a labour intensive industry, in this country?

My Lords, clearly, if there are possibilities for Spain when it joins the Community to increase its exports or production, no doubt it will do so. However, expert opinion is that there are limitations to that increased output in the Spanish horticultural and agricultural sectors.

My Lords, leaving aside the effect on horticulture, does the Minister agree that instead of inflating the EEC, as we seem to be doing, we should do far better, in our own interests—excluding the interests of other people who, in my opinion, perhaps do not count so much—to deflate it instead?

My Lords, the noble Lord, Lord Shinwell, is a master at taking advantage of Questions. The Question refers merely to horticultural products. I take the noble Lord's point, but the Government believe that Spain is a part of Europe and it is part of the structure of Europe. It is now involved in NATO and it is quite right that Spain should become part of the European Community.

My Lords, is the Minister aware that many of us welcome what he has just said in the latter part of his Answer and that we, like him, look forward to welcoming a democratic Spain into the European Community?

My Lords, I am glad to note that, not for the first time, the noble Lord, Lord Harris of Greenwich, agrees with the Government.

My Lords, can the noble Lord tell the House whether, before the accession of Spain and Portugal to the Community, the Government have discussed with the British horticultural industry any problems that might arise? Secondly, can the Government assure the House that they will do all they can, as the Germans requested in their case, to ensure that the accession of Spain and Portugal to the EEC will not involve any increase in our own provision of resources, or otherwise increase the budget to a further extent, but will be financed entirely by economies in the common agricultural policy? This is a point that I think—

Question!

My Lords, please let me complete my last sentence without interruption. I have been putting a question all along, but I will sit down now, because the noble Lord knows my intention.

My Lords, of course we are aware of Spanish problems and we certainly wish to see those problems as far as possible mitigated as between Spain and the United Kingdom. I remind the noble Lord that the conditions of entry are between Spain and the European Community. With regard to our own resources, it is our view that expenditure on agricultural support needs to be reduced, especially in relation to surplus commodities, rather than increased. Any question of increasing the Community's own resources raises much wider issues, including the amount of the United Kingdom's net budget contribution to the EEC.

My Lords, the Commission has made proposals for variable transition phases. In his opening reply the noble Lord referred to a transition phase. Was he referring to the same thing? If not, could the noble Lord tell the House what the Government's attitude is to the Commission's proposals, in view of the undoubted effect of the accession of Spain and Portugal in certain sectors of British horticultural and agricultural industry?

My Lords, at the moment the agricultural chapters have not been discussed in full with the Community and Spain. Clearly, anything that comes as a result of the discussions will have to be considered very carefully. It is our intention and desire to see that there should be a proper transition arrangement during which time all the countries involved will be able to make their own arrangements as regards the future full membership of Spain.

My Lords, would it not be desirable not always to concentrate entirely on what are considered to be British interests, but sometimes to consider what are the interests of the Community as a whole?

My Lords, that is precisely the reason why we welcome Spain into the Community. On the other hand, one must realise that there are certain effects which could be harmful to United Kingdom interests and we wish to see that those are made as small as possible.

My Lords, can the Minister assure us that no punitive measures will be taken against Spain in regard to the export from Spain to this country of what is known as "Sherry"?

My Lords, I cannot imagine that the export of sherry would have a punitive effect on anyone, unless he took too much of it.

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

My Lords, it is our intention to implement these provisions as the public expenditure situation permits. In the meantime, the Government continue to give financial and moral support to the Keep Britain Tidy Group, who campaign against litter on many fronts in collaboration with local authorities, voluntary groups, industry and commerce.

My Lords, will the Government give some estimate of what they think it might cost, and therefore when they are likely to do it, in view of the fact that the sections in question only require the local authorities to consult, to prepare statements and to give adequate publicity, none of which one might think was particularly expensive?

My Lords, the costs of drawing up plans are unlikely to be great, but implementing them would depend upon the cumulative decisions of local authorities across the country. I gather that the last estimate some years ago was £250,000 for the plans and probably something like £1.25 million for the implementation.

My Lords, can the noble Earl say whether Her Majesty's Government have sought the advice of the Government of the tidiest nation on earth—that is to say, Singapore—on how to combat the litter menace, with particular reference to the penalties imposed in that country?

My Lords, I am afraid I have no information on that particular point.

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

Yes, my Lords, In 1978–79 total expenditure on the National Health Service in Scotland was £883 million; last year it was £1,517 million. These figures are respectively, at November 1980 prices, £1,355 million and £1,411 million.

My Lords, I thank my noble friend for that reply. Would he not agree that this represents a very substantial increase not only in money terms but in real terms? Can he say what is the percentage improvement?

My Lords, it is something over 4 per cent. I understand that to the nearest decimal point it is 4·1 per cent. We believe that this is, indeed, a real improvement and we are very grateful for the support of my noble friend.

My Lords, I thank my noble friend for that further information. Would he not agree that that figure might come in very handy for this afternoon's debate? Would he not also agree that it tends to refute some of the arrant nonsense which is spoken from the other side and elsewhere about the effect of so-called cuts of the health services?

My Lords, I am very grateful for the forthright and robust support of my noble friend, but I am a little worried as to which debate he refers—whether it be the first debate or the second.

My Lords, is the noble Lord in a position to say how many hospitals have been closed in Scotland since this Government have been in power; how many wards have been closed and how many other medical institutions have been closed in Scotland as a result of shortage of money?

My Lords, I believe that that question is in danger of going a little wide of the original Question.

Oh!

My Lords, noble Lords' opinions are their own; I shall attempt to answer the question of the noble Lord. I am afraid that I do not have precise answers to the three questions which the noble Lord, Lord Wells-Pestell, has asked me, but I shall write to him.

My Lords, on the therapeutic qualities of the whisky debate to which allusion was made indirectly, can my noble friend say whether he has comparable figures for general expenditure on the social services?

My Lords, indeed I do have them and I am very grateful to my noble friend for asking that question. For the same period as that in which there was a 4·1 per cent. increase in real terms, the net current expenditure has increased in real terms in Scotland by 11 per cent. for social work, as far as that is defined. However, I would correct one point that my noble friend made. I wonder whether the therapeutic effect comes from the debate on whisky or from the substance itself.

My Lords, is it not lucky chance that the noble Lord happened to have that answer so handy? As his planting is so successful, will he not transfer his attentions to horticulture?

My Lords, I am no green fingered Lord in Waiting, but certainly I think the noble Lord would agree that fortune flies with the brave.

My Lords, when general election Questions come up could there be some machinery for the sounding of a trumpet or something of that kind?

My Lords, I shall make arrangements through the usual channels for trumpets to be sounded, but of course in line with your Lordships' usual decorum.

My Lords, as long as it is not Trumpingtons!

My Lords, how much longer are the Government going to trot out these entirely misleading figures which seek to show that there has been an increase in real terms? They are completely inaccurate and misleading without also bringing into the equation the growth in population and the increase in unemployment since this Government came into office. To quote the figures by themselves is entirely misleading.

My Lords, the noble Lord is of course entitled to his opinion, but I believe that the rest of your Lordships will agree that we have answered the Question which was set out on the Order Paper.

My Lords, would my noble friend not agree that the implication that the population has grown 11 per cent. in one year is very unlikely to be true and is another example of inaccurate propaganda from the other side?

Yes, my Lords.

My Lords, at a convenient moment after 3.30 this afternoon, my noble friend Lord Belstead will, with the leave of the House, repeat a Statement that is to be made in another place on the Foreign Affairs Council in Brussels on 22nd and 23rd November.

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

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

rose to call attention to the need to maintain in real terms the general level of benefits provided by the welfare state while reforming its structure, and to the economic feasibility of achieving this; and to move for Papers.

My Lords, in rising at this point in the list of speakers, I should like to offer my profound apologies to the noble Lord, Lord Cledwyn, for not having indicated more clearly my wish to speak at this juncture, and indeed to other noble Lords who have been thus displaced, and to apologise for not having made my intentions clearer. I am grateful to the noble Lord for giving way so readily.

My Lords, I welcome this opportunity to debate the future of the welfare state and to set out the Government's philosophy and record of achievements. The benefits and services provided by the welfare state are greatly valued and appreciated by the people of this country. We are determined to see this service improve and grow and prosper. But the welfare state is not a self-contained entity, independent of the rest of the economy. It is an integral part of the economy and its future is bound up with the prosperity of the nation as a whole. If the economy falters and declines, that malaise must eventually infect the welfare state also, The benefits and services which the welfare state provides will also decline eventually if the nation can no longer afford to maintain them. The welfare state may help to deal with individuals' problems, but it cannot cure the deep-rooted problems of the economy as a whole: other remedies are called for.

It is our determination to apply the necessary remedies that form the central context of our policies towards the welfare state. We are determined to arrest the decline of this nation's fortunes; to restore prosperity, confidence and self-respect. Restoring the health of the economy has to be the first priority in this process. We have set out our policies to achieve that, the same policies on which the Government were elected to office. It is not my purpose to discuss these policies now—they have been very fully discussed by your Lordships in recent weeks—but the signs of success are now beginning to show through. Inflation is coming down, interest rates are coming down, productivity is improving and public borrowing is under firm control.

We are always bound to be affected by world trading conditions, but, by the means I have described, we are laying the foundation for sustained economic growth in the future. It is only by such growth that the resources can be found for improving the services of the welfare state and for the many other urgent tasks which need to be undertaken. This is the context in which realistic policies on the welfare state must be pursued. There is no getting away from that context. It is an inescapable constraint.

My right honourable friend the Secretary of State has spelt out in another place the principles on which our policies are based. First, the foundation of our approach, as I have said, is the strategy to create new resources by sustaining and improving the productivity of industry and its capacity to compete in world markets. Secondly, we are determined to ensure that the welfare services and those most in need of them benefit from the regeneration of British industry, just as over the past years we have sought to protect those services and individuals from the effects of the recession. Thirdly, we believe strongly that improvements can and should be made to the structure of the welfare state even where we cannot devote substantial additional resources to this task. We have made very significant progress in reducing administrative bureaucracy, streamlining procedures and management structures and increasing efficiency, all of which directly benefit the recipients of the services.

Finally, we have been concerned to promote partnership between the state sector and the voluntary, private and informal sectors. The main providers of care and support in our society are, and always will be, individuals—family and friends and the community at large. The state services and the private and voluntary agencies exist to assist and support in this provision of care. All these resources must be harnessed in a cooperative and constructive venture to meet the many needs evident in our society, and let me demonstrate the application of these principles in the social security field.

The size of expenditure on social security is enormous—the provision for the 1983–84 programme amounts to £34,111 million—by far the largest public expenditure programme, accounting for 28 per cent. of the planned total. Over the decade to 1980, the cost of social security grew by more than 50 per cent. in real terms. During this Administration, it has continued to grow. This demonstrates the Government's commitment to protect the needs of those who rely on social security benefits. But the size of the social security commitment also underlines the importance of ensuring the success of the Government's economic strategy. In the short term, that means limiting the growth in social security so far as that is possible.

Benefits have to be paid for by the working population. Benefits paid for out of the national insurance fund depend on contributions from employers and employees. If the overall cost of benefits rises, contributions or the level of taxation have to go up, too. If we are not to damage incentives and the process of industrial recovery, we have to be very careful about the contribution which employers and the working population are asked to make.

The need for economies in public expenditure has required us also to take steps directly to limit the growth of social security expenditure. During this Administration, we have introduced measures to effect savings in the social security programme. If these measures had not been adopted, the programme would cost about £1·5 billion more in 1982–83 than is currently estimated. Inevitably, these were painful economies to have to make, but they were necessary to help bring public expenditure under control.

In spite of these savings, we have stood by our commitment to social security beneficiaries as a whole. We have fully maintained the value of pensions and related long-term benefits, and we are committed to do so during the lifetime of this Government. The effect of this month's uprating is to give pensioners and other beneficiaries an increase over and above price protection. As the Chancellor explained, when the Government consider the details of next year's uprating at the time of the Budget, they will decide to what extent these gains should continue after November 1983 and what adjustments should be made at that time.

In making that decision, the Government will have to decide the relevant priorities to be given in any adjustment for pensioners and other social security payments and to the many benefit improvements being called for. But there should be no misunderstanding about one thing: social security recipients are receiving increases this year which are much higher than the current rate of inflation and higher than the percentage wage rises that many workers are settling for. Pensioners are likely to receive about £1 increase over and above the amount needed to protect their pension from price rises.

The Government have also sought to protect the most needy in our community in spite of the severity of the recession. The value of supplementary benefit—the safety net of the welfare state—has been fully protected against inflation. The change we made last year in the basis for uprating supplementary benefit by excluding housing costs from the calculations was logical given that housing costs are calculated and met separately from, and in addition to, supplementary benefit scale rates. We have also improved the help we are providing towards fuel costs. We are now spending over £300 million per annum on help with fuel costs for families on supplementary benefit. That is more in real terms than the previous Administration ever spent.

Furthermore, the mobility allowance has been increased by more than the rise in prices since we took office and is no longer subject to tax. The earnings limits for retirement pension, invalid care allowance and the therapeutic earnings limit for invalidity benefit have been increased this very week. Moreover, supplementary benefit capital disregard is being raised from £2,000 to £2,500. We have given special protection to one-parent families through real improvements in the value of family income supplement and the one-parent benefit. We have also made useful small changes in the industrial injuries scheme.

I believe that these measures demonstrate the Government's concern to protect the living standards of the most needy in our society, within the limits of the current economic circumstances, but the Motion for today's debate calls attention also to the need for reform. Here, also, the Government have a very substantial record of achievement, in spite of the constraints of money and manpower, and I will mention some of the most important developments. First, in 1980 we undertook a complete revision of the supplementary benefit scheme, moving from a scheme based largely on discretion to one set out in regulations giving claimants firm legal entitlements. And although, inevitably with such a major change, there have been problems, even critics have not generally suggested that we should go back to the old discretionary arrangements. The reformed scheme also introduced a number of changes intended to shift resources towards families with children, and one-parent families in particular.

Secondly, there is the new sick pay scheme. Following Royal Assent last June, we are working hard with both sides of industry to ensure that the scheme gets away to a good start next April. The change will avoid a wasteful area of duplication between the DHSS and employers, and save 3,000 staff in the administration of state benefits. Thirdly, we have introduced self-certification. Sickness benefit is now available to claimants for the first week of any illness on the basis of their own claim, unsupported by a certificate from the doctor. This is not only an easement for the sick person; it also frees the doctors from issuing certificates to people with minor, short-term ailments, and releases his time for his proper role of treating the more seriously ill.

Fourthly, we have brought in a new housing benefit scheme which will introduce one source of help with housing costs instead of two, and enable an extra £10 million from administrative savings to be spent instead on housing benefit. Fifthly, we are making a major reorganisation of our regional offices to improve operational efficiency and increase local decision taking. As well as helping to improve the services given, this process of shifting responsibility to the proper level is also saving the taxpayer large amounts of money. The cutting down of the regional apparatus alone will save 1,000 Civil Service posts.

Sixthly, we are also undertaking a number of changes which will help to improve the quality of service, as well as produce administrative savings in some cases. Most important is the postal claim form for unemployed people who wish to claim supplementary benefit. From 6th December people claiming unemployment benefit will be given a form by the unemployment benefit office, which they will be able to send in by post to the local social security office. It will not be necessary for them to have an interview at the office, unless they need help in completing the form. Results from a pilot exercise carried out early this year have been encouraging. Not only did most of the claimants involved prefer to fill in a form rather than be interviewed, but they made a good job of it, and only in a few cases were follow-up inquiries necessary.

In addition, new arrangements have been introduced to pay benefits on request direct into bank accounts by automatic transfer. We are also devoting efforts to improving advice and information available to claimants. We are experimenting with advice computers, with a free phone service, and with advice points.

I have mentioned only some of the areas where we have already implemented, or legislated for, change. There are a number of other fields where we have drawn up detailed plans for future reform. For example, we have published a White Paper outlining proposals for radical change in the industrial injuries scheme. We have introduced regulations in the current Session to streamline and improve the system of social security adjudication. Perhaps most significant of all, last September we published a consultative document outlining long-term plans for introducing computers into our local and regional operations on a very large scale. The document sets out a strategy stretching into the 1990s, which should produce a significant improvement in the quality and efficiency of the service that we provide, and enable staff to spend more of their time giving a better and faster service. This is a major initiative by Government in Information Technology Year. It is an investment for the future.

Our strategy and our achievements on social security are a testament to the principles that I enunciated at the outset. We are determined to maintain the living standards of those most in need, but within a strategy to improve the prosperity of our economy as a whole. We are determined also to secure better value for money by increasing efficiency and concentrating resources on benefits. We are engaged in a drive to reduce administration and bureaucracy by streamlining procedures and management structures. We have set out, and are implimenting, practicable proposals for improvement across the whole field of social security.

My Lords, we are indebted to the noble Lord, Lord Banks, for raising a matter of the utmost importance; namely, the future of what has come to be known as the welfare state. The noble Lord expressed the Liberal Party's viewpoint, and I thought that there was much sense and merit in what he had to say—for example, about preserving the real value of benefits and, in some cases, increasing benefits where the need is greatest. That is what we would expect from a Liberal spokesman, because the Liberal Party played a great part in laying the foundation of the welfare state, and David Lloyd George takes place with honour as one of its founders. It is always interesting to read of his bitter struggle as Chancellor of the Exchequer when he introduced his Budget in 1909, and the obdurate opposition then to his proposals. But Lloyd George had his priorities right. He insisted on making provision for the poor and the under-privileged—and how poor and underprivileged they were in those days!—in the face of the most hostile onslaught suffered by any British politician in this century. Therefore, it is right in a debate on the welfare state to pay a tribute to Lloyd George. He was responsible for the Liberal yellow book of 1928, to which the noble Lord, Lord Banks, referred.

But that, my Lords, was only the start. The suffering of the years between the wars, which most of us remember, created a new atmosphere and a new determination. The poverty, misery and despair of those years of the means test and the soup kitchens remain with us. The fear of illness and of the workhouse was real. I remember the closure of the workhouses in 1947. The transition from the workhouse to the old people's home was one of the most compassionate measures of modern times.

But to mention that is merely to illustrate the change that took place as a result of the reaction of people to the terrible waste of the pre-war years. It led to the Beveridge Report and to the Attlee Government's attack on two of the report's great giants: disease and want. We believed, and the nation believed, that the dread and hardship caused by illness, unemployment and old age should be removed, and that those who were able should help those who were less fortunate. That was the principle upon which the post-war Labour Government acted, and it is as valid today as it was 35 years ago.

We believe that we can survive as a civilised community only if we are also a caring community, and notwithstanding what the Minister said in his interesting speech—he gave us a long list, and we appreciate many of the benefits that he enumerated—I regret to say that our experience over the last three and a half years has made us apprehensive about the future of the welfare state, if the Government continue on their present course. Of course I realise that the Conservative Party is sharply divided on this issue. There are the "dries" and there are the "wets"; or, to put it another way, there are moderates and extremists in the Conservative Party. What frightens us is that the extremists are in the ascendancy today.

Let me give a few examples—and the noble Lord, Lord Banks, has already referred to some of these. On 9th September the Cabinet had before it a paper from the Central Policy Review Staff—the Think Tank—which outlined schemes, including dismantling huge chunks of the welfare state. I understand that on that occasion the moderates in the Cabinet succeeded in having the matter postponed for the time being. But our concern is that that might not be the end of it. The Think Tank argued that the Government should consider some radical alternatives in the four areas that account for the biggest share of public expenditure—and this, I believe, is what the House should be considering today.

The areas are education, social security—with which the noble Lord, Lord Banks, dealt fully—health and defence. The suggestions of the Think Tank were certainly radical. On education it suggested the end of state funding for all further education and the setting of fees at market rates, with about 300,000 state scholarships, and a system of student loans for those who do not win a scholarship. The Think Tank also discussed the system of educational vouchers, which Sir Keith Joseph is said to favour. On social security the Think Tank mentioned the big savings that would result if all social security payments, from pensions to supplementary benefits, no longer rise in line with inflation. Again on health, the paper suggested replacing the National Health Service with private health insurance, thus achieving a saving of £3 billion to £4 billion in the 1982–83 health budget of £10 billion.

These proposals are a straw in the wind, and the fear is that they will emerge again at some stage in some new guise. There is ample evidence that some Ministers would favour a change. For example, the noble Lord's right honourable friend Mr. Patrick Jenkin said in 1977:

"In the longer term I believe we should seek ways of transferring more of the cost of the health service from taxes to insurance";

and the Chancellor of the Exchequer, Sir Geoffrey Howe, is known to favour a two-tier health service. It is true that there are distinguished Conservatives, such as Mr. Edward Heath and Sir Ian Gilmour, who would strongly resist such drastic measures, and no doubt there are others in the Cabinet itself. I am quite sure, too, that there are many noble Lords on the Benches opposite who sympathise with them. But the dangers are there, and if there is a Conservative Government after the next election they could well pursue this reactionary course. This is the fear that we have on this side of the House.

The immediate problems facing the National Health Service are a matter of acute concern. I do not think that the Government have handled the current dispute with the National Health Service workers competently. It should never have been allowed to polarise in this way. Again, hospital closures and the closure of important units are causing much public anxiety. I am thinking particularly of the early-scan unit of the Royal Marsden Hospital, which we discussed at Question Time yesterday; and, of course, of the Tadworth Children's Hospital, about which we had an exchange last week. There also appears to be some doubt about the future of a very famous London hospital, St. Mark's. As has been said, these are not local hospitals; they are also internationally known centres of excellence, and their closure would cause hardship and a loss to medical knowledge and research.

My Lords, the health service, which was for so many years admired throughout the world, is suffering grievously at present from lack of confidence. There is no certainty about the future. The Government have made no pronouncement on the Black Report on inequalities in the health service, and they have had that report in their hands for two years. They have made no comment on the Acheson Report, which they have had for 18 months. I hope the Minister can give us an undertaking on these matters; and I am very willing to give way to him because he himself is always courteous in these matters, but I hope that at the end of the debate he will comment on the questions I have put to him and also on those which are put by other noble Lords.

I turn now to the older section of the community, to which the noble Lord himself referred, and to the proposition, with which I am sure every noble Lord in the House will agree, that the pensions of pensioners should at all times be adequate—and to be adequate they must keep pace at their own lower level with the average industrial wage. The fact is that the pensions have fallen back because the alternative link with earnings has been cut, with the result that the pension of a married couple is about £3 a week less and of a single person £1·85 less than it would be if the previous formula had been retained. In the light of what he said about pensions, I would be grateful if the noble Lord would comment on those figures.

Again, fuel charges are a heavy burden on pensioners. I need mention only increased gas bills, which were a direct result of Government instruction. These have fallen heavily on old people. The Minister may mention the special help scheme of last winter for old-age pensioners. I would remind him that only about half the people who needed it were eligible for it, and I understand that only 6 per cent. of those entitled claimed it. I hope he will tell us later on how the Government are proposing to improve the scheme, if they introduce it for this coming winter, so as to make it really effective and to ensure that it reaches the people who need it.

To return again to pensions, I am still unclear about the real effect of the Chancellor of the Exchequer's Statement of 8th November. Will the pensioners get the whole of the 5 per cent. related to inflation in November next year (this, if I may refer the Minister to it, is paragraph 2.25 of the Chancellor's document) or will there be a clawback, leaving the pensioner with half that amount; that is, 2½ per cent? I would be gtrateful for some clarification on that important point.

There are other aspects of the welfare state to which I should like to refer, but we had two major debates last week, one on unemployment, opened by the noble Baroness, Lady Seear, and the other on disablement, in both of which noble Lords on all sides expressed their deep concern about these problems. I shall not, therefore, pursue them further this evening. Nor shall I deal with education, another pillar of the welfare state, save to say that the nation will pay heavily in due course for the short-sighted extraction of savings on further education. We are spending less per capita on further education than our major competitors, and we shall suffer from the loss of scientists, technologists and engineers in a few years' time unless we reverse this trend. They will be vital if we are to expand and compete in a difficult world. This is absolutely essential, and I cannot stress it too much.

Therefore, the overall picture as I see it is not a happy one. We recognise, of course, that there is a world recession and that we suffer our share of the misery. There are also members of the party opposite who are deeply concerned to preserve much of the welfare state, and I believe the noble Lord, Lord Trefgarne, is one of them. But even allowing for world recession, I do not think we are doing well in this country. The Government's Treasury spokesmen remind us that inflation has been conquered, and we know that the inflation figures are down. But the Government's cure for the disease is also killing the patient.

Let us look at the facts. Unemployment stands at 3.3 million; a large number of good industries have gone to the wall; manufacturing output is at its lowest level for 15 years, about 14 per cent. below the rate inherited from the Labour Government in May 1979; over one in five jobs have disappeared in manufacturing industry over the past three years, and there is no prospect of early recovery. Britain, once the workshop of the world, is running its first trade deficit in manufactured goods in its history—and the Minister said that success was beginning to show through! For the first time since the Industrial Revolution we are making a loss on manufactured goods—and success is showing through! The Minister's vision is different from that of the rest of us, because the fact is that the red light is there for all to see.

Britain's decline at present is being concealed behind the huge North Sea oil surplus. That is the reality of the situation. I mention all this because the argument at its root is one about resources, and how those resources should be used. Of course the welfare state has to be paid for, and it has to be paid for with real money and not with paper money. Of course I readily acknowledge that; but men and women are being wasted, and money is being wasted, paying billions of pounds in unemployment and supplementary benefit, which could be far better used if people were in work.

I do not honestly believe that the Government have a coherent policy any more. As the election approaches we shall see some spending by the Government. It is said that the Chancellor will have some £3 billion to give away in his Budget next spring. We must wait to see what he has and what he will do with it. Will some of this money go to the disabled, to the elderly, to the health service, to essential education? Will there be policies to invigorate the economy so as to bring down unemployment? Or will it be another tax handout, as in 1979? These are the essential questions in this debate.

My Lords, Government spokesmen say time after time that there is no alternative to the policies they are pursuing, and the noble Lord said it again today. We do not agree with this philosophy, which has caused so much damage and so much misery. The Government's obsession with cutting the PSBR has turned the clock back 50 or 60 years. There is, of course, a need to tackle the economic crisis in partnership with our friends, but we on this side believe that planned increased public spending would be fully justified in order to create new jobs—and this is a point which was well made by the noble Lord, Lord Banks, in his opening speech. Money spent in this way creates jobs and increased spending power. Increased demand in the public sector will generate more jobs, and public expenditure can begin the process of economic expansion which will help Britain to get back to work.

Let me specify some of the measures which we believe should be taken, and which we, a Labour Government, would in fact take. We will reaffirm the right to free medical treatment for all. We will support and strengthen the National Health Service, and pbase out prescription and dental charges. We will give a new emphasis to promoting good health, and we will do more for the elderly, the mentally ill and the handicapped. We will widen opportunities for all age groups; free nursery schools for all three- to four-year-olds; give the right to educational training for all 16-and 17-year-olds with a £20 a week grant to those in full-time education and a new entitlement to further and higher education for adults who want a second chance. We want a fairer society where the fear of poverty is eliminated. This means better benefits: child benefit raised by at least £2 a week, higher pensions pegged once more to earnings as well as to prices, and extra help for the disabled and the one-parent families. It also means fairer taxes for all. We believe in first-class local services and will provide funds to support them. We will spend at least 4 per cent. more on personal social services, on home helps, on meals on wheels, on child care, on the care of the elderly, the handicapped and the mentally ill.

My Lords, we on this side therefore believe in a compassionate society, in certain fundamental rights, in comprehensive health and social care, in decent housing, in an adequate income and full educational opportunities which should be available to all. The nation should not be divided by blatant inequalities. Cicero wrote over 2,000 years ago that the welfare of the people is the ultimate law. People will respond to fair and just government. If this Government do not change their course quickly and radically, we are heading for disaster—and by disaster I really do mean 3½ million, 4 million, 4½ million unemployed and the total dismantling of the welfare state. That will happen if the Government are not prepared to change course, and the results of that will be incalculable. If they are not prepared to change course they should at least have the decency to go to the country at once.

My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Foreign and Commonwealth Affairs. The Statement is as follows:

"With permission, Mr. Speaker, I will make a statement on the Foreign Affairs Council held in Brussels on the 22nd and 23rd November. The Council dealt with a heavy agenda and reached agreement on a number of issues.

"The Council had a first exchange of views on the Commission's paper on the budget solution for 1983 and later. It was agreed that the Committee of Permanent Representatives should get to work on this immediately and report back to the Council at its January meeting.

"We discussed East-West trade issues and agreed that we should carry forward the studies approved in the recent Washington talks. Our objective is to improve our co-operation in this field and to achieve a greater cohesion in our approach to East-West trade.

"The Council also discussed developments in the final preparations for the GATT Ministerial meeting. The Community will continue to press for improvements in certain areas and the Council will meet again in Geneva if necessary. My honourable friend the Minister for Trade, who was present at the Council, is now in Geneva for the GATT Meeting.

"The Council agreed in principle on the details of the Community's Generalised Scheme of Preferences for 1983. Ministers noted the progress made in the past month in the bilateral textile negotiations under the Multi-Fibre Agreement with the ASEAN countries and Brazil. The Council also agreed that the Commission should proceed with negotiations with the three dominant suppliers (Hong Kong, South Korea and Macao) making full use as necessary of the flexibility available to them within the global ceilings.

"Ministers discussed the Community's external steel régime for 1983. They agreed that the Commission should open negotiations on Voluntary Restraint Arrangements (VRAs) with main third country suppliers of steel to the Community, on the basis of a cutback of 12½ per cent. in import volume in relation to the 1980 base year.

"We raised the problem of the trading imbalance under the European Community/Spain Agreement and asked for a Commission report with proposals for action on Spanish implementation of the Agreement, and on the unequal and unjustifiable tariff imbalance in certain sensitive areas.

"Ministers agreed a special aid programme for Central America. They approved a new management regulation designed to improve the procedures governing the Community's Food Aid Programme. Discussions will continue on other subjects, including the Community's research programme on nuclear safety, the European Parliament's proposals for a uniform electoral system, and a Commission memorandum on the follow-up to the second Lomé Convention.

"A Ministerial conference with the Portugese in the margins of the Council reviewed progress in the accession negotiations.

"Ministers also met in the framework of political co-operation and discussed a number of foreign policy issues, including East-West relations and the Middle East. It was agreed that the Danish Foreign Minister should visit Israel shortly in order to put the Ten's views on the current situation. As applicant members of the Community the Spanish and Portuguese Foreign Ministers were present for part of the meeting."

My Lords, that concludes the Statement by my right honourable friend.

My Lords, we are grateful to the noble Lord for repeating the Statement. It is clear that the Foreign Secretaries covered a great deal of territory although they did not come to any firm conclusions at this stage. May I put a few short questions to the noble Lord? First, on the question of EEC steel policy and the proposed cutback of 12½ per cent., could the noble Lord say whether this is uniform throughout the Community? In view of the fact that the British steel industry has been truncated and has lost far more jobs than the industry in any other EEC countries, are we not entitled to ask for a smaller cutback than the average for the Community as a whole?

On the question of the EEC budget referred to in the Statement and the prospect of negotiating a very desirable longer-term arrangement, is it proposed that this, in addition to the action which is described in the Statement, should go to Copenhagen where the Prime Minister herself will be able to raise the matter? We on this side of the House warmly welcome the attention paid to the food aid programme and to Lomé III and to the help to the three Central American countries. Can the Minister indicate what the improved procedures are which are referred to in the Statement? As the Minister is well aware, there is great interest in the multi-fibre arrangement in this country. Could he tell us whether any further talks on this subject are in prospect so that the matter can be brought to a satisfactory solution?

We are glad that the imbalance between the EEC and Spain is being studied carefully. Will he agree that this has a special significance for us and particularly for our motor car industry, where the tariff disparity is grossly inequitable to our industry? On the Middle East, could he say more specifically what is the object of the Danish President's visit to Israel at the present time?

My Lords, we, too, should like to thank the Minister for repeating the Statement, and in many respects we welcome the result of the Foreign Ministers' Conference. Notably, I think, we would welcome the fact that the budget solution is being actively studied. Here I would merely repeat what I said the other day; namely, that we do not think that we ought to go out for 100 per cent. satisfaction of our claims but we ought in the long run to consider some reasonable compromise on the budget.

We welcome the idea that there will be greater cohesion in the approach to East-West trade and we welcome the suggestion that there is going to be some reform of the food aid programme. Here, I think that the Minister would undoubtedly want to consult the report which the EEC Committee published last year on this point, in which we said that progress was necessary on this particular matter. On the other hand, on the whole question of GATT the Statement seems to be remarkably bland, if I may say so. It says:

"The Community will continue to press for improvements in certain areas".

It notes the progress made in regard to the Multi-Fibre Arrangement but it does not say what it is. It talks about making full use if necessary of the flexibility available within global ceilings in respect of the three dominant suppliers, Hong Kong, South Korea and Macao, without saying whether there will be any difficulty about that. As the noble Lord, Lord Cledwyn, has said, it makes a reference to the voluntary state arrangements without answering the questions which the noble Lord has put.

When one thinks that lately in the informed press there have been grave apprehensions about a failure in Geneva on GATT with a possible breakdown apparently of the entire world trading, may I ask whether the Minister is able to say if he shares in any way the apprehensions made by these important critics about the grave dangers of collapse of the whole system in Geneva which this Statement seems to gloss over to a large extent? Does he share those views or not?

I note that the European Parliament is going to study the proposals for a uniform electoral system, and here I beg the Government to consider the possibility that it would be disastrous if the proposals of the European Parliament are not accepted. Is the noble Lord able to say what chances there are that the Government will look favourably on them when it comes to the final solution?

I note that the Danish Foreign Minister is going to put forward the Ten's views on the Middle East. Presumably they have a common policy and a common view. How far does this policy and common view coincide with the American view which was put forward by President Reagan the other day, or is there any substantial difference between the two approaches?

My Lords, I am grateful to the noble Lords, Lord Cledwyn and Lord Gladwyn, for the questions they have asked. As the noble Lord, Lord Cledwyn, said, it was quite a considerable agenda. I will endeavour to answer the questions both as satisfactorily and as briefly as possible. The first question from the noble Lord, Lord Cledwyn, was: Will the budget problem be discussed in Copenhagen? The answer to that is, yes. The intention is that the presidency of the Community will raise this issue in Copenhagen at the European Council and will report agreement by the Foreign Ministers in the Council on which I have just read my right honourable friend's Statement about the handling of the recent paper by the Commission on the solution for 1983 and later.

The noble Lord also asked me about the Multi-Fibre Arrangement. The situation there is that substantial cut-backs in the clothing quotas of the dominant suppliers will be necessary to remain within the global ceilings. My right honourable friend the Minister of Trade has emphasised, however, that we believe that the European Community should recognise that Hong Kong is the only dominant supplier to offer a completely open market to European Community exporters. But within that general parameter nonetheless there are the global ceilings, and it is within those that the European Community is continuing to negotiate.

The noble Lord asked me a question about steel. Perhaps I did not make myself clear. The figure of 12½ per cent. which is quoted in my right honourable friend's Statement is the cutback of the volume of imports coming from outside the Community into the Community as a whole. Therefore, it is a 12½ per cent. cutback for each country which is exporting into the European Community.

The point which the noble Lord was putting to me was about the desirability of controlling capacity of production within the Community, a most important matter which has been the subject of newspaper articles recently. On that, I would say to the noble Lord that it is true that the United Kingdom has borne the brunt of capacity and manpower cuts. Let us be fair, however. We made those cuts because we had to do so and it was not done as a favour to the rest of the Community. We are now pressing our partners to do their fair share so that the benefits of the sacrifices already made are not squandered, and we intend to take a very firm stand on this issue. That really was the point which the noble Lord was putting to me.

The noble Lord asked me about improved procedures, which are referred to in the Statement, so far as the regulation of the food aid programme of the Community is concerned. This relates to trying to shift the basis and administration of food aid from dumping surplus production and instead trying to encourage agricultural development in the countries concerned. My honourable friend the Minister, Mr. Neil Marten, said some words about this in another place on 15th June. This really is another step in that particular story in a direction which I must say the Government believe is desirable.

Both noble Lords asked me about the reference made in my right honourable friend's Statement to Spain. The fact of the matter is that the Government feel that certain Spanish domestic taxes—and indeed some administrative practices, including for example fiscal discrimination against tobacco imports—are incompatible with the 1970 agreement. On the other hand, Spanish tariffs are unjustifiably high in relation to Spanish export competitiveness; for example, in areas such as—and I think the noble Lord, Lord Gladwyn, asked me this—automotive products, footwear and steel. It is these things which we are trying to get put right. That is why the Statement refers to Britain raising the problem of the trading imbalance under the European Community/Spain agreement and asking for a Commission report with proposals for action.

Both noble Lords asked about the Middle East. The aim of Mr. Ellermann-Jensen's visit to Israel representing the presidency of the European Community is to manifest to both sides of the dispute European willingness to contribute to the achievement of a peaceful solution. While there, I understand that Mr. Ellermann-Jensen will also express continuing European concern about Israeli policies in the occupied territories. The European view is that settlements are both illegal and an obstacle to peace. If I may answer Lord Gladwyn's specific point, we strongly support President Reagan's call for a settlement freeze.

The noble Lord, Lord Gladwyn, asked about the GATT discussions, which of course are going on at this moment. I understand the criticisms of the noble Lord about the very considerable difficulties which are attending these most important talks at the present time. The situation is that the Commission are in what amounts to negotiation on the basis of guidelines adopted by the Council. I am sure that your Lordships will understand when I say that I do not think that the position of the Community is in any way more difficult at this rather sensitive moment; but it is well known that the European Community concerns include the language of the political declaration, the whole subject of agriculture, the subject of services, the difficult but very important subject of safeguard action, disputes on settlements and the question of the trade of developing countries, among other problems.

I hope that that gives the noble Lord, Lord Gladwyn, an indication of where I think the particularly sensitive points lie in this difficult area. Finally, the noble Lord, Lord Gladwyn, asked about the unified electoral arrangements. The latest position on this is that the Council of Ministers had a brief discussion on proposals regarding the common electoral system and will consider them again in December. A number of difficult questions remain to be resolved and it is clear that final agreement will not be easily or quickly reached.

My Lords, the Minister's Statement covered an extraordinarily wide ground: East-West trade, the Middle East, the Far East and Hong Kong; relations with the USA, Central Africa and the GATT. It had only five words dealing with the most serious economic problem in the world. That was a reference to the fact that there is to be consideration of the Lomé Agreement. Is it not the case that in the third world 30 million people are dying every year from hunger and the absence of medical attention and should not the meeting of Ministers have given first attention to the most serious problem of death in the world?

My Lords, I am not sure that the noble Lord is being quite as characteristically fair as he normally is. I say that because agreement was recorded on a special aid programme for Central America, which is in fact Costa Rica, Honduras and the Dominican Republic. That is new. Then there was a new management regulation designed to improve the procedures governing the Community's Food Aid Programme, about which the noble Lord, Lord Cledwyn, asked me. Then there was the reference to the Lomé Convention. So that there shall be no misunderstanding, I should say that we are of course talking about Lomé III, which will not come into effect until 1985. This really is a reference to the preliminary run-up work to see that the Community is ready to get Lomé III into position three years from now, when Lomé II comes to an end.

My Lords, further to that question on the Lomé Convention, will the Government, in making their contribution to these preparations, bear in mind that there is a report of the Select Committee on the European Communities of this House dealing with this question? It includes the view that the provisions of the Lomé Convention should be extended beyond their present ACP coverage, and in particular to include the Indian sub-continent. Will the Minister give the House the assurance that that view will be taken fully into account by the Government in considering the contribution they will make to the preparations for Lomé III?

My Lords, I cannot give an undertaking that either Her Majesty's Government or the Community will agree with the point of view expressed in the report, but the report, of course, is valuable and important, and I certainly give the undertaking for which the noble Lord asks.

My Lords, in the Statement, I noticed the phrase:

"will continue to press for improvements in certain areas".

That phrase refers to the General Agreement on Tariffs and Trade. It seems to me that the phrase could cover a multitude of sins, and I should like to ask my noble friend whether Her Majesty's Government will continue to press for the continuation of the principles of the GATT. Is he aware that, if we do not do that and if we yield and try to take different types of action in regard to various countries which have been mentioned from time to time by the noble Lord, Lord Cockfield, though we could perhaps get some tactical gain, if we move towards protectionism we shall lose out badly in the long run?

My Lords, I will not repeat in answer to my noble friend what I said to the noble Lord, Lord Gladwyn, regarding the particularly sensitive areas which are under close discussion at the moment in which at the moment there is no solution. But I would say to my noble friend that any meeting of this sort must ultimately reflect a balance of varied views. We attach great importance to the success of the meeting as a contribution to the maintenance of the open trading system. That must be our primary objective.

My Lords, if we may return to the debate on the Motion, I should like to thank the noble Lord, Lord Banks, for having enabled us to discuss this subject today. It follows suitably a very good and timely debate which we had last week on the Charter for the '80s. That concentrated on disabled people. Today, we widen the discussion to take in the whole range of disadvantaged citizens. I was particularly interested in the noble Lord's references to a tax credit scheme, and would like to say a few words about that in a moment.

We must have in mind the plight of some of those disadvantaged people in our community. Those who are not only disabled but are at the same time elderly, ill and alone need our special attention. Another example is the single parent having to bring up a family of small children with no other source of income than what the state can provide, and certainly with no time to do a job. The noble Lord spoke of the level of benefits, as did the noble Lord, Lord Cledwyn, from the Opposition Front Bench. My noble friend the Minister has already replied to much of the criticism of the level of benefits, and no doubt if he speaks again towards the end of the debate he may answer any other points on behalf of the Government. In my view, this Government have done remarkably well on the question of the level of benefits, at a time of recession and when public expenditure of this kind has to be carefully measured and allocated.

I should like to address myself to another part of the Motion; that is, a reform of the structure of the system. Here I am in great agreement on many points with the noble Lord, Lord Banks. The system has now become immensely complicated. It is very difficult for the applicant to find his way through a jungle of procedures. It is difficult also for those who are trying to help an applicant to find his way. The sort of questions that arise are: What is he entitled to, and is it taxable?—because some are and some are not. Also, if he receives a benefit what will he be disqualified, in the way of other benefits, from receiving? These are some of the problems that arise.

It is a paradox that the reasons for this complexity have been good intentions. The system has evolved, if I may give an example from the area with which I am most familiar; that is, disablement. New benefits have been introduced in order to fill the gaps in the national insurance system. When that system was devised and introduced—that is, the present one which succeeded the pre-war limited systems—it did not cover, for example, someone who had been severely disabled from birth or from early youth, because it was completely attached to employment or unemployment. A person who was not available for work did not have an insurance number and did not start in the system at all. The same thing applied to a disabled housewife—someone who was overcome suddenly by an accident or some physical ailment which meant being in a wheelchair. Such a person was not covered because she was not in the national insurance system except through her husband. As a result, non-contributory benefits have been introduced and they have been welcomed. They were introduced, of course, largely as a result of pressure within Parliament. The invalidity pension, the attendance allowance (which was a very sensible addition) and the mobility allowance—these are all non-contributory benefits and they have been introduced to help, but they have all added to the complexity of the system. I should point out that the introduction of these allowances does erode the insurance principle and, of course, that has been a factor with successive Governments They have had to consider the large body of citizens who are within the national insurance system and who are paying their contributions and expect to receive reasonable benefits at the end.

The profusion of benefits has led to a profusion of medical tests as well as means tests. There are now many more medical and means tests than would be required in a single co-ordinated scheme. So I say to the Government—rationalise and simplify. This may seem a massive and daunting operation, but it would be well worth while in the long run.

Again, in the field of disablement, from the statements that have been made in your Lordships' House and elsewhere, it is clear that the Government and the official Opposition are both, in principle, in favour of a comprehensive disablement benefit. It is something which it is difficult to bring in and it will need time. I suggest that this should, in due course, be incorporated in a scheme to co-ordinate all benefits based upon a single return of income. This would avoid a multiplicity of means tests.

I should like to draw attention to the Green Paper of 1972 Proposals for a Tax Credit System (Cmnd. 5116) which was produced by the Conservative Government of that time. I was associated with it, because I was a member of the Cabinet at the time. I should like to quote a short piece from the foreword by the then Chancellor of the Exchequer and the Secretary of State for Health and Social Security. They said:

"If such a scheme were adopted, fewer people would be means-tested and others means-tested less often, and for the community there would be a large saving in administrative staff".

This scheme, which was put forward for discussion in a Green Paper at that time, would have brought together the Pay-As-You-Earn system and the social security system. It would not have replaced all benefits. It suggested that nine-tenths of the population would have been covered by it. It would not have removed the basic supplementary benefit or special measures for those in greatest need; they would have continued. The Green Paper also suggested that it would take about five years to bring in, once it was decided upon.

In my own inquiries in the last three years, I have discovered that the Government of today, while still, in principle, in favour of introducing such a scheme, find that it would be too costly to introduce in the near future. I should be grateful if my noble friend—if he is to reply at the end of the debate—could give me any more information about the present Government's view.

I noted that within the last few days the SDP have put forward proposals of a similar kind, and I heard them described on the radio as a new concept. I should like to point out that it certainly is not a new concept, and that that Green Paper 10 years ago was the start of a considerable national debate on the subject.

I should also like to touch on the question of advances in technology. The computers which are at our service today could revolutionise the whole system of social security. There should be no problem about keeping data up-to-date or about making it immediately available. There has to be confidentiality. Tax returns are supposed to be kept by the Inland Revenue for their purposes only. Means tests of various kinds, also, are supposed to be confidential. As my noble friend reminded us just now, the Government have issued a consultative document about the introduction of computers. They have also stated that they are hoping to bring in legislation about confidentiality of computers and to pass it through during this Session. I believe that we must use these methods. However, the information must be used for the authorised purposes only.

The Government, in the changes which they have made so far—and some were described by my noble friend earlier this afternoon—have aimed in the direction of simplification and rationalisation. In their reforms, the benefits have been amalgamated and simplified. To the extent that they have done that so far, I welcome what they have done, but there is a great deal more to be done in the simplification of the structure. Besides meeting the requirements and making the benefits as valuable as the country can afford, we ought to ensure that the system is one in which everyone in the country can have confidence, and that all who are eligible can benefit from it without doubt and without difficulty.

My Lords, I also should like to express my gratitude and that of my noble colleagues to the noble Lord, Lord Banks, for introducing this debate with his usual unrivalled command of this complex subject. Perhaps it is the very complexity of it that has deterred more people from putting their names down. Unemployment commanded 24 speakers recently, and disablement over 20 a few days ago, while the welfare state and social security has mustered only 12. Yet it would be a pity if this subject were always to be confined to a handful of regulars, and I am delighted to see that the noble Earl, Lord Onslow, for example, has put down his name, together with the noble Lord, Lord Harris of High Cross, who will no doubt approach the subject in his customary trenchant manner.

It is the second half of the Motion, which is concerned with reform of the structure, to which I want to address most of my remarks. First, however, something has to be said about the Government's record in relation to the first half of the Motion. Despite the able apologia of the noble Lord, Lord Trefgarne, this record leaves much to be desired. Through the two Social Security Acts of 1980 and the Act of 1981, about £1½ billion in real terms was taken out of the system and this must go down on the record; it was mentioned by the noble Lord, Lord Banks. This was probably done in the ideological interests of rolling back the frontiers of the state, while failing to distinguish between state trading and utilities, on the one hand, and social security or basic livelihood, on the other.

The Government claim that total social security expenditure has risen—I think the noble Lord, Lord Trefgarne, mentioned a total of £34 billion—but this has little to do with improvement of benefits or even with the maintenance of their level. It is largely the result of unemployment. The sick, disabled, retired, unemployed and mothers and children have all suffered. Child benefit, at its last up-rating, was still well below the level inherited by the Government. Earnings-related unemployment benefit, to which some people had contributed for years, has been abolished.

The Government have pigheadedly continued to resist pressure, not only from Opposition parties but also from a significant number of their own Backbenchers, to restore the 5 per cent. cut made in unemployment benefit in 1980, on the clear assurance that this would be restored once the benefit was brought into tax. And there is also the question of the basic pension component in invalidity pension which was similarly abated, but has not been restored pending interminable Treasury cogitations on suitable tax arrangements.

Many invalidity pensioners are more adversely affected by the abatement, which is a flat rate, than they would be by tax, which would be eased by allowances. Can the Government say when they plan to bring the invalidity pension into tax, and whether the abatement will be restored when they do? And if this is their intention, can they say where the logic is in refusing to restore the unemployment benefit to its proper level, now that they have brought that into tax? Will they give an undertaking in this House this evening to make this good in the next Budget, as they are in honour and fairness bound to do and should have done in the last one?

I want to turn for a moment to disregards—that is, the question of small earnings compatible with certain benefits. The present policy on disregards makes it difficult for poor families to improve their position greatly without being guilty of an abuse of the regulations. In particular, single women with dependent children need to be able to earn more without losing their entitlement to benefit.

As regards the recommendation of your Lordships' Unemployment Committee, that the earnings disregard for the unemployed should be raised from £2 to, say, £4 a day, the Government, in their response at paragraph 75, say that,

"the level of disregards is not immutable but there are risks in increasing this. Substantial increases would … narrow or even eliminate the gap between income in and out of work."

But it is not the fault of the vast majority of the unemployed that they are out of work. And this gap has already been narrowed by the poverty trap, to which I shall revert later. Furthermore, a more flexible policy on disregards would not be incompatible with, and indeed could flow from, the Government's policy of taxing short-term benefits. Can the Government not be a little more forthcoming here? I shall be grateful to the noble Lord, Lord Trefgarne, if he will, when he comes to wind up, devote a few words to this question. I know he has already spoken about the disregard allowed to pensioners, but I should like to hear the Government's attitude to other groups in this respect.

I turn to the second part of Lord Banks Motion, which addresses itself to reforming the structure of the system, which everyone agrees is excessively complex—a point made by the noble Lord, Lord Campbell of Croy. There are over 40 means-tested benefits run by a variety of different departments, each requiring to be claimed separately. Every year about 24 million new claims are processed. Every week some 23 million individual benefits are paid. Even so, benefits, as we all know, are often not claimed, perhaps out of pride, perhaps through unawareness of entitlement, or even because the entitlement under a particular heading is very small. It is estimated that some 4 million pensioners are entitled to additional means-tested benefits, but the take-up of supplementary benefits and housing benefits by the elderly is only in the region of 65 per cent., as a result of which many elderly people are living below the poverty line. Family income supplement is notorious for its low take-up. Yet low take-up of benefits defeats the entire object of the social security system. Most studies point to complexity as the prime reason for low take-up. Simplification must, therefore, be one of the first objectives of reform.

Any really radical reform requires a merger of the tax and social security systems, and it so happens that a golden opportunity will be offered by the computerisation of the Inland Revenue, due to take place, I gather, in 1988 or thereabouts. Any responsible political party should, in my view, be working on proposals designed to take full advantage of this new technological capability as soon as it becomes operational. One of the most important advances that will become perfectly feasible will be an automatic system of calculation and redistribution without the necessity of claiming. Most of the complexity and all of the stigma attaching to the present system can thus be removed and the take-up problem eliminated.

It is, of course, well known that the Liberal Party has long favoured a system of tax credits, as excellently outlined by the noble Lord, Lord Banks. The noble Lord, Lord Campbell, reminded us of the Conservative scheme of 1972. The Unemployment Committee in its report (paragraph 12.55) recommended that serious consideration of the Liberal tax credit scheme should be reopened. My party has in a recent discussion paper sketched the possible shape of a tax benefit scheme. I hasten to assure the noble Lord, Lord Campbell, that we do not claim total originality here. What is certain is that the debate on the best method will undoubtedly continue among all those who are convinced of the necessity of putting our social security and tax systems on a fairer and more rational basis. This debate has already received a most valuable impetus in your Lordships' House this evening.

There is no reason, whatever our long-term aims, why we should wait on computerisation before we do anything. Undoubtedly, the most absurd and offensive of all the present anomalies is what is generally known as the "poverty trap". This has a double bite. The main disincentive to some of the unemployed to seek work is not that they have never had it so good but that their earnings in work will not be much different from their earnings out of work. Then there is the disincentive to many people who are in work to earn more. Both these conditions are caused by the ruthlessly regressive nature of national insurance charges and the suddenness with which benefits are withdrawn.

The poverty trap is at its worst for people in work who have children. This is clearly shown in Table 2 of my party's Green Paper, Attacking Poverty, which I think is the proposal to which the noble Lord, Lord Campbell, was referring. Under the present system, a couple with two children paying £15 rent and £5 rates and receiving only the husband's earnings has a net income of £91·97 if the husband earns £50. But if his earnings rise to £80 the family's net income falls to £90·69, and if he reaches the giddy heights of £100 they are only very minimally better off" at £92·80. In other words, such a family has virtually the same net income whether it earns £50 or £100 per week.

How on earth could such an extraordinary situation arise? The answer in the above case is that, for every additional pound earned, the family pays not only 38·75p (shortly to be 39p) in extra tax and national insurance contributions but also has 73p deducted from benefits. When it is said that a redistributive tax credit or similar scheme can only be introduced at a very high marginal rate of tax, that is simply to overlook that the very poorest people are in some circumstances already paying an effective total tax rate of 112 per cent. on each additional pound of their earnings. This cannot possibly be allowed to continue.

I will not go into our scheme in any great detail because it has not yet been adopted as party policy, but the essence is that the benefit withdrawal rate must be low enough for a family to improve its position by moving from unemployment into employment or by earning more. We therefore propose a basic benefit whose effect is illustrated in the bottom half of Table 2 of this paper. It was also printed on the front page of The Times a few days ago. The family improves its net income position steadily between £50 and £120 per week and it is only when it is approaching £200 that the scheme becomes neutral and the family sees no improvement.

This basic benefit is intended to replace family income supplement, rent and rate rebates and free school meals, and will be calculated according to the number of children and housing costs. Everyone will be entitled to the benefit, and it will be gradually withdrawn as income rises, smoothing out the worst effects of the poverty trap. Child benefit will still be paid to everyone. One-parent families will get extra help, especially with housing costs. Unemployment and sickness benefit will be increased by 10 per cent. The earnings conditions compatible with disablement benefit and old age pension will be removed.

How is this to be paid for? Although the plan I have very roughly outlined could serve merely as the first stage of a more ambitious scheme with wider resource implications, it is feasible as it stands, largely through the redistribution of existing resources. The married man's tax allowance would be ended; there is no justification in logic or fairness for giving a married man 1½times a single person's allowance regardless of whether there are any children or not. At the same time there would be a single year's freeze of all personal tax allowances. Only a relatively small balance, after these two measures, would be a charge on the PSBR.

Commenting on these proposals in a leading article, The Times wrote:

"There is, it will be seen, a hefty redistributive element in this in favour of the poor and at the expense not only of the rich but of everyone who is not poor. That is not a very popular line to take. The SDP respresents itself as a radical party wedded to greater equality; even so, it will require some electoral courage to accept the full implications of what is proposed here".

I think electoral courage is precisely what is needed, and I wish we could attract more press comment of this kind.

There will always be people who believe that the welfare state is an excrescence on the body politic and will seek to dismantle it or reduce it to the most minimal kind of safety net. We may even hear that view expressed in your Lordships' House this evening, though it has not been so far. Certainly, anything so large and with so many ramifications is bound to lead to some abuse and waste. That is a just reason for vigilance, and the noble Lord, Lord Trefgarne, is quite correct in speaking of the need for administrative efficiency. But it must never be forgotten that, just as the primary purpose of the NHS was actively to promote the health of the people of this country, not just to tend the sick and dying, so the purpose of the social security system and of the social services was and should remain actively to promote the welfare of the people of this country, and the quality and dignity of their lives. That is what the welfare state means. It is not just a question of picking people up when they fall by the wayside. The more people suffer ill-health and poverty and unemployment, the more likely their children are to do so, and thus the vicious cycle of deprivation widens and deepens and in the long run more and more expenditure is incurred in picking up the pieces.

I am not sure that the present Government really understand this. That is why in the debate on the Queen's Speech I criticised them for their lack of a social policy. I spoke earlier about the poverty trap. There is another poverty trap and that is the trap of poverty of thought into which I fear the Government is in danger of falling unless the noble Lord, Lord Trefgarne, can pull them back from the brink. I am equally clear that the Social Democratic Party and the Alliance will always avoid that trap and keep the need for a fair and far-reaching social policy always clearly in view.

My Lords, before the noble Lord sits down may I ask him a very short question—I was fascinated by his speech. Is not this a case for cable television to unravel?

My Lords, I am grateful to the noble Baroness. I am afraid I had the misfortune not to attend the debate on cable television. Perhaps I may direct her attention to that debate.

My Lords, I join other noble Lords in thanking the noble Lord, Lord Banks, for the opportunity to discuss this important issue. I was only disappointed, if I may say so, in his rather unadventurous approach to this challenging question. I found myself in much agreement with what the noble Lord, Lord Campbell of Croy, said and I am delighted to follow for the first time the spokesman for the Social Democrats, the noble Lord, Lord Kilmarnock.

I reserve my main admiration for the noble Lord, Lord Cledwyn of Penrhos, for the manner, if not the content, of his splendid assault. Although his chief gift to the poor and handicapped was to shower them with the familar promises of other people's money after the election, it was delivered as a magnificent peformance. I hope he will not mind my saying that his admiration for Lloyd George is well based because his lilting phrases establish him as a contemporary Welsh wizard in our midst. If he ever considers giving lessons to tongue-tied mortals like myself, I would pay for them from my own pocket and not charge it against Lords' expenses.

I thought I caught him out in a verbal contradiction. In referring to the Central Policy Review Staff paper—the invisible paper that we are not allowed to see—he referred to it as proposing radical reforms and went on to tease the Government against taking what he called that "reactionary course". That would provide me with a good banner for my contribution because the flag I would fly is the flag of radical reaction. I believe that we should be reactionary—we should be deeply conservative—about the fundamental principle of welfare, in helping the poor and others who need our assistance, but I believe we should be radical and adventurous about the framework of policy that would be necessary to achieve that goal.

It seems to me that the trouble with the defenders of the current welfare state is that they so prostrate themselves before the sacred, if somewhat tarnished, structure that they cannot see the central reality that indiscriminate state charity has created an unsustainable burden. It is an unsustainable burden not only in Britain but in many Western societies. I recently looked at the Beveridge report, which was published 40 years ago, in November 1942. It pitched the cost of the National Health Service at £170 million in 1945 pounds. That compares with the present bill of £14,000 million. After the most generous allowance I can make for inflation, the real cost of the NHS has escalated five-fold. Likewise, his estimate of pensions has gone up four-fold and sickness and disablement pay has doubled in real terms. Yet, none of us is satisfied with the provision that is thus expensively provided.

I have my own figures that are different from the Minister's on the cost of the welfare state. If we include education, health and social security, the figure in 1981 from the Blue Book exceeded £63 billion, which is more than half of all Government spending. Since, on my calculation, Government spending comes out at more than half of the net national income, it does not take much mathematics to calculate that welfare spending accounts for 29 per cent. of the total national income.

My complaint is that the greater part of this massive, crippling burden has nothing whatever to do with helping the poor. The true source of this indiscriminate generosity has less to do with compassion than with competition for votes. I believe that since the war we have witnessed a shameless process of electioneering, pensioneering and compassioneering. In a modern version of Eatanswill, we have encouraged the fatal illusion of democracy that everyone can enrich themselves at the expense of everyone else.

The reality to be discovered in the figures published each February by the Central Statistical Office is that families with quite modest incomes pay more in total taxes than the value of all the benefits they get back from the welfare state. The dilemma for the hard-pressed taxpayer as a voter is whether he should press for reduced taxes, which he would like, or join a lobby for sectional benefits in the hope of enriching himself further at someone else's expense. We must not think that the proliferation of claimants has yet been exhausted. We all know what the DHSS defines as "the female-headed single parent family", but it was at the Social Democrat conference where one earnest, if anguished, delegate looked forward to claims from,

"as yet undiscovered minorities".

The inevitable result of bribing people with their own money is that income tax now reaches down, as the noble Lord, Lord Kilmarnock, said, to rob workers below the official poverty line. Perhaps I should declare an interest in the research monograph entitled The Moral Hazard of Social Benefits, to which I subscribed a brief introduction. The author, Mrs. Hermione Parker, estimated that there were more than 5 million victims of taxation who are at risk from the poverty and unemployment traps. Can we seriously doubt that this wholesale annihilation of incentive explains something of the unemployment statistics as well as the growth of the black economy?

Whatever our differences in detail and in larger issues, it seems to me there should be no dispute that to restore work incentives requires opening up or widening the gap between social benefits and take-home pay. In this context, indexation is doubly damaging at a time when net wages are often falling behind the rise in prices. But if we shrink from holding down benefits we have no choice but to raise the tax thresholds, which turns out to be very expensive. To restore the pre-war position, whereby people on average earnings paid no income tax, would cost about £25 billion, which is a large slice of the total yield from income tax. To move some way in that direction we would have to impose severe curbs on central and local government spending. To my mind, the prize is that lower taxes would do more than anything else simultaneously to abate wage demands, galvanise the economy, and thereby check unit costs of production and restore jobs.

I believe that we must go back to the debate that was conducted in the 1960s and 1970s about the structure of the welfare state and concerning the relative merits of selective versus universal benefits in cash and kind. The opponents of selective welfare used to get rather steamed up about the hated means test. Well, today, we appear to have about 57 varieties of means test when, in principle, we need only one. My argument is for a reverse or negative income tax. Under this system a single all-embracing test of income and need for each family would determine how far they are sufficiently well-off to afford to pay tax, or how far they are poor enough to require a subsidy. By confining state help to topping-up low incomes we would be able to leave the majority of people with more of their own money in their pockets to pay their own way in welfare.

It is in my view pure moonshine to pretend that most people would not be able to survive without the welfare state. It is nearer the truth to say that most people have been so impoverished by taxes to pay for so-called "free" services that they cannot afford to pay directly for the services of their choice. We have returned with a vengeance to the pauperisation of the old Poor Law, whereby millions are made appendages of the state and prevented from acting responsibly to take care of themselves and their families. As the great jurist Dicey warned in the early years of this century: state help has killed self-help.

Since teaching social economics at a Scottish university some 30 years ago, I have come to the conclusion that the wrong turning was taken not in 1945 after the Beveridge Report, but in 1906, because it was after 1906 that a nominally Liberal Government began the debasement of the political coinage with the great rallying cry of "Ninepence for fourpence".

I wish to raise a nobler vision, which was set forth at about the same time by the Professor of Economics at the University of Cambridge. Towards the end of the last century Professor Alfred Marshall went out of his way to oppose the provision of universal pensions. He did so on the following exemplary grounds. He said:

"Universal pensions do not contain the seeds of their own disappearance. I am afraid that, if started, they would tend to become perpetual".

How right he was. He went on—and I commend these thoughts to your Lordships' reflection in leisure times—

"I regard poverty as a passing evil in the progress of man; and I should not like any institution started which did not contain in itself the causes which would make it shrivel up as the causes of poverty shrivelled up".

I conclude with a straight question from the Cross-Benches. Can we any longer afford to ignore these more discriminating, selective and responsible approaches, when politicians of all parties have made such an unholy mess of the present welfare state?

My Lords, I, too, should like to thank the noble Lord, Lord Banks, very much indeed for instigating this debate. I greatly enjoyed his presentation of it. I should also like to apologise to the Minister, the noble Lord, Lord Banks, and your Lordships as I may have to leave the debate early if it does not conclude by 6.30, because I have to attend a meeting of the parent/teacher association at the school which my child attends, and I dare not miss it because I must face my child afterwards.

I should like to make one brief contribution to this debate, and that is to reflect a few ideas about the present position of children within the welfare state, while perhaps at the same time pointing out how in some cases what is presently being provided is totally inadequate. I hope that I shall not be accused by the noble Lord, Lord Harris of High Cross, of doing this in a compassioneering way. I assure him that I will be merely trying to state a few facts.

However, before doing that, I should like to say something about the welfare state in general terms. During the number of years that I spent abroad, serving in various postings with my husband, we always felt secure in the knowledge that there was at any rate, whatever else happened, one British institution to be proud of—and that was our welfare state. Other countries, far from having achieved such a system, had indeed not even aspired to such a system. So although there were at times incidents in British politics which were difficult to represent and defend, we knew that our particular system of guaranteeing communal provision for everyone in Britain, regardless of their position in society, was a source of envy to our host countries. We were proud of it and took a great deal of satisfaction in talking about it and describing its function. So if the welfare state continues to be eroded, as it has in the last three and a half years by some mean and petty cuts, apart from the obviously adverse effect this will have on Britain's least privileged families, that source of justified national pride will also disappear.

I should like to turn to the specific points I wish to make regarding the circumstances of certain groups of less privileged children in Britain today. For there is growing and unequivocal evidence that the extent of poverty among children here in Britain in the 1980s has been substantially underestimated. Surely our children are part of our country's future; but, if some of them continue to be treated in such a miserly way, they might well represent a highly destructive element in that future. So we must surely make a greater investment in today's children in order to try to safeguard that future.

Thus, accepting the fact that childless couples and single people have over recent years fared much better from benefit and taxation policies, let us try and see what are the best remedial measures needed to restore the balance between single people and families. In my view the arguments for increasing child benefit are quite overwhelming. There seems no doubt that at present the provision for children in families dependent on social security are not adequate to meet the costs of a child. Research has brought out irrefutable proof of this. Among the conclusions in the recent issue of a Child Poverty Action Group publication it is stated that:

"The evidence that existing scale rates are more inadequate for families with children confirms that it is the children's rates that are most out of line with needs".

It goes on to say that the extent of poverty inevitably depends on how it is defined, but a more realistic allowance for the basic needs of children indicates that the extent to which children are the victims of poverty has been seriously underestimated.

I was going to quote an extract from Despite the Welfare State, but the noble Lord, Lord Banks, got in first. I was going to quote exactly the same extract as he quoted. Nevertheless, I should like to reaffirm what it says because it was, after all, a Government sponsored research project. It stated:

"that it is impossible to resist a reiteration of the general conclusion that benefit rates, particularly of supplementaty benefit and child benefit, are simply too low at present for some families to avoid real hardship and damaging consequences to the health and other life chances of their children".

If that is the conclusion of Government sponsored research, why, indeed, do the Government not take heed and act on such recommendations?

I should like very briefly to give your Lordships some of the arguments which prove that a rise in child benefit and an adjustment in the supplementaty benefit rate are the only ways of helping our poorest children and restoring to families some of the resources which have been redistributed towards the childless over the past two decades. First, an increase in child benefit, if it is seen, as it were, as tax relief, is the only way in which help can be directed specifically to families with children. It is more redistributive to the low paid than raising personal allowances or cutting tax rates.

Secondly, child benefit is also the best way of dealing with the poverty trap and the unemployment trap. The number of children who are dependent on unemployed parents stands at present at 1 million and will doubtless rise. Thirdly, it is also a fact that increasing family income supplement is no substiltute, as such an increase benefits only a small proportion of those in need of help, as I understand that only about half of those eligible for it do indeed claim it.

Fourthly, child benefit allowance, going as it does directly to the mother, has an additional importance in the positive effect it has on her weekly budgeting. Any increase would doubtless be very easily and rapidly absorbed on the basic needs of the children. And on this point I would like to ask the Minister his views on the wisdom of disallowing the choice to certain mothers of drawing child benefit in weekly or monthly instalments. I know that mothers who were previously eligible for child benefit were given the choice of drawing it either in weekly or in monthly instalments, and that certain categories of mothers still have the same choice. But why not give this freedom of choice to all mothers? Otherwise it would seem to me that some young housewives might well fall into that terrible snare of overspending at the beginning of the month, when they have their whole allowance, and having nothing left for the end of the month.

Finally, in my view, everything points to the increasing need for priority to be given to child benefit in the next Budget. If, as has been widely suggested, personal tax allowances are increased by more than the rate of inflation, it is surely imperative that child benefit is increased by at least as much, otherwise there would be a further deterioration in the relative position of families with children. Whatever happens to tax allowances, there can be no doubt of the vital importance that child benefit should be restored to its April 1979 value. Further to this, it could be argued that the phasing-out of the married man's tax allowance, to which the noble Lord, Lord Kilmarnock, referred, would indeed make provision to increase the real value of child benefit above its 1979 value.

When one reflects on the fearful reality that 6½ million people in Britain are now dependent on supplementary benefit—a number which represents over 11 per cent. of the total population—and when one further reflects on the ensuing poverty that this must bring into so many of our children's lives, then one cannot but wonder what the members of the Cabinet, who I seem to remember were asked to go off and think about the family during the Recess, came up with. Perhaps for holiday reflection it was more agreeable and comforting to think of the conditions of life enjoyed by Britain's more well-to-do families.

Lastly, I should like to ask the Minister one question about the plight of social security offices in various parts of the country. As he knows, the coincidence of the increased number of claims which unemployment has brought about and the 2 per cent. cut in the social security workforce has brought the system near to breaking point. The situation in the Birmingham offices is critical and last week I read of similar conditions prevailing in Penzance, where it appears that unemployment is nearing 20 per cent. Social security officials there say that they cannot process any more claims for supplementary benefit before January. The manager in the Penzance office is quoted as saying:

"It's a problem which is building up in social security offices throughout the country. We have only 51 staff and 2,500 people claiming supplementary benefit. We simply cannot cope."

Therefore, will the Minister say whether the Government are planning to take action on staffing these offices adequately in order to meet the exceptional needs brought about by their economic policies? The Minister referred to this streamlining, but I do not think that he means it to have this effect. Imagine being a mother at this time of year, with the special demands that providing a nice Christmas for her family brings. Think of her not being able to get possession of the benefit to which she is fully entitled. I cannot help feeling that such a thought might well take the gilt off some of the festivities being enjoyed by more well-to-do families this Christmas. Therefore, I conclude by saying that, all in all, I fear that perhaps that great flame of pride in our welfare state hitherto nurtured by our overseas representatives may just be beginning to flicker a little.

My Lords, I, too, am most grateful to my noble friend Lord Banks for raising this important subject, especially at a time of year when the needs of pensioners are at their most critical. I am pleased that the pensioners are to receive their bonus this year, but I am disappointed that next year the Government propose to take that bonus away. It seems to me that that is an unfair and a totally unnecessary action to take, as there is considerable agreement that the retirement pension is too low. This is borne out by the fact that a large number of pensioners have to resort to supplementary benefit, which to many is undignified and embarrassing.

Liberals have argued for 20 years that the single person's pension should represent 33 per cent. of average national earnings, and the married couple's pension 50 per cent. of average national earnings. In June of this year they were 22·45 per cent. and 33·3 per cent. respectively. This falls far short of what we are aiming for. We welcome the bonus as a step towards that aim and, in doing so, deplore its planned removal. Under the present system, pensioners are enabled to catch up a bit this year, but they will fall back next year. It does not seem fair to raise their standard of living for a while and then let it fall below that level.

All this is caused through having a reference period six months in the past and six months in the future. This involves forecasting the future rate of inflation and, as we all know, mistakes are inevitably made. It would be far better to have a reference period of 12 months in arrears, so that a fairer assessment could be made. It was on that basis until the last Labour Government altered it, adversely affecting the pensioners in so doing. I urge the Government seriously to reconsider their actions, especially now when inflation is falling and it would be far easier to revert to the old system.

My Lords, it was a great pleasure to listen to the noble Lord, Lord Cledwyn, advocating scattering gold like Danae to provide extra payment after extra payment as if money was no object, and complaining of the fact that her Majesty's Government had presided over the first manufacturing trade deficit since the Industrial Revolution. We did not hear him wax quite so lyrical over the fact that we had exported grain for the first time since the Battle of the Nile, but then he might have had to give credit to my noble friend, and I am sure that nothing could have allowed him to do that.

The noble Lord, Lord Kilmarnock, was advocating the plan of the Social Democratic Party to abolish the poverty and unemployment traps. I believe that this has been put through various computers and it has been found that it does not achieve either of those particular worthwhile objectives. I think that one must give credit to my noble friend Lord Trefgarne, because in his opening speech he made an extremely important point which we must all wear firmly and permanently at the front of our minds. It is that the welfare state can and will only be as good as the amount of wealth created by the rest of the country to pay for it. It is impossible to have a welfare state with nobody working; it is impossible to have a welfare state in a populated desert, because there is nothing to pay for that welfare state. Until we realise that, it is no good advocating more pensions, more hospitals, more this or more that, because they do not grow on trees.

The present Government have done their level best to maintain benefits and be as generous as they can be in the present world and British trade depressions. But the British social security and tax system, like the British people themselves, is of mongrel descent. Its ancestors include William Pitt, Bismarck, Beveridge and Lloyd George, and that is quite a jolly mixture. As both the noble Lords, Lord Banks and Lord Campbell of Croy, said, it is almost incomprehensible and fails in its job of redistributing income in a fair and equitable fashion.

This is not too surprising, as four authorities do the redistributing. First, there is the Treasury, exacting its income tax and national insurance contributions, with their allowances and tax thresholds. Surely the noble Lord, Lord Banks, is wrong in pretending that national insurance has anything at all to do with insurance; it has not. It is a straightforward method of taxing and it is a hangover of the hypothecating of revenue, which the Treasury normally disapproves of in every other sense. If it was insurance, then, like motor insurance, it should be run by an insurance company and not by the Treasury.

Secondly, there is the DHSS, with its massive social security payments. Incidentally, according to very well-informed sources, the staff are low paid, sometimes taking home less than they pay out to clients. In one out of two offices the staff are so demoralised that there is a 60 per cent. turnover of people every year. Thirdly, there is the Department of Education for free school meals, student grants and school maintenance allowances and benefits, and, fourthly, the local authorities with their social security payments, housing benefits, et cetera. The present cost of income redistribution is £69.18 billion for 1981–82, made up of £31.42 billion direct support—that is, social security, student awards, free school meals, MSC benefits and allowances—£33.3 billion for tax reliefs and allowances, and £4.46 billion on housing expenditure.

I tried to explain to your Lordships in the debate on the Queen's Speech some of the dottinesses and unfairnesses which have been found by Mrs. Hermione Parker's monograph to the Institute of Economic Affairs called The Moral Hazard of Social Benefits. Since that time she has received letters of complaint from aggrieved citizens. These range from a pensioner claiming not only that his income from a combined state and superannuation scheme was less than that of the state pension and supplementary benefits of a neighbour but also that he paid tax on his £44.63 per week and his neighbour paid no tax on £55 per week. Another correspondent complained that her niece had had a job sewing knickers, but the niece was better off lying in bed all day. This is not surprising at all. The escape point from the poverty trap for a single woman is £97 per week, which is 124 per cent. of the average female worker's wage in this country. I am prepared to bet, my Lords, that knicker sewing pay in the North West is not 124 per cent. of the national women's wage.

The poverty trap, as most of your Lordships are probably aware, is when earnings from work are subject to income tax, even when those earnings are below the entitlement levels of means-tested benefits. Add to that muddle the fact that to go to work incurs expenses and it is possible to see the massive incentive for the combination of idleness or the black economy which our present system generates. Can we really be serious in our desire to encourage learning and training if a school leaver who registers for unemployment loses his supplementary benefit if, instead of hanging around billiard halls or street corners, he studies for more than 21 hours a week? University students get mandatory grants, trainees almost certainly nonexistent discretionary grants. Why?

The Economist newspaper last week showed that a man with two children earning £60 a week has a net income of £100.5. If his wage increases by 100 per cent. to £120 a week his net income is £104.44. Surely that is disincentive. Incentive is what we all want, with a floor, and a good floor, below which no one can fall. The noble Earl, Lord Gowrie in his winding-up speech on the Queen's Speech on 10th November stated in column 346:

"We have to work away at this poverty trap difficulty. It is of course extremely expensive. The best answer is to get a more competitive economy and get the overall level of wages up."

My noble friend was very badly advised as to that answer. The economy has to grow by a phenomenally large amount to allow wages to rise above the poverty trap level, and Her Majesty's Government are at the moment preaching wage restraint like mad. I heard the Chancellor doing it on the wireless at lunchtime.

By increasing index-linked social security benefits and others by 11 per cent. and trying to hold wages to 4 per cent. the Government have increased the poverty trap and made the problem worse. In other words, the total number of adults estimated to be at risk from the poverty and unemployment trap has been increased from the horrifying figure of 5½ million souls. Another muddle surfaced in yesterdays's Guardian newspaper. Supplementary benefit, it appears can be claimed for district heating schemes. However, councils have the power to reduce the amount charged, but the tenants are entitled to the full amount from supplementary benefit, which is fixed. Did the Government mean to contribute this extra payment or was it a mistake? If it was intentional it is odd that they did not boast about it. And why suddenly benefit this one group?

A pledge for a tax credit scheme was part of the Tory policy at the 1974 election. I suggest that there is an alternative, and that is its lineal descendant, the basic income guarantee scheme. This has been proposed by Sir Brandon Rhys Williams to the Treasury and Civil Service Committee sub-committee in another place. His scheme is cash neutral. In other words, the costs are the same as today's non-system. It proposes that everyone should be given money by the Treasury as of right. There would be a payment for each householder, each adult, each child, each expectant mother, and probably each lone parent, and old people's payment that varies from £5 at 65 to £15 at 85 in excess of the normal basic income guarantee, because growing old costs more, as has already been said. There would be home care and invalidity and disability payments. There would have to be one small residual means-tested benefit for housing costs in certain circumstances over £10.75 per week. All of this evidence is in fact in the evidence to this sub-committee, but it is so important that it is worthwhile hearing it again.

To pay for this, all wages over the basic income guarantee are taxed, probably from 30 per cent. up to 60 per cent., but with no allowances and no thresholds. The total cost of the scheme at its widest is £118 billion, but that includes the abolition of the present income tax and national insurance contributions, and off that comes £32 billion made up by abolishing social security—that is, pensions, superannuation benefits, family incomes supplement, free welfare milk, unemployment pay, disability allowances, et cetera—which comes to £29·48 billion. Administration, student awards, free school milk, MSC grants and allowances, and rate rebates make up the rest. Therefore, the total bill would in fact be about £86 billion, and that would come from a tax base, excluding the black economy, of approximately £170 billion.

This produces an overall tax amount needed to be raised for it to be totally cash neutral of 50·53 per cent., if it is all paid by the employee; but, as I have previously said, the same money could be raised with rates of 30 per cent. to 60 per cent. and a payroll tax paid for by the employer of 10 per cent. That scheme is cash negative. It is a scheme which allows people to work as much, or as little, as they like, but it is always profitable to work. At the moment we have a system where on very frequent occasions it is not profitable to work, and that is not good for us; and considering the fact also that we are going to be faced with a lot more leisure time as automation and various other things come into being, this is an important point.

The costs have in fact been calculated on a basis that there is no change in the black economy, but by the administration of the basic income guarantee the black economy would be discouraged very considerably, and so the tax base could widen by anything between 4 per cent. to 15 per cent. It would lead to easier work-sharing schemes, blur the edges between employment and unemployment and allow people to retire, or not to retire, when they liked. It would allow the disabled to contribute to society more than they do at the moment, and it would end the unfair discouragement of effort and pride which our present methods generate. Above all, it would discourage legitimate fiddles like the one of doing no overtime in the week that family income supplement is assessed so as to qualify for it, and then going back after the family income supplement has been fixed for the year to the full overtime allowed.

My Lords, the whole House is grateful to the noble Lord, Lord Banks, for introducing this Motion and giving us the opportunity to discuss the crucial issue of the welfare state. I do not intend to take up the second part of his Motion on the reform of the welfare state. Perhaps we can discuss that another time. What I should like to do is to follow him and the noble Lord, Lord Kilmarnock, in their argument that really contradicts a great deal of what the noble Earl who has just sat down has said, and equally what the noble Lord, Lord Harris of High Cross, had to say.

There is a great misunderstanding on the Benches opposite—indeed, in many parts of the country—as to the real meaning of the welfare state. It is not a charity or state hand-out. It is not even mainly dependent on the contributions of the present producers, the workers of today. It is a return to those who—many of them, most of them—have spent a lifetime's work in contributing to the wealth of the nation, plus a contribution from the taxation of other workers. It is a community, communal, effort to maintain ourselves as one nation, and it should be recognised as such.

Above all, we should get away from the concept that welfare state benefits are charity. A great deal of the benefit that is paid out comes from the money that has been paid in by the recipients, and—this will, no doubt, be pointed out—the extra amount that is necessary has also been contributed to by the workers through the often 45 to 50 years' work of the recipient workers. That concept of the welfare state, going back into the 19th century, was put into practical form in the work of Lloyd George, but above all in the work of people like Nye Bevan and Jim Griffiths in the Attlee Government.

I intend to concentrate this evening on two issues regarding the present conduct of the welfare state by the present Government, the first being unemployment benefit. Two years ago, unemployment benefit was reduced by 5 per cent. under the Social Security (No. 2) Bill 1980, and the then Secretary of State said:

"As the unemployment benefit comes into tax, so the rationale for the 5 per cent. abatement ends".—[Official Report, Commons, Standing Cttee B; 30/4/80; col. 526.]

Unemployment benefit came into tax in July of this year. Is it unfair to ask the Government when they will honour their pledge? Is it unfair to accuse them of having already broken that pledge? It was a clear statement, made by the Secretary of State in 1980, that the rationale would come to an end when unemployment benefit came into tax. It has now been in tax for the last four months. It is estimated that that tax will bring in £660 million in a full year and that to restore the 5 per cent. would cost only £60 million. What is the Government's rationale now? Has it changed since April 1980? What is their rationale for maintaining that 5 per cent. for four months after taxation has been applied to unemployment benefit? Is it not a form of double taxation on the unemployed? Or is it, as one honourable Member of the Conservative Party suggested in the other place, that the Government are waiting for the revenue from the extra 300,000 who, it is estimated, will be unemployed next year? Are they waiting for that before restoring the rightful level of unemployment benefit and the 5 per cent. which they took away in 1980?

The Government did not just take away the 5 per cent. They also abolished the earnings-related rule which linked benefit either to prices or to earnings, whichever was the higher; and if one takes the two together—the 5 per cent. and the abolition of the earnings-related rule—it is estimated that the average unemployed person today gets £11·60 less a week. May I ask the Minister to confirm that figure and to say what the Government's justification is for taking from the unemployed—the unemployed who are the Government's responsibility and whose numbers have been more than doubled since the Conservatives took office—that £11·60 per week? We are entitled to an answer.

The second point I wish to raise is that of pensions. This week 9 million pensioners had an increase of 11 per cent., and we all welcome that. But if the cuts that have been made in the last three years—during the life time of this Government—are taken into account, then pensioners are worse off, in real terms, after their 11 per cent. rise has been added, than they were three years ago. They, too, have suffered from the abolition of the earnings-related rule. It is estimated that by the simple act of abolishing the earnings-related rule in relation to pensions, the Government have taken £500 million from them. Again, what is the rationale for that? How can the Government excuse taking £500 million away from the pensioners? What does it mean? For the pensioner it means, on average, £3·25 less a week, or £169 a year. That is what the Government are taking away from pensioners as a result of the abolition of the earnings-related rule.

As the noble Lord, Lord Kilmarnock, rightly said, the Government's actions become even meaner when they are applied to invalidity pensioners and beneficiaries. Remember, the beneficiaries have to pay; not only do they lose from the abolition of the earnings-related rule, but they, too, were included in the 5 per cent. deduction in lieu of taxation, costing them, on average, £5·50 a week. Are the Government really so mean that they cannot see that it is wrong to penalise those who are suffering to such a degree as to qualify for the invalidity pension, or the invalidity benefit, so that they are again to be deprived not only of what was agreed by Parliament on the earnings-related rule before the Government took office, but also of the 5 per cent. that was deducted in lieu of taxation?

So I want quite directly to ask—and I think that the House is entitled to ask—the noble Lord who is to wind up what is the justification for maintaining the 5 per cent. deduction, and when is the 5 per cent. to be restored? Is it going to be restored to the long-term unemployed who will be out of normal benefit after their year on benefit, and who will be dependent upon supplementary benefit? Are they going to have their 5 per cent. restored? These are specific questions. What is the rationale for maintaining the deduction after the promise was made that it would be restored as soon as unemployment benefit came into taxation? When is it to be restored, and is it to be restored to those who have passed out of benefit, who are the long-term unemployed? Will it be restored to them also?

Finally, the noble Lord, Lord Banks—I think it was—has already mentioned the report of the Child Poverty Campaign, which has been published this week in the Guardian. According to an estimate in the report, over the past three years, since the present Government came into office, the value of benefits within the welfare state has been reduced in real terms—that is, taking into account all the cuts, inflation, et cetera—by £2 billion. Will the noble Lord confirm, or deny, the figures? If he denies them, will he prove his denial? The figures have been worked out by these experts in the subject of poverty, in the realities of poverty as it exists under the present management of the welfare state by the Government. Will the noble Lord show where, and how, they are wrong?

When it comes down to the real bread and butter of the family life that the party opposite claims, so hypocritically, to represent, let me give your Lordships one final little cameo. At last year's benefit rates, a married couple with two children, with earnings of £75 a week, paid as much in income tax and in national insurance as they received in family income supplement and child benefit. Is that the kind of welfare state in which the present Government believe? Can it be defended by the noble Lord who is to reply?

My Lords, we on these Benches are grateful to so many Members of the House who have expressed appreciation of the Motion put forward by my noble friend Lord Banks. In particular, I should like to thank the noble Lord, Lord Cledwyn of Penrhos, first, for giving us a preview of the Labour Party manifesto—plainly, on all sides of this House we are working up for an election before so very long—and for reassuring us that, as one would expect, the Labour Party has definitely come down on the side of Shore's madness, rather than Howe's meanness. We are also grateful to the noble Lord, Lord Cledwyn—I am sorry that he is not here at the moment—for the fact that his enthusiasm for his fellow countryman Lloyd George overcame the Labour Party's usual antagonism towards the point of view of people on these Benches. I notice that his generosity did not extend to reminding the House that Lord Beveridge, too, was a Liberal. The noble Lord, Lord Cledwyn, went on to claim for his party credit for most of the development of the welfare state ever since the year 1906. However, be that as it may.

Most of the arguments in your Lordships' House this afternoon have demonstrated the need for welfare state provision, with the exception of the few—I can only call them starry-eyed dreamers—who really believe that the market economy, left to work its way, will somehow or other get rid of poverty in God's good time. Well, it might in God's good time, but that is rather too long a time for most of us. Only very few people have taken the view that there is no need for any provision because poverty is something that is induced mainly by taxation and the machinations of psuedo-socialists, and that, if you really let capitalism rip, all will be well. I do not believe that more than a very small proportion of your Lordships' House believe that. With the exception of those who have expressed that view, there has been universal agreement that some provision is necessary.

However, the speeches, whether from the noble Lord, Lord Hatch of Lusby, or the noble Earl, Lord Onslow—and I am sure your Lordships will agree that that is a wide range—have made it crystal clear that the welfare state is in an unholy mess and that nobody in their senses would ever have designed the ridiculous collection of means-tested benefits that we now have. We know how it happend. It "grow'd", like Topsy, as most things in this country do. Whether it be on the Government side or on the Labour side, we never will take a radical look at the thing and really knock some sense into it. So we go on tinkering and tinkering, and each time we tinker we put one thing right and two things wrong. So the net result at the end of the day is infinitely worse.

The noble Lord, Lord Trefgarne—I know that he is to speak once more at the end of the debate, and perhaps he will then give us a little more encouragement—again did a very good tinkering job. He showed us how the Government had improved a little here and adjusted a bit there. You could see him going around with his little spanner, tightening the screw in one direction, knocking in a nail in the other—producing at the end of the day an even worse mess than before.

Surely what has emerged from a number of speakers, in one way or another, is the need for a really radical look at the way in which we arrange for the necessary welfare provision. I do not often agree with the noble Earl, Lord Onslow, but for once he has been reading the right stuff. The fact of the matter is that at one time or another all parties have realised the sense of some form of—call it basic citizen income, call it tax credit; I do not much mind what you call it—basic payment to all citizens, male and female, by virtue of their citizenship, that is not altered by virtue of what they subsequently earn, except in so far as they all pay a graduated tax. That proposal was previously looked at under the Heath administration—but I do not think that the noble Lord, Lord Trefgarne, is so narrow-minded that that damns it out of hand and prevents him from having another look at it. I believe that when the Conservative Government previously looked at it, the noble Lord, Lord Cockfield, in a previous career—incarnation is the word that I am looking for; though somehow I do not quite associate that with Lord Cockfield—decided that it was too expensive.

However, there are a great many different ways of working out the sums, and it depends on the values that you put in. You can have a higher level of citizen income or a lower level of citizen income. You can adjust the ways of paying it. You might even cut back on the mortgage payments, which, really, are one of the most curious benefits paid to citizens. You might provide a great deal of money if you start tampering with them, though I know it would be remarkably unpopular electorally. But the point I am trying to make is that there are a very great many different ways in which you can do these sums.

The noble Lord, Lord Banks, and, I think, the noble Earl, Lord Onslow, because he has been reading the Brandon Rhys Williams work, which is very thorough, have both shown that you can develop a scheme which is virtually financially neutral. I had the pleasure and the interest this week of studying this problem in the European setting, in Holland, and we were coming to the same conclusion, that it was perfectly possible to have a scheme which, in financial terms, is neutral. It depends how you do the sums.

I beg the Government, as a result of today's debate, to think very seriously about setting up an all-party group—perhaps that is not the right way to do it, though I think it would be a very sensible way to do it—to have a look at the possible variations of credit tax that could be put forward as alternatives to the present quite indefensible way of financing welfare benefits. I believe I am right in saying that even the great Tory guru Milton Friedman once advocated this idea. What could make it more acceptable to put to the Conservative Party than that?

However, there really are a number of very important reasons why we ought to go along this line, quite apart from the dog's breakfast of benefits which we have at the present time. There is the problem of incentives. It is perfectly true that it is very difficult for a proportion of those who are unemployed, especially if you add in transport costs, which are now horrendous in many parts of the country. You really have to be a very high-minded person to decide that it is worthwhile to go to a not very exciting job instead of staying at home on benefit. This is ridiculous, and it is ridiculous on the part of a Government who, I understand, want to encourage people to work. So you surely want a system which has more incentives built into it.

The second point I want to make is that, with the level of unemployment which we all know we are going to have—we believe we can reduce it to some extent, but we know we are going to be left with a residue of unemployment—the development and encouragement of opportunities to do part-time work is going to be very important indeed for a whole variety of reasons. I will not go into them now, but part-time work is wealth-creating, it gives self-respect, it gives activity and it gives purpose to a lot of people. If you had even quite a modest citizen's income paid individually to both husband and wife and, on top of that, both husband and wife were able to have a part-time job and therefore to add to the citizen's income, the family income you would get from two quite modest citizens' incomes plus two part-time earnings, or the earnings from some small business which would not be enough totally to sustain the family but would provide a very valuable topping-up of a citizen's income, would be an extremely good way of dealing with the inevitable residue of people who are not going to get full-time jobs.

Once we have taken it fully on board that we are going to be left with people who are not going to get full-time jobs—and this must be the truth for a very considerable time to come—then surely we must reshape our welfare state to give every possible encouragement to people to go and do that kind of part-time work which would give a decent family income and a meaningful kind of existence, instead of positively discouraging them from doing it, which is what the present system does. Indeed, if, as Brandon Rhys Williams has said—and Brandon Rhys Williams got this from his mother, who was a very good Liberal and worked on it years ago; that is perfectly true, and, in fact, I worked with her on it at one stage—there was a very good case for doing it in the time of Lady Rhys Williams, though they did not then have the strong argument of a residue of people who were not going to be absorbed into full-time employment, that enormously strengthens the case for going ahead in this direction.

It would also have the result of making it sensible for people (it would give them some encouragement, at any rate) to get out of the black economy. As I think I said in the debate last week, if we had sat down and thought out how to develop a black economy, we could hardly have done better. We have the kind of welfare provisions that I have described and on top of that we have a 15 per cent. VAT, which means that there is a built-in incentive to both the purchaser and the provider of the service to go black. Of course, people are going black in shoals, and who can blame them? On the other hand, if you had this system, there would not be this tremendous incentive to work in the black economy.

Personally, I do not take a terribly hostile view to working in the black economy. The only thing that is wrong with it that I can see is that people do not pay taxes and the rest of us have to make up the difference. It would be sounder on the whole if more people were doing their black operations in the clear and paying their taxes, rather than doing as they are at the present time; and you will not have this happen so long as the present welfare provisions go on combined with a 15 per cent. VAT.

What I am urging on Her Majesty's Government, therefore, is that they really should not brush off, as they always do when this comes up, the urgency of reopening investigations into the possibility of some kind of tax credit—I am sorry I am boring the noble Lord so much—or a citizen's income. There should be a really serious study done on it, as is being done in other countries, because it is urgent to get rid of the quite indefensible system of benefits that we have at the present time and to bring in welfare provisions more adapted to the kind of economy and the social problems that we face.

My Lords, I, too, should like very much to thank the noble Lord, Lord Banks, for introducing this debate today. Of course, we should listen to the noble Lord with some great care, because the House must recognise that he is an expert in the field in which he was speaking today. I would also congratulate the noble Lord, Lord Trefgarne, who had a difficult brief but who read it extremely well—and I would compliment him on that fact. I would not go as far as the noble Baroness, Lady Seear, who, if I heard her correctly, seemed to indicate that the noble Lord had a screw loose somewhere. The noble Earl, Lord Onslow, who has now left the Chamber, referred to the creation of wealth. Of course, the big problem is who creates the wealth, and the greater problem is who shares in it. Certainly, today, 3 million unemployed are not creating wealth, but, unfortunately, because of their situation, they are taking it from the economy.

So far as the noble Lord, Lord Kilmarnock, is concerned, I agreed with him when he seemed to complain that fewer people are speaking in social security debates. That, unfortunately, is very true indeed. It is something I cannot understand, but it seems to be always the same, that when we come to social security debates there appears to be a lack of interest. If it were a defence debate or a debate on foreign affairs or even animals, I am sure the House would be crowded. My noble friend, from a relaxed position on the Bench, says "or a debate about pornography". Of course, being an innocent sort of fellow I rather ignore that.

The noble Lord, Lord Kilmarnock, referred to the SDP proposals. Let me be quite clear and honest and say that they are quite an interesting contribution to the general debate which I hope will take place. The noble Lord quoted a leading article from The Times. I would refer him, however, to a better one in the Guardian of 13th November. Its conclusion was not too favourable, but I want to be fair and say that at least the proposals are worthy of consideration. They are not party policy, in fact: so far as he is concerned and those proposals are concerned, they are points for discussion.

Going back to the general debate, listening to the speeches during this debate, I could not help recalling in my mind the days of my childhood, because memories came flooding back to the time—and my noble friend Lord Cledwyn has already made some reference to this—when the workhouse was the ultimate threat of poverty, even to the separation of husbands and wives in their old age. I speak personally here because I have experienced it. Illness and unemployment were disasters of the greatest magnitude, with charity, soup kitchens and free blankets and boots the main sources of relief. That was the picture until comparatively recently during my lifetime. Yet today, with our welfare state, modern technology, more extensive education and rising living standards, the problem of poverty amidst wealth remains. It has even increased and we are still a divided society with the have-nots increasing. I will not proceed further on these personal memories. At least, I know what poverty really means, and I know it practically and not from theory.

During the Second World War and towards the end of it the Beveridge Report came to the fore. I was a corporal in the RAF at the time and took part in many informal discussion groups in hangars, while on fire picket and on other occasions. The interest was intense. It certainly led to the Labour landslide in 1945. Now, my Lords, I know and I accept that the late Lord Beveridge was a Liberal Peer; but to their eternal credit, it was the Labour Government of 1945 that brought in the welfare state in spite of the devastating aftermath of war. Furthermore, the returning members of HM Forces came back to an orderly society—far different from the situation after the 1914–18 War. In other words, in that Government of 1945 to 1950 a bloodless social revolution took place. I am proud to have been a member of that Government and also proud of the fact that I made my maiden speech on the National Insurance Bill on Thursday, 7th February, 1946, and welcomed then the introduction of the welfare state and the fact that we were keeping faith with the people in the matters arising from the Beveridge Report.

My Lords, I referred to the fact that I took part in discussion groups, both official and informal, in various units of the RAF during that period of the war. During the latter years of the Second World War I purchased a book for six shillings. I have it here. It is called Pillars of Security by Sir William Beveridge. If it is still available, I would recommend noble Lords to get a copy of it and read it, for it is just as applicable now as it was then. I want to quote from it, because it is particularly relevant to our debate today. I quote from pages 131 and 132:

"My plan is not simply a plan to develop social insurance; it is a plan to give freedom from want by securing to each citizen at all times, on condition of service and contributions, a minimum income sufficient for his subsistence needs and responsibilities. It interprets, as any modern democracy must interpret, freedom from want, to mean, not a claim to be relieved by the state on proof of necessity and lack of other resources, but having, as of right, one's own income to keep one above the necessity of applying for relief. My plan takes as its aim abolition of want. The Government in regard to pensions wholly and in regard to children's and to unemployment and disability benefits to a lesser extent, abandon that aim".

My Lords, he was talking not about the Labour Government of 1945 but of the Government in power at the time and a Conservative Chancellor of the Exchequer. These aims are, or should have been, the very purpose of our debate today.

I come to a very difficult point that I must make because so little has been said about it up to now. The Prime Minister, in a speech on 17th November in Westminster Hall, argued that defence expenditure should have priority over the demands of the welfare state. I have a copy of the speech so I know that she said it. I have heard used in the past, the phrase "Guns before Butter", but now we have another one, "Guns before the War on Want". The fading out of priority for the handicapped, the sick, the unemployed and the underprivileged I cannot accept. I accept the need for defence measures. After all, I served in the Royal Air Force during the war. But national defence measures and measures for the defence of the underprivileged, unemployed and sick should be and must be on an equal basis of priority. Perhaps the Government may recall their rush after the election of 1979 to give away millions of pounds in tax relief to the better off. They should restore now some of the cutbacks they have made in social security benefits.

There have been vague promises but vague promises are not enough. Action is well overdue. We should not, as has been hinted, have to wait for the next Budget, if and when we get it, for some possible relief. This brings me to another point. Tax concessions made so far in tax relief appear to have benefited the better off at the expense of others in the lower income group. I will give an example. Let us take those state pensioners with an additional pension based on past contributions amounting to (let us say, for arguments sake) £3,600 per annum for that private pension. Such people, a week before this week's state pension increase, will have received from their tax office a notice of coding increasing their code by about 2 per cent. Such a pensioner will have paid in the last tax year, I would estimate, over £1,000 in income tax. That is one point.

My Lords, VAT at 15 per cent. also seriously affects the lower income group and must be reviewed. The cost of living index—both the old one and the new one which has been brought in by the Government and upon which benefits are based—does not fully cover the needs of people receiving benefit. There is obviously a need for a graded index covering the essential needs of lower income groups. Some action has been taken on low pay, but a lot more needs to be done. We have to think more seriously about establishing a national minimum wage geared to living costs and adjusted accordingly. There are demands by employers' organisations for tax cuts, and, furthermore, extra defence spending has been and will be increased. To meet this, the Chancellor proposes to claw back benefits from the poorest in the community; but, even so, benefits will be worth less than in 1979. Yet poverty is still widespread in our society. The 1979 family expenditure review revealed that 11,290,000 people (over 20 per cent. of the population) were living on incomes on or within 40 per cent. of the poverty line as defined by the supplementary levels.

This unsatisfactory situation has worsened since then. Cuts in national insurance benefits and the growth of unemployment to over 3 million have led to a dramatic increase in the numbers of people living on means-tested supplementary benefit. At December 1981, 3·7 million people were involved. On 6th April 1982 the Government estimated the figure had risen to nearly 4 million, and it must be greater now. These figures do not include dependants. Supplementary benefit is now a main source of income for more than one in 10 of the population, yet there have been cuts. Housing costs are now excluded from the index used to protect benefit rates against inflation.

Subsistence levels must be re-examined and cuts restored. There must be a realistic index. The main increase in numbers claiming supplementary benefit has come from those under pension age. In other words, unemployment on a massive scale is the root cause. The reduction of the numbers of those unemployed should be given overall priority just as much as that given to defence, which incidentally has become almost an obsession in some quarters.

The "get on your bike" approach is negative, insulting and disgraceful. It is a national disgrace that so many qualified young people are vainly seeking work. Paying people to remain workless is a wicked, inhuman waste of national resources and as such presents an obvious threat to the maintenance of the welfare state. I go further: it is also creating a dangerous apathy born of despair. If continued, it could lead to the breakdown of society. This is the internal threat as distinct from the external threat which has been given so much priority.

It is no good pointing to our neighbours and, with a shrug of the shoulders, talking about a world recession. We have a war on our hands: the war against want, the battle against unemployment. These constitute a challenge to the nation and to all members of our society. We need, too, another inquiry and report on the Beveridge lines. We came through a devastating war and yet created a welfare state and a more just society: not a nation of scroungers, as some called it, but a nation of compassion and dignity. We can overcome our difficulties. What we need is a Government with the idealism and determination of that in 1945.

My lords, I must first ask for your Lordships' permission to speak for a second time in this debate. Owing to some administrative slip-up, my name was not included earlier in the list. The noble Lord, Lord Cledwyn, very graciously gave way to allow me to speak at that time and thus I now need your Lordships' leave to speak again.

I was much fascinated by references from the Liberal Bench and elsewhere to the little yellow book of 1928. I fancy that if Lloyd George were still alive and in his prime, I too might be a member of the Liberal Party. In any event, my father was a member of the Liberal Party in 1928, and I fancy that he contributed to the little yellow book to which reference has been made.

I am grateful to the noble Lord, Lord Banks, for providing this opportunity to debate questions about the welfare state, and for his customary stimulating opening remarks. I should not be surprised if the noble Lord is the greatest expert among the experts in your Lordships' House on this subject; and his speeches on the matter are always very informative and illuminating, not only of the Liberal point of view on these matters but also on the issue more generally.

Also, I am grateful to all who have contributed and who have helped to make this an absorbing and useful debate. I shall try to deal with as many points as I can. I may not manage to deal with then all but I shall cull the pages of Hansard tomorrow and write on a later occasion to those whose points I think ought to be replied to.

May I start with the speech of the noble Lord, Lord Banks. It was a wide-ranging and informed one. Among the points that he raised was a suggestion that we should not be unduly concerned about the rise in the proportion of public expenditure devoted to social security. The noble Lord mentioned a number of mitigating factors, and suggested also that benefits financed from contributions should not count as public expenditure. As the noble Lord said, these are transfer payments. However, for whatever reason social security expenditure has risen, all benefits have to be paid for by the working population. That is true whether they are paid out of taxation or from contributions.

There is a limit to how much the working population and employers together can be asked to contribute if we are not to damage incentives and the process of industrial recovery. As I have said, the Government have sought to protect the living standards of social security beneficiaries, but our success in the long term depends, above all, in getting the ecomomy right. Keeping the levels of taxation and borrowing under control and getting inflation down are vital parts of our stategy to achieve that.

The noble Lord, Lord Banks, also referred to the question of tax credits. I am aware that the noble Lord and his colleagues are deeply committed to a tax credit system. When the Green Paper on tax credits was published in 1972, it was estimated that the cost of a tax credit scheme at the rate of credits and tax then proposed would be some £1,300 billion. The cost of an equivalent scheme today would naturally depend on the details of the scheme, but the cost would certainly be several times the figure suggested in 1972. I believe that the 1979 Liberal proposals envisaged income tax at 40 per cent., a pay roll tax of 21 per cent. and increases in VAT and certain excise duties. I am certain that such increases would not be justified and I do not think that they would be welcomed by the population as a whole, either. The Government have no plans at present to bring forward a full tax credit scheme. The idea of a tax credit scheme was very much in the mind of the noble Baroness, Lady Seear, as well, and those remarks therefore apply equally to what she said on that point.

Turning now to the speech of the noble Lord, Lord Cledwyn, who asked me a number of points but particularly about the CPRS Think Tank report on the future of the welfare state, so far as the health service is concerned, our commitment to the NHS has been made absolutely clear. My right honourable friend the Prime Minister used the famous words at our party conference recently: "The health service is safe with us". The Government certainly have no intention of changing the basis on which the National Health Service would be financed. As my right honourable friend the chairman of our party said, the Think Tank report is a dead duck. I hope that the noble Lord will find that observation satisfactory.

The noble Lord, Lord Cledwyn, also described in fairly graphic detail—and we have heard quite a lot of this recently—the measures which a future Labour Government would introduce. I certainly listened with great interest to what the noble Lord said on that score. It was an impressive list, my Lords, and it is only part of the proposals to which the party opposite are committed. But the noble Lord did not say how much such a programme would cost. Our own estimate is that their proposals on social security alone would cost more than £20 billion. I doubt whether it is possible to take such proposals seriously.

The noble Lord, Lord Cledwyn, also asked about help to pensioners over fuel costs, as happened last winter. The Government are looking at the scheme in the light of the experience of last winter, but in the meantime it is the case that under the present supplementary benefit regulations decisions about payments under this scheme are a matter for the independent adjudicating authorities; that is, the chief supplementary benefit officer and his officials.

A number of your Lordships referred to the possibility or the need or the desirability of simplifying and rationalising the social security scheme. I think what was particularly in the mind of my noble friend was the introduction of some comprehensive disabilities scheme. Of course we do try to simplify and rationalise wherever possible, and I agree with my noble friend that a simpler system to administer would be to pay a single benefit to everyone. However, I fear that that would cost an enormous amount of money and in many cases would be paid to people who had no need of it. In a time when we are seeking to ensure that help goes to those most in need, we need to have a more sophisticated system in which account is taken of the circumstances of the individual claimant. The Government are committed to a more coherent system of benefits to disabled people when resources are available, but I fear there is no prospect of that at present. It would probably cost between £3 billion and £4 billion, or maybe more.

I turn now to the remarks of the noble Lord, Lord Kilmarnock, who asked particularly about the abatement of invalidity pension and unemployment benefit. The question of the abatement of unemployment benefit was also in the mind of the noble Lord, Lord Hatch. We have promised that invalidity benefit will be restored to the same level as retirement pension when the former is brought into tax. Retirement pension, of course, is taxable now and it is right that the abatement of invalidity benefit should continue at present. We have already restored the abatement of the invalidity allowance as an earnest of our intention. We have not yet any idea of when we shall bring invalidity benefit into tax.

On the question of unemployment benefit which, as the noble Lord, Lord Hatch, reminded us, was brought into tax in July this year, we did not promise to restore the level of unemployment benefit when that was brought into tax: we promised to review the position, which is what we did. As my right honourable friend the Secretary of State said in another place as recently as last Monday, the matter is not only under review but benefit will certainly be restored as soon as the time is right. In other words, the argument, in the words of my right honourable friend, is not one of principle. The case for restoration is accepted. It is a question of timing.

My Lords, will the noble Lord give way? So far as the unemployed themselves are concerned, it is quite clear that whether or not the Government consider this to be a matter of principle will not affect them: they are concerned about the money. The noble Lord has just said that his Government did not promise that they would restore the 5 per cent. when benefit came under tax; but the quotation that I gave from the then Secretaryof State in April 1980 said specifically that the rationale for that tax ends as soon as benefit comes under tax. The benefit came under tax in July. If the rationale has ended, why has the practice not ended?

My Lords, as my right honourable friend said in the quotation given by the noble Lord, that the rationale has ended—as indeed it has—we have accepted the principle that the 5 per cent. abatement ought to be restored, and we will do so just as soon as resources allow. The noble Lord said that what was important to those in receipt of this benefit was not the principle but the money. The money is also important to those in receipt of other benefits and we have to establish an order of priorities in this matter. I should say that the restoration of this abatement is a very important matter and we shall certainly wish to do it just as soon as we possibly can.

The noble Lord, Lord Kilmarnock,—and this view was echoed by my noble friend Lord Onslow and by the noble Lord, Lord Harris of High Cross—referred to the illogicalities of the tax benefit scheme as outlined in the Institute of Economic Affairs paper, The Moral Hazard of Social Benefits, by Hermione Parker. The Government are, of course, aware of the interaction of income tax and social security benefits on the income of individuals and families, and in particular of what are called the unemployment and poverty traps. However, we do not take such a pessimistic view as, for example, the paper which has been referred to. That paper suggested that as many as 20 per cent. of the workforce were affected by the poverty and unemployment traps; but in arriving at that figure they included people who are not in the labour market at all, such as the sick, the disabled, lone parents and wives looking after young children. However the Government's most recent research suggests that perhaps 3½ per cent. of working families with children were at risk of being affected by the poverty trap, to the extent of losing half or more of an increase in pay through increases in tax and reductions in benefit, and about 6 per cent. of unemployed men were affected by the poverty trap. That is not to say that we do not recognise there can be a problem, but proffered solutions such as the one from the Social Democratic Party are so costly that any responsible Government would have to rule them out, especially at a time like now, when resources are scarce.

My Lords, will the noble Lord give way for one brief moment? He said that when calculating the number of people in the poverty trap there had been a tendency to exclude lone parents with two children. Surely if you get the case, which I believe to be true, that a woman can earn £20 or £30 a week and be no better off until she earns £120 a week, she is essentially, if she is a lone parent with two children, in the poverty trap. Therefore she does not work at all. That is what the paper was talking about, and that is one of the cases where she is saying that it is in the poverty trap and the Government are saying that it is not in the poverty trap.

My Lords, I will come to the speech of my noble friend in a moment, but the point I was trying to make was that a number of the people considered by the paper to which my noble friend referred are people who are not actually available for employment in the normal sense of the word, and so the problems described as affecting them really do not, in the sense that my noble friend has suggested, arise.

My Lords, will the noble Lord give way again? In his reference to the proposals I put forward, I think he used the term "vastly expensive". In fact I was at some pains to explain that the interim proposals in our green paper are specifically designed to be feasible, largely within existing resources, and with only a very small charge on the PSBR.

My Lords, I was addressing myself to some of the other proposals that have come forward from the party of the noble Lord. I would accept that some of the more modest proposals coming from the noble Lord himself—and he said they were simply part of a consultative paper, I think—might on the face of it appear less costly, and doubtless therefore they will be less effective. However, I will certainly study what the noble Lord has said, with the hope of giving him a more detailed critique on another occasion.

The noble Lord, Lord Kilmarnock, also asked specifically about particular earnings disregards. He was suggesting that they ought to be increased. The Government are keeping under review the question of the level of earnings disregards; but there are difficulties even there, as the Government's response to your Lordships' committee report on unemployment indicated. There would again be significant extra cost and real problems about the gaps between the incomes of people who are in full-time work, and those who are on benefit. This is an issue of equity, as well as of incentives.

Radical proposals for reform have come from several of your Lordships during the course of this debate—some of them in detail and some, if I may say so, pretty ambitious. Your Lordships will not expect me to provide a detailed account of each tonight, but I shall certainly want to study what has been said, perhaps for response on another occasion. But the variety of different solutions is, in itself, an indication that there are no clear-cut answers to the problems of the tax and social security systems.

I turn now to the noble Baroness, Lady Ewart-Biggs, who particularly asked about the payment of child benefit at four-weekly intervals. We have recognised that those on low incomes, on supplementary benefit or family income supplement—for example, single parents—are in need of special consideration and they are, therefore, able to continue to receive child benefit on a weekly basis. Even outside these groups, we have made provision for mothers to ask for payment to be made weekly, if payment every four weeks is causing them hardship. The noble Earl, Lord Grey, asked en passant whether pensions should be increased to one-third of average earnings for a single person and to half of average earnings for a married couple. That would cost about £11·5 billion—one-third of current total expenditure on social security.

I come now to the speech of my noble friend Lord Onslow. I must say that there were times during his remarks when a visitor to your Lordships' House might have been puzzled about the place in it where my noble friend was sitting, because some of the remarks that he was making did not seem to me to be wholly in accordance with the pure Tory policy on these matters. But knowing my noble friend as I do, and particularly his independence of thought on these occasions, perhaps that is not surprising.

My noble friend suggested, among other things—and he has questioned me on some of them already—that the tax threshold should be increased so that fewer people would be caught in the poverty trap. This would help only if the threshold was increased very substantially, at enormous cost. Even so, many families not in the poverty trap would also receive help, and I am not in favour of indiscriminate assistance, particularly at a time of scarce resources.

My noble friend referred to the Guardian story that housing benefit has produced an unexpected windfall for some supplementary benefit claimants who pay heating charges with their rent. I hate to have to disappoint my noble friend, but the department has not been caught napping and so given some supplementary benefit claimants an unexpected windfall. The so-called new procedure, which certain newspapers have been reporting, was clearly set out in a circular which was issued to local authorities as far back as last May. Nor have we any reason to believe that the procedure will lead to extra expenditure. We are confident that authorities will operate it fairly and sensibly. But, of course, we shall monitor what is happening and, if any particular difficulties or anomalies arise, we will see what we can do to put them right.

The noble Lord, Lord Hatch of Lusby, asked me about the 5 per cent. abatement of unemployment benefit, which I have already dealt with, and the abolition of earnings-related supplement. Under successive Governments, the real value of the earnings-related supplement has declined since its introduction in 1966. By the time it was abolished, there was less need for the supplement than when it was introduced, because of the growth and improvement since then of occupational sick pay schemes, maternity protection and redundancy schemes. In November, 1980, the earnings-related supplement was actually received by only about one-fifth of all unemployed claimants. Supplementary benefit is, of course, available for those who need additional help. Indeed, restoration of the 5 per cent. abatement of unemployment benefit will not help those who are on supplementary benefit, because their requirements are, of course, already being met.

The noble Lord also asked whether those who have received abated benefit would get the extra when the abatement was restored. It is, of course, the benefit which would be increased when the time came, and when the abatement was restored. Whoever was in receipt of the benefit at that time would, of course, receive the increased rate.

I think that I have dealt with a large enough number of points now, particularly for a second speech during the course of this debate. It has been an interesting and constructive debate, by and large. I shall certainly want to study very carefully all the contributions that have been made, particularly, if I may say so again, the contribution of the noble Lord, Lord Banks, who initiated this debate, because he is such an expert in these matters, and I certainly undertake to write to those noble Lords whose points I have not dealt with but with which I ought to have dealt.

My Lords, before the noble Lord sits down, and while appreciating that he has dealt quite explicitly with the questions that were asked, may I ask him again—in order to be absolutely sure that I have got it right—whether he believes that there is any public morality in both taking taxation from the unemployed and maintaining the 5 per cent. cut, which was supposed to be in place of that taxation?

My Lords, as was made clear at the time, and as I have made clear in your Lordships' House on more than one occasion, the 5 per cent. abatement was also a matter of containing public expenditure at that time, and those constraints are still with us.

My Lords, we have had an interesting and useful debate this afternoon, and I should like to thank all those who have taken part, whether they agreed with what I said at the beginning or not. I should also like to thank the noble Lord, Lord Trefgarne, for his reply. Of course, I am tempted to start replying to all the points that have been made during the course of the debate, but I must not do that. In any case, it has already been done very effectively, from our point of view, by my noble friend Lady Seear.

I should just like to say to the noble Lord, Lord Trefgarne, that I do not think he had quite correctly the basis of the financing of the 1979 Liberal plan. Since then, of course, there have been changes in Government taxation, VAT has been increased by the Government and there has been a very great increase in unemployment, which would make an increase in payroll tax—because employers' national insurance contributions are a payroll tax—very unwelcome at the present time. Therefore, in our recosting of the scheme, we are hoping to put the burden on to a slightly higher standard rate of income tax and higher taxation than we now have. But one has to bear in mind the impact on that rate of the credits, and the effective rate for a great many people at the bottom end of the scale would be lower than now.

I must not pursue that any further at this stage, but I was encouraged during our debate to find that there was support for the tax credit idea from my noble friend Lord Kilmarnock, who mentioned the new plan of the Social Democratic Party, and from the noble Lord, Lord Campbell of Croy, who referred to the Green Paper of 1972. Those two documents are not so comprehensive as the plan which I outlined at the beginning of our debate. But each is a step along the same road, as, indeed, is the proposal of Sir Brandon Rhys Williams, which was elaborated by the noble Earl, Lord Onslow. I regret that the Government have no plans at the moment to proceed in this direction. But I hope that all those who have expressed an interest this afternoon, and others who share that interest, will continue to press them to look again and again at this subject, because, as my noble friend Lady Seear pointed out, we have at the moment a most extraordinary muddled-up system which cries out for reform.

In concluding, I should like to reaffirm that we on these Benches maintain that the real value of benefits should be maintained and some benefits increased, that we should reform the structure and that it is feasible to achieve both those goals. Having said that, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

rose to ask Her Majesty's Government what effect the depressed state of the Scotch whisky industry is having on the Highlands and Islands of Scotland and what financial assistance is being given to the industry. The noble Lord said: My Lords, I am most grateful to those who arrange business in your Lordships' House for having found time to include this Unstarred Question on the Scotch whisky industry. In case there is any misunderstanding because it has been given to me on a Liberal day, so to speak, may I say that this is not an annex to the very interesting and important Liberal debate just introduced by my noble friend Lord Banks, though only where the social element is concerned in this subject is there perhaps a link in that direction. It is completely on a non-party basis that I am speaking, I am very pleased that the Scottish Peers Association have supported this Question, and I am glad for the concern which has been shown for the industry in the parts of Scotland which are so well represented by noble Lords in this House.

My Lords, the House is grateful to the noble Lord, Lord Tanlaw, for raising this matter which is so dear to the heart of every Scot and, sadly enough, becoming dearer to the pocket of every Scot. He will appreciate that he is only obeying probably the most historic injunction ever given to representatives of Scotland at Westminster. On the very same subject of the tyrannous attitude of the Department of Excise and the closing down of distilleries in Scotland there was quite an outcry and Scotland's national bard penned some words "An Earnest Cry and Prayer to the Scotch Representatives":

"Some of ye nicely ken the laws

To round the period and pause

And with rhetoric clause on clause

To mak' harangues

Then echo through St. Stephen's wa's

Auld Scotland's wrangs."

Of course, it was a subject that he knew a little about. It was a subject that led him in the final verse to give expression to a phrase that has probably been linked with Scotland, and Scotland's attitude to whisky, over very many years. He said:

"Freedom and whisky gang thegither"

Your Lordships can all get ready for the Burn's suppers on that.

I did not give any guidance to the Question. It is far too easy for the Government to answer. What financial assistance is being given to the industry? The answer is, none. The industry does not want it either. All it wants is fair play. It would be much more interesting if the Government would tell us what financial assistance the whisky industry is giving to the Government. Just imagine it, four-fifths of the cost of every bottle of whisky goes straight to the Treasury in excise duty and in VAT. The last three increases have added—I repeat, added—£1.36 to the Government's take on the price of a bottle of whisky. It reaches the point where that is pretty penal and it has had its effect.

The noble Lord gave figures relating to Islay. I am sorry that my noble friend on the other side is not here because he could tell us about this. In the eight distilleries on that small island production, which was 10 million gallons, is down this year and is likely to be only 3 million gallons. The implications for employment in these places are extremely serious. I am looking round the chamber for all the people who were interested in the integrated plan for the Western Isles the other week; but they are not here. I am interested in what will happen to people. This situation is having an immediate effect. There have been some closures, not all that many, but there have been lay-offs and short-time workings. If this continues there may be further closures affecting employment in those areas into which it is most difficult to introduce employment. I hope that the Government will bear that in mind.

The record of the industry is not only supported through home consumption, because its export record is quite fantastic. Indeed, it is so much so that the Government take it for granted. My interest in this subject is not as a consumer. After all, for 33 years I was the Member of Parliament for Kilmarnock. Your Lordships will find Kilmarnock on an awful lot of whisky bottles, because that is where Johnnie Walker is blended. So I know a lot about it. I am sure my noble friend will appreciate that, although there is a cutback to meet the decline—the unexpected decline—in consumption and exports, the immediate cut-back is at the distillery. There is distilled whisky galore; it is all there in store. It is maturing. Until there is a rise in consumption it will not be increased to the same extent.

However, that leads to the question of where it is blended. It does not always take place in the Highlands and Islands. It is in places like Paisley, Glasgow, Kilmarnock and round about that it is blended, bottled and is shipped away to the ports. There are thousands of jobs involved. Indeed, that is the next step; the loss of jobs in those areas. It is an extremely serious matter and one to which I shall return, because I believe that it is even more serious than people imagine. Of course it is due to the recession at home and abroad, but more than that it is due to the activities of the Government who are taking more and more from this industry. We cannot add £1·36 to a bottle of whisky without its having an effect upon sales. Whereas people used to enjoy a glass of whisky with their half-pint, now they are probably lucky if they are able to afford the half-pint. This is not a time when the Government should be further increasing the tax. Indeed, I think that the Treasury themselves realise that they have reached the point of diminishing returns and they should be thinking again about any further taxation on whisky. Enough is enough.

There is also the question of exports. It is in spite of very considerable difficulties that record exports have been achieved by the whisky industry. The Government have tried to help in many cases, but not with success in respect of even some of our EEC partners, because, unlike Britain, they have been protecting the production of their own brands. For example, there is France and brandy. There is discriminatory taxation in respect of that. There should not be, but there still is. I think it would be only fair if the Government equalised the excise taxation on spirits and fortified wines in this country, because then they would have a better argument for asking people to do that abroad. It would be real harmonisation. So there is something to be done there.

The Government should be looking at ways of removing what we consider to be unfair treatment of the industry. If they were to remove that unfairness they would be helping financially. We are grateful for what is being done. The EEC deferred payments had to come some time, and it is lucky that, at this time of cash flow difficulties in the industry, the back payments are coming now. Moreover, there will be the continued payment of the production grants. As regards what they have done about the four weeks deferment of duty, that applies already to cigarettes and other things. So it is only being fair to the industry.

I hope that the Government will appreciate the difficulties. People have been switching to wines. There is no doubt that there has been a change in tastes and maybe because wines are cheaper. I cannot say that one could suggest that Scots would prefer that—they may prefer it as a supplement, but if you have any sense you will never mix anything with your whisky; you would just spoil it. We are the only country in the world which discriminated in favour of imported products, and so it would be only fair to get rid of that discrimination.

I am interested in the bottling aspects and the question of employment in other areas. There are probably more jobs around Glasgow involving whisky than there are in the Highlands and Islands, whether it is Buchanan's, Teacher's, Chivas, Paisley and so on. I can assure your Lordships that one of the matters that has been concerning us and should have concerned the whisky industry—and this is where they could do something for themselves—has been the question of bulk exports. Can your Lordships imagine that Scotch whisky is being exported in bulk to Japan? A very considerable amount of it is being sent there. And what happens to it? Is it further blended? Mind you, a Scot would not say "blended"; he would say "adulterated." All that, to my mind, has a long-term effect on the reputation of the quality of Scotch whisky. In the short term it has an immediate effect upon the employment of people bottling whisky in Scotland. It is exported in bulk not only to Japan; the same applies to America as well. It was only last week that 200 people were made unemployed in Paisley directly owing to the bulk export of whisky.

From the short-term point of view of employment and from the long-term point of view in respect of the quality and value of Scotch whisky being consumed worldwide, the industry is being shortsighted. It may well be that in the early 1970s or before that when it started, it did not matter so much, from an employment point of view, when consumption was rising by 8 per cent. to 10 per cent. a year. But now consumption is falling. Now there is competition from other so-called whiskies and the Scotch whisky industry should be aware of the effects.

However, the Government can do quite a lot. They can help with the level of taxation. They can adjust the incidence of excise duty to end the discrimination, and I think that they should strive further to end the discriminating tariffs that we have even among our EEC partners. There is a great deal that the Government can do without giving direct. The Government have a big stake in this matter. If the noble Lord, Lord Lyell, would examine it and I think he is close enough to the subject (I should say "where he lives"; I did not imply anything else), he would realise exactly what it means financially to the Government to maintain the income they get from this hard-pressed industry. So thanks again to the noble Lord, Lord Tanlaw, for having raised this historic subject.

My Lords, I too should like to thank the noble Lord, Lord Tanlaw, for introducing this important subject to debate in your Lordships' House. I would ask your Lordships to forgive me if I do not stay right to the end of the debate because I have an important engagement which will involve, among other things, drinking whisky: I shall, however, stay as long as I can. I apologise in particular to my noble friend on the Front Bench, whose reply I may not fully hear. The point I want to re-emphasise, because much of the ground has been covered by both earlier speakers, is the fact that 85 per cent. of Scotch whisky is exported. It is to that area that I believe the Government have to direct their attention. I am sure it would be helpful if they had a more equitable way of handling the problem of internal taxation, but I shall concentrate my remarks on exports.

There is no doubt that the protectionism overseas is at an extraordinary level, and in particular within the EEC, where the principal offender, as has already been mentioned, is France. In passing, I would mention to your Lordships that I gave up drinking brandy when President de Gaulle refused to let us into the European Community and only started drinking it again when we were members of the Community. I would recommend that to all my fellow countrymen against the present practices exercised by the French.

Since 1st January 1978, when the transitional period ended and the United Kingdom became a full member of the European Community, our European partners have levied over £250 million in unlawful taxation on Scotch whisky; that is to say, taxation at a higher rate than that imposed on locally-produced competing spirits such as grappa, cognac and aquavit. The impediment which this unlawful tax disadvantage has caused for Scotch whisky is only too self-evident.

In February 1981 the European Court of Justice condemned French taxation of Scotch whisky at a higher rate than brandy. Today, more than two and a half years later, France still taxes Scotch whisky more heavily than brandy and has passed clever legislation to make challenges in the European Court more difficult. The success of this has not gone unnoticed. The Italian Government, for example, levies at least two unlawful taxes on Scotch whisky. I really think that the Government might take more positive action than they have taken hitherto to make sure the French realise that this is something which we cannot stand, particularly as it is contrary to the Treaty of Rome, and that practices such as finding some excuse in a clever sort of way, as the French do, to make it difficult for their types of products to come into this country, will perhaps be the only alternative that we can use. I think that we must start thinking about taking the same sort of retaliatory action, sad though that is for a trading nation to have to do.

The situation is, of course, due to the Community having a large over-production of wine and an embarrassingly expensive wine lake. The surplus of wine leads to increasing demands for more subsidies to wine producers. Unfortunately, the subsidies tend to encourage even greater over-production. This is in stark contrast to the reduction in output and employment in the Scotch whisky industry. It is, therefore, desirable that Her Majesty's Government should be alert to the danger that over-production of wine in the Community will lead to an increasing distortion of the competiton between wine and spirits—spirits such as Scotch whisky—in order to increase consumption of the former at the expense of the latter. So we are not only in difficulty with brandy; we are also in difficulty with wine.

Your Lordships may be interested to know that I have some statistics which show that the wine-drinking countries consume more litres of pure alcohol per head of population in a year than either the beer-drinking countries or the spirit-drinking countries. The wine-drinking countries, which include France, Hungary, Italy, Portugal, Spain and Switzerland, consume an average of 13 litres of pure alcohol per head of population in a year. The beer-drinking countries, which include Austria, Belgium Czechoslovakia, Denmark, Ireland, the Federal Republic of Germany and the United Kingdom—and the United Kingdom is near the bottom of this table—consume an average of 10·4 litres of pure alcohol per head of population. The brandy and spirit drinkers, which include Finland, the German Democratic Republic, Iceland, the Netherlands, Norway, Poland, Sweden and Yugoslavia, consume an average of 7·9 litres of pure alcohol per head of population.

The reason for spelling that out to your Lordships is to show that if the French are telling us that they want to encourage wine drinking because it is healthier for us, the answer is that it is not. The healthiest countries are the ones which are mainly spirit drinkers. This is a matter of considerable importance and one which might, indeed, be reflected in the thinking of the Government in the way in which they treat the taxation within this country.

I would suggest that the point made by the noble Lord, Lord Ross, and, indeed, by the noble Lord, Lord Tanlaw, that the only fair and logical way of taxing alcoholic drinks is at a flat rate per degree of alcohol strength, is the solution to the problem. It is the solution that ought to be applied both nationally and on a harmonised basis within the EEC. What one must say to the Government above all else is that they must bring pressure to bear on their fellow members of the EEC for all sorts of reasons, which include not only fair treatment of important industries like the whisky producers of Scotland, but also the health of the nation. That formula is the solution which must be pressed forward without any delay throughout the European Community.

My Lords, in common with those who have preceded me in the debate, I am extremely grateful to the noble Lord, Lord Tanlaw, for bringing forward this subject. I speak as a Sassenach with a mother who was pure Scots, but also as an ex-director of the Distillers Company on whose board I sat for many long years. It is now, of course, forgotten that the Distillers Company was once upon a time the second biggest chemical manufacturer in this country and the fourth biggest in Europe. Those days have gone because they sold their interests to BP, by which time I had become so interested in the whisky production side that I stayed on with them for a long time and became accustomed to all their problems.

I agree with every word, with knobs on, which the noble Lord, Lord Mottistone, said. I want to see a Government that are very much tougher in the interests of Britain. I could add to what the noble Lord, Lord Mottistone, said. Someone has to take the Commission by the scruff of the neck and shake it out of its dogmatic attitudes towards distribution problems. No proprietary liquor company of any kind whatever is big enough to manage worldwide sales and distribution on its own without agencies. No clos, no chateau, can export worldwide with its own sales staff; it has to sell through factors, wholesale houses, to whom in each market it gives exclusive representation.

The Commission dislikes exclusivity in these contexts; but if you do not have exclusivity, then what interest does your distributor have in making a good show of the product that he is distributing? Does the noble Lord want to intervene? The noble Lord, Lord Lyell, has caught my eye and I wonder whether he wants to rise.

My Lords, no.

The Commission has to be taught that the pattern of an established trade must not be wrecked for dogmatic reasons. This, of course, was the reason that Johnnie Walker had to be withdrawn from the English market—because of the entirely arbitrary action of the Commission. The Distillers Company is in a rather sensitive position compared to any of its competitors, because nearly all of them have either a flourishing home trade or a flourishing export trade; but only this large company, the Distillers, has a balance of trades which are equally susceptible to interference. Many of its competitors can forget the home market and do whatever the Commission tells them abroad, others can forget the Commission because they do not export anything, but DCL is extremely sensitive to this.

I want to draw attention to the cockeyed situation we have over the excise on spirits. I want your Lordships to imagine that I have five bottles in front of me, each containing one litre of pure alcohol. They are labelled 100 per cent. pure alcohol with a small postscript: prepared from whisky; prepared from imported table wine; prepared from British fortified wine; sherry; and beer. The excise paid on those five bottles of pure alcohol would be as follows: on that derived from whisky, £14·47; imported table wine, £8·90; British fortified wine. £7·66; sherry, £7·38; beer, £6·80.

Notwithstanding everything that the noble Lord, Lord Ross, said in the way of good advice to whisky drinkers, what do the great balance of whisky-drinkers do with the whisky they have bought which has paid £14.47 per 100 per cent. of pure alcohol? They dilute it with soda water, or burn water, or distilled water, or Malvern water, or whatever it may be, until the actual alcohol they are drinking is of the same strength as beer or sherry. Why do not the producers sell whisky and soda in bottles? They would pay much less excise, and, if they did, it would almost bankrupt the Government in lost revenue. It is simply that people like taking the whisky and adding the water in the proportion that suits them. Some people like it 50/50, others 2 to 1, others 3 to 1, and so on. I think that that reduces this differential excise on whisky to proportions which are, quite literally, ludicrous.

But for all the brave words the noble Lord, Lord Ross, spoke, if he found himself on the Treasury Bench, he would find that the excise and the Chancellor's little fingers were thicker than his loins, and he would not be able to do anything about it because of the loss of revenue to the Exchequer. The only thing one can do is to start a process of compression; bringing whisky slowly down and bringing the others slowly up until we tax alcohol on the alcohol content of what the consumer buys. Here we have a Government that are said to be pledged to the free market, to non-interference—all the best Adam Smith traditions—with the structure of trade, but they are going to be just as impotent as every Government before them because of the immense amount of revenue locked up. Nevertheless, with determination and goodwill, justice could be done to this industry which provides a livelihood for a very important section of the Scottish nation, which is a very important kingdom in the joint kingdom of the United Kingdom. And, not only that, a delicious drink, whether you dilute it with soda, of which the noble Lord, Lord Ross, disapproves, or drink it with a chaser such as Guinness.

My Lords, I find this debate most fascinating. I was a little doubtful whether I ought to put my name down to speak, for the simple reason that I am no expert on whisky. However, I have been very generously elected chairman of the Scottish Peers Committee in your Lordships' House and I thought it only right that I should support the noble Lord, Lord Tanlaw, in the admirable subject that he has put down and has led to this fascinating discussion. I listened to the noble Earl, Lord Halsbury, with the greatest possible interest, because I have never before heard put forward half the things that he said, but I agree completely with him. I thought his speech fascinating. The noble Lord, Lord Ross of Marnock, like me, has a great interest in Scottish literature. His quotations from our national bard were most apt and important.

I am speaking because I feel keenly about this matter. This is such an important industry, as has been demonstrated by what has been said. It affects the Highlands and Islands, and if there is one area we want to try and help it is that one. From the EEC we have got this admirable scheme financed by, I think, two-thirds by the EEC. But to reduce one of the most important industries in the Highlands and Islands at the same time seems to me to be really cutting our own throats.

"Whisky" in all my life has been a joyful word. Whisky adds pleasure to life, provided it is not abused by people turning themselves into alcoholics. It is a healthy drink. It is important for our export trade. Somebody in this debate said that 85 per cent. of Scotch whisky is exported. All that is of vital importance today. Therefore, it is depressing to hear and read of the drop in production because of the drop in consumption. This, as the industry tells us, is due largely to very high taxation. There have been three successive increases in excise duty in the last few years, and, in addition to that, VAT has to be paid on the duty. This has led to a reduction of 15 per cent. in whisky consumption, and naturally a further drop in sales arising from that in 1981 and 1982.

Inevitably, this drop will affect particularly the areas of the Highlands in which we are extremely interested where, as the noble Lord, Lord Ross, said, he is interested in the question of employing people. We are all interested in that. Undoubtedly if this continues there will be a heavy drop in employment in the areas we are trying to help, and the people leaving the Highlands and Islands will find great difficulty in finding work elsewhere.

In the island of Islay there are eight distilleries, and three are temporarily closed. Two years ago Islay produced 10 million gallons of whisky. In 1982 it distills only 3 million gallons. These figures come from the brief which we have all been sent by the whisky organisation. But there are many other areas, as the noble Lord, Lord Ross of Marnock, has said, where whisky is important in many ways, and these are going to be cut back too.

It is vital that the Government should realise that this reduction is cutting our own throats. The level of taxation on whisky must be changed so that, at the very least, Scotch whisky is not taxed more than any other wine or spirit coming into this country. The noble Lord, Lord Mottistone, has given us excellent details of cost, taxation and so on. These figures are important, and I hope that the Government will take them to heart and will see that this is something that must be dealt with now.

I know that the Government have tried hard to get trade barriers against our whisky removed, especially in EEC countries, These barriers, as I understand it, have been ruled illegal, but still they continue. I hope that the Government will continue to fight against discrimination of this kind, whether from the EEC countries or any other country, because it is doing a great deal of damage. We have this splendid scheme for the development of the Highlands and Islands, which we debated in this House, but it is going to be severely affected by what is happening in the whisky trade.

I should like to see such alteration in taxation as would help the whisky trade to expand. They are not asking us for subsidies. They are not asking us for money. What they are asking for is fair play. If there is one thing that this country has stood for in many generations and in many centuries, it is fair play. I beg the Government to realise that this is of vital importance and that we must see that the whisky industry has fair play.

My Lords, I am grateful, as I am sure we all are, to the noble Lord, Lord Tanlaw, for raising this subject and for getting it on the Order Paper at such a reasonable time of day—and, I must say, not before time. I lived in the island of Isla until just over a year ago. The situation when I left there was critical and I have no reason to believe it is any better yet. I never thought I should be attending even a short debate in your Lordships' House in which I would agree with practically everything that had been said, including every word uttered by the noble Lord, Lord Ross.

Delighted!

I agree with some of the things the noble Lord says but I do not usually agree with everything. The only trouble, my Lords, is that I have been left as what I would call the last lay, or Back Bench, speaker with very little to say because your Lordships have summed up the situation so well.

Having lived in Isla for seven years, I do not think people who have not lived in remote areas, and particularly in islands, understand the knife-edge on which the economy of such areas is balanced. When one is living there—it does not matter who one is—one is definitely afraid about what is going to happen. If any industry is affected, be it agriculture or any other, it affects everybody in the island, and the recession in the whisky trade has affected Isla very badly. It has affected Port Ellen, where I used to live, more particularly than many of the other areas; it is one of the two biggest villages. I ran a small tourist hotel there and most of the people who worked for us were the wives of distillery workers. Their husbands were quiet, hardworking men who had never been on strike or anything of the like, although they belonged to unions. They worked quietly all their lives. Yet suddenly, out of the blue, they were hit by unemployment and short-time working.

It is not easy for them. If such a situation occurs in, say, Hammersmith or Birmingham there is the possibility of getting a job five miles away, but in a place like Isla one is nearer the possibility of getting a job in Glasgow—and the prospects there are not too good—and that is 100 miles and a six-hour journey away—not the sort of place to go to work and come home in the evenings. Therefore one must move. For those reasons I say that people who have not lived in the Hebrides and places like that do not realise that there is a real danger of dereliction. We who live there see the results of past dereliction, in the pathetic villages with only some walls standing. Nobody is there, just the cows and sheep grazing over them. So we see what happened in the past. No wonder the people living in those areas fear what may happen in the future.

Coming to the Question asked by the noble Lord, Lord Tanlaw, one asks what are the Government to do about he situation? In many ways successive Governments have done quite well. We have the Highlands and Islands Development Board, a rather bureaucratic and expensive body but in fact it does a good job, and I have had experience of that. But it all seems to be, to some extent, negative in relation to the attitude of successive Governments. And I must say, although I sit on this side of the House, that we must consider the way in which this Government in particular have dealt with the Scotch whisky industry: three successive increases in the tax at a time of extreme difficulty. As I understand it, those increases have actually become counter-productive and the Government are not actually getting any more money. I may not be as clever as some, but that seems to be the economics of the padded cell. I fail to understand the logic of it. The Government should give themselves a self-denying ordinance not to put up the tax on whisky for, say, four years. Even better—though I do not expect this to happen—they might even consider reducing it, and then they might increase Government revenue and make things slightly easier for the industry.

There is in the remote areas a feeling that the Government do not care and do not know anything about what is going on. Indeed, one sometimes feels one is not living in the same country when one is living there. It is a very bad situation because I am sure the Government do care—not just this but also the previous Government—because they have tried to do things. However, in respect of the whisky industry they have behaved as if they were dealing with a foreign country, and that is deplorable.

Local politics in the sort of areas about which I am speaking hardly exist. The local councillor we had in Port Ellen was a most estimable man, widely criticised locally by people who would not have thought of doing the job he did, which I considered he did very well. He once explained his politics to me. He said he was really a Conservative but was a paid-up member of the Scottish National Party, that his sympathies were basically Socialist, but he had always been a Liberal.

Was he under the influence?

My Lords, that is very much the way people feel when they live in such an area, because everybody must pull together and the interests of the area in which one lives and has one's job or property are paramount.

May I comment on an argument which I have always thought to be specious; namely, that while the Government put the tax up by, say, £1 a bottle (or whatever the case may be) in fact the price has not increased in real terms since 1969, 1975 or whatever other date people care to mention. That does not seem to be a sensible way of dealing with an industry which has actually kept its prices down. I thought we were trying to bring inflation down. To penalise an industry for maintaining its prices by saying that what it produces is cheaper in real terms now than it used to be seems to me to be the most inflationary argument one could possibly put.

The Treasury and Her Majesty's Government—whichever party is in Government—should realise that the Highlands and Islands are part of the United Kingdom just as much as Hampstead, Croydon, Coventry or anywhere else, and should make a little more effort, particularly in respect of the whisky industry, to encourage the people who live in the remote areas to feel that the Government, whatever their colour, are on their side.

My Lords, I am sure the whole House is grateful to the noble Lord, Lord Tanlaw, for providing this opportunity to discuss one of the most renowned products of our islands and for his fine and, I would say, optimistic speech. I wish also to thank him for the care he took in making his remarks and for the kind things he said about not wishing to make a partisan or political speech, a note which has been echoed by every speaker. We are indeed grateful for the great interest that has been shown by so many of your Lordships, both in speaking and in listening.

We believe it is indeed fortuitous that we have been discussing the great industry of distilling whisky, selling it and exporting it, so soon after the announcement that, as from February 1983, a deferred payment system will be introduced for excise duty. We understand that the industry has indeed welcomed this proposal, since it means that the distillers will be able to defer payment of duty for an average period of four weeks. This will provide considerable cash flow advantages for the industry, and there has been an estimate that it will represent something in excess of £100 million.

Duty deferment under the Finance Bill legislation will not become operative until after Royal Assent. However, in order to give relief to the industry at the earliest practicable date, Customs and Excise has been authorised to introduce duty deferment arrangements for wines and spirits from 15th February 1983 on an extra-statutory basis. In order to assist the smooth transition to the new duty deferment arrangements, Customs and Excise has also been authorised, exceptionally, to extend the average period of deferment to five weeks for wines and spirits that are cleared between 15th February and 14th May 1983. That is in addition to the welcome injection of funds that many distillers will have received as a result of our successful negotiation of export refunds for Scotch whisky. Again the sum is about £100 million paid out since last autumn. If I may say so, those are not insignificant sums, especially to the hard-pressed industry about which we have heard so much this evening.

However, it would be foolish to deny that the industry has been affected by the recession which has hit the whole world. After years of steady growth the industry is facing smaller current and indeed projected demand, and the long maturation period that is required, and the high level of stock that has to be carried, have compounded the problem. This has of course led to cutbacks in production, with—as we have heard from my noble friend Lord Belhaven and Stenton, in a very eloquent speech—consequent layoffs, as well as the problem of short-time working.

The drop in production between 1980 and 1981 was much sharper than the drop in sales. That clearly reflects a rundown of stocks in bond, and to us it seems to represent both a reaction to the interest charges entailed in stockholdings, as well as an effort to reduce stocks in line with a more modest assessment of market prospects. For that reason an unchanged level of demand should in the medium term lead to some small recovery of output. Indeed, some independent commentators see growth in demand for the rest of the decade, which should lead to yet more marked recovery in the medium term; and that is speaking in whisky terms.

Only this week there was published a new review of the Scotch whisky industry, and that expressed a confident view of the industry for the future. The review claimed that the industry has coped extremely well with the recession and that whisky will continue to be one of the world's major liquors, with further growth to be expected. While consumption and exports have fallen, whisky has increased its share of the home spirits market to over 55 per cent; and I understand that the latest figure is 55·5 per cent. The Government, and I believe the industry, as well as the great country of ours which produces it all, will be grateful for every entire percentage point increase in its share of the home spirits market. Despite a small drop overseas, the United States still accounts for 30 per cent. of the exports of whisky.

During the past few months there have been many examples of companies announcing good results. Pretax profits of £2·7 million, with sales up 8½ per cent., have been reported by one very famous distiller near to my home, and indeed the home of my noble friend the Minister. Profits have more than doubled in the half year, with sales up from £4·5 million to £4·7 million, in a major group in the North of Scotland. At the beginning of August the Scotch Whisky Association announced that in the first five months of this year—1982—exports were close to record levels. They were 3 per cent. better than in 1980, and were within 2 per cent. of the levels achieved in 1978, which, as your Lordships will know, and indeed the Scotch Whisky Association knows, was the best year ever for exports. Another company recorded pre-tax profits up almost 11½ per cent. I understand that, among its other products, this company produces a very famous blend of, I think, single malt—though I fear that I am not a great expert on this particular brand. A further company announced that it had experienced a drop of 10 per cent. in home sales, but it found that that was more than offset by an increase of 14 per cent. in export sales.

As the noble Lord, Lord Tanlaw, pointed out, the industry has also taken its own steps to improve its prospects by introducing major public relations campaigns in the United States of America and Japan. Both the campaigns are due to last for three years and will concentrate on maintaining and developing the already superior and very great image of Scottish whisky.

However, it is the production side and its effects on the Highlands and Islands that mainly concern us this evening. As your Lordships may be aware, the Scotch whisky industry employs about 21,000 people, which represents about 4 per cent. of all employment in manufacturing industry in Scotland. Of course a substantial part of the employment is to be found in areas where there is little other industry, and for that reason it is particularly valuable to the regional economy. One example which was clearly spelt out by the noble Lord, Lord Tanlaw, is that, of 130—give or take one or two—distilleries in Scotland, 106 are already located in the area administered by the Highlands and Islands Development Board. According to the Scotch Whisky Association, employment fell by a total of 4,300—that is, about 17 per cent.—in the two financial years of 1980–81 and 1981–82.

I am sure that your Lordships will previously have been told—but I have to reiterate it once again—that Governments cannot simply create jobs in this industry, or indeed in any others, and our experience in the past of trying to pick winners has not, I regret, always been crowned with success. While the Government do not rule out constructive intervention at the margin where industrial support may help to promote adaptation of the economy, we consider that industrialists, rather than civil servants or—dare I say?—Government Ministers, are best placed to identify the investment opportunities that create new jobs. Having said that, I must point out that the Government's economic strategy will give priority to the control of inflation and the creation of a climate that is favourable to enterprise. These are the necessary conditions for a resumption of sustainable growth in output and employment, as well as in consumption of this great liquid that we are discussing tonight. The success of our policy is central to the long-term interests of the whisky industry. This is a policy which has to be sustained over a period, because there are no short cuts.

But there is no complacency either in the Government or in their agencies about the need to maximise additional investment to help to provide secure jobs. For example, following the 1979 review of assisted areas, all the Highlands and Islands Development Board areas with three exceptions retained development area status. However, following a further review, even those three exceptional areas retained intermediate status, so that firms anywhere in the area of the Highlands and Islands Development Board meeting the criteria of the various schemes are eligible for assistance in creating or safeguarding employment.

To ensure that the benefits to be derived from the various schemes are widely published, my noble friend the Minister of State will early in the New Year launch an industrial development drive for the Highlands and Islands. My noble friend will himself be closely involved in this programme, which will be undertaken by the HIDB. The drive will be similar to the extensive and, we believe, successful, campaign that has been carried out for the rest of Scotland over the past few months by the Scottish Economic Planning Department, and it will involve a series of seminars at selected locations throughout the Highlands and Islands area. The seminars will ensure that companies throughout the board's area are fully aware of the generous financial incentives that are available for investment and the creation of employment.

I should like to turn to one or two of the specific points that have been raised in what all of us believe has been a very stimulating and interesting discussion. It has been claimed by, I think, every single speaker in your Lordships' House this evening that excise duty discriminates against spirits and, above all, that tax should be levied per degree of alcoholic strength. I have to admit that in this country spirits have traditionally been taxed more highly than other drinks, and that is a matter which has gone on for many years—certainly for the whole of my lifetime. These taxes are an important source of revenue. The provisional total of receipts for 1980–81 amounted to £1,222 million, of which Scotch whisky accounted for about half. So the noble Lord, Lord Ross, can see that Scotch whisky contributed about £610 million, or thereabouts, to the Exchequer in the last financial year.

A source of revenue of this magnitude is clearly an important consideration that my right honourable friend the Chancellor of the Exchequer would find almost impossible to forgo. But there is no real reason why duty should be related to alcoholic strength, as we believe that customers, drinkers, do not in the main buy their drinks on this basis. But I would stress that in the last two Budgets spirits have been relatively lightly treated in comparison with other drinks. I would remind your Lordships that had duty gone up in line with inflation, then the extra duty would have been more than 50p per bottle. Instead, in recognition of the important role that this product plays in the economy of Scotland especially, as was described by my noble friend Lord Belhaven, the rise in duty was pegged at 30p. I would say that in real terms the value of duty on Scotch whisky has fallen substantially in recent years from the peak year of 1975, but no doubt my right honourable friend the Chancellor of the Exchequer will carefully note all your Lordships' comments on this particular point in tonight's debate.

The noble Lord, Lord Tanlaw, and other Members of your Lordships' House—I think my noble friend Lord Mottistone also raised this point—had a query on what we call unfair trade barriers. I would assure your Lordships that the Government share the industry's concern, and we find these barriers which are erected by our Community partners to be particularly distressing. To ensure that we are fully aware of the industry's problems, a high-level steering group was set up comprising the Department of Trade, the Ministry of Agriculture, Fisheries and Food—which, I am reminded, is the major sponsoring department for the industry—and, thirdly, the Scotch Whisky Association. This group meet regularly to discuss what they call priority areas.

In the Community context we have made full and very strong representations to the Commission to ensure that member states honour their obligations and that the European Court of Justice rulings are complied with speedily. To aid the industry we have taken the unusual step of intervening in three European Court of Justice cases, and we shall be attending the oral hearing in the Italian VAT case. I assure your Lordships that we shall continue to press for equality of treatment for all spirit drinks.

Perhaps I may now try briefly to cover some of the points that have been raised in the course of your Lordships' debate. I hope I shall cover most of them, but if I miss any of them I assure you Lordships that we shall carefully scrutinise all the remarks that have been made this evening and I shall write to any noble Lord missed out, lest he should feel aggrieved. The noble Lord, Lord Tanlaw, raised the problem of what we call the European barriers and unfair discrimination. As I have said, in the Community context the Government have made very strong representations to the Commission to ensure that they honour their obligation. We intend to keep up our pressure on this line, and I am sure the support given by your Lorships this evening will considerably aid us in our efforts.

The noble Lord, Lord Ross, as we have all come to expect of him, but not necessarily in the Chamber, showed that he is a great champion of our national poet Robert Burns. Of course, all of us are particularly proud in this respect; and I am sure we are all equally convinced that it is the poet with whom the noble Lord, Lord Ross, will forever be associated. Indeed, I am given to understand that the addresses given by the noble Lord, Lord Ross, at Burns Suppers are legend throughout Scotland, but so far I have not had the pleasure of hearing the noble Lord in (if I may so put it) full flow.

I would join with the noble Lord, Lord Ross, in commending the tremendous efforts made by the industry itself to increase our export sales. I would also join with the noble Lord in mentioning my own abstemiousness in relation to this particular liquid, but I would stress to him and, indeed, to your Lordships, that when abroad I always do as the Romans do. I do have occasion to visit friends in Rome from time to time, and I support my local industry very considerably. The trouble is that my friends seem to think that I am a great expert, and they ask me which particular brand—single malts, blended malts, liqueur whiskies or others—will give them the least possible after-effects the next morning. I am afraid it is very much their trial, my error.

My noble friend Lord Mottistone gave us his customary robust support, and we are very grateful for it, in our efforts to persuade the French Government to change their outlook on the treatment of spirits. My noble friend indeed has great expertise in this field, and many of your Lordships may have heard my noble friend broadcasting last night, giving his views on the current meeting of the General Agreement on Tariffs and Trade in Geneva. Because, of course, my noble friend is a major spokesman for, I believe, the Food and Drinks Industry Council. My noble friend made an interesting comment on what I think he called the whisky lake. Those of your Lordships who travel north of the Border will know of this great loch at Campbeltown which is made famous in song, but I hardly think that the whisky mentioned in that song or, indeed, contained in that great loch befits the quality we have all come to expect of Scotch whisky.

The noble Earl, Lord Halsbury, gave us great encouragement to increase our efforts to persuade the Commission of our just cause and, above all, in implementing the decisions of the European Court of Justice, and we are grateful to him for his support in this area, particularly in view of his great expertise. I must say that I was not aware, as I am sure many of your Lordships were not, that he was for many years—indeed, he may still be—on the board of the Distillers Company. He shakes his head. I am sure that will be the loss of that great company, the Distillers Company; but they and all of us are, I know, grateful for the support he has been able to give to the industry. The noble Earl caused my mind to boggle slightly in imagining five bottles—I think he mentioned litre bottles—of varied alcohol in front of him. I am sure your Lordships' House would not wish to be seen as a place where every noble Lord brings five bottles brewed from various sources into debates. Nevertheless, we were very grateful for the robust support of the noble Earl.

I must congratulate my noble friend Lady Elliot on her new distinction as leader of the Scottish Peers. Indeed, this is one more of the hundreds of similar distinctions which she has acquired in her public life. My noble friend referred, naturally, to the problems of production and employment in Scotland. We take her point, and we regard them as very important. But I was a trifle puzzled—though I was full of joy—when she mentioned that she regards whisky as being allied to happiness. Perhaps she and other noble Lords have not yet had to endure what is known as the weird amalgam of William Wallace, who is so beautifully commemorated in St. Stephen's Hall, of Harry Lauder and of advertisements for Alcoholics Anonymous, which descends upon London in some weird way at the end of May in the odd-numbered years. I am afraid that Scotland does not always display the attitude of happiness allied to drink.

My noble friend Lord Belhaven I believe made one of the most interesting and, indeed, the most poignant speeches this evening. All of us understand the major problem of a predominant industry in particular islands or, indeed, in particular areas of Scotland. My noble friend mentioned one island—I think it was Islay—of which he has special knowledge and I think the noble Lord, Lord Tanlaw, mentioned Dufftown, which is, of course, right across the other side of Scotland. This, too, is particularly dependent on one industry, and that is the distilling industry. Above all, my noble friend Lord Belhaven introduced the dark side (if I may call it that) to our debate, as opposed to many interesting and amusing anecdotes. My noble friend stressed the major problem of employment and short-time working in what one can call a one-industry area or a one-industry town. We are very grateful to him for his warning. Once again, my noble friend made a significant plea to my right honourable friend the Chancellor. I am quite sure that we shall ensure that my right honourable friend knows of the concern of your Lordships' House for this major industry.

My Lords, from what I have said this evening—I hope at not too great length—I hope that it is abundantly clear that we are conscious of and concerned about the whisky industry's present difficulties and about the effects on the Highlands and Islands of Scotland resulting from the worldwide recession. But I hope that it will also be accepted that we are taking action through our economic strategy in general and our programme of assistance available in the Highlands and Islands in particular.

House adjourned at nine minutes before eight o'clock.