Commons Sitting of 15 July 1987

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
PRAYERS
  PRIVATE BUSINESS

    UNIVERSITY COLLEGE LONDON BILL [Lords]
    Order for Second Reading read.
    To be read a Second time tomorrow.

    WESTERN ISLES ISLANDS COUNCIL (VATERSAY CAUSEWAY) ORDER CONFIRMATION BILL
    Considered; to be read the Third time.
Oral Answers to Questions
  ENVIRONMENT

    Water Authorities (Privatisation)
    Mr. Cabornasked the Secretary of State for the Environment what discussions he has had with the European Commission in respect of privatisation of the English and Welsh water authorities.
    The Parliamentary Under-Secretary of State for the Environment (Mr. Colin Moynihan): My Department has had discussions and has corresponded with the Commission at different times about water privatisation.
    Mr. Caborn: I thank the Minister for that non-reply. Will the Department take notice of counsel's opinion sought by the Commission at the back end of last year on the last privatisation proposal, when great concern was shown about the competent authority that was to be in control? From that, it was clearly shown that the privatisation proposals could well put at risk people in the United Kingdom. It would be very ironic if we were brought before the European Court of Justice—as possibly we might—on this question as well as about our beaches and polluted rivers.
    Mr. Moynihan: The new proposals for the National Rivers Authority mean that the NRA will be the competent authority for various EEC directives. That means that the new body will remain a public body. I hope that there will be no further problems such as those experienced last year.
    Mr. Key: I congratulate my hon. Friend on his appearance at the Dispatch Box. I remind him that in March 1986 the Department produced a paper on water and sewerage law. Do the Government intend to introduce water abstraction licensing before, during or after privatisation? I should be most grateful if my hon. Friend will let the House know the answer to that at the earliest possible opportunity.
    Mr. Moynihan: I think that I shall be able to help my hon. Friend tomorrow. I regret that I am unable to preempt the publication of the document, which we hope will be tomorrow. That point will be fully assessed in that document. There will then be time during the summer for full representations to be made and for consultations to take place.
    Mr. Win Griffiths: Has the Minister investigated the possibility of legal proceedings being instituted against the privatised water authorities if they fail to comply with EEC directive 76/160 on those beaches which have been designated as such? Is it true that water authorities are already being taken to the European Court of Justice for failing to comply with that directive?
    Mr. Moynihan: Discussions sponsored by the Commission produced recommendations for improvements in bathing waters. We have responded to that bathing water directive, and currently some £70 million is being spent each year by the water authorities on improvement programmes.
    Mr. Boyes: Does the Minister recall that I wrote on 22 December last year to the then Minister, the hon. Member for Oxford, West and Abingdon (Mr. Patten), about a difference of opinion between Commissioner Stanley Clinton Davis and the Minister about competent authorities? Why have I not had a reply to that letter despite six months of repeated requests and written questions, especially when the Government have spent more than £1·5 million on advisers about water privatisation? Taking that waste of public money into consideration, is it not an outrage that the Minister cannot write a letter back to me?
    Mr. Moynihan: The hon. Gentleman will be aware that the Government were unable to reply to his letter while they were considering their position. Now that we have the NRA as the competent authority, I can assure the hon. Gentleman that he will he receiving a reply first thing tomorrow morning.

    Rating Reform
    Mr. Doranasked the Secretary of State for the Environment what consideration he has given to the details of the implementation of the proposed community charge in England and Wales.
    Mr. Lathamasked the Secretary of State for the Environment whether he will make a statement on the details of the proposed community charge.
    The Secretary of State for the Environment (Mr. Nicholas Ridley): Considerable thought has been given to the operation and implementation of the community charge. Following the consultative paper, detailed proposals were placed in the Library on 15 December 1986.
    Mr. Doran: The Government recognised during the passage of the Abolition of Domestic Rates etc. (Scotland) Bill that the phasing in of the charge would lead to considerably increased costs. Now that the Minister has announced that he intends to phase in the charge in England, will he advise us what extra assistance he proposes to give to the English and Welsh local authorities?
    Mr. Ridley: No decision has been taken on transitional arrangements in England. The position is as stated in the Green Paper. When the Government have come to a conclusion about the details of the transitional arrangements, a statement will be made.
    Mr. Latham: As there is no easy or universally popular way of raising billions of pounds for local services, does my right hon. Friend accept that we must at last implement our election promise, grasp the nettle of rates reform and get on with it straight away?
    Mr. Ridley: Yes, Sir. I can assure my hon. Friend that a Bill will be brought before the House. If the House would like to sit through August and September, we could probably deal with it then. It might be kinder to bring the Bill hack before the House when it returns after the summer recess.
    Mr. Simon Hughes: Did not the Cabinet Committee, under the Prime Minister, decide yesterday to change the Government's policy and to phase in the implementation of the poll tax? Is that not a change to the original idea as it was to apply in Scotland, England and Wales? Does it not show that the Government themselves are as divided as their Back Benchers and that it would be better to make a U-turn now and give up the idea of a poll tax?
    Mr. Ridley: I admit that I have an advantage over the hon. Gentleman, in that I was at yesterday's meeting and he was not. His problem is not to be solved by reading press reports of the meeting. I advise the hon. Gentleman to read the reports in The Times and The Daily Telegraph, which he will find are mutually contradictory. Perhaps the best approach is to wait until the Government make an announcement. I repeat that the Government's proposals for England and Wales were set out in the Green Paper that was published about 18 months ago. When the Government have completed their consideration of the detail of the transitional arrangements on the basis of the Green Paper, we shall tell the world.
    Mr. Charles Morrison: Now that my right hon. Friend and the Government appear to have decided that the impact of the poll tax will be so serious that its introduction has to be phased, will he give further consideration to the possibility of including within his proposals that account be taken of the ability to pay?
    Mr. Ridley: I beg my hon. Friend to await details. The details for Scotland, where there will be a safety net, are well known. We have not yet come to a final decision on the arrangements for England and Wales. They might be different, because arrangements and problems in the three countries are different. I can give my hon. Friend the assurance that we will take account of ability to pay by the system of rebates and the uprating of benefits, with a taper, between 100 and 20 per cent. for those who will be required to pay who are on low incomes.
    Mr. Blunkett: Will the Secretary of State say which of the two press reports to which he has referred is correct? Did either of them take into account Cabinet discussion on the amount of money that will have to be found to administer the rating system and the poll tax at the same time, and whether local government will be remunerated in a way that will take account of the chaos that will ensue, especially in the implementation and administration of housing benefits?
    Mr. Ridley: I do not think that the hon. Gentleman can hold me responsible for confirming or denying reports in newspapers. I merely point to the contradictory nature of various reports that I saw. I repeat to him that when the Government have come to a conclusion about the transitional arrangements they will make clear what those arrangements are. The point that the hon. Gentleman raised about the cost of administration will arise at that time, not now.
    Mr. Robert G. Hughes: When my right hon. Friend considers the details of his proposals, will he also consider the effects on home owners of paying rates based on the capital value of their homes, as proposed by Labour Members during the general election, and how much more that proposal, if implemented, would cost people?
    Mr. Ridley: My hon. Friend is absolutely right. A movement to capital values would be extremely damaging for those who are now paying far more than their fair share of the bills for local government. However, he was slightly wrong in one respect. The Labour party fought the district elections on 7 May on a movement to capital values and briefed its candidates that that was party policy, but when we came to the general election, Labour Members changed their minds. The Leader of the Opposition changed the plans on about Wobbly Thursday, when he was obviously the one who was wobbling most.
    Dr. Cunningham: Does the right hon. Gentleman recall saying that he wanted to introduce the poll tax in one go? Are not the implications of phasing that, for several years, poll tax and rates will be levied on every household simultaneously, and that each household will thus receive several bills each year? Is it not also the case that the right hon. Gentleman is now proposing a different system for Scotland from that proposed for England and Wales? How can he shrug off the impact of all this bureaucracy on the 7·1 million families receiving housing benefit, and the millions of others receiving other benefits related to housing costs? Finally, how can the Government describe their proposals as simpler, more efficient, fairer and easier to understand than the rates? Is not what the right hon. Gentleman is proposing an absolute bureacratic nightmare?
    Mr. Ridley: It is my pleasant duty to congratulate the hon. Gentleman on retaining his seat on the Front Bench, and on dealing with his subject. My team on the Government Front Bench are more than usually delighted that we have him there, because he always asks too many questions, and they are usually pretty silly ones—as on this occasion.
    I have never, to my knowledge, said that the community charge will be introduced in one go. Arrangements for local authority financial support in Scotland, Wales and England are very different. I understand that the percentage paid from the Exchequer in England is 46·4, in Scotland 55·5—
    Mr. Dewar: It is 56·1 per cent.
    Mr. Ridley: I take the hon. Gentleman's correction. It has gone up. It is going up all the time.
    In Wales, the figure is over 60 per cent. That shows how different the arrangements are. There is nothing wrong with that. My hon. Friends can demonstrate the way in which their constituents have accepted and understood the

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    community charge by the votes that they received at the last election. Those people are very much more able to understand it than is the hon. Member for Copeland (Dr. Cunningham), which is why we again welcome him back to his position.

    Development Corporations
    Mr. Altonasked the Secretary of State for the Environment what information he has as to the proportion of the employees of contractors working for each of the London Docklands and Merseyside Development Corporations that live (a) in the development corporation area, (b) in one of the boroughs that partly fall within the development corporation area and (c) in the local travel-to-work area.
    The Parliamentary Under-Secretary of State for the Environment (Mr. David Trippier): The information is not held in the form requested. However 85 per cent. of the Merseyside Development Corporation's contracts were let to local firms in 1986–87. I think it reasonable to assume that these local firms employ mainly local people.
    Mr. Alton: Notwithstanding the unsatisfactory nature of that reply, does the Minister accept that the positive proposals that have been made by his right hon. and learned Friend the Chancellor of the Duchy of Lancaster should not have been thwarted by his Department, that guidelines should be developed to ensure that local labour is used for inner-city regeneration plans, otherwise not only will local democracy be bypassed but local needs and the local communities will be bypassed? Just as the initiatives of his right hon. Friend the Member for Henley (Mr. Heseltine) failed after the riots in 1982, does the Minister not accept that his proposals may seem largely irrelevant and will end up as window dressing?
    Mr. Trippier: It is not a question of my right hon. and learned Friend the Chancellor of the Duchy of Lancaster being thwarted by any individual or Government Department. It is simply that the European Community directives make it clear that to ensure equal conditions of competition for public works it is not permitted to introduce contractual processes that promote the employment prospects of the residents of inner cities.
    Mr. John Marshall: Does my hon. Friend agree that the London Docklands Development Corporation has been a major success story in revitalising that part of London? Will he remind the House of the number of jobs and homes that have been created there since the LDDC was formed?
    Mr. Trippier: My hon. Friend is absolutely right. The LDDC has been a huge success, though much of its work still remains to be done. It will become even more successful. As for employment prospects, to date 10,000 jobs have been created.
    Mr. Heffer: Is the hon. Gentleman saying that the Government are prepared to put EEC directives in front of the interests of the people of the inner city of Liverpool and of those who live in other inner-city areas? If the Government are really serious about dealing with the inner cities, they must be concerned about creating employment for the people who live in them, including areas such as Liverpool 8, Liverpool 6 and Liverpool 5, where large numbers of young people who require work are out of work. If the Government are serious about it, why do they
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    not say to the EEC, as the Prime Minister has said to it on other occasions, that our interests are more important than those of the EEC?
    Mr. Trippier: There is a dichotomy in the hon. Gentleman's proposal and the stance adopted by the hon. Member for Sheffield, Brightside (Mr. Blunkett) in his substantive supplementary question to No. 1 on the Order Paper. We cannot have it both ways. Both the Department of the Environment and other Government Departments are anxious to encourage the use of local labour, but the hon. Gentleman is aware, more than most, of the difficulties that can be experienced through lack of skill shortages in the construction industry. The hon. Gentleman is an expert in that area. It is as clear to me as it will be to him that it might be extremely difficult to provide the necessary skills within a certain area to match the vacancies to which he refers. That problem can be resolved only through the Manpower Services Commission and the Construction Industry Training Board. Through those two bodies, we are taking steps to put that right.
    Mr. John Mark Taylor: Does my hon. Friend agree that it is a sad reflection on modern local government that part of the reason for the success of the London docklands scheme was that it was able to bypass local government?
    Mr. Trippier: That is undoubtedly true. If we were to examine carefully what would have happened if the LDDC had not been created for London docklands, we should find that the significant success that was referred to in earlier questions could not have been achieved.
    Mr. Fraser: Despite more than £150 million of public money having been spent on London docklands, unemployment there has risen, no ordinary local person is able to afford to buy a house there, no homes are available to rent and the homeless on the edge of docklands are being evicted by the Liberal council in Tower Hamlets. It is no good the Minister blaming Brussels for his failure. The fault lies with the Government, who have confused development opportunities for land with development opportunities for people. It is about time that they had an inner-city development strategy that helped people, not property developers.
    Mr. Trippier: The hon. Gentleman knows well that there is an affordable homes policy within the London docklands area which I should have thought he would pursue. I should love to hear him say to the people who are living in those affordable homes what he has just said to us, because I think that his comment was an insult to them. It must also be made clear that the urban development corporation created those affordable homes and that 45 per cent. of all occupiers of new homes on LDDC sites come from the areas to which the hon. Gentleman referred.

    Low-cost Rented Housing
    Mr. Hunterasked the Secretary of State for the Environment what measures he proposes to take to increase the availability of specifically low-cost rented housing, public and private.
    The Minister for Housing and Planning (Mr. William Waldegrave): We are aiming to increase the overall supply of rented housing, some of which will be available to those

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    on lower incomes. In addition, we are giving local authorities new powers to grant-aid private rented housing and enabling housing associations to combine public and private finance.
    Mr. Hunter: Will my hon. Friend comment on the proposition that in many parts of the country there is a dire social need for more low-cost rented housing and that although the Government's initiative on reactivating the private sector is welcome, unless there is an appreciable Treasury input low-cost rented housing will not become available?
    Mr. Waldegrave: One of the most hopeful developments is the application of private money to meet the needs of housing associations. However, I remind my hon. Friend that the other side of supply is getting the houses built. If we oppose the building of all housing in high pressure areas, we may be in some difficulty.
    Mr. Rees: Will the Minister talk to his right hon. and learned Friend who is responsible for the inner cities and who, to his credit, visited the centre of Leeds and south Leeds last week? If he does, he will find that the Leeds, South council has done an excellent job over the years. However, the particular problem that we face, and about which I should like to get something done, is that we have had to knock down some flats that were built only 20 years ago. We shall also have to knock down some duo slab and other housing—[Interruption.]—
    Mr. Speaker: Order.
    Mr. Rees: If I had wanted to make a political point I should have said that they were built under Conservative control. It is no good telling us about increasing the amount of low-cost housing, because we need to replace the housing that has been knocked down. Will the Minister do something to help us to do that?
    Mr. Waldegrave: Several interesting schemes are coming forward in Leeds at the moment, for example, the Hillcrest scheme. The council is willing to consider bringing in private sector money and is talking to housing associations and so forth. Such schemes are interesting and we shall do our best to carry them forward.
    Mr. Heddle: I applaud the manifesto commitment to encourage responsible private sector capital to build new houses for rent, but does my hon. Friend not agree that hundreds of thousands of houses that are in the ownership and management of local authorities are empty at the moment and that they should be brought into beneficial use forthwith?
    Mr. Waldegrave: I agree strongly with my hon. Friend. Indeed, that sentiment has been expressed many times by Ministers speaking at the Dispatch Box. I am sure my hon. Friend will agree that it is, and must be, part of that purpose to bring back into use large numbers of empty houses in the private sector. That is the purpose of our proposals for freeing the rented sector.
    Mr. Rooker: I should like to agree with the first part of the Minister's first answer, in that the housing that needs to be built for low rent in high-pressure areas must be supported by hon. Members from all parties, which has not been the case in the past.
    I should also like to point out to the Minister that we are not really talking about low-cost housing, which results in the exact examples that were given by my right
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    hon. Friend the Member for Morley and Leeds, South (Mr. Rees). By definition, low rent housing implies a subsidy. How much subsidy will be available to provide well-built housing that will last, at rents that people can afford?
    Mr. Waldegrave: The hon. Gentleman is right to make the distinction between cost and price. Some of the cheaply built houses of the past—built under both Labour and Conservative Administrations—have been a catastrophic part of our inheritance. I think the hon. Gentleman will agree that it would be a major achievement if we could apply some of the large resources that are available in the City to housing associations for building low-cost housing. I believe that we are not far apart on the importance of that.
    Mr. Hill: I agree with my hon. Friend completely about the housing programme, but is he aware that it means much more money will have to be poured into the Housing Corporation, which will assist the housing associations to take over this sector? Will not my hon. Friend eventually have to face the fact that a complete review of the Rent Acts, stretching back to the 1950s, is about due?
    Mr. Waldegrave: On the second point, we shall introduce radical proposals on new lets to try to bring back into use existing private housing stock which is empty, and to get new-build private housing for rent. On the first point, my hon. Friend is pessimistic. If we can reorganise the way in which finance for the Housing Corporation is categorised in the national accounts, we will not necessarily have to add to public expenditure, provided that there is real private sector participation.

    Lead Plumbing
    Mr. Tony Lloydasked the Secretary of State for the Environmnt if he will estimate the number of homes in England and Wales with lead plumbing, and the percentage of the total this represents.
    Mr. Moynihan: About 9 million properties in England are believed to have lead pipes, and that is about 50 per cent. of the total housing stock. For the figures for Wales, I refer the hon. Gentleman to the reply given to the hon. Member for Caerphilly (Mr. Davies) on 1 July by my hon. Friend the Under-Secretary of State for Wales.
    Mr. Lloyd: Does the Minister understand that, even on his figures, in excess of 10 million people are receiving doses of lead seven times as high as the maximum permitted standard under EC regulations? When my hon. Friend the Member for Caerphilly (Mr. Davies) raised this important issue and said that lead was unsafe at every level and was a threat to both mental and physical health, the Minister accused my hon. Friend of scaremongering. Is the Minister going to tell me that I am scaremongering, or will he say instead that the Government at last recognise the real need to fund an adequate replacement programme which will see an end to lead piping throughout England and Wales?
    Mr. Moynihan: I do believe that the hon. Gentleman is scaremongering. The Government commitment is that any area where the lead concentrations exceed 100 microgrammes per litre must be tackled. For that reason, one of the most substantial programmes to reduce those

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    lead levels is in action, with a target date of December 1989 for the completion of the main programme of remedial action at the top of the priority list.
    Mr. Tony Banks: Is the Minister aware that my African grey parrot almost died recently from lead poisoning due to the ingestion of lead from the water supply in Newham? Will he tell the House what this programme will comprise? In view of the dangers to people's health from the ingestion of lead through the water supply system, will he make sufficient funds available to the water authorities, particularly to the Thames water authority and the London borough of Newham, so that all lead piping can be stripped from homes that at present get their water through such pipes?
    Mr. Moynihan: The hon. Gentleman will know that there are two ways to tackle the problem. First, his parrot will be delighted to know that the water undertakers are at present embarked on a pH adjustment of the water in his area and are dosing it with orthophosphate. Secondly, it is the hon. Gentleman's responsibility to handle the problem of lead pipes in his home. He will undoubtedly be pleased to hear that 25,000 grants have been given under the Housing Acts to assist people to tackle that problem in their properties.
    Mr. Andrew Bowden: Is my hon. Friend aware that many of my constituents live in properties with lead pipes. as I do? I welcome his intention to have a programme to deal with this. Will he accept a serious point, which is that the greatest danger is when the water has been in the pipes overnight? Does he agree that it is important to let a lot of water run off first thing in the morning before using water?
    Mr. Moynihan: I think that public education programmes of that sort would be extremely useful for my hon. Friend's constituents.

    Sporting Events (Drugs)
    Mr. Gareth Wardellasked the Secretary of State for the Environment what resources are to be made available to ensure that adequate drug testing is available at British-hosted sports events.
    Mr. Moynihan: The Sports Council, which is responsible for funding the drug-testing regime, has allocated £350,000 in the 1987–88 budget for its doping control programme. In addition, the Sports Council for Northern Ireland has allocated £6,000, the Scottish Sports Council £18,000 and the Sports Council for Wales £39,000.
    Mr. Wardell: As sport is seen as an important way of counteracting the use of drugs in our society, and as commercial sponsorship does not seem to be attracted to the funding of this activity, is the Minister absolutely satisfied that sufficient resources are now available for the programme?
    Mr. Moynihan: The hon. Gentleman will know that this is a matter of great concern to the Government. That is why, only last week, a two-month review was set up, with Mr. Sebastian Coe assisting. One of the most important matters that will be examined in the review will, of course, be the resources required to implement effective drug control testing throughout the country and throughout sporting activities.
    Mr. Harry Greenway: Will my hon. Friend comment on the position of the medical profession in relation to drugs in sport and tell us how he thinks athletes should react to advice from doctors?
    Mr. Moynihan: Every governing body should have an appropriate code of conduct and a full set of guidelines and procedures on the drugs which enhance performance in its sport. The medical profession must be fully involved in drawing that up and, indeed, be responsible for the implementation of the policy among competitors.
    Mr. Denis Howell: May I welcome the Minister to his new responsibilities and wish him well on behalf of British sport? As the Sports Council has held a two-year inquiry into these matters, and as the Minister has just told the House that that body is to spend £350,000 on drug investigation, why has he found it necessary to announce a new initiative involving himself and Mr. Coe? Does he intend to supplant or to augment the work of the Sports Council, and what will be the relationship between Sir Arthur Gold's Sports Council Committee and his initiative?
    Mr. Moynihan: I thank the right hon. Gentleman for his initial comments. The work of the inquiry is to augment the outstanding work undertaken by Sir Arthur Gold and the drug abuse advisory group. However. some important matters that needed to be examined lie outside the remit of the Sports Council—for example, trafficking in anabolic steroids.

    Rating Reform
    Mr. Ingramasked the Secretary of State for the Environment what is his estimate of the cost of collection of the proposed poll tax compared with the present cost of collecting rates.
    Mr. Redmondasked the Secretary of State for the Environment what are his estimates of the percentage cost of collecting a poll tax.
    The Minister for Local Government (Mr. Michael Howard): Our preliminary estimate is that the cost per person liable of collecting the community charge may be broadly similar to the cost per person liable of collecting domestic rates.
    Mr. Ingram: I understood that the Minister had said that it would cost twice as much to collect the community charge as it does to collect rates under the present system, so I am rather surprised at his answer. However, the Minister is the one who is really responsible for his Department and he therefore gave the right answer to the press—even the Labour press—on this occasion. What proportion of the cost of raising the community charge will be attributable to those who are not on the register through evasion or because the register has been incompletely or incorrectly compiled?
    Mr. Howard: The answer to the hon. Gentleman's mystification is that almost twice as many people will pay the community charge as now pay domestic rates. I cannot apportion the cost as the hon. Gentleman suggests, because at the moment we have only very preliminary estimates available.
    Mr. Redmond: Does the Minister agree that it is silly to talk about the two systems running side by side, given that

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    his right hon. Friend the Secretary of State has estimated that the community charge will cost twice as much to administer? What would be percentage increase in costs if the two systems were to be run side by side?
    Mr. Howard: That, too, is a question that cannot possibly be answered at this stage. As my right hon. Friend has said, no final decision has yet been made on that.
    Mr. Raison: Does my hon. and learned Friend accept that it would be perfectly possible for the Government to go ahead with their proposals regarding a unified business rate and rate support grant, while at the same time looking for an alternative way of raising the balance of local government spending that is more equitable and more cost-effective than the present proposals?
    Mr. Howard: No such alternative has yet been advanced.
    Mr. Squire: Has my hon. and learned Friend yet had the opportunity to discuss with local councils the Government estimates for collection costs? If so, what was their response?
    Mr. Howard: We are engaged in a series of consultations with local councils about the details of enforcing and administering the community charge. Those consultations will continue.
    Mr. Cyril Smith: Would it not be cheaper to collect the tax if it was collected from fewer people? Has the Minister seen The Daily Telegraph of today, which says that it will cost the Church of England £4 million if the tax is imposed upon vicarages, and so on? Does the Minister agree that if the Government were to waive the charges on those religious establishments and did not tax prayer and care it would mean that the tax would be cheaper to collect?
    Mr. Howard: The hon. Gentleman leaves aside the fact that one of the principal objectives of the community charge is to restore accountability to local government. The more people who pay the community charge, the more accountable local government will be. I hope that the hon. Gentleman is not suggesting that we should, above all, go for the cheapest system. If that is the case, I look forward to the hon. Gentleman advancing the charms of the window tax.
    Mr. Bill Walker: Does my hon. and learned Friend agree that whatever the charge and whatever the implications, one of the principal advantages of the community charge over any other form of local taxation, bearing in mind the cost of the community charge, is that in future more people will pay? Consequently, more people will be interested in what happens in local government, and consequently more people will eventually vote, and that must be good for democracy.
    Mr. Howard: My hon. Friend is absolutely right. What we are doing is to restore the link between those who use local services, those who pay for local services and those who vote for those who provide local services. That link has been sadly and deeply eroded by what has happened in local government in the past few years.
    Mr. Home Robertson: As the Government have acknowledged that they failed to register on the electoral roll 5 per cent. of the people who should be eligible to vote, would the Minister care to speculate on how much it would cost to compile a full register for poll tax purposes? Indeed, is there any prospect of compiling such a register?
    Mr. Howard: The hon. Gentleman leaves out of account the fact that the two registers will be complied on a different basis, having different objectives in view. Therefore, any comparison of the kind that the hon. Gentleman seeks to make is totally misconceived.
    Mr. Brandon-Bravo: Does my hon. and learned Friend not agree that a cheap system, if it is unfair, is an unacceptable system, and that the prime consideration must be fairness and accountability?
    Mr. Howard: My hon. Fried is absolutely right. It is those two objectives that the community charge will indeed provide.
    Dr. Cunningham: What has changed since the Minister of State's predecessor, the right hon. Member for Brent, North (Sir R. Boyson), who is now on the Back Benches, told the House that the Government estimated that it would cost at least twice as much to collect the community charge as to collect rates? What has changed since then?
    Mr. Howard: As I made clear earlier, nothing has changed. The fact that twice as many people will pay the community charge as presently pay domestic rates means that the cost per person liable is roughly the same under each system.
    Mr. Cormack: Can my hon. and learned Friend tell us how many local authorities have expressed support for the proposed changes?
    Mr. Howard: I do not think that I am in a position to—[Interruption.]—tell my hon. Friend either how many local authorities support the proposal or how many local authorities oppose it. [Interruption.]
    An Hon. Member: Name one.
    Mr. Speaker: Order.
    Mr. Howard: The fact of the matter is that the purpose of this reform is to benefit the people whom local authorities serve. It is their interests that we shall he serving by putting these proposals on the statute book.
    Dr. Moonieasked the Secretary of State for the Environment what consideration he has given to the enforcement of individual liability for payment of the community charge.
    Mr. Howard: The enforcement procedures for the commuity charge were described in some detail in the document on the operation of the charge, which was placed in the Library on 15 December 1986. Since then further consideration has been given to enforcement procedures, both within Government and in consultation with local authority offices and representatives of the local authority associations.
    Dr. Moonie: Can the Minister guarantee that the head of the household will not be liable for the registration of other individuals therein?
    Mr. Howard: The head of the household will be liable severally and jointly for his spouse or the person with whom he lives, but not for his adult children.
    Mr. McLoughlin: Does my hon. and learned Friend agree that what has changed since his previous incumbent was in office is that there has been a general election, which the Conservatives fought on changing the rating system,

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    and that we received an overwhelming mandate to change the present ridiculous rating system? Will he assure us that that will be done regardless of the Opposition?
    Mr. Howard: My hon. Friend is correct. The present system is deeply unpopular, deeply unfair and deeply unacceptable. It must be rare for a proposal for reform to have been explained in such detail to the electorate as the proposal that we shall put the before the House within the next few months.
    Mr. Allan Roberts: If the head of the household is not responsible for including on the poll form the people in the house other than the spouse, will more than one form be delivered to each household in case the householder fills it in and does not include everybody else? If the spouse leaves because of a marital dispute and is not there when the form is filled in, but later returns, as sometimes happens, even in Bootle, how long will the head of household have to put the matter right before he is prosecuted?
    Mr. Howard: So far as the form is concerned—and I may have misunderstood the supplementary question that was asked earlier—the duty will be to enter the names of all adults who are resident in the house. When it comes to liability for payment, the head of the household will not be liable for the payment of the community charge by adult children in the house.
    Dr. Hampson: Is my hon. and learned Friend aware that on the Government's own exemplifications of the community charge there will be deep concern in many northern inner-city areas with high-spending Labour councils over the proposed level of community charge that people will face? Will it not be the case that there will be less attempt at avoidance if the size of the tax is reduced? Therefore, will he reconsider the proposal of Sir Keith Joseph to have a 75 per cent. direct education grant, as that is primarily a national and not a local service?
    Mr. Howard: No. I do not think that that would really deal with the problem, which my hon. Friend has rightly identified, posed by high-spending local councils in the north. That problem can be dealt with by voting those councils out of office. The community charge, by restoring accountability to local government, will encourage that process.
    Mr. Rooker: Will the Minister explain how the enforcement will work on heads of households in some of our inner cities where the head of the household, because of his religion and cultural upbringing, would not under any circumstances seek a place in a local authority old persons' home for his parents or grandparents but would have them, as his extended family, living with him? How will members of the Asian community, who are saving taxpayers' money, be treated in those circumstances?
    Mr. Howard: The position is quite clear. The charge should be paid by as many adults as possible. Exemptions should be limited, and those in the position to which the hon. Gentleman referred will be liable to the charge in the same way as every other adult.

    Local Government Finance
    Mr. Hayesasked the Secretary of State for the Environment if he will issue advice to local authorities who
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    entered into deferred purchase agreements with merchant banks to delay prescribed expenditure before 22 July 1986; and if he will make a statement.
    Mr. Chope: Advice to local authorities on scoring prescribed expenditure under deferred purchase deals entered into before 23 July 1986 was given in my Department's Circular 5/87.
    Mr. Hayes: I thank my hon. Friend for his depressing reply. It shows that Hard-Left Harlow council is yet again surpassing itself in fleecing ratepayers. Not only is its grant-related expenditure 162 per cent. above the norm, but it is spending above the norm. It is the highest rating district—[Interruption.]
    Mr. Speaker: Order. Ask a question, please.
    Mr. Hayes: I put it to my hon. Friend—
    Mr. Speaker: Order. Please do not do that. Ask a question.
    Mr. Hayes: The question that I put to my hon. Friend is that, now that the council is embarking on an illegal and shady deal with foreign banks—[Interruption.]
    Mr. Speaker: Order. That is an abuse.
    Mr. Hayes: It was a question, Mr. Speaker.
    Mr. Chope: In answering my hon. Friend's question, there is good news for him in the answer that I gave to the substantive question. Harlow's £50 million deferred purchase deal is caught by the Local Government Act 1987, I think rather to the surprise of that council.
    Mr. Skinner: Why do the Government have two sets of standards for different institutions that engage in rescheduling debts? For instance, why should local authorities—mainly Labour authorities—be hammered into the ground by the Government for entering into arrangements to provide services, while the four top merchant banks have recently been engaged with the Inland Revenue, with the connivance of the Chancellor of the Exchequer, to offset debt payments of, in the case of Midland bank, about £1 billion? It means that, at the end of the day, the taxpayer will have to find £875 million to bail out Lloyds, Midland, National Westminster, and Barclays banks. Why do the Government have double standards?
    Mr. Chope: The hon. Gentleman's question would probably be much better directed to the hon. Member for Blackburn (Mr. Straw), who told the House on the Third Reading of the Local Government Bill that clause 1, the deferred purchase measure, should be on the statute book. The official policy of the Labour party then was in favour of outlawing deferred purchase.

    Inner Cities (Investment)
    Mr. Adleyasked the Secretary of State for the Environment what legislation he proposes to direct investment into the inner cities; and if he will make a statement.
    Mr. Trippier: I have no plans for legislation to direct investment into inner cities. The creation of urban development corporations, together with urban development grant, urban regeneration grant, derelict land grant, and other grant systems provide effective incentives.
    Mr. Adley: I welcome my hon. Friend's measures as far as they go. Does he agree that there is an alignment of ambition and policy simultaneously to generate further private sector investment in inner cities and detract from the attraction of putting private sector investment in areas of over-development, such as in my constituency? Will he have discussions with his colleagues in the Treasury to see whether national taxation policies can be amended to generate further incentives to developers to go into inner cities, and, at the same time, to discourage them from investing in areas of over-development?
    Mr. Trippier: The point that my hon. Friend made in the earlier part of his question is fact and not hypothesis. The tax measure that he proposes would be considered by my colleagues in the Treasury. It is important to stress that we share the same objectives—to increase the leverage of public to private sector investment in the inner cities. We start from a very strong position at the moment, because for every pound of taxpayers' money that is invested in the inner cities through our programmes we are attracting four times that figure from the private sector. We must do all that we can to improve that ratio.
    Mr. O'Brien: In view of the Minister's reply to the question, will he reconsider the distribution of urban aid to the smaller towns in west Yorkshire, where there is no urban provision whatsoever but where there is a need to arrest the dereliction that is occurring in those small urban areas? Will the Minister review his programme with a view to considering the smaller towns in west Yorkshire?
    Mr. Trippier: I am always anxious to review the 57 programme authorities that we have currently identified as being of the highest possible priority. In deciding what areas should be assisted we must look at a synthetic index, which would cover not only such matters as levels of unemployment, dereliction, over-dependence on traditional industries and so on, but many other matters. If the hon. Gentleman wants me to look at a proposal or visit his area, I shall be delighted to respond positively if I can.
    Sir George Young: Does my hon. Friend agree that investment in the inner cities would be greatly assisted if high-spending local authorities were rate-capped? Will he confirm that a statement will be made next week on the subject, and is he aware of the mounting anticipation in the London borough of Ealing that it will be included?
    Mr. Trippier: I understand that we hope to make such an announcement.

    Consett (Development Corporation)
    Ms. Armstrongasked the Secretary of State for the Environment if he has any plans to set up an urban development corporation for Consett; and if he will make a statement.
    Mr. Ridley: I have no such plans.
    Ms. Armstrong: I am sure that the Secretary of State will be aware of the progress that has been made in towns such as Consett due to the dedicated commitment of local authorities to do what they can by working with private industry to rebuild opportunities. The right hon. Gentleman is undermining the local authorities and excluding towns such as Consett from any additional aid. The opportunity for such towns to overcome the appalling
    1130
    social consequences of the large-scale unemployment that has been brought about by the Government's industrial policy is limited. What will he do for such towns that will not come within his inner city policy?
    Mr. Ridley: When I visited Derwentside last Friday I was told by business men that the hon. Lady's constituency was extremely grateful for the £10 million that has been spent by the Government on derelict land grant and the £12·5 million worth of factory building by the English Industrial Estates Corporation. As a result, although 3,500 jobs were unfortunately lost when the steelworks closed, 3,300 of those jobs have been replaced since 1980. That is a fantastic performance and it is time that the hon. Lady stopped trying to talk the north down and proclaimed the achievements of the Government.

    Water Authorities (Privatisation)
    Mr. Martlewasked the Secretary of State for the Environment when he last met the chairmen of the English water authorities to discuss water privatisation.
    Mr. Ridley: On 25 June this year.
    Mr. Martlew: Will the Secretary of State accept that his proposals to create a National Rivers Authority, and his arguments so to do, have been completely destroyed by the statement of the chairman of the Thames water authority and the independent report of the economics department of Leicester university? Therefore, will he abandon these ridiculous proposals which are based only on greed and dogma and scrap this privatisation?
    Mr. Ridley: No, Sir. The meeting that I had with the water authorities chairmen, to which I referred, was described as friendly and useful. We have now entered into discussions to get the detail right. I believe that all the interests that are concerned with water will welcome the setting up of a National Rivers Authority. If one chairman is out-voted by the other nine, I think that we have endorsement from the water industry that we are on the right lines and that we are finding the right solution.
    Mr. Colvin: Is my right hon. Friend aware that there is growing concern about the pollution of our rivers by fish farmers, for whom generous grants may soon be available from the EEC? Before proceeding with the privatisation of the water authorities, will he bear in mind that something ought to be done to regulate fish farming?
    Mr. Ridley: It would be a responsibility of the new National Rivers Authority to ensure that the rivers were free from pollution, from whatever source. I have not heard of proposals for regulating fish farmers. We should concentrate on measures to ensure that pollution does not enter our rivers and keep regulation to the minimum.

    London (Housing)
    Mr. Cohenasked the Secretary of State for the Environment what measures he proposes to take to relieve homelessness, long housing waiting lists and disrepair in London.
    Mr. Waldegrave: The measures that we set out in our manifesto will help London's housing by reviving the independent rented sector, involving a wider variety of landlords in the provision of housing for rent, and concentrating resources where they are most needed.
    Mr. Cohen: The Minister's gabbled reply will be deeply disappointing to the many thousands of Londoners living in inadequate accommodation. When will the Government take effective steps to tackle the rising homelessness in the capital? It is rising by about 20 per cent. per annum. When will the Government curtail the degrading bed and breakfast system and provide a chance for those people on growing waiting lists who are
    1132
    desperate for a flat? When will the Government provide money to help improve the estates that are being run down? Are not the Government's housing policies the problem in London, not the solution?
    Mr. Waldegrave: The hon. Gentleman prepared his speech before he listened to my answer. If he reads my answer, which he may not have been able to hear, he will find that there are practical proposals in the pipeline.

Military Exercises (Radioactive Contamination)
3.31 pm
Mr. James Wallace (by private notice) asked the Secretary of State for Defence if he will make a statement about armed forces exercises involving radioactive contamination.
The Parliamentary Under-Secretary of State for the Armed Forces (Mr. Roger Freeman): The Ministry of Defence takes a responsible attitude towards all aspects of safety, including nuclear safety. The safety and health of the public and Ministry of Defence employees is of paramount concern.
The risks of a nuclear accident are extremely remote. In the 30 years during which nuclear weapons have been deployed in this country, we have never had an accident resulting in the release of radioactive material. Nonetheless, we take the prudent precaution of maintaining a highly effective organisation, known as the Nuclear Accident Response Organisation. We maintain detailed contingency plans against any nuclear emergency; and we undertake a series of exercises to ensure that our response forces are trained for the tasks they would have to carry out.
To be effective, training of the military and civilian staff involved has to be as realistic as possible. On occasion, therefore, but only when there is a clear and compelling training advantage to be gained, we do use live contaminant of very low levels of radioactivity.
Such activities take place only on Ministry of Defence property; are subject to stringent safety requirements; and present no hazard to the response forces involved or to the general public. Furthermore, the material's short half-life means that any residual contamination has decayed to negligible levels within three months.
The precautions regarding the health and safety of the personnel involved are equally stringent. Access to the contaminated area is strictly controlled. Individuals are required to wear protective clothing and are rigorously checked when leaving and entering the area. If there is the slightest indication of contamination, full decontamination procedures are undertaken.
In summary, although we believe the probability of an accident involving the release of radioactivity to the environment is extremely remote, it is clearly prudent that we should maintain an organisation to respond to such an emergency, and that the personnel involved should be properly trained. Where there is a clear training advantage, we do use very low-level radioactive material, but only under stringent safety procedures.
Mr. Wallace: I thank the Minister for his answer. I am sure that many people will accept that, as long as we have nuclear weapons, it is important that there are contingency arrangements in the event of an accident. Nevertheless, I am sure that the press reports this morning must have given rise to widespread fear and concern regarding what would appear to be the somewhat casual attitude that has been adopted in the past.
Will the Minister give some assurances with regard to the sites that have been used, particularly the one referred to in Staffordshire? Although the releases have been on Ministry of Defence land, the Minister, as well as everyone
1134
else, knows that radioactivity cannot readily be contained and does not necessarily recognise the boundaries of Ministry of Defence land. What further monitoring has taken place in that area and the surrounding areas?
With regard to the personnel who were involved not only in that incident but who, it would appear, have repeatedly had to go into a hangar at RAF St. Athan, over a number of years, what degree of radioactivity have they been exposed to? It would appear that the medical checks on them have been cursory. What continuing checks are being done? With regard to the future, can the Minister give us an assurance that, as has been said by one of his—[Interruption.]
Mr. Speaker: Order. [Interruption.] I do not need any help.
Mr. Wallace: Will the Minister give us an assurance that in future the type of casual approach that has been—[Interruption.]
Mr. Speaker: Order. It is quite unseemly for senior Members below the Gangway on both sides to shout at each other.
Mr. Wallace: Can the Minister give us an assurance that the casual approach reported this morning to both areas and personnel will not continue?
Mr. Freeman: I entirely reject the suggestion that the Ministry of Defence has taken a casual attitude. The hon. Gentleman has the matter out of context. The damaging effect of the ingestion of radioactive material by the Service men or civilians involved who were not wearing protective clothing would be broadly equivalent to smoking one cigarette.
Sir Antony Buck: Is my hon. Friend aware that responsible Members—I suspect in all parts of the House—welcome what he has had to say? It is appropriate that there should be training of this type and that there should be true professionalism in our armed forces to enable them to deal with any contingency in the event of the most improbable or unlikely accident that could just happen. [Interruption.]
Mr. Speaker: Order. Before the Minister answers, may I say to hon. Members below the Gangway that if they have any disagreements they should take them outside?
Sir Antony Buck: I say again that what my hon. Friend has said will be welcomed by all responsible Members. The Minister's answer shows that we are maintaining our forces in a state of true professionalism in all types of military activity so that they can be an effective shield that will prevent the holocaust against which they are training from ever happening.
Mr. Freeman: I entirely agree with my hon. and learned Friend. The general public would expect the Ministry of Defence to organise training exercises such as this involving the use of very low-level radioactive material.
Mr. Robert Parry: Will the Minister agree that there should be a full debate before the summer recess on this very worrying situation? Will he tell us whether there have been any recent nuclear waste issues in a defence context? Can he tell the House whether this is part of NATO exercises and whether any of the Warsaw pact countries are involved in similar exercises?
Mr. Freeman: Many of the issues raised by the hon. Gentleman, including the matter of a debate and what the

1135
Warsaw pact forces do or do not do, are not matters for me. These are not NATO exercises or part of NATO training. They are routine but relatively infrequent exercises involving uniformed and civilian staffs of the MOD and the response organisations in the civilian community. They are doing a necessary job in preparing for the unlikely event of a nuclear accident.
Mr. William Cash: Will my hon. Friend accept that we in the constituency of Stafford welcome his statement? We are glad to hear that, irrespective of where this incident may have occurred, rigorous controls are exercised over the way in which these matters arise. Does he also accept that serious concerns which arise are noted by people in my constituency but that they do not arise in this case?
Mr. Freeman: I can give my hon. Friend the assurance that his constituents and the constituents of every hon. Member can sleep safely in their beds. There is no harmful effect from the use on exercises of this low-level radioactive material either to uniformed or civilian staff on MOD property or to his constituents.
Mrs. Ann Clwyd: As usual, the Minister has given us the bland and complacent answers that we have come to expect from Ministry of Defence spokesmen. Can he answer the following questions? When such exercises take place, which authorities are informed, at what stage and at what level are they kept in touch? What radioactive materials are used in such exercises and at what rate does their radioactivity decrease? What happens to the contaminated land after the exercises have taken place, and at what stage are the public allowed access to that land? What procedures do the Government have for monitoring the long-term health of the personnel involved? Is it not the case that—
Hon. Members: Reading.
Mr. Speaker: Order. Briefly, please.
Mrs. Clwyd: Is it not the case that British emergency services are not permitted access to United States nuclear weapon storage silos? Is not—[Interruption.]
Mr. Speaker: Order. The hon. Lady is not a new Member. She should not be reading questions, and she should be brief.
Mrs. Clwyd: Thank you, Mr. Speaker. I would be much quicker if the barracking from the Conservative Benches were less. Is not the appalling—
Hon. Members: Reading.
Mr. Speaker: Order. Please do not read notes.
Mrs. Clwyd: Is not the appalling implication that United States troops can prevent our emergency services from becoming involved in the event of a nuclear accident of this kind?
Mr. Freeman: There were many separate questions there. If the hon. Lady would care to table them all, I will answer them. I shall answer briefly two of the key questions. We are entirely satisfied with the liaison and cooperation between the British armed forces and the United States armed forces in dealing with a nuclear emergency or nuclear accident in the United Kingdom. The hon. Lady asked about our procedure for informing local
1136
authorities. We are satisfied with the liaison we have with local authorities and the emergency services in dealing with such incidents.
Sir Raymond Gower: In so far as there has been a change in the medical safeguards for personnel, can my hon. Friend give an assurance that this constitutes an improvement on the medical arrangements of some years ago? Can he also assure us that there is no danger to people living in the environment of an airport such as St. Athan in my constituency?
Mr. Freeman: As I have already said, I can assure my hon. Friend that there will be no danger to his constituents living close to any military establishment where these exercises may or may not take place. As regards medical procedures, we have adopted the same procedures, which are very thorough. They are governed by regulations laid down both by the Department of the Environment and the Ministry of Defence. I can assure my hon. Friend that our Service men and civilians are properly looked after.
Mr. Eddie McGrady: Would the Minister show the same concern for civilian populations, particularly that in South Down which has for the past three years suffered from radioactive discharges into the sea from Sellafield, an establishment for which the Minister has part responsibility, and from Drigg radioactive material site nearby, which is causing daily pollution?
Mr. Speaker: Order. That is wide of the private notice question.
Mr. Tony Baldry: Does my hon. Friend agree that, while the Warsaw pact countries continue to build up nuclear, chemical and biological warfare potential, inevitably if British troops are to be properly protected, it will be necessary for them from time to time to carry out responsible training in these weapons? Can my hon. Friend assure the Opposition that British forces are more responsible in the way in which they carry out this training than the Opposition would seem to give them credit for?
Mr. Freeman: I thank my hon. Friend for his comments. Yes, the general public and the House woud expect our armed forces to carry out the necessary training to deal with the unlikely and remote prospect of a nuclear accident.
Mr. Mark Fisher: Will the Minister accept that many members of the public are deeply concerned about the public health implications of these reports? Will he address himself to three brief questions? First—
Hon. Members: One.
Mr. Speaker: Order. The hon. Gentleman has a constituency interest in this matter, but he should be brief.
Mr. Fisher: One, Staffordshire county council says that at no point was it informed by the Minister's Department about these tests. Secondly, will the Minister confirm that these tests have taken place only in Staffordshire, or are they taking place in other locations? Thirdly, what is the situation as regards raising livestock on this land? We have seen from the Chernobyl disaster that the trace elements of radioactivity in meat are serious and long-lasting.
Mr. Freeman: As far as Staffordshire county council is concerned, all those that needed to be informed about the

1137
exercise were informed, and all those that entered the area of low-level radioactivity wore protective clothing. As regards where such exercises are taking place, I cannot help the hon. Gentleman, for reasons that he well knows. Not only this Government but all previous Governments have not commented on the location of exercises of this nature. Finally, as regards grazing livestock, I have already said that the maximum damage to his health that might occur to an individual who was accidentally exposed without protective clothes to the radioactivity levels involved in this exercise, and who ingested such levels, is broadly equivalent to smoking one cigarette.
Sir Peter Emery: May I ask my hon. Friend one question? In the past, many hon. Members have directed only one question to Ministers and that allows many more hon. Members to speak. Does my hon. Friend realise that the vast majority of people in the country would think it quite wrong if the Ministry of Defence did not take these steps to ensure the proper protection of the forces and the public?
Mr. Freeman: I am grateful to my hon. Friend. That is precisely the point.
Mr. Jack Ashley: Can the Minister confirm that none of this information would have been disclosed in the House of Commons without the report in The Independent? Secondly, can he give me a guarantee that all radioactive dust in Staffordshire has been cleared up and that there is absolutely no danger to the people involved? Thirdly, does he recall that the same assurances on safety that he has just given to the House were given to the atomic test veterans in the Pacific tests about total safety, yet they were damaged by those tests? As the Ministry of Defence has evaded the payment of compensation in that case, what rights will people have to compensation if they are damaged by contamination now?
Mr. Freeman: I reject entirely the suggestion that I am trying to evade answering hon. Members' questions. I have been as frank as necessary as required by the House.
With regard to the specific questions raised by the right hon. Member for Stoke-on-Trent, South (Mr. Ashley), I can state that the material used is of very low-level radioactivity. It is a liquid that is sprayed on the ground surrounding the simulated accident involving perhaps an aircraft or vehicle. It is promptly cleared up after the exercise is over. It has a half-life such that after three or four months no trace of radioactivity is left. The exercises were safe when they were carried out and the area is certainly safe after three months.
Mr. Sydney Chapman: Will my hon. Friend sympathetically consider that he could probably allay public concern entirely if he could give definite comparisons of the low level of the radioactivity that has been caused? For example, can he say that the level in the training tests is far less than the level from a television set or from double glazing or far less than the natural radioactive level in the environment? If he could give such comparisons, I am sure that he would allay all fears on both sides of the House.
Mr. Freeman: I thank my hon. Friend. That is a very helpful suggestion. If he can take the trouble to table a question, I will answer it promptly.
Mr. Tam Dalyell: If the Minister is so confident, could we have the chemical formula of the live contaminant to which he referred?
Mr. Freeman: If the hon. Gentleman would care to table a question, I will see whether I can answer it.
Mr. Dalyell rose—
Mr. Patrick Cormack: Is my hon. Friend aware that the people of Staffordshire showed on 11 June which party they wanted to have in charge of the defence of this country? However, as there are certain legitimate concerns, will he write a detailed letter to all the Staffordshire Members precisely explaining the position?
Mr. Freeman: Yes, Mr. Speaker, I will.
Several Hon. Members rose—
Mr. Speaker: Order. I shall call two more hon. Members from each side of the House. Then we must move on, as this is an extension of Question Time.
Mr. Frank Cook: The Minister has given us two clear statements today—that the exercises took place on MOD land and that the contaminant had a half-life approaching three to four months. The Minister will already know that there are vast tracts of MOD land in this country on which people can walk and where animals can graze. Will he undertake to place in the Library details of the specific locations where this type of exercise has taken place? Further to the question from my hon. Friend the Member for Linlithgow (Mr. Dalyell), will the Minister specify the type of contaminant element and the level of radiation that it was emitting at the time of the exercise? If he were to place details in the Library. I am sure that that would go some way to enable independent experts to allay the fears of the community, if the Minister is right.
Mr. Freeman: First, may I correct the hon. Gentleman? I did not say that the half-life was three to four months. I said that the half-life of the radioactive material was such that after three to four months there was no trace of radioactivity to be found. The hon. Gentleman asked where these exercises take place. I am not able to answer that question in the light of the wise convention followed by this Government and previous Governments. I do not carry the relevant chemical formula in my head, but I have given the hon. Gentleman an undertaking that I shall respond to that question.
Mr. Gerald Howarth: Is my hon. Friend aware that my constituents in Staffordshire will welcome the reassurance that he has been able to give and the fact that Her Majesty's Government are undertaking these exercises and that the country will be better for them? The suggestion appeared in a national newspaper this morning that the material used to contaminate was spread over a half-mile radius. In answer to an earlier question my hon. Friend said that the material was confined to MOD property. Will he confirm that that would be the position even within a half-mile radius?
Mr. Freeman: First, I can confirm that the exercises take place on MOD property. The liquid is used only within a short radius of the vehicles or aircraft and within an area that is wholly within MOD property. The question of the hon. Member for Stockton, North (Mr. Cook) has prodded my memory and I can tell the House that the

1139
contaminant used is, typically, radium 223 sulphate that is heavily diluted with barium sulphate and aluminium oxide. It is always of very low radioactivity.
Mr. D. N. Campbell-Savours: Is the Minister aware that for those of us who have always supported nuclear power these nuclear war games are most embarrassing, even if there is no health risk? Will he confirm that materials other than those radioactive could have been used during the course of these exercises?
Mr. Freeman: No, Sir. I dealt with the material that is used in responding to the question of my hon. Friend the Member for Cannock and Burntwood (Mr. Howarth). The hon. Member for Workington (Mr. Campbell Savours) knows that these are not nuclear war games. These are serious exercises that take place under strict regulations. They occur infrequently and are designed to improve the sophisticated techniques of the Ministry of Defence to deal with nuclear accidents.
Mr. Tony Marlow: Is this not possibly the case of some disaffected ex-Service man spreading his bile through the national media? Would it not be more positive if the media had a more responsible view and that these issues were checked out—the scale of these issues—with the authorities concerned with national defence and security so that there should be no alarm raised where there is no alarm to be raised, as my hon. Friend has so capably demonstrated?
Mr. Freeman: I agree with my hon. Friend. I think that the moral is not to believe everything that we read in the newspapers, including The Independent.
Mr. Martin O'Neill: Is the Minister aware that the failure of his officials to make disclosures to the chief executive of Staffordshire county council does not allay the anxieties of individuals that authorities are not being consulted? Secondly, will the Minister give an assurance that the land that is being used—I am led to believe that this land can be anywhere in the country—does not afford access to the general public? I shall not put words in the Minister's mouth about Salisbury plain, for example, which is an example of land that is shared by the military and the public. Can the Minister give an assurance that excercises of this nature will not expose members of the public who are not in the armed forces to any danger? At present the hon. Gentleman has convinced neither the public not the military that they are safe from these exercises.
Mr. Freeman: I can give the assurance that the hon. Gentleman seeks. There is no danger, there has never been any danger and there will be no danger to members of the general public, members of the armed forces or civilians in the Ministry of Defence, as a result of these exercises.
Mr. Bob Cryer: On a point of order, Mr. Speaker.
Mr. Speaker: No, I shall take the applications under Standing Order No. 20 first.

British Rail (Redundancies)
3.54 pm
Mrs. Gwyneth Dunwoody: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"the announcement today of 9,000 white-collar redundancies by British Rail."
This is a matter of extreme urgency because British Rail has made it clear that of the 22,000 jobs in the administration division, 9,000 are to go in the next three years. Of those, 2,000 are to be lost in 12 months' time. Although it has been suggested that there are to be no forced redundancies, it is absolutely impossible to believe that it will be possible to reach those targets without compulsion. It is clear that British Jail is following the guidelines laid down by the Minister of State, Department of Transport, who, when he came to my constituency during the general election, said:
"We have given instructions to British Rail and the result now is to be a 9,000 job loss in the white collar jobs."
It is totally unacceptable that that should happen without the House of Commons having the right to debate a matter of such extreme urgency at this time.
Mr. Speaker: The hon. Member for Crewe and Nantwich (Mrs. Dunwoody) asks leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that she thinks should have urgent consideration, namely,
"the announcement by British Rail of 9,000 redundancies".
I have listened with great care and concern to what the hon. Lady has said, and I hope that she will find other ways of bringing the matter to the attention of the House. However, I have to rule that it is not appropriate for discussion under Standing Order No. 20, and I therefore cannot submit her application to the House.

Military Exercises (Radioactive Contamination)
3.56 pm
Mrs. Ann Clwyd: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"the report of the armed forces scattering radioactive material in exercises dealing with nuclear accidents".
Mr. Speaker: Order. I hope that the hon. Lady will produce a new factor.
Mrs. Clywd: Yes, Mr. Speaker, there is a new factor. There is now a contradiction. If the 1981 Senator exercise, which was discussed a few moments ago, was a simulation of a road accident involving the transport of nuclear weapons, the need for such an exercise was apparently contradicted in a Written Answer from the Minister for Traffic and Roads, the hon. Member for Eltham (Mr. Bottomley), which stated that radioactive materials being transported
"could not present a significant danger".—[Official Report, 10 February 1986; Vol. 91, c. 314.]
Since that complacent answer, there has been a road accident—involving a nuclear weapons convoy in Wiltshire last January.
The secrecy surrounding such exercises is unnecessary and damaging when it acts as a cover for inadequate procedures, unjustified risks and carelessness with people's lives. We need answers to these questions and remedies for these problems, and we need them now.
Mr. Speaker: May I have the hon. Lady's application, please?
The hon. Member for Cynon Valley (Mrs. Clwyd) asks leave to move the Adjournment of the House under Standing Order Number 20, for the purpose of discussing a specific and important matter that she thinks should have urgent consideration, namely,
"the report of the armed forces scattering radioactive material in exercises dealing with nuclear accidents".
Again, I have listened with great care to what the hon. Lady has said, and, indeed, to what was said in the exchanges on the private notice question. However, I regret that I do not consider the matter that she has raised appropriate for discussion under Standing Order No. 20.
Mr. Bob Cryer: On a point of order, Mr. Speaker.
Mr. Speaker: Order. It is not appropriate for discussion under Standing Order No. 20.

Points of Order
3.58 pm
Mr. Keith Raffan: On a point of order, Mr. Speaker. I seek your guidance in a most serious matter. At the opening of this morning's proceedings in the Welsh Grand Committee, the Chairman, the hon. Member for Neath (Mr. Coleman), formally announced that during this Parliament he would call hon. Members to speak in proportion to party strengths on the Committee. That appears to be in contravention of "Erskine May", which states in respect of the Chamber that you, Mr. Speaker, will generally call Back-Bench Members alternately from either side of the House. The statement by the hon. Member for Neath clearly has the most serious constitutional implications for the House and, indeed, for the country as a whole. I would be grateful, Mr. Speaker, if you could give a ruling, as the Welsh Grand Committee will sit again in a minute's time.
Mr. Allan Rogers: Further to that point of order, Mr. Speaker. I am not sure whether the hon. Member for Delyn (Mr. Raffan) is intentionally misleading the House. I was present this morning in the Welsh Grand Committee when the Chairman said that he would bear in mind the fact that there were very few Welsh Conservative Members of Parliament, that there are even fewer Scottish Conservative Members of Parliament and that the Labour side of the Welsh Grand Committee is heavily stocked. The Chairman certainly did not say that he would act in accordance with the direct proportion of Members of Parliament; he said that he would bear in mind the wishes of the people of Wales.
Several Hon. Members rose—
Mr. Speaker: This is a matter I can deal with now. Now that I have heard the point of order put from both sides, I can say to both hon. Members and to other hon. Members who may wish to speak on this that it is not a matter for me. I have no jurisdication over the Chairmen of Standing Committees. A number of Chairmen of Standing Committee are in the Chamber this afternoon, and they know that they are responsible in Standing Committee for their actions. There is no appeal to me.
Mr. Rogers: Further to that point of order, Mr. Speaker.
Mr. Speaker: It cannot be further to that point of order, because there is no appeal to me.
Mr. Michael Fallon: Further to that point of order, Mr. Speaker. Because of the ruling that has been reported to us, are there not implications for the line that you will take in this Chamber? Had this ruling been followed in the last Parliament, when there were 200 Opposition Members and 400 Conservative Members, is it not a fact that at least half the Opposition speeches need not have been made?
Mr. Speaker: I do not know what was said in the Welsh Grand Committee. On both sides, or at least on one side of the House, there seems to be a misunderstanding whether it was a definite statement. However, in this Chamber. I intend to carry on with the selection of speakers as I have in the past. Hon. Members know that at Question Time I have to bear in mind the weight of Members on either side of the House, as well as minority interests and many other considerations.
Mr. Ted Rowlands: Further to that point of order, Mr. Speaker. I seek your guidance about common courtesy. Did the hon. Member for Delyn (Mr. Raffan), who raised this matter in the first place, have the courtesy to inform the Chairman of the Welsh Grand Committee that he intended to raise the matter on the Floor of the House?
Mr. Raffan: I did.
Mr. Rowlands: When?
Mr. Raffan: I informed him at lunchtime.
Mr. Speaker: Order. This matter must not be discussed across the Floor of the House.
I cannot take points of order on what happened in a Standing Committee. I can take points of order only on issues that arise in this Chamber.
Mr. Tony Marlow: Further to that point of order, Mr. Speaker. It has to do with this Chamber. I speak as somebody who is desperately concerned about United Kingdom interests. I have a Welsh wife and a son who is in a Scottish regiment. The Library has kindly provided me with information in which both you and the House will be very interested: that in England there are 358 Conservative Members of Parliament, only 155 Labour Members of Parliament and a mere seven Liberal Members of Parliament. For every three English Labour Members there are seven English Conservative Members. It will be interesting to watch what happens in Committee. If there were to be changes in Committee in terms of party weight, this Chamber would be very interested, because it might have some lessons to learn. I should not like there to be a move in that direction, for the reasons that I have already given.
Mr. Bob Cryer: On a separate point of order, Mr. Speaker. At one time, it was the custom for the Speaker to call on private notice questions and statements every hon. Member who happened to be standing. I understand your dilemma. However, you will recall that during the private notice question about the scattering of radioactive waste a number of Conservative Members were shouting down Opposition Members. It would be outrageous if—
Mr. Speaker: Order. I was watching as well as listening. I do not think that the hon. Member can allege that the shouting came from only one side.
Mr. Cryer: But it was mainly from the Conservative side. My point is that, in order to achieve the balance that we seek to maintain, it would be quite wrong if a handful of Conservatives asked a few pat questions of a Minister and then sat down, leaving perhaps half a dozen or a dozen Opposition Members without a chance to speak on a matter that we consider to be of paramount importance, even though sycophantic Conservative Members who wish to suck up to the Minister seek to diminish its importance. The essence of democracy is accountability and the essence of the Opposition's task is to ensure that the Government are accountable. In seeking to ensure that accountability, it is important that searching Opposition questions should be allowed to the full, rather than that they should be determined by a group of bootboys and sycophants.
Several Hon. Members rose—
Mr. Speaker: Order. I shall take one point of order at a time. The hon. Gentleman has only recently returned to
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this House. To my knowledge it has never been the practice of the Chair to hear every hon. Member who wishes to speak on a private notice question. That would leave us with hardly any time for the rest of the day's business. Today I gave rather longer than I normally give for private notice questions, which are an extension of Question Time. Normally I allow not more than 15 minutes. Today, however, because of the interest in this matter, I allowed supplementary questions to continue for over 20 minutes.
Before we proceed with the points of order, I should point out that there is important business ahead of us and that the House is likely to sit late into the night. If there are any genuine points of order that relate to matters that have taken place in this Chamber, I shall deal with them. I call next a member of the Chairmen's Panel.
Mr. Nicholas Winterton: May I ask you, Mr. Speaker, to consider what has been said in the Chamber this afternoon. I accept your ruling that you can be concerned only with what has occurred in this Chamber, but what occurs in the House as a whole clearly reflects also on this House, and you hold a very important position in the House. Would you be prepared to consider what has been said in a Committee of this House and to come back to this place on a future day to advise the House about what you believe has occurred and whether it is right?
If what has been said by my hon. Friend the Member for Delyn (Mr. Raffan) actually occurred today in the Welsh Grand Committee, it must reflect on the procedures and the practice of this House. As I am a member of the Chairmen's Panel, which is a privileged position, I feel that it is important that you should give your ruling—I am sure that the country as a whole would value it—on this issue.
Mr. Speaker: I am pleased to give it. If the hon. Member will look at page 672 of "Erskine May" he will see that it says:
"No appeal can be made to the Speaker regarding the decisions or rulings of the chairman of a Standing Committee."
Mr. Tony Favell: Further to that point of order, Mr. Speaker. Many hon. Members thought that the last Parliament was exceptional, in that there were twice as many English Conservative Members of Parliament as there were English Labour Members of Parliament. It is all very well to refer to party political interests, but what about constituency interests? Has it occurred to you that a constituency has twice as much of a chance to be represented if it has a Labour Member of Parliament as if it has a Conservative Member of Parliament? Is that fair? Should we not be considering constituency interests rather than party political interests, since the electorate has already given its decision as to how it wants to be represented in this House?
Mr. Speaker: That might be an argument for what is alleged to have happened in the Welsh Grand Committee. These are very difficult matters for both the Speaker and the Chairman of every Committee. I have already said that I have no jurisdiction over what happens in Committee, but in this Chamber I shall hear those points carefully in mind.

Points of Order

  STATUTORY INSTRUMENTS, &c.
  Mr. Speaker: With permission, I shall put together the four motions on Statutory Instruments.
  Ordered,
  That the draft Welfare of Battery Hens Regulations 1987 be referred to a Standing Committee on Statutory Instruments, &c.
  That the Fish Farming (Financial Assistance) Scheme 1987 (S.I., 1987, No. 1134) be referred to a Standing Committee on Statutory Instruments, &c.
  That the Fishing Vessels (Acquisition and Improvement) (Grants) Scheme 1987 (S.I., 1987, No. 1135) be referred to a Standing Committee on Statutory Instruments, &c.
  That the Fishing Vessels (Financial Assistance) Scheme 1987 (S.I., 1987, No. 1136) be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Lennox-Boyd.]

Orders of the Day

  Finance Bill
  Further considered in Committee.
  [SIR PAUL DEAN in the Chair.]
  Clause 58 ordered to stand part of the Bill.

  Finance Bill
    Schedule 3

      OCCUPATIONAL PENSION SCHEMES
      4.9 pm
      Sir Brandon Rhys Williams: I beg to move amendment No. 77, in page 75, line 32, leave out paragraphs 1 and 2.
      The First Deputy Chairman of Ways and Means (Sir Paul Dean): With this, it will be convenient to take the following amendments: No. 69, in page 75, leave out lines 37 to 42 and insert—
      '(2B) In subsection (2A) above "the permitted maximum" means, unless Parliament otherwise determines, the aggregate of £100,000 and the sum produced by multiplying £100,000 by a figure expressed as a decimal and determined by the formula (RD-RI)÷RI where—

      RD is the retail prices index for the month in which the employee retires; and

      RI is the retail prices index for March 1987
      and, if the result is not a multiple of £1,000, rounding it up to the nearest amount which is such a multiple.'.

      No. 78, in page 75, line 38, leave out '£100,000' and insert '£104,000'.
      Sir Brandon Rhys Williams: We discussed this point in some detail yesterday and I should like to spare the committee the necessity of considering it again. Therefore, I seek only to move amendment No. 77 formally because it is possible that other hon. Members may wish to contribute on this subject again today in the slightly different context of schedule 3. I have said all that I wish on the point and as I know that the Chair does not wish us to cover ground unnecessarily, I shall now resume my place. If another hon. Member has a contribution to make on either of the amendments that are grouped with this amendment, I shall naturally make room for them to do so because I have nothing further to add.
      Sir William Clark: Will my right hon. Friend the Financial Secretary to the Treasury reconfirm that if the Treasury alters the occupational pensions limit of £100,000, it will not be altered downwards but only upwards?
      Mr. Tony Blair: I wish to raise only one point. We have already been through the question whether the lump sum is correct in principle. As the House knows, my hon. Friends and I are basically sympathetic to the idea of a lump sum.
      I should like to put two points to the Minister. First, I presume that the two paragraphs refer to all occupational pension schemes and that they cover all such potential occupational pension schemes or at least those that people join after 17 March or schemes that come into being after 17 March. My second point arises from that. Since the new lump sum provisions apply to schemes that come into being after 17 March or that people join after 17 March,

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      I presume that the entitlement of those people who are already in schemes that were in being before 17 March—if those people were in the schemes before 17 March—will be unaffected. I should he grateful if the Financial Secretary would confirm that.
      Mr. Robert McCrindle: I shall not detain the Committee for long but there is an interesting principle in amendment No. 69, which was tabled by my hon. Friend the Member for Slough (Mr. Watts). I make this minute contribution to see whether the Financial Secretary will establish the Government's approach to the index-linking of lump sums. I cannot recall having seen on record any reason why there should be any opposition to any such index-linking. Surely the alternative will be the necessity to return to this House in successive Finance Bills—even when inflation is as low as it has been during the past few years.
      I wonder whether my right hon. Friend will be prepared to inform the House of the Government's view of the whole business of index-linking in relation to lump sums. I for one do not look forward to having to return perhaps every five years to update the figures that are embodied in a particular Finance Bill relating to a particular year.
      Mr. John Watts: I tabled amendment No. 69 precisely to make the point that my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) has just made. I note that the proposed new subsection (2)(b) contains the power to raise the limit. It would seem more sensible and for the greater convenience of the House if that were done automatically through a formula such as the one that I propose, except in those years when the Government bring forward a proposal, which is agreed by the House, that indexation should not apply in that year. Like my hon. Friend, I should be interested to hear my right hon. Friend's reasons for resisting—if he chooses to do so- the principle of indexation of lump sums.
      The Financial Secretary to the Treasury (Mr. Norman Lamont): First, in reply to the hon. Member for Sedgefield (Mr. Blair), yes, the clause covers all occupational pension schemes, although not statutory schemes, which have their own legislation and which may need to be amended. On existing members and the lump sum rules—not the accrual rules—the lump sum rules will not affect existing members at 17 March 1987, but would affect someone who became a member after that date.
      Mr. Blair: I am grateful to the Financial Secretary for giving way. I want to sort out this matter now because some people are troubled by whether those who have been in schemes before 17 March will still be able to take the benefit of the lump sum provisions without any cap being put on them. I suppose such people would have an incentive not to move after 17 March into schemes in which such a cap will be placed on them. Has any consideration been given to that and to the effect that it might have on job mobility?
      Mr. Lamont: Obviously that factor has been taken into account in some of the points that have been made on the various provisions. The mobility of labour argument has especially been used. After 17 March the lump sum cap applies. We made that decision taking all the arguments into account.
      On the indexation of the lump sum limit, we debated that matter yesterday. However, I am happy to repeat, for
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      the third time, that we do not intend that the limit should he eroded. We shall review and adjust it from time to time. I was asked the specific question whether we intend that it should be adjusted downwards. I made it clear that we did not intend that it should be eroded. Yesterday, my hon. Friend the Member for Croydon, South (Sir W. Clarke) seemed well satisfied with that reply. Therefore, I hope that other hon. Members who have posed that question for the third time in Committee will be satisfied also.
      Sir Brandon Rhys Williams: I should like the Minister to clarify one point. I hope that in making that assurance to my hon. Friend the Member for Croydon South, (Sir W. Clarke) the Financial Secretary is not excluding further consideration of the recommendation that I have made on a number of occasions, that future accruals of lump sums, whether of £150,000, or more or less, should he liable to tax at the statutory rate. I put that forward as an extremely serious recommendation that I believe solves many of the problems that face the Inland Revenue at this time. I should not want my right hon. Friend to find himself caught by a remark that might he misinterpreted, so that he will be held not to be able to consider that recommendation any further. I trust that he will assure the house of that and of what he meant by the assurance that he gave to my hon. Friend.
      Mr. Lamont: I do not wish to create a lot of uncertainty in the pensions world. My hon. Friend the Member for Kensington (Sir B. Rhys Williams) is dangling all sorts of words in front of me that he would like me to use. Of course, I always take my hon. Friend's comments seriously and it was in that sense that I said that I would consider the various points that he raised yesterday. However, he knows that at present we have no intention of introducing specific arrangements for what he has now suggested. If I were to respond otherwise, that would create considerable uncertainty in the pensions world. However, in response to what my two hon. Friends have said about the lump sum limit, I emphasise that we are not intending to erode that. I hope that that assurance will reassure them.
      Mr. McCrindle: With great respect to my right hon. Friend, and with apologies for not having heard him on the first and second occasions when he made that point, he did not reassure me in quite the way that I had hoped, for the simple reason that if it is impossible to increase that figure to take account of the change in the retail price index for five years, during years one to four—on the assumption that inflation has not been nil—I remind my right hon. Friend that effectively there is an erosion. Is that not an argument in favour of linking into some index so that the lump sum never falls behind, and so that it cannot fall behind?
      Mr. Lamont: I am sorry that I was rather brief, hut we went into this yesterday, when I made it clear that notwithstanding the arrangements that we had made, for example, for personal allowances, it is the Government's general view that we do not wish to build into fiscal legislation automatic escalators or index provisions. Although I recognise what my hon. Friend is saying, £100,000 and £150,000 are substantial lump sums. We intend to review the matter and to deal with the matter as I said. We do not think that it would be right to have a year-by-year automatic escalator, as my hon. Friend suggests, for reasons that I well understand.
      Sir Brandon Rhys Williams: Since my right hon. Friend has given me an assurance on my proposal—I am sure that the Committee understands precisely what he said on that point, namely that he is not in the least committed in favour of what I am advocating—and since we have had a useful short debate, particularly following on what was said yesterday, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Sir Brandon Rhys Williams: I beg to move amendment No. 79, in schedule 3, page 76, line 21, leave out
      'the benefits provided by the scheme'.
      The First Deputy Chairman: With this it will be convenient to take amendment No. 80, in Schedule 3, page 76, line 23, leave out 'whatever' and insert
      `which may be drawn to the notice of the Board by the Occupational Pensions Board.'
      Sir Brandon Rhys Williams: This, once again, has a close relationship with the remarks that I made yesterday and I shall speak briefly.
      I have made the point that it is wrong that the DHSS should seek to regulate schemes by the size of the contributions which are made at the start and that the Inland Revenue should seek to regulate schemes by the size of the benefits that are received at the end. This dual system of control is extremely confusing and hampering for pension schemes and people who contemplate making new arrangements for their retirement and it should be ended. If there must be a choice we should accentuate the positive and encourage people to make contributions rather than to discourage them in relation to the benefits that they receive.
      As I have put my point again, I do not think that I need to labour it. It is germaine to this part of schedule 3 and I trust that my right hon. Friend can find a moment to give the House his further thoughts on dual control and the reform of the Inland Revenue.
      The second point, which arises from amendment No. 80, is simply to draw attention to the enormous latitude conferred on the Inland Revenue by the use of the word "whatever" in line 23 of page 76 which seems so broad that the House should stumble on it. I think that it would be better if such an expression were not offered to the House because it is too broad. In order to improve this I am making the same suggestion that I made yesterday which is that consultation with the OPB would be the appropriate course. I hope that that will commend itself to the House. I do not think that I need to dilate further on these points and I should be glad if my right hon. Friend could let us have his observations.
      Mr. Blair: We are grateful to the hon. Member for Kensington (Sir B. Rhys Williams) for raising these matters and I simply wish to make two short points arising from these amendments.
      There has been some anxiety about the change in the system of discretionary approval and it is right that we ask the Financial Secretary to explain the Government's thinking on it. The National Association of Pension Funds is particularly worried that it will in some way result in a wide range of new restrictions on the types of occupational pension schemes that will be approved. I would be grateful if the Financial Secretary will confirm that the purpose of paragraph 3 of schedule 3 is to replace the practice notes which the Inland Revenue uses with a set of regulations.
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      If there are to be changes in substance, perhaps he could tell us what they are to be. But as I understand it the purpose is simply to swap the present system of discretionary approval by means of practice notes with a more formal structure in the form of regulations. If the Minister can assure us that that is the case, that will lay some fears to rest about the new paragraph 3.
      My second point arises directly from the amendment. I have some sympathy with the hon. Member for Kensington about the inclusion of the word "whatever" in paragraph 3(5) because that seems to be extremely broad. The only difficulty with his amendment is that it does not simply mean that the OPB should be consulted; it confers some special statutory status on the board as opposed to any other body and that may be a little difficult to achieve. But his basic point is clear and deserves an answer from the Minister.
      It would help enormously if the Minister could give us a clear answer on those points because they have caused enormous anxiety outside the House. If we can lay those fears to rest during the debate, it will have been well worth having.
      Mr. McCrindle: I am somewhat fearful that this matter may also have been raised when I was absent yesterday, so I shall intervene even more briefly than before to dissent from my hon. Friend the Member for Kensington (Sir B. Rhys Williams).
      I can see what my hon. Friend is trying to do and I would be prepared to leave out the word "whatever", but I am not sure that his replacement words would be of any major service to the advancement of occupational pensions. If my right hon. Friend the Financial Secretary is disinclined to accept the amendment, perhaps he would accept the point that to encourage the OPB to be able to take a rather broader view of a scheme, including the benefits, may not necessarily be bad, as my hon. Friend implied, and that possibly a middle course between the proposed deletion and the proposed new words may be considered before further legislation on occupational pensions is introduced.
      Mr. Norman Lamont: Amendment No. 79 returns to a subject which we have debated on several occasions, the controls on benefits. My hon. Friend the Member for Kensington (Sir B. Rhys Williams) believes that the world would be a much better place if provision for retirement were essentially based on money purchase schemes rather than on final salary schemes. His amendment seeks to sweep away the present tax approval rules for occupational pensions which operate by references to the maximum benefits which the schemes can provide and he suggests a rule that the aggregate contributions to the occupational pension scheme, that is the amounts paid by the employer and employee combined, may not exceed 20 per cent. of the individual's salary. As I have already said to my hon. Friend, that would be a far-reaching change and would take us into Green Paper territory.
      The issue has been aired considerably. My hon. Friend has discussed it with me and the Minister for Social Security and the Disabled. I am well aware that my hon. Friend is postulating a vastly different world and a different set of arrangements for pensions. I see that the hon. Member for Sedgefield (Mr. Blair) is looking worried about my reference to 20 per cent. I anticipated that we would take the next group of amendments with these

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      amendments and I do not wish to be out of order, but there is a certain connection between the two. I was being extremely careful, if not a little vague, in my choice of words because I did not wish to stray out of order. The two groups are inextricably linked and it is difficult to discuss the first without the second and the 20 per cent. figure.
      My hon. Friend seeks to sweep away the controls on benefits and instead place controls entirely on contributions. The hon. Member for Sedgefield and his colleagues may have reservations about that and certainly it would be a far-reaching change. I have discussed this matter with my hon. Friend on many occasions and I can assure him that it will continue to be aired and that we shall continue to listen to him. However, during the proceedings on the Finance Bill, I cannot suddenly introduce such a far-reaching change. I hope that my hon. Friend will not think me wholly unreasonable in resisting his revolution. He has deployed the argument on many occasions and I think that he has a lot of logic on his side. However. I do not wish to create havoc and uncertainty in the pensions world. My hon. Friend has been fighting this war for a long time and he very much wants to win it. He will have to fight for a little longer but he has advanced somewhat in his battle and has perhaps made some converts.
      4.30 pm
      On amendment No. 80, I was asked about the inclusion of the word "whatever". I emphasise that the intention is to preserve the maximum flexibility and, in answer to the hon. Member for Sedgefield that no substantial change is intended. Clearly it is not the intention to direct schemes to invest in a particular way. The purpose is to make it clear that controlling director schemes cannot invest in for example, holiday homes or yachts for use by directors. The provision makes no substantive change in present practice; it merely strengthens anti-abuse practice. In his wording my hon. Friend was perhaps reverting to one of the themes that we covered quite thoroughly yesterday—the liaison between the Inland Revenue and the Department of Health and Social Security and the Occupational Pensions Board. I made it clear to my hon. Friend that on many of these matters it would be absolutely natural for us to consult the occupational pensions board, and we shall do SO.
      My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) suggested that we should think about giving the Occupational Pensions Board a somewhat wider remit, and I listened to his point. Yesterday, I defined narrowly and precisely the matters for which the Occupational Pensions Board was responsible and I shall draw my hon. Friend's remarks to the attention of my right hon. Friend the Secretary of State for Social Services.
      Sir Brandon Rhys Williams: It has been useful for the Committee to go over the ground once again, because we have been going slightly further than we did yesterday. What my right hon. Friend has said has been constructive within the limits of the difficulty in which he obviously finds himself; in the Committee stage of the Finance Bill he is being dragged into very philosophical issues on the whole question of provision for retirement. Final salary schemes are based on the idea of collective funding. Money purchase schemes are based on the idea of an individual entitlement which can be put together in a fund with other individual entitlements; they are an aggregation of individual entitlements. In final salary schemes, it is
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      difficult to determine who owns what. That cloudy and rather Socialistic approach to retirement pensions is wrong and is rather out of character with Conservative thinking.
      I would not like it to be thought that I was totally opposed to final salary schemes and wished them to be destroyed. What is in line with the general tenor of the Government's thinking and what is absolutely right is that we should build up, even within a final salary fund, a core of personal identifiable individual entitlement which can be taken as a transfer value if the beneficiary decides to leave the scheme as an early leaver. It would he an identifiable amount and could be calculated actuarially. That is very important. I would not disagree that, if a final salary scheme, having covered what may be thought to be a suitable minimum personal entitlement for all the members of the scheme, then has sufficient funds to do more, it might be at the discretion of the trustees or the sponsoring employer to put those funds into additional benefits for members of the scheme and their dependants. I would not wish to destroy final salary schemes but I want to ensure that everybody knows where he stands rather than being in a scheme where he is not able to identify his rights. That is why I keep drawing attention to the constributions rather than the entitlements in legislation governing the schemes.
      I note what my right hon. Friend had to say about the Occupational Pensions Board and the Inland Revenue. I floated the idea of removing "whatever" because I did not think that it should go through without comment. After this short debate I think that we have exhausted the subject.
      I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Sir Brandon Rhys Williams: I beg to move amendment No. 81, in page 76, line 34, leave out from 'exceed' to 'of' in line 36 and insert
      'a figure which, when taken together with the contributions paid by his employer, is equal to 20 per cent. or such higher percentage as may, in a particular case, be prescribed by the Occupational Pensions Board.'.
      The First Deputy Chairman: With this it will be convenient to take amendment No. 82, in page 77, line 8, leave out from 'exceed' to 'of' in line 9 and insert
      'a figure which, taken together with the contributions paid by his employer, is equal to 20 per cent. or such higher percentage as may in a particular case be prescribed by the occupational pensions board.'.
      Sir Brandon Rhys Williams: Here we have a reference to a point that I made, or sought to make, on Second Reading, and I have revived the figure of 20 per cent. partly because it corresponds to what I said on Second Reading. I mentioned that when I touched on the subject during the Committee stage of the Finance Bill in 1970. I brought up the concept that what one puts aside for one's retirement benefit might be related to the concept of 10 minutes in the hour, which, of course gives a figure of 20 per cent. That figure is not just a round figure which it is convenient to use for the sake of argument: it is approximately the figure that I think needs to be put aside for retirement so that the average person receives a pension which is approximately two thirds of his final salary when he comes to leave full-time work. It could be regarded as a target. I would not necessarily wish it to be regarded as a maximum, which is why I have said that in particular cases the Occupational Pensions Board might

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      be willing to consider a higher figure. On other occasions, I have recommended a figure of 25 per cent. I am happy to see large sums flowing into pension schemes because that is for the good of the economy as well as for the good of the members.
      The amendment would have the effect of putting contributory and non-contributory schemes on the same footing. When I was working in personnel management we took it for granted that there was not such a thing as a noncontributory pension scheme. In a particular employment it might well be expected that employees might put 5 per cent. into the occupational pension fund but if they were not called upon to do so by their employer we assumed that that would be taken into account in the general remuneration package and that the salary, on current account would tend to be adjusted in relation to the market for the particular type of employment because there was no requirement to contribute to a pension scheme in certain cases.
      By putting the employer and employee contributions together, I am also making a recommendation that produces big administrative simplification when members belong to several different schemes. In some of those schemes the employer will make contributions jointly with employees, and in others the employee will possibly make voluntary pension contributions on his own. If we are to have a regulation whereby the maximum permitted access to the tax haven-type of pension provision is controlled with regard to contributions it might be reasonable to put employers' and employees' contributions together in a single lump.
      I think that I am right in saying that the taxpayer has to pay 20 per cent. on top of current remuneration of employees in the public sector to provide the pension benefits required under the public sector unfunded schemes and yet we have much smaller contributions than that in the vast majority of private sector schemes.
      I have looked at the minimum contributions required for employers and employees jointly in contracted-out schemes. That contribution is so small that it does not bear any relation to the figure of 20 per cent. Therefore, we could say that the private sector schemes are likely, on average, to be about half as good as what we think appropriate for the public sector. As the Committee is dealing with pension matters in such detail in the Finance Bill debate today I do not believe that we should pass by without comment upon the fact that, in the private sector we seem, at the present time, to be content with a very much lower standard of provision than we think is appropriate in the public sector. That is an observation that arises from the fact that I have put a figure of 20 per cent. in this amendment. I am not seeking to force this amendment on my right hon. Friend, but I believe that it would be valuable for the Committee to have his observations on it.
      Mr. Blair: I congratulate the hon. Member for Kensington (Sir B. Rhys Williams) on raising an amendment that has a logical symmetry to it.
      I have attempted to come to grips with the pension legislation and I believe that one of the curiosities of that legislation is that the limit on contributions refers simply to employees although the actual benefits that arise out of a scheme are the product of the contributions of employers
      1154
      and employees. There is a limitation on those benefits. As I understand it, the main thrust of the argument put forward by the hon. Member for Kensington is that the contributions of the employer should be lumped together with the contributions of the employee. The hon. Gentleman has chosen a figure of 20 per cent. as opposed to the limit of 15 per cent. to be placed on the employee. I suppose that, in some cases, that could mean a reduced amount of contribution since the employers' contributions are not, as I understand it, subject to any limitation. It is correct to ask why we treat the contributions in this way since both the contributions are going into a scheme and at the end of the day a limit will be placed on the benefits of that scheme.
      I would be grateful if the Financial Secretary could explain the Government's thinking. In particular, I hope that the right hon. Gentleman can say whether he believes the hon. Member for Kensington is right in saying that if the amendment was accepted and the percentage was set by the Occupational Pensions Board or whoever and thus the contribution was set, that could give a more accurate reflection on the rules concerning the limitation of benefits when schemes finally come to fruition.
      Mr. McCrindle: I support the amendment tabled by my hon. Friend the Member for Kensington (Sir B. Rhys Williams). I believe that to move in the direction of raising the limits is a perfectly good idea. Although I would be a little surprised if my right hon. Friend were prepared to accept the amendment in the specific form in which, inevitably, it has been tabled, I wonder whether he will take the opportunity to comment on why we still believe, in 1987, that it is desirable to have a percentage restriction.
      I would like to put into a scheme a particularly large percentage of my earnings to achieve a particularly comfortable retirement pension. I believe that the Government should tell us why such a percentage should be restricted. Of course, I know all the historic reasons for that restriction, but I do not believe that there is any disadvantage in taking the opportunity of these Finance Bill debates to update our thinking and remind ourselves why we believe a percentage restriction should be placed on such schemes.
      As I understand it we are talking about a 15 per cent. limitation in relation to additional voluntary contribution schemes. I believe that 17·5 per cent. is the limitation on personal pensions. Perhaps my right hon. Friend will take this opportunity, to remind us why, in an area in which, in all conscience, there is sufficient complication, we should eschew the possibility of uniformity. We seem to be approaching two different types of pensions with different percentage limitations.
      Mr. Norman Lamont: I believe that my hon. Friend the Member for Kensington (Sir B. Rhys Williams) is putting forward the second part of his platform for the complete reform of pensions. The new controls that he wants to see on contributions are a substitute for the removal of the benefit controls that he wants to sweep away.
      My hon. Friend the Member for Kensington explained in an earlier intervention that he believed that it would be much more in accordance with Conservative philosophy if we had a series of pensions where each person had his own accrued personal rights. That relates to his strong views on transferability. My hon. Friend has a specific

      1155
      amendment that incorporates that principle. We shall debate that amendment as it sums up in figures exactly what he has put down in this amendment.
      4.45 pm
      I am afraid that my reply to my hon. Friend is similar to the reply I gave to his last amendment. Amendment No. 81 encroaches on the territory of the Green Paper. If I were to accept the amendment it would go against the assurances that have been repeatedly given by my right hon. Friend the Secretary of State for Social Services and my right hon. Friend the Chancellor.
      A number of my hon. Friends have queried various aspects of the limits on contribution. My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) asked about the 15 per cent. limit for AVCs and the 17·5 per cent. limit for personal pensions. There is a lower limit for the AVCs because of the benefit of employer contributions. I believe that there is an amendment about this and we shall be able to discuss the matter further. However, the employer's contribution is the reason why there is a difference between the personal pensions and the AVCs.
      The hon. Member for Sedgefield (Mr. Blair) asked why there was no limit on employer contributions. He said that, in certain circumstances where there is a 20 per cent. limitation, that might result in a lower employer contribution because, presently, there is a limit on employees' contributions. There is a limit on benefit, but no limit on the employer's contribution. It is the employer's contribution that has been abused in certain instances. We discussed that abuse yesterday when we spoke about maximum accrual rates over a short period that resulted in large sums of money sometimes exceeding the payment of salary. Such employers' contributions have been channelled in a way to generate large sums in a relatively short period.
      Benefits are based on final salaries. Employers' contributions follow the advice of the scheme actuary as to what is needed to keep that scheme solvent. I am afraid that I cannot give any explanation other than that to the hon. Member for Sedgefield.
      My hon. Friend the Member for Brentwood and Ongar said that many of these limitations had grown up like Topsy and were rooted in history. My hon. Friend for Kensington is certainly trying to impose greater coherence on pension schemes.
      Personal pensions, AVCs and occupational pensions serve slightly different purposes. The one thing they have in common is that they provide pensions, but they are subject to different circumstances. I do not believe that one could have the same controls on the benefits and contributions of personal pensions, largely for the self-employed, as on occupational pension schemes. However, as these new instruments develop, I have no doubt that the opportunity will arise when we can consider more possibilities for harmonising the arrangements and the framework within which the different schemes operate.
      The campaign of my hon. Friend the member for Kensington continues. He wants to move to this money purchase scheme rather than a largely final salary scheme—or, as he made clear, if we have final salary schemes, he wants them to be much more on a basis similar to the personal pensions but within company pension schemes. I understand entirely what he is campaigning for. We will certainly continue to listen to him. My right hon. Friends
      1156
      intend to have discussions with him about this. I hope that he will understand that his radical sweeping reforms cannot simply be introduced through this one little clause in the Finance Bill.
      Sir Brandon Rhys Williams: Once again, this has been a helpful short debate. I hope that our debates will be studied by people in the pensions movement because my right hon. Friend the Financial Secretary to the Treasury is making some very constructive suggestions that show that he has fully grasped the points that I am making. I know that we will be extremely grateful to him for that and I hope that we can carry him further along those roads in the future.
      Employers who read the debate might take fright at the sight of a 20 per cent. contribution and think that that is now hanging over them. It would not be inappropriate that employers' contributions should be a minimum of 10 per cent. and that a further 10 per cent. should be at the option of the employee in the average scheme. However, even 10 per cent. is a lot for some employers on top of what they may be funding for other employee benefits.
      I offer my right hon. Friend a self-denying ordinance—that the Treasury might possibly renounce its claim to employers' contributions to national insurance, which is already in excess of 10 per cent., and put that all into pension provisions. Before long, the Government would have much smaller bills for assistance to people in retirement with supplementary benefit. However, that takes us somewhat wide of the clause. Having had this useful debate, I beg to seek leave of the House to withdraw my amendment.
      Amendment, by leave, withdrawn.
      The First Deputy Chairman: We come now to amendment No. 51, with which we are to discuss No. 52.
      Sir Brandon Rhys Williams: As I have given an undertaking to try to help the Chair to reduce the length of our debates, I recommend that with amendments Nos. 51 and 52 we take Nos. 53 and 56, which have a similar objective. If that is agreeable to the Chair, I think that will assist the Committee and help to shorten our debate.
      The First Deputy Chairman: Does the Committee agree to that? So be it.
      Sir Brandon Rhys Williams: I beg to move amendment No. 51, in schedule 3, page 70, line 4, at end insert—
      '15A. In paragraph 10 of that Schedule for the words "The Board" there shall be substituted the words "Subject to paragraph 11 below, the Board".'
      The First Deputy Chairman: As the Committee has agreed, we will also discuss the following amendments: No. 52, in schedule 3, page 79, line 4, at end insert—
      `15B. After paragraph 10 of that Schedule, there shall be inserted
      "11(1) This paragraph applies where an employee who is a member of the scheme ('the main scheme') is also a member of an approved scheme ('the voluntary scheme') which provides additional benefits to supplement those provided by the main scheme and to which no contributions are made by any employer of his.
      (2) The Board shall not have power under paragraph 10 to make any regulations imposing any limits on the amount of a benefit provided for the employee—

      (a) under the main scheme to the extent that it requires account to be taken of the amount of benefit under the voluntary scheme.

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      (b) under the voluntary scheme to the extent that it requires account to be taken of the amount of a benefit under the main scheme.".'.

      No. 53, in schedule 3, page 82, line 24, leave out paragraph 25.
      No. 56, in schedule 3, page 82, line 32, at end insert—
      '(3) Sub-paragraph (2) above shall not operate so as to reduce the benefit provided for the employee by an approved scheme to the equivalent of a pension of less than one-sixtieth of his final annual remuneration for each year of service or such fraction if a lower fraction as is provided for in the rules of the scheme.'.
      Sir Brandon Rhys Williams: Amendment No. 51 is introductory and simply paves the way for amendment No. 52, which is the central recommendation that I propose.
      We come here to one of the aspects of the Budget that I think was regarded as a controversial feature when it was first announced by my right hon. Friend the Chancellor in March. It immediately caused consternation in the pensions movement. When it reappeared in the summer Finance Bill, the proposal that I am attacking at this point was regarded with widespread dismay. I am sure that I am not the only member of the Committee who has had earnest representations that the Government's proposals should be amended.
      When I was discussing another issue yesterday I took the opportunity to read the observations of the Occupational Pensions Board in connection with the association that is intended at the moment of the AVCs with occupational pension schemes. The difficulty is that, in practice, the proposals that the Government are making in the schedule will prove unworkable because no one can tell employees precisely what maximum contribution they may pay to a free-standing AVC because it is impossible to know whether the aggregate benefits from the AVC and their occupational scheme will, on retirement, exceed the limits imposed by Inland Revenue.
      If the aggregate benefits on retirement exceed the revenue limits, the Inland Revenue will expect them to be reduced. This would be unacceptable because, if an occupational scheme reduced its benefits, it would be profiting from the success of the employees' own investments. On the other hand, an AVC provider could not reasonably deny the employee the product of his investment. It would fall back on the trustees of the occupational pension scheme to break the rules of their scheme and to dishonour their trust to accommodate the fact that the thrifty employee had done a sensible thing and chosen a good AVC.
      The employee would rule himself out of an entitlement that he would otherwise have enjoyed under his firm's occupational scheme. That must be wrong. It constitutes retrospective legislation, because it means that, where the AVC has proved to be a fruitful form of retirement provision, no benefits can accrue to the member because retrospectively what he might have hoped to get from his occupational pension scheme, is cut. I suppose that somebody else will get the money, in that either the employee will then get the benefit because he does not have to put such a large topping-up contribution into the scheme, or there is more money for the trustees for other purposes.
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      As the Committee has agreed to take amendment No. 56 together with this group, I would like to point out a side effect that is also important for it to bear in mind. If the occupational pension trust is frustrated from giving an annuity immediately because of the Inland Revenue limit that would apply according to the proposals that the Government are making across both schemes, it might decide that it will take that money away from the beneficiary and use it for something else or hold it back for a subsequent purpose. The implication is that one cannot finance future increases to protect the pension from inflation.
      That is wrong. If there is more money than can be used to provide an annuity, sometimes the trustees of an occupational pension scheme can use it as time goes on to provide greater increases to a member's pension than it otherwise would have done. Rightly or wrongly, this is an area that is still open to the discretion of the trustees.
      Under the new legislation there is a requirement on the trustees to reduce the benefits provided by the scheme so that maximum benefits are not exceeded. This seems to be a change in attitude. It is now implied that there is no residual amount that is in some sense the property of the member. Part of his voluntary contributions must be used to reduce the liabilities of the scheme. It seems most undesirable that this reduction should have no limit. A member could pay AVCs in good faith and, because of exceptional investment success or lack of proper advice, he could find that his money was entirely wasted. For that reason, the amendment attempts to provide that the pension paid by the scheme cannot be reduced below the basic entitlement provided for in the scheme's pensions formula. That is the very least that is fair.
      I hope that the Government will extricate themselves from the dilemma by listening to what professional people and the pensions movement are pressing on them, which is that they should regard the AVC as a totally separate and free-standing undertaking for pension provision and that there should be no liability on the occupational scheme to adjust its benefits to correspond to the success or failure of the AVC. This is a matter where the Committee is seriously engaged and we look forward to what my right hon. Friend has to say.
      Mr. Tony Blair: This amendment was urged on me by several outside bodies. In the end, I did not put my name to it because I was not sure exactly where the balance of the argument came down, but it raises some points to which the Financial Secretary should respond.
      I understand that there is a limit on the contributions, which are aggregated for both the additional voluntary contributions and the occupational pension scheme. In other words, the 15 per cent. limit applies to the total amount paid either in the occupational pension scheme or in additional voluntary contributions. If, under the occupational pension scheme, an employee is contributing 4 per cent. of relevant earnings, with an additional voluntary contribution he can top that up another 11 per cent., which gives an aggregate of 15 per cent. The regulations will also provide limits on the benefits that can be paid out under the schemes on the basis of aggregation. The limit on benefits will be two thirds of final salary, or whatever.
      The National Association of Pension Funds Ltd. and other bodies say that if there is a limit on contributions to the scheme, one will not need to aggregate the benefits;

      1159
      that simply depends on how well the additional voluntary contribution scheme or the occupational pension scheme have gone. They say that, if benefits are limited on an aggregated basis, one will presumably not enjoy the proper fruits of one's investment. They also say that if one invests a certain amount of money well, the returns will be more than the limit on benefits that the regulations impose, that such money will be lost, and that, because of the limits, one will not be entitled to the fruit of one's investment.
      5 pm
      There is also the worry that it will be extremely difficult to see how to limit the benefits paid for what the additional voluntary contributions buy. Limits will occur in the occupational pension scheme. Some pension funds worry that it will mean that occupational pension schemes will become less attractive to people because they will have a limit on the fruits of their investment.
      I saw another difficulty in the legislation. Perhaps there is an answer to it, in which case I shall be happy to support the hon. Gentleman's amendment. I assume that, when an employee purchases additional voluntary contributions, the body through which he purchases his investment will judge what the likely benefits will be. It will not be an entirely random event. Some attempt will be made by an employee, when he engages in additional voluntary contributions, to work out exactly what the likely benefit will be at the end of the scheme. It is not as though an employee will go into it with his eyes completely closed.
      The main difficulty—this is why I said that there was a symmetry in the hon. Gentleman's earlier amendments—is that there is no limit on employers' contributions. I suppose that it will be possible to obtain two thirds of a salary—the maximum benefit—under the occupational pension scheme and then have additional voluntary contributions making a further top-up. The hon. Gentleman may say that there is nothing wrong with that. The hon. Member for Brentwood and Ongar (Mr. McCrindle) asked why there should by any limit on the amount of contributions.
      We are talking about tax relief. Therefore, we must balance the interests of the Exchequer, acting on behalf of the whole body of taxpayers, against the interests of any type of investment, such as pensions, that we want to encourage. I should be unhappy if there were to be a widespread opportunity for higher earners to make additional voluntary contributions, if such benefits are not aggregated with the benefits under the occupational pensions scheme and, therefore, purchase for themselves a much greater pension than will be available to others. If that were to be the case, it would involve a change in the balance between the interests of the Exchequer and individual taxpayers. We must think carefully about that matter. I should he grateful if the Financial Secretary will respond to the points that I have made. They are worth raising.
      Mr. McCrindle: I agree with the remarks of the hon. Member for Sedgefield (Mr. Blair) about why there should be limitations on contributions. He will understand that, for the purpose of the debate that I was trying to generate, it would not have been appropriate if I had conceded the point then, but I readily concede it now. It will be recalled that, during my contribution to the earlier debate. I raised the contrasting treatment of tax relief on contributions between AVCs and personal pensions. I received an explanation from my right hon. Friend of why it should
      1160
      be 15 per cent. on one and 17·5 per cent. on the other. To some exent—we may return to the matter another day—I accept the Financial Secretary's explanation of why such differences should apply.
      The amendments to which we now turn our attention are aimed at bringing equivalence. So far as I can read them, they are designed to ensure that AVCs are, in effect, as freestanding as personal pensions already are under the legislation that has been introduced. Therefore, it seems to follow, as the amendment implies, that benefits should not be aggregated with those of the occupational pensions scheme. When, in retirement. total benefits exceed Inland Revenue limits, the benefits will not need to be reduced if the amendments are passed.
      I now raise the central point to which I draw my right hon. Friend's attention and to which it would be helpful if I could have a response. If we now agree, as we did during earlier debates on other amendments, that for the reasons that we conceded, there must be a limit on contributions, why must we have, in effect, a limitation on contributions and a limitation on benefits? One of the ways in which we could most effectively move forward would be to accept that if there must be one, it does not necessarily follow that there must be another. To that extent, I commend the amendments that were moved by my hon. Friend the Member for Kensington (Sir B. Rhys Williams). I look forward to hearing what my hon. Friend the Financial Secretary to the Treasury has to say.
      Mr. Archy Kirkwood: I echo some of the arguments and worries that halve been expressed. I, too, have received representations from the National Association of Pension Funds Ltd. and similar organisations. There is a good deal of consternation, even at this stage. I am aware that we are running short of time within which the Government are seeking to introduce new, important and generally helpful innovations. It is almost a revolution in the provision of pensions in this country. I support the Government's main thrust, but I have two worries about voluntary contributions as presently proposed. First, the scheme as presently proposed by the Government is unmarketable for the reasons that have been stated by the—
      Mr. Norman Lamont indicated dissent—
      Mr. Kirkwood: The Financial Secretary shakes his head. It is difficult to see how AVCs can be sold in the context in which the Government propose them. I wait to hear what he says, and so will the industry. I cannot see how a salesman, an insurance company, or whoever will purvey the schemes, can put together a prospectus that will convince me that a scheme is sensible, if it were appropriate to my personal circumstances to adopt a scheme.
      Secondly, I agree with what was said earlier. The scheme is unmanageable. I do not see how the people who are responsible for AVCs—presumably they will be trustees—can possibly work out exactly what will happen at the end of the day and prevent the possibility of benefits exceeding the limits that have been set down. I am worried about what happens to the benefits. Will they fall into the hands of trustees or employers? I am not entirely sure. I am certain that the trustees of any such scheme, when they try to determine what future benefits will be, may run foul of the Securities and Investments Board plc in terms of the monitoring of the scheme.

      1161
      Trustees may say to prospective purchasers, "We think that the projection will be this, that and the other." Of course, we have had debates in the House on other legislation about the need to counsel caution in respect of projections and scheme sales. If the trustees of the new AVCs adopt such an approach, as they should, and they find that they have been over-cautious and that the benefits will exceed the limits, what will happen to the money that accrues from investment? There are difficulties and, although I am not an expert, I can foresee problems on the horizon for trustees in the monitoring of the scheme.
      I understand that the Government are issuing consultative documents to trustees to try to meet that point. The proper and obvious way of solving the matter, as has been suggested, is to ensure that free standing AVCs are as free standing as personal pensions so that their benefits are not aggregated with those of an occupational scheme. How much would that cost the Government? What difference would it make? Would it disrupt some of the schemes, benefits, guidelines or the rules and regulations that abound in this sector? If so, I should be pleased to hear about them. With the information that is presently available to me I do not think that it will cost a lot or be difficult to administer. It would enable the scheme to progress in the way that industry was expecting, which would be to the benefit of all concerned.
      Mr. Norman Lamont: We shall study carefully all the points that have been made, but I should like to distinguish sharply between personal pensions and AVCs. AVCs are not personal pensions, which was the main reason for their introduction. I shall rest my case on the strong distinction between them.
      My hon. Friend the Member for Kensington (Sir B. Rhys Williams) seeks to disapply the benefit limits for members of schemes who are paying free standing AVCs. If the benefit limits did not apply it would be possible for someone in a non-contributory occupational scheme to invest up to 15 per cent. of salary in a free standing AVC scheme and increase his total pension benefits way beyond the two-thirds final salary maximum that applies under the existing rules.
      The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) asked about costs. I cannot possibly answer that, but I can envisage circumstances in which the cost could be substantial. I understand why the industry should want this change. I was shaking my head because it is not surprising that the industry wants it. It says that free standing AVCs should be like personal pensions, but we have introduced personal pensions for that purpose. If people want personal pensions they can take them out. We have introduced AVCs to help people who wish to make up part of their occupational pension scheme; we already have in-house AVCs. We are introducing free standing AVCs to give people choice in investment management. Given that we have these rules for free standing AVCs—they are part of occuptional pension schemes—it is logical that they should be constrained in the same way as occuptional pension schemes.
      I understand that my hon. Friend the Member for Kensington wants nothing to do with limits on occupational pension schemes. In this instance we are not having a wide ranging debate, we are on a narrower point
      1162
      as to whether AVCs should be constrained on benefits. In my view they should be because they are part of occuptional pension schemes. They are not personal pension schemes under another name; if they were we would have introduced one new instrument and not two; they are for different purposes.
      A number of hon. Members, particularly the hon. Member for Roxburgh and Berwickshire, have suggested that the benefits may be impossible to police. We shall consider that point and review it in the future, but I do not think that the problems with which one is faced will be inherently different from those of in-house AVCs.
      Members of occupational schemes have a right, under social security legislation, to know the value of their pension rights, and therefore what the scope is within the overall benefit limits to pay AVCs. That is a calculation which AVC managers should carry out under present rules on in-house AVCs to guard against excessive contributions. For free standing AVCs they will have to make a calculation and that information will be conveyed by the scheme member to the AVC provider. I do not think that that will be inherently impossible. I do not wish to minimise the point, but I am not surprised that the industry wanted a different regime.
      5.15 pm
      We must pay attention, as the hon. Member for Roxburgh and Berwickshire reminded me, to any practical problems. I am not convinced by what has been said thus far about possible problems, but we shall keep the practical aspect of the matter under review and we shall do what we can to make it workable if there are genuine difficulties. On the point of principle with benefits, there is a strong case for a limitation on benefits.
      Sir Brandon Rhys Williams: I should like to raise the point that was made by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) as to the cost of allowing a bigger flow of savings into AVC pension schemes by removing the restriction that is intended by the Government's provisions. The result, insofar as the AVC results in the payment of a higher annuity, would be that the taxpayer loses nothing because the principle is, as I have often said in slogan form, "save now, pay tax later." The taxpayer recovers much more money because if it is put into a fund to fructify, which is then able to grow and is well invested, when it emerges as an annuity more tax is paid than if tax were deducted and the money went straight out in the pay packet in the first instance and was not saved. The taxpayer must gain if an annuity is ultimately larger; the economy gains, because by encouraging thrift and savings instincts and by getting money put into these schemes, which then go out into investment—we hope into productive manufacturing industry or worthwhile projects—the economy is healthier and there is a better yield to the taxpayer.
      In insisting that the provisions must stand as they are my right hon. Friend is not only creating almost impossible dilemmas for administrators he is also doing something which is not in the public interests or in the interests of the economy. Therefore, before we close on this point, will he say whether he is prepared to consider further suggestions which we might be able to work out between now and Report, which I think will be next week? I should like to feel that we had not left this point, if I withdraw my amendment, because there is much concern about the administrative difficulties, quite apart from the

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      wider implications, and the Government would be wrong to steamroller the House into accepting the provisions. I therefore hope that my right hon. Friend will be prepared to say to the Committee that this is a matter which he thinks appropriate to come back to on report.
      Mr. Norman Lamont: I have tried to respond to the points that my hon. Friend the Member for Kensington (Sir Brandon Rhys Williams) has made during this lengthy consideration of the pension provisions. I have tried to respond as constructively as I can. I hope that my hon. Friend will agree, despite the radical proposals that he has put forward, that I have responded in a positive manner.
      As to the principle of the benefits on AVCs, I cannot give an undertaking to come back on report because I feel that the principle is correct. I listened carefully to what my hon. Friend the Member for Kensington said about administration and the practicality of it. I have noted what was said and I shall seriously consider that point. However, I do not think that I can come back on report with a new way of looking at the administration of it.
      I cannot agree with my hon. Friend on the central point about benefit limits. I listened to my hon. Friend. He says that there may be no cost because the benefits are subsequently taxed. That is in the long run. The immediate cost will he substantially higher. The benefits may not be paid for up to 40 years. Of course, I have no idea what the cost of having no benefit limits would be. However, it would simply allow free standing AVCs to be used as a tax shelter for investment generally.
      Sir Brandon Rhys Williams: Why not?
      Mr. Lamont: I do not think that my hon. Friend has carried all Members of the Committee with him in that comment. I am afraid, he has certainly failed to persuade me that in the present regime, with the limits on benefits in occupational pension schemes, AVCs, which are not personal pensions, ought to be subject to a regime that is analogous to that of personal pensions schemes rather than that of occupational pensions.
      Sir Brandon Rhys Williams: On the matter of recommendations to allow large contributions to tax haven schemes, I am not trying to suggest that outrageous proposals should be permitted that have no real relationship to orthodox provision for retirement but arc simply an exploitation of the tax haven element. I do not want to be associated with the idea that there should be no upper limit whatever on contributions. However, I think that contributions should be encouraged to rise from what they are now. It is a pity to talk about limitation to the extent that we do. I think that contributions of 20 per cent. or 30 per cent. of current remuneration would be perfectly appropriate and that higher figures, in many cases, might even be appropriate.
      On this question, I have been reflecting lately on what I might like my friends to write on my tombstone after my death. I think that I would like them to write, "God knows I tried." I hope that anyone who reads the debate in the pension movement will see that I have tried to persuade the Government on this point. If I have not succeeded on this occasion, no doubt the House will have need to come back to it at another time. My right hon. Friend the Financial Secretary has been so clear. The House is grateful to him for the extremely appreciative way in which he is approaching the debates. I have no criticism of him
      1164
      whatever. I think that he happens to be mistaken on this particular point, but a man who never made a mistake, never made anything. However, having made those observations I beg to ask the leave of the Committee to withdraw my amendment.
      Amendment, by leave, withdrawn.
      Mr. Watts: I beg to move amendment No. 71, in page 80, leave out lines 7 to 50.
      The First Deputy Chairman: With this it will be convenient to consider the following amendments: No. 8, in page 80, line 8, leave out paragraph 19.
      No. 55, in page 80, line 9, at end insert—
      '(1A) In this paragraph, and in paragraphs 20 and 21 of this Schedule, the words "each year of service" wherever they occur shall have effect so as to include those years of service in a previous employment to which any transfer value accepted by the scheme relates.'.
      No. 36, in page 80, line 13, after 'service', insert
      ', including any previous periods of service as a member of any other retirement benefits scheme of the same or an), other employer and any other periods of service which the Board may prescribe by regulations under paragraph 18(2) above,'.
      No. 54, in page 80, line 13, after 'service', insert
      ',including any previous periods of service as a member of any other approved retirement benefits scheme of the same or any other employer.'.
      No. 75, in page 81, leave out lines 1 to 26.
      Mr. Watts: The effect of amendments Nos. 71 and 75 is to delete paragraphs 19, 20 and 21 of schedule 3 which introduce a new and much less favourable regime for accelerated accrual of pension rights. At present, late entrants to an occupational pension scheme can accrue maximum benefits over a period of 10 years. The new regime proposed in the Bill extends that period to 20 years. It seems inevitable that that change will discourage labour mobility, particularly among older employees. No one over the age of 45 will be able to change jobs and still accrue a maximum pension.
      The change seems to run counter to some of the legislation we enacted in the previous Parliament to improve the position of early leavers in respect of their pension rights. For example an early leaver at the age of 50, who is entitled to transferable benefits guaranteed by the Social Security Act 1985 may find that he is not able to realise the benefits of those transferred funds on retirement because of the changes now before us.
      I have struggled in vain to identify any rationale or logic in the proposals contained in the paragraphs. In my view, they are ill-thought-out and should be taken away by my right hon. Friend the Financial Secretary for further consideration. All they show me is the rather deplorable Inland Revenue Prejudice that pension provisions, and much else that people do, are solely means of tax avoidance and little else. I am sorry to see so much of that prejudice reflected in the drafting of legislation. Of course, I hope that I am wrong and that my right hon. Friend may be able to lead me down the road to Damascus and to greater enlightenment. However, I doubt whether that will be the case.
      Mr. Blair: The amendments of the hon. Member for Slough (Mr. Watts) take a fairly drastic blue pencil to much of page 80 of the schedule. My amendment, which is included in this group, is more modest but I hope that it has a constructive effect. I simply want to probe the Government's intentions in relation to the new rules. The present rules allow the accrual of the maximum pension

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      over a minimum period of 10 years. The new rules will substitute 20 years. The effect of amendment No. 36—there are others that have a similar effect—is that if the employee leaves one firm and joins another and both firms have occupational pension schemes, one simply aggregates the service. In other words, there must be at least 20 years' service to obtain the maximum benefit but that service can be with different employers.
      As I understand it, the Government wanted to change the rules from 10 years to 20 years because they thought that the 10-year rule was allowing some over-hasty accrual of the maximum pension and that, therefore, the provision was being used for tax avoidance.
      I confess, that at first I found it difficult to see how there could be avoidance on that basis unless the particular employee was joining a scheme and had no previous pension. In that way an employee, over the 10-year period was effectively allowing a huge and rapid accrual of benefit. I may have got that entirely wrong. As I understand it, the Government want to change the rules because they thought that 10 years was too short a time to accrue the maximum benefit and that the system was open to avoidance if the employer started to make large contributions to the scheme.
      If the new rule of 20 years is permitted and the earlier service is included, which is the effect of the amendment we have tabled, the long period of 20 years would still have to be taken into account but it simply would not have to be with the same employer. My concern about the Government's requirement is that it places an obstacle in the way of job mobility. People would have to remain with the same employer in order to obtain the rapid accrual of benefits. I cannot see any reason why they should not move from one occupational pension scheme to another and simply take the benfit of their service with them. Indeed, I would have thought that that would fit in neatly with the Government's scheme of pension provision.
      There is the further point that the personal pension scheme has no such restriction in the sense that it is simply taken with the employee wherever he goes. Therefore, the personal pension scheme will have an advantage over occupational pension schemes and will put them at a disadvantage.
      If the test of the Government's provision is that it should prevent avoidance and they think that 10 years is too short a time to prevent that avoidance, they have to justify not so much the 20 years but why the 20 years has to be with the same employer. If we were able to have those provisions with different employers, it would meet the Government's objective in relation to avoidance and it would allow full flexibility of pensions.
      5.30 pm
      Mr. Kirkwood: On balance I am in favour of the approach adopted by the hon. Member for Sedgefield (Mr. Blair) as opposed to the rather sledgehammer approach adopted by the hon. Member for Slough (Mr. Watts), although I entirely agree with everything that he said and support the way in which he introduced the amendment. Like the hon. Member for Sedgefield, I should like to probe the Government about the thinking behind this scheme. Like the hon. Gentleman I cannot see easy ways of adopting avoidance tactics against the background of the maximum-period rules that formerly applied.
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      This is a substantial change and as the hon. Member for Slough said, it will have the effect of decreasing potential job mobility and portability of pensions. Some serious consequences could accrue from this change. The solution to the problem as we see it, and as the amendments see it, is simply to aggregate the service in the way that the hon. Member for Sedgefield suggested. What would that cost? I know that such questions are difficult to answer, but is there any way of knowing the effect of adopting the approach suggested by the hon. Member for Sedgefield of aggregating years of service? That seems to be an effective compromise that would give a balance against potential avoidance and avoid some of the worst effects that the hon. Member for Slough mentioned. To make the argument all-party, I certainly subscribe to the arguments advanced by the hon. Members for Slough and for Sedgefield.
      Sir Brandon Rhys Williams: The hon. Member for Sedgefield (Mr. Blair) admirably moved amendment No. 36 standing in his name. I should like to draw to the attention of the Committee the fact that my amendment No. 54 is in identical terms but does not go quite as far as his. However, it seeks to make the same point. It worries me very much that transferability would be restricted by what the Government propose here. Obviously, the whole object of securing a transfer by an early leaver when he leaves one firm and enters another—if it is a final salary scheme that he joins—is to achieve the negotiation of added years. It appears to me, although I may be wrong, that what the Bill is proposing will make it more difficult if not impossible to secure added years in the second employer's scheme.
      It has been strongly urged on me that in personnel management, particularly when negotiations about movements of very senior people are concerned, this provision that the Government intend is likely to be extremely damaging. I find that very disheartening not only because it is bad for the workings of the economy but because it is hard on individuals if they are impeded from making the best of their opportunities at the peak of their career by pension scheme provisions which may have a very substantial value by the time a man is in his late forties or fifties.
      It is disheartening when I and other hon. Members who have worked for so long to try to improve the conditions for the early leaver find that the Inland Revenue is moving in precisely the opposite direction by introducing rules that will actually make it harder for the early leaver to get a fair deal. This is an indication of the fact that the Inland Revenue has lost sight of the public interest and is simply concerned to find ways of stopping the exploitation of the tax haven provisions that are allowed in retirement benefit schemes.
      I am afraid that once again we are detecting at the back of the Revenue's thinking its terror that someone will exploit the tax-free lump sum opportunity. What it is doing here is once again aimed at blotting out exaggerated tax-free lump sum arrangements, but once again in the wrong way. I do not need to emphasise to my right hon. Friend what I think would be a better arrangement, that future accruals of lump sum entitlement, should be taxed at the standard rate. That would not be a retrospective action. It would be 40 years before it fully took effect, but where the stopping of eccentric or unacceptable plans for exploitation of lump sums is concerned it would have an

      1167
      immediate effect. That is the right way and what the Government are doing is the wrong way. I trust that the Committee is about to hear from my right hon. Friend that the Government have thought again about these proposals.
      Sir William Clark: I support the amendment tabled by my hon. Friend the Member for Slough (Mr. Watts). My amendment No. 8 is precisely the same as his, except that he cut two lines and removed the title. Presumably, that is why my hon. Friend's amendment was taken first. Perhaps I was upstaged. I do not want to reiterate the arguments that my hon. Friends have advanced. In many cases high flyers or middle management in the private sector have to move from one employer to another. That does not apply to civil servants. I shall not go into indexation of Civil Service pensions, but if a civil servant moves from one Department to another, whether from the Department of Transport to the Treasury or to the Home Office or elsewhere, he has the same employer and, consequantly, his pension is not affected. However, pensions in the private sector are affected by job movement.
      Let us look at the employee who does not want to move and is made redundant. Is he to be penalised? I agree with my hon. Friend the Member for Kensington (Sir B. Rhys Williams) who said that on many occasions the Inland Revenue gives the impression that it is absolutely scared stiff that one person may find a loophole in some piece of legislation. Consequently, the Inland Revenue wants the legislation complicated and it is hedged around with so many restrictions and regulations that the ordinary man in the street and, indeed, the informed man in the street, can seldom make head or tail of it. It is time that we stopped this sort of restrictive practice. We ought to propagate Conservative philosophy by encouraging more and more people into private pension schemes.
      Without amendment, this clause will have an inhibiting effect upon such movement into private schemes. I urge my right hon. Friend to have another look at this. We should stop this nonsense of trying to block loopholes that probably do not exist. The only effect is upon the employee, and I reiterate that it will invariably affect only the private sector employee.
      Mr. Norman Lamont: We have had two different cases deployed. My hon. Friend the Member for Slough (Mr. Watts) backed by my hon. Friend the Member for Croydon, South (Sir W. Clark) simply wants us to drop the restriction on accelerated accrual. My hon. Friend the Member for Sedgefield—sorry, not my hon. Friend although he has been most helpful in the course of this debate. The hon. Member for Sedgefield (Mr. Blair) had an ally in my hon. Friend the Member for Kensington (Sir B. Rhys Williams) in suggesting that accrual should be based on service with previous employers. Although I understand the logic and the reason behind the suggestion by the hon. Gentleman and my hon. Friend, I shall spell out in some detail why that would not be the way to go.
      First, I shall address my hon. Friend the Member for Slough and tell him and the Committee why we felt it necessary to make this change. I emphasise that, of course, job mobility, and especially job mobility for senior executives, is extremely important. Pension expectation is one factor, but only one among others that influence the decision. Even with pensions, many of the things that we
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      have done are precisely designed to encourage mobility. I recognise that we have not got, under the present regime, a complete answer or transferability, nor everything that we need on mobility. Costs and other factors restrict mobility, and that is why we have been introducing schemes such as personal pensions and why there has been the revaluation of deferred pension benefits under the social security legislation. That is extremely important. It does not go as far as my hon. Friend the Member for Kensington wants, but it is a step forward and has made it easier, in certain circumstances, for people to move around.
      We have attempted to tackle that problem through these various routes. None the less, although we recognise the importance of not placing obstacles in the way of people moving around, we have felt that there was a case for acting against the accelerated accrual. The maximum rate of accrual for occupational pensions under a final salary scheme is normally one sixtieth of final salary for each year of service up to 40—hence the "two-thirds final salary" rule, although many schemes offer less generous pensions, which accrue at one eightieth or even one hundredth final salary for each year of service. For a variety of reasons, most employees will not serve 40 years in one scheme to retirement. Consequently very few—perhaps only 10 per cent. of all occupational scheme members—will qualify for anything approaching a pension of two thirds final salary on the normal basis.
      In recognition of this, it has always been possible under the present tax rules for schemes to provide benefits based on the accelerated accrual, which has enabled maximum benefits to be obtained after as little as 10 years' service to retirement. The maximum rate of accrual for lump sums is normally three eightieths of final salary for each year of service up to 40—hence the "one and a half times final salary" rule. In the past it has been possible to take the maximum lump sum after 20 years' service—even where the total benefit was based on normal rates of accrual. In this way, people could maximise their tax-free lump sum at the expense of their taxable pension.
      These are particularly generous concessions. It is very costly for employers to fund pensions on this basis, sometimes requiring annual contributions in excess of 150 per cent. of the individual's salary. As such contributions attract tax relief, this concession is also very costly for the Exchequer—particularly at the sort of salary levels which some employees currently enjoy.
      5.45 pm
      On Second Reading, I said that we have had interaction between the accelerated accrual and the lump sum, which has led to some large tax-free sums being handed out to people. I know that my hon. Friend the Member for Kensington feels that we should tackle the lump sum anomaly in an entirely different way, but we have not gone along that road. We believe, as the hon. Member for Sedgefield said, that there have been situations in which large contributions, through the employer—the employee contribution is limited—have been paid in, such as 150 per cent. of the salary per annum, to arrive at a two thirds salary.
      For that reason, we propose a cut in these concessions, with effect from 17 March, when my right hon. Friend the Chancellor first announced these proposals. The maximum pension benefits will be possible only after 20 years' service to retirement—the same period that has

      1169
      always applied under the present regime for the lump sum. The lump sum can be boosted above the normal rate of accrual only if, and to the extent that, total benefits are boosted. This latter measure is a relaxation, in response to representations made after the original Budget day proposals. I stress that we have made changes under the social security legislation on the revaluation of deferred pension benefits and transfer values. All these things are designed to ease this problem, but through the employer's contribution some large sums have been paid in, sums that we regarded as difficult to justify.
      The hon. Member for Sedgefield has tabled amendment No. 36 to which I shall address my remarks. My hon. Friend the Member for Kensington has tabled a similar amendment. Amendment No. 36 would mean that one employer would be providing an employee with a pension partly in respect of service with another, completely different, employer. This would entail substantial cross-subsidisation, particularly where schemes did not offer similar benefits.
      It is not clear that employers could obtain tax deduction, under general tax principles, for their higher contributions, although I do not want to make much of that point. Only a handful of privileged employees would benefit from this amendment—the same handful who, under the old rules, could obtain maximum benefits after as little as 10 years.
      Mr. Blair: With respect, that surely cannot be right. The purpose of our amendment is to keep the 20-year change but simply allow service with other employers to be counted. That cannot mean that the same people who benefit from the 10 years will now benefit from the 20 years.
      Mr. Lamont: It does. The hon. Gentleman is missing a point of which my hon. Friend the Member for Kensington is aware, and of which he is prepared to pay the cost. What is being proposed would be a significant initial cost to industry, because when an employee moves from firm A to firm B what he takes with him is merely the pension that he has earned so far. That sum of money does not make up the difference between the two pensions and what he would have earned if he had stayed with one employer throughout his whole period. That is a substantial cost to add to British industry.
      The hon. Member for Sedgefield has asked how much the proposal would cost. I am not sure what the cost to the Exchequer would be, but that is not the point. The point is that it would cost British industry if one said that in the funding of occupational pension schemes one should take account in the accrual of the years that would have been spent with other employers as well. This subject has been reviewed before. It was reviewed by the Occupational Pensions Board, which made recommendations on transfer values, and measures were included in the social security legislation. That also took account of the views of employers about the cost that would be imposed on them if they were always having to add back full liability for previous years with previous employers. I can give the hon. Gentleman a detailed arithmetical example if he thinks that that would be helpful.
      I am in no doubt that this is a serious matter for industry. I know that my hon. Friend the Member for Kensington recognises this although he strongly believes
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      that this is a price that should be paid, and that this is part of the price that we have to pay to move to a world of properly funded schemes more equivalent to money purchase ones.
      Mr. Quentin Davies: Does my right hon. Friend concede that at this moment, when many companies have found that they have overfunded their pension liabilities and are therefore writing back sums to profit, it is the right time to look positively at reforms which would be desirable on general grounds and which would involve an additional cost to industry to which my right hon. Friend the Minister referred?
      Mr. Lamont: That may be so. We have debated surpluses and the proper way in which to use them. We have debated that in Committee and certainly the Committee would find that such a proposal would be strongly resisted by industry in general.
      Sir Brandon Rhys Williams indicated dissent.
      Mr. Lamont: My hon. Friend is shaking his head. I shall be interested to hear what he has to say. However, the matter has been discussed with industry and I understand that industry has made it clear that this is not a cost that it would easily assume. I am speaking of matters that are largely the concern of the DHSS and we must take the views of industry into account. We would be imposing substantial costs on industry.
      Mr. Blair: I want to ask for information. The Minister is being extremely lucid in his explanation. However, surely the question of the costs to industry is a matter that industry would have to agree in the terms of the pension scheme. There is no obligation on industry to contribute any particular amount or to hasten the process of accrual.
      Mr. Lamont: That is absolutely right. Occupational pension schemes are voluntary arrangements. We want companies to develop occupational pension schemes. If we impose requirements on them that are too onerous, the development of occupational pension schemes will be hampered. The hon. Member for Sedgefield is quite right. Those matters are part of the remuneration package in the long run. We want to develop occupational pension schemes and I am informed that the proposal put forward by the hon. Member for Sedgefield which is supported by my hon. Friend the Member for Kensington has been fiercely resisted by industry. However, I shall listen to my hon. Friend the Member for Kensington.
      Sir Brandon Rhys Williams: My right hon. Friend is misinformed about this. Of course there is a cost to the employer who is seeking to attract the services of a top person in the last and possibly the most productive years of that person's life. I do not think that that cost is one which the Inland Revenue ought to step in to prevent employers from incurring if employers know their own business and who they need to run that business in their last years.
      The biggest cost to industry is the lack of mobility of top people, imposed by the Inland Revenue rules which restrict transferability. Transferability, particularly at the top end of the management scale, is being restricted by the Treasury in the name of saving industry from itself and saving employers from incurring too much expense in the way of "golden hellos". If industry needs a particular man, it should not be inhibited from negotiating the change of job of that person. I really think that my right hon. Friend

      1171
      the Minister must look at this again. I am quite certain that he will receive the very strongest representations from personnel directors and managing directors of large firms who need mobility of labour to carry forward their plans.
      My right hon. Friend has drawn attention, as he did on Second Reading, to the fact that there are really outrageous schemes being contemplated which are intended to exploit the tax-free lump sum option. There are other ways besides what the Inland Revenue proposes to the Committee today to tackle these extreme and outrageous exploitations of schemes. There could be an upper limit on contributions insofar as they qualify for lump sums which would restrict plainly outrageous and unacceptable projects without doing the damage which will be done if the Government are not prepared to accept an amendment on the lines of the amendment tabled by the hon. Member for Sedgefield (Mr. Blair) or myself.
      I trust that my right hon. Friend will be willing to listen to this point. Certainly I, and I am sure that other hon. Members, have had the very strongest representations. Industry does not wish to be saved from itself in the negotiation of final salaries and conditions for top people. Employers know what they are doing when they are trying to get first-class people to help them in their work and the movement of people between jobs ought not deliberately to be impeded by the Inland Revenue.
      Mr. Norman Lamont: My hon. Friend has made his case strongly, as he always does. However, he knows very well that requiring schemes to provide transfer values on this improved basis would impose substantial cost on industry. My hon. Friend has said that I should not save employers from themselves as employers do not want that. I assure him that substantial costs would be imposed on industry.
      I am sure that my hon. Friend the Member for Kensington is aware that the report from the Occupational Pensions Board in 1981 made limited recommendations, about which I know that my hon. Friend is extremely critical. Even those limited recommendations caused some worry to the industry and to the OPB. The board was concerned about what it was adding in terms of additional costs to industry.
      I should make it clear that this whole area is primarily a matter for the DHSS, not the Revenue. My hon. Friend the Member for Kensington wishes to use tax approval and the tax rules in a rather different way from the way they are used at the moment. I am not in any way criticising that. However, he expects me to reply in a rather different way on a subject that is a matter for the DHSS. I shall certainly talk to my right hon. Friend the Secretary of State for Social Services about this. However, I do not want to mislead my hon. Friend the member for Kensington or the Committee in any way. I will not come back on Report with an amendment accepting this.
      I have a lot of sympathy with the amendments tabled by my hon. Friend the Member for Kensington. I have total sympathy with what my hon. Friend is trying to achieve. I know that I have to say that on many occasions in respect of the amendments tabled by my hon. Friend the Member for Kensington, but I mean that genuinely and sincerely. However, he is trying to reform the whole pensions world, which has had many upheavals in recent years. Indeed, it has a lot to digest as a result of the Budget. My hon. Friend is trying to totally reform and bring to a
      1172
      culmination his long-standing campaign and I cannot at this stage in the Finance Bill reform the whole pensions world immediately as he would wish.
      My hon. Friend the Member for Kensington knows that I and my right hon. Friend the Secretary of State for Social Services have willingly offered to go into these matters with him. We want to see improvements. My hon. Friend is right. We have not solved or dealt with the problem of transferability. Although preserved benefit changes, transfer values and other things introduced in the Budget have improved the situation, it is not right yet. My hon. Friend the Member for Kensington is 100 per cent. right. We need further improvements in that area.
      The amendment tabled by my hon. Friend the Member for Kensington is the same as that tabled by the hon. Member for Sedgefield. I cannot accept that for the reasons that I have given. With respect to the first set of amendments, although I know that this will disappoint my hon. Friends, I think that through the mechanism of the employers' contributions and the inter-action with the lump sum there have been some very large contributions made. The revised accrual rates when combined with some of the other things that we have done to encourage mobility will not noticeably worsen the position. However, we are very concerned about the mobility problem as is my hon. Friend the Member for Kensington.
      Sir Brandon Rhys Williams: As usual, my right hon. Friend the Minister has been speaking in a very accommodating and perceptive way. I think that I have made some progress in opening up this subject together with other hon. Members who have spoken on both sides of the House.
      If there is a defect in the drafting of my proposal which has made it obligatory on the receiving employer to take on board an overwhelming obligation which perhaps would not be covered by the amount of the transfer fund that the employee was able to bring with him, that is a fault of mine. I hope that my right hon. Friend would be willing to consider on Report an amendment which did not carry this obligatory character which he seems to read into what I have proposed.
      I should like to see something which is at any rate permissive so that the possibility of negotiated transfers at the top level in industry is not damaged by the Inland Revenue's provisions. With that thought, I do not wish to press the matter further. I leave it to those who have proposed other related amendments to decide whether they wish to take the matter further.
      6 pm
      Mr. Watts: Having listened to my right hon. Friend the Financial Secretary, I am even more convinced now that the approach that has been adopted is misconceived. My hon. Friend the Member for Kensington (Sir B. Rhys Williams) has dealt with the misconception that there will be an imposition of costs on industry. I cannot see that the existing regime, or the modified proposals advanced by the hon. Member for Sedgefield (Mr. Blair) and supported by my hon. Friend, impose a cost on industry. That is because there is discretion. The changes that my right hon. Friend proposes will deny companies the opportunity of having a scheme that allows for a faster accrual than 20 years and will not allow account to be taken of service with any other employer.
      I accept that there may be a problem with excessive contributions by employers—my right hon. Friend cited

      1173
      contribution rates of up to 150 per cent. of salary, which must be an abuse—but it seems that my right hon. Friend has chosen to tackle the problem in an inappropriate way. As my hon. Friend the Member for Kensington has said, the way to tackle excessive levels of contribution is to have some control over employers' contributions into schemes. I am still convinced that the Government's approach will prove to be a major disincentive to labour mobility, and I consider it to be entirely misconceived.
      I might be more willing to be persuaded by the arguments advanced by my right hon. Friend if I believed that an Inland Revenue official who moved to another Government Department at the age of 45 or 50 would face the prospect of not being able to accrue a maximum pension over the remaining 10 or 15 years of service. However, we know that that is not the position. We are discussing rules that have been drafted by those who will not be subject to them, and rules that will operate to the disadvantage of the majority of those working in the private sector.
      I recognise that my right hon. Friend is not prepared to concede now or on Report, but I shall not seek to press my amendment to a Division because I do not think that that would be a constructive course. I am convinced that we shall have to return to this matter when we discuss a future Finance Bill. The regime which the provisions before us will introduce will be so chaotic and disruptive to the interests of industry that that will be necessary.
      I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Mr. Watts: I beg to move amendment No. 72, in page 82, line 15, leave out paragraph 24 and insert—
      '24.—(1) This paragraph applies where—

      (a) an employee who is a member of a retirement benefits scheme approved by the Board before 17th March 1987 retires on or after that date, and

      (b) the rules of the scheme make provision for the payment by employees of voluntary contributions.

      (2) Any rules of the scheme imposing a limit on the amount of a benefit provided for the employee shall have effect without regard to the amount of any additional benefits provided for the employee by any such voluntary contributions.'.
      The First Deputy Chairman: With this it will be convenient to discuss the following amendments: No. 9, in page 82, line 15, leave out paragraph 24.
      No. 73, in page 82, line 30, leave out from effect' to third 'the' in line 31 and insert 'without regard to'.
      Mr. Watts: The effect of amendments Nos. 72 and 73 is to delete paragraph 24, which prevents additional voluntary contributions from being commuted. As we have an overall limitation on the amount of lump sums, it seems unnecessary to prevent part of the benefits that accrue from an AVC scheme from being commuted, provided that the lump sum comes within the overall limitation to which we have already addressed ourselves.
      Secondly, the amendment ensures that members of existing schemes who retire on or after 17 March 1987 will not be subject to any limitations on the benefits which they derive from their voluntary contributions. My right hon. Friend will be aware from correspondence that has passed between us of a problem faced by a major company in my constituency that has arisen because its AVC scheme has
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      performed too well. It is accumulating surpluses that cannot be paid out to the pensioners who made contributions initially because of the two thirds limitation on total benefit that can be withdrawn. There is no way in which the contributions can be refunded. It seems almost morally wrong that, having paid contributions over many years, members of an AVC scheme should not be allowed to draw part of the benefits to which they have contributed.
      As my right hon. Friend said during an earlier debate, there must be some calculation of the likely benefits from the main scheme and the extent to which there is scope for them to be topped up by additional voluntary contributions, but those calculations can never be precise when one is looking forward 10, 15, 20 or 30 years to retirement. We already have a formidable array of controls that restrict the level of contributions into schemes—I understand that my right hon. Friend is not prepared to accept during our consideration of the Bill that that should be the only restriction on pension schemes in general—and it seems that it would be a modest step to accept that no such limitation should apply to AVC schemes, so the benefits that derive from contributions go to those who made the contributions when they become pensioners.
      As my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) has said, such limitations cannot apply to money purchase schemes because of their different nature. It seems unfortunate that there should be discrimination and that we can have funds locked into a scheme that cannot be used for the benefit of anyone.
      Sir William Clark: I support the argument of my hon. Friend the Member for Slough (Mr. Watts). I tabled an amendment similar to that which he has moved.
      We all welcome the fact that an employee who is a member of an occupational pension scheme can top up his pension with additional voluntary contributions, and I cannot see why AVCs should not be included in computations. I shall be interested to hear what my right hon. Friend the Minister has to say about that. There should not be two or three different types of pensioner.
      The restriction that we are discussing applies to AVCs but not to occupational pension schemes or public sector schemes. If it is the Government's policy to increase the number of private pension schemes and to encourage their growth—that is a policy with which I go along—one way of pursuing it is through AVC schemes.
      Mr. Archie Kirkwood: I support the argument that has been advanced by the hon. Member for Slough (Mr. Watts). The principle behind it is well worth supporting. I await with interest the Minister's justification for resisting the amendment, if that it be. Is there any way in which the Government can quantify the consequences of accepting the amendment? I think that its acceptance would lead to a considerable enhancement of the value of additional voluntary contributions. I can see no reason of principle for resisting the amendment. As I have said, the effect of the amendment would be to enhance the potential of AVC schemes in future. I add my voice to this cross-party appeal.
      Mr. Norman Lamont: My hon. Friends the Members for Kensington (Sir B. Rhys Williams) and for Slough (Mr. Watts) have advocated both that the benefit limits

      1175
      should not apply on the free-standing AVCs as regards members of occupational pension schemes. Earlier, when my hon. Friends the Member for Kensington and for Brentwood and Ongar (Mr. McCrindle) spoke, I made the distinction between personal pensions and AVCs. I do not think that I need repeat all that again. The Committee has heard my views and has at least understood them, even if they were not entirely welcomed.
      The purpose of AVCs is to increase pension provision, and that is why we have brought about the free-standing AVC. In fact, that is the purpose of both in-scheme and free-standing AVCs. The schemes attract very generous tax relief, and we feel that their purpose should be to make up for deficiencies, perhaps the sort of problems that we discussed in relation to the amendment tabled by my hon. Friend the Member for Kensington. We do not consider it right that the additional voluntary contribution, with its generous tax reliefs, should be used simply for the lump-sum benefit.
      This is essentially the same argument that we had before. I detect that many of my hon. Friends are very attached to the notion of the lump sum; we view it with some reservation. As we have said, we intend no changes, but when we introduced the concept of the free-standing AVC and the additional tax reliefs, we did not consider that that should be commuted to a lump sum. That was the simple reason for the restriction.
      Having made the change on the free-standing AVC, we felt that it was logical to make the same change in respect of the in-scheme AVC, if the free-standing AVC was to be marketed and if people were to use the choice of investment managers outside. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said earlier that he did not think anyone would take up the freestanding AVCs, and we thought that it was extremely important that they should be established on the same basis.
      Mr. Watts: I understand my right hon. Friend's desire to achieve parity of treatment between free-standing and in-company AVC schemes, but, in doing so, he creates another disparity. Let us consider two different company schemes. In one the employee is able to contribute 10 per cent. to his pension, and to commute part of the pension into a lump sum. Another employee with a less good company scheme in which he makes a payment of 5 or 6 per cent. might want to achieve parity with his neighbour by paying 4 per cent. into an AVC scheme, but he will be able to commute only from a much worse pension provision. In trying to create parity in one area, my right hon. Friend seems to be creating an injustice in another.
      My right hon. Friend would be wrong to think that I have any particular attachment to lump sums. I have long recognised that they are the probably biggest anomaly left in pension provisions in that they have tax relief when money is contributed to the scheme, but no tax is paid when money comes out. I should understand if the suggestion by my hon. Friend the Member for Kensington—that lump sums should be subject to tax or abolished—were taken up. But, if they are to exist, I can see no logical reason for imposing a restriction on AVC schemes that does not apply to other schemes.
      Mr. Lamont: We have enlarged pensions provision and have allowed a new instrument to come into being. We think that that ought to be for the purpose of providing
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      pensions, not cash-free lump sums. If any hon. Member is implying that there will be a tremendous restriction on the lump sum benefit—which, of course, has been at the centre of considerable controversy in regard to pensions—my hon. Friend has, in a sense, answered that. The person with an AVC and membership of an occupational pension scheme will be able to take more of his pension out of the AVC, and commute more of the pension into the lump sum within the occupational pension scheme. I do not think that that will have a disastrous effect on the lump sum availability. We simply did not consider it right to allow money to be commuted into the lump sum which is taken out tax free.
      6.15 pm
      I stress the tax deduction into the fund and the tax-free status when the benefit is paid out. That is a generous concession. We see the free-standing AVC as designed primarily to remedy the deficiency of people's earnings in retirement. The purpose is to provide pensions, not to be yet another addition to the lump sum provision. That is the rationale behind the measure.
      I take my hon. Friend's point that I may have created a level playing field here and a bump elsewhere, but I think I have explained our decision adequately.
      Mr. Watts: I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Sir William Clark: I beg to move amendment No 10, in page 82, line 39, at end add—
      '(3) An employee shall be treated for the purposes of this part of this Schedule above as a member of the scheme therein referred to before 17th March 1987 if—

      (a) he was before that date a member of a scheme approved by the Inland Revenue;

      (b) the company which employed him, or the group of companies of which his employing company was a member, was acquired by another company which operates a scheme approved by the Inland Revenue.; and

      (c) as a consequence of that acquisition the employee's membership of the scheme referred to in (a) above was terminated and he became, after 16th March 1987, a member of the scheme referred to in (b).'.

      I do not think that I need detain the Committee for long, as this is merely a probing amendment. I hope that my right hon. Friend will tell me that I am wrong, but, as I read the schedule, it does not allow the employee to preserve his pre-1987 rights. I should like an assurance that, in the event of a takeover, when the pension. arrangements may change, the employee will retain his pre-1987 rights.
      Mr. Norman Lamont: I entirely sympathise with what my hon. Friend has said, and I am happy to assure him that his amendment is unnecessary. I can spell it out for him if he likes. I fully accept that it would be unfair to regard people joining a pension scheme on or after 17 March as new members for the purpose of the legislation. which is what is bothering my hon. Friend. The amendment deals with one such circumstance, in which the pension scheme is reconstructed following a takeover or merger. Of course, there are many other circumstances which the amendment does not cover—for example, when an employee moves from one scheme to another, perhaps on promotion, or to a scheme established by another employer in the same group.
      There has been concern over these issues, and the Inland Revenue has published a draft memorandum that

      1177
      set out the proposed transitional arrangements in some detail. The document was warmly welcomed by the pensions industry, and has now been revised in the light of comments that have been received. Copies have been placed in the Library. In due course, these transitional provisions will be contained in regulations made by virtue of paragraph 18(2) of this schedule. I am advised that my hon. Friend's amendment is unnecessary and that its effect would be narrower than the regulations that we intend to make. Therefore, I hope that my hon. Friend will feel able to withdraw his amendment.
      Sir William Clark: After such a categoric assurance that my amendment is unnecessary and that its purpose is already provided for in the Bill and in the regulations, I beg to ask leave to withdraw the amendment.
      Amendment, by leave withdrawn.
      Question proposed, That this schedule be the Third Schedule to the Bill.
      Sir Brandon Rhys Williams: I am concerned about the fact that paragraph 22 of this schedule appears to have a retrospective character. That point has not yet been raised. The Inland Revenue is seeking to take powers over a scheme with different rules and to use those powers in such a way that the expectations of a member of the scheme who is nearing retirement will prove to have been ill founded because of the proposed change in the law. I do not know to what extent that is significant, but we should never contemplate retrospective legislation without very careful consideration and examination if the result would be that individuals would suffer unexpectedly. That appears to be a blot on the schedule.
      My right hon. Friend has done his best to persuade the Committee that it is in the general interest that the Bill should contain this schedule, but in my view it contains undesirable provisions and the Committee ought not to allow it to remain part of the Bill.
      Mr. Norman Lamont: On the point made by my hon. Friend the Member for Kensington (Sir B. Rhys Williams) about retrospection, new members of occupational schemes will be subject to the new rules for final remuneration, but existing contractual arrangements are not affected. The proposed changes are intended to curb misuse of the present definition of "final remuneration" by high earners in order to inflate artificially the pensions figure—in particular, the tax free lump sum. In paragraph 4 there are special transitional provisions for non-controlling directors with salaries over £100,000 who retire between now and 6 April 1991. Changes in final remuneration apply only to relatively high earners. The vast majority of pension scheme members who have no opportunity to use the scheme will not be affected.
      I shall look at my hon. Friend's point and see whether there is anything that I should add to it on Report. I think that my hon. Friend's concern is misplaced, but if it is not, I shall so report to the House.
      As for my hon. Friend's other points on schedule 3, I cannot add to the many debates that we have held on the subject. My hon. Friend has a very clear view of what he wants for pensioners.
      Sir Brandon Rhys Williams: As the Member of Parliament for Kensington, part of my work in the House
      1178
      is to speak for the relatively high earners in my constituency. My right hon. Friend points out that paragraph 22 is aimed at the relatively high earners, so I have done my best to speak for those of my constituents who are relatively high earners. There are also very low earners and people in Kensington who have no income, and when it is appropriate to do so I speak for them, too.
      I am reassured by my right hon. Friend's undertaking to consider whether the paragraph has a retrospective effect. If it does, I rely on him to make the necessary changes. He has confirmed once again that what we are hunting is the tax free lump sum. There is no need again to go over my remedy for that. I am reassured about the possible significance of paragraph 22, but I am still unhappy about the schedule's major provisions. I hope that the Committee feels that it would be better if the schedule were omitted.
      Schedule 3 agreed to.
      Clause 59 ordered to stand part of the Bill.

    Clause 60

      PAYMENTS OF INTEREST ETC. BETWEEN RELATED COMPANIES
      Question proposed, That the clause stand part of the Bill.
      Mr. Blair: I am wondering whether I have correctly understood the effect of Clause 60. I understand that it is an anti-avoidance provision. It relates to companies that are in a group—normally banks. An avoidance scheme would allow the tax liability of the group to be deferred for a year. Will the Minister confirm that the purpose of the clause is to close that loophole?
      The Paymaster General (Mr. Peter Brooke): I confirm that the purpose of Clause 60 is anti-avoidance and that it is intended to secure the objective that the hon. Gentleman has mentioned.
      Question put and agreed to.
      Clause 60 ordered to stand part of the Bill.
      Clause 61 ordered to stand part of the Bill.

    Clause 62

      UNITED KINGDOM MEMBERS OF PARTNERSHIPS CONTROLLED ABROAD
      Mr. Blair: I beg to move amendment No. 66, in page 32, line I, leave out sub-section (2) and add—
      'This section has effect with respect to years of assessment beginning on or after 6th April 1987'.
      Clause 62 has fairly limited application and may seem to be a little esoteric, but it contains an important principle that the Committee ought to examine. I should be obliged if the Minister would confirm that clause 62 arises out of a court decision by the Commissioners of Inland Revenue against Padmore. It concerned a double taxation agreement between the United Kingdom and Jersey. It was held that, contrary to what had been supposed, the United Kingdom resident partner of a Jersey resident partnership was exempt from United Kingdom tax under the double taxation treaties. That was not supposed to be the effect of the legislation. Therefore, clause 62 is before us and reverses the decision in Padmore. It ensures that the United Kingdom resident partner of a Jersey resident partnership is no longer exempt.

      1179
      We agreed that that loophole should be closed. However, the issue of principle to which clause 62 gives rise is that of retrospective legislation. Before clause 62 is passed, it is important that we should have firm assurances from the Minister and the Treasury about it.
      Parliament should oppose retrospective legislation, for a number of reasons. The principal democratic reason is that people are perfectly entitled to do whatever the law permits them to do and that it is wrong afterwards to make it unlawful. The effect of the Padmore case was not intended by the Inland Revenue and the legislature. If people are able to do something that the Government do not wish them to do, it is their democratic right to go to law to have their rights properly assessed. If the courts find in their favour, as a matter of principle it is wrong that they should be deprived of the benefit of that decision. To introduce legislation to tighten up the future position is understandable, but it would not be understandable if the effect of a court decision were rendered nugatory. But that is what is happening.
      It is important to consider the relationship between Parliament and the courts. Of course, Parliament is supreme and can do whatever it wishes, but the basic principle upon which people operate in our society is that they are entitled to take legislation at its face value, as determined by a court, for the time being. This clause would mean that those who have been doing that which they are perfectly entitled to do, as a court has found, will now have illegality visited upon them as a result of retrospective legislation.
      6.30 pm
      Mr. Tim Smith: I have been following the hon. Gentleman's argument closely. I think that he said a moment ago that clause 62 would render nugatory the decision of that court case. However, is it not true, when considering subsection (2), that that decision would stand so far as any particular taxpayer was concerned, and that in effect there would be two classes of taxpayer—those whose cases have been determined and those whose cases were outstanding, where an appeal was pending? There would also be those who might otherwise have been able to take advantage of the change. Is not that unfair?
      Mr. Blair: The hon. Gentleman's point is absolutely correct. When I said that the effect of the decision would be rendered nugatory, I should have said more precisely that that would be the effect as it applied to anyone other than the litigants. The curiosity about clause 62 is that subsection (2) appears to leave out of the retrospection those people who are engaged in litigation, but includes everybody else. That is a most peculiar provision to enact. As the hon. Gentleman pointed out, it would mean two different classes of people, those who happen to have been before the court to argue their cases, and those who have not.
      It would require something persuasive from the Financial Secretary to convince my hon. Friends and me to pass legislation that seems shot through with anomalies and offends a basic principle of our constitution.
      Mr. Norman Lamont: The hon. Member for Sedgefield (Mr. Blair) is absolutely right to identify this as an important clause that we should consider. I assure the Committee that, even if no other hon. Member had risen on this point, I should have got to my feet to make the
      1180
      meaning of the clause absolutely plain to the Committee because it has caused me considerable concern and we have not come to the decision that we have without much careful consideration.
      As the hon. Member for Sedgefield said, the purpose of clause 62 is to restore the general understanding of the law to what it was before a decision of the High Court last December in a case involving foreign partnerships. That case was Padmore v. the Commissioners of the Inland Revenue. Briefly, the facts of that case are that the High Court ruled that a United Kingdom resident partner in a foreign partnership was not liable to United Kingdom taxation on his share of the profits of the partnership because of the interaction of the Jersey double taxation agreement with United Kingdom domestic law. However, similar decisions might well have been made in the case of several of our double taxation agreements.
      I have said that the purpose of the clause is to restore the general understanding of the law. One crucial point, which the hon. Member for Sedgefield made fairly and rightly, is that what the Inland Revenue understands to be the law is not necessarily what is widely accepted to be the law. Obviously, that consideration has weighed in my mind. I am aware that some people questioned the general understanding of the law before that case. However, I believe that the phrase that I have used is, none the less, a fair statement of the position. Butterworth, for example, described it as the widely accepted view, and the journal Taxation described the decision as surprising.
      The Revenue tells me that few taxpayers claimed exemption before that court decision. It is estimated that more than 15,000 foreign partners could have claimed exemption, whereas to the best of the Revenue's knowledge, only three partnerships have done so. I stress that the double taxation agreement has been in existence since 1952. Therefore, during that period a large number of an admittedly restricted class of person—partners in foreign partnerships—have accepted the position and paid tax accordingly.
      The Government have come to the conclusion that the law should be restored to what it was accepted to be before the High Court decision. As the professional press has pointed out, leaving the clause unamended would lead to loopholes that would be much exploited. However, I appreciate that that is not the Committee's main concern.
      I appreciate also how sensitive a matter retrospection is. I assure the Committee that we did not propose lightly retrospection in this instance. We touched on this matter in the debates on last year's Finance Bill. The type of retrospection on which the House has normally looked with disfavour is where the law is changed retrospectively so that people find themselves faced with unexpected and unprovided for tax liabiliies for past years. In this instance, retrospection is somewhat different.
      As the law now stands, after the High Court decision, a partner in a foreign partnership who has paid tax on the partnership profits in the normal way could obtain an entirely unexpected benefit in the form of recovery of tax for the previous six years. Thereafter, the purpose of retrospection in this clause is to prevent taxpayers from obtaining such a windfall tax advantage. It is not to inflict an unexpected tax charge on the unwary. I am sure that the House will want to think about the distinction that I have drawn between the different types of retrospection.
      I have absolutely no wish to misrepresent the hon. Member for Sedgefield. However, last year in the debate

      1181
      on section 49 of the Finance Bill he drew that very distinction when he referred to the possibility of companies being able to take advantage retrospectively of the decision in the case of Collard v. Mining Industrial Holdings Ltd. as unsatisfactory. As I had just appeared as Financial Secretary, I can recall that the hon. Gentleman drew that distinction. It caused me a little difficulty at the time.
      However, in proposing retrospective action in this case, the Government felt that with £100 million at stake over the six-year period during which claims could have been made we must therefore look to the interests of the general body of taxpayers on whom this expenditure would fall, rather than to a special class of taxpayers, to most of whom this tax refund would come as a complete surprise.
      The Government are not suggesting that this should be a precedent for all time, but it seemed right in this case. Indeed, I should point out that there are such precedents. In 1971, the Government introduced legislation to claw back tax relief following an increase in family allowances. That happened after a court decision exactly the same circumstance as here. In 1976, there was a provision involving the effect of advance corporation tax on preference dividends. In both cases—the purpose of the legislation was to reverse the consequences of a High Court decision and in both cases, that took the form of deeming the change in the law always to have had effect for the reasons that I have given.
      The Government are proposing, not to overturn the decision of the High Court in the case of the particular taxpayer involved, but to protect the taxpayer involved from the legislation. If the case goes to a higher court, the proposed legislation would enable the case to be decided there on the basis of the law as it was before the legislation. That is why the legislation is framed as it is. Our altering the law will not affect the outcome of the case and the case will still be determined by the courts.
      Mr. Blair: I want to make sure that I have understood that. I find subsection (2) a little difficult to understand. Once the clause is passed into law I cannot see how the appellate court can find in favour of the taxpayer unless that taxpayer is put in a unique category and is uniquely entitled to this unexpected tax relief.
      Mr. Lamont: I assure the hon. Gentleman that the legislation has been drafted precisely as I have described so that it will still be possible for the court to decide on the basis of the law as it was before this legislation. Perhaps if I can pinpoint the precise words for the hon. Gentleman later, I shall do so.
      My hon. Friend the Member for Beaconsfield (Mr. Smith) said that we were making two classes of taxpayer and that the law was being applied differentially. That has been our choice. We do not wish to deprive the individual taxpayer who has taken this matter to the courts of the benefit of going to the courts. He has challenged the view. We believe that it is widely accepted that this is a technical deficiency in the law which will give an uncovenanted benefit at considerable cost to the public purse to a category of people who were not expecting it. We think it would be wrong to deprive the person who has taken the matter to the court of the consequences of the court's decision if he is successful. I cannot deny that that throws
      1182
      up the dilemma that my hon. Friend has described, but we decided that that was the price to pay for accommodating the taxpayer involved.
      The legislation is retrospective, and no one likes retrospective legislation. I have tried to explain why the position has arisen, how it has arisen in other circumstances previously and how we must balance several sets of factors in this case. We believe that it is right that £100 million of tax should not be repaid to a small number of taxpayers to whom the court decision would have come as a surprise. In this case we feel we must consult the interests of the general body of taxpayers who would otherwise have to foot the bill for such a windfall.
      This is in no sense a precedent for introducing in future legislation which is usually thought of as retrospective legislation, that is legislation involving people suddenly facing unexpected tax demands for past years. This legislation falls firmly in that category. In general the United Kingdom tax system seeks to tax all income arising in the United Kingdom, no matter to whom it belongs, and all income arising outside the United Kingdom belonging to persons resident in the United Kingdom. It follows that someone resident in the United Kingdom is normally taxable on all his income, no matter where it arises—that is, he will be taxable on his worldwide income. There is no good reason why a United Kingdom resident who is a member of a Jersey partnership or an overseas partnership should enjoy some special advantage over his fellow United Kingdom taxpayers by being excluded from the general scope of United Kingdom taxation.
      Mr. Tim Smith: My right hon. Friend may well be right about the substance of the clause, but the question of retrospection is exercising the Committee.
      I understand the distinction that my right hon. Friend sought to make. I have various diktats on retrospection and they were designed for the artificial tax avoidance schemes that were common in the mid and late 1970s. It was always said that some warning must be given to taxpayers and that the earliest date at which legislation could be retrospective was the date of announcement of a change in the law by the Inland Revenue or the Government.
      6.45 pm
      In 1958 Mr. Heathcoat-Amory, the then Chancellor of the Exchequer, said:
      "In my opinion, one essential pre-requisite, if retrospective legislation is to be used, is that those concerned should have every reason to be aware of the taxation consequencues of their specific actions and, therefore, have a chance of avoiding it if they wish."—[Official Report, 18 June 1958; Vol. 589, c. 1132.]
      My right hon. Friend said that previously there was no doubt about the law. The Inland Revenue press release published on 17 March refers to the
      "general understanding of the law"
      and implies that there was not any uncertainty. But there must have been sufficient uncertainty for a taxpayer to challenge it and to think that there was a reasonable chance of persuading the commissioners that he had a case. There must have been that amount of uncertainty. Therefore, there was a degree of uncertainty, although the Revenue's description of the previous law was that there was a general understanding about it.
      A constituent of mine, Mr. I. D. Barnett, who, I am sure, has no personal axe to grind, wrote to me in a personal capacity, although I know he is a tax advisor to

      1183
      one of our major industrial companies. This whole question turns on whether there was a general understanding of the law. My constituent writes that the statement in the press release
      "is a considerable overstatement, to put it at best. It may have been the Revenue's understanding but it was not so generally accepted. We know this because much tax advice was given on the basis that was later established by the case itself to be correct: but there were other cases besides Padmore which had been left pending its outcome. Even if the Revenue were correct, would it justify making the proposed change? It would not, in my view."
      Clearly, my constituent is not in any doubt about the matter.
      My right hon. Friend the Financial Secretary quoted from a couple of learned journals on the subject. I do not know the answer to this question or the extent to which there was a general understanding of the law. My constituent tells me that it was not merely being challenged by Mr. Padmore, but by other taxpayers who were perhaps awaiting the outcome of the Padmore case. Therefore, we are in real difficulty here.
      Perhaps it would be wrong to ask my right hon. Friend how much tax is at stake. It may be a substantial sum and perhaps we should know how much it is. An important principle is at stake and it is important that we understand what we will do if we agree to the clause.
      Mr. Blair: First, I congratulate the Financial Secretary's researcher who dug out my speech last year when I was justifying an opposite proposition. That only shows that one should not serve on too many Finance Bills.
      I understand the right hon. Gentleman's point. To summarise it, no principle is immutable. That should appeal to politicians. if large sums are at stake—the Financial Secretary gave the figure of f100 million—we may look more favourably on retrospection than we would otherwise. I have some sympathy with that. But I need to be persuaded on some points. I must be sure that I understood the Financial Secretary correctly when he said that potentially 15,000 people could claim this exemption. In other words, if this legislation was not retrospective, there would be a potential of 15,000 foreign partners who could claim the exemption backdated to 1952. That would obviously he very serious. The Minister said that only three people had attempted to claim the exemption. That does not seem to correspond with the information of the hon. Member for Beaconsfield (Mr. Smith), although if it is so it strengthens his hand.
      There are still two difficulties outstanding. First, it is not at all clear to me that this was a universal understanding of the law. In a sense, that was shown by the fact that the case was taken to the court. Secondly, I am still troubled by the meaning of subsection (2) and I am not at all sure that it will have the effect that the Minister intends it to have. Presumably, he wishes to leave Mr. Padmore as the unique beneficiary of the tax exemption and so that he will claim exemptions where others cannot. I find that method of proceeding a little difficult to understand. Presumably, once this case got off the ground there were people hanging fire and waiting to see what happened. What will be the test? Do those people have to have initiated proceedings or consulted lawyers? Are not all the others to be rewarded in a similar way?
      I am not sure that subsection (2) simply restricts the benefits of this tax exemption to Mr. Padmore. It says:
      "Nothing in subsection (1) above affects …
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      (a) the determination of any Commissioners or the. judgment of any court made …, or

      (b) the law to be applied in proceedings on appeal to the. Court of Appeal."

      Without greater definition that leaves things in a complex mess. The decisions of the High Court are precedents and when appeal proceedings are taken and the appeal court gives its rulings, those are precedents too. They are not decisions that affect individual cases alone. The Minister should ask his advisers again whether subsection (2) would limit the decision to Mr. Padmore. It would be strange if the clause left one taxpayer in a unique position. I do not know whether that has ever been done before or whether a taxpayer, through foresight, courage or luck has taken the Revenue to court and won, thus being left as the sole beneficiary of the loophole that he has discovered. If that has not happened, I am unhappy about the provision. The Minister should look at it again.
      I have put the point about the principle of retrospection and I shall be obliged if the Minister will deal with it. If he is sufficiently persuasive, I am prepared to revert to my position of last year, but with regard to subsection (2), it seems that there are serious problems which have not been given the fullest consideration.
      Mr. John Townend: I appreciate the Government's predicament. There are two questions of principle here. The first is retrospection, and I think that most people with Conservative principles abhor retrospective legislation. The other important point of principle was raised by my hon. Friend the Member for Beaconsfield (Mr. Smith) and by the hon. Member for Sedgefield (Mr. Blair). It is that taxpayers expect equality before the law. It has been suggested that we are to have two classes of taxpayer—Mr. Padmore and the rest—although from my reading of the clause its effects will be rather wider. However, this provision constitutes an important breach of a principle which is also breached in a later clause. Is this the first occasion on which the principle that all taxpayers have equal rights before the law has been breached, or are there precedents? Like my hon. Friend and the hon. Member for Sedgefield I am unhappy about this, although I can well appreciate why the Government do not want 15,000 people to be able to claim all the tax that they have paid over a period of six years. Most of us agree that it is not right that people who are not resident in this country should not contribute to it in the form of taxes. While I appreciate the Government's problem, important issues of principle are involved, which have not been satisfactorily answered.
      Mr. Michael Grylls: The Government should think more deeply about this. In essence, the Revenue is adopting the new tactic of saying, "Heads we win in the courts and tails you lose in the Finance Bill" in order to enforce its private and unpublicised view of the law. That is like moving the goal posts when the ball has been kicked through them and the referee has signalled a goal, and we should not be doing that sort of thing. It seems to go against the generally understood view of fair taxation, and against constitutional propriety and natural justice.
      The taxpayers' charter, issued by the Revenue in July 1986 talked about fairness and retrospection and, on fairness, it said:

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      "You will have your liability decided impartially and be required to pay only the amount of tax properly due according to the law; you will be treated in the same way as other taxpayers in similar circumstances."
      That is not happening with regard to Mr. Padmore.
      The normal presumption against restrospection has been breached in the past only in the taxpayer's favour—which, if fair enough—or to correct undisputed errors and omissions in drafting, and most people would understand that.
      If the business world is to plan its affairs and its investments, it is crucial that it should know where it stands—subject, of course, only to the future decisions of the courts—when it enters into a transaction or a business decision. The business world is put in a very difficult position and cannot organise its affairs if it does not know where it stands.
      I ask my right hon. Friend to bear in mind the points that I have made, because we should think carefully about this matter.
      Mr. Tim Smith: My question is supplementary to the question asked by the hon. Member for Sedgefield (Mr. Blair) about subsection (2). The hon. Gentleman asked whether there were precedents.
      Clauses 71 and 80 also have retrospective effects and clause 80(2) contains a similar provision to clause 62(2)(a) but it does not include a reference to proceedings on appeal. It simply states:
      "Nothing in subsection (1) above affects the determination of any Commissioners or the judgment of any court made or given before 14 May 1987".
      It does not then refer to the law to be applied on appeal. Is that because the Inland Revenue does not intend to appeal? Why is there different treatment in each of the three different clauses?
      Mr. Norman Lamont: I hope that the Committee realise that I have not reached my conclusion easily or that I do not share the very considerable concern about this extremely serious matter. I have tried to outline the precedents. Sometimes, Governments, whether Conservative or Labour Governments have concluded that a court case has produced a result that has gone against the widely accepted view—not just the Inland Revenue view—of the law and have decided to reverse it, precisely as we propose to reverse it on this occasion.
      The Government have exempted the person who took the matter to court. My hon. Friend the Member for Beaconsfield (Mr. Smith) and the hon. Member for Sedgefield (Mr. Blair) have asked whether there is a precedent for exempting a person who takes such a matter to court and the answer is, unambiguously, yes. That happened with the cases in 1971 and 1976.
      My hon. Friend the Member for Bridlington (Mr. Townend) is correct in saying that that leaves us in the uncomfortable position that the law is being applied specially for one person. We have taken that action with our eyes open and for one specific purpose. It is not our intention to negate the role of the courts or in any way to frustrate the right of the taxpayer to take something to court. We certainly do not want to be in the position, as described by my hon. Friend the Member for Bridlington, of simply overturning the decisions of the courts because it meets the convenience of the Inland Revenue.
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      7 pm
      We have had other instances when large sums of money have been at stake. This matter centres on two elements of judgment. First, was it "widely accepted" by people outside the Inland Revenue that the law was as it was thought to be? Secondly there is a judgment to be made on the sorts of sums of money that were at stake. With regard to the two previous cases I do not believe that there is any doubt that substantial sums of money were likely to come as a windfall benefit to many taxpayers who had not expected that.
      I anticipate that people will ask whether £100 million is a large sum of money. They will ask the significance of £100 million in relation to 15,000 partners of a Jersey firm. In one sense that sum is not large, but when concentrated on a limited class of people it is. It would be unrealistic and dishonest to pretend that the sum of money involved was not part of the consideration and subsequent judgment.
      Mr. Grylls: Is it not the case that others besides Mr. Padmore have already won their cases in front of the Special Commissioners? Therefore, in a sense the decision of Padmore was not a freak one. However, others are to be denied the relief that will be allowed to Mr. Padmore.
      Mr. Lamont: My hon. Friend is not correct and it would be extremely serious if that were the case.
      My hon. Friend the Member for Beaconsfield said that he thought that there had been a number of cases that had been left open. However, I am aware of only three cases where the matter has not been resolved.
      I have never said that the view of the law was unanimous—indeed, unanimity hardly ever exists. However, do we have an instance where the view of the law was or was not widely accepted? I have listened with great care to what has been said and I will read the report of those speeches to see whether there is anything to challenge the conclusion that I have reached. I know of three cases. I quoted what various authorities have said. Those views do not close the matter nor end the argument. However, it must be significant that people with such a knowledge of the law took the same view and appeared to believe that the decision that we have reached is not entirely surprising.
      Mr. Blair: If there are another three cases in train will they be treated in the same way as Mr. Padmore?
      Mr. Lamont: No, they will not. The people concerned have not taken the matter to court. The other partners of Mr. Padmore will obviously benefit if the case is successful, but others who have not taken the matter to court will not benefit.
      Mr. John Townend: Does my right hon. Friend agree that if the other three cases are not proceeded with while the Padmore case is resolved—the decision on that case given as the reason for not proceeding with the others—it is unfair that they should not be included in subsection (2) with Padmore?
      Mr. Lamont: My hon. Friend is right and I am sorry if I misled the Committee. They will be treated in the same way as Padmore.
      The hon. Member for Sedgefield has made some good and telling points—he always does in Committee—but I do not think it is relevant in this debate to say that, because someone takes something to court that means that the

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      view of the law is not widely accepted. I am sure that, on reflection, the hon. Gentleman will consider that that is not the best argument to employ.
      Even if a person does take a matter to court and even if there are two or three other people waiting to take the matter to court I believe that it is still possible, in a matter of this kind when substantial sums of money are at stake and when the law is "widely accepted," to come to the conclusion that the Government must reach their decision on the same basis as previous Governments.
      Mr. Alex Salmond: If the Government had not thought that the case before the commissioners had brought forward a surprising result and that the law had not been "widely accepted" would they have proceeded in this way? I do not know what was "widely held" as regards this section of the Bill, but if the Government adopt the same argument with regard to clause 80 they will be in a substantial amount of trouble.
      Mr. Lamont: I do not want to comment on clause 80. We shall have a separate debate on clause 80. Each of the cases should be considered on its merits.
      I have done my best to explain to the Committee that the different factors must be balanced in this instance. I reached my conclusion with extreme reluctance. I think that the officials of the Inland Revenue would confirm that I did not believe that this matter was a bunch of roses. I do not like doing this, but I am convinced that, balancing everything, the conclusion I have reached is inevitable. I believe that it is comforting that there are precedents for the Government's decision. Nevertheless we should consider the matter carefully. I am firmly against retrospective legislation, but in this instance I believe there are compelling arguments in favour.
      Mr. Blair: I believe that the right hon. Gentleman has put as good a case as possible in defence of the retrospection within this clause. I echo the words of my hon. Friend the Member for Banff and Buchan (Mr. Salmond) that those arguments may not apply to later clauses.
      In essence, what the right hon. Gentleman has said is fair. It would be an extremely expensive demonstration of principle if we decided that £100 million could be sniffed at. I am not prepared to take that liberty. However, I can think of many ways in which I would prefer to spend £100 million than on foreign Jersey partnerships. My hon. Friends would be appalled if I took a different view. I believe that it was right for us to raise the question of retrospection. It is always right to do so in case we become lax about things over which we should be strict.
      I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Clause 62 ordered to stand part of the Bill.

    Clause 63

      LIMITATION OF GROUP RELIEF IN RELATION TO CERTAIN DUAL RESIDENT COMPANIES
      Sir William Clark: I beg to move amendment No. 11, in page 32, line 15, at end insert—
      'Provided that this subsection shall not apply where the loss arises from carrying on a trade on a commercial basis with a view to profit or where the relevant amount is a charge on income, which may be surrendered in accordance with section 259(6), and is either incurred for the purposes of the
      1188
      trade carried on by the surrendering company or is only available for surrender under that subsection because or section 15(5) of the Oil Taxation Act 1975.'.
      The Temporary Chairman (Mr. David Knox): With this it will be convenient to take the following amendments:
      No. 12, in page 33, line 10, leave out from 'period' to second 'or in line 11 and insert 'its main functions consist'.
      No. 13, in page 33, line 29, leave out paragraph (b).
      No. 14, in page 34, line 5, at end add—
      '(8) Nothing in this section shall be taken to apply to genuine trading companies.'.
      No. 15, in clause 64, page 34, line 22, at end insert—
      'provided that this subsection does not apply where the successor is a trading company immediately prior to the transfer of the trade.'.
      No. 16, in clause 64, page 34, line 28, at end insert—
      'provided that this does not apply where the asset will be used for the purposes of the trade of the dual resident or where the asset is transferred by a non-resident and represents shares as defined in section 38(2)(c), Finance Act 1973.'.
      and No. 18, in clause 64, page 35, line 19, at end add—
      '(8) This section shall not apply to—

      (a) companies excluded from the operation of section 48, by reason of subsection (8) of that section, or

      (b) the disposal of any asset used for trading purposes.'.

      Sir William Clark: This amendment covers clauses 63 and 64. I am worried about the effect of those clauses. It seeks to ensure that a genuine trading loss, which is incurred by a dual resident, a company or whatever, can still be surrendered to another group company by way of group relief.
      Mr. Austin Mitchell: Oh!
      Sir William Clark: If the hon. Member for Great Grimsby would just listen he would, for once, learn something.
      The amendment also seeks to retain the ability to surrender a loss arising from a charge on income, for example, interest payable on a loan, to the extent that the charge is incurred for the purposes of its trade.
      Finally, it attempts to deal with a problem peculiar to oil companies. I admit here that I am a consultant to the Texaco Oil Company. The problem arises from the additional corporation tax restrictions imposed on oil companies. An oil company cannot offset charges on income against oil extraction income unless those charges meet the specific tests set out in section 15 of the Oil Taxation Act 1975. No such tests apply to non-oil companies, which can obtain their relief by offset against their profits, including trading profits. Previously, limited relief could have been obtained by surrender as a result of section 15(5) of the Oil Taxation Act 1975, inserted by the Finance Act 1982. Clause 63 may prevent this if an oil company is a dual resident. The amendment seeks to restore the position so that the new rules do not prevent relief in cases where relief is available only as a result of Section 15(5).
      It is agreed that some companies have obtained tax relief in two countries—that is, in this country and in another country. I am advised that, unamended, the clause would mean that a company could not claim tax relief in either country. Quite obviously, this would be as wrong as claiming it in two countries.
      The clause should exclude those companies whose main function is trading. If their main function is trading, whether they be oil companies or not, they should not be

      1189
      put in a position different from that of any other company. I do not know whether my right hon. Friend the Financial Secretary will agree, but there is ambiguity about balancing charges or balancing allowances on transfer between dual companies.
      The clauses are far reaching and will have quite an effect on many companies. Why date the legislation from 1987 without giving those companies the opportunity of not necessarily re-arranging their affairs but dealing with the proposed changes? What is the rush? Why can it not be dated 1988 or 1989? There has been undue haste. In my view it will penalise those companies that are mainly trading companies. Therefore, I hope that my right hon. Friend will not only give sympathetic consideration to this but some assurance that something will be done to alleviate the unfairness in clauses 63 and 64.
      Mr. Blair: I want to make one or two brief points about clause 63. I am advised that it stops a practice known as double dipping. I have not come across that term before, at least not in this context. Double dipping occurs when international groups of companies ensure that there is payment of taxation for both United Kingdom and United States purposes and then take relief in both countries. That is obviously wrong. I am also advised that the United States has effectively stopped the practice in respect of United States companies by introducing tax reform legislation that has been passed by Congress.
      The amendment seeks to ensure that genuine trading losses can be surrendered to another group company. The hon. Member for Croydon, South (Sir William Clark), in moving his amendment, said that the clause does not simply prevent the type of practice that I have described, it actually prevents companies reclaiming the tax in the other country. I would be obliged if the Financial Secretary could say whether that is correct and whether that is the intended consequence of this legislation.
      The hon. Gentleman drew attention to the function of the company. He asked why, if they are genuine trading companies, they should be within the provisions of the clause at all. My hesitation in supporting him is that it seems to me that the tax avoidance purpose and practice is not necessarily a function of the fact that they are trading companies or otherwise; it is the use of the group structure that gives rise to the tax avoidance where there is dual residence.
      If tax avoidance is occurring on the scale that the Government believe, we are right to pass legislation to prevent that straight away. I would be obliged if the Financial Secretary would deal with those points and also, if it is the case that the United States has passed similar legislation, that there is a certain symmetry in the legislation that we are passing.
      7.15 pm
      Mr. Norman Lamont: This is a highly technical and extremely complex area. I will look carefully at what my hon. Friend the Member for Croydon, South (Sir William Clark) has said. I intend to reply to that and, if other points arise, if necessary come back and report. I believe that his fears are somewhat misplaced. His amendments can be characterised in three groups. The first group—amendments Nos. 11, 12, 13 and 14—broadlyreflect a worry that the clauses may not fully provide for the
      1190
      exclusion of genuine trading companies that the Government are proposing. The clauses prevent a company that is resident in two countries and therefore able to obtain two lots of relief for the same loss, to obtain relief for that loss in the United Kingdom. A dual resident company that is not set up to create a tax loss, but which has taxable profits, is not affected by the legislation because it makes a profit. However, we recognise that the result may be harsh where a trading and profit-seeking dual resident happens to make a loss. Therefore, we intend that genuine trading companies should be outside the scope of the legislation.
      The clauses are drafted to exclude such companies, but they are very tightly drawn to prevent abuse by companies that are not genuine trading companies. Genuine trading companies are excluded by clause 63(5) and (6). Clause 63(6)(a) makes it clear that a company whose trade is such that one of its main functions is to borrow, to purchase or to hold shares in another member of the multinational group, is treated as an investing company. Clause 63(6)(b) brings within the scope of the legislation any trading company which, although its main function does not include the activities covered by clause 63(6)(a), nevertheless in a particular accounting period carries on such activities for a purpose unrelated to the trade. Therefore, in substance clause 63(6)(b) makes it clear that where a trade other than trade within clause 63(6)(a) entails a financial activity such as the holding of investments or the payment of interest, it is only when those activities are disproportionate to the trade that the company will be caught by the legislation. This formulation was arrived at following detailed discussions with representative bodies and others.
      The amendments proposed by my hon. Friend leave matters rather more vague. He relies on the undefined phrase "genuine trading companies". I fully understand his concern, but this is an area that has been exploited fully by the tax avoidance industry. We believe that it is necessary to be careful to ensure that only genuine trading companies are excluded. I hope that he will accept that I entirely recognise his concern and that he will accept my assurance that we do not intend and do not think that there will be a problem for genuine trading companies being excluded from the scope of the legislation.
      The second group of amendments, Nos. 15 and 16. relate to clause 64. The general purpose of clause 64 is to prevent a dual resident investing company from sidestepping the denial of group relief provided for in clause 63 by using certain reliefs other than group relief in the United Kingdom, and, at the same time, continuing to obtain the equivalent of group relief in, say, the United States. It deals with a number of such reliefs in detail, and the amendments proposed by my hon. Friend draw attention to two of them.
      Amendment No. 15 concerns the provision under which a trade that is transferred from one company to another without a change of ownership is treated as a continuing concern for all tax purposes, including capital allowances. The effect of the amendment is to allow all trading companies, and not just genuine trading companies, to continue to be treated in that way. I hope that my hon. Friend will accept my assurances that there should not be a problem for genuine dual resident trading companies.
      Amendment No. 16 concerns the provision under which an asset can be transferred from one member of a

      1191
      group of companies to another member on a no-gain, no-loss basis. Again, genuine trading companies are outside the scope of clause 64 because they are not within the definition of "dual resident investing company". That is what the amendment is about.
      My hon. Friend has tried to define "genuine trading company". We have defined "investing company" in various provisions of the legislation. A company that is not in the investing company category will be a genuine trading company. We consider that our approach and the particulars that we have listed are a better way of defining it rather than approaching the matter from another direction as my hon. Friend has tried to do by defining "genuine trading company". My hon. Friend's amendments do not succeed in that.
      In any event, the abuse that the subsection attacks is the acquisition and sale of an asset by a dual resident investing company rather than its acquisition and retention. If anything were to be done to exclude assets retained from the legislation, it would be necessary to require the retention of the asset for a sufficiently long period to prevent abuse. That would obviously not be acceptable to my hon. Friend.
      The third group of amendments, Nos. 58 and 59, are aimed at delaying the implementation of the legislation. In recent years, there has been a trend for more consultation and more warning to be given by the Government of impending legislation, to give those affected time in which to re-arrange their affairs. Dual resident companies will have to rearrange their affairs. That is absolutely inevitable. That is the answer to the point that my hon. Friend raised, in which the hon. Member for Sedgefield (Mr. Blair) was interested, about interest not being available even in the United Kingdom. It will be necessary for companies to re-arrange their affairs. We know the consequences of the legislation. Companies have been on notice of the proposed changes for quite some time. Absolutely nobody could claim that we have been precipitate. We had two periods of consultation; one in 1985 and one in 1986. In March 1985, we gave a clear warning that legislation was likely to be introduced if exploitation of the dual resident company loophole continued to grow.
      As my hon. Friend knows—the hon. Member for Sedgefield alluded to it—legislation went through the United States Congress last year. Our legislation will take effect three months after the United States legislation. Some people say, "If you have United States legislation, why do you need United Kingdom legislation? What is the point of it? It is not necessary." Of course, if we did not have United Kingdom legislation in addition to United States legislation, the costs would fall entirely to the United Kingdom. If our legislation were delayed any further, we would bear the cost of relief for dual resident companies at no expense to the United States exchequer. A further year's delay would be costly and would simply encourage a further year's abuse.
      My hon. Friend is concerned about genuine trading companies, but I hope that he will accept that there are many examples of dual resident companies being set up for no purpose other than to get an interest deduction in the two countries. I guess—I may be wrong—that that is by far the most common reason for setting up a dual resident company. That is not to say that there are no genuine
      1192
      trading companies. We intend that genuine trading companies should be excluded from the effects of the legislation.
      I tried to explain to my hon. Friend the way in which we have approached the problem. It is an extremely technical area. I shall study carefully what he said. I believe that it is right to approach it from the definition of "investing company" rather than rely on the term "genuine trading company". I recognise that it will be necessary for companies to re-arrange their affairs to avoid the consequences that the hon. Gentleman raised. People have had notice of that change being likely for quite some time. From the representations and discussions that I have had with interested parties, I know that the major players in the business knew what was coming and could hardly have been surprised. I assure my hon. Friend that I shall examine what he said. I make no commitment, but if any action is necessary, of course we shall consider it.
      Sir William Clark: I am grateful for my right hon. Friend's comprehensive reply. I understand his difficulty. He said that the matter is complicated, and everybody would agree. I shall certainly study Hansard tomorrow to get the full import and purport of what my right hon. Friend said. He kindly said that he would examine the matter again and, if necessary, come back on Report—of course, without any commitment. With his assurance that he has taken on board my various reservations, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Clause 63 ordered to stand part of the Bill.
      Schedule 4 agreed to.
      Clause 64 ordered to stand part of the Bill.

    Clause 65

      CONTROLLED FOREIGN COMPANIES: ACCEPTABLE DISTRIBUTION POLICY
      Question proposed, That the clause stand part of the Bill.
      Mr. Brooke: It may be helpful if I say a brief word about clause 65. The present position is that, under the controlled foreign company legislation, tax may be charged on the accumulated profits of an overseas company, but if the controlled foreign company pays an adequate dividend to its United Kingdom shareholders, tax will be chargeable on it. That is seen as meeting the requirements of the legislation. When the acceptable distribution test is satisfied, there is no charge on the controlled foreign company's profits. The clear intention of exclusion from the charge when an approved foreign company pursues an acceptable distribution policy is that dividends should be subject to United Kingdom tax.
      However, attempts have been made to sidestep that, for tax purposes, by moving the residence of the overseas company to the United Kingdom before a dividend is paid. Thus, at the time it is paid, a dividend is not charged tax as a dividend received from an overseas company, but escapes tax as a dividend paid by one United Kingdom resident company to another. The device can be repeated, for example, by transferring most of the overseas company's assets to another tax haven company before changing its residence.
      If necessary, existing cases will be challenged in the courts. However, since significant amounts of tax could be

      1193
      at risk, we have decided to take immediate action to restore the clear intention of the original provisions. The amendments that are contained in the clause ensure, therefore, that, whenever a CFC pays a dividend to pursue an acceptable distribution policy, there should he a charge to tax on the appropriate United Kingdom resident shareholder.
      The increased yield from this measure that is given in the FSBR is £10 million for 1987–88 and 1988–89. That figure relates only to the handful of cases in which we know that the device has been used. The Exchequer yield in the form of tax on dividends that are paid by CFCs to meet the acceptable distribution test, is estimated at £60 million per annum. A significant amount of that tax—up to £40 million—could be at risk if the device were to be widely exploited. That is why we have introduced this clause.
      7.30 pm
      Mr. Blair: This section is not to be retrospective but prospective. I wondered why that was, in view of the earlier comments. I had not appreciated that we were talking about such large sums of money.
      Mr. Brooke: As I said, if necessary, existing cases will be challenged in the courts, and the amounts of money to which I referred are those that we know. It is because there is a much larger sum of money at risk, quite apart from the cases to which I referred, that we are introducing the clause.
      Question put and agreed to.
      Clause 65 ordered to stand part of the Bill.
      Clauses 66 to 69 ordered to stand part of the Bill.

    Clause 70

      LLOYD'S UNDERWRITERS
      Mr. Norman Lamont: I beg to move amendment No. 19, in page 40, line 45, leave out from 'Lloyd's' to end of line 47 and insert
      'and in consideration of the payment of a premium, one underwriter agrees with another to meet liabilites arising from the latter's business for an underwriting year so that the accounts of the business for that year may be closed'.
      The Temporary Chairman: With this it will be convenient to take Government amendments Nos. 20 and 24.
      Mr. Lamont: These are technical amendments to clarify the wording of clause 70, which deals with the tax deductibility of Lloyd's reinsurance to close premiums.
      Amendment No. 19 revises subsection (1) of the clause to provide a more detailed description of the Lloyd's reinsurance to close arrangements. The effect of the amendment is to put it beyond doubt that the clause is sui generic to Lloyd's reinsurance to close. The criteria for tax deductibility that is set out in the clause are free-standing and independent of case law on insurance companies' provisions.
      As my hon. Friends know, one of the points that most concerned Lloyd's was that it should not be taxed on a provisions basis. The point at issue was that one should not have a provisions basis where there is no continuing
      1194
      entity. The point was that the provisions basis was therefore not applicable to syndicates whose membership was changing each year.
      That is the purpose of this amendment. It is only one part of the issues that have arisen with regard to Lloyd's, so it may be convenient if I propose this amendment. There are other amendments on the Paper and we can debate the wider issues that relate to Lloyd's later.
      Mr. Robert Adley: In view of what my right hon. Friend has just said, I wonder whether I should make my remarks in a moment. I should like to make a few general remarks, so perhaps my right hon. Friend will way whether it will be convenient for me to do so a little later.
      Mr. Lamont: That is a matter for you, Mr. Knox, but it may be convenient if we dealt with the amendments one by one and had a debate on clause stand part.
      The Temporary Chairman: That will be convenient.
      Amendment agreed to.
      Amendment made: No. 20, in page 41, line 2, leave out 'reinsurance'.—[Mr. Norman Lamont.]
      Sir William Clark: I beg to move amendment No. 21, in page 41, line 5, leave out
      'at the time it is payable'.
      The Temporary Chairman: With this it will be convenient to take the following amendment No. 67, in page 41, line 6, at end add
      'for the avoidance of doubt, the value of the said liabilities shall be discounted to allow for the anticipated lapse of time before they must be paid.'.
      Government amendments Nos. 22 and 23.
      Sir William Clark: The purpose of these amendments is to clarify the wording of the test for tax deductibility of Lloyd's reinsurance to close.
      There is a lot of loose talk about reinsurance with regard to Lloyd's. I should make it clear to the Committee that I am not a name at Lloyd's; I have no vested interest in Lloyd's and I speak as an independent person. Consequently, what I am saying is of genuine concern to me.
      If a syndicate ceases to exist, the risks of that syndicate must be reinsured. A syndicate may have 20 names, and if it ceases it carries forward the contingent liabilities for what it has underwritten and when a different syndicate takes it on, it takes on the reinsurance.
      The amendment deletes the words
      "at the time it is payable".
      In my view those words are unnecessary, and I believe that the Inland Revenue agrees with me. The words in the amendment, taken with the words "assessment of the value", might be construed as requiring reinsurance liabilities to be discounted. Llloyd's rules ensure that discounts cannot be given. Consequently, when the syndicate agent, in conjunction with Lloyd's, determines the liability for reinsurance, those future incomes, if they have been discounted, are taken into account.
      I understand that it is not the Revenue's intention that discounting should be applied to reinsurance to close for the Lloyd's 1985 to close account, although I understand its concern that the clause should not rule this out if circumstances change.
      The problem with the present wording is that it could imply that discounting must necessarily be appropriate for reinsurance to close premiums, and thus run counter to the

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      Revenue's present intentions. In discussion with Lloyd's, the Revenue has said that there are no technical problems with the amendment and I hope that the Financial Secretary will be able to accept it.
      The second amendment is a clarifying amendment. It is a matter of great concern to Lloyd's members, who are taking on uncertain liabilities, that the reinsurance to close premium that they receive should give them adequate protection against loss when the claims are eventually paid. The amount of those liabilities, and indeed their existence, is uncertain and may not be known for many years after the RIC premium is determined. Therefore, it is important that the test for tax deductibility should recognise the fiduciary and/or legal duty of the syndicate agent in determining the RIC figure, and that it is sufficient to give a reasonable assurance to those who are taking on the responsibility for the risks that they will not suffer a loss.
      I understand that that principle has been agreed in discussions between the Revenue and Lloyd's and that the wording of the subsection is designed to achieve that. Lloyd's considers that the principle will be set out more clearly if the subsection is changed in the way proposed in my amendment. I understand that the terms of the amendment have been agreed between Lloyd's and the Revenue and I hope that the Financial Secretary will be prepared to accept it.
      As I have said, the purpose of the amendments is to clarify the position on reinsurance. One could have a syndicate showing a profit of £10,000 after charging a reinsurance premium of, for example, £10,000. If the Revenue was to say, "Oh no, £10,000 is unreasonable," it could be that a person in the syndicate would be paying tax on deemed income that he would never receive. It is a fallacy to think that the names in one syndicate would be the same as in a second syndicate.
      It is for those reasons that I hope my right hon. Friend the Financial Secretary will accept the amendments. The intention is merely to clarify the position between Lloyd's and the Inland Revenue. Under no circumstances should we do anything that would jeopardise the position that we have in Lloyd's, because I remind my right hon. Friend that Lloyd's and other parts of the City keep our economy going to a great extent and our invisibles are an important part of the income of this country.
      Mr. Blair: The amendment that stands in my name is grouped with the other amendments, and I wish to speak to it. However, I should stress that, as with many aspects of the Finance Bill, I am going into territory with which I am somewhat unfamiliar.
      As I understand it, the position is that Lloyd's syndicates will make up their annual accounts on a calendar year basis and that, in effect, the 1985 account will be closed at the end of 1987 and that at that time there will be outstanding claims against the syndicate. Therefore, the syndicate has to close its books but has to pay what is called a reinsurance to close premium to another syndicate that might involve the same or substantially the same individuals.
      The reinsurance to close premium is to cover against outstanding claims that there may be against the syndicate. If the reinsurance to close premuim is too high, that artificially reduces the syndicate's profits and has the effect of deferring tax liability. It was that that the Inland Revenue sought to counter. The legal advice obtained was
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      that the Inland Revenue was unable to question the figures that the syndicate gave in order to judge the reinsurance to close premium.
      Clause 70 provides that the amount of the reinsurance "premium shall be allowable only to the extent that it is a" fair and reasonable assessment of the liabilities against which the reinsurance to close premium is insuring.
      The difficulty that we foresaw arises out of the meaning of the words in subsection 2:
      "at the time it is payable".
      As I understand it, the effect of subsection 2 is to allow the amount of the reinsurance premium to be deductible as an expense of the underwriter only to the extent that it is shown not to exceed a "fair and reasonable assessment" of the value of the liabilities in respect of which it is payable. In other words, the value should not exceed a "fair and reasonable assessment" because that will then be used in order to compute the amount of reinsurance premium that is deductible.
      7.45 pm
      I may be wrong but I thought that the words
      "at the time it is payable",
      were included in order to address the problem that there may be certain outstanding liabilities at the end of the year but that they would not have to be met immediately They might not have to be met for a year or two. It is not clear at present whether the provision against which the reinsurance premium is insuring is the actual value of the liabilities or the value taking into account the time when the liabilities accrue.
      The purpose of my amendment was to make it clear that the provision made should take into account the time at which the liabilities become due. That will make for a different value from the nominal value of the liabilities. In other words, there may be certain claims that are outstanding against the syndicate that have a nominal value but there should be some allowance for the fact that they may not have to be met until a later date. I would be grateful if the Financial Secretary would clarify that.
      Having looked at subsection 2 again, I thought that the words
      "at the time it is payable"
      in relation to the value of the liabilities were supposed to achieve that result. However, I may be wrong. In any event, the basis of computation of the value should be clear because that will give rise to the tax deductible loss that is an important part of the reinsurance to close premium.
      I hope that I have explained the purpose of my amendment and I hope I have explained my query as to the meaning of subsection 2. It is important that the Financial Secretary answers my queries.
      Mr. Norman Lamont: I can certainly accept amendment No. 21 tabled by my hon. Friend the Member for Croydon, South (Sir W. Clark). I agree that it would be a useful clarification and it is acceptable to the Government. My hon. Friend touched on the subject of discounting and I confirm that it is not the intention that the clause should be read as automatically applying the principle of discounting for tax purposes for reinsurance to close. I can also confirm that the Revenue will not seek to apply discounting to the Lloyd's 1985 account. How far discounting is appropriate when one is considering the deductibility of a provision is one of those areas where the tax position at present is unclear. One of the purposes of the clause as now drafted is to provide a free-standing

      1197
      objective test of the deductibility of a Lloyd's reinsurance to close premium which does not have to rest upon the tax law about provisions. Therefore, developments in that area will not, I am advised, have a direct read-across to this clause. Should the law change, it may be that we will consider how far discounting would be appropriate in relation to Lloyd's.
      Mr. Blair: Will the Financial Secretary explain what he means by discounting in this context, because I am not sure that I have understood it correctly?
      Mr. Lamont: If I understood the hon. Gentleman correctly, I think that he does understand what it means. Although he did not give it that name, he appeared to describe it when he was talking to his amendment. It seems that his amendment does have the effect that he wants it to have. I am afraid I had assumed that it was accidental. From his explanation, it appears that he is in favour of discounting. He is in favour of discounting the value of a liability to its present-day value—that is, taking account of future income flows in arriving at the amount necessary to meet future liabilities. That is what he appeared to be describing at one point in his argument.
      Mr. Blair: I should like to clear up this point. As I understand it, the amount of the reinsurance premium will be based on the value of the outstanding liabilities because that is what is insured against. Presumably, the larger the amount of the outstanding liabilities, the larger the amount of reinsurance-to-close premium. If that is the case, I am worried that there may be a nominal value to liabilities even though the liabilities will not be met for some time. I may be totally wrong about that, but it seems strange that we did not take into account when computing their value the time at which those liabilities are to be met and, therefore, the risk against which one is insuring. If I have misunderstood the position, perhaps the Minister will tell me.
      Mr. Lamont: As I understand it, the reinsurance to close premium does not at present take into account discounting. That is why the tax treatment is that which we are proposing. I agree that amendment No. 22 would be a useful clarification and it is acceptable to the Government.
      The purpose of the subsection is to ensure that the tax deductions are not excessive and also to achieve a proper balance by ensuring that the rules for tax deductibility take due account of the need to protect against a loss those taking on the outstanding liabilities.
      That principle is encompassed by removing the words
      "neither a profit nor a loss accrues"
      and inserting:
      "a profit does not accrue."
      That is entirely acceptable to Lloyd's and the Government, and it clarifies the position. Perhaps I have already made it clear to the hon. Member for Sedgefield (Mr. Blair) that we cannot accept his amendment.
      Mr. Adley: I am a newcomer and an amateur in these things. When I was being shown around Lloyd's, I came across an underwriter who told me that he was dealing with a situation that I gather is not uncommon. It was that in 1898 insurance was taken out at Lloyd's by a United States railway. Just recently it was discovered that the
      1198
      sleepers on the track were sprayed with creosote in 1898. It is now being claimed in an American court that the spraying of creosote on the sleepers nearly 100 years ago has been deemed to be responsible for loss of value of crops in an adjoining area. Who is to judge, and how will he judge, what is a fair and reasonable assessment under the terms laid down in sub-section (2) of this clause?
      Mr. Lamont: I am not sure of the point that my hon. Friend is making. We are not here talking about a provisions basis, and I must be careful not to use that term. No one could accept a situation in which the Revenue does not have a locus in examining the reinsurance to close premium. That does not say for a moment that the Revenue knows Lloyd's business as well as Lloyd's does or that the Revenue has an expert view of the appropriate premium for the sort of situation that my hon. Friend describes.
      As with any commercial business, the Revenue has to come in and take a broad view about whether deductions for business purposes are or are not reasonable. It has to make that judgment on many businesses within any one industry. That is difficult to do, but the Revenue has to take a broad-brush view. What was at issue in the dispute that we had over Lloyd's was whether, as a result of a legal opinion, the Revenue had a locus in looking at the deductibility of reinsurance to close. In essence, that was all it was about. We put forward a proposition that was not acceptable. We had further discussions and have arrived at a form of words.
      I should make it clear that I have accepted all three of the amendments tabled by my hon. Friend. This is not just a form of words, but sets out the principle that the Revenue should have a locus in looking at the deductibility of reinsurance to close. That is the best answer that I can give my hon. Friend.
      Mr. John Townend: Has not the problem been caused because originally the impression was given that the Revenue knew better than the underwriters? As has been said, experience and expertise are necessary for long-tail insurance and the only person who can make the assessment is the underwriter, not the Revenue. The other point that has been overlooked is that it is rather different from the basis of provisions. That is because, if the reinsurance to close is excessive in the eyes of the Revenue and seems to be a means of tax avoidance, it also means, as my hon. Friend the Member for Croydon, South (Sir W. Clark) said, that the composition of the syndicates varies from year to year.
      If there is an abuse of the system, it will mean that the current names have been defrauded for the benefit of future names. If that is the case, the underwriter and the managing agent and everybody involved are in breach of their fiduciary and legal responsibilities to all the names. I hope that my right hon. Friend will be able to assure us that the new clauses resulting from negotiation with Lloyd's will in no way undermine the right of the underwriters to decide the correct amount of the reinsurance to close premium.
      Mr. Lamont: I am not sure that it is fruitful to go into the history of why this arose and to apportion blame, if that is the right word. Some people might say that the situation arose because a legal opinion was offered which said that the Revenue had no locus. We cannot accept that. The Revenue must have a locus. My hon. Friend the

      1199
      Member for Bridlington (Mr. Townend) asks if there will still be freedom to fix premiums and resinsurance to close at the appropriate levels. Of course there will: that is a commercial matter, but the level at which these things are fixed must be examined by the Revenue. I am not saying that this is analogous to provisions because it is not and I accept that, but provisions in various financial businesses can be examined by the Revenue and businesses are able to over-provide if they wish or to take a certain view about provisions.
      The tax authorities also have a view about the appropriate level of deduction that should be allowed. I can give my hon. Friend the assurance that he seeks. The wording of the clauses has been agreed with Lloyd's and I know that it is satisfied. We are satisfied that we now have this locus and I hope that the arrangement will work well. In no way is it the intention of the Government to harm the business of Lloyd's. My hon. Friend spoke about long-tail business. It is that which makes Lloyd's unique, together with its speed of response and flexibility. It is an extremely valued institution and it is wholly right that we should have a tax regime that takes particular account of its special position.
      Amendment agreed to.
      Amendments made: No. 22, in page 41, line 13, leave out 'neither a profit nor a loss accrues' and insert 'a profit does not accrue.'.
      No. 23, in page 41, line 14, at end insert
      'but he he does not suffer a loss'.—[Sir William Clark.]
      Amendment made, No. 24, in page 41, line 18, leave out
      'for the purpose of closing'
      and insert
      'in connection with the closing of'.—[Mr. Norman Lamont.]
      Question proposed, That clause 70, as amended, stand part of the Bill.
      8 pm
      Sir William Clark: I wish to use the clause stand part debate to ask my right hon. Friend the Minister a simple question. Subsection (3) deals with disallowance of a reinsurance premium from one name to a new name. As I read it, if there is a reinsurance premium of, say, £1,000 and only £800 is allowed, that is agreed between the Inland Revenue and the syndicate. That means that the name in the old syndicate has lost the tax on £200. The new name in the syndicate has to state not that he receive £1,000 but that he received £800. Consequently, he pays tax on only £800.
      It seems to me a bit unfair that the new name will have the advantage of the net amount that was allowed to the old name. Can something be done about that? I would have thought that all this talk about fiscal neutrality and the fairness that we want for all taxpayers makes it odd that the disallowance for the old name benefits the new name. The old name has to pay tax and the new name saves tax.
      Mr. Adley: I shall be rather Irish and declare that I have no interest in Lloyd's. My right hon. Friend the Financial Secretary may recall that on Second Reading I intervened briefly and asked my right hon. Friend the Chief Secretary a question about this matter because I am considering becoming a name. I am still not sure, but I am not asking my right hon. Friend for advice on whether I should so do.
      I am only partly reassured by what I have heard this evening. Lloyd's is built on trust and has prospered on the
      1200
      willingness of people to put at risk most or all of what they possess. However, the action of certain of the United States courts seems fundamentally to be changing the level of risk to which people are putting themselves. My concern is not just for myself if, possibly, in future I become a name, but that first by the bond-washing exercise and, secondly, by this legislation, we may tilt the balance against those people either who arc names and want to remain names or who, like myself, are considering. becoming names.
      The interpretation of this clause still causes me a little unease. If I asked my right hon. Friend who was to interpret "fair and reasonable" he would presumably have answered, "The Inland Revenue". That comes down to the judgment of an individual and that judgment, on the basis of this legislation, may be different from that of an inspector in five, 10, 20 or 50 years' time.
      I recognise that the clause in the Bill is very much less harmful and damaging than that which was in the previous Bill, and undoubtedly there has been a welcome improvement in communications between the Treasury and Lloyd's in the past few weeks. All that I want to say to my right hon. Friend is: please can we be careful about what we are doing, because the killer of the goose that lays the golden eggs would not be a happy epithet for this or any Government with regard to Lloyd's?
      Mr. Norman Lamont: My hon. Friend the Member for Croydon, South (Sir W. Clark) referred to subsection (3). which provides that where part of the premium paid is not deductible under subsection (2), there shall he a corresponding reduction in tax on the receipt of' the underwriter to whom the premium is payable. My hon. Friend gave a particular example. The excess £200 would be neither deductible in syndicate one nor taxable in syndicate two. I will have a look at his example to see whether there is anything on which we want to reflect.
      Sir William Clark: My example was in simple figures. However, if there is a £1,000 reinsurance, £200 is disallowed. That consequently means that £800 is allowable in the computation of the syndicate's profits. The new syndicate has received £1,000 but it is deemed to have received only £800. Consequently, its tax liability has gone down by the tax on £200. This is the anomaly, and it means that the names in the old syndicate are suffering a disallowance and that disallowance is giving a benefit to the new names.
      Mr. Lamont: I will have a look at that and come back to my hon. Friend.
      My hon. Friend the Member for Christchurch (Mr, Adley) wondered about the words "fair and reasonable". There has been considerable exploration of different formulae. I appreciate my hon. Friend's concern about such words, but they have been acceptable to Lloyd's. It is not just a question of how the matter stands in the opinion of an individual tax inspector. The taxpayer has the right to take his affairs to the commissioners and ultimately to the courts if he thinks that the Inland Revenue's interpretation of "fair and reasonable" is not correct.
      My hon. Friend asked me and the Government to recognise the unique position of Lloyd's and not to be so over-zealous about tax avoidance, that we damage the interests of Lloyd's and thus of the market. I emphasised at the beginning that our concern has been to establish that

      1201
      we have the locus to look at the deductibility of reinsurance to claim. That is a principle that nobody has sought to challenge today. I emphasise more forcibly than I have already done that we recognise that Lloyd's is a unique institution. I have referred to long tail business and its flexibility. It is different from other parts of the insurance market. Not only does that mean that it is appropriate that there should be a separate and different regime for such a unique body but that we have to be careful that we do not damage something that is important in the City of London, and that is wholly understood.
      Sir Brandon Rhys Williams: I think that we ought now to agree that the clause, as amended, should stand part of the Bill. I am not connected with Lloyd's and I am not associated in any way with reinsurance. However, a number of my constituents were gravely disturbed over proposals that were incorporated in the Finance Bill that was presented to the House in March. I tabled an amendment to it which I hoped would alleviate the situation somewhat. I was therefore very pleased indeed when I discovered that there had been movement and when the Bill was presented to the House again, this provision had been substantially changed. I am even more pleased that my right hon. Friend the Financial Secretary has been listening to the arguments of the experts and has accepted a number of amendments which we believe may prove to be satisfactory. I think that we should now give this a try.
      I do hope that my right hon. Friend will bear in mind that this is a very sensitive area and it could well be, even now, that what is in the clause as amended may not prove to be entirely right. As he has been so accommodating over this and has approached the matter in a highly commendable spirit, I am sure that we can rely on him, if it is found that the clause, in the form in which we have it in the Committee now, is not entirely satisfactory at some future time, if representations are made, to be prepared to listen and possibly make further amendments. As matters stand, I think that we have made a lot of progress. I am grateful to my right hon. Friend on behalf of my constituents, who I know will be very glad that he has approached this matter in the way that he has. Therefore, I think that it would be right that the clause should now stand part of the Bill.
      Question put and agreed to.
      Clause 70, as amended, ordered to stand part of the Bill.
      Clauses 71 to 73 ordered to stand part of the Bill.

    Clause 74

      GENERAL RULES
      Question proposed, That the clause stand part of the Bill.
      Mr. Blair: I simply want to make sure that I understand correctly the effects of clause 74. As I understand it, under existing law a company will pay tax on capital gains at capital gains rate of 30 per cent. Under clause 74, a company will now pay tax at the full corporation tax rate of 35 per cent. On the other hand, companies will be able to use advance corporation tax in payment of tax on chargeable gains. I would be grateful if the Minister can confirm that that is the case. I have difficulty in construing the clause.
      Mr. Norman Lamont: The hon. Gentleman is quite right. I can tell the hon. Gentleman sincerely that he comes to these debates, reads the clauses and constantly asks whether he has interpreted them correctly. He does interpret them rightly. He was correct in what he said on the previous clauses and he was also right in his summary on clause 74.
      It may be for the benefit of the Committee if I go into a little more detail. There was some controversy about certain aspects of this point earlier. However, we hope that with the changes that we have made, particularly in clause 75, that some of the controversy has been removed. Clause 74 in conjunction with clauses 75 to 77 and schedule 5 amend the way in which tax on the capital gains of companies is computed and extends the scope for setting off advanced corporation tax as the hon. Member for Sedgefield (Mr. Blair) said.
      Under present law, a company's capital gains are effectively taxed at 30 per cent. The effective rate is achieved by a fairly complicated mechanism. We take the capital gains made by a company and multiply them by six sevenths—the reducing fraction—and tax the resulting figure at 35 per cent. That gives an effective rate of 30 per cent. which applies to companies large and small. The small companies' rate does not apply to capital gains.
      The point about ACT set-off has been made over many years. I think that it has been widely welcomed. It seemed to us that with the main corporation tax rate reduced to 35 per cent. the case for a differential lower rate on gains was necessarily much weaker and as the Chancellor explained in the Budget speech, for small companies the tax rate of 27 per cent. would be lower than the present 30 per cent. CGT rate.
      Some people have said that the change is retrospective because it applies to gains accrued but not realised before Budget day. Of course, tax on capital gains is essentially a tax on disposals. Changes in the regime thus inevitably apply to the whole of the gain realised when a disposal is made. Essentially, we see that as a simplification of the system. Certainly the way in which capital gains are calculated seems to be unnecessarily complicated. We hope that this will be acceptable to the Committee.
      Question put and agreed to.
      Clause 74 ordered to stand part of the Bill.

    Clause 75

      LIFE ASSURANCE BUSINESS
      Question proposed, That the clause stand part of the Bill.
      8.15 pm
      Mr. Blair: The Financial Secretary to the Treasury quite rightly said that clause 75 should be taken with clause 74. The effect of the clause is to ensure that life assurance companies continue to pay the capital gains tax at the old rate of 30 per cent. As I understand it, the Inland Revenue will be conducting a review of the taxation of life assurance companies. Has the Financial Secretary to the Treasury any idea when that review is likely to be completed?
      Mr. Norman Lamont: The hon. Gentleman said that capital gains of life assurance companies would be taxed at 30 per cent. I want to make it quite clear that we are

      1203
      talking about the capital gains of policy holders. We have drawn that distinction. The capital gains of the life companies themselves, the gains reserved for shareholders, will be taxed as before.
      We have said that we believe that there should be a wider review of the taxation of life assurance companies. It is true that there is room for argument about the burden of taxation that falls on life companies. Certainly, I do not believe that even if we had stuck to our original proposal the effects would have been as onerous on the companies as some of the critics have said.
      The taxation of life companies has developed in a somewhat piecemeal fashion. It is certainly highly complex and it has been argued that it no longer fulfils the function of taxing the shareholders' interest in a broadly similar way to the shareholders' interest in any other company and of taxing a proxy for policy holders' interest.
      The review will consider whether the burden of tax on life assurance companies and policy holders is appropriate and whether there is consistency between one class of business and another and also between insurance and other broadly similar activities. Naturally, the life assurance industry and other interested parties will be fully consulted during the review.
      With regard to the timing, I am afraid that all I can say is that we will press ahead with all possible speed. However, given the need to look comprehensively and thoroughly at what is a very complex area, it will inevitably take a little while. I am afraid, therefore, that I can give no assurance about the timing of any action which we may decide to take in the light of the review.
      Question put and agreed to.
      Clause 75 ordered to stand part of the Bill.
      Clause 76 ordered to stand part of the Bill.
      Schedule 5 agreed to.
      Clauses 77 to 79 ordered to stand part of the Bill.
      To report Progress and ask leave to sit again.—[Mr. Norman Lamont.]
      Committee report Progress: to sit again tomorrow.

  Rate Support Grant (England)
  8.20 pm
  The Minister for Local Government (Mr. Michael Howard): I beg to move,
  That the Rate Support Grant Supplementary Report (England) (No. 2) 1986–87 (House of Commons Paper No. 35), a copy of which was laid before this House on 9th July, be approved.
  This is the first rate support grant report which this Parliament has to consider. It will, I am afraid, he by no means the last. However, a new and greatly simplified grant system is on the horizon so in some ways I offer hope to the House. This debate marks the beginning of the end of the present system.
  This supplementary report is concerned principally with school teachers' pay. The Government intend that school teachers should receive an average pay increase of 16·4 per cent. this year. They have already had half of this with effect from 1 January 1987. The Government's intention is that the second part should be payable from 1 October 1987.
  We have already provided the Exchequer's contribution towards the cost in the present financial year. This supplementary report honours the Government's commitment that the taxpayer would make a significant contribution to the extra costs in 1986–87. It will make available an extra £51 million block grant to match the estimated extra cost of £111 million, from 1 January to 31 March. The extra costs are fully reflected in increases in education authorities' GREs. In this respect it follows exactly the method used in the 1987–88 first supplementary report considered by the House on 5 May. Like its predecessor, it is an extra supplementary report which would not normally be appearing now. It is brought forward at this stage at the express wish of local authority associations.
  My predecessor, my right hon. Friend the Member for Brent, North (Sir R. Boyson) tried hard to explain the effects on education authorities of the 1987–88 changes. I shall follow his example. The increase on education GRE is £111 million and in block grant £51 million. This is the same grant percentage, 46 per cent. as in the settlement for 1986–87. However, hon. and right hon. Members will know that the block grant system does not give this percentage of grant to all authorities. The grant percentage in each case depends upon, among other things, the authority's expenditure in relation to its GRE and its rateable value. The block grant system is designed broadly to equalise the rate poundage costs to ratepayers of providing services efficiently at a standard level. That is why some local authorities seem to get a higher percentage of the cost of the teachers' pay rise in grants than others.
  This supplementary report makes a number of other changes which together tend to make it difficult to see the effects of teachers' pay changes. The first is that it takes account of revised estimates of total expenditure for the year based on returns of expenditure and rates from almost every local authority. The previous teachers' pay supplementary report used essentially the same expenditure information, that is budgets, as the preceding main report. Most of the returns used in the present supplementary reports were completed long before accounts were closed, indeed most 1986–87 accounts are still not closed, and it will he many more months before audited returns are available. Nevertheless, we now have

  1205
  a better idea of what actual expenditure was in 1986–87 than was given by the budgets which were used in the last supplementary report.
  Total expenditure in aggregate is lower than budgets by nearly £70 million but the picture is very patchy. There are some very large falls, and some large increases. Some changes are undoubtedly due to creative accounting and may not reflect real spending at all. The results of the changes in grant terms are to move quite large amounts of grant around England. The total goes up £51 million, but shire and metropolitan areas together gain over £61 million while London loses £10 million. This brings me to the second reason why the effects of the supplementary report are difficult to follow.
  Those hon. Members who have taken part in these debates in the recent past will remember that 1986–87 is the last year for which we recycle grant. Let me embark upon the daunting task of trying to explain this piece of rate support grant jargon. Some authorities have chosen to increase their spending for this year. In most cases this reduces grant entitlements. The surplus grant which these authorities had previously received is returned to the pool and recycled—that is, distributed back to all authorities, including the high spenders. This had the serious shortcoming that every authority's grant depended in part on every other authority's grant and therefore authorities could not know precisely how much grant they would receive.
  Legislation in the previous Parliament abolished recycling for 1987–88 and subsequent years, so that there is no longer a fixed grant pool. Any underclaim of grant will not be distributed. Conversely, if authorities were to make savings and spending fell below the amounts assumed in the settlement, there would be an overclaim and we would provide more grant. But for 1986–87, we still have recycling. My right hon. Friend the Secretary of State for Education and Science, when he was Secretary of State for the Environment, promised authorities that at least £500 million would be recycled in 1986–87. That promise was fulfilled in the first supplementary report. when we recycled £618 million. The recycled amount has changed very little in this report. It is difficult now to calculate the figure on a comparable basis because many of the parameters in the system have changed. Nevertheless, it still seems to be about £617 million. It is certainly much more than £500 million.
  Like the previous supplementary report, this report makes certain other changes to grant related expenditures—for example, to take account of actual land drainage precepts and other later information, and it takes account of the boundary changes which took place at the beginning of 1985 and 1986.
  Finally, we have removed the temporary safety net that was incorporated in the first supplementary report. This is another piece of RSG jargon. A safety net is a device which prevents losses of grant from exceeding a certain amount. I suppose the metaphor is that of grant falling. The consequences of too great a fall are being prevented by a safety net. In the first supplementary report, grant losses due to GRE changes were limited to the equivalent of a 2p increase in rate to ratepayers. But that particular limit was intended to be only temporary because, while the losses could not have been expected, it was right that they should flow through in full once authorities had had a
  1206
  chance to rate for them. We always said we would remove it to allow the remaining losses to flow through in the next supplementary report, and that is what we are now doing.
  There are other consequences to that decision. Because of grant recycling, the cost of the temporary safety net was borne by All authorities. The other side of the coin is, therefore, that those authorities now get the grant that would have been theirs but for the safety net in the last supplementary report.
  I turn now to another feature of the 1986–87 RSG. I refer to the matter which has become known as the Bromley error. The House will recall that there was an error in the 1986–87 RSG settlement. An inappropriate method was used when assessing how much extra expenditure each London borough would incur on highway maintenance following the abolition of the Greater London council. As a result, some boroughs, including Bromley, received no extra grant despite taking on new responsibilities. Other boroughs, including Greenwich, received more grant than was justified. This error was quickly spotted, and we undertook to correct it at the first available opportunity. The effect of the judgment in legal proceedings instituted by the London borough of Greenwich, however, meant that the Secretary of State did not have the power to make the necessary correction. The Secretary of State told the House on 5 March that he had appealed against that decision.
  Since then we have been assessing the position. It has become clear that, even if we win the appeal, that will not necessarily be a complete solution. A successful appeal would allow us to correct the error for 1986–87, but the effects of the error have fed through to the 1987–88 settlement also. And, as the law now stands, even if the Greenwich judgment was reversed, it is doubtful whether we have the powers to effect a correction for that year. A similar situation will arise in due course for 1988–89.
  Just to complicate matters further, since March the London boroughs of Bromley and of Kingston-upon-Thames have started their own legal actions challenging the Secretary of State's decision not to make the Bromley correction.
  We have made it clear from the outset that we regard the situation as inequitable. We are determined that the error should be corrected so that the authorities concerned can receive their fair grant entitlements. It is clear, however that if we proceed with the appeal it may be some time before all the legal issues are resolved, and there is no certainty that the full implications of the original mistake could be corrected.
  In the light of these factors, we have concluded that the best course is to withdraw the appeal. Instead we shall take a suitable opportunity in the current Session to take legislative powers to ensure that we have the necessary powers to correct the Bromley error in 1986–87 and 1987–88. In the meantime, the 1988–89 settlement will have to go ahead on the uncorrected basis. We shall then make the necessary correction for that year in a supplementary report when we have the necessary powers.
  Mr. Roger Sims: Will my right hon. and learned Friend give way?
  Mr. Howard: As the issue is known to all and sundry as the Bromley error, I should give way to my hon. Friend the Member for Chislehurst (Mr. Sims), who represents part of the borough.
  Mr. Sims: If I have understood my right hon. and learned Friend correctly, those who represent Bromley in this place, and not least the ratepayers, will welcome his remarks. It seems, however, that it will be some while before the error is corrected. Am I correct in assuming that the £3 million a year that the Bromley ratepayers lost as a result of the error will be recouped for 1988–89 and retrospectively?
  Mr. Howard: My hon. Friend is entirely correct. Let me take the opportunity of paying tribute to him and his colleagues from the borough, all of whom have paid close attention and taken a close interest in the matter, and have ensured that the views of residents are made known to me and to my predecessors.
  Let me summarise the effects of the supplementary report. It increases block grant and the GREs of education authorities to help to pay for the teachers' pay increase from 1 January to 1 March 1987. It updates GREs to reflect later information and boundary changes. It removes the temporary safety net imposed in the first supplementary report. It has been brought forward now at the unanimous urging of local authority associations, and I am sure that it will be welcomed by them.
  8.30 pm
  Mr. Roland Boyes: Let me take this opportunity to welcome the Minister to his new post, but also to warn him that, as he probably already realises, he is entering a legal and financial minefield. Many of us spent nearly every Tuesday and Thursday morning for a whole year trying to put right many of the Government's errors following challenges made in court. The only people who seemed to benefit from the work that I did last year were the lawyers. However, I believe that the Minister is a lawyer, so I do not suppose that that worries him too much.
  I describe the subject as a minefield because—as is clear from the Minister's summary of the "Bromley error"—it is impossible to predict when the next challenge in the courts will take place. If an appeal in court is successful, it means that we will be upstairs in one of the Committee Rooms week after week, discussing turgid legal briefs and deep financial affairs. However, we broadly welcome the main part of the Minister's statement. The report meets the request of the local authority associations for an early implementation of the extra grant consequent on the teachers' pay award. But some parts of the report are not consequent on that settlement, and will seriously affect the rate budget in 1987–88. I shall return to that in a moment.
  Let me deal briefly with some of the consequences of the way in which the cash to pay for the teachers' award has been given to local authorities. As the Minister said, the estimated cost in 1986–87 is about £111 million, and the government promised an extra grant of £51 million. That is what the report is implementing. However, the local authority associations asked the Government to provide alternative funding arrangements rather than channeling the extra assistance through block grant, because there were obvious problems for some local authorities.
  ILEA, for instance, receives no extra assistance as a consequence of the award, because it does not receive block grant. As ILEA is rate-capped in both 1986–87 and 1987–88, that is a double punishment. Moreover—the Minister may wish to comment on this later—I
  1208
  understand that some of the extra block grant will not go to local education authorities. The Minister ma), have made that point in his speech, in which case I apologise. But the Minister shakes his head. Perhaps he will look into the matter, either this evening or on another occasion. If the cash was intended to pay for the teachers' award, it should go to LEAs.
  The net effect of the changes proposed in the report is that there will be some heavy gainers and some heavy losers. When he summarised the figures, the Minister said that there would be a loss of £10 million for London and of £16 million for the combined metropolitan areas. The shire districts would lose £28 million, and the shire counties £17 million. A point that the Minister did not make, and which I hope that he will take into consideration, is that many local education authorities paid teachers' back-pay in their May pay packets. The timing of the report means that authorities will not receive the extra grant until August, so that they will suffer an adverse cash flow. I should be glad if the Minister would look into that as well.
  The matter of GREs is rather technical. Paragraph 1 (b) of the report says that one of the main objectives is to redetermine multipliers
  "to remove the limit imposed in the first Supplementary Report on grant losses as a result of the fresh determinations of GREs specified in that Report."
  Being a lawyer, the Minister may be able to make sense of that, but I am sure that, if I set it as an examination question and they were asked to comment, many hon. Members in the Chamber tonight would hand in a series of blank pages at the end of the three hours. But let us try to translate it and to show what it means for some local authorities.
  In the first supplementary report for 1986–87, the Secretary of State made a number of changes to authorities' GREs which resulted in changes in grant for authorities. To protect them from the effects of those changes—some of them unexpected—in the middle of a financial year, a limit equivalent to a 2p rate was placed on the grant losses that an authority could incur as a result of the changes. In rate support grant jargon, it is known as a "2p temporary safety net". The Government made it clear that that was only a temporary measure, and that the full effect would be implemented in a future supplementary report.
  In the normal course of events, the "future supplementary report" would not have been implemented until April 1988. The removal of the safety net during 1987–88 will be particularly hard on rate-capped authorities. Those authorities' rate limits were set by the Local Government Finance Act 1987, which the Government had to introduce to restore the legality of the whole RSG and rate-capping system. The rate limits set out in the 1987 Act made no explicit allowance for the loss of 1986–87 grant, which authorities would not ordinarily have expected to be implemented until 1988–99. Furthermore, if authorities had been aware of the timing of the losses, and if the normal procedures under the Rates Act 1984 had been operating, the losses could have been taken into account in discussions with the Secretary of State over the rate limit. The procedures of the 1987 Act, which temporarily jettisoned the 1984 Act, did not provide for such discussions.
  I am glad that the Secretary of State for Wales has come into the Chamber early, because he may understand the

  1209
  paragraph that deals with the rate support grant in Wales. He may have a translation of this complex sentence into meaningful language. Indeed, if he wants it in Welsh, I am sure that I can persuade one of my Welsh-speaking colleagues to come in in about 60 minutes to present the case in Welsh and to ask him a few questions, to which he will respond. The right hon. Gentleman is a very intelligent man. He will have been on a crash course in Welsh and, no doubt, in a few weeks will present the case on these complicated Bills in Welsh. However, in most cases, it does not matter whether the case is presented in English, Welsh or Afghan, as Labour local authorities always end up worse off.
  I have here a table setting out the large losers in the Association of Metropolitan Authorities. One of them is the Tyne and Wear passenger transport authority. It is to lose £1·7 million. The area that I represent is part of Tyne and Wear, and it suffers from very high unemployment. It is absurd that any local authority or passenger transport authority should lose any money. The north-east of England needs every penny that it can get to help it over its dire and difficult problems.
  My constituency suffers from massive unemployment. We are to lose a development corporation, but we shall not benefit from additional money, in the way that the inner cities will benefit. I digress slightly from this debate on the rate support grant settlement. We welcome the additional cash that is being made available to the inner cities, but there are other parts of the United Kingdom that suffer from just the same level of unemployment. They also suffer from poor housing and general deprivation and they, too, need additional cash. There is disquiet in my constituency and in similar constituencies about the fact that they are being shoved aside while attention is focused on the inner cities. The Minister ought to be aware of the problems that we face and of the issues that will be raised in the coming months.
  Apart from those reservations, to which I know the Minister has listened carefully and to which I am sure he will respond, the Opposition welcome in general the rate support grant settlement for 1986–87.
  8.42 pm
  Mr. Roger Sims: My remarks will be brief, thanks to what my hon. and learned Friend said when he opened the debate. He explained what is to happen about the Bromley error, which deprived the ratepayers of Bromley of £3 million a year. I am delighted to hear that it is to be returned to us, even though it may be 1988–89 before that happens. When he replies to the debate I hope that the Minister will clarify what is to happen about the outstanding sums. Bromley has been deprived of £3 million a year and it has also lost interest on that money. We hope that we shall not be out of pocket and that the loss of interest will be taken into account when the final repayment is made.
  The Minister is aware that the Greater London council operated a Londonwide concessionary fares schemes. The scheme that replaced it meant that the costs were shared, pro rata to population, but the way in which the money has been distributed bears no relation to its collection. Most inner London boroughs were presumed to spend far more than they do on concessionary fares, whereas the reverse applies in outer London—for example, in my
  1210
  borough. The cost of the concessionary fares scheme in Bromley for 1987–88 is £3·5 million, whereas the grant related expenditure assessment is only £1·4 million. That is inequitable.
  I took up this matter with the previous Minister of State, and in his letter of March 1987 he explained that at the time of abolition his Secretary of State did not have the power to distribute concessionary fares in London in the way that I had asked him to do. He explained that the Rate Support Grants Act 1986 had changed the position and that his Department had considered the possibility of introducing a change in the 1987–88 settlement. He also said that after careful consideration he had decided not to do so but that that did not preclude it from being given further consideration for adoption in the following year's settlement. When he replies to the debate, I should be grateful if the Minister could assure me that the concessionary fares adjustment will be made in the forthcoming year so that Bromley will receive its fair share.
  8.46 pm
  Mr. Bob Cryer: This is the first speech that I have made in the House since May 1983, so it is opportune to say a few words about my predecessor before I deal with the rate support grant report. Tom Torney was a widely respected Member of Parliament and worked diligently for his Bradford, South constituency. I wish him a long and happy retirement, particularly in view of the fact that shortly before the election he lost his wife. In normal circumstances, he could have looked forward to spending his retirement with her. It was a sad end to his parliamentary career, but he can reflect on the fact that he made a distinguished contribution as a Member of Parliament. He was an unremitting critic of the Common Market, and he expressed his views clearly and pungently, whenever he felt that it was right to do so.
  The unemployment in Bradford, South is relevant to the order, which will provide additional money for local authorities. That will help to create jobs. In Bradford, South, unemployment stands at over 13·5 per cent., so jobs are sadly needed in my constituency. Nearly 6,000 people are unemployed there. The Government are fond of omitting percentages and dealing with absolutes. They say that they have spent so many millions of pounds on creating jobs. However, 6,000 people in Bradford, South are still unemployed. The percentages are even higher in Bradford, North and Bradford, West. The talents of those people are being wasted. Unemployment creates a sense of alienation among people who have been on the dole for so long. It is all due to the Government's economic policies.
  The rate support grant report is important because the local authority is the largest employer in Bradford. Every source of income is important. Bradford employs teachers, whose pay award is reflected in the order. I do not intend to comment on the pay award. That will have to be negotiated. However, there is a strong and enduring sense of injustice among teachers because of the arbitrary fiat of the Secretary of State for Education and Science. By it, their negotiating rights have been removed. That sense of injustice will continue so long as negotiating rights are denied to teachers. Deep as they are in their dogma, I hope that even at this late stage the Government will recognise that if people are in regular employment they should have the right to influence the terms and conditions of their employment.

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  There are a number of ways to create jobs. Money helps, of course. The order reflects the Government's response to the representations of the local authorities, but the money on offer is too little. The Government should have been much more generous. Money should have been made available much earlier, because money helps to create jobs.
  There are a number of ways in which that could be done in Bradford, South. The local authority and local Members of Parliament have made representations about the reconstruction of some of Bradford's schools. The local authority wanted a total expenditure of £21 million a year for five years. Bradford is almost unique among significant towns and cities in the country in having an expanding school roll. However, central Government have allowed only about £6 million for one year and Bradford is not, therefore, in a position to plan ahead.
  The Minister knows well that when money is injected into the economy through the rate support grant, it is, in the main, the private sector that is stimulated, as it does most of the work for local authorities. Therefore, the repair and refurbishing of schools would benefit the private sector. Of course, the community at large would also benefit from providing children with decent surroundings in which to be educated. At the moment, apart from any major refurbishments, about £3 million is needed to meet the bill for routine maintenance and repairs to schools in the Bradford, South constituency.
  The second straightforward and rapid way of creating jobs in Bradford, South would be to improve the housing stock in the public and private sectors. There are many examples of Boot houses, which may be something about which hon. Members do not readily know. Such houses were built in the 1920s, in the prefabricated method. They are held together by large tie bolts and were built to have only a short life. Those tie bolts are now rusting and the houses must either be rebuilt, which is expensive, or demolished and replaced with new housing. Again, an injection of money by central Government for the difficulties facing local authorities would be only natural justice.
  If the Department of the Environment were to restore its broken pledge to local authorities—that if they sold council houses, they could have that revenue for building new houses and for repair—by rights Bradford should have about £6 million to spend. If that pledge was restored, there would be a further cash injection to improve houses in the public sector and to help those in the private sector. The Government could assist materially by providing money for improvement grants, which have virtually dried up because of central Government's meanness.
  Transport facilities are listed and included on the order. Deregulation has produced some horrendous ommissions in our bus services. In part of my constituency called Wyke, people used to be able to catch a bus into Bradford's city centre. Now they must catch three buses, with three fares. That is a significant item of expenditure for people who struggle from week to week to make ends meet. I know that that may seem trivial to Conservative Members but I advise them that during the election I received between 20 and 30 complaints about it. I have also had letters subsequently about it.
  The passenger transport authority has said that, under the terms of the legislation, it cannot provide the type of service that it provided prior to deregulation. The
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  Government should seriously take on board the fact that money should be made available to ensure that those services are restored to provide an opportunity for people living in Wyke to travel to the city centre, as cheaply and as reasonably as possible.
  Jobs could be provided in other areas. Electrifying the line from Leeds to Bradford would enable Bradford to maintain, without qualification, its position on British Rail's inter-city map. The construction of a link between Bradford Interchange and Bradford Forster Square would also create jobs in the construction industry, in which about 400,0000 people are on the dole. Such capital investment would be welcomed. The Government are always complaining about the difficulties of creating jobs and about how hard up they are for doing that task. The Prime Minister goes on the Jimmy Young programme to say how concerned she is about the lack of jobs. If the Minister talks to the Prime Minister he can slip into her red box the suggestions that I am making so that they can be acted upon because these capital projects can be used to improve inner-city areas and to provide jobs for their citizens.
  Bradford needs more rate support grant because it is facing difficulties in, for example, the National Health Service. I know that that is not absolutely germane to the order, but it supports my case for more rate support grant. Bradford has the longest waiting list in the region, with 6,874 people waiting for operations. I hope that the Government will discourage greedy consultants from encouraging people to go private in their attempt to avoid the long waiting lists. That is a temptation for many people. However, it should be a priority for the Government to cut waiting lists. If we had won the general election, it would have been a priority task for the Labour Government.
  Finally, the Minister will no doubt say that money is in short supply, that the cake is limited and that the local authorities can have only a modest increase in this supplementary rate support grant. However, I must point out that the Government can provide money when they want to. The cost of their foolish Falklands expedition was £2 billion and there is an annual expenditure of about £800 million on fortress Falklands. When the Prime Minister, who is by way of being a nuclear nut, pushed through Sizewell B, and appointed an inspector to produce approval for it, as she did, and when successive Secretaries of State for Energy repeatedly state their sympathy for the Sizewell B nuclear power station, £1·5 billion is put forward for it.
  Only yesterday there was jubilation from Tory members because there will be a slight saving on the Trident expenditure. It is a modest saving—the Trident programme will cost just under £10,000 million instead of £11,000 million. I know that the Minister is concerned about wider issues and I can point out to him that Trident is in breach of the United Nations nuclear nonproliferation.
  Mr. Deputy Speaker (Mr. Harold Walker): Order. We are discussing local government expenditure.
  Mr. Cryer: That is absolutely right, Mr. Deputy Speaker. You have underlined the point that I am making. I am saying that the rate support grant order, allocating as it does a supplementary grant, is not sufficient. I am pointing out to the Government that they can come back

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  to the House, next week if they like, with another order providing more money which we would all enjoy debating, if they cut expenditure on Trident and at the same time kept international treaty obligations, such as the United Nations non-proliferation treaty.
  The measure provides a little more for local authorities, but it will barely enable them to keep their heads above water. They are short of cash. They provide vital services for our communities and I hope that this supplementary grant is not the last injection of cash to maintain those services and to provide much needed jobs, not only in Bradford, South, which is obviously an important area, but throughout the country, especially where unemployment is at its worst.
  8.59 pm
  Mr. Richard Tracey: I am not sure whether I am supposed to welcome back the hon. Member for Bradford, South (Mr. Cryer). The other night I heard my hon. and learned Friend the Minister for Local Government refer to a similar Labour Member as a "parliamentary retread." Therefore, I welcome back the parliamentary retread for Bradford, South. I should warn him that retreads usually have attached to them a warning that they must not go too fast down the motorway. The hon. Gentleman may have been going a bit fast tonight.
  I certainly endorse what the hon. Gentleman said about his predecessor, Tom Torney. I recollect meeting the present hon. Gentleman a few years ago walking through Wandsworth and I imagine that he was going through a process of re-education which I hope will serve him well in the House now.
  I rise briefly to welcome the statement made tonight by my hon. and learned Friend the Minister, particularly about the extraordinary circumstances of the case which has affected the borough of Bromley and the royal borough of Kingston upon Thames. My hon. Friend the Member for Chiselhurst (Mr. Sims) also welcomed the announcement that the ratepayers of those boroughs would be completely reimbursed for the past peculiarities of the operation of the law as a result of the case brought by the London borough of Greenwich. I hope that this evening my hon. Friend the Parliamentary Under-Secretary of State will give a complete assurance that our ratepayers will in no sense suffer from the most peculiar anomalies of this case.
  The case has been used in Kingston upon Thames by the present hung council, particularly members of the Liberal and Social Democratic parties, as a means of pillorying the Government for alleged inequalities and inaccuracies in their interpretation of the rate support grant. I hope that as a result of my hon. and learned Friend's statement we can return to the ratepayers in the royal borough with a complete assurance that in the near future they will be completely reimbursed for their rates. I look forward to such an assurance from my hon. Friend the Parliamentary Under-Secretary of State. With all due respect to my hon. Friends on the Front Bench it seems that the law has to some extent proved to be an ass and I trust that tonight they will fully reassure my constituents.
  9.03 pm
  Mr. John Cartwright: I congratulate the Minister on the elegant way in which he tiptoed around the
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  appalling jargon of the rate support grant. I fear it will not be long before he gets stuck into it and produces additional jargon of his own. That is the usual track record of Ministers in his Department.
  I wish to comment briefly on two aspects of this settlement, both of which have been referred to. First, this settlement has had a curious impact on the Inner London education authority. The Minister said that the net effect for Greater London of the various elements in the order is a loss of £10 million, but he did not point out that the impact on ILEA is singularly curious. The object of the exercise in this order is to reimburse local authorities for the Government's share of the teachers' pay settlement. For the Inner London education authority in the current year that would be some £38 million, but because the Government have chosen to use the extraordinary mechanism of the block grant system to provide the extra money not one penny piece of it will go to the ILEA. That will mean that inner London ratepayers will have to pay all the additional cost out of their rates. In addition, they will have to pay, through their national tax, a share of teachers' pay in other parts of the country. In that sense, inner London ratepayers and taxpayers may be paying double their contributions.
  No doubt Ministers will say that that is the direct result of the spending policies of the ILEA, and I am not here to defend all of those. The ILEA has some extraordinary priorities when it comes to spending public money. However, that is not much consolation if one considers that inner London ratepayers will be contributing £950 million towards the £1,025 million to be spent by ILEA this year.
  My second point relates to the removal of the 2p temporary safety net. The Minister fairly pointed out that that was a temporary arrangement and that it had been planned to come to an end. However, it was generally thought in local government that it would come to an end in April 1988 at the end of a financial year. Its removal part of the way through the financial year will cause obvious problems. It is part of the general pattern that local government has come to expect in the past few years; the goal posts are constantly changed half way through the game. Uncertainty is the only thing of which one can be certain in local government finance.
  The alteration presents particular problems for the rate-capped authorities which do not have the same freedom of manoeuvre. The rate-capped authorities, especially in inner London, will have problems. I remember the great banners draped across every public building in my constituency, which said, "Rate-capping means cuts." In the first two years, rate-capping has certainly not meant cuts. Spending has continued to increase, because the authorities have found every sort of ingenious technique of creative accounting, as it is called in the trade, and every ingenious system of borrowing to ensure that spending continues to increase. In some cases the authorities were frank about that strategy which was based on the hope that a Labour Government would come riding to their rescue and bail them out. That hope has not been fulfilled and the pigeons must now come home to roost. However ingenious the borrowing may be, it has to be paid back sooner or later and much of it is extremely short-term borrowing, based on public buildings, parking meters, street lights and so on. I think it was the leader of Islington council who said that debt in her borough had reached Third world proportions, and that is the case in

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  a number of inner London authorities. They are beginning to realise that the happy borrowing has to come to an end and not on a planned basis but at some speed. Those of us who have experience of local government know that if cuts have to be made in a hurry they are not always the sort of cuts that ought to be made. One cuts the services that one can cut swiftly, and they are not always the low priority services.
  We can all criticise those in power in the authorities who saw the iceberg in front of the Titanic and simply went full steam ahead into it, but now they are having to make cuts at speed. It is sad that at a time when the Government—I give them credit for this—are saying that more needs to be done to tackle the problems of deprivation in inner London, there are now to be unplanned and sometimes damaging cuts in local authority services. That will be in direct contrast to the Government's wishes.
  Given the Minister's complicated preparations for the poll tax, I hope that he has not overlooked the problems of the inner-London boroughs. If it is possible to ease the further staging of rate-capping so that it is possible to enable those authorities to plan down their expenditure in some sensible way that would be in the interests of the people of inner London.
  9.9 pm
  Mr. Allen McKay: When the Minister opened the debate he said that this will probably be one of the last times that we discuss the rate support grant. The Minister said that he was looking forward to a new system being introduced. Given the majority that the Conservatives have got that will he done. However, it will not be as easy as the Government think. Many people are now awakened to what the poll tax means.
  It is significant that we read in the newspapers that the Government are now thinking about bringing in the poll tax in stages. At last, they have realised the significance of the poll tax and the vicious way in which it will hit the majority of people.
  My hon. Friend the Member for Bradford, South (Mr. Cryer) has just made his maiden speech. I cannot see why it should be called a maiden speech because if one looks at his record in the past years, both in voting and speaking, it is second to none. I look forward to the renewed partnership between my hon. Friend the Member for Bolsover (Mr. Skinner) and my hon. Friend the Member for Bradford, South. That partnership has been missed for a number of years.
  My hon. Friend the Member for Bradford, South and I have had differences of opinion, but my hon. Friend would not want it any other way. I appreciate the feelings that my hon. Friend the Member for Bradford, South expressed about his predecessor, Torn Torney, who was a well-loved Member of this House. He was well known for his speeches and support on agriculture, which is a great interest in my constituency.
  This debate gives us an opportunity to discuss a number of things. The teachers' strike is still with us. We are grateful for the amount of money that is being put back into local government to help with the teachers' pay award, but it is not sufficient to come up with a solution to deal with the teachers' strike. I remind the Minister of the effects of the Government's policies on rate funding and rates, especially in south Yorkshire and in my area of Barnsley metropolitan council.
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  I remind the Minister that representatives from South Yorkshire's fire service met his predecessor to discuss the serious state of affairs in south Yorkshire. Not too long ago I wrote to the Minister on this matter. If the letter has not reached him he will probably delve into his files to find out where it is.
  The South Yorkshire fire service is in serious difficulty. That service has the remit of Home Office approval regarding the fire cover for that area. According to Home Office figures that service is undermanned. Last year the service had to tap reserves to try to maintain the present service. That present service is still not up to the level that the Home Office requires. If extra money is not given to the South Yorkshire fire service there will he serious cuts in manning and the number of appliances on the road. This is not a political gimmick or a political plea. The fact is that the fire cover in that area is necessary and at present that service is undermanned. If money is not forthcoming or the Government envisage further cuts, that service will be severely undermanned. That would be a tragedy.
  I spent a long time as a retained fireman in south Yorkshire. I know of the essential necessity of maintaining a turn out of about three minutes for the first call, four minutes for the second and about five minutes for the third. If that turnout time is extended there is a danger, not to property, but to life. I ask the Minister to look al that situation carefully because there were clear indications from his predecessor that he realised that there was a problem and that there would be an attempt to resolve it.
  Before the abolition of the South Yorkshire county council we enjoyed one of the cheapest and most efficient transport systems in this country. The Government did not like it because of its cost. The Government closed their eyes to the fact that it was not just a cheap transport system—it made it possible for people in remote areas to take jobs with low wages because they had a cheap transport system on which to travel. Once the cost of transport was increased, they were priced out of their jobs.
  A lot of my constituency is rural. Any further cuts in transport will mean a cut in rural services. The popular services will be retained because they pay for themselves. The less popular services will be subsidised by the transport executive. However, the least popular services will disappear. In areas where there was a bus service once every two hours, there will he a service once every four hours, or it may disappear altogether.
  In the Barnsley metropolitan area, things seem to be moving gradually in the right direction. There seems to be a levelling-off in unemployment. I look forward not just to that levelling-off but to a decrease in unemployment. To achieve that we need the co-operation of the local authority because central Government cannot do that. An amount of money has been put into the area for factories and such things.
  The problem with the rating system is that it treats Barnsley more or less as a shire county. It is not. Nor does the rating system take into account the number of collieries which have closed and on which the town relied for its prosperity. That has not been taken into consideration, so we are getting too little, too late. The Government's intention to raise employment levels and decrease our problems will fail if they do not give sufficient cognisance to the problems within the rating system. The new rating system will not work in my constituency. That is why I intend to fight it to the bitter end. It will do my constituents no good at all.

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  I welcome what little relief there is in the Bill, but again it is too little, too late. The Government should learn a lesson from previous years. They should stop screwing local authorities into the ground. They have got their approach completely wrong. There should be a partnership between central Government and local government, not the enmity that is occurring. A partnership will improve the situation; the way central Government are going at present will ruin it.
  9.18 pm
  The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope): This is the second supplementary report for 1986–87. Two more reports and another year will pass before we and local authorities will know the final grant settlements for the year which ended last April. That is just one indication of the complexity and instability of the current system. That is why we shall be introducing a new, simpler grant system from 1990. I hope that everybody present in the House tonight will welcome that. That new system will take full account of the different spending needs of local authorities. No longer will grant depend on authorities' levels of expenditure and nor will there be any need for resource equalisation, which produces many of the incomprehensible aspects of the present system and, for example, many of the debating points that have been made this evening about ILEA.
  I pay tribute to my hon. Friend the Member for Surbiton (Mr. Tracey) for the work that he did when he was a Minister in the Department of the Environment. He now argues strongly on behalf of his constituents, as he did before, about the injustice of the Bromley error. He understandably asks for complete reimbursement of the money that was lost as a result of that error. As my hon. and learned Friend the Minister said at the outset of the debate, the Government are determined to put such errors right and to legislate. That will result in the losses that have been sustained by Bromley and Kingston councils, to name but two, being restored. I understand my hon. Friend's plea that interest should be included. I am sure that, from his experience in the Department of the Environment, he will understand that the system is too complex to permit anything as simple as paying interest on forgone money. That is largely because it is not a matter of additional money being available. The issue is about redistribution between authorities when some have received more than their fair share.
  The redistribution process takes place every time there is a supplementary report. The matter is complicated enough at the moment, but if those who gain, and it is shown that they should not have gained, are required to pay interest on the money that they received, and those who lost receive such interest it would make the system even more complicated than it is at present. I understand and sympathise with my hon. Friend's point. I hope that he will be content with the fact that, following his strong representations and those made by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the Financial Secretary to the Treasury, the losses that were sustained by Kingston will be restored.
  My hon. Friend the Member for Chislehurst (Mr. Sims) raised the same point as he raised earlier, about the interest on Bromley's loss. On 5 March, my right hon. Friend the Secretary of State told the House that it was not a matter
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  of additional money being available. I must give my hon. Friend the same answer; it will not be possible to pay interest.
  As my hon. Friend the Member for Chislehurst pointed out, the matter of concessionary fares is not new. He argued that point strongly and strenuously. The news that I can give him is that we understand the wish of many London boroughs to see a change in the way in which the concessionary fares GRE is distributed in the capital. It has been raised by the London Boroughs Association for 1988–89, and we shall give it careful consideration. it is not a matter that we considered for the supplementary report before the House.
  It would have required a significant methodology change that we would not normally have made retrospectively unless there were overwhelming reasons for doing so. My hon. Friend is the first to recognise that he has a difficult task. He is arguing from the point of view of his borough. All London boroughs entered into an agreement about how the concessionary fares costs should be distributed. That system has many critics, but, at the moment, the Association of London Authorities and the Association of County Councils are opposed to the sort of changes that my hon. Friend put forward.
  The hon. Member for Houghton and Washington (Mr. Boyes) raised many issues. We shall certainly write to him on the Tyne and Wear passenger transport authority point and provide him with a more detailed explanation than I would be able to give him this evening. He asked why some of the grant goes to non-local education authorities. There is a small effect on the grant of non-local educational authorities, but, overall, local education authorities gain £51·5 million, and non-local education authorities lose £500,000. That is yet another of the quirks of the present system that we shall resolve when we introduce our new arrangements for the community charge.
  This was the first time that I and my hon. and learned Friend the Minister of State had heard the hon. Member for Bradford, South (Mr. Cryer) speak in the House, so from our point of view it was his maiden speech. We were pleased by the tribute that he paid to his predecessor, Mr. Tom Torney, and if we did not know it before we have become aware of the hon. Gentleman's dexterity as a parliamentarian by the way that he was able to include, in a debate on the RSG, references to Trident and the Falklands.
  The hon. Member for Woolwich (Mr. Cartwright) raised an issue that was first raised on the first supplementary report for 1987–88, concerning why, when extra money is being given to meet the cost of teachers' salaries, no additional money is being paid to the Inner London education authority in grant. It is because of the nature of a block grant system, which is broadly designed to equalise rate poundage costs to ratepayers for providing services at a standard rate. It does not aim to support expenditure at a common percentage rate of grant. ILEA is out of grant because of the enormous wealth of the central authorities on which it precepts. It is possible to demonstrate that by the fact that the cost of the teachers' pay award, after taking account of grant changes, is 0·7p on the rates in Inner London, whereas it is 0·8p elsewhere, even after the grant has been paid. Therefore, it is grossly simplistic and unfair to suggest that the Government have taken money which was due to ILEA. Under the present system no money was due to ILEA.

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  The hon. Member for Barnsley West and Penistone (Mr. McKay) raised the issue of the South Yorkshire fire and civil defence authority. I am pleased to tell him that if he looks at the detailed figures in the supplementary report he will see that some £158,000 is going to that authority, which means that its grant total will increase to over £6·40 million.
  The main effects of the supplementary report are that the AEG increases by £71 million to £11,950 million to reflect the latest estimate of specific and supplementary grants, which is an increase of £20 million. The Exchequer's contribution to the extra cost of teachers' pay is an extra £51 million in block grant. Provision is increased to £111 million, all of which goes on to education authorities' GREs.
  We are reflecting other later expenditure information in GREs, including the boundary changes that were made on 1 April, 1985 and 1986. We have removed the temporary safety net that was originally designed to help those authorities that would have suffered an in-year and unexpected grant loss from the correction of the Bromley error. We have carried out a further round of grant recycling and we have made the England-Wales pooling adjustment. I comment the report to the House.
  Question put and agreed to.
  Resolved,
  That the Rate Support Grant Supplementary Report (England) (No. 2) 1986–87 (House of Commons Paper No. 35), a copy of which was laid before this House on 9th July, be approved.

  Rate Support Grant (Wales)
  9.28 pm
  The Secretary of State for Wales (Mr. Peter Walker): I beg to move,
  That the Welsh Rate Support Grant Supplementary (No. 2) Report 1986–87, which was laid before the House on 8 July, be approved.
  In presenting this report I must say how impressed I am by the good working relationships that have been forged between central and local Government representatives in Wales since the inception of a separate Welsh rate support grant system in 1981, and by the effectiveness of the process of consultation between central and local Government in Wales.
  The main purpose of this report is to ensure that additional expenditure provision and grant in respect of the teachers' pay award for 1986–87 is incorporated into the RSG settlement for that year. The report increases provision for relevant expenditure by £7 million in respect of the teachers' pay award and increases block grant by £5 million on that account.
  The teachers have been awarded a substantial pay increase and my right hon. Friend the Secretary of State for Education and Science has asked them to be open-minded about devising effective, long-term machinery for settling questions affecting their pay and conditions. I am obviously encouraged that one union at least has decided to forgo further disruptive action and I hope that we shall now see an end to the disruption that has affected our schools for the past two years.
  I have taken the opportunity, in the light of information now available from local authorities, to increase specific grants by £2·7 million to £177·4 million. This, together with the increase on account of teachers' pay, means that the report increases aggregate Exchequer grant by £7·7 million to £1,081·3 million. The aggregate amount of rate support grants and block grant are increased by £5 million to £822·1 million and £856·3 million respectively.
  The first supplementary report for 1986–87 stated that the education pooling adjustment between England and Wales for the year would be carried out following the enactment of the Local Government Act 1987. That Act has now received Royal Assent and this report makes the adjustment, which each year compensates English authorities for the fact that more Welsh students are educated in England than are English students in Wales. A transfer of £3·5 million is made on account of that position.
  In this report local authorities' revised estimates of current expenditure are £10·1 million higher than their budgeted expenditure reported in the first supplementary report and some £57 million, or 4·1 per cent. higher. than the Government's provision for current expenditure for the year. Total expenditure is some £31 million higher than provision; representing an overspend of £38 million by county councils and an underspend of £7 million by district councils. Ratepayers in Wales felt the consequences of this overspending by county councils in their rate demands for 1986–87.
  When I met the Welsh Consultative Council on Local Government Finance last Friday I emphasised the need for all councils to work within the Government's expenditure plans. I would also remind it that extra grant is available to it if budgeted spending for 1987–88 is reduced. It knows

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  that I am anxious to encourage local authorities throughout the Principality to adopt the best and most efficient management practices available, and I urge it to review the savings that could be achieved. Successive Audit Commission and Local Authorities Management Services and Computer Committee studies indicate the scope for real progress.
  In my previous incarnation as Secretary of State for Energy, I looked into the potential for improving energy efficiency in local authorities throughout the United Kingdom. Some of the local authorities in Wales were some of the best authorities at coming forward with programmes that had reduced their expenditure on a considerable scale. Others are not pursuing such programmes. I would welcome a discussion with the local authorities on ways in which we could co-operate so that when there is some technical or management breakthrough or some management method that produces results that make expenditure more effective, it can be put into operation quickly throughout Wales. I commend my proposals for the supplementary report to the House.
  9.32 pm
  Mr. Alan Williams: I will be abnormally brief, partly because the Secretary of State and I have spent a long time in each other's company today discussing issues in relation to Wales, and partly because I find the rate support grant such algebraic gobbledegook that I am still trying to master the definitions of the definitions. However, I cannot promise that such brevity will be characteristic of our future exchanges on these issues.
  The Secretary of State referred to the need for cooperation with the local authorities. I know from the district councils that they welcome such co-operation. I understand that there was a meeting, which they described as amicable—that is what we could expect with the Secretary of State—last Friday. The Secretary of State may care to tell us whether any meaningful progress was made.
  The district councils have made it clear that they want more and better planned medium-term resources and a degree of stability rather than volatility in relation to the block grant settlements and capital spending powers. Whether these are long-term objectives that the Secretary of State sees as unattainable, I do not know. As a newcomer to the subject, I would appreciate his assessment.
  The main financial element in this is the sum of £7 million towards the teachers' pay settlement. Settlement is the wrong word; I should say the pay imposition. We welcome the fact that belatedly and inadequately there is to be at least recognition by the Government that they got it wrong in relation to teachers. I am glad that this extra money is to be made available.
  The tragedy for education is not just that we had the dispute but that in the course of the dispute and in the lead up to it—in the several years of erosion of the relative earning power of teachers—there has been a desperate loss throughout the country of key specialists and we will find it exceedingly difficult to attract them back. There is certainly a severe shortage of teachers, especially in the fields of mathematics, physics and design and technology. The Minister said that he hopes this will be the end of the
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  dispute. I speak as one whose wife is a teacher, but net a militant one, and a member of one of the main teacher unions.
  There is a tendency for the Government to misunderstand the sheer depth of anger among teachers who are not of a militant disposition because, as they see it, they have been despised over recent years. They are also angry because the Government have imposed rather than negotiated a pay settlement and have arbitrarily torn up the previous arrangement for negotiating. After all, we are dealing with mature, educated people who want at least to have a say in their own lives and prospects. In consultations with his colleague the Secretary of State for Education and Science the Minister will have to recognise that there is little chance of achieving the sort of peace that we want in our schools, certainly not with this £7 million, unless the Government come forward with some proper arrangements to provide meaningful pay negotiations.
  I was alarmed by a report that the Secretary of State for Education is now talking in terms of imposing a no-strike rule on teachers. I hope that the report was incorrect. I know that the Secretary of State would be involved in such discussions. In a democracy I have no objection to people entering into no-strike agreements as long as they enter into them of their own volition. However, I find repugnant and unacceptable the idea that the Government would impose a no-strike arrangement on teachers. I hope that the Secretary of State will take this opportunity to say that the report which appeared the other day was a mistake. At least the extra money now available is a partial payment of the arrears owed to the teachers, and in that sense we certainly do not want to block it.
  9.38 pm
  Mr. Keith Raffan: As I understand it. this debate is on a Welsh rate support grant supplementary report to a Welsh rate grant supplementary report to a Welsh rate support grant report. I have every sympathy with the right hon. Member for Swansea, West (Mr. Williams) because it takes a bit of working out to find exactly where we are in terms of the annual debate on the rate support grant.
  I was glad to catch the tail end of the previous debate and somewhat relieved to hear the assurance by my hon. Friend the Under-Secretary of State for the Environment that we shall have to go through this process for only another two years. In view of the difficulties that the right hon. Member for Swansea, West shares with me about understanding the RSG, I hope that this will convert him to the Government's proposed rate reforms.
  These matters are complex and almost impossible to understand, though they can usually he simplified to the following equation. The Government provide increased grant, the Opposition says that it is not enough, to which we retort that we are not even convinced that local authorities are spending even their existing resources efficiently and effectively. As my right hon. Friend and the right hon. Member for Swansea, West have said, the biggest item in this second supplementary report is in respect of increased expenditure by county councils following increases in teachers' pay. My understanding of it is that there has not been a mistake by the Government that has led to the extra £7 million being provided. This was promised all along to allow for the May increase to the teachers for 1986–87.

  1223
  As I said, when we discussed the last rate support grant supplementary report on 5 May, the Government's pay proposals for teachers are extremely generous and give the teachers a 16·4 per cent. pay rise which, added to existing increases, will mean that teachers will have received a 25 per cent. increase between March 1986 and September of this year. That pay award is unique in its generosity, and most other groups would be delighted to receive it.
  Most of us know from our increased contact with the electorate over the past few weeks, particularly that with the teaching profession, on the doorstep if not actually in the schools, that pay is no longer an issue between the Government and the teachers. Negotiating machinery is still an issue and one that I hope that the Government will resolve, certainly by March 1990.
  The Government have shown their generosity and determination to improve education and educational standards. I hope that local authorities, and especially Clwyd county council, will respond by ensuring that resources are spent more efficiently and effectively.
  I can give two instances of where this is not happening in Clwyd. The first is surplus places. There are 22,300 surplus places in primary and secondary schools, in the county costing £3·5 million a year to keep empty. The Government have no wish to remove all those surplus places. Our target is to remove two fifths of them. That would save £1·4 million, which could be reallocated to good effect in the education budget. It is important that Clwyd makes progress in removing these places.
  The Government are not anti-rural schools. We do not want to close all, or even many such schools. However, it is absurd to have schools with only nine pupils. That is not in the interests of the educational and social development of the children. They cannot have a school football team or a choir. Nor is it a way of realising the full potential contribution of a teacher when he or she has to teach so few pupils, often of different ages but in the same class. We have to look at this problem, particularly as I have in my constituency so many hard-pressed urban primary schools, some of them with classes numbering up to 43.
  The second example of the inefficient use of resources by Clwyd county council, of its wrong set of priorities, is its arts project centred on Bodelwyddan castle. The project is costing a massive £545,000 a year to run, offset by an income of merely £11,000. I do not want to be thought idiosyncratic, but the expenditure at Bodelwyddan has risen to a worrying extent. I was reassured when, during the election campaign, my right hon. Friend's predecessor as Secretary of State was in my constituency, having recently visited Bodelwyddan castle. He thought that the whole project was "a shambles" and he was concerned about the amount of money that Clwyd was spending on it. Having visited the castle, he saw the points that I am making.
  I see the hon. Member for Clwyd, South-West (Mr. Jones), who is a member of Clwyd county council smiling benignly. I do not want to put the hon. Gentleman on the spot in the way that I have put so many of his colleagues on the spot, but I notice that he is not rising to intervene and say that he is greatly in favour of the project. I know that he is one of the sensible people who is opposed to it and he is worried about the cockeyed priorities of the council.
  Such expenditure of well over £500,000 cannot be justified when the schools and libraries book budget has been slashed since 1985 from £75,000 to £15,000. It has
  1224
  remained at that figure ever since, although an extra £18,000 was allocated for GCSE books this year. I regularly go round my constituency, as no doubt many colleagues go round theirs, and I am appalled by the state of the school library book stock.
  The last time that I raised this subject in the House, I had the support of the hon. Member for Wrexham (Dr. Marek). I hope that the hon. Member for Clwyd, South-West will endorse my point as well. It is wrong that the county council in Clwyd is spending so much money on an arts project when it is not fulfilling its statutory obligations with regard to education.
  I am also very concerned about the cuts in real terms in the school maintenance budget that have taken effect over the past few years. As a result of my visits to schools, I can endorse what the hon. Member for Clwyd, South-West said earlier this afternoon in the Welsh Grand Committee. He referred to the neglect of school building maintenance within the county. There is no doubt that that is false economy.
  I recently visited Ysgol Bryn Coch junior school in Mold. The headmaster took me around the building. It has not been painted internally for 18 years. Posters are stuck up to prevent the plaster falling down on to children's heads. He showed me various spots which can be pressed in the corridor ceilings, from which water comes through even when it is not raining. The water drips gently when it is not raining, but they have to put out buckets when there is a heavy shower. Last Friday I visited Ysgol Gwenffrwd at Holywell. The window frames at that school have not been regularly repainted. As a result they are now completely rotten. The headmaster told me that an estimate has been obtained for completely replacing the window frames and that estimate was between £100,000 and £200,000.
  Clwyd county council is neglecting its statutory obligations with regard to the education of children in the county. Parents have a right to be annoyed. I for one am quite prepared to go to the Welsh Office and ask my right hon. Friend the Secretary of State for more money for education in the county, but only when I am convinced that existing resources are being spent efficiently and effectively. At the moment, they are not.
  "Clwyd is a rotten council and it has got its priorities wrong."—[Official Report, 25 March 1987; Vol. 113, c. 547.]
  Those are the words of the hon. Member for Wrexham, not mine. However, they reflect my sentiments. I hope that we members for Clwyd can form an alliance—with a small "a"—across the Chamber. We are members of different parties, but we represent the people and the children of the county. Together with the Government, the Secretary of State and the Welsh Office I hope we can bring home to Clwyd county council the fact that it has its priorities completely wrong. It must get its priorities right for the sake of the people of the county and of their children.
  9.46 pm
  Mr. Dafydd Wigley: Having made my customary remarks about the Secretary of State for Wales at another time, I welcome him to this continuing saga of debates on the Welsh rate support grant formula. Those of us who take part in these debates are becoming a bit of an inward-looking small crowd. The hon. Member for Delyn (Mr. Raffan) has hit upon a theme that he has hit

  1225
  on many times in these debates. I have been doing my homework. I looked at the similar debate on 18 July 1984when the hon. Member for Delyn spoke. Apart from attacking Clwyd county council, not surprisingly, he concentrated on Bodelwyddan castle. He referred to that in column 430 of the Official Report. Lo and behold, on 16 January 1985 in another rate support grant for Wales debate at column 434 of the Official Report, the hon. Member for Delyn again concentrated on Bodelwyddan castle. When the Secretary of State has had an opportunity to travel around Wales, he will get to know places Ike Bodelwyddan castle. However, in the meantime he will hear plenty about such places from his hon. Friend the Member for Delyn.
  The other familiar feature of these debates is that we are discussing an incredibly complicated subject. It is the old saw that there were only three people who knew anything about this: one is dead, one has forgotten, and the other has gone mad. That is the feeling we get in these debates every year. The Secretary of State is new to this version of rate support grant debating. Some of us are perennially doomed to go on in every debate on the same subject.
  Seriously, the right hon. Gentleman will have noticed already since he became Secretary of State for Wales that there is a different tenor to our debates on local government finance from those that he may have been used to in the English context. Sometimes, we have criticised Welsh local authorities for not pressing harder to spend where services need expenditure. However, by and large, over recent years, those authorities have followed Government guidance. To that extent, many authorities have asked whether we need the same mechanism in Wales as exists in England, which has been used in England against local authorities.
  If the formula involves a punishment of loss of grant if expenditure exceeds a certain threshold, it inevitably causes difficulties for the treasurers on the finance committees of local authorities because they cannot plan ahead. That is especially so when there are uncertainties outside their own control, such as teacher's pay, for which they have to make forecasts for the coming year and make provision. It is not until three months after the end of a financial year that they know the exact amount of money that is coming through. Assurances will have been given but authorities would be afraid of overspending because of the loss of grant that would result. Often they will have held back on expenditure and then towards the end of the financial year, thinking that they will be all right, decide to accelerate certain projects. The result is that expenditure patterns may not follow real needs within local authority areas.
  In opening this short debate, the Secretary of State underlined his hope that local authorities would underspend, as that would give them more grant. That is the logic of his remarks. If grant-related expenditure has any meaning at all, it reflects need in an area. Local authorities should be encouraged to spend up to that level and not to underspend. If they are underspending, they may not be providing some of the services that are needed so desperately in many communities in Wales.
  The Secretary of State will be coming increasingly aware over the next few months of the various forms of deprivation that exist in various communities, and not only in urban areas. There is deprivation in the valleys,
  1226
  where there are housing problems, for example, and there is deprivation in rural areas that do not have the wealth of some of the richer English rural areas such as Worcester. In some rural areas in Wales income is particularly low, the maintenance of services is extemely expensive, and the expense falls on a relatively small rate base. This means that the pressure on local authorities to maintain a basic level of services is great. They have little room in which to manoeuvre.
  I hope that we may move away from the sort of rate support grant debate that we are having this evening and which we have had over recent years. As the right hon. Member for Swansea, West (Mr. Williams) said from the Opposition Front Bench, we should be looking for greater stability. There should be a regime in which local authorities know what their resources will be and in which they will he compensated when changes take place that are outside their control. A rolling capital programme would enable them to make a coherent attack on needs in their areas. The present ad hoc capital programme often results in a rush of finance immediately before a general election, for example. We all know that many road improvement schemes were visible during the general election campaign. That cannot be said of this Government alone, because every Government will use the same tactics. There is a need for greater stability and a pattern within which planning and strategy can be shaped to meet real needs.
  If there is a change from the present rate support grant structure and rate structure, I hope that there will be a means of maintaining equalisation in a way that meets the needs of communities. One of the factors that the Secretary of State may not have come across very often in England—it is to be found in certain English counties but in many areas of Wales—is sparsity and super-sparsity. I have no doubt that he will come across the factor increasingly in his deliberations with local authority associations.
  Mr. D. E. Thomas (Merionnydd Nant Conwy): Will my right hon. Friend accept that there is such a problem in areas such as the vale of Aberconwy, which is a sparsely populated area within my constituency? There is a much heavier density of population in the coastal area that comes within the constituency of the Minister of State, the hon. Member for Conwy (Mr. Roberts). There is the additional problem of the massive influx of tourists and the on-costs of tourism that are not reflected adequately in the rate support grant.
  Mr. Wigley: Indeed. This issue arose in the tourism debate two Fridays ago. We know that tourism brings advantages and resources to certain areas, but it brings additional costs as well. For example, there are the costs of maintaining roads, car parks and environmental services generally. In national park areas, there are costs to be met as well. We are looking for a formula—we work to one now and I have no doubt that we shall do so in future—that is sufficiently finely tuned to meet the deprivations of the valley communities, which are great, the problems of inner-city Cardiff, Swansea and Newport, and also those of the rural areas. It is necessary to have the wisdom of Solomon to arrive at the right balance.
  We should be aiming at a level of service and if we can maintain a level throughout Wales in terms of social services, education, roads, environmental services and leisure services that is to be found in some of the more

  1227
  prosperous counties in England. we shall increase the real standard of living and the quality of life of our people. That must be our target—to establish standards in terms of what is obtained for the residents, and then to find a means of financing it. I know that it is easier said than done, but I hope that, as we move ahead from the present structure of local government financial support, it will be the main determinant of our policies.
  9.54 pm
  Mr. Richard Livsey: I welcome the Secretary of State's announcement of an additional £7 million for teachers' pay. However, I should like to concentrate almost entirely on one aspect of county council spending—that is, education spending. It is clear from the figures presented by the right hon. Gentleman that education spending accounts for £708 million, and is thus way ahead of any other part of the expenditure.
  I want to concentrate on that because, as it is the biggest part of the expenditure, there are difficult problems to grapple with, particularly in Wales. I should particularly like to follow on from what was said by the hon. Member for Caernarfon (Mr. Wigley) about population sparsity in rural areas. In Powys, part of which I represent, the population is 111,000—only 4 per cent. of the total population of Wales—yet Powys covers 25 per cent. of the country's surface area. That creates tremendous problems of population sparsity. Powys also has 25 per cent. of the roads in Wales. The county council has to grapple with those factors to balance its budget.
  I criticise the activities of the Audit Commission in this context. I know that the Secretary of State and his predecessor have relied on Audit Commission reports to make decisions. Those reports have been given to county councillors, who have also tended to make decisions on that basis. As a result of one such report, 13 small village schools in Powys were in danger of closure. The matter hung in the balance. Fortunately however, after two debates in the county council the proposals were thrown out. I think that the county council was quite right to make that decision, because only three weeks later the Secretary of State for Education had a conversion on the road to the general election and announced that village schools in England could stay open as well.
  The district audit service paper set out to analyse and criticise the county council's expenditure programme for education. It calculated that Powys was spending £4 million above average on primary education. That analysis was wholly misleading, as no attempt was made to quantify the additional cost to the county of providing education in the most sparsely populated area in the whole of England and Wales. Powys is unique in that respect, and the additional cost is therefore fundamental The analysis also turns out to be educationally unsound.
  It is all due to a lack of finance to take account of the sparsity factor. The distribution in Powys is one pupil per 26 hectares. The average in Wales being 4 hectares. The English average in non-metropolitan counties is 2·5 hectares. As a result of that disparity, school transport alone cost £1 million more in Powys than the average for primary and secondary schoolchildren and is three and a half times the Welsh average—just to cart schoolchildren around for excessive distances from their homes to their schools.
  Mr. Raffan: I should like to pin the hon. Gentleman down. He is always on about the issue of rural schools. But
  1228
  is his party prepared to support any rural school, irrespective of how small it is? Does he believe that it is in the interests of children to be taught in schools that are down to eight or nine pupils? Will the hon. Gentleman answer yes or no to that question?
  Mr. Livsey: There are some unique cases. En my constituency there is a school with only 16 pupils. If, however, that school were closed, children aged four, five and six would have to make a 24-mile round trip for their education. That is a unique case, and the school must be kept open. Primary schools with 20 or 25 pupils need to be kept open in predominantly rural areas. In Powys, there are 46 primary schools where there are no more than 50 pupils on the school roll. Due to the geography, 41 per cent. of schoolchildren in primary schools live outside the large areas of population. In Powys, large areas of population mean communities of about 1,200, but that unique factor is not taken into consideration. Education in Powys costs 16 per cent. more than the average for the rest of Wales, but it receives only 11 per cent. of additional funding.
  Because of the sparseness of population, the fire service costs 12 per cent. more than it does in the rest of Wales, and roads cost 128 per cent. more because the road system in Powys accounts for 25 per cent. of the Welsh road system. There are 1,700 road bridges in Powys, about half of which need to be repaired. The rate support grant settlements take no account of that fact.
  Mr. Alex Carlile: Does my hon. Friend agree that in the context of a Government who believe in parental choice for education it is most important that village primary schools should be maintained? The vast majority of parents in rural mid-Wales, particularly in my hon. Friend's constituency and in mine, infinitely prefer to send their children to village primary schools, and if necessary they are prepared to pay for the education of their children.
  Mr. Livsey: My hon. and learned Friend is correct. That is why there have been so many battles to keep certain schools open. It is the preferred option of those communities, some of which have grown in recent years. The school rolls have increased because people prefer to live in smaller communities.
  Libraries cost Powys 15 per cent. more than the Welsh average. The Audit Commission's categories of local government expenditure bear no relationship to the sparsity of population in many parts of Wales.
  Housing in Wales is crucial. For much of the day we have been discussing in the Welsh Grand Committee the poor housing stock in Wales. The Secretary of State should provide more houses to rent. He should also encourage housing associations to build more houses for key workers. Until the funds from the sale of council houses are released for the building of more houses, there will he insufficient houses to rent. We favour the sale of council houses to their occupants, but if insufficient houses to rent are being built there will be a housing crisis and long waiting lists. The Government must take that major factor into account.
  I ask the Secretary of State to back the initiative of Powys, Dyfed and Gwynedd who have approached the European Community to obtain more funding and greater recognition of their plight because of sparsity of population. We suffer from under funding because we are

  1229
  not recognised as being eligible for grant aid. Intermediate development grant aid was taken from Powys in 1983. Therefore, that precludes us from financial assistance from the European Community—and is a source of funding that would assist us all round and, I believe, the Secretary of State, too.
  10.04 pm
  Mr. Peter Walker: I share completely the view of the right hon. Member for Swansea, West (Mr. Williams) about the jargon of the rate support grant. When I was privileged to be the first-ever Secretary of State for the Environment—a position that I enjoyed immensely and that I found was one of the most exciting positions that one could occupy—the only thing that spoilt that position was having to deal constantly with the rate support grant. The only pleasure that I had in leaving that position was that I thought that at least I should never again have to deal with it. I believe that the unbelievable jargon of the rate support grant—this will doubtless cause me great difficulty in any coming negotiations—has been invented by the Treasury so that nobody can understand what is happening.
  The right hon. Member for Swansea, West asked me about a point about stability that was put to me when I had a meeting with local authorities in Wales last Friday at the request of the district councils. Of course, I should like planning arrangements that would give local authorities the maximum stability. In fairness to all of us who are involved in government, whether local or central, I should say that the reality is that we are happy with stability when the level of expenditure is to our satisfaction, but we are massively against stability when it is not.
  One point that was mentioned by the hon. Member for Brecon and Radnor (Mr. Livsey) was housing problems. From previous experience I know that one of the problems of suddenly increasing expenditure on housing improvements is that the jerry builder comes in on a massive scale very quickly and a lot of bad work is done very suddenly. It would be better if such things could be organised on a more planned and arranged basis.
  On the teachers' pay offer—the right hon. Member for Swansea, West said that it had been imposed—I believe that many people in the country would like such a pay increase to be imposed on them. That increase was provided by the Government and I hope that as a result of it relationships will be improved. All of us are constituency Members of Parliament and, over the years, meet teachers and visit our schools, and we have immense admiration for the great majority of teachers and for the dedicated work that they do for our children.
  My hon. Friend the Member for Delyn (Mr. Raffan) rightly referred to the problem of tackling surplus school places. It is not only a negative problem. As we all know from our constituency experience, the closure of any school of any description is unpopular with the parents whose children attend that school. However, we must weigh up carefully the costs that are involved in those surplus places and consider what that amount of money could do for education if it was better applied.
  Mr. Alex Carlile: Will the Secretary of State accept that when one is considering the closure of village schools, one 1230
  of the factors that one should take into account—I recognise that it is only one of the factors—is the position of the school as part of the community, and not only its position as an educational institute?
  Mr. Walker: Yes, of course I do. Indeed, there was specific mention of that in my party's manifesto at the recent election. I recognise that it would be easy for us all, as politicians, to say that we shall never be in favour of the closure of any school of any description and that that would be popular with the people who are immediately concerned. However, we do not have to face the other side of that equation. If the number on the school's roll is such that the expenditure involved is depriving other areas of education, a balance must be made. It is difficult ever to obtain that balance and to obtain popularity by supporting the idea that using that money elsewhere in the education system is wise and sensible.
  My hon. Friend the Member for Delyn gave some examples of the expenditure priorities for his county council. He rightly concentrated on the important factors that parents consider to be the correct priority.
  The hon. Member for Carnarfon (Mr. Wigley) dealt with some of the problems of planning and specifically mentioned the problems of tourism in some areas. I recognise that. At present a working party chaired by the tourist board with local authority and Welsh office representation has a remit to look for better methods of reflecting tourism needs. In due course I shall take account of the report and its results and consider them carefully. The potential of tourism in Wales is considerable, not just in terms of income and revenue, but in terms of job creation because it is a labour intensive industry. As the hon. Gentleman rightly said, tourism has far-reaching implications which affect local authority expenditure. I welcome the fact that at present this is being investigated and I shall examine the report with great interest.
  The hon. Member for Brecon and Radnor concentrated on education and criticised the Audit Commission. I have seen the work of the Audit Commission in a range of Departments and it does a sophisticated, good job. Obviously, if auditors are suddenly called to investigate a matter, they are not aware of all the implications. I would hate us to get into the habit of thinking that the Audit Commission is foolish, so we will reject everything it says. As a Secretary of State in various Departments I have found that it has come to correct, sensible conclusions which have resulted in considerable improvements in efficiency.
  On the other hand, if we think that the Audit Commission has reached conclusions without considering all the factors, the right process is for us to say immediately to it, "Interesting report, but we do not think that you have considered a, b and c. Look at those factors and come to a conclusion." The Audit Commission and LAMSAC, which is the local authorities' organisation for looking at efficiency, have produced good, valid reports. One of the disappointments is that some local authorities take them up and others do nothing about them. There is no doubt that when seeking to improve the efficiency of local authority expenditure we could learn a great deal from independent investigations which come up with ideas and suggestions.
  I should like to discuss with local authorities in Wales how, when reports are produced, we can, throughout the Principality, consider them quickly and decide whether

  1231
  they are a bad idea. We can decide then not to put them into operation because they are wrong for whatever reasons, or to implement them because they are a good idea. If we do that we shall improve the efficiency of both local and central government.
  Mr. Wigley: The Secretary of State will be aware that from time to time the Audit Commission in Wales has been criticised. Sometimes it has been felt that the Audit Commission relates to a norm, an average or its experience in a generality of circumstances which may not correspond to highly different circumstances and localities, whether regarding rural matters or the Welsh language. Can the Secretary of State impress on the Audit Commission the need to be sensitive to the differences that exist from area to area?
  Mr. Walker: Yes, of course. When we feel that the Audit Commission has got it wrong, instead of merely talking about it in a debate we should go directly to it and say, "You have done this before. We think you have got the report wrong for these reasons and we would like your comments on our argument against the report." Our relationship with the Audit Commission should not be hostile or particularly friendly; I want a genuine dialogue. We should look objectively at what it recommends arid take advantage of what we can.
  I commend the order to the House. It will provide the local authorities of Wales with additional money which they require for the purposes related.
  Question put and agreed to.
  Resolved,
  That the Welsh Rate Support Grant Supplementary (No. 2) Report 1986–87 (House of Commons Paper No. 23), a copy of which was laid before this House on 8th July, be approved.

  Urban Development
  10.14 pm
  The Parliamentary Under-Secretary of State for the Environment (Mr. David Trippier): I beg to move,
  That the Urban Development Corporations (Financial Limits) Order 1987, a copy of which was laid before this House on 1st May 1987, in the last Session of Parliament, be approved.
  Urban development corporations are set up under the powers in part XVI of the Local Government, Planning and Land Act 1980, to regenerate their designated areas. The bulk of UDCs' activities are financed by grant-in-aid, paid out of money voted by Parliament with additional finance provided by loans from the national loans fund. UDCs may also plough back their receipts.
  The 1980 Act set a limit of £200 million on the total of UDCs' grants and borrowing but provided for this to be raised to £400 million by order. The New Towns and Urban Development Corporations Act 1985 raised the statutory limit to £600 million with a similar power to raise it to £800 million subject to affirmative resolution of this House.
  Present spending plans for the current financial year would take UDCs' overall grant and loan to within £3 million to £4 million of the £600 million. My right hon. Friend the Secretary of State has therefore made this order, which will increase the limit to £800 million.
  The main functions of a UDC are to assemble, reclaim and service land, to provide infrastructure and to encourage development. A UDC brings a co-ordinated, single-minded and public sector backed approach to the regeneration of its area.
  Urban development corporations make effective use of public money by concentrating it on particular problems in particular areas and by using it to stimulate private sector investment. They represent a key part of this Government's attack on urban problems. There are now seven UDCs. The first two, the Merseyside and London docklands development corporations, were established in 1981. Five more have been established this year. Four of them are in England—the Black Country, Teesside, Trafford Park and Tyne and Wear development corporations—and one in Wales, the Cardiff bay development corporation. There is no doubt that Merseyside development corporation and London docklands development corporation, have been successful, although their job is not yet complete. The House might find it helpful to have a brief summary of their achievements.
  The Merseyside development corporation—
  Mr. Simon Hughes: Before the Minister tells us about the urban development corporations' achievements, can he tell us how much money per year the relevant local boroughs have had from the Government so that we can compare their ability to spend on equal terms? What do the three London boroughs get compared with the £800 million that he proposes for the LDDC and so on?
  Mr. Trippier: I knew that I was unwise to allow the hon. Gentleman to intervene. I can certainly give him the figures now for the amount that the LDDC receives
  1234
  annually, and I shall refer to those in my wind-up. If I have the information to hand, I shall try to make the comparison for which the hon. Gentleman asks.
  The Merseyside development corporation was set up because the Government recognised that the dereliction of the docks coupled with a depressed local economy called for substantial public sector resources to regenerate the area and stimulate private sector investment. Last month, within days of taking up my new responsibilities, I visited the MDC and was impressed at what had been achieved. The UDC had spent about £140 million in total. Its capital expenditure is already in excess of £100 million, with more committed. The private sector has responded and the results are there for all to see.
  The corporation mounted the country's first ever international garden festival in 1984, attracting over 3·3 million visitors. Its great success brought new confidence to the area. It has restored the Albert dock warehouses—
  Mr. Allan Roberts: What has happened to the garden festival site subsequently?
  Mr. Trippier: The hon. Gentleman knows very well what has happened. He will have heard me say, just a few moments ago, that I paid an official visit to the area. He is also well aware that the Merseyside development corporation is seeking, through a partnership with local authority, to work out a compromise so that that part of Liverpool can be further developed.
  The MDC has restored the Albert dock warehouses—the largest group of grade 1 listed buildings in the country. About 1·25 million sq ft of buildings have been refurbished. Partnership with the private sector has provided high-quality commercial development with the prospect of residential development to come. In 1988, with the opening of the Tate of the north in Liverpool, we shall see the completion of a transformation that has converted an area of gross dereliction into a hive of activity. By the end of the 1980s private sector investment in the Albert dock scheme is expected to exceed £60 million in return for half that amount from the public sector. Already some 2 million people visit the area each year and this is expected to rise to 5 million eventually. In all, over 200 acres of derelict land have been reclaimed by MDC for housing and commercial development and a further 200 acres of land and water have been reclaimed for recreation and public open space.
  MDC is extending its regeneration activities to the area south of the Albert dock and its waterfront strategy envisages a number of tourism and leisure-related projects that will bring desperately needed jobs and investment to the area. The corporation estimates that around 2,300 permanent jobs have already been saved or created within its area and this is not to mention the 1,000 or so people working at any one time on construction and related projects.
  I turn now to the London docklands development corporation. In July 1981, LDDC was charged with the regeneration of over eight square miles of London's docklands. Much of this area was severely run down following the closure of the docks and the associated decline of local industry. Land was left derelict and polluted. It was a formidable task. Just six years later LDDC has transformed its area. The docks are once again a focus for growth. Over £2·2 billion of private sector investment commitments have been attracted to the area

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  at a cost of only £324 million in public expenditure. So, for each pound of public money spent, £7 of private money have been attracted. About 7,000 homes have so far been completed on LDDC sites and on private land, mainly by the private sector; 2·5 million sq ft of non-residential floorspace have been completed, 7·5 million sq ft are under construction and a further 7·5 million sq ft are committed. Ten thousand new jobs were attracted to the area between 1981 and 1986.
  Improving access to this rather isolated area of London has been a high priority. The docklands light railway, which opens on time and within budget on 30 July, was promoted and part-funded by the corporation. Extensions to the east, and to the City, have now been proposed. In addition some 15 miles of new roads have been built. But the corporation's activities go far wider than that. Some 227 environmental projects have been carried out at a total cost of £26·7 million. About £10 million has been given to projects in the community and social areas to help meet LDDC's wider objectives of making docklands a pleasant environment in which to work and live and £2·4 million has been given to new and existing smaller businesses to ensure that they can survive and expand alongside the major schemes.
  The corporation's latest corporate plan shows planned expenditure rising rapidly as its infrastructure programme reaches its peak. Some £135 million is to be spent on projects in this financial year alone, financed by a combination of grant aid and receipts from land sales. Over the next six years to 1993, LDDC has plans for an impressive list of infrastructure, social and environmental projects that will be financed partly from land sales. They will bring the process of regeneration rapidly to the point at which it is self-sustaining. Private sector interest is high. There is now competition for development in an area which, not many years ago, no developer would consider.
  I turn now to the new UDCs. The four new English UDCs were each the subject of preliminary studies by consultants. Each UDC will be responsible for drawing up its own strategy, but the consultants' reports indicate what they might achieve. For example for Trafford Park DC, the consultants anticipate nearly 1,000 acres reclaimed or developed, well over 10 million sq ft of floorspace developed and more than 700 houses provided. For the Black Country DC, the consultants recommend the construction of a spine road and anticipate as much as 4 million sq ft of industrial development, 1,700 new homes and 250 acres of open space and parks.
  On Teesside the consultants believe that 1 million sq ft of industrial and warehousing space could be provided, a further 1 million sq ft of commercial and retail space and over 2,000 homes. Their recommended strategy includes several projects to change the image of Teesside, including an international nature reserve on the wetlands to the north of the Tees.
  In Tyne and Wear the consultants envisage that nearly 1,000 acres of derelict land could be reclaimed for new development, with the creation of over 1 million sq ft of commercial and industrial floorspace and 1,300 houses, taking advantage of the dramatic and potentially attractive locations provided by the rivers.
  Mr. Michael Fallon: Will my hon. Friend confirm that both those assessments include assessments
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  of the potential for job creation and that the total for the two corporations is over 9,000 jobs—6,000 on Teesside and 3,500 on Tyneside?
  Mr. Trippier: I am grateful to my hon. Friend for his intervention. It is vitally important in all those areas—the four UDCs that have already been established and those to be established—that we try wherever possible to encourage enterprise. An important part of that process is encouraging the new jobs that go with that enterprise.
  The Cardiff Bay DC is the responsibility of my right hon. Friend the Secretary of State for Wales. I understand that it, too, has embarked on a series of studies to examine development plans. Our initial estimate is that the new UDCs will each spend more than £100 million over the next decade. The total amount of spending, and its profile over time will depend in each case on the quality of the proposals that they bring forward, the response they receive from the private sector and public resources available.
  Whatever the precise allocation of resources to the UDCs, there is no doubt that the total funds to be made available to them must be significant if they are to achieve their goals. This order provides the headroom within which the first two UDCs can build on their success, and the new UDCs can embark on the first stage of their task. I commend the order to the House.
  10.26 pm
  Mr. Allan Roberts: The procedure on financial limit orders such as the Urban Development Corporations (Financial Limits) Order 1987 is that the Opposition usually does not vote against increases in money that might bring some benefit to areas. To all intents and purposes, this order appears to increase funds. The maximum allowed by the Local Government, Planning and Land Act 1980 was £400 million. As the Minister has said, the New Towns and Urban Development Corporations Act 1985 increased that amount to £800 million. We are now considering an order that will allow a maximum of £800 million. However, there is one difference. When it was £400 million, there were only two development corporations—London and Liverpool. There are now another five. The increase from £400 million to £800 million for seven urban developments rather than two is not an increase: it is a major cut. If £800 million has to be shared among seven urban development corporations, when previously there was £400 million shared between two, the seven will not get as much as the previous two. That is common logic. That is not a massive increase.
  Mr. Trippier: The hon. Gentleman should bear in mind the size of the areas that we are dealing with—the size of London docklands compared with the size of Merseyside. It is very different indeed.
  Mr. Roberts: I shall come to the size of the area and the unique nature of the London docklands in a minute when I will point out where the Government's policies, in trying to project what they call a success in London docklands. are misguided. It is misleading to suggest that there is a massive increase in money. Notwithstanding that, the Opposition will not divide the House. Whatever little money for public expenditure one manages to wring out of a Conservative Government is welcome when they are the Government who cut public expenditure. There should be no mistake that it is a cut.

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  This is an important debate because the concept of the urban development corporations, as the Minister has tried to outline, is crucial to the Government's so-called inner-city policy initiative. There have been two long-standing urban development corporations that the Government claim are successful that we can look at in terms of the policies outlined by the Government. Apart from the selling-off of council estates over the heads of tenants, and in some cases the selling-off of tenants, this seems to be one of the crucial parts, with no great increase in public expenditure, of the Government's long-heralded inner-city initiatives.
  The London docklands development corporation is unique. To suggest that eight square miles of land, with massive areas available for housing and other developments, situated right in the centre of London next to the City can be repeated elsewhere throughout the country and applied in other inner-city areas is nonsense. Whether one considers it successful or unsuccessful, as some of my colleagues will say later, it is unique. There is no City of London, or equivalent in Merseyside, Tyne and Wear, Trafford Park, the Black Country, Teesside or Cardiff. What the London docklands development corporation has done will not be repeated elsewhere and has not been repeated in Liverpool, where the docklands development corporation covers parts of the city of Liverpool and parts of my constituency in the local authority area of Sefton.
  The other major difference between the London docklands development corporation area and the Merseyside experience is that there were people living and working in the London docklands before the development corporation was established. That was not true, except for one small council estate in my constituency, of Liverpool docklands.
  Despite what the Government claim, the way that the London docklands has been developed by the corporation has ignored the local people. The corporation has brought in city-type office development; there has been speculative development; buildings have been erected; the plastic, steel and glass is there and there is plenty of activity for everyone to see, but conditions for local people have not improved in terms of jobs or housing conditions. Nothing has been done for the local community.
  Jobs and housing are the two key matters with regard to the inner city—except for law and order and drugs—at which Government policy is directed. Jobs have been created in docklands but others have been driven out to make way for the large, prestigious, speculative developments. Compulsory purchase orders have been used on small and medium businesses that used to employ local labour, which has now been driven out. As my hon. Friend the Member for Newham, South (Mr. Spearing) will point out later, on the Government's figures there has been a net loss of jobs.
  Of the jobs that have been created, only 8 per cent. have gone to people who were living in the area before the London docklands development corporation was set up. The local community has been shut out. The developments that the docklands corporation has initiated have been for labour that is commuting in to the area. The docklands light railway may be a welcome development, but it does not go through the populated areas where the existing communities live. It is designed as a form of in-and-out transport and the proposed new West Ferry road, if it is
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  built, will destroy local communities in docklands. A lot of the activity has been speculative and has created jobs for people outside, with some people coming from the United States of America. When I was in America recently there were advertisements in the press about the luxury housing in docklands saying, "It is the place to move to; bring your business and buy a house."
  As to housing and private capital, 90 per cent. of the available land in the borough of Tower Hamlets for housing was handed over to the development corporation. What did it do? It massively increased the land values. That increase in land values has been the main source of finance. The private finance that the Minister talks about is not people putting money down, it is people obtaining land, selling it at inflated prices and using that money to build in docklands for profit. That is where a lot of the private finance has come from. No real private capital has yet been invested on any significant scale, except for what has accrued from the massive increase in land values as a result of the development corporation being declared.
  The consequence of the massively inflated land values is that housing is for sale at prices that none of the local people have any hope of affording. One has only to look at the advertisements for houses. A one-bedroom flat in Acorn yard costs £41,000. A three-bedroom house in Greenland quay costs £109,000. The development corporation claims that it offers the houses at, for example, £40,000, but that is a lot of money for people on Merseyside and elsewhere. The development corporation thinks that that is cheap. Local people cannot afford that, but within three or four months of them being bought the houses are resold for £100,000 or more. I know, because I live in the east end of London, that if one wants to get hold of one of the houses and one is not a local resident, there are rackets for buying fake local rent books so that one can prove that one is a local resident in order to buy a house at £40,000. Such houses are not lived in but are sold for £90,000 or £110,000 a few months later. Therefore, there is no housing for local people, but the areas are attracting a lot of people who are very rich and can afford houses at prices of £100,000.
  It is obscene that there are 7,000 people on Tower Hamlets' waiting list. There are 1,000 homeless people in Tower Hamlets. The Liberal council is claiming that it cannot house the Bengali families and is evicting them. It is obscene that they cannot get housing but that riverside flats are selling for £500,000. Local people, because of those developments, are being denied access to their own river in the area where they grew up. That is the sort of casino economy that is being created in the London docklands.
  However, Liverpool is different. As I said, very few people lived in the docklands area except for those on the small Rimrose estate. As the Minister admitted, the Merseyside docklands development corporation has produced only three initiatives. One was the garden festival. That was very successful as a one-off. People came to see it. It was very prestigious. However, the year after, because the Government would not support Liverpool city council and the other local councils in terms of rate support grant to enable them to take it over, a company called Transworld took it over. That company opened it for one season and then went into liquidation leaving hundreds of thousands of pounds' worth of debts. Since then—the Minister said that he has visited the area—there is a big fence around it, local people cannot get in.

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  There is nothing there except the remains of a garden festival that once existed, with a fence round to keep people out because the Government, for doctrinaire reasons, would not allow the local authorities to take it over and run it and would not give them the rate support grant to enable them to do so. That was one initiative that was welcome at the time but it did not last very long.
  Another initiative is the Albert dock. It is said that 90 per cent. of the contracts to develop it went to local firms, which, I should point out, do not necessarily employ local labour. The dock is welcome. It looks good. I visit it and enjoy it. However, if anyone suggests that that is a significant contribution to the area or that it will have a significant impact on the inner-city problems of Merseyside, Bootle, Liverpool and elsewhere they are fooling themselves. It is very nice and it is welcome but it is not stopping the hard drug-taking. It has done nothing about the high levels of unemployment, especially youth unemployment on Merseyside.
  The other day I went just one mile away in my constituency and drove around with someone I brought in from another part of the country. We had just visited the prestigious Albert dock and as we were driving around my friend said, "Do you know what this area reminds me of? It is like the pictures we see on television after the bomb has dropped. It is like the pictures of where the survivors live after a nuclear war." The dereliction and empty factories are there for everybody to see. Welcome as the Albert dock is, it is not a major contribution to solving the inner-city problems of Merseyside.
  Another initiative, welcome in itself, is that the development corporation has taken the negative value away from derelict land by cleaning it up. The land is there with big signs up advertising its availability. The trouble is that nobody has come to build factories on it. There is nothing on the derelict land, even though the negative value has been taken off by public expenditure.
  As the Minister said, there is a hope that there will be a leisure scheme, a conference centre and a hotel built in parts of docklands. I hope that it happens, but this must be about the tenth time that those things have been proposed for Merseyside. Even in the days well before the development corporation we were told that people were coming to carry out that sort of scheme. What we need from the Government is public expenditure to make sure that kind of thing happens, because it is vital pump-priming.
  I say to the people who have urban development corporations in Tyne and Wear, Trafford Park, the Black Country, Teesside and Cardiff: do not be too optimistic. As we have seen from the Government announcement today, there is a little bit of public expenditure, a bit of pump-priming and a lot of window-dressing. Those things will contribute to a small extent to the provision of some facilities, although they will create other problems for local communities of the kind that we have seen in London docklands.
  What we really need is mainstream expenditure on housing, education, social services, on cleaning up the environment and on creating new jobs. The Government shy away from that and, having made massive cuts in rate support grant, they set up these development corporations as a substitute, as palliatives. We shall not vote against the extra money, because we are lucky to get any public expenditure out of the Government. However, we say quite clearly that it is too little and it is window-dressing.
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  The Secretary of State for the Environment in 1981 was the right hon. Member for Henley (Mr. Heseltine). Speaking to the Tory party conference he said that the principle of self-help was not applicable to inner-city problems. He said that the Tories must realise the true impact of unemployment. He went on:
  "But if the case can be made it may also be from extra public expenditure.
  In the inner cities, none of us can act on a scale and with a speed that has the measure of the present recession."
  The right hon. Member for Henley said that on 9 October 1981. Those remarks are still applicable, but the Government are not listening. We welcome the little that they are doing, but it is not enough and they know it. This is no substitute for real policies to deal with inner-city problems.
  10.42 pm
  Mr. Michael Fallon: This order is warmly welcomed on the Government side and for a reason that may surprise some of my hon. Friends. Contrary to what we have just heard, the initiative to set up urban development corporations is now beginning to attract a measure of all-party support. My hon. Friends may have thought that the speech by the hon. Member for Bootle (Mr. Roberts) was a little grudging. There was a recognition that the money was all right but that it was not enough. Just two months ago some of us sat on the Statutory Instruments Committee at which the development corporations were set up. We were told by the hon. Member for Jarrow (Mr. Dixon) that if Labour came to power in the general election it would repeal the legislation to provide these urban development corporations.
  We ought to be grateful for the grudging support from the Opposition Front-Bench spokesmen. Indeed, such support is perhaps spreading. At Question Time today the hon. Member for Durham, North-West (Ms. Armstrong) asked the Secretary of State for the Environment whether he would set up a development corporation in Consett. She obviously welcomed this sort of initiative that we are pioneering elsewhere.
  The second reason why urban development corporations and the order are to be welcomed, is that those corporations are now finally up and running. That has not taken long. It is less than a year since it was announced at the Conservative party conference that more urban development corporations were to be created. The original two in London docklands and on Merseyside have been followed by five more. The corporations being established are important for every region in which they are being established, but they are especially important in the northeast. Two of the five corporations being established are in the north-east.
  The hon. Member for Bootle spoke about increasing mainstream expenditure to the north. He seems not to have understood that one of the fundamental problems of the north-east is that we have had all the mainstream expenditure. We have had oodles of it. We have had regional aid, rate support grant, housing benefit and subsidies for nationalised industries. Everything that is going we have had. However, the assistance that the region has had now for 25 years has been spread far too widely. It has been blanket regional aid. It has been thinly spread subsidy for nationalised industries. It has been lop-sided rate support grant when what we needed—it was not

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  until this Administration came to power that it was recognised—was much more specific help targeted clearly on those areas in the greatest need.
  It is no accident that where public money has been targeted most precisely and specifically, there we have had the best results. Examples are the enterprise zone in Hartlepool, the specific help given to Consett through the Derwentside industrial development agency, the assistance given by the Shildon and South Durham development agency to Shildon, when the railworks were closed. It is in those areas, where public money has been targeted, that the jobs are beginning to return.
  The initiative in setting up the urban development corporation on Tyneside and Teesside recognises that, and that the historical and structural problems of the northeast are largely centred on the rivers of Tyne and Wear and Tees. It was on the rivers that the older industries were created and became established—shipbuilding, iron ore, steel works and so on. People were drawn to the river areas, and labour was imported there 100, 75 or 50 years ago. It is in those areas, where those industries have retracted the employment and people have been thrown out of work, that the greatest need is now apparent. The Government, in earmarking the river areas of the northeast, have got it right.
  It is also no accident that in those river areas local government has failed, for example, in London, where too many local authorities were getting in each other's way, and too many Labour authorities were choosing the route of high spending, and putting up rates, driving out industries and the jobs that go with them.
  Miss Marjorie Mowlam: I shall ask the hon. Gentleman two questions. First, will he explain how, on Teesside, the 43,000 jobs lost under the Tory Government will be replaced? For example, on the water front, about which he is talking, how will a nature reserve and investment of £10 million solve the problem of our job losses?
  Mr. Fallon: I was waiting for the second question. The answer to the first question is that it is estimated that this single urban development corporation on Teesside will create, over the lifespan of its initial existence of five to seven years, some 6,000 jobs. That is no mean achievement, and should not be lightly disregarded. We all know that we have lost jobs in manufacturing and the older industries, but if I had been told four years ago that the Government would take a single initiative, and create through it some 6,000 jobs, even I might not have believed it.
  I was saying that it is no accident that it is on the riverside areas that local government has failed. The plain fact is that it should not be—[Interruption.]
  Mr. Deputy Speaker (Mr. Harold Walker): Order. There is so much sedentary noise below the Gangway that I am not quite sure to which speech I am listening.
  Mr. Fallon: It is no accident that urban development corporations are needed now. They would not be needed to get new business into those riverside areas if local authorities had not already failed by driving business out of those areas through their high-rating policies on Tyneside and Teesside.
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  I believe that the two new corporations that we are financing through the order tonight will cut through the problems with local authorities, the bureaucracy, the inertia that is attracted to bureaucracy and the inherent tendency of labour bureaucracies to choose the highspending, job-destructive route.
  The two corporations will succeed, for three reasons. First, they will be very specific, as I have already argued. They will target their resources on relatively small geographic areas. I accept that Teesside is one of the larger areas, but by targeting on such areas that does not mean that they will not be helping the region as a whole. My constituents in Darlington will benefit because they will be able to find jobs in the new businesses that will be brought to Teesside just as jobs will be furnished for those who worked in the older industries. That means that the considerable amounts of money that are spent specifically and locally on Tyneside and Teesside and in development corporation areas will have a much wider and more subtle effect at spreading prosperity and job opportunities more widely across the north-east.
  Secondly, the corporations will succeed where local authorities have failed because the corporations have the powers necessary to do so. We have already heard that the corporations have planning powers, and the hon. Member for Bootle was jealous of that. They have powers of compulsory purchase to cut through the inertia that bedevilled the London docklands for so long. They will have the ability to bypass the local politicians and to do in their areas what the London docklands development corporation has done in its to secure regeneration.
  Thirdly, they will succeed because they will have the resources, although not the huge sums that have been spread so widely through regional aid or rate support grant which has been spent on subsidising a vast political clientele through housing benefit and rent subsidy. They will have resources specifically to prime the pump for new investment which will help to refurbish the old industrial landscape to attract fresh investment into those areas and the private sector finance that will follow.
  Those of us who are serious about regenerating the economy of the north-east will wish the two urban development corporations well. If we are to regenerate the north-east we must begin by regenerating the riverside areas and helping the people who live there. That is the secret to re-establishing a firm economic base in the northeast.
  10.52 pm
  Mr. Simon Hughes: I understood from the Prime Minister's first words after her election victory that she was specifically interested in the inner cities. She said so. However she betrayed her motivation at the same time. She said that she wanted them "for us now". That is what has been happening.
  I am glad that the Secretary of State is in the Chamber. The trouble with the Tory party is that it sees what it wants to see and excludes a lot of the unpleasant truth. I am sad that the Minister—whom I welcome to his new job—went through his opening speech with such a flat apparent disinterest in communities where people live and want to continue to live in prosperity.
  There is a difference between the London docklands development corporation and the other development corporations. The main difference, as the hon. Member for Bootle (Mr. Roberts) said, is that there was a community

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  resident in the London area first, whereas there was no such community in the other areas. There is all the difference in the world between developing a vacant site and developing a populated one. The people who live on the site might be asked what they want to happen as they know the area better than anyone else.
  Of course we welcome the one third increase in public money. Southwark, Tower Hamlets and Newham councils would also welcome a statement from the Secretary of State next week that he will increase their rate support grant by one third, but he will not do that.
  The right hon. Gentleman will probably rate-cap one, two or three of them, or plan to do so again. That will cut the public money that locally elected councillors of whatever party can spend and allow the unelected appointees of his office to spend in their stead. If the money is available, there can be regeneration, but in whose interest will that be? The interests that should be served are clear, and we want regeneration for obvious reasons.
  In my constituency there is 28 per cent. adult male unemployment. The percentage became substantially higher following the establishment of the London docklands development corporation. Where jobs have been created, they have gone substantially to people who live outside the borough. These jobs have been created largely in service industries, which do not require the natural skills that those in the community want to develop and to find employment in.
  There are many jobs that could be done but the strategy has not been to allow the local community to develop the self-help that the right hon. Member for Henley (Mr. Heseltine) talks about. It has been self-help for those who have come in with the money and paid the highest price. The regeneration has been in and for the interest of those who started off best. Opposite my home is a site that was sold the other day to Ideal Homes for £20 million. I gather that it is to parcel it up and sell it on. The consortium that was willing to buy the site partly for rented housing, partly for housing associations and partly for co-operative housing was not allowed to do so. Instead, the site was bought by a private developer who is planning to sell it on, for profit, to other developers, and mainly for private housing.
  Most of those in my community cannot afford the prices that private housing now commands. Some private flats are being sold for £2·5 million each, while for those in work the average income in the area is between £100 and £200 a week. This is not regeneration in the local interest. Many of the new flats are going to employees of foreign companies. These are foreign employees who already have homes elsewhere and who should be subject to planning permission when it comes to second homes, bearing in mind that there are 15,000 in Southwark on the housing waiting list. Those 15,000 are waiting for a decent first home. This is not regeneration in the interests of the local community.
  The land sales and the speculation in development are horrendous. The land price is £1 million an acre. It is immoral that the community has to battle for small pieces of land for a little more rented housing, sheltered accommodation for the elderly or more play space, when down the river the Kuwait Investment Office, through the arm of the St. Martin's Property Corporation Ltd.—I raised this issue on the Adjournment on Friday—wants to erect a building that would look rather like this palace
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  but much larger. It would provide 1·2 million sq ft of office development on a prime riverside site, and it would dwarf everything around it.
  There is no employment strategy. Until last year, the LDDC did not have such a strategy, and it is only just beginning to put one together. There is no community development strategy. I do not mind if the Minister does not accept the truth from me because of my political partisanship, but I suggest that he speaks to the Prince of Wales. The Prince visited Tower Hamlets the other day and he was not pleased with what he saw. He saw housing conditions that the Select Committee on the Environment, which is chaired by a Conservative Member, said demanded a national response from this Conservative Government. The Minister should talk to Prince Philip, who chaired the inquiry into British housing, about the housing policies that should be implemented in the inner cities. The princes have views that are certainly not those of the Government.
  Mr. Nigel Spearing: Is the hon. Gentleman aware that the Prince of Wales said—this appeared in an article in The Times of 4 July—that we want to regenerate the environment and
  "to create viable and self-sustained communities"?
  The Act on which all these considerations must be based does not require anything to do with people. Instead, it is directed to regenerating profit.
  Mr. Hughes: The hon. Gentleman knows as well as I do that the original Act lays down no requirements that the community should have a role to play. That is the fundamental failure. The Government proclaim the morality of the family but ignore the community. To develop over the top of community is to deny the history of the riverside communities, which the hon. Member for Darlington (Mr. Fallon) so lauds, and which have contributed as much as any. It also denies their ability to contribute, which is enormous, and it is what they want to do. Give them decent housing, whether as owner-occupiers at a low price or for rent, public transport and jobs and they will contribute with proper community development.
  The hon. Member for Darlington may not yet accept what I am saying, but if they are willing to do so, he and the Minister should come to my constituency, where they can listen to people who have lived through the development of the LDDC and who have battled to hang on to any of the principles which communities are about.
  Money could be spent well. It could be spent on providing a decent public transport service north and south of the river. It could be spent on ensuring that our environment is more pleasant, that there is more green space, that there are more open amenity areas and more community facilities. In the basics, however, such as jobs and housing, we must respond to need rather than demand.
  The Minister said that there is now competition for development. It is no use having competition for development when local people cannot begin to compete because the price is way beyond their reach. The London docklands is often a rip-off working for the profit of those who started with the most. That is unacceptable, arid it should be unacceptable to people of decency on the other side of the House.
  11.1 pm
  Mr. Den Dover: Anyone who has listened to the debate so far must conclude that the hon. Members for Bootle (Mr. Roberts) and for Southwark and Bermondsey (Mr. Hughes) are keen on public investment in inner cities, whereas our Minister has rightly emphasised how well we have done to attract private investment.
  Nobody could have predicted the liveliness and regeneration of the past seven years in the previously derelict and despairing docklands area. I applaud the foresight of my right hon. Friend the Member for Henley (Mr. Heseltine), then the Secretary of State for the Environment, who did a marvellous job in the docklands and tried to follow up that success in Merseyside.
  The Back-Bench Committee on Urban Affairs and New Towns, has considered what needs to be done in inner cities which have had the traumatic experience of job losses and a loss of public confidence and faith in the future. We strongly recommended urban development corporations, which should be scattered around the United Kingdom. I greatly welcome the Government's emphasis on inner cities for the future.
  In the east end of London, we have 96 per cent. rented housing. How can that be sensible when we have 70 per cent. owner-occupation in other parts of the country? Private developers such as Wimpey, for whom I worked part-time until the end of last year, have invested in the land, often when it was of negative value and put down houses. People have met that supply of housing with their own cash. Whereas working people in the east end were hamstrung and had to look for rented housing, they have been able to buy housing which has greatly increased in value, thus helping to transform the area.
  It must be said, however, that the opportunities in docklands are much better than in Merseyside. A few years ago, though, one would never have expected private investment and jobs to be brought to an area so that local people would have jobs in services, construction and transport. Therefore I welcome the investment and the increase in borrowing powers to ensure that the inner cities are revitalised. The Trafford Park area and the west midlands are very anxious that this development should take place.
  I am sure that there will be sensible investment in the infrastructure by the development corporations. There should be small teams of chief officers and experts, because more of the work ought to be handed to private sector consultants. There will be investment in private housing. In the past there has been only rented accommodation and public investment. Land values will increase. The hon. Member for Bootle referred to negative land values on Merseyside. I agree entirely with him. That has to be contrasted with what is happening in docklands and what will happen in the four urban development corporations. All that the Opposition can offer are sour grapes, even though the Government's strong initiative strikes at the heart of regional needs—the need for private investment and the need for an act of faith by the Government of the day. I applaud what the Government are doing.
  11.6 pm
  Ms. Mildred Gordon: As this is my maiden speech I take great pleasure in paying tribute to my predecessor, Ian Mikardo. He represented constituencies in Bow and Poplar for 23 years, and he first entered the
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  House in 1950. He was much loved and respected both here and throughout the country for his wit and wisdom. I wish him a happy retirement. I hope that he will write his memoirs so that we can all read the many wonderful stories that he has to tell. My predecessor loved this place and I hope that I shall find it as attractive as he did. When I arrived here I was greeted with cries of, "When are you going to start the book?" I have to inform hon. Members that I shall disappoint them, as I have no talents in that direction.
  At first, I found that many things here were strange. It is strange to be debating a serious subject at this time of night. Perhaps this accounts for the fact that out of 633 Members of Parliament only 41 are women. What young woman with children could be attracted to a place in which one has to spend half the night and work such unsocial hours?
  At one time I taught in Holloway prison—I hasten to add as a visiting teacher. It shares many similarities with this place, which is dark and gloomy. We lose our name and we are referred to by the name of our constituencies. We hardly see our families, unless they come to visit us in the family room. That is another reason why women are not attracted to stand for Parliament.
  The sentence that the result of the election has given to my constituents is very serious. It means that many of them are imprisoned for another four years in crumbling flats and in the despair of poverty and unemployment.
  I am very honoured to represent Bow and Poplar. I ask for the indulgence of the House while I speak about the east end. I was born and bred there; I went to school there; my father was a Stepney councillor; I taught for many years in east end schools.
  I feel that I know what is needed by the people in the east end and how they feel and think, because I have suffered from many of the same problems. There is widespread unemployment, 28 per cent. among men and 15 per cent. among women. There is a serious problem of homelessness and higher than average mortality and perinatal mortality rates. There are long hospital waiting lists, fewer cars than average and bad transport, particularly from north to south.
  Lest anybody should think that all is bleak and gloomy in the east end, I must point out that there is much there that we treasure. There is a rich cultural life; enriched by people from many parts of the world. We have the river. The area in which I was born, once known as Red Cliff, was a salubrious area centuries ago, where people from the City went to take the air and to convalesce. So there is a natural beauty in the area, which has been destroyed by man.
  There is also warmth and compassion, and the companionship that enables poor people to survive harsh conditions. There is great courage and close family life, which is under threat because the children of people living in the east end can no longer afford to live there. When they move out, their parents will be left alone to fend for themselves, which is not as it should be.
  I lived in the east end during the war when we were under serious threat, but we fought back. I was an air raid warden. My first ideals of Socialism were strengthened when I saw ordinary working men and women, who had never been given the chance to do anything but menial jobs, take command during air raids when the area was cut off. The sent for the fire and rescue services and saw about people being clothed and fed. They did all that and I

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  realised the talent that is wasted among working people because this society has no use for it and does not allow them to get out into the light and to use it.
  We are under attack once again. We are under attack from the reforms that are proposed in the Gracious Speech. We cringe when we hear the word "reform". I am reminded of Humpty Dumpty in "Alice Through the Looking Glass", who explained his strange use of words.
  "'When I use a word' Humpty Dumpty said 'it means just what I choose it to mean—neither more nor less.' 'The question is' said Alice 'whether you can make words mean so many different things.'
  'The question is' said Humpty Dumpty 'which is to be master, that's all.'"
  In this Government's looking-glass world, the word "reform" is used to mean the opposite of reform. It is used when the Prime Minister means that she is going into the attack. To people in Tower Hamlets, the "reform" of education means that the prices of school meals will increase and that the children whose parents cannot afford the extra fees for woodwork or home economics will be excluded from those extra subjects. Where are we to find the extra teachers to look after the children who will be excluded from those subjects because their parents do not have the money to pay for the materials? "Reform" in education will also mean the introduction of something like the 11-plus. As a former teacher in the east end, I shall have a great deal more to say, when the time comes, about the obscenity of the 11-plus and the loss of confidence that system brought about in 90 per cent. of the children whom I taught.
  The "reform" of the Health Service means that we already have a private hospital that is drawing staff from the London hospital, and increasing the waiting lists for people who cannot afford to do other than use the Health Service, which is no longer serving their needs as it should. I have dozens and dozens of letters that are cries of pain from people who cannot get the treatment that they need and, indeed, the treatment for which they have paid when they paid their national insurance contributions.
  The "reform" of social security will be an attack on young people who are unemployed. It will make them work for a pittance and undercut other people's wages. It will cut the maternity grant and various other benefits.
  The community charge will increase costs for everybody in Tower Hamlets. The average rate per household is £548 and the estimated community charge per adult will be £639. Therefore, even a pensioner or any single person living on his own will have to pay £91 more per year under the community charge. So much for reform.
  Now the Government's reforming zeal has been turned to the inner city. The London docklands development corporation is put forward as the jewel in the Government's crown—a blueprint for urban development corporations in other major cities. But we who live with the problems created by the LDDC can tell hon. Members that the jewel is paste and the crown is tarnished. A historic opportunity to solve the housing problems of the east end once and for all is being frittered away.
  In Tower Hamlets we need an improved environment, homes and jobs. Let us examine the record of the LDDC. As a child I grew up within the sound of the river, but not the sight of it. I could hear the ships' horns, but in front of me was a grey dock wall. There was a little park some distance away where a small area of the river bank was
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  open and we played. I hoped when those docks closed and the jobs were lost that there would at least be some community gain and at last we could have a riverside walk.
  Some £300 million to £400 million has been spent. When I visit the east end and the Isle of Dogs today I get the feeling that it is as the Wild West must have been. There is plunder in the air. The biggest growth industries are wine bars and real estate agents. The area should be developed for the benefit of the people. I do not believe that anyone should be allowed to build right on to the river hank. It should be for the use of the whole population, not for the pleasure of the privileged few.
  The proposals for Canary wharf are architecturally and otherwise obscene. It will obscure the view of Greenwich which east enders have enjoyed for many generations. Land prices are rocketing and house prices are spiralling. I have a cutting from a local newspaper about a new development which has just come on the market in Wapping and it states:
  "Under LDDC rules the homes were offered to Tower Hamlets residents for the first month, but there was not a single offer from local people for the flats which cost £90,000 plus."
  What a mockery! On paper the residents have the first offer of the houses, but they cannot afford to pay for them. Instead the houses go to outsiders and local people have no chance to live in the area where their families have, always lived.
  Has the money used by the LDDC been well spent? It claims that 8,000 additional jobs have been created, but more than 5,000 of them were transfers from the outside, from Billingsgate and the printing industry. Only 2,800 of those new jobs were real new jobs. Some 3,355 jobs have been lost through firms being squeezed out by compulsory purchase orders and rising land prices. Despite all that money being spent, there has been a net loss of 517 jobs. So much for the benefits that the LDDC has brought to the unemployed in the east end.
  Canary wharf is in my constituency on the Isle of Dogs. This huge development was given planning permission in two weeks—less time than it takes to get planning permission for a fish a chip shop. After 18 months the master building agreement is still not signed. Two of the developers have pulled out and now a new developer from Canada is said to be moving in. It is all secret. We do not know what is happening. We are not consulted. The development is simply being imposed on us. The land was offered to the Canary wharf consortium at a price well below its market value. We do not know how the price was arrived at. Was it based on a certificate from an independent valuer or did the Department of the Environment give its specific consent to dispose of the land at a price lower than its market value? We have not been told.
  The local community groups do not want Canary wharf. They do not want the docklands highway that is to go with it, which will make life a misery for many local people, and they do not want to have anything to do with the obscene idea of a £30 million memorial statue in an area where so much else is needed. These disgraceful ideas have nothing to do with the needs of the people in Bow and Poplar.
  Peat, Marwick, Mitchell and Co., the accountants of the LDDC, reported that the number of jobs that we had been told that Canary wharf would produce had been vastly overestimated, that most of the jobs would be for

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  people brought in from the outside once again and that only about 1,800 jobs would be provided for local people. Most of those jobs would be part-time and many of them would be cleaning jobs. The developers, on the other hand, were to get very great gains. They would get tax relief which could be written off against of any of their developments anywhere in the country and the Exchequer would pay about £80 million in lieu of rates. Tower Hamlets council will not gain because it will lose the block grant. It will lose £1·3 million for every £1 million of rateable value of Canary wharf and there will be a net loss to the community.
  Canary wharf will change the face of the east end and of London. It will extend the City into the east end. Aldgate already looks dehumanised. It is already part of the City, and that change will go further. Local people are considered to be in the way. This is not the first time that people have been pushed out because they ae considered to be in the way. It happened in the 18th century to the peasants, with the enclosure of the land. Today some councils are selling off council estates, moving the tenants out and handing those estates over to private developers.
  The London docklands development corporation commissioned a report by Sandra Wallman of University College. She started with recommended points for the consortium of Canary wharf. She talks about dockland traditions, and this is very significant. She said:
  "This issue is more diffuse, covering the need for some parcel(s) of land to be held in trust so that the continuity of the traditional community is assured, the matter of local place names and the environment. Commitment to local identity in all its forms is a serious need at this initial stage."
  What does that mean? Does it mean that the east enders are to be pushed into some parcel of land that has been set aside, just as the red Indians were pushed into reservations? At least the Dutch bought the island of Manhattan for beads; the LDDC is getting the Isle of Dogs for a song. Is it considering allowing a small group of east enders to stay on the Isle of Dogs to be a sort of living museum—a "chirpy, cheeky, Cockney, chappy" living museum? Would we be walking around wearing cloth caps and mufflers and saying, "Gor blimey, Guy. How's your trouble and strife? She's up the apples and pears." What kind of nonsense is this? Is this what the LDDC has in store for us? Is the City to move in and take over while a few of us will be allowed to stay on some parcel of land, squeezed into a corner of the Isle of Dogs? East enders are not going to stand for that. We refuse to be treated like this.
  East enders are proud people; they are fighters. They fought Mosley in Cable street. They knew how to unite—community side by side with community—against the people who were attacking them. They stood firm during the war and they will stand firm against attacks on their way of life today.
  We are not backward-looking. We want to keep the best of the old traditions and we want to take advantage of new technology. We want the training that is needed to go with that new technology. We want homes with gardens for our people and for the children. We want jobs and a better environment. We do not want decisions that affect our lives to be taken in secret. We want democratic control of the land to be returned to the community. As we have
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  resisted before we shall resist the LDDC plans that are against our interests now. I shall be proud to be part of that resistance.
  11.25 pm
  Ms. Hilary Armstrong: As other hon. Members have noted, one of the first acts of the Prime Minister after the election was to reassure us that the Government would do something about "those inner cities" and especially about jobs. The urban development corporations are the Government's answer with regard to jobs and are a means of interfering in the market mechanism.
  I welcome that readjustment and realignment in Government thinking. I particularly welcome that change in the hon. Member for Darlington (Mr. Fallon). For many years the hon. Gentleman had preached to us that we should rely upon the market mechanism. I am pleased that there is a recognition of the fact that the market mechanism has signally failed areas such as the north-east.
  For years we have known that markets, left to their own devices, cannot create the jobs that are necessary to overcome the divisions we know and experience in British society.
  Apparently this £800 million is all there is. I presume to intervene in this debate even though I know that there is no hope of anyone in my constituency benefiting from the establishment of the UDCs. The Under-Secretary of State made that clear in his answer to my question. I believe that he also made it clear that the rationality behind the criteria used to decide which areas will get that aid is somewhat questionable.
  My constituency meets all the normal criteria in terms of unemployment levels and deprivation. Every Government report recognises that my constituency meets those criteria. Indeed, the Secretary of State recognised that my constituency has what he calls a "reclaimed site" that would be ideal for more investment. I remind the House that that "reclaimed site" was not derelict when the Government came to power. Then, it was the site of a thriving steel mill. Now it is a derelict, open, green field site. The Government's answer to the massive problems of many areas in Britain is to throw money at them.
  It is sad to note that the things over which the Government bashed so many local authorities are now at the heart of their suggestions. The money is to be channelled through organisations whose chairmen, on a daily basis, are costing us much more than the people who ran those democratically elected authorities that the Government got rid of not so long ago because they were too expensive.
  Why are the Government and the Secretary of State so frightened of local democracy? We have heard unspecified rumours that the Government are punishing local authorities that hampered development. We have heard the rumour that the only way to get development is to remove any opportunity from local government and put it into non-elected, non-accountable bodies. What does that mean for areas such as north-west Durham? I do not believe that even the Government could say that the local authorities in north-west Durham came anywhere near the category of hampering those people who wanted to establish private development in their area. They have done as much as any local authority could possibly have done.

  1251
  It is true that within the Derwentside area over 3,000 jobs have been created since the closure of the steelworks site, but at the same time other jobs have been lost and they have been skilled and full-time jobs. Many of the jobs that have been created are unskilled and part-time. Northwest Durham, like many other areas, is an area where there are hundreds of workers willing to change, willing to develop their skills and desperate to make their contribution, but there is no chance now of those people getting the sort of assistance that the Government now recognise is necessary for hope for areas such as that.
  The Secretary of State this afternoon accused me of simply knocking the north. I forgive him for that. He does not know me very well. He will know by the end of this Parliament that I fiercely defend the north at every opportunity, but defending and fighting for a future does not mean that I go around with my ears shut and my eyes closed. I cannot develop and open up opportunities for the people who are asking me to so without recognising the depth of their need and the opportunities that they are crying out to be offered and that they are being denied at the moment.
  Derwentsicle district council, which is only one of the district councils that comes within my purview, tells me that this week the Audit Commission said that since 1983 there has been no rise in the amount of money that has been spent on rate-related purposes. But the Audit Commission says that Derwentside, nevertheless, has had an exceptionally difficult task because the grant amount of that rate-related expenditure has been significantly reduced in that time. In a council of increasing unemployment, trying to work with local investors, the Government have been taking away money and have not been enabling it to match its needs, as it sees them and as it knows them. This, then, is the result of the Government's flight from democracy, the result of their failure to listen to the people of the north.
  When the Secretary of State visited Derwentside last week, he did not meet and talk to those people who have managed to gain the support of the local electorate. He met those people who have signally failed to get the support of the local people. He met his Conservative colleagues. I do not believe that his colleagues in the north represent any real voice and any real thing that the Government should be listening to. If they are going to listen to them, they have got to listen also to the people who have been elected by the people of the north to represent them. With no democratic accountability, with no democratic planning and with no control from any elected body, the money that is being put in will not, I am very sad to say, create the necessary jobs.
  I wish that I could believe that the proposal before us this evening will create jobs. It will not work, but not because we will not co-operate. People in the north have demonstrated over generations and to the Government that we will work with them, whatever their proposals are, in whatever way we can, to improve opportunities for our folk. But we know that Government appointees, like colonial administrators, do not know the skills and the capacities of local people. It will not work because the Government have not learned to listen even to people such as Lord Scarman, who argued this week for a much closer partnership between local government and central Government in these necessary interventions in the markets. Such a partnership would mean that central Government might understand a little more about what
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  they were doing in those localities, from which they seem to be so very far removed. All that may seem immaterial to the Government because they have demonstrated that they simply have no idea of the part that local democracy can and must play in economic regeneration.
  Given the Government's distaste for local democracy, the people of the north can only look on in horror as a Secretary of State who has destroyed local government is now put in charge of economic regeneration also. We are desperately afraid that new failures will follow old failures. We once again urge the Government to recognise that we will co-operate, but that if we do so they must listen to what the elected people of the north are saying.
  11.35 pm
  Mr. Trippier: I am anxious to begin my reply to the debate by paying a warm tribute to the hon. Member for Bow and Poplar (Ms. Gordon), who made her maiden speech this evening. Obviously, my colleagues on both sides of the House will welcome her future interventions. I especially welcome the fact that she paid tribute to Ian Mikardo, her predecessor. I do not suppose that I would ever agree politically with Ian on many issues, but there is one exception—small firms. He was an expert in that area. In my former incarnation as the Minister responsible for small firms, I enjoyed many exchanges with him cm the Floor of the House. He was the chairman of the Tower Hamlets local enterprise agency—a post that he filled with distinction. He spoke with great authority about small firms and he supported many of the measures introduced by this Government, especially the local enterprise agency grant scheme—which I introduced—which was a bipartisan measure that drew support from many political parties.
  I was interested to hear my hon. Friend the Member for Darlington (Mr. Fallon) make a point that I thought was absolutely true—that support for urban development corporations was coming from many people in different political parties at both local and national level. At least, I thought that to be true until I heard the speech by the hon. Member for Southwark and Bermondsey (Mr. Hughes). I refer him to a statement made by his hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith):
  "The alliance believes that UDCs can do a very useful job. We shall seek to work closely with them."
  The then Minister, my hon. Friend the Member for Oxford, West and Abingdon (Mr. Patten) intervened, and asked:
  "Is the hon. Gentleman giving us a clear and unequivocal pledge that the urban development corporations will be supported, after the next election, by the alliance?"
  The hon. Gentleman replied:
  "Yes. The Minister may have that pledge."—[Official Report, Sixth Standing Committee on Statutory Instrurnents, &c. 12 May 1987; c. 10–13.]
  Mr. Simon Hughes rose—
  Mr. Trippier: I am sorry, but I do not have the time to give way. I have only eight minutes to reply. We know that the alliance—if there is such a thing—has difficulties at the moment, but the hon. Gentleman should get to grips with his hon. Friend the Member for Berwick-upon-Tweed on this matter. I also suggest to Opposition Members who have spoken, especially the hon. Member for Bootle (Mr. Roberts), that they confer with the hon. Member for Birmingham, Perry Barr (Mr. Rooker) who said:

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  "The Opposition believe that corporations and boards can be an effective machinery for action, and that setting them up is not an attack on local government, as some people would suggest … We hope that the urban development corporation will be a success."—[Official Report, Sixth Standing Committee on Statutory Instruments, &c. 21 January 1987; c. 9–10.]
  That is absolutely amazing. We cannot believe that those hon. Members could have said that and, prior to a general election which they must have suspected, in their wildest dreams, was looming. Of course, it has come and gone and, fortunately for us, we have been returned with a significant majority to carry on with our good work with urban development corporations.
  I was fascinated by the speech of the hon. Member for Bootle. He kept on referring to the council, by which I assume that he meant the former Labour council—[Interruption.] We are all aware of where the hon. Gentleman's constituency is, and that he was talking about Liverpool council.
  Mr. Roberts: Will the Minister give way?
  Mr. Trippier: The hon. Gentleman has had an opportunity to address the House.
  Mr. Roberts: The Minister should not misrepresent me.
  Mr. Trippier: Would I ever do that?
  We heard no criticism of the former Liverpool council, but I do not think that the vast majority of Labour Members would wish to be associated with that council.
  The hon. Gentleman referred disparagingly to the Albert Dock. He did not refer to the 2 million people who visit that area bringing with them more money that can be spent in Liverpool and which is creating more jobs.
  Most important of all, the hon. Gentleman failed to mention the substantial rate increases that have driven industry out of Liverpool.
  Mr. Roberts rose—
  Mr. Trippier: My hon. Friend the Member for Darlington made that point with regard to a number of local authorities in the north-east. It is true that that is the greatest disincentive to the growth of enterprise; it acts as a brake on enterprise. It is clear from all that we have done with the UDCs to date that they have been a significant success in this regard.
  When the hon. Member for Redcar (Miss Mowlam) intervened in my hon. Friend's speech she referred to the loss of jobs in traditional industries as if, had her party been in Government during that period, it would somehow have been possible to avoid the losses in those traditional industries. Yet no Labour Member has explained why when the last Labour Government were in power unemployment more than doubled. There was a significant loss of jobs in traditional industries, particularly in the north.
  Miss Mowlam: I was drawing a comparison between the 45,000 jobs that have been lost in the past eight years and the 6,000 jobs that are promised by the UDC.
  Mr. Trippier: The situation would have been far worse had there not been that kind of impetus from UDCs in the areas that we are discussing.
  Matters are improving, with unemployment gradually coming down. Obviously it is not declining fast enough and we recognise that it is an unacceptable level of unemployment, but we should be on the same side in trying to stimulate growth in the number of jobs and the expansion of wealth in these areas.
  My hon. Friend the Member for Darlington made an important point about the north-east with which I agree. He said that blanket regional aid for the north-east was wrong. I do not think that I have ever heard anybody say that before. I have thought about it on a number of occasions and about the fact that 94 per cent. of the population of the north-east live in an assisted area. It is extremely difficult to focus attention on one constituency or travel-to-work area and attract people from outside that area to it if 94 per cent. of the population are living in an assisted area. What can one do to target aid? When I think of the five different instruments that we have available through the Department of the Environment with the urban block, including the use of UDCs, the 32 schemes that are available through the Department of Employment and the 64 schemes that are available through the Department of Trade and Industry, it is vitally important for the Government, especially in this Parliament, to target aid more specifically. That is one of our roles and that is what my right hon. Friend the Prime Minister is asking us to do.
  Ms. Armstrong: Will the Minister give way?
  Mr. Trippier: I am sorry I have only one minute left to wind up.
  Mr. Deputy Speaker: The hon. Gentleman is mistaken; he has no time.
  It being one and a half hours after the commencement of proceedings on the motion, THE DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 14 ( Exempted business).
  Question put accordingly
  Question agreed to.
  Resolved,
  That the Urban Development Corporations (Financial Limits) Order 1987, a copy of which was laid before this House on 1st May 1987, in the last Session of Parliament, be approved.

  DARTFORD-THURROCK CROSSING BILL
  Ordered,
  That Mr. Terry Dicks, Mr. Den Dover, Mr. Adam Ingram and Mr. Rhodri Morgan be members of the Select Committee on the Dartford-Thurrock Crossing Bill.—[Mr. Lennox-Boyd.]

  Aldermoor School, Southampton
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lennox-Boyd.]
  11.44 pm
  Mr. James Hill: I direct my remarks immediately to my hon. Friend the Minister. Many parents, teachers and school governors are depressed and angry at the events perpetrated by the Hampshire education authority on the Aldermoor first and middle schools, Lordshill, Southampton. I shall give the background to the events.
  On 1 April I received a letter saying that the Southampton area advisory committee had, on a resolution, voted to retain both the schools by 12 votes to seven. It had a second vote on the retention of the first school with the nursery school and the vote was 16 to three. It was fairly obvious at that time that the advisory committee was firmly determined to keep the nursery and first school and the middle school. Those votes were sent to the schools sub-committee in Winchester.
  I wrote to the chariman of the Hampshire education authority and on 15 April I received a reply:
  "The Sub-Committee will receive not only a full report on the urgent problem of empty places … it will also receive in very great detail the representations of all those who were consulted, together with the views of the Area Advisory Committee."
  The letter then goes on with a little patting on the back.
  It says:
  "the procedures employed by us"—
  meaning the Hampshire education authority—
  "for consultation about school reorganisations were recently commended by the Audit Commission and I think it would be fair to say that no Committee spends more time and trouble than we do over these difficult matters."
  That was dictated by P. D. Merridale and signed in his absence. It is that sort of approach that has given rise to the main complaint from the parents, teachers and governors.
  The consultation has been scarce. The sub-committee's visit to the eight schools in the area was cursory. "Cursory" was the word mentioned by some of the teachers at Aldermoor school. We have now reached a situation where the sub-committee in Winchester—it was approved by the full committee—agreed that not only should the first and middle schools be closed but the nursery school should operate on its own. I am aware that the nursery school is a valuable element in the area but it seemed to me at the time that it would have worked better within the nursery-first school concept. Therefore, a great deal of emotion was stirred up.
  One of the stumbling blocks of the argument was the state of the school buildings. The parents paid for a survey to be carried out by a well-known firm of chartered architects in Southampton—Gutteridge, Woodford, Chambers, of 45 Westwood road. The architects did a survey because the survey carried out by the architect's department at Southampton city council for Hampshire education authority was so condemning. The survey was the result of three separate visits to the site. Several floor panels were lifted where access was formed for electrical and heating services, sub-floors inspected, cladding was removed to reveal the steel frame of the main building and so on.
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  It was a full survey and one of the disappointing factors, which shows how Hampshire education authority has behaved in connection with this school, is that the survey said:
  "It is understood that no maintenance had been carried out on external decorations for at least eight years. In the circumstances it is surprising that the condition of the existing building is as good as a more close inspection found.
  The main buildings are constructed of steel lattice roof trusses … partly supported on steel columns".
  They were found to be in very good condition. The timber framing was also in excellent condition.
  "Windows are recent steel windows, weather stripped in wood sub-frames.
  Rainwater pipes are cast iron with cast iron…gutters."
  Comments on the findings by Southampton city council were made by this firm of chartered architects. The firm said:
  "There is no significant sign of rot despite lack of maintenance. The condition of the cladding is remarkable, and this indicates the quality of material used in the original building".
  The firm again mentions that regular maintenance had ceased eight years before, praises the steel trusses in connection with the pitched roofs and says that they were excellent. The firm also found that the city council report spoke about areas of wet rot or dry rot. The firm said:
  "no evidence so far can be found of significant areas of wet rot, and there was no evidence of dry rot in the building."
  A paragraph that is terribly damning of the Southampton city council architect's report says:
  "It is our contention that the Southampton City Council's report is misleading in this matter."
  The architects' conclusion says:
  "It is our opinion that a decision to close the Aldermoor Schools cannot be justified on the grounds that the main buildings have reached the end of their useful life, or that it requires a large amount of finance to maintain its existence for another thirty years."
  During the survey, the firm brought forward some estimated budget costs for preserving the main building for another 30 years. The cost survey was carried out by a firm of chartered quantity surveyors, Jung and Barnett, and the total was £153,650. At the time that that report was written, Hampshire education committee was reading a report which said it would cost £500,000 just to preserve the first school and an additional £700,000 to preserve the middle school.
  Naturally, the staff at Aldermoor have been greatly involved in this. It has been a school since 1939 and is very much a part of an established community—almost a village within a city. Aldermoor has the most stable school population of the four schools in the immediate area. There is a tremendous amount of parental involvement in Aldermoor. The parents engage in normal fund raising, but in their own time they also built and furnished a library for the first school. Those are the sort of activities that we are looking for in education.
  I am worried because Hampshire education committee is now saying that there are plenty of vacancies around the area and that these children, certainly the children from the first school, can go to other schools. I have a letter from the governors of one of the nearest schools, the Shirley Warren county first school, which says precisely the opposite:
  "The Governors … view these proposals with dismay … The LEA has assessed the capacity of the school at 264 places. This figure is considered to be much too high. Classrooms are small: in order to place such a number of pupils, the music room would be lost—to serve as a classroom … Toilet facilities and playground space would

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  be inadequate for this number of pupils. It would appear that the LEA has failed to take account of residential building development within the present catchment area."
  The idea that the Shirley Warrren first school will take a great number of these pupils is pie in the sky. The governors say that they
  "are of the opinion that the LEA's proposals, as at present formulated, would have a profoundly damaging effect upon the school and they urge most strongly, that you, sir, should require the LEA to exclude the Shirley Warren First School from the scheme."
  That is a group of governers in a nearby school that is expected to take up a number of pupils that will be turned out of Aldermoor first school.
  The main questions are these. Are the buildings suitable? Can they be refurbished for a reasonable sum? Can the first school remain with the nursery school, or will the Hampshire education authority, when it completely reviews the situation, as I hope it will, agree that the main school can stay? The suspicion, perhaps not in my mind but in the minds of many of the parents, is that as this is a valuable 11-acre site in a desirable residential area, adjacent to a hypermarket, the school is being forced to close. I am sure that that is wrong, but I make the suggestion that if a first school is kept with a nursery school in the main buildings, a certain amount of land would be available for development.
  I have had assistance from the department of management and science at Southampton university, which has done research on educational statistics in the Southampton area. It has made a damning report on the way in which the Hampshire education authority has worked out the number of vacancies in the area. The local education authority argued that in 1991 the rolls will be lower in the Coxford area than they are now. The statistical evidence presented by the LEA and the sources used by the local authority are inappropriate in this case. The forecast of a large fall in rolls does not stand examination. None of the statistical tools available to the authority can be used to forecast the number of pupils that schools in Coxford will have in five years' time.
  There are large population movements within the area, with families with small children replacing those with children who have grown up. Many council houses have been sold in the area. People are moving into low-cost first homes for the young, who naturally wish to produce a young family. The only way that I can see that the area would have a fall in rolls would be if it were given over entirely to old age pensioner accommodation, and this is not possible under the present situation at Lordshill.
  A statement was made by Mr. Molinero, a lecturer in the department of management and science at Southampton university. He has researched the educational statistics, and says:
  "I find this whole episode rather depressing. The LEA could have argued from the beginning that on the current budget it could not afford to run so many schools so close to each other and that they were proposing to close the one on the most valuable site. They did not have to invent facts that turned out to be wrong; and once proven wrong they should have changed their arguments. As far as I am aware the LEA is pushing for closure irrespective of the facts; nothing has been changed in the original document. I do not understand what is meant by "consultation" if everything that the consultation produces is ignored. The closure of the school will be an insult to the parents, the local community, and to all of us who would like to see proper local democracy at work."
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  That is a damning piece of paper. It was written by someone who certainly does not have any children at Aldesmoor school and who is not emotionally involved.
  That statement shows that there are many anomalies. The first anomaly relates to the number of children and the vacancies in the area. Also, the method by which the figures were obtained seems to be more guesstimate than anything else. The figures completely overlook the residential side of the catchment area and how that is changing, with more and more children. An architects' report condemned the original report from the Southampton city council. I will not say that that council report was wrong, but it did not compare with the report from the chartered surveyors and architects who produced the final report.
  I have a complete copy of the final report, and I know that my hon. Friend will be pleased to receive a copy of it. It contains many photographs of the buildings and a description by a firm called Insite (Southern) Ltd. on all the infestation and fungal decay and the possible reasons why a building should be pulled down. The report gives the main buildings a complete and clear picture and states that it is perfectly possible to retain the main building for a further 30 year life.
  As my hon. Friend the Minister will probably know, the site is unusual. The building is one storey but is most attractively laid out. The parent-teacher association has laid out an area for environmental studies. A fountain has been built and the PTA has put together a library for the school. There are many community facilities and 30 volunteer parents work in the school every day. There is a very strong community feeling.
  The Secretary of State for Education and Science has already said that he would not close rural schools unnecessarily, as they are a great focal point for community facilities. This is one such school. I know that there will be difficulties. I have already incurred the wrath of the chairman of the Hampshire education authority. It has gone ahead with its decision with little consultation. It is almost illegal to rush forward without massive consultation. So far, it has not even issued the notices, although the matter has been going on for some months. When the notices are served—as I am sure they will be, as Hampshire is digging in its heels—it will not admit that it has made a mistake in this matter.
  I offer a halfway house. The council can preserve the nursery school and the first school. If it must take the land and playing fields, so be it. As for the middle school, perhaps there are vacancies in the not-too-distant areas of that part of Southampton. However, I do not think that we can stand by and allow it to close and become a small nursery site.
  The parents, teachers and governors would not forgive me if I did not state their case. They are extremely angry. Perhaps they have not been their own best advocates, because at times they have acted in a more militant manner than has been necessary. I am sure that if the appropriate notices are served and there are three months in which to raise objections—I hope that everyone in Southampton who has written to me or said a word against the closure will write to the Secretary of State—my right hon. Friend will respond to a request from me to receive a delegation of all concerned so that the issue can be examined in detail. There are some anomalies and the

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  professionals do not agree. I am sure that, with a little consideration, the chairman of the Hampshire education authority will at least reconsider the matter.
  12.5 am
  The Parliamentary Under-Secretary of State for Education and Science (Mr. Bob Dunn): I congratulate my hon. Friend the Member for Southampton, Test (Mr. Hill) on obtaining this Adjournment debate on the proposed changes to first and middle schools in the Aldermoor and Lord's Hill areas in his constituency. I am aware that this is an issue which is currently stimulating a great deal of local interest and discussion.
  We all know that the education system faces considerable challenges in the late 1980s and the 1990s. The prime challenge is the need to improve standards of achievement on the part of all pupils of all abilities, to improve the quality and range of the curriculum and the effectiveness of its delivery and to secure the best possible return from the resources which are found for education. For many schools, internal changes in the organisation of classes or the distribution of teaching duties will be needed. For some, such changes will not be sufficient and action involving closures and amalgamations will have to be considered.
  Full account must be taken of education considerations when planning changes. New arrangements need to offer an education better suited to the needs of pupils of all abilities than the ones they replace. The viability of a school does not depend solely on the number of pupils. It depends on the age range and character of the school, its ethos, the quality and balance of expertise of its teachers and its non-teacher support, links with neighbouring schools, the fitness for purpose of its building and the extent to which all of these can be maintained.
  Perhaps I should explain the standard set of procedures which comes into play when a local education authority wishes to change the organisation or pattern of provision in its schools. These procedures are laid down by sections 12 to 16 of the Education Act 1980. My Department has recently issued a circular entitled "Providing for Quality", which provides up-to-date guidance on the requirements of the Act. Briefly, the requirements are that when a local education authority or, in certain circumstances, the providers of a voluntary school wish to establish,
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  discontinue or alter the size or character of a school they must publish proposals explaining their intentions. During the two-month period following publication, it is open to interested parties to submit objections to the proposals. If such objections are made, or if the Secretary of State has given appropriate notice to the local education authority, or if the school concerned is a voluntary school, the proposals fall to the Secretary of State to decide and may not be implemented without his approval.
  I should also mention that, although it is not a requirement of the Act, it has been established in the courts that those likely to be affected by the proposals have a legitimate expectation to be consulted before such proposals are made. I am advised that the Hampshire local education authority recently completed local consultations and that the outcome of these was put before the education committee in April. The LEA is now preparing statutory notices for publications in the near future.
  As my hon. Friend knows, when the Secretary of State is deciding proposals to close or alter a school, he is under a general duty to act fairly. In other words, he must judge each proposal or set of proposals on its merits, taking into account both the arguments of those making the proposals and the views of those objecting to them.
  My hon. Friend will, I am sure, understand that it is important for the Secretary of State to avoid prejudging the issues where such proposals are concerned. He will not, therefore, expect me to say anything about the reorganisation which is the subject of this debate. I hope, however, that he will accept my assurance that I have listened carefully to what has been said tonight, and that his points will be taken into account, along with any other representations which we may receive, before a decision is reached on any proposals which may come to my right hon. Friend.
  I assure my hon. Friend that as, if and when, proposals which affect these schools are made, I shall be most happy to receive a deputation from those schools led by him. I thank him for initiating this important debate and I look forward to receiving representations from him on this issue.
  Question put and agreed to.
  Adjourned accordingly at eleven minutes past Twelve o'clock.