Lords Sitting of 8 April 1976

Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Southwark
The Earl of Birkenhead—Sat first in Parliament after the death of his father.

MOZAMBIQUE: ALLOCATION OF FUNDS
Lord INGLEWOOD: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government to ensure that there will be no advances to the Government of Mozambique on account of the £15 million allocation of funds until they are satisfied that all guerrilla training and activity there have been brought to an end and that the Government of Mozambique can show that it is their firm policy to crush any attempt to revive such activities.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, Her Majesty's Government have made it absolutely clear that we desire a peaceful settlement in Rhodesia. The Government of Mozambique accept that British development assistance is to be used for peaceful purposes only.
Lord INGLEWOOD: My Lords, is the noble Baroness aware that I had hoped for the straight answer, Yes, to my question? In my disappointment, may I ask whether it is really of no concern to Her Majesty's Ministers that this happy-go-lucky policy could lead to blood on their hands—blood of men and women, many of them our own kith and kin even if politically estranged from us now?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I simply cannot accept any suggestion that we shall have blood on our hands. The peaceful results which we all hope for and for
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which we, Her Majesty's Government, work, is most easily achieved by the present Smith régime in Rhodesia agreeing to reasonable negotiations and majority rule. If they do not, that is where the guilt will lie.
Lord PAGET of NORTHAMPTON: My Lords, will not the noble Baroness agree that the first duty of a State is to maintain peace on its borders and prevent people from breaking into neighbouring States for the purpose of committing crimes; and that if we connive in the breach of this fundamental principle we are conniving at international lawlessness and that that is a very serious matter?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I am quite sure that the entire House would not agree that Her Majesty's Government were conniving at anything in the sense to which my noble friend referred. There is no question of connivance; it is an extremely complicated and tragic situation and innuendoes such as my noble friend has made are unworthy of this House.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, before we get heated about this matter and in furtherance to a question I put to the noble Lord, Lord Goronwy-Roberts, when this matter was raised before, may I not ask the noble Baroness this: if we really do want to stop—and I do not for a moment suppose that she wishes otherwise—Southern Africa from developing into another Northern Ireland, another Cyprus, another Angola, another Near Fast, Palestine, Lebanon situation, surely she must realise on behalf of the Government that we must try to stop one country, however much one may sympathise with it, from using its territories as a base for training and exporting guerrilla warfare into another territory? Surely, when the new Foreign Secretary is appointed, she can bring home to her right honourable friend that we on this side of the House and in other quarters are deeply disturbed that we should compromise ourselves, even though the obligation to which my noble friend referred may be an obligation which is discharged under United Nations resolution. Ought we not to bring every pressure to bear on the new State of Mozambique to stop allowing its territory to be

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used as a base for violence in this extremely explosive situation?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I can assure your Lordships again that there is no question of compromising with what we believe to be right. It is, as I have said, difficult and complicated; and all noble Lords know that. The question of exporting violence and the rest of it does not lie on the conscience of Her Majesty's Government. My noble friend the Minister of State talked last week with the Mozambique Government and has said that any economic assistance which we give them under the framework of the United Nations must be used for peaceful purposes only. I must reiterate to the noble and learned Lord that the Government of Mozambique have accepted that and that Her Majesty's Government have accepted those assurances and are sure that they will be carried out.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, I am afraid that that does not quite answer the question that I was putting to the noble Baroness. Of course, I accept the assurances she gives, that the actual money which forms the subject of this obligation will be used for peaceful purposes, at any rate so far as Her Majesty's Government can achieve that object, and she has repeated the assurances from the Mozambique Government to that effect. Surely she must accept that if we wish to stop—and we must stop if we can—Southern Africa from becoming another area of the world where the rule of the gun prevails, we must accept that it is just not enough to stop this particular fund from being used for warlike purposes. But we have to press the Mozambique Government (have we not?) not to use its territories as a base for guerrilla activities.
The LORD PRIVY SEAL (Lord Shepherd): My Lords, I intervene only because I think I must preserve the normal course of Question Time. It seems to me that what has taken place today is transgressing the normal practices: that it is speech making and not Question Time. I hope that noble Lords will keep to our normal customs in this House.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, the noble Lord the Leader of the House has been perhaps a little quick off the mark on this occasion. I was putting a question perfectly properly to his noble friend. I do not believe that I transgressed for a moment the rules of Question Time. If the noble Lord wishes to take the sense of the House on this matter, I am prepared to abide by its decision.
Lord SHEPHERD: My Lords, now the noble and learned Lord is seeking to use the strength behind him in a most unfair way. I intervened only to protect the customs of this House. If my noble friend wishes to reply to what the noble and learned Lord construes as a question, I think it is right. But I ask the House to keep to the normal format of our Question Time.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I was about to observe: is this a private fight or can anyone join in? I am perfectly prepared to answer the noble and learned Lord's question and even his speech—though that is improper—because I know the depth of interest and, indeed, moral agony in which we find ourselves on this question. Of course we agree with the noble and learned Lord. We must do everything in our power to prevent violence wherever it may be; we have enough tragic examples of it in front of us. Her Majesty's Government have been doing this and will continue to do this. I must ask the noble and learned Lord to accept that assurance from me.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, of course I accept the assurance of the noble Baroness. But is she not aware that some of us are not satisfied with the extent of the activities in this matter of the noble Baroness and her colleagues? May I ask the noble Lord the Leader of the House to bear in mind that I was making no attempt to use the strength which may or may not be behind me, except in so far as it coincides with the opinions of your Lordships' House? The noble Lord sought to intervene in the middle of what I thought was a perfectly proper supplementary question. I must ask the noble Lord, in his capacity as Leader of the whole House—not simply Leader of

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his own Party—to bear in mind the strength of feeling that we have on this matter.
Lord SHEPHERD: My Lords, I hope that on reflection the noble and learned Lord will feel that he made a rather monstrous charge against me in saying that I was acting in a Party sense this afternoon. In my period as Leader of the House I have never sought to act in a Party sense. But I hope that the noble and learned Lord, on reflection, will regret what he has said. I accept that this is a matter to which the House attaches considerable concern and great anxiety. If this is a matter which noble Lords would like to debate, I will certainly seek to provide time very shortly for it. I suggest this is a matter better dealt with in debate than at Question Time.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, I have no desire whatever to pursue this altercation. I hope we will both go away and reflect about this. May I ask the noble Lord to realise that we on this side of the House thought that he was making an unjustified charge against me? I have at least as much respect for the customs of this House as any Member on the opposite side of the House.
Lord BROCKWAY: My Lords, without wanting to continue this argument, may I ask the Minister this question? Is it the case that the British contribution to Mozambique is limited to assisting it in asserting sanctions, which have been endorsed by all sides of this House and by the United Nations, but not in any military activities?
Baroness LLEWELYN-DAVIES of HASTOE: Yes, my Lords; Her Majesty's Government are providing up to £15 million over a period of years for economic reconstruction and development in Mozambique. The fact that Mozambique has complied with the United Nations Resolution, and has made sanctions more severe for Rhodesia, has made her own economic situation more difficult. The United Nations have asked all Member States to help Mozambique under those circumstances, and that is what we are doing under the normal British aid programme.
Viscount MASSEREENE and FERRARD: My Lords, would the noble
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Baroness agree that to give £15 million of our hard borrowed money—and I repeat, hard borrowed money—to what is apparently a tyrranical and racialist regime is only a further manifestation of the absurdity of the present Government?
Lord BARNBY: My Lords, arising from the reply of the noble Baroness today and her reply on 31st March, may I ask whether an instruction will be given to the Working Party, which she announced, that if they obtain agreement there will be a request for proof of no improper expenditure of the money given in aid?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, the noble Lord is right in saying that a Working Group of officials will very soon be going out to Mozambique. I am sure that they will make certain that proper use is made of any funds which are provided for Mozambique.
Lord MONSON: My Lords, has the noble Baroness any further news about the fate of the 19 Rhodesian civilians, black and white, who were seized by the Mozambique authorities?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, that is another question, but I think the news is good on that front. As I said last week, our Ambassador in Maputo has made representations on this subject and we are hopeful of the results.

NAMIBIA: URANIUM PURCHASES
3.19 p.m.
Lord BROCKWAY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether a decision has been reached on the purchase of uranium from the Rossing mine in Namibia.
The PARLIAMENTARY UNDER-SECRETARY of STATE, DEPARTMENT of ENERGY (Lord Lovell-Davis): My Lords, as I explained on 20th October, the Government decided not to interfere with the contract.
Lord BROCKWAY: My Lords, does that mean that the Government are proceeding with the contract? If so, is it not

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entirely contrary to the decisions of a resolution of the Security Council which we supported? Is it not contrary to the Manifesto on which the Labour Government were elected? Is it not in repudiation of the Cabinet Minister who was engaged in negotiations and has since expressed his regret that he undertook them?
Lord LOVELL-DAVIS: My Lords, the answers to the noble Lord's questions are: first, yes; and, secondly, no it is not a repudiation of our obligations. It is in no way against the 1974 Manifesto. That Manifesto upon which this Government were elected contained no reference to the subject, and the decision of the Government was of course a collective one.
Lord BROCKWAY: My Lords, may I ask whether the attention of the Minister has been drawn to the fact that the South African Government are largely responsible for the conduct of this mining operation and that to be pursuing this contract is in opposition to the whole policy of our Party in opposing apartheid and declaring Namibia to be a self-determining country?
Lord LOVELL-DAVIS: My Lords, it is not true to say that South Africa plays a major part in this company. There are a number of different shareholdings, one of the largest being, as my noble friend is aware, the Rio Tinto Zinc Company. So far as this Government are concerned, as was made clear by my right honourable friend in another place on 4th December 1974, we do not accept that the Council which has been put forward by the United Nations General Assembly is in fact the lawful Administration of the territory.
Lord BARNBY: My Lords, could the noble Lord the Minister give an indication of the duration of the existing contract? In the event of disorder of a prolonged nature in that area, are the Government satisfied as to the availability of supplies for our nuclear processes from quarters other than this?
Lord LOVELL-DAVIS: My Lords, the contract lasts, as I understand it, from 1977 until 1982. Were we to cancel the Rossing contract, it would be very difficult indeed—in fact no assurance at all could be given—to find a replacement of
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those supplies of uranium in the time-scale involved anywhere else in the world.
Lord BROCKWAY: My Lords, have the Government made sufficient investigation as to the possibility of Australia or Canada supplying the uranium which is needed?
Lord LOVELL-DAVIS: My Lords, we have, and the fact remains precisely as I described. There is no possibility of fulfilling from those resources the requirements of our nuclear programme in the time-scale.
Lord HAILSHAM of SAINT MARYLEBONE: Is there not something to be said, my Lords, for keeping contracts?

BUSINESS
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, with the leave of the House, I will make a short Statement about Business on Monday. Since the House will sit late to take the Committee stage of the Energy Bill, dinners will be provided on Monday night.
AUSTRALIAN ESTATES COMPANIES BILL
Read 2a, and committed to the Committee on Unopposed Bills.
STANDARD LIFE ASSURANCE COMPANY BILL
Read 2a, and committed to the Committee on Unopposed Bills.

POLICE PENSIONS BILL [H.L.]
3.24 p.m.
The LORD CHANCELLOR (Lord Elwyn-Jones): My Lords, I beg to move that this Bill be now read a second time. It is a pure consolidation Bill. It consolidates the Police Pensions Act of 1948 and subsequent amendments to that Act. The Bill will be referred to the Joint Committee in the usual way, and I beg to move.
Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
On Question, Bill read 2a, and referred to the Joint Committee on Consolidation Bills.

SEYCHELLES BILL [H.L.]
The MINISTER of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, I understand that no Amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript Amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the Order of Commitment be discharged.
Moved, That the Order of Commitment be discharged.—(Lord GoronwyRoberts.)
On Question, Motion agreed to.

ENERGY BILL [H.L.]
3.25 p.m.
Lord LOVELL-DAVIS: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, that the House do now resolve itself into Committee—(Lord Lovell-Davis.)
On Question, Motion agreed to.
House in Committee accordingly.
[The EARL OF LISTOWEL in the Chair.]
Clause 1 [General control by order]:
On Question, Whether Clause 1 shall stand part of the Bill?
Lord STRATHCONA and MOUNT ROYAL: I think it may be for the convenience of the Committee if I make one or two observations on the Question, Whether Clause 1 shall stand part of the Bill? We shall start off this afternoon by appearing to go rather slowly with this Bill. I should like to assure the Government that it is not our intention to obstruct the passing of the Bill as such. It is a fairly objectionable measure, but we expect that we shall have to grind our way through it on the next three sitting days with a view to getting the Committee stage behind us before adjourning for Easter.
The way in which the Bill is laid out makes this debate rather difficult. The concept underlying the first three clauses
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is intended to achieve three things. There are the powers to deal with an international emergency and with a domestic crisis; and there are permanent powers for the promotion of what is called energy conservation, as distinct from other forms of conservation. As I read it, one has to go to Clause 3 in order to give full effect to Clause 1, and the way in which the Bill is drafted, certainly from my standpoint, seems thoroughly confusing.
In the course of moving our Amendments there will be various threads running through the arguments. One of these will be that the powers for which the Government are asking in this Bill considerably exceed those they require to honour their international obligations. We shall seek to limit the powers to those which are really needed. If, indeed, the Government require some of the powers for which they contend, we believe it would be better if they produced separate clauses setting out quite clearly what powers are needed and, in the course of debate, justified the taking of those powers.
Clause 1 sets out the purposes for which an Order can be made by the Secretary of State. Again, subject to various equivocations, I think it is fair to say that these powers are subject to Negative Resolution procedure by Parliament—which in any case is a fairly weak power. Under Clause 15 there is one area which is identified as being subject to a Negative Resolution by Parliament. The wording used in the first three clauses is similar to that in the Fuel and Electricity (Control) Act 1973, which was brought in by the Conservative Government at the time of the major energy crisis.
The first point I want to make is that Clause 1 of this Bill includes natural gas, which was not included in the 1973 Act and is not included by the EEC in the regulations in regard to which the Government are seeking these powers. These powers create some consternation in the hearts of the Gas Corporation. They feel that they give the Secretary of State power to disrupt the Corporation's marketing strategy, with possibly disastrous effects on their financial results, which could go so far as to bring the whole gas industry into disarray.
When the 1973 Act was introduced, the then Secretary of State, Peter Walker,

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expressed what we consider a very proper sentiment. He regretted asking for such wide-ranging powers, and said he felt that both sides of the House would naturally wish that most of the powers suggested would never be implemented or acted upon. We hope that this afternoon the Minister may be able to set a good tone at the start of these proceedings by making a similar declaration himself, although I realise that in suggesting that I may be crying for the moon. Nevertheless, I think I should ask him whether he can go along with that sentiment, although I expect that part of his argument will be to say, "All we are doing is making the emergency powers in the 1973 Act, which have to be renewed every year, into a more permanent arrangement which will not have to take up Parliamentary time year by year." I shall be interested to hear what the Minister has to say on this point.
3.32 p.m.
Lord LOVELL-DAVIS: I hope that we shall be able to move much more quickly through the Committee stage than the noble Lord, Lord Strathcona and Mount Royal, seems to expect. I do not want to go into great detail at this stage, but I accept that he has no basic objection to Clause 1, in spite of what he has said. He is perfectly right in saying that we need powers to honour our international obligations, but I cannot agree with him at all that the powers are in any way excessive. Although the Bill is not very complicated, it is not absolutely straightforward and immediately clear. But I believe that its construction and the necessity for the powers contained in it will become apparent.
As the noble Lord has said, many aspects of the Bill are very similar to the Fuel and Electricity (Control) Act 1973. One reason for embodying sections of that Act is to ensure that we have the powers we need, first, to honour our international obligations to the IEA and the EEC; and, secondly, to implement a proper energy conservation policy. In querying the necessity for these powers to honour our international obligations, the noble Lord said that the 1973 Act did not include natural gas. I should like to correct him there, because Section 1(1) of that Act covers petroleum, which was defined as it was defined in the Petroleum (Production) Act 1934, so it there-
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fore includes natural gas. The noble Lord also said that the provisions covering gas are designed to bring the British Gas Corporation's affairs into disarray. Nothing could be further from the truth, and I am surprised that he should make a statement of that kind. I have stated precisely why we are introducing this Bill, and what the noble Lord suggested is far and away from our intention. The purpose of this Bill is to enable us to deal with a situation where we might be put into disarray by an energy crisis.
I share the noble Lord's views about the use of the powers in an emergency, and I hope we shall never face such an emergency as would necessitate our implementing all of them. Nevertheless, as he has reminded us, when the Party of which the noble Lord is a member was in Government in 1973–74, we walked into an emergency which resulted in the Act, parts of which are incorporated in the Bill before your Lordships this afternoon. As regards the use of the powers for energy conservation, which is an extremely vital matter, I shall have more to say as we proceed through the Committee stage.
The Earl of LAUDERDALE: Before the noble Lord sits down, may I come back to his point about the legislation passed by the Government of the day which was formed from this Party? If I understood him aright, he was citing the Act which established our adhesion to the European Community. If that is the case, does he not overlook the fact that all the powers in Section 2(2) of that Act were subject to the Negative Resolution procedure? Furthermore, having told the House that he thought it was not fair or reasonable to suggest that the Government are now taking excessive powers, he is surely overlooking the fact that under Clause 15(1),
"Orders under this Act shall…(except in the case of Orders in Council under section 3…) be subject to annulment…".
and so on. Does he not appreciate that we are apprehensive that these powers, needed in the first place for executing Treaty obligations, might conceivably be used for other purposes as well? So will he not recognise that there is serious anxiety here? While not wishing to raise the temperature of the debate, I put that to him as nicely as possible.
Lord LOVELL-DAVIS: The fact of the matter is that we are not anticipating going into the details of clauses at this stage. However, I will reply to that point. The powers under Clause 3(1) are specifically for honouring our international obligations to the IEA and the EEC, as the noble Earl is aware. Paragraph (b) covers emergency powers to deal with a domestic emergency, and Clauses 1 and 2 are affected by Clause 3(1) only in terms of an emergency under the conditions I have described. There are certain powers covering use which are brought in by subsection (2) of Clause 3, and which are largely concerned with such matters as energy conservation. However, at this stage I do not think I should go any further into the Bill. I should prefer to wait until the Amendments come up in turn, when I have no doubt that the noble Earl will intervene again.
Lord STRATHCONA and MOUNT ROYAL: I must remind the noble Lord that this is the Committee stage of the Bill, because at one point he suggested that we should wait until we reached the Committee stage. I must take him up on one word. I never suggested that these clauses had been designed to mess up the gas industry. Even on the most contentious political argument, one would not go so far as that. What I did say was that the Government would have a power which could conceivably lead to that in certain circumstances. May I remind the noble Lord again that, when these powers were originally taken, the then Secretary of State went to a considerable amount of trouble to explain the limitations which he saw in exercising them. So may I ask the noble Lord to assure the Committee, particularly so far as the gas industry is concerned, that the very least that will happen is that the Government will consult with the industry before they exercise any powers under Clause 1?
Lord LOVELL-DAVIS: I do not think that I can give such an undertaking to the noble Lord. It depends exactly on the nature of the emergency. In emergencies such as an oil emergency which would affect our obligations under the terms of the IEA and the EEC, we should have to act quickly and would not have time to consult. Similarly, we might have to act in precisely the same way in the
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case of a domestic emergency, and we are taking emergency powers for that purpose. We shall come shortly to the time when these powers will be put into effect. I cannot give any undertaking to the noble Lord that in all the circumstances we shall, in fact, have prior consultation.
Clause 1 agreed to.
Clause 2 [Reserve power to control by government directions]:
3.41 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 1:
Page 2 leave out line 23.
The noble Lord said: With the leave of the Committee I shall speak to the first three Amendments together, since they are all aimed at sounding out the Government on a similar principle, or asking the Government to agree with us in asserting a similar principle. These are probing Amendments. Even if they were accepted, they do not deal wholly with the problem which is worrying us. If we wanted to be really satisfied, the whole of Clause 2(1) would need to be redrafted. All of the directions in this clause are exceedingly vague, and to make them satisfactory they ought to be a great deal more specific. What we have sought to do, therefore, is to introduce certain limitations.
The object of Clause 2 is to cover the purposes for which the Secretary of State may give directions when an emergency has been declared and when he is making and laying before Parliament the requisite Orders in Council. Unlike orders under Clause 1, these orders are not subject to Parliamentary scrutiny, with the possible exception of Clause 15(5) which conceivably introduces the Negative Resolution Procedure—although, like so many other parts of the Bill, I find that it is rather difficult to understand what is meant by that clause to which we shall come in due course.
Clause 2 appears to set out the type of people to whom a direction may be given; that is, a producer regarding production and use, a supplier as regards supply and a user as regards use. Subsection (2) gives examples of the type of directions which may be given. However, subsection (2)(a) is very general but it is confined to the production and disposal of stocks, both the substances themselves and the use of any material for

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the production of those substances. Subsection (2)(b) deals with supply. We have suggested two Amendments here, simply to narrow the favourite trick of the Parliamentary draftsman which runs all through this Bill which virtually says, "This gives me any powers which I did not think I might need". Indeed, as I see it, the way in which this Bill has been phrased is to get away from the possibility of something not having been thought of that may be needed later. Inevitably, anybody who is interested in the Parliamentary process is bound to pause if the Government are taking the power to say, "We have got all the powers we need except for a few which we are prepared not to take".
I understand why this is done. It is so that the Government do not find themselves without powers which they think they may want but which they forgot to take. However, I should prefer time to have been taken in which to think about exactly what powers are needed. If we are to give Governments a great deal of power to which we object in principle, we should like to know what those powers are and to be sure that there is Parliamentary control of those powers.
Therefore, in these Amendments we have attempted to narrow the field to a certain extent. If we look at the words "to specified persons" in line 29, we find that if we do not have these words the Secretary of State could specify the prices of products but not the persons to whom the products are to be supplied. This would lead to confusion and argument with the person being supplied as to whether or not the specified prices apply to him. This is the reason why we have put down this Amendment. At this point, perhaps I ought to allow the Minister to tell us how he reacts to the suggestions we are making. Then we shall see how we ought to proceed thereafter.
Lord LOVELL-DAVIS: First, may I remind noble Lords that the power to give directions under Clause 2 is exercisable only during an energy emergency when an Order in Council is in force under Clause 3(1) of the Bill. If I may deal with the first Amendment standing in the name of the noble Lord, I am sure that noble Lords will agree that in such emergencies the Government should have available powers to ensure that
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energy resources are supplied in a way which will best serve the national interest. If this Amendment were to be made, it might cast doubt on the power to give directions prohibiting or restricting the supply to all persons other than those specified. The Government need to have the power to give directions imposing general prohibitions or restrictions on supply, subject to specified exceptions. I think that this is the important aspect of this Amendment and the reason why I shall ask the Committee to reject it.
So far as the second Amendment is concerned, as I have said these are emergency powers. In an emergency, the Government will require the power to specify prices in directions concerning the supply of petroleum-related substances in order to be able to fulfil their obligations under the Agreement on the International Energy Program. Article 10 of the Agreement requires participating countries to ensure that the price charged for oil allocated under the IEP emergency sharing scheme is based on the conditions prevailing for comparable commercial transactions. All directions given for the purpose would specify the person to be supplied. It is not our intention to use the power to specify prices except in a direction of this kind.
In this case, therefore, I am able to accept the Amendment in principle and am prepared to reconsider the wording of this provision. I hope that answer will satisfy the noble Lord in respect of his second Amendment. In the case of his first Amendment, however, I am afraid that I must ask the Committee to reject it.
Lord STRATHCONA and MOUNT ROYAL: I am not quite sure whether we are in a procedural difficulty. The noble Lord has not referred to the third Amendment. I thought that I was speaking to the first three Amendments at the same time.
Lord LOVELL-DAVIS: I apologise to the noble Lord and will certainly deal with Amendment No. 3. I thought that the noble Lord was asking me whether I would deal first with Amendments Nos. 1 and 2. So far as Amendment No. 3 is concerned, it would permit the giving of directions prohibiting or restricting the use of energy resources only if the Government were able to specify the purposes

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or periods for which the prohibition or restriction was to apply. We feel that this would inhibit the Government's efforts to ensure the best use of available energy resources during an energy emergency, and while I appreciate the concern underlying the Amendment, and I will undertake to consider whether the drafting can be made more positive, I ask the Committee to reject this Amendment as well.
Lord WYNNE-JONES: Does not some of the difficulty which arises in regard to this Bill come from two facts: one—and this is where I would agree with the noble Lord, Lord Strathcona and Mount Royal—that at times the drafting is very difficult to follow, and in addition the Bill would seem to carry a misleading title. It is called an "Energy Bill"; it is really a Bill which deals with exceptional circumstances and crises which can arise and under which we may get instructions coming from the EEC or from the International Energy Agency requesting that, as we are members, we should do certain things. During the Second Reading debate I pointed out that there might be some contradiction between the requirements coming from these different bodies.
If it is agreed that such a Bill is needed it has to be left for the Government in those times of emergency which would be decided upon, to take action which would ensure that the requirements of the agencies were carried out.
Lord LOVELL-DAVIS: I am grateful to my noble friend for his intervention. I hope—and indeed this is the purpose of the Committee stage—that wherever the drafting of the Bill requires clarification we shall be able to provide just that. With regard to the Title of the Bill, I agree that it covers emergencies but I must also point out that it is very much related to the essential need for energy conservation, and it is in terms of energy conservation as well as the emergencies that I think the title "Energy Bill" is not a bad one.
Lord STRATHCONA and MOUNT ROYAL: I am grateful for the intervention of the noble Lord, Lord Wynne-Jones, because he has in fact put his
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finger on one of the problems with which we are faced in this Bill. At Second Reading I suggested that it was something of a rag-bag of a Bill, which the noble Lord, Lord Lovell-Davis, predictably did not altogether accept. What he says about some of the provisions in this Bill is perfectly true; they are trying to deal with emergencies. But one of the problems with the Bill is that in the process of trying to deal with some of the emergency legislation the opportunity has been taken by the Government to include a number of other things which are not of an emergency nature. Without wishing to sound provocative, in some cases one suspects that there is a certain amount of opportunism here, where the Government have taken the opportunity to introduce powers which they might like to have, masquerading under the need for these powers to honour international obligations. That is one of the things that we object to.
Dealing now with the answer given by the noble Lord, Lord Lovell-Davis, to the three Amendments with which we are dealing, at this juncture we are clearly not going to press these Amendments, and indeed it would be positively churlish of me if I did not accept the Government's offer, particularly in connection with Amendment No. 2, which I think the noble Lord said he was prepared to consider.
In regard to Amendment No. 3, the noble Lord has gone quite a long way by saying that he will look at the drafting again. I should like to remind him when we use the word "purposes", that I believe in his Second Reading speech the noble Lord said that the Government were quite clear on the purposes for which they required these powers. Part of our case, which will crop up in a moment and several times in the Bill, is that if the Government are clear about the purposes for which they need some of these powers, would it not be in the interests of Parliament to state these purposes in the Bill? We are rather nervous about giving Governments blanket powers, and I think it is a good, healthy Parliamentary attitude to continue to maintain that stand. However, having said that, I beg leave to withdraw Amendment No. 1.
Amendment, by leave, withdrawn
On Question, Whether Clause 2 shall stand part of the Bill?
3.55 p.m.
Lord STRATHCONA and MOUNT ROYAL: I wish to make one point in connection with Clause 2. There is a curious thread running through this clause; namely, the inclusion of electricty for all purposes except price control. Why is electricity being treated differently? Is the answer that electricity is a nationalised industry and therefore the Government feel that they already have a price control over a nationalised industry? If it is, does this not give one certain procedural qualms about the relationship between the Government and the nationalised industry? Are the Government saying, in effect: "Well, what we do is to have a quiet word with the chairman of our nationalised industry and tell him what we want, and he is liable to accede to our request"? If they are saying that, it seems to me to raise, in our minds, anyway, one of the major reservations that we all have about the way in which the nationalised industries work.
We would always prefer to see an overt instruction if the Government feel it necessary to give it; but the concept of the rather comfortable relationship about having a word in the ear of the nationalised industry and getting them to do something which the Government want but which is not necessarily in the interests of the industry, I find rather objectionable in principle. Therefore I ask the noble Lord, as I did also during the Second Reading debate, whether he can explain why the Government are treating electricity in rather a different way from other forms of energy.
Lord DAVIES of LEEK: I am not clear on this, either. I thought subsection (4) also applied in relation to electricity and, looking at the Report of the Department of Energy Advisory Council to the Secretary of State for Energy on energy conservation, it seems to me that one of the direct purposes of this Bill, without any ulterior motive, is simply to serve the terms of reference of Paper 3 of the Advisory Council on Energy Conservation, which points out that, in addition, the Secretary of State has:
"To identify areas where existing knowledge and techniques could be applied to achieve quick results in energy conservation to identify where immediate action would produce a gradual but cumulative saving of resources,"
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and finally,
"to explore the whole area of research and development in the long term interests of this and future generations."
I consider that the whole gamut of energy is covered by that sentence and I see no ulterior motive in the purpose of my noble friend when he presents the Bill in this form. Whereas I may attack the semantics of the drafting in some cases, I see no ulterior motive on the part of my noble friend.
Lord WYNNE-JONES: With regard to the question which has just been raised by the noble Lord, Lord Strathcona and Mount Royal, surely the point is fairly clear. Electricity is not a fuel. The others are all fuels, but electricity is in a different category. Electricial energy is something that is produced from the others; it is not something which to any large extent is sold across national borders. In other words, it is produced in this country from the purely primary fuels. Therefore the price of energy is not something which is significant or important in the control. The control really depends upon how much fuel gets into the power station; whereas when one is dealing with oil, with gas, with coal or any primary fuel, then it is the quantity of this fuel which is imported or used in any way which becomes all-important. It ought to be clear that the two are totally different. Unfortunately, we sometimes use the word "energy" as a blanket term to cover the lot. The fuels should not be called energy. The electricity is energy.
Lord ROBBINS: Is not part of the difficulty the fact that this Bill is concerned with two rather distinct questions: the situation which may arise in an emergency, and of the long-term conservation of resources of energy? No person of good sense will question that emergencies may arise, and that there may arise questions of long-term policy concerned with the conservation of energy. But I see throughout this Bill a certain blurring, so to speak, of purpose. It is not certain whether the powers are taken to meet a sudden emergency or whether they are taken in the interests of long-term policy. I think that it would conduce greatly to the clarity of discussion if "emergency" were somehow or other defined, in such a way as exception may be taken to

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regulations concerning particular emergencies, and that question reasonably segregated from questions of long-term policy, which concerns us all, in regard to general conservation.
The Earl of KINTORE: I should be happy if "emergency" could be defined. Are we talking only of a national emergency, or are we talking of what might be equally important, a plant emergency? The North Sea gas at the moment is about to come ashore at St. Fergus, where they have a plant for separating the natural gas liquids in total before methane is put into the pipeline the natural gas liquids are to be piped somewhere else, possibly Peterhead. Part of the secondary separation is producing ethane, which is supposed to be going to be used as a fuel for fuelling Boddam Power Station. This is a continuous process. Supposing, for one reason or another, Boddam cannot take fuel, and it has to be piped back to St. Fergus and it is then used for heat requirements at the original plant. Are we talking about those kinds of emergencies? Are they covered as well, or not? If they are covered as well we can get into frightful difficulties. If they are not, then it matters not.
Lord LOVELL-DAVIS: For a start, as the noble Lord, Lord Strathcona and Mount Royal, said, electricity is excluded from price control. The situation is exactly the same as that which applied under the Fuel and Electricity (Control) Act 1973. There is absolutely nothing sinister at all in this so far as the nationalised industries are concerned. I am rather surprised that the noble Lord raised the matter. Ministers have frequent consultations with the Electricity Boards on prices, and the Government's views are made known. There is nothing sinister in it at all. The main reason why electricity is listed separately is, as my noble friend Lord Wynne-Jones said, that it is not a substance. The important thing is to control the primary fuels. That is what we are doing. I am grateful to my noble friend Lord Davies of Leek for his helpful intervention in this matter.
In reply to the noble Lord, Lord Robbins, I do not think there is a great blurring of purpose here. I think the emergency requirements are clearly defined as distinct from the conservation needs. The
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Bill makes quite clear the terms under which powers can be exercised in an emergency and the powers which can be taken in the much longer term for continuing energy conservation, something to which we and other countries are committed, and, as we are doing here today, taking into account in our legislation.
With regard to the points made by the noble Earl, Lord Kintore, I am afraid they are fairly technical and, I am sorry to say, I did not exactly follow him. I am wondering whether the points he raised would be more adequately covered when we come to Clauses 8 to 12, which specifically cover gas. If he feels he could leave the question until then, I should be very happy to answer him. I would be a little put to it to say whether or not the situation he was describing would in fact constitute an emergency, because I did not entirely follow him. It is my fault entirely.
Clause 2 agreed to.
Clause 3 [Implementation of reserve powers]:
4.6 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL had given Notice of his intention to move Amendment No. 4:
Page 2, line 39, at beginning insert ("Subject to subsection (7) below,")
The noble Lord said: This is a paving Amendment for Amendment No. 12, which is in itself a probing Amendment. I think it would be better if we left discussion of this until we get to No. 12, and therefore I do not move this Amendment.
4.7 p.m.
Viscount LONG moved Amendment No. 5:
Page 2, line 39, leave out from ("Council") to end of line 6 on page 3 and insert ("provide for the powers of sections 1 and 2 above to be exercisable—

(a) solely for the purpose of implementing the obligations of the United Kingdom as a member of the International Energy Agency or a party to the International Energy Agreement or as a member of the European Communities for the duration of an emergency formally declared by any of these bodies, or

(b) because Her Majesty is satisfied that the exercise of exceptional powers is required urgently to preserve essential supply and distribution of the substances referred to in section 1(1) above;")

The noble Viscount said: I beg to move Amendment No. 5. This is the crux of the first two clauses, which provide for the implementing of powers. In the existing wording of the clause I find a total lack of precision. Therefore, the purpose of this Amendment is to define as precisely as possible the circumstances in which the emergency powers can be activated.
Clause 3(1) describes the conditions in which an Order in Council may be made activating all the powers of the Secretary of State to make an order under Clause 1, and indeed give directions under Clause 2. It is, therefore, of vital importance at this stage of the Bill to ensure that the powers can be exercised only in a formally declared international emergency, in a genuine international emergency, or a general domestic supply crisis. If I may say so, there cannot possibly be any activating of these powers for any other purpose. Therefore, I feel it is necessary to redraft the clause to make the wording stronger. This would probably help the Secretary of State in an emergency. I can imagine him looking at Clause 3(1), paragraphs (a) and (b), in an emergency, sitting on the fence and strumming at his guitar, trying to conjure up a magic word strong enough to bring into action the powers to meet the emergency.
I feel that the procedure envisaged by Clause 3(1) in the Bill is that an Order in Council merely declares the powers in Clauses 1 and 2 to be exercisable because they are required for circumstances outlined in paragraphs (a) and (b). Therefore, in an emergency a much stronger word is needed, and the word "provide" seems to us to be the stronger word, implying that an Order in Council would be required actually to state the specific purposes either in Clause 3(1)(a) or (b) for which powers were being given to the Secretary of State, and if carrying out or exercising these powers he went beyond the terms of the Order in Council his action could well be challenged in the courts.
In this Amendment, turning to page 2, line 40, we feel that, by leaving out "to their fullest extent", it could imply that the powers could be exercised to less than the full extent, but also looking at subsections (1) and (2) to the rest of Clause 3, it indicates to us that the powers
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could, or would, be less than fully utilised. Therefore, these words could be unnecessary. Moreover, if one accepts that these powers should be used only in an international emergency or a real domestic crisis—and that could be a disaster on an oil rig or oil platform, or a major strike—then they shall be exercised to the full. I think the omission of these words removes an area of doubt, especially if a situation can be envisaged in which an Order in Council could be made under Clause 3(1)(b) for a situation less than the real domestic supply crisis which I have already outlined. If it does happen, we need the best words so that the Secretary of State can move in fast, as I have already said.
Turning again to page 2, lines 41 and 42, I think that the reason for leaving out, "because…they are required for", and inserting, "solely for the purpose of", and adding, "for the duration of an emergency formally declared by any of these bodies", is because they are needed to fulfil the United Kingdom's obligations as a member of the IEA and the EEC. Of course we accept this, but under the IEA and EEC requirements such powers are needed only during an emergency. The drafting of Clause 3(1)(a) in the Bill apears to contain no reference to an emergency, so by placing the word "solely" in the Bill it should make the emergency situation as clear as possible.
In moving this Amendment, I shall be interested to hear what the noble Lord, Lord Lovell-Davis, has to say, and any other of my noble friends. Without defining and getting the words completely clear, an emergency could go on for any length of time while the Minister tried to find ways and means of dealing with it, and we must have a word that is exact. I think that what we are trying to define will help the Secretary of State.
4.14 p.m.
The Earl of LAUDERDALE: In the peaceful endeavour to assist noble Lords opposite and the Secretary of State, I should like to support what has just been said from my own Front Bench—in itself an unusual exercise for me. First, in this debate the noble Lord, Lord Lovell-Davis, has repudiated any idea of his or his friends seeking excessive powers. He was quite clear about that in his reply to the debate on, Whether Clause I shall

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stand part. Of course we take him at his word, as I, at any rate, always do.
This debate is taking place in a week which is historically and constitutionally interesting, because in another part of this building there has been a Budget proposed to tax the people without their representation—or, equally, to relieve them of taxation without their representation. Of course that very coincidence this week makes one rather more curious and careful in one's endeavour to assist the Government to get the powers they need, whether or not those are coterminus with the powers that they actually want.
In this Amendment I should like to draw the noble Lord's attention to two words. The first is in the Amendment in paragraph (a), the word "solely". The noble Lord may say that that is superfluous, but we are trying to assist him and his Government, and his Secretary of State, by getting absolutely clear and exact the circumstances in which these powers would be used. Although he might say that "solely" is unnecessary, I thought that perhaps this week it is rather a useful addition and helps to make it more precise.
Then the noble Lord will notice that at the end of the proposed paragraph (a) we have,
"for the duration of an emergency formally declared by any of these bodies…"
In other words, in the exercise of the Government's obligations under these agreements it is left not to the Government to decide whether there is an emergency, but to the agencies and international bodies concerned to say whether or not there is an emergency. Surely, these two precisions can only be welcomed by a Government who do not seek excessive powers, who do not wish to steamroller the House, who are democratic, and will perhaps submit themselves very soon to the judgment of the people, and who therefore are acting with the best possible motives.
We are trying simply to help the noble Lord, and help him help his Secretary of State, to get the most exact circumstances in which these powers can be exercised. I am sure that he will accept our Amendment in the spirit in which it is intended. The drafting may be unsatisfactory, but the purpose is quite clear. I
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can only believe that it will be most welcome to the noble Lord and, I might almost say, my noble friend opposite, because I was accustomed to calling his predecessor "my noble friend", and I hope that we shall be the same.
Lord WYNNE-JONES: The noble Earl, Lord Lauderdale, is extremely adept at his friendliness and we all recognise that. Indeed, I join with him in his unusually amicable approach to the whole position. It seems that we are dealing with a situation in which we are trying to find the right form of words, but of course—and the noble Earl, being a Scotsman, will agree—the ideas must be correct before the words can be chosen to suit them. In this case we are faced with a situation which is far from being as simple as the noble Viscount, Lord Long, suggested, for we have two separate agencies which are outside this country. One is the European Economic Community, working presumably through the Commission, and the other is the International Energy Agency.
As I pointed out on Second Reading, it is conceivable—as the membership of those two organisations is quite different—that one could get differing instructions from the two agencies. This means that, if Her Majesty's Government are to take action, they must themselves decide which body is giving them the correct instructions. It might, of course, by good chance, be that the two instructions are identical, but that might not be the case and we must bear this in mind. I suggest, therefore, that it is impossible to say that Her Majesty's Government will act on the declaration of an emergency formally declared by either of these bodies. I do not know how these bodies formally declare an emergency. It is much more likely that they simply say that under present conditions such and such action should be taken by all members, and the wording of the Bill then allows Her Majesty's Government to take such action.
But suppose there is no such formal declaration. Must it be signed by all the members? How is this declaration to be made? If we get a situation in which the Agency or the Community say that something should be done, but they do not issue what can legally be called a formal declaration, then presumably nothing is done. Surely this is not the

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purpose of the Amendment. Its purpose it seems to me, as the noble Earl generously indicated, is to give the utmost assistance to Her Majesty's Government. I should have thought that in giving the utmost assistance to them—in enabling them to perform their duty—they should be left to act on the statement made and not have to wait for some formal declaration, whatever that might be. I suggest, therefore, that words matter and that if we put in words which are not clear we shall be doing a complete disservice.
Lord ROBBINS: I always feel especially virtuous if I find myself in agreement with the noble Earl, Lord Lauderdale. On this occasion I feel that, while there may be some differences as regards wording, there must be great sympathy with the fundamental point which he is trying to make; that is, to give precision to the powers of whatever Government may be in Office as regards the exercise of these provisions. Although there may be imperfections in the Amendment, it appears to sustain the general argument of the noble Earl and is in the spirit of the point I was trying to make earlier; namely, that it is extremely important to distinguish between powers which are taken in respect of a particular emergency, whether it be enunciated by an international body or the Government themselves, and orders which are enforced in the long-term interest of the conservation of energy. This seems to me to be a different matter and one which it is essential to distinguish from the other matter which has been mentioned. I say this in no Party spirit at all.
Viscount BARRINGTON: Although it may be an obtuse question, I come back to the point raised by the noble Lord, Lord Wynne-Jones. Am I wrong in thinking that the words, "formal declaration" mean the formal declaration that there is an emergency and not a formal declaration as to what should be done in that emergency? In my view, that seems to make a difference. If a sudden emergency arises, one would not expect a formal declaration as to what should be done. But if it is proclaimed formally as an emergency, that would seem to be a different matter, although I may have the wrong end of the stick.
Lord LOVELL-DAVIS: Regarding the question just asked by the noble Viscount, Lord Barrington, I suggest that he addresses it to the noble Viscount, Lord Long, because it is, after all, his Amendment. I do not know whether the noble Viscount cares to answer it now, but I certainly cannot. I think I welcome the peaceful and unusual endeavour to be helpful on the part of the noble Earl, Lord Lauderdale, especially when it is backed up by the noble Lord, Lord Robbins. As my noble friend Lord Wynne-Jones said, it is a matter of trying to find the right sort of words. The situation is not quite as simple as I think noble Lords opposite imagine. However, before I proceed in my attempt to be helpful to the Committee, perhaps I should, while referring to the helpful intervention of Lord Wynne-Jones, refer to the matter he raised on Second Reading about the possibility of IEA and EEC obligations. I must make it clear that it is the intention of the Government to ensure that no situation arises where there is conflict in this matter when it conies to the triggering of emergency-sharing arrangements. In EEC discussions, which are continuing, one of our first objectives is to establish this point.
In essence, the Amendment reflects in different words the objectives of the Government in Clause 3(1). However, we are not able to accept this rephrasing and it might help the Committee if I took some time to try to explain why. In the view of the Government, it is not necessary to limit the operation of the Order in Council under Clause 3(1)(a) to the duration of an emergency. The duration of the operation of the powers triggered by Clause 3(1)(a) will be limited by the making, first, of an Order in Council under this subsection declaring an emergency, and, then, by the making of another declaring its end. The Government intend to take these powers only on the declaration by the IEA or the EEC or both of an energy crisis. So the starting point would normally be the same.
It is, however, quite possible that the Government, for internal reasons, would not wish to declare the end of an energy emergency simultaneously with or immediately after such a declaration by the IEA or the EEC, for example, if there

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were a continuing oil embargo against the United Kingdom only, or if it were considered necessary to continue national oil allocation or demand restraint for a little longer simply to establish a better supply and distribution base from which to move easily to complete normality of operations.
Lord STRATHCONA and MOUNT ROYAL: Is it not a fact that the point of the IEA is precisely to avoid embargoes being operated against one country at a time?
Lord LOVELL-DAVIS: Yes, indeed, that is the reason behind it. The Agreement is to ensure that, in an energy crisis, the member countries can operate in such a way as to mitigate the effects and can continue to operate normally.
We also feel that it is neither necessary nor desirable to make the powers "solely" exercisable to meet IEA/EEC obligations. As drafted, the clause is quite clear in specifying that subsection (1)(a) is to be activated in relation to EEC/IEA obligations. Let us imagine that, in the midst of an internationally triggered energy crisis—and with an Order in Council in force under Clause 3(1)(a)—there arose in addition some other national circumstances such as industrial disruption. It would be impossible, in practice, to distinguish between the measures necessary to meet the latter and those to meet the "international" crisis. And yet if the Amendment to include "solely" at the beginning of subsection (1)(a) were accepted, the propriety of the various actions the Government would need to take in an emergency could be challenged. However, I can assure your Lordships that we would not abuse this possible flexibility of action under Clause 3(1) paragraphs (a) and (b). In such a confused situation, where IEA or EEC, or both, declared an end to the energy emergency but where our national industrial situation required further constraints, the Government would intend quickly to cease the operation of powers under Clause 3(1)(a) and make a new Order in Council under Clause 3(1)(b).
The noble Lord, Lord Strathcona and Mount Royal, raised on Second Reading the question of exercising the Clause 3(1) powers "to their fullest extent", and we
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now have his proposal to drop this phrase. I cannot accept that this is necessary. The meaning of the provision is clear. It simply means that the powers conferred by Clauses 1 and 2 are exercisable in full and without qualification only when an Order in Council under Clause 3(1) is in force—that is, only during an energy emergency. Moreover, this Amendment seeks to replace Clause 3(1)(b)—which triggers a non-IEA/EEC crisis—with a narrower formula. I repeat that the intention of the Amendment seems to us to coincide very closely with that of the Government under Clause 3(1)(b). But the wording of the noble Lord's proposal is rather too narrow in scope. The key difference is in the use of the phrase "required urgently to preserve essential supply and distribution" of the substances in Clause 1(1) of the Bill.
I do not quibble about the first two words. The whole point of this provision is to deal with an urgent domestic crisis. But, in the Government's view, it is vital not only that we should have the appropriate powers to deal with energy crises but that the criteria for triggering and using such powers should be wide enough to cater for the necessities of the crisis and the unlikely and unforeseen circumstance. The provision we have in Clause 3(1)(a) may, therefore, appear to your Lordships not to be such as to need, in reference to a "domestic crisis", the qualifying words which, under this Amendment, the noble Lord, Lord Strathcona, is seeking to insert. In the context of our own proposal, on Second Reading I explained in some detail the Government's intentions. In our view, this Amendment refers too narrowly to the "supply and distribution" problem and would hamper the Government of the day in triggering the necessary Order in Council action and throw doubt on the use of the Clause 1 and 2 powers to control production, acquisition, use and price of energy. I hone that I have helped to clarify the situation by that rather long statement. I recommend that this Amendment should be rejected.
4.36 p.m.
The Earl of LAUDERDALE: I wonder whether the noble Lord can help us a little more. He mentioned that the Government want the widest possible criteria for the definition of an "emergency" and has assured us that there

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could not and would not be any abuse of those powers. It is within the recollection of your Lordships that some while back we explored the inwardness of the Petroleum and Submarine Pipe-lines Act. The Government's defence of almost every clause in that Act when it was a Bill was studded with assurances that there could not conceivably be any abuse of their powers. We are, and have been ever since then, watching with great interest the evolution of BNOC in order to access how far the Government's assurances are being honoured. I do not want to explore that field too thoroughly, but I must say that some of the Government's observations have put us a little on the alert.
It is for that reason that I should like to join in an appeal to the noble Lord, not to accept these words—we agree that this is simply a try-out—but seriously to take another look at the wording of the clause in order to make absolutely certain in his own conscience—and I put it like that because I am sure that he has a conscience, but I see that the noble Lord shakes his head so I will alter that and say, as a more suitable humanist definition, that he should make certain in the secret recesses of his being—that the words are adequate. Will the noble Lord not search his mind and make sure that that is so? We all agree on the need for exactness. We all agree that there should be no abuse of power. That is common ground.
I would just draw attention to one parallelism of phrase: the Government's draft contains the words, "for the implementation of", which I think a horrible construction. The Amendment uses the words, "of implementing". I believe that the participle is always better than the abstract noun. If the noble Lord will simply undertake to look again at the wording of the clause, he will give the satisfaction which I know he seeks to give to the House and would also help to set at rest the worries which have been expressed by the noble Lord, Lord Robbins, as to the confusion throughout the Bill of the tactical with the strategic. It is confusion that worries us. Naturally, we do not question the purity of intention of the noble Lord very much.
Lord LOVELL-DAVIS: As the noble Earl, Lord Lauderdale, does not care for the Government's assurances and in
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view of the arguments which have been advanced, I accept that there may be a problem on Clause 3(1)(b) which may need examining. I will, therefore, say that the Government will have another look at the point and may be able to suggest something which will meet the spirit of this part of the Amendment.
Viscount LONG: I do not know whether it was my noble friend from the Back Benches who persuaded the noble Lord, but we are most grateful that he is to look again at Clause 3(1)(b). I am also grateful to all noble Lords who had a good try in persuading the Government to come round to our way of thinking that the wording in the existing Bill was not strong enough and was, if anything, probably rather weak. So in that case, and bearing in mind that we are proceeding very well this afternoon, I should hate to delay the proceedings. Therefore, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
4.40 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 6:
Page 3, line 11, leave out from ("section 1") to end of line 20 and insert ("or give directions under section 2 are not exercisable.")
The noble Lord said: We are now coming to a rather crucial Amendment. First, I should try to explain what I believe to be the situation we are attempting to deal with. When one cleaves a way through all the various double and treble negatives in the exceptions, one ends up with a situation whereby the two powers under Clause 3(2) become permanent Government powers once the Bill is passed; that is to say, there is introduced a permanent control over the end use of crude oil, and petroleum products are singled out for a special permanent price control. That is my understanding of the effect of the Bill. At risk of repeating myself, I must say that I am not alone in finding it quite difficult to discover what the Bill purports to do. Thus, I thought that I had better start by asserting the brief to which I am speaking.
We see two objections. There is the objection in principle to the accretion of powers, to which we have referred a number of times this afternoon, and to which, I suspect, we shall go on referring throughout the Committee stage debates We object in principle to an additional

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accretion of powers to the Government in a non-emergency situation. But there is also an objection in practice, in that we on this side of the Committee—and I think we are not alone in this—believe that the Government are at least no more likely to be more effective and more equitable than ordinary market forces in the complicated kind of situation which obtains in the petroleum market, both nationally and internationally.
What we propose in Amendment No. 6 would have the effect of removing both the power of control over the end use and the power for regulating the price of petroleum products. The proposed powers, as they stand, run a risk of further undermining the confidence of the industry. I regret having to hark back to points we made so often during consideration of the Petroleum and Submarine Pipe-lines Act, but I believe that the Government have consistently underestimated and failed to understand. If Ministers think that in saying that I am suggesting that they are incapable of understanding, then I must say that I am not intending to do so. But if they have understood what we have said to them, then I can only say that they appear to have turned a very deaf ear to our entreaties to appreciate the extent to which the industry feels that powers like this undermine its confidence at a time when it is being asked to make massive investments in the oil resources of this country.
The Amendment seeks to delete these powers, because we believe that if these powers have to be used, the Government should say that the controls are needed only for genuine and significant energy saving policies, which are demonstrably desirable and which could not be achieved through the operation of the market; and for policies which would not have an adverse effect on British industry and place it at a disadvantage vis-à-vis its overseas competitors.
If we must have price controls, then let us be sure that we continue to allow enough flexibility to the companies to make an adequate return on the large amounts of capital they are investing, and to leave them—to use the Government's favourite word—sufficient "flexibility" to react promptly to the complicated, and
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very often rapidly evolving, changes in the market. I do not believe that it will be at all easy to draft suitable price control regulations which leave this important degree of flexibility.
We have referred to the importance of assisting the Government in achieving their aims of conservation, and I believe that the noble Lord, Lord Lovell-Davis, has a special responsibility for this matter in his Department. We should not want in any way to cut across the power he needs. But surely the impact of the higher prices has, in the minds of some people, lent weight to the view that the market forces alone may not be enough to achieve sufficient economies in the use of fuels. It may well be that fuel consumers are being sluggish in achieving the economies that they could achieve, but it is worth noting that it has been estimated that of the 7½ per cent. drop in energy consumption in this country between 1973 and 1975 about 5 per cent is thought to have been due to the recession, whereas 2 per cent. represented the reaction to higher prices.
Despite this, the Government intend to take these very wide-ranging powers. They do not state in the Bill what criteria the Secretary of State should employ in deciding whether to use the powers of the end use control, except on the first page of the Bill, where in the Explanatory Memorandum it is stated that the Bill "makes provision for energy conservation…". We believe that it would be unwise to look towards making fuel savings or to enforce directions for altering from one fuel source to another at the expense of manufacturing efficiency. It is here that we are really worried, because the Government are now taking the power to exercise their value judgment on the market in terms of total prohibition of the use of all fuels, or particular fuels for specified purposes. For example, it could be argued that there is no particular reason why electricity, when used for advertising, should have been singled out and regarded as inferior to other uses of fuel.
Should the Secretary of State have the right to impose value judgments of this kind, and what reason is there to believe that his value judgment is to be preferred to that of anybody else? We would suggest that, in any time except an emergency, it is wrong to tackle the energy

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problem by blanket prohibitions of the kind that the Government are taking power to impose under this section of the Bill.
Returning to the worry which has been expressed so often, I would ask the Minister: is it not possible that under the Bill as it stands these powers could be used in a highly discriminatory fashion to favour organisations for which they particularly wanted to smooth the way? I have no doubt that the noble Lord will say to us, "Perish the thought! We would never have such an unworthy idea in our minds." With the greatest of respect, it is difficult for us to accept that if not this Government then another Government may not be tempted, under the powers they are taking in this Bill, to help some chosen instrument which they have set up. We therefore propose that there should be modified powers which would allow the Secretary of State to issue only orders for fuel saving purposes which are of some significance to the economy, and which would provide that when he tables such an order he should have to develop his reasons for issuing this order, in consultation with the fuel industries.
I turn now to the price control issue. I think we can all accept that, in these days, Governments have to have power to control prices. The Government already have extensive powers through the Price Commission, and we are not here today discussing whether or not we think that the controls of the Price Commission are desirable or undesirable. Those controls are here now. Why, then, should the Government feel it necessary to take powers, beyond the powers already acquired by the Price Commission, to deal with some unspecified contingency which cannot be foreseen at the present time? Why, too, are the Government singling out the petroleum industry for this special restrictive treatment? I do not believe any other manufacturer is subjected to permanent powers of price control which are related solely to his products. I would not want to go into too much detail about some of the underlying reasons why one cannot disclaim a certain amount of unease about these powers, but there are some technical points. For example, it is not at all easy to establish what the price of some petroleum products really is, because they are part of a wide spectrum of products being produced from crude oil. The fear is that the Govern-
1822
ment will inevitably be tempted to take some kind of average price on which they are going to base their control and which may not necessarily be a realistic one.
There is also the inevitable fear that there is a widespread feeling that oil companies make obscene profits. I think we ought to get that point out of the way. I have some figures for the return on capital made by 30 major oil companies in recent years, which are really rather surprising. In 1970 the return was 7·6 per cent.; 1971, 7·8; 1972, 7·1; 1973, 11·1; and 1974, 12·4 per cent. That was the return on investment made by 30 major oil companies; and those figures were produced by the Chase Manhattan Bank, who specialise in oil company finance. I would suggest that those figures are not excessive profits for what is, after all, as we have so often said, a very high risk industry. The risk we would be running would be that a permanent system of price control might seriously impair the dynamics of the very sophisticated and complicated market system which exists in the oil industry. The rigidities and the distortions which price control could impose would be in danger of blunting the whole oil industry's response to the changes in market conditions, and could lead to a less efficient allocation of their economic resources. Might it not also have the danger of blunting the cutting edge of competition? I think we shoud be grateful that competition has so far done a very good job in keeping down the cost of petroleum products.
I also think it is worth citing one or two overseas examples to show that price controls, which are beloved by some, have their dangers. It is an axiomatic joke—or, rather, a sick joke—in the United States that the effect of price control has been to distort the natural gas market to the point where the United States is now running into very serious difficulties of supply of natural gas. That is one example. The French have gone from a monopoly situation. They found that it did not work in the energy crisis, and they are now finding that their rigid price control system is going to have to be made more flexible. I would therefore suggest to the Government that they are going to have to work very hard indeed to convince many people in this country that there is the slightest justification for either

1823
of the two powers which they are proposing to take, on a permanent basis, once this Bill is passed, if we leave Clause 3(2) as it is now. I therefore—
Lord DAVIES of LEEK: May I ask the noble Lord a question? I am awry. What are we doing? I thought we were moving on to Clause 6, and I have been trying to follow what Amendment the noble Lord is speaking to. I am doing it respectfully.
Lord STRATHCONA and MOUNT ROYAL: I think I can help the noble Lord. We are on Amendment No. 6, not Clause 6.
Lord DAVIES of LEEK: I have looked at Amendment 6 and at Clause 6, and it fits both.
Lord STRATHCONA and MOUNT ROYAL: I have been known to speak to the wrong brief, but I do not think I have been doing that in this instance. If I have, noble Lords have been remarkably patient in listening to me discourse on something which is quite irrelevant. I beg to move.
Lord ROBBINS: May I say a few words on this extremely complicated question? I should not like to enter into controversy with the noble Lord on the general observations that he made relating to the effects of price control. I think that experience through two world wars shows that price control, unless extremely cleverly administered—by which I mean price control which follows, roughly speaking, the course which an ideal market would have taken—tends to cause, on one side, excess demand and, on the other side, complications on the side of supply. Therefore, I endorse the general observations made by the noble Viscount.
On the other hand, I try to put myself into the position of the framers of this legislation. I can conceive of catastrophic changes in the supply of petroleum which might, if left to themselves, cause market conditions which would give rise to a severe sense of injustice. Certainly, this was the case in the two World Wars of this century and it led the Governments of those countries concerned to impose price controls; but they speedily found that, in order that the price controls might not cause the adverse cones-
1824
quences that I have mentioned, they were led on to the policy of rationing. It is that second question to which I should like to address my final observations in this particular intervention.
I see very grave difficulties in the attempt to control final uses save in the broadest possible sense. All attempts to control final uses, especially in regard to petroleum, simply give rise to corruption and inequitable distribution. The only remedy in such cases, if the situation is so grave that it is necessary to resort to rationing as well as price control, is to allow the selling of ration tickets. It takes place in any case under the counter and it is better in those circumstances, rather than to attempt minute control of end uses, to allow people to buy and sell ration tickets.
5.3 p.m.
Lord WYNNE-JONES: Unlike the noble Lord, Lord Strathcona and Mount Royal, I should always be reluctant to impute any motives at all to the Government. I think that on the whole it is far safer to assume that things take their course—and they take their course very much independently of what may be planned. Perhaps the noble Lord, Lord Robbins, will agree with me on that. With regard to the particular Amendments with which we are dealing, when I first read them I must admit I was not very clear about them and they seemed to me largely to cancel out Clause 1 of the Bill. Leaving that aside, I was not clear what they meant. However, the noble Lord explained them very well. We have had the benefit of hearing from both him and from the noble Lord, Lord Robbins, of the need for differentiating between the two purposes of this Bill. It seems to me, looking at it, that the Amendment we are dealing with now, which is an Amendment to Clause 3(2) of the Bill, is essentially something which tries to separate the two purposes of the Bill.
In general terms, I should have thought that that was desirable. I should have thought it a good thing to get some separation of the two purposes of the Bill. Up to this stage we have been discussing essentially the emergency aspects of the Bill and I think that is a part which with minor Amendments has to go forward in the form which we have before us. But when it comes to the

1825
conservation of energy aspect of the Bill, we are on different ground altogether. I should have thought it very important that the Government in their Bill should make clear that they are wanting to take these powers for conservation purposes. I think this is very important to do.
It may be—I am not a drafting expert—that some of the proposals put forward in the Amendment should be given careful consideration by the Government in looking again at the drafting of this subsection. In any case, I feel the subsection ought to emphasise clearly its purpose; because, although I do not impute motives to a Government, I hope they can have a purpose and that the purpose could be described in this subsection.
With regard to the question of the nature of petroleum products, one must bear in mind that petroleum is an unpleasing raw material of very little apparent value when one first sees it. It is entirely the refining process, the separation process, everything that is done to the petroleum after we have got the raw material, which makes all the products important. This refining is something which is under control and can be controlled by Government instructions. I hope that it can be more controlled in the future, but it is something which can be controlled apart from pricing. It may be that pricing plays an important part here and, as I am sure anyone who knows anything about petroleum knows very well, the pricing is the most extraordinary thing about petroleum and petroleum products. It is extremely difficult to find out exactly how the pricing is done and the whole position is further aggravated by taxation which comes afterwards. In the end it means that no one has any idea of whether what he is paying bears any sort of simple relationship to the original material or the processes through which it has gone.
Lord ROBBINS: May I interrupt the noble Lord for a moment to point out one clear distinction in this complicated business; namely, the distinction between principles of pricing in an emergency and principles of pricing for conservation. In an emergency, if you resort to price control at all you are permitted to impose maximum prices and if you ate concerned about long-period conservation you are concerned with minimum prices.
Lord WYNNE-JONES: What the noble Lord, Lord Robbins, has said is perfectly correct. I would point out that although you may say that long-term pricing is not really a suitable way of doing it, nevertheless it is a method which is practised in all taxation. We do, in effect, control prices. We control the price of tobacco; we can control the price of particular petroleum products in the same sort of way. It may or may not be desirable. What I was trying to say was that the Government, if they have an objective of conservation, may legitimately use the different methods, but we should be told so in the Bill. To that extent, I agree with the principle though not necessarily the words behind the Amendment.
Lord TREVELYAN: This is an important Amendment. I suggest that probably Clause 3(2) is the least acceptable part of the Bill. The permanent powers which are implicit in this clause for the Secretary of State to make orders regulating use and price exceed the requirements of government in any situation other than an emergency. They would permit permanent interference and distortion of freedom to trade and earn a return on investment. I suggest therefore the Order in Council procedure under Clause 3(1) is sufficient in itself to meet any international treaty obligations and would also suffice in any purely domestic emergency. Therefore I strongly support the Amendment.
Lord HAWKE: I was pleased to hear the intervention of the noble Lord, Lord Wynne-Jones. He has enlightened me on something: that these powers were required for conservation. Reading the Bill and the Amendment, I had a violent feeling in favour of the Amendment and a prejudice against the Bill. Coming from the stable it does, one naturally starts with some suspicion against it. But now that my eyes have been opened and these powers are required for conservation, I believe they are not so bad provided somewhere there is a proviso that the Minister when he exercises them has to do so, and show himself to be doing so, for purely conservation reasons.
Lord DAVIES of LEEK: There is an assumption that no reference has been made to anyone who knows anything

1827
about the petroleum or other industries. But if noble Lords had taken the trouble to read the paper of the Advisory Council on Energy, they would have seen that we have consulted all types of firms all through the history of the development of this effort to conserve our resources including in the industry group British Leyland, British Petroleum and the British Steel Corporation. The industry group companies accounted for 50 per cent. of the energy consumption of Great Britain and they have been consulted. They have arrived at a decision that there should be conservation and, neatly put, for what? To explore the whole area of research and development in the long-term interests of this and future generations. A time comes when as well as profit and loss, the needs of future generations should be looked at so far as these raw materials, which are easily and quickly consumed, are concerned. After such a long debate, which has been very interesting, that is enough to say to noble Lords who know so much.
5.14 p.m.
Lord LOVELL-DAVIS: The effect of this Amendment is to strike from the Bill the powers of Clause 3(2)(a) and (b) to control permanently the use of energy (for conservation purposes) and the price of petroleum products—not as I understood the noble Lord, Lord Strathcona and Mount Royal to say "crude"—by orders under Clause 1. As I explained on Second Reading, the Government attach importance to these two provisions. First, let me take the matter of the control on the use of energy. This is required to enable the Government to continue existing energy conservation measures, and to introduce such measures in future as are considered necessary.
The noble Lord, Lord Strathcona and Mount Royal, tended to relegate energy conservation to the role of an optional extra so far as energy is concerned. The noble Lord, Lord Trevelyan, said he considered that this particular part of the Bill exceeded the requirements other than in an emergency situation. The noble Lord, Lord Hawke, also referred to energy conservation. I am grateful for what my noble friend Lord Davies of Leek said on this matter. I believe I must say as a matter of urgency why we believe we must have a wider under-
1828
standing of the role energy conservation has to play in our overall energy policy.
Our energy demand has been growing at an annual average at about 1·8 per cent. for the past 20 years. If it went on growing by no more than that, we should need in the region of from between 465 million to 495 million tonnes of coal equivalent by 1990, and by the year 2000 our energy demand will be of the order of from between 600 million to 650 million tonnes of coal equivalent. That is nearly double our 1974 demand. Knowing what we do about the likely supply from our own fuel reserves to the end of the century, we would, on these predictions, need to find a lot of energy from other sources, including nuclear energy. The gap between energy demand and the indigenous supply of exhaustible fossil fuels, coal, gas and oil, could be around 200 million tonnes of coal equivalent by the year 2000. There is one important way we can help to bridge the gap that is opening up, that is, by building energy conservation into our way of life—not least our industrial way of life—cutting out waste and wholeheartedly pursuing policies to secure increasingly efficient and economic use of energy. I believe that more and more people and industries are accepting the validity of this.
Against the energy supply background that I have described, energy conservation is not an optional extra. It is a vital necessity now and in the future because it makes a vital contribution to narrowing the potential gap between energy supply and demand, and to making the best use of scarce energy resources. It is vital if we are to minimise the share of our financial resources which we shall have to devote to securing our energy supplies. We have to recognise the fact that energy saving is, and will continue to be, an essential part of our way of life. We have been talking about the International Energy Agency. I should like to quote one short passage from an article in World Today published this March by the executive director of the International Energy Agency in Paris. It reads:
"The overriding concern at the moment is to retain the conservation effects brought about by the crisis, to keep the public and the private consumer aware of the need to be rational in their use of energy and to

1829
set in motion long-term developments which contribute further to its rational use."
I entirely endorse that view. I consider that energy conservation is absolutely a vital part of our overall energy policy.
As I explained before, the similar power in the Fuel and Electricity (Control) Act 1973 is currently being used to control heating in non-domestic premises, and to restrict lighting for advertising. We believe it is essential to have available the power to control use of energy in other appropriate cases in support of our future energy conservation programme. I urge the Committee to reject this Amendment firmly on this account alone.
Secondly, however, the permanent power to control the price of petroleum products—Clause 3(2)(b)—would also be lost if this Amendment were carried. The power is a continuation of that in the 1973 Act under which the price of only one product (paraffin) is controlled at present. As we all know, many old or poorer people rely on paraffin as their main fuel for domestic heating. There is no intention at present to control the price of oil products other than paraffin, but the need could well arise in future and we need to have such powers in reserve. The supply of oil products is of great importance to the United Kingdom economy.
The noble Lord, Lord Strathcona and Mount Royal, was trying to give us the impression that our taking powers to control oil product prices was seriously undermining the confidence of the oil companies. I can only assume that this must be the final straw which broke the camel's back because most other industrial countries, and a large number of European countries, already have the power to control individual oil product prices. Therefore, I do not see that our taking powers which are also being taken by the majority of industrialised countries will deplete the confidence of the oil companies. The present control of prices through the Counter Inflation Act and the Price Code, which has been referred to, takes the form of general rules governing the prices and profit margins of individual companies. The control therefore operates mainly across the barrel where the oil companies normally decide what weight of increase to put on each
1830
fraction of the barrel, except in the case of paraffin.
Finally I should like to refer to the point about rationing made by the noble Lord, Lord Robbins. The Government have no intention of introducing fuel rationing or allocation schemes in the context of energy conservation, and the powers in the Bill have been drawn narrowly so as to control use only on a permanent basis. Perhaps I might also get one canard out of the way, which was produced by the noble Lord, Lord Strathcona and Mount Royal; that is, the suggestion that price control could be used to enable the Government to favour specific bodies, or in some way to pursue what the noble Lord indicated might be nefarious intentions of their own.
Since taking Office, the Government have had powers under the Fuel and Electricity (Control) Act 1973 to regulate all oil prices. There has been no attempt to use them in the way suggested. The maximum retail price of petrol and Derv, inherited from the previous Government, was abolished in 1974. Paraffin alone remains under control because of its importance to low-income users. I hope noble Lords will take note of what I have said about energy conservation and will recognise how vital an element it is of our overall energy policy and how important it is that we should have the powers we seek. I would ask your Lordships to reject the Amendment.
Lord HAWKE: I think we are all fully aware of the necessity of energy conservation. This has been a public topic for a very long time, and we were interested in the noble Lord's little dissertation on the subject. But I would remind him that over the last 30 years in this Chamber we have had many debates on energy, one or two of which have been initiated by me. By and large, I think it can be said that the prognostication figures have not been worth the paper they were written on. So I should not take the figures in the ministerial brief too seriously.
Lord LUCAS of CHILWORTH: Before the noble Lord the Minister finishes, could he answer the question I put to him on Second Reading? The noble Lord talks about "petroleum products", on the one hand, and, on the other hand,

1831
of "oil products". I should like to know exactly what he is talking about and what the Bill is talking about. If it is petroleum products that are meant, then the Bill is referring to only the minutest portion of oil; surely it is the conservation of the oil that the noble Lord wishes to talk about, and not necessarily the conservation of the petroleum products derived from the oil.
Perhaps I might remind the Committee that, derived from oil, a number of essential products, petrol and some petroleum products come almost as an extra. In some circumstances it is very difficult to get rid of this "extra". In fact, one might remind the Committee of the position of ICI, when some years ago they bought crude oil for chemical and petrochemical purposes. They ended up with petroleum spirit which they could not get rid of through normal outlets and had to set up their own retail points. Therefore, if we are talking about petroleum products, I believe we are talking about only 15 per cent. of a barrel. I am sure that somewhere tucked away in his papers the noble Lord will have this figure. I asked him about it on Second Reading, but of course he was not able to give me an answer then. He should tell us now what we are talking about and the proportions involved.
The noble Lord should also tell us exactly what is meant by "petroleum products" within the context of this Bill. If it is what most of us are thinking about—petrol as a fuel for driving vehicles or heating factories, and so on—then we are talking about an infinitesimal amount. So I hope the noble Lord will now be quite fair and remind us of what will be the price of, say, a gallon of diesel or petrol next Monday morning, and then break that down as between excise duty, the product and value added tax. The noble Lord must then tell your Lordships that any Government are not effectively controlling the price of that product by fixing the selling price, because that is an infinitesimal part of the total. The price is controlled through taxation, customs duty and value added tax. Therefore, I think what the noble Lord has been telling us has perhaps been a little misleading. If he were now to be a little more open with us, perhaps
1832
we should be in a better position to judge why the Government need price regulation built into a Bill of this nature.
Lord LOVELL-DAVIS: May I recommend to the noble Lord, Lord Lucas of Chilworth, that he refers to the Bill. In Clause 19(1) he will find a clear definition of precisely what is meant by "petroleum products". It lists the substances there. The noble Lord did indeed press me on Second Reading for information regarding motor spirit. At the time, it was true I was not able to answer him. I can now tell him that normal United Kingdom refinery yield of motor spirit is 13 or 14 per cent. of throughput. In 1975, because of the recession in the petrochemical industry, a sharp drop in demand for naphtha allowed additional quantities to be used to produce petrol; and so overall United Kingdom production of motor spirit was somewhat better than normal. It was 13·7 million tonnes out of a throughput of 92·1 million tonnes, or nearly 15 per cent.
The point is that the production of motor spirit cannot be viewed in isolation. For various reasons, United Kingdom demand for petroleum products is not matched exactly by the output of our refineries, and the resultant deficits and surpluses are balanced by a complex import and export trade in products. Traditionally, the United Kingdom has been a net importer of motor spirit, which happens to be one of the more expensive fractions of the barrel, currently averaging about £70 per tonne cif. Despite the greater yield, in 1975 United Kingdom demand exceeded United Kingdom production by 2·2 million tonnes. The deficit was met by imports and stock run-down. It is therefore apparent that, with an annual demand for petrol of about 16 million tonnes, there is scope for a not inconsiderable balance-of-payments saving. I shall not follow the noble Lord, Lord Lucas of Chilworth, at this time into an analysis of the amount of a gallon of petrol which is covered by excise duty, product cost and VAT. I am simply going, once again, to resist this Amendment.
Lord ROBBINS: May I furnish a very friendly elucidation for the noble Lord, Lord Lovell-Davis, who is battling with

1833
all his critics on this difficult and complex subject? I cannot believe that anybody in this Chamber differs from him in his general argument with regard to the need for the conservation of scarce resources. Also, I cannot believe that very many noble Lords find it impossible to believe in emergency situations in which the price of oil needs to be kept down for distributional reasons, and perhaps a rationing system imposed. The trouble is that, as I have urged several times this afternoon, the desirability of maintaining maximum prices is different from the desirability of maintaining minimum prices whether that is done by direct order or by taxation. It is because these things are mixed up in the Bill that people like myself sitting on the Cross-Benches, not taking either side at all but simply trying to examine this matter on its merits, feel that this Bill is rather a muddle.
Lord STRATHCONA and MOUNT ROYAL: I am extremely grateful to the noble Lord, Lord Robbins, for both his first and his second interventions. As usual he has said more concisely and eloquently than I could what I wanted to say. I shall not dispute energy conservation with the noble Lord, Lord Lovell-Davis, but I would remind him that I initiated a debate on this very subject some years ago in this House; and I have indeed criticised him, I do criticise him and I intend continuing to criticise him, for a comparative lack of interest on the part of the Government in this important issue. I am delighted to hear that he is against sin, so he will have my support so far as that goes. And, of course, to some extent this is the position of the noble Lord, Lord Hawke.
We begin to part company in two ways. First, do we not find ourselves saying, "If it is for energy conservation that you
need these powers, then, for goodness sake!, say so in the Bill and try to reassure those of us who are worried about granting the Government excessive powers"? This is what lies behind our thinking. Secondly, the noble Lord, Lord Robbins, has again made the point that the kind of situation which is one of the applications of these powers is surely an emergency situation, and that is not what this clause of the Bill is trying to deal with. Therefore, as he said, the Government are getting themselves hoist by their own petard of the drafting and arrangement of this very convoluted and obscure Bill.
I do not think I was so confused when I started arguing about crude oil. I was simply making the point which the noble Lord, Lord Wynne-Jones, also underlined, that petroleum products are the products derived from crude oil, and it is exceedingly difficult to allocate a true cost as between these various products which come from crude. That is why I referred to "crude". But throughout this debate this afternoon—and I believe we are now coming to the end of the time allocated to this Committee stage today—the noble Lord, Lord Lovell-Davis, has totally failed to convince the Committee that the Government need these draconian and widespread permanent powers for the very noble purpose of conservation, and I am sorry that I must invite noble Lords who think as I do to express their disapproval of what is currently in the Bill.
5.34 p.m.
On Question, Whether the said Amendment (No. 6) shall be agreed to?
Their Lordships divided: Contents, 82; Not-Contents, 49.

CONTENTS

Aberdare, L.

Campbell of Croy, L.

Gainford, L.

Amherst of Hackney, L.

Carrington, L.

Garner, L.

Amory, V.

Coleraine, L.

Glendevon, L.

Amulree, L.

Cullen of Ashbourne, L.

Glenkinglas, L.

Arran, E.

de Clifford, L.

Goschen, V.

Auckland, L.

Denham, L. [Teller.]

Greenway, L.

Balerno, L.

Digby, L.

Grimston of Westbury, L.

Banks, L.

Drumalbyn, L.

Hanworth, V.

Barnby L.

Eccles, V.

Harvington, L.

Barrington, V.

Elliot of Harwood, B.

Hawke, L.

Belstead, L.

Elton, L.

Henley, L.

Blake, L.

Emmet of Amberley, B.

Home of the Hirsel, L.

Boothby, L.

Faithfull, B.

Hylton-Foster, B.

Brooke of Cumnor, L.

Ferrier, L.

Jessel, L.

Brooke of Ystradfellte, B.

Forbes, L.

Kinloss, Ly.

Cairns, E.

Fraser of Kilmorack, L.

Kintore, E.

Lauderdale, E.

Newall, L.

Strathcarron, L.

Lloyd of Kilgerran, L.

Northesk, E.

Strathclyde, L.

Long, V.[Teller.]

Norwich, V.

Strathcona and Mount Royal, L.

Lucas of Chilworth, L.

Ogmore, L.

Lyell, L.

Orr-Ewing, L.

Stratheden and Campbell, L.

Margadale, L.

Rankeillour, L.

Strathspey, L.

Massereene and Ferrard, V.

Robbins, L.

Trevelyan, L.

Merrivale, L.

St. Just, L.

Tweedsmuir, L.

Meston, L.

Sandys, L.

Vivian, L.

Monson, L.

Savile, L.

Ward of North Tyneside, B.

Mottistone, L.

Selkirk, E.

Wise, L.

Netherthorpe, L.

Sempill, Ly.

NOT-CONTENTS

Annan, L.

Gaitskell, B.

Oram, L.

Aylestone, L.

Greenwood of Rossendale, L.

Pitt of Hampstead, L.

Birk, B.

Hall, V.

Platt, L.

Bradwell, L.

Henderson, L.

Segal, L.

Brimelow, L.

Houghton of Sowerby, L.

Serota, B.

Buckinghamshire, E.

Jacobson, L.

Shepherd, L. (L. Privy Seal)

Champion, L.

Janner, L.

Shinwell, L.

Collison, L.

Kirkhill, L.

Stedman, B. [Teller.]

Cooper of Stockton Heath, L.

Leatherland, L.

Stow Hill, L.

Crook, L.

Llewelyn-Davies of Hastoe, B.

Strabolgi, L. [Teller.]

Davies of Leek, L.

Longford, E.

Wallace of Coslany, L.

Delacourt-Smith of Alteryn B.

Lovell-Davis, L.

White, B.

Douglass of Cleveland L.

McCarthy, L.

Willis, L.

Elwyn-Jones, L. (L. Chancellor.)

Mais, L.

Winterbottom, L.

Evans of Hungershall, L.

Milner of Leeds, L.

Wootton of Abinger, B.

Feather, L.

Noel-Buxton, L.

Wynne-Jones, L.

On Question, Motion agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.
Lord LOVELL-DAVIS: As your Lordships know, it was agreed that at about 5.30 we should defer further consideration of the Committee stage of the Energy Bill until Monday. With the approval of noble Lords, therefore, I beg to move that this House do now resume.
Moved accordingly, and, on Question, Motion agreed to: House resumed.

EEC COMPANY LAW PROPOSALS
5.42 p.m.
Lord MAIS Lord MAIS rose to move, That this House takes note of the Reports from the European Communities Committee on the following EEC Company Law proposals:

(a) Company Prospectuses (R/2053/72) [21st and 31st Reports, Session 1974–75];.

(b) Draft Second Directive—Formation of Companies (R/2381/72 and COM(70)232) [24th Report, Session 1974–75];

(c) Draft Fourth Directive—Accounts (R/569/74) [4th Report, Session 1975–76]; and

(d) Mergers and Takeovers (R/131/73, as amended by R/69/76, and
1836
R/2155/75) [20th Report, Session 1975–76].

The noble Lord said: My Lords, these reports cover, first, company prospectuses; secondly, the draft Second Directive on the formation of companies; thirdly, the draft Fourth Directive dealing with accounts; and, lastly, the Directive dealing with mergers. The fact that all these Directives come under the title of "company law" causes me some concern, because I should have preferred someone who is better qualified in law than I am to open this debate. Nevertheless, I am comforted by the thought that the noble and learned Lord, Lord Diplock, will be speaking later. Doubtless he will elucidate any of the more intricate legal implications; and, if I may be allowed to say so, I can think of nobody who is better qualified so to do.
I propose to confine my remarks to the practical aspects of these Directives and to draw your Lordships' attention in particular to the differeneces between the procedures contained in these draft Directives and those which are currently in general use in the United Kingdom. The Treaty of Rome called for the removal of obstacles to the free movement of goods, people and capital throughout the European Community. So far as the free movement of capital is concerned, this is dependent upon the lifting of exchange controls between Member States and the

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elimination of tax barriers and distortions. It is also very dependent upon there being some uniformity in the safeguards extended to those who participate in or are affected by the capital markets in each of the Member States.
The European Community has initiated the programme of company law harmonisation. The purpose of the programme is to achieve, or we hope it will achieve, equivalent, although not necessarily identical, systems of company law in each of the Member States. Thus, it seeks to ensure that there is, or will be, a uniform level of safeguards for creditors, debenture holders, shareholders, employees and directors. It is also intended that this level should be a minimum, thus permitting Member States, should they so desire, to build in greater safeguards within their own countries. In order to achieve the harmonisation of these minimum standards, it is necessary to obtain agreement on a number of Directives, probably 18 in all, over the next few years. Each of these Directives will deal with a particular aspect of company law, and once agreement has been reached on a Directive all Member States will be required to amend their national legislation in order to come into line.
So far, five Directives have been drafted. The first of these Directives relates to the prospectuses issued by companies applying for Stock Exchange listing; the second relates to the formation of public companies; the third deals with mergers between companies; and the fourth deals with the annual accounts of companies. It is these four Directives which form the subject of the reports prepared by the Committee on the European Communities which are before your Lordships' House today. The fifth Directive, which deals with worker participation and two-tier boards, will be the subject of a further report, and because of its importance I hope that perhaps it may also be the subject of a debate.
The Directives under consideration today would apply in Continental Member States to the Sociétés Anonymés, which is equivalent to our public companies. As it is drafted at the moment, however, the Directive would apply in the United Kingdom to both public and private companies. In our view, this would be discriminatory and would impose exces-
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sive and unnecessary burdens on half a million private companies. Part of the problem arises because we in the United Kingdom do not distinguish in the names of companies between whether they are private or public. I think we can take some comfort from the fact that the EEC Commission and the Department of Trade and Industry are aware of this problem, and it is hoped that a convenient method will be found to solve it, simply by requiring private companies to incorporate in their name either "Proprietary" or "PTY". I think it is reasonable to assume that the problem will be settled in that way. In that case, the Directive will then apply only to public companies here in exactly the same way as it applies only to public companies on the Continent.
It is important for us to remember that we in the United Kingdom are particularly affected by this problem, and that it is upon this country that the impact will be the greatest. The reason is that the United Kingdom and Ireland have 3,500 companies with publicly quoted equity, while the remaining seven States together have only 2,400 companies. Therefore, the practical importance of the proposals which are before us today cannot be stressed too highly. Perhaps we may hope that our voice on these matters will receive a sympathetic hearing in Brussels.
One of the major problems in the drafting of the company law Directives has been to reconcile the prescriptive and codified approach of the original six Member States with the more flexible and often non-statutory approach adopted by this country. The contrast between the British and the Continental system is that we in Britain rely to a considerable extent on the City institutions to regulate or to control, while the continental system relies a great deal on statutory regulations and rigid statutory control. I imagine there may be some of your Lordships who feel that there is merit in the continental system; I would hope that there are more of your Lordships who think that our system has been proved by time and that perhaps in the end it is a better system. After all, we have had an occasional hiccup or two but apart from that the system has worked well and for a very long time. It is speedy, it is efficient and it is not difficult to get a decision quickly.
Perhaps I may demonstrate the difference which I see in the three Directives of the reports before your Lordships today. To take the draft Directive on accounts, this lays down a detailed form for profit and loss accounts and balance sheets which must be used in presenting accounts. However, the British law lays down certain principles as to the information to be provided but leaves the form of the accounts entirely in the hands of the directors and their advisers in the form of their accountants. In particular, the original version of the Directive, that the valuation gives a true and fair which was drafted before the United Kingdom joined the Community, laid down a set of rules for the valuation of assets. In this country, the accountancy profession takes the view that the overriding consideration should always be view of the financial position of the company. I think it is reasonable to assume that the flexible, non-statutory approach has had an advantage in facilitating the development of accountancy practices. On the other hand, if the statutory approach is used it is felt that it would be difficult to modify the rules in the light of experience gained and in response to changed circumstances.
However, one must admit that it would be difficult to see our more flexible approach being accepted by or being suitable to those countries who have never used it. Therefore, it is obvious that the solution must lie in some compromise and it must give us some satisfaction to know that as a result of United Kingdom pressure from the Ministry, and particularly from the Institution of Chartered Accountants, the revised draft Directive in fact includes the phrase "true and fair" when referring to the valuation of companies' financial assets or position. It is a small point but at least it shows that our experience in this country is being listened to and is having some effect.
Turning to the draft Directive dealing with prospectuses, this Directive furnishes a long schedule of items of information that must be included in the prospectus and it is, by the way, required to be checked by an authority to be established for that purpose. I presume that, if we in this country operated under those rules, we should have to establish another fairly large administrative department to deal
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with it, which would involve some considerable expenditure, and I think would probably cause delays. At present in this country, the responsibility for a prospectus is placed firmly on the shoulders of the directors of the company, with the advice of their accountants. In addition, the Stock Exchange has rules with regard to the disclosure of information and checks the documents, but of course without accepting any responsibility for their accuracy. It might be that there would be those who would say that it is not a very watertight system. But again the fact remains that it has flexibility; it can operate with speed, and it has been proved over a long period of time.
Turning to the Third Directive on mergers, here again it raises the same question which bedevilled a number of the other Directives; namely, how to reconcile the statutory and prescriptive approach of the majority of the Member States with the non-statutory approach of the others. This particular issue arises in the case of the protection of shareholders in bids situations. The Mergers and Takeover Panel in the United Kingdom was set up comparatively recently to interpret and administer the City Code on takeovers and mergers. This set out the general principles and rules which persons involved in takeovers and mergers are required to observe. I think it can with fairness be said that although this panel has had a comparatively short life, it has carried out its terms of reference with efficiency and tact and it has already gained a considerable reputation with the commercial and financial institutions. Above all, it can act with speed.
The objective, of course, was to enforce a higher standard of conduct in this area than is required by the various statutory provisions. There are a number of distinct advantages in this type of self-regulation: for example, as I have said, the speed with which a decision may be given; the adaptability of the Code to changing circumstances and the way in which it can be improved and refined in the light of experience gained in its operation, and, above all, the assurance that the spirit as well as the letter of the Code is observed.
Nevertheless, we must also recognise that it has its disadvantages, for as things stand at the moment the panel is free

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to interpret its own rules as it goes along. There is no right of appeal to an external body; there are no legal sanctions available to the panel and yet it has the ability to impose severe sanctions on individuals and companies over whom at the moment it has no legal jurisdiction. In spite of the disadvantages under which they operate it says much for the manner in which the panel has carried out its work that so far they do not appear to have run into any serious difficulties.
The draft Directive makes no reference to many of the share dealings or dealing aspects of the merger which it has been found necessary to cover in the City Code. I think the explanation undoubtedly lies in the vastly greater number of bids that take place in this country, particularly contested bids, when compared with Europe. Therefore, in the view of the Committee it is important that the harmonisation achieved by the Directive should be a harmonisation of minimum standards, thus leaving the United Kingdom and other countries, if they so wish, free to continue to conduct shareholder protection in merger situations, largely by self-regulation and in the light of experience and, if necessary, to introduce legislation should they feel this is necessary.
In fact, I think it is fair to say that, so far as all the Directives are concerned, it should be made clear that they are the minimal requirements, thus leaving the countries free to impose greater safeguards wherever they feel it necessary. If this is not done there is a danger that they may well be regarded as maximum requirements. The safeguards currently extended to shareholders in this country may probably go well beyond the EEC proposals in almost every respect. However, it will be in the safeguarding of employees that the United Kingdom will probably be obliged to improve matters. This is as it should be, although I confess that in the mergers Directive the protection of employees appears at the moment to be taken to almost impossible limits. For example, it states that the bidding company, the bidder—call it what you like—should foresee the consequences of a merger on the employees for at least two years ahead.
A number of us have had something to do with mergers and takeovers, and
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much as one agrees that employees must be protected I think it would be difficult for a company to know exactly what the impact would be until the merger was virtually a fait accompli; that they have been able to put their top management in and they have been able to investigate in considerable depth before they could say what reorganisation was necessary and what effect that might have on employees. That does not mean that I do not feel that we shall have to go a great deal further than we have at the moment to try to meet this point in some way.
I said at the beginning that only five company law Directives have been produced and another 12 or so have yet to see the light of day. One of the drawbacks of what I would call the step-by-step approach to company law harmonisation is that the effectiveness of several of the early Directives is conditional upon the appearance of some of the later ones. For example, the Directives on prospectuses, mergers and accounts, the reports of which your Lordships have before you today, are all of limited value without the appearance of the Directive that will deal with consolidation of accounts. Contrary to the practice in this country, accounts of public companies on the Continent are not obliged to incorporate the full figures for profits and losses or assets and liabilities of their subsidiary companies. It is, therefore, possible for a parent company in its accounts either to overstate or understate the true financial position of its subsidiaries and therefore of the group as a whole.
It is perhaps unfortunate that one of your Lordships is absent from this House today, abroad. Had he been here, he would have been able to quote a case from personal experience and given a great deal more detail than I can of his own difficulties due to a Continental company not showing the position of one of its subsidiaries, which proved to be somewhat disastrous when they managed to get down to the facts. I suppose one should not say this, but I would suggest that, until consolidation of accounts is required by law in all countries, prospective shareholders in companies or interested bidders in companies in Europe should perhaps look at the accounts and the prospectus with caution and reservation. One appreciates that

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the Commission cannot tackle everything at once, and they have really done quite a monumental job as it is. But nevertheless it does seem that priority should be given to the preparation of a draft Directive dealing with the consolidation of accounts.
Another consequence of the piecemeal approach is the fact that the form taken by some of the earlier Directives will also have influence on the contents of later Directives. This occurs in particular with the mergers draft Directive. The one we have before us today deals with a type of merger relatively uncommon in this country; namely, where the assets and liabilities of the company acquired are transferred to the company taking over, and it is done by means of an issue of shares rather than cash. Once the deal is completed the acquired company is wound up and disappears. Mergers taking a different form, which will affect us more closely, will be dealt with in a subsequent Directive under the heading of takeovers. The present mergers Directive, as I have said, is of little direct importance here. However, it would be wrong to ignore it, because the general approach adopted in this report on mergers may well be carried forward to the takeovers Directive, and, as I have said, this will have considerable effect on this country.
This brings me to my final point; namely, that every effort should be made to ensure that the professional bodies, commerce and industry generally, particularly trade associations and institutions of all kinds, should familiarise themselves with the proposals that are coming out of Brussels, particularly on company law harmonisation and they should use the numerous channels available to them to express their views and reactions to those proposals. The timescale appears to be long for the Directives, but the drafts become more and more difficult to amend in any radical form once the machinery has been set in motion.
It may appear that I have overstated the difficulties and the differences which exist. I do not do that in any way because I am hostile to the Directives—very far from it. I have done it in order to emphasise how necessary it is that these Directives before us today, and any other Directives that may come before
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us in the future, should lay down the minimum requirements, thus leaving member countries freedom to adjust to their own particular needs. If we do not do this, I think it will be very hard to reach agreement.
I have spoken overlong. I wish only to express my appreciation and that of the Committee to those Government Departments, the professions, financial institutions and industry who have given of their time, given us information, appeared before us in our Committees. They have been of enormous assistance, and without their help I doubt whether these Reports would have been before your Lordships today; but without such help I doubt very much whether they would have been as detailed or as factual as I hope they are. I should like once again to express my personal appreciation to the special advisers to these Committees and to the Parliamentary secretariat. I doubt very much whether your Lordships' House as a whole realise the enormous amount of extra work that is thrown on the secretariat and the staff here as a result of having to deal with these Reports and Directives. That, my Lords, completes all I have to say. May I end by begging to move that this House takes note of the Reports from the European Communities Committee on the EEC company law proposals referring to company prospectuses, formation of companies, accounts and mergers.
Moved, That this House takes note of the Reports from the European Communities Committee on the following EEC Company Law proposals:

(a) Company Prospectuses (R/2053/72) [21st and 31st Reports, Session 1974–75];

(b) Draft Second Directive—Formation of Companies (R/2381/72 and COM(70)232) [24th Report, Session 1974–75];

(c) Draft Fourth Directive—Accounts (R/569/74) [4th Report, Session 1975–76]; and

(d) Mergers and Takeovers (R/131/73, as amended by R/69/76, and R/2155/75) [20th Report, Session 1975–76].—(Lord Mais.)

6.6 p.m.
Lord LYELL: My Lords, I think the House owes an enormous debt to the

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noble Lord, Lord Mais, who has so very ably opened our debate this afternoon. First, as he said himself, he is a member—and I go further and say a very hardworking member—of one of your Lordships' EEC Sub-Committees which do so much to scrutinise Community law; and, secondly, because he has raised this extremely important topic of company law in your Lordships' House this afternoon. Indeed the noble Lord, Lord Winterbottom and myself, are deeply involved in attempting to update our own company law here in the United Kingdom. I am sure the House will await with great interest the contributions by all the distinguished speakers this afternoon, and, on a personal note, I look forward with eagerness to hearing the noble and learned Lord, Lord Diplock, for, in our deliberations, it is he who guides those of us who sit on the Law Sub-Committee.
My Lords, we are discussing four reports this afternoon, and all of them are of a very technical and complicated nature. I think it would be for the convenience of the House that I should comment briefly on some of the more obviously contentious points that seem to me to arise, and then perhaps the noble Lord who is to reply for the Government could let us hear his opinion. The first draft Directive we are discussing is that on prospectuses. The noble Lord, Lord Mais, has already covered that in considerable detail, but I should like to add one or two comments of my own.
It seems that this Directive presents no terrors to those of us in the United Kingdom who are concerned with obtaining quotes of a company's shares on the Stock Exchange. We can all agree that its purpose is threefold. First, it seeks to enforce minimum standards for the quantity and quality of the information that has to be offered to potential investors. So far as quantity is concerned, there are some major anomalies. Can there be any valid reason, and do we have to be convinced of it, for requiring much greater disclosure of expenditure proposed on, say, research and development, or pension schemes, or staff salaries, than we require in the United Kingdom? And, conversely, the information required in the draft Directive does not cover various points on material contracts, on directors' service contracts, pension
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schemes, and directors' interests and the like, that we insist on in the United Kingdom.
Secondly, this particular Directive states that one of its objects is to facilitate capital movements within the Community. But regardless of the politically emotive content of such a comment, it seems that the original Members of the Community have been permitted to take some pretty draconian measures at times of economic difficulty themselves. Also our own company legislation is, to say the least, in the transitional stage, so it may be inconvenient for us to fulfil all the commitments of this Directive at once. Thirdly, this Directive requires an agency responsible in each Member State of the Community to enforce the rules for prospectuses and for seeing that the various companies' securities can be quoted on the Stock Exchange in an orderly manner. The report raises the query as to what is the responsibility of the agency, and in this country I believe that the agency is logically, and should continue to be, the Stock Exchange.
So far as the public are concerned, what exactly are the responsibilities and the duties towards them? Already the Stock Exchange Quotations Department takes immense trouble to check that companies wishing to have their shares quoted in London or elsewhere disclose all the relevant details that might have a bearing on the judgment of investors, or indeed the public. I am going to be chauvinistic and I will declare that the United Kingdom system provides more than sufficient information to investors which is relevant, and my one fear of this Directive is that it will impose unrealistic and possibly inflexible rules which will not suit each company. This Directive may force us towards rules of disclosure which the Stock Exchange has found to be totally unnecessary, and indeed irrelevant. Nobody knows more of the experience of the Stock Exchange in these matters than the noble Lord, Lord Mais, and I am sure that he would agree with me when I ask whether or not this is another case of EEC legislation failing to allow sufficient flexibility, while imposing what we see as irrelevant conditions and rules. Such measures require not merely discussion but also a great deal of persuasion from our representatives in Brussels and here in the Department.

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This Directive also concerns itself with the quality of the information required by the Stock Exchange, and the responsible bodies who are to implement the contents. The eternal problem of the harmonisation both of accounts and of the listing requirements, which are continually revised and amended by the Stock Exchange, should not prevent us from seeking to encourage the addition of such measures as will allow us to continue to exercise flexibility while, at the same time, maintaining the maximum protection of prospective investors and creditors.
It was approximately three years ago that I had the honour to speak in your Lordships' House on a debate concerned with the professions in the EEC. I remember that during that debate we found that one of the main barriers to better joint agreement on the validity of different qualifications (at least in my own profession of chartered accountancy) was this question of harmonisation, not merely of company law but of accounting terms and standards. I believe, and I hope that the House will agree with me, that this Directive seeks to cover almost all the conceivable situations which we shall find when a company seeks a listing on the Stock Exchange, yet it is clear that the code of law, or practice, cannot possibly cover most of the situations without necessarily becoming impossibly restrictive, particularly in a rapidly changing commercial world such as we have in the EEC today.
For example, one problem that is apparent from the Directive as at present drafted is, who has the individual and the collective responsibility for the prospectus? In the United Kingdom the directors have the joint responsibility; but there are valid fears that the national authority, when it is to be set up in this country—and let us hope it continues to be the Stock Exchange—could be liable should anything in that prospectus be deemed later on to be misleading to investors or the public. Another problem in this Directive is one of undue delay in the flotation of the company's shares where needless and unnecessary checking could be required.
The Second Directive that the noble Lord, Lord Mais, has dealt with this
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afternoon is concerned with the formation of individual companies and, I believe, with the maintenance of their capital. Nevertheless, here in the United Kingdom such protection of both investors and creditors is laid down and enforced in three ways: first, in the Companies' Acts, which the noble Lord, Lord Winterbottom, and I are seeking in this House at least to update and modernise; secondly, by the Stock Exchange and its various requirements; and ultimately these requirements are enforced by the courts. The House, and particularly the noble Lord, Lord Winterbottom, will be aware that company legislation in the United Kingdom is in a great state of flux. We are currently considering non-controversial changes to our existing legislation. But we await with keennes the report of the noble Lord, Lord Bullock, later this year, or possibly early next year. Once we have digested what he has to say, then there must be a general consolidation of company law—but, of course, we have to frame our own domestic legislation to take account of Directives such as those we are discussing this afternoon.
I, and many others of your Lordships, wonder whether the systems proposed in the Directives take sufficient account of the wide and helpful discretionary powers available to our courts, and of course to the Departments of Trade and Industry. Can the noble Lord who is to reply give some indication that his Department are indeed pressing for flexibility when new codes of company law are being discussed? Many of us here fear that there is a desire for caution and over-rigid restrictions in the EEC when framing company law for European application, and we do not wish to see our own system subjected to needless change. For example, there is the possibility that EEC nationals could form companies within the United Kingdom and yet, as we understand it, be free of some of the restrictions which are applicable to United Kingdom nationals. Any such cases would require clarification from the European Court of Justice, but it seems to me that it could be another example of seeing standards prevalent here which could be at the same time by-passed because of a Directive which sets out minimum standards in the EEC yet fails to allow one of the Member States of

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the EEC to apply its own standards with a reasonable amount of flexibility.
Then, my Lords, this Directive continues to deal with the vexed and, I believe, most relevant question of public and private companies. The noble Lord, Lord Mais, has had a great deal to say on that, and I will add a few brief comments. During our debate on the Companies Bill the noble Lord, Lord Winterbottom, and I discussed this point, but still I believe it is vitally important for over half a million private companies in the United Kingdom to be allowed total, or at least partial, exemption from the more restrictive aspects of this Directive. There are more than adequate measures already enshrined in our existing company legislation to protect investors and creditors from outright and blatant fraud.
One item which gives rise to far too much suspicion in the EEC concerns the widely accepted United Kingdom practice of paying an interim dividend to shareholders at some convenient date during the company's financial year. It seems that in order to be allowed to carry on this admirable practice all United Kingdom companies could be required to undergo a separate interim audit merely to ascertain that there are sufficient liquid funds to permit the payment of an interim dividend. Is this really necessary? I can hardly think so, particularly if the Government' could adopt the recommendation in the Jenkins Report that no dividend could be paid until revenue losses had been made good. I think that this would avoid terrible expense, not to mention the frustration for shareholders in having to wait for a very large dividend once a year.
The Directive also contains one or two needlessly fiddling details which concern the increase of capital, and the requirement when there is an increase of capital for cash, that shares must first be offered to the shareholders. This last point is already enshrined in Stock Exchange requirements, so on this subject there should be no difficulty in seeing that the Directive should apply in the United Kingdom. There is one major problem—and possibly the noble and learned Lord, Lord Diplock, may be able to help us when he speaks—and it concerns direct applicability of various Directives and some articles in the Directives as they
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apply to us. I do not propose to say more at this stage because I want to keep my remarks as brief as possible and because there are a few detailed points I want to raise.
The Fourth Directive on company law and accounts is to me the most fascinating and challenging Directive that we ire discussing today because, once again, we have to consider our own company legislation and, indeed, the 1976 Bill. This Directive seeks to improve standards of disclosure among company accounts; there are, however, major differences in definitions and accounting terms. We in the United Kingdom are concerned with definitions, for example, of a true and fair view. There are also different descriptions of share capital; here in the United Kingdom we refer to issued and paid up shares, whereas in the EEC it seems that "authorised" capital can, in some Member States of the EEC, refer to any or all of those categories of share capital.
Accounts in the EEC, because of the prescriptive and often rather cautious legal systems in the various Member States, tend to be more conservative than in the United Kingdom. The standards of disclosure in the EEC are, for the same reasons, a little way behind ours. What we seek is to be allowed to continue to insist on our forms of accounts while permitting the Directive to lay down permissible minimum standards. The Working Parties of the various accountancy bodies have done a remarkable job in seeing that accounting standards can be unified all over the Community, and we owe them our gratitude.
A major omission from this Directive is that there is no mention of consolidated accounts; it is generally considered that no adequate and reasonable view can be taken of a group financial position or group accounts without such consolidation. Also, there is only a hazy outline of the duties of what we call an auditor. I believe that these problems can be overcome, but I hope that the United Kingdom standards of disclosure through company accounts will not be reduced, nor will United Kingdom companies be forced to produce accounts which serve no useful purpose.
Inflation, both here and in the EEC, has caused immense difficulties in setting

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out useful information to shareholders and, indeed, to the public. Completely unrealistic values can be attached to various assets and often the depreciation of these assets becomes meaningless. Happily, however, the Sandilands Report has arrived and we shall soon have some reasonable form of inflation accounting agreed in the United Kingdom. However such a new form of producing information will have to meet the requirements of this and, indeed, other Directives. Once again, declaring my interest, at this late stage, as a member of the Institute of Chartered Accountants of Scotland, I know that the accountants' profession is continually working to see that the formation of our accounts in the United Kingdom provides adequate and reasonable information to those who, for various reasons, need it, but in addition the profession is continually involved in Working Parties to amend and up-date EEC accounting and, I hope, this Directive.
A final point on this Directive concerns where the accounts of half-million companies should be published. Is there any point in publishing all this information in some huge national gazette? Surely this would be far too cumbersome and unnecessary, not to mention expensive, particularly in view of the work which is going on so that companies' accounts and other records can be examined more efficiently and speedily by the public. In my view, this Directive more than any other shows the need to ask for and to obtain our continuing high standards of disclosure among companies. We cannot and must not allow these standards to be reduced or even minimised. Rather, we should encourage our fellow Members of the EEC to raise their standards, by degree, to a European minimum.
The last Directive which we are discussing this afternoon concerns mergers and takeovers and, in view of what the noble Lord, Lord Mais, has said, and in view of his great experience, I do not propose to say much about this Directive. I would, however, draw attention to the tremendous work that has been done by the Takeover Panel. We owe the Panel our gratitude for the work which they are carrying out with such skill and a great deal of tact and speed. We look forward
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to hearing from the noble Lord, Lord Douglass of Cleveland, on the question of employees' rights and safeguards, and I am sure that the noble Lord will have much to say about that.
My Lords, this debate is very important because it draws the attention of your Lordships' House to the continuing scrutiny of EEC legislation which is being carried on by various Members of your Lordships' House upstairs in Sub-Committees. We are here considering measures which have, and will continue to have, an effect on our commercial life in the United Kingdom. I believe that we owe it to our partners in the EEC to align our controls with the demands of EEC legislation, while continuing to insist on our own continuing high standards. This debate is also important because it takes place while the Companies Bill is continuing its passage through your Lordships' House. For both reasons, the noble Lord, Lord Mais, deserves our heartfelt thanks.
6.26 p.m.
Lord DIPLOCK: My Lords, the noble Lord, Lord Mais, and the noble Lord, Lord Lyell, have already dealt with the most prominent points on the practical application and effect of these four Directives. I want to stick briefly to some of the legal aspects of the problem. These Directives, the four of them, cover much of the field of company law and they are to be supplemented by other Directives, three of which require special mention the one on consolidated accounts; the Directive not yet in draft—at any rate, we have not seen it—on share takeovers, it being remembered that the merger Directive is on asset takeovers; and, thirdly, the Directive on the management and structure of limited liability companies. These Directives are not, as one sometimes suspects some directives are, harmonisation of law for harmonisation sake. They are required in order to achieve one of the main objectives of the Treaty of Paris; the creation of a single capital market in the Community, and to fulfil the special requirement of co-ordinating to the necessary extent the safeguards which, for the protection of the interests of Members and others, are required by Member States of companies or firms with a view to making such safeguards equivalent throughout the Community.

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These Directives deal with a field in which the commercial and legal experience of the United Kingdom could have made a very great contribution at the drafting stage, a contribution for the betterment of the Community as a whole. But unfortunately all the Directives originated before this country and the Republic of Ireland acceded to the Community and they were drafted with Continental law and Continental condition in mind. It was a grave misfortune that they were not able to benefit from United Kingdom experience in this field and, in the result, when we did accede, minor modifications were inserted in the existing drafts with, I fear, inadequate knowledge in some cases of both English law and English conditions. This has placed upon the Working Parties of the Commission a burden which, had we acceded earlier, would and should, have been assumed by the Commission. In the result the Working Parties of the Council have had to deal not only with questions of principle but with detailed matters of drafting, which normally should have been dealt with before that stage.
It is for that reason that the Committee has hoped that it would be helpful if it made unusually detailed Reports. I should like here to pay a tribute to Sir Charles Sopwith, Sir Hilary Scott, and Mr. Woolley, who have a great responsibility for what we have been able to put down in our Reports. These are designed, because of the exceptional circumstances, to give what help we can to the British representatives on the Working Party; and not only to them, but to all the Members of the Working Party and the Commission, to draw attention to matters to which their attention would have been drawn had the original drafting taken place after accession, instead of before it.
One other misfortune, or perhaps it was inevitable, quite apart from the time of accession, is that these are interlocking Directives, but because the subjects are so vast the Commission no doubt thought them indigestible by the Council in a single meal. But to pass one of them without the others, until the terms of the others have been decided, would be like passing Part I or Part III of the Companies Act without knowing what was to be in Part IV. I venture to urge that when it comes to deciding when these Directives are to come into force, they
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should come into force simultaneously and none should be brought into operation until the terms of all the relevant ones are known.
My Lords, there are three aspects of general principle to which I should like to advert briefly. The first, which has already been referred to by the noble Lord, Lord Lyell, is the possibility of direct applicability of some of the provisions of the Directive. That is discussed in the Report upon the Second Directive, and it is obviously highly desirable that company law should be contained in a single code, and not scattered, in part, among Directives and, in part, in Acts of Parliament. I am inclined to think that the extension of the doctrine of direct applicability by the Court of Justice may now have reached its bounds, but it would, I venture to say, be prudent to state in the Preamble, in the recitals to the Directives, that they were not intended to be directly applicable but were intended to be brought into force by national legislation and regulation.
The second point is this. If I were to criticise these Directives, I should say that they are strong on detail but, in some respects, perhaps short on principle. I accept that rigidity and going into detail is the Continental mode. But this results, or may result, in too little constraint upon some companies in certain circumstances, and too much restraint upon others. I suggest that in the Directives we should state quite clearly that the safeguards there set out in detail are minima. I should say state "expressly", because one must remember that with these Directives being made under a provision requiring equivalent safeguards throughout the Community, it might be said, if we did not state expressly that they were minima, that to have variations within Member States—greater safeguards in one than in another—would destroy the equivalence of the measures. We must not sacrifice the substance of protection for the shadow of uniformity, and this we should make clear expressly in the Directives themselves.
Finally, my Lords, I mention again what has been mentioned by both noble Lords who have already spoken and what runs like a refrain through all four of the Reports; namely, that the rigid application of these detailed norms laid down may, in some cases, in the particular

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circumstances of some companies, reduce the safeguard to investors and to employees, and even positively deceive. That can be in no one's interests. So there is a real necessity for some machinery capable of speedy action to grant exceptions in particular cases, to modify detailed requirements where it is necessary in order to give a true and fair account of the situation of the company. Only in this way can these Directives ensure that the protection both for the investors and workmen is not less than it is today in this country.
At present under our system the functions of making exceptions and modifying detailed requirements are divided between the Departments of Trade and Industry, the Stock Exchange and the Takeover Panel. This system works. The sanctions available are in part legal, but mainly economic, and I suggest that a system of that kind is probably not acceptable to the Continental Member States. Some more institutionalised equivalent would, I feel, be the solution for which we should aim. I make my final suggestion as a personal suggestion, not speaking on behalf of the Committee or of the Legal Sub-Committee. In the Directive relating to prospectuses there was provision that a national authority, public or private, should be required to vet prospectuses to see that the requirements were fulfilled. There was, and still is, provision also for what is called a "contact group" to keep under observation how matters were working out and to recommend changes if they were needed as circumstances changed. Neither of those bodies reappeared with any functions in the subsequent Directives. I do not know why. It is rather odd. It may be because of the piecemeal way in which the Directives were produced.
What I would suggest for consideration is that we should set up a national authority with a combined membership representing roughly the same people who are now serving on the relevant Committees in the Department of Trade and Industry, the Stock Exchange and the Takeover Panel. We would confer upon such a body, which would be more institutionalised than the three bodies which at present between them exercise this kind of function, a power to grant exceptions,
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to modify requirements in particular cases where that was necessary—and to modify them up or down—to add to the requirements if that were necessary in particular circumstances or to exempt from certain requirements if that were necessary in particular circumstances.
Such a body would, I believe, have to be given legal sanctions to make it palatable to other Member States. If it be said that what that would be doing would be creating an English SEC, I suggest that, as long as it is an English SEC working upon the lines which a body of that composition can be relied to work, it will be none the worse for that. It would give us an opportunity of getting into the Directives a flexibility which is necessary for the best functioning of a single capital market and it should be acceptable to our fellow Member States, accustomed as they are to the civil and not the common law.
6.44 p.m.
Lord DOUGLASS of CLEVELAND: My Lords, in dealing with the Fifth Directive, it is my intention to deal with worker-participation, which comes into this section of the Directive. My noble friend Lord Mais said that in this country we were apt to rely upon City institutions whereas on the Continent they rely upon statutory legislation, and that this was where we should come into conflict with our Continental friends both in the trade union movement and among industrialists. The noble Lord went on to say that we look at their accounts with some scepticism as a consequence because—and the noble Lord did not say this, but it was the implication of his words—they were continually trying to find ways round the law.
Lord MAIS: My Lords, if I may clarify what I said, I said with regard to the European situation that there was no reflection on the companies themselves but that the problem arose from the fact that they were allowed to disregard the results of a subsidiary company. In other words, if they had a subsidiary company which had had bad losses, they were not compelled to show those in detail or to explain them in the consolidated accounts of the company. That is the difficulty, and if it were put right there would be no difference between Continental companies and ourselves. They are allowed to disregard bad or,

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indeed, good results from a subsidiary company if they so wish.
Lord DOUGLASS of CLEVELAND: My Lords, the noble Lord, Lord Lyell, went on to suggest that I should have something to say about employees' rights and safeguards. I believe that the greatest safeguard employees can have is a strong trade union and that nothing can take its place. Therefore, I am not anxious for the holocaust of legislation to give us protection. Let us have a look at the participation which we have had for many years now. We discuss money with the employers. Whenever plant is planned, we discuss what manning there will be. I was challenged on this in my very early years when employers refused to allow me to negotiate the number of men on a given machine. It was not very difficult for us to deal with that. We did not allow the machine to start until we had agreed on the money. We could carry that to excess with the power which we have and if we do so we shall destroy the industry and the union.
I have had 62 years as a member of my union and half a century of negotiation. We have the power and very rarely do we use it indiscriminately or harmfully to industry. We negotiate shift and weekend work. We have productivity bargaining—or at least we had, but we now have legislation which limits productivity bargaining and we all want to get away from it even though it is very necessary at the present time. We negotiate safety which, again, is restrictive practice so far as the management are concerned, because we insist on work being done in a certain manner. We discuss rationalisation when the management want to put in new plant. We discuss redundancy arising from that. If there is to be a merger, we discuss the merger and we do so even more anxiously if it is to be a takeover. We discuss investment because, if money is to be invested—for example, the British Steel Corporation has invested in tremendous plant—and whole communities are to be thrown out of work, there will have to be negotiation. Sometimes it ends unsatisfactorily. Sometimes we might like to have legislation to prevent firms from acting unilaterally, as some do in these matters. I believe that we come to a very
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much more satisfactory conclusion through consultation than we should through legislation. The social consequences of all that is done are a matter for negotiation inside the trade union movement. I have deliberately put in these items to show that participation is taking place, and taking place on a very active basis in this country at the present time. What we are discussing now is how far we shall proceed with worker participation and how it can be achieved.
My Lords, there has obviously got to be legislation on company law; and, as I listened to all the speakers, I heard them all advocating a policy of restraint, legislation to restrain. That seems to me to indicate that directors must be a rather difficult set of people, if they are to have all these laws to keep them in line. I was a member of the Monopolies Commission, and I saw all the evils which could arise from monopoly and from selfish action so far as companies are concerned. I accept that there is a need for legislation; but, even there, the noble Lord, Lord Mais, said that it is much better to have accepted rules, Stock Exchange rules, than it is to have legislation which, in the end, is not so effective with any particular section of society as accepted codes of conduct. When we come to deal with trade unions, we want the reverse, I think. We do not want constraints; we want to involve them in some action that is going to give them an incentive to see the higher productivity which is going to bring the higher wages and dividends inside the industry—and it is to that end that I would speak this afternoon.
When we deal with this matter by legislation and put the Bills through this House, the inevitable tendency is to polarise industrial action. We in this House are polarised, as they are in another place. The arguments from this side are opposed by arguments from the other side, and vice versa. I do not complain; this is how democratic politics run. But it is not how an industry should be run; and that polarisation, through legislation, tends to transfer itself back into the industrial field, which is bad for industry.
So I say that politics polarise; and, if I can say so without offence, politicians very often paralyse. It is for that reason that I am wanting something that is

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acceptable and voluntary inside industry so far as workers' participation is concerned. I am content to rely on the strength of most of the unions in this country. Some are in very difficult circumstances; they are in industries where organisation is very difficult, where the turnover of labour is so frequent that you cannot get the organisation. Some forms of legislation have got to come in there—they are inevitable. But let that be at the tail end, and following on agreement which is arrived at within industry.
So far as the Opposition is concerned, I have heard them talk about the unacceptable face of capitalism. My Lords, capitalism today is not what it was when I started my trade union membership 62 years ago. By legislation, by trade union pressures, by commercial activities, capitalism today is a vastly different animal from what it was yesterday. It might be said—and I would have used this argument if I had been a Member of the Opposition—that capital is one of the few sections of our commercial organisation which contains within it incentives. Too often when you get planning, and intensive planning, incentives tend to be wiped out. If you want an example of that, you need to go to Russia to see what the ultimate is so far as planning is concerned. It is absolute lack of incentive. They have to go to America to buy the food to keep them alive. The trade unions there have all the legislation in the world, but no freedom; they are tools of government. So when you come to the ultimate of legislation, that is it. It is supposed, of course, that if you get the power that they have, the dictatorship of the proletariat, then you have got enough power to plan and compel people to do what ought to be done for the good of the nation. Yet they cannot feed themselves.
Then you go to China and see what is happening there. We visualise China as a new concept of communism. Only this week we have had the revolutions inside China. What does it mean? It means that the young people of the world are not going to accept dictatorship, wherever it comes from. So the end of good commercialism and good industrial practice does not rest with planning in an authoritarian or autocratic way. Nor am I sure that it is going to depend too
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much on legislative planning, but, rather, more on planning that is agreed between employer and employee. I can remember something that happened many years ago, when I was with a firm which was making steel. We contested the employers' new method of operating the open-hearth furnaces on which we worked. They would take no notice because they believed that they knew it all. Fifty years ago I produced a costing of that particular method of steel-making practice, which was finally sent up to the directors, who accepted the arguments that we put forward. The workers can bring forward the constructive ideas given the opportunity—and they can demand the opportunity.
We then come to what is the hub of contention at the present time, and that is the proposal for co-determination, where you have two bodies—a policymaking body at the top elected by a works council who appoint a managerial body underneath. I have great difficulty in understanding the attraction of this to so many people. I have been discussing this with Lord Feather, who was secretary of the TUC and who was sent out to Germany in order to get the trade unions re-established after the war. He did it very successfully; he made a good job of it. But it was when he established the unions that they established co-determination. Why did they establish co-determination? It was not for productivity; it was not for better understanding; it was to keep the Nazis at bay. In those days coal and steel employers were arrogant autocratics. I know; I went over and met them on a number of occasions. We would never have stood for the arrogance of those people inside this country.
Co-determination was set up because in Holland in the 1870s shareholders felt that this method of operation would give them some control over their company. That is how it originated. In Germany, it was continued, reincarnated, re-set-up, for the purpose of controlling Nazis, not for the purpose of production. It worked because the workers believed that they had that protection from them—from the Nazis, from the autocrats who were inclined to treat them as the Nazis had treated them all along. It was workers' protection from that; it was not an endeavour to get something which would

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work properly. Why did it work? It worked because the whole of industry inside Germany was at such a depressed point as a consequence of the destruction in the war that they knew that if they were going to get back to security, and security without inflation, there had to be a working together as there had never been before; a productivity which would equal anything in the world—and they were given the best machines in the world with which to do it.
If people did not succeed in those circumstances, I do not know in what circumstances they would succeed. People think that because that happened it is going to be continually successful. I like to keep abreast of events. There is a great deal of unrest among the young workers inside Germany today about co-determination. There is a demand for it in a number of industries, with a fifty-fifty representation. But there is a good deal of unrest there, and I think it will emerge before very long, when we will see that it is not the cure-all.
Coming back to our own country, I was on a works council many years ago now, and that works council was instituted for the purpose of rescuing works which were bankrupt. We could not have conducted that council unless we had had some confidential information, because the management was making a request of us. Shareholders' information can be got without trouble. All you have to do is to buy a couple of shares, and you have it. There is no point in constructing machinery to get the information that is given to shareholders. It is too easily available. But people are demanding more than that now. They are demanding some of the information that directors get. But there will be no power given by such information without it being accompanied by the responsibility which inevitably accompanies power of that character.
Company law has been set up in this country to prevent directors with inside information from using that information against the shareholders or from using it for their own benefit. Company law has done this in order to protect the shareholders of companies. It is visualised by some of our people that they are going to get information that directors have. If they do, they will have to observe the same secrecy which direc-
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tors have to observe; or the industry would be destroyed if they were not prosecuted by law. They would have to be prosecuted. It is an inescapable consequence of knowledge of that character that you must obey the law in respect of it and not use it for your own individual advantage. This will cover the trade unions just as it will the directors of any firm. If anybody has any doubts about that, they should get down to it and see where they get to at the end of the day.
I know of at least two firms in this country which believe in voluntary cooperation. They have set up works councils, and they have some young shop stewards sitting along with top management on the councils. They have described to the young men the problems of the industry and they have said to them: "We want to go a little further. We want to give you some of the information that our directors have. The condition is that you keep it secret, as the directors will have to keep it secret." These young men—and although I know of two I think there are more than two companies doing this—have accepted this situation. The consequence is that they have now got information which is not only secret but is not understandable to them because they have not been trained to understand it.
This brings me to the point that management is a very professional occupation, with sophisticated machinery, both technical and administrative, which has arisen as a consequence of technical improvements and administrative legislation. Sometimes you need to be a lawyer to understand just what is happening. The trouble is that lawyers do not know what to do with it when they understand what happens. It is an advantage to have these shop stewards learning how to understand. They have asked management, "How can we get to understand this? These are closed doors to us." The management have appointed teachers to teach them; and they are learning.
That brings me to the next point. If our trade unionists are going to move as they are moving, and as they have got to move, into the realms of responsibility and of management, they will require a lot of training. I should think that an advanced company would do what one such company is thinking of doing. They

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are thinking of employing some of their retired directors to take classes of these young fellows, to tell them of the problems they have had in their experience inside industry. They are letting them ask questions and giving them an understanding which will enable them to take responsibility. No legislation can do just that. My Lords, I do not care how it is done. It is the problem. I am not sure that my noble friend Lord Winterbottom will agree with all that I am saying. I am not saying this with the authority of my Party. I am saying it because I think it from my own experience and I want to get the thing down in Hansard so that there may be some criticism and thought going on about this question.
So far as co-determination is concerned, if we are to adopt legislation that was put through in Germany 30 years ago, then I think it is showing a stultification of thought so far as we are concerned. When I was in industry—I was in the research department of the steel industry and I was in the Department of Scientific and Industrial Research covering all industry—I was looking on the drawing board at something which was to operate 20 years hence. If we are to look at what was on the drawing board 20 years ago and adopt it now, it shows a stultification of thought which is not in the British character. There is more innovation inside the British character than that. There is an ability inside British industry to make it pay. It has been obscured by subsidies and legislation up to this point; it has been obscured by economic jargon up to this point. But now, as the Budget has shown, we are at the point where we can neither adapt economic methods nor borrow any more money. We must rely on ourselves to get productivity in this country. The only way to get that productivity is not by operating as we do as politicians but as we should as industrialists. By that, I mean that we are not going to sit down in industry and oppose each other for the sake of opposition as we do in Parliament; we must sit down together to bake the cake that we are to share. I am sure that inside industry today there is enough thought to do this.
We have come to the issue of what has to be done. Can it be left to com-
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panies to get together with the unions or unions with the companies? Or do we have some pressure? When we dealt with the Industrial Relations Act, the Code of Practice became very prominent. We have adopted a code of practice in many instances and possibly with the back-up of legislation in the background. If we in this country can evolve a code of practice for co-operation between trade unionists and employers—and by employers perhaps I mean management, but let me say between trade unionists and management—then the interests of the shareholders will be well looked after, the interests of the trade unionists will be well looked after and the interests of the Chancellor of the Exchequer will be well looked after.
It will take some years to evolve. It will take years to bring to fruition. But there is no other method I know that will bring the fruits that we want inside this country. I would therefore ask that everybody—trade unionists, employers, and Government—consider first how we get trade unionists and management together as they are doing in some of these firms; how we give satisfaction to those who want legislation because they are afraid that without legislation nothing will be achieved. I think that the economic committee of the TUC and the CBI or perhaps the National Economic Development Council could draft a code of practice that should be followed by all. I do not think it will need backing by legislation, because the example will be sufficient to prove its worth. But, if legislation is necessary, then put it somewhere in the background to give satisfaction to those who have doubts about voluntary co-operation.
There it is, my Lords. Let us get away from the old idea of fighting each other! Let us do what the Chancellor of the Exchequer has done and say to the unions: "Here is something for you, if you will give me something. It will be to our joint advantage." If we can get that spirit running throughout industry then the future of this country is not only assured but it will not be said that we have to depend upon a policy evolved 30 years ago by a nation because the trade unionists were scared of the autocrats inside that nation.
7.10 p.m.
Viscount AMORY: My Lords, the subject on which the noble Lord, Lord

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Douglass of Cleveland, has been speaking, worker participation, is of immense importance. I am sure we shall all look forward to a very special and full debate on this subject before long. I am no lawyer, and I know very little about the Companies Acts. I want to make one or two remarks stemming from my membership of Sub-Committee A. Several of these points have been already dealt with with great skill by the noble Lord, Lord Mais, and my noble friend Lord Lyell, who is a chartered accountant and speaks with great authority on these matters. I shall refer to them only sufficiently to illustrate the truth of the old adage that great minds are apt to reach identical conclusions. I do not think that will take me very long. On the other hand, I have no intention of referring to the points made so cogently by the noble and learned Lord, Lord Diplock, for a reason which will appeal to your Lordships: that I would be incompetent to do so. Nevertheless, I am sure I shall be on safe ground by saying that I concur in full with the noble and learned Lord.
In general, as the noble Lord, Lord Mais, said, we must realise that there is a difference in the attitude of our colleagues on the Continent and ourselves on some of these matters. We are taking the pragmatic attitude, dealing with situations and problems as they have arisen in the most practical way, and we must recognise that the other Members of the EEC are accustomed to a more prescriptive approach. I think we must accept that while our system suits us well, it is not likely, as the noble Lord, Lord Mais, said, to be entirely practicable or acceptable to the nine nations trying to lay down common rules. Nevertheless, I hope the EEC Commission will look very carefully at the methods which have worked and are working well in this country. Fortunately, many of the provisions lay down minimum standards of action, leaving those countries who prefer more exacting but workable standards to maintain them if they so desire. That sounds a wise approach.
Having said that, the first drafts of some of these Directives seem to suffer from an attempt to lay down too rigid and too detailed rules. Two examples, in passing, are the provisions for advertising mergers and the number of expert
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valuations required. There are many other instances one could quote. Most Continental countries, I suppose, have less experience of mergers—or, at any rate opposed ones—than we have, and if some of the detailed provisions proposed were literally enforced the time and expense involved might often prove prohibitive, especially to the smaller companies. In some instances the EEC proposals seem to put more emphasis on the quantity than the quality of information.
If one surveys the whole field of the detailed rules envisaged by the EEC Commission, I think one would feel at times rather daunted by the nightmare of a massive bureaucracy resolved to harmonise everybody and everything. It would be a pity if the verb "to harmonise" lost some of its dulcet tone and became terrifying in its significance. One's hope is, however, that good sense and good judgment about what is practical may dictate the limits of these Directives which are going to have the force of law. Clearly, there must be a corpus of strict company law applying to company law. Though I doubt how far it is applicable to company law, I believe personally that our complicated modern society may increasingly make use of codes of practice supported by public opinion in lieu of an ever-increasing multiplicity of law in immense detail which no citizen can hope to comprehend. Codes of practice in the cases we are considering now have strict limits.
De minimis non curat lex seems to be a principle getting a little out of date. As Mr. Bernard Levin said a few days ago, as a result of Parliamentary enactments, today the law "curats" with an increasing devotion about the most miniscule of trifles. The section in the Report on the Safeguarding of Employees' Rights in the case of mergers may seem at first sight rather brief. But it deals with an important aspect of mergers. Too often in mergers the interests of employees seem only to be considered at a late stage; sometimes, indeed, too late. Your Committee, my Lords, has said in its report that employees' rights should be safeguarded in some way, whichever legal form of merger is used. We might perhaps have added that this whole question of safeguarding employees' rights requires and fully justifies the most careful consideration at every stage.

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Regarding the evidence we received about United Kingdom attitudes, there is one point I should like to make. While some of the evidence we had from expert bodies displayed a really impressive appreciation and knowledge of the proposals and state of play in the EEC, I think I would be right in saying that we did not receive a great deal of evidence that businessmen or their representative bodies were yet interesting themselves very much in these matters. If that is true, it would seem a pity, because while most of the proposed Directives are not likely to come into force overnight, many of the things they will cover are extremely important. Remembering that most of the rules will eventually become binding on companies in the United Kingdom, it seems prudent that businessmen and representatives who are to be concerned keep in early and close touch with what is being planned during the formative stage.
There is one other matter that I should like to touch on. These Reports from the Select Committee are, of course, primarily for the information of this House. But one would like to think that they would also serve wider purposes, by furnishing criticisms and suggestions which will be of use to our Ministers and officials in their EEC negotiations. The noble Lord, Lord Mais, touched on that point.
This question was raised the other day, in a debate on EEC environmental matters, by the noble Lord, Lord Avebury. He asked what happens as a result of our debates. Are our Reports and discussions of use to our delegation in Brussels? He also suggested some kind of reporting back procedure on the recommendations in these Reports, so that we in this House can judge what action has been taken and whether our recommendations have proved effective and useful. The noble Lord, Lord O'Hagan, in the same debate asked whether the six-monthly Report the Government are to make might afford such an opportunity. A recommendation made last Session, I think, in the Second Special Report dealt with this matter and is relevant. There was a welcome indication in an Explanatory Memorandum from the Secretary of State for Trade that the recommendations of the House
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of Lords Select Committee were to be pressed in the Council Working Party. That is good news. May I ask the noble Lord, Lord Winterbottom, whether he will tell us more about this, and how he thinks these objectives we have in mind, about knowing what subsequently happens to the subjects we have discussed in our Reports, might best be met.
These Directives will eventually call for some very important alterations in our laws. May I repeat once again how important it is that those at home who appear to be concerned—the industrialists, businessmen and trade unionists—should apply themselves as soon as possible to considering these questions which are likely to arise, so that their varied views may be understood and represented by our delegations during the formative stage in Brussels. The Directives which will ensue will be very important indeed. Finally, I should like to associate myself with what the noble Lord, Lord Mais, said about the gratitude which our Sub-Committee feel towards our secretariat and advisors. The other members of the Sub-Committee would like me also to add, "and to our chairman, too".
7.21 p.m.
Lord WINTERBOTTOM: My Lords, the House has very properly thanked the noble Lord, Lord Mais, for his valuable act in recommending these draft Directives to the House in such a clear and illuminating way. I think that a much wider circle—all those individuals who in due course will be affected by these Directives—also have cause for gratitude. This is a matter which perhaps is only just coming before the public, and in particular those sections of the public who will be directly affected. For this reason, I should like to support the point made by the noble Viscount, Lord Amory, that public attention should be directed towards the work done by your Lordships' House, towards this debate and to the various problems and prospects that the Directives are opening up.
Speaking on behalf of the Government, I should like also to express gratitude to the Select Committee and their Sub-Committees, who carry out such a great deal of detailed work, in the preparation of the report which is now before your Lordships' House. This has entailed the taking of evidence from numerous

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interests, a study of lengthy and complex documents, discussions both in this country and in Brussels and the sifting of a vast amount of technical information so that it may be put into a form in which it is accessible to laymen and experts alike. I am sure that I speak for the House as a whole when I congratulate the Committee on its notable achievement. At this point I should also like to commend to your Lordships what was said by the noble Lord, Lord Lyell, when he stressed how the work we are doing in the House this week shows how closely inter-related are becoming the legislative work we have to do for the United Kingdom and that which is coming to this country from the EEC. This is something which, if I may say so, has interested me very much during our joint work this week.
The programme of work on company law harmonisation is part of the industrial policy programme which was approved by the Council of Ministers in December 1972, aimed at the eventual establishment of a single European industrial base. The company law programme is designed to contribute to these wider policy objectives, and obviously the proposal before us today represents only the first step along what will be a long road. There is a lot of work to be done before these objectives can be realised.
The Government's attitude to the programme is naturally influenced by the difference in the circumstances and conditions which apply in the United Kingdom. As has been said, we have more companies than the rest of the EEC put together, and traditionally rely on a liberal approach to company law. Our system is based on a principle of disclosure, and we tend to react ad hoc to proven abuses. Of course, the relative sophistication of our Stock Exchange, banks and professions plays an important part in making the system work in practice. It is important that the benefits of this existing structure are not lost in the maze of detailed discussion leading up to harmonisation.
As my right honourable friend the Secretary of State for Trade made clear in his evidence to the Scrutiny Committee, our aim in negotiations is to ensure that we do not accept changes which would be detrimental to our legislation; that we accept as few as possible of those
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which serve no useful purpose; that we maintain the aim of equivalence and not uniformity together with much of the flexibility of our own system; and that the Directives should impose the minimum requirements only, leaving us free to impose more stringent requirements, if need be, in the United Kingdom law. I hope that what I have said on this point will satisfy the noble and learned Lord, Lord Diplock, to a certain degree. I have noted his view and shall bring it to the notice of my right honourable friend that all Directives relating to company law should come into effect together rather than piecemeal. If I have understood the noble and learned Lord aright, he would like to see, following this particular step, the consolidation of all company law. I believe I have understood the noble and learned Lord correctly on that point.
In general, progress is slow and the total timetable for any instrument from its conception to adoption and implementation is nearer ten years than five. This is mainly due to the inherent complexity of the field and the very detailed level of harmonisation at which the Community was aiming before we joined. Furthermore, the difference between the more flexible and liberal company law and practice in the United Kingdom, derived from a mixture of Statute and common law, while those of the Continental countries have tended to be based largely on civil law, has thus raised different problems which of necessity extended the discussions even further.
Your Lordships may be interested to hear the present state of play on the four Directives we are discussing this evening. The draft Directive on Company Prospectuses, which is sometimes referred to as the draft Sixth Directive, has now been published in revised form by the Commission. No firm timetable is yet available, but it is understood that consideration of it in a Council Working Party may begin in the next few months. The draft Second Directive has now virtually completed its Third Reading in a Council Working Group and, although there are still some major problems to be resolved, it is planned to bring the draft before the Committee of Permanent Representatives in the next few months. It is clear, therefore, that work on the Second Directive is near completion and

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we may assume it will be ready for adoption by the Council of Ministers during 1976. The draft Fourth Directive is currently having a Second Reading in a Council Working Group, and recent progress has been reasonably rapid. It is therefore possible that it could come before the Council of Ministers in 1977.
In the case of the Report on Mergers and Takeovers, I would remind the House that we are dealing with two separate Directives, R/131/73 being the draft Third Directive on international mergers; and this has not progressed since a First Reading of the draft was completed in November 1973. Future progress will depend on the speed with which the Second and Fourth Directives can move through the Council, but it seems unlikely that work on these will resume before 1977. R/2155/75, which is the draft Directive on the safeguarding of employees' rights in mergers, takeovers and amalgamations, and which is more commonly known as the "Acquired Rights Directive", is having a Second Reading in the Council's Social Questions Working Group and could well be ready for adoption by the end of June this year. I should mention that this draft Directive is the responsibility of the Secretary of State for Employment, whereas the others with which we are dealing today are, of course, the responsibility of the Secretary of State for Trade.
It will be seen that these proposals do not involve reforms of company law immediately facing us. In two cases, the drafts may well come before the Council of Ministers for adoption in the current year; in two other cases, possibly in 1977; and in another two cases, at some later date. In each case, there could be up to two years more before their implementation in domestic legislation. It is nevertheless important that they should be scrutinised at an early stage by the House and another place, and that there should be ample opportunity for debate.
I should now like to turn to the main recommendations of the reports from the Committee, so that the facts are on the record in an easily available form. The draft Directive on Company Prospectuses, which is covered by the Twenty-first and Thirty-first Reports of the Select Committee, was published in 1972 and has not been discussed in any Council
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or Commission Working Party since the United Kingdom's accession to the EEC. The Commission has now redrafted the draft Directive in the light of comments from the European Assembly and the Economic and Social Committee and it is anticipated that a Council Working Party will be convened in the next few months to consider the revised proposals.
The draft Directive is intended to coordinate between Member States the information to be disclosed to the public by companies applying for a Stock Exchange quotation for their shares. The information which the measure seeks to secure about the company covers its general character, activities, financial situation, management, prospects et cetera; details must also be given of the securities for which quotation is being sought and of the persons or bodies responsible for the prospectuses. Member States are, however, free to require more information than that laid down in the Directive. The extent to which adoption of the Directive would require amendment of British law is uncertain, although it is possible that some revision of the Prevention of Fraud (Investments) Act 1958 might be called for. The principles of the draft Directive are generally followed by the Stock Exchange and are not thought likely to give rise to any significant policy problems for us. However, the Government concur in the amendments to the draft Directive suggested in the Thirty-first Report of the House's Select Committee on the European Communities. In particular, it attaches importance to ensuring that the directors rather than national authorities are made solely responsible for ensuring the accuracy of all statements in the prospectus. It also attaches importance to ensuring that the financial information in the prospectus should be attested by a qualified expert.
May I say that I noted that the noble and learned Lord, Lord Diplock, remarked that at one point in the discussions a national authority appeared and then subsequently disappeared. I will bring to the attention of my right honourable friend the Secretary of State that it is his view that a national authority should be set up in this country for quick moification procedures, and that it should to a degree be institutionalised and given some legal sanctions to aid it in its funtioning. The noble and learned Lord

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mentioned that he would like to see an English Stock Exchange Commission, and he thought that our European colleagues, being rather more institutionally minded, would welcome such an organisation.
Turning now to a Community proposal which faces us more immediately, the draft Second Directive, I should first point out to the House that the Report your Lordships have before you is based on the published text of the Directive which has already been very substantially revised following detailed negotiations in three readings by the Council Working Group. Indeed, in the last two months there have been rapid and substantial changes, and of course our negotiators in Brussels have had the benefit of the Committee's Report to assist them. I am glad to say that it has been possible to achieve progress on many of the Committee's recommendations. This is something which I know will please the noble Viscount, Lord Amory. The machine is being fed with the Committee's recommendations, which are having substantial effects.
First, we have sought to ensure that the Directive prescribes minimum requirements so that national law can provide greater safeguards for shareholders, creditors and the general public where this seems desirable or is already United Kingdom practice. There has been a ready acceptance among our partners of this principle. We have also examined the problem of the direct applicability of the Directive, on which the Select Committee expressed some concern, and we have put forward detailed proposals in Brussels. These are still under discussion but, again, I think I may say that there is no great difference of opinion among Member States on this point. One of the most important of the recommendations of the Select Committee was that the draft Second Directive should not apply to private companies in the United Kingdom, and here again I am glad to say that there appears now to be an acceptance of this in the Community. It will probably, as noble Lords will agree, be necessary, however, to introduce legislation which will require companies to make it clear in their titles whether they are public or private, probably by some alteration to the titles of public companies.
A further important problem on which the Select Committee has made a recom-
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mendation concerns the system of paying interim dividends. This practice which is almost universal in the United Kingdom is viewed with much suspicion by many of our Continental neighbours who, by and large, do not have it. They consider that there should be fairly stringent restrictions on the amounts that could be paid out, but we share the view of the Select Committee that interim dividends are an important part of the investment system in this country and must he maintained. The Government have accumulated a great deal of evidence and opinion from the professions and from representative bodies and individual companies, and have concluded that fundamental changes in our interim dividend system would lead to hardship to shareholders and would he disadvantageous to our companies. This point remains to be settled in Brussels, but we shall not be prepared to agree to the adoption of this Directive so long as it contains provisions which would make the payment of interim dividends virtually impossible.
I should like now to say something about the Report of the Select Committee on the draft Fourth Directive on the form and content of company accounts. This draft Directive deals with accounting technicalities which are not easy for the layman to grasp. The noble Lord, Lord Lyell, having lost his amateur status will probably understand better than we do. I should like to congratulate the Select Committee on producing an extremely good Report which, while dealing extensively with these technicalities, is nevertheless readable by those who are not versed in them. Negotiations on this Directive continue, and once again some advance has already been made over the position reflected in the Report. In particular, the importance of the true and fair view, which the noble Lord, Lord Mais, stressed, in the presentation of company accounts, has been accepted by the other Member States, and indeed we are hopeful that the final text will make it clear that its importance is overriding.
The formats for the balance sheet and profit and loss account as laid down in the Directive will be a new feature for the accountancy profession in the United Kingdom. The process of harmonisation makes it inevitable that there should be required some uniformity in the presentation of accounts, and while this may mean

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losing some of the flexibility of the present system I think the formats, as they are now envisaged in Brussels, will be broadly acceptable to the accountancy profession. A problem remains, however, over inflation accounting following the Sandilands Report. Agreement has been reached in Brussels that the Directive must accommodate inflation accounting, but the precise way in which it should be incorporated into the Directive is still under discussion.
The Select Committee recommends that the Fourth Directive should not come into effect before the draft Directive on consolidated accounts and that it should contain those parts of the draft Fifth Directive dealing with the adoption and audit of accounts. The Government agree that both of these recommendations would be desirable. Unfortunately, it is a feature of the approach being adopted in the Community whereby different aspects of company law are treated slice by slice, as it were, that the timetable for the various draft Directives cannot be brought into line without holding up parts of the work. We intend to maintain our position on both these points, but it could be some time before the consolidated accounts Directive and the draft Fifth Directive are ready for adoption and it may not be desirable to delay the Fourth Directive while this work goes on.
The Select Committee have made a number of detailed recommendations concerning this draft Directive (relating among other things to the writing-off of good will, the basis on which profit is calculated, et cetera). I would not wish to delay the House by dealing with each in turn. I shall simply say that the Government are grateful for these recommendations and will have them very much in mind in further negotiations in Brussels. In particular, we shall he pressing on our colleagues in Europe the importance of setting up channels for the regular reviews and possible amendment of the Directive to accord with changes in accountancy practice. I think this will please the noble Lord, Lord Lyell, because he was stressing flexibility. Accountancy is a subject which does not stand still, and it is important that the legislation in Mem-
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ber States should not act as a deterrent to its further development and improvement.
May I now turn to the Twentieth Report concerning the draft Directive on Safeguarding Employee Rights (R/2155/75). The noble Lord, Lord Douglass of Cleveland, spoke on this draft Directive. He mentioned his reservations on the subject of co-determination on various aspects of company law based upon legal Directives, and issued a warning arising from his long experience of negotiation. I hope that the noble Lord will forgive me if I do not touch deeply on the points he has made. I am dealing with a different Directive. The Directive which interests the noble Lord is the draft Fifth Directive which is not the subject of our debate today. However, it is in front of our Select Committee which has not yet reported upon it, and doubtless the Committee will take note of what the noble Lord has said. It may be that the noble Lord will think that it is worth while to give his views directly to the Select Committee.
Lord DOUGLASS of CLEVELAND: My Lords, I raised this question on the draft Fifth Directive because I knew that the noble Lord intended to refer to it. Therefore, I took advantage of being in order as a consequence.
Lord WINTERBOTTOM: My Lords, I am sure that the noble Lord is sufficiently concerned with the situation to give his views, which are cogent, to the Select Committee.
If I may turn to the more limited field of the Acquired Rights Directive, its aim is to safeguard employees when a merger which leads to a change in their employer takes place. This type of merger is relatively rare in this country. In the more common British situation, where the identity of the employer does not change although there has been a change of control of the firm, most of these safeguards are unnecessary. Only the provisions in the Directive regarding pensions, dismissal and consultation will apply in these circumstances. Perhaps I may venture to draw the attention of the House to the supplementary memorandum on the Directive which was circulated by the Joint Parliamentary Secretary at the

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Department of Employment, Mr. Fraser, earlier this week. This memorandum was produced in order to bring Members of both Houses up to date with the progress of discussions on this Directive.
I should like to comment briefly on the main points made by the Select Committee in its report. First, on the article dealing with pensions, the Government agree with the Committee's view that the article has gone too far in seeking to guarantee that there can be no diminution in pension rights because of a transfer. Discussions on this point in Brussels have led to agreement that this article should be redrafted in such a way as to meet the Government's concern. Our attitude to the article of the Directive relating to dismissal is mixed. The majority of Article 6 is acceptable, but we foresee great problems in attempting to define the phrase "pressing business reasons" in legislation, and take the view that because there is already strict regulation by law of dismissals in this country, and because it might detract from existing protections against dismissal, the first paragraph of this article should be changed substantially.
The night is moving on and I think that I have been speaking for far too long, although I hope that what we in this House have said tonight will be of interest beyond our four walls. In conclusion, I should like to say how much I appreciate the opportunity for this debate to take place. The subject matter is one of great importance to this country; it will affect our national law in the future—as we know it is affecting it now—and will entail a considerable amount of legislation. But before this becomes necessary, I am sure that your Lordships' House will agree with me that it is essential to ensure that the Directives are framed in such a way as to maintain the United Kingdom objectives that
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I mentioned at the beginning of this speech.
I trust that I have been able to reassure your Lordships that the various recommendations made by the Select Committee in the reports before this House have been taken into account with some care by the Government. Indeed, many have already been, or are in the process of being, satisfactorily negotiated. There is still a lot of work to be done and much discussion has yet to take place both here and in Brussels. The Government welcome this debate and the reports of the Select Committee, and I commend to your Lordships' House the first-class work that they have done in the course of their scrutiny.
7.44 p.m.
Lord MAIS: My Lords, looking around your Lordships' House, I am reminded of the fact that it is Thursday and that time is going on apace. Therefore I will confine my closing remarks to thanking all those noble Lords who have taken part in the debate today and, again, all those who have made it possible by their contributions at the Select Committee meetings. In particular may I thank the noble Lord, Lord Winter-bottom, for his very detailed reply which has been most helpful to us. Much remains to be done. I think we would all agree that we found our representatives in Brussels most receptive. Although many years may have to go by before we reach finality, I am confident that in the end we shall have a solution which leaves each country with reasonable flexibility and yet bound by a common law throughout Europe. Once again may I thank all noble Lords for their contributions and wish them a safe journey home.
House adjourned at fifteen minutes before eight o'clock.