Lords Sitting of 7 December 1976

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Norwich.
The Lord Ogmore—Sat first in Parliament after the death of his father.

OCEAN ISLAND
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 made regarding the future status of Ocean Island.
The MINISTER of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, this is a matter which will have to be resolved in discussion during the period leading up to the eventual constitutional conference to consider the independence arrangements for the Gilbert Islands.
Lord BROCKWAY: My Lords, would not the Minister agree that the inhabitants of Ocean Island are among the victims of the most cruel fate since the last World War—cheated into selling their land to the Phosphate Commission; evicted; land devastated so that even trees cannot grow on it, and now enforced to enter into a political association with the Gilbert Islands, which they do not want, and the eastern islands of which are 2,000 miles away? Will Her Majesty's Government sympathetically consider what can be done for these unfortunate people?
Lord GORONWY-ROBERTS: My Lords, I have said before, and I repeat now, that Her Majesty's Government will do everything that is possible and in equity to help the Banaban community, as they will to help the Gilbertese community, and I will certainly bear in mind everything my noble friend has said.
Lord DERWENT: My Lords, can the noble Lord say what is possible?
Lord GORONWY-ROBERTS: Not off the cuff, my Lords, at Question Time.
Lord HAILSHAM of SAINT MARY-LEBONE: My Lords, while nobody would ask the noble Lord to say anything "off the cuff", which he never does, having regard to the statements of the Vice-Chancellor in a recent case and no doubt after the time for appeal has expired or any appeal has been disposed of, will the noble Lord and Her Majesty's Government make a considered statement on the whole subject of these matters?
Lord GORONWY-ROBERTS: Yes, my Lords. In view of the fact that other legal processes may be pending, the noble and learned Lord will agree with me of course that we shall have to choose carefully the time when we make such a considered statement. Indeed, we shall have to judge whether we are helping or hindering. I hope that at the end of the day there will be an agreed and amicable pacific settlement as between the Banabans and the Gilbertese.
Lord SHINWELL: My Lords, while I support my noble friend Lord Brockway and those who have asked that further consideration be given to this question, may I ask whether my noble friend can tell us the amount of compensation that has been paid? Is it not some derisory sum?
Lord GORONWY-ROBERTS: My Lords, it would take me some time to produce the totality of royalties that has been paid at the rate which I notice was deemed by experts to be reasonably fair. As to the future arrangements for the Banabans, which may well involve certain financial arrangements, I could not state them now, but what I said to my noble friend Lord Brockway I repeat to my noble friend Lord Shinwell: we shall bear all these considerations very much in mind when we discuss them, not only with the Banabans and the Gilbertese but also with the Australians and the New Zealanders who have an interest in this matter.
Lord LEE of NEWTON: My Lords, as I remember it the phosphates were sold to Australian farmers at well below

515
world prices. In the discussions which the Government are to have with the Australians, may I remind the noble Lord that the Australians have derived great advantages from the sale of these phosphates?
Lord GORONWY-ROBERTS: Yes, my Lords. My noble friend indicates the way in which this non-profit-making company, which was set up by joint action of the three Governments I have named, disposed of the phosphates over a period of years at what they considered from time to time to be reasonable rates. Actually I think it was the New Zealand farmers rather than the Australian farmers, or indeed the British farmers, who benefited—if that is the right word—from the prices which were then paid. Of course one must remember—and I do not want to detain the House with a detailed examination of this complex and important matter in the context of question and answer—that there was constant payment of royalties, and that the expert evidence was that the royalties paid over the years were reasonably fair.
Lord BROCKWAY: My Lords, appreciating the noble Lord's later replies, may I ask whether the Government will consider making an ex gratia payment to the Banabans in view of the fact that, while their claim for compensation from the Government was rejected on technical grounds, it was accepted on moral grounds by the Vice-Chancellor, who made a devastating criticism of the actions of the British Government at that time?
Lord GORONWY-ROBERTS: My Lords, if I may comment without of course having fully considered the Vice-Chancellor's very lengthy statement of judgment that was completed on Friday—and it took him some clays to read his own judgment; it will take me a few more days to consider it in totality—certain aspects of the judgment which my noble friend has quoted may be set against certain other things the Vice-Chancellor said. He said, among other things, that while one Colonial officer clearly had acted—I think the word was "out rageously", he paid very warm tribute to the actions of, and the service to the Banaban community and to this part of the world by many other colonial officers.
Lord BROCKWAY: My Lords, will the Government consider making an ex gratia payment? That was my question.
Lord GORONWY-ROBERTS: Yes, my Lords. Every aspect of this important and complex matter will be considered carefully by Her Majesty's Government. I am not disposed to express any anticipatory decisions on it before I have studied, first, the Vice-Chancellor's extended judgment and, secondly, the transcript of the proceedings—proceedings which took a very long time indeed. Furthermore, I must have early discussions, not only with the communities concerned in the area but also with two other Commonwealth Governments.

PALESTINIAN REFUGEES: UN RESOLUTION
2.45 p.m.
Baroness ELLIOT of HARWOOD: 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 what attitude they took to the United Nations' resolution of 24th November asking that Palestinian refugees should be returned to the camps in the Gaza Strip, in view of the fact that similar camps were destroyed and their numerous refugees rehoused by World Refugee Year appeal funds and, in Gaza, by the Israeli Government.
Lord GORONWY-ROBERTS: My Lords, the British Government, together with the rest of the Nine, voted in favour of this resolution. When the resolution was earlier adopted by the Special Political Committee on 8th November, the Netherlands representative said that in the view of the Nine the call for the return of refugees applied only to those refugees who were forced to leave and who themselves wished to return.
Baroness ELLIOT of HARWOOD: My Lords, I thank the noble Lord the Minister very much for his reply, which is more hopeful that I had anticipated. I was deeply concerned because the United Nations had a World Refugee Year appeal,

517
for which we in this country raised millions of pounds, as did other countries. It seems inconsistent that they should now ask that the refugees should go back to the camps which have been completely destroyed and rebuilt. Therefore, am I to understand that the reply given by the noble Lord the Minister today is to the effect that this was not the case, and that they have not been asked to go back?
Lord GORONWY-ROBERTS: My Lords, I am glad that the noble Baroness, Lady Elliot of Harwood, has found my Answer clarificatory of the position. I only repeat that the position is exactly as I said. The Netherlands representative, speaking for the Nine, made it clear in the Political Committee on 8th November, before this matter came up substantively on the 24th, to which the noble Baroness refers in her Question, that,
"…in the view of the Nine, the call for the return of refugees applied only to those refugees who were forced to leave and who themselves wished to return".
Lord JANNER: My Lords, would my noble friend agree that the houses which have replaced the hovels on the Gaza Strip are now actually being purchased by many of the refugees who had been housed there in consequence of the fact that they have been properly treated by the Israeli Government? Would my noble friend also agree that tremendous emphasis is being put on the position so far as Israel is concerned, whereas millions of refugees throughout the world have been treated very much worse by other countries?
Lord GORONWY-ROBERTS: My Lords, of course comparisons are usually odious, and particularly so in this field of the attrition of refugees. I would not compete with my noble friend in comparing the horrors of refugee life in any part of the world. I am more inclined to welcome the spirit and content of the Question and supplementary question of the noble Baroness, Lady Elliot of Harwood.
Lord PAGET of NORTHAMPTON: My Lords, is it not a fact that the maintenance of these refugee camps by the United Nations prevented the absorption of refugees such as occurred after the Great War, and such as has occurred for all the Jewish refugees from Arab
518
countries? Is it not a fact that to try to reinstate the nuisance is an international folly?
Lord GORONWY-ROBERTS: My Lords, I am faintly surprised by the murmurs of acquiescence from behind me to that particular supplementary. I hope that my noble friend Lord Janner will look at it carefully tomorrow morning in Hansard, in the full light of day. In reply to my noble friend Lord Paget of Northampton, I very much doubt whether the preamble to his question would be justified, but I take his point. Nobody can boast of a perfect record in dealing with this massive and poignant problem, especially in the Middle East. There may be hopes now, when we are, I hope, moving to a reconstitution of the Geneva Conference, or the establishment of a similar mechanism for agreement, that this, among other aspects of the Middle East question, may at last be considered constructively by the parties concerned.
Lord PAGET of NORTHAMPTON: My Lords, would not the noble Lord agree that the Jewish record in absorbing refugees in the Middle East has been about as near perfect as could be imagined?
Lord GORONWY-ROBERTS: My Lords, this is a matter of argument and opinion. I do not think it would be helpful for any Government Minister to say, Yes, or, No, to that kind of question. What we know is that nobody has a perfect record in dealing with these unfortunate people in the Middle East or in any other part of the world. All of us must do better.
Lord JANNER: My Lords, in view of the reply my noble friend has given, when the refugee question is dealt with, will he bring forward the fact that there are 600,000 Jews who have been dispossessed in Arab lands, have been paid no compensation, whose homes have been taken over by those who have interfered with their lands and made it impossible for them to live there, so that at least the matter will be put in proper perspective?
Lord GORONWY-ROBERTS: My Lords, of course, this is one aspect of this grim question; that is, the position of refugees, their origins, their numbers, the

519
conditions in which they have lived and do live. As I have said, our great hope is that, certainly once the new American Administration have found their feet, it may be possible to convene a constructive conference of all concerned, possibly in Geneva, in order to settle this and other questions relative to the whole complex of difficulty in the Middle East.
Lord SEGAL: My Lords, would my noble friend not agree that slum clearance is a sound policy which should be applied as widely as possible, and that where water, sanitation and other health safeguards can be provided, political considerations ought not to be allowed to stand in the way?
Lord GORONWY-ROBERTS: My Lords, I agree wholeheartedly.

WASTE PAPER IMPORTS
2.52 p.m.
Baroness EMMET of AMBERLEY: 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 what is the value, for the most recent convenient period, of waste paper imported into the United Kingdom for pulping; and from which countries is it imported.
Lord WINTERBOTTOM: My Lords, in the first 10 months of 1976 imports of waste paper were valued at £4.7 million cif. Principal suppliers in order of importance by value were as follows: the United States, the Netherlands, Federal Republic of Germany, Irish Republic, and Sweden.
Baroness EMMET of AMBERLEY: My Lords, I thank the Minister for that Answer. Would he not agree that it would be a good way of saving some of the money we are borrowing from these countries if we organised our own waste paper and did not have to buy it from abroad?
Lord WINTERBOTTOM: My Lords, it is not a simple issue, oddly enough. Although we imported this amount of
520
waste paper, we did in fact export a substantial amount. If we take the 10 months in question, we imported £4.7 million worth, as I said, and exported £3.7 million worth. It is in this matter, oddly enough, a question of quality.
Lord BOWDEN: My Lords, is it true that much of the paper we export to Germany is in fact secret documents which have been inadequately shredded before despatch?

ANTI-RABIES PRECAUTIONS: CONTAINER DEPOTS
2.54 p.m.
Lord DE CLIFFORD: 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, in view of the reported escape and subsequent recapture of a cat accidentally trapped in a refrigerated TIR Container Vehicle, whether they are satisfied that adequate security precautions are in operation at all inter-Continental Container Depots to prevent such escapes of accidentally trapped animals, when the escape of such an animal, if not subsequently recaptured, could risk the introduction of rabies into this country.
Lord STRABOLGI: My Lords, the fact that this incident was reported immediately to the authorities and that prompt, effective action was taken to secure the two cats involved, is in itself evidence of the acute awareness of the rabies risk. The cats were dealt with as potential risks, even though expert assessment of all the facts indicated that they were almost certainly native animals which had entered the container in question after its arrival in this country.
Evidence from other depots confirms the vigilance and precautions taken in respect of container vehicles. Nevertheless, the Ministry of Agriculture, Fisheries and Food are issuing further instructions to remind all container depots of security precautions and reporting procedures for anti-rabies purposes.
Lord DE CLIFFORD: My Lords, I thank the noble Lord for that reply. There is a great risk, which a number of us have felt, that container traffic might well accidentally bring in some warm-blooded animal which might be affected. Have guidelines been issued previously as to the care which should be taken, or are these totally new ones?
Lord STRABOLGI: No, my Lords. All meat for human consumption can only come in through designated ports, and all containers are checked by Customs. In fact, all vehicles entering the country are subject to search by Customs officers, but it is not the policy of Her Majesty's Customs to disclose the proportion of vehicles which are actually searched.
Lord LEATHERLAND: My Lords, may I ask my noble friend on what evidence the authorities base the opinion that these cats were English cats? May I ask him, for instance, whether the officials said to the cats, "Come here, pussy", or did they address them in German, French and other Continental languages?
Lord STRABOLGI: My Lords, the container was refrigerated at minus 18 degrees Centigrade—
Lord HAILSHAM of SAINT MARY-LEBONE: Snow on their boots.
Lord STRABOLGI:—and it had been sealed for 14 days. Expert opinion is that a cat could survive no more than 48 hours at that temperature. There was no sign, also, that any of the meat was chewed.
Lord GISBOROUGH: My Lords, could the noble Lord say whether it is still the custom for ships to carry cats to combat the rats, and whether this custom itself does not present a pretty pussy problem?
Lord STRABOLGI: My Lords, in the same way, all ships arriving at our ports are investigated by Customs officers, and it is, of course, a very serious offence under the rabies regulations to take a cat ashore. In fact, there have been cases where prosecutions have taken place.
The Earl of HALSBURY: My Lords, in view of the difficulty that the patriarch Noah had in detecting kittens aboard the Ark, could the noble Lord tell us whether, in the event of these cats being accompanied by kittens, to which nationality the kittens would belong?

TORTS (INTERFERENCE WITH GOODS) BILL [H.L.]
The LORD CHANCELLOR (Lord Elwyn-Jones): My Lords, I beg to introduce a Bill to amend the law concerning conversion and other torts affecting goods. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.— (The Lord Chancellor.)
On Question, Bill read 1a, and to be printed.

LEAVE OF ABSENCE AND LORDS' EXPENSES
The CHAIRMAN of COMMITTEES (Lord Aberdare): My Lords. I beg to move the first Motion standing in my name on the Order Paper.
Moved, That a Select Committee be appointed for the general supervision of arrangements relating to leave of absence and the reimbursement of Lords' expenses; and that, as proposed by the Committee of Selection, the Lords following, with the Chairman of Committees, be named of the Committee:

Amulree L.

Hylton-Foster, B.

Llewelyn-Davies of Hastoe, B.

St. Aldwyn, E.

—(Lord Aberdare.)
Lord SHINWELL: My Lords, may I ask the noble Lord the Chairman of Committees whether, when this Committee have completed their deliberations, a report will be made to the House, and will it be subject to debate, if necessary?
Lord ABERDARE: Yes, my Lords, deliberations of your Lordships' Committees normally appear in the form of reports and these are brought before the House.
On Question, Motion agreed to.

HOUSE OF LORDS OFFICES
Lord ABERDARE: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That the Select Committee on the House of Lords Offices be appointed and that as proposed by the Committee of Selection the Lords following, with the Chairman of Committees, be named of the Committee:

Amulree, L.

Buckinghamshire, E.

Byers, L.

Carrington, L.

Champion, L.

Cholmondeley, M.

Collison, L.

Crawshaw, L.

Darling of Hillsborough, L.

Denham, L.

Drumalbyn, L.

Eccles, V.

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

Erskine of Rerrick, L.

Faithfull, B.

Ferrers, E.

Fraser of Tullybelton, L.

Glenkinglas, L.

Goronwy-Roberts, L.

Greenway, L.

Greenwood of Rossendale, L.

Gridley, L.

Henley, L.

Hood, V.

Hughes, L.

Hylton-Foster, B.

Ilchester, E.

Kemsley, V.

Kinloss, Ly.

Kinnaird, L.

Lee of Newton, L.

Llewelyn-Davies of Hastoe, B.

Long, V.

Loudoun, C.

Lovell-Davis, L.

Mais, L.

Mowbray and Stourton, L.

Newall, L.

Nugent of Guildford, L.

O'Hagan, L.

Peart, L. (L. Privy Seal.)

Robertson of Oakridge, L.

Robson of Kiddington, B.

St. Aldwyn, E.

Sempill, Ly.

Shackleton, L.

Sherfield, L.

Soper, L.

524

Stedman, B.

Strabolgi, L.

Strathcona and Mount Royal, L.

Tweedsmuir of Belhelvie, B.

Westbury, L.

Wigoder, L.

Winterbottom, L.

—(Lord Aberdare.)
Baroness PHILLIPS: My Lords, I would ask the noble Lord the Chairman of Committees why the Select Committee on Commodity Prices—unfortunately, I was not in the House when this was moved—did not contain a female Peer. Women do know a little about prices.
Lord ABERDARE: My Lords, I think this is rather another question from the Motion I am now moving, but my recollection is that that particular Committee was being reappointed. It was the same Committee as was sitting in the last Session.
Lord LEE of NEWTON: My Lords, may not the answer be that that Committee has met 30 times and in concluding the evidence it heard it would be a bit risky to start putting new people on that Committee?
On Question, Motion agreed to.

GENERAL RATE (PUBLIC UTILITIES) BILL [H.L.]
3 p.m.
Baroness STEDMAN: My Lords, I beg to move that this Bill be now read a second time. Your Lordships may have noticed that in another place questions have been asked about the rate liability of certain public utilities. The Government have had to point out that, unfortunately, the orders which should determine the current rateable values of the National Coal Board and mines and quarries, together with the order which determined the rateable values of statutory docks and harbours until 1st April 1976, were all inadvertently allowed to lapse in 1974. Additionally a mistake was made in another order made earlier this year which prescribes a rating formula for the gas industry. However, there was a promise that legislation would be introduced to validate the lapsed orders, and to correct

525
the error in the gas order. The Bill now before your Lordships' House fulfils that promise.
My Lords, this is a small Bill, but because it deals with complicated matters it is by no means simple. It would not be appropriate on Second Reading to take your Lordships through the clauses line by line; we shall have the opportunity later, if the Bill commends itself to your Lordships, to examine the measure in that kind of detail. But I will attempt to explain as simply as I can the main provisions of the Bill.
Clause 1 deals with the lapsed orders. In common with many public utilities, the National Coal Board, mines and quarries and statutory docks and harbours are rated by formulae, since normal methods of valuation would be very difficult to apply. Such formulae are often determined under order-making powers to avoid having to come to Parliament with a Bill every time an amendment is needed. This is the case in the industries in question, and the order-making powers were contained in Section 35 of the General Rate Act 1967. Five orders were made either under this section or under the section in the Rating and Valuation Act 1961 which became Section 35 on the consolidation of rating law in the 1967 Act. They are listed in the Explanatory and Financial Memorandum.
Section 35 of the 1967 Act was superseded by Section 19 of the Local Government Act 1974, and the 1974 Act quite properly repealed Section 35. The Act contained no saving for the orders already made under Section 35, but it gave power to include savings of that kind in commencement orders bringing parts of the Act into operation. Unfortunately, the commencement order bringing the repeal of Section 35, among other provisions, into operation failed to make the necessary saving for the Section 35 orders. Those orders have thus been void since 1st April 1974, the date when the repeal of Section 35 came into operation.
This means that the property occupied by the National Coal Board and other mines and quarries are now, and have been since 1974, rateable in accordance with the ordinary rating provisions of the General Rate Act 1967, and not, as was intended, in accordance with the formulae
526
prescribed in the lapsed orders. A new order for docks and harbours, made under Section 19 of the 1974 Act, came into effect on 1st April 1976. Thus docks and harbours were rateable in accordance with ordinary rating provisions in 1974/75 and 1975/76, but are now rateable under the new order. All interests affected have acted on the assumption that the orders have remained in force. To leave matters to be sorted out under the present law would cause a large number of amendments to valuation lists, involved negotiations, and probably litigation, to no good purpose.
Clause 1 of the Bill therefore provides that any order made under Section 35 shall not be affected by the repeal of that section by the Local Government Act 1974, and, furthermore, that all such orders shall be deemed to have been made under Section 19 of the 1974 Act. Additionally the clause provides for one of the revived orders—the Docks and Harbours (Valuation) Order 1971—to be revoked from 1st April 1976. This is because the order was superseded on that date by the Docks and Harbours (Valuation) Order 1976. The 1971 order was not revoked at that time because it was realised that it had already lapsed.
May I now turn to Clause 2 which deals with the error made in the Gas Hereditaments (Rateable Values) Order 1976. This order specifies a method for determining the rateable value of the British Gas Corporation from 1st April 1976 onwards. It does this by applying a formula to the earlier value specified in the 1967 General Rate Act. Unfortunately, when the formula was devised we overlooked the fact that the 1967 value had been substantially increased by order in 1972. Although the current order refers to the value specified in the 1967 Act, we are advised that this reference must be taken to mean the 1967 figure as amended by the 1972 order. This gives a rateable value of about £150 million, instead of the intended £60 million. Although it is the £60 million which, as broken down in accordance with the prescribed formula, now appears in the valuation lists, the entries in the list have not been calculated in the manner required by law, and valuation officers could be compelled to insert the higher rateable values in the valuation lists. Thus the British Gas Corporation

527
could find itself being liable to pay two and a half times as much as Parliament intended.
Clause 2 of the Bill amends the order to specify the intended value of £60 million in place of the existing incorrect formula. This amendment is retrospective to 1st April 1976. Additionally we are taking the opportunity of ensuring that the enabling power, Section 19 of the Local Government Act 1974, does allow a figure to be specified instead of a formula. This is dealt with in Clause 4. I am sure that noble Lords will join me in greeting this latter provision with some relief since it should result in at least some simplification of rating formulae that your Lordships' House may have to consider in the future.
May I also briefly mention Clause 3. This provides for the indemnification of rating authorities, Valuation Office officials and all other persons against any consequences incurred as a result of the errors rectified by Clauses 1 and 2. Valuation officers have been responsible for maintaining valuation lists in accordance with the orders in question, and rating authorities have been levying rates on those values. All those concerned in such activities have proceeded on the basis that the errors have not been made.
My Lords, the net result of these measures will be to ensure that the rates on the industries concerned have been paid, and will be paid, in accordance with the provisions previously agreed by Parliament. The proposals will not injure the ratepayers concerned. They have acted on the assumption that these errors have not been made, and the intended rateable values have been accepted. I apologise for the fact that this Bill is necessary. In mitigation, I can only say that the law for which my colleagues and I in the Department are responsible is vast and constantly changing. This is not of course to suggest that we take such matters lightly. Far from it. We will continue in our attempts to ensure that such amending legislation is not found to be necessary. I commend this Bill to the House.
Moved, That the Bill be now read 2a—(Baroness Stedman.)
3.9 p.m.
Baroness YOUNG: My Lords, I should like to thank the noble Baroness, Lady Stedman, for introducing this Bill and explaining it. As she has said, it is a short Bill, one of only five clauses, but it is immensely technical. In preparation for it I felt that, rather than consulting anybody, I should have had a few tutorials in higher mathematics, because trying to understand the order affected by it and its algebraic formula is indeed a formidable task. But I accept, as she does, that it is a Bill that is non-controversial. It is obviously right that what has been a mistake should be corrected as soon as possible, and that indeed if there was to be any controversy, it should have been at the stage of the subordinate legislation or in the Schedules to the Local Government Act 1974.
As I understand the Bill, Clause 1 puts back into legislation what was inadvertently taken out by the Local Government Act 1974 and, as I understand Clause 2, it alters the arbitrary basis of the formula for determining the basis of the valuation of the gas industry so that local authorities can rate correctly, starting from a base of £60 million, which is the accepted agreed amount between the local authorities and the gas industry. There are two general points which I wish to raise. First, I did not quite appreciate—I shall understand if the noble Baroness cannot answer this today—how the alteration to the Gas Hereditaments (Rateable Values) Order 1976 would work on the basis of the alterations proposed in Clause 2. Probably I misunderstood the order which, as I said earlier, is very complicated. But if in fact the basis of the rateable value is fixed for £60 million a year, I cannot see why it is necessary to have a formula to calculate it. If it is calculated it should surely come out at £60 million; if it does not come out at that, there is no point in having the formula and one might as well say that it is fixed. Thus, I simply do not understand the basis on which all that is to be determined; but I may be that there is a point in this that I have missed. What I can understand is that if the basis is not correct, then local authorities either could collect considerably more than they should or alternatively less than they should, so it is very important to get it sorted out. I should have thought that whatever was the

529
basis, it is a matter which should be subject to calculation and should not simply have to be fixed.
Secondly, I looked to see whether the Layfield Committee had anything to say on this point, and, as I am sure the noble Baroness will be aware, on page 173, paragraph 80, they comment on the formula rating of public utilities. It seems to me that the Bill bears out the criticism which Layfield makes:
"The discussion between the parties is not based on any very clear set of principles"—
that is, between the public utilities and the local authorities as a basis of rate-making—
"Local authority associations have suggested that the current arrangements are unsatisfactory because the contribution of these industries is too low and also because the procedures are unsatisfactory."
Indeed, the fact that it has been necessary to bring forward this little Bill indicates the complexities of the situation and the very unsatisfactory nature of them. The Layfield Committee go on to say at the end of the same paragraph:
"We recommend that the responsibility for the valuation of public utilities for rating should be given to an independent body".
That is one of their recommendations, and I hope the noble Baroness can say whether the Government will at any rate have a debate on the Layfield Report and whether there is any prospect of legislation arising from any of their proposals. I recognise of course that their proposal for a local income tax is outside the scope of this Bill. Nevertheless, this proposal, like a number of others, does not seem to go against the basic principle of the rating system, is obviously desired by local authorities and would, it seems to me, be of benefit to them, particularly at this critical juncture.
There is a further reason for looking at this matter. About 18 months ago the Government decided not to revalue property while the Layfield Committee was sitting, on the grounds that it was not at all clear that the Layfield Committee would recommend that the rating system should be continued. Now that the Layfield Committee has recommended that the rating system should be continued but that there should be a local income tax as well, the reason for not revaluing falls to the ground. Of course, we get into further complications on matters
530
like the valuation of utilities, which is a very complicated subject in itself, which too become increasingly out of date. These are very important matters of public policy, and I should be glad if the Bill gives an opportunity for the noble Baroness to say something on them. May I assure her, as I indicated at the beginning, that I do not regard the Bill as being in any way controversial? It is necessary and I am glad we have it before us, but it would be helpful to see it set in the general context of local authority finance, which is in such a critical position at the present time.
3.15 p.m.
Baroness STEDMAN: My Lords, I welcome the support of the noble Baroness for the Bill. I regret that it was necessary to bring such a Bill before the House, to right the errors that had been made. The question of the Gas Hereditaments (Rateable Values) Order 1976 is a rather complicated matter to go into shortly. In fact the formula which we put forward in that order was supposed to arrive at the figure of £60 million, but actually arrived at a figure two and a half times that amount, which is perhaps why noble Lords will welcome the comment I made about Clause 4; that we are now able to use figures rather than these complicated formulae. That may make it a little more easy for your Lordships, as well as those who are serving us, to work out the amount.
As for the Layfield criticism of formula rating, the Layfield Report is of course a matter for consideration by my right honourable friend and his colleagues at the moment, and I am sure that they will note the comments of the noble Baroness and will take those into consideration. I hope there will be an opportunity for this House to discuss such of the recommendations of the Layfield Report as the Government are proposing to implement. I should have thought that your Lordships' House was a very good place to initiate a debate on the Layfield principles, and I shall certainly bring that to the attention of my right honourable friend.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

TOWN AND COUNTRY PLANNING (SCOTLAND) BILL [H.L.]
3.17 p.m.
The MINISTER of STATE, SCOTTISH OFFICE (Lord Kirkhill): My Lords, I beg to move that this Bill be now read a second time. The Bill has several main purposes. First, it puts right some technical flaws in Scottish planning law relating to the preparation and adoption of local plans. Secondly, it clarifies the right of appeal against decisions of regional planning authorities on applications for planning permission. Thirdly, it strengthens enforcement powers under the Town and Country Planning (Scotland) Act 1972. It is a short Bill, confined to a few urgently needed improvements, and the Government do not intend to make extensive changes in the planning system in Scotland at this stage. The proposed new Scottish Assembly will have power to legislate on planning matters and will no doubt have its own ideas on the kind of planning system appropriate to the needs of Scot land after devolution. It is clearly the Government's duty, however, to ensure that the planning machinery inherited by the Assembly is both workable and rational. That is what this Bill seeks to achieve.
Your Lordships will appreciate that there are fundamental differences between the formal structure of the organisation for planning in Scotland on the one hand and in England and Wales on the other. It may be useful to summarise the main points briefly. First, district and general planning authorities have a duty in Scotland to prepare local plans throughout their areas. Secondly, structure plans may not necessarily be prepared for all areas in Scotland. Thirdly, regional reports have been prepared by all regional planning authorities and districts must have regard to them and to the Secretary of State's comments on them. This is quite different from the emphasis in England and Wales on structure plans as the fundamental expression of policies and proposals for development.
I turn now to the main provisions of the Bill. The main provision of Clause 2 of the Bill corrects an anomaly arising in connection with the duty placed on district and general planning authorities to prepare local plans to cover their areas. Under
532
Section 12(2) of the 1972 Act as it now stands,
"The planning authority shall not adopt a local plan unless it conforms generally to the structure plan, as approved by the Secretary of State."
If there is no approved structure plan, there can be no adoption of a local plan. I should perhaps explain that, whereas structure plans require the approval of the Secretary of State, local plans are to be adopted by the planning authorities which prepare them. Now it is clearly illogical to require that "the planning authority shall not adopt a local plan unless it conforms generally to the structure plan" when, for many areas, no structure plan will exist for some years to come because regional reports have been prepared, and in some cases none will be drawn up at all. The new wording set out in subsection (3) of Clause 2 is intended to remove this restriction which prevents authorities from adopting local plans.
Local plans are urgently needed in many parts of Scotland—in areas of oil-related expansion, conservation areas and perhaps most urgently in the decaying hearts of our cities. Where local authorities are faced with very difficult decisions imposed by financial constraints it is vital that planning should not be held up by technical anomalies. Forward planning is essential if authorities are to sort out their priorities and make the best use of the limited resources available. Local plans provide a framework for both public and private development, and productive industry must be freed from uncertainty over planning. Only the preparation of new plans to replace the existing, mostly out of date, development plans will achieve this.
Clause 2 will allow authorities to adopt local plans where no structure plan currently exists. There is no intention, however, to give districts in Scotland a free hand at the expense of regional objectives. Whether or not there is an approved structure plan in existence, the regional planning authority will naturally take a close interest in the local plan, and the local plan will need to take account of the policies and proposals of the regional planning authority. The most important of those policies and proposals will be set out in the regional reports which provide the framework for local plans in the absence of structure plans. If there

533
is a structure plan in preparation or awaiting approval, the district planning authority who are preparing the local plan must secure that it conforms generally to the structure plan as it stands for the time being. This is required by Section 9(9) of the 1972 Act, as modified by Clause 2(1)(b) of the Bill.
The Government naturally hope that regional and district councils will work in partnership to operate the new development planning system, and that informal arrangements for co-operation will minimise the need for formal controls. Nevertheless the opportunities for statutory intervention by the regional planning authority in the local planning process do exist. First, where there is no approved structure plan the consent of the regional planning authority is required before a local plan can be prepared. At that stage it is open to the region to give detailed guidance to the district to supplement the regional report. Secondly, the district planning authority will be required by regulations to consult the regional planning authority in its preparation of the plan. Thirdly, the regional planning authority will have the chance to object to the published plan and to be heard at any public inquiry held by the district planning authority. Fourthly, if it is not satisfied with the plan in the final form in which the district planning authority propose to adopt it, the regional planning authority will be able to ask the Secretary of State to call in the plan for his own decision or, in certain circumstances, will be able to take over the preparation of a local plan itself. These reserve powers under which regional planning authorities may assume the functions of the districts in making local plans are set out in Section 177 of the 1973 Local Government (Scotland) Act. They apply where the local plan is out of step with an approved structure plan, where the plan may affect or hinder development in another district, or where a local plan is needed urgently to fulfil an objective in the structure plan, and the district have failed to adopt an appropriate plan. Ultimately any conflicts between district and region which cannot be resolved by the planning authorities themselves will come before the Secretary of State for resolution.
Thus, there is no question of a district planning authority being able to adopt a local plan which the regional planning
534
authority has had no opportunity to influence, nor a plan that conflicts with regional planning policies as set out in regional reports and structure plans unless the Secretary of State, as final arbiter, decides that it should be allowed to do so. However, as I have already said, the Government expect planning authorities to work in partnership and the Secretary of State hopes that he will rarely, if ever, have to resolve conflicts between them.
The Bill contains other, minor, amendments relating to local plans. Subsection (1)(a) of Clause 2 makes it the duty of the planning authority to conduct a survey of the relevant area before preparing a local plan and to keep the survey matters under review. Surveys are required by the 1972 Act, but this duty was allocated in the 1973 Act to regional and general planning authorities and not to districts. Of course in practice all planning authorities carry out surveys as an integral part of the preparation of plans. It is, however, desirable that the duty should be spelled out, and this has been done in general terms in the Bill. In the Government's view, there is no reason why this should involve authorities in additional work. Provision is also made in Clause 5 to simplify arrangements for the transition from old development plans to structure and local plans. At present, an individual revocation order has to be made by the Secretary of State to discontinue the provisions of the old development plan each time a new local plan is adopted. Clause 5 now discontinues the old plans automatically with consequential savings in time and effort. It remains open to the Secretary of State to direct where necessary that part or all of the provisions of the old development plan shall continue in force.
My Lords, I have described at some length the provisions which this Bill makes with regard to local plans. I had to do so because the subject is complex, and I hope what I have said will help to clarify the Government's intentions in making these amendments. I will now go on to deal quickly with the other parts of the Bill. The first of these, Clause 3 provides a right of appeal to the Secretary of State against decisions of regional planning authorities where they have called in planning applications. The

535
1973 Act gave regions similar powers to the Secretary of State in these cases, but did not give them the power of final decision. The appeal machinery in the 1972 Act was not applied to decisions of regional planning authorities. It is clearly inequitable that an applicant should be denied the right of appeal to the Secretary of State, which he would normally enjoy if planning permission were refused simply because the region has intervened.
The Bill applies the appropriate sections of the 1972 Act to decisions of regional planning authorities, with one important modification. The region is obliged, where it has called in an application, to offer the applicant and the district planning authority the opportunity to be heard at an inquiry. Where this has been done, the additional time, effort and expense involved in a second inquiry to go over the same ground where the case comes before the Secretary of State on appeal would seem unjustifiable. The Bill relieves the Secretary of State under these circumstances of the obligation to hold a second inquiry. Clause 3 also provides for an appeal to the Secretary of State where the region fails to come to a decision within three months of the date of calling in the application.
Finally, my Lords, the Bill makes provision to widen the scope and effect of stop notices served after an enforcement notice has been served under Section 84 of the 1972 Act. When stop notices were first introduced in 1969, they were intended to prevent building operations from continuing while any appeal against an enforcement notice was pending. The appeal proceedings could take some time, and in the meantime a building which was perhaps only just begun when the enforcement notice was originally served could be completed by the time the appeal was decided. This could lead, where the appeal was refused, to demolition and consequent waste of resources. Serving a stop notice prevents the unauthorised operations from being continued while an appeal is determined, but the present scope of activities subject to stop notices is limited and excludes changes in land use. Recent experience has shown that the main problem now consists of new unauthorised uses of land, which cause
536
nuisance to neighbours and can give rise to traffic and other problems. These include open-air markets, scrapyards, car sales pitches and so on. Operators have nothing to lose if they continue in business while the appeal against the enforcement notice is pending, and even if the appeal fails, they can simply move on to another site and carry on as before.
The Government consider that measures should be taken to curb these activities, and the Bill therefore extends the scope of stop notices to cover all breaches of planning control, including changes of use and flouting of conditions attached to planning permission. To bring all those involved—such as market stall-holders and people who dump refuse, as well as the site owners—within the scope of the stop notice without having to serve individual notices on each and every person concerned with the activity, the Bill provides for the posting of site notices. These must be displayed clearly at the site stating that the stop notice has been served and setting out its requirements. This can be done only once the relevant enforcement notice and stop notice have been served on those primarily responsible. It will be an offence to carry out an activity prohibited by a site notice. All permanent residential uses of buildings and land are exempted from the stop notice powers to prevent hardship resulting from, for example, evictions. As a consequence of the extension of stop notices to include changes of use of land, the Bill makes some minor changes in the provisions of the 1972 Act for compensation, rights of entry on to land, and the power of the planning authority to require specified information from occupiers and others.
My Lords, the proposals in this Bill are modest, but they are vitally necessary to ensure the smooth operation of the Scottish planning machinery. Many other less urgent improvements could have been included in a longer Bill, but the Government feel that it would be inappropriate to take up very much Parliamentary time on these matters in the same Session as the Bill which will give power to legislate on Scottish planning to a Scottish Assembly. In the Government's view this Bill contains the minimum amount of change needed to cope with current problems which have emerged in the past few years. I hope that the Bill will receive support

537
—indeed, I am sure it will—from all sides of your Lordships' House, and I beg to move.
Moved, That the Bill be now read 2a.—(Lord Kirkhill.)>
3.33 p.m.
Lord STRATHCONA and MOUNT ROYAL: My Lords, like the Bill we dealt with previously, this Bill appears to be a non-contentious piece of legislation, which I am sure the Opposition can welcome as a piece of sensible, tidying-up legislation. Indeed, as the Minister has said, and as is mentioned on the face of the Bill, it seeks to sort out anomalies that have arisen in changing from the concept of development plans to the new system of structure plans and local plans. Without in any way wishing to pre-empt what I have no doubt will be fairly protracted discussions on the issue of devolution when it eventually reaches this Chamber, I believe that this Bill gives us a useful opportunity to look at the state of the art of planning in Scotland, and it gives us a chance to extract from the Government some of their thinking on how they envisage the details operating regarding the relationship between the planning authorities in the districts and the regions, and the Assembly when we finally get it, at least so far as Scotland is concerned.
I think that I ought to try to deal with the provisions of the Bill in three parts. The first part concerns the Clause 2 amendments to the two previous Acts, dealing with the question of structure plans. If we did not know it already, I think that we can genuinely say "Amen" to what the noble Lord said about these issues being fairly complex. It will be very useful for us to read the noble Lord's not uncomplex speech which I hope will clarify the situation for us slightly before we reach the Committee stage. Therefore I hope that the noble Lord will forgive me if I say that while we think it sounds fine, we must have a good look and see whether we still think so after we have read in detail what he has said. But, clearly, anything at this present time which results in a saving of time and effort is something that we should want to support.
I now turn to the question of structure plans. I do not think that it was ever anticipated that the new regions would be able to produce their structure plans
538
within a matter of months of their coming into existence, and perhaps we had better not go into the question of whether or not we think it was a happy thing that they did come into existence. But there they are, and clearly it is ridiculous, as the noble Lord explained, to say that local plans cannot be adopted unless they are in line with structure plans, if in fact no structure plans exist. I think that this was one of the major anomalies that the noble Lord was seeking to eliminate.
I was not totally clear whether the amendment under the Bill now allows these local plans to go ahead whether or not a structure plan exists, but I understood the noble Lord to say that where there is no structure plan it will at least be possible for us to proceed. But I put it to the noble Lord that it might be helpful if, before the Committee stage, he could give us a round-up of the state of play regarding structure plans in the regions. I think that we are dealing with nine or ten regions, and we have this anomalous non-region for the Western Islands which I believe is the planning authority in that area. I wonder whether it would be possible for the noble Lord to produce a small table in the report, indicating what stage we have reached in preparing structure plans. I take it that in some cases there is no intention at all of producing a structure plan in the foreseeable future. I suppose that in other cases the structure plan already exists. It might be quite a useful basis if we could have a summary of where we are, and where we are intending to go on this question, before we get to the Report stage. But clearly the intention here must be a sensible one.
Now I turn to the appeal procedure. Here again, what the noble Lord said sounds right enough—that the Secretary of State would not want to hear the same case twice over and have all the same evidence being repeated in the case of an appeal. But this raises a query in my mind. Again, this may simply be a lack of understanding on my part, but does this mean that the regional planning authority will now be able to go ahead with planning permission in circumstances where it has decided against calling in the proposal? Furthermore, does this in effect mean that it will actually cut short the appeal processes?

539
I quite understand that the same appeal is not going to be repeated twice over, but I am not totally clear whether this means that one element in the appeal processes is cut out altogether. Here again we have to ask the Government what is their view as to how this works under the new proposed Assembly set-up. The Secretary of State is currently the final arbiter in most of these cases. If the Assembly is inserted between the regions and the Secretary of State, is it envisaged that the Assembly will be the final arbiter, or the Secretary of State the final arbiter, or both as being the final arbiter?
I hope it does not sound as if I am trying to ask a lot of purely tautological bureaucratic questions, because that is not my purpose at all. But the noble Lord will be very well aware that one of the big concerns of all of us about the whole of the devolution proposals is that we see a tremendously long chain of government. How many layers are we going to have? Are we going to have local government, regional government, the Assembly, Westminster and then Brussels, with all these things having to go up and then all the way down again? For instance, I know that the Highland Development Board officials already make visits to Brussels from time to time to talk about the various grants they can get for local developments. I am not expecting the noble Lord to give a definitive answer on issues of this kind, because I doubt whether there is one; but if he can give us some idea as to how the Government's thinking is progressing I am sure this will be helpful to us. And if this provokes a certain amount of argument at the Committee stage I do not think it will necessarily be any the worse for that, because I believe it is a genuine argument and I hope that it is not a particularly partisan one. So we should like to hear a little more about that.
Now we move on to the stop notice, and, here again, if this is a faster, handier and more efficient way of enforcement, then basically this is something which we are bound to support. I have to say, however, that one always looks slightly askance at any legislation which greatly strengthens the hand of officialdom. I think we should regard that with a proper degree of suspicion: if we did not, we
540
would not be doing our job. But if development has gone ahead and the detailed planning permission has been subject to certain specific conditions, and if these conditions are obviously not being fulfilled, then it is perfectly plain that the local authority or the regional authority, or whatever is the appropriate authority, is simply not doing its job if it allows such development to continue: either that the provisions should not have been inserted in the first place or we must clearly see that they are enforced. It is obviously intolerable that developers should be able to thumb their nose at authorities which have given permission or have imposed conditions by not adhering to those conditions.
I am not entirely clear whether the powers of entry are being extended for the purpose of checking on the enforcement of a stop notice. I would rather imagine that that is intended to be the purport of this Bill. I said that this raises a couple of doubts in one's mind. For example, is there any danger that these enhanced powers could be used by the planning authorities effectively to reverse a previous planning decision in the guise of simply saying that certain conditions had not been adhered to? It is very difficult not to sound as though one is trying to be unduly suspicious of officials, but our minds do change. We sometimes feel that we wish we had not taken certain decisions or given certain permissions in the past; and one inevitably, I think, could be slightly concerned lest these additional powers were used to get out of any awkward situation where permission had been given which, looking back, one regretted.
I am very glad that the noble Lord said that he was producing a short Bill rather than waiting for a longer Bill. We have had one or two longer Bills to deal with in the recent past—and the less said about them the better—and, unless I am very greatly mistaken, we are going to have an even longer one in front of us before very long. But there is one final question that I should like to ask the noble Lord on this matter of stop notices. What happens if a developer, in good faith, has failed to carry out all the provisions that he has been given of a planning permission?
The important point here is good faith. Can one envisage circumstances where the

541
stop notice could be used for descending upon a developer who had been acting in good faith? We are quite clear, are we not, that the purpose of these provisions is to deal with the man who is deliberately flouting the conditions which were imposed on his planning permission? It is not too difficult to imagine that there could be very serious financial consequences from the use of these stop notices. I think the noble Lord made a reference to this effect on the compensation issue; but to be absolutely honest, I cannot exactly remember what he said about it. If he could give us a little more indication as to how he sees the possible effects of stop notices on the question of compensation or on the financial results of such stop notices, it might be helpful to us. But, as I said, my Lords, on what we have seen so far we would support this Bill, which seems to be an entirely sensible piece of legislation.
3.46 p.m.
Lord BURTON: My Lords, I apologise for not having put my name down on the list of speakers, but while this debate has been taking place a thought has occurred to me which perhaps might be considered during a debate on a planning Bill. This is a question of areas of special scientific interest, and there seems to be an increasing amount of country so designated. It seems to me it is only a matter of time before there is a clash between planning authorities and, I think it is, the Nature Conservancy, who issue these orders. Though I am not looking for any answer today, I feel that this is something which perhaps the Minister should consider.
Lord HARMAR-NICHOLLS: My Lords, like my noble friend I am tempted, as a result of what my noble friend on the Front Bench has said, to put a point to the noble Lord before he replies to this short debate. I suppose one ought not to apologise for intervening in a Scottish debate in England, because if certain people get their way I suppose we shall be in a position where noble Lords from Scotland will be able to tell we English how we ought to plan but we English will have no say at all in how the Scots do their planning. So this is a good chance to grab an opportunity while one can do it without infringing any rules.
542
The point I want to put to the noble Lord arises from what he said at the beginning of his explanation. He explained very clearly what the procedures would be when the regional planning authority took a different view from the district authority, and how the Secretary of State would be brought in to settle it; and he gave a very clear indication that there would be occasions when there would be this sort of conflict, when the district planning authority and the regional planning authority would not see eye to eye and there would be differences of view as to how it should be approached. If in the process of this inter-planning authority battle time is taken up, what protection is there for the developer or for the owner who wants to change the use of his premises or his land, to see that he is not kept waiting for months, and perhaps years, while the various planning authorities are having a private battle as to who has the authority to give the final word? Because one has had experience in England, on some occasions, that while the authorities themselves have been deciding who has the final power it is the individual developer who is losing money and time, and is put to some inconveniences which can sometimes be very dangerous indeed.
It could well be that there is a very clear answer to what I say about protecting the individual from being the victim of a prolonged disputation between two planning authorities and that I have not read it, but it was because the noble Lord did go into some detail as to the procedure for settling this possible conflict that I felt we ought to have on the record what protection there is for the individuals while this neat, tidying up of the authority of the various planning people is sorted out.
3.50 p.m.
Lord KIRKHILL: My Lords, first I acknowledge the very fair and factual, albeit non-controversial, welcome which the noble Lord, Lord Strathcona, has given to this Government Bill which, let us be frank, is basically non-controversial; although, no doubt, at Committee stage there may be points of detail which should be discussed at greater length. From the Government side, certainly we shall listen to any points made. The main purpose of this Bill is to improve

543
the procedures relating to Scottish planning at this stage. As I indicated earlier, most of these difficulties have emerged in the course of the last few years. We want to make Scottish planning coherent and in balance as—assuming the Scottish devolved Assembly ultimately getting under way—it moves from the Scottish Office to the purlieu of the Scottish devolved Assembly.
The noble Lord, Lord Strathcona, was kind enough to indicate to me before the debate started that he would raise one or two specific points. At short notice I might not be able to satisfy him totally, but—and this would suffice both for him and for me before the Committee stage—I can indicate broadly the outlines of Government thinking on the points he raised. I paraphrase for your Lordships—and, indeed, for those of us in the perhaps adversarial position—the noble Lord's questions, but I think the gist of them will be clearly seen. The noble Lord at the very outset asked in effect where we are now with Scottish planning, where they have got to in Scotland.
No applications have yet been submitted to the Secretary of State for Scotland. I might point out that apart from the Islands area, the Highlands Boards, Dumfries and Galloway are general planning authorities as distinct from the other regional authorities. There is this distinction made in four cases. However, one has been prepared by the Orkney Islands Council but it has not been submitted to the Secretary of State. Several other regions, notably Strathclyde and Lothian, have certainly begun preparations. I do not have details about the position respecting other regions at this stage.
My Lords, on the question of appeals, the noble Lord asked this question. Can a regional authority go ahead and thus cut short the process of the appeal without it having been called in? I think that was how he put it. I can reply in this vein. If a regional planning authority calls in, it must offer an inquiry to the parties. This touches, in part, on the point made by the noble Lord, Lord Harmar-Nicholls. They must offer an inquiry to the parties. If the Secretary of State calls in, he must offer an inquiry. The regions cannot interfere where the Secretary of State has called in first.
544
To touch on the point that Lord Harmar-Nicholls made, I have to say that the applicant does not have the kind of defence he would entirely wish for him. What happens under Clause 3—and I would draw the noble Lord's attention to this clause—is that if the region, having, called in an application, fail to reach a decision within three months of the calling there is then a clear appeal to the Secretary of State. To that extent, the applicant has a time limit. I will not be partisan and say that that is an improvement on the English position; but, marginally, it is.
Lord STRATHCONA and MOUNT ROYAL: My Lords, the noble Lord has been addressing himself mainly to cases where the authority decides to call in. What happens if it has not been called in? What we were concerned about was whether a situation could arise where a regional authority has gone ahead and given permission without it being called in—which could be conceivably, in the face of local opposition by people who might thereby feel they were being stifled and did not have an opportunity to go through the procedures. I might be wrong.
Lord KIRKHILL: My Lords, the position is that they have the right of appeal. I touched on this point in my remarks when I explained that in these circumstances the Secretary of State would not seek to call two inquiries. But they have the right of appeal and then get into the inquiry procedure. I made that point clearly in my earlier remarks. I do not think it is one that I obfuscated.
The noble Lord, Lord Strathcona, tempts me to make comment about what might happen once the Assembly gets under way. These are, as he has admitted, speculative waters at this stage. What is true at this stage is that, under the Scotland and Wales Bill, the Assembly and Executive will normally be entirely responsible for planning appeals for Scotland. The Secretary of State's role is defined in Clause 87 of that Bill. I am advised that these link to Schedule 12 to the Bill which gives powers of intervention to the Secretary of State in cases relating to non-devolved interests. Of course, the Bill has still to wend its way

545
through the other place and your Lordships' House, but that is the position at the moment as outlined in the Bill.
My Lords, the noble Lord, Lord Strathcona, also gave me advance notice that he would raise one or two questions anent stop notices and how these might be considered. He asked whether I could confirm that powers of entry are being extended to include checking on the stop notice and also about the extent of the provision of the stop notice. I have to say that the Government have responded to this question of stop notices and the extension of the power of the stop notice. The existing stop notice does not include, for instance, change of land use; the extension of the power does so. The Government have responded to the extended concept of stop notices as a result of pressure from a number of local authorities and individual Members of Parliament because there has been a great deal of public concern, as I think I attempted to indicate in my opening remarks, on the question of one-day markets, dumping yards, scrap yards and car sales that move by the day or by the week. I do not think I could say very much more at this stage. Perhaps it is a Committee point. I will reflect on the question. There may be nuances that escape me now.
The noble Lord, linking on Scotland, remarked that presumably the powers will not be used to revise the import of a previous planning decision. That point he tended to emphasise. I can say emphatically, No. I must add that a stop notice could be served, for instance, to ensure that an earlier refusal of planning permission is respected. The point is that a stop notice can be served only where there is a breach of planning control; that is, development without planning permission. I do not think I can add anything to that. That is the position.
The noble Lord also asked what safeguards there are against unfair use of a stop notice where the developer was acting in good faith. Those were his words. There must be, first, an enforcement notice alleging a breach of planning control. It is possible to appeal against this. This links into the further point about compensation, where authorities using stop notices may be liable to pay compensation if the notice is withdrawn,
546
or an enforcement notice is quashed or varied in certain circumstances. These two matters are linked and the noble Lord's fear is groundless. There is an adequate base of fairness and equity written into the Bill. My Lords, I am sorry if these have been somewhat detailed replies, but they were rather detailed points. As I said in my earlier remarks, I can only say at this stage—and I hope this will continue—that this Bill is worthy of support, although detailed examination as well, as your Lordships determine.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

FUGITIVE OFFENDERS (UNITED KINGDOM DEPENDENCIES) (AMENDMENT) ORDER 1976
4 p.m.
Lord GORONWY-ROBERTS Lord GORONWY-ROBERTS rose to move, That the draft Fugitive Offenders (United Kingdom Dependencies) (Amendment) Order 1976, laid before the House on 4th November, be approved. The noble Lord said: My Lords, this order is made under the Fugitive Offenders Act 1967 and will make four amendments to the Fugitive Offenders (United Kingdom Dependencies) Order 1968.
The Fugitive Offenders Act 1967 regulates the return from the United Kingdom to other Commonwealth countries and United Kingdom dependencies of persons accused or convicted of offences in those countries and dependencies. Provision was made in Section 2(2)(c) of the Act allowing countries outside Her Majesty's dominions in which Her Majesty exercised jurisdiction or over which She extended protection to be brought by Order in Council within the definition of United Kingdom dependency for the purposes of the Act.
The Fugitive Offenders (United Kingdom Dependencies) Order 1968 specified the Solomon Islands, Brunei, the New Hebrides and Tonga as so coming within the Act. This meant that these four countries could apply under the Fugitive Offenders Act to have a person returned there from the United Kingdom if he was accused, or had been convicted, in one of those countries of certain offences against their law. The 1968

547
order also provided for some modifications to the terms of the Act to meet the special circumstances of the countries specified.
In 1970 Tonga was removed from the 1968 order on becoming independent. Recent developments in the other three territories have presented the need to amend the order further. This is the object of the draft order presently before the House. The amendment to be made by Article 3 of the draft order results from the replacement in July this year of the superior court for the British jurisdiction in the New Hebrides. Previously this was the High Court of the Western Pacific, a regional court for several Pacific territories. This has now been replaced in the New Hebrides by a new High Court, the High Court of the New Hebrides. The 1968 order particularly required that, before a person could be returned to the New Hebrides, he must be liable to be tried, or he must have been convicted, by the High Court of the Western Pacific or by the Joint Court of the Condominium. Clearly it is necessary to alter that special provision to add an express reference to the new High Court of the New Hebrides.
The need for the amendment envisaged in Article 4 of the draft order arises simply out of the change of name of the territory now known as the Solomon Islands. This territory used to be known as the British Solomon Islands Protectorate, and accordingly it was called by that name in the 1968 order. The name was changed by Order in Council made in May 1975. The opportunity is therefore being taken to replace the old name with the new where the territory is mentioned in the 1968 order.
The third amendment made by the draft order, that dealt with in Article 5, is a consequence of the change in the relationship between the United Kingdom and Brunei which was made by the Agreement between Her Majesty and the Sultan of Brunei dated 23rd November, 1971. Since that Agreement, Brunei is no longer a country over which Her Majesty extends protection. It follows that it is inappropriate to designate it as a United Kingdom dependency for the purposes of the Fugitive Offenders Act, and accordingly it is necessary to delete
548
the references to Brunei in the order of 1968.
The fourth and last amendment will be made by Article 6 of the draft order. Its object is to bring the 1968 order into line with the present system of administration of the dependent territories in the Pacific by omitting the reference to the High Commissioner for the Western Pacific in relation to the New Hebrides. Under the 1968 order the High Commissioner could request the Secretary of State to surrender a person accused or convicted in the New Hebrides, and he had certain other powers under the Fugitive Offenders Act. The various functions formerly exercised by the High Commissioner, who used to administer several territories in the region, have in recent years been dispersed as a result of the separate development of the territories concerned under their own separate administrations. The effect of this amendment will be to transfer the High Commissioner's functions under the 1968 order to the Resident Commissioner in the New Hebrides, and will thus continue the process of giving the High Commissioner's functions to other appropriate offices in the region, so that in due course his office can be wound up. I beg to move.
Moved, that the draft Fugitive Offenders (United Kingdom Dependencies) (Amendment) Order 1976, laid before the House on 4th November, be approved.—(Lord Goronwy-Roberts.)
Baroness ELLES: My Lords, the House will be grateful to the noble Lord, Lord Goronwy-Roberts, for his usual clear and lucid explanation of detailed amendments to the orders under the Fugitive Offenders Act 1967. As the noble Lord has explained, this Act is something akin to a Commonwealth extradition convention. Naturally, the orders under that Act have to be amended to take into account any change in name, status or development of the legal institutions within the member countries of the Commonwealth. As I understand it, and according to the explanation of the noble Lord, this draft order does precisely that, and Amendments are merely reflecting the present realities within the countries mentioned by the noble Lord which are contained in the draft order. Therefore, we certainly recommend the approval of this order to your Lordships.
Lord GORONWY-ROBERTS: My Lords, may I express my gratitude to the noble Baroness for the way in which she has received this order, which makes amendments of a minor but nevertheless necessary character. May I congratulate her on being so succinct in two sentences, whereas it took me two pages to be less succinct.
On Question, Motion agreed to.

REGIONAL EMPLOYMENT PREMIUM (VARIATION OF AMOUNTS) ORDER 1976
4.8 p.m.
Lord KIRKHILL: My Lords, I beg to move the Motion on the Order Paper standing in the name of my noble and learned friend Lord McCluskey.
Moved, That the draft Regional Employment Premium (Variation of Amounts) Order 1976, laid before the House on 5th November, be approved.—(Lord Kirkhill.)
On Question, Motion agreed to.

COMPULSORY ACQUISITION BY PUBLIC AUTHORITIES (COMPENSATION) AMENDMENT (SCOTLAND) ORDER 1976
Lord KIRKHILL: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the draft Compulsory Acquisition by Public Authorities (Compensation) Amendment (Scotland) Order 1976, laid before the House on 28th October, be approved.—(Lord Kirkhill.)
On Question, Motion agreed to.

FISHING VESSELS (ACQUISITION AND IMPROVEMENT) (GRANTS) (VARIATION) SCHEME 1976
Lord KIRKHILL: My Lords, I beg to move the Motion standing on the Order Paper in the name of my noble friend Lord Strabolgi.
Moved, That the Fishing Vessels (Acquisition and Improvement) (Grants)
550
(Variation) Scheme 1976, laid before the House on 15th November, be approved—(Lord Kirkhill.)
On Question, Motion agreed to.

VALUE ADDED TAX: 48th EEC REPORT
4.10 p.m.
Viscount AMORY Viscount AMORY rose to move, That this House takes note of the Forty-eighth Report of the European Communities Committee of last session on the Draft Sixth Directive on Value Added Tax (R/1746/73 and R/2268/74). The noble Viscount said: My Lords, I have pleasure in moving that this House takes note of the Forty-eighth Report of the European Communities Committee of last Session on the Draft Sixth Directive on Value Added Tax. I am actually moving this at the invitation of the noble Lord, Lord Mais, who has asked me to introduce it on his behalf. He was the Chairman of the Sub-Committee which studied this matter, and I was myself a member of the Sub-Committee.
I should like to begin by saying how much we are looking forward later on to the maiden speech of the noble Lord, Lord Grantchester. Your Lordships may be interested to know that the report before you today is the outcome of the work of a joint Sub-Committee of your Select Committee, composed of Members of both Houses. The experiment, certainly in this case, seems to have worked out well. I confess I am no expert on VAT. In the distant past when I was at the Treasury there was no such tax in existence here. We had then the simpler purchase tax. Now, VAT is established as part of our taxation system, bringing in the very substantial revenue which involves, I understand, about 1¼ million traders.
This report is the second which has been submitted to your Lordships by the Select Committee. The Twelfth Report, dated 29th August 1974, contained a section on the proposals for the harmonisation of VAT. Your Committee then recommended that, although there were a number of aspects of undoubted importance to the United Kingdom which this House would want in due course to discuss, any debate should be deferred

551
until further progress had been made in specifying the proposals.
A good deal of progress has been made, particularly recently; but clearly a good deal of detail still remains to be settled. Since the proposal is that the harmonisation arrangements should come into force on the 1st January 1978 and that the individual countries will have to take whatever steps are necessary to adjust their own systems by that date, it will be seen that there is little time to spare. Indeed, the European Parliament became extremely worried recently about this time problem, and the noble and learned Lord the Lord Chancellor has received a copy of the resolution passed by that Parliament and forwarded to the Council of Ministers, expressing their concern that the Draft Sixth Directive has not yet been adopted, and urging that quicker progress should be made so that it can be adopted and therefore come formally into force by the 1st January 1977—in a few weeks' time—so as to give time for the Member States to take preliminary action. If this new Directive covering the new arrangements does not become effective by 1st January 1978, the VAT revenue will continue to be collected as at present, computed not on the precise yield in various countries but as a share of national GNPs.
There was one meeting of the Fiscal Council of Ministers, held on 21st October, to consider how further progress could be made. Another one has been called for the 16th December, with the object of making as much progress as possible before the end of the current year; that is to say, before the end of this month. There now seems to be some hope that the Draft Directive may be adopted before 1st January next, although it will still leave a number of minor matters—quite a lot in fact—to be settled later.
The purpose of the Draft Sixth Directive is to establish a common system of assessment and administration of VAT in the Member States—a common basis of calculation, as it were. It does not seek to harmonise the rates of VAT, or the rate structures, which can continue to be fixed by Governments of Member States. Whether one day the harmonisation of rates, as well as of assessment and administration, will be sought, depends on
552
the progress towards monetary and fiscal union and is, we have been assured from all sides, a question which is very far into the future. I suppose we can consider that eventually, perhaps, the harmonisation of rates would be reconcilable with the permanent aims of the Community.
The Council decision of April 1970 provided that the Budget of the EEC should be financed entirely from three sources: the agricultural levies (a very big proportion at present); customs duties; and, thirdly, up to 1 per cent. rate of VAT levies on a uniform basis. That is what we are talking about this evening. These three sources are together called "own resources"—a term which implies the money to be made available to the Community as its revenue.
The Draft Directive also seeks to eliminate some distortions to competition which it is felt arise from the current diversity of the national VAT systems. The Select Committee had the advantage of a great deal of written evidence and some very useful oral evidence, which later was printed with this report. It is clear that while many of the proposals are in line with current United Kingdom procedures, some will need action under subordinate legislative orders and some will need primary legislation. Those, of course, will come up for consideration in Parliament in the usual way.
As with many other EEC Directives, the original draft is apt to seem unduly rigid and perhaps unnecessarily detailed—certainly one could call them all very detailed indeed; but in this case there is some welcome evidence that in the discussions which have taken place spasmodically over the last three years, and much more actively over recent months, rather more flexible arrangements have become acceptable, and real attempts have been made to reconcile the differing national procedures and attitudes. Your Committee were glad to hear from the Department of Customs and Excise that, provided that this desire to achieve reasonable flexibility continues, it now seems unlikely that any major modifications of the United Kingdom's VAT system will be necessary. This information is the more welcome as, in the course of the evidence which we received, we got the impression that while in the United

553
Kingdom, at the beginning, the administrative consequentials of VAT were regarded with a great deal of apprehension, now that people have become accustomed to the regulations and procedures they have become tolerably accepted, and any changes resulting from the draft Directive were regarded by most of our witnesses with a good deal of concern. They much preferred the possibility of keeping our system just about where it is. I am talking not about rates, but about the system of collection.
As mentioned in paragraph 21 of our report, VAT is, of course, a tax on consumption and, unfortunately, the United Kingdom consumes a higher proportion of its GNP than the other Member States. This will involve a heavier burden on the United Kingdom than if contributions had continued to be on the basis of GNP shares. In paragraphs 22 and 23, your Committee make the important point that as the VAT rates are not to be harmonised the Member States will be able to continue using VAT as a general economic regulator, as a means of influencing specific sectors or to achieve social objectives. In paragraph 24 your Committee referred to the proposed VAT Committee to be set up in the EEC, composed of representatives of Member States, which will deliver what are called Options on matters concerned with the detailed operation of the Directive. That seems a thoroughly sensible idea, but an important aspect of it is exactly what powers that Committee will have. Assurances have been given that the Council of Ministers will insist on that Committee being purely advisory; but it seems that it may have some power of executive decision in minor matters, and this seems to your Committee to be one of the points which needs to be cleared up as soon as possible.
In paragraphs 26 to 30 of your Committee's report attention is drawn to five issues which we think of particular importance and which we believe your Lordships will wish to consider. The first one is zero rating, the preservation of which is of great importance both for social reasons and because it applies to export goods and services. Your Committee welcome the firm commitment, which has been given on behalf of Her Majesty's Government, that no change involving the abolition of zero rating on necessities can be considered or agreed to.
Various concessions have been made since the original draft Directive was drawn up, most recently at the Fiscal Council on 21st October last, where agreement was reached that Article 28 —I do not propose to take your Lordships through these somewhat weighty Directives in detail, and I trust you will not ask me too many questions about them, but they are easily obtainable—should be amended, so that Member States are allowed to retain those zero ratings which were in force on 1st January this year, at any rate until the abolition of fiscal frontiers which, as any of your Lordships who are in touch with the EEC will know, is an occurrence which is a considerable time away. This goes further than the situation outlined in our report. At the end of paragraph 10 of the report your Committee request that further information should be given on this point by the spokesman of the Government when the report is considered in this House. No doubt the noble and learned Lord, Lord McCluskey, will tell us whether the situation is broadly as I have described it, or whether he has any information to give us which is still more up to date and definite.
In passing, may I remind your Lordships of the difference between zero rating and exemption, of which you are probably all aware. In the case of zero rating, the statistics have to be kept and the input tax paid and recovered in due course. In the case of exemptions, no input tax paid can be recovered but traders can, if they wish, include in the prices they charge the cost of what has been invoiced to them. It is also worth remembering that zero rating is in no sense contrary to the principles of the EEC. The understanding is that, while current zero rating can be continued, no new zero ratings are to be introduced, though the actions of two Member Governments are at present under examination. The important point is that as any decisions of the Council to terminate zero rating would require unanimous agreement under Article 99 of the Treaty of Rome, Member States are protected against termination without their individual consent.
The second issue of importance concerns the exemption of small traders. The current United Kingdom limit of exemption for small traders is £5,000 per annum terminal sales. The Draft Directive proposal sets out a uniform limit of 4,000

555
units of account, or about £1,650 a year, which would mean a severe reduction in the United Kingdom's limit of £5,000. We were advised that such a change would be likely to bring in another quarter of a million additional traders, with no proportionate increase in revenue. It would therefore be extremely expensive in administration, and extremely frustrating to small traders. Indeed, there seems a strong case for some increase above the current United Kingdom limit, which was fixed some time ago, because of the impact of inflation.
This question, I think, is an important one. Your Lordships' Committee were left in no doubt whatever by the witnesses that a reduction in the proposed exemption limit down to four units of account, or anything like that, would be regarded with the deepest concern by the small traders affected and also by the taxation authorities. The present position seems to be more cheerful than that in this respect. At the Ministers' meeting on 21st October a much higher exemption limit of 10,000 units of account, which would be equivalent to about £6,000 in sterling, was considered but without, we believe, a formal decision being taken. That would bring the limit above the current United Kingdom level of £5,000. Alternatively, Member States may be allowed to retain what limits they like, with compensatory arrangements for payment or withholding, if national limits are higher or lower than the Community exemption.
As regards the administration of VAT, your Lordships' Committee were impressed by the arguments adduced both by the witnesses we saw and those whose evidence we read against any further complication of the regulations or procedures. At present in the United Kingdom they seem to be working fairly well, but any unnecessary move towards absolute uniformity in methods of collection might well prove counterproductive. The substitution of monthly for quarterly collection periods might be an example and would most certainly be unpopular with traders here. The present indications are that there would be no interference with the present quarterly system, but I should be most interested in anything that the noble and learned Lord, Lord McCluskey, is able to tell us.
In passing, perhaps I could mention that there is something called partial exemption. The evidence we obtained, particularly from the legal profession, was that partial exemption is not a good idea. There would be almost the same costs of administration as would be involved with full exemption. The legal profession would prefer zero rating or, if necessary, total rather than partial exemption, or that it should be left as it is at present. I have already referred to the uncertainty about the exact powers of the VAT Committee which will certainly need clarification. Finally, there is the important question of the efficiency of the collection of VAT in each Member State upon which the ultimate yield will depend. Your Lordships' Committee feel sure that our Ministers will want to ensure that there will be some way of checking yields against liability. The very important audit court may be able to help here.
If I may make a general remark about our witnesses, we thought that while some had taken a great deal of trouble to inform themselves about the EEC proposals and were experts on the subject, there were others who did not seem to us yet to have taken much trouble to inform themselves about the possible impact of VAT on their interests. They had not, in some cases, passed on their views to the authorities who are negotiating. That, so far as it existed, we thought was a pity.
I think that I have said enough—perhaps your Lordships will consider more than enough. There are still some important problems to be settled in this Draft Directive; but if reasonable flexibility and much less rigidity in detail continues as the policy to be pursued, your Lordships' Committee conclude that a reasonable degree of harmonisation in assessment and administration should then prove attainable without major changes in the United Kingdom system in the foreseeable future.
Your Lordships' Committee would like to thank very much all those who gave up their time to submit evidence to us. They would also like to thank their staff of specialist advisers for their invaluable help and the Clerks of this House who, as always, have once again been a source of tremendous strength to the Committee. If noble Lords ask

557
me any questions I hope that they will preface them with the kindly school examiner's instruction not to attempt more than three questions. Any of the harder questions will be transferred instantly to the noble and learned Lord, Lord McCluskey. My Lords, I beg to move.
Moved, That this House takes note of the Forty-eighth Report of the European Communities Committee of last session on the Draft Sixth Directive on Value Added Tax (R/1746/73 and R/2268/74).—(Viscount Amory.)
4.36 p.m.
Baroness ELLES: My Lords, we are very grateful to my noble friend Lord Amory for introducing the Forty-eighth Report of the Select Committee on the European Communities. He has set out most clearly and carefully the areas of difficulty which have arisen in relation to amendments to the Draft Sixth Directive on value added tax. We shall also be hearing during the debate the noble Lord, Lord Grantchester, who is to make his maiden speech. There appears to be no subject debated in your Lordships' House which does not have at least one expert to speak upon it. Value added tax is no exception because the noble Lord, Lord Grantchester, is the President of the value added tax tribunals. Therefore I do not believe that we could have a greater expert on this subject than him. The noble Lord will be able to contribute a great store of wisdom, knowledge and experience, and we shall certainly look forward to hearing him not only today but in the future.
The Report itself shows the value of the Scrutiny Committees of both. Houses sitting jointly, particularly when a matter both technical and of wide effect is to be studied. Together, the members of both Committees brought out the political and technical aspects during the examination of witnesses. A great many organisations were prepared to give evidence, even though, as my noble friend pointed out, some of the witnesses were not so well prepared as others. In itself this is a tribute both to the organisations themselves and to the way in which the Joint Committee conducted its inquiries. We are very grateful indeed for the work of those who served on the Joint Committee
558
which examined the Draft Directive. What was impressive was the way that the members of the Committee themselves encouraged organisations to take part in lobbying the Commission to find out what was happending and to see what they could do about putting across their own case. If anybody were to accuse the Commission of being bureaucratic, I think that Members of your Lordships' House would compare that kind of advice very favourably with what would happen if one were advised to go to any Government Department to find out what one could do to change draft legislation in this country.
The Draft Directive on the harmonisation of value added tax has been before the Commission since 1973. The amendments that we are considering today were already prepared, mainly by the European Parliament and in the Economic and Social Committee, in 1974. Therefore the Commission cannot be accused of rushing through these proposals. On the contrary, if "own resources" are partly to be provided from a contribution of up to 1 per cent. of value added tax as from 1st January 1978 as opposed to the original date of 1st January 1975, the uniform basis of assessment must be agreed soon. In fact, I understand that it is hoped that agreement will be reached at the forthcoming meeting of the Finance Ministers later this month.
It is also relevant to this debate to know that if the amendments in the document which is before your Lordships—R/2268/74—are not broadly accepted and a common position is not arrived at during the Finance Ministers' meeting, the Council has agreed, at the request of the President of the European Parliament, to have further consultations with the European Parliament under the conciliation procedure. So it means that if a satisfactory conclusion is not reached at the Council of Ministers there is still an opportunity for democratic discussion through the procedures of the European Parliament.
From the evidence in the report, the three areas of concern appear to be the question of zero rating, exemption level and a single standard rate. My noble friend Lord Amory has already outlined the matters relating to these subjects, but I should like to comment in particular on the first two. The single standard

559
rate of course remains within the competence of the national Government, so it is not strictly relevant to the Draft Directive, although of course if simplicity and ease of administration were objectives of the tax, it could hardly be neglected. Rates and coverage, exemption and cut-off points for small firms vary considerably from State to State, and I should like to take this opportunity of paying tribute to the work done by my former colleague in the European Conservative group, Sir Brandon Rhys-Williams, for having defended and emphasised with success in the European Parliament back in 1974 the concept of zero rating—of great importance for us. In fact, the need was strongly emphasised by many witnesses, particularly by the NFU, and it is a most valuable social and economic weapon, particularly in times of inflation. Therefore it is important that the Council of Ministers should agree to the retention of this concept, even regardless of the elimination of fiscal powers.
Can the Minister confirm, therefore, that the concept of zero rating will be retained as a valuable economic and social weapon in the armoury of individual Member States—in particular, of course, our own—and that in fact it will not be eliminated except by the unanimous decision of the Council at any future date. If the objective of the fixed Directive is the creating of a uniform base for assessment regardless of rates, it would seem to be advantageous as a basis for raising revenue to keep the base wider and retain zero rating rather than alternatively to increase the number of exemptions.
The cut-off point for small traders, to which my noble friend has already referred and under which small traders would be exempt from registering, except on a voluntary basis, is one which should remain as flexible as possible. It is clear from the practice in application of VAT in other Member States that there is now a considerable difference both in the level of exemption and the measure of the means of application. The combined effects of inflation and wide fluctuations in exchange rates must make a nonsense of having an immutable figure written into the Directive, unless of course it is to remain a notional figure only to be used for purposes of calculation.
560
The considerations for the small trader obviously have to be finely balanced between his loss of being able to reclaim his inputs and the cost of administration involved if he is registered. It is not irrelevant to recall that taking a basic wage in 1972 as 100, it is now in the region of 210, more than double—an increase also reflected in the cost of administration of VAT reclaims for a trader, and I think this is relevant when we are considering the level of exemption for small traders.
As implemented in the United Kingdom, 4,000 units of account is not a practical figure, as my noble friend has already pointed out. Somewhere in the region of 10,000 units of account, at what we now call the basket exchange rate, would be more realistic unless a simpler and less costly way of administering the tax is found. This proposal should be considered and, if necessary, the figure could be revised annually in the light of fluctuations in inflation rates and exchange rates.
A second question—and I think I am entitled to three, as my noble friend indicated—arises out of the fixing by the Commission of a cut-off point. Would this figure also apply to de-registering?—because at the moment as the Minister will be well aware, the de-registering figure is £4,000, whereas the registration figure is £5,000. I have always thought that this gap often operates unfairly to small traders.
The Customs and Excise Department, which has implemented the VAT legislation, should be encouraged to study further the methods of assessment and collection in other Member States. However able and competent they may be—and this they undoubtedly are—there are certainly areas of application of VAT which could be improved, and I will give one example from personal experience. France, Germany and the United Kingdom all have different systems for the repayment of VAT to a non-national purchaser who is removing goods from one country to another. To put it very simply, if I go shopping in Germany I can get my VAT paid back to me in the shop in which I buy the object so that I have extra marks to spend on more goods in Germany. In France if I buy something, as I did in Paris, I get the VAT refunded at the

561
airport, so that at least one can spend one's French francs in the duty free area at the airport. But in the United Kingdom if you are a foreigner and you buy goods in London, for instance, you have to go through a great deal of paper work and you are not refunded the VAT on your goods except by post several weeks later in the country of your residence. This means that the country is losing sterling and the opportunity for the purchaser to buy further goods in the country before leaving the United Kingdom is lost. This is just a small example.
So often we read in the evidence that other countries cheat and other countries are not as competent as the United Kingdom, but quite frankly one gets a little tired of reading anything quite so chauvinistic, and much as I admire the Customs and Excise and many other Departments of Her Majesty's Government, sometimes I think that if they crossed the Channel and had a little practical experience of how things worked they might have a better impression and a wider knowledge.
To conclude, I agree entirely with the opinions set out in the report. Further study should be made about the efficiency of collecting VAT and the methods of checking yields against the real liability of Member States. This is where the new audit court will undoubtedly fulfil a very useful role. My noble friend Lord Amory has certainly done your Lordships a great service in introducing the report today and explaining the modifications proposed to the original draft. It was encouraging that he was able to point out that modifications have been accepted by the Commission, and undoubtedly further modifications will be made before the Draft Directive is brought into force. So we welcome the report which has been put before your Lordships today, on a subject which, although it may appear to be reserved to specialists, cannot fail. voluntarily or involuntarily, to affect everyone in this country.
4.48 p.m.
Lord GRANTCHESTER: My Lords, I ask for your kind indulgence for a few minutes to pass a few comments on this report and the Sixth Directive. Also, in opening, while thanking the noble Viscount, Lord Amory, and the noble
562
Baroness, Lady Elles, for their kind words of introduction, I admit that those words have made me feel doubly apprehensive.
When I was first appointed to my office as president of the value added tax tribunals in the United Kingdom one of the instructions that was given to me fairly forcibly by all concerned was that it was part of the duties of the tribunals, and my duties in relation to the tribunals, to ensure so far as we could do so, that there was no unfair trading and unfair competition within the United Kingdom. Just looking at the administration of value added tax in the United Kingdom, if a tribunal sitting in Edinburgh were to decide that a particular supply of goods and services in Scotland did not attract a liability for tax but another tribunal sitting in Cardiff in relation to an identical supply in Wales held that it did attract a liability for tax, then one trader would he getting an unfair trading advantage vis á vis the other.
In relation to the Sixth Directive, the Community and the Commission are looking at the administration of the tax—and, of course, it is a Community tax—from the Community point of view; that is, in the way it is administered throughout the countries in the European Economic Community. Therefore, they are concerned that there is no unfair trading within the Community. Just as within the United Kingdom one does not want a trader in one part of the country to be able to sell his goods and obtain a trading advantage because the tax is imposed differently in one part of the country from another, so the Community and the Commission in Brussels will not wish the tax to be operated by Member States in such a way as will produce unfair trading conditions and advantages to traders in one Community country to the detriment of the others.
My Lords, in considering the Draft Sixth Directive, I suggest we should consider that we are going to come under increasing pressure from the Commission to harmonise our value added tax structure with the other countries. This pressure will increase. In the report that has been promoted, the question of harmonisation of the possible unfair benefits and unfair advantages is not really dealt with to any great extent. Only Professor Prest among witnesses before the Committee dealt with

563
this point in any great detail. I suggest that we should recognise that, looking at the tax from the point of view of the Commission, the Commission will increasingly put pressure on the United Kingdom to bring its rates in line with the rates of the other Member States, and to harmonise its administration with theirs. The reason why this is not dealt with in any great detail in the report is, I think, that if anyone is getting benefits at the moment, it is the United Kingdom, where the value added tax collected, to take an example, is less than one-third of the value added tax collected in Germany, and almost a third of the value added tax collected in France.
My Lords, I would suggest that in relation to this problem we should rely on the Committee mentioned in Article XXX to report from time to time on the ways that the tax administration in the EEC countries might be said to be working unfairly, and to advise the various Ministers concerned as to how they could avoid this unfairness continuing in the future. Another way in which, perhaps, the United Kingdom is benefiting, and could be said to be benefiting unfairly, is this. Every day when I look out of my tribunal window into Oxford Street, I see numbers of visitors from France and Germany, over here buying up goods imported by this country from France and Germany, and taking those goods home. These visitors are doing so because they believe—and perhaps this is correct—that they can buy those goods here more cheaply than they could buy them at home. If our low rates of tax are contributing to this, we must expect pressure to be brought to bear to remedy this, because people in other Member States will not willingly allow this situation to continue indefinitely. That is one comment I would like to make on the report.
My Lords, my other comment is this. As has been stated to your Lordships, value added tax is a tax on consumption. Both in the United Kingdom and in the whole Community, what we really need is an efficient, effective and fair tax on consumption. I suggest that value added tax as it now works throughout the community is not really all that efficient. When paying a tax on consumption, the person who pays the tax, and on whom the tax really falls, is the ultimate consumer, the man or woman who goes into
564
the shop and buys the goods, or obtains services for money. That is the person, whether or not he or she knows it, who is providing all this tax. There is the tax on consumption, but the tax is administered so that all transactions have to take value added tax into account. When he buys the raw materials, the manufacturer has to have the tax chargeable on that transaction calculated and entered. When the manufacturer sells the manufactured goods to the wholesaler, again tax comes into that transaction. But in those transactions between persons carrying on businesses where the seller is supplying goods or services in the course of his business, and the recipient of the supply is obtaining them for the purposes of his business, the net benefit of all this to the Revenue is nil. Let us see how this works.
Let us take the case of a wholesaler, as an example, who buys a quantity of goods from a manufacturer. When he pays for those goods, included in the amount he pays is a sum of money in respect of the tax, the tax chargeable on that supply. Therefore, the wholesaler will pay that tax to the seller, the manufacturer, who will collect it, and he will pay it over to the revenue. But, probably, even before it is paid to the Revenue, the wholesaler, the purchaser, has the right to reclaim the whole of that tax from the revenue to set it off against other liabilities he has to the revenue, so it all comes back to him. It is all a tripartite game, in which the tax goes round from purchaser to seller to Commissioners, back to the purchaser, and the real benefit to the Revenue is nil.
I cannot, for my part, think that this is an efficient tax. I would hope that when valued added tax is made general and harmonised within the Commission we could get out of this situation, which is not very difficult. There are at the moment spheres, certain transactions, into which the tax does not enter at all. That is to say, for example, transactions between companies within a group, transactions between small groups of traders in, for example, the London Metal Exchange. In these transactions, supplies between these parties, no tax enters into the matter at all.
The whole tax could be made a lot more efficient if most transactions between registered traders were excluded entirely

565
from the tax, because it is collected at the end of the line. Therefore, when a manufacturer sold goods to a wholesaler you could not get the manufacturer having to work out with his employees on pocket calculators two-twenty sevenths of some mystical sum and collect it from the purchaser; he would not make out his tax returns and pay the tax over to the Commissioners, and the purchaser would not have to make out his calculation just to get the same sum back again. What one wants is a much bigger extension of the present very limited system of excluding tax entering into transactions between business people. If one did that, then large numbers of persons who are now very busy filling up returns, working out the tax, and no doubt a number of people employed by the Commissioners who are very busy checking these returns, could all do something else, one hopes more useful, including, in the case of the Commissioners, a more thorough policing of the transactions at the end of the day, where there is a benefit to the Revenue. This is one way in which the tax, I suggest, might be made more efficient.
All that remains is to deal with what are called exempt supplies, that is, supplies where, although no tax is charged or paid as such, the purchase price for the goods or services contains hidden tax. In the scheme I am suggesting those sorts of transactions could bear tax for which the supplier accounts fully to the Revenue, regardless of whether the supply was made to another trader for the purpose of his business or to an individual consumer who was at the end of the line. In this way the tax could be simplified. I should like to suggest that our representative on this Committee which is to be set up under this Sixth Directive be instructed to consider with the other members of the Committee how this value added tax, the Community tax, could be made generally efficient, effective and fair in all Member States.
5.5 p.m.
The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey): My Lords, I think I can properly say that this has been a valuable debate and we do appreciate the work of and express our warm thanks to the members of the Joint Committee, and, of course, particularly the Chairman and other Members of this
566
House. We would like to thank those who gave evidence before the Committee and helped to enable the Committee to produce such a cogent report, and, of course, those who have taken part in this debate. I should like specifically, of course, to mention and congratulate Lord Grantchester on his maiden speech. It cannot often happen that one who has made his own maiden speech just, it seems, a few days ago should already be congratulating another on doing the same. It is indeed my pleasure. I had the pleasure of meeting Lord Grantchester not very long ago, before either of us entered this House. As Lady Elles predicted he would, he brought expertise, as so often happens, to assist the House in its deliberations. I shall return in a moment to look at the particular points he put before us.
It would be repetitive if I were to attempt to explain the proposals. The noble Viscount, Lord Amory, in introducing the debate did that, and the joint report in fact does it much better than I could. Accordingly, I will not attempt a general exposition of the Sixth Directive, which is massive in length and complicated in detail; and I shall not attempt indeed to summarise the report, which speaks for itself. But may I pick up the particular points which have been made in debate.
First, I would join with the noble Viscount, Lord Amory, in saying that the sitting of the Joint Committee as a Joint Committee was indeed a success; one has only to study the evidence to see how valuable that arrangement was; and, of course, the report is so valuable partly because of bringing together, if I may put it without disparagement, the political emphasis of the Members of another place and the expert objective emphasis of Members of this House. There is not, as the noble Viscount said, very much time, and indeed there is an element of haste here. I shall return to that when I address myself to what the noble Baroness said.
The noble Viscount mentioned harmonisation of rates, and indeed this was a point which the noble Lord, Lord Grantchester, picked up. There is no proposal in the present draft Directive for harmonisation of rates, as the noble Viscount acknowledged. That is a matter which, if it is to come at all, lies in the future. I may just say, however, in that context

567
that while the noble Lord, Lord Grantchester, was speaking about harmonisation of rates I looked through my brief, and I find, on a quick count, that there are at the moment no fewer than 20 different rates prevailing in the nine member countries of the EEC. So harmonisation of rates does not seem to be something which is just around the corner. I think the lowest rate is of the order of 5 per cent. and the highest something of the order of 45 per cent. So there is a very considerable range of rates from country to country. The noble Viscount spoke of the desirability of achieving as much flexibility as possible so as to avoid major changes in the United Kingdom VAT system. I think I can give the House the assurance that the noble Viscount sought; we do not see that the Directive in its final form will be such as to cause major changes in the United Kingdom system.
If I may pick up in a little more detail the particular points mentioned by the noble Viscount, first, perhaps I may take his remarks about the VAT Committee. The Directive is a complex and wide-ranging Directive, and it is, of course, reasonable, as the noble Viscount acknowledged, to provide some forum other than the Council of Ministers itself in which Member States can come together to discuss the detailed points arising in the course of the implementation of the Directive. That is not really a matter for Ministers; it is a matter for some such body as is proposed. But we acknowledge that this is a sensitive area, and in this sensitive area of fiscal policy the Government are certain that it would be wrong, at the present stage of the development of the Community, to set up machinery under which measures could be imposed upon Member States against their better judgment.
This is a generally held view in the Community and we do not expect the proposals for a VAT Committee in the form as originally drafted in the Draft Directive to survive. In the Government's view what is needed is a committee which will provide a forum for a consultative procedure but with no power to impose measures on Member States against their will. I hope that the noble Viscount will accept that as the assurance that he sought. The most suitable procedures for such a
568
committee can best be settled when the substance of the rest of the Directive has been finally agreed, but that is the overriding matter, that it will not have power to impose measures on Member States against their will. This is a matter which will come up for discussion in that sense on 16th December.
The next matter which I should look at following the order which the noble Viscount took was the matter of zero rating. Indeed, this is a matter which was referred to as well by the noble Baroness. Let me make it clear—I hope again this is the assurance that speakers sought—that the Directive, we expect, will now permit the United Kingdom to retain all the zero ratings which we now have in force and to make marginal adjustments where necessary to deal with specific problems. I think I should inform the House that the present zero rating system covers a considerable range of goods at the moment. In fact, our existing zero rates already cover some 30 per cent. of consumer expenditure, and a further 18 per cent. is exempt from the tax. There are of course the differences, noble Lords will appreciate, between zero rating and exemption. A further 18 per cent. is either exempt from the tax or is outside the scope of its application.
Viscount AMORY: My Lords, would the noble and learned Lord allow me to ask him whether the percentage in the United Kingdom which is either zero rated or exempted is higher than in any other country in the EEC? That is my impression. Certainly the figure that the noble and learned Lord quoted of 30 per cent. sounds familiar.
Lord McCLUSKEY: Yes, my Lords, it is. I can answer that affirmatively. Indeed, there are countries which do not have any significant zero rate at all. It is very nearly 50 per cent. of consumer expenditure which is not liable to the tax. It must be said that our existing zero rates and exemptions already extend so widely across the range of the more essential categories of expenditure that it is difficult to think of substantial extensions to the zero ratings that any future Chancellor, taking into account both the social and the fiscal considerations, might wish to make.

569
Let me emphasise that the Sixth Directive will not in this respect impose any significant new constraint upon this country's budgetary freedom. The obligation not to extend the scope of zero rating is not entirely new in so far as it is contained in the draft Sixth Directive. It is already implied in the second VAT Directive which was an established part of Community Law when we entered the Community. The obligations under the second Directive were accepted then, and of course no one would seek to resile from them.
What we can properly claim is that we have in the discussions following upon the drafting of the Sixth Directive, in fact achieved a small measure of additional freedom because we can now maintain our present zero ratings and make some marginal adjustments. Indeed, we published some orders on 6th December and two of them make very marginal extensions to zero rating. These simply illustrate that the freedom of which I speak has been achieved. I think that that is the assurance that was sought. Unless some further assurance is sought on the matter, I can perhaps turn to deal with the matter dealt with by the noble Viscount and the noble Baroness, of the exemptions for small traders, the turnover limit.
As has been pointed out in the debate, the original draft Directive would have allowed exemption from registration for traders whose turnover was below 4,000 units of account, and at the rate then prevailing that was some £1,650 a year—very much less, of course, than is the figure in this country at £5,000. The background to this is that the limits which the Member States have set for bringing small traders into the scope of the tax vary very widely. Indeed Belgium and Italy have no exemption at all. Our figure of £5,000 is the highest in the Community, with the exception, in part, of Ireland. Our threshold of £5,000 a year of taxable turnover is certainly higher than most. Naturally one would expect that the pressure would be to bring down that figure. But, although final agreement on this part of the Directive awaits decision, hopefully on 16th December, I think we can now properly say that the fears are unfounded.
The noble Viscount referred to what took place on 21st October, but the solution which seems likely to be confirmed is that in calculating their own
570
resources contribution Member States will leave out of account the inputs and outputs of traders whose annual turnover is below 10,000 units of account—about £6,000 at the current rate. They will thus be free to retain their existing practice for traders with turnover below that level.
That, admittedly again picking up the point that the noble Viscount referred to, would leave a problem if a Member State were to wish to set its own exemption limit above the equivalent of 10,000 units of account, since the Member State would then be expected to make an own resources payment relating to the business done by traders in that State whose turnover was below the national exemption limit but above 10,000 units of account. But of course this would be likely to represent only a small part of the Member State's own resources contribution, and some means could no doubt be devised for estimating it.
Viscount AMORY: My Lords, I apologise for interrupting the noble and learned Lord again, but I think it will save time rather than me coming back to ask him afterwards. I am sure he is right in what he has said. From the latest information, does the noble and learned Lord know, if the EEC limit is to be £6,000—that is, 10,000 units of account—and if we chose in this country to have a higher limit, whether we could do so with the com pensatory arrangements to which he has referred, so that we should be fair with other countries? Or does this latest suggestion of 10,000 units of account no longer envisage individual countries having freedom to fix their rates at what they like?
Lord McCLUSKEY: My Lords, as I understand it, individual countries will not be prohibited from in fact fixing their own limit above that, but of course I cannot say that any arrangement has been agreed about what would happen in the band between the EEC figure and the national figure if it happened to be higher.
It might be convenient if at this point I were to refer to what the noble Baroness said in relation to the effects of inflation. One fixes a limit of £5,000, and because of inflation that limit catches more people as inflation goes on. Consideration of course has been given—not so much in a

571
European context, but certainly in the context of the tax in this country—to the notion of indexing the limit, but there are powerful arguments against it. There are arguments for it, as the Joint Committee heard, but there are arguments against it as well. If the limit were raised, particularly if it were automatically raised, by reference to some index, many traders above the new limit might wish to remain registered voluntarily, especially if they made a substantial proportion of zero rated supplies, and especially of course if they were supplying mainly to registered persons.
If the effect of an automatic rise in the limit were to give people the opportunity to deregister, they would, as noble Lords will appreciate, have to face the obligation of paying tax on their stocks at the deregistration date, so the temptation would be not to deregister, even though the opportunity came along. It is thought that, generally, a policy of index linking would create a very undesirable see-saw effect; the same trader could move repeatedly into or out of the field for registration depending on the way his taxable turnover and the registration limit changed in relation one to another. I would reiterate the point I made in a slightly different context; that our national registration limit is already the highest in the Community, with the exception in part of the Irish rate, and one would see index linking as tending to push it up and up in relation to the other Community rates.
Baroness ELLES: My Lords, I am obliged to the noble and learned Lord for that explanation of the reason why he does not think the figure should be changed, certainly not over a long period, but may I ask him whether he would nevertheless accept that the inflationary costs of administering VAT for small traders are going up the whole time and that this must be taken account of in the overall consideration of what figure is reached for annual turnover for the small trader?
Lord McCLUSKEY: Yes, my Lords. I am sure the noble Baroness is right that it is proper to take that matter into account in considering the figure. While I am on that point, I wish to deal with the point the noble Baroness raised in relation to deregistration. To put the matter
572
precisely, the condition for deregistration is that the turnover should have fallen below £4,000 in each of the two years preceding deregistration or that in each of the quarters comprised in those years it should have been £1,250 or less; a quarterly rate of £1,250 is of course equal to £5,000 annually. The view of the Government on that is that it would be undesirable for a trader to be deregistered on grounds of low turnover unless it were reasonably certain that his turnover would remain below the registration level. That is to avoid the see-saw effect I spoke of, moving into and out of the field for registration, and that is why the conditions for registration and deregistration are not identical.
Lord ROBBINS: My Lords, may I ask the noble and learned Lord to elaborate his argument a little? I confess that I find it somewhat difficult to follow. Suppose the value of money accidentally continued stable; there would be no see-saw effect and everything in the garden would be lovely. If there were correct indexing, that would mean essentially that the real value of the limit would remain constant. The purpose of indexing would be just that. Thus, I do not in the end see the noble Lord's argument against indexing on that ground.
Lord McCLUSKEY: My Lords, if I properly understand the point which the noble Lord, Lord Robbins, has made, if one has stability in the currency then one has no risk of any see-saw effect; there is no problem with indexing if the currency is stable. I was really talking about the more likely situation—one is always hopeful—that at the present time inflation is likely to continue, and if one indexes and if the figure (that is, the European units of account figure) is reviewed, as it would be, annually, one would tend to find that a trader who did not himself change his prices and his turnover would find that the figure had passed above his annual turnover.
The noble Viscount expressed apprehension that one effect of the Draft Sixth Directive, when it was completed, might be to compel traders in the United Kingdom to go on to a monthly return basis. I understand that that is not likely, and I think I can reasonably assure him that that will not be compelled by the Draft

573
Sixth Directive. Indeed, one of the important considerations in the mind not only of the United Kingdom Government but of other Governments as well has been to introduce the changes which have to be introduced in such a way as to avoid disturbance of the national systems in a way that would upset traders and others who have an interest in some form of stability in the mechanics of the tax.
Mention was also made by the noble Viscount of the evidence that was given about partial exemption, and he specifically referred to the question of legal services. We appreciate the problems of partial exemption, and indeed the quotations from Mrs. Dorothy Johnstone's book which appear in two places in the report of the Joint Committee express a truth which we would acknowledge. The Bar Council and the English Law Society, in their evidence to the Committee, were concerned about the administrative problems of a partial exemption.
I also know that there has been communication with the Dean of the Faculty of Advocates about the Scottish position. The practical problems in Scotland might be less at the Bar, where the legal accounting systems are possibly somewhat more adaptable to VAT requirements than they appear to he South of the Border, but this is not just a matter of practical problems. We have taxed legal services in the United Kingdom ever since VAT was introduced, and we are not in a strong position to argue differently in the Community. In other words, it would be very difficult to argue for a zero rate in respect of legal services and the Community would probably regard it as very odd if we were to come along now arguing for zero rating in preference to exemption in view of our current practice. It appears that exemption will be the preferred choice of the majority in the Community and I think that that is something which will simply have to be accepted.
There have been some observations—though happily they have been restrained—about the efficiency of the collection of the tax in other countries, and it is perhaps right that I should make a brief reference to the Audit Court referred to in the Joint Committee's report. The audit of Community revenue and expenditure is provided for under Article 206 of the Treaty of Rome, which established an Audit Board for the purpose. Under
574
an amending Treaty dated 22nd July 1975, the Audit Board is to be replaced by a Court of Auditors having higher status and greater independence of action vis-à- vis the other Community institutions than the Audit Board. This is the body which the Joint Committee mentioned in paragraph 29. The target date for setting up the court is 1st January 1977, but that date is not likely to be achieved and the matter will be considered by the Foreign Ministers' Council on 15th December this year. Under the present system, Community auditors already visit Member States for the purpose of satisfying themselves that the own resources contribution is being correctly accounted for. They have power to inspect books and records in the official possession of the Member State and also to visit the premises of traders, though only when accompanied by officials of the Member State.
When the VAT own resources system is established, as it should be following the coming into force of the Sixth Directive in its final form, the Community auditors will no doubt be concerned to see that the system is working as intended in the Member States. The relative inefficiency of the administration of national VAT and, therefore, the efficiency of the collection of the VAT own resources element will probably be for later consideration.
However, the efficiency of tax collection is in any case difficult to measure in the sense of finding out the extent to which there are under-declarations by taxpayers which do not come to light. Any suggestion that this can be done by comparing the VAT yield with the country's national incomes statistics of consumers' expenditure and adjusting for the rates and incidence of the tax is thought to be an over-simplification, since the national statistics themselves are estimates and may have an appreciable margin of error.
Baroness ELLES: My Lords, I wonder whether the noble and learned Lord can inform the House whether any other country in the Community gives powers to inspectors such as are given in this country to investigate the position of VAT upon private premises.
Lord McCLUSKEY: My Lords, perhaps I may come back to that point. I do not know the answer, but I am sure that those in the Box will provide me with the answer before I sit down.
Lord HAWKE: My Lords, can the noble and learned Lord reiterate his statement that the estimates of the national income and so on are subject to a wide margin of error? Successive Chancellors of the Exchequer have only too often come to the Dispatch Box in another place and dealt in questions of £100 million here and £100 million there as likely to make an appreciable difference to national statistics. If they start from a basis where there is a wide margin of error, these exercises seem rather fruitless.
Lord McCLUSKEY: My Lords, I do not wish to make a general comment on that, particularly in the presence of a former Chancellor of the Exchequer, but I believe that he and other noble Lords will agree with me that the history of forecasting is the history of error. To turn to other points dealt with by the noble Baroness, Lady Elles, she rightly said that this Directive first made its appearance in 1973 and was amended in 1974; but it was in April of this year that the Council of Ministers decided that the interim arrangement that we have spoken of could not continue indefinitely and set a target date of January 1978 for the operation of the VAT own resources system. This decision has given a new impetus to the discussions in Brussels about the Draft Directive and we hope to make progress on December 16th. Indeed, I hope to be a witness to that progress in Brussels. The noble Baroness also referred to a single standard rate. I made some reference to this earlier. There are a vast number of different rates in the Community and, looking at the tables of those rates, I found that we had relatively fewer than the other countries in the Communities.
To deal now with the point raised by the noble Baroness in relation to powers of entry, my information is that most of the Member States have powers of entry to premises on which business is conducted. In many small businesses this includes private premises, as in this country. The noble Baroness also suggested and gave a graphic example of profit that might be derived from the study of other countries' systems. I think that I can commend to her the book which I chanced across and which is called A Tax Shall be Charged, by Mrs. Dorothy Johnstone. I read it not so much because it instructed
576
me very much about the subject of this debate but for its elegance and lucid style. If the noble Baroness would care to look at that pamphlet she would find from it that a vast amount of study has already been done by the Department because the Department was able, as it were, to "go to school" on the experience of other countries.
That process is continuing and the Department is always open to ideas from other countries, bearing in mind that the mere fact that a particular method seems to work in another country is not of itself a good reason for immediately introducing it into this country because one likes to see stability in taxes. The noble Viscount mentioned that the general thrust of the evidence before the Committee acknowledged that VAT in practice was not as bad as it was once thought to be. That is a tribute to the stability of the system at the present time.
To come to the noble Lord, Lord Grantchester, he made, in the course of his lucid speech, valuable comments on the importance of regulating the tax so as to avoid unfair competition. I have already remarked on the harmonisation of rates. That seems to be a long way off, though one acknowledges that, once the Draft Sixth Directive has been put into its final form, the next stage will tend to produce pressure upon this and other countries to harmonise their rates. The noble Lord also, with the value of his experience behind him, made a number of comments about the characteristics of a tax—it should be efficient, effective and fair—and criticised value added tax in this country in a way which will certainly be looked at. I do not believe that I can comment in any great detail on what he said because his remarks did not arise directly out of the report, but the recommendation that the noble Lord has made will certainly be given careful consideration and that will be something that will be taken into account not only by the Department in this country but no doubt by the other countries when they meet, in order to try to ensure that the tax, when it is harmonised throughout the Community, will be as near as possible efficient, effective and fair.
It remains for me to reiterate my thanks to those who have assisted in the preparation of this valuable and cogent

577
report and who have taken part in this debate. If there is any point that I have left unanswered, I should be happy to attempt to answer it before I finally sit down.
5.39 p.m.
Viscount AMORY: My Lords, I should like to associate myself with the congratulations that the noble and learned Lord, Lord McCluskey, offered to the noble Lord, Lord Grantchester, on his most interesting maiden speech. The noble Lord has a high reputation as a lawyer and really exceptional knowledge of the subject that we are discussing. I was intensely relieved that the noble Lord did not bombard me with any very intensive questions in depth about the working of VAT in the United Kingdom. I was afraid that he was going to probe me from his extensive knowledge of the sublime mysteries of that tax, but the noble Lord was kind. It is quite clear that the noble Lord is not only a distinguished lawyer but also a complete gentleman.
The noble Lord, Lord Grantchester, asked two questions to which the noble and learned Lord, Lord McCluskey, has referred. First, he gave us a warning about the pressure that he thought we might be under in this country in the direction of harmonising rates structure, apart from the basic arrangements for assessment. Perhaps that will happen, but assurances have been given on behalf of the EEC authorities that there are no proposals under discussion at present for harmonising rates, at any rate until that mystic date when fiscal frontiers will be eliminated. But I expect that in the very long term his warning may be relevant indeed.
Secondly, the noble Lord expressed some fears about the relative unfairness of some of the present rules and regulations, and he mentioned the evidence given by Professor Prest. Apart from Professor Prest, I cannot remember that we got very much evidence about alleged unfairnesses or inequity in the administration of VAT on the current basis. It may be because we did not ask enough questions on that aspect. My noble friend behind me, Lord Hawke, asked what wide margins of errors were, and the noble and learned Lord, Lord McCluskey, referred to the presence of a very out-of-date Chancellor
578
of the Exchequer opposite him and avoided answering that point. My Lords, I will answer as to what it was in my day. In my day £50 million was a substantial figure and even on occasions a crucially important figure, and if it had not been I should never have been offered an appointment at the Treasury. I do not think that I need follow that up any further.
I think I have got off much more lightly than 1 feared. I said that I hoped that noble Lords would tell me that I need not answer more than three questions, though I would have to give my reasons and draw a map.
Lord McCLUSKEY: My Lords, the noble Viscount has referred to what was known at the time as a little local difficulty. If I can have the noble Viscount's indulgence, I should like to refer to a little local difficulty of mine. When I was speaking about lawyers, 1 said that they were likely to be exempt. Of course that was a slip of the tongue; they are likely in the Community to be taxed.
Viscount AMORY: My Lords, that seems to me, as a non-lawyer, to be wholly equitable. But I am in a difficult, even alarming, position this evening, because every single other noble Lord who has spoken has been a distinguished lawyer, and I was afraid for a moment that the kind of observation that would be put to me by one or other of them would be, "I put it to you that everything you have said has been a tissue of inaccuracies". But I have nothing to complain about. I think that we have heard an adequate review of this subject, and it has certainly been a less aggressive discussion than appears to have occurred in another place on the same subject. I very much thank noble Lords who have spoken, and I feel very fortunate in the treatment that I have received, and I now propose to take a hurried departure. Before doing so, I should like to move formally the adoption of this report.
On Question, Motion agreed to.

SCOTTISH TRANSPORT GROUP (CASTLE BAY PIER) ORDER CONFIRMATION BILL
Brought from the Commons; read l a; and (pursuant to the Private Legislation Procedure (Scotland) Act 1936) deemed to have been read 2a and reported from the Committee.